A call came in from Channel News Asia which wanted my take on the hostage taking in Manila. I referred them to a colleague in Inquirer.net instead. The folks at CNA serve as a kind of guide, to me, as to what Philippine news really matters overseas, and this is the first time they’ve called in a very long time (to my recollection, the last time I heard from them was during the arraignment of the Oakwood mutineers some months ago).
It’s when every parent’s worst nightmare -their children ending up in a danger, in this case, in the hands of a group demanding free education for 145 kids at the Musmos Daycare Center- happens that, however briefly, media’s and the public’s focus telescopes and everyone ends up peering at what is, fundamentally, a family tragedy (multiplied 32 times in this case: and representing, too, the despair, perhaps, of the kids at that daycare center). Media competition is fierce, updates are minute-by-minute. See Inquirer.net’s coverage, that of GMA News.TV (with a cameo appearance by Sen. Bong Revilla) and ABS-CBNNews. The Associated Press and other wire services brought the story to the world’s attention.
The blogosphere here and abroad is abuzz: abroad, Corporate Engagement wonders why the hostage-taker, who’s done this before, isn’t in jail. Interesting observations and discussions in RedBlue Thoughts (who focuses on the hostage taker’s past activism and the symbolism of the current hostage-taking) and in idle eidolon who says its difficult not to take a cynical approach to the whole thing. Perpetual Malcontent finds the whole thing wierd. Tanuki Tales says something I agree with completely: whatever your motives, you don’t mess around with the safety of kids, period.
In the news, ABS-CBNNews reports party list seats allegedly being peddled by the Palace. Danto Remoto sort of, kind of, drops his senate bid. Personally, I’m very happy Dr. Jose Abueva showed up to manifest support for Remoto; Abueva and I have crossed swords in the past, but a few weeks ago when he guested on my show, we made our peace with each other.
News, in quick succession of what will be some controversial candidacies: Gen. Jovito Palparan, as a party list candidate; Virgilio Garcillano and Dato Arroyo also for the lower house.
There’s no need to worry that the boom in LPG for automobile use will affect household consumers. The number of LPG for cars filling stations popping up in Metro Manila is remarkable (I understand in Cebu, they were the first to use it for taxicabs), though a friend says smokers like me should stop smoking on the road as every time he rides an LPG taxi, it reeks of gas fumes and an idiot smoker like me might end up blowing him up due to a carelessly-tossed cigarette butt.
the brewing confrontation between the US Congress and the White House has Slate Magazine saying there’s a 75% chance the US Attorney-Genertal is going to quit. For an analysis of what the confrontation is about, see this article by By Walter Dellinger and Christopher H. Schroeder. Also, Burma has a new capital.
In the punditocracy, my Arab News column for this week is Command and Control (regarding the AFP and issues concerning command responsibility). On a related note, Davao Today provides a thorough report on Philip Alston presenting his report to the UN. The Inquirer editorial looks at the recent goings-on in the Hague, and what they signified.
Jarius Bondoc rather gleefully notes the handicaps of the opposition campaign but does note that the administration slate is headed for disarray, too, once the local races start and Lakas-CMD and Kampi start cannibalizing each other in earnest. Amusing tidbits on the campaign courtesy of Efren Danao. Marichu Villanueva takes a look at the political rehabilitation of the Senate.
Amando Doronila says the government has a problem on its hands with the Asian Development Bank and its skeptical attitude towards government’s claims of achievements. For the Palace’s rebuttal, refer to Rick Saludo. Speaking of Saludo, his pointing to typhoons as the cause of the hunger problem leads to a lighter, but pointed look, at “hunger as a lifestyle choice,” courtesy of Manuel Buencamino. The best passage:
Your secretary’s words must have inspired street urchins not to wait for the “ideal job to fall on their lap” for they ignored the political noise and took advantage of the strong peso, the stable political situation, and the investor-friendly climate to go into the sampaguita business.
Their profits will be reinvested in the stock market and soon, as a pundit said, they will be trading in their paper boats for yachts.
You can tell the whole world, “We have no child labor. We are a nation of child entrepreneurs.”
And you can add that investor confidence, as shown by the great number of street-urchin entrepreneurs, disproves the perception that your regime is the most corrupt in Asia.
Overseas, the People’s Daily Online looks at a survey detailing the consumer choices of Chinese aged 17 to 26 (who have no memory of either Mao’s rule or the Tiananmen Square massacre). Tulsathit Taptim pens an allegorical debate between democracy and corruption.
In the blogosphere, History Unfolding has a must-read entry on America, the confrontation over war aims between the White House and the House of Representatives, what American attitudes are towards war and why the war in Iraq has lost popular support. The latest showdown is in the US Senate, which has also held a vote to put forward a timeline for an Iraq pullout. Details in The Washington Note.
Here’s an interesting thing: a father and a daughter who both blog. The father, blogs at www.soriano-ph.com and pens a clear, concise, list of criteria he intends to follow in deciding whether or not to vote for certain candidates. He brings a lawyer’s precision to defining the issues he considers important, and ends his entry with the possibility he might not end up voting at all. His daughter, in crazy4this girl, suggests that to fight injustice, one must be willing to commit suicide.
Technorati Tags: elections, ideas, journalism, media, Middle East, military, philippines, politics, president, Senate, society, Thailand
Ca t, Abe’s model is understandable enough to me
Then tell me what really is his model?
nationalization? quasi-government corporations? joint-venture and for how long? But what is that “subsidy” thing in the discussion.
Explain it to Mr. Genius MBA. Bobo ko eh.
about the national debt…i vaguely recall during Cory’s time some government official saying we would honor our debt for one reason or another.
Abe Margallo wrote:
Read the news about US imposing economic sanctions against China to protect American paper producers from unfair Chinese government subsidies.
Rule out the paper industry. Can we compete with China?
cvj says he understands the Abe model….
First, here are five major premises for the conceptual design that can be improved on:
1. The Philippine economy is among the laggards in the region outperformed even by its newly found peers (like Vietnam) that are inching to overtake us from further behind.
2. The gargantuan public debt is an enormous drag on the growth of the economy and limits the government’s ability to finance necessary infrastructure for economic development and critical social spending.
