Archive for April 2008

A NEW GLOBAL FINANCIAL ARCHITECTURE IS MOST EXIGENT

April 28, 2008

 

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

From the early 1970s through the 1990s, the massive liberalization of the international financial system was executed with such dynamism, radically altering thus the international financial landscape. Look at the result of this gargantuan liberalization today: global economic catastrophe.

 

New Nationalism, in collaboration with old nationalists, socialists, and ideologies that articulate the interests of marginal sectors, argues for the immediate reform of the international financial system. It had to be admitted by everyone else that the system failed, it simply cannot be sustained under a regime of liberal capital, monetary and related financial policy regimes.

 

Both the USA and EU economies today are particularly affected by the failure of financial liberalization. The ‘virtual economy’ had taken over their respective domains, they were so badly de-industrialized notably the USA’s that there may no more be a semblance of once flourishing industrial economies there, their infrastructures are rotting and collapsing, and now the final death blow to their economic wellness had come as recession ravages like uncontrolled forest fire there.

 

On the international level, the problem can be addressed by convening at once the legitimate delegates of states, with market and civil society groups serving as observers. The task is to immediately reform the rotten international financial system, and concur a new global financial architecture. A ‘New Breton Woods’ would be apt as a label for this effort (to borrow from the economist Lyndon LaRouche).

 

The most urgent agenda is the re-examination of national currencies, return of the gold reserve standard or equivalent, institution of better regulatory mechanisms both of cross-border and  national levels, immediate economic recovery by provision of long-term low-interest rated financial instruments or ‘white knight’ finance, and clipping the predatory powers of greedy financiers such as hedge funds and ‘vulture funds’ operators.

 

A special topic would be the stock markets of each nation or region. It is now time to reform the stock markets, which have been used by greedy elements to loot national coffers and the public of direly needed financial resources. If the stock markets can’t be reformed, then the option for them is to face increasing ‘guerilla finance’ by groups that will seek to establish direct links between the market players who seek new capital funds and the potential investors from among the general public. In which case, if the latter succeeds, the stock market is out to die a painful dinosaur’s death, ditto for all those predatory stock traders whose role will become extinct overnight.   

 

The fundamental contention for the reform package, culled from the New Nationalism article, is reflected below.

 

Reform the international financial system.

 

The global financial system is indubitably a homestead of predatory financiers. Usury and global speculation, the masterpieces of financiers, are the enemies of nations. Usury in international finance is at an all-time high, raising questions about the legality and moral propriety of   current lending practices. Incidentally, the said financiers are the ones who exercise the clout within the International Monetary Fund and the World Bank, whose chiefs have always been CEOs from the bank headquarters of the financiers. The said banks have always acted out as the marketing agents of financial cartels, even as many nations that have followed the austere ‘structural adjustments’ imposed by them have been reduced to paupers.

 

It is high time for ‘white knights’ to appear in global finance, lending money accordingly for developmental and investment purposes at very low interest rates (lower than 1.5% annually) and at very long-term payments (25-50 years). Such institutions are now beginning to appear, but creditors remain cautious about their moves. Such institutions are autonomous from the power orbits of the Western financial cartels, are well niched in Asia (e.g. China), and appear to be creditor-friendly.

 

The reform though should go beyond the ‘white knight’ route. We must actively participate in Asia’s establishment of its own monetary fund and a single-currency regime, and take a leading role if opportunities allow. It may prove beneficial yet to re-institute a regime of gold reserve standard, which should back up the Asian currency. This same monetary fund will then serve as the regional ‘white knight’ that will provide credit to nations in need in the region and continent. The actions will also accelerate the economic cum political integration of the ASEAN and the economic integration for the entire East Asia, steps that will further stabilize the national economies and continuously sustain their respective growth. Meanwhile, a regional currency can stabilize soon enough upon its launching, that it would be a difficult job for criminal financiers to manipulate it, such as the success of the ‘Euro’ now exhibits to the globe.

