Great opportunity for creating more, better jobs

It may be the single biggest challenge the Aquino administration faces in its drive to reduce poverty: how to create more and better jobs that raise real wages and lift people out of poverty. The Philippines Development Report (PDR), released by the World Bank the other week, estimates that good jobs need to be generated for around 10 million Filipinos per year.  That includes three million people who are unemployed and seven million who are underemployed. On top of that, it will need to create employment for another 1.15 million potential entrants to the labor force every year from 2013 to 2016.

If you do the math, that is a total of around 14.6 million jobs in the formal and informal sectors that need to be created, sustained, or improved in the next four years.

The Philippines’ jobs challenges comes from deep-seated issues rooted in the long decades of policy distortions that weighed down agriculture and manufacturing in the last six decades. Agricultural productivity has remained depressed, manufacturing has failed to grow sustainably, and a low-productivity, low-skill services sector has emerged as the dominant sector of the economy.

Lack of competition in key sectors, insecurity of property rights, complex regulations, and severe underinvestment by the government and the private sector have led to this growth pattern, which is not the norm in the East Asia region. This anomalous growth pattern has failed to provide good jobs to the majority of Filipinos.

But here’s the good news: The Philippines has a great window of opportunity to succeed in addressing this jobs challenge.

The country is benefiting from strong macroeconomic fundamentals, political stability, and a popular government that many see as committed to improving the lives of the people. It also stands to benefit from the global and regional economic rebalancing and the strong growth prospects of a dynamic East Asia.

Moreover, the country also has a history of successful reforms that created many new jobs and raised incomes. After the 1986 Edsa Revolution, several industries, notably the telecommunications and airlines industries, were opened up to competition.

The economic growth and job creation that followed these liberalizations demonstrated the economic potential that the monopolies had long suppressed. For instance, five million new jobs were created by these reforms, including 800,000 jobs in the business process outsourcing industry. There are other benefits. By 2010, there were over 80 million mobile phone subscribers and over 20 million Internet users. Travel costs have gone down significantly. Twenty million Filipinos are now flying every year, up from less than five million two decades ago, with strong impact on tourism.

After two years of consultations and research, the PDR concludes that there’s no quick fix that can address the jobs challenge overnight. But based on the country’s experiences, reforms can be implemented, especially if the country’s leaders from the government (both the executive and legislative branches), private sector, labor, civil society can come together and work out a strong coalition for reform.

A broad reform coalition is important for several reasons.

First, it increases the likelihood that reforms are sustained. The presence of a broad coalition makes it difficult for one subgroup (e.g., vested interests) to block reforms. Without a broad coalition, reforms made under a strong president can be reversed.

Second, because it must adopt a strategy that appeals to a wide segment of society, a package of reforms that balances tradeoffs and proportionally assigns responsibilities can be formulated instead of tackling reforms one by one, which can generate powerful opposition from vested interests and quickly drain the energy and capital for reform.

In the absence of a crisis to rally stakeholders around a common goal, the success of the Aquino administration in generating confidence and economic growth, and the obvious advantages for everyone to see such growth continue beyond this administration, suggest that a basis for a broad-based coalition is present. Strategically forging this reform coalition should be a high priority.

Working with this reform coalition, policymakers will need to urgently accelerate comprehensive reforms across a range of sectors to create a business environment conducive to private-sector job creation, in particular job creation by small and medium enterprises.

The Aquino administration has demonstrated that it is not afraid to try and tackle vested interests in areas that had previously been too sensitive to reform. Several reforms have successfully started, notably in public financial management, tax policy and administration, anticorruption, and social service delivery. The country now therefore has a great opportunity to deepen reforms to protect property rights, promote more competition, and simplify regulations, while sustainably ramping up public investments in infrastructure, education, and health.

In all these initiatives, the World Bank stands ready to support the country and its leaders in the government, private sector, civil society, and other sectors in their efforts to put the country in an irreversible path to inclusive growth, or growth that creates more and better jobs, reduces extreme poverty and promotes shared prosperity.

Axel van Trotsenburg is the World Bank’s vice president for East Asia and the Pacific.