3. About 40 % of the population (35 million Filipinos) is below poverty line.
4. The Philippine state is too weak only a handful of wealth holders can dominate it but the same people who have the economic power to do something about the problem have been passive particularly in terms of creating a critical mass of investments for the economy to take off.
5. Current government efforts (e.g. balancing the fiscal deficit) to cope with the situation are marginal, and alternatives from other sectors are either too radical (socialism) or too superficial (dole-outs).
Cat,
Thanks for keeping the exchange going. Some questions for you about bondholders. 1) Do you know if the Treasury keeps record as to who they are?; 2)What about holders who made their purchase from the secondary market?; 3) If records do exist, can the public access them?
Now, re your questions (NB: My answers are just my loud thoughts. Others please help):
Q:Are we talking about quasi organizations or subsidized industries? or subsidies?
Ans: Basically it could be “a basket of special favors†from the State like lower interest rate for investors but higher interest rate for savers, sort of two-price system as in the example above by UPn. Or “incentives†for new product developers.
Q: You are talking about hybrid organizations or quasi-organizations or simply known as government incorporated?
Ans: It may cover both existing enterprises or new enterprises under traditional business forms.
Q: Are you talking about nationalization of some industries?
Ans: Maybe it’s more about the promotion of highly-diversified industries of the Chaebol or Zaibatsu types or countryside industries or both.
Q: re: money supply
Ans: I’ve mentioned it because I was just wondering that if the bondholders are primarily banking institutions, will the withheld rents or interest income, because of the moratorium, affect their ability to lend and hence in some way the supply of money.
Q: Why privatize it when the money to fund the project came from the government?
Ans: First of all, without the moratorium there will be no funds to use for the development project. But, with this fund freed up for the project, we strengthen the State as well as its control (with the involvement of civil societies as well representatives from the same business sector) over the what right now is a lackadaisical private sector (not the other way around); and the “special favors†from essentially “pooled†moratorium funds will serve as incentives and addtional economic leverage for the targeted industry or business to be vigorous yet efficient. If performance standards are not met, like export production for instance, the penalty could be severe such as closure. Remember the business is still privately owned and therefore the stake of the owners are the same, only that it would be provided with enormous special favors in return for competitiveness and creation of value-added and employments.
Q: What’s the model in simple language?
Ans: We can call it the “CAT model†in the meanwhile, which means that obviously nothing yet is etched in concrete (the paper industry is just an example; it could be pen or eraser if that’s what the “business case†tells). These are just my wild thoughts, you know. But do you like the concept so far by now? Whose take is next?
Ca T, i’m not an MBA, and the recent IQ test i took says i’m ‘above average’ (not ‘genius’). I don’t think you’re ‘Bobo’ but perhaps you just need to catch up on your reading. As i mentioned above, I recommend Alice Amsden’s “The Rise of ‘The Rest'” which is in line with Abe’s model.
cvj… Do these mean the same thing to you?
—“..you just need to catch up on your reading”;
—“..you just need to have read what I have read”;
I believe a one-word concept close to “Rise of the Rest” is interventionist. I want to call attention to a concrete premise in Abe’s model (the part that releases that “Abe’s Technocrats” can play with to do what has to be done). It is not abrogation of debt-obligations but the wish for ‘forbearance’. I have not read what Abe has read, but how do you inspire the “self-sacrifice” of forbearance from a bunch of 45-year-olds and older who are the same group being derided, not because they can create wealth, but because of “lack of…” this or lack of that?
Similar question to cvj… did Alice Amsden identify any and all that “motivated” Taiwan, China, India, Korea to set up the atmosphere that started the process going? My perception is that a common thread (for a few, if not all) is getting the leadership in place.
In other words, my perception is that the tactical of choosing “paper” versus “electronics” is discombobulating the problem, while a cornerstone strategic issue is who resides in Malacanang.
UPn student, i meant the former in the sense of “you just need to catch up with your reading on the subject matter“. From what i read, the underlying motivation of these countries is pragmatic, to find a way to industrialize. Before their economies took off, all of these countries Taiwan, China, India and Korea, aside from being colonies or vassal states, were for over 100 years, laggards (just like us today) when compared to the North Atlantic countries and Japan. Fortunately for them, they stumbled on similar approaches that work.
Actually, Amsden discusses more than one approach used by ‘the rest’ for industrialization as exemplified by the independents like China, Taiwan, India and Korea and the integrationists as exemplified by Argentina, Brazil, Chile, Mexico and Turkey. Both are successful in their own ways. She also briefly discusses the ‘free trade’ model to which was followed by only two countries i.e. Hong Kong and Switzerland. These models are explained for consideration of us who belong to what she calls ‘the remainder’.
I know what you are debating with UPn, whether the financing would be restricted to a few privileged families or to thousands of small industries.
What threw me off was your inclusion of subsidies in the discussion.
There are three ways by which a government may help the industries with financing:
1. investment – the result would be either a joint venture or nationalization of certain industries. The government competes with the private entities and generates revenues balancing profits/ror with services to the public or protection of consumers. I gave an example..NAPOCOR.
2. subsidies
GOvernment does not expect repayment. IT helps industries in the development, expansion and marketing.
3. loans- government merely lends money to the borrowers.
All of these things are already being done by the government.
Your model is for government to finance favored few businesses like Korean chaebols.
But this has already been adopted by the MArcos government where industries are controlled by his cronies.
Lucio Tan having business conglomerates like cigarette, piggery, brewery (it used be a monopoly of San Miguel, producing beer that is). BEnedicto took charge of the agriculture industries particularly sugar.
If you will take a look at the behest loans of PNB and DBP
before People power, most of them were given to cronies.
Even during the time of Erap, Lucio Tan got PAL, PNB, Manila Hotel thru loans from the government.
So I am scratching my head, what’s new about this model?
Nothing.
I do not even see this as a new model. It was already implemented by Marcos.
. . . how do you inspire the “self-sacrifice†of forbearance from a bunch of 45-year-olds and older who are the same group being derided, not because they can create wealth, but because of “lack of… this†or lack of that? UPn
It could be one or a combination of any of the following motivations:
1. Not to act is to put all that they have or built for themselves at risk.
2. “There’s something (more than meets the eye) in it for me,†if it succeeds.
