Who’s the Asian tiger?

Today I am devoting much of my column space to an article in the Economist (8/6/16) titled “Vietnam’s economy: The other Asian tiger.” The Economist is, in my opinion, the finest news magazine (they call it a paper) in the world (outside of my own, the Philippine Analyst, which goes to clients, of course).

The article talks about Vietnam. Then President Benigno Aquino III once crowed that the Philippines was now Asia’s rising tiger. The Economist disagrees:

“Which Asian country has roared ahead over the past quarter-century, with millions of its people escaping poverty? And which Asian economy, still mainly rural, will be the continent’s next dynamo? Most would probably respond ‘China’ to the first question and ‘India’ to the second. But these answers would overlook a country that, in any other part of the world, would stand out for its past success and future promise.

“Vietnam, with a population of more than 90 million, has notched up the world’s second-fastest growth rate per person since 1990, behind only China. If it can maintain a 7% pace over the next decade, it will follow the same trajectory as erstwhile Asian tigers such as South Korea and Taiwan. Quite an achievement for a country that in the 1980s was emerging from decades of war and was as poor as Ethiopia.

“Unlike either China or India, Vietnam lacks the advantages of being a continent-sized economy, so the lessons of its rise are more applicable to other developing countries, especially those nearby. It is also a useful counter to techno-pessimism. The spread of automation in factories has fueled concerns that poor countries will no longer be able to get a lift from labor-intensive manufacturing. Vietnam shows that tried-and-tested models of development can still work.

“Most obviously, openness to the global economy pays off. Vietnam is lucky to be sitting on China’s doorstep as companies hunt for low-cost alternatives. But others in Southeast Asia, equally well positioned, have done less. Vietnam dramatically simplified its trade rules in the 1990s. Trade now accounts for roughly 150% of GDP, more than any other country at its income level… Foreign firms have flocked to Vietnam and make about two-thirds of Vietnamese exports.

“Allied to openness is flexibility. The government has encouraged competition among its 63 provinces. Ho Chi Minh City has forged ahead with industrial parks, Danang has gone high-tech and the north is scooping up manufacturers as they exit China. The result is a diversified economy able to withstand shocks, including a property bust in 2011.

“At the same time Vietnam, like China, has been clear-minded about the direction it must take. Perhaps most important has been a focus on education. Vietnamese 15-year-olds do as well in math and sciences as their German peers. Vietnam spends more on schools than most countries at a similar level of development, and focuses on the basics: boosting enrollment and training teachers. The investment is pivotal to making the most of trade opportunities. Factories may be more automated, but the machines still need operators. Workers must be literate, numerate and able to handle complex instructions. Vietnam is producing the right skills. Thailand, Indonesia and Malaysia lag behind, despite being wealthier.

“But Vietnam’s past quarter-century means that it has a decent chance of prevailing. It is at last starting on SOE reform. It is negotiating trade deals in Asia and with Europe. And it is drafting plans to increase its domestic share of manufacturing without scaring off foreigners. Vietnam is a model for countries trying to get a foot on the development ladder. With luck, it will also become a model for those trying to climb up it.”

The message to the Philippine government out of this is that the slow, cautious reforms haven’t worked. Fast, dramatic change is what’s needed. President Duterte has promised it, but can he overcome the entrenched bureaucracy? Government underspending in the past few years, for instance, has been attributed to bureaucratic inefficiencies. It’s time to cut the red tape and ensure more efficient spending of government funds, especially those allotted for infrastructure projects.

This President Duterte has promised. And is already doing in his first 50 days in office. But there is still not enough focus on the one thing that provides people a decent life: creating jobs. Pandering to populism in the past has overshadowed it. Promises instead of action has been the rule of the day.

As I argued a couple of weeks ago, security of tenure is a major turnoff to job creation. You don’t invest where indolence is encouraged. You don’t invest where JIT are unknown initials—created by governments that didn’t spend on the infrastructure to move goods and people efficiently and fast. You don’t invest where the government can force change in your contract, or not pay its commitments. You don’t invest where the government captures more of your profits than other countries do. You don’t invest where engineering and management are not the preferred professions. You need trained, experienced people to run the factories that provide the jobs.

The list goes on but the message is clear: The old ways must go. The approximately 11 million Filipinos without jobs and over 10 million overseas away from their families because there are no jobs at home tell you this.

President Duterte and his Cabinet economic cluster have promised that action and shown some of it already. Let’s hope they can overcome the inevitable oppositions and get the change, the attention and the action needed.

It’s time indeed for the Philippines to become an Asian tiger.

E-mail: wallace_likeitis@wbf.ph.   Read my previous columns: www.wallacebusinessforum.com