Bucking the ‘new mediocre’
The good news is that the Philippine gross domestic product has grown at 6 to 7 percent for the last three years, and such growth can be sustained for many more years to come. The bad news is that growth of 6 to 7 percent should be considered mediocre if we are to take into account the massive poverty that continues to afflict the country, especially in the countryside. We should be growing at 8 to 10 percent annually if we are to generate the resources needed to bring down mass poverty to a single-digit level by 2020. We cannot be satisfied with the “new mediocre.”
Christine Lagarde, managing director of the International Monetary Fund, has introduced a novel phrase—“new mediocre”—into global economics. She is referring to the lackluster growth that advanced countries are now doomed to suffer almost perpetually. Most forecasters agree that the former engines of growth of the world economy—the United States, Japan and Europe—may recover from their present malaise but will not enjoy growth rates of more than 2 percent per annum in GDP for the foreseeable future. This is way below the growth rates of 4 to 6 percent annually, which they enjoyed in the boom years of the last century, or even in the first five years of the present millennium. A combination of the demographic winter, macroeconomic mismanagement, and failure of economic regulation may be responsible for this “new mediocre.”
In the Philippines, the “new mediocre” should be measured using a different scale. Sure, we can continue to grow for at least the next 10 years at 6 to 7 percent propelled by the present engines of growth—remittances of overseas Filipino workers, earnings from business process outsourcing and knowledge process outsourcing, government infrastructure spending, and private consumption expenditures. But should we be satisfied with a GDP growth rate of 6 to 7 percent in the coming years? The answer is no. The Philippine economy has to grow at 8 to 10 percent at least for the next 10 years if we are to attain inclusive growth. Our leaders cannot be complacent about our being “one of the fastest growing economies” in Asia today. We have been growing at subpar rates for too long that we cannot be content with what we have accomplished so far. I repeat: 6 to 7 percent is going to be the “new mediocre” in our present circumstances.
How do we get a GDP growth rate higher than the “new mediocre”? We must make sure that our next set of national leaders, starting from the president and the key officials of the executive branch, must be both honest and competent. A critical mass of good leaders will enable our society to liberate itself from the massive waste resulting from corruption, as well as from the gross inability of the present leaders to implement hundreds of billions of pesos worth of infrastructure projects because of government underspending and the “paralysis by analysis” syndrome that afflicts the public-private partnership projects.
More arguably, more enlightened leadership in the next administration can unleash forces that will attract levels of foreign direct investments (FDIs) at $5 billion to $10 billion annually, which have long been achieved by comparable countries like Vietnam and Indonesia. Among other means of reaching these higher levels of FDIs is the amendment of the Philippine Constitution to remove the unreasonable provisions restricting foreigners from investing more in public utilities, real estate, media and education.
To further guarantee an acceleration of the growth rate to the range of 8 to 10 percent per annum, the Philippines must follow the example of South Korea, which escaped the so-called middle-income trap in the last century by investing heavily on improving the quality of higher education and on research and development, especially in engineering and the sciences. We have to take advantage of the greater interest of Japanese manufacturing enterprises to relocate their factories from both their home country and China by providing a higher supply of qualified engineers and other technical people.
There must also be thoroughgoing reform in our land use policy by graduating to a new phase in agrarian reform. In this new phase, we can
allow the greater consolidation of land through such time-tested systems as the Malaysians’ nucleus estate plantation or cooperative farming, so that thousands of hectares of coconut farms devastated by typhoons and of denuded forests, especially in Mindanao, can be planted to higher-value crops such as palm oil, coffee, rubber, and cacao that can either replace coconuts or be planted as intercrops.
In this way, the Philippines can join its Southeast Asian neighbors in significantly improving agribusiness productivity in order to address the crisis in food security that will be faced by the whole world in the coming decades.
Bernardo M. Villegas ([email protected]) is senior vice president of the University of Asia and the Pacific.
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