Thursday, March 27, 2008

The New World Order

Confronted with the uncomfortable and unprecedented reality of oil breaching the $100-per barrel mark, the average Filipino's thoughts will no doubt revolve with concern around higher tricycle fares and more expensive foodstuffs from the public market. These are legitimate worries and such a reaction is one bred over countless decades of impotence to global market forces.

And yet: oil at $100 (and possibly even $200 or $300) has far-reaching significance that goes beyond our usual parochial home economics. It represents a milestone in the changing world order, a warning post of upheavals waiting to jump us around the corner. Consider, for a moment, what it truly means and ponder the future in store for the Filipino.

Why has oil surpassed the century mark? Because, more than ever, it's a scarce resource. It's not scarce in the way that it was in the 1970s when everyone thought it would eventually run out; it's scarce because of higher demand from rapidly industrializing countries like China and India. Growth means more construction and more cars, all of which require more oil.

Oil prices are determined by oil supply, the main output of which the OPEC oil cartel controls. OPEC could reduce world prices by producing more oil, but as a policy they aim for price stability. The approach is not altogether unreasonable: with global demand far outstripping supply, the increased output may not necessarily bring down the prices; only a reduction in the demand side will produce that effect.

Another reason for high oil prices is the weak US dollar. Oil has traditionally been pegged to the greenback. A lower exchange rate for the price of a resource whose demand remains the same or continues to grow simply means that the corresponding price shoots up.

Why has the almighty dollar fallen so low? For a number of reasons, but two in particular stand out: the recent subprime financial crisis, when many depositors defaulted on their loans; and the War on Terror, now five years running with no end in sight, a heavy drain on lives and on the national coffers.

In the meantime, let's not forget that the War on Terror is merely a politically acceptable euphemism for the American war against Islamic fundamentalism. These two ideologies, diametrically opposed, have no hope of reconciliation; and yet ironically, many of the OPEC countries are also Islamic states.

Assuming that no nuclear weapons explode in the process (one fervently hopes), America and Islamic fundamentalism will be locked in mortal combat for many more years to come. Islamic fundamentalists have proven resilient; and the United States, for all its recent troubles, still holds military superiority. Even if America pulls out of Iraq, the conflict will merely shift elsewhere.

So we have the America, the global superpower and the vanguard of Western Civilization, in decline, its energies preoccupied with fighting a shadowy enemy; and vying to take its place, slowly expanding their influence first within their own spheres but surely with larger spoils in mind, China and India.

The reasons are not purely economic; in fact, the underlying drivers are cultural. Therefore, they are more primal and more powerful. China and India both have long and proud histories. Both feel that their destinies have been thwarted by western colonial imperialism. Both have largely succeeded in the benchmarks set within the western framework. Both feel that it is now time to take their place in the sun.

Look at the world we live in now. We Filipinos may think that we're competing with China and India for outsourcing jobs but the reality is muc more painful and dire than we realize. More than half of the world's goods are made in China and just about as much in information systems are built by Indians. China is hosting the Olympics in August this year, and more than a sporting event, it also doubles as the country's coming-out party. As I write this, CNN reports that Tata, India's largest conglomerate, has for $2.3-B just bought out Jaguar and Land Rover, two prominent British carmakers. Do you see the historic irony?

Further to our East, we also have the resurgence of Russian nationalism, starting to flex its muscles under Vladimir Putin.

So this is the new world order as it looks for the foreseeable future: America and Western Europe, Arab/Islam, China, India, and though we don't feel it yet, Russia. It is different from the previous world order dominated by democracy and communism.

What role will Filipinos play in this new world order? More importantly, will this new world order have room for us?


  1. A word about oil 'shortage'.

    It is not caused by lack of oil, per se, but little to no development in parts of the world where oil can be readily extracted: the Middle East.

    At present production has not fallen below 95% of capacity. Leaving little room for problems.

    Aggravating the situation, for some time now, is the speculative futures market.

  2. I guess I should learn Cyrillic, Mandarin, Arabic, and Hindi just to have all by bases covered huh?

    This was a very thought provoking read. Now I'll have trouble sleeping for the next few days. :D

  3. Benz: thanks for the heads up. Certainly more room for reading and discussion, maybe over coffee at Spro 1.5 one of these days?

    By the way, according to the Wikipedia, the United States largest supplier of oil is, in fact, Canada.

    Leo: I'd suggest Mandarin because of our proximity to China ;-)

  4. The American lifestyle wastes gasoline in staggering amounts.Too many people live 20 or 30 miles from their jobs which translates into a 40 to 60 mile a day commute.It's just a matter of time before it all collapses.
    Many Filipinos are dependent on family members living in the US and when our economy fails it will make matters even worse in Philippines.

  5. Talking about Philippine economics is a scary thing.

    Marketman (the blogger) says Vietnamese daily wage is roughly half that of Philippines. Yet, the productivity is astoundingly high multiple that of Philippines. This, in a country that is governed by COMMUNISTS! As we all know, communists are supposed to be totally unproductive.

    Philippines is rapidly falling behind.

    I think the real reason is OFW phonemenon. I am not talking about the brain-drain and all the other stuff we all talk about over and over again.

    It has to do with our reliance on imports, rather than producing things for our own needs.

    I felt this first hand today at the Duty Free shop in Festival Mall in Manila. Here, returning OFWs, immigrants and visiting foreigners can spend as $1k to 4K+ for OFWs. This at discounts of 25%++.

    I am thinking, jeez, why is everything in Philippines so expensive? And the answer is customs/duty, which is this 25%++. Who get's this? THe gov't, of course. So, it's in the gov't's best interest to have more and more imports! Domestic production escapes detection so easily (just look at the poor tax collection rate). And OFW's contributes to more and more imports because there is really no base for production here.

    More imports means lower GDP, so gov't doesnt want that. But oh so conveniently, the gov't plays witchcraft economics by adding OFW remittances to GDP, making the net GDP positive. This is crazy.

    The gov't says "let's make out domestic manufacturing strong!" yet doesn't do jack shit. Secretly, they love gettting this fat customs/evat from imports!

    This is just one example of how screwed up our economy is.

    Oil price is a problem, but productivity can overcome it because it affects EVERYONE ALL OVER THE WORLD. But the problem is, Philippine's productivity and capacity falls far behind everyone. This is the real problem.

    OFW is not the cause of all these problems, of course, but it is the result of poor economic policy, and the resulting OFW phonemenon promotes further poor economic policy (see GMA promoting OFW as if it is the answer to all economic problems).

    Philippines is going further into the dark tunnel. No end in sight. When we see reverse trend of OFWs coming back (which would be the result of good economic policy, ha!), that would be the day we see a sliver of light at the end of this dark, scary tunnel.

    Bottomline: GMA sucks big shitty dick.

  6. it's so ironic to see the OFWs as though they are the be-all of all solutions when as a matter of fact... we know why they left this forsaken country in the first place!

  7. that ^^ by the way was an afterthought of what the other guy said, hehe.

    anyway, to add to funny thoughts, the countries we usually poke fun at are now getting the last laugh. they are now all doing the importing to the world powers, and end up funding them too, without these big guys knowing it.

  8. When the US economy sneezes, the whole world gets "sick".

    The world "decoupling" from the US economy seems to be a dream, but many many people are now hoping otherwise.

    In a few more years, for sure.