Wednesday, October 24, 2018

Manila, Two Years Later

I’m in Manila and will visit my favorite Filipino city, Cebu, next week. Manila, also a port city, is busy, always congested, and always interesting. While Cebu retains vestiges of its royal elegance through its wise millionaire king/mayor Tommy OsmeƱa, Manila is the city where business rules all and world powers collide.

A quick history lesson: about 575 years ago, the Philippines was a Muslim country doing most of its business with China, thanks to Zheng He’s maritime prowess. 
Chinese Participation in Philippine Culture and Economy,
Edited by Dr. Shubert S.C. Liao (1964)
Later, Spain’s Ferdinand Magellan converted ruler Rajah Humabon to Don Carlos (hence, the tourist site of Magellan’s Cross; ironically, most people who visit don't know Magellan was killed on the neighboring island of Mactan in 1521), then Spain disrupted Brunei, America prevailed against Spain, and China re-emerged in pole position after America abandoned its Subic Bay military installation. 
It’s tempting to pick naval or military power as the deciding factor for new rulers (and new religions), but trade—the name Cebu comes from the word “sibu” or trade—done properly is the strategy that best captures long-term, sustainable influence. Indeed, almost every major city today is major because it was either a port or a place containing tradeable products, often natural resources. San Francisco: port. Los Angeles: port. NYC: port. Singapore: port. Vancouver: port. And so on.

Military power creates long-term advantages only as a means to peaceably channel and improve cross-border trade and cultural exchange. Once it becomes an avenue to establish slavery, war, destruction, or debt, it consumes itself and its residents, causing its own demise. Mongolia, despite Genghis Khan, is not and has never been an economic superpower. Instead, China, which controls the majority of today's busiest ports, is the modern-day superpower, despite spending only 37% of America’s military expenditures. Ports do require safe passage, one reason why capital investments through military and intelligence budgets have created confusion: is it military spending or trade that propels economic prosperity? 

The answer, again, is trade, which requires military investment to ensure safe delivery of products and extra-judicial enforcement of trade agreements when necessary. Military investment not subservient to trade lubrication guarantees decline. Indebted Italy, former Roman Empire and modern-day mafia state, is still one of the world’s largest military spenders, a sign old habits die hard.

But let’s get back to Manila. The U.S. military’s regional choice of Singapore’s port over the Philippines isn't the only change in the status quo. Filipino grocery stores now accept WeChat Pay, China’s technological solution to the stranglehold of American dollar dominance, as well as GrabPay, Singapore’s fintech app. (Japan's Softbank is also in the mix with GCash.) 
In SM Cebu City mall
Today, America has more dollars invested in Singapore than in all of China, making Manila the proxy site of an invisible financial battleground between superpowers, much like the Cold War between America and the former Soviet Union (another example of military spending minus commensurate trade leading to decline). No influential port, no problem. Manila always seems to find ways to survive.

Even if you know governments disfavor cash, you may still wonder why fintech is so important. If an essential commodity can only be priced in one currency, such as the USD, that currency’s owner can use its leverage to set up payment mechanisms such as SWIFT and insurance policies/costs favorable to its own delivery routes--and domestic industries. Oil is currently the world’s most traded product, with coffee coming in second, but natural gas/LNG is moving quickly up the ranks. All three require the purchase of shipping insurance, a specialty product, which presumes a stable banking sector. Today, the stability of a country’s banking sector depends on technology, even ignoring central banks’ need for complete and accurate data. Fintech, blockchain, and quantum computing are all shorthand for banking stability. Moreover, in future trade or drone wars, blockades can be virtual once physical delivery commingles with financial and legal requirements. In short, physical blockades are out, virtual ones are in.

Most Filipinos, oblivious to the international jousting taking place in their homeland, were refreshingly optimistic two years ago. They proudly elected Rodrigo Duterte and his allies on a platform of anti-corruption. When he deployed police officers, Punisher-style, to eliminate foreign drug cartels, everyone not a suit-wearing Manilan jumped for joy. When he removed Supreme Court chief justice Maria Lourdes Sereno, citing nondisclosure of assets and unauthorized expense reimbursements—corporate tax breaks easily maligned when abused by government employees—the message was unmistakable: federalism rules the roost, and the strong executive is back in vogue, not just in America and Eastern Europe, but in ASEAN.

