The False Promises of the New Economy

The Arroyo administration’s favorite mantra is this animal called the New Economy, or an economy radically transformed by information and communications technology (ICT). The President and her economists are trumpeting the line that ICT could wipe out poverty in the Philippines. But this pitch flies in the face of the recent crash in high-flying technology stocks, which has tempered enthusiasm for things ICT-related, and the fact that the Philippines’ ICT manufacturing sector is export-oriented and import-dependent, thus highly vulnerable.

(First of two parts)

By Sandra Nicolas

In the Philippines, the ranks of the hardcore believers in ICT include President Gloria Macapagal-Arroyo, top executives of the country’s largest conglomerates, as well as so many hundreds of thousands of Internet-savvy urban-based Netizens steeped in e-mail, the World Wide Web, MP3, 3G, WAP and GPRS.

The aura of high-technology is dazzling and to be able to so easily do things now, like communicate virtually instantaneously across such vast distances, compels many to believe that, indeed, a utopia of sorts is nearly upon us. The new technology has wrought a New Economy bursting with opportunity—if only everyone were connected .

Can it be so?

Arroyo Takes ICT Seriously

Ms. Arroyo, for one, certainly believes so and she is clearly enamored with the beguiling charms of ICT. To listen to her talk, the Philippines and its over 76 million people would live in prosperity once they too embraced it.

In a speech to the Seventh e-ASEAN Task Force Meeting last April 20, she opened by declaring herself a “believer.… in the importance of creating among our member states and among our peoples the necessary competencies in ICT to flourish in the global new economy.” She made her position even clearer later in the same speech: “On numerous occasions in the past, I have spoken on the importance of ICT for the future of the Philippines. I have said that if the Philippines is to prosper in the 21st century it must find its proper niche in the new economy.”

And she has certainly been insistent on this point. In her very first press conference as president, she said of ICT: "It is the key to finding our proper niche in the 21st Century."  In an interview with Asiaweek days later, she foresaw that if the Philippines were to have the highest Internet penetration rate in Asia, this would  “open up tremendous avenues of opportunity, for creativity, for employment, especially for the young. Filipino programmers earn $8 per hour, P40,000 a month, that's a lot of money.” She had a stunning conclusion: “It's the fastest way to lick poverty.”

Ms. Arroyo has moved on this belief. In January, she named two Cabinet officials as concurrent “ICT czars” to oversee the development of the country as a competitive player in the New Economy. In February, she created the Cabinet cluster on ICT “to ensure swift and coordinated government action on ICT concerns.”

Last Friday, she proposed the creation of an ICT department and the reorganization of the National Telecommunications Commission (NTC) into a National Infocoms Commission to “allow digital convergence to flourish.” In the next Congress, she will be transmitting as a priority measure a “comprehensive convergence bill” which includes these proposals.

On the same day, she took the chairmanship of the Information Technology and E-Commerce Council (ITECC), a public-private sector body on ICT and e-commerce. Ms. Arroyo earlier expanded the Council’s role from overseeing implementation of the E-commerce Law to steering the country’s ICT activities and policies—it is now the country’s highest ICT policymaking body. According to co-chair and Trade Secretary Manuel Roxas II, the president’s decision "signals the full commitment of the government and the private sectors to transform the Philippines into a knowledge-based economy."

Finally, even the Medium-Term Philippine Development Plan (MTPDP) 1998-2004 is being revised. Not only will a chapter be devoted to ICT, the entire plan will have ICT as a major focus. The MTPDP is the country's blueprint for economic development.

The vision of the first draft of the revised MTPDP is fantastic: every business, every government agency, every school and every home will have access to ICT. It also sees that, by the year 2005, ICT use will be "pervasive in daily life, Philippine companies will be producing competitive ICT products for world markets... and within the first decade of the 21st century, the Philippines will be a knowledge center and e-services hub in the Asia Pacific."

Ms. Arroyo is hailed as an economist and she has surrounded herself with the same people.  How, then, do all these economists think that the Philippines will be led to “prosperity in the global New Economy,” as Ms. Arroyo herself puts it?

A Gripping Illusion

Firstly, it is argued that the size of the ICT-related sectors must be increased to tap opportunities in the booming global New Economy. This means gearing production toward those technology goods demanded by the New Economy, such as semiconductors, in production that is mainly for export.

It also means providing services such as of software programmers and computer engineers. There are also other labor-intensive services not directly in ICT but made possible by its distance-bridging impact—customer service support, collating sales figures or consumer data bases, tracking shipments, number-crunching, transcription, etc.

Secondly, increasing the use of ICT will vastly improve the way the government runs the country, the way companies do business, and the way people live their lives. The logic is compelling. ICT dramatically increases the speed and flexibility of handling and transmitting information. Since almost every process in the modern economy involves information in some form, ICT must certainly impact on all these just as dramatically resulting in a new age of efficiency and prosperity.

Or so goes the reasoning. At the core of the hype about ICT is a gripping illusion: that the so-called “benefits of the information society” can be had by everyone regardless of their access to resources to begin with. Also, that information in and of itself is at par with labor, land, raw materials, capital and finished goods. It is certainly an alluring idea: that the world’s gross inequities can be made to disappear with this new technology.

