Dr. Emiliano Hudtohan

Educator, Business Writer, Industry Expert and Entrepreneur

ASEAN Economic Community: Opportunities in Managing the Challenges of the Region

Dr. Emiliano T. Hudtohan, EdD
Management Organization Department
De La Salle University, Manila
Speech delivered at the ASEAN Economic Community International Seminar
Halu Oleo State University, Kendari, South Sulawesi, Indonesia
April 28, 2014

Management Organization Department, College of Business, De La Salle University, Manila, Philippines

Abstract:  The AEC Blueprint has four pillars which contain 17 core elements and 176 priority actions whose implementation begins in December 2015. These pillars provide: Opportunity No. 1 to review our economic fundamentals based on Smithian Wealth of Nations and search for Common Wealth.  Opportunity No. 2 to reshape management according to our Asian culture and conflict management approach based on the Asian face theory.  Opportunity No. 3 to consider building new structures that will extend the reach, expand the capacity, and go beyond the limits of our institutions founded on 18th century Newtonian principles and shift the principles of New Science.
Why is AEC an Opportunity?

Economist Benjamin Diokno (2014a, 2014b) of the University of the Philippines made a study which showed that the Philippines will be the least attractive investment destination in ASEAN Integration in 2015.  However, the Philippines Ease in Doing Business score moved from No. 138 to No. 108, it still has to work hard to improve its processes (Luz, 2014) and it is recommended that we repeal some of our laws and lower the cost of doing business to be at par with our ASEAN partners.  What is not fully articulated is that originally, the Philippines and the ASEAN members, have five more years and that is  2020.
The Declaration on the ASEAN Economic Community Blueprint (p.20) states the establishment, the actualization, and the fulfillment of a dream come true is in 2020.  Learning from history, real transformation is very show.  In fact, 50 years is estimated by social scientists as mere transition.

The Economic Community
The 2013 assessment of Asian Development Bank in Asian Economic Integration Monitor states that: “The success or failure of the AEC ultimately lies in the hands of the national decision- and policy-makers who make it happen, and who have the political backing to overcome vested domestic interests that stand to lose from liberalization…The flexibility that characterizes ASEAN cooperation and institutional arrangements could give member states a pretext for non-compliance – and these are enforcements issues.  This is the key challenge to be overcome in realizing the AEC as more than a political exercise in solidarity.”

A scorecard based on March 2012 data on the four pillar of AEC showed the following accomplishments: 1.Single Market and Production Base is 66%, 2. Competitive Economic Region 68%. 3. Equitable Economic Development is 67%, and 4. Integration into the Global Economy is 86%.  The overall performance of AEC reached is about 68% of its overall targets between 2008 and 2011.  Le Luong Minh, Secretary General of ASEAN says as of 2014 implementation is already 80% (Oxford Business Group, 2014).

The biggest strides have been made in integrating into the world economy Pillar 4 registered 86%. This is due to the fact that that ASEAN economies trade mostly with the rest of the world. According to Hill and Menon (2013), since 1970, intraregional trade has generally been between 15% and 30% of total ASEAN trade, and while the  has been trending upward, it remains low in comparison with the shares of ASEAN’s external trading partners, particularly the European Union. (Hill and Menon 2012).

According to the Asian Development Bank (ASEAN Economic Monitor, 2013), there are five key drivers to the AEC integration: 1. Political will, 2. Coordination and resource mobilization, 3. Implementation and arrangements, 4. Capacity building and institutional strengthening, and 5. Public and private sector consultations.

Based on the four economic pillars of AEC and the five key behavioral drivers for ASEAN integration, I would like to see our predicament as opportunities for establishing an ASEAN community.  The ASEAN challenge is an opportunity for 1. Promoting commercial and common wealth, 2. Advancing Asian Conflict Management and 3. Superstructing regional organizations and institutions.

Opportunity No. 1 Promoting Commercial and Common Wealth
Under Section II. Characteristics and Elements of AEC, Item 7 states, “Other areas of cooperation are also to be incorporated such as human resources development and capacity building”.  In this regard, an updated understanding by regional managers on management is Opportunity No. 1.

Our coming together to work together as a regional hub of global economic center is an opportunity to raise the level of our business organizational management.  The mainstream and multistream approaches to management will allow us to view and review our own management styles and principles.

The concept of community in business is emerging based on multistream approach.  According to Dyck and Neubert (2011), “Multistream management is characterized by its emphasis on multiple forms of well-being for multiple stakeholders… [where] any group or person within or outside an organization who is directly affected by the organization and has a stake in its performance.”  Our respective ASEAN managers need to recognize multistream management which nurtures community through virtuous acts. Thus, management nurtures community via virtue; planning is about wisdom and participation, organizing is meeting goals with courage and experimentation, leading working alongside with others through relational self-control and with human dignity, and controlling ensures actions that are just and fair in holding the organization together (Dyck and Neubert, 2011, p. 16).

