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. 

American Culture

America has always struggled to establish a unique culture. One satirist, when asked, "What do you think about American culture," remarked, "I support one." Indeed, America's history shows a remarkable similarity with Edward Norton's villain in 2003's The Italian Job--someone who lacks morals and wins, but who is miserable despite obvious prowess. 

If you get the sense we've been here before, you're not wrong. It's deja vu with larger numbers, more consumer debt and more vested interests, and one can realize this merely by reading old articles by Hunter Thompson and old interviews by Bill Moyers (I feel like the words, "national treasure," should always follow a Moyers reference in the same way Muslims follow Muhammad's name with "peace be upon him" to show respect).  

America's saving grace lies in its ability to absorb new immigrants willing to forget the past but not their own values and who come with unbridled, unjustified optimism possible only because they've swallowed all the right propaganda. In The Italian Job, one scene generates sympathy for the villain. We see him with all the toys wished for by all the people he's screwed over, and we realize he has no real desires of his own. The end result of his depraved genius is his ability to absorb other people's dreams and effectuate them--at any cost, moral or otherwise. Are you with me so far?  

Without our ability to make other people's dreams come true, we're just a bunch of jingoistic, oil-addicted ciphers in one of the most violent, segregated countries in the world. In 2017, anyone with 20/40 vision can see America's grand experiment losing to Edward Norton's villain in an alternative ending, with no comeuppance. If we're lucky--really lucky--we'll experience reformation at some point, and the movie will change from The Italian Job, alternative ending, to American History X: "Life's too short to be pissed off all the time. It's just not worth it." 

Copyrighted by Matthew Rafat (2017)

I Have a Story: Humility and Religion

In San Jose, California, after a Meetup.com casual dinner. Seated at a table with one Latin-American male born in America, half-Mexican, half-El Salvadorian; one white, blonde-haired, blue-eyed American; one American female of undetermined ancestry; and me. All of us appear to be in our 30s. Someone mentioned speed dating, and now people are discussing relationships. 

Woman 1: "I need support, I need to feel protected, I need..." 

Me: "Just have a good time. What's wrong with having a good time and going from there?"

Woman 1: "I'm not looking for a good time, at least not the kind I think you mean."

Woman 2: "Aren't you looking for something deeper, something meaningful? I think when women have sex without meaning, it causes damage, physical and psychological."

Me: "I haven't actually described what I thought a good time was. A good time is whatever makes people happy, as long as everyone involved is transparent and honest. Why would you be against having a good time? And who are we to judge? 

The more I travel, the more I realize Americans make things too complicated. I'm guilty of overthinking myself, but I'm trying hard to get rid of that habit. People in other countries may have fewer opportunities than us in many ways, but they still manage to be more content, partly because they have fewer options, but also because they go with the flow. 

The women in other countries I've met are more practical. They tend to want someone who is employed, who is kind, and who treats them well. I've never heard a woman in a foreign country talk about relationships by saying she 'needs' something." 

Woman 2: "I think if you talk to women--and really have a deeper conversation with them--you'll see they have the same expectations as Americans. They may not be in a position to get what they want, so they just internalize the gap between their expectations and their reality." 

Me: "If American women have relationships and happiness figured out better than non-American women, why are Americans the ones taking prescription drugs and anti-depressants at the highest rates in the world?"

Woman 2: "I think those women need to work on themselves before dating, and many women should figure out how to be happy by themselves before getting into relationships. Now that I'm in a good relationship with another Christian, I'm 100% sure he will be there for me when I need him." 

Me: "'I'm not 100% convinced of anything. The whole point of dealing with human beings is recognizing we're imperfect, and because we're imperfect, we cannot predict our future with 100% certainty. When you say you are 100% sure that your relationship will work out, I really question your brand of religion, because you're putting yourself on the same level as an omnipotent being. Religion, when done right, should make you more humble, not less. 

Let me ask you something. Right now, you and I could exit this restaurant and get hit by a car and suffer severe injuries for life. Do you think your relationships will stay the same if you, God forbid, became a paraplegic tonight?" 

Woman 2: "I am 100% sure my friends and my boyfriend will be there for me." 

Me: "I saw a documentary where someone just like you was severely injured in a car accident. After a year, her friends stopped visiting her. One reason you, your friends, and boyfriend are together is because you all share many of the same traits--you go to the same church, you believe in the same God, etc. A severe physical accident will make you different, will weaken the similarities that bind you together. Aren't you being arrogant in thinking you can predict the future with 100% certainty, even when circumstances change vastly?" 

