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Philippines: Corporate Social Responsibility: The Business Model for the next Asian Miracle

Motoo Konishi, World Bank Country Director for the Philippines

Philippine Corporate Social Responsibility Week

Makati City, Philippines

July 24, 2014

As Prepared for Delivery

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Corporate Social Responsibility:
The Business Model for the next Asian Miracle

July 24, 2014
Dusit Thani Hotel

Keynote Message of Motoo Konishi
Country Director, World Bank Philippines


Mr. Jeffrey Tarayao, LCF Chair, Ms. Ching Jorge, LCF Vice-Chair, other LCF Board of Trustees and Advisory Council members and honored guests.
MAGANDANG UMAGA PO.

I am privileged to be in the midst of advocates and practitioners of corporate social responsibility. 
Twenty years ago, Corporate Social Responsibility used to be a charity initiative run by the marketing department that involved collecting money or organizing volunteers for a local charity.

Then, driven by events such as oil spills or child labor, it became obvious that this was not enough to undertake corporate responsibility.  Some companies have started thinking through the wider consequences of their business model.  Now, more and more businesses are thinking about how to use the business model itself to solve major social problems. Solving the social problem becomes the business model.

This evolution is not driven by a sudden increase in altruism in the business community. Think of it like this: the market value of a company these days mainly derives from “intangibles”—from its “image”, from its reputation, from the trust it inspires. Its market worth does not derive from its short-term profit margins but from public trust.  

Conversely, if the public loses trust in the company,  the damage to the market value of the  company will be quick and dramatic. An oil spill doesn’t hurt because of the direct financial implications for the clean-up costs. It hurts stock prices because of the loss of trust. And in today’s Twitter and Facebook world, this loss of trust is very difficult to “manage” or “spin”. So businesses have strong incentives to think of corporate social responsibility in a much broader sense. CSR is not about dole out or charity or hand out to the society.  It is what corporations do to solve social problems that help create a sustainable society that in turn increases business and profits. 

Last week, our President, Dr. Jim Yong Kim, visited the Philippines. He had not been here for almost 30 years. He saw that tremendous change had taken place. Dr. Kim  saw a country which, he asserted, could become the next Asian Miracle. After decades of disappointment, we really believe that NOW is the time for this country to live up to this promise.

My message  today will be about the role corporate social responsibility will need to play in realizing this miracle. Because, I believe that without it, the miracle will not happen. 

As one famous line from a Filipino movie, says, “WALANG HIMALA!” (THERE IS NO MIRACLE!)

But first, why this  optimistic  conclusion? Let me name a few reasons:

• First, Dr. Kim saw an economy which was doing extremely well. Despite the global headwinds and two major natural disasters—the Bohol earthquake and Super Typhoon Yolanda. the Philippine economy still managed to grow at a remarkable 7.2 percent in 2013—the highest among the ASEAN-5 countries.

• Second, this growth was derived from strong macroeconomic fundamentals, political stability, and a government that is committed to reforms, even when they are difficult.

• Third, the country has a young, internationally-competitive and English-speaking labor force. 

• Fourth, the Philippines stands to benefit from the global and regional economic rebalancing and the strong growth prospects of a dynamic East Asia region. China’s real wages are zooming up. The Philippines can be very much part of a dynamic “Factory Asia”, and attract those parts of the production value chain which are currently looking for new places to re-locate.

• Fifth, Government doubled spending on health, education and social protection between 2010 and 2014, while keeping the fiscal deficit in check at around 2 percent of GDP.

• Sixth, public debt has been significantly reduced and inflation is low. The country’s external accounts are strong, due to the ever-resilient remittances and the boom in the export of services.

There are other reasons.  He also saw the country’s commitment to fighting corruption and to being transparent.  Yes, the  government is making huge advances in promoting transparency, even when it hurts.   Competitiveness is also improving, although, as the  government would be the first to acknowledge, not nearly fast enough. The country had the “most improved” status last year in the Doing Business rankings of the World Bank.

Programs that empower poor citizens and communities,  like the Pantawid Pamilya and the KALAHI CIDSS National Community-Driven Development Program, are trying to alter deep-seated patronage relationships and empowering the communities to improve their lives. . 

On the international front, the Philippines signed on to the Open Government Partnership. As part of this commitment, the Philippines launched its Open Data initiative and immediately released over 700 data sets on the internet. This is unprecedented.

So what our President, Jim Kim, saw, was that the Philippines has the right formula to become the next Asian Miracle.
So how can the Philippines realize this miracle?  The “HIMALA”? (MIRACLE?)

