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Philippine Development Plan (PDP) 2011-2016: Weakening Domestic Economy

In Position Paper, Talks on June 29, 2011 at 4:09 am

The six-year development plans of each new administration are important because they are supposed to articulate what it means to do with the economy, which is so basic to the life of every Filipino. And with every new administration, Filipinos hope that things will be better especially in terms of their jobs and livelihoods. The Philippine Development Plan (PDP) 2011-2016 was the last chance for the Aquino government to show that it is after real change in the country. Unfortunately all it has done is show how it is very much about old and problematic ways of running the economy.

There are still a lot of myths about neoliberal ‘free market’ policies of globalization although fortunately not as pervasive as in decades past. In any case it is important to be clear on some key points to lay the grounds for a critique of the PDP 2011-2016. In the best of times, globalization did not develop the country. In the worst of times, such as amid the current global crisis, it will make things even worse than they already are. The country’s development and jobs for the people cannot be made to rely on foreign markets or foreign investors. 

Some three decades of globalization policies have not developed the country. Some economic results are played up by the government: larger exports, rising foreign investment and rapid growth. The country had US$8.2 billion in exports equivalent to 27.5% of gross domestic product (GDP) in 1990 which rose to average US$40.8 billion annually in the decade 2000-2009 (46.1% of GDP). Foreign investment in turn rose from US$3.3 billion (equivalent to 7.4% of GDP) in 1990 to US$23.6 billion in 2009 (14.6%).

Growth in the last decade has been relatively rapid. It hit 7.6% in 2010, hailed as the fastest in three decades, and had averaged 4.5% during the Arroyo administration compared to 3.9% (during the Corazon Aquino administration), 3.8% (Ramos) and 2.4% (Estrada).

But these are not the economic results that matter. In contrast, local manufacturing and agriculture are in decline. The manufacturing sector has shrunk to as small as it was in the 1950s at 23.0% of GDP in 2010. The decline has been particularly marked in the last decade. The number of manufacturing establishments (average total employment of 20 or over) has drastically fallen from 7,500 in 1999 to just 4,600 in 2008 – or a net 2,900 firms closing down. Correspondingly, the number of employees in these firms has fallen from 1.1 million to 860,000 or a drop of 220,000 jobs. Over the same period, the share of manufacturing in GDP has fallen from 25% to 22%, and of employment from 12% of total jobs to just 8 percent. The agriculture sector is also, at 16.8% of GDP, at its smallest in the country’s history.

The collapse of the country’s two most important productive sectors explains why joblessness is high and rising. The average unemployment rate of 11.2% in the decade 2001-2010 is the worst in the country’s history (correcting for the government’s distortion in computing unemployment starting 2005). There were 4.4 million unemployed in 2010 aside from some 16.5 million in poor quality work (covering 4.2 million unpaid family workers and 12.3 million own account or informal sector jobs).

This dismal jobs situation has forced record numbers of Filipinos abroad for work to sustain their families. Some 4,081 Filipinos left the country every day in the first 11 months of 2010 which adds to the estimated 8.9 million Filipinos overseas as of the end of 2009. High unemployment has also underpinned flattening wages. Real wages, taking inflation into account, are lower today than a decade ago. Measured at 2000 prices, the mandated minimum wage in May 2011 was worth just PhP235 per day compared to PhP238 at the start of 2001.

Poverty is consequently widespread and far more than the low 23.1 million official estimate for 2009 which is just 27% of the population. The government arrived at this figure using an official poverty line of just PhP46 per person per day – meaning that for the price of a 1.5 liter bottle of Coke or for the price of a kilo of rice and an egg, the government expects a Filipino to meet all of his or her basic needs for food, clothing, housing, utilities, education and health. Using a more reasonable poverty line of PhP104 however would count some 65 million Filipinos as poor or some seven out of 10 Filipinos. This aggregate figure does not even capture how the poorest 30 million people struggle with just PhP22 or PhP35 or PhP45 per day. Inequality is also virtually unchanged from decades ago – in 1988 and today, the poorest half of the population accounts for less than 20% of household income, while the richest 20% of families hold more than 50% of household income.

