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Why boards of private businesses must prioritize cybersecurity

Imagine getting a frantic call from your head of IT. Your accounting personnel have reported that they have not been able to access your accounting system, and that they have been working on the issue for several days now. You have been the target of a cyberattack, resulting in the loss of many records.

This situation is not uncommon. Over the past year, we have seen a significant rise in similar attacks that have been targeting private, and generally smaller organizations. These attacks, while less sophisticated than the well-publicized bank heists and the government-backed intrusions into key infrastructure, make up a large portion of the cybersecurity issues that threaten organizations. They need to be managed.

INCREASINGLY MOBILE WORKFORCE
The current pandemic has changed the way people work almost literally overnight. Businesses temporarily closed their doors, and in-office employees instantly became a virtual workforce. This change has boosted online interaction, opening up companies to increased risk. In some cases, employees have taken matters into their own hands because of the perceived inflexibility of in-house IT organizations. Many have turned to cloud-based, usually consumer-grade digital solutions that they have grown accustomed to in their personal lives. In-place cybersecurity controls and protocols are being tested like never before, while threat actors are exploiting this new work environment and intensifying their activities.

Dealing with cybersecurity in smaller organizations is oftentimes not easy. There usually isn’t a technical solution that would fix all issues and keep attackers out. More often than not, the solution is a painful process of educating users of what and what not to do, or upgrading an old system so that it can be appropriately supported by current vendors. However, these protocols and reminders are usually things that most board members and employees alike have grown tired of hearing about.

A recent EY survey (conducted prior to the pandemic) of over 1,100 private company leaders, revealed that only 17% of those polled had made or planned on making significant investments in technology to reduce risk, including cyber risks. Additionally, 50% feared the reputational or operational disruptions caused by cyberattacks even as they began to invest in digital solutions. This is further exacerbated by the mindset of many smaller private organizations that do not pay particular attention to cybersecurity concerns until it’s too late.

Since embedding a culture of cybersecurity in an organization needs to flow from the top, boards need to be more vigilant with their oversight of cybersecurity risks in today’s new work reality. They should consider the following questions:

• With increased remote access, how is the company’s overall cybersecurity posture being optimized, and is the company evaluating whether additional technology and operations are secure?

• Has management reviewed and tested all security features (e.g., point-to-point encryption, data protection) associated with the company’s videoconferencing tools, including patching, and are vulnerabilities mitigated if patches are not available?

• What changes have been made to security monitoring procedures given the increase in remote workers? Are changes to user accounts with administrative or privileged access being more vigorously monitored?

• Are security personnel effective while working remotely? What physical (in-person) security requirements are not being performed?

• What are the contingency plans if key IT or security personnel require time off?

• How is management maintaining an effective incident response and recovery function considering the need for additional remote access technology and operations?

• Are there additional needs for software, technology, personnel or other resources to augment existing controls?

• Are system updates and patching current?

• Are employees reminded of security awareness protocols because of the increased risk of COVID-19 phishing e-mails or similar tactics?

• Is management communicating with critical suppliers to determine if they are evaluating additional steps to assess and protect their networks?

• Are incremental insider threats being evaluated, including revising print-from-home capabilities?

• What security risks might there be that are related to employee layoffs and furloughs? Are the human resources and IT security teams aligned so that user-access privileges are immediately removed?

• How is the IT security function affected if furloughs or budget cuts are executed or contemplated?

• Should the company’s security personnel review or update board members and C-suite home networks for appropriate security?

Cybersecurity in this unprecedented new work environment is an enterprise-wide concern that critically requires board mandate, support and oversight. The board needs to set the tone and the urgency of cybersecurity enhancements and preparation. As widespread remote working and increased online interactions become the new business “normal,” companies will need to reimagine and reinvent their business models.

A company’s ability to adjust and strengthen its cyber resiliency in response to the dynamics of this health crisis will position the entire organization for a more secure future as new and varied challenges arise.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.

 

Carlo Kristle G. Dimarucut is a Consulting Partner of SGV & Co.

Lawmakers start debates on Charter change

PHILIPPINE lawmakers will start debating in plenary on Monday proposed changes to economic provisions of a three-decade-old Constitution supposedly to attract foreign investment and help the economy recover amid a coronavirus pandemic.

“This is scheduled for sponsorship and debates tomorrow,” Party-list Rep. Alfredo A. Garbin, Jr., who heads the House of Representatives committee on constitutional amendments, said in a mobile phone message on Sunday.

The House body this month adopted a resolution allowing Congress to lift restrictive economic provisions of the 1987 Constitution.

Lawmakers agreed to insert the phrase “unless otherwise provided by law” in parts of the Charter that limit foreign ownership in certain Philippine industries, according to a statement posted on the House website.

This will allow Congress to pass a law later relaxing ownership limits.

Lawmakers agreed not to touch a section of the basic law that bars foreigners from owning land, the House said.

The changes will be made under three articles on the national patrimony and economy; education, science and technology; and general provisions, for a total of seven changes.

The voting coincided with the 34th anniversary of the ratification of the 1987 Constitution, which Mr. Garbin described as a “living Constitution” that is “far from being perfect.”

Mr. Garbin said congressmen would avoid touching any political clauses of the Charter that critics fear they might use to favor incumbent officials before the general elections next year.

Only the provisions on foreign equity would be revised, he said

The six-year term of President Rodrigo R. Duterte, who is barred by law from running for reelection, will end in 2022.

Plenary debates on constitutional changes had been postponed several times. Mr. Garbin earlier said he expects the debates to breeze through the House.

Speaker Lord Allan Q. Velasco, who authored the resolution, wants to liberalize the economic restrictions in the Charter and let Congress enact laws that will free up the economy to foreign investors.

Mr. Velasco said foreign investment plays a crucial role in the Philippine economy by supporting domestic jobs and creating physical and knowledge capital across a range of industries.

The Speaker last week said his resolution was backed by all major political parties and power blocs in the House.

