Global competitiveness: Not more fun in the Philippines

IT IS MORE fun in the Philippines, says Tourism Secretary Ramon Jimenez Jr. That, despite the traffic jams, the breakdown of public transport, the pollution, the slow internet connection, the usual delay of flights, etc.
While waiting for eternity to get a cab to take him to his hotel from the airport, a tourist asked a friend: “Is this what you mean by having fun in the Philippines?”

 But Filipinos are a happy lot, and they have fun even in times of adversity.
The nation went crazy over the amazing performance of Gilas, the Philippine basketball team, in the 2014 International Basketball Association (aka FIBA). We were happy that we lost four consecutive games and finally won one.The University of the Philippines (UP) went wild and had a bonfire, after the Maroons won against another winless team — a victory after 27 consecutive losses spanning three seasons.

I am not a party pooper, and I am one with the people in celebrating rare victories.

We have another reason to celebrate, this time on the economic front. The Philippines has improved its ranking in the 2014-2015 Global Competitiveness Report (GCR), moving up from 59th place last year to 52nd place. And since 2010, the country has gone up by 32 degrees. The World Economic Forum says the report “assesses the competitiveness landscape of 144 economies, providing insight into the drivers of their productivity and prosperity.”

The improvement of the Philippine ranking in the report is more astounding than the performance of either Gilas Pilipinas or the UP Maroons. Pardon me for comparing an apple with oranges.

Despite celebrating these victories, we ultimately realize that:

Gilas Pilipinas was eliminated in the first round and is far from being a global basketball powerhouse.

The UP Maroons remain at the tail-end of the university basketball ranking.

The Philippines is still mired in the “middle-income trap.”

Gilas Pilipinas and the UP Maroons are not my major concerns in relation to having more fun and happiness — or to be precise, having prosperity — in the country. On the other hand, the improvement in the country’s competitiveness results in economic gains, which in turn can create spillovers for sports development.

Hence, I take the report seriously. The report has 12 pillars of competitiveness, upon which the index is computed. These pillars are institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and technological innovation.

But here’s the rub: Although the report is a nice template regarding the factors that affect competitiveness, its index can mislead and therefore can be mishandled or misinterpreted.

First, the different pillars are broad and do not take into account country specifics. Take the pillar of institutions. The specific institutions that work vary from one country to another, also depending on their level of development. In emerging economies, informal or non-ideal institutions are the norm, and they can facilitate economic activities. So an institutional arrangement like pork barrel may serve a practical purpose for a developing economy but is frowned upon in a mature economy. (The United States though has a pork barrel system, which it calls “distributive.”)

Or take the pillar of macroeconomic environment. It is not as simple as having generally good indicators. A developing country can have low inflation and a fiscal surplus, but all that goes to naught if its currency is highly overvalued. That was what happened during the Fidel Ramos administration. The investors, bankers and technocrats were fascinated with low inflation, the budget surplus, and higher tax effort, but they ignored — in fact welcomed — the fast appreciation of the peso (it was market-determined, they argued). And boom, the economy crashed in 1997.

Second, still in line with identifying the country’s specificities, the report is not in a position to determine what the binding constraints are for a particular economy. The 12 pillars are already a lot, plus the fact that each pillar has different components. But at any one point, the many pillars are not as essential as a few factors. To illustrate, even though the Philippines’ ranking has substantially improved, the report notes the country’s poor performance in infrastructure (where the Philippines is ranked 91st).

The scintillating report for the Philippines can thus hide a binding constraint which, if not solved, will soon choke competitiveness, investments and growth.

So I echo what the tourist asked about having fun in the Philippines. Are traffic jams, frequency of the breakdown of trains and accidents involving public utility vehicles, thin power supply and high electricity costs, and unreliable telecom service part of having fun in the Philippines?

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

This article first appeared on BusinessWorld on September 7, 2014.

 

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