These maldevelopment outcomes are not surprising because the ‘free market’ has never brought development. No country anywhere in the world has reached any sort of development under a ‘free market’ regime. Not the old capitalist powers United States (US), United Kingdom (UK), Germany, France and Japan, nor the former Socialist countries China or Russia, nor the so-called newly industrialized countries South Korea or Taiwan, nor upstart economies like India, Brazil and Malaysia. Their experience is universally that economic activity has to be actively guided by the State towards developmental ends especially, but not only, in terms of national industrialization. Building things and creating is still the greatest generator of wealth and progress for any economy.

Conversely, countries like the Philippines which have embraced the free market have remained grossly underdeveloped. The domestic crisis of jobs, poverty and inequality is irrefutable. After six decades of independence we still do not really make much of anything. The largest part of the goods we consume is imported, and so is virtually all our capital equipment and machinery. To get these we exchange our unprocessed raw materials and most of all our cheap labor – cheap labor in foreign-owned factories and call centers here, and exported abroad. This is a colonial-era exchange in the 21st century.

There is really not much Filipino high-technology to speak of, even as tens of thousands of our scientists and technologists make foreign technologies work either overseas or in transnational corporations (TNCs) in the country. We accumulate so little capital relative to our needs that the government is giving foreign investors whatever they want just to make them come. And since this still isn’t enough we still keep on taking out loan after loan, even for the increasing cash dole-outs that the government is giving out.

The PDP 2011-2016 is anti-Filipino and anti-people – it is anti-development. There are three main reasons for this.

First, it upholds failed and obsolete ‘free market’ policies of past administrations. In practice this means that it is out to make the country as attractive and profitable as possible especially to foreign investors and creditors. On the other hand, it systematically avoids even giving the impression that it prioritizes Filipino industry or agriculture. It avoids putting Filipino producers first.

But that kind of pro-Filipino bias is actually good, important and necessary. The sovereign powers of the Philippine government are needed and must be wielded, even at the expense of foreign businesses, if we are to achieve national development. This is needed for Filipino business to take root and flourish in the basic industries we need, for Filipino enterprises to make the leaps towards ever higher technologies and productivity, and for our economy to accumulate domestic capital to finance domestic development. Giving priority to Filipinos is needed for the country’s natural resources and labor power to be used for the benefit of Filipinos, for enough jobs to be created, and for decent incomes to be given.

Second, the plan window-dresses poverty with a multi-billion peso public relations gimmick. Some 65 million Filipinos must be considered poor, and some 30 million must be considered desperately poor. Yet the government’s solution is merely so-called social protection, especially conditional cash transfers or CCTs (with a budget of some PhP22 billion in 2011 increasing to some PhP35 billion annually in the coming years).

If the government presumes that ‘free market’ gains will trickle down – it is wrong. This has not happened in the Philippines in the last three decades, and it has not happened in any other country with such a low level of development.

If the government tacitly admits that its ‘free market’ policies are a failure and hence is creating an artificial trickle-down mechanism – then it is fooling itself and us. These kinds of dole-outs will never be enough to make up for the non-inclusiveness of globalization and the ‘free market’. When the dole-outs are gone the families will still not have jobs or will still suffer low incomes because the economy will still not create jobs. And if the government intends for the dole-outs to continue indefinitely, this should only further highlight how it is simply not resolving the roots of poverty to begin with.

Indeed, even while the dole-outs are there, what are the targeted 4.3 million beneficiaries compared to the many millions of poor households? And for this the govt is paying PhP1 for every PhP4 in cash given out, and is paying US$5 for every US$4 in foreign loans taken out. These CCTs are unsustainable, expensive and relief without reform.

