Restoring a meritocratic society is the goal of the 99 movement in America. Establishing it for once in the Philippines should be our national ambition.

The Nobel winning economist, Gary Becker, whose work on human capital I deeply admire wrote a piece called Deserving and Undeserving Inequality in the blog which he shares with Richard Posner. In it he distinguishes between good inequality (deserved) and bad inequality (undeserved) saying

The great majority of people in different cultures do not object to someone who has made lots of money when they have superior abilities and talents, and they work hard at producing what are considered useful goods or services.

The meritocratic society with upward and downward social mobility would be in Becker’s view the most acceptable form. In this just society, the cream always rises to the top. He cites actors like Tom Hanks and Jennifer Anniston, entrepreneurs like Bill Gates and Steve Jobs, and skilled professionals like transplant surgeons who have grown rich by applying their exemplary talents and skills.

In contrast, Becker poses the problem society seems to have with hedge fund managers who make use of arbitrage (momentary bargains unnoticed by the market) to make huge sums of money. He lumps them together with speculators, Russian oligarchs and monopolists who enrich themselves through unfair, uncompetitive means (the latter two through government fiat).

Becker of course uses human capital theory as his framework for addressing this issue. Under its framework, individuals who acquire knowledge and skill through education and training (one cannot gain it any other way as it cannot be inherited or passed on) deservedly earn private returns in the form of higher incomes over the remainder of their working lives.

A meritocratic society should in Becker’s view reward the investments made by individuals in themselves and not rely on some other criteria. Elitism, the polar opposite of meritocracy rewards individuals for investing in other things (political patronage, social standing or being raised on the right side of the tracks, marrying into the right family, etc). It all sounds rational and justified, which is why Becker says “the great majority of people in different cultures” accept the legitimacy of a certain form of inequality (I have some reservations which I expressed here).

The Occupy Wall Street protests that have spread all around the world is comprised of a disparate set of individuals, but at its core, it is a protest against what is seen as an illegitimate form of social structure perpetuated by a weak central government unable to constrain the greed of corporate elites.

The breakdown of social cohesion has occurred because of what is perceived to be the breakdown of a meritocratic society where one rule seems to apply to the rich who are becoming a new aristocracy while another set of rules applies to the rest.

The teapartiers detest the privilege accorded to the global capitalists/Wall Street at the expense of local merchants and tradesmen/main street, while OWS expresses their distaste mathematically by stating they represent the 99% who play by the rules but have to bailout the 1% who don’t.

It is curious to see how the OWS protest that began in NY mutates as it travels to each city throughout the world deriving a local “strain” in each place. In the Philippines, which has witnessed a high level of social inequality, there has not been a similar groundswell of support outside the usual suspects of BAYAN MUNA and other groups who coalesce under anti-American imperialist banners.

The reason being I think that the broad sections of our society by and large aspire towards a meritocracy and see their lack of social mobility as either the result of divine providence or misfortune. The masses have not coalesced around a universal sense of rights and entitlements that has taken hold in the West perhaps because they still depend on ties of patronage from local elites.

The state has had a long history of either colluding with or acceeding to our elites. They have given concessions to the “peasantry” whenever popular movements have challenged their ascendancy but withdrawn them when the threats have passed. Charismatic populist leaders like Ramon Magsaysay and Joseph Estrada sought to appease them, not undertake reforms aimed at genuine social restructuring.

The only time when the state sought to weaken the landed elite by expropriating their assets was under Martial Law. Even then there were limits to what it could do as it sought to make its authority legally and constitutionally binding in the eyes of the world. The problem was that once it had weakened any challenge to its authority, nothing prevented the regime from plundering as well.

The lack of accountability under Martial Law made the state susceptible to a new form of super-sized impunity. This was not inevitable though as in the case of East Asia with their benevolent dictators. Had Mr Marcos fostered a new meritocracy in both the bureaucracy and the wider economy, things might have been different.

His wife Imelda widely reviled for her pompous display of wealth had actually promoted a meritocracy in the arts. Through her sponsorship of young scholars and aspiring artists through competitions and venues for the demonstration of their capabilities, she enabled a flowering of talent that was not based on birth or privilege. This is the one legacy for which she can be rightly credited.

If only the same thing had happened in the technology sector where innovation and risk-taking could have been encouraged, instead of the crony capitalism that created a new elite not based on productive but predatory activity, the Marcos years might have come out smelling a bit better.

Contemporaneous with the Marcos era, during the 1970s and 1980s, Brazil and India embarked on a policy of giving birth to technology firms. The state agencies that were engaged in this “midwifery” role were not perfect, but as discussed by Peter Evans in his book Embedded Autonomy, despite their imperfections, at the end of the 1980s they still had something to show for it.

After seeing efforts at producing local operating systems and PC clones flounder, Brazil’s IT sector survived by specializing in financial automation for their banking sector (emblematic of this were companies like Itautec of the Itau Banking group). In India, state investments in skills produced manpower to work in systems integration services combining hardware and software engineering which became their strength. Today some of these Indian firms have successfully expanded their operations overseas (Mahindra Satyam and Tata Consulting Services are prime examples).

