The PH Economy: Elusive Inclusive Growth

What prevents the Philippines from taking off and following the path of its more progressive neighbors in the region?

The Philippines has been one of the emerging markets bright spots in the last eight years. Analysts had been hyping about the economists growth the country has been able to achieve which has been its best performance since 1986. Today there are storm clouds gathering on the horizon again which invalidates much of the generated hype.

What prevents the Philippines from taking off and following the path of its more progressive neighbors in the region?

The socio-political structure is the main culprit. Politics and the economy are controlled by the oligarchs and the politicians in their pockets. There is no clear-cut development strategy in place. The 1935 Constitution allowed the election of a President to two consecutive four year terms. The Philippines could never hit its stride after independence because it was also under pressure to rebuild what was lost during the war while it was dependent on US aid and Japanese war reparations which the US also controlled.

The next factor is continuing US influence. The US forced the Philippines to pass a law granting Americans parity rights. This was due to the haphazard manner in which independence was granted after World War II which had the US reorganizing its priorities. Its primary goal was to stop the spread of communism in the Asian-Pacific region. This meant rebuilding Japan and helping its main ally the British in putting down communist insurgencies in the colonies still under Western powers.

The newly independent Philippine government took its lead from the US and continued with the plantation style politics and economy which left the countryside undeveloped and at the mercy of local politicians who exercised feudalistic control over their domains. Much of the US aid and Japanese war reparations were lost to corruption as the elite scrambled to rebuild the fortunes they had lost during the war. The only time there was massive investment in infrastructure was after Marcos won the Presidency in 1965.

Marcos had to deal with a resurgent communist insurgency and the Muslim separatist rebellion in Mindanao. His first term was marked with wrangling with a recalcitrant Congress which was bent on derailing his legislative agenda. After winning a second term in 1969, Marcos convened the 1971 Constitutional Convention to write a new Constitution which would change the form of government from a Republican Presidential system to a semi-Republican system modeled after the French style.

1986 saw the ouster of Marcos and the return of the Republican Presidential system by way of the 1987 Constitution. Thirty years after the Philippines is still mired in a rut similar to quicksand. The more it moves towards its goal of inclusive economic growth, the deeper it sinks in the quagmire.

Maximizing agricultural productivity is the first step. The government must put a stop to its flawed agrarian reform program. The farmers will not be productive without the economies of scale needed to make their efforts viable. Government is also remiss in providing subsidies and whatever is provided for in the national budget is lost to corruption.

There should also be stricter enforcement with regard to land conversion. Agricultural lands are being turned to residential and commercial and industrial lots at a high rate. It's high time that government set a national land use policy that will prevent agricultural lands from conversion.

The government should also look into tying up with large conglomerates for commercial farming and the production of high-value crops in order to encourage farmers to stick to their trade. It is ironic that the Philippine Rice Research Institute has produced Thai and Vietnamese graduates who have been able to put their studies to good use in their home countries while the Philippines continues to struggle with rice production.

Food security is essential when you are the second most populous country in the region at 106M that continues to grow at an annual rate of 2%. The government has never been able to implement an honest-to-goodness population control program due to opposition from the Catholic Church. The increasing demand and short supply also contributes to inflationary pressure on prices of agricultural commodities.

The Philippines has also been losing out in foreign direct investment in the last thirty years because of the lack of infrastructure development, high power and labor costs and the frequency of national holidays.

The top three investment destinations in ASEAN are Singapore, Indonesia and Vietnam as of 2017 which received $63B, $22B and $14B respectively in FDIs. The Philippines makes up for 16% of the total population of ASEAN but receives less than 8% of the total foreign direct investment in the region.

Vietnam is now the region's manufacturing hub. Its investments in infrastructure, the power sector and telecoms have paid off handsomely. It has also developed connective infrastructure which makes supply chain logistics very manageable with the construction of additional handling capacity in its major seaports and marine terminals.

The Philippines slipped in the Global Innovation Index again this year landing at 73 out of 126 countries. The Philippines’ ranking was stagnant compared to other ASEAN member countries. Singapore made it to the top 5 from 7 last year; Malaysia, to 35 from 37; Thailand to 44 from 51; Vietnam, to 45 from 47; Brunei, to 67 from 71; Indonesia, to 85 from 87; and Cambodia, to 98 from 101.

About the Author
RG is a seasoned international trade and sales and marketing professional who also dabbles in writing. He was a contributor to Business World in the mid-90s and is also a tech geek.
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