Pax Silica: Industrial or imperial policy? (1)

In his magisterial “The General Theory of Employment, Interest, and Money” (1936), the great economist John Maynard Keynes bemoaned the misplaced hubris of the so-called “practical man.” What he had in mind were the supremely self-confident business folks, who “believe themselves to be quite exempt from any intellectual influence, [but instead] are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.” Keynes believed that far worse than “vested interests,” what hurts the interests of a society are “the gradual encroachments” of complacent, simplistic, and often flatly wrong ideas, which fossilize into a dangerous form of “common sense” at the expense of public interest.

Indeed, one of the most frustrating aspects of intellectual life in our country is swimming against the grain of what can be best described as “tito politics”: an avuncular brand of crackpot political thinking, which is deceptively anodyne but systematically corrosive to our country. Think, for instance, of some “titos” who love to dismiss social science research as “too much theory” just to rely on gossip and supposed “insider information” as a foundation of political analysis. Or think of titos who downplay the success of egalitarian societies, such as Norway and New Zealand, as “small country” affairs just to constantly invoke the even smaller city-state of Singapore or Dubai as a role model for national development.

Even worse, think of titos who pontificate on meritocracy, corporate leadership, and world-class skills development, but are happy to vote for oriental despots such as Rodrigo Duterte as the president of a half-a-trillion-dollar economy. The upshot is, at best, blaming all sorts of secondary factors as the root cause of our economic underperformance and political crises. Or just whining based on vacuous slogans and authoritarian-adjacent clichés: “We need a strong leader!” “We lack political will.” “We are so corrupt kasi eh!” “We lack discipline!” “We used to be number 2 in Asia!” “We need to be united.”

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For anyone who has actually bothered to study and empirically observe the causes behind the rise and fall of nations in the modern era, it’s crystal clear that we never developed because we never built the sinews of a modern economy: manufacturing. A look at practically all successful industrializing and industrialized nations, from post-Prussia Germany and post-Meiji Japan all the way to modern Brazil, Taiwan, Vietnam, and Malaysia, shows that the defining element was the presence of a “developmental state”: namely, a relatively competent bureaucracy led by visionary leaders who nurtured infant industries out of feudalistic societies into globally competitive dynamos.

Authoritarianism was once a universal truth, and it can be found in all sorts of countries today, from Chad to China. And so is corruption: the Philippines has relatively similar levels of corruption to those of Thailand and Türkiye. What actual research—not deracinated dogmas—shows is that the tragedy of Philippine politics is bad economics: we never created the right kind of economy that addresses the root causes of corruption and incompetent governance. Much of our economic policies—heavy on deregulation, macroprudential stabilization, and minimalist intervention—only helped preserve a political order that favors a few conglomerates, which dominate all commanding heights of the economy, and a cabal of political dynasties, which dominate almost all elected offices.

After decades of wrong-headed economic policies, which have turned us into a low-to-medium-end service-driven economy, tens of millions of our folks are struggling with underemployment, poverty, and hunger. This has provided fertile ground for mass vote buying, which, itself, incentivizes politicians to engage in rent-seeking in order to recover their electoral expenses. Underdevelopment means a limited tax base for the state, which, in turn, means not only poor public infrastructure but also underpaid civil servants and underinvestment in the justice system—thus reinforcing graft and bribery in the bureaucracy and turning away investors. The upshot is a vicious cycle of corruption, poverty, and poor infrastructure.

It’s precisely against this backdrop, dear reader, that the Pax Silica initiative is so crucial: it could potentially unlock desperately needed investment in our manufacturing base—helping us to move up in the value chain—or, conversely, end up locking us into a new low-equilibrium growth model within a United States-dominated economic bloc. My next column will break this down in detail.

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richard.heydarian@inquirer.net