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Exploding Landmines
By Michael Alan Hamlin
February 22, 1999

News reports based on remarks last week by Department of Trade and Industry secretary Jose Trinidad Pardo focused on two controversial issues. First, whether government’s recent move to protect "crisis-battered" industries goes against the World Trade Organization liberalization mandate. Second, announced pullouts of regional multinationals such as Johnson & Johnson.

I suspect it really wrinkles Mr. Pardo to have to publicly insist that EO 63 — the executive order raising tariffs in seven sectors — while "unusual," was necessary. It wasn’t, and probably does go against the WTO mandate. This is because Mr. Pardo, rightly I believe, is transforming DTI into a staunchly free-market promoting agency. As he told Asiaweek recently, companies that can’t get with the liberalization program should, "drop dead."

Fortunately, Mr. Pardo says the relief provided by EO 63 is temporary. So it will be interesting to see whether companies in these seven sectors use the reprieve to get competitive. My guess is they won’t and will whine about not having enough time once the tariffs are brought back in line. History strongly suggests this is a safe bet.

Mr. Pardo rightly insists that the pullout of multinationals such as Johnson & Johnson and Nike should not be a major issue. Truth is, both companies are low-value-added manufacturers that don’t do a great deal for the economy rather than exploit opportunity. If they can provide cheaper products to consumers by manufacturing in Malaysia, then fine. Recovery will, after all, be consumer driven, and the jobs these companies create largely fall far short of providing levels of income that would provide the purchasing power their employees require to buy Nike’s shoes.

Instead, Mr. Pardo suggests that the focus should be on the companies entering the Philippines, noting recent acquisitions and alliances in food processing and cement. Probably more important is the quality of investment in manufacturing and technology. Former Cebu governor Tomas R. Osmeña told me during our recent talk that in his experience, cheap labor is not very high on long-term investors’ priority lists. More important is the quality of the workforce in terms of aptitude, receptiveness to training, and productivity.

Not reported were at least six "landmines" Mr. Pardo says have stunted economic growth in the past that his department is "blowing up." These landmines, despite efforts at reform, have remained in place throughout two previous administrations because they were politically contentious. The Estrada Administration, Mr. Pardo argues, is able to deal with them because of the enormous political good will the President enjoys.

The first landmine has to do with industrial and export competitiveness. Mr. Pardo acknowledges that economic conditions have changed radically in recent years, and that government programs must change to reflect new realities. Unfortunately, it’s not clear what changes will take place, because the department’s new Export Development Plan won’t be presented until April. Mr. Pardo hints that it will identify strategic industries and support export winners. Based on what foreign investors are telling Mr. Osmeña, I’d suggest that close coordination between the Department of Education, Culture, and Sports and DTI is a critical component of enhancing the Philippines’ competitiveness.

Second, Mr. Pardo says a paradigm shift will provide long-run industrial competitiveness. Paradigm is a vastly overused term that sounds big and substantial. It actually means, in this case, a policy shift from protectionism to free-market liberalization. This has been going on for quite some time. The important thing that Mr. Pardo said is that for strategic industries to be viable, conditions must be created to nurture support industries and suppliers. This is again in line with Mr. Osmeña’s concerns about incubating local industry and attracting investment from U.S., European, and Japanese mid-market firms that supply multinationals. No one has figured out how to do this yet, but it is important that it is being thought about, and that it is a priority.

Third, Mr. Pardo says there is no looking back from liberalization. This is a legitimate landmine, and as we’ve said, DTI’s record so far is, it is fair to say, overwhelmingly convincing. Fourth, another substantial landmine, labor policy. Mr. Pardo wants the Labor Code amended to provide investment-friendly, job-creating labor policies. "Note that no other president dared touch the Labor Code," Mr. Pardo says. It will take nimble fingers indeed to defuse this bomb.

Fifth, Mr. Pardo has created what he calls an Economic Mobilization Group — the Administration’s "economic SWAT Team" — to address macroeconomic issues such as high interest rates, currency stabilization, high cost of power, and the like. The issue here, I believe, will be the quality of inputs. It will be an issue because there is little effort on the part of either the private or public sector to assemble and think about information and knowledge. And information and knowledge from a wide range of credible sources is fundamental to understanding how to address these issues. Talking heads are the result when input levels are low.

For example, for the first time in its history, the Asia Society will hold its annual meeting in Manila this year. This is a superb opportunity for business and government to interact and learn from some of the world’s greatest minds and Asian experts. But guess what? Only 200 people appear to have signed up as of yesterday, and of those, only eight — EIGHT — are from the Philippines. Inadequate understanding due to reluctance to invest in knowledge acquisition — or the mistaken assumption that it’s not important — handicaps development.

Finally, Mr. Pardo believes that the private sector can play an important role in addressing infrastructure inadequacy by "littering the countryside with economic zones and agro-industrial states" the government can’t afford to build.

So in all, an encouraging agenda. If Mr. Pardo accomplishes even half of it, he’ll have made an important contribution to economic development and the globalization of Philippine business.

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