Poverty, businesses in the Philippines, and you

Lets assume that we all can agree that Filipinos are born with the same intellectual capacities  as every other nation on earth.  That generally speaking laziness, or lack of work ethic is a description of individuals, not of a nation.  With these assumptions that Filipinos are indeed intelligent and hard working, why do so many fail to succeed financially in the Philippines?

When you read articles about poverty done by professionals, most end up looking like this:

http://www.adb.org/Documents/Books/Poverty-Philippines-Causes-Constraints-Opportunities/Poverty-Philippines-Causes-Constraints-Opportunities.pdf#page=49

Most of the book is describing the hardships, defining the sectors of society most affected, comparing the results to other places, correlating it against infrastructure, and then at the last, solutions phrased in the most benign language known to man.

I would assume to say that 100% of those who interviewed relatives or men on the street the reason that there is no work, no business, get the general answer, “lack of capital”.  And they would be right.

Many of my friends who were told this felt that they indeed had “capital”, and proceeded to “invest” in a venture.  Well over 95% of those I know personally failed miserably to earn a return on investment equal to leaving it in a bank.  What they missed is  that there is no capital in the Philippines because the business climate is so poor that nobody who knew the true score would risk hard earned cash in any business venture.

From here I could go on and on about infrastructure, regulation, skilled workforces, market controls, and the lack thereof. All would ignore or at least skate around the fundamental cause.  The very reason there is poor infrastructure, market controls, and a skilled workforce in the first place. An idea that instead of following guidelines, rules, laws etc., the best way to do anything is to “find a way” in Filipino speak.

 

FIND A WAY

This may sound harmless on it’s face.  Finding a way to get a permit is to talk to a relative who is inside an office.  Everybody knows that the rules involved were to regulate others, by people who did not understand your exact position. (Note the next time you go to any governmental office, watch those who approach the window, do they state their business and then wait for a decision? NO, they first establish a connection outside the office, a place, a relative or a common link with those behind the counter.) Ask that person for a “favor” to forward your interests.  Friends are made, polite conversations held , the permit is obtained.  Everything is OK.

Or is it?

What interactions like the one above indicate is the level of discretion of those in government. Discretion allows those in power to ignore guidelines that they were hired to use.  Discretion allows them to accept additional payment for doing that job they were hired for. Discretion allows them to allow bigotry or political issues into a decision.

This attitude permeates the Philippines, from the president down to the trash picker.  Foreigners call this corruption. I can’t remember a single Filipino I met who did not decry corruption, and then in quick response to my problem with a regulation, suggest that they “knew somebody” who could “help”. To Filipinos, this system is not corruption but simply finding a way. Unless the amount requested was too high, somebody else was able to get favor but they were not, or, they were talking of somebody they did not know, THEN it is the corruption that all decry.

In the Philippines to say that you are “strict” is an insult.

In the justice system this leads to a unbelievably poor conviction rate of those tried and vast numbers not tried at all. People held without trial for years. Civil cases taking over 10 years to complete and then, judgments ignored.

In the political spectrum this attitude leads to greatly inflated value to political office.  The present president was said to have spent in her campaign P1500 for every voter. Why? She is not stupid. Discretion allows her to get all that cash back and then much more. What are the mechanics of this return? For sure few of those voters wooed with P1500 of advertising paid her back.  But she is after those with money… CAPITAL… to surrender it in the hope of shielding what remains. She will fill positions with those who imply to agree to pay her a % of what they in turn gain from selecting priorities (in, hiring, regulation, enforcement) of those below them.

Who is at the bottom of this “find a way” system? Those with capital.  Business primarily. Workers, especially those who gain from work overseas, but nobody is left out.  Filipinos are the ones who pay.

WHY THIS IS IMPORTANT TO YOU

Why is this important to you, the foreigner newcomer? Because you do not have a relative in government. You have no social or political power to persuade those in power to use their discretion to help you. You can’t even pay if a payment is supposed to be needed under the “find a way” principals, (nobody trusts you). Because, if you fail to remain under the radar, you too will find yourself making decisions as to a way to salvage capital by paying somebody who has power, not to make the rest of your investments useless.  What this means is that if a Filipino who enters a contract with you fails/refuses to fulfill that contract, your choice is to file a case, pay thousands of dollars, after 8 years, get a judgment that the police very well might ignore, if you won, which is unlikely as every judge can see that deciding for a foreigner has implications that deciding for a local will not encounter.