Korea which was most successful in fostering growth of this sector focused on the assembly of computers, consumer electronics and semiconductors through concessionary loans and state sponsored and financed research and development. In 1989 Samsung and IBM signed a co-licensing deal allowing them to tap into each other’s portfolio of patents. Today IBM no longer makes PCs, but Samsung is challenging Apple for the handheld tablet market.

Brazil of course was under a military dictatorship during this period. India was except for a brief period in the 70s a rambunctuous democracy like the Philippines is now. Korea was still being ruled by an autocratic president. In other words, the type of political system did not prevent the sorts of policies needed for promoting a meritocracy from emerging in productive sectors.

This was Pres Marcos’s greatest moral failing: neglecting the national development project and engaging in pure predatory behavior. The “Freedom Constitution” that followed his fall sought to put a system of checks and balances in place to restrain the executive has unfortunately not produced a meritocracy either. It simply revived the old aristocracy to power which has picked up where it left off prior to Martial Law by engaging in booty capitalism.

The weakness of the judicial system has served to deny a system of justice to the dispossessed and the poor. So unlike the Occupy Wall Street protesters who camp outside the headquarters of the global elite, our own version of the downtrodden live in slums outside the gated communities of local elites. They are forced to work in the informal sector without legal entitlements such as social security, healthcare or retirement funds, for the most part having acquired very little in the form of human capital.

The present dispensation is beset with many challenges all around which include fostering good governance and promoting economic growth. These projects will take time to bear fruit. While it is seeking to free the poor from local patron-client relationships through social insurance programs, it eventually needs to buckle down to the difficult task of generating employment through industrial promotion strategies and policies.

Having fostered the emergence of the electronics and business process outsourcing industries in the interim, the government faces the more difficult task of expanding the scope of these industries in the international division of labor (what Evans terms the role of “husbandry”) into more value added activities.

It would be good if aside from producing the domestic equivalents of Tom Hanks and Jennifer Anniston (a legacy of our showbiz, pop mentality from the Imeldific years) we could also foster the development of our own Bill Gates or Steve Jobs (the burgeoning industries out of Silicon Valley of course received tremendous government support through the defense industry).

Globalization was meant to usher in a kind of meritocracy among nations in the division of labor. What the experience of emerging countries has shown is that to rise to the top, state involvement in the development of industries is necessary. The ultimate goal should not be to one day attract a greater share of foreign companies to our shores; the national ambition should be to one day join our brothers in emerging markets in buying out foreign companies within their own shores.

Perhaps it is this vision that should occupy our hearts and minds as we look to the future.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • Joe America

    Brilliant, positively. I make the same argument you make about the Philippines, only directed toward the Occupy Wall Street crowd. It serves no good to bring corporate America down. They are the best alternative to fighting that we have to counterbalance the rising beast, China. What bankers earn is a minor thing in relation to retaining global economic power. And the Filipino biggies, San Miguel et al, should be out there, too. Intertwine the global community so tightly that no war makes sense.

  • Manuelbuencamino

    Good piece, Doy. Meritocracy is at the core of democracy. State intervention, understood in the context of true democratic elections in a merit-based society, is really the people taking matters in their hands.

    The global discontent comes from the disconnect between citizens and their elected representatives who have failed to protect their welfare and defaulted on their duty to foster an environment that will allow them to achieve their full potential.

  • “The state has had a long history of either colluding with or acceeding to our elites. They have given concessions to the “peasantry” whenever popular movements have challenged their ascendancy but withdrawn them when the threats have passed. Charismatic populist leaders like Ramon Magsaysay and Joseph Estrada sought to appease them, not undertake reforms aimed at genuine social restructuring.”–Doy
    Well, in the case of Magsaysay, accident intervened, or is it a case of unseen hands intervening? Of Erap, the elites and the elitists, as defined by Doy in this article, intervened, for what? What else but for their own nefarious self-interests.

    In both cases they could have succeeded if they have been given enough and sufficient time to fulfill their visions.

    • I would like to add that for the elitists, it was their gargantuan and hollow egoism that led them to conspire with the true elites to oust Erap.

  • Doy should be commended for this article.  A very good advice that all and any Philippine president and officials must heed if they should aspire as they should to have a nice and wholesome niche in Philippine history.

  • J_ag

    Wall Street will give up the gains they have made over the past 30 years. 

    The top marginal tax rate after the Second World War in the U.S. was 90%. It is now 35% and the rich  wants it even lower.  meanwhile they also want reductions or abolition of all taxes on property income and inheritances. At the least there is debate in the U.S. 

     Here the debate between the role of the state and its relationship with the markets has not even been started. 

    You keep pointing out the realities of Philippine political economy while proposing solutions that only an engaged State can accomplish. 

    Get real about this country.  The elite and the guys they own are essentially clueless. 

    Our economic policy has been defaulted already to the IMF-WB for so long that it is difficult to think of anything else. 

    This government most especially is their poster boy. 

    • We have to take a long-term view. Policy ideas often have very slow diffusion rates and prolonged gestation periods.

