Monday, April 02, 2007

Abe Margallo on Foreign Debt & Development, Sparks on State Reform

Here's a proposal by Abe Margallo, on a strategy for handling foreign debt and implementing industrial development.

"Our economic elites (who own half of the debt burden), imbued with a deep sense of country, consider the possibility of entering into some form of “forbearance” with the national government with a view to a short-term moratorium on debt service payment, say, an 8-year temporary cessation. (This indulgence by the elites is in a way a matching counterpart to the acknowledged sacrifices of the OFWs, serving to keep the ship of the nation afloat.)

During the moratorium, the government in partnership with the same forbearing private sector, or vice versa, ventures into vigorous investments, targeting specific industries such as: the manufacture of the imported component of the electronic exports; bio-fuel as alternative source of energy; or exploration in the extractive sector. (I’d prefer to treat the forbearance as some sort of passive investment on the part of the economic elites; after all, the first beneficiary of dependable institutions and infrastructures, productive workforce and booming economy would be none other than the elites themselves.)

What’s withheld as otherwise rent payment, which, doubtless, is a considerable sum, may now be available for physical and social (certainly together with educational) infrastructure outlays as well as for state support for R&D. On the other hand, appropriate incentives like “tax holidays” for entrepreneurs directly involved in these targeted sectors are worked out.

Aside from moratorium on debt service and on capital strike, similar challenge is posed to the labor sector to bite the bullet by committing to a moratorium on labor strikes and other concerted actions during the experimental phase.

Foreign creditors and investors, not being importuned to make a change of position, are expected to regard the arrangement as a real honest-to-goodness resolve for internally driven strategic economic plan. On the other hand, in virtue of its ownership by local leaderships, the initiative is perceivable as one designed with a visceral sense of stewardship (to have lasting positive consequences for the next generation of Filipinos); hence, stabilizing and producing the effect of strengthening the country’s creditworthiness and standing in the world economy.

In a later comment, he added his thoughts on development models, particularly the ones followed by South Korea, Taiwan and China:

"I have also considered as viable alternative the South Korean route. South Korea, a highly homogeneous society, took the innovative route of (officially) embracing crony-capitalism while subjecting it to strict discipline by imposing performance standards, down to the activities in the shop floor, upon business recipients of state largesse. The chaebols then assumed industrial leadership by risking into productive enterprises instead of simply preserving their rent-seeking activities. The state subsidy (from borrowed foreign funds) for diversification into new industries proceeded in tandem with the decision to invest heavily in education. Official cronyism and education, while still conforming to market mechanism, lay at the heart of the late-industrial expansion of South Korea. With fewer multi-national corporations in Korea than in any late-industrializing countries, its economy took off on the basis of nationally owned firms.

I’ve likewise looked at Taiwan as another best practice model. Through broad distribution of land ownership and capital, and high returns to labor (this may be address what cvj calls as “a program of promoting equality”) the individual Chinese was greatly motivated to produce much of the rapid growth of Taiwan’s economy. Taiwan’s small-scale capitalism (“letting a thousand flowers boom”?) as a base for industrial development can indeed serve as just another paradigm for accumulation.

There certainly are other economic models that could be investigated for the best practices we can learn from or from which we could “indigenize” our own. (The China model, playing the globalization game by the Hamiltonian or Keynesian rule-book, stares us in face today.) But the ones that appear to stand out as common denominators for success are:

1) the reciprocal relations between the state and the private sector (businesses, as well as civil societies I wish to add),
2) extensive investment in education and
3) the grandiose ambitions of their pioneering leaders.
" [emphasis mine]

The above models obviously require active participation by the State to which Sparks, in this comment poses a valid challenge:

"If we assume that the State must play a central role in development, as it has in countless other examples, then we have two tasks:

1. Reform the state
2. Selectively eschew the neoliberal orthodoxy to which we have blindly subscribed through our WTO and IMF commitments.

The question is how do we first reform the state, then enable the state, when neoliberal policies have weakened the state in favour of the private sector? Can we reverse a process that has gone on for 20 years?

I have taken a stab at a response, but i realize that this is a complex issue and much more is required before we can resolve these interconnected questions.

No comments: