“ We’ve tried growing and tried not growing. Growing is better.”
Our economy grew by 7.8% last quarter beating out China (7.7%), Indonesia (6%), Thailand (5.3%), Vietnam (4.9%) and Malaysia (4%). This is not election spending, a few billion in election money cannot move a P2.7 trillion economy. No, following two quarters of above 7% growth, this is the real deal. Construction (up 32.5%) and “financial intermediation” (up 13.9%) led the numbers.
The good news is we are growing. The bad news is not everyone was invited to the party.
The growth has been an urban phenomenon reserved principally for owners of land and financial assets and bankers. For the most part it excluded agriculture, manufacturing, and exports. Agriculture accounts for two thirds of the economy yet it expanded by a mere 3.3%, barely above population growth. Exports declined 7% quarter on quarter. Industry grew by 10.9% but this was skewed by the construction numbers which offset a decline in other sectors mainly mining (down 17%, arguably a good thing). The other growth driver was “financial intermediation” –presumably banking, stock market and “hot money”- which does little for the man in the street.
The narrowness of our growth explains why despite the wonderful numbers, our unemployment is at 7% and underemployment at around 20%, the highest in the region. It explains why real wages are stagnant and poverty continues to rise. It explains why the distribution of wealth in this country is deteriorating: The rich are getting richer while the poor are getting poorer.
Equality of wealth is measured by the so-called Gini coefficient (named after the Italian statistician who devised it). A coefficient of 0 denotes perfect equality, 1 total inequality. By this measure, as expected, Scandinavian countries score best. On the last numbers I saw, the Philippines ranked ahead of Angola, Rwanda and Swaziland in income equality but behind Thailand, Indonesia, Vietnam, Senegal, Gabon and Ghana to name a few.
Unbalanced growth is untenable long term. Sustainable growth requires a broad based economy and a strong middle class. It must go beyond building condos and playing the stock market.
Two, it is jobless. NEDA Chairman Balisacan admits jobs is the country’s ‘greatest challenge”. The World Bank reports the Philippines has attracted the least (employment creating) foreign direct investments among our neighbors.
Three, it can create a dangerous bubble in asset prices. Homes are increasingly outside the reach of even the middle class.
Four, with its urban character our growth is driving people from rural areas to the metropolis, thereby choking urban centers. Wikipedia lists 10 Philippine cities among the world’s 50 most congested. Dan Brown was not kidding.
Five, it widens the disparity in wealth, creating long-term social instability and all that goes with it. As a perspective, the Philippine’s average monthly wage is P13,500, the cost of a meal for four in a fancy restaurant, wine excluded.
How can our growth be made sustainable?
In the short term the focus should be on livelihood especially in the low-lying fruits of agriculture and tourism. The Philippines is becoming self-sufficient in rice. However, the Government needs to do more about lowering input costs to farmers, improving water, storage and farm-to-market access, providing affordable financing, assisting with technology and dis-intermediating the selling process so farmers get higher gate prices. The monopolies of middlemen need to be dismantled. Smuggling of commodities must be stopped.
Enhancing agriculture will reverse the people migration from the farms to the cities and decongest urban communities. It will broaden the economic base and narrow the gap between rich and poor. It will secure the country’s food needs at a time when this is becoming a worldwide concern. It will ease the political instability in Mindanao.
Tourism is the other natural opportunity. There is a heavy-up capital investment but once in place the industry is a high margin business with job multiplication. Environmental protection is key.
There are some positive developments in manufacturing. As a result of the political tension between Japan and the Mainland over disputed islands and rising labor costs, Japanese companies are now relocating their production from China to the Philippines.
Long term, the two game changers are education and infrastructure. The impact of education on employment is most noticeable in the BPO industry: In the call center business, only about 2% of applicants are hired because of insufficient qualifications. Education has to do better at matching skills with jobs.
On infrastructure, at 7% growth we will soon be running out of power and roads both of which have a long start-up time. Mindanao is a case in point. Many of the PPP projects are mired in bureaucracy.
For growth to be meaningful it has to be inclusive. We should re-allocate resources to sectors that will broaden the base and equalize wealth (a levy on real estate for agriculture and education?). The long term goal is to build a strong middle class.
We should now go from the “straight and narrow ” to the “straight and wide”. Daan Matuwid needs to become Daan Malapad.