Dire State of the Nation 2: Emergency Measures Needed

The writer is Trustee of Action for Economic Reforms; he holds BS Economics and LLB degrees from the University of the Philippines, Diliman. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, August 28, 2006 edition, page S1/5.

Last week, we laid bare the crisis of income and employment pervading the Philippine economy, providing contrast to the rosy picture painted in President Gloria Arroyo’s SONA. Recognizing this crisis is the crucial first step in addressing it, like our experience with the fiscal crisis. The next step is to identify its root causes, and address them head-on with emergency measures that are doable and can provide immediate and dramatic results.

Address the education problem. The education problem is generally acknowledged, but addressing it is considered a long-term response. When we look closer at the state of education and its direct link to the crisis of income and employment, the need for emergency measures is readily apparent.

Two education-related problems need immediate intervention: the low completion rates as well as the low quality of education. The 2001-2002 national completion rate at the elementary level is 66.3 percent. There are particularly critical areas, such as the ARMM (Autonomous Region of Muslim Mindanao) with an elementary completion rate of only 34.5%, Region IX with 44.4%, Region XII with 56.1% and Region VIII with 57.3 percent. The students completing elementary education will be further whittled down when they reach the secondary level. Completion rate at the secondary level based on Grade I is only 48.4 percent.

The quality of education is also very disturbing. Students score very low in diagnostics tests for core subjects. In school year 2002-2003, the national mean percentage scores (correct answers divided by the total number of items) for Grade IV pupils were 38.45% in Mathematics, 42.14% in Reading Comprehension, and 39.38% in Science.

The low level of completed education, and the low quality of education, relate directly to income and employment. Elementary and high school drop-outs are concentrated in the low-productivity sector of agriculture and fisheries, as well as the low-income and low-quality occupation group of laborers and unskilled workers. From the NSO’s (National Statistics Office) January 2004 Labor Force Survey, 66% of farmers and fishermen completed at most only the elementary level, and 78.5% completed at most some years of high school. Laborers and unskilled workers, the occupation group earning poverty-level wages, share a similar education profile. Of the 9.8 million employed as laborers and unskilled workers, 48.9% completed at most the elementary level, and 68% completed at most only some years of high school.

The education profile changes for the higher-income and quality-occupation groups, with more having completed at least the high school level, and a considerable number completing college. The same higher education profile obtains for OFWS.

Not addressing low completion rates and low quality education at this point swells the ranks of immobile and uncompetitive labor, and makes the structural crisis in employment and income even more intractable. Marginal improvements in completion and quality will not be enough. The situation calls for dramatic gains. This is not merely a financing problem as many believe. It requires a determined campaign by the education department to signal its focused analysis and response to these issues, and mobilizing collective action involving not only the government but also the private sector and local communities.

Give Relief to Domestic Production Through Tariff Protection. Beginning in the 1980s the Philippines has been implementing a unilateral trade liberalization program. Initially intended to rationalize protection, the program turned highly ideological later on. The government adopted a deep, universal and unilateral trade liberalization strategy based on the belief that by exposing our economy to competition, our industries would be forced to be competitive.

But the trade liberalization program has failed to deliver. Agriculture and industry are finding it difficult to stand up to foreign competition, and have not produced new modern, high productivity and high value-added products. Trade liberalization failed to make a dent on the crisis of income and employment in the country.

Even the efforts of some economists to show the brighter side of the strategy cannot escape the ugly side. For instance, Cororaton and Cockburn (2005), using an integrated CGE-micro-simulation, conclude that tariff cuts implemented between 1994 and 2000 were generally poverty-reducing, primarily through substantial reduction in consumer prices. But elsewhere in their study, total output in almost all sub-sectors declined, except for non-food manufacturing which marginally pulled up overall output. Labor and capital income from agriculture declined and income inequality worsened.

Pressured by the evidence of disastrous results and the clamor for upward adjustment in tariffs, government was compelled to adjust the program. In January 2003 EO 164 froze the 2002 levels of the tariff rates on products that were scheduled for tariff reduction in 2003. In April 2003, EO 197 raised the tariffs on certain vegetables. Still, average nominal tariff stands at a very low 6.10%.

Given the liberalization program’s negative impact on output and income for most sectors, tariff levels must be adjusted upward to provide immediate relief to domestic production, employment and income. An across-the-board increase at this time avoids the danger of protection falling prey to politically powerful rent-seekers that goes with the present case-by-case approach to tariff recalibration. Of course such policy will have to be mindful of its inflationary push as well as the lags in production and income response.

Audit the Institutions of OFW Welfare and Protection. Overseas work will continue to be a major safety valve for the Philippine economy. In Pulse Asia’s July 2006 Ulat sa Bayan survey, 30% of all Filipinos say they would now migrate if it were only possible, while another 32% are vacillating and will also not rule out the possibility of migrating if it were possible.

While overseas work represents better income and opportunity, the OFWs’ experience in Lebanon puts into perspective the risks, vulnerability and suffering that can go with it. It called attention to questions on the use of OWWA funds and the crisis-preparedness of concerned government agencies. Responding to this will require no less than an independent audit (in conjunction with the Senate investigation) of the funds, performance and accountability of the institutions and mechanisms for overseas protection and welfare. Among the institutions that need to be audited are the relevant programs of the Department of Labor and Employment (DOLE), the Department of Foreign Affairs (DFA), the Philippine Overseas Employment Administration (POEA), and the Overseas Workers Welfare Administration (OWWA).

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