Joint General Membership Meeting
The "Four Speed World " and the Bane of Corruption

The “Four Speed World” and the Bane of Corruption
5 March 2008 – Speaking before an audience of academics, graduate students, representatives of multilateral agencies and the business and diplomatic communities, MBC chairman Ramon del Rosario Jr. today highlighted the problem of corruption as a major impediment to the country’s full and sustainable economic development. Del Rosario spoke as a reactor in the latest offering of the “Bridges—Dialogues Towards a Culture of Peace” series of events organized by the Asian Institute of Management in cooperation with the International Peace Foundation.

The event’s main speaker was former World Bank president James D. Wolfensohn, who expounded on his “Four Speed World” thesis and the still-escalating problem of world poverty, including in the Philippines. Del Rosario, in his reaction, affirmed Wolfensohn’s analysis of the world in general and the Philippines in particular, and contributed his own reading of what ails the country today.

Reaction to James Wolfensohn’s “Four Speed World” View
Ramon R. del Rosario Jr.
Chairman, Makati Business Club

Thank you Mr. Wolfensohn.

It is heartening to note that, three years after leaving the World Bank, Mr. Wolfensohn has not diminished in his passion for finding solutions to the problem of global poverty. I believe I am not exaggerating when I say that, for many of us here in the Philippines and in the developing world, Mr. Wolfensohn’s continues to be the face that we associate with the Bank. This is a result, not only of the length of time that he served with the Bank, but also of the clarity of vision, passion, and intensity, and, I might add, the charm, that he brought to the job, that helped make the World Bank a more relevant institution to many developing countries including the Philippines.

In the decade that Mr. Wolfensohn served as World Bank president, our world achieved significant progress, not only in promoting sustained growth, but more importantly, in uplifting the lives of the poor in many parts of the globe. But many have also been left behind. It has been almost a year since Mr. Wolfensohn wrote his op-ed piece about his inspired hypothesis of a “four speed world,” and his words ring truer today as we face the challenge not only of subprime mortgage failures and the threat of global recession, but perhaps more critically for the world’s poor, the possibility of spiraling inflation in the prices of basic commodities and food, in particular. As Mr. Wolfensohn points out, the world’s economies, while becoming more interconnected, thanks to tremendous strides in telecommunications technology, are also fragmenting and growing further apart. In a worldwide economic slowdown, the laggards regrettably tend to fall further behind.

In Mr. Wolfensohn’s view, the dichotomy between the North and South divide and the East and West twain has given way to four economic groupings that move at distinct velocities. These are the Tier 1 steady-growing high-income economies, Tier 2 rapid-growing middle-income economies, Tier 3 erratic-growing emergent economies, and, lastly, the Tier 4 stagnant-growth low-income economies. In highlighting these distinctions, Mr. Wolfensohn has emphasized the interdependence among these four circles and the need for concerted action on the part of global economic leaders to uplift the conditions of the poor in Tier 3 and 4 countries.

But the assistance programs of the developed world will have very little impact if these are not complemented by genuine efforts on the part of host countries to achieve sustainable growth and development. And, speaking from the viewpoint of one who dwells in a Tier 3 volatile economy that has the patent means and resources to climb to Tier 2 status but somehow remains held back: It is not only policy that matters—governance is equally important if we are to achieve sustained development. In fact, I would say that there is really no choice but for the two to go hand in hand. Good governance places the country in a position to adopt the best economic and social policies that will promote genuine development, and poor governance ultimately leads to poor policies and poor spending choices that limit the avenues for the poor to improve themselves.

One of the functions that Mr. Wolfensohn would assign to the ASEAN economies, such as the Philippines, is to light the path by which the impoverished countries in sub-Saharan Africa can rise above their vicious cycle of economic stagnation, widespread hunger, social unrest, internecine bloody conflicts, and environmental degradation. Our intended role is to offer hope by being shining examples of the success that can be achieved in terms of economic progress and social stability.

While not shrinking from this all-important role, I am afraid that the Philippines at this point is not yet ready to be one of the beacons of hope for the destitute economies of the world. I fear that we would set a less-than-ideal example for them to follow. For unless this country comes together to finally slay the hydra of government corruption that has tormented the Philippines’ political economy for so long, then I fear that the recent economic progress that we have seen will not be sustained.

It is not merely a four-speed world. National economies, if steered improperly, can swerve off the road and into the ditch of stagnant growth. What matters just as well is who is in the driver’s seat. Corrupt government officials, because of conflicting self-interests, will take the wrong turns and select the wrong paths at the expense of the national interest. For instance, they will create state projects and programs that serve to funnel tax money into their pockets, with little or no regard for these projects’ ultimate benefits to the national welfare or the reduction of poverty.

Civil society and private-sector groups, such as the Makati Business Club, have been criticized for meddling with government affairs. We businesspersons face an ethical and professional dilemma: When the economy is humming along and business prospects appear bright, do we speak out, or stay silent in the name of stability and continued “progress” when confronted with credible testimonies of widespread and outrageous corruption? But it only appears a dilemma when one looks at the situation from a short-term point of view. Over the longer run, extensive corruption will put the brakes on the economy’s development and progress. In the long run, it is a culture of integrity, truth, and accountability that will serve us well. This is why, if I may use Mr. Wolfensohn’s words, we must all “give a damn!”

Corruption at the highest levels of government poses a major obstruction to the national economy’s development. Corruption tends to subvert and destroy the very institutions that would sustain economic progress. For full economic development to take place, a country must first develop the economic, social, political and legal institutions by which the government and society in general will interact and bring about this momentous change. Institution-building can take a generation or more. But what takes a generation to build, corruption can tear down very quickly. Corruption creates economic distortions and inefficiencies by undermining the government’s processes of project evaluation and approvals and diverting public investments towards high-ticket uneconomic projects with huge kickbacks, by favoring the well-connected select few, by raising the costs of doing business, and by raising the risk of broken contractual agreements.

Third-speed countries such as the Philippines can thus fall back into fourth-speed stagnation if we do not take care to cleanse our political systems of widespread corruption. In our quest to do so, civil society and the business sector cannot be rightly accused of being “backseat drivers.” Rather, we function as the car’s navigator who sits beside the driver, befitting our crucial role as determinants of the optimum route to take.

Once a country embarks on its journey towards economic development and higher-speed growth, political stability becomes a governing requisite. In order to achieve this political stability, the nation’s leaders must not only be uncorrupt but must also appear to be so for all people to see. Only by this means will national projects be successfully undertaken that are truly aimed at uplifting the poor and channeling the gains of economic progress to them. Hope for a brighter economic future for the lower rungs can only start from the top.

About the Speaker
RAMON R. DEL ROSARIO JR.

Mr. del Rosario is the president and CEO of Philippine Investment Management (PHINMA) Inc. In addition to serving as MBC chairman, he is also chairman of Philippine Business for Education (PBEd), an organization formed by leading members of the business community who are advocating reforms in the educational system, and a steering committee member of the PinoyME consortium, which aims to reduce poverty through microfinance and microenterprise projects. He was the secretary of finance from 1992 to 1993 during the Ramos Administration.