But stripped of this illusion, the ICT thrust, for all its seemingly boundless promise, is just the latest spin on an economic strategy that profits a handful of global corporations immensely yet stunts domestic development.

More of the Same, But in a New Way

Let us look beneath the beguiling aura of high-technology. Will a high-tech manufacturing sector take root in the Philippines? Already over 60% of the country’s exports are composed of semiconductors— the chips that go into computers, cellular phones, appliances, smart toys and almost every other electronic device these days.

But all that has been created is a pseudo-manufacturing sub-sector that is extremely dependent on imported inputs and technology. Local content in semiconductors is estimated to be only between 10 to 15 percent at best and local value-added is mainly cheap labor for assembly and packaging. High-tech products, yes, but not a high-tech domestic manufacturing sector. Also, after all these years, less than 200,000 jobs are to be found in the ICT sector.

And neither is any sort of domestic manufacturing base being built. The whole of domestic industry too is still reliant on imported inputs and technology. There is little of what is commonly perceived as real manufacturing (i.e. making and crafting things, like machinery or consumer goods, from raw materials). Both domestic production and consumption are sustained by imports of inputs, technology and finished goods.

Testimony to this is how the country has had current account deficits for decades, and there is no end in sight. Most manufacturing, especially high-tech manufacturing, is the carefully guarded monopoly of a handful of transnational corporations (TNCs).

Yet despite the questionable development impact of pseudo-manufacturing enclaves, Ms. Arroyo and the rest of her economists insist on enticing technology TNCs to set up factories in the country at all costs. But with scores of countries doing the same, it is a race to the bottom: who will offer the cheapest labor, the biggest tax breaks, the most subsidized water and electricity, and ask the least technology transfer.

For the few plants that will be built, the Philippines is pitted against China, India, Vietnam, Indonesia, Thailand, Malaysia, Brazil, Mexico, Argentina, Ireland and so many others. The biggest winner at the end of the day will be the likes of IBM, Intel, Motorola, Texas Instruments, and NEC, companies that will have their costs of doing business -- and any gains to the host country -- bid down to rock bottom.

And where will the Philippines get the equipment and software needed to increase the use of ICT in the economy? Virtually all of this will have to be imported, thus putting ever more pressure on the country’s current account deficit.

Imagined Jobs

But the worst fantasy being peddled is that the country’s unemployment woes will somehow be resolved if the country were geared toward ICT. A hyperbolic claim, certainly, but one which Ms. Arroyo and so many others in government and big business are fond of peddling. This absurd claim needs to be put into context.

There were 31 million Filipinos in the labor force in 2000. According to official statistics, there were 3.5 million unemployed and 6.8 million underemployed—for a total of 10.3 million Filipinos either not working or apparently not earning enough from their job for decent living. (Add to this the estimated 8 to 11 million Filipinos who have had to go abroad to find work and we have an idea of how scarce jobs are in the country.)

Now about the claim that ICT is the key. There are some details that our starry-eyed economists seem to have forgotten.

ICT is not the limitless job-generating dynamo it’s made out to be. Of course, the new technology has created employment for those who build the equipment, write the code, work the devices (in the industries both producing and using ICT) and so on. But how much?

India has for years been hailed for its prowess in ICT, especially its southern city of Bangalore which exports software and engineers to the West. Yet in 1999, a scant 300,000 people were employed in India’s software and ICT services sector; at most 55,000, the number of American visas granted to Indians for “specialty occupations” like engineering, found work in the United States (US). The country of 1 billion has only 4.3 million PCs, for a PC penetration rate of not even 0.5%, and not even 3.0% telecoms penetration.

The Information Technology Association of America (ITAA) even estimates that there will only be about 900,000 new ICT jobs in the US in 2001, down from 1.6 million last year. The ITAA figures cover jobs in both ICT companies and in non-ICT companies that use the technology.

And it’s not as if the Philippines is the only one trying to break into the field. Many other countries are also blindly enthusiastic. In India, most of the 120,000 yearly engineering graduates concentrate on computers and software. China already produces more engineers than Japan, while being paid only between a quarter or a third of their Japanese and Western counterparts. The US itself trains 75,000 engineers annually.

Note also that the US, surely the most ICT-intensive country on the planet, still lost over 1.5 million jobs in 1999—at around the peak of its decade-long “boom”—according to the Bureau of Labor Statistics. Its ICT sector only employs around 9 million people.

So “producing competitive ICT products for world markets” amounts to nothing more than the Philippines providing cheap labor at home or exporting them abroad. There are actually not that many jobs to be had, to begin with, and they will not all be at the high end of the pay scale. If ever, it will only be a windfall gain only in relation to not having a job at all. This is true for the skilled ICT professionals and even more so for the workers in factory enclaves.

Indeed, the “globalization” of labor markets, pushed in no small part by ICT, has contributed to greatly increased job-insecurity, plummeting real wages, and union repression worldwide (in countries as diverse as capitalist US and neocolonial Philippines).

Of course, there will be the occasional success story of the odd Filipino making it big in the field. But that will only be part, and then only a very small part, of the story. Everyone, especially economists, should be careful about being dazzled by exceptions and not seeing the failure of the whole. There are some successes, yes, but the more important point is that millions will remain mired in poverty because ICT is not the development solution.