Petropolitik, Sapian and China 3

Petropolitik, Sapian and China - Third in a Continuing Series

Sapian National High School (SNHS) is perched over a ridge terminating to a hill called Garrison. We were told that there was a Japanese garrison on the hill’s summit presiding on a mile long Dalit ambush area. Strategically located, it could literally shut down Poblacion from westerly traffic. In the mid-80s, Garrison peacefully ruled over the northwest side of Poblacion. It gave a good view of Sapian Bay and beyond it, Sibuyan Sea. On a nice weather, silhouette of Sibuyan Island could be seen on a horizon that stretches to approximately 180 degrees.

For SNHS students, that was a sprawling view of the world. Exhilarating but still tangible. It should have been enough world-view for us in high school. But our economics teacher, now Professor Norma J. Flores, insisted that there’s more world to see. Our Marcos-type classrooms have corrugated steel roof riddled with holes, both from corrosion and rocks hurled by students who want to leave their mark. On a rainy day, we would joke that classes are suspended because the chalk is wet. On sunny school days, streaks of light from the holes move about the floor as the sun progressed through the day. As our teachers belabored to school us, the streaks of sunlight, slowly moving on the roughly finished pavement and through rough, dismembered chairs, have been good digression. Sometimes, they would even tell exactly how soon the next change period would be. But Miss Flores, on one warm late morning, showed us two streaks of light into world-views hitherto limited as the horizon seen from Garrison. She explained to us the concepts of geopolitics and laissez-faire. Then, she talked about agrarian reform, money velocity, inflation rate, taxation as a regulating economic mechanism, and so on. As we delve into China’s unquenchable demand for petroleum, its transformation to the league of G-8 nations, and its implications for Sapian, the economic principles that Ms. Flores taught us three decades ago are still the same.

In fairness to China, we in Sapian also benefit from its abbreviated economic transformation. It brought us cheaper goods and commodities. A decade ago, many products would have been expensive to acquire and difficult to own. But because China produces them strike-free, with depressed wages, less stringent environmental regulations, government subsidies, centrally planned production system, input distribution network, and in such very large quantities, it is now easier to acquire them in Sapian. Nike made in the U.S. could have been prohibitive than the Nike made in China today, considering that raw materials and manufacturing process are essentially the same. The lowered cost of consumer goods allowed us to enjoy conveniences we do not have today if commodities are still being manufactured in Western nations. Take the example of cheaper electronic components. Cheap ICs, memory chips and flash memories allowed manufacture of cheaper cell phones, among hundreds of electronic goods and consumer durables. My former employer, a Sunnyvale-based Advanced Micro Devices, Inc., invested billions of dollars for a wafer fab in China. A classmate in Manila who manufactures household plastic products complained that Chinese imports are killing their family company. Better quality products are being imported into the Philippines from China with less than half the price if they are made in the Philippines. In fact, their raw materials, polyethylene (PE) and polypropelene (PP), are imported from napha-crackers in China. Such that, after costs for import duties, middlemen and transport, plastic products manufactured in Manila cannot stand a chance against those from China. On the plus side, this situation benefits consumers in Sapian. But the minus on domestic industries will be taken up on a future post.

China, even with its vast capital, cheap labor, controlled industrial system, and subsidized industries, would not be where it is today without laissez-faire. Ms. Flores told us that it is French concept by an early English economist, Adam Smith, that means “produce what you want, when you want, and sell where you want, at a price you want.”

In one holistic worldview, and a little dose of contemporary history, there was a geopolitical movement soon after the downfall of the former Soviet Union to disarm China of its age-old antagonism against the West, enlist its stable and centrally-planned economy as the factory of the world, harness it cheap and educated labor force, and enter its 1.3 billion people market. After the Cold War, it was learned that when you starve an enemy nation, it gets more ruthless to its citizens and connive more against you. But if you trade more with them, laissez-faire economic forces would materially reward their participation, creating a new middle class, and hasten economic liberalization that, in the end, will democratize key socio-political institutions. A facility to do this was the decades-old General Agreement on Tariffs and Trade (GATT), an economic club meant to remove trade barriers (i.e., tariffs, import taxes) among Western nations and their junior leagues. By mid-1990s, it was expanded into a new and improved GATT/World Trade Organization (GATT/WTO).

It was designed not only to counterbalance the growing influence of European Community, but also to enlist new nations, especially China. I did not have the opportunity to tell Miss Flores how her economics effortlessly replayed on my mind as I sat few paces from former presidents Cory Aquino and Fidel Ramos in Malacanang’s State Dining Room for the frequent Cabinet deliberations on GATT/WTO and petroleum deregulation.