Note: additional information came in (January 28, 2009) requiring revision of the account of meetings between administration officials and the private sector detailed below.
Back in December, I wrote about the then-unreported loss of jobs in the Call Center industry, which some readers disputed as a “half-empty” sort of thing to say; still, hard news started trickling in (for example, Accenture Manila cuts hundreds of jobs).And while, indisputably, the industry itself is trying to maximize its potential (see BPO industry short by 20,000 jobs of its target last year) it has to do so while grappling with harsh global realities (see BPO industry sees consolidation amid uncertainty in US economy ). To be sure, if companies are nimble, there are actual opportunities:
Tholons Philippines country manager Jo-An Darlene Chua was quoted as saying that with the country’s BPO export value aggregating close to 50 percent of India’s, companies may well find the Philippines as a good alternative.
Tholons said the same for Vietnam ” a solid alternative to India on the IT side.”
Sanez said he can’t see any backlash yet on the US government’s move to generate domestic jobs that may impact the BPO industry.
“It doesn’t matter whether the policy of President-elect Barack Obama may rein in offshore activities because outsourcing and offshoring are business decisions.”
But as blogger Marocharim, over at Filipino Voices, recently wrote a timely reminder of the very human face of all these statistics: the layoffs are real, the concern among young Filipinos, acute.
Today’s headlines focus on the closing of Intel’s Philippine operations and disclose job loss figures that are disheartening, though also, confusing: Export drop affects 34,000 jobs; Gov’t fears 60,000 IT job losses (surely some overlap between these two separately-reported figures); and RP 2008 growth may be weakest in 7 years. No one doubts this year will be tough; the ongoing economic crisis is global and of course affects us, too (see Layoffs for January 2009 at America’s 500 largest public companies:71,450).
However, if the country is to weather the storm, or position itself to recover as quickly as possible, then it surely helps to see where the bad news has been fostered by existing conditions.
This Intel story, for example, began close to two years ago. On April 3, 2008, blogger SEAV, in Intel Cavite Closing Down, for Real? pointed to Yugatech first blogging about the possibility “almost one year ago,” and then mentioned information that surfaced in the comments section of an entry of his in another of his blogs, Vista Pinas (see Intel Philippines, Cavite Plant). One comment in SEAV’s blog (April 4, 2008; seconded by an April 7, 2008 comment) explained the closure as follows:
The complete story is that, and this has been extremely misrepresented in various circles thus far, there are issues with the current building where Intel CV is operating and given Intel’s utterly strict standards on safety and building code compliance, this is deemed more as a long-term move for safety reasons (think Hanjin and you know what I mean) rather than an immediate pull-out of busines operations. In order to sustain the business, a set of options have been formulated by Intel Corporation as a whole with the most promising being that a new building should be identified where all operations can be transferred to and resumed. This part of the story is still not resolved and a second announcement is due by end of June to finally roll-out the official plan, a full closure being one of the alternatives, if a building is not identified and the economic climate of the Philippines continue to be inferior versus Vietnam and China and the rest of the world.
According to Yugatech (in Intel to shut down Cavite facility by year-end), has been steadily paring down its workforce since April, 2008 (when SEAV’s entry came out), reducing it from 3,000 workers at the time, to the 800 who made the cut but who will now lose their jobs. It seems reasonable to deduce that the economic reversals of the company at present meant it had to dispense with finding a win-win solution for the problem it’s wrestled with for some time now:
According to a source who received the memo, Intel will no longer continue its plans to transfer its operations to Laguna (the one by NXP Semiconductors, formerly Philips Semiconductors, plant in Cabuyao as reported earlier). Intel has been taking bids and contracting 3rd party providers for the transfer but suddenly scrapped them altogether. The memo did not specifically indicate the reasons for the sudden reversal of decision.
Now there’s a moral to this story, and it is, that if we are to not only entice, but retain, foreign investments, you can’t muck around with “puwede na” slipshodness and that problems, once identified, ought to be resolved within a reasonable period of time, otherwise the window of opportunity might simply close, leaving ordinary employees in the lurch -and further retarding the competitiveness of the country (and other issues were raised concerning the waning enthusiasm of Intel: high taxes, high power rates, etc.).
In a letter to the editor today, Peter Wallace comes up with an answer to the ongoing debate about the 2007 economic figures touted by the government:
As to 2007 being a good year, we can’t fully agree. The reported growth of 7.2 percent was not because of a strongly growing economy but because of a numerical oddity. Import growth is subtracted in the equation for the gross domestic product (GDP). In 2007 imports fell by five percent, the double negative meant that this rate of fall was added to GDP – a double-negative becoming a plus. Had imports grown at their previous more normal rate of around five percent, GDP growth would have been about 4.8 percent, much more in line with anecdotal evidence.
One must ask: How could imports have fallen if the economy was growing strongly; intriguingly how could oil imports fall by some 6.6 percent? The only explanation we can think of is that smuggling must have been up.
But then the problem is that data is ever disputable. But Wallace’s letter, which ends with his opinion that the World Bank’s blacklisting of some domestic firms is a step in the right direction, brings me to another point related to my point concerning Intel’s shutting down its Philippine operations, and my blog entry, yesterday, on the government and its possible anxiety over the handling it will get at the hands of the new American administration.
Personally I think Amando Doronila is being alarmist (and if you want my view on the matter, there’s my commentary, New era of intervention ; the best overview, remains, to my mind, in Torn & Frayed‘s blog). So f what the country can expect is more assistance for development, but no encouragement for secession, and also, increased scrutiny on human rights, then this means the Palace had better nip all this talk of ex-Gen. Palparan being put in charge of the anti-drug agency of the government! And more to the point, it had better start finding some big fish to fry as far as corruption is concerned.
