Tuesday, November 27, 2007

Strengtherning our competitiveness

Let me cut to the chase and declare an embarrassing fact: Based on the 2007 Global Competencies Report released recently by the World Economic Forum, the Philippines ranked 71st out of 131 countries in terms of overall competitiveness.

We ranked lower than Vietnam (68th), Indonesia (54th), Thailand (28th), Malaysia (21st), India (48th) and even Sri Lanka (70th). We’re practically kulelat [last in the pack]. Singapore and Japan made it to the top 10 slots (ranked seventh and eighth, respectively). South Korea was 11th while Hong Kong was 12th in the rankings. China was ranked 34th.

The report, published annually, is considered the most reliable index of the global economic development race. At its bare essence, it is a scorecard of how a country measures up to the rest of the world in terms of being a desirable destination for investments. The index covers 11 factors, called pillars, which include a wide range of components: from macroeconomic and policy stability, to corruption, to labor market efficiency, to judiciary independence, even HIV/AIDS prevalence.

The report is probably one of the most widely anticipated indexes around. Many governments use it as benchmark for choosing priorities. Foreign investors use it as tool for deciding where to pour their investments. Think tanks use it as framework for all sorts of analytical and intellectual swashbuckling. The authors of the 2007 report include renowned guru Michael Porter of Harvard, the same guy who has earned worldwide renown for his groundbreaking management theories.

Using data from the report, Time Magazine, in its Nov. 26 issue, compared the performances of selected countries in a cover story entitled “Best Countries for Business.” The coverage is particularly noteworthy in our case because of what it doesn’t say about our country’s competitiveness. The Philippines did not merit any special mention.

There has been relatively very little media coverage on the report locally. I can understand why government has not gone to town with the country’s overall competitiveness. It’s not just because being kulelat is nothing to crow about. It’s also because the data about the country painfully highlight how government inefficiency has pulled down the country’s overall ranking.

For example, among the factors that proved extremely problematic were corruption in government (the factor which scored highest), inadequate supply of infrastructure, policy instability, inefficient government bureaucracy, and yes, government instability. Out of 131 countries surveyed, the Philippines ranked 116th in terms of perceived diversion of public funds, and even lower (119th) in terms of public trust of politicians. Even independence of the judiciary ranked low (85th).

What this says is that there seems to be wisdom in the government’s focus on buttressing the country’s infrastructure. You may recall that this was the main, if not the only subject of the President’s much maligned State-of-the-Nation Address last year when she boasted about all those roads and bridges that were being built as legacy of her administration.

Unfortunately, the data also show that good intentions are puny when subjected to the vagaries of wide-scale greed and inefficiency. We ranked dismally (101st) in terms of quality of infrastructure. This only validates observations that all those roads, bridges, and other infrastructures fail to meet benchmarks. Juxtapose these with the other results of the survey, particularly our pitiful ranking in terms of wastefulness of government spending (such as distributing cash to congressmen and governors) and the perceived high levels of corruption—and we get the really depressing picture of the magnitude of pillage and plunder occurring in our country.

The other factors that spelled trouble were labor market efficiency and health and primary education.

It is surprising that the opposition and the opposition-friendly media have not jumped on these reported shortcomings. Is it because international experts and hard data, regardless of the gravity of their message, lack the element of sensationalism that seems the one deciding factor for playing up certain stories?

To be fair, the country scored better in the areas of macroeconomic stability, domestic inflation and interest rates, government deficit and debt levels. As an advocate of HIV/AIDS prevention, I was pleasantly surprised that we topped the rankings in terms of impact of HIV/AIDS, which is somehow indicative of our relative success in halting the spread of the pandemic in the country. Other countries continue to be handicapped by high prevalence of HIV/AIDS infection, which as we all know carry extreme costs on a country’s economy.

Sadly, our rankings in terms of ability to manage tuberculosis, malaria and other health problems were not as noteworthy.

The competitiveness report is noteworthy because it presents a more realistic appraisal of what it takes to attain long-term economic growth and prosperity. It highlights the fact that development and economic growth are complicated pursuits affected by other systems such as political, social, and cultural—although the report does attempt to simplify things by focusing on critical pillars.

India ranked high in terms of quality of management schools (eighth in the world), but its relative average overall competitiveness ranking (48th) was hampered by other factors such as inadequacy in certain infrastructure like electricity supply and in terms of inefficient government bureaucracy.

The report also illustrates how labor market efficiency can significantly affect a country’s overall competitiveness. We just happen to have one of the most inefficient—and we must note, expensive—labor markets in the world and this is exacerbated by our continuing penchant for populist but ineffective labor policies, such as legislating wage increases instead of allowing market forces to drive it. We continue to insist that wages drive productivity despite hard data and the experience of our neighbors that indicate that it actually works the other way around. It’s a small wonder, then, that most investors prefer to bring their money to countries such as Vietnam and China where wages are more market-driven.

The Global Competitiveness Report provides prescriptions to strengthen our country’s overall competitiveness. It is a roadmap that should help all of us acquire a more realistic appraisal of what we need to do together to achieve long-term economic growth for all.

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