Outlook

Our economic planners have put up a fighting target of 8 percent GDP growth for 2011. That contrasts sharply with earlier forecasts putting growth next year below the growth rate registered for this year.

If we make that fighting target, we will be matching the norm for the best-performing emerging economies all over the world. The fighting target is, well, a fighting target.

The more conservative forecast puts our growth outlook for 2011 at between 5 percent and 6 percent. That is consistent with the pattern of economic performance we saw the past year, as we try to find out way through the uncertainties of a weak global recovery from the Great Recession of 2008-09.

Whatever the final growth forecast is, there is no doubt our economic expansion will still be consumption-driven. That is the pattern of our sustained expansion over the past decade.

The Arroyo years were characterized by a novel nine-year period of uninterrupted quarter-on-quarter growth, even as we were dragged down by the global recession. That appears to mark a radical departure from the chronic boom-and-bust cycle that characterized our economy in the preceding decades since the close of the Second World War.

Despite that remarkable achievement, however, all the growth accumulated during the past decade impacted on the poverty profile only marginally. There is no mystery there. Because our growth is not investment-driven, fewer sustainable jobs are created. Communities are not benefitted by the superior multiplier effects of new investments.

There are many reasons why our growth is not investment-driven. Our policies, notwithstanding all the reforms accomplished so far, is not as market-friendly as those of our competitors.

Our constantly shifting policy parameters create great uncertainty for investors. Add to that the impact of corruption and the uneven regulations across the boundaries of local governments. Our bureaucracy still operates on a large amount of red tape. Its mindset remains that of gatekeeper rather than enabler.

Our educational system has been impervious to what the new market needs. Here reforms have been tedious and protracted.

Our labor force, therefore, is less productive, highly unionized and more costly. Recall how we lost our thriving garments industry, and about a million jobs, nearly overnight when then powerful left-leaning unions began calling for one political strike after another, political actions called “welgang bayan.” Garments producers migrated elsewhere of went bankrupt.

The inflexibility of our labor laws is matched by the inflexibility of our environmental regulations. These are compounded by strange pieces of legislation such as the Indigenous People’s Rights Act and a protracted, politically vulnerable process for acquiring environmental clearances. Often, businesses are left at the mercy of the smallest unit of local government.

Our power costs, of course, are legendary. The infrastructure gap yawns, despite best efforts to encourage investments that would improve our economy’s logistical backbone. That infrastructure gap will continue to be gaping — as evidenced by the choked traffic on our roads.

On top of all these, there is “the cost of doing business in the country.” This is often a euphemism for deeply institutionalized corruption and systems that allow a wide margin for bureaucratic and political discretion.

The cost of doing business begins with the tedious bureaucratic process and allows a lot of powerbrokers to get in the way of business opportunity. Where in Australia, an investor can get a business permit online in a matter of minutes, the same investor will require over six months here. That magnifies the front-end cost of getting a business started. By the time a business gets proper permits, the opportunity for it might have passed.

The decentralization of government was intended precisely to cut approval time and improve the responsiveness of government to business activity. But because many of our local governments were investments insensitive and inclined to make a quick buck before the next electoral cycle, local governments have tended to shake down investors before they could even begin doing business. The unintended consequence of devolution, so far, has been to make the investment climate even more inhospitable to business start-ups.

While there are many reasons why our economy is not investment-led, there are only two reasons why we are consumption driven.

The biggest reason, of course, is the steady flow of remittances from our overseas workers. At about this time, this flow should run at about $20 billion annually. That is enough to capitalize our economy but it is surely large enough for the dependent families to increase their consumer spending.

The other reason is the large trading income we derive from assembling electrical components in our export-processing zones and the enlarging ranks of young people employed in our business outsourcing sector. These sources of income for our economy are dependent on the business cycles expressed in the larger global economy. When the rest of the world was in recession, for instance, our electronics industry went into a slump as well.

Had we been a little more determined in taking down the barriers to investments over the past decade, achieving an 8 percent growth rate should have been a breeze.

With conditions impairing investments in still in place and only remittances (both from OFWs and from the army of workers in our business process outsourcing sector) growing, we are trying to run the development marathon on only one leg. This is not going to be healthy in the long run. Poverty will remain a problem.

So it is that while our services and retail sectors are booming (count all the new malls built this year), our industry and agriculture is in chronic decline.

Soon enough, if we are to keep pace with the competition, we must run our economy on two legs. That will require a hard-headed package of reformist policies built on a clear vision of competitiveness that remains absent in the incumbent political leadership. -Alex Magno (The Philippine Star)