THE next president of the Philippines will, among other things, be responsible for setting the overall tone and direction of economic policy for the next six years. This responsibility should be seen as an opportunity to undo the decades of flawed, “market-driven” economic philosophy that has caused the Philippine economy to lag behind many of its peers.
If you ask any policymaker or economic analyst – which we do quite frequently – they will invariably describe the Philippine economy as sound; even admirable. The reasons for this approving point of view are always the same: the country benefits from a stable banking system; strong consumer and government spending; and strong “fundamentals” such as a manageable level of public debt, ample foreign currency reserves, and relatively constant and mild levels of price inflation.
Behind this table in pink, however, hide indicators that are a little less attractive. Of the 10 members of the Association of Southeast Asian Nations (ASEAN), the Philippines ranks seventh in gross domestic product (GDP) per capita, only ahead of basket case Myanmar, from Cambodia and Laos.
The Philippines has the second highest poverty rate, behind Laos, and the highest degree of income inequality in ASEAN. This reflects the very unbalanced nature of the economy as a whole. Excluding the microstates of Brunei and Singapore, which are objectively better off than the Philippines in almost every respect anyway, the Philippines derives the lowest percentage of GDP from industry among countries in ASEAN and the third lowest percentage of agriculture behind Malaysia and Thailand. . The Philippines also had the second highest incidence of poverty among ASEAN countries before the pandemic.
In the view of some economists, the problem of declining productivity, and with it the side effects of persistent poverty and rising inequality, is a consequence of the “financialization” of the global economy. It’s a complex idea, but expressed in the simplest possible terms, financialization is a shift of investments away from productivity – capital formation, innovation and workforce expansion – towards investing for gains short term.
Financialization manifests itself in various ways both on the side of government and on the side of the private sector. In government, it is characterized by a trend towards increased privatization, protectionism and, in economic management, the prioritization of factors such as debt and deficits. On the private sector side, it appears as an increase in profits from financial activities (ie market investments) as opposed to the productive activities of non-financial companies; the increasing exposure of the commercial banking sector to “non-traditional” financial activities such as equity investments – and with this, the blurring of the boundary between commercial and investment banking with the rise of so-called “universal” banks – and corporate decision-making and corporate behavior influenced by short-term financial factors such as share price performance.
All of these factors contribute to the Philippines’ unsatisfactory economic status quo, and while ideas like “income inequality” and “GDP per capita” can be a little hard to visualize, even those of us with a reasonably comfortable lives by local standards are affected daily by the negative consequences of financialization. We all support some of the continent’s most expensive and unreliable electricity and internet services. There is hardly any highway that we can travel without paying a toll. We pay around 140% more for common electronic gadgets such as cell phones and computers than the global average.
The next administration, if it is to break what has become a decades-long stagnation, must move away from the priorities that have held back real productivity in the Philippines. “Continuing the economic policies of the last administration,” which were simply part of a 30-year continuum that brought the Philippines to its current state, is the worst idea a candidate can offer.
Instead, greater attention should be paid to promoting greater market openness and competition on the one hand – avoiding protectionism by ratifying the Comprehensive Regional Economic Partnership would be a good starting point. And, on the other hand, the government should use the “strong fundamentals” that are constantly being pushed forward to make strong public investments in the country in areas such as agriculture and industrial innovation and development; education, training and research; and utilities.