Tuesday, 7 April 2009

A new–and forced–economic model for the Philippines

John Mangun
Business Mirror

In his BusinessMirror column yesterday, Sen. Manny Villar wrote of “A new economic model for the Philippines.” I call this to your attention because the senator is absolutely right that the country does need a new model of how the economy should operate.

Senator Villar proposes that a group of experts be convened to come up with economic ideas that may be more suitable for the Philippines to follow for the years ahead. He writes, “I must clarify that I am not proposing a new economic model. It is impossible to craft such a model overnight.”

From your perspective, you are probably thinking that talking about an economic model for the Philippines is some sort of intellectual or political exercise that has no bearing on your daily life. You could not be more wrong.

For a nation to move its economy in a particular direction is not an easy task, nor, as Senator Villar says, does it happen overnight. But the effects of crafting and implementing a national economic policy reach across and permeate every society.

The most interesting example of a nation that pushed its economy toward a particular goal and purpose is found in Thailand during the late 1970s and early 1980s. Thailand concluded that the most effective economic plan to raise investment, currency inflow and the highest investment-to-employment business model was through tourism.

The government-owned Thai Airways lowered ticket prices and raised service levels so that the airline attracted hundreds of thousands of new passengers while operating barely at the break-even point. It was the only air carrier that served lobster and champagne as the regular meal service in economy class.

Hotel operators poured millions into the economy as the demand for rooms skyrocketed. Thousands of jobs were instantly created as these new resorts opened. And thousands more of jobs came online with the increased demand for bus drivers, tour guides, restaurant workers, and on and on.

The government mobilized virtually the entire economy toward serving the tourist. Taxi drivers were given courses in basic English. Advertising agencies set up departments only to market goods and services to the foreigners that filled the streets of Bangkok. Retail-shop employees were taught what the foreign tourist expected from sales people. Ordinary Thais, most of whom speak no foreign language, were given multilingual booklets to be able to assist tourists who needed directions or help. From probably an offhand comment from some Cabinet member like, “Maybe we should bring in some more tourists,” the country was turned into a huge visitor-friendly resort.

Formulating a “master plan” for the Philippine economy will be the first and primary task of the next President. Honestly, it has never been done before on the scale that will be necessary now.

Seventy-five years ago, the world moved into a global industrial revolution. Countries that for centuries had produced nothing more than self-sufficient quantities of agricultural products became key manufacturing players.

With the breakdown in the global financial system, the offshoot is the realization that denominating global wealth on a single currency, the US dollar, was foolish and is now impossible. The Great Depression moved the world’s wealth from gold to the dollar in large measure because of US policies to counter the Depression. Those same policies, government spending from artificially created money, will move the world back to currencies backed by something of intrinsic value.

A call by Russia and China to delink from the US dollar is the first step to a new world financial order. Gold was the primary storage of wealth and medium of exchange, was replaced by the US dollar by the end of World War II, and we will see the dollar replaced by a basket of hard commodities.

Nations with actual resources, not merely money printing presses, will dominate the future. When armies and their supporting infrastructure measured a nation’s power, Rome ruled the world. When colonies and sea trade was the ultimate measure of a nation’s wealth, England ruled the world. In the last 70 years, dollars ruled the world, and the nation that had the capacity to print dollars, the United States, was the economic giant. That time is over.

The current US financial policy guarantees that the US dollar will lose tremendous value and will be replaced by hard assets including gold, strategic metals and other commodities with high demand and limited supply.

Imagine a partial shift back to the gold standard where the price of a barrel of oil is quoted in dollars, the price changing every day, and also priced in gold, which rarely changes. Imagine countries receiving for their exports and paying for their imports partially with gold, copper, silver and oil. The new economic giants would be those nations that control vast amounts of the resources. Perhaps that is why Russia is so interested in dropping the dollar and why China is buying natural-resource operations across the planet.

If a nation’s wealth and economic power will inevitably be measured by its hard resources as mentioned above, where does that put the Philippines, and what should our economic model be? The Philippines has the fifth-largest proven reserves of gold and copper in the world. The country is sixth in nickel, with similar statistics for cobalt and other minerals. Eventually, a new economic model will be forced on the Philippines because adapting to the new world order will require it. And the Philippines may be in a position, with wise management, to profit in a way that has eluded it for centuries.

PSE stock-market information and technical-analysis tools were provided by CitisecOnline.com Inc. E-mail comments to mangun@email.com.

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