 

Still another key intervention measure is the control of predatory speculation through a ‘Tobin tax’ on cross-border currency and related purchases (J. Tobin’s proposal in the early 70s). A tax of 0.75% alone on the current cross-border exchanges, which amounts to $300 Trillions annually, would generate $2.25 Trillions. The said money will then be used to fund the operations of international organizations such as the United Nations, UNDP and authentic international NGOs for social development purposes. The money can also be used by ‘white knight’ financing institutions of international scale. This set of actions will then induce reforms in the other institutions, with chain reaction effects leading to declining speculation in the long run, as the oligarchic  bankers/financiers adjust their rates to more competitive rates in the face of challenges coming from global ‘white knights’.

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NATIONAL BANKING & FINANCIAL-MONETARY REFORMS

April 28, 2008

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

Who really is in control of a country’s central bank? Is the Bangko Sentral ng Pilipinas really in the hands of the people of the republic, under the guidance of the Constitution of the Republic? How come we cannot even see a shadow of any of the Letters of Intent of the International Monetary Fund that were supposedly deposited in the central bank here?

 

National banking has to be strengthened, the sovereignty of the Constitution over the banks have to be re-asserted here, and in other countries where this is applicable. I would quite say it strongly, that the Bank for International Settlements, the central banks that comprise it, and the IMF-World Bank group do not represent the interests of nations and marginal groups at all. They are appendages of the global financier oligarchy and remain to be weak vehicles under the direction of financier families and figures lurking in the shadows.

 

Look at how the Bangko Sentral ng Pilipinas had been systematically looted in the past, and who knows the trend continues till these days. For serving the interests of global oligarchs well, the core officials here conceal eventualities of looting under the cover of doctored accounting reports. We don’t even know any more the exact quantities and values of gold reserves here. There was massive looting of gold bars here, and who knows the trend continues.

 

There is no transparency concerning the monetary-financial-capital markets and institutions in the country and others. This had been clearly established by so many studies done in the past. Instituting transparency alone isn’t enough to strengthen these institutions.

 

The re-assertion of the central banks’ sovereignty must be done without reserve. In the Philippine case, it is the IMF that has been in control of our central bank and monetary authority. In the USA, the top financier families are the ones who really own and control the federal reserve there.

 

Where necessary, the need to institute financial-capital-monetary controls must be undertaken. Also, there must be a strong consideration for instituting an Asian Monetary Fund here, with an Asian currency backed up by gold reserves. The return to the gold standard, though in revised form, should be strongly studied and considered.

 

Without such reforms, the currency of a nation will always face the risk of being attacked by predatory underworld criminal groups tasked by their financier sponsors to destroy the same currency. Destroy a nation’s currency, and you will destroy the nation as well. Keynes and the Old Nationalists were clear about this, a contention that was amplified by the economic collapse of the Weimar republic, which saw monstrous hyper-inflation, and the scourge of depression that struck the economic giants UK, USA and Germany then.

 

This essential contention of nationalist economics must be re-echoed and re-studied. Its application though must be revised to suit the emerging context. For instance, the viability of instituting a regional currency, as exemplified by the Euro, has become a regular staple of monetary reform.

 

The excerpts from the New Nationalism article regarding the matter is reflected below.

 

Strengthen national banking and the monetary system.

 

Economic stability at all levels demands the strengthening of a national banking system, and concomitantly the strengthening of monetary system with sovereignty-backed parameters and rules. First and foremost of monetary missions is the re-assertion of the powers of the Constitution of the Republic over the Bangko Sentral ng Pilipinas. Needless to say, the country today faces a weak national bank, and necessarily a weak monetary system engendered by it. Sovereignty questions impede the effective operations of national banking in the country, as indicated by the excessive meddling of the International Monetary Fund, acting as agent of the global financial cartels, in the Bangko Sentral’s operations. The first step should be a thorough investigation by the Congress of the Republic to determine precisely who owns and controls the Bangko Sentral, and conduct related oversight functions to assess the entire consolidated assets of the said bank inclusive of unaccounted precious metals.