Philippine Commentary links to a Dow Jones Story, World Bank Bans 7 Firms, Some China Government-Owned, In Philippines:
Following a major investigation spanning several years by the Integrity Vice Presidency, the World Bank found evidence of a “major cartel involving and international firms bidding on contracts,” it said in a release.
That led to four Chinese state-run firms being barred for the first time from doing business with the World Bank for a period of between five and eight years – the China Road and Bridge Corp., China State Construction Corp., China Wu Yi Co. Ltd. and China Geo-Engineering Corp.
A Philippine firm E.C. de Luna Construction Corp. and its owner, Eduardo C. de Luna, were each banned indefinitely. Two other Philippine companies, Cavite Ideal International Construction and Development Corp. and CM Pancho Construction Inc., were each barred for four years.
“This is one of our most important and far-reaching cases, and it highlights the effectiveness of the World Bank’s investigative and sanctions process,” said Leonard McCarthy, vice president of the World Bank Integrity department, in the statement.
The investigation began in 2003 after the World Bank team grew suspicious about collusion in the bidding process for a contract during the first phase of the Philippines National Roads Improvement and Management Program. The road improvement program was partially financed by a $150 million World Bank loan, though none of the sanctioned firms received any money.
In August 2008, the inquiry led the bank to ban a South Korean firm working on the roads project, Dongsung Construction Co. Ltd., for four years.
The government, from what I’ve been able to glean, saw the writing on the wall as far back as October last year. In broad strokes, the story goes like this.
In October, the government got wind of the Millenium Challenge Corporation’s attitudes cooling towards the government. The government had gotten wind of the Millenium Challenge Corporation’s attitudes cooling towards the government. This US agency has been positive about anti-corruption efforts it was funding in the Philippines, and our government, in turn, has been trumpeting its support, proclaiming it to be a kind of Seal of Good Housekeeping. But the government was poised to fail, in terms of meeting the criteria set by MCC, for fighting corruption.
It seems some officials in the President’s official family decided that some sort of public to-do had to take place. The private sector was approached, in an effort to net, as the saying goes, a big fish or two. It seems some officials in the President’s official family decided that some sort of public to-do had to take place. The private sector was approached, roundabouts October, in an effort to net, as the saying goes, a big fish or two.
The idea, as proposed by the members of the President’s official family to representatives of the private sector with whom they met, was to mount some sort of investigation and undertake prosecutions to prove that the government was serious about curbing corruption.
The private sector suggested that one way would be to focus on issues that were festering, such as the such as the Megapacific vote-counting machines case, the Diosdado Macapagal Highway issue, or even electoral fraud in the 2004 presidential elections or even the Fertilizer Scam. But the officials balked at this. But the officials, while receptive to the first two, balked at the third.
OK, so why not look into the National Road Improvement Project and the findings of the World Bank, the private sector suggested, by way of a compromise. Apparently the World Bank findings were already being discussed not just in government circles by this point.
Then the officials suggested, by way of a compromise, why not look into the National Road Improvement Project and the findings of the World Bank? The private sector replied that they were skeptical about progress being made on the cases under the auspices of the present Ombudsman. One of the officials said the Ombudsman’s cooperation would be sought.
But when the private sector asked for a copy of the World Bank report, the officials balked, although it seems the government was in possession of the report in full, and not just an executive summary of its findings. Along the way, the Ombudsman seems to have received a copy of the report, but with the interesting proviso, on the part of the World Bank, that the report not be used by the Ombudsman for prosecution: if a prosecution was to be undertaken, the Ombudsman would have to do her own investigating (interesting, because it suggests the World Bank didn’t want to get dragged into domestic politics, or had little confidence in the report being used for anything more than window-dressing by the Ombudsman).
Along the way, the private sector was able to receive a briefing on the World Bank report. The Ombudsman, it transpired, had received a copy of the report, but with the interesting proviso, on the part of the World Bank, that the report not be used by for prosecution: if a prosecution was to be undertaken, the Ombudsman would have to do her own investigating (interesting! Does this suggest the World Bank didn’t want to get dragged into domestic politics, or had little confidence in the report being used for anything more than window-dressing by the Ombudsman?).
So the whole thing fell apart because the private sector failed to be convinced of the good faith of the officials that made the approach; I wouldn’t be surprised if ongoing efforts in Congress will simply be written off as the government deciding it would be better to go through the motions of doing something regarding the World Bank report rather than opening up other investigations. To be sure, the World Bank report deserves a congressionaly inquiry.
To test the sincerity of the officials who approached them, the private sector asked for a copy of the report. No copy was forthcoming. So the whole thing fell apart because the private sector failed to be convinced of the good faith of the officials that made the approach.
The World Bank’s report probably had an impact on the American government’s Millenium Challenge Account Philippine Threshold Program and its decision to cut funding for the Philippines. At first, it seemed that essentially what the country had was a P.R. problem. See Millennium Challenge Corp. cuts Philippines aid:
The Millennium Challenge Corporation (MCC), an American government aid agency, has restricted aid flowing to the Philippines due to concerns about corruption. The MCC is setting aside a prior decision to promote the country from “Threshold” to “Compact” aid status, which would have secured significant funding for development projects. The decision appears largely based on the World Bank Institute’s aggregation of corruption perception surveys, which report a worsening public perception of corruption problems.
After she’d taken great pride in the supportiveness of the Millenium Challenge Corporation, the President obviously knew she’d have a lot of explaining to do once news of this reversal leaked out. But more than perception, it seems, the problem of the government was that the Millenium Corporation seems to have been affected by the World Bank’s findings -and they were factual. Which pulls a rug from the government’s beloved “where is your proof? Prove it in the proper forum!” mantra.