The ASEAN Integration speaks of economic community.  I think the dynamics of being a community are of far greater importance at this point of journey towards building an economic community.  What is community then?  Historically, community was built around the concept of everything being held in common.  The concept of ownership was in common.  No one owned anything but everything was in common.  Then came the privatization of the common.  Adam Smith in The Wealth of Nations held the notion of a commercial society that produces commercial wealth.

However, Marvin T. Brown (2014, p. 17) argues that there is a need to balance commercial wealth which is driven by private property, land as commodity and exclusive ownership with common wealth which advocates shared provision, land as provider and membership that is inclusive.  He further elucidates:
In a commercial society, what counts as wealth is what can be treated as a commodity in the market.  In a common society, wealth will not be limited to what we can purchase, but will include all that we need for a good life…Instead of focusing on the accumulation of property; the focus will be on the making of provisions.  A common society will provide for one another through process that are based on shared endeavors…A common society will also allow us to recognize the planet as a living provider instead of only seeing its property value.  Most importantly, instead of treating the planet as an object we control, we can see it as something to which we belong.  This means that inhabitants of the planet can relate to one another not primarily as owners, but rather as members of a commons. (Brown, 2014, p.37).

Because business is commercial, there is a need to create a civic platform for commonwealth.  He says conversation between commercial and common will lead to integration by answering the following questions: 1. how should we design an economy that makes provisions for everyone? 2. How should we deal with disagreements among citizens? and 3. How should we govern a civic commonwealth?

Brown (2014, p. 44) believes that “The work ahead is the work of citizens, who through civic conversations give shape to a viable relationship between the commons and the commercial.  Business leaders can participate in this work by exploring the role of their business in a particular system of provision.  Ethicists and others can help to facilitate such conservations, so that civic defines our commonwealth rather than the commercial.”

Matthew Taylor’s (2010) of the 21st Century Enlightenment asks, “Will the ideas and values which transformed our world in the last two centuries be sufficient to find solutions to the challenges we now face or do we need new ways of thinking?” Thus, the matter of ‘solidarity and community’ among ASEAN members must be nurtured because these cannot be legislated.

Community is a union of consciousness; it is about our humanity in this region.  And our economic community based on material exchange must never exclude our transcendental relationships that bind us together in Asia and around the globe.

Regional Comparative Advantage
David Ricardo’s (1817) theory of comparative advantage suggests that a nation should concentrate solely on those industries in which it is most internationally competitive, trading with other countries to obtain products which are not produced nationally. This means that industry specialization and international trade always produce positive results.  Philippine DTI Undersecretary Adrian Cristobal, Jr. (2014) describes the AEC a vast opportunities for growth, dynamic competition as well as complementation.  I translate ‘complementation’ as a comparative advantage.

Although Sec. 8 of AEC Blueprint talks about the region as a community, it in the same breath identifies the region under Item b. as “a highly competitive region.”  I believe it continues to subscribe to the Smithian theory of competitive advantage.  The AEC Community has the greatest opportunity now to make Ricardian comparative advantage work in this region. Article 8 of AEC Blueprint states that “the AEC envisages the following key characteristics: (a) a single market and production base, (b) a highly competitive economic region, (c) a region of equitable economic development, and (d) a region fully integrated into the global economy. (AEC Blueprint, p. 6).” In addition to the current practice of competitive advantage, there is a need to study and experiment with comparative advantage to balance individual ASEAN member’s exclusive economic growth at the ‘expense’ of other members.

Philippines Competitiveness
According to Julius Cesar I. Trajano (2013), “The Philippines and Indonesia, [are] now considered ASEAN’s fastest-growing economies and brightest spots amidst gloomy global economic outlook, are both crucial to the establishment of the AEC. Assessing the level of preparedness of Indonesia and the Philippines to achieve AEC targets, however, indicates some daunting challenges, particularly in three critical areas, namely, (1) free flow of investments, (2) interconnectivity and infrastructure, and (3) poverty reduction and equitable economic development.” Both performed poorly in eliminating stumbling blocks to investments as they ranked 138th and 128th, respectively out of 185 countries in the World Bank’s 2013 Ease of Doing Business Index. Both remain reluctant to open up their protected services sector to foreign investors.

In 2012, FDI inflow in the Philippines rose by 10% to US$2.033 billion. However, this figure is dwarfed by Indonesia’s $22.8 billion, Malaysia’s $10 billion and Thailand’s $8.1 billion. Clearly, FDI remains the missing piece in the Philippines’ growth because of Philippine Constitutional provision of 40% limit of foreign ownership of companies as shield for domestic businesses from competition.

As the ASEAN region come to economic terms, the opportunity of each member to create comparative advantage, side-by-side with its current competitive advantage, will become a reality.  There is a need to explore the comparative advantage mode of economic relationship which is built on “A situation where the opportunity costs (costs in terms of other goods given up) of making a commodity are lower for one country than another” (Velasquez, 2006), This means that free trade and specialization will boost economic output and everyone in the region can share in this increased output.

