The folly of Asean economic integration

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The folly of Asean integration is the folly of an economic integration of otherwise independent nation-states in different stages of economic development. It is a prescription for unrestrained competition among entrepreneurs in a region without the guiding hand of a unified political system.

We can drive home the point by taking the case of competition within a particular country like the Philippines. The different regions in the country are unevenly developed. The Western Visayas, for instance, excels in sugar production. We cannot say this of the other regions except probably Central Luzon. So we should expect Negros to supply sugar to the entire country. No other region can compete with it in the production of this commodity. But should that bother us? Not the least. The reason is simple: We are all under one government which can level the playing field among all its constituents. It can levy a tax on the gains of the sugar millers and distribute the proceeds for the development of a less favored region like Mindanao.

This will not happen in a regional economic integration of states. If Thailand or Vietnam can produce cheaper rice than us, they will be free to undersell our farmers, and the gains will be solely theirs. The benefits of trade will not trickle back to our country because there is no supervening political authority to make it so. The result will be the impoverishment of our farmers.

Regional integration is nothing more than the application of free trade theories, albeit on a lesser scale, to international capitalism. It therefore carries with it the baggage of the free market.

The apostles of free trade—Adam Smith and David Ricardo and their modern disciples—have argued for the case of free trade by postulating a positive-sum game that contributes to the output and productivity of all the trading partners. Behind it is the Ricardian spirit of comparative advantage which teaches that countries should strive for efficiency in production. Goods are produced or traded by large corporate combines that profit from a large market, so that the absence of political borders is very much to their advantage as well as to the countries they come from.

Why does the argument for regional integration raise the concept of efficiency of firms? It is because efficiency is demanded by the market competition implicit in integration. To the prospect of firms failing by the wayside for failure to compete, the response is despairingly the same: It is the inevitable consequence of the market.

Should it be? The efficiency of a firm is actually the function of many factors of which the firm is not entirely responsible. To say that one firm is more efficient than another is to recognize the fact that it produces the same product at less cost, thereby earning greater profit. But comparative advantage resulting from, let us say, better location or availability of raw materials is only one factor. Far more crucial is government support which comes in the form of subsidies or technical help. Even history can play its part, as when industries are promoted by countries that have pioneered in them. This is where Filipino entrepreneurship is deficient.

The lack of competitiveness of Filipino firms is due to the government neglect of the areas where competitiveness should count most—agriculture and industry. We are hopelessly dependent on imports for our food and other necessities. Our balance of trade with our Asean neighbors alone has reached staggering deficits, which can only mean that we are providing more job opportunities for their peoples than for ours. Instead of supporting production of our staple food, our government seeks the easy way out. It engages in importation. Our farmers have not been assisted in their efforts to modernize and diversify, and consequently, our food security is jeopardized.

We are terribly misled by figures concerning our manufacturing growth. They fly in the face of mounting complaints by local producers of high production costs and lack of access to adequate financing. It is touted that our gross domestic product has increased admirably in recent years. We are not told how much of this output is really because of the presence of foreign capital. The fact is that our local producers, especially the small businesses, continue to suffer from an unfavorable business climate arising from poor infrastructure, high power costs, lack of credit and low technology. All these factors combine to affect the competitiveness of our local firms.

The figures are more discouraging in finance. An editorial of the Inquirer cites the considered view of some foreign observers that Philippine banks are not ready for the tougher competition that will follow integration (“PH ready for AEC?”, 8/26/14). They have lesser resources than the big foreign banks, which will make it difficult for them to maintain their share of the market. The total assets of our local banks are equivalent to only one Malaysian or Singaporean bank.

There is no question that some of our local companies have grown big enough to attain global competitiveness. But they are only a miniscule fraction of our local enterprises. A vast majority—99.6 percent to be exact—consists of micro, small and medium enterprises that among them account for less than a third of our national output. For them, keeping costs down is a do or die situation.

Even the most sanguine believers in regional integration concede that many local enterprises will succumb to foreign competition in this atmosphere. They shrug off the prospect by simply exhorting our local businessmen to be more efficient. They say that the inefficient must accept their fate. In an analogy to the natural world, they postulate that inefficient producers must bow to the more efficient and die out, even if they happen to be our countrymen.

This advocacy derives its rationale from the Darwinian theory of survival of the fittest that is supposed to characterize natural evolution. Neoliberal economists have sought to draw parallels from this theory to explain the ruthless outcome of unrestrained competition. But blind evolution in the natural world is not even an accepted fact. There is evidence of intelligent design that has created humankind from the slime. Human endeavor must be similarly guided to its proper end.

Mario Guariña III is a former associate justice of the Court of Appeals.

Source: Inquirer.net