Closing the Gates to Trade?

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Build factories that will process raw materials into final goods - production that will only suffice local demand to conserve our resources. Prohibit foreign investment and let the locals manage the market. Eliminate the concept of working overseas by producing jobs domestically that will cater to all available professions. Have more than one power generating firm to lower the cost of electricity. Empower the farmers, through this we can strengthen the base of our economy which is agriculture. Focus on providing for the people not exporting. This will be the key to development - National Industrialization.

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Last meeting`s discussion keeps on reverberating in my head so I decided to make a blog out of it. As a soon to be economist, I can't help but to rebut some ideas that were raised, grounding my counter discussion on the field of economics. Although there were some points which are partly true, I find the others inconsiderate of some basic international trade principles.

International trading expands the local economy. In a way, trading across boarders localizes the global market for it makes the product of other countries accessible to a local market. Globalization bridge different local markets and creates a bigger competitive market - by competitive we mean a market with many players, goods at low cost, and more efficient transactions. A local economy is being exposed to a lot of options making it easier for it to make rational choices. An economy can now import raw materials

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- which it does not have locally - to be used in its production of goods. Also, it can export its main products, supplying the demand not only of its own market but of different countries, to be able to gain in the trading.

With the concept of international trade comes David Ricardo`s idea of comparative advantage. An economy should be able to specialize in the production of a certain good or in one industry. Consider that everything is being done in a single small market (the Philippines for example), it will be too costly to run several small entities that will produce different goods. Inputs will be expensive and operational expenses will be high (Concept of Economies of Scale). Thus, goods will be of higher prices relative to goods produced outside the country – making the local market lose in the international market and the local consumers suffer from high prices.

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On the issue of resource consumption, indeed, economies that export raw materials usually and historically belong to third world countries. Yet, the solution to this problem is not totally banning the use of these resources but to conserve and regulate. At the core of this dilemma, it is the law and political will of the government that should be reviewed. The policies covering use of our natural resources are outdated. There is a little concern over environmental issues and depreciation of these resources overtime. Also, weak monitoring and implementation current policies gives an avenue to abused issued rights to extract natural resources. Yes, there is a problem with the way we deal with our natural resources but it all boils down to outdated laws and weak monitoring.

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On the issue of investments, should we prohibit foreign investments to give way to local investors? I think we should not. Foreign investors have enough capital- sufficient to create an industry that hasa significant effect to the economy - which the locals do not have. They bring inflows to the local economy. It is not that we discourage small scale industries of local investors. It is just that foreign investors are also sure and stable source of economic development.

Our problem on job mismatch might be resolved by building all industries that will cater to all the professions but as pointed earlier in the blog, such solution is inefficient. We need to treat the root cause of the problem and all the solutions that we should propose should be for greater efficiency. The best way to solve this problem of underemployment is to develop a system of education that can produce talents that are internationally competitive. There is a bigger market for professionals outside the country and we should make the most out of it. We need to improve the quality of education in the country in such a way that our professionals will be recognized in all parts of the globe. Make education accessible to all Filipinos and make public education at par with international standards. Also, encouraging foreign investors to stay and have their operations here in the country will create jobs that offer competitive compensation and benefits. This will give an option to local talents to stay in the country.

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On power generation, having multiple power generating entities is not a good idea. The industry of electricity is considered as a natural monopoly, which means it is better off monopolized. Costs, operational and opportunity, increase as entities of such industry exceeds one. Since it is a monopoly and monopolists aim for profit (price set far higher that marginal costs to gain significant profit), price of electricity is really expected to be high. The best way to counter the monopolistic nature of the industry is through government intervention. The government can give state subsidy or set a price ceiling to the power generating firm, a price just right for the consumers and for firm to gain some profit and continue its operations.

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On the issue in agriculture, it is not just right but proper to invest in the industry. Indeed, agriculture is the base of any economy. It is the first step towards achieving industrialization. We cannot move forward if the foundation of the economy still lags behind. We need genuine land reform and solid support of the government for the farmers. Technologies that will further the status quo of the industry – more efficient harvesting and production of food – will be of great help to achieve this goal thus, the government should invest in research and development.

This blog is not enough to have the discussion in detail but we hope that we have made our point clear. With all of these, Globalization is not totally bad after all instead, it is an opportunity for our country to achieve development. What the country needs right now is a government that is clean, has a strong political will, and genuine in realizing it goals for the welfare of its people. More importantly, we need a new generation that is ready to be different, to start a change, and to go against the current of backward thinking and oppressive selfishness.
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