Development blog

What the Philippines Can Learn from Rwanda

How has Rwanda managed to overtake many developing nations in the global race for competitiveness and transparency?

Landlocked, under-endowed, war-ravaged, Rwanda a nation of 10.5 million people has faced a number of challenges, not the least of which was the ethnic strife that led to genocide twenty years ago. And yet it in spite of all this, it has managed to regain stability and posted sustained economic growth averaging 7.4 per cent per annum that has led to improved social well-being over the past decade.

As an indication of its progress, Rwanda has successfully undertaken significant reforms in its regulatory environment. Just consider the following:

So how has a country which suffered many years of war and as much corruption as any other impoverished nation in the past, managed to turn things around?

Well the short answer is they did this through an accommodative political settlement and the help of both conventional and unorthodox institutions and economic strategies.

A troubled past

Rwanda has had a long history of ethnic violence between the two main rival tribes.  From pre-colonial times up to 1959, the pastoralist Tutsis were the ascendant political class over the agriculturalist Hutus. Ethnic differences were exaggerated under colonial rule. In the lead up to independence in 1962, Belgian colonists transferred their support to Hutu elites. This led to mass killings of Tutsis many of whom fled the country.

Two Hutu regimes ruled the country from 1961-94. Having a single-party dominate politics for most of this period did not prevent the nation from succumbing to decentralised rent-seeking and clientelist behaviour. A group known as Akazu was at the apex of this system. It was related to but not controlled by the administration.

Tutsis sought to regain control of the country through an invading Rwanda Patriotic Army. This culminated in the genocide of 1994 by retreating Hutus. After consolidating their hold on the country, the Rwanda Patriotic Front (RPF) established a government of national unity incorporating moderate Hutus, one of whom led the country as its president.

A reformist regime

Although a certain amount of political repression in the guise of preventing a return of “ethnic ideology” has occurred, the coalition governments comprised of all legal parties in parliament being proportionately represented in cabinet (the ruling RPF holds no more than fifty per cent of the portfolios) has succeeded in keeping the nation stable. This inclusiveness along with its program of restorative justice known as gacaca has fostered reconciliation and allowed the country to experience improvements in social and human development not previously seen.

The intrusive intervention of government in everyday life at times borders on social engineering as the government has sought to follow the Singaporean model in both economic and social policy implementation. President Paul Kagame (elected in 2003 and then again in 2010) has been labelled the global elite’s favourite strongman for improvements to public service delivery, particularly in health and education.

Departmental line agencies have been managed through an institution of performance contracts known as imihigo which Tim Kelsall describes as “modern performance agreements supported by a significant component of moral pressure and neo-traditional gloss.” This combination of formal scientific management and homegrown practices has permeated down to the grassroots by roping in local officials and civil servants.

On the economic front, Rwanda has applied a hybrid approach to investment promotion. On the one hand, it has adopted policies and institutional arrangements considered best practice by the World Bank’s Doing Business surveys. Responsibility for managing this has been assigned to the Rwanda Development Board (RDB). But this works in parallel with a more activist approach in industrial policy with the RPF’s holding company, Tri-Star Investments getting involved in joint ventures and start-up companies.

The holding company has initiated many successful ventures with demonstration effects for the rest of the economy. Telecoms is one example. When Tri-Star sold part of its stake in Rwandatel in 2007, it got five to ten times its initial investment in the company.

Because profits from Tri-Star that are not ploughed back into its businesses revert to RPF, the party is financially independent. It uses this to fund its political campaigns without having to resort to political donors. Kelsall explains what this does:

The RPF’s financial solvency obviates the need for party officials to engage in election-related corruption, which in turn allows the party to take a very tough line on corruption among its leading supporters and in the bureaucracy.

Apart from Tri-Star the government has also orchestrated the formation of other funds, the Horizon Group belonging to the army, which undertakes socio-economic projects to produce productive enterprises, and the Rwanda Investment Group, a consortium led by domestic and diasporic elite.

The purpose of the second group is to raise capital other than through foreign borrowings to invest in high impact projects of strategic national importance. Without such an interventionist approach, much of the agricultural and industrial transformations currently underway in different sectors of the economy simply would not be happening.

The case of Rwanda demonstrates many similar traits to that of the Northeast Asian developmental states. The RPF led government faced existential threats from the opposition in exile and from a potentially hostile ethnic majority at home just as the South Korean and Taiwanese states did from North Korea and from mainland China. 

These threats have kept the ruling RPF focused on improving social and economic well-being for its citizens to maintain its legitimacy and hold on power. The regime has exercised a capacity for long-range vision and forward planning contained in its Vision 2020 roadmap, free from the influence of rent-seeking, private interests. It has ruthlessly pursued its policies at times through heavy-handed regulations and enforcement of rules.

The low crime, low corruption, low red-tape environment this has fostered was not enough. The RPF has used its clout to address market failures and encourage the adoption of productivity enhancing new technology. Through its holding company and other private-led investment groups that it has brought into being, jobs have been found for talented managers and skilled workers that might have otherwise gone overseas.

The Rwandan experience demonstrates the capacity of poor nations to bring about a system of governance that is relatively competent and free from corruption within a short span of time using home-grown institutions, resources and talent. The extremely harsh and disadvantageous position it faced did not become a hindrance, but rather provided greater incentive for it to go down the road it has followed. Surely, any emerging economy seeking to do the same should take heed the lessons from Rwanda.

Lessons for the Philippines?

The Philippines may have already attained middle income country status, a milestone that Rwanda is still aiming to achieve by 2020, but there are certain elements in Rwanda’s development experience that it can learn from.

  • Financially autonomous political parties:

We have seen how  gaining financial solvency allowed the RPF to govern without fear or favour. This enabled it to take a long-term view in planning and executing its economic development strategy. It enabled it to rule with moral ascendancy and punish erring, corrupt officials, putting an end to the patrimonial, rent-seeking behaviour of its bureaucratic and business elite.

  • Inclusive, participatory governance:

We have already seen how the RPF has shared power with other political parties. The proportion of cabinet appointments follows the same proportion of parties represented in the parliament. In the 2013 elections, an unprecedented 64 per cent of seats were won by women. This is the highest level of female participation in political office anywhere in the world. With this level of representation, laws that uphold women’s rights and promote women’s health and well-being are being enacted.

