777, 755 and 747
Some 22 years ago, the economy was riding high on a new momentum of growth. I remember 1996 well. As the country’s chief economic planner, I declared a three-way target of “777” then—7 percent GDP growth rate, 7 percent unemployment rate and 7 percent inflation rate.
It was a bold pronouncement at the time, with our historical average 3-4 percent economic growth rate in preceding decades. Inflation had been at double digits (19 percent in 1991), and unemployment was well in excess of 10 percent since the 1980s and earlier in that decade. Still, we achieved the 777 fighting target, give or take a few decimal points.
Today, as we ponder on the state of the nation, our GDP is growing a couple of decimal points shy of 7 percent. We dipped below 4 percent in 2011, but have since averaged 6 percent growth. Annual inflation rate is now 5.2 percent, up again after hitting a record low of 0.4 percent in late 2015, but still much less than what we had in the 1990s.
The unemployment rate is 5.4 percent so far this year, even as we touched a low of 4.7 percent two years ago. Compared to the “777” of 1996, we now have “755.” As lower numbers on the last two digits mean good news, one can rightly say that our economy today is in a better state than it was in 1996.
In recent years, economic growth has not only been sustained close to 7 percent, but the quality of that growth has also been superior. On the demand side, that growth has increasingly come from investment spending, whereas our prior growth had been overly dominated by private consumption, propelled largely by overseas remittances. On the supply or production side, the growth has increasingly been driven by industry, particularly manufacturing and construction, and less by services, our economy’s historical prime mover since the 1990s.
This transformation we’ve seen since 2010 is welcome, especially after our economy bypassed an industrialization stage, having “leapfrogged” to an economy dominated by services from one dominated by agriculture in past decades. In most other countries, industrialization had been key to bringing down poverty, by bringing about better-quality jobs, higher productivity, and with it, higher incomes.
China’s aggressive drive to become the “factory of the world,” especially after entering the World Trade Organization, largely stole that industrialization away from us back then. But the tide has since turned, and now China’s attractiveness as a manufacturing base has waned due to escalated labor costs. Regional value chains spurred by freer trade within the Asean Economic Community, plus an Asean-China free trade agreement that commenced in 2010, have since spurred substantial manufacturing investments in the country.
With manufacturing growth (8 percent yearly) well exceeding the economy’s overall growth in the last eight years, signs point to a much-belated process of industrialization now underway. This has been a major reason why poverty had a steeper-than-usual decline from 26 to 21 percent from 2012 to 2015. It also explains why unemployment has fallen to historical lows, while wage employment (vs unpaid family labor and self-employment) now makes up nearly 2 in every 3 jobs, when it was only 1 out of every 2 jobs 10 years ago.
Could we be at the verge of finally attaining 747—that is, sustain at least 7 percent growth for at least 7 years? This goal had been set by economists since back in the 1990s, pointing out that this was the essential ingredient to significantly bring down poverty the way our Asian neighbors had done well ahead of us. If the government’s “Build, build, build” program can further boost construction growth over the medium term, this, along with sustained manufacturing growth, could get us there.
In truth, the economy has so far done reasonably well in spite of, not because of government, as it is negating the good work of its economic managers with misguided and evidently unpopular moves on the political, governance and security fronts. Our biggest threats lie in these roadblocks that government itself has thrown along our way. Without them, I’d say we could have been doing not just a 755, but an 844 or better now.
