Back to basics

When I asked economic columnist Calixto Chikiamco in last week’s episode of Public Life what we must begin to do as a country to survive the economic catastrophe now looming ahead of us, his answer was: go back to agriculture.  From condos to farms, from cars to tractors, from skyways to farm-to-market roads, from golf courses to orchards – the prescribed route seems commonsensical enough.  But how easy is it to go back to agriculture?

Many farms have been abandoned, the lure of overseas work proving much stronger than the pull of family life.  Natural calamities like the lahar flows in Central Luzon have transformed vast stretches of fertile agricultural land into unfriendly desert.  The unabated destruction of watersheds through indiscriminate logging has killed rivers and disabled irrigation canals.  While less and less land is available for tilling, the little that remains is still being converted to other uses to evade land reform.  It is clear that we cannot just go back to agriculture; we have to completely reinvent it and reinsert it into our national priorities.

What is disturbing, however, is that until now, our policy planners continue to think of agriculture only as a sector that, in the short term, will have to withstand severe battering by the winds of further trade liberalization.  That is why the vocabulary of safety nets is more elaborate than that of agricultural modernization.  Hardly anyone today seriously imagines Philippine agriculture as the necessary foundation on which our country might build a program of self-reliant industrial development.

Yet, if there is any lesson to be learned from the current economic debacle, it is that there are no shortcuts to tigerhood.  All the tiger economies we admire – Japan, South Korea and Taiwan – built their industries from the savings from agriculture.  When push comes to shove, a country has no choice but to rely on the savings from its own productive activities.  If it has to tap other nations’ savings, it must do so only to enhance its productivity, and not to indulge a flashier lifestyle.  No nation can live beyond its means.

It is no comfort for them to have been proven right, I am sure, but almost every economist I know had warned about the perilous path the country was taking with its widening current account deficit.  This figure represents the difference between what we earn and what we spend as a country.  In a prudent economy, large chronic deficits should normally compel a downward adjustment in the value of the local currency.   But because devaluations are politically unpopular, governments avoid depreciating their currencies, preferring to cover their external deficit with borrowings and short-term foreign capital.

By now, I think everyone knows that the surge of prosperity in the last 5 years was made possible mainly by the inflow of portfolio investments from abroad.  Such investments are very different from the traditional direct foreign investments that team up with local companies and are willing to forgo short-term profits in favor of longterm corporate viability.  Consisting mainly of pension funds or provident funds, and personal as well as government savings, foreign portfolio investments circulate around the world like scavengers in search of quick profits.

The first time I heard of how global managers of pension funds have become the most pernicious players in today’s capital markets was from a lecture of a German writer, Hans-Peter Martin, at a conference on globalization in Sweden.  In the developed economies of Europe and the US, these highly-mobile pension funds are notorious, he said, for putting pressure on large companies to restructure and downsize their organizations in order to enhance their competitiveness and thus satisfy the immediate demand for higher profits.  As a result, they wreak havoc on the welfare programs of societies like Sweden, who had built their social system on the tacit consensus between labor and capital.

Martin urged his stunned Swedish audience to become active in the deliberations of the European Union and to press for countermeasures against the lack of democracy in the global market.  What is at stake here, he warned, was not just the fundamentals of a way of life which successive social democratic regimes have nurtured.  What they stood to lose, above all, were their jobs.

The pension fund managers, he said, have lately discovered the socalled “emerging markets” and were flooding these with more than $250 billion in investible funds.  He mentioned Bangkok, Manila, Kuala Lumpur, and Jakarta as among the favorite destinations.  The dynamism of their markets was the envy of the developed world, he said.  Listening to Martin disturbed me, but I thought he may have been exaggerating the role of pension funds in the world economy. This was in June 1997, just before the crash.  Until then, no one had suspected how fragile the emerging economies were.

When the portfolio investors began to note that so much money was going into non-performing assets, and exports were not really growing, they figured it was time to go.  And they went as abruptly as they came, leaving behind the debris of failed dreams, shattered images, devastated companies, and missed opportunities.  We have only compounded the damage by our penchant for what someone has aptly termed “self-fulfilling panic.”  Now we must pick up the pieces and go back to the basics.


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