3. Injured elite pride (or national pride, if they have “a sense of countryâ€Â). “If the Thais or the Malaysians can, why can’t we?â€Â
4. Agape (a mission of love for others). “These 35 million poor Filipinos are also my brothers.â€Â
Your model is for government to finance favored few businesses like Korean chaebols.
But this has already been adopted by the MArcos government where industries are controlled by his cronies.
Lucio Tan having business conglomerates like cigarette, piggery, brewery (it used be a monopoly of San Miguel, producing beer that is). BEnedicto took charge of the agriculture industries particularly sugar.
If you will take a look at the behest loans of PNB and DBP before People power, most of them were given to cronies.
Even during the time of Erap, Lucio Tan got PAL, PNB, Manila Hotel thru loans from the government.
So I am scratching my head, what’s new about this model?
Nothing.
I do not even see this as a new model. It was already implemented by Marcos. The Ca T
Ca T, if the development medium is via the highly diversified conglomerates, on the surface the comparison you have made looks fair. But actually the differences could be considerable. Here are some that I could think of right now:
1. The largesse to cronies under Marcos’ “booty capitalism†was without accountability. In the proposal, one possible accountability feature is for the state support to be performance-based, i.e., failure to meet given standards or conditions will mean withdrawal of support or maybe redirecting entire support to the more efficient competitors.
2. Development funds are not “borrowed funds†but monies freed up from budget expenditures because of the moratorium agreement. Therefore, some potential support recipients may have direct interest in it to protect.
3. One salient feature of the proposal already mentioned is the taxpayer participation through civil societies representatives in monitoring compliance with said performance standard, such standard as the generation of certain percentage of targeted employment growth or productivity output or certain wage levels of workers.
4. The state having a dominant position in the relationship, aside from direct involvement of its competent bureaucrats, may authorize consumer or private organization to act as countervailing agents against backsliding, inefficiencies or corruption, or may even require employee representative to seat in the board as further check against corporate excesses or abuses.
5. The moratorium only covers existing debts; hence, after a certain cut-off date, the government may continue to incur foreign and domestic borrowings for other purposes but at favorable rates because of expected enhanced creditworthiness flowing from this internally initiated strategic plan where domestic elites are seen to take “sacrifices†for national development.
6. Part of the moratorium funds will be earmarked for social spending (as well as the promotion of human capital)and for the building of physical infractrutures as part and parcel of the development project.
You are talking about the source of the money.. But what about the exposure of the government( where the money is coming from)to the “conglomerates”. How is money going to be treated in their financial statements?
A loan from the government which needs repayment? An investment? Therefore, it needs to be paid back too, in terms of profits? or is it a subsidy?
Are we in the same page?
But there was. Some government officials were made directors of the board to represent the State.
Even up to this date, these foreclosed business conglomerates that were financed by the behest loans became the cash cow of moonlighting government officials sitting as directors representing the State.
Ca T,
Maybe it will help if I become a bit philosophic about our exchange on the country’s debt burden. First, UPn suspects that the conceptual design leads to State “intervention.†Then you are reminding us of the disastrous wheeling and dealing between Marcos and his cronies. On my part, I have provoked Bencard with a dumb Constitutional Law question of whether the State can reside inside his pocket.
What our national dilemma boils down to I guess is how Philippine, Inc. can compete with other States, Inc. in the harsh reality of surviving today and serve both its stockholders (the people individually speaking) as well as its stakeholders? What kind of guerilla and similar tactics the State could employ in this struggle given that certain universally accepted procedural formalities deny it – or any sovereign entities for that matter – to start afresh or catch up under what in private realm is a simple bankruptcy protection; and, on the other hand, unilateral default is considered suicidal for the national economy? The answer being proposed here is a payment moratorium arrangement with half of the country’s creditors who also happen to be both stakeholders and stockholders of Philippine, Inc.
If the moratorium blend will produce enough dough ($35 billion in 10 years, if the estimate is correct) for the purpose of starting afresh and then catching up, the next question to ask is: How?
But, firstly, a bit of economic history: Remember that even USA, Inc. was a late-industrializer however the first step for its triumphant advance towards industrial capitalism only began after the US Supreme Court had decided in a case that corporations are “persons†and as such entitled to property protections just like individuals. Theretofore, the notion of corporation as person had also been a guerilla tactic until the Court conveniently legitimized it into become something of a principle today.
Secondly, the concept of the State as a person is even an older myth. It was Weber who actually reified (concretized) the State through the rationality of the bureaucracy. In reality, the State is just in the minds of the people with no physical characteristics. Here is therefore the underlying question: Do you see any contradiction if the State can rationalize the power of violence in the “war on terror†but it cannot rationalize the power of intervention in the “war on poverty� The main point being: When the state “intervenes†in the affairs of private business by providing support of various forms, it is actually merely “extending†itself because for all practical purposes in this struggle for survival, private business are no more than components of the reified State.
In fact, when RP bureaucrats with a macro view of the economy act on that score as think tank for Filipino entrepreneurs whose horizon is somewhat shortened by the immediate profit-motive, these two actors are merely coordinating their decisions both as departmental agents of the same Philippine, Inc.
Now, since it is basically a warfare out there, there should really be no fine formalistic limits as to how State bureaucrats and the private sector will employ the resources of the State to stimulate the various nerves of the economy, regardless of whether these triggers or stimulants are in the form of multiple exchange rates (one for export, and another for export), market limitation for inefficient businesses, tariff protection or tax holidays for infant or strategic industries, or low interest rates for new product developers, and the like.
So, Ca T, how do you want to be one of the field generals in this “war on poverty,†or perhaps a dreaded potential confrontation in a social volcanic eruption, if you’re amenable calling it that way? How would you, as a start, figure out avoiding the Marcos trap that you have identified, if we are working as a team in our little efforts?
cvj,
Kindly explain to us the concept of “reciprocity” according to Amsden. Thanks.
