Can PH face up to the AEC challenge?

A plethora of explanations has been advanced as to why the Philippines falls well behind the other four Asean originals (Singapore, Malaysia, Thailand and Indonesia). These range from the protectionist policies for “infant industries,” political instability particularly in the 1980s that practically shooed Japanese FDIs (foreign direct investments) to our neighbors, weak governance and dysfunctional institutions, to poor infrastructure, rapid population growth, brain and skills drain from massive emigration, etc. While all these likely mattered one way or another, little is said about the underinvestment in education in general and in science and technology (S&T) in particular. Being a public good, education and S&T create positive externalities and, hence, tend to be privately underconsumed and undersupplied especially in terms of quality.

Development economics literature says technological innovation and economic growth are interactive and mutually reinforcing. That is to say, economic growth can be effectively sustained by spending for technological innovation that results in new processes, products and markets, and innovation in turn can come about from research and development (R&D) made possible by economic growth. Substantial investments in S&T and R&D are in fact what underlie the sustained rapid growth and poverty reduction achieved by the East Asian miracle economies.

Spending on R&D covers basic and applied research, and experimental development. The Philippines’ R&D spending at 0.15 percent of gross domestic product is woefully inadequate for its modern-day requirements. Sadly, this reflects the relative importance that the government and society at large give to the economy’s modernization vis-à-vis its Asean contemporaries’ R&D expenditures, which hew closer to the Unesco norm of 1.0 percent of GDP. Consequently, the number of our patent applications has been among the lowest in Asia—1.8 per million population in 2010, as against Thailand’s 17.6, Malaysia’s 43.4, and Vietnam’s 3.5. Indeed, we reap to the extent that we sow!

Our lag in higher education also stands out. Spending per tertiary student here is about 10 percent of per capita GDP, which is half of that in Thailand, three-fifths of Indonesia’s, and further short of Malaysia’s and Singapore’s numbers.

Looking at public funding for the top universities in the Asean 5, data for 2011-12 are quite telling. The National University of Singapore (NUS), with funding of about $869 million, easily tops in the Quacquarelli-Symonds (QS) ranking. University of Malaysia (UM) comes next with $249 million, followed by Thailand’s Mahidol University with $326 million. The University of Indonesia and University of the Philippines are ranked 7th and 9th, respectively, though the former has lower funding than UP’s estimated $178 million. More telling still are the disparities in faculty compensation. For example, the basic monthly salary for a full professor at NUS is $14,100 versus $2,822 in UM and $1,862 in UP.

A World Bank 2012 study points out that greater efficiency in the financing of education entails a “more selective and performance-based approach in the way public funds for teaching and research are allocated across institutions and targeting scholarships and loans better.” Private resources should also be harnessed to augment public funds. Public-private matching grant schemes have been employed successfully in other countries.

The study also notes that there is a clear case for public financing to support research and STEM (science, technology, engineering and mathematics) capacity—two areas with high positive externalities. Although the financial costs can be high, the social benefits due to innovation are greater. There is a need to mobilize and allocate resources to a few premier research and teaching institutions—UP, Ateneo de Manila University, De La Salle University, and University of Santo Tomas, which figure in QS rankings (and, perhaps, San Carlos University down south)—considering the large resource requirements for high-level research and teaching.

As well, linking the higher education system to industry is an important component of education policy such that the curriculum becomes more responsive to the needs of the industry, thereby avoiding skill gaps and disconnects.  It is extremely critical for the Philippines to have a solid skills base and a stronger capacity for innovation.

When the Asean Economic Community (AEC) integration comes into full force by end-2015, the unimpeded flow of faculty and students (apart from goods, capital and labor) across national borders can be expected. It is urgent for the Philippines’ higher education institutions (HEIs) to take qualitative improvements in their faculties and curricula much more seriously. But this can only happen if society accords a higher value to the quality education, R&D and innovation required for our economic modernization and long-run inclusive development. Concretely, this means that much greater funding must be made available by both the government and the private sector to a few select HEIs that will have a spread effect over time.

If this is achieved along with other policy reforms, the Philippines would be on a stronger platform to face up to the AEC challenge. Otherwise, we may have to bear with a double whammy: dumping of products from other countries, and accelerating drain of already scarce human resources to greener pastures in the AEC, thereby further hurting industry and agriculture.

The media will be key in rebalancing society’s cultural values from the glitz and glamour of show biz and sports to the critical importance of quality education, S&T, and innovation. With the AEC ringing the doorbell, it can’t be business as usual.

Ernesto M. Pernia (ernestompernia@gmail.com) is professor emeritus of economics, UP, and former lead economist, ADB.