An odd coalition to fight joblessness

“P-Noy must listen to other voices, not only to his close advisers,” says the activist Freedom from Debt Coalition (FDC). FDC issued a press release in response to the rise in joblessness among Filipino adults.

Here’s a quote from FDC’s press release:

“President Aquino’s ‘What’s Wrong’ admonition to his Cabinet yesterday on why unemployment persists at a high rate, even rising to 27.5% in the last quarter of 2012 (SWS, December 2013), belying the claim of ‘inclusive growth,’ should make him realize that he is listening to just one kind of voice in the economy—that of the apostles of privatization and liberalization, which dominate his Cabinet like Purisima, Almendras, Balisacan and Abad.”

The long and winding statement amuses not just because of style, but more because of substance.

The statement assumes that the President is getting bad advice from the “disciples of privatization and liberalization.” FDC is saying that PNoy must “listen to another voice” – the voice of progressive economists like Sixto Roxas, Butch Montes, and Joseph Lim (disclosure: Messrs. Montes and Lim are fellows of Action for Economic Reforms or AER, which I coordinate). Thus, FDC reduces a tough problem like joblessness growth to simply having a different set of advisers.

Which brings me to the second point: I dare say that there is much in common in terms of policy perspective between the set of Roxas, Montes and Lim, and the group associated with the social democrat Butch Abad or for that matter the pragmatic Arsenio Balisacan. Economic Planning Secretary Balisacan, in turn, gets solid backstopping from his deputy director general Manny Esguerra, who is Butch’s and Joseph’s confrere.

They will all agree to what FDC wishes to promote: “building the economy on the basis of our homegrown strength,” including the revival of manufacturing and the modernization of agriculture. The issue therefore is not about who among the personalities the President should listen to (besides, PNoy has his own strong personal positions, some of which defy liberal biases. Recall his rejection of the bilateral free-trade arrangement with Japan, when he was Senator).

To be sure, the cat can be skinned in different ways. The communist Deng Xiaoping expressed in this in another apt metaphor: “It doesn’t matter whether a cat is white or black, as long as it catches mice.”

That is, liberalization on the one hand and state activism on the other hand are but instruments to catch the mice (shared prosperity, equitable development). One just has to choose the more suitable instrument for a given time and set of conditions. The liberalization of the telecom sector and the aviation industry resulted in tremendous gains for Filipino producers and consumers. On the other hand, government’s active participation in power generation has become critical, especially in the wake of industry collusion that led to the recent spike in energy prices.

Even here, the Abad cluster and the FDC-endorsed team will, more often than not, choose similar instruments and pursue the same paths of action.

This year, the government almost doubled the budget for universal health care. For 2014, Secretary Abad announced that the budget for economic services will increase by about P84 billion from P509.19 billion in 2013 to P593.1 billion. The realization of significantly higher public spending for social and economic services stems from the unprecedented sin tax reforms and the unparalleled internal revenue collection under the assertive leadership of Kim Henares. Civil society’s radical reformers, including FDC, support bigger spending for human development. In turn, the significant increase in tax collection has reduced the country’s dependence on borrowing, something that FDC welcomes, too.

On monetary and exchange rate policies, the government, particularly the central bank, has managed to keep inflation low, and stem the peso’s appreciation. Keeping prices stable and safeguarding the peso’s competitiveness is a tough balancing act. But our fiscal and monetary policies have been able to simultaneously meet both objectives.

External factors, like the recovery of the US economy, to some extent explain the depreciation of the Philippine peso as foreign currency migrates to the developed markets. Yet, the Executive branch and the central bank contributed to holding back the peso’s appreciation at a time that hot money flows surged. To prevent harmful and steep appreciation, the central bank adopted unorthodox measures, which the FDC economists would have likewise done. An example of such measure is the closing of special deposit accounts for foreign funds, a soft form of capital control.

The question nevertheless remains: how come unemployment is rising despite the high growth rate, despite the favorable policy reforms explained above?

I offer several views. The first is, we need to temper our conclusions in relation to the latest survey or data. The SWS (Social Weather Stations) survey shows an increase in adult joblessness that is equivalent to about 6 percentage points, from 21.7% of adults in September 2013 to 27.5% in December 2013. It is plausible that the increase in the rate of joblessness is related to the destruction and displacement arising from a series of calamities that hit the country.

But wait, the rate of joblessness was higher in March 2012 (34.4%) and in August 2012 (29.4%). In addition, the rate of joblessness has hovered above 20% since 2005. We can conclude that joblessness is a stubborn problem, but the situation has not drastically worsened over time.

The second point is that the decisive resolution to poverty and joblessness, assuming that the right policies and institutions are in place, takes a long time. The reforms will surely have to spill over to the next administrations. China’s economic success is a result of cumulative reforms that span a generation.

Academics like Raul Fabella, following the idea of Philip Keefer, argue that the longevity of a reformist political party will determine development outcomes beyond the short term. This can be disturbing for PNoy and his band of reformers. The truth is, the Liberal Party is not a stable party; it is but a collection of politicians from a wide spectrum. At best, it has the likes of Abad who are in a position to influence the party’s agenda.

Thirdly, the PNoy administration has yet to solve perennial binding constraints that limit investments and job creation. It has become tiring to reenumerate these problems like weak infrastructure, thin power supply, and policy uncertainty and corruption emanating from the judiciary.

The administration has been criticized for the slow pace of infrastructure development. But we see signs of correcting the weaknesses like ramping up the spending for infrastructure and post-calamity reconstruction. It is strengthening regulation of sensitive areas like energy, where market failure or oligopolistic behavior is dominant.

Moreover, government must give greater weight to some programs that up to now remain under the radar. The PNoy administration has an industrial and technology policy, which is a prime instrument to create good jobs. This is expressed in the Department of Trade and Industry’s industrial roadmap that aims to stimulate and diversify manufacturing. Such program has to gain prominence and must be on top of the President’s agenda. A coalition for this can be constituted that includes workers, consumers, economic nationalists, big and small businessmen, and bilateral as well as multilateral donors.

In many areas then, including policies that are either missing or complicated, the left-wing activists like those from FDC can find common cause with the President’s men like Purisima, Almendras, Balisacan and Abad.

My unsolicited piece of advice to my long-time comrades in FDC is for them to ask PNoy to convene a coalition around an economic and social compact that will bolster the common reforms and recognize the trade-offs and sacrifices for the greater good.

The coalition’s voices will be diverse, but they hopefully will blend to create a majestic and inspiring sound. – Rappler.com