PAASE

PHILDEV INTRODUCTION

TWELVE YEARS AGO, FERNANDO ZOBEL AND VICKY GARCHITORENA ESTABLISHED AYALA FOUNDATION USA IN SAN FRANCISCO. THE GOAL IS TO BE A “BRIDGE” FOR FILIPINO-AMERICAN GIFT GIVERS TO FULFILL THEIR DESIRES TO HELP THE NEEDY IN THE PHILIPPINES. IN THE LAST TEN YEARS CLOSE TO $10M WAS SUCCESSFULLY CHANNELED FROM THE U.S. TO VARIOUS RECIPIENTS IN THE COUNTRY. EXCEPT FOR SCHOLARSHIP GRANTS, THIS GIFT GIVING WAS MOSTLY HUMANITARIAN IN NATURE, A VERY TACTICAL ACTIVITY.

TWO YEARS AGO, THE BOARD OF THE FOUNDATION DECIDED TO ADD A STRATEGIC INITIATIVE TO ITSPHILANTHROPIC ACTIVITIES. WE MADE AN ASSUMPTION THAT POVERTY IS THE SOURCE OF MANY ISSUES IN PHILIPPINE SOCIETY AND THAT, RIGHT OR WRONG, WE THOUGHT THAT THERE IS NOT ENOUGH WEALTH FROM FILIPINO-AMERICANS TO CONTINUE GIVING AND MAKE AN IMPACT ON POVERTY IN THE COUNTRY.

WE DECIDED TO FOCUS ON A POVERTY REDUCING, SUSTAINABLE ECONOMIC GROWTH STRATEGY THROUGH SCIENCE AND TECHNOLOGY.

WE THEN RENAMED THE FOUNDATION - PHILIPPINE DEVELOPMENT FOUNDATION OR PHILDEV.

BUT WHY ECONOMIC GROWTH AND A FOUNDATION TO TAKE ON THAT CHALLENGE.

WHILE GROWTH IS NOT AN END BY ITSELF, IT MAKES IT POSSIBLE TO ACHIEVE OTHER IMPORTANT OBJECTIVES OF INDIVIDUALS AND SOCIETIES. IT CAN SPARE PEOPLE EN MASSE FROM POVERTY AND DRUDGERY. NOTHING ELSE EVER HAS. IT ALSO CREATES RESOURCES TO SUPPORT HEALTH CARE, EDUCATION AND OVERALL QUALITY OF LIFE.

WE TAKE THE VIEW THAT GROWTH IS A NECESSITY, IF NOT SUFFICIENT, CONDITION FOR BROADER DEVELOPMENT, ENLARGING THE ABILITY OF INDIVIDUALS TO BE PRODUCTIVE AND CREATIVE.

WE WOULD WORK WITH THE GOVERNMENT, ACADEME AND INDUSTRY.

RESEARCH HAS SHOWN THAT IN ANY ECONOMY, SUSTAINED HIGH GROWTH HAPPENS DUE TO A NUMBER OF COMMON ATTRIBUTES SUCH AS: A FUNCTIONING MARKET SYSTEM, HIGH LEVELS OF SAVING, PUBLIC AND PRIVATE SECTOR INVESTMENT, RESOURCE MOBILITY AND POLITICAL LEADERSHIP AND ITS ABILITY TO DEPLOY THE RIGHT INFRASTRUCTURE AND BUSINESS POLICIES.

SUCCESSFUL CASES OF LEADERSHIP AND EFFECTIVE GOVERNMENT SHARE A FURTHER CHARACTERISTIC: AN INCREASINGLY CAPABLE, CREDIBLE AND EFFECTIVE GOVERNMENT. GROWTH AT SUCH A QUICK PACE, OVER SUCH LONG PERIOD REQUIRES A STRONG LEADERSHIP.

IT REQUIRES A STRONG COMMITMENT PURSUED WITH PATIENCE, PERSEVERENCE, AND PRAGMATISM.

HOWEVER, GOVERNMENT IS NOT NECESSARILY THE CAUSE OF GROWTH. THAT ROLE FALLS TO THE PRIVATE SECTOR, TO INVESTMENT AND ENTREPRENEURSHIP RESPONDING TO MARKET NEEDS.

BUT, IN THE LONG RUN, IT IS THE RESOURCES OF THE GLOBAL ECONOMY THAT STAND OUT AS THE DRIVING FORCES IN SUSTAINING HIGH GROWTH IN A DEVELOPING ECONOMY AND THESE COME IN THREE PARTS: DEMAND, TECHNOLOGY, AND FOREIGN DIRECT INVESTMENTS.