Unfortunately, hope driven mainly by personality tends to create flimsy long-term foundations, as America’s voters for Barack Obama have surely realized. Two years later, optimism in Manila isn’t gone, but its unifying impact has dissolved. I no longer see the formerly ubiquitous bracelets supporting Duterte. Newspapers and magazines don’t carry images of spry athlete Manny Pacquiao and septuagenarian barangay politicians posing with the “Duterte fist.” What I see now are articles indicating President Duterte feels “forced” to run his own children as mayors in other districts, creating a political dynasty reminiscent of the American Bushes. I see my VPNs no longer connecting seamlessly, a common occurrence in any country with large Chinese technological investment. (One employee in a Hanoi, Vietnamese telecommunications store wanted my passport and a photo on his device for a local SIM card.) I see five private security guards in the local grocery store when two sufficed before.
Manila, October 2018. A uniformed supervisor was nearby but not pictured. 
The result? I can no longer snake my way through empty middle aisles and must enter only from one particular checkpoint. Two security guards will use common sense when issuing orders, but when you put four or five people attracted to police work in one place, following orders for the sake of following them becomes the norm. “That way a police state resides,” I wanted to say, but kept my mouth shut—another consequence of being surrounded by many armed guards.

On the upside, the Philippines’ political marketing teams, like America's, learn quickly and have co-opted progressive ideas in order to twist them for their own purposes.
Environmentalism has led to higher corporate profits (smaller packaging sizes, sale of recycled rather than natural water, etc.) as well as superficial campaigns banning consumer use of plastic, which distract voters from focusing on more major (and profitable) pollutants. Yet, even flawless marketing campaigns need ballast for long-term impact, and if such ballast exists, I have not seen it in Manila. Any fool can see banning plastic straws while maintaining soda sales will create higher rates of tooth decay, an arguably larger problem than tiny straws piling up in a Chinese landfill. Or that an idiotic attempt to reduce traffic congestion by banning some car usage one day a week means governments are openly disrespecting individual property rights while signaling their reluctance to spend taxpayer money on adequate public transportation. (When I first heard Manila’s plans to reduce traffic, my first reaction was “fake news,” and even after seeing multiple reports from credible sources, I still don’t believe it.) 

It’s as if world leaders decided to play chess, but only one move at a time for simplicity’s sake when everyone knows you can’t succeed in any complex endeavor unless you plan at least three moves ahead. (Public or private debt restricts making too many moves in advance, a fact one doesn’t need a chess or economics background to understand.) Have governments run out of ideas and decided to greenlight any cockamamie idea in order to signal magnanimity, lest residents think the king has no clothes and revolt (or worse, not pay their interest-laden bills)? 

Yes, yes, a trillion times yes. Unsustainable security spending minus commensurate trade opportunities for developing nations has muddled political brains worldwide. The result? Every politician in power thinks first about repaying debt and rolling over loans, and second about livability--another way of saying corporate and banking influence have overwhelmed governments failing to properly utilize sovereign wealth funds to harness technological innovation. 
Contrast such attitudes with this Prague, Oklahoman resident in 1971: “Don’t like meters… or taxes. We don’t need them. This is a real thrifty town. Our treasury’s got a surplus of about $334,000. We pay off a bond issue by adding $1.50 each month to everybody’s water bill.” (National Geographic, August 1971) 

How many high school graduates in any country today could explain the advantages and disadvantages in the Oklahoman’s thinking while realizing such an approach is impossible today given the long-term fiscal obligations—not just pensions—local governments have drawn?
Such limited maneuvering brings a deluge of the same shopping malls, because developers bring tax revenue, improve job numbers, and ameliorate blighted neighborhoods, and traffic congestion is a smaller price to pay than bond default and investor flight. 
Manila neighborhood about one mile from a major shopping mall.
How about another shopping mall? Who else will invest?

(Understandably, no politician wants to re-live Indonesia’s currency and economic crash post-Dutch banking flight.) In a myopic political landscape, public transportation and other quality of life programs are destined to be superficial because they’re costs, not revenue generators. Meanwhile, residents literally yearning to breathe free (from pollution) are victims to Dick Cheney’s “deficits don’t matter” thinking in a world soaked in more debt than prior to 2008’s financial meltdown.
Amidst all these increasingly complex changes, few educated citizens realize the link between deficit spending and maintenance of security agreements, which are linked to trade agreements, all of which are now suspect in a post-China-driven world that has no interest in maintaining U.S. dollar or naval supremacy

Even apart from its tendency to funnel money to the least nuanced members of society, security spending is troubling because of its social costs. Most interesting people do not follow rules, and two paths occur if a country has too many rules: 1) the most creative, who are often the best and brightest, leave to another place; and/or 2) most residents stop respecting authority or go through the motions of rule-following, a cultural shift that guarantees less safety and more corruption. (e.g., no one with an IQ over 75 actually believes America’s post-9/11 airport security employees make flying safer; meanwhile, affluent Abu Dhabi allows foreigners entry through three purely technological checkpoints and a single employee.)
From Deborah Fallows' Dreaming in Chinese (2010)
Some of you know Peter Thiel’s reference to PayPal’s founders being teenage bombmakers, but have you considered your movie studios? Almost every famous British-born actor and musician despised school and authority—on principle. Peter Sellers, when starting out in London, did an eat-and-dash at a restaurant. Sean Connery dropped out of school and the military, indicating the worst rulebreakers of all are more likely to become James Bond, while the ones who follow rules more likely to become insurance salesmen, lawyers, real estate agents, and police officers—if we’re lucky. 
From Robert Sellers' Don't Let the Bastards Grind You Down (2011)
In a police state needing to show results, Sellers gets arrested and ends up with a permanent criminal record before he can audition for a spot in acting school; Al Pacino gets prosecuted, not just arrested, for possession of a concealed weapon; John Lennon gets deported from NYC before writing “Give Peace a Chance”; Albert Finney gets court-martialed for faking an illness to receive a military discharge; Connery gets placed on several watchlists and blacklisted from employment; Robert Capa goes to jail before he can arrive in America; and an overly suspicious police officer doesn’t take young Cassius Clay to the boxing gym. (Note: even before the NSA’s technological capabilities, America’s security apparatus was wide-reaching. Muhammad Ali’s trainer, Angelo Dundee, was an FBI informant.)

In many ways, a security state is worse than terrorism, because of the two, only a security state snuffs out creativity or drives it to other lands that nurture it—and their own future. It’s why America captured Britain’s best talent, creating Hollywood, not Londonwood. It’s why China has billions of dollars in movie investments but no consistently bankable writers, actors, or directors (Jackie Chan, Wong Kar-wai, and John Woo are from Hong Kong.) It’s one reason India, despite having a billion people and perfect English speakers, continues to make Bollywood films lacking in originality while sparsely populated Australia won awards for India-based Lion (2016). It’s why the Philippines have Anne Curtis and Bea Alonzo while India and China, so-called superpowers, have no one as multiculturally adept on screen.

A security state, even if it doesn’t siphon away a country’s finances as it did in the Soviet Union and as it is doing in America, makes people afraid and less mobile, and people who are afraid and less mobile do not take risks. They stay behind the wall in East Berlin, they listen politely to their teachers, and they do not discuss becoming “bricks in the wall” because such language won’t be created in their world, in their language, or in their culture. The absence of such language creates a gap filled by others, and depending on the times, they’re called avant-garde, iconoclasts, bon vivants, Young Turks, rabble-rousers, and rebels. They’re the ones who facilitate cross-border cultural adoption, who serve as physical reminders that this place has freedom and that place does not.

You don’t have to be a Netflix investor to realize original content matters—and drives the core of any attempt to supplant existing networks in a peaceful, sustainable manner. If content matters, then so does language, and without incentives to learn another country’s language, it is easier to miscommunicate, to be at the mercy of foreign media, and to retreat into the safety of familiarity. In contrast, a country that can convince others to learn its language removes the single most difficult barrier to its cultural invasion, and freethinkers and troublemakers, the ones who generate original content, are the weapons that lead the way yet cost nothing but decency and tolerance. In sum, it’s exactly like Pacino’s epiphany in Scarface: “For countries to project power, they gotta get the content first. Then when they get the language, they get the currency, then the power.” Original content allowed me to write the last line, allows us to replace no longer functioning ideologies with better ones, and thus forms the ballast that secures us from an unthinking security state.

On the other hand, if debt-driven security spending makes a place safer, it will attract investment, because investors, not just banks, want political and consumer stability, and stability requires safety. Attracting predictable and reasonable investment terms is not an easy task—any government, not just Greece, that borrowed from American or European banks between 2004 and 2008 can commiserate—and the shortcut seems to be assuring foreign investors of safety no matter the social cost. 

To be fair, if you are a developing country, you do not control your destiny because you typically depend on oil and other imports, which means you’ve borrowed in dollars but your currency can depreciate, making domestic budgets and therefore job creation unpredictable. Most governments just keep borrowing, but once borrowing as a basis for job creation becomes the norm, the source and terms of capital injections become less scrutinized. Whatever worked in the past, including the teams involved, gets the green light, resulting in homogeneity and fragile systems multiplying flaws once contained locally. When too much money competes for too few ideas, distortions occur, some predictable, some unpredictable. Dick Cheney was wrong. Deficits do matter. They just matter less when a country has most of its debt in its own currency, a privileged position available to no developing nation.

