Tuesday, 19 May 2009

Protecting the Philippines

Outside the Box
John Mangun
Business Mirror

It seems to me that both local policymakers and pundits are living in a fantasy world about what is happening all around us.

Take the A (H1N1) or swine flu, for example. Japan has just confirmed 93 cases. That fact, by definition, raises the World Health Organization pandemic alert to Level 6, the highest possible stage.

In the USA during a bad flu season, 10,000 to 15,000 more-than-normal deaths are expected. At this point, even given the low mortality rate of this current pandemic, 50,000 more US deaths are anticipated because this virus is much more contagious than normal. The economic effect, if the disease stays at the current death rate, is thought to take 0.25 percent off the US economy.

Of course, there is nothing to get hysterical about. As usual, the Philippines will probably be spared any significant effects as there is sometimes an advantage to being stuck on 7,000 islands in the middle of the ocean. And government has shown some foresight in dealing with the problem. But that is not the point. The real issue is the realization that 2009 is not a year of “business as usual” on many fronts.

I am sure you are as bored as I am, reading my constant comments about the fundamental changes taking place in the US economic/government structure. But what is happening in the USA is so dramatic and essential as to change the way the world does business. And ultimately, the effects and results will reach down to the very core of the Philippine economy.

Imagine reading tomorrow headlines in BusinessMirror and finding these bits of news. “Arroyo administration to decide corporate executive salaries” or “President Arroyo’s advisor to determine San Miguel’s advertising budget.” What would the reaction be to “President Arroyo doubles taxes on Filipino firms doing business abroad”?

Not only would there be outrage at such government intervention in local business, but also these policies would be seen as potentially disastrous to the economy. Yet this is exactly what is happening in the largest economy on the planet.

The result is that nations like the Philippines are going to have to carefully look at ways to avoid being overwhelmed by what is happening in the West. I know, I have said that many times before. But before 2009 comes to an end, this nation is going to have to accelerate its ability to adapt and adjust in a way that had not been necessary before.

Following the same policies and models as in the past is not going to work in this brave new world. As the West turns its economic polices inward, the Philippines must do the same. For a nation that has embraced Western economic ideas, where do we turn? Perhaps we need to look to the past, the very distant past.

In the 1500s, an economic philosophy derisively called “mercantilism” arose. Because this theory required government intervention on a scale never seen before. There were abuses of the theory, leading to what many believe was the age of colonial conquest and the creation of business monopolies that were thought to be more efficient. A basic flaw of mercantilism was that an economy was a zero-sum game; wealth was finite and one could only become wealthier at the expense of another. Mercantilism is a supposedly discredited theory in this “modern” time. Yet the premise of a famous, intensely nationalistic work by Austrian Philipp von Hörnigk called “Austria over all, if she only will” has some interesting implications for the Philippines in 2009.

Von Hörnigk lays down nine principles:

1. All of a country should be utilized for agriculture, mining or industry. A nation must maximize the resources it has, using these resources for its own benefit, and should not import the resources it needs.

2. A nation’s raw materials should not be sold but should be processed domestically into manufactured goods, since finished goods have more value.

3. A large working population is important. Two ideas come from this: deemphasizing such things as abortion and the welfare mentality, and a culture of hard work and production.

4. All exports of raw gold and silver are prohibited.

5. Foreign imports are discouraged. Foreign imports have the tendency of causing a nation to rely on a foreign power, damaging a nation’s own industries.

6. Indispensable imports should be paid for in exchange for manufactured goods if at all possible. This way, the nation sells off its excess production of high-value finished goods, without devaluing its own currency and economic stability.

7. Imports should be confined to raw materials. Again, it is better to buy the raw material and produce the finished.

8. Surplus manufactured goods should be sold to foreigners for cash, not for more imported goods.

9. There should be no imports of foods that can be manufactured at home. The worst thing any nation can do is put its food supply into the hands of a foreign power. This is the epitome of stupidity or betrayal.

Mercantilism served the purposes of the colonial powers until the 19th and 20th centuries when “free trade” became the mantra, which also served their interests. Now the West is swinging back toward a mercantile mentality.

For nations like the Philippines to prosper, perhaps even survive, we must move even more quickly to protect our economy or, as they did during the last two centuries, the West will once again bury and consume smaller nations like the Philippines.

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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