SO, LET’S LOOK AT GLOBAL MARKET DEMAND, THE FIRST GLOBAL ECONOMY RESOURCE.

IT IS IMPORTANT TO NOTE THAT IN A RELATIVELY POOR ECONOMY THE GLOBAL ECONOMY IS HUGE, IN COMPARISON, AND AT THE RIGHT PRICES AND COSTS, DEMAND IS, FOR PRACTICAL PURPOSES, UNLIMITED.

IT IS POSSIBLE ONLY BECAUSE THE WORLD ECONOMY IS NOW MORE OPEN AND INTEGRATED.

TO QUOTE THE REPORT FROM THE COMMISSION ON GROWTH, “ONCE THE CHALLENGE OF IDENTIFYING INDUSTRIES IN WHICH THE COUNTRY CAN INVEST IN ACQUIRING A COMPARATIVE ADVANTAGE IS MET, GROWTH IN EXPORTS WILL NOT BE CONSTRAINED BY DEMAND, AND GROWTH IN THE ECONOMY CAN OCCUR AT A RATE DETERMINED BY THE SAVINGS AND INVESTMENT RATES.

MUCH OF THAT INVESTMENT IN THE EARLY STAGES WILL GO INTO THE EXPORT SECTOR WHICH CAN GROW AT RATES HIGH ENOUGH TO PULL THE ECONOMY ALONG.

AS WE SAW IN JAPAN, KOREA, TAIWAN AND NOW CHINA, THE GROWTH OF EXPORTS CAN SET IN MOTION A PROCESS OF SUSTAINED GROWTH WHICH IS TRANSMITTED TO THE WHOLE ECONOMY AND COULD NOT BE ACHIEVED BY RELYING ON DOMESTIC DEMAND ALONE.

HOWEVER, MATURE MARKETS RELY ON DEEP INSTITUTIONAL UNDERPINNINGS, INSTITUTIONS THAT DEFINE PROPERTY TIGHTS, ENFORCE CONTRACTS, CONVEY PRICES, AND BRIDGE INFORMATIONAL GAPS BETWEEN BUYERS ANS SELLERS.

THE POLICY UNDERPININGS OF SUSTAINED HIGH GROWTH CREATE AN ENVIRONMENT FOR HIGH LEVELS OF INVESTMENT, JOB CREATION, COMPETITION, MOBILITY OF RESOURCES, SOCIAL PROTECTIONS, EQUITY, AND INCLUSIVENESS.

DOES THE PHILIPPINES HAVE THIS UNDERPINNINGS AND THEREFORE THE ABILITY TO TAKE ADVANTAGE OF THIS GLOBAL DEMAND? SOME OBSERVATIONS,

  1. THE POPULATION OF THE COUNTRY AT 90 MILLION ISBIG ENOUGH TO BE PART OF THE GLOBAL MARKET AND AS SUCH, FOREIGN COMPANIES TAKE ADVANTAGE OF OUR STRONG APETITE FOR HIGH VALUE PRODUCTS AND SERVICES AND VIRTUALLY NO LOCAL COMPETITION.

HIGH GROSS MARGIN REVENUE IS EXPORTED OUT OF THE COUNTRY. I CLAIM THAT TO COMPETE GLOBALLY WE MUST BE ABLE TO COMPETE LOCALLY FIRST.

  1. IN SERVICES LIKE MANUFACTURING, OUTSOURCING, AND IN SOME CASES SOFTWARE, WE HAVE THRIVING COMPANIES. WHILE IT DOES PROVIDE JOBS, REVENUES AND RESULTING PROFITS GOTO THE OWNERS OF COMPANIES REQUIRING OUR SERVICES.

THE OVERALL VALUE RETURNED IS LOW. RETURN ON LABOR IS GOOD BUT IT LACKS THE LEVERAGING VALUE OF INVESTMENT CAPITAL AND INTELLECTUAL PROPERTY.

  1. THE CASE OF OVERSEAS FILIPINO WORKERS (OFW) IS INTERESTING IN THAT THERE ARE THOUSANDS OF FILIPINOS PROVIDING EXCELLENT SERVICES ALL OVER THE WORLD. A GOOD SEGMENT OF OUR POPULATION IS TAKING ADVANTAGE OF GLOBAL SERVICES DEMAND BUT IS LACKING ON THE VALUE OF LEVERAGING.

