Sunday, July 30, 2017

Cebu, Philippines: Osmena's Good Governance as a Lesson in Urban Planning

I'm in Cebu, one of my favorite cities in the Philippines. I'm not a beach guy--I prefer waterfalls and forests. If you like diving, Cebu is near Apo Island, but I prefer the forest in Bohol/Panglao, and the waterfall and hike in Kawasan Falls
It was the only clean shirt I had that day, I swear. 

I visited Cebu almost exactly one year ago, and it's clear Mayor Tomas "Tommy" Osmena is doing a great job. 
The airport has improved, and traffic conditions have improved since last year. It's challenging to maximize land value without resorting to the usual tactics: build hi-rise condos and neglect parking (ahem, Manila); allow the same generic malls to sprout everywhere, which also increases traffic congestion (ah, Bangkok); and forcibly remove existing residents who lack title to their houses to make way for "progress." 

Developing countries tend to have more poor people than developed countries, but unlike America, the so-called poor aren't as stressed because they tend to have cheap transportation options (e.g., rickshaws, jeepneys, habal-habals) and stable housing, the kind that use corrugated aluminum as roofs
. We'd call them "shantytowns," but I call them "Stress-free, non-mortgaged, multi-generational housing." (Say that ten times fast--I dare you.)  
The view outside my Airbnb condo in Cebu.
In fact, most mayors worldwide can be judged on one question: how do they increase land values without selling or leasing too much land, especially beachfront land, to foreign interests while balancing the interests of existing residents, many of whom lack official title to their housing structures but have lived there for decades?

Here's where regulation plays a key role. Mayor Tommy Osmena, along with the national Philippines government, requires new housing and condo units to have a certain percentage of land for open space. Most developers use the open space for swimming pools, small trees (a must-have in humid climates), and basketball courts. This regulation avoids the "Manila problem," where every other block appears to have new skyscrapers being built year-round but no new roads. 

While Mayor Osmena has allowed major malls to be built, he's wisely chosen diversity in developers. It's not just behemoth developer Ayala (OTC stock tickers: AYALY, AYAAY) in Cebu, but also SM and Robinson's. Osmena is luckier than most--Cebu is near the water with a port and lots of open space. The newest mall, SM Seaside, is one of the largest malls in the world, but it's in the middle of nowhere--near mostly undeveloped seaside. As a result, Cebu has managed to accomplish the ideal development trifecta: go big, thereby increasing potential tax and other revenue; use land without displacing residents; and ensure sufficient parking. SM Seaside now has excellent private bus service, jointly owned by two entities, one in Manila and one in Cebu, minimizing upfront capital risk and increasing management expertise. Technology is another way to measure a city's progress, and the private buses here operate on a fairly hi-tech payment system: riders need to purchase payment cards that can be used at multiple locations, including retail. 

To appreciate why I call a simple bus card "hi-tech," one must realize San Francisco, one of the most expensive cities in the world, still allows cash for its buses, segregates each of its transport options (BART, Caltrain, etc.) on different systems, and doesn't allow its cards to be used for retail purchases. In fact, to top up a BART card, one usually goes to a brick-and-mortar store to purchase credits, indicating a relationship between the retailer and the transport authority--but without the ability to use the card in the store. One gets the feeling Americans don't understand capitalism at all, or at least not as well as developing countries. Meanwhile, Hong Kong has a single "Octopus" card that can be used in the subway, buses, and multiple retailers. 

Governments worldwide benefit by lowering or eliminating the use of cash, which reduces money laundering while consumers benefit from convenience and negotiated discounts from retailers who enjoy another advertising venue. There are tradeoffs, of course. Privacy issues exist because as governments promote a cashless society, they could potentially track anyone's spending as well as location history. (The day indebted governments sell everyone's data to balance budgets might not be too far off.) Spending on outside software and security firms also increases, creating potential conflicts with entrenched special interests. Forward-looking governments will pay equal attention to security and privacy issues or eventually lose credibility. 

Mayor Osmena's next challenge is increasing Cebu's port business while maximizing the nearby sea's potential as a tourist destination. Unlike Seattle, which is too cold to have to worry about the latter goal, Osmena has a wealth of options. In fact, I'm already a bit sad because I notice more cars and foreign-owned businesses in Cebu than before, indicating the character of the city might soon change. 
Korean Spa -- one of the many Korean-owned businesses in Cebu. 

Excellent coffee here. Note the small print: "koreaberry." 
As more business-minded players enter any communal culture, they favor more rule-oriented employees. The worst ones take advantage of local workers, demanding they do unpaid out-of-scope work to keep their jobs. Yet, even the best business owners must generate a return on their investment, and many are absentee landlords or joint owners with outside interests who rely exclusively on P&L statements rather than long-term relationships or customer service to measure success. If you don't speak the language and don't live in the country, it's difficult to think long-term. The monthly P&L statement prevails. That's why foreign capital is so tricky--without it, most developing cities cannot grow or produce better-paying jobs as quickly, but too much of it changes a city in undesirable ways. 

Here's where additional background might be helpful.  Cebu is derided in the Philippines as being "countryside," similar to the way coastal Americans portray rural Southerners as "hicks" and "rednecks." People here even have their own dialect, Cebuano, which isn't commonly understood outside the region. Despite their negative reputation, I've had excellent hospitality here, and I have never received poor customer service. My Airbnb landlord just added a brand-new bed after I pointed out her advertised listing didn't match my room's layout. She said, "It was an honest mistake." Cebu is one of the few cities where I'm inclined to believe her. 

