One Leg Short

by Juan L. Mercado


“The  Philippines is one of the world’s major development puzzles”,  then UP School of Economics professor  Arsenio  Balisacan  wrote in  2003.  Today, Balisacan  chairs  the National Economic Development Authority under the Aquino administration.. He has his hands full, as an Asian Development Bank conference at UP Cebu  shows.

If  Filipinos are to break free of  poverty treadmill,  the economy  “must walk on two legs” namely services and industry  says the new ADB  report: “Taking the Right Road to Inclusive Growth.

Here,  the economy  increasingly relied on the “one leg” of services, , ADB’s country director Neerai Jain and economist Norio Usui  stressed  at the forum.   Almost 60% of gross domestic product today comes from this “one leg”.  Industry’s  share of GDP  slumped  from 39% to 32% over  a decade.

Take Business Process Outsourcing’s track record..  BPO grew at double digit rates. It   scurried up the value chain from traditional call services to software development and medical transcription. “The Philippines is now  the third largest BPO destination, after India and Canada.”

BPO  “employs only  about 1%  of  a   labor force  where  where 1.2  million are jobless and 1.4 million are underemployed. Those hired   are  college graduates.. “BP0  does not help  the more impoverished  or less educated…In the near future, It is unlikely that  development of services, even with the growing BPO sector,  would be solely sufficient  to bring the economy into inclusive growth”.

The  “other leg” of  industrial upgrading and  product diversification withered, conferences at  UP Cebu  and business groups heard. .  For example,  “the initial success in electronics did not translate into…more sophisticated segments of electronics…” “The country went through a process of de-industrialization from the early 1980s” , the report notes. A useful footnote would point out  these  straddled the  last years of  the Marcos dictatorship.

Other Asian countries altered  their development strategy  towards promoting exports and attracting  foreign direct investment.  Output shifted from traditional primary sector to modern industry. Structural recasting sustained growth and created jobs that whittled down penury.

The Philippines took “the road less traveled”  .In the 1950s and 1960s, the country was  regional economic pace-setter in It had then “a  relatively advanced manufacturing sector and the highest school enrolment.

As   the 21st century unreeled., Philippine per capita GDP  had  dropped to the bottom in the ASEAN-4. “Now, even the gap with Vietnam is narrowing.”.  Don’t pin the blame on high population growth, Norio Usui  counseled.  Malaysia had similar population growth over the same period.:

What happened?   We went  on a joy ride with overseas workers “padala” or  remittances which  bankrolled  private consumption. The booming services sector did not morph into higher employment.

Informal work and emigration remain major  escape  for underutilized labor,. “It is not uncommon to see college-educated maids and college-educated taxi drivers,” the report adds. “Deployment of OFWs and massive underemployment mask the extent of domestic joblessness.

“Productivity isn’t every thing,” we read in “The Age of Diminished Expectations”. “But in the long run, it is almost everything.”  Philippine productivity, over 15 years, ran along a  flat  line. In contrast, productivity in  Indonesia, Malaysia and  Thailand almost doubled.

In the turbulent decade ahead, as in the past, three challenges dog the Philippines:  massive unemployment, turtle-paced poverty reduction and stagnant investment. “A  first step towards  long set-aside  industrial development is to undertake broad based — and the key word is  “structural” —  reforms.

These must address long-standing challenges, such as under-provision of basic infrastructure, weak governance, and an unfavorable perception of the country’s business environment. ”Foster structural transformation to  generate the jobs need for the  ballooning numbers of working age  Filipinos.”

Learn from history too. “The growth miracle of East Asian economies started in the 1970s. These countries shifted their development strategy towards promoting exports  and attracted direct  foreign investments.  These led to output to high-productivity goods of increasing  sophistication.  The firms absorbed rural labor pools and reduced poverty. “A growth miracle  sustained for decades involves the continual production of new goods, not merely continued learning on a fixed set of goods”.

Policymakers  need to  move beyond  shotgun-incentive approaches. Think of more-focused  ways to target interventions that would help new products  It is vital that an “institutional mechanism be created to identify specific product  where interventions are crucial.

“The Philippines has enormous potential to become a key production base within the region,” Jain and  Usui said.   “With tightening labor markets in some countries, recovery from natural disasters in others, and the appreciation of the Japanese yen, there are growing opportunities for the Philippines to attract foreign investors.

“Public sector support is not easy,” the study cautions. “It requires  competent bureaucrats  under a strong ;political leadership  that places high priority on   economic  development”. The reform-minded Aquino administration can count on a private sector  that responds to vision.

Structural transformation, by it’s nature,is a long process. It can not happen tomorrow “Success is not always as distant as it seems…A future is within our reach.”

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