After all, it could undertake precisely what’s going on -its own investigation, within the controllable parameters of congressional inquiries.
Still, the damage has been done. The charts above shows the inexorable slide, downwards, of the Philippines’ ratings concerning corruption. But if the Millenium Challenge Corporation hands you lemons, make lemonade.
If the government’s going to suffer a black eye -and a loss of funding and the accompanying erosion of its prestige- it could, at least, keep its China Card in play, as an antidote, fiscally, and politically, to its having lost the American Card. Which is what it’s doing.
Even if stories end up unfolding slowly but surely, so long as you keep the public distracted, it can’t detect the slow, inexorable, unfolding of events. So you can blame the closing of Intel’s plants on the global economic downturn (which is true, of course) while sweeping any domestic culpability for it, under the rug. You can thunder and shrill about the World Bank report while downplaying what you used to trumpet -the Millenium Challenge Corporation’s decision to put things, at the very least, on hold.
as far as I know if congress sympathized with the contractors in its hearing, the senate has scheduled a hearing of its own.
if you recall the petioners(my dad included) Abaya vs ebdane questioned the project one of the foreign firms ivolved:china road and bridges corp; which was dismissed by the supreme court.
tat case was used as a reference by the gov on executive agreementsin the ZTE NBN issue.
http://karl-garcia.blogspot.com/2009/01/wb-steps-in-our-procurement-mess.html
http://karl-garcia.blogspot.com/2009/01/more-on-procurement-reforms.html
here is what mon tulfo has to say about the cartel in dpwh
http://newsinfo.inquirer.net/inquirerheadlines/metro/view/20090122-184796/Cartel-at-the-DPWH
edit:
“if you recall the petioners(my dad included) Abaya vs ebdane questioned the project one of the foreign firms ivolved:china road and bridges corp; which was dismissed by the supreme court.
tat case was used as a reference by the gov on executive agreementsin the ZTE NBN issue.”
if you recall the petioners(my dad included) of the Abaya vs ebdane case filed in the sc,questioned the project one of the foreign firms involved:china road and bridges corp; which was dismissed by the supreme court.
that case was used as a reference by the gov on executive agreementsin the ZTE NBN issue.
“Back in December, I wrote about the then-unreported loss of jobs in the Call Center industry, which some readers disputed as a “half-empty†sort of thing to say; still, hard news started trickling in”
I know isa ako sa mga kausap ko si leytenian IIRC.
sabi ko dito paikot ikot lang ang mga empleyado ng call center,lilipat lang ito sa mga call center na may client na nag survive sa crisis.
Sa tingin ko ganun pa din sa mga call center.
At sa IT services halos ganun din lipat lang.
At least me panlaban na silang experience.
For intel matagal na nga ang news na lilipat na sila vietnam; so what is new? noong 1997 crisis ang dami lumipat sa vietnam at thailand ,etc pero mga manufacturers naman ito like j and j,unilever ,etc.
The question remains,what are we going to do about it?
As in my typing; I could be wrong in my opinion.
last comment ko na nga,me mali na naman.
“I know isa ako sa mga kausap ko si leytenian IIRC.”
edit to
i know isa akosa mga nagbigay ng gantong opinyon….
my, my, things are looking bleak indeed in my beloved PHILIPPINES.
HUHUHUHU.
Kawawa naman ang apo ko.
I have heard many in the Philippines say that we are blessed because we have remained, for the most part, untouched by the brutal economic crisis that is now gripping most of the world.
I have read about Philippine government officials boasting about the country being blessed to be insulated from the global crisis.
Recently, Executive Secretary Eduardo Ermita was quoted:
“Ermita said Arroyo and her abilities especially in managing the economy and in insulating the Philippines from the full brunt of the economic global crisis had been recognized.
And wouldn’t we be proud to say that the Philippines continues to be an ‘island of calm’ because of the present crunches?” he said, when asked by media what lesson Arroyo could learn from Obama.â€Â
While I wish that the Philippines be, indeed, insulated from the economic crunch, is this a realistic expectation?
To Ermita and many others who may be feeling too cocky, I can only admonish:
“Be careful what you say because, someday, it might come back to haunt you.â€Â
Intel’s pullout is cited in this blog. There are other ominous signs of troubled times ahead. For example, IMI Philippines, Ayala Corp.’s circuit-making plant in Laguna lost a substantial amount last year and has been forced to make cuts in production for 2009 due to a huge backlog of inventories and lack of orders. Texas Instruments is laying off 400 workers from its plant in Baguio. Cebu furniture makers are making alarming cuts in their workforce due to large drops in orders.
These are only a few examples, and it is only the beginning. Commodities are dropping in price and are expected to drop even more. A large part of the Philippine rural population relies on coconut (copra) prices, which had been at record highs due to high biofuel and food prices. Those lofty prices cannot be sustained and will surely cut incomes in the countryside, which, in turn, will affect the sales of beer and other products.
Furthermore, Japan, South Korea, China, India, Singapore and most of Asia have already suffered significant drops in GDP. And, although they are taking measures far greater than we are, they are bracing for worse in the months to come. Are we so superior to those economies that we will not be caught in the contagion? With the U.S. and Europe down, Japan and China are vital export markets. If they also go down, will we not be affected? From what I have seen, Philippine tourism alone will suffer if these Asian countries suffer.
Much has been made about how our relatively unsophisticated banking system has saved us from the toxic financial products that were peddled all over the global financial system. That may be true. So far, only BDO, Metrobank and RCBC have declared losses of any significance from toxic debt. And it was on a silly derivative, guaranteed by Lehman Bros., that was basically rooted on Republic of the Philippines debt. But there are other clouds on the horizon. If newspaper accounts are true, pre-need firms are in the hock for P47 billion. That will surely be a blow to many policy holders. Last December, there was a lot of commotion about Legacy Plans going under and how many individuals lost money investing in that Ponzi scheme. Lately, there have been apprehensions aired about the banking system’s high exposure to property loans, making it vulnerable to a downturn in property prices. And the still relatively high proportion of none-performing loans in banks’ portfolios has also been noted.