 

Should there be a need to institute maximum monetary controls, the national bank should be mandated by the Congress precisely to exercise such controls through a regime of currency controls, where found warranted. In no way should our national currency be subjected to attacks by predatory financier speculators, as what the latter have been doing from the mid-1997 onwards. Money is the lifeblood of the economy, and rendering our money under a regime of free exchange rates and free trade leaves us extremely vulnerable to the machinations of such greedy forces, further weakening our national economy. Monetary controls are the best antidotes to the ailment of a weak currency. Were it possible to revive a system of gold reserve standard, then let such a strategy be studied and enforced, to ensure stability in monetary concerns and the currency markets.

 

The interest rate controls should likewise continue, but the state must see to it that the rate regimes are within the bounds of sovereignty parameters, representing thereof the national interest and the subsidiary interests of the various social sectors. And, should conditions warrant, our national bank should be among the key initiators for constituting new supra-national institutions, such as an Asian Monetary Fund, thus signaling our participation in reforming the entire financial & monetary system (see below). Our involvement in an Asian Monetary Fund could be a fitful strategy to finally exit from the International Monetary Fund, further strengthening our national banking and monetary system.

 

SOCIAL CAPITAL FOR MARGINAL SECTORS IN RESOURCE EXTRACTION

April 28, 2008

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

I have always supported a ‘social capital’ framework for advancing the interests of marginal sectors in resource extraction industries. Particularly affected are the indigenous peoples and the slash & burn planters. The New Nationalism article emphasizes this point clearly.

 

I also had advanced this contention in some other articles. In a speech before environmentalists held in late 2004, I advocated for co-stewardships of mining sites with the same marginal sectors. As an official in the presidential palace, I also wrote a policy paper that stipulated the possibility of such agreements which, to my own surprise, can be legally supported by the Mining Act. This Act, to note, met enormous flak from civil society groups here.

 

The laws of a particular country may already provide entitlements for marginal sectors in the said areas, and may only need to be highlighted via research. In the USA for instance, the native Americans were able to procure concessions to co-own and manage leisure and tourism businesses that are located in their sites, and so far the concerned beneficiaries were jettisoned from out of marginalization to middle class life by this co-stewardship arrangements.

 

I am thankful to all those thinkers who argued for mainstreaming the marginal sectors via ‘social capital’. The likes of Antonio Gramsci, Mahatma Gandhi, PR Sarkar, Paulo Freire, Robert Putnam, and Peter Evans come to mind. They practically echoed the same theme: the significance of trust as galvanizing force for building social networks that can serve as ‘social capital’ for development purposes.

 

All it needs to take is political will and some ingenious methods of accounting to be able to quantify the ‘social capital’ potencies of a group of people in an area. This can be coupled with a calculation of the ‘human capital’ potencies of those who can be involved as laborers and experts of site-related industries.

 

The basic contention culled from the New Nationalism article is reflected entirely below.

 

Concur co-stewardships with communities affected by extractive industries.

 

Our mining sector had been in the doldrums for quite some time now. The production levels of both (a) base metals and (b) precious metals have surely been at lackluster levels. Meantime, logging has been totally banned to arrest further deforestration and its accompanying desertification and soil erosion. It is only in the energy sector where extraction has been impressively high, and the sector is appreciably a very dynamic one even in terms of R&D considerations. We are now at the crossroads concerning such sectors as mining and forest resources, where a revivified extraction is in the pipelines but couldn’t move because of constitutional and/or statutory constraints.

 

Note that most of the country’s natural resources for extraction are habituated by (a) tribal peoples and (b) migratory slash & burn peasants. Such populations have long ‘guarded’ the resource-rich habitats. It would surely be a faulty policy to drive them away—hidden under the euphemism of ‘relocation’—in order to give way to a mining concessionaire. Likewise would it be unsound to merely integrate some of their members as wage laborers for the extraction operations. Such actions, derived from regarding the people as ‘high disutility’ entities, are plain reactionary, even as they push the populations to the limits, leading to the folks to constitute hostile millennial movements and rebel separatists. The moves are reactionary as they contribute to the weakening of the nation, to the fragmentation of the national community.