The common thinking that enforcement can be paid to fail to enforce is what most of us see as corruption, but a false accusation is almost as painful as a cited vioilation. A quote I will never forget when I was working and a dispute came up as to the true owner of some logs I “bought”. We had a barranguy council meeting to hear our “case”.  While there was a presentation by the two opposing parties I tried to tell a member present that the argument was irrelevant as is was not part of the matter at hand. The reply was simple and direct, “we are here to decide what is important and everybody has his say”. At the end of this hearing I was convicted of being a “foreigner who had high pride”, and therefore, not entitled to the logs I bought. Thus, following the law my improve your chances of not being targeted by an enforcer, but for sure not 100% of the time.

IF you are interested in doing a little business, building a structure, making any sort of investment, always keep at the forefront of your mind that;

1. No contract is enforceable by you a foreigner in a practical way.

2. Those charged with enforcing laws consider those laws essentially “talking points” in the discussions at hand.

3. Right and wrong, lawful or unlawful, profitable or unprofitable are terms that will have considerations far beyond the text of any document, proof, or facts.

4. The best way to win an argument is to not have one. Portray yourself as too small to warrant attention, too poor to pay even if you had to, that another is the true owner of the enterprise (preferably a congressman), deal in sums that will not impact your life if you lose them.

5. Never take anything to the Philippines that you can’t walk away from without a smile.

Thus, if you believe what I am telling you, some Filipinos will not get hired, products will not be traded, and taxes will not be paid.  Resulting in even more poverty in the Philippines.

4 comments

  1. I have seen a book on another site titled Philippine Property Primer by Perry Gamsby. Has anyone read this book or can know if it is worth the $30 he asks for this e-book ?

    1. Read the above.

      In a nutshell, foreigners cannot own property. Yes, your wife can, and if she dies your rights as to the ownership are preserved. But what is the use if it is impossible to enforce a contract (sale, lease, rental, construction) in a practical way?

      If you are indeed going to “buy”, no matter what, and you can be discouraged by losing just $30, then this book is a very good deal, indeed.

      I know hundreds of foreigners who say they own land, on which they built houses, and lost nothing, yet. Further, the vast majority of these guys have no fear in their respective hearts that they will lose 100% of their investment due to a politically connected challenge to their title. But I also remember 9 guys, today, who have been removed from their homes, and their life savings, when they had already done everything right, according to the books, with the help of a lawyer during the purchase. One lost his life as well, murdered while visiting the market, by the mayor in Moalboal, due to a land dispute. 3 of the 9 above lost with complicity of the relatives of their wives, 4 others were removed by their wives when situations changed.

      The key here is that, no matter the advice given in this book as to the laws, regulations, proper procedures, opportunities, methods, it will not protect you from a critically flawed justice system.

      On the reverse of this advise

      I do know a guy who’s first step was to find a lawyer who bragged that he could design a contract where the courts would move out a delinquent Filipino in under 3 months and did it repeatedly, for a set fee of about P3500. This foreigner then bought a subdivision through his wife, built a set of very small houses, sold them with a high down payment and no payments for 6 months, then the rest due. When financing was not available to make the balloon payment, he foreclosed and regained the property to sell again. He bragged to me that one of his micro houses sold 6! times, that then he had collected more down payments total than the entire purchase price of the house.

      Construction practices in the Philippines are primitive, inefficient, and done usually without the lowest costs practices available used, even when the owners clearly could benefit from such efficiency . I use as an example homes built by Habitat for Humanity in Butuan, where, homes are built to meet the financing goals of Habitat. I constructed an example, documented savings of 45% using an alternative construction method. All board members present (a clear majority) agreed while sitting in this sample house, eating fresh baked bread, that this sample house was indeed better finished, more durable and more comfortable to live in, than the process used by the construction company Habitat used. After months of exchanged letters, requests for documentation, they kept the existing system in place, without comment. Perhaps an important factor was that one of the board members owned the block making machine that was specified in the now employed system in the present construction practice, but I do not know for sure.

      They did tell me that if I bought a lot, built a house on that lot, that they would finance the sale if a pre-qualified applicant chose this speculative house. They refused though, as it was a violation of privacy, to give me a list of pre-qualified buyers, if I did indeed build. But, Habit for Humanity got the lots they built on, free, from the mayor/city of Butuan through a “memorandum of understanding”, where lots were paid for by a national program to house the poor. A system I was not able to access as I was not part of that “memorandum of understanding”. A lot purchased on the open market, plus my house built cheaper and better, exceeded the financing limitations of Habitat for Humanity.

      But those “free” lots were all located in the same general region, and a determined builder could indeed have made contact with those owners, and perhaps built a qualified house and gained the $1050 difference in house prices. It was possible. But I was not the guy, to push through where nobody wanted me, against a stacked deck, in the hope that somebody someplace would give a foreigner a break, in the best interest of locals, in the blind hope there still not being some “hitch” I was not yet aware of.

      Maybe you are that guy, who knows?

  2. I am interested in purchasing a book regarding buying, renting, leasing property in the Philippines. Can you recommend any bok that might assist me?

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