Tuesday, 26 May 2009

The end of an age

Outside the Box
John Mangun
Business Mirror

Certain events are of such magnitude and importance that when they sweep across a nation, the country is changed, sometimes permanently.

The 1986 Edsa revolution changed the Philippines in three dramatic ways. A realization suddenly dawned on the people that despite overwhelming odds, a government could be changed by the sheer will of the people through their numbers. This empowerment became apparent in 2001 when again a government could not stand against loud voices calling for change even if those voices did not constitute a majority of the citizens.

As people became emboldened with their newfound “People Power,” there came also the understanding that any sort of government oppression was the result of the citizens allowing that oppression to take root and prosper. A new watchfulness of government came over the Philippines.

The third effect of Edsa was the awareness that politics and the economy were not separate and that the source of all political power, ultimately, was in the economy and how the economy affected everyone. It did little good to push for transparency in politics without the same sort of transparency in business.

Debating the merits of Edsa or the positive/negative results of Edsa is not the point. The fact that these and many other changes came to the Philippines is the point.

The Great Depression of the 1930s changed the United States forever. Two fundamental changes to that society were the virtual end of the small, family-owned farm and the migration of people from rural communities to the cities.

As people left small farms, their properties eventually became part of large “corporate farms.” Hundreds of books have been written on the results, good and bad, of this fundamental change. But again, that is not the point. The point is only that this was a significant result of the Depression. The building of American megacities came only from the migration off rural farms. Again, good, bad; that is for another discussion.

The 1997 Asian crisis changed forever how business is done in the Philippines. Never again will local banks loan money solely on the value of the asset backing the loan. Pre-1997 thinking was that as long as the loan was thoroughly covered by the asset, the loan was sound.

In 1998, our banks were found holding hundreds of billions of pesos worth of property that could not be sold. The banks had, in effect, taken their cash and converted it into non-performing real estate. Now in 2009, the security that backs the loan is only as important as the financial ability of the borrower to pay back the loan with foreclosure only as a very last resort.

For decades, local property companies had enjoyed the luxury of mostly “cash only” purchases for their real-estate developments. Suddenly in the late 1990s, the cash dried up. They were forced to adapt, reluctantly, to financing the loans to keep property sales moving. And 10 years later, this fundamental change to the way they did their business has proved to be a boon for the sector, as people who could never accumulate enough cash for a purchase are now easily able to buy and pay the amortization.

Another result of the Depression was that for decades, Americans lost their trust in the banking and financial system. It was not until the 1960s that Americans renewed their confidence in keeping all their money in the bank. Now it will take years for people to place their trust again in the credit system. I can remember as a “new” adult that a sign of “manhood” was the ability to save enough money to buy a used car and to have a stable job in order to qualify for your first credit card. I do not think that in 2009 having a credit card carries the same prestige as it did 30 years ago. I wonder if it ever will again.

I wrote a couple of weeks ago about the potential for creating a retiree-friendly environment in the Philippines. Yesterday I came across this bit of news from the USA. From the Los Angeles Times: “The Social Security system is reporting a major surge in early retirement claims. Claims have been running 25 percent ahead of last year, compared with the 15-percent increase that had been.” This is due to more near-seniors taking early retirement as they face increasing unemployment due to the current crisis. This creates a fundamental change as these workers will not reenter the work force and, therefore, add nothing to the nation’s productivity. Half of the 62-year-old Americans are considering leaving the work force. This will have a profound and long-lasting effect on the American economy as these individuals now will live off the economy instead of contribute to the economy.

And the current style of globalization is dead. It will take some time, but no longer will countries be at the economic mercy of others’ imports as we have now. More on Thursday about that.

What a time we live in.

PSE stock-market information and technical-analysis tools were provided by CitisecOnline.com Inc. E-mail comments to mangun@email.comThis e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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