Top 10 news of 2016

* This is my article in BusinessWorld last December 27, 2016.

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Since government by nature consists of force and coercion, legislation and regulation, mandatory contribution and taxation, it naturally creates division among people anywhere in the world. Those who benefit from welfarism are happy while those who are affected by endless regulations and taxation express the opposite sentiment.

Below is my list of top 10 news around the world in 2016, five international and five national/regional.

INTERNATIONAL

1 “Brexit.” British voters opted last June to exit from the European Union (EU), a regional government that allows free trade and free mobility of people and services among member-states, but also imposes various protectionism and restrictions on goods and people mobility to countries outside the EU. This combination of free trade and trade protectionism, simpler migration for fellow EU citizens but difficult migration for non-EU people, tax harmonization and prevention of tax competition among member states, among others, have created confusion and even more animosity among the British. So far nothing is definite and details of the exit may not be known until 2019.

2 Trump victory. A big businessman without past political position but employed an unconventional campaign, President-elect Donald Trump outlasted 16 Republican rivals and then a famous Democrat candidate Hillary Clinton. Not being part of the entrenched political establishment, he is known more to reverse the various regulations and high taxation policies of the Obama and Bush administrations. For instance, he plans to cut the US corporate income tax from 35% to 15%, reverse the anti-coal, anti-oil sentiments and policies, and so on.

3 Terrorist attacks in Europe. Massacres in a newspaper office and rock concert in Paris, airport bombing in Brussels, lorry attack of people in the streets of Nice, France during a Bastille Day celebration, another lorry attack of people in a Christmas shopping in Berlin. Plus some foiled attacks in other cities in Europe. To fight this kind of war, governments will need less of those deadly fighter planes, huge battle tanks and ships. Instead, they will need more drones, CCTVs, crawling small robots, cyberware. The fight is not country to country but house to house, building to buildings.

4 Syria. Endless war among many armed factions has resulted in large-scale murders and displacement by the millions. Aleppo has become the main reference point of why civil war by some proxy countries should be avoided as much as possible. The volume of civilian deaths and destruction of properties is so big.

5 Malaysia and South Korea. Big governments always invite big opportunities for big corruption and wastes, the degree just vary from country to country. In particular, the corruption scandals of Malaysian PM Najib Razak over IMDB and S. Korean President Park Geun-hye over her friend Choi Soon-sil’s involvement in government affairs have pushed their people to conduct various rallies calling for their resignations. And these leaders continue to cling to power.

PHILIPPINES

6 Duterte victory. President Rodrigo Duterte was the first Mayor to move straight to Presidency with a different campaign strategy focused on fighting criminality, drug proliferation, and corruption. Unlike the three other major candidates — former VP Jojo Binay, Sec. Mar Roxas, and Sen. Grace Poe — who all focused on more welfarism. And he got huge support from the poor, which shows that the poor are not exactly asking for more welfarism and subsidies, but are seeking increased peace and order to protect themselves against thieves, murderers, rapists, drug pushers, corrupt officials, and other criminals.

7 Drug deaths. From a campaign promise of killing 100,000 criminals if he wins, President Duterte later mentioned that “like Hitler, (I will) annihilate 3 million drug criminals.” The on-going “war on drugs” has resulted in several thousand murders so far, about one-third from police operations and two-third from vigilante-type of executions. The rule of law and its long process of police investigation and court proceedings have been sidestepped.

8 PI Obama, Pakyu EU. Before and during the ASEAN summit and related meetings last September, President Duterte has directly or indirectly lashed out against US President Obama who attended the event in Laos. President Obama and later the EU have voiced criticism over the high number of deaths and disrespect for the rule of law, not the drugs war per se. President Duterte and his avid supporters did not make a distinction between these two and thus, the expletives and harsh words. These were reported heavily in international media.

9 Marcos burial at Heroes’ Cemetery. The sneaky burial of former President Ferdinand Marcos at the Libingan ng mga Bayani has stirred some political upheavals that many protest rallies were held in Metro Manila and key cities in the country. Since the burial is supported by President Duterte and affirmed by the Supreme Court, the cemetery may better be renamed “Libingan ng mga Bayani at Magnanakaw” (LBM).