America became beloved—and rich—by inventing and marketing products that increased freedom and mobility. It couldn’t have done it without stealing other countries' troublemakers and using them to generate original content. Today, the most original show on American-owned Netflix is British-made Black Mirror. Are we seeing a reversal of fortunes? I couldn’t tell you, but the more important question is, “What environments foster enduring original content?” It’s a question you should be asking whenever you see too many armed guards at the airport, at the shopping mall, and at the supermarket; politicians creating familial dynasties; and residents unable to tell you the last time their local government ran a surplus. 

Bonus: re: social costs, increasing security spending creates more security jobs but less common sense. In Cebu, no one has determined how to optimize proper communication and teamwork between newly placed security guards--all of them unnecessary, because two security guards vs. four in a small place doesn't increase safety--and the everyday private sector. 

One example of dysfunction: SM Cebu City Mall's theaters are running a promotion of 199 pesos for an all-day movie pass, but apparently no one told the guards. To get past a movie turnstile, I had to go through one security guard and one mall/theater employee. The security guards have decided they're the ones in charge, so the mall employees sit apathetically unless an issue arises, in which case they revert to working the way they did before the security guard's presence. The all-day pass comes with a large rectangular stamp on the buyer's wrist and a torn-off stub signifying the 199 pesos payment. One security guard decided the wrist stamp--only given to people who purchase the pass--wasn't enough and took my ticket stub to the main counter and asked the employee to generate an individual ticket. The line to the movie wasn't affected because the regular theater employee jumped into action, but the main ticket line slowed as the employee had to deal with the unnecessary request. 

In matters of security, more human beings doesn't mean better. It often means each individual employee decides to create his or her own arbitrary rules out of a genuine desire not to feel useless, leading to an inefficient private sector. In most cases, the long-term result of more security spending is more jobs for people connected with the police or military--regardless of utility--and fear-based propaganda designed to maintain funding. 

Such jobs are not only direct. Police departments can use budget increases to fund organizations like PAL that sponsor or advertise other groups, leading to more jobs and more economic power within an expanding circle that becomes increasingly hostile to outsiders over time. This phenomenon is difficult to see in the abstract because taxpayer money is funneled under the guise of public service or social welfare projects--but without any requirement to meet strict benchmarks. As long as the purpose is benign, governments have a hard time stopping the tax dollars once they start flowing and once employees are hired. 

To be clear, nothing is inherently wrong about nonprofits associated with government entities. None other than Muhammad Ali was taken to a boxing gym under the aegis of Louisville police (though one wonders about the course of history had the young boy's name been Ali instead of Clay). Competent police departments make a habit of knowing their residents as well as their local businesses, or they'll soon discover criminals eager to become primary sources of information. 

Yet, only when I saw a strange police meeting in Cebu did I finally connect the dots. 
Take a look at this photo. It's a church choir singing at a police event supporting President Duterte's war on drugs. They don't actually call it a war on drugs, but anyone can see it's the same as President Ronald Reagan's American strategy plus more overt religion (one attendee held a sign with the words, "Drugs lead to slavery, Jesus leads to freedom"). Incredibly, people have forgotten that America's billion dollar war against drugs failed. Today, there are more drugs--and people in jail--in America than before the government's intervention. 

That's when it hit me. The entire show is a marketing strategy to increase security spending at the expense of all other "buckets" like public transportation, job training, and social welfare. For the past forty years, American voters have been inundated with images of dangerous crack addicts and uniformed "heroes" to convince them to transfer their tax dollars from projects improving community relations to projects increasing segregation and police influence. The result? America is the sole developed nation in the world that lacks public transportation and affordable healthcare. 

More drugs exist in America today than before 1981, but churches--often the beneficiaries of public grants designed to replace funding that would have otherwise reached social workers--police, and the military are stronger than they've ever been. 

In the case of America, one of the few nations able to run massive deficits, salvation in the form of a policy u-turn is possible. Unfortunately, the Philippines, already saturated with South Korean investment (and thus ownership), cannot run deficits without even more foreign ownership of private industries and land. One can already see negative repercussions in Manila, which has more toll roads than I've seen in any other country, including two within four minutes of each other. In sum, a continued bet on President Duterte means Filipino voters have faith their federal government, lacking both the technology and budgeting options of the United States, will succeed where America failed. Let's pray 40 years of recent history will convince voters worldwide to reject America's recycled marketing. Not everything ought to be resurrected. 

Bonus: Fear-based marketing (or how to enshrine a security state in just twenty years) is maintained by changing the scourge du jour every two to four years (human beings have finite attention spans, after all). Drugs are an easy mark; then come diseases, real or imagined; then, depending on the economy, immigration; then minorities and/or foreign elements. America started with drugs in the 80s, moved onto AIDs, then gays, then illegal immigrants, and then Muslims, with Ebola and Zika making intermittent appearances. It is now at the "foreign elements" stage. 

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