Abe… You sound like Dick Cheney as you state that “… since it is basically a warfare out there, there should really be no fine formalistic limits as to how State…” And I make my comment because I disagree.
The main point being: When the state “intervenes†in the affairs of private business by providing support of various forms, it is actually merely “extending†itself because for all practical purposes in this struggle for survival, private business are no more than components of the reified State.
Let me simplify the model for you.
What you have in mind is economic development thru state intervention of market, finance and operations of privately-owned businesses.
When I said privately-owned, the corporations are closely-held corporations or family corporations as contrasted with publicly-held corporations (Not public corp which refers to government) which means they sell their stocks to the public thru stock market.
Amsden favor this type of corporation rather than the multinational corps (foreign-owned entities) which enjoy
tax incentives, benefits from the government in exchange for their investment.
Using the Korean model, the exposure of the government to these private corporations is in the form of subsidies based on their performance. Ibig sabihin, dole outs ng gobyerno, walang babayaran, in return for developing industries.
If this is correct. Say so. So I can continue our model.
And what AMsden failed to see in this model.
abe, when you first asked the question as to whether “the State can reside in my pocket”, I ignored it because you asked me to. Reiterating it in your last post, I really think it is a “dumb” question because the “State” is not a “thing” – it is a concept, an idea that only exists in the mind of every one who recognizes its existence. I think it was Marcus Aurelius who said that Rome existed in the heart and mind of every Roman and could vanish in a single breath.
I was going to sit this one out (your national debt discussion) but one thing I can say is that, echoing the C at.s concern, any governmental intervention in private business diminishes free enterprise. On the other hand, any form of coercion to finagle a “moratorium” or “forbearance” in the payment of the national debt to international creditors is a big no no, and will cause dire consequences to the country. Resorting to “charity” is another display of our mendicant attitude which time and again, our past leaders have relied on to get us off the hook from the effects of our own’s profligacy and bad money management.
“I tell you the truth, whatever you did for one of the least of these brothers of mine, you did for me.†– from the Gospel of Matthew
Talk to you guys on Saturday.
Abe, in Amsden’s framework, the concept of reciprocity is an alternative or supplementary control mechanism to that of the free market.
According to Amsden,
“A control mechanism is a set of institutions that imposes discipline on economic behavior. The control mechanism of ‘the rest’ revolved around the principle of reciprocity. Subsidies (‘intermediate assets’) were allocated to make manufacturing profitable – to facilitate the flow of resources from primary product assets to knowledge-based assets – but did not become giveaways. Recipients of subsidies were subjected to monitorable performance standards that were redistributive in nature and results-oriented.
The reciprocal control mechanism of ‘the rest’ thus transformed the inefficiency and venality associated with government intervention into collective good, just as the ‘invisible hand’ of the North Atlantic’s market-driven control mechanism transformed the chaos and selfishness of market forces into general well-being. The reciprocal control mechanism of the North Atlantic minimized market failure. The reciprocal control mechanism of ‘the rest’ minimized government failure.”
We should note that by ‘the rest’, it does not only mean just the East Asian tiger economies. In this classification, Amsden includes Argentina, Brazil, Chile, China, India, Indonesia, Korea, Malaysia, Mexico, Taiwan, Thailand and Turkey. These are the countries that, after World War 2, “had acquired enough manufacturing experience in the production of silk, cotton textiles, foodstuffs, and light consumer goods to move into mid-technology and later high-technology sectors. The ‘remainder’” [which includes us] “which comprised countries that had been less exposed to modern factory life in the prewar period, failed thereafter to achieve anywhere near ‘the rest’s’ industrial diversification.”
[Cross posted the above in my blog.]
cvj, Upn, Ca t, Bencard, Shaman,
I find James M. Cypher’s book review below of The Rise of the Rest to be highly informative as it expands cvj’s terse but pithy description of the book just by defining the principle of reciprocity.
_________
The Rise of “The Restâ€Â: Challenges to the West from Late-Industrializing Economies by Alice Amsden. Oxford, Oxford University Press. 2001. ISBN 0-19-513969-0, $35.00. 405 pages.
If you have time to read only one book on development economics in the next year, read this book. Here is why: “The Rest†include Amsden’s chosen set of nations (China, India, Indonesia, South Korea, Malaysia, Taiwan, Thailand, Argentina, Brazil, Chile, Mexico, and Turkey) which have as a group increased their share of global manufacturing from 4.9 percent in 1965 to 17.4 percent in 1995. These developing nations are distinct from their counterparts in Africa, Asia, Latin America, and the Middle East in that, on the whole, they have exhibited a relatively “robust manufacturing experience.†This experience is based, for the first time, not in proprietary control over technological innovations but rather the adaptation of other nations’ industrial technologies.
Unlike so many neoclassical economists who insist that trade specialization and openness are the twin keys of development, Amsden makes a resounding case for manufacturing as the core activity giving rise to development. But the successful incorporation of the manufacturing sector is viewed, above all, as arising from new institutions put into motion through astute government development policies which hinged on the creation of a new control mechanism between government and the private sectorâ€â€the principle of reciprocity.
Reciprocity is the link between government support and industrial performance. Development banks, in particular, used reciprocity to break the hold of family-based managerial cadres in top firms, insisting that support (tariffs, duty-free intermediate inputs, and so on) would occur only if qualified professionals were in control of firms. Other tactics abounded, such as the requirement of firms to raise their equity stake to receive import substitution/industrial policy support from the state. The task of development is, in the first instance, to build institutions which foster and nurture productivity and technology rather than infrastructure or education. Development is about “getting the control mechanism rightâ€Â; it is not about the neoclassical fixation on “getting prices right.â€Â
Within “The Rest†a twofold movement occurs: Some nations, such as Mexico, become “integrationists†abandoning the search to create a national technological baseâ€â€accepting a subordinate relationship to foreign firmsâ€â€while other nations, the “independents,†such as Taiwan, strive to create “nationalist innovation systems to champion ‘national leaders’ with their own proprietary knowledge-based skills.†(p. 14) Getting the policies right also means knowing when to change the policiesâ€â€successful industrializers have located the “switch points†and found new control mechanisms which balance stimulus with performance standards.