  • Home-grown solutions:

Although a certain amount of repression of the press and political opposition has taken place, in the guise of preventing ethnic tensions from flaring up once again, such suppression it can be argued would have taken place anyway, given conditions prevailing in Rwanda. Rather than relying on foreign models of governance and economic development, Rwanda has charted its own path. It uses institutions like gacaca and imihigo to bring about restorative justice and better governance.

  • Robust government role:

In promoting economic development, Rwanda didn’t follow the Washington Consensus that simply limits the role of government to creating a level playing field. It followed the example of East Asia, which meant addressing structural issues in its economy through interventionist industrial policy aimed at catalyzing investment in productive sectors in agriculture, industry and services to raise the standard of living of those residing at the base of the socio-economic pyramid. Ironically this has emboldened the private sector to take risks as well, to invest in the future of the country.

  • Political succession.

Many commentators are wondering whether President Kagame intends to step down at the end of his second term in 2017. A third term is constitutionally prohibited. As early as 2012, the ruling party held a conference to tackle the issue of political succession at Kagame’s request. At this early stage, the RPF has begun to look for ways to bring about an orderly succession, but one that does not put in jeopardy the advances made already. It is seeking ways to institutionalise mechanisms for bringing this about.

It would not be right to recommend that the same set of policies be adopted in the Philippines. The message here is that countries need to chart their own developmental path based on the conditions they face. The universal prescriptions of the Washington Consensus are becoming less influential as the balance of economic power shifts to the East. While that may be true, certain key principles can be gleaned from the success of other countries.

Considering the way the RPF developed its Vision 2020, opened up participation of women, included its political opponents in a cabinet that advises the president, and managed the bureaucracy through formal and informal contracts, what changes could the ruling Liberal Party make that would improve the way it governs under President Aquino? More importantly, how could it ensure that the positive changes it makes continue beyond 2016 when he steps down?

Close-Open

What’s better for economic growth?

In the debate over the economic provisions of the constitution, we often hear that it would be better for the Philippines to lift all restrictions on foreigners. These are what prevent investments from flooding into the country, its advocates say.

One way of arguing for full liberalisation is to point to our progressive regional neighbours and say that they are less restrictive towards foreign participation in their domestic markets. Since they are growing much faster through investments, what we ought to do is adopt their policies and completely liberalise all the sectors of our economy.

This notion is often repeated and reinforced by politicians, businessmen, think tanks and commentators in the media. They portray opposition to full investment liberalisation as either based on selfish interests or irrational xenophobia.

The problem with this stylised argument is that it may not necessarily be grounded on fact. It could be a situation where a lie repeated often enough can become true in the minds of the public.

To test the assumption that our regional neighbours are not restrictive towards foreign investments, I consulted the World Bank’s Invest Across Borders report which contains the most authoritative information on statutory rules and regulations that govern foreign investment in domestic economies around the world.

This allowed me to answer the question, which region in the world is the most open to foreign direct investments? Is it:

a. East Asia and the Pacific (EAP)

b. The Middle East and North Africa (MENA)

c. Latin America and the Caribbean (LATAM&C)

d. Eastern Europe and Central Asia (EECA)

e. South Asia (SA)

f. Sub-Saharan Africa (SSA)

g. High income OECD nations (OECD)

Most would rank the OECD nations as the least restrictive followed by East Asia and the Pacific. This is based on the notion that richer and more prosperous countries generally tend to be more open to investment from abroad. No other region in the world has bridged the gap between rich and poor like EAP with MENA coming in second.

So what does the data tell us? The rich OECD countries are definitely the most open to foreign investments. But among all these regions, the EAP region is astonishingly the most restrictive. The following table comes straight from the World Bank’s findings:

Ownership Limits for Foreign Investors by Sector

Region/Economy Mining, oil & gas Agriculture & forestry Light manufact-uring Telecom Electricity Banking Insurance Transport Media Construction, tourism & retail Health care & waste manage-ment
East Asia & Pacific 78.4 82.9 86.8 64.9 75.8 76.1 80.9 66 36.1 93.4 84.1
Middle East & North Africa 78.8 100 95 84 68.5 82 92 63.2 70 94.9 90
South Asia 88 90 96.3 94.8 94.3 87.2 75.4 79.8 68 96.7 100
Latin America & Caribbean 91 96.4 100 94.5 82.5 96.4 96.4 80.8 73.1 100 96.4
Sub-Saharan Africa 95.2 97.6 98.6 84.1 90.5 84.7 87.3 86.6 69.9 97.6 100
Eastern Europe & Central Asia 96.2 97.5 98.5 96.2 96.4 100 94.9 84 73.1 100 100
High-income OECD 100 100 93.8 89.9 88 97.1 100 69.2 73.3 100 91.7

Source: World Bank (2010), Invest Across Borders.

Note: The table shows the average levels of ownership caps placed on foreign investors across eleven of the most regulated sectors (with a score of 100 indicating complete openness or full foreign ownership permitted). There were 87 countries in the sample.

For all but two of the eleven sectors featured, EAP is the most restrictive—and even in the case of those two sectors, electricity and transport, EAP came second only to MENA. The IAB report acknowledges this by saying,

East Asia and the Pacific has more restrictions on foreign equity ownership in all sectors than any other region.

The caveat is that EAP also shows the greatest intraregional variance with less populated jurisdictions like Singapore and the Solomon Islands having fewer restrictions and highly populated ones like China and Indonesia imposing more in their service sectors.

When it comes to private ownership of land, the IAB report also shows EAP being the most restrictive to foreigners. The following is a screen grab. It shows that only 33 per cent of the EAP’s economies allow foreign ownership of land compared to 52 per cent for SSA, 80 per cent for MENA and SA, 95 per cent for EECE and 100 per cent for LATAM&C and OECD. Only three of the ten economies surveyed allow it. Most economies only lease land to foreigners and provide weak lease rights at that (the leases cannot be used as collateral for loans, subdivided or sublet).

land ownership

When it comes to ownership rights, EAP scored 83.3 out of 100 coming in fifth after the OECD (100), LATAM&C (98.2), EECE (97.6) and SA (93.8), ahead of SSA (77.3) and MENA (68.8). This again runs counter to the prevailing view that EAP provides greater security to foreign investors over their property rights, more than other regions.

The ease of doing business, particularly the cost of entering a country is the last thing we will look at. The ease of establishment is measured by the number of steps and length of time needed for setting up a foreign business. The following table also comes from the IAB website:

Starting a Foreign Business

Region/Economy Procedures (number) Time (days) Ease of establishment index (0-100)
Middle East & North Africa 9 19 58.6
High-income OECD 9 21 77.8
Eastern Europe & Central Asia 8 22 76.8
South Asia 9 39 62.5
Sub-Saharan Africa 10 48 51.5
East Asia & Pacific 11 64 57.4
Latin America & Caribbean 14 74 62.

