Sta. Ana coordinates Action for Economic Reforms. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, February 26, 2007 edition, page S1/4.
When I’m drivin’ in my car
and that man comes on the radio
and he’s tellin’ me more and more
about some useless information
supposed to drive my imagination.
I can’t get no, oh no no no.
Hey hey hey, that’s what I say.
I can’t get no satisfaction, I can’t get no satisfaction.
–Mick Jagger and Keith Richards
When I turn on the radio and come across a government apologist singing praises about the economy under Mrs. Gloria Arroyo, I get turned off. Like the bad boy Jagger, I “can’t get no satisfaction” from Arroyo’s prolix propaganda—that the economy is expanding, the stock market is booming, the peso is strengthening, etc.
Masquerading as independents, Joker Arroyo and Ralph Recto are as disingenuous as Arroyo’s propagandists in proclaiming her economic accomplishments. They say, “The economy is improving. Inflation and unemployment are dropping. True, the rich are getting richer and these improvements have yet to be felt by the vast majority of the poor. But no question, little by little, the people are getting better off.”
So they are content with “little by little” improvements! By golly, that means we can no longer catch up with the standard of living of our high-growth neighbors (e.g., Thailand, Malaysia, much less Korea) even at their present levels. And the gap between the Philippines and these high-performing economies will further widen. As Mike Alba puts it, even a six percent GDP growth rate for the Philippines is insufficient, given the current growth rate of our country’s labor force and the rate of progress of the global technological frontier. (See Alba, Yellow Pad, BusinessWorld, 8 January 2007 .)
The best riposte to the Arroyo line that the economy is improving is this: Take out Mrs. Arroyo and her cabal, and the economy would have performed much better, posting higher growth rates resulting in dramatic improvements in welfare and poverty reduction.
Recall that Mrs. Arroyo worsened the fiscal problem. Running for the presidency, she courted political support by undertaking wasteful populist policies and giving fiscal-related favors to vested interests, which swelled the budget deficit. She borrowed heavily to finance government spending, instead of immediately putting in place the reforms in tax policy and administration. Only after the elections and when the threat of a full-blown crisis became imminent did she address the fiscal problem. Some measures she took are not exactly beneficial to the poor and low-income groups, like the increase in the rate of the value-added tax from 10 percent to 12 percent.
Mrs. Arroyo is still part of the problem, if we assess the economy from a long-term growth perspective. In fact, she is the main problem, personifying the bad in Philippine institutions. Bad institutions mean massive corruption, unpredictability and reversal of policies, violation of contracts, selective enforcement of rules, and the like. All these, plus the unabated political killings, the election cheating, and the suppression of democratic rights, impede long-term growth.
To achieve sustainable, long-term growth, the economy must achieve GDP rates similar to China’s or Vietnam’s trajectory. Since 2000, Vietnam’s GDP has been growing at an average rate of 7.5 percent. China’s growth rate over the past 20 years has averaged above 9 percent.
The lesson for the Philippines is that not only should we have high growth; the growth rates should likewise be uninterrupted over the long term.
At present, we find it difficult to meet a growth target of 6 percent, which is not even enough. The growth is mainly driven by consumption, thanks to OFW (overseas Filipino workers) remittances. (The OFW phenomenon, to be sure, is a symptom of a larger problem—that our economy can’t provide quality jobs to the labor force.) Consumption-led growth cannot be sustained.
The key is to spur investments. But investments that will create production and jobs are scarce. Despite the reported rise in business optimism, direct investments are negligible. The direct investments that flow into the Philippines are just a thin slice of the potential and a fraction of what the likes of China, Vietnam and India get.
Investments will not pour in because of the political instability brought about by Arroyo’s legitimacy, the unpredictability of policy and the reversal of rules of the game (the PIATCO case), weak infrastructure (government under-spending in infrastructure), peace and order, widespread and massive corruption, etc.
Since Mrs. Arroyo is a huge part of the problem, she and her collaborators—like Joker Arroyo and Ralph Recto—cannot lead us to investment-led, long-term high growth.
Further, to cite the favorite line of the opposition, the growth that Mrs. Arroyo boasts of has bypassed the majority, borne out by the surveys. Unemployment and underemployment remain high. More than a fourth of the labor force is either unemployed or underemployed. What is not immediately revealed by the official statistics is that the quality of employment for those who have work is poor.
Many of those employed are engaged in activities, especially in rural areas, that have low productivity. In the rural areas, much of the labor is unpaid. Poverty-level wages are the norm, even in urban areas.
Counted as among the employed are “those who do any work for one hour during the reference period for pay or profit, or work without pay on the farm or business enterprise operated by a member of the same household related by blood, marriage or adoption.” (Definition comes from the National Statistical Coordination Board.)
So the irony is this: there is growth, the stock market is bullish, hot money flows, but there is an employment crisis, as the productive sectors of the economy cannot generate enough high-productivity jobs.
What can then be done to stimulate investments for long-term growth and generate quality jobs? It is mainly a political and institutional question as explained earlier. Mrs. Arroyo personifies the weak and corrupt institutions. She must therefore be defeated.
Economic measures that need immediate action include:
Increasing spending for public investments (spending for infrastructure, education and health has gone down in real terms or in per capita terms).
Creating conditions for higher productivity by giving ample budgetary and institutional support for research and technology, agriculture extension services, access to credit, and the like.
Improving tax collection and introducing progressive and consumption taxes.
Arresting the further appreciation of the peso, which is harmful to Filipino exporters and producers for the domestic market.
Providing targeted incentives to investments that will create jobs and promote technological innovation, but making sure that such incentives lead to greater social benefits and will not be abused by vested interests.
In gist, what matters is long-term growth that benefits everyone, especially the poor. Unfortunately, for the purpose of propaganda, it is difficult explaining the nuances of long-term growth as against rattling facts like low inflation, strong peso, and booming stock market that characterize the current growth. An intelligent, deep-thinking economist like Mike Alba cannot out-talk a glib entertainer like Joey Salceda.
But the histrionics of Salceda, Recto and Joker Arroyo are no match to the Rolling Stones’s theatrical flair. So as Mrs. Arroyo and her allies celebrate their economy, let’s dig on the radio and end by accompanying Jagger and the Rolling Stones sing:
I saw her today at the reception.
In her glass was a bleeding man.
She was practiced at the art of deception.
Well I could tell by her blood-stained hands.
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