Much has also been made about the foreign currency remittances from Filipinos abroad. While these inward remittances apparently held up in 2008, can we expect the same in 2009 and the years to come? Common sense only tells me that when people are laid-off or lose huge values of their savings, they will tend to part with less money. Just as markets worldwide are suffering from huge contractions in consumer spending, will remittances not also contract? Will remittances manage to defy the laws of gravity?
While I wish the Philippines all the best, I think that some sectors have been crowing too early about our coming out unscathed from this crisis. Maybe our economy’s relative lack of sophistication has only postponed the inevitable.
The title of this blog “Slowly But Surely” may be a more apt way of describing the economic contagion.
God save the Country… I really don’t want to imagine what happens within the next few months.
And the government has got to belt-tighten now… Or else, but it’s more of wishful thinking. And Ermita’s statements are half-baked, if not, blinded. No country with dependence on exports is insulated from the global crisis. Just because we got through the Asian Financial Crisis doesn’t mean we will not be affected. Sigh. I just hope my mom can survive the situation in the states.
God save the country… from complete cock-sure confidence and outright theft that most in the government are doing.
Philwo,
With that astronomical budget just approved by the bicam, that’s too much cake in the pie for the top gov’t people to be expected to tighten their belt. It’s like hoping the flies stay away from the horseshit, heheh.
It takes substance to survive an economic crisis. When demand for commercial activity dries up, the intrinsic capitalised value of an economy becomes important.
This is something in my latest article: Substance matters in an economic crisis.
It’s gonna be tough – specially for societies that lack substance.
MLQ3,
I really think the corruption label will stick to GMA like sh*t on a fly’s legs. With this World Bank development, she has nary a shred of credibility or deniability left and is really flying on fumes now. There is snowballing effect that I daresay it would be extremely fruitful to assist, what with the Jocjoc Bolante case, and Ayala Alabang going into high gear. Together with that quote from Barack on corruption, the Palace is really whistling by the graveyard now with that Ermita Statement about learning lessons from Gloria.
They need to learn a Big One. However, I am afraid it may require really looking back at Edsa Dos and understanding why Erap must run again for President. Because win or lose, he is the only one who can zero both himself and GMA out, in a kind of particle-antiparticle annihilation event.
BTW, I like the new look of your site. Masthead may not yet be done I guess. But I wish I had a “Q” in my name. It’s such a neat letter. You could do a lot with it on the masthead.
Hi Manolo,
In June 2006, PGMA announced the allotment of a PhP1 billion fund to cover the various anti-corruption projects of the Executive Department with Presidential Anti-Graft Commission-PGAC at the helm to ensure efficient coordination of efforts. But some of these anti-corruption programs do not include an independent agency to encourage the public to report any instances of corruption, protect witnesses/whistle blowers and follow up on any reports they make.
At the bottom of this link, Public Anti-Corruption Initiatives were recommended by the world bank and other international agencies.
Excuses : President Arroyo has ensured that Congress will pass an anti-corruption law in 2008. However, although the government declares that anti-corruption measures are of the highest priority, public sentiments on corruption issues in the country suggest that there is a mismatch between the proclaimed commitment to counter corruption and the actual effects of these measures. The government has also shown commitment to e-governance as an attempt to increase transparency and to stamp out much of the corruption caused by face-to-face interactions with public officials, but one of the obstacles is that most Filipinos have no Internet access. Many anti-corruption initiatives are conducted in cooperation with international donor organizations. However, even though there is a large number anti-corruption measures and initiatives, implementation of and compliance with them still lag behind.
BTW, I like your new site.
I am hoping Manolo that you will be done with your MBA soon and run for office. 🙂
Well I’ll be darn, that is really telling when WB is not willing to get dragged into the muck of the Philippine dysfunctional judicial inquiry…… that shows we are indeed reached the lowest of the low in terms of credibility.
And quickly Obama clashes with the CBCP and Pampanga’s Governor Panlilio. Subject — “Mexico City policy”. The policy bans U.S. taxpayer money, usually in the form of U.S. Agency for International Development funds, from going to international family planning groups that either offer abortions or provide information, counseling or referrals about abortion. It is also known as the “global gag rule,” because it prohibits taxpayer funding for groups that lobby to legalize abortion or promote it as a family planning method. the ban has been reinstated and then reversed by Republican and Democratic presidents since GOP President Ronald Reagan established it in 1984. President Bill Clinton ended the ban in 1993, but President George W. Bush re-instituted it in 2001 as one of his first acts in office.
In a few days, President Barack Obama will sign an executive order ending the ban on federal funds for international groups that perform abortions or provide information on the option,
Regarding Peter Wallace letter, that is corroborated by the fact that such increase in gdp growth has not been accompanied by a proportional increase in power consumption:
http://cvjugo.blogspot.com/2008/03/gdp-growth-and-missing-energy.html
cjv,
but on the other hand there are periodic power failures in the visayas, and a great deal of effort seems to be going into the aboitizes, san miguel, etc. cornering the energy market. so is this a function of expected, inevitable increases in energy demands, or should we factor in a kind of artificial hysteria to propel deal-making?
Manolo, the absolute demand for energy will increase if only because our population is increasing, so cornering the energy market is still a worthwhile rent-seeking activity for the Oligarchs. With 90 Million consumers and growing, a monopoly or oligopoly in that sector is still lucrative especially if you have friends in government.