Lawmakers who voted no said Charter change was “ill-timed” and would affect Filipino businesses.

Party-list Rep. Carlos Isagani T. Zarate has noted that if Charter change starts now, foreigners would gobble up what is left in the country’s liberalized economy.

But the House said lifting foreign investment restrictions could improve foreign direct investment inflows (FDI), particularly in restricted sectors.

Easing the restrictions could lead to an additional average annual FDI of P330 billion pesos ($6.8 billion) and generate 6.6 million jobs over 10 years, it added, citing Bicol Rep. Jose Maria Clemente S. Salceda.

Party-list Rep. Michael Edgar Y. Aglipay, one of the House leaders involved in the preparation for “Cha-cha” hearings, earlier said lawmakers would not try to change political provisions of the Constitution.

He said they wanted to form a constituent assembly by the end of the month. A plebiscite for proposed changes could coincide with the presidential elections in May 2022, he added.

Opposition senators last month thumbed down the fresh Charter change push at the House, saying it was likely to fail and waste lawmakers’ time.

Senator Franklin M. Drilon said Charter change has a zero chance of success in any administration that is already in the home stretch. President Rodrigo R. Duterte’s six-year term will end next year. He is barred by law from running for reelection.

Senator Francis N. Pangilinan, who heads the committee on constitutional amendments, had also questioned the timing of the Charter change push.

Harry L. Roque, Mr. Duterte’s spokesman, has said Charter change is the last thing on the President’s mind, adding that Mr. Duterte would rather focus on battling the coronavirus pandemic.

Senate President Vicente C. Sotto III earlier said Charter amendments would have a better chance of hurdling the chamber if these are limited to changing the party-list system and easing economic restrictions. — G.M. Cortez

16 of 18 more people with new variant got well, DoH says

By Vann Marlo M. Villegas, Reporter

PHILIPPINE health authorities have detected 18 more people infected with a more contagious coronavirus variant, 16 of whom had since recovered, according to the Department of Health (DoH).

This brought the total cases involving a variant first detected in the United Kingdom to 62, DoH said in a statement on Sunday.

Thirteen of the 18 were returning overseas Filipinos who arrived from Jan. 3 to 27. “All of these cases are now tagged as recovered and the DoH is currently investigating compliance with isolation protocols and the contact-tracing done for these returning overseas Filipinos,” it added, referring to the migrant workers.

Three more patients that had also recovered came from the Cordillera Administrative Region, two of whom were 12-year-old boys connected to the cluster in Samoki, Bontoc in Mountain Province. The other was a 41-year-old woman connected to the cluster in La Trinidad, Benguet.

Close contacts of the three had completed quarantine, the agency said. DoH was still verifying where the two other cases came from.

Meanwhile, DoH said three samples from Central Visayas were found to have both the two coronavirus mutations — N501Y and E484K — bringing the total samples with the mutations to 34.

They will submit their findings on the new mutations to the World Health Organization and Global Initiative on Sharing All Influenza Data to help track and study the genome changes in the virus.

It called on local governments where the mutated variant had been detected to implement preventive, detection, isolation and treatment measures.

DoH on Friday disclosed the detection of mutations of “potential clinical significance” in samples from Central Visayas. It said available data were insufficient to conclude that the mutations found in the local samples would have “significant public health implications.”

It noted that viruses normally mutate as they reproduce, but not all mutations and variants “necessarily cause negative effects.”

DoH reported 1,888 coronavirus infections on Sunday, bringing the total to 561,169. The death toll rose by 20 to 12,088, while recoveries increased by 9,737 to 522,843, it said in a bulletin.

There were 26,238 active cases, 87.3% of which were mild, 6.1% did not show symptoms, 3% were critical, 2.8% were severe and 0.91% were moderate.

The Department of Health said seven duplicates had been removed from the tally, while 12 recovered cases were reclassified as deaths. Two laboratories failed to submit their data on Feb. 20.

More than eight million Filipinos have been tested for the coronavirus as of Feb. 19, according to DoH’s tracker website.

The coronavirus has sickened more than 111.7 million and killed almost 2.5 million people worldwide, according to the Worldometers website, citing various sources including data from the World Health Organization (WHO).

More than 86.8 million people have recovered, it said.

Senator files bill that seeks to develop sea east of Philippines

A SENATOR has filed a bill that seeks to develop and explore Benham Rise, also known as the Philippine Rise, for natural resources.

Senator Maria Imelda Josefa “Imee” R. Marcos cited the need for an “integrated approach” in developing the waters east of northern Philippines.

The 24-million-hectare undersea feature contains untapped natural gas and heavy metals, she said in Senate Bill 2039, citing the University of the Philippines Institute of Maritime Affairs and Law of the Sea.

The area is also rich in manganese deposits used in steel production and in the ingredients of fertilizer and ceramics, she added.

The measure will create a Philippine Rise Resource Development Authority that will enforce the country’s rights over the area, including research and exploration.

The agency will also facilitate the participation of all sectors in developing the extinct volcanic ridge in the Philippine Sea that is about 250 kilometers east of the Dinapigue, Isabela province.

The plateau had not been included in the Philippine territory even if it is near the archipelago. The Philippines in 2009 filed a partial claim with the United Nations Commission on the Limits of the Continental Shelf for Benham Rise, which was approved three years later.