REMITTANCES COULD BE A RESOURCE FOR INVESTMENTS TOWARD ECONOMIC DEVELOPMENT,BUT THESE REMITTANCES TO A LARGE EXTENT ARE NOT SAVINGS FOR POSSIBLE INVESTMENTS. THEY ARE MOSTLY FOR FAMILY ASSISTANCE AND IMMEDIATE CONSUMPTION.

FROM THESE THREE POINTS, OBSERVE THAT THE MAJOR UNDERPINNING OF HIGH LEVELS OF INVESTMENT, EQUITY, MOBILITY OF RESOURCES AND COMPETITION ARE LACKING IN THE COUNTRY.

THE SECOND RESOURCE OF THE GLOBAL ECONOMY TO SUSTAIN HIGH GROWTH IS TECHNOLOGY.

THEY RANGE FROM ENGINEERING, PRODUCTION, AND SERVICES TECHNOLOGY. TECHNOLOGY TRANSFER MAY BE USED BUT ONLY IF THERE IS A LEVEL OF EXPERTISE LOCALLY TO SUSTAIN AND POTENTIALLY SURPASS STATE-OF-THE-ART. OTHERWISE IT IS NOT SUSTAINABLE AND IS YET ANOTHER FORM OF NEGATIVE GROWTH.

COMPARED TO DEVELOPED COUNTRIES, WE ARE SEVERELY LAGGING IN TECHNOLOGY. THE COUNTRY FINDS ITSELF NOT COMPETITIVE IN HIGH VALUE ADD PRODUCTS AND SERVICES BASED ON TECHNOLOGY.

IT HAS BEEN SHOWN IN OTHER WEALTHY NATIONS THAT INDUSTRIALIZATION IS ONE OF THE MORE LASTING SOLUTIONS TO POVERTY.

INDUSTRIALIZATION IS SIMPLY THE PROCESS OF CREATING TECHNOLOGY BASED VALUE ADD PRODUCTS AND SERVICES. IT ALSO TRANSFORMS COUNTRIES FROM A CONSUMER STATUS TO THAT OF A PRODUCER.

TO CATCH UP, THE PHILIPINES MUST START THIS WHOLE PROCESS BY CREATING A LARGE GLOBALLY COMPETITIVE BASE OF SCIENTISTS AND ENGINEERS TO CREATE LEADING EDGE TECHNOLOGIES FOR PRODUCT CREATION RELEVANT TO BOTH LOCAL AND GOBAL MARKETS.

THE LACK OF TECHNOLOGICAL BASE MANIFESTS ITSELF IN MANY FORMS:

-SEVERE SHORTAGE OF COMPETITIVE EXPERTISE IN SCIENCE AND ENGINEERING IN INDUSTRY AND ACADEME

-LOW LEVEL OF RESEARCH ACTIVITY

-INADEQUATE QUALITY IN HIGHER EDUCATIONAL SYSTEM

-LACK OF ADEQUATE FUNDING FOR BASIC RESEARCH IN SCIENCE AND ENGINEERING

THROUGH DISCUSSION FORUMS AND MEETINGS BY CONCERNED STAKEHOLDERS, THERE IS NOW A REALIZATION OF THIS SITUATION BY GOVERNMENT AND ACADEME.

FINANCIAL RESOURCES FOR EDUCATON MUST NOW BE APPLIED TO THIS PURPOSE. GOVERNMENT MUST NOT ONLY PROVIDE THE SEED MONEY BUT ALSO PROVIDE ADEQUATE FINANCING FOR SUSTAINABILITY ALL THE WAY TO FUNDING RESEARCH.

HOWEVER, I BELIEVE THAT THE GOVERNEMENT SHOULD NOT BEAR ALL THE BURDEN OF FINANCING.

IN THE U.S., FOR EXAMPLE, EVEN WITH LARGE GRANTS FROM THE GOVERNMENT AND INDUSTRY, PUBLIC AND PRIVATE EDUCATIONAL INSTITUTIONS DOING BASIC SCIENCE AND ENGINEERING RESEARCH, GENERATE ABOUT SEVENTY PERCENT OF THEIR ANNUAL BUDGETS FROM PRIVATE DONORS AND ENDOWMENT FUNDS.

UNFORTUNATELY, THIS METHOD OF FUNDING A SUBSTANTIAL PORTION OF HIGHER EDUCATION IS NOT GENERALLY PRACTICED IN THE PHILIPPINES. EVIDENCES OF FUNDING BY FOREIGN FOUNDATIONS AND GOVERNMENTS ARE RANDOM AT BEST.