Woman 2: "I have no doubt they will be there for me, and that my boyfriend and I will be together." 

Me: "You know, about 50% of Americans who get married in a church end up getting divorced. All of them thought just like you--that their relationships would work out. Do you think you're special in ways those people were not?" 

Woman 2: "I don't think I'm special. I just know my friends." 

Me: "The women in the church aisle who later got divorced, if you had asked them before the moment they said, 'I do,' would they have said they also knew their boyfriends?" 

Woman 2: "But 50% of the women who got married stayed together. Personal traits matter, too. If I have integrity, why wouldn't my relationship work out and be part of the successful 50%?"

Me: "I think we're all looking for permanence in a modern world geared towards impermanence. People want to to think they'll always be together with someone, not because they're necessarily afraid of being alone or being unhappy, but because they want something permanent. A wedding ring isn't valuable because it's expensive--it's much sought-after because it represents hard-to-get permanence. That desire for permanence is the underlying basis of your opinion, your certainty. 

When I speak to religious women in other countries, I'm always humbled. A Latin grandmother might have only a tiny cross somewhere in her small house, but when you talk to her, you can feel her faith. You don't need to ask her anything about it--you'll just feel it. She'll never say she 'needs' anything or that she's 100% sure of anything except her own belief in God. She won't say she knows what another person would do, but she will tell you believes in God, and that will be the end of the discussion. It doesn't even enter her mind to say she's 100% sure about the future of other human beings. She believes in God, and God will do what is right by her. That's the kind of faith that leaves no room for logical argument because it's genuine. She'll have a fraction of my education, of my knowledge, but she'll be the one who humbles me because her faith is worth more than all of my knowledge." 

END SCENE. 

Retailers' Woes Have Nothing to Do with Amazon

One more of the most confounding features of modern times is that we have more information than ever before, but less common sense. In short, we have more data, but it doesn't help us because we're unable to commandeer it properly.

Retailing data tells us Amazon.com--which recently had 1 billion USD of sales in 30 hours--is going to destroy traditional "brick and mortar" stores. Others argue 90% of retail sales are still done in-person, so while the internet's share of sales is increasing by 1% a year, traditional retail is not dead.

Everyone misses the point. I visited the local mall today. I live in an affluent area where people have lots of disposable income. Here's what the mall looked like inside: 

Looks dead, right?

The main foot traffic was in the food court, a cafe, Starbucks, Apple, and Hollister (which has somehow solved the puzzle of teenage fashion). With Amazon and other online choices now ubiquitous, we've forgotten the days when internet sales weren't successfully gaining market share and "dot com" was synonymous with "bust."

1. Internet Retailing Was Once Considered a Fad

It wasn't always certain that internet retailers could even survive. Amazon.com was allowed a sales tax exemption for many years because it continually posted losses and claimed poverty. States that tried to tax Amazon soon saw it move completely out of their state to limit the law's ability to tax entities without minimum contacts in a particular jurisdiction.

Recognizing his business's unusual dynamic, Bezos once said, "[W]e don't make money when we sell things. We make money when we help customers make purchase decisions." By the year 2000, Amazon had posted a loss of 1.4 billion USD. At one point, Amazon hired Walmart executives to increase profitability, causing a major culture clash with existing employees, who were generally younger and more urban. Most of the managers poached from Walmart eventually left Amazon, but Amazon's poaching left a bitter taste in Walmart's mouth that persists to this day.

Today, Walmart is more profitable than Amazon but has finally realized it needs to catch up in the online space to prevent Amazon from capturing retail market share as Amazon continually improves efficiency and passes cost savings to customers--just like Walmart. Bezos has always been unperturbed about profitability comparisons: 

"[D]on't worry about our competitors because they're never going to send us any money anyway. Let's be worried about our customers..." 

2. It's All about Inventory, Inventory, Inventory

Stores are expensive to maintain. You've got lawsuits resulting from poor customer service or arbitrary hiring decisions. You've got some customers slipping and falling on your floors--sometimes intentionally. You've got theft, which most Americans don't realize costs retailers about 40 billion USD annually--with the plurality of the theft coming from employees, not customers, in the U.S.

