Exclusive Growth

A Socio-Economic Research Paper

Presented to

Ms. Kathy Ramolete

Presented by

Andrea S. Canivel
IV- 13 St. Theofrid

2013

Introduction

nyone whos been paying attention to recent news can agree on one thing: the Philippines has been experiencing in the recent years, and will experience in the years to come a continued boom in economic growth. When asked about the

Philippine economic status, most of my fellow students are primed and ready with the answer of it being on the rise. Just two months ago, the countrys stock markets managed to record new historic highs breaching the 7,000 mark and beyond1 and the World Bank and the United Nations Economic and Social Survey of Asia and the Pacific (UNESCAP) forecast a solid 6.2 percent GDP growth for 2013, complementing a stunning performance in the preceding year2. All signs point to the positive and continual growth of the economy and yet two indicators of economic improvement say otherwise. The latest report by the National Statistics Coordination Board (NSC), however, suggests that despite impressive rates of economic growth in recent years poverty rates have remained virtually unchanged since 2006. In the first half of 2012, the national poverty rate stood at 27.9%, compared to 28.8% in 2006 and 28.6% in 2009. No wonder, according to the NSCB, poverty remained unchanged as the computed differences are not statistically significant. In addition, the report suggests, some provinces in the conflict-prone southern island of Mindanao have experienced an increase in poverty rates. Not to mention, the (extreme) "poverty threshold" used by the government agency was merely $0.62 per day, while that of the World Bank is $1.25 per day3 and according to the recent March 19-22 surveys of the Philippine Social Weather Station (SWS), as much as 1 million people have joined the ranks of unemployed in early 2013.4
Page | 2

So, long story short, the economy is undergoing breath taking improvement but unemployment and poverty rates continue to increase or in the case of poverty, remain unchanged. This is exclusive growth. The stocks and GDP may be on the rise but unemployment and poverty continue to grow but it isnt going into or becoming jobs for the public or improving the lives of the masses. The Philippine economic growth is not inclusive of the other important sectors of the country and is not gearing towards a sustainable and life-improving economy.

I.

Statement of the Problem

sick man cannot be said to be healing if his old wounds still continue to go septic. It makes perfect sense that if the whole of a thing is improving, its problematic parts should be declining, not increasing. If a countrys economy

is growing, its unemployment and poverty rates should be declining. However, with the countrys recent economic growth, this is not the case. The summarised reports mentioned in the introductory paragraph above say this clearly. GDP and stock market growth are indicators of economic growth but increasing poverty and unemployment rates are not. It just doesnt seem to add up, doesnt it? Yes, the Philippines is booming, and the countrys macroeconomic profile is at its best in recent memory, but the current growth trajectory is neither significantly poverty-alleviating nor job-generating. Obviously this means that much of the recent economic expansion has been confined to few sectors: namely retail, real estate, gambling, and Business Process Outsourcing (BPO), none of which tend to provide quality, permanent jobs for the majority of the working force.5
Page | 3

The problem is exclusive growth and its solution does lie in economic growth but not just upward, it lies in all around, inclusive growth. Recent economic growth being confined to the GDP, stock market and service sectors is the definition of exclusive growth. What is known historically as the age-old economic backbone of all now developed or long ago developed countries continues to be neglected and this may be the biggest part of the problem or the easiest solution. Historically all great civilizations sprung up near rivers for the reason of and to develop and agrarian economy. You start out with the agricultural sector dominating and fuelling employment and production then, as technological advancement and industrialization grows, the economy slowly becomes dominated by the service industry. Agriculture provides a market for the products through an increase in population which fuels again agriculture but this time creating a surplus in goods and need for industrialization. The economy evolves into a service dominated and urbanized one reducing unemployment and poverty. What happened, however, with the Philippine economy, is what some theorize as leapfrogging the industrialization process. We skipped over the industrialization process. We went from agriculture dominance straight to service. This pre-mature service sector expansion may have sped up urbanization but has robbed us of the industrial technological investments that our neighbouring countries made and are now benefitting from. Our country being an archipelago, wide-spread national industrialization would be difficult but is far from impossible. Our neighbouring countries have achieved this and now they reap the benefits. This economic evolution is a story that had been played out in most of todays developed economies. Industrialization was a critical stage that catapulted them to high-income levels. Our four closest ASEAN neighbours
Page | 4