Third, the plan  forgets that development is most of all a national and nationalist project and about the domestic economy producing on its own account and by its own merits. Development is about an equitable rural economy, modernized agriculture and real Filipino industry. We can and must still trade with other countries and deal with foreign investors – but the Philippines must be able to do this on terms of mutual benefit. Again, the historical record is clear: no country has ever developed the rural economy, built national industry or squeezed out gains from foreign trade and investment under the ‘free market’. Real development requires a responsible government, judicious state intervention and support, and a determined national population.

The nationalist alternative is what the PDP 2011-2016 is not. The country needs a coordinated, state-supported, economy-wide thrust. This has to begin with agrarian reform and agricultural modernization. This will increase rural incomes and expand the domestic market. It will also generate vital resources for agricultural and industrial development. The direction of the economy must be towards nationalist industrialization – this is necessary for creating jobs, higher incomes, increased productivity, and long-term local capital accumulation.

There are also attendant policies: active foreign trade and investment policy, judicious protection, regulation, and capital controls. Fiscal policy and monetary policy must also be supportive rather than stifling. The national budget is a tool for development and not something to be slashed merely to please foreign creditors. Finance capital meanwhile is meant to be used for productive purposes and should be circulating in the economy.

We can have markets for Filipino goods and services. Most important is to have a stable and expanding domestic market. This can come about with increased rural incomes from agrarian reform and agricultural development, and from decent wages especially with a growing industrial sector.  Trade protection, local marketing support and government procurement will play key roles. There can also be judicious export promotion of our agricultural and industrial products. Yet we must compete abroad on the basis of productivity and quality, not on low wages.

We can have the resources for development. In the short-term there can immediately be progressive domestic taxation that unburdens the poor and more heavily taxes those most able to pay. This should not be a problem if the government is genuinely democratic, trusted and transparent. Domestic savings can be mobilized, debt cancellation and renegotiation can be undertaken, and foreign investment can be welcomed but on mutually-beneficial terms. Over the medium- to long-term, the greatest resources will be generated from continued agricultural development, by expanding industry, and by developing ever higher Filipino technologies.

But we need nationalist industrial policy building on agrarian reform and rural modernization. The government must remove its de facto bias for foreign capital and replace this with a prioritization for Filipino producers. The excessive incentives for foreign investors need to be removed and performance requirements instituted for them. There must be government support for Filipino-owned strategic and vital industries – cheap credit, preferential loans and tax exemptions, raw materials, affordable water, power and transport infrastructure, labor training and technology support. Vertical and horizontal linkages must be aggressively built and domestic science and technology made to flourish.

Nationalist economic policies are necessary and possible. The conditions for development exist. We have the natural resources, people, basic level of technology and initial economic conditions. The Filipino population of almost a hundred million is the 12th largest in the world and offers a vast potential market and productive labor force. The Philippines has rich agricultural and aquatic resources and is among the most mineral-rich countries in the world, with 14 of the 16 minerals necessary for industrialization in abundance. These just need to be tapped in the country’s national interest. The government moreover needs to be one that does not place elite or bureaucratic self-interest over that of the people.

Our integration into the global economy must be strategic rather than defeatist. And we need to work on making nationalism ever more viable by building a nationalist and patriotic culture. An immediate challenge is to enhance the nationalist orientation and capacity of government, business, intellectuals, civil society and the public. Nationalism has been diminished and, sometimes, even derided. Yet amid the current global crisis and our people’s long-standing crisis, real economic nationalism is more urgent than ever.###

  1. what do you expect from an OJT president?

    anyone wants better economic development for the Philippines must overhaul the entire government structure to get rid of the “dirt” that clings and clogs the system.

    second, a dictator is necessary as the Filipinos cannot govern themselves. the Filipinos love too much politics.

    lastly, whoever becomes the dictator must carry a big stick and use it against those who have gone complacent in their positions.

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