The biggest hassle of retailing, however, is inventory management, not HR. Most retailers live or die by major holiday events and new product launches. If a store buys too many products that later become unpopular, they either have to mark it down--which they can't always do because of complicated MAP, or minimum advertised pricing rules--or return them to the supplier for a fraction of the costs already paid. In some cases, with very popular items, a retailer is not allowed to return any portion of the inventory bought and is stuck with it no matter what. Under such a framework, retailers who overestimate or underestimate customer demand--especially during the holidays--tend to see wild swings in revenue while still dealing with relatively fixed overhead.

Amazon bypasses such issues by theoretically having unlimited shelf space and using algorithms to personalize the shopping experience for each customer. While Macy's and Nordstrom must not only figure out which products are "hot" and stylish, but how to allocate enough shelf space for them--potentially losing sales on less popular but profitable items--Amazon can stock everything. While Gap and Target can't really individualize your shopping experience without assigning you a personal shopper as soon as you walk in the door, Amazon is able to collect information every time you log on its website and browse--even if you don't buy anything. With online retailers' greater abilities to reduce human error and gather reliable customer data, how can brick-and-mortar compete?

3.  Actually, I Lied: It's All about Customer Service

If it's all about inventory management, why isn't Starbucks failing? How come Chick-fil-A has lines every time I visit? Well, have you ever seen the outside of a Starbucks look like this? 

In a local mall's parking lot

Oh, you're going to argue I'm only using food retailers as examples? Ok, why are Apple and Nike so popular? Why did Apple open "brick and mortar" stores several years ago? Why is the Apple store always busy while the Microsoft store across from it in my local mall almost always empty, except for kids trying out video games?

It's the customer service--a long lost art. When you go into any Starbucks, you can personalize your drink any way you like. If you still don't like it, you can demand the barista re-make it. When you have a problem with an Apple product, you can bring it into a store and get it looked at by experts. When I question the workers at the Genius Bar, they take such pride in knowing everything about their products, they often get offended or bemused. When I pointed out one of the outlets in the table didn't work, the worker smirked and said he knew--the implication being, "You can't know more than us about Apple, buddy." Another Apple employee once answered numerous questions about DJI and GoPro drones in depth--which aren't even Apple's own products.

Does Starbucks make money on its 100% customer satisfaction policy? In terms of hard numbers, absolutely not. Does Apple maximize profits by paying higher wages to experts who actually care about their products when it can sell its products online or through other retailers? Nope. But both companies have such high margins, they don't mind losing money here and there if it brings back customers. In short, high margins are supported by excellent customer service, and excellent customer service allows higher margins.

From The Everything Store (2013)

Lots of people shop at Ross and Kohl's, but they wouldn't go there unless they could get 75% off original prices. When you have non-existent customer service, you can lose customers easily unless you keep prices so low, they will tolerate ineffective and surly employees--who might be adding to the $40 billion theft problem while you shop. Unfortunately, you can't quantify the value of consistently excellent customer service in a spreadsheet, so some managers who take over stores with declining YoY revenues focus on everything but the customer experience, dooming their efforts from day 1 and antagonizing formerly loyal employees. 

4.  Overseas Malls Are Mostly Doing Just Fine

Let's contrast the American shopping experience with other countries. Malls are central meeting points in many non-U.S. countries because they offer air conditioning, excellent WiFi, and wonderful food courts.

Discounters haven't made inroads overseas. (A Filipina friend, a highly educated regional manager of a popular pizza joint, has never heard of Ross or Kohl's.)  American brand names still command high prices because MAP restrictions force retailers to compete based on excellent customer service, not low prices. Dirty, unappealing malls exist, but they only have mom-and-pop stores and small businesses, not brand-name retailers. Every single mall overseas I've seen with brand-name businesses is pristine and staffed with people who work hard.

When customer service fails overseas, it's because good intentions often overwhelm common sense. For example, in Panama, as soon as I walked in a sporting goods store--where I eventually bought an authentic Kobe Bryant jersey for 40 USD--an employee asked if I needed help. When I said I was just looking, she still followed me around. At first, I thought she believed I was a potential shoplifter, but then she started being really helpful, like taking the hangers from the clothing I was looking at and pointing to nearby mirrors. I take a long time before buying anything because I walk around for at least 5 minutes, asking myself, "Do I need this? Do I really need this?"

