Industrial Policy –Hallelujah!

December 13, 2018

AER-Industrial Policy Team

By Rene Ofreneo – December 13, 2018

Neoliberal economists, who worship in the altar of free trade, love  to make  theoretical  constructs on the  basis  of  assumptions under an imagined  world  of  perfect competition.

But it is an imperfect world with imperfect markets. It is  a world  lorded  over  by the  likes of  Donald Trump, with  his “America First” ideology, and Xi Jinping, who  presides over a state-led capitalist transformation  of China.

Hence, markets get roiled  from  time to time because there  are  market  players who do not play based on  perfect competition rules and the assumption  that  everyone does so.  The so-called  level playing field in an uneven and unequal economic order is never fair to  the  small  players and  to those who do not get any information on the  state of the  economy,  such as the unlettered  farmers, coastal fisherfolks, indigenous peoples, ambulant vendors, camote  miners, etc.

The World Trade  Organization has  a preambular principle: special  and  differential  treatment.  The SDT precept recognizes  that  not all countries are equal and  at the  same  level of  development.  And  yet,  the WTO rule  makers, coming mainly  from  the  developed  countries, try to impose uniform trade  liberalization rules  for  all while  keeping the  system of  expensive  subsidies to their own  farmers and  domestic producers.  This  is  like having equal  rules apply to both the  heavyweight  and  lightweight boxers,  such as  no head-butting, with  extra protection  or  safety net given to  the  former! This is  one  of  the  reasons  why the WTO’s  Doha Development  Round, launched  in 2000 for the  purpose of  further  liberalizing  global markets,  has  failed  to  take  off in  two decades of  WTO-led  trade talks.

Meanwhile, in the Philippines,  the neoliberal economists  have been  making  countless economic forecasts based  on the imagined growth and  job outcomes from the triad of neoliberal programs of trade/investment liberalization,  privatization  and economic  deregulations,  collectively  called  as  “structural adjustment programs” or SAP. This  is  fine if such forecasts are  treated  as  mere academic exercises  to promote wider and  deeper  debates  on the economic policy directions  that  the country must  take. The  problem arises when the authors of  these  forecasts market these  forecasts  as  the sole  basis  of   economic policy-making and  the crafting of corresponding  economic  development strategies.

And yet, no one comes out to own the  mistakes when these forecasts fail, when  these economic development strategies do not deliver the  expected  outcomes based  on these forecasts.  Examples abound, but  the most spectacular and  saddest is the forecast made in  relation to  the  proposed Philippine  membership  in the WTO.

In the 1994 Senate  debate  on Philippine  membership  in the  WTO, the  neo-liberal advocates drowned  the  opposition by coming up with the following official forecasts: membership and  adoption  of  the  WTO liberalization  rules  (e.g.,  lowering of  industrial  tariffs,  tarrification of  agriculture, etc.) meant creation  of 500,000 new  jobs annually and realization of P3.2 billion net export surplus annually, both in the agricultural sector.  And  yet,  since 1995, the  Philippines  has become instead a bigger and  bigger agriculture-importing  country.  Agriculture has  shrunk and  now accounts for less  than  10  percent of  the  GDP.  In short, there has been a de-agricultural development.

In the case of industry, the forecast was  500,000 new jobs being created annually, rising to 700,000-800,000 a year.  This never materialized.  Instead, we have witnessed a general  stagnation of the country’s  industrial  sector under the  program  of export-oriented  industrialization (EOI), a program  that  the neoliberals have  been pushing since  the  1980s, reinforced by the IMF-World Bank’s SAP loans  in the 1980s and  Philippine liberalization commitments  to the  WTO in  the 1990s. In short, the country  experienced deindustrialization.

After four decades, the  EOI-SAP  program  has  only managed to create  around   a  million or so jobs  in the  four export processing  zones, two  special economic zones  and two  scores  of  private industrial parks.  The  garments  industry, which generated a  million jobs  in the  1980s, has disappeared  with the removal of the quotas  under the  WTO’s  Agreement on  Clothing  and  Textiles.   In the  four decades  of  EOI-SAP, the  Philippines  was also bypassed by our Asian neighbors—first, by the  Asian NICs (South Korea,  Taiwan, Singapore and  Hong Kong); then by Malaysia and  Thailand; and, later, by   China.  All these  countries have an Industrial Policy that  is  starkly different from what the  Philippine neoliberal economists  have been advocating since the 1970s.

But somehow  the Philippines is  growing and  is  even seen  as a  growth  leader in Asia today.  As  everybody knows, this  is because  of  two economic  phenomena: 1) the huge volume  of  remittances  ($30-B +) by the 11 million  overseas Filipino workers who  have  failed  to find quality  jobs  under the  EOI-SAP  program  of  the  neoliberals,  and 2) the surprising growth of  the call center-BPO  sector, which  generated  a million jobs. But the development of  these  two legs  of the economy  can  hardly be  linked  to  the floundering EOI-SAP program. And  how  long  we can rely on  these  two legs is  a  question that  policy-makers  must address, sooner because of the mounting uncertainties  in overseas migration  and global service outsourcing.

This is why  efforts  to infuse dynamism in  our stagnant industrial sector is very much welcome.  According to DTI  Assistant  Secretary Rafaelita M. Aldaba, this is precisely  what the  DTI team  is doing through  its “Manufacturing Resurgence” program. Former Sen. Joey Lina, the  anchor of  ABS-CBN program Sagot Ko  Yan, released a  sigh of  relief—“Hallelujah”.

Then Joey raised a truly  strategic economic question: Are  we targeting the domestic market as  a platform to promote industrialization?  After all, we  have a 110 million population.  Just  imagine  how many  factory jobs  and agro-industrial  livelihoods  can  be generated  if  at  least 50 percent of  all  the goods  sold  in the  malls  of the Sys,  Gokongweis, Ayalas, Gaisanos, Villars and  so on are all  made in the Philippines, not imported. To this, Asec Aldaba answered  that the domestic market is, in fact, at the  center of  the DTI industrial  strategizing or  restrategizing.  Joey released another sigh of Hallelujah.

Further,  Asec Aldaba added that they recognize the  mistake  of  the past EOI program.  Wow, another hallelujah.

But is  this  economic  revisionism accepted by those  who crafted  the Neda’s PDP, which retains  the old SAP-EOI macroeconomic  framework?  Is  this  economic  revisionism accepted by those  who made  the  imagined sustained  growth trajectory for the country up to 2040, as if  growth and  poverty reduction  are simply a question  of   growth-growth-growth through a build-build-build/tax-tax-tax program?  Is this  economic  revisionism different from the  proposed  scaling up of  Philippine  participation in the  global value chains  of  the  MNCs, whose  facilities are hosted  by the EPZs under the  old SAP-EOI program?

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