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Mayor Binay’s Official Statement

MayorBinayOfficialStatement

Photo from Inquirer.net

Junjun Binay is slumped over his desk. Reading article after article that came out once the Inquirer’s explosive headline hit the internet. His aides surround him, encouraging him to fight, throwing him their “support” (whatever that means). Like most Filipino leadership teams, they are Yes-Men all the way.  Loyalty and harmony are valued over candid opinions and intense debates.  

I’ve met Junjun a few times – in our barangay, and in our Rotary meetings, where he would give his annual State of Makati presentation. He never personally struck me as arrogant. Aloof, perhaps. Tentative at times, maybe. But when asked pointed questions about  public policy, he seems familiar with the challenges facing the city.

Assuming I was in city hall and if I were asked to help respond to this quagmire, here’s what I would do.

“Junjun, we gotta get out there. This is gonna be a bloodbath,” I say.

“But I didn’t do anything wrong,” he replies, his faced mixed with fear, confusion and anger.

“Sir, with all due respect, it doesn’t fucking matter now. Malacanang’s political engine is gonna hang you for this. There are talks that they’re gonna send Mar over. They’re gonna use this to deflect attention from Tacloban. The last thing we need is Mar swinging around his cock in city hall. If he does try that, we gotta make sure public opinion is on our side. And that people will see it as Noynoy firing the opening salvo for 2016.”

He looks surprised. “We have the support of Makati residents.”

“This isn’t about Makati. They’ll blow this into a Binay thing. Your dad will be hanged. Your sisters will be hanged,” I reply.

“Ok, what do we do?”

“You say sorry. You put your face out there. Take Joey Salgado off the game. Stop making Nancy issue statements on your behalf. At this point, you should be doing the talking. And we should be doing it fast. We issue as statement in the next hour.”

“WTF? Why would I do that? It’s like I admitted that I was wrong,” he looks pissed now. But inside, he feels the urgency.

“It doesn’t matter. Everyone already wants to chop your balls off. Your back is against the wall, with the knife near your pants. You’re pleading to their sense of decency. You’re pleading for sympathy. Look, if Clinton got away after that intern fling and came out the bigger man – no pun intended, Jun – then you can too. But you gotta man up.”

“Okay, so what do I say?”

“I’ve written the speech. Here’s what it looks like”:

“Thank you for giving me this chance to speak my mind. I can feel the immense anger directed against me. And I know that what I say right now will unlikely change your mind. But I owe it to everyone to respond.

So I’ll make this quick. I’m only going to say three things:  

The first is that I am deeply sorry. I’m first and foremost sorry to Sirs Vergilio, Dionisio, Jofl, and Elpidio for getting them involved in this. You gentlemen were simply doing your jobs, and you don’t deserve to be caught in the middle of city hall and your village association for a personal mistake I made. It shouldn’t be your agency apologizing. It should be me. 

To my constituents, please accept my deepest apologies. It doesn’t matter whether I explain in detail what exactly happened that night. What matters is the way  my behavior will be judged. And upon deeper self-reflection, I could have definitely handled things better. This is what I should have done: I should have just instructed my convoy to turn back. I shouldn’t have alighted the vehicle and made a fuss about it. Perhaps that added to the agitation of my staff, who understandably just wanted to do their jobs. I should’ve just let it go. My time as your servant is worth more than a protracted spat about a random gate. 

The second is that I understand. I understand how this looks like from your point of view. I understand that despite whatever I say, this will be seen as an example of me abusing my position and throwing my weight around. I understand that just by watching the video, one may conclude that my party harassed and intimidated the village guards. I understand that by bringing in the Makati police and asking the village guards to go to city hall, one may argue that I’ve curtailed their rights for no apparent reason. 

I understand that in light of the insane politics of this country, the intense scrutiny of public officials, the public disillusionment, and the dying trust in government officials, I should have acted with more prudence, more caution, and more reflection. I should have made a stronger effort to be more self-aware on how my actions as a leader will be perceived. 