10 Non-assertion of territorial rights at SCS/WPS. Mid-December, the President said the Philippines and China can “share” oil in the disputed territories in South China Sea/West Philippine Sea despite an international arbitral award affirming the Philippines’ ownership in the exclusive economic zone (EEZ).

From this list, it seems that many people around the world are dissatisfied and disappointed with more government, more regulations, taxation and corruption. Authorities should deliver positive results in areas where stronger government is justified, to protect the people’s right to life, right to private property and right to liberty.

Disruptions in Asia and the world

Below are some slides given by Suraj Moraje, Managing Partner of McKinsey and Co. Manila, “No Ordinary Disruption”, during the BWorld ASEAN Regional Forum last November 24, 2016 at Conrad Hotel, http://bweconomicforum.com/index.php/morning-session/. The commentaries are mine, not Suraj’s.

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My first and last visit to Shenzhen, China was in 1998. There were many tall buildings already, roads are wide, but not as many as shown in the photo below.

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Good comparison by Suraj here. ASEAN economies are modernizing and urbanizing fast while keeping their average population young. Modern technology will quicken the pace of productivity improvement of these young ASEAN people. It is really global enterprise competition and their endless innovation that modernize things faster, that results in mass production of many things, not so much due to government programs.

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Big, young population. Many countries and blocs of countries like the EU salivate at this big advantage of the ASEAN. Big but ageing population means two requirements — more migrant workers (from Asia), and/or more robots. But robots cannot change adult or baby diapers with warmth and smiles. This is also one reason why I never supported the PH state-sponsored population control aka RH law. Using taxpayers money and government agencies to “suggest” to people that big population is wrong.

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On the technology aspect, I find these slides by Suraj very enlightening. But despite the “labor displacing” image of modern technology (self-driving cars, trucks, mechanized construction, etc.), I believe otherwise. I think that more modern technology will mean more jobs — people who will manufacture, assemble, repair, upgrade those machines, engines and robots. All machines and bots will get “sick” and they will require people to fix them, upgrade or dispose and replace them.

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One slide and arguments presented by Suraj that I don’t agree with, the latter slide. Inequality is not a problem, poverty is. More inequality due to endless innovation and competition actually pulls up hundreds of millions of people out of poverty. Poor people who used to ride cows, carabaos and bicycles to work now ride motorcycles, e-bikes, 2nd-hand cars, or air-con vans and buses. They move faster, do multi-tasking and accomplish more things, so their income and network increases.

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Thanks for those wonderful insights and information, Suraj. One more reason why BWorld fora are indeed very enlightening and highly educational.

Multinationals in the PH, what do they want?

* This is my article in BWorldEconomicForum, December 14, 2016.

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CAPITAL AND INVESTMENTS are like water — they go where they are welcome and accommodated. Small water tributaries merge with others to become a big river, a lake, or drain into the seas. In the same way, capital congregates in areas where they are protected and allowed entry and exit with the minimum restrictions and prohibitions.

That is how some small countries and territories with fewer populations become wealthy and prosperous financial centers such as Singapore and Hong Kong.

The subject of multinational corporations in the Philippines was among the subjects discussed during the BusinessWorld-PAL ASEAN Regional Forum last Nov. 24 at Conrad Hotel at SM MOA Complex. Session 4 was “Investing in the Philippines: Insights from Multinational Companies” and there were five speakers: Rajiv Dhand, regional vice-president & general manager for operations of TELUS International Phils.; Laurence Cua, UBER country manager; Henry Schumacher, European Chamber of Commerce senior adviser; Jericho Go, Megaworld senior vice-president; and Alexander Cabrera, PwC Philippines chairman & senior partner.

Almost all speakers talked about their respective companies and their contributions to the country’s economic growth and job creation, among others. Mr. Schumacher, being the most experienced foreign businessman among them, provided the most direct answers to the theme. He said that what the foreign investors are looking for, among others, are (1) safe and secure investment locations like PEZA and other ecozones, (2) business-friendly local government units (LGUs), partnership between LGUs and businesses.

The turn off for businesses he said, are (1) corruption and unethical business practices, (2) no peace and order, and (3) changing rules and policies.