Opportunity No. 2 Advancing Asian Conflict Management
AEC Blueprint Pillar 2: Competitive Economic Region (Foundation for Competition policy consumer, Protection intellectual property rights, Infrastructure development and Development of energy and mineral and mineral cooperation) is 67.7% accomplishment.

The Asian Development Bank reports that “ASEAN members prefer to run disputes through the WTO rather than ASEAN’s Enhanced dispute Settlement Mechanism (EDSM), the mechanism must be strengthened while dispelling perceptions that its decisions are not rules-based.” (ADB, 2013).  In 2004 ASEAN Protocol on EDSM and in 1996 the ASEAN Protocol on Dispute Settlement Mechanism was established patterned after the WTO Understanding on Dispute Settlement. It is recommended by Hsu (2013) that the traditional ASEAN non-confrontational way of settling disputes has allowed rare intra-ASEAN disputes to be amicably settled without formal panel hearings.

I think there is a need to highlight the important of the Asian Face. In the Philippines, the face is the window of the inner self [kalooban] of the Filipino. What happens to that face is felt deeply within the spirit. Thus, saving face is very important, avoiding losing face is a common practice, and the Filipino smile puts on a happy face to express joy, but sometimes to hide fear and anxiety.

The face negotiation theory of Stella Ting-Toomey (2005) indicates that culture is the root-base of conflict resolution.  According to her, our self-image, or “face”, is at risk in conflict and our culture is attached to the way we deal with this issue and communicate.  In the process, it can result to: 1. Emotional expression of personal feelings in order to deal with and control conflict,  2. Third party help in order to resolve conflicts, and 3. Passive aggressive reaction to conflict in a roundabout way, placing blame indirectly (Ting-Toomey, Oetzel, and Yee-Jung, 2001).

Our Asian inner sensitivity manifested by the (Asian face) and our endearing human relations or relational quotient (rQ, Carucci and Passimore, 2002) will also be highlighted as we pursue harmonious rather than confrontational conflict resolution in removing economic, social, and political barriers.  Our Asian cultural DNA rooted in our spiritual traditions will likewise be a source of resilient business ethical relationship that will balance the overwhelming economic demand for production, consumerism, and materialism.

As regional leaders we also gain insights into the cultural values within the ASEAN and reexamine our existing practices.  David Livermore’s (2010) cultural intelligence suggest looking in our Economic system (Capitalist vs socialist), Family system (Kinship vs nuclear family), Religious system (Mystical vs rational belief), Governance and legal system (Formal and informal), Educational system (Formal and informal), and Artistic system (Clear vs. fluid).

Based on Roman Krznaric’s (2012) Power of Outrospection, I surmise that ASEAN integration must exercise global and regional empathy for effective conflict resolution.  As we join the global community [not only for economic trade], we need solidarity through global empathy (Krznaric, 2012; Taylor, 2010; Rifkin (2010).

Opportunity No. 3 Superstructuring organizations and institutions
The four pillars of the AEC maybe subsumed under the umbrella of a superstructure.  There is a framework that would result to a new system and new structure that would facilitate the fulfillment of our dream of an AEC in 2020. To superstruct means: [T]o build new structures that extend our reach, expand our capacity, and go beyond the limits of today’s institutions.  It means to bridge, to traverse boundaries, not just of organizations, communities, or nations, but also of scale itself.  It also means finding new kinds of value in new kinds of social production and new forms of social connectedness.  In fact, superstructing is all about building a new level of sociability into our economic lives – and into all our projects, from securing food and shelter to governing ourselves. (McGonigal and Vian, 2009).

Micro and Macro Scale Collaboration
According to McGonigal and Vian (2009), the heart of superstructing is “collaborating across scales, from the micro to the massive.  Superstructing is not just about big; it’s also about very small contributions by many individuals that add up to something big.  We can apply practical strategies to the millions of interactions that make ecology sustainable.  We can work small to create big effects.  And we can leverage massive platforms to create very targeted value in select places in the ecology.”
The Institute for the Future cites five key areas for consideration:  “1. The Appleseed Ecology which proposes ‘simfarms’ structures for securing food, repurposing wastes, and crating new forms of exchange. 2. The Natural Currency Ecology which re-envisions our capital systems as tied, not to gold or GDP or other commodities, but to environmental measures, linking sociability to sustainability. 3. The Community Works Ecology which advocates that large scale problems do not require large scale solutions; it means creating superstructures for replicating local solutions across large-scale systems. 4. The Open Fab Initiative Ecology starts a node for linking small-scale fabrications and practices to solving problems of distressed communities – creating a new local material and economic realities. 5. Quantum Governance Ecology is building a desire to create a new post-Newtonian model of governance that will help citizens make sense of the world – bridging across realities” (Superstruct Handbook, 2009).

In closing, the question I ask then is: can we steer our economic community towards a moral economic community that truly cares for every member of civil society in the ASEAN region?
The answer: The Institute of the Future has a superstructuring game.  I highly recommended we play it to have a foothold on the superstructure we call the ASEAN Economic Community which we are starting now. We want to operationalize the four pillars that contain 17 core elements and 176 priority actions by 2020.

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