After 5 minutes of walking around doing my usual retail self-questioning, I decided the cute, petite Panamanian employee following me everywhere was working on commission, and it would be rude not to buy something. When I told her I was going to buy the jersey, her expression didn't change. She walked me to the cash register but didn't ring up the sale herself. That's when I realized--she wasn't working on commission. That's just normal overseas customer service.

It's not just in Panama where I experienced "excessive" customer service. Let's take another "P" country, the Philippines. Every time I walked into a middle class or upscale mall, I saw at least three workers ready to assist me in each section. 

Quick--how many store employees do you see? 

Like I said earlier, I'm so used to American customer service--or lack thereof--it took me a long time to realize I just had to patiently deal with overly helpful employees when shopping. 

5. Retail Used to Be a Viable Career and Still is Overseas

Many SE Asian malls, such as ones operated by Ayala Corporation, prefer to hire college graduates as workers, the idea being that such persons will speak English and are able to identify with affluent shoppers. Yet, even in overseas malls where the staff comes from more humble circumstances, I experienced genuinely helpful, normal, and intelligent people. 

When I bought a soccer jersey in a mall frequented by Panamanian locals where workers make 2.60/hr USD, I still got got excellent customer service. Using Google Translate, I was my usual annoying self and asked a lot of personal questions from the employee, including about her wages.  I tried to tip her after she amiably answered my prying questions, but she looked surprised and called to her supervisor, asking if she could accept the tip. Her supervisor cocked an eyebrow, then nodded and looked away, probably having committed a violation of store policy but at least having the discretion and common sense to know when to override it. 

Retail wages in other countries are generally good. In Panama, the worker making 2.60/hr USD could afford to buy a home, which cost her 59,000 USD. (Yes, I ask a ton of questions--I have no shame when it comes to gathering data.)  She took out a mortgage with an 8% interest rate, which most people would consider quite high, but she owns a home--something almost no retail worker in a developed country can do. Sure, she's far away from the Malecon, where a one bedroom high-rise condo costs 250,000 USD in a beautiful area resembling Venice Beach, but she owns property and isn't at the mercy of a fickle or greedy landlord/slumlord.

In hindsight, Amazon's most valuable competitive advantage didn't come from data, but from the underlying premise of Bezo's business model: if a process works, lower-level workers should talk to each other less, reducing the potential for conflict or mistakes. If a customer has to email someone and ask for help, there's a flaw in Amazon's self-contained eco-system, and because Amazon owns every piece in the system, it can keep perfecting its processes until you can get anything you want, however you want it, without needing to contact an underpaid American customer service worker. Even before robots, AI, and drones, Bezos envisioned and created seamless automation, bypassing the risks of imperfect customer-facing service. Amazon is taking market share from "brick and mortar" not because of lower overhead due to the lack of a physical presence, but because it focused on creating a seamless customer experience. In fact, Amazon will be opening a traditional brick and mortar store right across the street from the mall I visited today. That mall is the most posh outdoor mall in the entire city. When it comes to the customer experience, Amazon doesn't mind paying more. 

In contrast to Bezos, Starbucks CEO Howard Schultz made coffee a premium beverage by encouraging employees to create the perfect in-person customer experience. Before Schultz, no one could charge more than 1.50 USD for a cup of coffee, but after seeing the more fashionable coffee experience in Europe, Schultz returned to America, determined to bring a better coffee culture to the States. 

From Schultz's Onward (2011)

Read my last line above--pay particular attention to the word, "culture"--and the words, "human connection," in Schultz's own book. Schultz didn't bring coffee to America. He brought a specific cultural vision and added excellent customer service.

Two CEOs, two seemingly different visions, but the same focus: a perfect customer experience.

6. Conclusion

I don't have an MBA, and I've never managed a retail store, but I'm not surprised customer-facing American retail is suffering. In the absence of sincere, dedicated leaders, relatively low wages make it hard to convince employees to deliver excellent service or to see themselves as a part of a brand's cultural continuity. 

In addition, lower-level employees, including store managers, often lack discretion to satisfy customers, so higher wages alone may not increase initiative. In fact, Costco pays higher wages, but people go there for competitive prices, not customer service. Unsurprisingly, Costco is struggling to find its niche with a younger generation of shoppers who want better overall experiences, not just lower prices. 