Indonesia, Malaysia, Thailand and Vietnamhave all seen their industry sectors shares of total gross domestic product (GDP) breach 40 percent within the last two decades. Industrys GDP share in Indonesia went as high as nearly half (48.1 percent), while the same peaked at 47.4, 41.5, and 40.1 percent for Malaysia, Vietnam and Thailand respectively. All four continue to have an industry GDP share exceeding 40 percent. In the Philippines, the highest we reached was only 34.6 percent, and it was down to 30.3 percent as of 2012. This share hardly changed through the last two decades, and stayed mostly within the 31-33 percent range. Meanwhile, our neighbours saw their industry sectors become the largest sector in the economy at some point. Here, however, the services sector had consistently been the largest, and its GDP share rose from 45 to 57 percent from the early 1990s through the present. The growing dominance of services came out of the share of agriculture, whose share dropped from 22 to under 12 percent within the same period.6 The provinces, the rural areas in our country are the prime human and agricultural resource that we have failed to properly cultivate and utilize. The lack of industrialization and technological advancement in the countryside is what is creating this exclusive growth. It keeps development on the side of the service industry. What thrived instead were services industries like real estate, banking and insurance, transport, telecommunications and mass mediaall industries where the benefits of growth historically tend to be narrowly distributed. Our much higher level of poverty and inequality relative to our neighbours must at least partly be attributable to this unusual structural growth pattern wherein we failed to industrialize as much as our neighbours did in recent decades.7 This exclusive, job-losing growth is improving things for the big guys but is making things even harder for the lower and middle class. Narrow growth is seen in how it is propelled by very few
Page | 5

high-growth industries such as business process outsourcing: especially call centres; real property development; banking and insurance; and mass media. It is also seen in how more than half of our GDP is generated in and around Metro Manila alone. Most of us see it in the way benefits of our growth have been captured by relatively a few, while the vast majority is in a seemingly endless wait for the trickle downif it will come at all.8 Another effect of leapfrogging the industrialization process is the generation, support and prospering of only large scale, service companies such as business process outsourcing: especially call centres; real property development; banking and insurance; and mass media.9 This creates a smaller job market and increases poverty. The reasons above are more than sufficient grounds as to why we should as a country, for the betterment not only of the market and economy but also for the improvement of Filipino lives, take immediate action to solve the problem of exclusive growth.

II.

Hypotheses / Assumptions

Hypotheses number 1:
Page | 6

Exclusive growth is caused by leapfrogging. We skipped over the vital industrialization process of our countrys economic evolution and left the would be economic base of our countryside and provinces under-developed which gave way to growth only in the business process outsourcing service industry, which is concentrated and developed only in urban centres leaving a vast majority of Filipinos jobless and impoverished. The solution would be the industrialization and further development of the agricultural and industrial sectors which would generate jobs and alleviate poverty.

Hypothesis number 2: Exclusive growth is caused by a lack of small and medium enterprises which is an effect of leapfrogging. The Philippine service oriented and concentrated economy led to the establishment, development and prospering of only large scale, business tycoon owned service industries that continue to dominate the market. The solution would be the creation and support of more small and medium scale enterprises. This would create job growth and alleviate poverty but would not be possible without government support through laws and policies aimed at eliminating destructive exclusive growth and fostering nation-building inclusive growth instead.

CAUSES CAUSES

EXCLUSIVE GROWTH

EFFECTS
Page | 7

leapfrogging

unemployment

lack of small and medium enterprises

poverty

SOLUTION / HYPOTHES ES
1 Industrialization in the countryside 2 Creation and support of small and medium enterprises

INCLUSIV E GROWTH III. Data Gathered

1

PSEi hits fresh peak; breaches 7,200-mark

Page | 8

By Kathleen A. Martin, ABS-CBNnews.com

Posted at 05/03/2013 4:10 PM | Updated as of 05/03/2013 7:27 PM MANILA, Philippines - Shares breached the 7,200-mark on Friday after the Philippines got its second investmentgrade status the previous day. The Philippine Stock Exchange index rose 1.72% or 121.93 points to 7,215.35, while the broader all-shares index went up 1.48% or 65.41 points to 4,490. This is the 28th record high for the PSEi this year. The index reached as high as 7,230.40 during the day, or 136.98 points above Thursday's finish. Shares rallied after Standard & Poor's upgraded its junk rating on the Philippines to BBB-, the second investment-grade status for the country. Total volume traded on Friday reached 3.53 billion shares worth P15.83 billion. Advancers led decliners 120 to 71, while the shares of 30 firms remained unchanged. All sub-indices were in the green, led by the holding firms which gained 2.42% or 154.32 points to 6,543.36. Most active stocks were Alliance Global Group Inc. whose shares went up 3.94% to P25.05 apiece, and Philippine Long Distance Telephone Co. whose shares climbed 0.32% to P3, 090. Shares of Ayala Land Inc. (+2.36%), SM Investments Corp. (+2%), Universal Robina Corp. (+1.46%) and Trans-Asia Oil and Energy Development Corp. (-10.65%) were also among the most traded on Friday.

http://www.abs-cbnnews.com/business/05/03/13/psei-hits-fresh-peak-breaches-7200-mark