President Rodrigo R. Duterte in 2017 issued an executive order renaming Benham Rise to Philippine Rise. — Vann Marlo M. Villegas

Nationwide round-up (02/21/21)

Employers group doubts approval of P100 daily wage hike

THE Employers Confederation of the Philippines (ECOP) said the emergency P100 daily salary increase petitioned by some labor groups is unlikely to be granted by the wage board as businesses continue to suffer from the economic onslaught brought by the coronavirus disease 2019 (COVID-19) crisis. In a phone interview with BusinessWorld, ECOP President Sergio R. Ortiz-Luis, Jr. said, “We feel for them (workers). We understand that prices of goods are getting higher for consumers.” However, he said based on past wage hike petitions filed by labor groups, “Hindi ito makakalusot (I don’t think this will get through)… Under the circumstances, there is no chance for that.” Defend Jobs Philippines announced last week that it will file a petition for an emergency across-the-board wage relief of P100 before the National Wages and Productivity Commission on Monday, February 22. The network consisting of unions and other labor groups said the increase is necessary for millions of workers to cope with the impact of the pandemic and afford basic goods. “Bigger companies can cover that but you have to remember 90% of businesses are small and medium enterprises. They could not handle that,” Mr. Ortiz-Luis, Jr. said. Labor Secretary Silvestre H. Bello III previously said granting minimum wage hike petitions while the country is still reeling from the COVID-19 crisis may not be feasible for businesses. He noted that a number of establishments have already closed shop. As an alternative assistance to both employees and establishments, the Department of Labor and Employment last week said it submitted a proposal for a wage subsidy to the Department of Budget and Management. Around P62 billion to P188 billion is needed to fund the planned three-month subsidy program. Mr. Ortiz-Luis, Jr. said ECOP supports this proposal, adding it will help businesses cut costs and still keep their employees. — Gillian M. Cortez

Almost 450,000 overseas workers back to their hometowns

DFA

NEARLY 450,000 overseas Filipino workers (OFWs) affected by the global coronavirus pandemic have been assisted back to their home provinces, the Labor department reported on Sunday. As of February 21, the Department of Labor and Employment (DoLE) said it has helped 447,076 OFWs return to their hometowns. The department began its program on helping OFWs go back to their home provinces in May last year. As of the first week of February this year, DoLE and the Department of Foreign Affairs have assisted in the repatriation of about 416,000 land- and sea-based overseas workers. — Gillian M. Cortez

Regional Updates (02/21/21)

Parts of southern PHL flooded as storm Auring moves north

PARTS of the southern island of Mindanao were flooded Sunday after tropical storm Auring, with designated international name Dujuan, dumped rains as it moves slowly in a northwest direction. Local governments and regional teams of the Office of Civil Defense posted updates and photos on their social media pages on the situation on the ground. There were no immediate reports of casualties or an assessment of infrastructure damage as of Sunday afternoon. Surigao del Sur in the Caraga Region, covering the eastern side of Mindanao, was one of the most affected areas with its capital city Tandag and several other towns flooded at up to waist-high water level. In the central islands of the Visayas, some residents were stranded after authorities ordered a “no sail policy” due to strong winds and high waves. In the northern islands of Luzon, local authorities have put emergency response teams on full alert as some areas were already under tropical wind signal number one. These include: Sorsogon, Masbate, Albay, parts of Camariñes Sur, and Catanduanes. Camariñes Sur Governor Miguel Luis R. Villafuerte has ordered preemptive evacuation in all areas at risk of flooding and landslides. “Ensure that by 5:00 p.m. of February 21, all families that are living in high-risk areas are already evacuated,” he said in a memorandum on Sunday morning, which included reminders on the observance of health protocols in evacuation centers. As of 1 p.m., the center of storm Auring was about 320 kilometers (km) east of Hinatuan, Surigao del Sur and moving northwest at 15 km per hour, according to weather bureau PAGASA. The national weather agency forecasts Auring to weaken into a tropical depression before making landfall on Sunday evening or Monday morning over the Dinagat Islands or Eastern Samar. “After landfall, Auring is forecast to weaken considerably due to significant terrain interaction and the increasing wind shear, leading to deterioration into a remnant low within 48 hours, possibly sooner,” the PAGASA said in its 2 p.m. bulletin. Meanwhile, the national government said around P1.2 billion standby funds have been allotted for relief to affected areas. “We are closely monitoring Tropical Storm ‘Auring’ and the communities on its track,” Presidential Spokesman Herminio “Harry” L. Roque said in a statement. “The Department of Social Welfare and Development has relief stockpiles and standby funds amounting to P1,204,692,327.12 in its Central Office, Field Offices and National Resource Operations Center,” he said. Mr. Roque added that the Health department has allotted P19.5 million worth of medicines, medical supplies, and health kits. — Vann Marlo M. Villegas

Samal raring and ready to reopen tourism

DAVAODELNORTE.GOV.PH

SAMAL island, the most well-known beach destination in the Davao Region, is eager to reopen its tourism sector and welcome the national government’s plan to declare a uniform easing of restrictions nationwide by March 1. Mayor Al David T. Uy said they have been appealing since the start of the year to the national task force on coronavirus response to place the Island Garden City of Samal under the most relaxed level known as modified general community quarantine (MGCQ). “Since first week of January 2021, we already sent a Letter of Appeal addressed to IATF (Inter-Agency Task Force) and we are really appealing to be reverted to MGCQ considering that we totally managed the COVID situation here in Samal,” said Mr. Uy in an interview last week. City Health Office data show the island has recorded 187 coronavirus disease 2019 (COVID-19) as of February 20, with the latest three cases confirmed on Feb. 11. Majority have recovered while six have died as of latest available data. The mayor said tourism accounts for up to 40% of Samal’s income, and the almost year-long closure of the industry has severely affected resort owners and workers as well as the local government’s tax collection. “Tourism is a rising industry in Samal and we need the income,” he said, adding that revenue from tourism would contribute to the city’s ability to allocated local funds for COVID-19 vaccines. The city, along with the rest of Davao del Norte province to which it belongs, is under the stricter GCQ level where leisure and tourism activities are still prohibited. — Maya M. Padillo

Ayala group sends aid to residents after increased Taal Volcano activities last week