Amsden’s book is dense and demanding. The work is divided into three major sections: I, “Sinking Behind (1850–1950),†II, “Sneaking Ahead (1950–),†and III, “Squaring Off (1980–),†with a total of ten chapters. Nations sneak ahead if they rely on developmental banking (which imposes control mechanisms to overcome governmental failure), local content management (forcing producers to sequentially rely on greater local content), selective exclusion (keeping some domestic markets closed to foreign firms/trade), and national firm formation (creating strong national firms with growing knowledge-based production capabilities). In this context sneaking ahead involves avoidance of the doctrines of the IMF and the World Bank regarding direct foreign investmentâ€â€DFI lags rather than leads waves of expansion of domestic investment. The foundational basis of capital formation and technological deepening comes in the first instance from public sector investment and not from DFI. Amsden stresses that by the year 2000 foreign firms have invested “almost nothing in innovation insofar as their local expenditures on R&D were virtually nil†(p. 191).
There is a great divide within “The Rest.†In particular, Latin American nations have been held back because of their acceptance of extreme levels of income inequality. Inequality, as Amsden shows, confounds the development effort in many complex ways which cannot be detailed here.
Amsden’s book will, hopefully, put another nail in the coffin of the “Washington Consensus†regarding the alleged retarding effect of state-owned enterprises. SOEs, contrary to the neoclassical story, never crowded out domestic firms. On the contrary, they crowded in such firms while also serving a multiplicity of other functions, including deepening investment in local R&D and creating new managerial cadres, while fostering technology transfers.
Amsden’s book is an incredibly rich, detailed account relying not on the a priori concepts of neoclassical growth theory but rather on the complex institutional context of many developing nations. Rejecting the “new institutionalism†approach to development, she holds for an inductive theory of development which is defined as the creation of theories based on “concrete cases of industrial expansion rather than abstract hypotheses to explain growth and guide policy making†(p. 290). Amsden’s book makes the case for such an approach. She has brought to the reader amazingly thorough and intricate accounts of development in many nations including Korea, Taiwan, Thailand, Mexico, and particularly Brazil. In doing so she has produced a major work of scholarship through her prodigiously comprehensive studies of various nations.
But this is not a book which chronicles developmental histories. Rather, from her meticulous work arise extremely convincing axioms and principles regarding the dynamics of economic development. Neoclassicals, one may be assured, will not agree with the previous sentence. Amsden’s earlier work, a true classic entitled Asia’s Next Giant, successfully challenged orthodox neoclassical development theory. Her latest effort, monumental in scope and detail, will be equally difficult for her critics to dismiss. Although Amsden does not write consciously within the context of institutionalist economics, one can easily find much that accords well with, for example, Thorstein Veblen’s classic works of development detailing the rise of Germany and Japan. Veblen’s unrelenting insistence on science and technology, combined with state intervention, as the constituent elements of Germany and Japan’s success have now been placed in a much broader modern context.
This book would be ideal for use in a graduate level seminar. It is a major advance in the field of development economics. Against the Goliath of neoclassical orthodoxy Amsden has delivered a powerful blow. Her daunting scholarship will make the book’s heterodox message difficult to ignore, yet the ideology vested in the orthodox model (export or die, get prices right, privatize, let the market rule, demonize the state, sanctify DFI, ignore path dependence) has been institutionalized and will continue to be well financed.
James M. Cypher
California State University, Fresno
________
cvj, I’m still trying to get a copy of Amden’s The Rise of the Rest but my impression from your description and Cypher’s review is that the newer book could be a sequel to Asia’s Next Giant (1989), also authored by Amsden, which I had the chance to read and has influenced me, along with other books, and other source of Philippine origin, in putting forth the conceptual design. I guess your concise description as well as Cypher’s analysis is confirmatory of what I’ve stated that “the basket of special State favors†are NOT “dole-outs†the way Ca t suspects them to be; at the same time, it serves to clarify the notion that State “interventionism,†in derogation of the market paradigm that’s alarming UPn and Bencard, is not a multi-headed hydra that we seem to have been conditioned to think but is in fact an untapped alternative “for the millions who are going hungry for lack of food or are dying for lack of health care†that Shaman wants to address first.
Bencard, my post of March 31, 2007 @ 12:55 specifically excludes foreign creditors from the equation precisely to avoid causing “dire consequences to the country.â€Â
Abe… Amsden’s book “Rise // the Rest” is available from Amazon.com… and with free shipping.
I still sense that a key ingredient to the Rise of the Rest is leadership (and a well-administered government bureaucracy) which, among others, allowed “the basket of special State favors” to become incentives as opposed to an engine for venality/corruption.
The well-administered reciprocal control mechanism of ‘the rest’ minimized the inefficiency and venality associated with government intervention and engineered the transformation of South Korea (with cronyism) and others into the well-formed economic States that they now are.
The warning, though, is that a poorly-administered state-intervention into the businesses of the country can lead to worse. We know that Marcos did not make it work. Neither did Garcia or Cory or FVR, and GMA is not even trying.
Abe,
Korea’s chaebols were owned by family-controlled corporations. Their financing comes from the foreign loans guaranteed by the government. So in case, they renege, the government assumed the obligations.
Now let us the chaebol version of Marcos.
1. Coconut industry-under Eduardo Cojuangco Jr. and Juan Ponce Enrile,
2. tobacco (under Lucio Tan), banana (under Antonio Floirendo)
3. manufacturing (under Herminio Disini and Ricardo Silverio)
and sugar (under Roberto Benedicto).
The assistance of the government is the same. Financing from foreign loans. We know them to be BEHEST LOANS. The government of Marcos also guaranteed these loans. Some of the industries had already folded up. The behest loans are still being paid by our government. These are what we are paying in terms of interest.
Amsden’s book was published 1989, so it did not include the discussion on the weaknesses of the system, to wit:
1. heavy reliance on export market
2. heavy reliance on debt-financing
3. corruption in the form of bribery in order to get the privileges
4. fraudulent accounting
Daewoo, one of the chaebols filed a bankruptcy which was considered to be the biggest in history.