The third is that this experience taught me how much more I have to learn. This is my first term as mayor. And I admit, gaining experience is still something I work on everyday. I realize that the root cause of my unwise behavior is my own hubris. 

In my genuine desire to project an image of maturity, strength and experience, I end up being overly-aggressive and wanting to unnecessarily prove myself.

I’ve come to conclude that the best way to fight the hubris is to be constantly in touch with reality – with the people on the ground. When I lost my wife, I lost my moral compass. 

So this is what I’m going to do: I’m going to surround myself more often with people from diverse parts of our city. Life in Makati can be a bubble. Makati isn’t Ayala Avenue. Makati isn’t City Hall. Makati is where almost 1 million people work to build a better life. Makati is the saleslady in SM wondering if her 6-month contract will be extended. Makati is the MAPSA traffic enforcer working under the noontime sun. Makati is the customer service specialist who, at 2am, is making sure her client in New York gets her flight tickets on time. Makati is the entrepreneur working out of an incubator in 55 Paseo de Roxas, quietly building innovative products for the world.  

Makati is the shining example of what the rest of the Philippines can be. And I have an immense responsibility to learn from my mistakes and be the best leader that i can be. This is my promise to you. 

Thank you very much.”

———–

The goal is to ensure that Junjun comes out of this a better man. And be perceived by people as the better man. One should also note what this hypothetical response does NOT communicate:

  • It doesn’t disparage the Inquirer report. People are smart enough to know that media distorts as much as politicians do.
  • It doesn’t mention the VP. The message has nothing to do with the family. This was a lapse in personal judgement, and that keeping away the family is what’s best for everyone.
  • It doesn’t seek to antagonize DVA or its residents.

It’s Christmas. People just want to forget about politics and enjoy the break. People are more open to forgive. If Junjun’s communications team were smart, they’d do this. At this point, a disarming, unexpectedly sincere apology – a rarity in this government – may just stem the tide.

I’ve been a jerk to guards before. Sometimes we just get trapped by our own egos. But I’m lucky to have honest friends who cared about me and spoke up about my condescension. Junjun needs honest friends too.

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The Single Most Terrifying Thing Facing Philippine Startups

Image representing Mark Zuckerberg as depicted...

Billionaire, Rebel, Philanthropist. Also very Lucky. Image via CrunchBase

Technology’s been sold as the great equalizer. Investing in the innovation economy, it’s been argued, helps emerging markets leapfrog the rest, increase GDP and per capita income, and make everyone better off. With technology, we can go from rags to riches.

Certainly, there’s been tons of great news about the Philippine startup scene – a leading seed fund, new cohorts in an incubator, digital media innovation, and bigger funding rounds. More people are interested to become founders. More schools are supporting startups. The future looks bright.

But after reading, Nick Bilton’s Hatching Twitter and Ben Mezrich’s Accidental Billionaires, one starts to make these observations:

Mark Zuckerberg came from a well-off family, went to Exeter, had access to computers at a young age, and even had a software developer as a private tutor  at home. He built a private network between their house and his dad’s dental office. In high school, he built a machine learning music player that Microsoft wanted to buy, which Mark turned down to go to Harvard.

Ev Williams started Twitter when he was already rich. Flushed with cash from Google’s acquisition of his previous startup, Blogger, Ev had the resources to co-found Odea with Noah Glass. Odeo was mostly funded by Ev, and the financial resources along with Ev’s reputation, allowed it to hire talented engineers, which eventually included Jack Dorsey, Twitter’s co-founder. Everyone knows that Twitter was originally a side project, when Odeo’s original product – a podcasting platform – faced competitive pressure from Apple when it placed podcasts in iTunes.

Snapchat’s Evan Spiegel grew up wealthy and privileged. His father is a partner at a prestigious law firm. His mother is the youngest woman to graduate from Harvard Law. They live in a $4.6 million home in LA’s Pacific Palisades. At 17, he pleaded his father to give him a BMW535i.

Instagram’s Kevin Systrom went to a private boarding school before attending Stanford.

Even Bill Gates famously honed his programming skills for years at his private high school and eventually at Harvard, both of which had mainframe computers that most schools in America didn’t have at the time.