The World Economic Forum (WEF) produces an annual Global Competitiveness Report (GCR) where it measures 12 pillars of competitiveness of countries and economies worldwide. The pillars are grouped into three major subindices — basic requirements (pillars 1-4), efficiency enhancers (pillars 5-10), and innovation and sophistication factors (pillars 11-12). From these three subindices, the global competitiveness index (GCI) is computed and countries are ranked from highest to lowest.

Of these 12 pillars, the Philippines ranked badly in four measures: (1) institutions, (2) infrastructure, (6) goods market efficiency, and (7) labor market efficiency.

Institutions include property rights protection, corruption and bribery in government, judicial independence, wastefulness in public spending, burden of regulations, business costs of crime and violence, strength of investor protection, etc.

Infrastructure include the quality of roads, ports, railways, air transportation, electricity supply and telephone subscriptions.

Goods market efficiency cover intensity of local competition, anti-monopoly policy, business taxation, procedures and time to start a business, tariff and non-tariff barriers, prevalence of foreign ownership, customs procedures, etc.

Labor market efficiency includes flexibility of wage determination, hiring and firing practices, taxation on incentives to work, reliance on professional management, country capacity to attract and retain talent, female participation in labor force, etc.

Results are shown below for the two GCR reports 2014 and 2016.

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Multinational corporations in the Philippines: What do they want?

These numbers show the following:

One, Singapore, Japan, and Hong Kong are in the top 10 most competitive economies in the world, with very high scores and ranking in infrastructure.

Two, the Philippines needs to improve efficiency and competitiveness in these four pillars because they have pulled down the country’s overall ranking. There was even a decline in overall ranking from 52nd in 2014 to 57th in 2016.

Three, there are lessons to learn from neighbors Malaysia, Thailand  and Indonesia which have higher rankings than the Philippines. Vietnam and Cambodia’s overall ranks are improving and Vietnam may soon overtake the Philippines.

In the WEF’s Executive Opinion Survey 2016, these six factors are the most problematic: inefficient government bureaucracy, inadequate supply of infrastructure, corruption, tax rates, tax regulations, and Policy instability.

In short, government is mainly the problem.

There are three possible solutions here. One is to institute huge, large-scale professionalism in government, both elected and appointed bureaucracies, in both national and local government agencies.

Two, shrink the size and burden of government bureaucracies, regulations and taxation.

And three is to do both, improve the professionalism while shrinking the size of bureaucracies so that they can focus more on enforcing the rule of law and have little time and space for creating new regulations and taxation that tend to complicate if not contradict previous ones.

Thank you 2016, Happy new year 2017

Thank you and goodbye, 2016. Lots of problems of course, but lots of improvement too in human development and welfare. The list below I got from the fb wall of Johan Norberg.

#1 is the most important achievement, of course. We are entering or we have entered a period of rising prosperity and declining poverty despite rising inequality. The poor before used to ride carabaos, horses and bicycles, now they ride motorcycles, e-bikes, 2nd- or 3rd-hand cars, or at least commute in air-con vans and buses from time to time. There are still people who ride horses and bicycles but they are non-poor because their horses cost 6- or perhaps 7-digits and their bicycles cost 5- to 6-digits pesos. Horse and bicycle riding is leisure and racing for them, not primary means for personal or household transportation.

On a personal note, I travelled abroad only once this year, in Kuala Lumpur, unlike last year where I went abroad 5x (KL 2x, Thailand, Nepal, Bhutan). But I attended other international conferences that were held here, like the EFN Asia Conference 2016 (November 22-23), BusinessWorld ASEAN Regional Forum, others.

I like writing a weekly column in BusinessWorld, “My Cup of Liberty.” I like my editor there, Boojie, he’s very friendly and accommodating to me. I try to be quantitative and facts-based as much as possible in my articles so that there are solid grounds for my arguments and advocacies.

I remain hopeful and optimistic for each passing year, so I will remain optimistic about 2017 and beyond. Humans are rational, they do things that can improve the lot of humanity overall, the “invisible hand” of the market is indeed working. It’s the “grabbing hands” of the state, of governments and multilaterals, that complicate and make things messy and ugly. But through time, the invisible hand will prevail over the grabbing hands.

So come on 2017, bring us the best that you can give.