 

The most pro-active path to address the concerned issue is to design and concur stewardship arrangements with the said populations. Three things are addressed by the stewardship: (1) the people will stay in the area, with better housing and amenities, who in turn will monitor and safeguard the entire operational sites; (2) where necessary, the same folks will be employed in the operations and administrative jobs where applicable, on a first priority basis; and, (3) the people will be co-owners of the firm, with equity/stock participation derived through a calibration of their productivity potency, historical role in stewardship of the area, and other variables. It is argued that this stewardship path is the win/win formula for the state, investors (market), and the communities concerned (‘social capital’/civil society). Consequently, the contribution to the GDP through resource extraction jumps up to a historic high level.

OPEN UP MARKETS

April 28, 2008

 

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

As one can observe from my previous articles, New Nationalism supports a continuous entry of investments to the domestic market from overseas. This article articulates the specific contention about the matter.

 

Autarchy is bad policy and practice to begin with. If it worked for the Habsburg Empire for a while, it worked only because there were draconian measures employed to make them work, and that the territory of the Empire was large enough for autarchy (also autarkie). This empire is long gone, autarchy is ridiculously obsolete, but Old Nationalists abound who still tend to be autarchic in their discourse. They are among our living dinosaurs, come to think of it.

 

Just because capital investments come from the outside shouldn’t make them necessarily suspect or deleterious to the national interest. As already previously articulated, there should be ‘safety nets’ or institutional and policy mechanisms, such as fair trade –based regimes, that can mitigate the deleterious impact of globalization.

 

But before articulating on the other base mechanisms for such mitigation, it should be first accepted that overseas capital can serve the national interest. If domestic investment and savings rates are perennially low or insignificant, there should be greater reason to open up the market to external investors. As an observation, the Philippines has had a bad track record of attracting investments amid the massive opening up of the market via financial liberalization policies.

 

The same contention should hold water for other countries. The USA at this moment needs fresh funds to the amount of trillions of dollars per annum coming from overseas to be able to bring it back to macro-economic wellness. There is no way that the USA will be semi-insular, more so autarchic, when its economy had clearly crashed.

 

However, attracting foreign investments doesn’t mean a perpetuation of trade liberalization  policies pertaining to investments and cross-border monetary flows. It’s got to do more with strengthening institutions and keeping macro-economic fundamentals at their most positive levels indicative of economic health and wellness.

 

Look at Malaysia’s previous experience for instance. As a response to the devastating effects of the financial meltdown in 1997, the state immediately instituted financial, monetary and capital control policies. They worked precisely because governance institutions and macro-economic fundamentals (particularly fiscal health) made it worthy to invest in the country, as risk levels were tremendously brought down and volatility ebbed.

 

Recently the Malaysian state decided to take down altogether the capital control policies as macro-economic wellness and financial volatilities were put under control. This is a clear case for flexibility in development policies: know when to institute regulations and deregulations well, without necessarily impeding or degrading the national interest whatsoever. I salute the grand patriarch of Malaysian nationalism for the matter, the venerable Mahathir Mohammad.

 

The contention for foreign investments culled from the New Nationalism article is shown entirely below.

 

Continuously open the market to external investors.

 

National savings continue to hover at a pathetically low rate of seventeen percent (17%), which is significant but is way below the minimum of thirty percent (30%) to render it as ‘critical mass’, like that of our neighbors’. The problem cannot be addressed sufficiently than through a continuing inflow of capital from external investors. Note that in today’s global context, the term ‘foreign capital’ has already lost its meaning, as the boundary between ‘domestic’ and ‘foreign’ has been effectively erased. The cross-country partnering cum out-sourcing arrangements among diverse firms have become the norm of today’s business, rendering obsolete the previously sacrosanct notions of ‘domestic’ capital and ‘foreign’ direct investments. Not only that. Latest researches have verified that transnational corporations or TNCs now tend to create more values within their host countries and reinvest the profits locally than remit them back to their ‘home country’ (a term that has also begun to lost meaning).

 

This doesn’t mean though that such investors should be served ‘free lunch’, through very long regimes of tax havens or through spurious ‘strike-free zones’ (read: haven for wage freeze) which makes our laborers appear like wild jackals who need to be perpetually gagged. Some forms of valves (capital controls) should also be instituted, so that the capital investments and profits wouldn’t just flow out like hemorrhage the moment that the economy hits cyclical crisis. Surely, pro-active measures can be devised to let the said investors stay, more so for those that truly re-invest their ROI for their original and diversified business concerns, as well as to those that conduct dynamic R&D and truly transfer technology.