By now, you can probably see where I’m going. The founders of global technology companies had built-in, unfair advantages.  They had privileged access. Of course, one cannot discount innate talent, and a bit of rebelliousness. But to deny the role of the genetic lottery, social class, the environment, and a privileged access to financial and technological resources is not a tenable argument. Perhaps up to 80% of success are driven by things we can’t control.

And that’s the most terrifying thing about Philippine startups: no matter how bright the future seems, we will likely remain a laggard as the West continues to build on existing technological advantages. And that’s a tragedy, because I believe the innovation economy – beyond sloganeering on tourism, BPOs, and remittances and along with its prerequisite institutional reform –  is perhaps the single most important driver in improving Filipino lives.

Democratizing access to the ingredients of a scalable tech business – devices, software, cheap internet, computer literacy, coding education – will be biggest driver of this innovation economy. They are the ingredients people need to stir the pot.

There’s evidence to suggest that the access gap is widening. Consider this: America continues to invest in computer education. Harvard’s CS50 is now free for all to take. And so are tons of software development courses on CodeAcademy, Udemy and Coursera. Innovation programs such as General Assembly, Startup Intistutue and Launch have expanded rapidly. Wealthy American entrepreneurs are cycling money back at an unprecedented scale to fund education, internet access, and startups (how about the local tycoons?).

But we can do something. If a homeless man can learn to code and build app, our possibilities are not limited by our existing environmental constraints. What can we do?

First, DepEd can massively require not just computer literacy but basic coding across public schools, starting perhaps at Grade 3. Create a PPP to significantly subsidize the cost of devices, funded perhaps by an ad-driven revenue model. In the collegiate level, it’s time to make technology related courses as popular as business, nursing or HRM.

Second, we can drive knowledge transfer by making it easier for expat founders to establish startups here. Sheila Marcelo is the Filipino founder of Boston-based Care.com, and she had an excellent idea: make foreign entrepreneurs and investors fall in love with the Philippines on a personal level. Start with those with a Philippine connection – someone who has a spouse or relative, a Filipina nanny, or spent time here volunteering. Establish a regular, APEC-like forum that not only invites them to pursue business opportunities here, but also carves significant to allow them to experience the beauty of the Philippines outside the capital.  Let our hospitality take over. We can’t compete with Indonesia with huge macro numbers (population, internet users, etc), but we can compete for hearts and minds.

Third, we can build on existing efforts. The good news is that some people are getting stuff done. La Salle has Animo Labs, and Xavier has XS Next Lab. At our company, we try to close the gap in small ways – with education and continuous learning in mind. For example, one merchandiser attended an introductory class on cloud computing. Kickstart Ventures, meanwhile, regularly hosts workshops on lean startups and innovation. The Amazon Web Services team in Singapore has been very generous in sharing their stuff locally too.

It’s rightly justified to focus on education – create the infrastructure and get out of the way. The rebels will naturally emerge and build amazing products. We’ll have our own local version of  The Hacker Way. Maybe #StartupPH can call it… the PHacker Way. Whoaaaaah. Wait! That sounded really really bad when you say it out loud. But hey, it might just get people excited enough.

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Philippines

I Can Buy You, You, and This Economic Bubble

Actress Anne Curtis

“Bubbly” (Photo credit: Wikipedia)

As Ms Curtis’ hand was making its way through three cheeks last week, Forbes columnist Jesse Colombo succeeded in getting everyone’s attention with a piece on how we’re all smoking mushrooms and are unknowingly fueling the next big bubble.

Bubble forecasters have it easy. Pick a popular topic. Issue a gloomy forecast. Throw in a couple of charts that trend upward (often out of context).  Sit back a few years, watch the market correct (or the bubbles popping), and get to say “I told you so.”  If he’s right, then he can claim street cred for that call. If he’s wrong, he can claim that his timely warnings prevented a bubble. He doesn’t really lose anything either way.

We do: in misinformation and getting lumped together with frothier emerging markets like Singapore or Hong Kong, and thus the foregone foreign direct investment.

