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Its All in Your Mind
By Michael Alan Hamlin
November 15, 1999

There’s good reason to wonder why Philippine exports are growing twice as fast as Malaysia’s and much faster than Thailand’s, yet, unlike these two neighbors, manufacturing growth remains anemic. In the nine months to September, Philippine exports — 60 percent electronics and components — grew 17 percent, and in September reached a new record in terms of value.

By comparison, Malaysia’s exports — also dominated by electronics but with significant electrical appliance volumes as well — grew 8.7 percent over the first nine months of the year. Thailand’s exports — despite a 93 percent jump in automobile exports — grew a relatively conservative 4.9 percent, which was still better than expected by government officials and analysts.

Of course, the total value of Philippine exports is less than half the value of exports from Malaysia and about half of exports from Thailand. In the first nine months of the year, Philippine exports rose to US$25.55 billion. Malaysia’s exports in the first nine months reached US$61 billion. In the first 10 months of the year Thailand’s exports were US$58 billion.

Most analysts generally assume that strong export growth will trickle down to the manufacturing sector, and that is the case in both Malaysia and Thailand. In Malaysia, manufacturing was up 19.3 percent year-on-year in September. Manufacturing growth in Thailand was up 15.4 percent. No figure is available yet for year-on-year manufacturing growth for the Philippines, but manufacturing grew less than one percent in the first half. Socio-economic Planning Secretary Felipe Medalla believes that manufacturing will grow 1.1 to 2.2 percent for all of 1999.

There are some wide ranging — and often far-fetched on the surface — reasons put forth by observers to explain Malaysia’s dramatic jump in production. Of course, the first inevitably has to be Y2K, which is still good for a scare or two as the New Year approaches. One analyst quoted in The Asian Wall Street Journal suggested that the fear of Y2K-driven chaos was motivating consumers in Malaysia to stock up on goods. Others that political instability and the upcoming elections — feisty Prime Minister Mahathir Mahamad announced new elections last week — may lead to supply gaps if wide-spread protests develop as a result of perceived government unfairness during the campaign and vote.

Those issues — Y2K and political instability — more or less apply to Thailand and the Philippines as well. So if they really are contributing to manufacturing growth in Thailand and Malaysia that suggests we here in the Philippines are pretty fearless. And indeed, it was pretty common for business persons and government officials alike to explain to overseas colleagues and peers that the Philippines was so calm during the crisis because it had seen it all before. And having been there, and done that, the panic switch never got flipped.

But instead of gloating about being so fearless, it’s pretty clear that the manufacturing sector — and perhaps even the government — should be more concerned than it obviously is about economic complacency. If the economy — specifically manufacturing and services — is going to reach takeoff speed on the momentum of a consumer-led recovery, perhaps a little healthy fear, uncertainty, and panic are in order.

If that’s the case, President Joseph Estrada can take a great deal of satisfaction in his lower popularity ratings. In fact, he may want to think about undermining them a bit more, in order to get consumers stocking up. But then, the president may already be on to the role of political instability in stimulating economic development, which would explain the recent bizarre appointments he’s made and the accelerated infighting that’s taking place within his administration.

There are still other things he can do. For instance, he can encourage government banks to back off their communications campaigns promoting Y2K readiness to subtly — or perhaps not so subtly — suggest that depositors might feel more comfortable withdrawing their money — and spending it. Foreign technology investors can be offered special incentives for running campaigns explaining why the Y2K bug is better alive than dead. The campaigns would suggest that if consumers don’t buy new PCs, havoc will reign.

For those of you who think this is a frivolous argument, consider the United States for moment, and the fact that the economy is growing faster than it ever has despite the fact that a constitutional crisis threatened to remove President Bill Clinton from office for over a year. Congress has been essentially paralyzed for much of Mr. Clinton’s second term as a result of blatant partisan bickering. And on the horizon is an election that will likely involve a vice president without any observable character and a Texas governor who thinks the United States is round.

As for Y2K, Wired magazine practically invented the issue in the public conscious along with MIT Media Lab founding director Nicholas Negroponte. When it became clear that most U.S. corporations and mission-critical government agencies would actually be Y2K compliant before the New Year, a well-oiled communications campaign began warning of runaway Russian nuclear missiles.

So it seems to me that the choice is clear: stability or growth. And it’s just as clear that you can’t have both. A tradeoff is in order, and based on the record of rapidly growing economies in both Asia and the West, a healthy dose of fear and instability will do wonders for the Philippines’ pathetically under-performing manufacturing sector.

Unless, of course, I’m wrong, and there really is something profoundly muddled with either the manufacturing sector, or the way the government gathers statistics. What’s your guess?

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