Abe, thanks for providing Cypher’s review as well as the pointer to the Amsden’s earlier book Asia’s Next Giant (i will look it up). I agree with Cypher that Amsden’s arguments are compelling and i’m saying this as someone who is sympathetic to both the neo-liberal and even more so the new institutionalist frameworks. I get a sense that although the Philippines is not included in her study, the Latin American examples (specifically Argentina) can serve as a proxy for our own experience. On her take on inequality and how this discourages the rise of firms that will act as national leaders in manufacturing, her hypothesis, as stated in the book, is as follows:
“First, an unequal income distribution exarcerbates political unrest and uncertainty (real or imagined), which includes a ‘short term horizon’. among firms with respect to ‘make’ versus ‘buy’ decisions.
Second, an unequal income distribution creates a reluctance on the government’s part to worsen income distribution further; less concentration of assets is preferred over more concentration of assets.
Third, if income inequality is rooted outside the manufacturing sector, and if the skewed concentration of assets in nonmanufacturing creates either quasi-rents or a higher than otherwise capacity to absorb family members productively, then the core competency of leading national enterprises will be outside the manufacturing sector as well”
Korea was cited as the prime example of how income equality allowed for concentration of resources towards the chaebols, in Amsden’s words, “Only Korea, which started from a highly egalitarian base after land reform and civil war, could indulge in such antiegalitarian policies.”
The greater the degree of income equality, the more runway we have for policies that favor concentration of resources.
History shows that chaebols indeed brought economic prosperity to Korea in a few years. Come 1997 crisis, one by one they collapsed and the hidden ugliness of the system was unraveled. Like Enron, they were engaged in the cover-ups of their operations. Bribery is an SOP business strategy.
Parang walang pinagkaibhan kay Marcos. In the first few years, there was economic improvement. But later as the cronies became greedier, they amassed more capital for every expansion the could think of. Anyway utang naman eh.
The system was easy to implement because we were under martial law. All the government had to do was to issue executive orders to effect laws that would benefit these cronies.
WHY ARE WE INTERESTED IN BOOKS of authors which models were already proven faulty?
Did yo know that during the time of MArcos, there was also this microfinancing at the barangay level?
It was called Kilusang Kabuhayan something. I can remember my paper in my Economic Development class about barangay chairmen availing these loans and buying appliances . The administration cannot
prosecute because they need these barangay leaders. Ang sabi nga ng mga barangay chairmen, ano sila lang magpapasasa?
The idea of Abe, i.e. is a request for restructuring debts and moratorium for payment was also done by Marcos in 1984. The savings were used for the project SARILING SIKAP. MY male classmates in that class were laughing when I was presenting this research paper of mine. Sariling Sikap daw means Masturbation. Again corruption which trickled down the small government units ate up the huge sums for this project.
Erap time. Was there not a case of Erap granting 600 million or 11.7 million dollars in 1999 to a gaming firm owned by a crony.
Ca T, how can you ascribe equivalence and say that ‘walang pinagkaibhan kay Marcos‘ when we can plainly see that their strategy worked for them? Korea’s per capita GDP (PPP) is five times ours. There are superficial similarities to what Marcos attempted (his 11 flagship industries and all that) but there were important differences on how , among which are:
1. Early implementation of Land reform that led to a more equal society. This made it politically tenable to adopt strategy of greater economic concentration that led to the growth of the chaebols.
2. More self-reliance and less control by the Americans (either directly or via MNCs).
3. Capital was kept within the country and not in some secret bank account abroad.
Yes, Korea stumbled in 1998 (partly due to the IMF’s insistence in financial liberalization), but they have since recovered. While corruption exists in both our countries, one thing different about Korean Society is its capacity to bring corrupt Presidents and Chaebol CEO’s to justice. As i mentioned before, one President was assasinated for being ‘too authoritarian’ and the two Presidents who followed were convicted of their crimes. Those who are found out to have been corrupt in the corporate world also tend to commit suicide. These are the things that have allowed their society to move on. Dito, with the help of an apathetic citizenry, hanggang deadmahan na lang.
What is important to emphasize is that the juxtaposition of the Marcos debacle with the incredible South Korean success story leaves us to wonder: Can the Filipinos do it too the Korean way?
As we know, South Korea is now a global economic power (before the China surge, it was the second largest economy in Asia, and still is the 10th largest economy in the world).
However, in the 60s, South Korea had a GNP per capita of less than $500, equivalent to Guatemala; and as late as 1970, two years before Marcos launched his Bagong Lipunan (New Society), Philippines was ranked 40th still ahead of South Korea at 43rd and Taiwan at 60th, in GNP ranking.
Today, notwithstanding enormous OFW remittances (estimated at $12-14 billion in 2006), Philippine GDP per capita is in the one that’s in Guatemala’s league while we have been witness to the transformation of South Korea into becoming the number one shipbuilder in the world and a major global producer of automobiles, steel, electronics and other high-technology products.
The success achieved by South Korea is attributed to the operation of Korean, Inc. as a modern business concern subject to the control mechanism of “reciprocity†which as already defined above means that recipients of subsidies were subjected to monitorable performance standards that were redistributive in nature and results-oriented. The experiment was not perfect; there were corruption and favoritisms here and there and some of them were in fact part and parcel of the overall “business†strategy. With the student movement serving as additional overseer or watchdog, the will of the Koreans to succeed as a nation has prevailed.
It is true also that South Korea has borrowed its way out of balance-of-payments problems but foreign borrowing has been offset by large productivity increases, again owing to the application of reciprocity. So even during the Big Push into heavy industry sometime in 1979 financed by massive foreign debt, the debt/GNP ratio has remained unchanged or even fell slightly. By 2006 estimate, Philippine public debt at 61.6% of GDP is double that of South Korea’s at only 31.9% of GDP.