Note: Ease of establishment index (0-100) evaluates the regulatory regime for business start-up.

MENA and the OECD are at the top of the league table with 19 and 21 days for each of them respectively to open a new business. LATAM&C and EAP are the worst performers in that order providing additional hurdles to them. It takes 64 days on average in EAP and 11 steps to open a new business. In China it takes 65 days on average and 18 steps, which is above the regional average. In the ease of establishment index which reflects the regulatory regime of regions, SSA and EAP are the worst performers in that order, meaning their regulatory regimes are the most difficult and least familiar to foreign firms.

Given its lack of openess, poor accessibility of industrial land, and larger regulatory burden, it is astonishing how the EAP experienced faster growth and pulled in larger investments compared to other emerging markets in the world as shown in the following charts.

These results will seem counterintuitive, especially for those who have been fed a steady staple of neoliberal ideology. It’s a case of empirical evidence contradicting normative beliefs: the most restrictive EAP region grew fastest and attracted the greatest value of foreign direct investments.

So why has the Philippines managed to lag behind its regional neighbours in terms of growth and development? What factors allowed them to take-off and overtake us? That is a subject for a much longer conversation and a later post. Suffice it to say that framing the problem around liberalisation in certain sectors, accessibility to land, ease of establishment or even property rights does not provide a convincing answer.

Let me conclude with what that this discussion demonstrates, and that is opening up our domestic market to foreign competitors is not a guaranteed way to bring about economic transformation. It is not a panacea. It does not necessarily follow that if you open up, you will attract more investments or grow much faster. There is a missing ingredient in all this, an “omitted variable”, as it were.

In part two of this series, I will discuss the various strategies employed by the East Asian tigers in their quest for economic prosperity and how the political and economic history of the region diverges from common public perceptions of what happened.

The Binary World of James Robinson: a rebuttal to Why Nations Fail

He came at the invitation of the Angara Centre for Law and Economics to present his ideas from the book Why Nations Fail which he co-authored with Daron Acemoglu. This pair along with Simon Johnson had originally published back in 2001 an article in the American Economic Review entitled The Colonial Origins of Comparative Development: An Empirical Investigation.

Their book could be seen as an essay expounding on the themes uncovered by their earlier research which credits economic development to the institution-building conducted during the colonial era between the fifteenth and nineteenth centuries. It begins by drawing our attention to the differences between Nogales, Arizona and Nogales, Sonora, towns on opposite sides of the US-Mexican border.

The basic thesis of the book is that nations with institutions that promote greater inclusion in both political and economic spheres prosper while those that foster extractive or predatory policies wind up becoming impoverished and backward. The seminal moment in history, according to the book, happened in England back in 1688 during the Glorious Revolution.

For those not familiar with this event, I provide a brief background here. The basic argument goes a little like this: security of ownership and property rights is essential to investor certainty; investor certainty is needed to foster capital markets, and a set of political checks and balances that guarantee this is best suited for capitalism to flourish.

These principles were essentially what The Glorious Revolution was supposedly fought on and why the Industrial Revolution subsequently took place first in Britain, rather than in Continental Europe. The rights and ideals that Englishmen fought for were transplanted to their American colonies and became the basis for the American declaration of Independence in 1776.

Acemoglu, Johnson and Robinson (AJR) sought to prove empirically that institutions mattered to development. Previously, it was argued that climate and geography had a lot to do with it, i.e. that the industrious, temperate, northern states of Europe were more prosperous than the sluggish states in the southern Mediterranean and the tropics.

AJR sought to dispel this using colonial history. Why was it that not all colonised countries developed along the path of the United States? The difference lay in institutions. Their article demonstrated that in places where diseases led to high mortality rates among early European settlers, and where consequently hardly any permanent settlements were planted, centuries later, the lack of institutional legacy was found to be significantly correlated with low development.

The main lesson was that geography was not destiny, and that even history was not destiny. Less developed nations could begin adopting the institutions that promoted greater inclusiveness and discard extractive policies that left them in squalor. This dove-tailed with the agenda promoted by Washington on good governance, as it searched for a way to rescue the failed Washington Consensus from repudiation.

What came about was the augmented consensus that said free markets and good governance promote economic growth and development. After decades of telling less developed countries to shrink the role and capacity of the state and let markets rip, they were now saying that government needed to be strengthened once again.

The liberal democratic states of the West act as an ideal to which other societies need to aspire to. No other path leads to sustainable economic growth other than this. Just as Calvinist preachers of old would proclaim that no one cometh to the Father, but by His Son, these economists present a case that no other path leads to economic Nirvana, but through the Market (with Institutions performing the role of the Holy Ghost).

This rather binary view of the world is actually contradicted if you go deeper into the colonial history of the Americas which is what John H. Elliott did in Empires of the Atlantic World: Britain and Spain in America 1492 to 1830.

Here he wrote that it was actually the exclusionary racial policies fostered by the English settlers that led to greater social cohesion among settlers around Enlightenment principles of individual rights and liberties, which in turn led to greater independence and prosperity.

Meanwhile in the Southern hemisphere, the Spanish settlers had an “organic conception of a divinely ordained society dedicated to the achievement of the common good” which was “more inclusive rather than exclusive in approach”. The granting of rights both economic and political to natives consisting of mestizos, creoles and freed slaves led to a mixed-race society prone to greater divisions than existed in the North.

The irony here is that a more inclusive colonial policy led to greater exclusivity as subsequent societies were stratified and organised into “pigmentocracies” which made it harder to achieve the egalitarian principles espoused by the Enlightenment. In the Philippines, the outpost of New Spain, the situation was worse in that apart from developing this multi-racial caste-like system, the facility of a common language was not provided as it was in the Americas.

This is the difficulty of using colonial history to prove or disprove that institutions matter in the way attempted by the authors of Why Nations Fail. They do matter, but in different ways, which is the point I highlighted previously in this column (see here).

Secondly, there is the anomaly of the benign dictators of East Asia and the desarollista states of Latin America. Robinson has taken the view that the East Asian growth formula, what is termed the BeST Consensus (BeST consisting of Beijing, Seoul and Tokyo), represent a unique moment in history that cannot really be duplicated or sustained.

