The Philippines successfully concluded
hosting the 23rd World Economic Forum on East Asia which highlighted the
impressive economic gains under President Aquino’s administration.
Just
last year, despite Supertyphoon “Yolanda’s” widespread devastation, the country
chalked up a gross domestic product (GDP) growth rate of 7.2 percent, the
second highest in Asia, next only to China, although GDP growth slowed to 5.7
percent in the first quarter of this year.
The
World Bank revised its growth projection for the Philippine economy downward
from 6.7 percent to 6.6 percent for 2014.
It
scored investment grade ratings from all three major global credit rating
agencies, the first time in its history and stood out as the fastest-growing
economy in the Association of Southeast Asian Nations (Asean). From being
labeled the “sick man of Asia,” the Philippines is poised for a long-term
growth trajectory and real economic takeoff.
Virtually
unchanged
And
yet, despite this stellar performance, poverty incidence has remained virtually
unchanged from 25.2 percent in 2012 to 24.9 percent in the first semester of
2013 (Philippine Development Plan Midterm Update; Annual Poverty Indicator
Survey).
In
poverty reduction, the Philippines has lagged far behind its Southeast Asian
neighbors, namely, Thailand, Malaysia, Indonesia and Vietnam (Diagnosing the
Philippine Economy—Toward Inclusive Growth, Asian Development Bank [ADB]
book, 2011).
The
unemployment rate even worsened, as it rose to 7.5 percent in January 2014 from
7.3 percent in 2013 and the underemployment rate hovered at a high 19.5 percent
for a total of 27.0 percent of the entire labor force (ADB Outlook, 2014). We
already have 10 million Filipinos working overseas.
The
Philippines had the highest unemployment rate for 2013 among all the 10 Asean
countries (International Labor Organization [ILO] 2014 Report). See Table.
In
fact, the increase in wealth of the top 40 richest Filipinos in 2011 was
equivalent to 76.5 percent of the Philippine GDP growth for that year (Habito,
Inquirer, June 26, 2012), manifestly showing that economic progress has
disproportionately favored the economic elite.
The
once vaunted “Filipino First” policy has morphed into a “Rich Filipino First”
policy, as much of the country’s resources and wealth have been gobbled up by
economic oligarchs. Simply stated, the remarkable economic growth has not been
inclusive, bypassing the poor and the unemployed.
Inclusive
development
While
it is true that our chronic twin problems of poverty and unemployment may not
be solved overnight, their alleviation and mitigation can be considerably
hastened with innovative, stimulating and productive transformational
strategies that will significantly uplift the lives of all
Filipinos, including the poorest of the poor.
Our
people cannot afford to wait for remedies that are agonizingly slow in
coming. They need solutions with immediate and powerful impact. The
following are compelling proposals and programs that will help bring this
about.
Charter amendments
The
first commandment of the 10 commandments of the amendatory process, according
to Harvard law professor Laurence Tribe, in his book “American Constitutional
Law” (2000), is that the Constitution should not embody economic policy. The
constitutions of other countries are wisely silent on economic issues and,
thus, they retain great flexibility in enacting economic laws responsive to the
demands of the rapidly changing times.
But not
the Philippines, where we have disregarded or overlooked this principle on
constitution-making, for our fundamental law expressly embodies
ultranationalistic economic provisions limiting foreign ownership and
investments in vital sectors of the economy.
As a
consequence, the Philippines has harvested the bitter fruits of this monumental
constitutional blunder. Because of these misguided economic policies deeply
embedded in our Constitution, for decades the Philippines has lagged far behind
its Asean-5 neighbors in economic growth, foreign investments, job
generation and poverty alleviation.
Lowest
FDI
In the
matter of foreign direct investments (FDIs), data from the UN Conference on
Trade and Development show that for 2010-2012, the Philippines received
only $6.8 billion in FDIs, while its Asean-5 neighbors received more than
triple or quadruple: Vietnam—$23.8 billion, Thailand—$25.5 billion,
Malaysia—$31.4 billion and Indonesia—$53 billion.
Our
current level of FDIs remains at the bottom of the pack among these
countries, according to the Foundation for Economic Freedom. See bar
chart.
