Friday, 5 October 2012

Pride goes before destruction

Business Mirror

THERE is nothing wrong with being proud of your accomplishments although the Catholic Church considers “pride” as a serious transgression. Perhaps a more appropriate word would be “hubris.” Hubris is defined as extreme pride or self-confidence. The original Greek word used by playwrights of Greek tragedies was used to describe excessive pride toward or defying the gods leading to a nemesis, a being or situation that cannot be overcome and leads to one’s downfall.
Greek gods did not look kindly on mere mortals who had an arrogant attitude. In common usage, hubris was used to describe someone who in victory unnecessarily shamed or humiliated his opponent and thereby brought shame and ruin on himself.

Countries fall victim to the sin of hubris also. In 1989 an essay was published, later becoming a book, entitled The Japan that can say no, authored by then-Japanese Minister of Transportation Shintaro Ishihara, and Sony Corp. founder Akio Morita. The essay portrayed Japan as a country that had come out from under US dominance and, as a superior nation, would soon eclipse US economic power. Coincidentally, that was probably the peak of Japan being an economic powerhouse. A newer version would probably be called, “The Japan that cannot grow.”

A decade later, China began its phenomenal economic expansion assuming that it could do no wrong and could steamroll the Western economies, particularly the US. While that may be true to a certain extent, in 2012 China is faced with the fact that over 50,000 factories exporting goods to the West have closed in the Guangdong region. China is proud of the fact that it is sitting on a couple of trillion dollars of US debt and $3.2 trillion in international reserves. Yet while selling that debt and those dollars might cause harm to the US and global economy, the financial loss to China would bring a special meaning to “shooting yourself in the foot.”

The Western countries invented the word hubris and raised overconfidence to a new level, not unlike a wealthy taipan at the casino who winds up with nothing left and deeply in debt.

Is the Philippines reaching beyond pride of accomplishment to the dangerous area of hubris?

Chief economist for Asia Pacific at Citi Johanna Chua has some interesting thoughts on the growth of Philippine international reserves now at over $80 billion, the largest in the region following China. The international reserves that a country holds are an important tool to protect the currency and economy from instability as well as to fund import purchases. It is like money in the bank for a rainy day. The government has paraded PHL reserves as an indication of good economic policy. However, the reality is that, to use Ms. Chua’s term, excessive reserves are not necessarily healthy. Those dollars the government is holding were purchased by selling pesos. Those pesos inflate the domestic money supply. To “sterilize” the potential inflation problems of these additional pesos, the Bangko Sentral forces banks to deposit more pesos with the BSP on which the BSP pays interest. Sure, strong reserves are important, but balance and moderation are equally important.

Another problem with hubris is that judgment and priorities can become clouded. The cybercrime law is an important piece of legislation. It should have simply addressed economic concerns with the strengthening of PHL data security laws. But well enough could not be left alone and provisions unrelated to data-security were included and now a major controversy has exploded, further confusing and bringing uncertainty and inconsistency to Philippine lawmaking.

The government has not addressed the fiscal matters regarding the very important mining industry. The government has not addressed a rationalization of investment incentives and taxation. The government has not addressed any significant measures to bring more foreign investment into this country.

Overexcited pride almost always leads to an exaggerated sense of accomplishment. Minor improvements are seen as monumental advances forward; and inflated opinion of one’s successes. Every time a global bank or broker raises economic growth expectations, you can see the government basking in the glory like a tourist lying on a sunny beach in Boracay. The fact is that PHL economic growth is barely keeping the country’s collective head above water and not drowning. Five- percent economic growth will make major inroads into poverty reduction in about 30 years.

The country is not moving forward fast enough to warrant any thoughts of great accomplishments being made. To feel that way is nothing more than hubris. And we know exactly what happens when there is too much pride.

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