RESIDENTS affected by Taal volcano’s increased seismic activity last week were given assistance by the Ayala group through the Ayala Foundation. In a statement on Friday, the company said it distributed food and non-food items, such as toys and face masks, to families in three evacuation centers in Talisay, Batangas on February 17 and 18. Government disaster management teams implemented a forced preemptive evacuation after the volcano, which last erupted in January 2020, recorded increased activities last week. The Ayala group said at least 5,000 facemasks were also distributed to the evacuation centers. “As Taal’s seismic activity continues, the Ayala group regularly coordinates with the office of Batangas Governor Hermilando Mandanas, as well as with the Provincial Disaster Risk Reduction and Management Office and the Association of Barangay Captains,” the company said. Manila Water Foundation also provided 500 units of five-gallon water bottles. Ayala’s telecommunications firm Globe Telecom, meanwhile, put up some of its Globe Jeepney WiFi called Dyip Sagip stations at the evacuation centers. Aside from internet connection, the stations also has provisions for mobile phone charging and free calls. The company said it has spent some P11.4 million to provide assistance to 4,000 families in affected communities since last year’s eruption. AC Motors also gave away 10 Kia 2500 Vans, which are being used by the communities for assistance and other public service programs. — Keren Concepcion G. Valmonte

What the economy needs is oxygen

No, the Philippine economy doesn’t need oxygen because of a COVID-induced pneumonia, although the metaphor could still apply given the severe economic recession caused by the pandemic.

The Philippines needs oxygen because it’s suffocating from the dominance of monopolies and oligopolies in many industries. It is the most concentrated economy in Asia. (See the graph.)

In contrast, China is the least concentrated which accounts for the dynamism of its economy. In The Competitive Advantage of Nations, Michael Porter made a similar observation about Japan in the 1990s. Intense intra-domestic rivalry caused innovation and made Japan highly competitive.

What are the effects of this concentration on our economy and economic growth?

Artificially high prices, poor services, lack of innovation, and lower productivity. More importantly, it also results in low private foreign and local investment spending.

Since the dominance of monopolies is also strong in strategic industries, i.e., industries whose output is consumed by other industries, the effect is lower investment spending. In 2008, Alexander Bocchi, an Italian economist did a study for the World Bank on why investment spending in the Philippines continues to be low and he came up with this answer.

“The capital intensive private sector expects low returns and does not want to expand investment at the economy’s fast pace. Marginal product of capital (MPK) is low for two reasons: a.) the public sector does not invest enough to provide incentives for private investment (as the return to private investment depends on both quantity and quality of public capital spending), and, b.) inputs are expensive because of elite capture in the traditional sectors of the economy (agriculture, sea and air transport, power, cement, mining, banking, etc.) which are critical inputs for both upstream and downstream sectors.”

He also said that this is the reason why growth is happening mostly in non-capital intensive industries, such as BPOs (business process outsourcing).

This is also why our institutions are weak, an observation echoed by the former head of the Philippine Institute of Development Studies, Professor Josef Yap: “Weak institutions and an oligarchic private sector are two symptoms of the same coin. A gridlock has evolved wherein stronger institutions are required to loosen the grip of the oligarchs, but at the same time the grip of oligarchs has to be reduced to strengthen institutions.”

In my last column, “Institutional Failures and Economic Growth,” I also traced the cause of our institutional failures to our political economy characterized by the dominance of monopolies.

Another effect of oligarchic dominance is the absence of “animal spirits” in the economy. Animal spirits represent the entrepreneurial vigor that help drive investment confidence in the economy. It is what drives entrepreneurs to innovate and disrupt existing industries.

This explains why there has been no tech “unicorn” in the Philippines. Unicorns are startup companies which are valued at $1 billion or more. There’s Grab (Singapore), Gojek (Indonesia), Bukalapak (Indonesia), Traveloka (Indonesia), VNG (Vietnam), SEA (Singapore), and Lazada (Singapore-based but owned by Alibaba) but none in the Philippines. SEA, the company behind Shopee, alone is valued at $55 billion.

The startup investment climate in the Philippines is pathetic. Most VC (venture capital) funds based in the Philippines invest outside of the Philippines.

Why are minimum wages high in the Philippines? My theory is that the monopolists allow them and don’t resist them if proposed by populist politicians and labor groups. The reason is that they can afford to part with some of their monopoly or superprofits to buy some industrial peace. Increasing minimum wages also serves another purpose: it prevents any insurgent from using a low-cost strategy to undermine its monopoly position. (For example, companies like Walmart used a low-cost strategy to disrupt the existing players. The Japanese car companies did the same in the car industry when they first entered the US. Now, it’s the Chinese doing the low-cost strategy disruption. It’s also happening here in the Philippines and not surprisingly, the Department of Trade and Industry in siding with the monopolists, imposed a safeguard duty against imported vehicles to protect the existing players. Consequently, the introduction of transport innovation, like electric vehicles, will suffer.)

Our high minimum wages and the dominance of monopolies in the economy are why the country hasn’t industrialized. MSMEs (micro-, small-, and medium-sized enterprises) in low-cost light manufacturing are constrained by the unrealistic labor regulations on one hand and the monopolies on the other, which impose high costs and poor service on their factory and service inputs.

Therefore, our surplus labor has no choice but to look for jobs abroad, producing stuff that we import.

Or they continue to eke out a marginal livelihood in atomized, fragmented agricultural lands. Growth happens when surplus labor moves from low productivity agriculture to high productivity manufacturing, but that is prevented from happening.

Instead of innovating, monopolies or dominant players buyout emerging competition or pay out a large percentage of their profits in dividends or stock buybacks instead of investing. What is to be done?

We need to remove the foreign ownership restrictions in the Constitution, and let foreign companies provide competition, especially in the strategic capital-intensive industries of telecommunications and transportation. The proposal of Speaker Lord Allan Velasco to introduce the term “unless otherwise provided by law” on the restrictive provisions is only a second-best solution because specific legislation must still be enacted.

The first best solution is to remove those restrictions by default and introduce the term “unless otherwise provided by law.” In other words, the default provision is liberalization, but Congress can pass laws to restrict investment in specific areas as the situation may warrant.