The relevant comparison in cross-checking whether the GDP growth during Arroyo’s term is overstated is that between per capita GDP growth and per capita growth in power consumption. The curious trend has been that per capita GDP growth is reported to have increase while per capita power consumption has been decreasing.
Chuck,
i visited your blog and made some comments there. Pls check it out.
Ps ngayon ko lang nabasa ang reply mo ke mlq3 ,so ok, that comment above is also duly noted.
interesting Habito has another observation,this time about job creation.
http://business.inquirer.net/money/columns/view/20081228-180364/A-puzzling-economy
That was a december 28,2008 article.
I will expect another article from him that coincides with the latest developments.
Chuck,
About higher demand because of higher or increasing population; it does not follow.
If people do not buy or consume something that does not reduce the number of people who may potentially buy something;but it certainly reduces the demand for that something.
for example the demand for oil.
we have low oil prices world wide, because of the low demand for oil.
The population has certainly nothing to do with that. For all we know; from the time that the prices of oil was sky high a few months ago till today, the population might have increased so much. But still we can not say that the demand for oil increased.
Karl, first let me describe the areas where we think we agree. Higher energy demand because of higher population follows given that (1) per capita income is held constant (not to mention increasing) and (2) there are no increase in energy efficiency.
The world price of oil collapsed because of reduced consumption which in turn because incomes [to buy oil] have decreased.
I suppose that as far as the above paragraphs go, we are in agreement. Now on where we differ…
In the case of the local energy sector, even if there is zero per capita income growth in the next thirty years, i.e. even if everyone’s incomes stay the same, the projected increase from 90Million to 120Million Filipinos in the next 30 years will mean that demand for energy will increase by as much.
Your scenario of falling energy demand will take place if incomes fall at a greater rate than the increase in population (holding energy efficiency constant). Given that the poorer families tend to produce more babies, any decrease in income would likely show up in a higher population growth rate. Monopolists or oligopolists in the energy sector therefore have a built-in hedge (absent a general breakdown of society).
Sorry…i meant ‘were i think we agree’.
The global economic problem may be a lot more complex, but also a lot simpler, than what it appears.
What is certain is that the solutions will be painful, and may take a lot of time, because they involve changes in lifestyles, attitudes and behaviour. This is primarily true for Americans who, way back from the Reagan years, were enticed into commercialism, materialism and mindless consumerism. The “me-first†Conservative Credo, espoused by Reagan, the two Bushes and their supporters, completely disdained the concepts of altruism, taxation and regulation. It idealized individualism, “rational self-interestâ€Â, laissez-faire capitalism and limited government. The “Reagan Revolutionâ€Â, along with its mouthpieces and ideologues, was instrumental in creating a materialistic society that relied on less taxes and more consumer spending in order to energize the economy.
Like all bad habits, this addiction to consumer spending has contaminated much of the world. The Philippines is no exception, that is why those inward remittances from abroad are so vital to our economy. The whole concept of the ubiquitous mall industry in the Philippines is premised on consumer spending. Would SM have grown so large if it weren’t for the Filipino consumer?
While it is true that this global economic crisis was initiated by the U.S. housing slump and by the unrestrained greed of lenders and financial institutions who packaged and sold toxic financial instruments to the public and other institutions, at the core of this crisis is the fact that CONSUMER SPENDING HAS DRIED UP. The financial crisis, and the trillions of dollars gone up in smoke, caused money to freeze and the consumer to stop spending. Therefore, goods and services are not being bought, factories and stores are laying off people, creating a vicious cycle of less spending and more unemployment.
The problem with our global economy is that it is anchored too much on consumerism. This unhealthy reliance on a single volatile aspect of the economy makes for an inherently defective global economic situation. Unless this very serious fundamental flaw is corrected, even if massive stimuli manage to revive consumer demand and spending in the future, the world will be CONDEMNED TO REPEAT THE SAME MISTAKES OVER AND OVER AGAIN.
The American economy (and by consequence, the world) has become too dependent on the consumer, so much so that 70% of U.S. GDP depends on consumer spending. And when the consumer decides to shop less, and to save more, the entire global economy goes into a tailspin. George W. Bush only emphasized the American economy’s distressing dependence on the consumer when he exhorted Americans to “go out and shop†and to even to “take your families to Disneylandâ€Â, as an act of patriotism and defiance, right after 9/11. And when the U.S. began teetering into recession in 2007, Bush again urged the consumers to “go shop some moreâ€Â.
Bush’s words may one day sound ridiculous and, to some degree, amusing. But those were said in all seriousness. And, incredibly, most of the American public agreed with Bush.
This abject dependence on consumerism cannot be sustained. And therein lies the problem. How does the U.S. and the world break from decades of dependence on consumer spending? This is like telling a drug addict to go cold-turkey on drugs. It won’t be easy, and it may take a long time before economies can be weaned from mindless consumer spending. The fact remains that, while the world economy fastens itself unto something as inherently unstable as consumerism, the world must be prepared for continuous bouts of economic instability.
It will not be easy to make changes because bad habits die hard and have taken deep roots. And, because it will involve changes in attitude, lifestyle and behavior, it will take much soul-searching for many. But it should be time to go back to old values. Values that emphasize saving money over mindless spending; culture over trendy; nature over commercialization; simplicity over ostentation; altruism over greed.
That is why talk about our being insulated from the global economic crisis is both premature and silly.
Carl, given that consumer spending is ‘volatile’ and therefore an unreliable foundation for economic prosperity, to your mind what should replace consumer spending? Government spending?
I have no problem or question with decreasing income leading to decrease in consumption.
I guess the decrease in income was not offset by the low prices.
The low prices usually allows the market to correct it self by stimulating consumption.
