‘Small but radical’ changes needed

STRUCTURAL CHANGES are necessary if the Philippines is to fully shake off its reputation as Asia’s laggard and grow at a pace that truly cuts poverty, an economist yesterday said.

These changes need not be grandiose, just small, albeit “radical,” ones that will necessarily upset entrenched interests, George Mason University economist John Nye said in an Asia United Bank-sponsored lecture.

“Despite the 7.3% growth last year, most predictions of international agencies foresee robust but a modest [Philippine] growth of 5% over the next 10 years. Most of its neighbors are projected to grow in the order of six, seven or eight [percent],” he noted.

“This is disturbing … Catch-up growth is the norm, not the exception. So the fact the relatively poor cousin is growing more slowly is cause for concern.”

He warned that the heavy capital flows emerging markets including the Philippines were seeing would be temporary. The problems in Europe and the United State that have pushed investors to emerging markets will eventually see resolution, Mr. Nye said.

“The question is, what can we do so we can get a larger share of these funds and invest them in such a way that when the money turns off we will have done well with the money we’ve got? What can we do to surprise people?” he asked.

The key, Mr. Nye opined, is in “structural transformation,” which among others entails people moving from low-paying agriculture jobs into higher-paying work in commercial and export-oriented sectors.

However, high minimum wages and employment protection, rules that disallow foreign ownership of land and business, policies that discourage competition and a complex tax system stand in the way of a shift taking place.

These barriers make it hard for workers to move from agriculture to industry, and once they get there, make it hard to employers to let them go. They also discourage foreign investments, Mr. Nye said.

Drawing lessons from the Philippines’ more prosperous neighbors, he suggested loosening rules and creating “mini Hong Kongs” in the regions, noting that power is concentrated too much in Metro Manila.

He advocated a more cosmopolitan outlook where foreign players that are not beholden to local interests and more regional competition via the fostering of “shopping malls” are invited.

He also proposed “small but radical ideas” such as allowing more foreign firms in and permitting them to bring their own people.

“We will keep people here,” Mr. Nye also said, pointing out that by making it hard for Filipinos to find higher-paying jobs at home, the country is encouraging them to go abroad.

Mr. Nye emphasized the importance of education, calling it a “high low strategy.” He also pushed English training for mid-level workers, and investments in research and high-level training for the country’s best students and teachers.

He pointed out that most recommendations dwelled too much on increasing tax collections, increasing state spending, stabilizing the national budget and reducing corruption, yet “no country has gone from poor to rich with these macroeconomic changes.”

Stamping out corruption is “very good,” he said, but will ultimately end in failure if it does not also target bad rules and policies.

An example of a good reform, said Mr. Nye, was liberalization of the country’s telecommunication sector in the 1990s, which led to more competition and the spread of mobile phones.

He pushed for “win-win” reforms that benefit investors and Filipinos and “real solutions” that can be applied, even if this means challenging entrenched interests.

“We need not change everything. But we will need to show a deep commitment to reforms into the future. Not everything will go smoothly,” Mr. Nye said.