 

In today’s globalizing context, corporate ‘national champions’ have become obsolete. The  bygone era of ‘national champions’ can still be observed in the names of certain firms, such as in the names Philippine Airlines, Philippine Long Distance Telephone, or in Bank of America, American Express. Asset re-structuring is the norm, and large corporations are becoming rapidly globalized. Mergers and de-mergers are happening at rapidly ‘chaotic’ paces. The circumstances challenge investors/stockholders to quickly grasp the lesson of   ‘thriving on chaos’ or else their ventures would face bankruptcies and foreclosures as what befell many former large ventures, inclusive of former ‘national champions’.

 

The thought that “foreign capital might harm national interest” is simply passé and out-of-context, in as much as the term ‘foreign’ has lost its meaning save for the antiquarian Old Nationalists who regard foreign things as essentially dangerous (but are they not using foreign frameworks in their perceptions of foreign things?). Let the investors come in, recombine their assets with our domestic investors’, extend their stock participation beyond the forty percent (40%) constitutional limit. Note that “our very own” big corporations are participating in ‘foreign’ countries, and their levels of investment participation go beyond forty percent (40%). It is high time that we readjust our thinking about the matter.

FAIR TRADE AND THE NATION-STATE

April 28, 2008

 

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

In a recently written book by me titled Fair Trade and Food Security: Framework and Policy Architecture (Kaisampalad, 2004), I was able to gather clear evidences of the failures of free trade policies. Not only free trade but the whole policy regime of economic liberalization—that paved the way to globalization—had downgrading effects on our currency, agriculture, and industry here in my home country.

 

I argued right then for a policy reform in the direction of fair trade. The totality of policy change should be the re-crafting of the entire policy architecture, which if commensurately followed can become fitful guides for foreign policy and diplomacy.

 

In the light of the massive acceptance of liberalization policy frameworks in the 80s and 90s, I gave their advocates a chance to prove the potency of free trade and laissez faire in general. In the long run, free trade is unsustainable, and can only be perpetuated, as shown by the experiences of the previous centuries, by imperialism.

 

Autarchy, which was experimented in the Hapsburg empire, is more of a hermitage option that can work only if, as the Hapsburg had fittingly shown, the domain for intra-trade exchange and distribution is large enough. The option, even for nationalist economics, is for the conduct of overseas trade. But whether his has to be a free trade option is contentious.

 

The British Empire, which calls itself by the euphemy British Commonwealth of Nations, is still alive today. That empire was built precisely because it is the only way by which Great Britain, or England, can sustain its trading edge through the power of the ‘stick’. But this empire, the last among the ancien regime formations, is now crumbling, and cannot hold water for long as the member nations continue to assert their sovereignty.

 

Globalization based on free trade had already crumbled, as we can see. Unless there is another perception out there. It had failed. What I am arguing for now is that globalization can succeed only if it takes into consideration the interests of nations and marginal sectors within them rather than be based on the interests of a chosen few of financier oligarchs and their TNCs.

 

The contention from the article New Nationalism is shown en toto below.

 

Let ‘unbridled free trade’ give way to ‘fair trade’.

 

In the international trade scene, the President had declared it emphatically: “no to unbridled free trade!” Fair trade should be the game in trade, not free trade. This does not mean a full return to protectionism, which proved counterproductive in the past. Protectionism had only served rent-seekers, who did not engage in full-scale S&T innovations that could have propelled us to advance in product development, achieving world-class standards in many of our articles of industry & trade quite early. Returning to a regime of protectionism is surely out of the question.

 

Permit articles of imports to come in, employ this strategy to meet ‘commodity security’ and keep prices at competitive rates, while minimizing the possibility of shocks. This should also challenge domestic market players to become more competitive, precisely by engaging in dynamic research & development or R&D, resulting to higher-level product innovations (intended for the domestic market). Meanwhile, continue to institute a regime of ‘safety nets’ and strengthen those that have already been erected. However, where ‘infantile enterprises’ are barely out of the take-off stage, e.g. petrochemicals and upstream steel, provide certain tariff protection, but set limits up to that point when dynamic R & D have made production more cost-efficient, permitting thereafter competitiveness in both the domestic and global market. The latest move of government to provide the greatest incentives on upstream steel, for instance, is a right move, as it will entice market forces to install our long-delayed integrated steelworks.

