The Philippines: Economic Growth and Development - Case Study Example

The Philippines: Economic Growth and Development Introduction The Philippine economy grew in 2000 to due to effective fiscal management, macroeconomic strength, and a resilient international economic environment. However, compared to its ASEAN neighbors, its performance was not as impressive and remarkable due to several factors. The Philippine economy had a slow growth because of political and natural causes. For example, a major earthquake in the 1990s hit central and northern Luzon, the country’s main island, and the eruption of Mt. Pinatubo caused floods, which affected economy activity. The three major sectors in the Philippine economy, namely agriculture, industry, and services, were showing signs of steady growth during the 1950s, 1960s, and 1970s, but internal and external forces hampered this steady growth. The country was one of those hit by the economic crises in the 1980s, and it underwent a recession during this period. Recovery went on and progressed from the 1990s to 2000s, but the services sector contributed to slow growth. Agriculture, in particular the areas of fishery and forestry, was a major source of employment; its share of real GDP accounted for 25 percent in 1986, but this soon went down to about 19.5 percent. Industry’s contribution to growth did not materialize in the 1980s, and its share went down to 32.5 percent from the previous 35.0 percent. Manufacturing and its subsector food processing also declined. During 2001 to 2006, industry in the neighboring countries contributed to 45-46 percent share of GDP, but for the Philippines industry was only about 33 percent of GDP (Canlas, Khan, & Zhuang, 2009, p. 15). The country was then known as the “sick man in Asia,” which many Filipinos would like to disprove. They could not join hands together due to political and other man-made reasons, although it would not be long that this “sick man” would become one of the growing economies in Asia today. Measuring economic growth and development We can measure economic growth and development by looking at a country’s gross national product (GNP), or the total goods and services created for a country, which is almost similar to measuring gross domestic product (GDP). Economic growth refers to growth in national output, due primarily to increase in the value of the country’s resources and development in technology, or an increase in the quality of products and services generated by the economy (Todaro & Smith, 2012). Poverty has long been a problem in Philippine society. Poverty refers to the lack of the basic means of survival. The poor do not have the means to meet other basic needs, like health, education, housing, and so on. Poor people have a low survival rate and life expectancy (Dixon & Macarov, 1998, p. 1). The Social Weather Station (SWS), an independent body, which monitors poverty incidence in the Philippines, reports that for the 4th quarter of 2014, approximately 3.8 million families experienced involuntary hunger at least once during the survey period. Involuntary hunger is similar to involuntary suffering (Social Weather Stations, 2015). More than a decade ago, surveys by the Social Weather Station and Pulse Asia recorded that about half of the households surveyed and considered ‘below the official poverty line’ were tagged as “chronically poor,” and this was about 20 percent of the country’s households (Asian Development Bank, 2009). Working conditions in the Philippines are conducive to economic growth. It has fair labor laws, English is widely spoken, and documents are written in English and easily understandable or the common laborer. However, the minimum wage for the ordinary laborer is among the lowest in Asia, the reason why many Filipinos go abroad to find work with higher wages and in dollars. In 2001 to 2005 period, the Philippines showed a very slow growth, being the lowest compared to other countries in the Association of Southeast Asian Countries (ASEAN). The countries that showed remarkable growth during this period were Indonesia, Thailand, Malaysia, and Singapore. The Philippines was even overtaken by Cambodia (Astrologo & River, 2010). Years before World War II, the Philippine economy was the number one economy in this region of the world. After the world, it refused to be left alone, always slow in growth. Many economists and commentators attributed the slow growth to political and natural accidents. Moreover, there were internal and external factors. In 2001, semi-conductor manufacturing had an abrupt slowing down due to low demand. The September 11 attacks against the U.S. and many other terrorism-initiated incidents forced the country to slow down its growth initiatives, particularly in the southern area of the country where an existing secessionist movement was slowly gaining ground. Health shocks, such as the severe acute respiratory syndrome (SARS), also affected growth. The economy showed some strength however, with the rise of the per capita GDP which had an average growth of 2.7 percent in year 2006 (Canlas et al., 2009). During this period, Philippines was still trailing behind its ASEAN neighbors, like Hong Kong, Korea, Singapore, and Chinese Taipei, which were then regarded as newly industrializing economies (NIEs), and were regarded as “economic miracles” in the region. Most Filipinos are considered poor, with about only 10 percent belonging to the upper or middle classes. This class will continue to suffer health problems, lack of nutrition, housing, quality employment, healthcare, and quality education. Chronic problems are hard to solve, but they are solvable. Electoral fraud and manipulations, corruption scandals that involve even senators and congressmen, and human-rights violations are gradually being addressed (Canlas et al., 2009). There is still a growing disparity between the social classes in the Philippines. In the last administration, the Philippine economy failed to grow rapidly. The poor have become poorer and deprived of their opportunity for employment