If individual American retailers cannot consistently create excellent experiences, then mall operators themselves should. Ethnic malls have a much more diverse tenant mix, which increases foot traffic at different times of the day, alleviating parking woes. Such malls usually have a grocer as the anchor tenant (H Mart, Mitsuwa, etc.) as well as sleek food courts within the grocer itself or the mall, using delicious food and smells to drive traffic. Upscale malls overseas have numerous events sponsored by major brand names--just think of the fun activities and giveaways inside an American sports arena on gameday, and you'll get a good idea of what a Hong Kong mall looks like on a daily basis. American retail is suffering from an identity crisis and is trying to compensate by increasing ad dollars and focusing on image, not experience. Yet, companies like Abercrombie and Fitch (excluding Hollister) and J. Crew, which arguably care the most about their image, are suffering the most. It's time to get back to basics. 

Disclosure: I own shares of ANF, M, TGT, various REITs, and other companies mentioned herein. My positions may change at any time. You are responsible for your due diligence.

10 Reasons to Avoid Cuba (Part 2)

[Continued from HERE (Part 1).] 

5.  Cuba Still Rations Basics, and Prices Make No Sense

By the end of my month in Cuba, I was dreaming of entering a Whole Foods or Target and filling up a shopping cart. This is what Cuba's "supermarkets" sell: 

Your eyes do not deceive you.  You are indeed looking at large cans of tomato paste. Of all the items the store chose to advertise, this is what they felt was their best selection. (Maybe they wanted something large to fill up the window? It's not like they have competition.) I bought two toothbrushes for 50 cents each. I wanted shampoo, but they didn't have shampoo.

If you visit Cuban neighborhoods outside Old Havana, you'll see many people walking with trays of fresh eggs every day. You'll eventually realize Cubans get their food through rationing cards, just like the British did during WWII. As you might expect, a thriving black market exists, driven by remittances and products sent from abroad. My neighbor might live three to a room with a kitchen the size of a small closet, but her two sons own a used Xbox, probably smuggled into the country after bribing a guard.

Cuba claims to be opening up, but it's hamstrung by U.S. sanctions and its own poverty. Any ship that docks in a Cuban port cannot dock in an American port for at least 6 months. As a result, the main countries with trade agreements and enough products to sell solely in Latin and South America are China and Spain. Almost all of Cuba's new cars--which, due to limited supply, cost almost as much as a small apartment in Havana, or about 22,000 USD--are Geelys made in China. (Most of the old cars are Ladas, which are Russian-made and still running after 20+ years.) Everything that consistently works in Cuba is made in China, from buses to fridges to trash pickup trucks. A cynic would say China uses Cubans as guinea pigs to make sure their products work before shipping them to more developed countries, but I didn't see any evidence of inferior quality. 

Cuba is known for having old American cars, but such cars are popular because Cubans don't have sufficient disposable income to justify having any auto dealerships. Once you realize this, the old cars start to look sad. 

Old because Cubans can't afford new cars

They're also a convenient way for Cubans to make money from excitable tourists. A taxi ride in an old American car costs about 5 USD a person, whereas Cubans accustomed to the old cars see them as just another option in the taxi business and pay about 40 to 50 cents a ride. I rode in a few old cars and enjoyed the large and comfy seats, but otherwise, they're nothing special. Just more propaganda from a country that doesn't have much to offer outsiders, forcing it to rely on gimmicks to attract tourists (and foreign currency). 

Just for fun, here's an actual Cuban cop car--try not to laugh: 

I did see one encouraging sign. Cuba recently opened several "supermarket" locations called Jabon y Agua (literally, "Soap and Water"). These stores offer more consumer choices, but their prices make no sense and are unaffordable for the typical Cuban, so it's possible they're another way for Cuba to gouge foreign exchange students or visitors. On the other hand, maybe the stores are a way to compete with the black market. I saw someone offering to sell a Gillette Fusion razor blade to a restaurant owner for 20 USD, twice the price in the U.S.  He didn't have any blade refills, so I'm not sure if the seller understood his own product. 

Cubans cannot afford 9 USD for shaving cream so who's buying?
Why is it over 2x the EU and USA price? 

To summarize, Cuba isn't nostalgic by choice--things are old because of economic failure and poverty. My landlord summarized the situation perfectly: 

6. Cuban Culture Gets Stranger the Longer You Live in Cuba

Cuba was the only country in Latin and South America where I saw a police officer catcall a woman. It's the only LatAm country I've visited where the men look prettier than the women and where construction workers commonly have perfectly coiffed hair and six-packs. 

