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10:32 PM July 15th, 2013

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By: Cielito F. Habito, July 15th, 2013 10:32 PM

IN 2007, an Asian Development Bank (ADB) study identified four critical constraints that had kept the Philippine economy from growing as fast as those of most of its Asian neighbors: (1) tight government finances, (2) inadequate infrastructure (particularly in electricity and transport), (3) weak investor confidence due to governance concerns (particularly on corruption and political instability), and (4) market failures leading to a small and narrow industrial base. While our neighbors’ economies had seen decades of dynamic growth, our own economy had consistently trailed behind. As such, between 1960 and 2006, the average income (GDP per capita) in the Philippines barely doubled, while that in Singapore grew more than 12 times, in Thailand nearly eight times, in Malaysia nearly six times, and in Indonesia more than five times.

Times have since changed, and our economy’s growth now outpaces the rest of Asia as of the first quarter of this year. Our improved growth performance may trace to our having substantially (though still not sufficiently) addressed the first and third constraints. Government revenues have been growing by double digits, coupled with substantial savings from plugged leakages in traditionally corruption-prone agencies. At the same time, domestic investment has been growing at rates not seen in more than a decade. Still, as is everyone’s lament, such faster growth remains enjoyed by a relative few, particularly because the second and fourth constraints have yet to be overcome—and these will take more time.

Addressing infrastructure as a constraint to inclusive growth will take more than improved government finances and public-private partnership (PPP) schemes. For as long as the operation of public facilities is barred from foreign majority participation, there will be a narrow field of PPP participants, and it will be confined to the same familiar small group of large domestic players—the same players already dominating our economy and reaping the lion’s share of its benefits. We also need to be more deliberate about providing what I’d call “inclusive infrastructure”—that is, those that provide wider benefits for those among us who have less. I refer to mass housing, rural electrification, irrigation, water supply and sanitation, schools and hospitals, and farm to market roads. Despite years of large budgets and lip service, the last has persistently remained lacking because corrupt officials either hijacked budgets for them, or built them in the wrong places based on political considerations rather than priority needs.

The fourth constraint cited by ADB boils down to an oligarchic economy, with “market failures” referring to those caused by the exercise of monopoly and oligopoly power. It is manifested in what I have for many years described as narrow, shallow and hollow growth. We need to pursue wider geographic and sectoral dispersal of economic activities, and open key economic sectors to wider competition to avoid dominance by a few. We need growth to come more from industries with strong forward and backward linkages in the domestic economy, so that the benefits of growth would permeate widely and not be confined to enclaves. And we need more growth coming from industries that provide large numbers of steady and decent jobs.

Based on these, there are four pillars we need to build inclusive growth on. First is a strong competition policy that eliminates barriers to entry, prohibits unfair trade practices, and ensures a level playing field for large and small enterprises alike. This long-pending legislation must be a top priority, as it could well be the most far-reaching economic legislation the 16th Congress could enact. Second is a concerted government-wide push for small and medium enterprise development, starting with wider and easier access to SME finance. Third is improved implementation of asset reform, which takes four forms in the Philippines: the Comprehensive Agrarian Reform Program for small farmers, the Indigenous Peoples’ Rights Act for indigenous communities, the Fisheries Code for municipal fishers, and the Urban Development and Housing Act for the urban poor. All seek to promote more equitable access to economic assets, hence opportunities for advancement.

The fourth pillar entails boosting the most promising drivers of inclusive growth in the economy: agriculture, tourism, manufacturing and construction. Much has already been said and written on the first three. The last has been a prominent driver of employment growth since 2010. Even more construction jobs could come about in the years ahead if we embark on (1) an aggressive public mass-housing program built on more realistic and accessible financing mechanisms, which recognizes adequate mass housing as a public good, hence deserving subsidy; (2) intensified investments in irrigation and drainage, especially with continuing lack of the former and the traditional tendency to neglect the latter (a key reason roads don’t last as long as they should, and require constant repair at great cost), and (3) an aggressive urban renewal program especially in decaying cities like Manila, that could employ incentives such as real property tax waivers/discounts to encourage private owners to restore, rehabilitate or rebuild dilapidated structures with historical/cultural significance (the way Vigan managed to restore its century-old houses, for example).

There is truly much yet to be done in the remaining half of this administration, if it is to leave a sustainable legacy of an economy that uplifts the lives of all Filipinos.

E-mail: cielito.habito@gmail.com

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