      What has happened is that we have been so accustomed to our chains so long, that even after exiting the IMF program, we seem to have fallen into the trap of what Evans calls a kind of pre-emptive acquiescence (or is it Stockholm syndrome?).

      • J_ag

        Long term view?  Economic history teaches us that the working classes took matters into their own hands and they forced the state to make policy changes. 

        The fatal flaw in capitalism is that it will continuously implode and create massive social instability as was proven over the last 200 years. Crisis after crisis leading to social unrest and armed conflict. To preserve social stability they had to invent state intervention. 

        Now a unipower is being threatened after living off the worlds savings for the last 40 years. Do you think she will give up the throne peacefully and accept that it has to share power with the new kids on the block. 

        This country was formed and organized by outsiders and the people do not seem to have a sense of their own country. 

        Has our culture been so ingrained by our colonizers that we really do not know who we are? 

        Look at the present government. The President is undoubtedly an honest man. But the economic and political system has degenerated by  the control of selfish interests for so long that at the present time I have to advise clients who wish to retire here that the criminal elements and the police and the government are one and the same. 

        The system is already there built up by hardened criminal constituencies. 

        While the President postulates  I know how his top cabinet men use their positions to strengthen their economic interests for when they leave government. 

        The rule of law and checks and balances which are already woefully inadequate in the present globalized setting is being stripped away. 

        The Supreme Court the most Supreme of Institutions that constitutes the Constitution as the Sovereign of the Country and arbitrates its rules that is the hallmark of civilized societies sells itself to the highest bidder. 

        It hurts to admit it.  But we are shit and we know it.   Knowing we are in dung heap would be a good start. 

        • The working classes only emerged in Korea and Taiwan after the state pursued policies that led to rapid industrialization. One must note that even in Japan’s case, the quintessential developmental state, MITI still battled with other state agencies to pursue its policy approach.
          Even in weak states such as Brazil and Mexico, a desarrollista state emerged which sought to guide elites into industry, which although not totally as effective as in East Asia, did produce some form of industrial agglomeration.
          Even India with its highly fragmented and chaotic system, a failed developmental state due to its “embedded particularism” still managed to eke out some positive results.
          The Philippines, despite its booty capitalism, still has delivered some modest gains with the industry clusters centered around Calabarzon, Baguio (electronics), Cebu (furniture) and Bulacan (jewelry). It is a matter of building on these successes in my view.
          Even if the president and his cabinet may not be switched on to the notion of greater state involvement, perhaps other agency bosses can provide a home for the policy. The BOI chief for one seems to be showing some signs of promise.

          • J_ag

            You forget that both S.Korea and Taiwan were formerly Japanese colonies and the Cold War gave them the space to industrialize with the U.S. giving them free market access. 

            Hence they did it under command state format. They were part of the bamboo curtain supported by the U.S. They became the cheaper version of Japanese products and eventually became better than the Japs. 

            As for India Nehru imposed the license raj and babied certain basic industries. Steel and heavy industry… were developed but they did not bother about the rural sector which was a mistake. China did it in reverse and had their old Russian imported steel mills.  The Chinese invited foreign investments and stole technology. They Chinese followed the japs but did not pay for foreign technology. Please note that the first cars produced in India were modeled against the Fiat as was the Russian Lada. .  

            As for Brazil being a resource exporter and switching to ethanol for their transportation needs made them self sufficient in energy. The rise of China gave them the lift in the last 20 years. I suggest you visit Brazil and find out what is going on there instead of reading books and making comments. Bring lots of money as it is extremely expensive. Our beef is better form Batangas than theirs. 

            Go to Argentina and see how much cheaper it is.

            China slows down and they (Brazil) slow down too. 

          • J_ag

            OOOppppss  I forgot you talked about all these PEZA zones which till today contributes less than 5% to total net exports as a % of GDP… 

            Yeah this is a good start alright… 

            That is what you call a success story.. 

          • All I was trying to point out was that your determinist reading of history doesn’t seem to stack up against some of the evidence from a number of countries.

        • Anonymous

          I believe that raising Pilipinas competiveness is one of the things that PresiNoy  promises to follow from –jail time for GuMacapagal-Arroyo and her BFF’s—   “daang matuwid”.   Now this is more likely “too soon to tell”,  or maybe what Ja_G writes — that P_Noy honest is being ignored, bypassed, maybe even laughed as…how his top cabinet men use their positions to strengthen their economic interests for when they leave government.  …  
          The rule of law and checks and balances which are already woefully inadequate in the present globalized setting is being stripped away.

          Busines World Online reports :Pilipinas ranking falls :-Posted on October 20, 2011 11:18:42 PM

          Philippines slips in Doing Business rankings

          THE PHILIPPINES is lagging in terms of reforms aimed at making it easier for firms to conduct business, with the ountry ranking lower in a global comparison made by the World Bank and the International Finance Corp. (IFC).

          (IFC).

          Results of the latest Doing Business report — which measures regulations applied to businesses over their life cycle — placed the Philippines 136th out of 183 economies, down two places from last year’s report, with only one positive reform cited from two previously.