Globalization: A Wicked Problem

by Teodorico T. Haresco, Jr.
Businessworld

Entreprenomists are naturally driven by risk-taking and creating, necessarily questioning the whys of current economic thunderstorms of increasing levels of imported inflation. They inevitably ask: ‘does the enterprise have enough’; ‘will it have enough’; and ultimately, ‘what is the best course of action; can it be maintained, or do better?’ The task is to cope – the Philippines as the Enterprise – in a “wicked” global market.

Globalization manifests Adam Smith’s Specialization principle: if a pin factory’s components can be broken down – and outsourced – greater efficiencies can be attained. This also highlights the need for a country’s competitive advantage, as a cost-efficient, quality supplier of specific “pin components” ensures its place in the Global Market. John Maynard Keynes implied the same when he said that one could order “…the various products of the whole earth…and reasonably expect their early delivery by his doorstep.”

So Globalization is good, right? Well, yes and no. Because its complexity makes it a “wicked problem” (a notion proposed by Rittel and Webber1, two Berkeley professors, in 1973), characterized by having multiple causes, being parameter resistant, and generally insoluble; with solutions spawning other problems.

21st century globalization’s success hinges on the taut, “just-in-time” condition of modern supply lines, and actual or artificial shortages now cause Tsunamis, not ripples. It is one origin of globalization’s “wicked” condition.

Take the oil situation. As the United States’s currency depreciation reorients their economy towards globalization, Oil prices will rise despite constant output. Because although oil is dollar denominated, producers incur costs in a basket of currencies. The weak dollar therefore necessitates an price increase to maintain equivalent output.

But others maintain that oil prices are pushing the dollar down. Previous revenues were kept in the formerly strong dollar, letting them import more from Europe than America. The weakening dollar encouraged them to transfer to Euro. Businessmen now predict oil prices using the US dollar – Euro exchange, which has mimicked the commodity’s movements since 20052, suggesting a direct correlation.

Either imply a worsening global economic trend and as countries react to energy issues, other issues emerge. Ever innovative, the US is already reinventing its energy profile, outlined in the 2007 Energy Independence and Security Act, in addressing oil dependence and global warming. The resulting increased demand for biofuel components (cereals) will exacerbate the current global cereals shortage, leading to price increases.

While rice is not a biofuel component, the demand substituting it for cereals (having becoming scarcer and more expensive) will drive prices up. Recently, the per metric ton (mT) price of rice increased three-fold from 2007 levels, to about US$1,100.

Technically, there is rice, but for those who can afford it. This situation will persist as China and India’s populations become richer and continue to eat more and better. As a result, other countries are stockpiling. India and Vietnam, the world’s #2 and #3 exporters, have capped exports – good for them, but bad for importers like us. Because in the world market the commodity will now go to the highest bidder, inevitably marginalizing those who can barely afford it, like our lowest 30% of the population. At that subsistence level it won’t even be about belt tightening, for they may not even have “belts”, figurative or otherwise.

Is there a way out? “Wicked” tenets hold that solutions are complex, one-shot, and limited effectivity affairs. Nonetheless, out-of-the-box solution attempts represent overwhelming opportunities for the entrepreneur.

In applying a Pareto principle, 20% of our productive efforts should yield for 80% of our collective requirements. This means concentrating resources to a few, high-yielding efforts – Education, Agriculture, and Tourism (EAT). Let’s not do it in reverse order, or we could be in deep…

Our competitive advantage – the Overseas Foreign Workers – continue to contribute capital from abroad; buoying our Dollar reserves, and generating the hard currency for the rising commodities. Education efforts could include training that can tool the youth for possible foreign employment.

Here, the Government’s nationwide campaign for education via competitively sourced (whether from China, the US, or Europe) broadband is pivotal. It is cheaper and more efficient to use Government broadband than the pipe dream of recruiting 55,000 quality teachers. A few crème de la crème academe can use broadband to reach and teach primary and secondary students basic Reading, Writing, and Arithmetic. On weekends, it can teach the out-of-school vocational skills, like Bricklaying and Welding. Broadband education through the existing 80,000 baranggay schools, both student and teacher are adequately tooled for 21st century global challenges.

The Department of Agriculture can conduct an archipelagic scan, mapping areas ideal for specific crops – including Jathropa – considering factors like irrigation potential, nitrogen levels, and market proximity. A form of “pinpoint agriculture,” this efficient approach will aid agri-entrepreneur efforts greatly.

A tripartite cooperation should be seriously explored, between Government, the entrepreneurs, say the Filipino-Chinese Chamber of Commerce, and this time, the religious sector, with the object of jointly building and managing a renewed agricultural effort.

Government, through Bangko Sentral ng Pilipinas and the Department of Finance can develop a system that will lend part of the reserve requirement directly (avoiding Government Banks and Non-Government Organizations (NGO) operational inefficiencies) to farmers, to develop rice/sorghum/sugar “micro barons.” The loans will be secured by QUEDANCOR receipts. This can be augmented by a floor price mechanism (based on the sugar stability of exports scheme), which encourages production. Government can then increase its market surplus purchases from 10% to 20%. It worked in the “Malawi experience,” where Local Government Units and entrepreneurs, issued vouchers to farmers, entitling them a lower costs for less water-thirsty hybrid seeds, 100kg of fertilizer, and a guaranteed floor price for surplus rice or sorghum.

The entrepreneur’s role is product development and marketing. We can learn from China and India’s “leveled-up” agricultural provinces (not cities): since their agricultural environment isn’t too different from ours its technology is easily transferable. Like India’s low revolution, diesel sipping pumps, ideal for irrigation; or high-yield, blight resistant rice and corn varieties from China.

The religious role is new, focusing on values formation, using hiya (shame), of which the Filipino is wary, and hindi pala-asa (independent) – since God helps those who help themselves – to encourage farmer productivity. (Notice the Pinoy always behaves in foreign lands? Ayaw mapahiya, and self-reliant.) We could learn from the Iglesia Ni Cristo, who through weekly village visits, impart their members motivational success; certainly more effective than wasted hours of seminars with most NGOs.

Ultimately, the goal is first, food self-sufficiency, then become a food exporter to China and India’s growing, higher income populations.

Media is a powerful motivating force, if it could reverse its current role – as a bringer of bad news – instead using its reach to promote EAT opportunities here and abroad. Napoleon Bonaparte said, “every time we open our mouths, we expose…our weakness or our strength.” True. Once the Chicago Trade Board’s sleepy rice futures section learned of our intent to buy 500,000mT of rice, the price increased by US$330/mT. Government procured 320,000mT, however at an incremental US$105.6 million!

Can we promote our Tourism to more receptive markets, the Koreans, the Chinese, even the Russians and get more bang for our marketing buck? Anyway, Filipinos in the U.S., and recently Europe, are traditionally…balik bayan-i. Clark represents a huge potential as an open skies Asian hub for “bargain” airlines.

An hour-long promotion and sales (5Ws, 4Ps) seminar, conducted by DOT and private sector marketing gurus can “indoctrinate” our some 1M (2007 figures) annual outgoing Filipinos, turning them into Philippines Tourist Ambassadors. Imagine the revenues if in a Pareto sense, only 20% are successful. Private sector can double Philippine tourism efforts, like the Philippine Chamber of Commerce’s (PCCI) ongoing “555” program.

Globalization’s wicked offshoots are the rising costs of imported rice and oil. One is a problem of the stomach, the other, a problem of industry. The days of cheap rice and affordable oil are gone forever. Given the looming crises, these actions may not solve the wicked problem, but they may help in taming its effects.