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No Free Lunch

Strengths and weaknesses

/ 12:31 AM January 12, 2016

WHILE THE full-year economic growth data won’t be in till later this month, we can say with certainty that the economy fared better in 2015 than in the year before. I had characterized the disappointing showing in 2014 as another self-inflicted slowdown, due primarily to slower government spending. We already saw it happen in 2011, when government efforts to curb corruption in public spending induced a similar drag on the economy, slowing gross domestic product (GDP) growth down to only 3.9 percent from the previous year’s 7.3.

Like it did in 2012, government in the past year made a deliberate albeit more cautious effort to speed up spending anew, this time without testing legal limits on its spending authority that the controversial Disbursement Acceleration Program (DAP) did. Not surprisingly, the 2015 push was not as potent as the DAP-propelled one in 2012. While last year’s accelerated government spending nudged growth up to 6 percent from the previous year’s 5.3 percent, the DAP had managed to kick up 2012-2013 growth beyond 7 percent, from a meager 3.9 percent in 2011.

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But we all know that growth isn’t everything, and GDP certainly shouldn’t be our main measure of success in the economy. Based on the other critical yardsticks of prices and jobs, there are clear signs that the quality of our economic growth is improving. Prices have in fact never been more stable for as long as I can remember, and both unemployment and underemployment rates are likewise at record lows and declining. Annual inflation averaged 1.4 percent last year, dipping to as low as 0.4 percent in October. To show how low that is, I distinctly recall how in the mid-1990s, 7 percent was already a fighting target for inflation then, having come from 19 percent in 1991. And for the first time in our modern history, the official unemployment figure has breached 6 percent, down to only 5.7 percent as of last October. Underemployment—wherein workers have a job but are not earning enough—remains high at 17.6 percent, but it has nonetheless gone down from around 19-20 percent where it hovered for many years.

I believe it safe to say, then, that based on my PiTiK test that looks at presyo (prices), trabaho (jobs) and kita (incomes), the Philippine economy has never been as strong over the past three decades. Still, I would be the first to point out that we haven’t accomplished nearly enough, because as everyone laments, the benefits of this have yet to be felt by all Filipinos. Closer examination of our economic data tells us where we haven’t been doing as well, and where there remains much work to do.

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Closer examination of inflation data reveals that price increases have lately been lopsided against the poor. This is because prices of food alone have gone up by almost twice as much (2.6 percent) as the overall inflation rate (1.4 percent)—and for the poor, food takes up the bulk (around two-thirds) of the household budget. This tells us that price increases in our country are hitting the poor more than they hit the rich. All this goes back to our performance in agriculture, which remains to be the most problematic sector of our economy. While weather has had a lot to do with it, over the long term, much blame lies in the way we have managed our agricultural sector.

One can see it in the jobs data even more starkly. According to the latest Labor Force Survey, the economy managed to create only 183,000 net additional jobs in 2015 (total new jobs created minus total jobs lost). This was not because the economy was generally slow; we already showed above that GDP growth has in fact been relatively strong as a whole. In fact, 758,000 net new jobs were created in the industry and services sectors (179,000 and 579,000, respectively) last year—but all this was largely negated by the net loss of 575,000 jobs in agriculture. Sadly, it is these jobs that are most needed by our poor, 70 percent of whom live in the rural areas where farming is the prominent source of livelihood.

We see the same problem in the growth data. The overall economy grew 5.6 percent as of the first three quarters of 2015, but agriculture had no part in that growth, hardly growing at 0.4 percent. Given PiTiK outcomes in the sector on all three counts of prices, jobs and incomes, it’s no stretch to say that the poor have been the biggest casualties of our failures in agriculture.

Meanwhile, manufacturing, along with construction, has propelled growth in the industry sector. Driving manufacturing growth are publishing and printing; wood, bamboo, cane and rattan products; non-electrical equipment; chemical products; and transport equipment. Our growth surge in manufacturing seems to belie the common lament that costly power makes us uncompetitive in the sector. According to studies, the share of power in total manufacturing costs ranges from 1-50 percent, with the average being only 4.7 percent in the Philippines. Indeed, power costs have not stopped us from becoming the fourth largest shipbuilding nation in the world in the past decade, in an industry where power for welding is critical. Labor productivity, which data show to have risen steadily in our manufacturing sector, has been a major asset drawing in manufacturing investments. What more, once we are able to bring power costs down to more regionally competitive levels, and outdated investment restrictions in our laws are finally eased.

The industrialization we missed in the 1980s and 1990s could well be on its way. But we need a solid and diversified agriculture on which to build it. The next administration’s homework thus ought to be clear.

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