Peter Evans disputes this saying that just because the East Asian miracle emerged from a unique blend created by the Cold War policy of the United States, it does not mean that we cannot distil a few basic principles and emulate them today. Just because these states were predominantly autocratic does not mean that weak democratic states cannot adopt the policies that made them succeed in fostering rapid industrialisation (see here for a deeper discussion).

What’s more is that both Germany and the United States, late industrialising Western nations after Britain and France, followed the same industrial policies a century earlier. It was just that after scaling the development wall, they felt the need to “kick the ladder” away to prevent others from following them up because not doing so would disadvantage them.

In Latin America, the record of developmental or desarrollista states of the 1970s and 1980s in Brazil and Mexico is more spotty than in Chile but nonetheless more successful than in Africa or South Asia as these countries made their way into middle income status ahead of countries like Malaysia, Indonesia and Thailand. This is the evidence that Robinson conveniently sidesteps.

Another point James Robinson makes in the book and in interviews is that collective action, which he equates to people power, is key to expanding opportunity for people if the system is closed. He cites the experience of the Philippines and of the Middle East a la Arab Spring to underscore his point. Again, the use of people power is problematic. Why?

Well as Elliott points out, people power features in Spanish colonial traditions as well because

(b)y the laws of medieval Castile the community could, in certain circumstances, take collective action against a ‘tyrannical’ monarch or minister.

Cortes in fact used this against governor Velasquez who ordered him to survey and not to invade the territory of Montezuma in the Yucatan peninsula. It was based on the notion of a social contract between the prince and his subjects which if broken gave the right of the governed to say, “I obey, but I do not comply” (se obedece pero no se cumple).

From time to time, commoners or comuneros resorted to acts of dissent bordering on revolution. But these were simply seen as a way to get the authorities to the bargaining table. Once their grievances were heard and the tyrannical laws or ministers were replaced, they would go back to living as loyal subjects of the monarch. Direct democracy rather than representative democracy ruled until very late in the piece, which left them with very little in terms of a genuine parliamentary tradition.

This swinging of the pendulum from uprising to dictatorship and then back again is exactly what we are witnessing in Egypt today. The problem with equating collective action, i.e. people power, with greater openness, is that the relationship does not always hold.

Finally, let me address the fallacy that only the Anglo-American form of capitalism works well. Francis Fukuyama is right to point out that this is not the only successful Western model that exists. Scandinavia demonstrated another path, which did not require revolts against oppressive monarchs. Theirs was more along the lines of an enlightened, benevolent monarch based on egalitarian religious rather than secular beliefs.

What I hope to point out through this discussion is that the world that we live in is more complex, more multifaceted than what Robinson tries to portray. While it is easy for him to be parachuted into the Philippines to spread his brand of institutional economics, we don’t necessarily have to buy into his whole message.

I agree that the Philippines needs greater openness and participation in political and the economic life, and that collective action to widen the sphere of participation probably needs to be organised, because elites won’t surrender their privileges willingly, but that is as far as I would go.

We don’t need a whole theory based on a faulty or perhaps selective reading of history to back this up. We have seen how people power can be hijacked or used for narrow political ends. We need to guard ourselves against simplistic arguments that say unseating this corrupt ruler here or that autocrat there is going to bring about nirvana for us. Institution-building is not accomplished by this alone, but through a sustained, deliberate, evolutionary process.

The social innovation of Oportunidades and Bolsa Familia more widely known as conditional cash transfers which have been credited with reducing poverty in Mexico and Brazil were not developed by the World Bank or the IMF.

They were experiments conceived by indigenous policy makers who were thinking ‘outside the box’. The East Asian industrial policies responsible for creating economic prosperity and convergence were pursued against the advice of international economists from the IMF and the West. Japan’s Ministry of International Trade and Industry sought to deceive their Western minders that they were complying when in fact they were doing their own thing.

Similarly if the Philippines were to find its way in the world, it will have to be by taking into account its own unique blend of ideas, capacities and institutions. It won’t be by applying some universal one size fits all formula promoted by a Western economist armed with some statistical regressions, a few case studies and a loose reading of history.

Since the era of Martial Law we have had technocrats sing from the same hymn sheet as their Western counterparts while ironically supporting a system that undermined the very principles they were espousing. We need to be smarter and wiser this time around.

We need to accept that the world is not a binary system, comprised of dummy variables that say you are either inclusive or exclusive, free or unfree, open or closed. We need to admit that we live in a multi-polar world, where things are not as clear cut, as some experts would have us believe, and that many paths lead to development. Ours in fact still needs to be found.

Remittance Driven Growth

Monthly remittances inflows (US$ millions)
Source: World Bank

If anyone needed an explanation for the robust growth of the Philippine economy for the last nine years (two of which under the present dispensation), then the chart above would go a long way towards providing it. It shows monthly foreign remittances flowing from January 2003 to February 2012 into the country compared to that of some Latin American, Caribbean and South Asian countries of similar size or income to the Philippines.

In terms of its foreign remittances, the country is an absolute stand-out rising from about $600 million a month in early 2003 to about $1,500 million in early 2012. In the twelve months leading up to February 2012, the total inflows to the country was about $20.2 billion. If we convert that to pesos using the average exchange rate in 2011, that is roughly equivalent to PhP875 billion. In an economy of roughly PhP9.5 Trillion, that is about 9.2% of GDP. Given the multiplier effect that this income has, it would be safe to say that remittances contribute about double or about a fifth of the economy.

Unlike, Mexico which is dependent on its Northern neighbour the United States for providing a market for their cheap labour, the Philippine work force has its eggs in many baskets, not only in different countries, but many occupations, both high- and low-skilled. This is reflected in the data which shows that as the Great Recession unfolded in the US from September 2008, the growth in remittances to Mexico hit a ceiling, while that of the Philippines maintained its upward trajectory catching up with its North American counterpart towards the end of 2011.

As of October 2012, the nation’s gross international reserves reached a record high of $82 billion, 8% higher than it was a year ago at $75 billion. This would be enough to pay for close to a year’s worth of imports or settle half a year’s worth of debt resettlements. One can clearly see that without these foreign remittances, the gross international reserve position would be shrinking, not expanding.  In fact, if you took away the growth in remittances which was 7.1% year-on-year from 2010 to 2011, then you probably wouldn’t have seen any growth in the Philippine economy during that time.

These dollar remittances inflows are roughly the size of the Philippine government’s tax and revenue intake for a year. They could finance the government’s annual deficit three times over. The recent upgrade to the country’s credit status to one notch below investment grade owes more to this phenomenon than to the government’s “fiscal consolidation” and “debt management program”.