Poverty level remains unchanged since 2006 government survey

2, 3
SIEGFRID O. ALEGADO, MARC JAYSON CAYABYAB and DANESSA O. RIVERA, GMA News April 23, 2013 10:41am Economic indicators may show the country is getting richer, but the poor remain poor. The ratio of poor Filipinos to the overall population levelled off at 27.9 percent during the first half of 2012 from 28.6 percent in the same period in 2009, National Statistical Coordination Board (NSCB) Secretary General Jose Ramon Albert said in a press briefing Tuesday. However, compared to the 2006 ratio of 28.8 percent, the NSCB noted there was no statistical difference. Comparing this with the 2006 and 2009 first semester figures estimated at 28.8 percent and 28.6 percent, respectively, poverty remained unchanged as the computed differences are not statistically

Page | 9

significant, NSCB noted in a statement. Based on the "The Family Income and Expenditures Survey", the Philippines tracks the poverty rate once every three years. Filipino families in extreme poverty whose incomes arent enough to meet basic food needs stands at 10 percent in the 1st half of 2012, NSCB said. On average, 28 in every 100 Filipinos were poor in the last six years. Floating above poverty What has changed is that a family of five needs more to leave the ranks of the poor. To meet basic food needs, a family of five needs P5, 458 every month. To stay above the poverty thresholdor meeting basic food and non-food needsthe family needs to collectively earn P7, 821. In 2006, a family of five needed only P1, 681 in 2006 and P2, 042 in 2009 to move out of poverty. The NSCB pointed out that during the first semester of 2012, a Filipino family of five needed P5, 458 to meet basic food needs every month and P7, 821 to stay above the poverty threshold every month. These respective amounts represent the food and poverty thresholds, which increased by 11.1 percent from the first semester of 2009 to the first half of 2012, compared to the 26.0 percentincrease between the 1st semesters of 2006 and 2009. By region, the Autonomous Region of Muslim Mindanao has the highest poverty incidence in the first half of 2012 at 52.9 percent. Region XII and Region VIII followed with poverty incidences of 45.8 percent and 45.5 percent, respectively. The National Capital Region registered the lowest poverty incidence at 5.4 percent, followed by Region IV-A (14.3 percent) and Region III (15.6 percent). Unwanted statistics The poverty statistics were not the dramatic results that we wanted, said Socioeconomic Planning Secretary Arsenio Balisacan.

Page | 10

The rural sector lags behind because of the lack of focus and private sector involvement in agriculture, he said. But National Anti-Poverty Commission chair Joel Rocamora said that by the end of President Benigno Aquino III's term government programs will already have statistical impact. The government targets poverty incidence to drop by 16 percent in 2016. Balisacan said the poverty figures will be lessened should the private sector funnel investments needed in the countryside and support government inroads towards developing the agro-industrial and fisheries sector. Moreover, Balisacan said poverty incidence will gradually go down should effects of private investments kick-in. The real challenge here is to get the private sector to respond to the governments initiatives, he said, noting that private sector investments were negative until the second half of 2012 which is still not reflected in the recent poverty statistics. Balisacan noted the need to develop the manufacturing sector, power and transport infrastructure in order for the country to move up the value chain. The latest survey confirms that economic growth is still not felt by majority of Filipinos, Sonny Africa, executive director of research group IBON Foundation, told GMA News Online. "Growth remains exclusionary which means hindi nag-be-benefit ang largest number of Filipinos," said Africa. The poverty incidence in this country and the Labour Department's announcement that there will be no wage increase on May 1 also belie reports of stock market record-highs and a credit rating of investment grade, he said. "It's very striking na amidst these economic good news 'yung pinaka-bottomline for the Filipino majority of increasing income, hindi nagma-materialize," Africa added.

Page | 11

Private pollsters To track the effectiveness of government development and anti-poverty programs, the government survey will be released every six months starting this year, said Balisacan. Thus, data for the second half of 2012 will be released in the third quarter of 2013 instead of 2015. As official poverty numbers in the past were done every three years, stakeholders like the media and research outfits had no choice but to source statistics from private pollsterssuch as the Social Weather Stations (SWS), which conduct self-rated poverty surveys based on the experience of respondents. In its latest survey released last January, the SWS noted 54 percent or 10.9 million families consider themselves as mahirap or poor, with perception of poverty rising nationwide except in the Visayas. Unlike government statistics which measure the income and expenses of Filipino families, most private pollsters simply ask families how they see themselves: Not poor, on the poverty line, or poor? TJD/VS, GMA News

http://www.gmanetwork.com/news/story/305102/economy/business/poverty-level-remains-unchanged-since-2006government-survey

A million more Pinoys jobless as unemployment up to 25.4 percent SWS

4
May 2, 2013 5:10am (Updated 7:19 p.m.) Unemployment continued to be the fly in the ointment that is the recent upswing in the Philippine economy, based on a new survey by pollster Social Weather Stations. According to the SWS's March 19-22 survey unemployment among Filipinos aged 18 and up rose to 25.4 percentequivalent to 11.1 million jobless Filipinos. This was a million more than the estimated 10.1 million jobless Filipinos in December, when unemployment among Filipinos was at 24.6 percent. By comparison, the official unemployment rate was 7.1 percent as of January, equivalent to 2.89 million Filipinos. This was an increase from the 6.8 percent in October 2012.