Apparently,that is not the case as far as oil is concerned, the low prices did not oil companies add up to their inventories, dahil nga siguro mababa ang kinita nila,bawi muna.
================================
again going back to our disagreement with the word demand.
you say that the increase in population even with a constant per capital income per year will result to a higher demand.
Again back to basics: demand is how much is desired by buyers or at a given price how much the buyers are willing to buy.
What if everyone’s income is so high but they don’t want to buy a car; that means the demand for cars is also zero.
I know that is impossible,as impossible as if everyone can afford high prices of electricity,but don’t want to consume a single watt.
I get your point,no need to complicate this.
Thanks.
My 5:09 was for CVJ
great points,Carl!
Karl, low prices usually encourage people to buy as long as we are not in a deflationary spiral where low income leads to low demand which leads to job losses which leads to lower income which leads to lower demand…
That’s how it was in the Great Depression of the 30’s and in the prolonged Japanese slump in the 90’s.
People can choose not to buy cars. To the extent that people choose to take alternative modes of transport, it will only hurt the income of car producers and sellers so the latter’s income would no longer be as high as before.
In the case of energy, to what extent can people choose not to consume energy? And if they do so, what will be the effect on other people’s incomes? For example, what if the Malls turn off airconditioning? How would it affect the income of the tenants who sell their merchandise in the Mall?
http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20090124-185254/Hundreds-lose-jobs-daily
Stimulus package for the agricultural sector?
Carl: The USA problem is not that its consumer-spending was accounting for 70% of its GDP; the USA problem was that its consumers were not saving. More pointedly, the problem was that the “savings” of USA-citizenry was not in bank-accounts but in the equity in their houses. Now that the housing bubble has burst, the USA-citizens find that what they thought was their savings for the rainy days had evaporated. No savings, no collateral for loans, no savings to dip into, then the USA economy is contracting a whole lot faster because the USA consumers can not spend because they have no money to spend.
The solution still is to provide money-velocity into the USA-economy (i.e. spending). Since the consumers are not providing the spending, then the Federal Government is providing the $850-billion in spending (while providing incentives to banks that it is okay to lend to consumers so that consumers can spend).
As I said, changing what has been rooted for almost 30 years won’t be easy. It will be painful. Rethinking the dominant role of the market will require more than out-of-the box ideas. But to be so dependent on consumerism as the centerpiece of the economy, is not only unhealthy, it is unsustainable in the long run. Even George Soros himself has said so on different occasions.
Could the U.S. survive, for example, if consumer spending, as a percentage of GDP, were gradually lowered to pre-Reagan levels? Until 1982, consumer spending contributed only approximately 60% to GDP. It was after 1982, after Paul Volcker fixed the recession that had started in the late 1970’s, that consumer spending rose as a percentage of GDP. After 1982, the era of tax cuts and easy money took over. As early as 1983, consumer spending shot up to 65% of GDP. The concept of saving money went out the window. And by the way, the idea of piggy-banking on home-ownership wasn’t yet in vogue. House values didn’t rise dramatically until the late 1990’s. Incidentally, that was when consumer spending rose to 70% of GDP.
While I cannot personally attest to what economic circumstances were pre-1980’s, businessmen I have talked to tell me that economic volatility was far from the scale and frequency they experienced post-1980’s. I have also done some research, and it confirms what I have been told.
Of course, bringing down consumer spending to 60% will entail a lot of pain. That is why it has to be done gradually. It will also entail lifestyle and behavior changes, from the crass consumerism of the past few years to a more sedate lifestyle. Values will have to shift: play more, read more, make more friends, relate to people more, learn to work with your hands, appreciate nature, relate to the arts, make more love. All these. and more, instead of focusing on buying new gadgets, new cars, trying to make more money and keeping up with the Joneses.
Government will have to fill in the void in spending for a while. But government policies have to be geared towards penalizing conspicuous and wasteful consumption. Gas-guzzling cars, for example, have to be taxed much more. Gas should be taxed so that it doesn’t become too cheap so as to encourage wasteful use. Incentives have to be given to manufacturers who fulfill real needs of real people instead of those who fulfill the artificial needs of the wealthy (read luxury items).
Maybe this whole drug hullabaloo is related that WB report. Distraction
OFW’s better have cash-in-the-bank, this global recession has many more months before bottom.
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The number of people out of work has climbed to nearly 2 million, a level not seen since 1997. The average price of a house has plummeted to mid-2004 levels, according to Halifax, Britain’s biggest mortgage lender. Car sales are at a 12-year low.
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The citizens of lagging ecoomies need to get ready; this will not be a pretty sight. [ PS: The PHilippines is a lagging economy. Your parents will tell you to save; your economists, though, will want you to spend.}
Keep your cash under the pillow. Buy lands at liquidated prize. Invest your retirement on your own and buy stocks at 20 cents for a dollar. Build your own portfolio, hold until retirement.
Enjoy life and buy the things you want now only with extra cash. Assess your career and your industry , making sure your job is stable. No need to worry, life is too short. I have heard many friends at midlife suffered heart attacks, divorce and headaches. There are debt settlement out there. Handle yourself with care.
For Philippines, if you have no job, go home to the province and plant kamote 🙂 don’t be a burden to this economy and to your parents. Run, exercise, hike the mount apo. Sell banana or whatever… cultivate the idle land of your grandparents and do something. Sing like arnel or charice 🙂
or you can enjoy the white sand beaches of the Philippine islands and count the flying birds while hungry. where would you be? a loser or a winner? Filipinos are an enduring culture. It’s only a test of endurance. Bayanihan is our foundation. It’s not that bad at all.
Nouriel Roubini doesn’t think that the worst of the global economic crisis is over. He predicts more pain in 2009 in a recent Wall Street Journal article.