and human growth. The Philippines’ average growth rate in 2001 to 2007 was seen as the lowest among ASEAN countries (Asian Development Bank, 2009, p. 40). The Medium-Term development goals under the present government Under the present dispensation, the Philippines is now closely competing with its ASEAN neighbors, with its development goals closed to being achieved. The administration of Benigno Aquino III, son of late president Corazon Aquino, is on the process of a final settlement between decades-old secessionist group known as the Moro Islamic Liberation Front (MILF), in which a constitution for self-rule in the Autonomous Region for Muslim Mindanao (ARMM) is being discussed in the Philippine congress. The Aquino government has convinced the MILF to sign an agreement, while a ceasefire is ongoing (Thompson, 2013). There are problems to this peaceful negotiation with the rebel group, but those who are for a lasting peace in the island of Mindanao in southern Philippines, everyone is hopeful that they could hurdle the problems. However, there is another larger rebel group, fighting for Maoist ideology known as the New People’s Army (NPA), but has remained strong with its stronghold in the mountains of Luzon and other parts of the Philippines. The Maoist insurgents have found and continued their strategies, including criminal tactics of kidnapping and extortion. Human rights violations have marred the previous administration of President Gloria Macapagal Arroyo, and now the present administration of Benigno Aquino III has made little effort to eradicate extrajudicial killings committed allegedly by government security forces (Thompson, 2013). The Aquino administration is known for its relentless fight against graft and corruption, which has increased international economic rating. Due to declining debt burden and remarkable growth potentials, the Moody’s Investors Service upgraded its positive credit-rating for the Philippines (GMA News, 2014). This is due to the Philippines’ economic performance for the year 2014. Although there is still much to be done, the country’s fight against graft and corruption has earned praised from the international community, especially from foreign investors. In 2014, three senators of the Philippine Senate have been put to jail for plunder cases, while a host of other lawmakers are under investigation before corruption cases will be filed against them. The senators, along with their cohorts, are still in jail. This is one of the accomplishments of the Aquino administration, although graft and corruption is still a major stumbling block for a clean government and economic development. The Philippines is now the number one outsourcing country, surpassing India, in the business process outsourcing (BPO) sector. Overseas Filipino workers (OFWs) provide remittances, and foreign exchange and continuous inflow of dollars have reinforced the economy. Macroeconomic stability is one of the contributions of the Aquino administration. Other contributions include the increase in public-private partnerships and improvement and renovations of the various infrastructures, including the country’s major international airport. Transparency International has commended the administration’s fight against corruption, which has helped the image of the country and enticed investors and tourists to come and invest in the Philippines. The Philippines is not anymore the sick man in Asia and is next to China when it comes to economic growth. There are still existing problems, which include fighting “red tape,” unclear government policies, high prices of electricity, weak infrastructure, and high cost for conducting business, among others. The government’s major accomplishment is the program of sound financial management. The past administration of Arroyo failed to reduce income inequality. The conditional cash transfer (CCT) program, which aimed to help the poor economically and was started during the Arroyo administration, has failed in letting the poor feel the economic “miracle” that the country has experienced. Population growth and the reproductive health program (RH bill) are also failing due to the Catholic Church’s opposition. The anti-insurgency campaigns do have a bad reputation because of the reported incompetence and some abuses of the military (Thompson, 2013). The growth and development theory The developmental state theory states that there are certain conditions necessary for a rapid economic growth. These conditions should be present in the Philippine situation for it to have economic growth, for instance, ‘state autonomy, strong capacity, and a committed leadership’ (Kuo, 1995, p. 10). According to theorists, autonomy allows policies to be untouched by capitalists, landowners, laborers, and even politicians. These groups have their own agenda and they provide obstacles to the needed growth and development of the state. Capitalists are concerned with making profits and want government support against their local and foreign competitors. On the other hand, landlords do not want industrialization because industrialists will be their competitors in the fight for political influence. Workers will also be concerned with workers’ rights and higher wages and benefits, which company owners oppose. Finally, politicians are only concerned for short-term interests in exchange for long-term national interests (Kuo, 1995). The component of strong capacity of a developmental state means that the state should have a planning mechanism or agency, a centralized bureaucracy, and well-trained and highly-educated workforce and policymakers who will work for the effective implementation of the policies. A planning agency is responsible for formulating long-term economic development goals; organizing the various government departments; and delivering expert advice about market situations to political and business communities. A centralized bureaucracy, consisting of expert technocrats with good background in economic affairs and are looking forward to economic success, is effective in