 

DOMAIN OF WEALTH OF NATIONS: BOTH DOMESTIC & OVERSEAS

April 28, 2008

Erle Frayne Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

 

The antiquated debate regarding which domain should be the main source of national wealth—whether domestic or overseas—is still alive today. In the article of New Nationalism, I argued that in the emerging context of post-industrialism, this debate has become futile and unproductive. Instead of stressing a domestic versus international mindset, I argued for a both/and frame.

 

Admittedly, the overseas domain as a source of wealth is as palatable as it used to be during the era yet of the city-states of Northern Italy (Venice, Florence). This has become the backbone of mercantilism, which in turn became the backbone of nationalist economics. Old Nationalism henceforth carried the pro-mercantilist banner of seeking wealth primarily from international operations. But this time around, this position has to be revised in the light of import-substitution success.

 

In the Philippine case, we have been having it both ways. On the one hand, our manufacturing sector’s products are largely consumed 86% of the time for the domestic market, indicating the optimization of the import-substitution aspect of our development efforts. On the other hand, our overseas employment and investments have been churning out a whopping Net Factor Income from Abroad or NFIA worth 11% of the GDP.

 

New Nationalism, to my mind, should rather have it both ways, as culled from this and other parallel experiences in emerging markets. At this time particularly, Foreign Direct Investments or FDIs by Philippine-owned or controlled companies has begun to take off and contribute to our national coffers. Add to this our exports worth 40% of GDP, and remittances from labor export of worth 10% of GDP, and one can see the broad picture of the potency of the overseas domain as source of national income.

 

Below is the entire subsection on the domains of wealth production culled from the New Nationalism article.

 

Generate wealth from both external and domestic markets.

 

Various stakeholders in the past were divided along the question of what should be the driver of growth & development (demand-side discourse): the external, or internal market? The followers of the ‘externalists’ were the ones behind the export-oriented development strategy, whose rationalizations for massive exports were quite poor recycles of the mercantilist contention that wealth should be produced more from out of the external markets (colonies during the time of empires). The ‘internalists’ were the ones behind import-substitution strategies, whose rationalizations were poor photocopies of Keynesian demand-side formulations.

 

In today’s context, it is wiser to view both the external and domestic markets as synergistic spheres for accumulating national wealth and meeting head-on the demands for delivering welfare. The external market discourse can work only in circumstances where a domestic demand has failed to develop, which in our case was the pre-1990s economy. By the late 1990s, it was clear that a significant change had taken place on the demand side of our economy, as folks were buying a lot of articles of commerce at a time of crisis. The middle class population is rising relative to the entire population, whose households’ needs have become more differentiated and have leaped beyond the bounds of ‘rice-and-galunggong’ expenditures. Today, Filipino families purchase around fifty-three percentum (53%) of their household needs from supermarkets, malls and large retail centers, even as the wet markets and sari-sari stores are declining in importance. These changes are real, and we cannot be blind to them by continuing to harp on an export-driven growth.

 

We must then fast-track large-scale redistribution schemes, such as to witness the rise in purchasing powers of our own people. This cannot be done outright during the next three (3) years, as we face a fiscal dilemma of crisis proportions. But beyond 2007 lies new opportunity fields. The fiscal route to stabilization will have been solidly achieved by then, and the nation can embark on more ambitious endeavors aimed at increasing incomes, reducing unemployment and poverty and increasing domestic consumption.

