Dead-end economics

Dr. Bernardo Villegas, one of the high priests of dead-end economics, on March 24 pronounced himself “more bullish than the government in forecasting a GDP growth of 6 to 7 percent for 2012” (Manila Times, “Geared toward faster growth”).

This is not an entirely new phenomenon, he says, as the years 2007 and 2010 saw growth of 7.1 percent and 7.6 percent, respectively. By pointing out that the former year was when the subprime crisis broke and that the latter saw “the global economy still gripped by the financial crisis,” Villegas gives the impression that the Philippine economy is able to stride confidently ahead while greater powers stumble backwards. What he neglects to remind us is that 2007 and 2010 were election years, when politicians throw vast sums at their constituents, artificially inflating the growth statistics..

Villegas then goes further, expressing the view that, now matter what the problems suffered elsewhere, the Philippine economy “can grow at seven percent or more in the coming 5 to 10 years…” In the absence of convincing evidence, on what does the bold academic base this prediction? Faith? Not quite, but he comes close.

Over the past 25 years, says Villegas, there has been “a series of step-by-step reforms” which now, with President Aquino’s determined drive against corruption, has reached a critical mass, taking the economy to its 2012 “tipping point” and enabling it to grow by seven percent or more for the next 20 years. (Whoa! How did we get from “5 to 10” to 20 years? This is where you begin to suspect that this guy is making it up as he goes along.) And what have been these reforms? Restoration of democratic institutions; privatization, deregulation and liberalization; greater focus on agricultural development; and Gloria’s investments in the infrastructure.

The first of these was important, says Villegas, because while in “authoritarian” China and Vietnam “reforms can be rammed down the throats of the citizenry,” in the Philippines they had to observe the newly-restored democratic niceties. But you know what? I think it highly probable that many Filipino workers who have had privatization rammed down their throats would find it difficult to recognize the distinction.

Deregulation and liberalization? Was it entirely accidental that, after the Ramos administration succeeded in achieving a balanced budget several years in a row due to the early proceeds from privatization, budget deficits resumed, growing year by year? Of course not. The deficits returned because “liberalized” tariffs meant that less duties were being collected and because many Filipino producers had either been wiped out or downsized due to cheap imports, and thus were contributing less (or nothing) to the tax-take. Greater focus on agricultural development? Villegas applauds this because he believes that nationalist dreams of industrialization should be stamped out and never revived. But where on earth has a society modernized and eliminated poverty on the basis of agriculture? Nowhere.

Dr. Villegas is not just an economist but a salesman as well, having recently participated in an “investment road show” to Washington, New York and San Francisco where investor interest was so great that some had to be turned away for lack of space. Yes, “investors from all over the world” are showing a particular interest in “agribusiness, infrastructures, energy, mining, tourism, logistics, health care, IT-related services and high-value manufacturing.”

But look at the items on that list. Not one of them is going to make an effective contribution to developing the Philippines, i.e. industrializing it and adjusting the focus onto the domestic sector, making things that Filipinos need. “Energy” presumably means oil and gas — currently located here but soon to be shifted elsewhere by the “investors.” Similarly with mining. Unless the proceeds are used for real development — and nobody with the muscle to actually see it through is currently calling for that — all you’ll be left with is a hole in the ground. “IT-related services” means business process outsourcing, of course, which amounts to turning people out of work and bringing their jobs here. Where’s the future in that?

Health care? Does that mean what I think it means? Is the Philippines going to have not just a largely private health service but one that’s owned by foreigners? And what does “high-value manufacturing” mean? High-value to whom — the foreign investors or Filipinos? The problem for decades has been that the “manufacturing” conducted in the export processing zones has been anything but high-value to the Philippines, being dependent upon imported components, tax breaks and cheap labor.

So will 2012 see the “tipping point” for the Philippine economy? One should bear in mind that it’s thought that this term originated in epidemiology (the study of the incidence, distribution and control of disease), where it refers to the point when it becomes impossible to control the spread of an infectious disease.

A more sober view is taken by Benjamin Diokno, who bemoans the decline of manufacturing — 24.5 percent of total output in 1998, 23.7 percent in 2005, 22.2 percent in 2010, a mere 17.1 percent last year. In 1995, manufacturing employed 10.4 percent of workers in employment, but by this January that figure had shrunk to 8.1 percent — a loss of 860,062 factory jobs. The revival of manufacturing, says Diokno, needs “strong positive actions on the part of the government” (“Field of dreams,” Malaya, March 26).

Which sounds fine, but then it becomes clear that Diokno is mainly talking about attracting foreign investors, and that the actions required of government concern tackling the outrageously high cost of power, renewing infrastructure, improving the “ease of doing business,” etc.

Filipino economists regularly lament the fact that since the 1960s the Philippines has been overtaken by virtually everyone else in the economic race. But why is it that so few of them are willing to advocate applying the lessons the “tigers” have to teach us? –Ken Fuller, Daily Tribune

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