But
now, we have before us the golden opportunity to dismantle these impediments to
progress once and for all. Ongoing proceedings in Congress seek to amend the
Constitution by simply adding the crucial phrase “unless otherwise provided by
law” to those provisions which limit or restrict foreign ownership and
investments in certain significant sectors of the economy, notably in natural
resources, land, public utilities, educational institutions and mass media.
These
amendments are designed to attract massive investments into the economy because
it is mainly through investments, especially foreign direct investments that
jobs are created and poverty is reduced, resulting in inclusive development.
Philippine
economic growth has been primarily consumption-driven, not investment-led and
employment-oriented. We urgently need enormous investments in infrastructure,
factories, natural resources, utilities, industry, agriculture and tourism.
The
Philippines is in the process of adopting a comprehensive competition law as
part of its commitment to the economic integration of Asean by end-2015. The
integration will herald a “new era for borderless competition” across
industries, as it is expected to transform the Asean countries into a single
production base and market of over 600 million people, where there will be free
movement of goods, services, skilled labor, investments and capital.
Fragmented
competition laws
While
the Philippines has more than 30 laws relating to competition, they are
fragmented and not fully compliant with Asean guidelines, according to the
Asia-Pacific Antitrust Review 2014.
The
essence of a truly democratic free-enterprise system is competition. This
proposed competition framework aims to unify all laws, regulations and policies
that promote competition, innovation and productivity, rather than dishonesty,
corruption and rent-seeking. The framework also aims to eliminate monopolies,
cartels and unfair competition.
Antidynasty
law
Political
dynasties are expressly forbidden by the Constitution (Art. II, Sec. 26), but
this prohibition is not self-executory as it is qualified by the phrase “as may
be defined by law.”
Despite
numerous valiant attempts, the proposed ban has been doomed, as Congress is
regarded as the principal playground of political dynasties, which cannot be
expected to embrace a law that would bring about their own political demise.
According
to the Movement Against Dynasties (MAD), 80 percent of the Philippines is
controlled by political dynasties. Even now, new dynasties are mushrooming all
over the country. Political dynasties are “the source of corruption, massive
cheating, violence, poverty, poor education and the stranglehold over business,
the police and even the military where dynasties rule,” said MAD cochair Danilo
Olivares (Inquirer, May 29, 2014).
A law
banning political dynasties, now again pending approval in Congress, would
democratize political power in the country by guaranteeing equal access and
opportunity to public office, especially to poor but competent and deserving
candidates.
Perhaps,
in time, transforming leaders not belonging to entrenched political families,
will ultimately be able to take over the reins of government and bring about
accelerated inclusive development.
Good
governance
Corruption
is the top problem faced by developing countries, according to World Bank
President Jim Yong Kim. The persistence of rampant corruption is one of the
principal reasons for Philippine poverty and underdevelopment. The cost of
corruption in government is stupendous, about P250 billion a year, according to
the Philippine Public Transparency Reporting Project.
Corruption
is one of the most critical constraints to foreign investments and, hence, to
sustained and equitable growth. It also weakens investor confidence, undermines
tax collection, causes poor conditions of infrastructure, hinders the pace of
poverty reduction, reduces productive employment opportunities, and is a major
contributing factor to inequalities in access to education, health and other
productive assets (Diagnosing the Philippine Economy).
Agrarian
reform
Hence,
the merits of the invisible hand of the market—first asserted more than two
centuries ago by Adam Smith, the father of modern economics, in his classic
tome “The Wealth of Nations”—must be balanced by the virtues of good
governance. There must be transparency and accountability in governance, and
corruption must be exposed to the light of day for, as Justice Brandeis
sagaciously declared, sunlight is the best disinfectant.
A major
key to inclusive development is higher agricultural productivity. Two-thirds of
poor Filipinos reside in rural areas and depend predominantly on agricultural
employment and incomes (Diagnosing the Philippine Economy).
According
to the World Bank, developing the agricultural sector in a sustainable manner
represents the only viable way out of poverty. It further asserts that land
reform significantly improves the well-being of farmer beneficiaries, as they
accumulate capital and assets at a faster rate than nonfarmer beneficiaries and
their farms are more productive.
