Fixing exclusive growth

Everybody’s talking about inclusive growth, but the latest labor and employment data suggest that the breathtaking growth our economy has been achieving lately—the fastest in all of Asia, in fact—is anything but that. The latest quarterly Labor Force Survey (LFS) of the National Statistics Office (NSO) reports that there were actually 21,000 fewer jobs overall last April compared to a year ago.

With around a million  Filipinos joining the labor force every year, we should be gaining a million new jobs each year, not losing them as we just did. I don’t recall seeing jobs decline in normal times over the last two decades. But since last October, when the LFS reported a whopping loss of 882,000 jobs, and again now, we have begun to see year-on-year contraction in overall employment, and right when the economy is seeing unusual growth. What gives? The numbers don’t seem to make sense. But unless and until government says otherwise, these are the official jobs data, and the picture they paint isn’t pretty. Rapid growth that comes with job loss is not just “jobless growth,” which economists have been lamenting for years. It is, more accurately, job-killing growth.

For a long time now, I have characterized this inability of our economy’s growth to bring about commensurate jobs as hollow growth. My long-time readers would know that this is just one of three adjectives I use to more fully describe this “exclusive growth” we are persistently getting: narrow, shallow and hollow. Narrow growth is seen in how it is propelled by very few high-growth industries such as business process outsourcing, especially call centers; real property development; banking and insurance; and mass media. It is also seen in how more than half of our GDP is generated in and around Metro Manila alone. Most of us see it in the way benefits of our growth have been captured by relatively a few, while the vast majority is in a seemingly endless wait for the trickle down—if it will come at all.

Shallow growth happens when the same limited high-growth industry drivers have little linkage with other industries in the domestic economy. For example, the bulk of our exports come out of the enclave economies in special economic zones, where duty-free privileges lead firms to naturally source their inputs from overseas rather than from domestic producers. There is little domestic content beyond assembly labor in our top exports. Electronics are both our top export and our top import, as we simply assemble imported chips into the circuit boards that still mostly comprise our electronics exports that are still to be turned into final products elsewhere. The same is true with our garments exports, with the textiles going into them being almost entirely imported as well. Such low domestic value-added products are the kinds of export industries encouraged by a currency stronger than it should be, propped up by hot money inflows fueled by speculative demand.

What will it take to fix our exclusive growth? Clearly, we can’t go on with business as usual. An economy whose key growth sectors are highly concentrated in a few large players can never deliver inclusive growth. Fundamental restructuring in our economy is needed if it is to grow on a much broader base. Thus, apart from fostering large numbers of small and medium enterprises, we need our laws—and our Constitution, where necessary—to wrest open the stranglehold that large dominant players have had on certain key industries for much too long. It is only with more competition from more players, whether from within or without, that the highly skewed and exclusive nature of the Philippine economy can significantly improve. Proposed laws to strengthen our competition policy and outlaw monopolistic practices have long been languishing in Congress, meeting stiff resistance from those who are not about to give up long-held market dominance. President Aquino would do well to ensure that we achieve this one critical legislation toward inclusive growth, which many of our Southeast Asian neighbors already have, in the remaining half of his term.

On developing and strengthening small and medium enterprises (SMEs) to broaden our economic base, it is high time we turned lip service into real action. Pushing for SMEs is not a job for the Department of Trade and Industry alone; it must be a government-wide concern. If President Cory Aquino had declared agrarian reform as her centerpiece program, perhaps it’s time for her President-son to move on to a new centerpiece economic program that can make the real difference for inclusive growth: a “big push” for SMEs. Their biggest impediments have always been well-known, and foremost is their lack of access to adequate finance. I would like to see our monetary authorities push “inclusive finance” beyond talk, into creative changes in banking rules and regulations that will lead the big banks to seek rather than shun small businesses as clients. Meanwhile, public research and academic institutions must focus on the technology needs of SMEs. Agriculture authorities must look beyond the farms and help foster value chain linkages between primary producers and SME processors. And SMEs must be assisted to form clusters to ensure that they can meet volume demands from institutional markets whether at home or overseas—the common Waterloo of many a small entrepreneur who prefers to go “kanya-kanya” rather than “sama-sama.”

Inclusive growth will not happen overnight, to be sure, but the most meaningful steps must be taken now if it is to happen at all. To my mind, given his deep political capital, this President is best placed to do it.

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