 

As the domestic market catches up in stabilizing the economy and producing national wealth, stakeholders shouldn’t be remiss in improving the competitiveness of our export products. Our great advantage is that we have ample supplies of skilled labor, with wages still relatively low. The power sector is also quite rich in supply of electricity, even as new projects are now being planned to neutralize possible supply problems in the short run. Hopefully, power supply would stabilize and electricity cost would decrease, contributing thus to rendering our exportable articles more competitive enough. Save for capital goods and petroleum, large volumes of which our producers continue to import, the other factors of production are within our hands to control and manipulate, inclusive of rent and interest rate. It is hereby argued that, with such factors controllable enough, we can optimize conditions for rendering our exportable articles maximally competitive and continue to permit the external market to be a source of substantial wealth. What more if we produce all of our essential capital goods, thus further bringing down the cost of production, given that the price of other factor inputs also go down?

 

SAVE THE PHYSICAL ECONOMY

April 28, 2008

Erle Frayne D. Argonza

 

[Writ 23 March 2008, Quezon City, MetroManila]

 

Globalization is not only destroying the nation-state. It has also been destroying the ‘physical economy’ that is the economic foundation of the nation-state. All in the name of the greed of the financier oligarchs, who bred the monstrous ‘virtual economy’ founded on predatory finance.

 

The New Nationalism, as contended in my meaty article on the same, argues strongly for a restoration of the physical economy of affected nations. The USA, which produces 22% of the world’s gross economic output, is now in the phase of advanced decay as its physical economy had been looted and eventually destroyed by predatory financiers. There is now way that we citizens of the global community can’t be concerned about this, as the eventual crumbling of this megalithic economy will redound to global economic turbulence that can lead to global war.

 

In East Asia we all witnessed the horror of the economic meltdown in the late 1990s. Though the impact of that meltdown is hardly felt today, we saw the horror of it just the same. We peoples of the region simply felt so helpless as the contagion smelted the mightily growing economies here, beginning by destroying the currencies and ending with the crash of the physical economies.

 

Incidentally, East Asia has a better chance to weather the storms being caused by predatory globalization. The physical economy here has better chances of being secured, even food security has better chances of crystallizing contrasted to the crashing economies of the USA and Europe.

 

The lesson should be clearly read by every development practitioner: destroy not thy physical economy if you want peace and development to go on in sustained levels. Absent the physical economy, and the nation will crumble, leading to civil disturbances and uprisings and even to global conflicts among the world powers.

 

Below is the entire subsection regarding the physical economy culled from the New Nationalism article.

 

Continue to stimulate growth through the ‘physical economy’.

 

This writer strongly argues that the greatest driver of the economy must be the ‘physical economy’. By ‘physical economy’ we refer to the combination of (a) agriculture, (b) manufacturing, (c) infrastructure, (d) transport and (e) science & technology (S&T) whose results further induce ‘production possibilities’ in the sectors a-d. An economy that is prematurely driven by the service sector, growing at the expense of the physical economy, will create imbalances in the long run, failing in the end to meet the needs of the population. A premature service-driven economy would be subject to manipulations by predatory financiers, who would do everything to destroy the national currencies and consequently the physical economy of the nation as well. An economy driven by derivatives and every kind of speculative pursuit is a ‘virtual economy’ such as what has dominated the USA since the era of Reaganomics.

 

I would hazard the thesis that our national economy moved to a service-driven phase prematurely. Look at all the fiasco after our ‘physical economy’ had rapidly declined in GDP contributions since the early 1990s, as the service economy advanced in its stead! Relatedly, the over-hyped Ramos-era ‘Philippines 2000’ economy was largely a ‘bubble economy’ driven by speculation and portfolio capital, and was more in kinship with the ‘virtual economy’ than any other one. We have not fully recovered from the bursting of that bubble, even as we are now threatened with another bursting of sorts—of the debt bubble, leading to fiscal crisis.

 

It pays to learn our lessons well from out of the immediate past experiences. And the clear message sent forth is: get back to the physical economy and re-stimulate the concerned sectors, while simultaneously perfect those services where we have proved to be competitive, e.g. pre-need sector, retail, restaurant/f&b. We should also strive to learn some key lessons from other countries’ positive experiences such as China’s, whose economy continues to grow enormously, and grow precisely because it is the physical economy that primarily drives it up and lead it—at an enormously rapid rate—towards development maturity, permitting China to outpace the USA’s economy on or before 2014 (using GDP Purchasing Power Parity indexing).