Wednesday, 15 February 2012

The new world order

Business Mirror

AS the world plunges headlong into one economic and political crisis after another, there is constant talk about the realigning of the concentration of global power.
Fifty years ago, it was simple. The US and the Soviet Union were the global powers. Each gained power through the old combination of guns and gold. The rest of the world marched into one of the camps, either by force or self-interest. Those so-called non-aligned nations merely used that designation to extract what they could from each side by diplomatically playing one against the other.

The 19th century political economist Frederic Bastiat is reported to have said that, “If goods don’t cross borders, armies will.” However, the truth is that the armies crossed first in the conquest of other nations primarily for the purpose of trade. Spain took the Philippines to establish a trading facility in Asia and in part as a way to counter the other European nations’ trade expansion in the region.

However, history shows two things. Economic power based on military force never lasts. Also, global, and to a lesser extent regional power, depends on the “power” nation being relatively self-sufficient in order to first establish that power and then to keep it.

The USSR was able to be relatively self-sufficient by keeping a low standard of living for its citizens. The US was and is a net exporter of food and has nearly a boundless supply of raw materials.

Over the last decades, the US gave up its self-sufficiency first to Japan and now to China and lost much of its power. A map of “power” countries would now include the US, the European Union, China, Brazil, India and Russia.

But none of those nations are economically independent as they all desperately need each other and the rest of the world for both raw materials and as an export market.

American ingenuity depends on China to manufacture the products it develops. Russia depends on the European Union to buy its oil and natural gas. China cannot survive without both the global consumer market and oil. Brazil must have foreign investment to fuel its economy. India imports nearly all it energy requirements.

You cannot be a super power if you are seriously dependent on other countries. We have a new world order.

The above list of power nations is certainly not complete. However, the key component of this new order is countries like the Philippines, if their leaders have learned from history.

While no nation that is growing economically can be completely self-sufficient, it appears that small countries like the Philippines can increase power by having other nations economically dependent on them while not being as dependant on others. Further if you are small, it helps to be specialized.

Any country can replace PHL as an assembler, with low value-added, of electronic products. China already did that with Christmas ornaments, clothes and athletic shoes.

However, PHL owns the global call-center business. We are exporting customer service, which is high value-added. You cannot easily replace competent, English-speaking, and Western-familiarized Filipinos by simply moving a call center to another country.

Outsourcing employs more people than the electronic-export sector and brings in more net revenue to the country.

Do we need them, the foreign clients, more than they need us? No. For example, US telecoms companies cannot afford to pay Americans $15 to $18 per hour when they can pay more highly educated Filipinos the same amount for a day’s work.

We have witnessed a massive diffusion of economic power in the last 10 years and it has only accelerated since 2008. The new global powers are scrambling to preserve and consolidate their gains. But that is difficult when they actually are feeding off each other and the net economic pie in those countries is not growing very much.

Enter the dragons and I do not mean China. Remember dragons are specialized creatures, associated with breathing fire or poison and guarding or taking the treasure.

Thailand is in the top 10 of car exporters. Who expected that a decade ago? Malaysia exports a wide variety of tropical agricultural products. Vietnam is the largest exporter of pepper.

Power will be more decentralized and diffused in the years to come. However, that does not mean that nations like the Philippines cannot be powerful.

On a personal note, I invite you to visit the new web site. The old one was so terrible in so many ways that I have “impeached” my former web developer. If you would like a complimentary copy of my “PSE Strategy Guide,” please e-mail me at And don’t forget my upcoming seminar in Cebu on March 3rd.

E-mail to and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by Inc.

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