Yes, Charter Change to remove these foreign ownership restrictions is the mother of all reforms. The dominance of monopolies is the single biggest binding constraint to faster economic growth.

Short of Constitutional Change to remove the foreign ownership restrictions, the Public Service Act (PSA) must be passed. The PSA will remove telecommunications and transport as “public utilities” where foreign control is barred.

However, in defense of the monopolists, critics of Charter Change and the PSA are using all sorts of fake arguments and scare tactics to argue for a delay or scrapping of these major initiatives to introduce more competition to the economy and raise foreign direct investment.

One argument is that the Chinese will use the more friendly investment environment made possible by removing these foreign restrictions to take over the Philippine economy. On the contrary, removing these restrictions will enable the Philippine economy to diversify sources of foreign investment, for example, investment from Arab to ASEAN investors, and improve the quality of foreign investment, rather than relying on POGOs (Philippine Offshore Gaming Operators) to generate jobs and employment. Increased foreign investment will also lead to improved transport and telecommunications infrastructure, which will strengthen the country’s national security posture.

The other argument is that it’s not timely to do so. To these critics, there is never a good time. These Constitutional restrictions have been there since 1935 and accounts for why the Philippines keeps falling behind in comparison with its ASEAN neighbors. These critics want to kick the can farther down the road, but of course, their real motive is to keep the status quo intact where the economy continues to be controlled by monopolists.

Ironically, some so-called progressives (who, by definition, should be anti-monopolists) are the ones calling for delays in removing the foreign ownership restrictions and introducing more competition to the economy. In the Philippines, in a bit of dialectical irony, the Left and the Right have a unity and identity of opposites. The Leftist and Rightist ideologies have become one and the same: protecting the oligarchy from competition.

The real reason why investment spending is low in the Philippines isn’t the lack of infrastructure, or wrong tax incentives, or the weak rule of law (although those are the consequences when the economy is dominated by monopolists). It is low because investors see that there are legal and political hurdles to providing competition as Alexander Bocchi observed. What the economy needs is oxygen or freedom from the suffocation of monopolies, which are protected by these Constitutional restrictions and other hurdles to competition.

Oh, how I wish we had a Teddy Roosevelt. US President Teddy Roosevelt ushered in the Progressive Era in the United States in the late 19th century. He used the Sherman Antitrust Act to dismantle, regulate, or break up trusts, or association of monopolists. He took on the feared railroad trusts and won.

However, let’s go back to reality. More than ever, the Philippine economy needs oxygen. It needs to open up the economy to more foreign investments, which will increase investment spending, generate jobs, lower prices, improve service, foster innovation, restore the animal spirits of the economy, and help strengthen our institutions.

 

Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.

idea.introspectiv@gmail.com

www.idea.org.ph

Fear and animal spirits

The Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF) has proposed the further easing of quarantine restrictions. From GCQ (general community quarantine), the IATF wants the country to shift to MGCQ (modified general community quarantine).

But let’s have a reality check. Do ordinary people know what the features of GCQ and MGCQ or for that matter, ECQ (enhanced community quarantine) and MECQ (modified enhanced community quarantine) are? Because these abbreviations confuse, word mavens describe them as an “alphabet soup.”

As a result, policies and their implementation also get muddled. What is common in all these abbreviations is the term “community quarantine.” These different abbreviations convey the necessity of continuing quarantine though in varying degrees and forms, depending on the conditions. The message is stay at home, unless it’s essential to go out.

This is in recognition of the fact that the quarantine is the effective way to prevent the fast and uncontrolled spread of COVID-19 (coronavirus disease 2019). And so long as the virus is not contained, the quarantine (of different types) remains.

It is thus odd that the public debate is reduced to whether the economy should further open up or to retain the restrictions. This debate misses the point.

Let’s return to the basics. Society has agreed that the biggest problem we face is the pandemic. The pandemic has created a deep crisis affecting our people’s health, quality of life, employment, and incomes. Society thus has forged the consensus that “flattening the pandemic curve” is the principal objective.

Flattening the curve renews confidence in the economy or triggers “animal spirits,” and thereby facilitates economic recovery. One can argue that the economy has taken a long time to recover precisely because we have not been successful in flattening the curve.

Some mistakenly perceive that the current policy debate is about locking down or opening up the economy. But recall that the constraint on mobility and opening up is the operative word that is “quarantine.” The IATF is proposing a version of the quarantine, but which is lighter. MGCQ is essentially quarantine.

However, MGCQ is but a combination of letters that ordinary folks could not spell out. But what we are fed is that MGCQ means opening of indoor cinemas, allowing large gatherings like resuming mass services, easing physical distancing on public utility vehicles, and encouraging dining at indoor, air-conditioned restaurants. The statement of Central Bank Governor Ben Diokno says it all: “Let’s not keep cowering and hiding in our residences.”

The fact is that the country has already opened up, albeit gradually. Moreover, everyone — the epidemiologist or the doctor as well as the businessman or the economist — agrees that the direction is toward further opening up as the spread of the virus is further contained.

The substantial policy question is about the appropriateness or ripeness of the further opening up the economy. Do the conditions allow it? It is a question of timing and sequencing, and how to do it.

Fellow BusinessWorld columnist Diwa Guinigundo wrote that the case for economic reopening should be “made consistent with the established metrics on when we migrate from one quarantine to another.” (See “Social loafing in the time of COVID-19,” Feb. 18, 2021.) Diwa further argued: “Doing both health mitigation and business reopening would be difficult given this confusing status of our vaccine procurement and the threat of new strains and new epidemics.”

Diwa is raising an essential behavior that the policy bias for reopening has missed. It is about fear — the fear of “new strains and new epidemics,” the fear of getting infected, the fear of getting hospitalized, and, worse, the fear of dying. (Inversely, people of all walks of life buy lotto tickets, hoping to win, even if the odds of winning are close to one in 14 million.) The assurance that the critical care system has improved or that only around 2% of those infected would die or that severe cases make up only 2.5% of infections is abstract. Ordinary people, especially in an extraordinary situation, do not make decisions based on calculating probability.

