By John Mangun, BusinessMirror, Sept 25, 2018
THE World Bank released a report this past week, titled “Growth and Productivity in the Philippines: Winning the Future.” This analysis concentrates on recommendations to achieve the government’s AmBisyon Natin 2040 program to transform the country “into a prosperous middle-class society free of poverty by 2040.”
From the executive summary: “This implies that the Philippine economy needs to grow at an annual average of 6.5 percent in the next 22 years, faster than the average growth of 5.3 percent since 2000—a challenge that only the Asian Tigers [Hong Kong, Singapore, South Korea and Taiwan] and China have managed to accomplish in the past.”
At the onset, it might have been good to mention that the Philippines’s population is larger than all the Tigers combined. And, of course, there is that “7,000 Islands of Paradise” factor. Naturally, there is no mention of either the Muslim or Communist insurgencies. Or the fact that, perhaps, part of China’s success has been putting those that disagree with government policies in “re-education camps” or worse.
The World Bank conclusion: “Sustaining high growth can only be achieved if the Philippines succeeds in sustaining high Total Factor Productivity [TFP] growth while accelerating capital accumulation.”
Total Factor Productivity includes all the “other” factors that create economic growth that are not directly measured like labor and capital productivity. This can mean everything from government regulations to employee work ethic.
For example, of the total amount of economic growth fueled by capital productivity, labor productivity, human capital and TFP, the contribution of TFP to growth was higher in the Philippines than in regional neighbors other than China between 1995 and 2010. Between 2011 and 2016 the TFP accounted for about 20 percent of the nation’s total economic growth.
The “invisible hand” of TFP adds both quality and quantity to the economic growth that is achieved by labor productivity and putting up hard cash to build business. A silly example might be this: A school with great teachers and hardworking and highly motivated students cannot achieve its potential if classes are canceled every time there is a cloud in the sky. Actually, that example may not be so silly after all.
While there may be some gaps in the analysis, the report does a good job of quantifying and qualifying what needs to be done to increase the TFP. Sadly, though, we have heard this all before during the past 25 years. The World Bank actually commends the Philippines for its achievement since 1990 but the bottom line is, “If you want to hit your target by 2040, you have to move much, much faster.” These are the recommendations.
Competition must be increased in the telecommunications, power and transport sectors. We know that. But they added: “Strengthen the independence and authority of sector regulators.” In other words, let the regulators that understand the sectors make the rules. Of course that requires professional and nonpolitical people making the decisions.
“Streamline burdensome administrative procedures to start new businesses and pay taxes.” When is the Philippines going to have a legitimate and effective “War on Red Tape”? Every administration talks the talks; none have effectively walked the walk.
“Pursuing more balanced regulations between employees and employers.” Changing the laws regarding contractual employment is a start. But the relationship between employer and employee in general is still too adversarial with both sides believing that a “win-win” situation is not achievable. Last, the one most critical and contentious issue the nation continues to struggle with —“Reduce restrictions on foreign investors.”
Once again we have been told what needs to be done. When are we going to actually implement the advice?