24 July 2025 – Increase productivity instead of controlling wages: “In the current debate on increasing the minimum wage, many in the business world contend that the Philippines must keep wages low in order to remain globally competitive. This is a nearsighted and obviously erroneous methodology which will keep the Philippines from becoming an industrialized nation.”

Among the major countries in the Asia-Pacific region, the Philippines has the dubious distinction of being the least industrialized. China, South Korea and Japan are considered as global competitors in the manufacturing arena. The small state of Taiwan is the major producer of computer chips. Vietnam in the past decade has progressed to the status of becoming an aspiring contender to rival China in manufacturing. Thailand, aside from tourism, is considered an automotive manufacturing hub in Southeast Asia. Even Indonesia has banned the export of mineral ores and has progressed to refining minerals.

The Philippines, aside from semiconductors and processed foods, rely mostly on non-industrial activities like remittances from overseas workers and business process outsourcing (BPO).

This lack of industrialization has been caused by several factors, including the absence of an integrated industrial policy by the government. The Philippines also lacks the infrastructure and has among the most expensive generation products in this part of the world.

Economic observers readily point to large scale corruption and crony capitalism as major contributors to this absence of industrialization in the Philippines.

There is no question that government corruption and the shortsightedness of political leaders are major contributors to our backward economy. One major evidence of this are the floods we encountered during the last few days. Billions of pesos have been spent on flood control during the last decade and yet, every rainy season, floods have become an inevitable part of our lives. Aside from a lack of flood control infrastructure, we continue to have other repetitive causes of floods like poor drainage, garbage clogging the streets and denuded forests.

Every rainy season, the Filipino is praised for his resiliency, which means learning to survive in this annual occurrence of flooded streets and even flooded homes, churches and other buildings and dwellings.

But to my mind, the lack of a long-term industrial policy has been one of the causes why the Philippine economy has stagnated and neighboring economies have overtaken the Philippines. It is true that the government must take a large part of the blame.  However, the private sector must also bear part of the blame.

In the current debate on increasing the minimum wage, many in the business world contend that the Philippines must keep wages low in order to remain globally competitive. This is a nearsighted and obviously erroneous methodology which will keep the Philippines from becoming an industrialized nation.

The real path to becoming economically competitive is by increasing productivity. This term “productivity” is commonly measured as the amount of goods and services generated per worker. It is productivity that is the central determinant of a nation’s average standard of living and its overall economic success. Productivity growth is the main source for rising wages and, believe it or not, profits.

The more productivity grows, the more income households receive and the higher is the material well-being of the average Filipino.

Nobel economics laureate Paul Krugman wrote: “Productivity is not everything but in the long run, it is almost everything.”

A country can raise productivity in two basic ways: the first is by increasing the amount of capital available to each worker such as property, plant and equipment. This means that the Filipino business tycoons must divert some of their profits away from investments in real estate in foreign countries and luxurious expenditures and invest them instead in increasing the productivity of their business ventures.

In the long run, this will in fact lead to increase in their profits.

The second way is through innovation. Our business leaders must realize that they must invest in research and development (R&D) that will lead to new goods and services and more efficient ways to produce existing goods and services. Innovation, however, requires investment in education which will upgrade workers’ skills.

Both government and the private sector can increase productivity through research and government spending. It is true that R&D may not yield immediate results but in the long run, this is the only way to make the Philippines globally competitive. Unfortunately, the government has continually underinvested in education and research and development. I remember a year or so ago, a senator, at a budget hearing, questioned why there was an allocation for R&D in agriculture. This shortsightedness, if not changed, will keep the Philippines in its present state of underdevelopment.

Increasing labor productivity is the best way to generate the resources needed to reduce poverty, restore the vitality of the middle class and strengthen the faith in democracy over autocracy. One precious resource that we must exploit are the skills and knowledge of the Filipino overseas workers who have earned high praises wherever they work.

This natural resource can be easily exploited in the overseas worker’s certainty that they have a bright future for them and their family if they go back to the Philippines.

Once again, I reiterate that the answer to our economic stagnancy is not by keeping wages low and our people in perpetual poverty. The answer lies in the business sector investing in areas that will lead to productivity growth which will allow Filipinos to live in a more progressive and safer country.

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Email: elfrencruz@gmail.