I should point out she's from Cebu and lives in the city, so she has a direct interest in preserving the city's reputation for hospitality. As more foreign owners--as well as domestic owners subject to greater foreign competition--change the incentive structure from the cultural norm of "Make the customer happy at any cost, even if it creates lower profits," to "Maximize revenue from each customer," I sense rumblings in the air.

I'm sitting in a cafe I used to frequent a year ago. One of its employees was leaving to Australia for short-term work and another had a birthday. When one of the owners found out I was leaving Cebu, they added my upcoming departure as another reason to throw a going-away party. The party was wonderful, and I got to hear fascinating stories from the people who attended. The cafe I'm in now is not located in the same place. It moved next to a hotel that doesn't serve breakfast, filling a perceived need. By coincidence, the employee who left to Australia recently returned, is married to an Australian, and is waiting for the Australian immigration authorities to clear her return. It's obvious the other employees--whom I don't know--don't have a clue how to make a decent espresso. They hovered over her while she prepared one for me. 

Two other employees from the original location no longer work in the cafe. I Facebook messaged them and was told one the owners suddenly wanted them to clean their houses. When they refused, they were fired. "We apply for barista, not house keeper... They got angry when we refuse to do... It's not part of our job... Thanks for remembering us."  Although Philippine law apparently requires a small severance to be paid if forcibly dismissed, only recently did the owner pay the employees the required money. (Correction: the owner agreed to pay the required severance but "until now [sic] she did not give it to us." They have not been paid yet.) 

The cafe's new menu is more limited than before, its breakfast less hearty, and its WiFi more spotty. The new employees also lack the camaraderie of the old location. One of them is taking a nap in her chair. No one talks to each other for long stretches of time, in stark contrast to the previous environment. No P&L statement will show this reduction in quality, nor the fate of the two employees who were forcibly removed, who are unemployed. I will not be back. I've been here for three hours, and only one other customer came. It's obvious the new location was chosen to prioritize breakfast at the expense of everything else. What happens if the hotel decides to add its own breakfast? In a country where labor is plentiful and cheap, such a development is more likely than not. 

Although not immediately obvious, when Americans talk about socialism vs. capitalism, they are talking about the erosion of communal ties and the displacement of informal obligations as P&Ls and ROI take precedence over the old ways. Without expressly realizing it, civic-minded people are also concerned about a system that lacks incentives for long-term thinking and therefore makes each individual more dependent on random forces and events.  They may use other names to describe their problems--immigration, elitism, globalization, precariat--but at the end of the day, they mean the shift from long-term to short-term thinking and the reduction of the power of the honest individual, even in local affairs. The large-scale political battles in developed countries are encapsulated right here, in the story of a small cafe in Cebu. 

Cebu's undeserved reputation as a city of bumpkins also makes me wonder if big city folks use their advantageous media connections to put down potential competitors. In a world where global capital is always looking for investment opportunities, every city competes with each other, and reputation matters. 

This brings me to my final point: I'm appalled by American media's unfair portrayal of President Duterte. Once you understand politicians in developing countries should be judged by how they've run their cities, it's obvious why Duterte is so popular. As the former mayor of Davao City, he cleaned up the entire place and changed it from a corrupt backwater into a safe tourist destination. Yet, like Batman in Gotham City, he's maligned by journalists who don't understand how things work. (Side note: I'll single out Costa Rica's Alajuela as another well-run place, and I hope Mayor Roberto Thompson enjoys a long career. Like Cebu, Alajuela enjoys status as a mid-sized transport hub. Is this a favorable pattern?) 

The more I travel, the less I rely on mainstream media for anything. In most cases, your own two eyes will give you all the information you need. Right now, my eyes see vast potential in Cebu, but also a changing culture. How will this story end? 
Bohol / Panglao
Bonus: Tommy Osmena's Facebook post on July 4, 2017 is a work of art. He explains everything in a matter-of-fact, clear, and practical way. Some highlights:

On Garbage Collection Difficulties and Corruption: "I would like to assure you that your government is doing the best it can with what it has... Please allow me to explain. There are two major capabilities to consider when discussing garbage: collection and disposal..."

He goes on to discuss a web of incompetence and corruption, insinuating the previous mayor may have been in the pockets of Chinese companies: "The previous mayor purchased P175 million worth of Chinese garbage trucks and now only 18 out of 52 are in running condition. All are faulty and many are beyond repair." [
That's right--Osmena is such a bad-*ss, he's calling out Chinese manufacturing on Facebook, hitting China right where it hurts: its perceived reputation--sometimes deserved, sometimes undeserved--for faulty production.

Look what he writes after his detailed explanation: "So those are our problems. What do we do to solve them?" He goes on to offer many practical solutions.

Have you seen any American politician with such common sense and clear prose? Are we sure it's the Philippines, not America, that's a so-called "third-world" country? If so, maybe America needs to learn from "developing" countries.

On Taxes: "I will not tolerate a family of billionaires who think they can pay 35 pesos for a whole year. I will fight. They did not elect me, you did. And you did not elect a coward."

Did you get goosebumps? I did. And it gets better: "If you cheat our city, I will kick your *ss." (Cue "Eye of the Tiger.")

I predict Tommy Osmena will become president of the Philippines. I'm not sure when, but it will happen at some point after Duterte's maximum term expires. Hopefully, sooner rather than later. 

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