Prematurely mature

Let me start off on a light note: The sunflowers have bloomed at the University of the Philippines in Diliman, and we’re ready for the next few days’ individual college recognition rites and general commencement exercises. This is a pitch to attend graduation ceremonies, whether at UP or not.  Think of Kevin Villanueva, the info tech graduate whose parents died before he could graduate from Letran and who took a photo of himself, in his toga, at their graveside, posting it on the Internet where it went viral.

Now to the main topic for today’s column, which takes off from the release of poverty-level figures in the Philippines, showing little improvement in the last six years. The administration has been defensive, saying that the figures are only for the first semester of 2012 and that it had been working on the problem but the solution will take time to set in.

To some extent, the administration’s spokespersons are right. But it should seriously listen to the observations and recommendations of expert economists who have been pointing out serious flaws in our entire economic development strategy. Some of these economists came together at a roundtable organized by the National Academy of Science and Technology last Jan. 17 to explain their views and to call for reforms.

The main speakers were National Scientist and UP professor Dr. Raul Fabella, Calixto V. Chikiamco of the Foundation for Economic Freedom, Dr. Rafaelita Aldaba of the Philippine Institute for Development Studies, Dr. Karl Kendrick Chua of the World Bank, and Dr. Ramon Clarete, dean of the UP School of Economics.

The roundtable theme was “Development Progeria,” progeria being a genetic disease where affected individuals grow old very quickly, suffering diseases of the elderly even when they’re very young, and dying early. Put another way, progeria is premature maturity.

Our economic system seems to be afflicted by a similar disease of “development progeria,” our economists say. The usual trajectory for economic development of the now developed countries is to move from agriculture to manufacturing and then to “mature” with an expanding services sector. Even when an economy has matured, it does not mean agriculture and manufacturing are abandoned. They continue to contribute to the nation’s economy, but the services sector dominates.

Vulnerable

The Philippines, together with a number of Latin American countries, leapfrogged (or maybe, more appropriately, stumbled) into an economy where the services sector dominates, while agriculture and manufacturing were left underdeveloped. Like a person with progeria, this means we matured prematurely, making us vulnerable to many economic ailments.

Because of our neglect of the agriculture sector, including meaningful land reform where farmers have access to credit and technical support, we suffer perennial food shortages, even having to import rice. Food is more expensive in the Philippines compared to many of our neighboring countries, which makes it more difficult for our laborers to make ends meet. Labor costs are actually higher in the Philippines than in neighboring countries, but the higher pay does not translate into higher quality of life because food costs alone consume much of a poor family’s expenditures.

By neglecting the manufacturing sector, we end up dependent on imports and, in a vicious cycle, the imports stifle the development of the few manufacturing companies that we have. Our manufacturing sector does have an export component, but these are usually parts which are then assembled in other countries into products that are then exported back to us.

Our services sector went into massive expansion the last few years mainly through the outsourcing industry (for example, call centers) as well as the one export we have been able to sustain: Filipinos. But what happens is that without strong agricultural and manufacturing sectors, the country’s development is based on a services sector which mainly hires college graduates, a small minority. Not enough jobs are being created locally for the majority of Filipinos, so the choice is between staying here jobless or working for very low wages and leaving for greener pastures abroad, often with wages that are not that much better than what they could get at home, if there were jobs.

The economy is consumption-driven, meaning it “grows” based on our spending, mainly to buy imported goods. For the rich, that means all kinds of luxury items—I’m shocked at the number of Ferraris and Jaguars and Maseratis on the streets these days. For the poor, it’s mainly household goods and food coming in from China and our neighboring countries who did develop their manufacturing sector.

Also disturbing is the way the rich prefer making speculative investments—for example, in stocks and real estate—rather than creating jobs through manufacturing, or through agricultural development.

The past administrations also allowed the peso to become overvalued. “Hot money”—dollars used by foreigners to play our stock market like a casino—plus remittances from our overseas workers have led to large foreign exchange reserves, but our overvalued peso means our few manufactured exports (e.g., furniture) are less competitive in overseas markets, even as we become flooded with cheaper and cheaper imports. Our poor overseas workers have to slave away even more because their dollars bring in less in pesos.

Reversible

Despite the bleak picture they painted, the economists still seemed hopeful that government can treat this development progeria. We do hear more talk now about developing agriculture, but what about the manufacturing sector? Government has not been friendly either when it comes to small and medium-scale enterprises (SMEs); the economists at the roundtable agreed that we are “overregulated” when it comes to these enterprises. I presume they were referring to all the permits and taxes that torment these SMEs, and thought, too, of how the large malls are killing many of the SMEs, either by driving them out of the market or obliging them to pay exorbitant rent to the mall operators.

Apart from the economists, the National Academy of Science and Technology has experts from agriculture, medicine, the natural and physical sciences, engineering, and the social sciences, so there were discussions as well on the need to encourage Filipino innovation, identifying products for which we have a competitive advantage over other countries. There was acceptance that the large services sector is here to stay, but that even then, we need to invest more in education so this sector will have more “value added,” able to handle other outsourced work besides customer assistance, which is the main line of our call center agents.

Unlike the medical condition, development progeria is reversible, National Scientist Fabella said. Let’s hope so, because if we don’t see that reversal, the poverty incidence will remain as it is, even as wealth accumulates only for a few.

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