Some presentations during the BWorld ASEAN regional forum

The ASEAN Economic Community (AEC) is one year old today, I am reposting some slides of some presentations during the BusinessWorld ASEAN Regional Forum last November 24, 2016,  http://bweconomicforum.com/index.php/morning-session/

These two slides are from the keynote speech by Fernando Zobel de Ayala, “Building Globally-Competitive Enterprises”. Mr. Ayala is the President and COO of the big conglomerate, Ayala Corporation.

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Yes, the AEC is our big partner, big ally, in the world. Big population, big consumers, big pool of workers and entrepreneurs, good mixture of cultural diversity, guided by free trade and freer mobility of people across the region.

For the PH stock market capitalization, more than 3x expansion in one decade, most of it occurred during the past six years.

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Mr. Ayala also cited these figures: Overseas remittances have increased from $20.1 B in 2011 to $28.5B in 2015, while IT-BPO revenues have expanded from $11B in 2011 to $22B in 2015. Doubling of revenues in just five years.

The next two slides are from Hans B. Sicat’s presentation, “Unity in Diversity: A Political-Economic Outlook”. Hans is the President and Chief Executive Officer of the Philippine Stock Exchange (PSE).

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And some figures about the PSE, the P/$ exchange rate, remittances and BPO revenues.

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Global capitalism will reward an economy once it opens up more to foreign investments, trade and tourism, and they are protected and respected. Hence, we need to liberalize further the investments climate here. But there is little we can do at the moment at that big and murderous mouth of the PH President that tends to turn off than attract foreign business into the country.

China belligerence to hide insecurity

* This is my article in BWEconomicForum last December 14, 2016.

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ON OCCASION, a fraternity gets big enough such that its members begin to establish cliques of their own, causing disunity in the organization. This, in turn, prompts the officers to initiate a “rumble” with another fraternity. As a result, cliques are set aside and the frat moves as one in protecting their brods or beating up members of the other fraternity. This same logic may apply to China.

One of my dormitory roommates, a member of a fraternity, told me that anecdote while we were both students at the University of the Philippines in Diliman. While fraternities would seldom or never admit publicly that they initiated a rumble, it nevertheless is common knowledge to some members.

The same strategy may have been practiced by China in its continuing belligerence, particularly over secessionist regions and territories that it presumes to claim. The government in Beijing is increasingly becoming insecure with its more informed, more assertive citizens who dislike central planning and government-led intimidation. Some irreverent or potentially secessionist regions keep asserting their aspirations so it acts belligerently and court regional or global fallout in the process.

During the BusinessWorld-PAL ASEAN Regional Forum held last Nov. 24, one of the sessions was “The South China Sea or West Philippine Sea: The Economics of Competing Territorial Claims.” Speakers were Bonji Ohara of Tokyo Foundation, Thanh Hai Do of Diplomatic Academy of Vietnam, and Dindo Manhit of Stratbase-Albert Del Rosario Institute in Manila.

The three speakers talked about non-military, non-confrontational schemes to resolve the territorial dispute. Rightly so. An insecure government like the China Communist Party (CCP) that bullies its own citizens will have no hesitance to bully other countries with smaller military capabilities.

What are the sources of insecurity by the CCP? First and foremost are the vocal and assertive potential secessionists.

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Insecurity driving China’s hostility in territorial rows, secessionist areas

The election of Ms. Tsai Ing-wen (DPP) in Taiwan last January has temporarily jolted the CCP and sounded another round of belligerence. Hong Kong pro-independence activists never went away, as shown by the Umbrella Revolution two years ago to the recent election of young legislators who are openly campaigning for HK independence from China.

The Uighur activists have figured in violent and fatal attacks in recent years. XUAR shares borders with five Muslim countries — Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, and Pakistan. And there are other potential rebel areas too like Macau and Manchu.

Second, a debt-fueled economy propped up by cronyism and dictatorship. As of 2015, China’s debt (government household + corporate debt) has reached 280% of gross domestic product (GDP).

Two papers have made the following observations:

“Unsurprisingly, the lion’s share of the money has been funneled into China’s immense state-owned enterprises, which largely explains why they hold an outsize share of the country’s corporate debt,” John Minnich said in a piece entitled “China’s economic problems will come to a head in 2017,” published in Market Watch on Nov. 23. “(State-owned companies account for over 55% of that debt, despite contributing only 20% of GDP.) It also explains why, by comparison, China’s central government has an unusually low level of debt. (Beijing’s debt equaled only 22% of GDP in 2015.)”