A Cuban man, whether rich or poor, looks like he's spent hours in front of the mirror before leaving the house. Perhaps young Cuban men think they're required to look like Colombian pop star Maluma (like Justin Bieber, but talented) in public. In a place where few people read for pleasure (newspapers are official government propaganda, and why bother reading if all the dollars are tourism-related?), and televisions show mostly anti-Western propaganda (imported from Venezuela) or music videos, looks matter. After all, brains won't get you the girl when everyone makes the same government salary. 

I always play basketball when I travel, not just because I like the game, but because it's a simple way to determine a country's culture. For example, how often and when do people foul? How hard do they play defense? Are they more interested in showmanship than fundamentals? When there is a dispute, how is it resolved? Do they even let strangers play?

In Cuba, basketball is a theater-like performance. I've never seen so much preening and flamboyance. Games that should have lasted 10 minutes took 30 minutes. When a foul is disputed, no one "shoots for it" and gets back to playing. They take turns demonstrating how upset they are and then argue their case before all the sitting players, who function as an informal jury. Both players will storm off in opposite directions, gesticulating wildly, and then return to the center and loudly proclaim their innocence or the other player's malevolence. This happens every single time a foul is called, whether offensive or defensive. (If Cuba doesn't already have a national mascot, I propose a hybrid of a peacock and an angry chihuahua.)

It gets better. If a particularly lucky shot goes in, the shooter might do a dance that would put former NFL player Ickey Woods to shame. One player, after humping the air and moving forward for 10 seconds, progressed to actually humping his defender, who had to push him away. The shooter continued humping, this time in a stationary pose.

Basketball fundamentals are non-existent because Cubans can't go on YouTube to learn anything, which makes Charles Barkley's 1992 Olympic elbow even more flagrant. When I started doing high pick-and-rolls with two other American tourists on my team, the Cubans didn't know how to switch. One skilled Cuban player, after being subjected to the same play two times, spent a minute dramatically expressing his frustration at his teammates before passing the ball (yes, even when there was no foul, a Cuban player found a way to lengthen the game).

I started to understand when the government gives you a guaranteed job (at low pay) and controls your food supply, there's no place where people can feel heard--except the basketball court or other public places. If your work ethic or words won't get you a promotion, you're not going to suggest doing anything differently--you'll just want to finish your job with minimal effort and go home. In a sense, the basketball court in Cuba, at least for the working class, is one of the only places where results matter. Perhaps that's why they're so adamant about spending as much time on it as possible.

Even in the straightforward world of sports, it's hard not to feel Cuba is a tragedy. I met a wrestler distinguished enough to award medals at the local youth wrestling tournament, and he showed me pictures with famous Cuban wrestlers Mijaín López and Ismael Borrero. He also proudly showed me a video of his 11 years-old son in a tournament. I'm a former wrestler lucky to have had two state champion coaches in high school, but my training started and stopped in high school. (By the way, everyone seems eager to praise teachers, but my high school coaches--the Vierra brothers, Mr. Gilmore, Mr. Cunningham, and my track and field coaches were most responsible for any maturity I might have today, whereas I despise almost all of my high school teachers and wish them fiery deaths.)

With this young wrestler, I was taken aback by the many simple changes that would quickly improve his skill level. The son and I grappled for a few minutes, and I showed him how to make improvements, but I couldn't shake the feeling I was showing him things he should have learned in his first three months of training. Increasing my discomfort was the fact that Cuba is formidable in boxing and wrestling globally, so lack of internet access shouldn't impact institutional knowledge. Yet, somehow, this eager young man's talents were not being developed adequately.

I realized the father was athletic when I saw him at a street food and coffee stall. His forearms were twice my size, and I'm no slouch at 230 pounds. I decided to challenge him to an arm wrestling match to break the ice, and he agreed. Much to my surprise, I won. After seeing more and more Cuban men larger and more chiseled than me, I realized they weren't strong. Even the ones who lifted weights didn't seem strong, and I couldn't figure it out until I saw two random Cubans in a mall.  I didn't think they were Cuban because they wore completely new brand-name clothing and were obviously fit. I walked up to them and asked if they were Cuban, and they said they were. That's when I realized the problem. Poverty destroys everything. 