Check out the article, entitled “Expect the World Economy to Suffer Through 2009†and subtitled “Political risk is a bigger factor than everâ€Â, by Ian Bremmer and Nouriel Roubini at:
http://online.wsj.com/article/SB123267029592108287.html
I saw Roubini mention on TV that approximately as much as $50 trillion (such mind-boggling numbers!) of the world’s wealth has vanished over the past 18 months or so. The surviving money will certainly be much more timid and take time before it ventures out again.
Furthermore, to build up capital, the developed world will have to go out and compete for available funds along with everyone else. That will certainly put the less developed countries like the Philippines at a disadvantage when it comes to seeking foreign investments.
With private investment badly singed, only governments can afford to come out and invest and spend on job-creating projects.
Oh, and by the way, I have heard some schools of thought predict that the next crisis will be one of runaway inflation, due to the amount of money that will have to be printed in order to revive the world economy. There are predictions that energy prices will come back with a vengeance, sooner than people may think. Could that be a reason why some entities are positioning themselves in this sector? When you add the fact that we really don’t have enough generating capacity to start with, doesn’t that make it a safe bet, no matter whether those predictions come true? There almost seems to be a built-in safety net right there.
What will happen if a low income American family reduce their spending? Here are the things that might go out the window during the spending reduction.
1) Electronic items – maybe assembled in Mexico but most of the parts are made in Asia including possibly the Philippines.
2) Clothing items – instead of buying a six pack pair of socks maybe 2 pairs will do. Again most clothes are made in Asia including possibly the Philippines.
3) Automobiles – imports are usually more expensive than local brands like Ford. But maybe the old Toyota in the garage can still go for another 100k miles. Making auto parts are big in Taiwan, South Korea, China and even the Philippines.
Do you really want the Americans to reduce their spending?
Carl: Run-away inflation (meaning things will get sriously more expensive in the future) may be in store, but the problem nowadays is recession-bordering-on-depression. Many people with cash are not spending. I mean… why buy a house in Glendale, California. So the price has gone down by $280K from summer-2007…but if I wait another 6 months, the price goes down another $22,000. Same thing with the Makati condo… those OFW’s who have lost their jobs/can’t make payments will be forced to sell soon, so baratan — “cash-is-King”/recession-strategy makes sense.
———–
Now, it is a different set of business-rules for UTILITIES which operate in a regulatory-environment. The businesses are prevented from maximizing their profit-margins, and in return, the governments (national or state) guarantee the rate-of-return. So yes, there is a built-in safety net.
This blog by John Limjap over at filipinovoices,makes me want to eat my words na maari naman lumipat ang mga natannggal na call center agents sa ibang call center, pati na rin ang mga IT professionals.
ttp://www.filipinovoices.com/it-and-electronics-industries-in-a-binary-of-fuzzy-fate#comment-29812
It is a bad picture indeed. I downplayed the moving out of intel because the multinational manufacturers moved out of our country last 1998 because of the asian criss..
I failed to consider that our top export are electronics.
If our top export would be gone, we should really think about what to do. Ituloy ba natin idevelop ang agriculture na di natin agawa for decades?
Should we nationalize more like cvj and others suggested?
or should we privatize more as many suggested?
Like Obama, the next RP president has a huge task ahead.
“Job profile
I am not about to question the statistics, even though many would immediately point to that as the possible answer. There are actually answers to be found in the further details of the job numbers. Where have the latest jobs been coming from?”
“I examined the available tables from the National Statistics Office (NSO) website, made some calculations, and found the following: Of the surprising 699,000 new services sector jobs mentioned above, more than half were in trade. And since I am not seeing an unusual proliferation of retail stores and shopping malls in the past 12 months, I surmise that what this means is that large numbers of Filipinos have taken to the usual informal sector selling/vending activities–“nangangalakal,” as squatters near our neighborhood describe the common occupation in their area.”
“And this includes selling items scavenged from the neighborhood garbage piles, which they systematically pore over and collect usable items from before the municipal garbage collection trucks come to collect them.”
“It would seem, then, that much of the puzzles I’ve been describing simply reflect the resilience of the average Filipino. When our poor compatriots find themselves against the wall, they will find a way. Clearly, the kind of growth we have been experiencing gives us little to be happy with or gloat about even if the posted GDP growth rate is faster than that of our neighbors. What continues to elude us is quality growth, one whose benefits permeate throughout the economy such that as the saying goes, “the rising tide lifts all boats.” Habito
On one hand everyone is talking about the most serious bursting of asset bubbles among many asset classes that happened over the last five years.
So asset valuations held by financial institutions have collapsed triggering a credit crunch which has now migrated to the real economy in the more advanced economies.
If one looks at the job quality generated by the fundamentals of the Philippine economy one will note the sterling quality of the type of jobs created.
Meanwhile the West has pulled out their old Keynesian playbook to prevent a deflationary spiral from taking hold. That is more dangerous than inflation. When people hold back consumption expecting prices to fall further (waiting for the bottom)across a broad swath of the total aggregate sectors of the economy you will also have business hold back investments and that will produce the negative feedback loop. All across the West government are stepping into the breach caused by deflating expectations.
It started in the credit markets when Lehman fell.
The solution for deflation is simple —– Create inflation.
Print money.
This time though it cannot be done by a singular country in the West. They are all now moving in the same direction.
Create inflation.
Now for the Philippines which is still mainly a third world economy the mechanism behind macro economic fundamentals do not exist. When Intel shuts down its plant here due to a collapse in demand in the home country the Philippines very well cannot pump prime demand in the mother country to stimulate demand. The same with the lay offs in other export sectors. Macro economics is based on demand management through fiscal and monetary policies. How does GMA pump prime the slowdown in growth in Singapore, HK, M.E.?