In its recent report for the third quarter, the global investment monitor Thomas White has said

The Philippine economy is in a sweet spot mainly due to the high infrastructure spending the country has unleashed. Adding to this, strong remittance income from oversees Philippine workers, a fast-growing domestic services sector, and increasing confidence from foreign investors bolstered to the country’s buoyant economic outlook.

If you averaged out the growth for the last four quarters, you would find that it would be  4.85% , the same as its average growth for the last ten years. The confidence of foreign portfolio investors in the local stock market comes largely from the country’s ability to keep the economy chugging along as events from Europe have dampened the outlook for other countries. This was admitted to by a senior official of investment bank Goldman Sachs in a recent visit to Manila. The White report continues by saying

With the country’s government awarding $16 billion worth of contracts to build social infrastructure that included constructing thousands of classrooms, the outlook for the infrastructure industry has grown rosy. The construction sector posted a growth of 10% during the quarter up from the 7.6% registered during the first quarter. As public spending rose, employment outlook also improved during the quarter, boosting consumer demand. Household consumption jumped 1.4% during the quarter, up from the 0.9% during the first quarter.

Notice that they say it was the “outlook” on employment from the “infrastructure outlook” that boosted consumer demand. That is either a lot of faith placed on the outlook or it was a result of hard cash pouring in from Filipinos living and working overseas (UPDATE: note that the construction boom is happening because the property and realty sector is benefiting from remittances, and this has actually gotten some analysts worried about a possible housing bubble). The report concludes by saying

…Meanwhile, despite maintaining a record low interest rate of 3.75%, inflation in the country fell to a low of 3.6% in September from 3.8% in August. The central bank has targeted an inflation of 3% to 5% for 2013.

The BSP has in fact cut interest rates recently to temper the appreciation of the peso that has been hurting the competitiveness of our export industries. The situation has been described as reaching a breaking point by industry insiders. The power of the peso relative to the US dollar is what is behind the low inflation figures as imports become cheaper. The so-called “sweet spot” of high growth, better employment and low inflation can actually be explained by the continued growth of remittances rather than any privately-financed stimulus that has yet to be spent.

 

Do we even know what affects growth and poverty?

Don’t we know that all that matters for reducing poverty is growth, especially after China? And therefore we development economists should focus on the things that make growth happen: Macro policy and creating the right institutional environment. And not bother with the micro evidence…

No, no, and, as the expression goes, no. Every step in that syllogism is wrong, and, I will argue … each step is probably more obviously wrong than the previous one.

Abhijit Banerjee

It is rather ironic that just as the annual meeting of the ADB convened in Manila to discuss the “Asian century” emphasizing the role of the region in propping up the global economy that a survey by the Social Weather Station on self-reported poverty showed that a majority of Filipinos (55% in the first quarter of 2012 compared to 45% in the previous quarter) still considered themselves poor. Business leaders and policymakers seemed unflustered though as they expressed confidence in our long run prospects for growth and development.

After more than sixty years of working with both bilateral and multilateral aid agencies as well as non-governmental organizations, you would think that a good understanding of the links between growth and poverty reduction would exist. Unfortunately, there is strikingly very little we know based on the evidence that is available.

At the very least, all that we do know is that the so-called trade-off between growth and poverty reduction does not hold. From cross country analysis, we find that fast growing countries tend to see poverty decline. But that is about it. We do not know which causes which. Is it growth that reduces poverty or does poverty reduction provide the initial conditions for growth to occur?

To be clear, we don’t know if: (a) countries that grow faster, reduce their levels of poverty quicker (growth reduces poverty), (b) countries that reduce poverty subsequently grow faster (poverty reduction causes growth), or (c) growth without poverty reduction becomes unsustainable politically and therefore leads to cases of growth interrupted (both growth and poverty reduction have to occur simultaneously).

The previous government of the Philippines for instance spent the better part of the last decade focusing on growth through public spending and foreign investments. The incidence of poverty however did not decline which led to the pilot-testing of a conditional cash grants program to indigent households near the end of its second term of office. Its political difficulties stemmed from another source: perceptions of illegitimacy in the way it had acquired and held on to power.

The subsequent government has placed a greater emphasis on fixing perceived areas of corruption while rolling out the conditional cash grants program of its predecessor, but has found not only growth to have slowed, but (self-reported) poverty to have risen as well, at least at the onset.

This to-ing and fro-ing from one policy agenda to another demonstrates why it is so important to know the answer to the question how are growth and poverty related. Otherwise we could be wasting much of our time and resources promoting one type of reform when in fact we should be promoting another.

We know precious little about what promotes growth to begin with. It would be a shame investing so much in it (getting an investment grade credit rating for instance through fiscal austerity) when what we should be doing is throw everything we’ve got at something else.

It doesn’t help that what we thought we knew has been subsequently disproven or found to be flawed. For example, back in the 90s we were told that growth (or the lack of it) was mostly explained by adequate (or inadequate) levels of savings and investment in physical infrastructure, human capital and population. It turns out those factors only account for about a third of the growth. The rest remains unexplained.

The implications of this are that even if the government were able to take advantage of the fact that for once in our nation’s history we are no longer a net debtor, but a net creditor nation, and competently implement the roll-out of its public private partnerships, its education and health reforms and some variation of a reproductive health program, growth of the kind that it hopes for would still not be guaranteed.

If we were to compile all the findings of empirical work on cross-country growth rates, we would find that a total of 145 variables have been identified as significant, contributing either positively or negatively to growth. Given the number of countries to be observed and the range of variables to be tested, no satisfactorily robust method exists that would allow us to test all these variables all at once to measure their relative importance.

Even if we relied on partial correlations that tell us that policies, institutions and anti-corruption measures significantly affect growth, we still would not know which policies, institutions and forms of anti-corruption matter most. The data sets for testing such suppositions simply do not exist. Macro analysis simply is not viable. It exposes much policy work to the accusation that it is merely based on conjecture, ideology and politics.

Suppose we were to test proposed solutions at the micro level using micro experiments? Random evaluations using control and test groups might hold the key. Applying for instance new forms of administration across a range of local government units might help us rule out or rule in certain reforms. Evaluating specific policies like the Pantawid Pamilya as it rolls out might provide evidence as to how our version of conditional cash grants is either effective or ineffective in different settings throughout the country.

