A country of traders and consumers

The big trend of late is private investments being poured into businesses with captive markets. Business conglomerates are competing to win contracts to build these ventures or buy these prized enterprises from their original owners.

These capital-intensive businesses, which are blessed with locked-in customers, include tollways, power plants or power distribution, water utilities, airports, telecommunications, hospitals, and schools.

An illustrative example is Metro Pacific Investments Corp., which owns public utilities that provide telecommunications (PLDT and Smart), water (Maynilad, and Iloilo and Cagayan De Oro water districts), and energy (Meralco). It is the major owner of almost all Luzon tollways (NLEx, SLEx, Cavitex, and SCTEx). It is now also the owner of at least 14 of the country’s biggest hospitals, such as Makati Medical Center, Asian Hospital, and Cardinal Santos Medical Center.

Other business conglomerates like the Ayala Group, San Miguel Corp., Phinma Group, and PhilFirst Group have expanded their investment forays by buying up provincial colleges and universities, water districts, and hospitals, in addition to power plants. They continue to scour the provinces in search of service companies which have captive customers.

The preference for service companies with captive markets is unfortunately accompanied by an aversion to investing in businesses engaged in manufacturing. Indeed, investments in these service companies are needed because they provide vital services for the country. But the inordinate movement of investments toward capital-intensive businesses with captive markets, and the matching dislike of labor-intensive manufacturing businesses, is symptomatic of an economic climate which discourages businesses that generate more employment.

This may be one reason the rich are getting richer and the poor are getting poorer. The kinds of businesses that are encouraged to thrive are the capital-intensive ones that benefit capital-endowed businessmen, instead of labor-intensive enterprises that generate employment for a skills-endowed but jobs-starved workforce.

Compared to public utility companies and service enterprises, manufacturing businesses traditionally generate more employment because they have extensive backward and forward linkages. Their backward linkages cause the growth of upstream industries that supply raw material inputs. Their forward linkages result in the growth of downstream industries that promote, distribute and sell manufactured products, such as companies engaged in retail, advertising, trucking, and storage, among others.

Former National Steel Corp. president Rolando Narciso attributes the seeming aversion to manufacturing businesses to government regulatory practices that put local products at a disadvantage compared to imports. Narciso points out that what domestic manufacturers need to survive is a level playing field—it is sad that they have to plead for this in their own country—so that they can compete with foreign companies. Rampant smuggling, lax regulatory enforcement that results in the imposition of strict quality standards on local products but loose standards on imported products, and unfair subsidies enjoyed by foreign companies in countries like China, put Philippine companies at a serious disadvantage in their own country.

Narciso knows whereof he speaks. He and I have been jointly advising a number of domestic steel roofing companies for many years now. He has seen how these domestic manufacturing businesses have continuously declined because of the regulatory bias against them. Many of these companies have downsized their manufacturing plants, laid off laborers, and largely shifted to importing and selling foreign steel products.

The Duterte administration must act to prevent the Philippines from becoming a mere country of traders and consumers
of imported goods.

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