Bill Gates

Occupied

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.

BSAIII speech at the Philippine Maritime and Seafaring Industry Presidential Forum

Speech of Sen. Benigno S. “Noynoy” Aquino III at the Philippine Maritime and Seafaring Industry Presidential Forum, January 28, 2010

Speech at the Philippine Maritime and Seafaring Industry Presidential Forum

Before I begin, let me tell you about a conversation between my partner, Mar Roxas, and Bill Gates. When Mar met with Bill Gates in California a few years ago, Bill Gates told him that in his view, there were two industries where the Philippines had the potential to be number one: information technology and seafaring. Do we need a Bill Gates to tell us how good we are in seafaring? My friends, you and I know—we are number one in seafaring.

Our challenge today is how do we keep ourselves in this position?

Today I know that I am not only speaking to those in the seafaring industry, but the domestic and international shipping sectors as well.

In the domestic sector, everybody is talking about our very old and perhaps also very tired fleet of secondhand vessels coming from Japan and other parts of the world. In many parts of the country, wooden hulled vessels are still used to ferry passengers even in this modern age of ours. You and I agree that safety is a major issue in our country today.

If our fleet is not being modernized, perhaps we can attribute this to the fact that investor confidence is quite low. This is compounded by a lack of political will on the part of government to make this happen.

When tragedies happen, such as we have seen in the last two years, causing the loss of many lives, we are told time and again that it could have been due to a host of factors: a) an act of nature; b) the incompetence of officers and crew, or c) the lack of enforcement of safety regulations by either the Coast Guard or MARINA.

However, the question in our minds remains: could any of these have been prevented? More importantly, what can we do to prevent them from happening again in the future?

Ensuring safety is our obligation to the riding public. If we cannot prevent sea tragedies from happening in our own country, our status in the seafaring industry will be at risk.

The shipping companies that employ our sailors have to deal with laws going back to the era of my grandfather, and agencies that have a tendency to work at cross-purposes with each other.

Therefore, let me tell you, in my first 100 days, I will submit to both houses of Congress as one of my priority bills, a new Maritime Code.

I assure you this will not reach Congress without thorough consultation and discussions between you and our new team.

Now, let us talk about international shipping.

The question in the minds of a lot of us who do not understand your sector is—how can an archipelagic country said to be number one in the seafaring industry not have a very strong maritime fleet? How did there come to be only 169 Philippine flag vessels in a sea of 45,000 vessels roaming all over the world? Can you imagine what benefits can accrue to our country if we had an expanded Philippine flag? To make this happen, we need to craft the laws that will put in place policies and incentives for an environment conducive to progress, and provide a government machinery that will be the partner of industry rather than its obstacle in making this happen.

You will be consulted before I make any decision that will impact your industry significantly. I hope and pray that you will be ready because we have to work hard and fast if we are to play catch up with the rest of the world.

Now to our seafaring community—so often called the heroes of the Philippines—I agree with this completely—and I salute you.

The numbers show that there are 300,000 of you so well spread over the world that every time we hear about a ship that is taken over somewhere in Somalia, the probability of having a Filipino on board that ship is very high.

Out of the 16 billion dollars in OFW remittances that came into the Philippines last year, around 3 billion dollars were contributed by your sector. In order to preserve our dominance in the world as seafarers, and sustain our growth momentum, we need to be competitive—in terms of knowledge, technical skills and cost of deployment—with the least burden on our seafarers.

In our country, the seafarer and the deployment agencies have to deal with about 14 agencies of the government before they can complete their papers. This takes countless hours of agony. Other countries have one-stop shops. If they can do it, why can’t we?

Some quarters in your sector are suggesting that we pass a separate law that will deal purely with the needs of the seafaring sector rather than be covered by the Migrant Workers Act. To be honest with you, this is a proposal that I would have to study in detail before I can assure you of my commitment. Your thoughts as experts in this field are most welcome.

In almost every industry that I have had the opportunity to meet with, everybody seems to be well versed about the problems as well as the solutions to those problems. Why then are we not able to do anything about them?

Well, in so many cases, they blame government—and maybe, rightfully so. What I can promise you is that in my presidency, this will change.

As chief executive, I will ensure that government’s regulatory powers are used to favor the public and the progress of your industry, rather than special interests. There will be no regulatory capture.

When there are cases such as, but God forbid, accidents or sea tragedies, you can expect that our regulatory agencies will be fair but firm in the implementation and enforcement of our laws. However, the main occupation of these agencies will be to prevent such incidents from happening. If they are found to be remiss in their duties, you can expect that swift action will be taken on our part.

Let me make an appeal for us to work together instead of continuing the present atmosphere of mistrust and finger pointing. We appeal to everybody: do not pass the buck. In my presidency, the buck will stop with me. Do your part, and I will do mine.

A few years ago, I read about this migrant worker who, after having worked for years to ensure that his family could buy a house, his children could go to school, and accumulate some savings for livelihood, came home to find that no home was bought, his children had been left unattended, and that his wife had run off with another man. After such a homecoming, this man committed suicide. How many other stories similar to this are there? Is this the price that our hero, Juan Dela Cruz, has to pay to save his country? If only we who are left at home—whether it is the deployment agency, or the government’s welfare agencies—worked together to provide support for families to ensure that this does not happen, perhaps these cases would be lessened, if not eliminated altogether.

In closing, let me say that I did not come here to pretend to know everything that I need to with regard to your industry. You are the real experts here. I am here today to listen to your concerns and share with you my views on how we can work together to create public value and to move this industry forward.

Thank you.

[Archived from the official campaign web site of President Benigno S. “Noynoy” Aquino III]

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