(Note the distinction I made between Pantawid Pamilya and other similar programs such as Brazil’s Bolsa Familia. Knowing that a version of conditional cash grants works in one setting does not necessarily prove it will work everywhere else. We should be cautious in accepting the claims made by Jeffrey Sachs, a speaker at the ADB meeting, who believes that we already know how to fight poverty in every setting throughout the world.)

When it comes to promoting growth through industrial policy (targeting poverty through industry and employment programs), we were told by the Washington Consensus not to experiment anymore. Growth came by lowering trade barriers and improving governance. They claimed that “one size fits all”. Countries had to craft their policies in a way that followed “best practice” which meant letting the free market allocate resources and determine our place in the value chain of global production.

What our experience and that of Latin America and Sub-Saharan Africa in adopting this so-called consensus points out, what we should have been pursuing was not the principle of best practice (our laws and regulations are often regarded as such), but the one of “best fit” as highlighted by the East Asian growth experience.

The countries in that region didn’t accept the Western capitalist mould of economic governance, but developed their own forms based on local institutions and tradition. This made the process of development more acceptable and sustainable. If we are to follow their path, then perhaps we should not be so hesitant to experiment as they did.

The problem is that our policy elite suffer from an identity crisis. They are habitually more Asian in their practices, but they seek to pass themselves off as Western. As a result their prescriptive pronouncements often conflict with social reality such that when the rubber of public policy hits the road, it quickly burns out because of excessive friction.

It would be wonderful if we could experiment with new ways of doing public policy that worked with, rather than against, our collective identity. To do that though, we would first need to acknowledge our collective ignorance about a great many things.

UPDATE: It has been reported this morning that self-reported hunger in early March this year has gone up to the highest level it has ever been (exceeding the previous peak in 2008).

Why people power flourishes in the East and founders everywhere else

People Power in Tunisia (image credit: idiemedia.org.au)

The parliament of the streets which saw its culmination in the Philippines at EDSA-1 on February 1986 took root shortly thereafter in places like South Korea, Thailand, Indonesia, Malaysia and even Burma. Were it not for the tanks on Tiananmen, it would have triumphed in China back in 1989. It has spread even to Eastern Europe and Russia and garnered support in the conservative countries of the Arab world more recently.

Today in the Philippines, there are still calls for people power. One is being launched by none other than the president of the Republic who has been hinting that if the impeachment trial of the Chief Justice Renato Corona results in his acquittal, people should take to the streets to overturn it. Another appeal is being aired by the Catholic Church, which calls on the faithful to march against the enactment of the reproductive health bill.

In the West, calls for people power more likely than not fall on deaf ears. One recent appeal was issued in the US by former speaker of the House Newt Gingrich whose insurgent campaign to win the Republican nomination for president had been dealt a deadly blow by the leading contender former governor Mitt Romney. An even more recent case is that of Kevin Rudd, a former Australian PM who resigned as Foreign Minister of his successor Julia Gillard, as he sought to challenge her for the leadership of the Australian Labor Party. As of this writing, he is expected to lose in an upcoming leadership spill within the parliamentary caucus despite his wide margin over her in opinion polls (update: Kevin Rudd eventually lost the contest in a decisive 71-31 vote).

Both men used the phrase ‘people power’ in defining their respective campaigns as a challenge to the established elites within their respective ranks. In these Western democracies, where institutions are deeply embedded, traditions observed, and the political maturity of the people is very high, such appeals are usually met with much scepticism if not outright cynicism.

It makes me wonder why people power flourishes in the East and founders everywhere else. It is a reverse twist on the book by the Peruvian economist Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. The thesis of his book is that institutions in the East are not suited for the smooth functioning of markets. Among the urban and rural poor whose informal rights to land are not recognized or protected, for example, the proper incentives for investing in the productivity of such assets is lacking.

Similarly I would argue that the reason behind people power being such a viral phenomenon in the East is due to the lack of mature democratic institutions that would mediate or provide proper regulation of political activity. People in the West can rely on these institutions to guide behaviour even in the most difficult of circumstances. Parties accept the outcome of their processes. There is a greater level of faith or assurance in their integrity even when the hand of politics is glaringly obvious.

What happened in the 2000 US presidential elections is a shining example of this. This was the contest between Vice President Al Gore for the Democrats who won the popular vote and Texas Governor George W. Bush for the Republicans who won the electoral college vote. It all came down to who won in Florida, a state governed by George’s brother Jeb Bush. Gore mounted a challenge to the results which had Bush ahead by a mere 534 votes. The state Supreme Court of Florida ordered a recount. While that recount was under way the US Supreme Court intervened. In a 5-4 vote reflecting the political views of the justices, the recount was rendered unconstitutional.

Al Gore strongly disagreed with the decision but said  “for the sake of our unity as a people and the strength of our democracy, I offer my concession.” When the canvassing of electoral college votes took place in the US Congress, Gore as presiding officer overruled many of his colleagues in the chamber on his side of the political fence who protested the decision of the Supreme Court. He in effect went against his own personal interests for the sake of the democratic institutions of his country.

If the Philippines was ever to emulate these democratic traits, it would require maturity from its leaders and people. It would require us to work within constitutionally mandated processes and institutions even when they result in outcomes that run counter to public expectations. It requires commitment by the polity to abide by the prescribed norms whether they are favourable or unfavourable to the interests of its dominant actors.

People power came about in 1986 to impose “the will of the people” following an election, the conduct of which was widely regarded as unclean and the outcome was deemed dishonest. Another episode erupted in 2001 when the Senate sitting as an impeachment court voted along political lines to go a certain way that was seen as injurious to the cause of those who massed in the streets. It led to the ouster of the man the masses deemed their legitimately elected leader and sparked a third coming of people power some months later.

In the ensuing years, people generally regarded the latter two versions of people power as an adulteration of the first. The problem however is that our present leadership does not seem to heed the lesson of that era. It still holds firm to what it claims is its legitimate right to call for a fourth episode if the current impeachment trial of the Chief Justice runs counter to its expectations.

That lesson is that people power should never be used to overturn a judicial decision or process. Imposing “the will of the people” on a court is a dubious thing because legal processes are distinct from electoral ones where the will of the people is clearly indicated. The executive cannot use its electoral mandate to impose its wishes on other co-equal branches of government claiming that “the people” are on its side.

Over-reaching or over-stepping one’s mandate is one of the reasons for building checks and balances in a democracy. If one branch of government refuses to recognize another branch’s decisions, it would be an open invitation for the military to intercede. When that happens, all bets are off.