Page | 12

Think-tank Ibon Foundation pointed out that the latest SWS survey reflects the problem in government's economic policies, which is biased towards foreign investors' wants than Filipinos' needs, particularly the creation of more stable jobs. "The government relies heavily on foreign investors to make investments in the services sector, when they are here on terms profitable for them like cheap labour and importing of cheaper materials for assembly here," Ibon executive director and economist Sonny Africa told GMA News Online on Thursday. "If the government orientation regarding foreign investors will not change, only foreigners will benefit" from the robust economic growth the country is currently experiencing, he added. Still, the SWS poll found more Filipinos upbeat on job availability for the next 12 months, with net optimism up three points to a "fair" of +13. SWS noted that unemployment had been high since May 2005, going below 20 percent only thrice. The last time it did so was in September 2010, at 18.9 percent. The survey used the traditional definition of unemployed as those who are not working and are looking for work. The employed were those with work at present, including unpaid family workers, with no past reference period. 'Structural economic problem' Unemployment is only part and parcel of a larger structural economic problem, Philippine Economics Society president Alvin Ang told GMA News Online in a separate interview. The problem is investments are not funnelled into sectors that would benefit majority of Fiipinos, like in agriculture and manufacturing, noted Ang, who is also an economics professor at University of Santo Tomas. The problem has long been in front of us all along, the economist said. Ang said solving the country's unemployment problem also requires generating more quality jobs more than ensuring that investments are put into productive sectors. Beyond that there are people who have jobs but are unsustainablethey are either contractual or are working in informal sectors, he said. With the lack of quality jobs, those who are underemployed or have unsustainable work will join the unemployed soon enough. Quality jobs refer to employment that provide decent wages, job security, advancement opportunities, and healthy working environment where workers are treated fairly and have a voice in their daily activities at work and about the overall working conditions, according to the American Centre for Law and Social Policy. The SWS survey's respondents were those at least 18 years old. By comparison, the official definition of employed included those who, during the week before the interview date, were at least 15 years old and were either at work or with a job but not at work. Since 2005, the official definition of unemployed required that the individual not be working, be looking for work, and be available for work.

Page | 13

But SWS said that if it had used the official definitions, the jobless rate among adults 18 years old and above would be 15.4 percent, or about six million Filipinos. "This means 9.9 percent are looking for a job but are not available at present or in the next two weeks," it said. Joblessness breakdown Dominating the ranks of the jobless were those who quit at 12 percent, while those who were retrenched was at 8 percent. The remaining five percent who were jobless were first-time jobseekers. Of the 8 percent retrenched, those whose contracts were not renewed fell to 6 percent from 7 percent, those whose firms closed decreased to 1 percent from 2 percent, and those laid off remained at 1 percent. The survey found the proportion of those who quit was up from 11 percent and the share of first-time jobseekers rose from 3 percent. The survey showed joblessness increased everywhere, except among women and those in the 2534-years-old bracket. Among men, joblessness went up two points to 17.3 percent but hardly changed at 35.4 percent from 35.7 percent for women. It fell by a point among "intermediate youth" aged 25 to 34 to 31.8 percent, and hardly changed at 15.8 percent from 15.5 percent among those aged 45 and up. But it rose three points to 23 percent among the middle-aged (35-44) and by two points to 49.6 percent among the youth (18-24). Asked on the difference between the SWS results and official unemployment data, Ang said: I'm not questioning the validity of both. They both have statistically sound methods. According to the economist, the difference between the two unemployment surveys are the time it was conducted and the coverage of samples. The SWS conducts unemployment surveys in March, June, September and December; while the state statistics agency does it in January, April, July and November, said Ang. Moreover, the state's Labour Force Survey has a larger sample size. I won't quibble over who's more accurate. They both point to alarming status of employment here despite recent economic strides. I'd rather focus on how to solve the problem, Ang noted. More optimism than pessimism Optimists, or those who think there will be more jobs in the next 12 months, outnumbered the pessimists, or those with the opposing view. The survey showed 34 percent of the respondents were upbeat about employment prospects, 21 percent said there would be fewer jobs and 28 percent expected no change.

