Monday, 23 February 2009

Will consumers save the day?

Bernardo Villegas
The Manila Bulletin

If the Philippines is to prove wrong the pessimistic forecasts of the World Bank and other international agencies that our GDP will slow down to as low as 1.8 percent in 2009, two sectors will have to carry the brunt of growing at 4 percent or more: The Government and the private consumption sectors.

Pump priming in infrastructure and energy projects will do the trick for the public sector. For the individual consumers, the sources of larger spending will be a continuation of the inflow of foreign exchange remittances of $ 16 to $ 17 billion, converted at the depreciated rate of P50 to $ 1. For middle-income workers the cash cow will be the business process outsourcing industry whose growth is actually accelerating, thanks to the intensification of the back office outsourcing of the largest surviving American financial institutions and industrial establishments. And for the population at large, there will be some spreading of the wealth (legitimate or hidden) that will come from the early Presidential and Senatorial candidates for the 2010 elections. In my opinion, these sources of purchasing power can keep private consumption expenditures growing at 4 percent or more. The growth sectors in the domestic market will be food and beverage, entertainment, telecom, travel, tourism, education, low-cost and medium-cost housing.

We may actually rejoice if consumers can prop up the economy while we are waiting for our exports and investment sectors to recover late in 2010 and early 2011. In the medium term, however, we must have a nationwide campaign to raise the level of domestic savings because the Philippines is the poorest saver in East Asia today. The typical East Asian economy has an average of 35 to 40 percent savings as a ratio of GDP. Although in recent years there has been some improvement of the rate to about 26 to 27 percent of GDP, for over two decades our savings rate averaged 18 to 20 percent. Such a low rate has made it impossible to increase our rate of domestic capital formation or rate of investments. To compound matters even further, there have been relatively meager Foreign Direct Investments (FDIs) because of our very restrictive policies vis-a-vis foreign ownership of strategic sectors like infrastructures, energy, telecommunications, education, mining, and other capital-intensive industries.

There is a lot of talk about the corporate social responsibility of people in business, especially big business. Fortunately, many Philippine corporations are very much involved in programs that are addressing social needs, especially in the all important area of poverty eradication. There should, however, be equal emphasis on the social responsibility of consumers. As the Compendium of the Social Doctrine of the Church states (par.358): "Consumers, who in many cases have a broad range of buying power well above the mere subsistence level, exercise significant influence over economic realities by their free decisions regarding whether to put their money into consumer goods or savings. In fact, the possibility to influence the choices made within the economic sector is in the hands of those who must decide where to place their financial resources. Today more than in the past it is possible to evaluate the available options not only on the basis of the expected return and the relative risk but also by making a value judgment of the investment projects that those resources would finance, in the awareness that ‘the decision to invest in one place rather than another, in one productive sector rather than another, is always a moral and cultural choice.’"

As I have commented in previous columns, the present global economic crisis can be attributed not only to the greed of the top executives of investment banks and other financial institutions but also to the recklessness and imprudence of millions of consumers who took up real estate mortgage loans beyond their means in order to support luxurious lifestyles. American consumers--the majority of whom are precisely those well above the mere subsistence level--were especially notorious in fueling a consumer credit boom that was bound to implode. After twenty years of non-stop consumption boom, the US is now paying for the extravagance of its consumerists. As the Compendium states (par. 360): "The phenomenon of consumerism maintains a persistent orientation towards ‘having’ rather than ‘being.’ This confuses the ‘criteria for correctly distinguishing new and higher forms of satisfying human needs from artificial new needs which hinder the formation of a mature personality.’"

Hopefully, the trauma that consumers all over the developed world are experiencing as they lose most of their life’s savings as well as their access to consumer credit may bring them to their senses. Hopefully, they will acquire a more balanced view towards enjoying the goods of this earth today without prejudicing the welfare of future generations. As the Compendium continues in reflecting on the evils of consumerism: "To counteract this phenomenon it is necessary to create ‘lifestyles in which the quest for truth, beauty, goodness and communion with others for the sake of common growth are the factors which determine consumer choices, savings and investments.’ It is undeniable that ways of life are significantly influenced by different social contexts, for this reason the cultural challenge that consumerism poses today must be met with greater resolve, above all in consideration of future generations, who risk having to live in a natural environment that has been pillaged by an excessive and disordered consumerism." Let us not waste this present opportunity of reforming the behavior of the affluent consumers all over the world.

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