In the meanwhile, having one of the greatest investment rates in the world, the resultant output and productivity of Korean, Inc. have produced the trickle-down effect of ultimately addressing the malady of national unemployment and severe poverty. Trade and Industry Secretary Cesar V. Purisima once remarked in 2004: “If we can convince rich Filipinos to have faith in the economy and invest their money in the country then private domestic sources alone could finance a critical mass of projects that will be necessary to jumpstart and sustain the country’s economic development.†(emphasis mine). The forbearance scheme, the initial step, is just one design (that calls for the sacrifice of the country’s wealth holders to forgo rent payments during the moratorium matching in a way the extreme sacrifices of the OFWs) in order to generate internal funding for the pursuit of a development program, the next step, similar to the one pursued by South Korea or by other successful economies in the region such as Taiwan.
Moreover, as cvj is pointing out, one of the pre-conditions to economic transformation has been successful land reform or land policy which as if by common denominator has all taken place in the US, Japan, South Korea and Taiwan.
Two big questions remain: 1) How we avoid the Marcos trap? 2) Has GMA enough political capital to persuade men of great wealth and people in struggle to initiate the project?
Cvj,
Do you understand what I just wrote. The system was found to have loopholes. You are just reading about the early years.
LAter, Korea succumbed to the dictates of the IMF simply because they were already burdened with foreign debts.
Corruptions were exposed.
I cannot understand you people wanting to emulate a system that has already been proven that IMF simply can not be ignored if most of the financing comes from them.
The Ca t, it seems these are the same people who are still singing the praises for communism long after the ideology has been discarded by its major practitioners. I would think that if anyone would want to be a “trying hard copycat” (pardon the pun), he would try to emulate a system that works, if he could not come with something original on his own.
Ca T, when it comes to Korea, despite their crisis in 1998, you cannot argue with their continuing success. As Amsden says in her book:
“Only three years after disaster struck in East Asia, rapid economic growth has resumed. Latin America’s economies, by contrast,” [and IMO by extension, ours] “still appeared to be ailing from their financial upheaval two decades earlier.”
Abe, i think you pose a fair question. Can the current Philippine elite transform themselves (as the other elites have done) to become a force for good or would we eventually have to replace them? As for avoiding the ‘Marcos trap’, i think we need to drastically increase the salaries of our officials (a-la Singapore), and at the same time, isolate them (and their families) from the economy. No anonymous financial transactions or deposits for them.
Bencard, communism? I think your definition seems to be broader than the accepted usage of the term. If many more of our fellow countrymen have the same misconception, then i’m beginning to see where the problem is.
cvj… on the current Philippine elite agreeing to forbearance to fund some government project… my expectation is that the answer is “NO, they won’t do it”… not on the model that Abe is talking about, especially if the interest-payments that they were supposed to get is used to fund projects for another group of cronies.
UPn Student, unfortunately i would tend to share your pessimistic view. Nothing in the Philippine elite’s actions give us reason to hope for anything beyond self-serving, short-sighted thinking.
cvj, wrong again. I did not define “communism” in my post. I just said something about certain “people who are still singing the praises for communism” long after it has been repudiated worldwide. Read again, and please don’t argue about particular words, rather pay attention to the idea conveyed as a whole. (I assure you, I,m not “quibbling” – whatever that means).
cvj… The focus of my comment is the Abe-proposal; I was not making pronouncements on the color of the souls of Filipino businessmen. No businessman (be he Singaporean, Korean, Japanese, Saudi or Omanese) will put their own businesses at risk (via “trauma” to their cash flow) by agreeing to forbearance given how badly defined the Abe-project is, unless there is a gun to their heads, a well-detailed “spreadsheet” of puts-and-takes that has merit, and/or a credible leadership and business/national plan.
Upn, financing for all-sided development is definitely a difficult challenge. The “interest cum domestic creditors only moratorium scheme†that’s being proposed is just one out-of-the-box design for heavily indebted countries like the Philippines to mobilize resources to fund economic development with equity. I have originally extrapolated the idea (yes, Bencard, “original†because, theretofore, there seems to be no initiative similar to it as far as I know) from a rather simplistic framework based on my hands-on experience, some ten years ago, in mid-level commercial accounts “workouts†in a banking environment. As you see, workouts, forbearance and similar debt restructuring are practical and feasible alternatives to foreclosure and bankruptcies, even when such remedies are legally available in the recovery management of non-sovereign debts. Taxing short-term speculative trades in securities and imposing user charges (environmental tax) are other examples of innovative vehicles for funding sources.
Bencard, where could you have been when on Januray 10, 2003, President Arroyo (before the infamous Garci tapes scandal) shocked avowed free-marketers upon her declaring that “unbridled globalization is no longer in vogue†and challenging the economic elites to gamble, take risks and “plunge†with her. None that I know of has labeled Arroyo a communists then; on the other hand, I have applauded her audacity in this manner: The call couldn’t be any more propitious for, critical to economic development is, to repeat, the will to develop on the part of the captains of the industry or the nation’s empire builders, if you will, who want it so badly to attain national development. It was as if GMA’s call has made the renewed rumblings for charter change look more like an unintended diversionary tactic of political louts and troglodytes or an offer by a highway mechanic to repair a totaled car along EDSA.
“NO, they [the current Philippine elite] won’t do itâ€Â… not on the model that Abe is talking about [unless there is a gun to their heads] – UPn
“What can we say, in general, then, about the supply of finance during the take-off period?†W. W. Rostow (whose work I believe has influenced Amsden) has asked. Rostow who wrote the seminal “The Stages of Economic Growth: A non-communist manifesto†(1960), is a staunched anti-communist economic thinker and advisers to several US presidents. He answered himself in the following summary: 1) See to it the community’s surplus will not end up in those “who will sterilized it by hoarding, luxury consumption or low productivity investment outlays.†2) Institutions to provide cheap and adequate working capital should be developed. 3) To induce industrialization, one or more sectors of the community must grow rapidly, where the entrepreneurs in those growth sectors “plough back†their profits into further productive investments. 4) Foreign capital flows are extremely important especially for “overhead capital construction†but take-off is also possible based on wholly domestic sources.