Page | 14

Last December, 32 percent were optimistic, while 22 percent said there would be fewer jobs and 34 percent expected no change. The March 19-22 survey used face-to-face interviews of 1,200 adults nationwide. Sampling error margins of 3% for national and 6% for area percentages applied to the survey. SWS published the results of its latest survey Thursday through its media partner Business World. Resources processed by Pinoys Africa stressed that the best way to create more stable jobs is to "have domestic resources processed by Filipinos themselves." "Kung ang produkto ay gawa sa Pilipinas, magkakaroon ng libu-libong trabaho para sa Pilipino, magkakaroon ng dagdag na kita para sa bawat Pilipino...mas magiging inclusive ang paglago ng ekonomiya," Africa said in an interview on GMA News' News-To-Go on Wednesday. But since foreign investors have been here for couple of decades, the government should take measures to get benefits from them. "This can be through technology transfer, so learning can happen to Philippine manufacturers, sourcing of materials locally for manufacturing and directing a portion of profits of foreign companies back to the Philippine economy," Africa said. In March this year, Socioeconomic Planning Secretary Arsenio Balisacan said the government is preparing an updated version of the Medium-Term Development Plan (MTDP) focusing on people and quality jobs to address the growing number of jobless Filipinos. In this update, we intend to put job creation at the centre of the plan, Balisacan told reporters. with Danessa Rivera and Sieg Alegado/DVM/KG/VS, GMA News
http://www.gmanetwork.com/news/story/306421/economy/business/a-million-more-pinoys-jobless-asunemployment-up-to-25-4-percent-sws

Philippines Economy: Booming, But Poverty and Unemployment Remain Problematic

Richard Javad Heydarian in World 2 months ago

Page | 15

Shortly after my piece on the Philippines' continuing structural economic vulnerabilities, which generated considerable controversy and heated discussions among experts and observers alike, the countrys stock markets managed to record new historic highs breaching the 7,000 mark and beyond. Meanwhile, Standard & Poor's Ratings Services, following in the footsteps of Fitch Ratings, has just awarded the Philippines with its second credit ratings upgrade raising hopes of sustained economic boom in the years to come. Vaunting its newly-acquired investment grade status, the Philippines widely celebrated as Asias new economic tiger is poised to access the global investment pool on a wider scale, while benefiting from lower borrowing costs in international markets. In addition, the two main drivers of the countrys recent economic uptick, notably the Business Process Outsourcing (BPO) sector and the multi-billion remittances from Overseas Filipino Workers (OFWs), are expected to post healthy rates of growth in the foreseeable future. So far, so good!
PHILIPPINES E CONOMY : B OOMING , BUT POVERTY AND The Philippines is no longer the Sick UNEMPLOYMENT R EMAIN P ROBLEMATIC

Man of Asia, now home to one of the

regions most dynamic economies, but there are still huge challenges in trickling down the growing economic pie. The country is benefiting from the clean governance initiatives of its top leadership, with ramped-up infrastructure spending fuelling economic expansion, but the current development paradigm is in need of some fundamental re-configurations if it is to address rampant poverty, mind-boggling inequality, and double digit underemployment rates in the short- to medium-run. Two important reports in recent weeks seem to be vindicating my earlier concerns with the necessity to institutionalize inclusive and sustainable growth in the country. While the World Bank and the United Nations Economic and Social Survey of Asia and the Pacific (UNESCAP) forecast a solid 6.2 percent GDP growth for 2013, complementing a stunning performance in the preceding year, the latest report by the National Statistics Coordination Board (NSC), however, suggests that despite impressive rates of economic growth in recent years poverty rates have remained virtually unchanged since 2006. In the first half of 2012, the national poverty rate stood at 27.9%, compared to 28.8% in 2006 and 28.6% in 2009. No wonder, according to the NSCB, poverty remained unchanged as the computed differences are not statistically significant. In addition, the report suggests, some provinces in the conflict-prone southern island of Mindanao have experienced an increase in poverty rates. Not to mention, the (extreme) "poverty threshold" used by the
Page | 16