Diwa likewise mentions loss aversion in another column titled “Financial literacy and behavioral economics” (Manila Bulletin, Feb. 18, 2021). The famous phrase from Daniel Kahneman and Amos Tversky (“Prospect theory: An analysis of decision under risk,” Econometrica, 47, 1979) is: “Losses loom larger than gains.”

Thus, the average person prefers staying home to shopping in the mall during a pandemic. He is afraid of being part of the 2% who will die or who will get hospitalized. What makes him fearful is the absolute number of people that the pandemic has contaminated and killed globally: 110 million people infected and close to 2.5 million people dead.

This brings us to the famous term used by John Maynard Keynes: “animal spirits.” As Keynes articulated in The General Theory of Employment, Interest and Money (1936), it is “animal spirits,” described as a “spontaneous urge to action,” that would drive business activities forward especially in a recession.

But the current situation is not just an economic crisis; the bigger crisis that has begotten the economic crisis is the pandemic. The magnitude of optimism that is needed to recover is arguably much larger than what Keynes would have expected in his time.

Fear is associated with animal spirits. Note this sentence from Keynes’ The General Theory of Employment, Interest and Money: “If a fear of a Labor government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or a plot with political intent — it is the mere consequence of upsetting the balance of spontaneous optimism.”

Now apply the above statement to the present and replace “fear of a Labor government” with fear of the pandemic. (Keynes disliked the Labor Party.  In the essay “Am I A Liberal?” [1925], Keynes described the extreme left-wing section of the Labor Party as the “Party of Catastrophe.”)

In a word, the policy rhetoric of moving from GCQ to MGCQ does not remove the fear. The virus continues to threaten lives. The MGCQ does not stimulate the animal spirits. In fact, it can aggravate the fear when MGCQ is meant to open cinemas, encourage large gatherings, promote malling, and the like.

This is not the case of Ali Baba shouting “Open, Sesame,” and the treasures magically appear.  That’s fiction for children.

Neither is this a baby’s play of “close-open.” The debate of lockdown versus opening is false.  What we want is to avoid another lockdown arising from a steep rise in transmission brought about by lowering our guard.

Stark lessons from other countries should inform our strategy and policies. Take Germany. It was initially hailed as a success story in containing COVID-19.  But because it relaxed its guard, the virus came back with a vengeance. Now Germany is under a long strict lockdown, and it will only lift the lockdown in areas that would be able to bring down the number of cases to 10 per 100,000 people a week.

The essential questions are: How do we open up in a way that serves the objective of flattening the curve? How do we open up in a way that meets the health and safety standards and hence make people confident to go out of their homes to consume goods and services? How do we stimulate the animal spirits during a pandemic? And how do we open up in a way that will lead to a better new normal, a new normal where we are better prepared to fight new strains, new viruses?

We cannot resume old habits. It is shallow talk when business merely wants to open up the economy without introducing new solutions. Government’s commitment to revive markets and renew consumer confidence becomes credible when agencies are moving forward the overdue reforms. Said differently, a mere statement about opening the economy but without the reforms is not credible at all.

Absolutely necessary is bolder public spending to contain the virus, accelerate vaccination, provide social protection or safety nets, and support struggling small enterprises. Other critical reforms are: Having safe and adequate public transportation and promoting active transport; providing digital connectivity to all, especially to the under-served poor areas; and ensuring minimum health standards for safe workplaces.

It is high time we acted unconventionally. I found some concrete and innovative answers to the questions I have raised not from an economist, but from a doctor friend, Tony Dans. His recommendations serve the Keynesian “animal spirits” we need.

Said Tony: Instead of opening movie houses, why not have outdoor cinemas, and use green outdoor spaces for entertainment? Instead of telling people to mall, why not urge them to patronize street markets? Instead of promoting indoor dining, why not support al fresco dining? Instead of permitting crowded public vehicles, why not have service contracts to incentivize physical distancing in public transport and guarantee income of drivers and operators?

Be bold. Be imaginative. And don’t be reckless. These are the qualities we need to beat the virus, fight fear, boost optimism, and let the economy recover.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

Health before Wealth

“We need to immediately shift to MGCQ (modified general community quarantine, the second loosest quarantine level) for the entire Philippines. Perhaps starting March 1,” Acting Socioeconomic Planning Secretary Karl Kendrick Chua told President Rodrigo Duterte during a televised late evening Cabinet meeting last week, according to Philstar.com on Feb. 16.

That must have added to the pique of the confused common citizen, already puzzled why, just after Valentine’s Day, it was announced that movie houses, theaters, museums, video game rooms, and other places for community entertainment were to be allowed to open their gates after almost a full year’s closure in the pandemic. Metro Manila mayors protested, saying such enclosed spaces would be too inviting for contagion. Movie theater owners said they were not ready to incur huge operational costs, not knowing if people would watch movies in movie houses instead of on Netflix at home. People said they wanted to watch a movie munching snacks, which they will not be allowed to do in theaters. They would also have to watch the films in masks and face-shields while physically distancing in theaters.

Why the seemingly whimsical change of heart of government to relax general community quarantine (GCQ), especially when Health Undersecretary Maria Rosario Vergeire had confirmed on news channel ANC on Jan. 26 that the new, highly contagious British COVID-19 coronavirus variant B117 had spread among 12 people in Bontoc, Mountain Province, with 17 such cases in the country? Reacting to the tightening of quarantine in other countries to contain the spread of the B117 variant, President Duterte scrapped a plan that would have started Feb. 1, to allow children ages 10 to 14 in low-risk areas to go outside the home. Since March last year, minors have been prohibited from leaving the home. Face-to-face classes are still being evaluated versus the cumbersome but safer online learning.