So the only way out of our present predicament if we do not want to live under a dictatorship is to remain vigilant in the coming days but not allow our vigilance to turn into vigilantism. Otherwise, we might find ourselves stuck in the same old rut that we have found ourselves politically in the past. And being stuck in the past is exactly where we don’t want to be.

There’s too much fun in the Philippines

A certain pizza place we shall now disguise behind the name Norwich Pizza had been acquired by a large food conglomerate we shall call Bumblebee Food Corporation for purposes of discussion. BFC sought to turn Norwich from a simple mom and pop type of operation into a highly profitable nationwide franchise.

It set about doing this by hiring a very prominent ad agency to deliver a strong and appealing message to the public. The firm wisely picked a celebrity, a certain Ms Nonita Flowers, to be in their commercials.

Within months of the launch of the media campaign, sales rose rather well in line with projections made by the company’s bean counters. Unfortunately, after a quarter of stellar performance, revenues started to head south quite dramatically. This puzzled the head honchos at BFC. Everything had been proceeding according to plan until very recently. What had happened?

To investigate and remedy the situation, one of BFC’s vice presidents who successfully steered another major acquisition, the Chun King Express, was brought in. The vice president proceeded to inspect the premises of Norwich. Within a month or two, he had not only arrested the decline in sales, but restored it to its previous trajectory.

So how did he do it?

Well, having cut his teeth in the fast and furious world of Chinese takeaway, the vice president of Chun King knew the importance of maintaining good customer service. This could only be achieved if the stores were equipped with proper equipment particularly in the kitchen. Within the first few weeks of his assignment, the new manager had placed orders for new ovens to replace or augment the standard kit that had been originally installed in Norwich stores, which he deemed highly inadequate.

The capital investment paid off and Bumblebee proceeded to earn a positive return on its acquisition of Norwich, albeit at a lower rate in the first year than previously expected due to the unforeseen expenditures. The vice president was given a fat bonus for his efforts in rescuing the venture. Money well spent from the point of view of BFC’s board and stockholders.

This case study demonstrates the importance of coupling good marketing with good operations. Without a quality product, no amount of spending on ad campaigns could restore or improve the brand’s sinking reputation. In the fast food business, it doesn’t matter how tasty the food might be, if customers have to wait too long, they won’t be coming back.

The same can be said of tourism and travel. The Department of Tourism under Sec Jimenez is looking to increase the flow of visitors into the country with a catchy slogan, “It’s more fun in the Philippines” and the usual slick marketing campaign. It is in talks with Singapore to co-brand the two nations as the “sunshine belt”.

These ideas are brilliant, but the problem is that the Ninoy Aquino International Airport is already operating above its normal capacity with visible signs of wear and tear all too evident. Even with the renovation of Terminal 1 and the recent conclusion of the decade’s long case involving Terminal 3 paving the way for the full use of it for international flights, these developments will not unclog the bottlenecks due to the limited number of runways. No amount of renovations will fix that as there is no more room for expansion. As arrivals are slated to rise from 3.9 million in 2011 to 4.2 million this year, how will the airport cope?

This problem is compounded by the growth in domestic flights. During my recent visit to the Philippines, I spent an hour waiting at the departure lounge of the domestic terminal in Manila for a flight to Kalibo. The reason given for the delay was “heavy congestion”. After boarding the plane, we were grounded for close to another hour waiting to be cleared for take-off. As the plane finally taxied onto the runway, I stared at my watch, then at the frustrated businessman seated next to me.

Only two hours delayed, not bad,” I jokingly uttered. He laughed. That was all we could do to cope with the situation.

The same thing occurred on the way back. As the voice boomed in the speaker stating that our flight was behind schedule, a power outage stopped it in mid-sentence. It was nearing nightfall and the blackout was quite a shock to the passengers.

“It’s more fun in the Philippines!” I heard a man snicker in the darkness.

Meanwhile on a separate road trip up to Northern Luzon, our convoy experienced a very weary trek. Each town we passed through, every ten kilometres or so, caused us to slowdown as their town hall plazas, central markets, public schools and cemeteries were all located along the main artery causing both vehicular and pedestrian traffic.

The road widening still unfinished due to the slow spending rate of public works projects in 2011 delayed our trip in certain sections. We were told that an extension of the Subic-Clark-Tarlac Expressway would provide better access to the North bypassing most of these populous towns from Tarlac to La Union, but our guide said this had been halted by the new administration. It was clear though that such a road project was long overdue.

That’s as far as infrastructure and transport corridors are concerned. We haven’t discussed the problem of environmental degradation. In both Baguio and Boracay where I took my family, the effects of what urban planners call regional agglomeration were quite evident. Tourism was enticing a major “big box” shopping center to expand in Baguio. Such a move could upset the already congested situation, worsening the air quality, not to mention the aesthetic and cultural appeal of the tourist destination.

Meanwhile, I was shocked to see D’Mall in Boracay. It sort of depressed me actually. I ended up skipping lunch because I had lost my appetite after seeing this transplanting of Divisoria or Baclaran to the once pristine island. It made me wonder if there was such a thing as having too much fun in the Philippines.

If tourism was sold to our government planners as an environmentally safer path towards development compared to industry or mining, I say, think again. There are no free lunches as economists are wont to say. We can’t expect rapid development not to have an impact on the natural habitat. It would be dangerous to think so.

I actually prefer having a greater emphasis on industry, because you can at least concentrate the site of industrial projects within a confined area and choose the type of industries (say light industries or agro-industrial ventures with a smaller ecological footprint) or provide incentives and regulations to govern the heavy polluting ones.

The Philippines has a lot of catching up to do in this area. I am not simply speaking of tourism now. Wasn’t inclusive, sustainable growth and development at the heart of PNoy’s social compact though? This administration like its predecessors is fond of catchy slogans beginning with Daang Matuwid (Righteous Path). It’s more fun is just the latest. But apart from having these platitudes, where is the plan? We have yet to see a blue print for developing the infrastructure, the security, the regulations and incentives that would responsibly manage the growth in our economy? The case of Norwich must be heeded; otherwise, the Philippines could remain grounded for a bit longer.

What the country really needs

Talk to the pundits and commentators and hear their lamentations over the sluggish fourth quarter GDP growth figures of last year. Talk to the investment analysts and you hear a very different story.

Having used up much column space last year predicting an inevitable slowdown of the growth rate, and seeing it materialize, I find it useless to now cry over spilt milk. The government will try to paint a rosy picture, seeing the glass as half-full to counter the reasonable level of criticism it has to cop for tripping over itself. But as someone whose warnings and predictions came true, I would rather focus on the future, not the past.