Let me talk about four elements of CSR for the “HIMALA” to happen.

1) The Commitment to a Common Goal; 2) Open Government; 3) Education; and 4) Climate Change
Commit to the Goals

One of the lessons learned from the successes of Asian countries like Japan, Korea, Singapore, Taiwan, and perhaps China in the future, is that everyone in the country, including the politicians, business community, academia, and the entire population were pulling in the same direction for the country to develop. 

Furthermore, not only was everyone pulling in the same direction, the policies made sure that the entire nation was lifted from the bottom, creating larger and larger middle class that benefited and contributed to the economic growth and prosperity of the country.  I think former President FVR calls it “Teamwork in Nation Building”.  The Philippines has set itself clear goals that reflect well the success of the Asian Tigers.  President Aquino’s Social Contract and the Philippine Development Plan were very clear. The goal is to attain inclusive growth, defined as the reduction of poverty and the creation of better jobs. There is strong convergence with the World Bank Group’s Twin Goals: to eliminate extreme poverty by 2030 and improve the incomes of bottom 40 percent of the population.

So when we talk about corporate social responsibility, these should be our goals. As a Japanese, I cannot stress enough how important this unity of vision is.  This vision drove us to get our act together. Culturally, this is what I believe the Japanese  have contributed to the whole debate about development. When central planning went out of fashion, because it did not work, the East Asian model replaced it. We didn’t pretend that we had it all figured out, so we went about attaining our goals in a practical, learning-by-doing way. What did Deng Xiaoping say again? "It doesn't matter whether a cat is white or black, as long as it catches mice."

To realize the HIMALA, we must come together under a single banner, single purpose, and drive the country in the same direction.

Open Government

The role of good governance in attaining this goal is also clear. “Where there is no corruption, there is no poverty”. In 1996, the President of the World Bank, Jim Wolfensohn, said,  “Corruption diverts resources from the poor to the rich, increases the cost of running businesses, distorts public expenditures and deters foreign investors…it is a major barrier to sound and equitable development.”  Today, the World Bank Group embeds the anticorruption agenda firmly into a strategy for good governance.

Because inclusive growth is impossible to achieve without good governance.
Fighting the cancer of corruption is no walk in the park. Given the cozy relationship which often exists between big business and government, it is difficult. It is also sometimes difficult to determine where corruption ends and fiscal incentives start.

Let me also be clear why I mention this. In corruption, it takes two to tango. This is where, I would argue, any Philippine business should start, when it thinks about corporate responsibility. If we want to have massive investments in infrastructure, for instance, where is this money going to come from? From those who pay taxes. But, we have a big problem: the overall tax effort is too low to sustain the growth we all want. How do we address this? This is a collective corporate social responsibility challenge for everyone.  

I would urge everyone to start looking into these issues and openly discuss them in the various business fora which exist. Everyone should be held accountable: government and business alike.  This  is a huge corporate social responsibility agenda!  To maintain stellar economic growth, tax and customs revenues need to improve. That is the simple fact.

Education

Another challenge that corporate social responsibility should address is the jobs challenge. Good jobs — meaning,  jobs that raise real wages and bring people out of poverty — need to be provided to around 10 million Filipinos who were either unemployed  (three million) or underemployed  (seven million) in 2012, and to around 1.15 million potential entrants to the labor force  every year over the next three years. This means a total of 14.6 million jobs that need to be created in the next four years. In addition, better jobs need to be provided to another 21 million Filipinos who are informally employed. 

Higher growth can provide more Filipino workers with good jobs. Under the current high growth scenario and the removal of key binding constraints in fast-growing sectors, the formal sector will be able to provide good jobs to around 2.2 million people in the next four years (or 550,000 every year between 2013 and 2016), or around double the current figure.

But the majority of Filipino workers would still be left out. By 2016, around 12.4 million   Filipinos would still be unemployed, underemployed, or would have to work in the informal sector. Addressing this jobs challenge requires meeting a dual challenge: expanding formal sector employment even faster while rapidly raising the incomes of those informally employed. But good jobs need skilled workers, a challenge that requires not only education but socially responsible corporate sector as well.

The needs of the Philippine economy need to be connected to the way how the Philippines educates its work force. For that, the private and public sector dots need to be connected. Students, educators, business and governments are operating in quickly changing environments where the skills produced by the education system are often not relevant or quickly become obsolete.