Chua said the proposal of the National Economic and Development Authority (NEDA) to “further open the economy to MGCQ for the entire Philippines, especially NCR (National Capital Region)” is backed by the entire national pandemic task force, according to a Rappler report on Feb. 16. But the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF) knows the much-debated vaccines have not arrived yet. First the vaccine, before the relaxation of quarantine!

The NEDA’s former chief, Ernesto Pernia, already harped in mid-2020 on the need for test kits to “flatten the curve” (of contagion), warning of “social unrest if a massive lockdown in the main northern Luzon region, home to more than 50 million people, is extended indefinitely.” Pernia resigned soon after “for personal reasons and partly to differences in development philosophy with a few (of my) fellow Cabinet members.” At about the same time, a majority of senators demanded the resignation of Health Secretary Francisco Duque III, blaming him for inefficiency, partly for failing to immediately stockpile coronavirus test kits and making them available to the public. Duterte rejected the senators’ call and retained Duque in his position as lead of the IATF, the government’s inter-departmental response team to the virus.

The government seems unclear in its priority, between reining in the coronavirus and the reopening of the economy. Further mucking up the issue is the reluctance of many citizens to be vaccinated — the distrust of the vaccines (especially the Chinese vaccines?) probably indicating that economic reasons, even if it means joblessness, do not matter as much as the possibility in their minds of the risk to health (complications, adverse reactions) or even, in the extreme, death. Nearly half (47%) of Filipinos said they would not get vaccinated against COVID-19 (coronavirus disease 2019) because they feared the vaccines’ safety, according to a poll conducted in January by Pulse Asia.

NEDA’s Chua sounds noble: “40% of the people are below 20 (years old) and the median age is 25 and most of them cannot go out, then I think the economy cannot go back to normal levels,” he said. “That is reality, that is data, that is economics,” he was quoted as saying on Jan. 29 by Philstar.com. But — no offense meant to Dr. Chua — a simple housewife’s instinctive economics will know that “going out” (being available for work or business) does not mean there will be something (opportunities) to “go out” for. Businesses reopening will not mean these will simply take up where they left off.

Will there be work for the eager and capable young people who have been stuck for months in isolation, and now “going out” into heightened competition for the fewer jobs available? Will decimated and pruned businesses and other employers take in additional workers on top of their whittled-down workforce, reduced by the equally reduced demand due to the pandemic? Will employers risk capital and be charitable institutions to employees, clients and customers, suppliers and their other publics while they are waiting for the “New Normal” to slowly bring back profits?

At a Citibank Zoom economic briefing for clients last Thursday, it was lamented how Philippine gross domestic product (GDP) grew 6.3% in 2018 and 6% in 2019 and plunged to -9.5% in 2020. Prophets of boom that banks must be, Citi hopes for a 7% GDP recovery in 2021 and 6.3% more in 2022, at which time net growth will be positive. It was again pointed out that only the COVID-19 vaccine will ease the tension on world economies, as the resulting herd immunity will allow the gradual reopening of global interaction and trade.

The US and China will remain the leaders and movers of the world economy, their positions assured by the sheer size of their economies, which in the first place buttressed them against the buffeting of the COVID-19 pandemic. China has 20% of global GDP. It is the top supplier for the world economy — “Made in China” will still be the label on almost anything needed and wanted by the world. It can be said that wily and shrewd China has mastered the capitalist maximization law of Supply and Demand.

At the Citi briefing, it was pointed out that America’s saving grace post the trials of the pandemic is the forced savings of individuals (the consumers) during the lockdowns, from spending withheld from closed shops and leisure/entertainment outlets. (The US is a consumer-driven economy, with 70% of its GDP driven by consumption [spending], while China is more investment-driven with investment [more by the public sector because it is a controlled economy] at nearly 50% of GDP.) Citi estimates the “forced savings” of American consumers to be around $1.5 to $2 trillion — which would certainly pump-prime the economy when normal businesses and activities resume and consumer spending returns with expected vengeance.

There are some points to be made for the dream rebound of little Philippines from the prognosis for the big boys, the US and China, after COVID-19 is tamed by the vaccine. First, that the health of the people must come first before the health of the economy is planned for. China would be the better example with the way it tightly isolated Wuhan in Hubei province where the coronavirus was first discovered. It was a total lockdown (tighter than ECQ) of 11 million people from January to June 2020. This controlled the viral spread to the rest of China. In the full year of the pandemic, China has had just under 100,000 recorded infections (in a population of 1.4 billion) with only around 4,800 deaths linked to COVID-19, according to a BBC report on Jan. 22. Meanwhile, the Philippines has had 553,424 confirmed cases (in a population of 109 million) and 11,577 deaths as of Feb. 18 according to the WHO (World Health Organization) coronavirus tally. And the government wants to relax quarantines before even getting the vaccines? Health before wealth.

The second lesson is that consumer-driven economies are most vulnerable in the levelling of a world pandemic such as COVID-19. “Consumer spending accounts for 66% of the Philippine GDP… driven by robust government and infrastructure spending, a higher employment rate, manageable inflation, and robust overseas Filipino workers remittances,” First Metro President Francis Arjonillo said in the February 2020 issue of Finance Asia magazine. The Philippine recipe for having the second highest GDP growth rate of 6% in ASEAN (Vietnam is No. 1) failed in the fires of the pandemic. Lesson learned: Consumerism and supply-side economics are unreliable and unstable in a crunch such as a pandemic.

To our government planners: Opening up the economy by arbitrarily relaxing quarantines and restrictions at the risk of the people’s health will not work — mainly because it is not the same market, global or local, as before the devastation of COVID-19. It will be prudent to wean ourselves away from the Spend, Spend, Spend mentality (consumerism) and focus on developing the more stable and indigenous “sweat of the brow” economic activities such as agriculture and manufacturing to revive the economy.

Health before wealth, even in economics.

