Our guerilla economy

Economists call it the underground economy. I think the more descriptive term is guerilla economy. Even after an economic crisis melts into a more normal economy, significant portions of our people remain in underground economy mode. It is as if we are in a perpetual state of war. I guess we are… war on poverty.

Crisis after crisis it is our people’s ability to use guerilla techniques in the so-called underground economy that enables us to survive the worst of times. Pinoys are natural guerillas… always creative and determined to strike a blow for survival with whatever’s at hand. The current world economic meltdown is not going to be any different as far as most Filipinos are concerned.

True, the Pinoy is a lot more global now and that should make us more vulnerable to a crisis of international magnitude. But we have the survivor DNA imbedded in us that will always enable us to live through anything thrown our way. Not only have we become experts in survival through the underground economy, we also have a natural safety net in the Filipino family. But that doesn’t mean we shouldn’t be more proactive.

The underground economy came to prominence after the financial crisis of the 80s and the 90s. Some economists say today’s global crisis will once again boost the underground economy from about 50 percent of the reported economy to as much as 70 percent. Then again, no one really knows for sure how big it is. The National Statistics Office (NSO) data included in the 2008 Informal Sector Survey (2008 ISS) of the Philippines showed that there were 10.5 million informal-sector operators. My sense is there are a lot more.

According to Business Mirror, Dr. Rosalinda Pineda-Ofreneo, professor of the UP College of Social Work and Community Development, estimates the entire informal sector would constitute around 24.6 million informal workers and operators, or 76.34 percent of the country’s labor force.

Former budget secretary Benjamin Diokno, on the other hand, said he expects an increase in the number of people in the informal sector as more and more companies shed workers locally and OFWs get laid off from work and return from abroad. This, he said, will be bad news to the government’s tax collection efforts this year and exert pressure on government’s ability to stimulate the economy more effectively and provide direct cash transfers and social services to the poor.

This creates a humanitarian problem because in an informal economy, jobs are often precarious and offer little income protection. Still, even if transitory, the informal sector helps create jobs, acting as a social safety net following the waves of crisis-induced layoffs.

Two major things are happening even now… more Pinoys are becoming micro entrepreneurs out of necessity as they lose jobs (NEDA estimates around 60,000 to 200,000 layoffs this year) or find difficulty finding one. These new ventures will likely be in the underground economy… no receipts… no government regulations… little or no taxes paid. Secondly, more consumers will patronize low-cost and readily available products or services sold by informal workers and operators simply because these are more affordable and easily accessible in their communities.

The informal sector is said to contribute about 20 to 30 percent annually to the gross domestic product (GDP) or the total cost of all goods and services produced in the country for a year. Diokno said the latest NSO data showed that around 48.4 percent of the informal-sector operators in the country are engaged in agriculture, fishery and forestry while 45 percent were engaged in services.

Dr. Rolando Dy the agri-business expert of the University of Asia and the Pacific explains that the agricultural sector is said to be shielded from the global crisis only in the sense that their economic activities are basically local. A large part of food production (rice, rootcrops, fish) is consumed in the area where it is produced. A part of the food is grown by households or within the barangay.

In other words, they are isolated not just from the global economy but even from the national economy… While they are conveniently considered part of the underground economy, their lives will not be better because they are isolated from the world crisis. Severe poverty reigns in the sector in the worst and best of times. And their continuing underground economy activities have proven inadequate to help them enjoy basic amenities of life and break out of poverty.

Those in subsistence agriculture (upland communities and fishing villages) can benefit from better connectivity to, not isolation from the larger economy. But before that can happen, some things must be done. For example, their access roads are so bad they are effectively beyond the reach of other government services (health, education, extension, dole outs, etc). They are also deprived access to modern inputs, technologies and formal credit. There are some 12 million of them in agriculture, a near 40 percent of total labor force.

Dr. Dy points out that the movements of commodity prices affect them momentarily. Last year the millgate price of copra reached P40/kilo (or about P30-35 at farm). Today, it is P17 per kilo (P12 at farm), reducing coconut farm income by 60 percent. At whatever price levels, they are still poor before and after. Only the poverty gap has increased!

The problem, Dr. Dy points out, has more to do with severe government neglect. Such farms together with the small fishers host the highest rural poverty. We are talking of some 12 million people in agriculture, Dr. Dy warns, a near 40 percent of total labor force. They are perpetually consigned to the underground economy no matter what happens to the larger national economy or the world’s.

What to do? The first item in our crisis agenda should be to fast track the construction of rural infrastructure like farm to market roads and other rural infrastructure such as irrigation canals already supposedly identified in stimulus program. Billions of pesos have already been wasted on substandard rural infrastructure due to massive corruption. This has to stop.

Then there is mircrofinance. They need access to microfinance to free them from the heavy debt burden they are now enslaved to. Our underground economy thrives outside the realm of our formal financial system and surely our farmers and other micro entrepreneurs can do a lot better if they didn’t have to deal with the local 5/6 operators.

There is a lot of work to be done in the area of helping our farmers gain access to the formal credit system. Even for other micro entrepreneurs several levels above our subsistence farmers, a survey of Philippine enterprises have shown that only 5 percent of them sourced any financing from a bank. Our rural banking system must prove itself more effective in development and not allow itself to be used for perpetuating financial scams.

Then there is training. We need to increase the budget for practical courses offered by Tesda so our underground economy can have the benefit of formal know how in running their micro businesses. Other than Tesda, there is also Bayan Academy, which provides livelihood and skills training courses to equip microfinance clients with the necessary skills to put up micro-enterprises or obtain jobs or employment. For inquiries, call 928-5576 or 426-3140.

It is not enough to say we will survive this global crisis through our underground economy. We have to make sure our underground economy gets all the help it can get to deliver on its traditional role as a social safety net for a greater number of our people in poverty, whatever the world or national economic milieu might be.– Boo Chanco, Philippine Star