Similarly, in a May 10 piece for Fortune Magazine entitled “China’s Government Says It’s Over Debt-Fuelled Growth,” Scott Cendrowski said that: “[C]redit ratings agency Moody’s noted that China’s total debt has climbed to 280% of gross domestic product, including China’s state-owned company liabilities that totaled 115% of GDP at the end of last year. For comparison, in Japan and South Korea, which also have large government-owned sectors, SOE (state-owned enterprises) liabilities were 31% and 29% of GDP in 2014.”

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Insecurity driving China’s hostility in territorial rows, secessionist areas

Third, rich and intelligent people are leaving China, with a potential to come back as new reformists or outright becoming members of the opposition.

There was one survey in 2015 showing that more millionaires leave China than any other country in the past 14 years.

Here is another observation from the Wall Street Journal, two years ago: “China’s culture of corruption and abuse of power is a major reason so many of the country’s rich want to leave. A Barclays survey released Monday found that 47% of Chinese with more than $1.5 million in assets are planning to emigrate, and this is consistent with past research. Developed-country programs that allow investors to essentially buy residency continue to attract waves of Chinese,” Hugo Restall said in a piece entitled “China’s Unhappy Rich” for the WSJ’s Sept. 17, 2014 edition. “Many of China’s brainiest young people also want out. According to the state-run Xinhua news agency, the annual number of students who go abroad for study and don’t return reached 70,000 in 2012….”

The CCP’s insecurity should rise through time because their own citizens inside and outside China hate heavy restrictions and dictatorship. To hide or temper this insecurity, China will try to be belligerent to hype up nationalist sentiments from its people.

China imploding someday, perhaps in one or two generations, will be a welcome news for the world. China may also break up into many new countries and governments. The main country may remain under the communist party, similar to what happened in the former USSR. But the newly formed countries will be more democratic.

Asian stock markets and governments

When I posted my paper on the stockmarket in my fb wall, some anarchists and Duterte supporters came attacking it. Among their whines and complaints:

  1. Less than 1% of the PH population invest on it or are even aware of it, the average person doesn’t understand it nor does he feel the economic gains.
  1. Stock market is a hit and run investment. It is a poker game. The health of poker game does not represent the overall health of economy.
  1. The stock market is dominated by oligarchs who are protected from competition, you sink your money into it and the stock market will appear robust.

One may reason out those things but my paper simply compared the PH numbers with other Asian countries over the last 5, 10 years. The comparison with Du30 admin is only a side note because Thailand, other Asian economies that performed well over the past decade were able to sustain the upward movement of their stock market capitalization, the PH did not, most notably starting August 2016, went to the negative territory.

If PH stocks market expanded by only 1.5x after 10 years, there will be lots of noise and complains, that the oligarchs have prevented further devt of the local stock market. If it expanded 4x or more, the noise and complaints are still there. Perhaps if it expanded 8x, the noise and complaints will be even louder. Cool.

I  also there, “global capitalism is generally more generous to emerging economies like China, the Philippines, and Vietnam. Their previously highly repressed financial sector when liberalized has posted fast growth and expansion in a short period as one decade.” Still no credit to global capitalism, perhaps people wait for global socialism to advance?

Hataw lang sila, for them, nothing is positive in this country. Cronyism or corruption or oligarchy or misery. cool. Contraction, zero growth, 4x growth, 10x growth, all the same. Pathetic minds.

Meanwhile, here’s the yearender stocks performance in the Asia Pacific. Four countries have fared poorly compared to their year-ago levels: China, Japan, Malaysia and PH.

stocksSource: http://markets.wsj.com/asia

China is reeling from various internal/domestic problems like huge public debt, many rebel regions. Japan continues to face its old problems including a big greying population, huge domestic public debt, political problems of PM Abe. Malaysia continues to reel from a big corruption scandal related to 1MDB.

The Philippines is still adjusting from its big mouth and always cursing President, thousands of murders related to “drugs war”, and so on. S. Korea is also facing a big corruption problem by President Park but somehow its corporate sector is able to shake away the political uncertainties.