government agency was merely $0.62 per day, while that of the World Bank is $1.25 per day. Then, most recently, came another study indicating that as much as 1 million people have joined the ranks of unemployed in early 2013. According to the Philippine pollster giant Social Weather Station (SWS), the latest survey (March 19-22) shows that unemployment rates have risen up to 25.4%, or the equivalent of 11.1 million individuals within the working force. This compares to 24.6%, or 10.1 million jobless individuals, back in December 2012. Meanwhile, the official unemployment rate increased from 6.8 percent in 2012 to 7.1% in January 2013, meaning a total of 2.9 million individuals are now struggling to find a permanent job. What these two studies suggest is pretty straightforward: Yes, the Philippines is booming, and the countrys macroeconomic profile is at its best in recent memory, but the current growth trajectory is neither significantly poverty-alleviating nor job-generating. Obviously this means that much of the recent economic expansion has been confined to few sectors: namely retail, real estate, gambling, and BPO, none of which tend to provide quality, permanent jobs for the majority of the working force. Meanwhile, manufacturing exports already struggling with uncertainties in the global economy are hammered by Philippine currency appreciation, largely due to the flood of hot money inflow that has buoyed the recent stocks bonanza. What was the response from the government? Some would say flustered and in denial. Seemingly shrugging off the disappointing statistics, the countrys technocrats are flushed with what legendary ex-Federal Reserve Board Chairman, Alan Greenspan, characterized as Irrational Exuberance: The tendency among market participants to obstinately focus on instantaneous, shallow gains at the expense of recognizing more fundamental structural imbalances in the economy, which carry long-term risks of destabilization. They rather focus on the boom in the stock markets and the investment grade euphoria, than, lets say, re-examine the merits of the current growth trajectory. In fact, some studies, as business columnist Ben Kritz notes, suggest that there is little correlation between acquiring an investment grade status, on one hand, and growth in Foreign Direct Investment (FDI), on the other. To be fair to the Aquino administration, there is no single magic formula for addressing the countrys perennial economic challenges. The government has tried very hard to address extreme poverty, namely through the expansion of the Conditional Cash Transfer (CCT) scheme, which provides financial benefits to indigent sectors in exchange for performancePage | 17

based improvements in crucial areas such as education. It takes years, if not decades, to reverse the impact of previous governments counter-productive policies. But this should not be a reason for complacency and obstinately sticking to an economic paradigm, which sustains boom in certain sectors, but provides limited opportunities for the huge swaths of unemployed and poor. The answer to the countrys continuing socioeconomic challenges may lie in the policy proposals of Asian Development Banks (ADB) brilliant senior country economist, Norio Usui, who has continuously argued for a refocus on the flailing manufacturing sector in order to address the issue of economic inclusiveness and sustainability.

http://www.policymic.com/articles/39507/philippines-economy-booming-but-poverty-andunemployment-remain-problematic

No Free Lunch

6,7

Resuming our industrialization

By Cielito F. Habito
Philippine Daily Inquirer
10:17 pm | Monday, May 27th, 2013

In the classic economic development story, a country at the early stages of development starts out as an agrarian economy where the agriculture sector dominates in both output and employment, relative to the other two major economic sectors of industry and services. As agriculture grows and productivity increases with technological change, the sector provides a growing market for the products of industry, and releases surplus labour that further propels industrial growth. The economy moves on to the industrialization stage marked by further rises in incomes and employment, supported by scientific and technological innovation. Wealth accumulates and the economy matures, eventually graduating into services sector dominance as higher incomes support growing demands for services of various kinds. This economic evolution is a story that had been played out in most of todays developed economies. Industrialization was a critical stage that catapulted them to high-income levels. Our four closest ASEAN neighboursIndonesia, Malaysia, Thailand and Vietnamhave all seen their industry sectors shares of total gross domestic product (GDP) breach 40 percent within the last two decades. Industrys GDP share in Indonesia went as high as nearly half (48.1 percent), while the same peaked at 47.4, 41.5, and 40.1 percent for Malaysia, Vietnam and Thailand respectively. All four continue to have an industry GDP share exceeding 40 percent. In the Philippines, the highest we reached was only 34.6 percent, and it was down to 30.3 percent as of 2012. This share hardly changed through the last two decades, and stayed mostly within the 31-33 percent range. Meanwhile, our neighbours saw their industry sectors become the largest sector in the economy at some point. Here, however, the services sector had consistently been the largest, and its GDP share rose from 45 to 57 percent from the early 1990s through the present. The growing dominance of services came out of the share of agriculture, whose share dropped from 22 to under 12 percent within the same period. Back in the 1990s, some suggested that the Philippine experience was one of leapfrogging the industrialization process; that is, we were jumping straight from agriculture to services sector dominance as if accelerating into early maturity. We now know with hindsight that this was not exactly a good thing. Our failure to attain wider and deeper industrialization at the time appears to have taken a toll not only on our overall economic growth rates, but also on the inclusiveness of that growth. What thrived instead were services industries like real estate, banking and insurance, transport, telecommunications and mass mediaall industries where the benefits of growth historically tend to be narrowly distributed. Our much higher level of poverty and inequality relative to our neighbours must at least partly be

