Posen: Faddish Export Promotion Is a Heavy Burden for Any Economy

``Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage."-Niccolo Machiavelli

Finally, as the Peso has put one into the books following its milestone high, you can expect a hue over these developments as “bad for the economy” in the coming days from various experts who would recommend the “management” or interventionism in the currency.

I pointed in the past that for the longest time the peso has devalued, yet such price mechanism has not worked out favorably to expand our export sector which incidentally despite growing nominally, has been declining based on the rate of growth during the past few years. In essence, the depressed peso has not only lowered the standards of living of the Filipino people, it has not uplifted the export sector to gain a critical mass to improve on our lives. In other words, the export sector’s problem is much more than a factor of price mechanism. As an analogy, if price of labor would be the single most important variable for determining the recent trend of outsourcing investments, then Africa and not China or Asia would be the major beneficiary, considering the mostly politically blighted environment. Again I see this predicament of ours, as a complex product of bungled regulatory policies and extensive interventionism.

I’d like to quote extensively Economist Adam Posen of the Institute for International Economics, in his articulate article, ``Faddish Export Promotion Is a Heavy Burden for Any Economy” for making a good case against Export Promotion (emphasis mine)...

``In spite of the frequently cited examples of export-led growth for some developing countries, there is mounting evidence that the benefits to growth of countries' engagement in trade are attributable to openness. These include the direct benefits of importing lower prices and greater variety; the efficiency gains from challenging (rather than protecting) domestic businesses; and policy choices that contribute to a broadly liberal and market-oriented framework across the economy. Exports taken on their own, the usual narrower target of competitiveness policy, are not correlated with average per capita income growth.

``A focus on export competitiveness usually leads to actively harmful policies, beyond simply wasted resources and rhetoric. If exports are the public criterion of economic success, policymakers can meet that goal only by self-destructive means: depreciating a country's currency, thus eroding the purchasing power and the accumulated wealth of citizens; depressing wages in export sectors, either directly or through relative deflation vis-à-vis trading partners, thus cutting real incomes and domestic demand; subsidizing or protecting exporting companies, thus distorting investment decisions and locking in old technologies and businesses at the expense of new entrants; or promoting national champions, thus increasing both wasteful public spending and the costs to domestic households and businesses.”

Like those who espouse divergent ideas, I believe, that our common goal is to see the best approach for country’s progress, but unlike them, my view is one of the unconventional and unorthodox, and rests on the grounds of personal responsibility to enhance one’s life and that of the society, and not through dependency. By allowing markets to function at its fullest, enterprises should proliferate, baneful politics would be greatly reduced and standards of living would eventually rise. Remembering the battlecry of the late Chinese leader Deng Xiao Peng to open China’s economy to the world, ``to be rich is glorious”.