“We’re overly scared.”

Michael Alan Hamlin

Posted on August 8, 2012

Asked why the Philippines has trailed most of its Asian neighbors economically in the quarter century since it liberated itself from an iron-fisted, corrupt dictatorship, Prof. John V.C. Nye told reporters last week, “We’re overly scared.” Prof. Nye is the Frederic Bastiat Chair in Political Economy at the Mercatus Center at George Mason University, and was recently appointed executive director of the just-founded Angara Centre for Law and Economics (ACLE).

The ACLE was founded, according to Senator Edgardo J. Angara, as “a small, initial step towards trying to open the Filipino mind to the outside world. We try to create new ideas, new insights, so that we can join the global conversation.” It’s about time.

The administration of President Benigo S. Aquino III has cracked open the door to that global conversation, and seems intent on doing more. As a result of the administration’s anti-corruption and good governance drive, Mr. Aquino has earned a significant measure of investor confidence. First quarter growth may have provided an early indication that payback on that confidence is at hand. The economy grew 6.4%, up from 4.9% a year earlier.

Much work remains to be done, particularly in the areas of business environment and attractiveness to foreign investors, who have the capital to create jobs at scale. The Philippines attracted about a third of the foreign direct investment (FDI) Thailand did in the period from 1970 to 2010, and despite robust growth in IT-BPO and real estate, FDI actually declined last year 2.8% to $1.26 billion from $1.298.

Department of Trade and Industry (DTI) Secretary Gregory L. Domingo expects to attract $10 billion this year, almost eight times 2011 FDI, based on interest from investors who intend to build more IT-BPO facilities, factories, and shipyards. Mr. Domingo—who played an instrumental role in attracting investors to the then-fledgling IT-BPO industry a decade ago—is used to coming from behind. From virtually ground zero, IT-BPO has grown into an $11 billion industry.

But that took a decade and Mr. Domingo will need help to reach his 2012 FDI target. Prof. Nye suggested the kind of reforms that can boost investment. “I think the most important change is the mindset of protection and nationalism,” he said of the Philippines’ tepid development. “If you look at Philippine laws, they seem as if they’re written by people whose main function is to make sure that foreigners don’t exploit a profit from Filipinos.

“The problem is, business will not occur unless there is some profit to be made.” The beneficiary of protectionism is seldom—never, really—the average Filipino. Instead, it’s a very small elite that monopolizes opportunity with the result, Prof. Nye says, that “We send Filipinos abroad where they work for companies that pay no taxes, follow no regulations, and abuse Filipinos. Isn’t there some compromise where we can loosen up these laws?”

Fortunately for the 640,000 Filipinos who work in the IT-BPO industry and the almost two million more indirect workers they support, government and big business didn’t understand—and still don’t, really—the industry and its potential. As a result, Mr. Domingo and others—notably former DTI Secretary and now Department of Transportation and Communications Secretary Manuel A. Roxas II—were left alone to champion the industry.

Now that’s beginning to change. For years, the Department of Finance has urged DTI and Congress to scale back incentives for the industry, claiming that the Philippines is foregoing sizable taxes and customs duties, conveniently overlooking the fact that without incentives, the industry’s 640,000 jobs would never have been created. Investors admire Filipino workers, but getting them to invest in the Philippines also has to make economic sense.

It’s easy to see what happens when a country talks itself into believing investors can’t resist it. Take India, once the proud leader in voice BPO. The Philippines captured that status in 2010, as India’s incentives for the industry were allowed to lapse. New investment in BPO—both voice and non-voice, complex services—by Indian outsourcing companies since then has substantially been outside India, with the Philippines among the largest beneficiaries.

Another alarm bell is a wave of legislation that seeks to lower the heavy hand of regulation on the industry. One bill seeks to require all IT-BPOs with P10 million capitalization and above to set aside 10% of capitalization in escrow to guarantee monetary awards to employees who have favorable judgments before the National Labor Relations Commission, an agency said to be as corrupt and incompetent as they come.

These examples show that it’s not really new ideas the Philippines needs to grow and create more jobs for more Filipinos. It’s the right ideas. And we shouldn’t be scared of them.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author and commentator. Write him at mahamlin@teamasia.com, follow him on Twitter, @asianpundit, friend him on Facebook, michaelalanhamlin, or link on LinkedIn, michaelalanhamlin.).

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author and commentator. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on TwitterFacebook and LinkedIn. Copyright © 2012 Michael Alan Hamlin. All Rights Reserved.)

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