Many of
the flourishing economies in Asia, notably China, Japan, Taiwan and South
Korea, have utilized their successful agrarian reform programs as a springboard
to effectively transition to rapid industrialization.
The
Comprehensive Agrarian Reform Program (CARP), together with its extension
(Carper), is set to expire on June 30, without having completely achieved its
objectives. According to an Asia-Pacific Policy Center study, under CARP
poverty incidence decreased and landowner incomes increased. It is,
therefore, advisable that CARP be continued and allowed to be fully
implemented.
To make
agrarian reform truly effective, however, these critical constraints must be
remedied: lack of farm-to-market roads, irrigation systems, postharvest
facilities, financial support, training and agricultural extension services.
‘Arangkada’
The
Arangkada (“Move Fast”) program is a 10-year roadmap launched in 2010 by the
Joint Foreign Chambers of the Philippines (JFC), whose main message is that the
Philippine economy has grown so slow for so long a time that it has to double
its growth rate and move twice as fast to create jobs, eliminate poverty and
catch up with its faster-growing neighbors to enable the economy to compete in
an increasingly interlinked world.
According
to Arangkada, the three biggest challenges facing the Philippine economy are to
move up to a higher level of sustained growth, create more and better jobs, and
make growth inclusive. It further asserts that existing massive unemployment
and poverty can best be solved by investments made by both locals and
foreigners, and that competitiveness is the key to attracting those
investments.
Industrialization
Industrialization
is crucially important to rapid economic prosperity of developing countries.
Sustained economic growth, as the foundation for reducing poverty and
converging to high income, is the result of incessant structural change through
industrial upgrading and diversification (Lin, “The Quest for Prosperity—How
Developing Economies Can Take Off,” 2012).
The
most important component of the industrial sector is manufacturing, a major
driver of growth, which in the Philippines constitutes around 70 percent of
total industrial output. But there are major constraints to be overcome, mainly
high power costs, poor infrastructure, difficulty of doing business and
protectionist measures.
After
World War II, the Philippines was next only to Japan in economic progress. But
it has been left behind by its Asean neighbors in attaining economic
growth and eradicating poverty because of its erroneous industrial strategy. It
adopted and lingered too long on import-substitution and protectionist
industrialization, and failed to timely shift to the promotion of
export-oriented and labor-intensive industries.
The
Philippines has embarked on a reindustrialization program to recoup its lost
industrialization. Manufacturing last year posted a 10.5-percent growth, nearly
double the 2012 growth of 5.4 percent, although its growth moderated to 6.8
percent in the first quarter of this year.
But
this revival is driven predominantly by robust domestic demand, while
manufactured exports have still to diversify and intensify from over-reliance
on semiconductors and electronic products.
Not
etched in stone
Our
economic principles and beliefs are not etched in stone or memorialized in
solid granite. As Charles Darwin aptly reminds us: “It is not the strongest of
the species that survive, nor the most intelligent, rather it is those most
responsive to change.”
Economic
dynamics constantly change and we cannot just remain mired in the past or have
our perspectives frozen in time. We cannot remain stubborn and unreasoning in
our feudalistic, antiquated, insular, and corrupt ways and practices, and
continue to lag behind our Asian neighbors in the march toward inclusive
progress.
Be
bold
We must
adapt and keep attuned to the revolutionary and fast-evolving international
developments, especially to the new highly globalized, integrated and
interdependent world, governed by modern state-of-the-art information and
communication technology systems.
Now is
the time to boldly confront and decisively challenge these intractable critical
barriers and formidable structural bottlenecks to inclusive development. We
have it within our powers to jump-start and redouble our efforts to radically
change for the better the lives of our poor and marginalized countrymen;
achieve a more just, humane and egalitarian society; and engender
prosperity shared by all, through equal opportunity to avail ourselves of the
abundant resources and blessings of genuine democracy.
Robert
Evangelista
(Robert Evangelista was chief legal counsel
of the Philippine Center for Immigrant Rights based in New York. He pursued
postgraduate studies in law and economics at the University of the Philippines
[as UP Law Center scholar], constitutional law at Harvard and international
economics at Oxford. He can be reached at evangelista.robert@gmail.com.)
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