implementing government policies. State autonomy and strong capacity balance each other in pushing for development. If the state is autonomous from the different groups, it can effectively implement its national policies. Interest groups cannot easily influence centralized, planning agency and well-educated technocrats (Kuo, 1995). The last component of a development state is a determined, authoritative, political leadership committed to growth and development. This kind of leadership initiates innovative programs, employs and manages technocrats, and unrelenting in moving limited resources to pursue economic development. A leadership like this may somewhat coincide with a despot, but he/she should be the enlightened one because development and progress is the objective. The statists or theorists usually cite the example of Singapore, Taiwan, and South Korea as models of rapid growth and development. They were authoritarian countries, which provided the component to dominate interest groups. They had their centralized and effective bureaucracies, managed by highly-educated technocrats, and their leaders were strong-willed and dedicated who were committed to economic development. How is income distribution measured? The human poverty index was developed by the United Nations to refer to a country’s standard of living. Industrialized countries also experience human poverty, so that economists devised separate indexes in measuring poverty. HPI for developing countries (HPI 1) provide the following indexes: Percentage of individuals who are aged more than 40 years (referring to longevity) Percentage of illiterate adults (referring to knowledge) Percentage of individuals who have no access to clean and potable water Percentage of infants who are underweight (referring to decent standards of poverty) (Todaro & Smith, 2012). Figure 1: Measuring poverty SOURC: Canlas et al. (2009) The role of the population The poor in the rural areas have no access to basic amenities, and so the tendency is to migrate to urban areas, exacerbating the situation. Urban migration is a problem, because this causes the urban population to grow. The percentage of labor force is affected by the growth in population. Urbanization increases criminality and environmental problems. Urbanization does not necessarily mean a change from agriculture to industry, but can result in unemployment. Education and literacy affect growth and development. Literacy influences nutrition level, health, hygiene, and modernization. The standard of living and the availability of basic needs affect life expectancy at birth. Improved health and living conditions help create good conditions for pre-natal and post-natal care, as health and literacy of the mother relates with the attitudes and norms of the community or society (Ramachandran, 2002). A trend toward greater equality Recently, women have been included in efforts to reduce carbon emissions, promote green economic growth, and improve quality of life through promotion of the forest sector in some provinces, in particular the province of Quezon. This initiative was made possible through the efforts of a United Nations agency, such as the Reducing Emissions from Deforestation and Forest Degradation (REDD+) under the supervision of the United Nations Framework Convention on Climate Change (UNFCCC) (UN-REDD program, 2014). Conclusion The Philippines has learned its lessons. It is now into economic diversification, or has followed the way of Thailand, which is considered twice as rich as this country. The Philippines has to improve deeply in the industries it has penetrated, in particular electronics and semi-conductor, car assembly, and the call center phenomenon or outsourcing. Its most important asset is the labor force, the overseas Filipino workers (OFWs) who have contributed vast amounts of dollars into the economy through their remittances. Remittances from OFWs are a major source of dollar for the country. Despite the efforts of the government to improve the quality of education, the country is suffering from “human-capital” deficit with its declining method of education. The Philippine economy is now performing well, with its solid growth trajectory coming back from the situation it left in 1999. The government has sustained adequate macroeconomic management, with external debt thinning and inflation remaining low or manageable. Growth in the industry sector, in particular electronics, mining, car making, shipbuilding, and natural resources, has continued to add to the country’s exports. References Asian Development Bank. (2009). Poverty in the Philippines: Causes, constraints and opportunities. Philippines: Asian Development Bank. Astrologo, R. & Rivera, P. (2010). Disturbing statistics: The Philippines compared to our ASEAN neighbors. Retrieved from http://www.nscb.gov.ph/ncs/11thNCS/papers/contributed%20papers/cps-02/02_Disturbing%20Statistics_the%20Philippines%20Compared%20to%20our%20ASEAN%20Neighbors.pdf Canlas, D., Khan, M., & Zhuang, J. (2009). Diagnosing the Philippine economy: Toward inclusive growth. London and New York: Anthem Press. Dixon, J. & Macarov, D. (1998). Poverty: A persistent global reality. London and New York: Routledge. GMA News: Moody’s gives PHL another credit rating upgrade. (2014). Retrieved from http://www.gmanetwork.com/news/story/392162/economy/business/moody-s-gives-phl-another-credit-rating-upgrade Ramachandran, N. (2002). Monitoring sustainability: Indices and techniques of analysis. New Delhi: Concept Publishing Company. Social Weather Stations. (2015). Retrieved from http://www.sws.org.ph/pr20150126.htm Thompson, M. (2013). Reviving reformism in the Philippines. In L. Diamond, M. Plattner, & Y. Chu (Eds.), Democracy in East Asia: A new century (pp. 9-22). Maryland: John Hopkins University Press. Todaro, M. & Smith, S. (2012). Economic development (eleventh edition). New York: Addison-Wesley. UN-REDD program: US Aid from the American people. (2014). Retrieved from http://www.wocan.org/system/tdf/Philippines_Gender%20and%20REDD%20Report_sm.pdf?file=1 Read More