The reason why analysts seem quite bullish over the country’s prospects is that they see the pipeline of projects that are either underway or about to flow through. It has taken about a year and a half to lay the groundwork, but the government has finally regained its footing. Forget about the invisible hand, last year it was the government’s usually visible boot that failed to leave an imprint.

If government was primarily the cause for the deceleration in growth last year as the external environment gradually deteriorated, this year external factors will pull growth down as both fiscal and monetary policy seek to restore it to its normal trajectory. If uncertainty persists in the EU, if President Obama gets his wish and the US Congress enacts laws to limit outsourcing, if the situation in the Middle East particularly in Iran continues to boil over, it could deflate the economy and counteract many of the measures government puts in place to invigorate it.

Despite all these what ifs there is still much reason to be buoyant if you are an analyst comparing the Philippines with other potential investment sites. The impeachment trial is a mere distraction from their point of view. Regardless of whether the prosecution or defence wins the case, it will not have a shred of influence over the current spend program. That is the good news. As far as the domestic economy is concerned, there should be a decoupling of political and economic events.

Portfolio foreign investments are sure to flow through the local bond market as the major players in the Phisix are set to corner different contracts under the public-private partnership program. They will thus have to raise capital as they breach their single borrower limits with the banks that they control. Forget about foreign direct investments, this is FDI by stealth.

As the government shifts the external debt obligations from the public to the private sector, the question now is whether it will have the fiscal fortitude to use the inflow of foreign currency in a more productive manner than just parking it with US treasury at near zero interest rates.

A more impactful use of these reserves would be to complement physical infrastructure investments by the private sector with economic and social infrastructure investments in education, health and housing. What the country needs is to plug the deficits in these areas of government spending.

But that is merely the first step. The next one would be to fund and implement the completion of the land reform program and to make agriculture and pockets of industry resilient to the global downturn and the emerging global business environment over the coming years. To do the latter, the government will have to roll-out a package of tax incentives and subsidies to boost productivity and encourage investment in capacity.

Of course there is nothing particularly new or fresh to this agenda. The extent to which governments become distracted or side-tracked from it by internal and external events, man-made or natural, self-inflicted or otherwise, determine to a great extent how successful they become in building prosperity and opportunity for all.

So perhaps in this year of the water dragon, the government could focus on letting the money flow so that our country gets what it needs and raises its clout as one of Asia’s newer economic dragons.

The Thai experience (or why P-Noy <3 Yingluck shouldn't be the headline)

The Philippines it seems is engulfed in all things Hollywood at the moment. With the filming of the Bourne Legacy taking place in Manila filling the nightly news with human interest stories surrounding both actors and extras, another “courtroom drama” was unfolding in the Senate with the impeachment trial of Chief Justice Renato Corona.

Meanwhile, as the president hosted the Thai PM Yingluck Shinawatra, you could be forgiven for thinking your were watching an episode of “The Bachelor” unfold as all the major dailies focused on these two eligible single ASEAN leaders visibly at ease in each other’s company. Kris Aquino, the president’s irrepressible match-making “gossip girl” kicked things off. Such a diversion might have been timely, as the president’s ex-girlfriend was betrothed to marry a prominent congressman barely a few years after their own public version of “The Break-Up”.

All this talk of romance swamped the more substantive purpose of the Thai PM’s trip. Investment and trade flows are not quite as important as the bonds of friendship and affection it would seem. However, despite the superficiality with which this visit has been depicted, there is one important lesson that the Philippines needs to heed from the Thai experience.

With “love brewing”, it is easy to forget the controversy swirling in both the Thai PM’s and the Philippine president’s countries. Political instability and turmoil have hounded both nations. But the lesson from Thailand that I would like to draw on comes from its path to development which led to its overtaking the Philippines back in the 1980s. Their experience could be very instructive for us today as we grapple with how to make our local industries more competitive.

Back in the 1970s, the price of Thai garments were found to be 30% more expensive compared to the world market. To deal with this situation, the local association of garments makers decided to raise a levy on each spindle. The revenue raised was used to subsidize exporters. The amount of transfers depended on the volume of exports. A subcommittee set up by the Thai Textiles Manufacturing Association monitored and enforced such an agreement.

But even after taking this collective course of action, garments were still 20% more expensive when compared with competing products overseas. They then turned to the Bank of Thailand to cut energy rates and lower interest on trade bills for exporters. They persuaded the government to grant rebates on business taxes and import duties. This effectively dealt with the remaining price differential. As a result Thailand was able to break into international markets.

From this specific case*, we can begin to make some general inferences. The Thai experience shows us that the private sector should not simply wait for government to come to its aid. Domestic players need to band together and work out solutions for themselves. It is only when they have taken the initiative but still fall short that government needs to step in and provide them with the necessary incentives and support to bridge any remaining gaps.

As our exporters grapple with high fuel and energy costs and a rising peso, there is the temptation to think that we simply need to let the market dictate what products we specialize in in terms of the global supply chain. The prevailing economic philosophy governing our policy elite frowns upon subsidies and tariffs, viewing them as distortions that make markets less efficient. Worse, they tend to view these things as symptomatic of poor governance and as sources of corruption and rent-seeking.

What the Thai experience tells us is that this is not necessarily the case. Rent-seeking, particularly the kind that encourages innovation and productivity, can play a central role in national development. It takes a set of very broad minded policy and business leaders to propose such unconventional solutions. Even the leading exponents of market orthodoxy are beginning to acknowledge that without such out of the box thinking, we may end up with no manufacturing base to speak of.

If the president is interested in leaving behind a legacy beyond simply jailing his predecessor and her cohorts, it is time his administration began looking beyond the traditional policy toolkit. Such a new direction would help push the country’s growth and employment rate above its historical trend. The sustained trajectory of Thailand’s economy since the 1980s and our own under-performance during the same period should provide us with enough reason to chart such a new path.

It is not a romance with Thailand’s PM that we should be encouraging, but rather, a love affair with their formula for economic success. In the parlance of reality TV, it should be less, “The Farmer Wants a Wife” and more “Celebrity Apprentice”.

*The case of the Thai garments sector during the 1970s discussed here is based on the chapter of Richard F Doner and Ansil Ramsay in a book edited by Mushtaq Khan and Jomo K. S. entitled Rents, Rent-Seeking and Economic Development: Theory and Evidence in Asia first published in 2000 by the Cambridge University Press.