The labor force that will be affected will be relatively small compared to the total labor force available and the participating labor force. When more than half of the total labor force does not earn a wage and salary recessions in the Philippine context are marginal at best.
In a powerful display of demand management (income protection) we have seen the U.S. government move to protect savings (surplus income stored with banks). Then they are have moved to also protect these savings which have been invested in assets whose valuations have collapsed. (Guarantees)
The government is attempting to set the bottom.
Here we have always been at the bottom in aggregate terms.
saw your blog as part of the top 100 pinoy technorati! good job! hope you can visit my blog too!
http://pinoydeal11.blogspot.com
http://pinoyfreedownloads.blogspot.com
We will need to factor in those who are dependent on remittances. It would be interesting to see how that figure holds up in the latest reports.
Krugman points out that has already been tried by the Fed in 2008 but has not worked.
cjv, it’s also noteworthy how the razons and aboitizes have focused on cornering energy (with san miguel entering the fray), while dispensing with their industries where they were already well-positioned from a regulatory point of view (aboitizes getting out of shipping, etc.). i recall some years ago being told the lines that carry power for the mrt along edsa was designed with data transmission in mind -so controlling transco, or buying meralco (aboitz and san miguel respectively) becomes not only establishes an energy cartel, it starts intruding into the turf of other big players too (pldt wouldn’t be too happy with data transmission via electric lines).
Manolo, in that respect, competition for data traffic would be a good thing, although it’s more in the nature of Oligarchs to cartelize that one as well so maybe PLDT would not have too much reason to fret.
Doesn’t it irritate anybody the lack of information being provided, even from supposedly the more “better-motivated” like Cielito Habito, PhD?
Look at Ja-G’s cut-and-paste from the Habito article on “…the surprising 699,000 new services sector jobs …more than half were in trade.” He makes a leap…”this means is that large numbers of Filipinos have taken to the usual informal sector selling/vending activities–â€Ânangangalakal,†as squatters near our neighborhood describe the common occupation in their area.â€Â
The question that needs to be answered seems very simple — how many of the â€Ânangangalakal†turned to the trade in the past 6 months — except this requires Cielito Habito I think what he forgot to mention is that he finds it below him to go to Payatas (or the squatter-area near his residence) to talk to the very poor, and no one is paying him to get precise information and the Philippine Inquirer readers get what they pay for.
…except this requires Cielito Habito to go to Payatas (or the squatter-area near his residence) to talk to the very poor. BUT no one has paid for Habito to get precise information and the Philippine Inquirer readers get what they pay for.
1/23/2009
an optimistic view Forecasts Philippines as Potential Non-Voice BPO Destination
It’s bad enough that the average Filipino has to worry if he or she will still have a paycheck next payday while making do with a “meal” of instant noodles. But to insult his or her intelligence by making the economy appear to be something it’s not is already outright stupid.
Quo vadis, Philippines?
data transmission via powerlines.
I believe it was supremo who mentioned this here kaya di na daw kailangan ng nbn
https://www.quezon.ph/1802/corporate-drama/#comment-814135
#
oh it was sanxviolins, who first made mention of such a technology in that thread.
https://www.quezon.ph/1802/corporate-drama/#comment-814135
More on that
http://live.psu.edu/story/9603
at least it would mean faster internet surfing.
The question shouldn’t be just about whether one wants the American consumer to reduce spending. It’s about the world economy being, pardon the expression, held by the balls by the American consumer. We cannot always expect the American consumer to spend and spend. There will, from time to time, be moments of pause. And then, what? Just hold our collective breaths, from time to time?
Consumerism as the centerpiece of the world economy just isn’t healthy. Its a lot worse when it is too dependent on the consuming habits of a single country. The world, including the Philippines, has to find a way out of this situation wherein it is at the mercy of the American consumer. It ‘s not healthy even for the American economy.
Solutions? That’s the multi-trillion dollar question facing America and the world. Large stimuli will be the quickest and most convenient way to revive the world economy. At this point, there’s no other choice but to apply Keynesian methods. And, as economists and central bankers have recently been pointing out, it’s better to face the inflation scenario instead of deflation. Now, supposing this terrible crisis can be averted. After that, what? Back to business as usual? There have to be more lasting solutions for the world economy. And over-reliance on the consumer just isn’t a stable arrangement.
Regarding guaranteed rates of return for utilities, that is correct. That is why there is a built-in safety net in that sort of investment. However, when the cost of power goes up, the rate of return somehow gets better. There is the prospect for bigger profits. More so with petroleum (Petron). As petrol prices go up, windfall profits really shoot up. So if one has the cash and is in the mood to gamble, it may be a good time to invest in energy. The possibility for losses are small, while the prospects for a bonanza in the future are high.
I would like to point out to Manolo that, while the Aboitizes want to get out of shipping, that deal didn’t totally materialize. So they’re stuck in it for the meantime. Just to make it clear, the Aboitizes have always been involved in power. Shipping was a part of the business, but it was not a critical part. As a profit center, it was never in the league of trading, power and banking. That’s why they want to give it up and concentrate on the latter two. It’s different in the case of San Miguel totally coming in from the cold, divesting from what its core business was for over a hundred years, and moving into a totally unrelated industry. Talagang power move, literally!
Karl,
Roger Telecommunication has that Technology for their Mobile Internet, just Plug in the Unit to any Electrical outlet and you have access to Internet, but the Problem is that most that subscribe to the Mobile Service may not have the electrical outlet nearby. (out in the boondocks). so they have now something the Company called “the Stick”. it’s just a receiver plug into the USB outlet of a mobile computer. But then why bother, Blackberries and Iphone just can do about the same functions while out there.