Most of the Cuban men I saw didn't have access to protein except for eggs. Even if they exercised 3 times as much as me, they wouldn't be able to compete effectively on their diet of rice, beans, and the occasional chicken leg (not to mention the copious amounts of sugar most Cubans ingest). I had become so used to seeing poor Cubans, I literally couldn't believe it when I finally met a few strong and affluent ones. That's Cuba. A place where poverty seeps into every aspect of people's lives, rendering everything hollow, even in places where one's efforts should produce strength.

[To be continued...] 

American Hubris, or Why Revolutions Usually Focus on the Educated Classes

In America, the two federal legislative bodies are trying to reform a healthcare bill passed by a previous administration. The old bill increased premiums, especially for younger people, and didn't sign up as many people as expected in some states.

I'm seeing a lot of Americans encouraging people to vote on the healthcare bill who don't realize the terms are not yet final. The CBO report--issued by a nonpartisan government agency--relied upon by the media addresses the last version of the bill, not the latest negotiations.

In response to the CBO report, Congress is attempting to resolve inconsistencies between the House and Senate bills. The House bill received more support from the CBO, causing the Senate to revise its own version. If someone tells you to vote "No" on the healthcare bill as of July 7, 2017, s/he is missing the key point: there is nothing final to vote on.

Too many Americans have the hubris to encourage others to vote a particular way without knowing the facts, which is a pattern among modern-day Americans with high levels of education: they like to encourage supportive acts that make themselves feel good, but without any substantive understanding of the issues. Such hubris has torn the country apart and allowed Trump to flourish.

When choosing between a team that thinks it knows enough about healthcare to encourage voting a particular way on a bill that hasn't even been finalized, and a team actually trying to reduce long-term healthcare costs--which sap resources from younger generations--it doesn't take a Ph.D to figure out which side makes more sense.

Bonus: Nothing prevents states from raising taxes, borrowing money, or taking other actions to make up any shortfall in federal healthcare funding. For example, if Medicaid was completely eliminated, California has Medi-Cal and would still be able to provide any service currently subsidized by the federal gov. States want unlimited or ever-increasing funds from the federal government, a paradigm that masks the true costs of gov programs; keeps taxes artificially low; causes national security risks by putting future generations in debt to foreign creditors; reduces state and local gov flexibility by increasing dependency on the federal gov; and reduces accountability. 

Healthcare in America: Symptom of Overall Decline

I just ordered a new hearing aid. I bought it from the same entity I pay health insurance to. Hospitals may be non-profit or for-profit, but the label isn't very helpful because any entity with salaries and overhead must focus on getting money or go bankrupt.

Americans are confused about "for-profit vs. non-profit" because they're not used to seeing actual sticker prices for healthcare services and because insurance has allowed diffusing ever-escalating costs. Such a system works only if more people are added to the same insurance pool each year, which gets trickier if true competition exists. 

On paper, a for-profit entity has more incentives than a non-profit to be efficient and better at preventative medicine, thereby lowering long-term costs. Yet, even that basic premise is questionable if a non-profit has leadership that rewards employees for efficiency and reducing the number of unnecessary third-party tests. The trick is getting the balance between efficiency and customer service right.

Why do other countries seem to handle healthcare better? Reasons might be counterintuitive or simple. For example, they could be dealing with a population that drives less because of better public transportation, which increases daily walking time and therefore decreases heart disease rates. Maybe people are less stressed because they have less debt or more free time. Perhaps fewer people engage in excessive drinking or prefer wine to beer. (Even the "wine vs. beer" factor requires more analysis because the main difference might be that most wine is more expensive than most beer, encouraging less consumption and therefore fewer negative health effects.) Is the climate extremely hot, encouraging more showers and therefore more cleanliness, reducing disease transmission? Or does a hotter climate make it harder to walk more, increasing health risks? 

The more we analyze complex problems, the more it becomes obvious that nothing can be fixed on a national level in any large country, and one reason smaller countries like Singapore are so successful is because they are smaller and can act locally and more quickly when problems arise. (Note: "democracy" isn't necessarily the answer to anything once you realize any system that encourages local solutions, accountability, and more humility works.)

