Crossroads (Toward Philippine economic and social progress)
Philippine Star, 7 May 2014

 

The commemoration of Labor Day last week brings to mind the question of what policies bring about rising standards of living for labor. In the course of decades of Philippine development, labor’s condition has not improved as much as that of some outstanding East Asian neighbors.

As a nation, we could have done so much better in terms of employment and we should have wiped out a lot of poverty.

There are outstanding examples that serve as good reminders that performance could have been better. These are South Korea, Taiwan, Hong Kong and Singapore. There is a second tier of successful countries in ASEAN – Malaysia, Thailand, and lately, even Indonesia and Vietnam, both late achievers but nevertheless successful. China’s rapid growth is even more impressive.

In all these countries, rapid economic growth made possible the expansion of employment and rising productivity.

Rapid economic growth. In all the above countries, rapid year-to-year economic growth created conditions in which rising employment outstripped the increase of the labor force. Rapid economic growth was conditioned by economic policies relating to trade and industrialization that were conducive to competition.

Such success came from a correct motivation of economic policy. In their own learning process, they directed the bulk of their industrial efforts to conquer the markets of other countries by producing goods that their labor resources could adequately and cheaply produce for the world markets.

As incomes rose from these efforts, the domestic market gave further impetus for more growth. Industrial capacity for home demand became large enough to fuel further internal growth and enlarge the basic capacity on which to source additional expansion of export industries.

As a result, export growth was able to generate a domestic feedback that not only raised the incomes of export dependent industries. Those producing for the home sector also became energized and their incomes rose.

Philippine is restrictive and protectionist policies reduce our capabilities. Our model of restricting foreign direct investments only to exports and limiting their entry in the domestic market – the cornerstone of BOI policies and those policies engineered by those who thought we could fine-tune economic behaviour – did not work for us.

Today, these policies are still in place. (Luckily, we have PEZA investors!) They are, in brief, the major reasons why we should open the economy more, why we should remove the restrictive economic provisions in the Philippine constitution.

Unique stories, all. Though such countries did not have a uniform development story, what is common to all these high growth nations is that they priced their economic resources right and sought to get inflows of capital that they needed most for lack of it.

What they had in great abundance – labor – they took great advantage of in pursuing a policy that made labor work hard and productively.

Where they were lacking in some resources, they tried to get through economic policies of openness. All these countries have encouraged the inflow of foreign direct investments. As a result, the shortfalls in domestic investment, were filled by foreign capital.

High inflows of FDIs raised the demand for labor and brought in modern technology. Greater availability of modern equipment and processes made labor more productive. Along with high demand for labor, higher productivity caused wages to rise even more.

Accent on declining population growth. Finally, as a major element of this successful entry into the world of rising industry and trade, all these countries were not hampered by uncontrolled population growth as their economies experienced the surge in output.

Philippine development has been partly held back by the burden of a high rate of population growth during the decades when our high growth neighbors were also simultaneously experiencing a reduction of their population growth rates.

It is only in 2014 that the Philippines could truly exercise greater restraint over its population growth through a law that took decades to introduce.

Improving performance and rising expectations. Conditions are more propitious for improving the state of labor in the current economic scene.

In the first place, Philippine economic performance has moved to the forefront of economies within ASEAN. Recent growth rates of seven percent per year is are relatively high during a period of tough economic conditions for the world economy.

Making this progress sustainable is a challenge for policy makers. There are many areas of economic policy that need to be sharpened – for greater effectiveness.

I still withhold an optimistic assessment about prospects for these changes, largely because President Aquino has not yet embraced these needed changes.

Once again, restrictive Constitution economic provisions. The most important economic reform bill is the amendment of the restrictive economic provisions of the constitution. Failure to attend to this implies that all the major opportunities for growth in the future will be monopolized by a few locals.

Opening the economy to more foreign competition will improve the speed with which we can transform the economy. There will be greater competition in getting important projects undertaken more quickly, especially in the infrastructure and utilities sector.

The liberalization of restrictive economic provisions for foreign capital is essential toward making the country also more competitive within the framework of the ASEAN Economic Community. Many of our ASEAN neighbors have much greater access to foreign capital as their economies expand within the community.

The country is hampered unnecessarily in playing a wider role in ASEAN as most of the ASEAN member countries operate without the restrictions imposed by our Constitution on foreign enterprises. Therefore, other ASEAN partners enjoy an edge in expanding opportunities for companies over this count.

There is need to open the economy to more foreign capital participation. The country is mainly fuelled for growth by a small group of shakers and makers who control a large swath of economic opportunities that are opening up.

Labor Day posturing. For all these reasons, I find the posturing of labor leaders on Labor Day extreme . The radicals try to use storm and thunder methods to gain attention through demonstrations decrying the government for not raising wages. The TUCP (Trade Union Confederation of the Philippines) makes news by demanding that the government adopt an across the board P135 daily increase to move the minimum wage higher across the country. This of course is asking for the moon.

I have yet to hear them tell the government: “Bring in more FDIs!” “Open the economy more so that we can invite more investments and improve competition!” “We support removing the restrictive economic provisions of the Constitution.” “Thanks for the RH law!”