Page | 18

attributable to this unusual structural growth pattern wherein we failed to industrialize as much as our neighbours did in recent decades. The good news is that all is not lost. We can yet get back on the industrialization track, and theres statistical and anecdotal evidence that this is in fact already happening. We seem to have reached a turning point in 2010, when manufacturing somehow found renewed vigour. The proof can be clearly seen in the data. The National Statistics Office has tracked growth of key manufacturing industries via the Monthly Integrated Survey of Selected Industries (MISSI). Annual growth reported by the MISSI averaged -4.0 percent (volume of production) in the period 2004-2009 that is, covered manufacturing industries had actually contracted through that six-year period. But the last three years (2010-2012) saw a complete turnaround, with annual growth averaging an impressive 10.9 percent. Furthermore, capacity utilization has gone up nearly 2 percentage points, from an average of 80.3 percent in 20042009 to 83.1 percent in 2010-2012. A similar breakout may be seen in the GDP accounts, which track manufacturing sector growth more comprehensively. The data reveal that overall manufacturing growth averaged only 3 percent annually in 2004-2009, but has averaged 7.5 percent in 2010-2012. But theres more evidence beyond the statistics of a latent resurgence in Philippine manufacturing. Unknown to most of us, we have already become the fourth largest shipbuilding country in the world, according to industry insiders. This we owe to substantial investments in shipbuilding and repair facilities within the past decade especially from Korea and Australia in Subic and Cebuand more are coming, we are told. In Batangas City, a sprawling area is being prepared for the impending entry of manufacturing industries that will make use of the products of a large petrochemical complex that has been in operation there for years. The management of the Phividec Industrial Estate in Misamis Oriental (PIE-MO) now reports an average of six new locators per year, whereas it averaged only two to three in the past. It is already looking to expand further eastward to accommodate interested new locators. Likewise, the Mindanao Container Terminal servicing has already been slated for further expansion. In general, manufacturing activity at the small, medium and large scales appears poised for renewed growth due to high levels of business confidence clearly manifested in the quarterly survey of business expectations by the Bangko Sentral ng Pilipinas. All these to me are hopeful signs that we are getting back on the industrialization boat that we missed in decades pastand with that would hopefully come more inclusive growth.

http://opinion.inquirer.net/53445/resuming-our-industrialization

No Free Lunch

Fixing exclusive growth

By Cielito F. Habito
Philippine Daily Inquirer
11:01 pm | Monday, June 17th, 2013

Everybodys talking about inclusive growth, but the latest labour and employment data suggest that the breath taking growth our economy has been achieving latelythe fastest in all of Asia, in factis anything but that. The latest quarterly Labour Force Survey (LFS) of the National Statistics Office (NSO) reports that there were actually 21,000 fewer jobs overall last April compared to a year ago. With around a million Filipinos joining the labour force every year, we should be gaining a million new jobs each year, not losing them as we just did. I dont recall seeing jobs decline in normal times over the last two decades. But since last October, when the LFS reported a whopping loss of 882,000 jobs, and again now, we have begun to see yearon-year contraction in overall employment, and right when the economy is seeing unusual growth. What gives? The numbers dont seem to make sense. But unless and until government says otherwise, these are the official jobs data, and the picture they paint isnt pretty. Rapid growth that comes with job loss is not just jobless growth, which economists have been lamenting for years. It is, more accurately, job-killing growth. For a long time now, I have characterized this inability of our economys growth to bring about commensurate jobs as hollow growth. My long-time readers would know that this is just one of three adjectives I use to more fully describe this exclusive growth we are persistently getting: narrow, shallow and hollow. Narrow growth is seen in how it is propelled by very few high-growth industries such as business process outsourcing, especially call centres; real property development; banking and insurance; and mass media. It is also seen in how more than half of our GDP is generated in and around Metro Manila alone. Most of us see it in the way benefits of our growth have been captured by relatively a few, while the vast majority is in a seemingly endless wait for the trickle downif it will come at all.