Back to my hearing aid purchase. I've been severely hearing-impaired since birth. American health insurance doesn't fully cover hearing aids, even if medically necessary. Also, tax write-offs require such a high level of medical expenses, almost no one actually qualifies. (Meanwhile, a dollar spent on advertising creates an automatic, above-the-line deduction--the best kind of tax break.) I will be paying 1200 USD out-of-pocket for the most basic Oticon aid, labeled as "entry" level. I probably need two more functional aids costing 2600 USD each, but I tend to spend a lot of time alone (cue the chicken or the egg debate), and I'd rather use my money for more pleasurable experiences like eating out or even giving it to a friend who can pay off high-interest consumer debt.

Why do I share my experience with you? I want you to get a sense of why American healthcare is so problematic and why labels like "single payer" or "for-profit" don't help. When I made the appointment to purchase the new aid, I already had the benefit of a previous visit, where the audiologist explained the different options and price points to me. I was given a standard half-an-hour appointment, but I saw the system scheduled the next patient in 20 minutes, creating an incentive to minimize the time spent with me.

Not knowing about the 20 minute scheduling until my follow-up visit, I brought another aid I use as a back-up, which needed a simple tubing replacement. The audiologist looked at it and told me it's not common for Kaiser to work on an aid not purchased through its own service. She turned the aid over a few times and finally left for three minutes and returned with a tube.

A tube is just a piece of plastic attaching the earmold to the electronic aid that goes behind the ear, but if the five cent piece of plastic isn't replaced regularly, the expensive aid won't work optimally. Before Kaiser, I had a private audiologist, and it was standard procedure to clean or replace the tubing if requested. Unlike Kaiser, the private audiologist doesn't get an automatic stream of customers referred from the overall insurance pool, so it has incentives to treat customers well. It is a for-profit entity, while Kaiser Permanente is one of the nation's largest non-profit health plans. Before I go further, I want to say I like Kaiser. It has an integrated-care model, which is the future of healthcare--if we get it right.

Interestingly, the audiologist told me Kaiser's hearing aid unit was "for profit." I'm not a tax lawyer, and the idea of a non-profit entity with a for-profit subsidiary sounds odd, but it's possible the audiologist isn't a tax expert and mis-spoke. Later, I realized the audiologist's use of "for profit" might have been a way to subtly get out of performing a basic medical service. If you only have 20 minutes a patient, and if you don't need to attract new patients because they're part of an existing insurance network, why do extra work? What is the incentive to treat the patient as a whole person, regardless of whether your corporate structure is for-profit or non-profit?

Such problems aren't unique to healthcare. Even mid-sized law firms now require associates to charge 10 or 20 cents per copy, limiting copy machine use by requiring an electronic client billing code. In the past, firms would also charge an inflated flat rate to send faxes. As you might suspect, the incentive to nickel-and-dime clients in a for-profit system is high, which leads many people to advocate a non-profit system where the culture can, in theory, focus on seeing the person as a whole human being. Yet, here I was, in a non-profit entity, and the incentives clearly discouraged an audiologist from assisting me in a simple way. The lesson? Tax structures don't tell you anything about employees or their dedication. They don't tell you whether the employee is burned out or if she feels like a meaningless cog. They don't tell you if the employee wants to help you but is constrained by policies discouraging common sense.

A for-profit system might be better if it attracts the most ambitious, hard-working employees, especially if a non-profit system pays less or attracts burned-out employees. Indeed, even a non-profit system must manage patients efficiently, and software now handles day-to-day operations for most large entities, restricting flexibility and personal initiative. 

Remember going to a doctor's office and waiting for 20 to 30 minutes after your appointment time? What if that inefficiency allowed the doctor to listen to patients more and give everyone the benefit of more personal service? What if technology has sacrificed our ability to feel useful and to take care of people in ways that build lasting relationships? What if tolerating technological advances that limit personal flexibility but increase efficiency has seeped into other parts of American culture, limiting our ability to think long-term?

I don't know the answers to the above questions, but removing personal discretion from employees and increasing hurdles to long-term customer relationships aren't the solutions. To be fair, the audiologist did give me extra options that answered other questions I had. However, by the time she showed me a catalog with useful add-ons, I didn't know if she was genuinely trying to help me, or if she had a sales quota. 

Dealing with American healthcare is enough to make a diehard capitalist into a committed socialist. That should scare us all. 

Bonus: "Despite all the false positivity, I find Americans to be generally the most stressed out and unhappiest people on the planet. Despite all the resources, and all the money they have, they are sadder than people I know who can barely make ends meet in other countries, but still know how to live in the moment." -- Benny Lewis