5 Strategies for the crisis

ATLAS (A Toroidal LHC ApparatuS)You know it's amazing sometimes how serendipity works, but in today's El Nuevo Dia, the headline in the business section is 5 Strategies for the crisis. This is yet another attempt to "fix" our economic weakness with words not action, but you know, whatever, at least acknowledging we have a serious problem is a start. So what are these amazing new strategies?

  1. A social pact
  2. Syndicate the budget
  3. Budget base 0
  4. Comprehensive tax reform
  5. "Privitization" of the private sector (Huh? WTF?)
I'm on board with items 1 and 5, which if you can't figure out from my translations are: 1) create a long term economic development plan independent of party (Although good luck trying to get all of the entities invited to the table to agree on a plan. I bet the only thing they'll agree to is that each "entity" shouldn't have to sacrifice(invest) anything but should get more.); 5) Although poorly named, what they mean is that the private sector should invest in economic development in order to absorb all of the government employees that will let go to improve their efficiency.

If you ask me, and I know, no one is and why should they I'm just a blogger, investment in economic development by the private sector is the key to Puerto Rico's future economic viability (as I've said numerous times, sorry just wanted to point out that I didn't just dream this up to agree with the article). I think Thomas Friedman puts it much better than I ever could in his editorial "Georgia on My Mind". How's this for a diagnosis for what ails Puerto Rico:
A developed country’s competitiveness now comes primarily from its capacity to innovate — the ability to create the new products and services that people want, adds Curtis Carlson, chief executive of SRI International, a Silicon Valley research company.
And what about this one? It's like the perfect recipe for the medicine that no one here in Puerto Rico wants to drink:
Our competitiveness, though, he added, is based on having a broadly educated work force, superb research universities, innovation-supportive taxes, immigration and regulatory policies, a productive physical and virtual infrastructure, and a culture that embraces hard work and the creation of new opportunities.
Spin Baby, Spin

So what's the deal with strategies 2, 3, and 4. Two things. First, let's be clear about this. These three items are just spin for we need to cut our government in half, thus firing or retiring half of all its employees. Sure it sucks if you're in that 50%, but if we don't we'll never be able to fix diddlysquat. Remember, that I just covered the evils of spin.

Second, when are we going to understand that government doesn't create economic development. In order to create economic development you have to be "in the economy." Since government doesn't produce wealth (well unless you're an elected official, especially our "fine" self-serving senators, representatives, and mayors), or profits, or is a business, it can't really develop the economy. While it can create jobs, those jobs don't add to the creation of wealth, they merely move the money around, like some huge money laundering operation. Sure they can enable, fund, promote, and all kinds of other important activities, but it is the private sector that must "own" economic development. Which, IMHO is the complete opposite of the zero sum life-style focused industry leaders we currently have.

Innovate baby, Innovate

So let's revisit the topic of innovation, and one of your favorite blog post topics, Banco Popular and their new banking website. You remember all the fun we had with that one? Oh boy, good times, good times. Anyway. It's funny how calling someone a big doo-doo head eliminates the need to refute their logic, but one of the claims made about the new banking site, (By the way, all of you BPPR customers, now that the new web site is up, do you feel that the new site was worth the two million? Is it two million times better than the old system?) was that the new site was a bold innovation in Internet banking, one that we should all be proud of.

Jingoism aside, really? Let's use Thomas Friedman's example. Do you think that Puerto Rico would be better off with a new web banking system or a new line of business or product that will dramatically grow Banco Popular. I don't want to get into the semantics of that the new banking system will or will not grow the company, what I'm talking about is Banco Popular investing in research and development that leads to significant economic development. I wonder how much of their profits(or percentage of revenue) they invest in new R&D. R&D that is aimed at new company (subsidiary, whatever) or product generation.

Frankly I don't know, so I'm going to be ignorant and say that I think it's really, really low, and probably close to 0. Here's an article I conveniently found that shows eleven companies whose R&D budget is an average 16.31%. I know it's a little old, but if you think it's not valid compare the stock growth of those companies to that of Banco Popular. I haven't, but I bet it proves my point.

So if Banco Popular is the largest local company and they spend next to nothing on R&D, what do you think the rest of the top 400 local companies do? In my (not so humble) opinion until Banco Popular and the rest of the leading companies in Puerto Rico invest in creating a culture of innovation (the second of the two quotes above), we will not fix our economy. Sure government has it's role to play in creating that culture, but it is a supporting role, not a leading role as the five strategies above proclaim.