Tuesday, 1 June 2010

Continuing development and sustainable growth

Written by John Mangun / Outside the Box
Business Mirror

It seems like that every time good, higher-than-expected economic numbers come out, they create a controversy. It gives an opportunity for the local “Philippine bashers” to have their voices heard. It gives a chance for officials from past administrations to voice an opinion on how things are being done wrong. It allows the propoor advocates to complain.

Those who assure us that the good first-quarter numbers for 2010 are mainly attributable to election spending may have a point. If that’s true, then maybe, the solution for the economic problems of the Philippines is to have yearly national elections. If you look at the economic growth for the last 20 years, it is obvious that it really did not matter who was the president. There were good times and there were bad times. But overall economic growth remained relatively stable. Perhaps, what these experts are really saying about election spending is that the outcome of the election is not the important factor for the economy. It is the election process and spending itself that matter, apparently not the results.

Because weather conditions adversely affected the agricultural sector, many of the comments we have been reading relate to the miserable condition of this important industry, upon which so many Filipinos rely for their livelihood. The primary thrust of the Philippine government for agricultural reform has been land reform. Even after so many years, no one is willing to admit that land reform is a complete failure both in increasing productivity and increasing agrarian workers’ income.

The only truly effective land-reform program happened in Taiwan. But the purpose of Taiwan’s land reform was not to keep people on the farms and raise their incomes. It was to increase the productivity of what, in effect, was a nonperforming asset held by large landowners. The government bought the land with cash and required that the former landowners reinvest those funds in other more productive businesses. In the Philippines landowners were not paid in full and most of the money went to nonproductive purposes, like buying condos in the US.

Small family-owned farms have never been good wealth creators, either for the farmers or the nation, without massive government subsidies as in the US and Europe. In fact, one of the interesting positive offshoots of the Great Depression that saw the demise of small family-owned farms was that millions of agricultural workers, forced off the land, became a massive labor pool for industry. And land productivity increased dramatically on the larger pooled farms because of the economy of scale efficiency that resulted in having to manage a very large farm.

I wonder how many of our farmers would prefer (and benefit) from being able to sell their land- reform property for a fair price and get the training and financing to own a 7-Eleven.

What the country needs is continuing development and sustainable growth.

Continuing development means that the particular industry is constantly being improved to yield greater productivity. The opposite of continuing development are the “get rich quick” schemes that we have developed for the last 20 years. Prawn farming was supposed to be the cure-all for the Philippines’ economic problems. That lasted about five years because there was not a broad, long-term plan. The last inadequate scheme I remember was growing jatropha. Perhaps a great idea in principle, except that none of the jatropha species have been properly domesticated and, as a result, its productivity is variable, and the long-term impact of its large-scale use on soil quality and the environment is unknown.

A good example of continuing development has been the overseas Filipino worker. Heavily criticized, deployment of Filipino workers has been hugely successful from both a national and an individual economic standpoint. From maids and drivers, Filipino works have evolved into a highly competent, required and skilled global work force. Of course, there are social costs. Be honest. There are social costs working at any job. And successive governments have not done enough to reduce those social costs of the overseas Filipino workers. There are social costs of working nights in a call center which are partly offset by increased night-differential wages.

Achieving sustainable growth means preparing far ahead to keep the industry running profitably. Rubber-shoe factories in the Philippines employed many thousands. But no thought was given to improving efficiency and profitably to fight against the threat of lower wages in China. So the industry died.

Philippine outsourcing runs the risk of contraction because of government neglect and bad policy that may hurt the industry’s sustainable growth. The government has addressed the capital side of the industry by offering incentives for the multinationals to set up in the Philippines. But this is a labor-intensive business, and nothing has been done on that side. While tax benefits are given to the companies, nothing has been done for the workers. This is an industry that employs over 500,000, growing at a minimum of 20 percent per year. Where is the law exempting these workers from income tax on their night-differential wages to encourage employment? Government English-language programs, although successful, have had very minor impact because the programs are so small. Where is the five-year, the 10-year plan to get this industry growing?

All the talk about continuing development and sustainable growth has never been matched with continuing and sustainable action. Our political leaders have a tendency to have problems quickly making the transition from campaign rhetoric to leadership. And that is not favorable to making the economy work and keeping it growing. The rest of 2010 is going to be interesting.

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1 comment:

  1. We will never be able to gain such a kind of nation in the future if we continue with the form of our government.

    WE need to readdress crucial issues involving the basic components of a healthy nation.