The private sector should not play a passive role, waiting for the education system to produce the graduates and then invest tremendous resources in training and retraining their new employees to be able to perform their jobs. The right skills should and can be available upon graduation. What can the private sector do to change this? The business can mentor students and develop a curriculum that will churn out the kind of workers they need. It can provide stipends to students and guarantee them jobs once they successfully graduate. It can open doors for students to intern and gain experience. It can actively signal the skills they will need to fit its development plans. A corporate social responsibility for the skills development will result in better outcomes for everyone: the schools, the kids, the companies and the country.

There is a good example in the Philippines. The BPO sector is doing exactly that. To sustain its stellar growth record, it has entered a partnership with the government and over twenty colleges to improve the curriculum and make sure that college graduates can find a job in the BPO sector. Again, this is not about charity. This makes business sense - to ensure your company can recruit people with the right skills. But, if you really think about it, you are actually creating a middle class to buy your products!

So the challenge should be clear by now. To reduce poverty and massively create jobs we need good governance, both in government and  in the corporate world. And we need better education, education that lands a job.
These are daunting challenges. But to become the next Asian Miracle, they have to be met. To make matters even more daunting, the Philippines faces another challenge. 

The Challenge of the Impacts of Climate Change

The Philippines is one of the countries most exposed to multiple hazards and is among those at highest risk to climate-change impacts. More intense rainfall events, more hot spells, and stronger monsoon rainfall are expected. Typhoon Yolanda has heightened everyone’s concern on what might become the “new normal” for the country, in terms of increased intensity of natural disasters. 

So how should we respond?  We don’t have to look very far.  I know that some of the top conglomerates and other private companies in the Philippines have put their act together to boost efforts to prepare for disasters.  I think this is laudable and a good way to move forward.  They have gone beyond the traditional way of looking at corporate social responsibility.  They are thinking of ways to provide economic incentives for private sector to invest in areas like Tacloban.

Dealing with disasters, managing risks, dealing with business continuity should become part of core business of any company. The “new normal”  requires major changes in land use and rezoning as well as new building standards so that infrastructure can be “built back better”.

Finally, the government is critically reviewing the current government spending systems, both in terms of speed, governance, transparency and effectiveness. With the help of several restructured World Bank-assisted projects, the government is putting in place more rapid and transparent spending systems. “FAITH” is the portal where the public can track the contributions of the various development partners to the Yolanda recovery and reconstruction efforts  and  “Open Reconstruction” is the portal to track government spending . Overcoming the tragedy of Yolanda also means improving governance through more transparency and accountability.

After Yolanda, it also became clear to the Government that the country needed an overarching financing strategy to adapt to the “new normal” of climate change. The corporate world has a key responsibility in this financing strategy, too.
First, there needs to be a better strategy for disaster risk financing and insurance.  There needs to be a pool of resources at the national level to respond to emergency responses and early recovery.

There also needs to be a better risk financing and insurance facility for local government units. Local governments need a compulsory risk pooling mechanism to improve their post-disaster relief and recovery response. This would also provide financial and technical support for improving the insurance of public assets.

In addition, we need better risk insurance products through public-private partnerships to increase the financial protection of households, SMEs, utility cooperatives, and agricultural producers against natural disasters.

Second, the country needs to invest in resilience. There should be focus on financing public and private investments in disaster risk reduction, reconstruction, climate change adaptation, and lower Green House Gas emissions.

These ideas are on the drawing board. It is the social responsibility of corporates to help resolve these problems if you want to be the next Asian Miracle.

Finally, every individual, every company, can take climate action.

Tackling climate change will take innovation, investment and the commitment of governments, companies and civil society to change the way we work together.  Climate investment is simply smart investment to keep our planet safe for future generations. That is the corporate social responsibility we are talking about.

Conclusion

To conclude, the wind is in your sails. Many difficult reforms have been undertaken, notably in budget transparency, public financial management, the fight against corruption, and social service delivery.

But much more remains to be done: budget reforms, anti-corruption efforts, investing in infrastructure - health and education, and improving transparency needs to continue with even renewed effort. Public revenues need to be increased to be able to invest more in human and physical capital. Only then will the miracle be realized.

There is a real sense of urgency in getting as much done as possible. This is not just the business of government but it is everybody’s business to support these reforms. It is to everyone’s interest, regardless of political, social and economic affiliations to make this miracle a reality.

Now is the time for all of us to come and get our act  together, with a greater sense of urgency. Let us seize the moment and make sure that the country is taking the right direction at this critical juncture to becoming the next Asian Miracle.

“MAY HIMALA!” (THERE IS A MIRACLE!) But it’s up to the Filipino people to make this happen.

Maraming Salamat Po.