So, I feel I have a responsibility to put my views out there. Not just on this so-called bubble, but on a social media-obsessed media culture that incentivizes content like this.

What is a Bubble?

I can “boldly predict” that Facebook’s stock price will come down – and it obviously will at some point. That’s the nature of the market.

Loosely throwing around the word “bubble” is irresponsible. It’s a catchall term – like “sustainable growth”, “competitive advantage” and “efficient markets.”  Rising prices don’t mean we’re in bubble territory.  Rising consumer spending, FDI, government spending, and low interest rates on their own don’t lead to bubbles.

The distinction matters. Bubbles require very different policy responses from regulators. Premature bubble talk misrepresents the economic prospects of the country to foreign investors – something the country desperately needs.

So for the purpose of this note, here’s what I mean when I refer to “bubbles”. Three things characterize one, and here I borrow from the work of Charles Kindleberger:

1. Rapid increases in prices that don’t reflect the intrinsic, fundamental value of an asset. The mismatch between market vs intrinsic values is a crucial point. So let’s repeat that again: in a bubble, prices do not reflect fundamentals. So when a friend claims that an asset seems to be growing more and more expensive, the first question one should ask is, “relative to what?” (ie should you really P10,000.00 for that juice cleanse?)

2. Speculative, short-term investments in assets with unknowable risks. In the run-up to the 2008 global crisis, investors who took on collateralized mortgage obligations (repackaged and re-rated derivatives from pools of questionable mortgages) were speculating because these were securities that were hard to understand.

3. Herd behavior. The dot-com crash saw masses of would-be entrepreneurs and investors mindlessly jumping into the internet bandwagon.

Looking back, I’ve been a victim of all three, so I’ve learned a thing or two. I eagerly jumped the bandwagon of 1990s comic books: multiple X-Men #1 covers, Gen 13 #1, Brigade #1, and Rob Liefeld. All in the hopes that these would be worth gold one day. These weren’t fancy collateralized debt obligations or pre-series A participating preferred stocks, but for a 12-year old in the 90’s, P10,000.00 lost to comic books were a lot. And over the years, I’ve repeatedly dodged (that pretty, popular girl in college who turned out to be… never mind) and fallen prey to speculative manias (the mini-bubble of a Management Engineering degree). The underlying principles are similar: a a huge mismatch between market and intrinsic values, speculation, and stampedes.

Mr Colombo’s main point is that this period of economic expansion is driven by cheap credit, and that’s a bad thing, because this in turn is driving a.) a bubble in real estate prices, and b.) unsustainable, debt-driven consumer spending. There were a number of other arguments (which have been effectively tackled here, and here), so I’ll focus on these two.

It’s almost impossible to predict bubbles using the traditional economic models – these tend to be lagging, not leading indicators. Maybe the Nate Silvers and the Nassim Taleb’s of the world can sift through all the statistical gobbledygook. I’m not smart enough to do this.

I can, however, look at people. As an entrepreneur, I’m lucky not to be stuck in a desk and be in a position to constantly meet people outside my company. My view involves asking three questions about the underlying behavior of our economic models:

First: Are people buying property like crazy? Nope. My basis of comparison is my time in Singapore: when new condos are launched, thousands of buyers flock to showrooms, with many projects selling out in hours. We definitely don’t see that kind of mania here. If this were the case, they we wouldn’t see all those spam texts and pesky real estate salespeople handing out flyers in the malls.

Oh, and look here. The number of license-to-sell permits from the HLURB for high end condos has actually decreased this year. Note that a license-to-sell doesn’t mean an actual sale – this is the permit given to developers to allow them to start selling a housing unit. It’s a measure of upcoming supply. If this were a bubble, this number would be up this year – not down. And as you can notice, the number of licenses are down across the board. (This is actually not good because the country has a housing gap of up to 4 million units. But only 22,270 socialized housing units were licensed from January to July this year.)