ALSO, THERE IS AN OVERWHELMING NUMBER OF PRIVATELY OWNED ENGINEERING SCHOOLS THAT ARE PROFITABLE AND ARE NOT INVESTING IN SCIENCE AND ENGINEERING EXCELLENCE BOTH STUDENTS AND TEACHERS.

PRIVATE UNIVERSITIES ARE ESSENTIALLY BUSINESSES AND GREAT PROFIT CENTERS.

PERHAPS THEY SHOULD ALL PUT BACK PROFITS INTO FUNDING FACULTY FOR PhD STUDIES AND RESEARCH PROGRAMS.

A FEW YEARS AGO, A SMALL GROUP OF US FROM THE INDUSTRY STARTED A DIALOGUE WITH THE GOVERNMENT – NAMELY, THE PREVIOUS PRESIDENT, THE SECRETARY OF SCIENCE AND TECHNOLOGY, AND THE COLLEGE OF ENGINEERING AT THE UNIVERSITY OF THE PHILIPPINES TO ADDRESS THIS PROBLEM.

THE IDEA IS FOR THE GOVERNMENT TO PROVIDE FUNDING FOR UNIVERSITIES TO PRODUCE THOUSANDS OF PHDS AND MASTER OF SCIENCE DEGREED SCIENTISTS AND ENGINEERS.

THIS RESULTED IN A PROGRAM CALLED ERDT, ENGINEERING RESEARCH AND DEVELOPMENT FOR TECHNOLOGY ADMINISTERED THROUGH THE DEPARTMENT OF SCIENCE AND TECHNOLOGY. IT WAS FUNDED TO SUPPORT SCHOLARSHIPS IN EIGHT SELECTED UNIVERSITIES.

AT THE SAME TIME, RESEARCH INSTITUTES WERE SET UP SO SCIENTISTS AND ENGINEERS MAY BEGIN TO INSTANTIATE SCIENCE CONCEPTS INTO TECHNOLOGIES THAT INDUSTRY CAN THEN USE TO CREATE HIGH VALUE ADD PRODUCTS.

I AM GLAD TO MENTION THAT ONE START-UP HAS BEEN CREATED AND IS IN PRODUCTION OF AN ELECTRONIC SYSTEMS PRODUCT USING A TECHNOLOGY COMING FROM ONE OF THE RESEARCH INSTITUTES.

ROYALTIES FROM PRODUCT REVENUES BASED ON TECHNOLOGIES COMING FROM THESE RESEARCH INSTITUTES WILL BE USED TO FUND FURTHER RESEARCH.

IT IS WORTH MENTIONING AND PROUD TO SAY THAT THE CURRENT GOVERNMENT IS FULLY SUPPORTIVE OF ERDT AND HAS CONTINUED FUNDING THE PROGRAM.

HOWEVER, TO RE-ITERATE, FUNDING FOR FACULTY TRAINING AND RESEARCH BY THE GOVERNMENT ALONE IS NOT SUFFICIENT. HELP FROM INDUSTRY, PHILANTHROPY, AND PRIVATE UNIVERSITIES IS NECESSARY.

THE THIRD RESOURCE OF THE GLOBAL MARKET FOR SUSTAINED HIGH GROWTH IS FOREIGN DIRECT INVESTMENTS OR INVESTMENTS BEYOND THE CAPACITY OF LOCAL ECONOMY TO SAVE. FDI IS ESPECIALLY IMPORTANT IN THAT IT BRINGS IN MORE TECHNOLOGY, MARKET KNOWLEDGE AND ACCESS TO GLOBAL MARKETS.

IN SHORT, FOREIGN DIRECT INVESTMENTS IS THE CONDUIT FOR GROWING ECONOMIES TO IMPORT IDEAS, TECHNOLOGIES, AND KNOW-HOW FROM THE REST OF THE WORLD.

ANOTHER CONDUIT IS FOREIGN EDUCATION, WHICH OFTEN CREATES LASTING INTERNATIONAL NETWORKS. SINCE LEARNING IS OFTEN FASTER THAN INVENTING, FAST LEARNERS CAN RAPIDLY GAIN GROUND ON LEADING ECONOMIES.

TO ATTRACT FOREIGN DIRECT INVESTMENTS, INDUSTRY AND GOVERNMENT MUST CREATE INVESTMENT OPPORTUNITIES AND PROVIDE GLOBALLY COMPETITIVE EXPERTISE.

