Tuesday, 22 September 2009

Why the Philippines is different and better

John Mangun
Outside the Box
Business Mirror

The leaders of the Group of 20 (G-20) nations are meeting in the United States to discuss the world economic situation. It is an opportunity for leaders from the United States, Germany, Australia, and all the other “top” countries to tell each other what a great job they are doing and to tell everybody else what they should be doing.

The most recent comments from one of the G-20 “experts” comes from Australian Prime Minister Kevin Rudd. Mr. Rudd is obviously “the” expert since Australia is the only major country that has not fallen into a recession.

Mr. Rudd said the following: The world needs a “new, sustainable growth model for the future” to reduce “massive financial imbalances” between consumer-driven economies in the West and developing economies in the East. Rudd said world leaders must “develop a new model for long-term growth that rebalances the consumer-led purchases of developed nations like the US and surplus export trade from developing nations like China.”

I believe that these comments accurately summarize the thinking and the solution-finding mindset of the “experts” and clearly show why the global economy is a catastrophe and why there will not be an adequate solution for some time to come.

On face, Rudd is correct. China manufactures goods and the United States buys those goods. There is nothing wrong with that except the United States has been borrowing the money to make those purchases. And that economic system is what Rudd says is wrong and must be changed.

The problem with Rudd’s analysis is the system he describes is exactly the global economic model that the world has been following for the last 200 years.

In the 1800s, the Industrial Revolution created a very large manufacturing sector in England employing hundreds of thousands. One important industry was textiles. But England needed the raw material, cotton, to keep that industry going. The British East India Company sails to India, setting up trading posts to purchase locally produced Indian cotton. The cotton is shipped back to England, manufactured into cloth and then the cloth is sold back to the Indians. When the Indians decide that maybe the company had a little too much control of the cotton business and decide to revolt, the company calls in the British government and the government eventually takes over political power and makes India a colony.

The Indians provided low value-added cotton produced by a cheap labor-intensive sector and the British provided high value-added textiles provided by a capital/technology-intensive industry.

That is how the colonial system worked and political and military power was used to support economic interests.

The system has only changed slightly in 200 years. In the 21st century, China provided low value-added goods produced by a cheap labor-intensive sector and the West provided high value-added “money” to fund the Chinese economy.

As England and India came to be dependant on each other, so, too, has China and the United States come to rely on each other’s economies. The United States needed Chinese goods; China needed US money.

That sounds like a colonial system to me. The interesting question in this case is, which country is the master and which is the servant?

Although China has billions of dollars to support its displaced workers, they do not and will not have income-producing jobs for some time to come. The United States still needs Chinese-made shoes and clothes, but cannot afford to buy as much as before.

For Australian Rudd to talk of a new global economic model is a joke. Australia vitally depends on that model as a major exporter of minerals and foodstuffs. Australia is a “colonial” supplier of raw materials.

Rudd says that an alternative must be found that “rebalances the consumer-led purchases of developed nations like the US and surplus export trade from developing nations like China.” If that happened, the Australian economy would regress a hundred years into the past. Forty percent of Australia’s exports are minerals, much of which is used directly or indirectly to manufacture goods eventually sold to those Western consumers. Unless Rudd can figure out how to make 20 million Australians eat copper, gold, and iron ore, then he needs the current global economic system to continue.

Rudd is correct, though, that the future will be different. China will change its domestic economy and learn to live without Western consumers. And the West will adapt to higher priced locally produced shoes, toys, and clothes. It will not be easy and it will take many years.

The Philippines (and a few others) are different and better. We do not rely on exports for our wealth-building and we do not rely on imported manufactured goods. Yes, the Philippines does import too much. However, this country has the capability to reduce its imports of goods at any time. Local businesses are able to compete in price and quality with almost any imported consumer goods, given government incentives and trade protection. Unfortunately, the administration has been more interested in acting enlightened and “progressive” on the world stage. Fortunately, the agricultural sector, rice, sugar sectors most notably, have kept the government from killing the agri sector due to too much unfair free trade.

I am a strong advocate of free trade. But no matter how good Manny Pacquiao is at 140 pounds, he does not stand a chance against WBA heavyweight champion Nikolay Valuev at 323 pounds.

On a personal note, I do answer all e-mail. If you have not received a reply, check your junk or spam folder. Mine might be there.

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