Unemployed

The good news is that we have had nine years of uninterrupted economic expansion. The bad news is that the unemployment rate remains the same as it was nine years before.

Unemployment, and the volume of poverty that implies, remains the persistent problem that seems to defy all efforts at alleviation. Every administration that came into office the past few decades put poverty alleviation at the top of its list. Every administration that has left office since the Edsa revolution also left the beast of unemployment untamed.

Unfortunately, there is no silver bullet to end the problem of unemployment and poverty. It is a problem with many facets and many dimensions that all together defy any single strategy.

A lot of people expect poverty to be solved by public spending alone — meaning that government either provides huge dole-outs or directly employs the unemployed. That has proven to be an unsustainable strategy. The more workable strategy — that of assigning government the role of catalyzing economic activity to improve wealth generation in society — requires a long gestation period and some tough policies that might sometimes seem ruthless at the onset.

The most obvious correlation in the complex unemployment and poverty equation is that between population growth and the rate of economic expansion. If population grows at a high rate, economic expansion must happen at a much faster rate to significantly reduce the volume of poverty.

In a strategy paper put out a few years back by former Speaker Jose de Venecia, he argued that the economy must grow on a sustained basis by at least 7% annually for seven straight years to make any significant dent on the poverty profile. That was called the 747 Plan.

That sounds simple enough, until we consider that our average rate of economic growth the past few decades has been only about 3.5%. For that plan to work, we need to double our average rate of growth.

This is easier said than done. Our economy is vulnerable to downturns in the global economy. In 1997, we were forced into a recession by the Asian financial contagion. In 2008, the year we targeted a balanced budget, our economic performance was undermined by a global recession sparked off by the subprime financial crisis. Today, we are looking anxiously at the possible effects on our economy of the financial tensions in the euro zone.

In order to bring our growth rate to a sustained 7% annually over a long period, we need to simultaneously draw investments flows into our economy many times larger than we currently are able to and drastically increase public spending to close the infrastructure gap that plagues our economy. Both policy limitations and poor infra diminish the attractiveness of our economy to investments.

We could not close the infra gap quickly because of limited budget resources and some of the policy disincentives to investment are embedded in our Constitution. One factor, for instance, that discourages industrial investments in our economy is the comparably high costs of power. Electricity is not only costly, its supply is unreliable. Even with the most tough-minded energy security strategy, it will take us at least two decades to solve this weakness.

In the present global scheme of things, an economy’s competitiveness relies heavily on the quality of its human resources. The quality of human resources, in turn, is determined by the quality of its educational system. Our educational system, we know, has been deteriorating over the past two decades — in part because our policy architecture inhibits private investments in the business of education.

We cannot rely on publicly subsidized education to liberate us from mediocrity. There will never be enough public money to do this. We need to radically reconfigure our education strategy to encourage more private investments in the urgent task of raising the skills profile of our population.

With an obsolete skills profile, our economy’s capacity for wealth creation will continue to be restrained. The existing educational system as it is configured will not do the job for us. But reconfiguring it will, as in the case of energy, require some amount of time.

Neither should we expect our agriculture to deliver us from unemployment. The modernization of our agricultural sector will require mechanization rather than more extensive use of manual labor. Otherwise, our agriculture sector will continue to be the poverty trap it has been for decades.

The fact is, there is no economic sector where we can be competitive by being labor-intensive. Every sector where we can possibly be competitive, from business process outsourcing to tourism, requires high-grade labor creating high value-added.

Let’s have no illusions about the beast of unemployment and poverty we need to tame. The brutal reality is that we have a large number of people who, to put it bluntly, simply cannot be employed given their existing skills.

If we put all the unemployables in the public payroll, that will bleed our budgetary resources, force us deeper into debt and draw public investments away from more productive uses. But the modern state cannot avoid the responsibility of reducing the volume of social misery one way or the other.

That means that rescuing the poor, possibly through conditional cash transfers, is unavoidable even at the sacrifice of other spending options with better economic returns. It must be clear in our minds, however, that such programs are a balm on the pangs of poverty and not a permanent cure.

Unemployment will remain a feature of our economy well into the next generation. –Alex Magno (The Philippine Star)