Page | 19

Shallow growth happens when the same limited high-growth industry drivers have little linkage with other industries in the domestic economy. For example, the bulk of our exports come out of the enclave economies in special economic zones, where duty-free privileges lead firms to naturally source their inputs from overseas rather than from domestic producers. There is little domestic content beyond assembly labour in our top exports. Electronics are both our top export and our top import, as we simply assemble imported chips into the circuit boards that still mostly comprise our electronics exports that are still to be turned into final products elsewhere. The same is true with our garments exports, with the textiles going into them being almost entirely imported as well. Such low domestic value-added products are the kinds of export industries encouraged by a currency stronger than it should be, propped up by hot money inflows fuelled by speculative demand. What will it take to fix our exclusive growth? Clearly, we cant go on with business as usual. An economy whose key growth sectors are highly concentrated in a few large players can never deliver inclusive growth. Fundamental restructuring in our economy is needed if it is to grow on a much broader base. Thus, apart from fostering large numbers of small and medium enterprises, we need our lawsand our Constitution, where necessaryto wrest open the stranglehold that large dominant players have had on certain key industries for much too long. It is only with more competition from more players, whether from within or without, that the highly skewed and exclusive nature of the Philippine economy can significantly improve. Proposed laws to strengthen our competition policy and outlaw monopolistic practices have long been languishing in Congress, meeting stiff resistance from those who are not about to give up long-held market dominance. President Aquino would do well to ensure that we achieve this one critical legislation toward inclusive growth, which many of our Southeast Asian neighbours already have, in the remaining half of his term. On developing and strengthening small and medium enterprises (SMEs) to broaden our economic base, it is high time we turned lip service into real action. Pushing for SMEs is not a job for the Department of Trade and Industry alone; it must be a government-wide concern. If President Cory Aquino had declared agrarian reform as her centrepiece program, perhaps its time for her President-son to move on to a new centrepiece economic program that can make the real difference for inclusive growth: a big push for SMEs. Their biggest impediments have always been well-known, and foremost is their lack of access to adequate finance. I would like to see our monetary authorities push inclusive finance beyond talk, into creative changes in banking rules and regulations that will lead the big banks to seek rather than shun small businesses as clients. Meanwhile, public research and academic institutions must focus on the technology needs of SMEs. Agriculture authorities must look beyond the farms and help foster value chain linkages between primary producers and SME processors. And SMEs must be assisted to form clusters to ensure that they can meet volume demands from institutional markets whether at home or overseasthe common Waterloo of many a small entrepreneur who prefers to go kanya-kanya rather than sama-sama. Inclusive growth will not happen overnight, to be sure, but the most meaningful steps must be taken now if it is to happen at all. To my mind, given his deep political capital, this President is best placed to do it.

http://opinion.inquirer.net/54779/fixing-exclusive-growth

Related reading

Taking the Right Road to Inclusive Growth

http://www.adb.org/sites/default/files/pub/2012/taking-right-road-to-inclusivegrowth.pdf

Industrial Upgrading and Diversification in the Philippines

Norio Usui

Page | 20

Business Process Outsourcing Concept

http://www.managementstudyguide.com/business-process-outsourcing.htm

Manilas Economic Headache

By Javad Heydarian

November 1, 2011
http://thediplomat.com/new-leaders-forum/2011/11/01/manilas-economic-headache/

No Free Lunch

Where did our growth come from?

By Cielito F. Habito
Philippine Daily Inquirer
9:55 pm | Monday, June 3rd, 2013

http://opinion.inquirer.net/53929/where-did-our-growth-come-from

IV. Data Analysis

Definition of Terms: agrarian - relating to agriculture or farming.8 exclusive growth the opposite of inclusive growth hot money - money that moves at short notice from one financial centre to another in search of the highest short-term interest4 inclusive growth - basically means, broad based growth, shared growth, and pro-poor growth. It decreases the rapid growth rate of poverty in a country and increases the involvement of people into the growth process of the country. Inclusive growth by its very
Page | 21

definition implies an equitable allocation of resources with benefits incurred to every section of the society.1 industrial sector - the part of the economy concerned with producing goods without much direct input of natural resources.6 industrialization - the process of moving resources into the industrial sector.5 poverty - inability to afford an adequate standard of consumption2 service industry - the parts of the economy providing services. These may be to individual consumers, for example medical treatment or entertainment, or to businesses, for example architectural, cleaning, computing, engineering, or legal work. In some cases, such as restaurants, a combination of goods and services is provided.7 small and medium enterprises - Small and medium enterprises or small and medium-sized enterprises (SMEs, small and medium-sized businesses, SMBs, and variations of these terms) are companies whose personnel numbers fall below certain limits. The abbreviation "SME" is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization (WTO). Small enterprises outnumber large companies by a wide margin and also employ many more people. SMEs are also said to be responsible for driving innovation and competition in many economic sectors.9 unemployment - inability to obtain a job when one is willing and able to work3

Abbreviations: ASEAN Association of Southeast Asian Nations BPO Business Process Outsourcing GDP Gross Domestic Product NSC National Statistics Coordination SWS Social Weather Station UNESCAP United Nations Economic and Social Commission for Asia and Pacific

What is Inclusive Growth? Page | 22

February 10, 2009 http://siteresources.worldbank.org/INTDEBTDEPT/Resources/4689801218567884549/WhatIsInclusiveGrowth20081230.pdf

A Dictionary of Economics (3rd ed.)

John Black, Nigar Hashimzade, and Gareth Myles http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref9780199237043

A Dictionary of Business and Management (5 ed.)

Edited by Jonathan Law http://www.oxfordreference.com/view/10.1093/acref/9780199234899.001.0001/acref9780199234899

A Dictionary of Environment and Conservation

Chris Park http://www.oxfordreference.com/view/10.1093/acref/9780198609957.001.0001/acref9780198609957

ENTERPRISE AND INDUSTRY PUBLICATIONS The new SME definition, User guide and model declaration
Article 2 http://ec.europa.eu/enterprise/policies/sme/files/sme_definition/sme_user_guide_en.pdf

Page | 23