IN THE LAST FOUR YEARS THE COMMITMENT BY THE GOVERNMENT TO PRODUCE THE NECESSARY EXPERTISE IN SCIENCE AND ENGINEERING IS UNPARALLELED IN RECENT HISTORY.

WE MUST CHALLENGE INDUSTRY TO DO AN EQUIVALENT EFFORT IN INVESTMENTS IN RESEARCH AND DEVELOPMENT OF TECHNOLOGY BASED PRODUCT AND SERVICES.

ONCE INDUSTRY HAS DEFINED MARKET OPPORTUNITIES, THERE ARE FEW NECESSARY REQUIREMENTS FOR VALUE CREATION TO HAPPEN:

  1. A THRIVING ENTREPRENEURIAL COMMUNITY
  2. ADEQUATE SUPPLY OF TECHNOLOGY BASED MANAGEMENT EXPERTISE
  3. INVESTORS
  4. TECHNOLOGY BASED SERVICES

BUT HOW DO WE GO ABOUT STARTING THIS PROCESS?

FROM AN ENGINEER, ENTREPRENEUR, AND A VENTURE CAPITALIST THAT HAS PRACTICED IN ARGUABLY THE MOST INNOVATIVE AND COMPETITIVE PLACE IN THE WORLD, I WOULD OFFER A POSSIBLE BEGINNING BY FOCUSING ON LOCAL DISRUPTION.

WHY WOULD I RECOMMEND A LOCAL DISRUPTION FIRST?

  1. WE UNDERSTAND OUR LOCAL MARKET BETTER THAN ANYONE.ALSO, LARGE INFRASTRUCTURES BEING DEVELOPED BY THE GOVERNMENT IS LARGE ENOUGH IN SCOPE THAT IT MAY CREATE LOCAL MARKET OPPORTUNITIES.
  2. WE CAN CUSTOMIZE PRODUCTS FOR COST AND PERFORMANCE BASED ON LOCAL REQUIREMENTS. IN MANY CASES, MARKETS IN DEVELOPING ECONOMIES ARE EXPANSION MARKETS FOR FOREIGN COMPANIES AND USUALLY SELL PRODUCTS BEYOND LOCAL MARKET REQUIREMENTS WITH HIGHER COSTS AND PERFORMANCE.
  3. WE CAN SCALE THE RISK BASED ON AVAILABLE TECHNICAL AND MANAGEMENT EXPERTISE, TECHNOLOGY AND FUNDING.
  4. WE DO NOT HAVE TO COMPETE HEAD-ON AGAINST STRONG FOREIGN COMPETITION IN GLOBAL MARKETS.
  5. THE SIZE OF OUR LOCAL MARKET IS LARGE ENOUGH TO SUSTAIN MULTIPLE COMPETITIVE COMPANIES.
  6. IT IS A GOOD TRAINING GROUND TO DEVELOP EXPERTISE IN ALL ASPECTS OF THE BUSINESS BEFORE ENTERING EXTERNAL GLOBAL MARKETS.
  7. DEPENDING ON THE SIZE OF THE OPPORTUNITY, FOREIGN COMPETITION MAY NOT ELECT TO ENTER THE MARKET.
  8. ONCE ESTABLISHED AND THRIVING, LOCAL COMPANIES WOULD BE ATTRACTIVE PARTNERS FOR PRODUCTS, DISTRIBUTION AND POTENTIAL M&A WITH LARGE FOREIGN TECHNOLOGY COMPANIES.

HOWEVER, GROWTH STRATEGIES THAT RELY EXCLUSIVELY ON DOMESTIC DEMAND EVENTUALLYREACH THEIR LIMITS. THE HOME MARKET IS USUALLY TOO SMALL TO SUSTAIN GROWTH FOR LONG, AND IT DOES NOT GIVE AN ECONOMY THE SAME FREEDOM TO SPECIALIZE IN WHATEVER IT IS BEST IN PRODUCING.

TO SUMMARIZE, A POVERTY REDUCING, SUSTAINABLE ECONOMIC GROWTH CAN BE ACHIEVED BY ACCESSING GLOBAL MARKETS THROUGH COMPETITIVE TECHNOLOGY BASED PRODUCTS AND SERVICES.

FOR THE PHILIPPINES – GOVERNMENT, ACADEME AND INDUSTRY, THE SINGULAR AND MOST IMPORTANT TASK IS TO FUND EDUCATION IN SCIENCE AND ENGINEERING AND THE ESTABLISHMENT OF A THRIVING RESEARCH CULTURE.