Next, let’s look at real estate prices. Yes, prices have risen. But is there a huge mismatch from its intrinsic value?  One way is to look at rents in relation to property prices, which is how The Economist tracks global property prices. Looking at CBD prices (since this the data Mr Colombo quoted), the average monthly residential rent is P800.00 per sqm vs an average property value of P132,000.00 per sqm. This is an asset yield of 7.3%. Asian property buyers will recognize that this is actually a decent deal. In the peak of Singapore’s housing booms, yields can fall as low as 1-2%. For a so-called economic analyst, it’s annoying how he didn’t take the time to dig into this.

Plus, these properties were purchased by Filipino households who are significantly less leveraged than their US counterparts – so even if property prices “burst”, there will likely be no widespread sell off that can further deflate prices.

Second: Are people maxing out credit cards for conspicuous consumption like, say, handbags and a trip to London? Nope. My basis for comparison: my time in Boston, where it is common to take on additional student debt just to go to that weekend trip to Iceland.

Lets dig deeper into Mr Colombo’s contention that easy credit will make consumers spend beyond their means. If this is the case, then we should see numbers like this: massive credit card growth, increasing credit card balances, and increasing consumer defaults.

What he fails to see is that the Philippines has one of the lowest credit card penetration rates in Asia. So even if the vast majority want to splurge on a Louis Vuitton bag, they simply can’t. The vast majority still pays in cash.

This is data from the BSP showing the balance of credit card loans. Credit card balances grew 10% vs last year – quite reasonable in an emerging market and coming from a small base. If we assume 4 million cardholders, then we have around P39,000 in average card balance per card holder: hardly reminiscent of the US.

The problem with with Mr Colombo’s argument on cheap credit is this – it’s cheap relative to what? After all, short term interest rates are still 4-7%, and long term rates at 7-12%. Debt may be cheap by historical standards, but not by any means too cheap that it makes everyone take on debt.

Oh, and look here. Mr Colombo likes to post charts that trend up, such as this one, which he uses to assert that consumer spending is growing unsustainably. But if you look at closely at the scale (don’t be deceived by the sizes of the bars, look at the numbers) and the time period (from Jan 2008 to the present), you’ll see that consumer spending grew 6% year-on-year in 2013 and 7% the year before. An emerging economy whose consumer spending growing 6-7% a year? Hardly sounds excessive to me.

Third: Are tech companies getting unjustified investments? Companies that play in tech + emerging markets are a good bellwether for observing bubbles, simply because of the perceived high growth opportunities. As an entrepreneur in this space, am I seeing frothy behavior among investors? Absolutely not. Domestic investors still tend to be cautious with valuations. And foreign investors are wary about things like user acquisition, regulation, and logistics.

So, based on purely man-on-the-street, daily observations – no, we’re likely not experiencing an overheating economy.  What will make my answer change? When people rush to scoop new condos a la Singapore showroom launches, when my friends start complaining about credit card debt, and when we see pre-product, idea-stage startups getting $5 million pre-money valuations.

What’s Behind the Scenes? Fear Mongering and Content Marketing

I always love a good debate, but with a bold pronouncement such as Mr Colombo’s, the bigger question to ask is this:  Does one have an incentive to, at best exaggerate the context, or worse – distort the facts? It seems he does. Worryingly, Mr Colombo proclaims to be an investor – without disclosing if any of his investments may benefit from his writing (for instance, shorting an emerging market stock). Mr Colombo is a self-proclaimed bubble watcher – his entire career is dependent on making dire warnings, and his strategy is to attract online traffic via bold proclamations of various sectors that are heating up.

And Mr Colombo is definitely concerned about traffic, as he proudly states in a previous post,I published a report that went viral, and was read over 145,000 times and shared over 6,700 times via social media.” This is part of the worrying side of journalism in the digital age – when writers optimize for views and shares, they under-optimize for quality and integrity. It’ll be great to see him in a local conference (and debate him on stage).

And this leads us back to Ms Curtis. Celebrity culture thrives in manias and herd behavior – popularity snowballs and leads to more fame. Ms Curtis’ bubble might have temporarily popped last week, though she was quick to apologize. In trying to be a celebrity bubble-spotter himself, Mr Colombo may have unknowingly burst his own.

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