The unfortunate thing about it, said Senator Manny Villar at a Senate briefing on the national budget for 2005, is that banks would rather acquire Treasury bills and other sovereign debt instruments than lend to businessmen because aside from the rates being so attractive, the “investments are risk-free and protected from depreciation.†Going back to Rostow in this regard, he has acknowledged that the devices for ensuring the above first two conditions could be fiscal or confiscatory. I believe the proposed moratorium scheme resides somewhere in between. In another dimension, I have called it “permissible bastardization.â€Â
Reacting too to Arroyo’s call, Ateneo de Manila University economics professor Cristina Morales has written an interesting piece the relevant excerpt of which reads thus:
Sounds more familiar now?
cvj, I agree. The key to all of these is a strong, autonomous and highly competent bureaucracy that can reign in the economic elites and the political class as well as the demagogues. Perhaps, another good starting point for our purpose (aside from examining the Singapore or Korean bureaucracy) is to look too at how the Japanese MITI has come into being to pave the way for Asia’s first miracle.
I have however posited before that the “real political, social and economic challenges of GMA’s administration . . . would be how to balance the market prescriptions (freedom FROM state interference) with social justice (freedom TO self-realization) on the one hand, and, on the other, how to marshal and factor democracy, expressed in people power through consultation and consensus, in bureaucratic efficiency.â€Â
The project is still very skeletal, UPn. It’s up to you and the rest of us to flesh the concept out based on certain premises already stated in my April 3, 2007 @ 8:47 as well as the “motivations†anticipated in my April 4, 2007 @11:37 posts.
As I have suggested, you should read about Korea’s ability to rise from the crisis.
The IMF helped them restructure their debts. There’s so much to lose. The bankruptcy of the Daewoo was the biggest in history.
The CHAEBOLS were reorganized in terms of ownership. They became multinationals. The very organization that you want to eliminate.
Look who owned HYUNDAI, now? Samsung ?
Sometime, I think, you are just focused to one phase of history.
Korea corrected their mistakes by changing the system. And here you are, still saying allelujah to the defunct Korean model.
One reason why South Korea is now enjoying high economic growth is because of its partnership in export with China.
We cannot just copy the system or the model of another country because of our culture and government system.
One criticism of Amsden’s paper was her failure to look at the culture of corruption for family or closed corporations and the system of government of Park Chung Hee.
During his takeover of the government, he suppressed personal freedoms and created KCIA which was authorized to make arrests without any charge.
Even when he was pressured to maintain a democratic form of government, there were accusations that the electoral system was also heavily rigged in favor of Park’s Democratic Republican Party.
Tanong ko sa mga gusto ng chaebol na ito. If we adopt the model, would you like to have an atuhoritarian government?
While borrowing money for the chaebols, Park Chung Hee also demanded for the War Reparations payments from Japan and economic aids from the US. So we cannot totally attribute the economic progress of S. Korea to the chaebols’ financing alone . We got also our own War Reparations and economic aids. Guess who pocketed them?
As explained below, the ‘mistakes’ that led to the crisis were introduced, in a large part, by the IMF. As for promotion of exports has all along been part of Korea’s strategy. You admitted as much in your post above (at April 9th, 2007 at 12:22 am).
I agree and i don’t think Abe (or i) is recommending to copy the Police State aspect of the model. BTW, as the story goes, it was the head of the KCIA who gunned down Park because the latter was ‘an obstacle to democracy’. (Refer to wikipedia entry on Park Chung Hee.)
I believe that capital account liberalization” [an agenda pushed by the US Treasury and the IMF], “was the single most important factor leading to the crisis” [emphasis in the original] “I have come to this conclusion not just by carefully looking at what happened in the region, but by looking at what happened in the almost one hundred other economic crises of the last quarter century” [Source: Globalization and Its Discontents – Joseph Stiglitz]
In resolving crisis, credit goes to the South Koreans rather than the IMF. Then Secretary of the US Treasury Robert Rubin one of the architects of Korea’s bailout in 1998 explicitly stated that:
“And what mattered most wasn’t anything the IMF or US Treasury had done but South Korea’s own response. President Kim Dae-jung and his colleagues, the heroes of the South Korean recovery in my view, showed how sound, courageous political leaders can make a great difference – in fact, the key difference -in overcoming economic duress” [Source: In an Uncertain World, Robert Rubin]
In Korea, the companies that you say ‘became multinationals’ were already multinationals long before the Asian crisis and IMF intervention. Anyway, who says i want to eliminate MNC’s?
Sorry, my previous comment was truncated in the middle. The statement above “I believe that capital account liberalization was the single most important factor leading to the crisis— came from Joseph Stiglitz.
The success of chaebols depends on the Police State factor. Many laborers gave up their rights just to help the Korean economy.
But labor unrest will haunt even authoritarian states.
Read this article: Korean Workers shut down chaebols.
Abe… why does it sound like you are criticizing Philippine bankers who have the responsibility to obtain reasonable return with less risk when you state ‘…that banks would rather acquire Treasury bills and other sovereign debt instruments than lend to businessmen because aside from the rates being so attractive, the “investments are risk-free and protected from depreciation.— Wouldn’t you want your own retirement funds (along with funds from the GSIS or SSS) to be in such instruments (attractive rates, risk-free, protected from depreciation) as opposed to being lent to businessmen-cronies of whoever is sitting in Malacanang?
AND…. would it not be nice if the Philippines can copy the model for “….the heroes of the South Korean recovery —- sound, courageous political leaders (who made the) great difference – in fact, the key difference -in overcoming economic duress” ?
Interestingly, the professionalization of the Filipino bureaucracy has transferred control of a lot of Filipino assets away from both Malacanang and the Congress. The directors of GSIS, the SSS (along with the OFW funds) have the mandate to search for instruments with attractive rates, that are risk-free and protected from depreciation. GSIS-, SSS- and OFW-funds can not be for campaigning or even evacuating OFW’s from war-torn Lebanon.
Latin America also had its dictatorships (who enforced labor discipline), but it did not achieve the same success as in Korea. This is because (as i mentioned in my comment above at April 9th, 2007 at 2:58 am) the success of the Chaebols had more to do with greater income equality which allowed for a greater degree of concentration of resources. Of course, if the elite does not voluntarily agree to Abe’s forebearance strategy, it may turn out that a dictatorship is needed but this should be aimed more at promoting equality in society, i.e. breaking the power of the oligarchs (e.g. via land reform), rather than in suppressing the rights of the common laborer.