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

Russia registers world’s first case of H5N8 bird flu in humans

MOSCOW — Russia has registered the first case of a strain of bird flu virus named A(H5N8) being passed to humans from birds and has reported the matter to the World Health Organization (WHO), Anna Popova, head of consumer health watchdog Rospotrebnadzor, said on Saturday.

Outbreaks of the H5N8 strain have been reported in Russia, Europe, China, the Middle East and North Africa in recent months but so far only in poultry. Other strains — H5N1, H7N9 and H9N2 — have been known to spread to humans.

Russia reported the case of human infection to the WHO “several days ago, just as we became absolutely certain of our results,” Ms. Popova said on Rossiya 24 state TV. There was no sign yet of transmission between humans, she added.

Seven workers at a poultry plant in Russia’s south had been infected with the H5N8 strain in an outbreak at the plant in December, Ms. Popova said, adding that the individuals involved felt fine now. “This situation did not develop further,” she said.

In an email WHO’s European arm said it had been notified by Russia about a case of human infection with H5N8 and acknowledged this would if confirmed be the first time the strain had infected people.

“Preliminary information indicates that the reported cases were workers exposed to bird flocks,” the email said. “They were asymptomatic and no onward human to human transmission was reported.

“We are in discussion with national authorities to gather more information and assess the public health impact of this event,” the email added.

The majority of human bird flu infections have been associated with direct contact with infected live or dead poultry, though properly cooked food is considered to be safe.

Bird flu outbreaks often prompt poultry plants to kill their birds to prevent the virus from spreading, and avoid importing countries having to impose trade restrictions.

The vast majority of cases are spread by migrating wild birds, so producing countries tend to keep their poultry indoors or protected from contact with wildlife.

Siberia’s Vector Institute said on Saturday it would start developing human tests and a vaccine against H5N8, RIA news agency reported.  — Reuters

Bitcoin, ethereum prices ‘seem high,’ says Musk

BITCOIN’s market capitalization surpassed $1 trillion on Saturday. — REUTERS

BILLIONAIRE CEO Elon Musk said on Saturday the price of bitcoin and ethereum seemed high, at a time when the cryptocurrencies have hit record highs, with bitcoin crossing the $1 trillion market-capitalization threshold.

The chief executive of Tesla Inc, whose recent tweets have fueled the digital-currency rally, made the remark on Twitter while replying to a user who said that gold was better than both bitcoin and conventional cash.

Mr. Musk, who earlier in the week remarked that he found the prospect of holding bitcoin adventurous for an S&P 500 company, said in a tweet: “Money is just data that allows us to avoid the inconvenience of barter …”

“That said, BTC (bitcoin) & ETH (ethereum) do seem high lol,” he added.

Bitcoin, the world’s most popular cryptocurrency, hit a fresh high in Asian trading on Saturday, extending a two-month rally a day after the digital currency’s market capitalization exceeded $1 trillion.

Ethereum or ether is the second-largest cryptocurrency by market capitalization and daily volume.

Mr. Musk, an ardent proponent of digital currencies, has defended Tesla’s recent purchase of $1.5 billion of bitcoin, which has ignited mainstream interest in the digital currency. — Reuters

Texas homes hit with thousand-dollar power bills after snow storm 

AFTER enduring a wretched week of Arctic storms, hunger and cold, several Texans were handed another pain point — massive electricity bills.

Houston resident David Astrein, 36, a human resources director at a manufacturing company, said he’s been charged $2,738.66 so far this month versus $129.85 in January for a three-bedroom home with a detached garage. He and his wife stopped using their dishwasher, washer and dryer, and turned on as few lights as possible at night. They kept the heat on for their 5-month old son.

Mr. Astrein is one of a swath of consumers facing sky-high payments in the aftermath of the storm — many took to social media to show electricity bills ranging as high as $8,000. According to their screen shots, most are customers of Griddy Energy, a power supplier with a unique business model.

The Macquarie Energy-backed company charges electricity based on real-time prices in wholesale power markets, therefore exposing consumers to the full swings. Griddy saw the problem developing and even urged its retail customers last weekend to switch to another provider. By Sunday, 20% managed to do so. But not Mr. Astrein.

“We were stuck with Griddy and those astronomical prices,” he said by phone. “The failure in Texas as a whole to plan for this adequately is now a financial emergency for all of these customers on a program like Griddy.”

For Griddy, that business model meant it got only a very small cut of Mr. Astrein’s bill.

“I want to highlight that on the $2,738.66 total bill, Griddy only made $6.48,” Chief Executive Officer Michael Fallquist said in a text message. “We only make $9.99 per month, all other charges are a pass through.”

But for some Griddy watchers, the furor comes as scant surprise after the scorching summer of 2019 also resulted in eye-watering bills. The phenomenon is unique to Texas, where the retail power industry is entirely deregulated.

SENATE PROBE
Texas Governor Greg Abbott convened an emergency meeting for Saturday to address the latest spike. He said he’s working with members of the legislature to develop solutions to “ensure Texans are not on the hook for unreasonable spikes in their energy bills,” according to a statement.

State Attorney General Ken Paxton has already opened a probe into the power failures and issued civil investigative demands to companies including Griddy.

In a Feb. 18 blog post, Griddy said the prices were sky high because the Public Utility Commission of Texas forced wholesale prices to $9 a kilowatt-hour, about 300 times more than normal.

“We know you are angry and so are we,” the blog said. “We intend to fight this for, and alongside, our customers for equity and accountability.”

Griddy said Friday it was seeking relief from the Electric Reliability Council of Texas, or Ercot, and the PUCT for customers who were exposed to the high prices.

As power is restored in Texas, new websites have sprung up to help organize potential class-action lawsuits. At least four of the new domains signal the target may be Ercot, which says it operates about 75% of the state’s electricity.

Astrein plans to pay the bill out of his own funds and said Griddy hasn’t reached out to him with any relief or remedy plan. Griddy said on its website that starting next month, it will have “price protection” aimed at removing the risk from any future price events. — Bloomberg

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