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Wednesday, October 19, 2016

An Early Golden Opportunity Squandered

Sixto Roxas and the Failure to recognize Globalization and Foreign Direct Investments:
Or an Early Golden Opportunity squandered

"No country in history has yet developed through foreign investments,
not anywhere, not in the past, nor in the present."
"All the developed countries today have developed from native
ingenuity and boldness, not from the kindness of strangers. Foreign
investments do not blaze trails, they go only to places that have already
been blazed, that show a track record for success. Foreign investments
merely supplement, like vitamins, they do not sustain, like food." .........Sixto Roxas

These quotes of Sixto Roxas necessarily reflect his times and those of his experience, and education. This was likely said during the late 50s and early sixties when he was the chief economist at PNB or shortly thereafter. He was correct at that stage of world economic development, where the developed first world did indeed primarily develop in that way, during the first century of rapid industrialization, when the West and Japan in Asia, used the scientific revolution to power industrial development by using industrial mechanization to pull themselves up by their bootstraps to produce ever higher industrial productivity that unleashed corporate superprofits never before experienced in the history of world economic development.

Sixto Roxas was a remarkable and outstanding investment and financial technocrat, who brought the concept of investment banking to the Philippines, then an established concept in the US and the UK, but was not an economic visionary. Unfortunately too, he failed to develop an equally outstanding second line of succession managers at Bancom, his baby, who could build on the financial infrastructure he had set into motion; a second line of top managers who could have stepped up to succeed him. His own brother Andy Roxas a potential very capable replacement, unfortunately passed away prematurely before his own career had fully blossomed to its highly promising potential, as I am sure Danding Yotoko would agree about his boss.

Worse, Bancom frittered away its auspicious beginning, through pedestrian financial initiatives that carried unacceptable speculative risks for a small firm with a weak capital base, that it had no business undertaking. Bancom became a risk management disaster waiting to happen after Sixto Roxas. If Sixto Roxas had only foreseen the tremendous economic impact FDIs could make, especially in Asia, it could have used its great Asian lead in the embryonic stages of Asian investment banking, and especially with its Wall Street connections (Bankers Trust, co-owner), to be the financial intermediary to bring American FDIs, the dominant source in the earlier period as well as Asian and European money, to the budding Asian Tigers, Indonesia, Thailand and to Hong Kong where they had their first international branch early on (where Manny Pangilinan, Danding Yotoko, and Noel Escaler were assigned) and to China.

The massive productivity gains fueled unprecedented consumer and capital goods sales due to the huge reduction of prices making purchases affordable to consumers and businesses alike. That stage was the easier part, the revenue growth part with all the low hanging fruit, but starting in the 60s and 70s with the emergence of lower cost Asian production and high quality from Japan coupled with new productivity gains fueled by computerization, it had started the second stage, the cost reduction part which fueled globalization where the old developed world experienced massive lifting of personal incomes but bloated their cost structures, making them vulnerable to Japan's high quality, low cost products.

This accelerated the globalization underway which would blow up Sixto Roxas' historical observations of traditional economic development as the developed world competed to reduce its costs which set the stage for the Asian economic miracle of the starting in the 60s, 70s, and 80s as successive Third World Asian economies, later called the Asian Tigers became the beneficiaries of ever rising Foreign Direct Investments from Western economies - Hong Kong, Singapore, South Korea, Taiwan, and of course the mother of all recipients of FDIs, China.

When Sixto Roxas said those obsolete pearls of past wisdom above, these massive global forces were just getting unleashed, and starting to gather steam, not yet an obvious reality that he couldn't yet see. Now for any third world country aspiring to join the First World like India, China, Brazil, Indonesia, and Malaysia, FDI's have become the sine qua non of development. FDIs not only bring scarce capital but also technological expertise, knowledge, and in many cases Research and Development, that to this day escape us in a meaningful way due to investment stumbling blocks that are so well known to us but don't have the political will to solve due to the crippling stranglehold our monopolistic oligarchy has institutionalized in our Constitution, Congress, and structural institutions.

Ricky Sobrevinas

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