Bulatlat.com

Philippines 2002: Beaten, Broken and Busted

In bad times, the rich have it good; more jobs lost, poverty soars

(First of Two Parts)

While the share in total income of the bottom half of the population fell from 20.3% in 1988 to 17.8% in 2000, the share cornered by the top fifth actually rose from 51.8% to 54.8%. This stunning and worsening inequality is brute affirmation that the rich have it good even when times are bad.

By SONNY AFRICA
Bulatlat.com

The basic question is simply: how are the people doing? The president and her economic managers - as well as probably those few left in the country still doing well for themselves - keep saying that things aren't that bad or, in any case, will soon get better.

The grounds for optimism most often repeated include the following: the 3.4% uptick in gross domestic product (GDP) growth last year which exceeded IMF, WB and ADB forecasts; an agricultural sector "revitalized" by government support for modernization; the return of foreign "investor confidence"; a "robust" service sector; and exports and industry soon to be boosted by recovery in the United States and Europe. All these supposedly show that the economy is "reaping the benefits of structural reform measures."

Unfortunately, there are very strong reasons to think otherwise. On the contrary, things will probably get far worse for the people before they really get any better.

The main reasons for that are: first, and most important, the damage wrought by some two decades of imperialist globalization; second, the impossibility of a rerun of the artificially-boosted growth spurt of the mid-1990s; third, the likelihood of further upheavals from the global crisis; and, finally, the government's refusal to overhaul its bankrupt social and economic policies.

People last

It's a long-standing problem that the people's welfare is incidental to the way governments run the economy. Policy-making has perennially been less oriented toward truly fostering domestic development. Instead, they've been biased toward what profits foreign and domestic elites rather than the poor majority.

In particular, there have never really been genuine structural reforms. Despite decades of rhetoric asset- and wealth-distributing agrarian reform has yet to take place. Agricultural development has dispossessed rather than liberated the peasant majority. Nor is there a long-term strategic plan for developing the domestically-grounded industry needed to create jobs and to accumulate capital. Health services, education and housing have always been sorely lacking.

Things became much worse with the two decades of neoliberal globalization since the 1980s.1 Policy instruments of state guidance and protection critical to domestic development, albeit badly wielded in years past, were progressively taken away. Social services became more and more luxury goods available only to those who could afford them. Private profit-seeking foreign and elite interests were given unparalleled latitude to dominate economic and social life.

The results were devastating. There were three major economic crises, in 1984-1985, 1991 and 1998, during which the economy actually shrank - the only times that's happened in post-World War II history. The country's enduring boom-bust cycles became more volatile and frequent. Annual growth rates dropped steeply seven times during the 35-year period (1945-1980); the next seven times this happened were in the much shorter 20 year-period from 1980 to 2000.2

On the ground these showed up in the further deterioration of the country's long backward agricultural and industrial base. People lost their jobs, incomes collapsed, and poverty soared.

Far from improving, the unemployment situation has worsened in these "globalizing" years. The unemployment rate has been fluctuating around a very high 10% since the 1980s - and has been climbing steadily since 1996. The 11.2% in 2000 and 2001 are already record high figures. There were 3.7 million jobless Filipinos last year while so much of the 29.2 million jobs to be had were just in irregular and low-earning employment. There were 11.3 million people in part-time work or less (35% of jobs); likewise, there were 14.7 million own-account and unpaid family workers (51%).3 It's this sort of low-paying, informal and unproductive work which has bloated the service sector, from 36% of GDP in 1980 to 46% in 2001 - hardly a leap into a post-industrial era.

Adding the 5 million underemployed and the estimated 8 million Filipinos forced to go overseas for work to the unemployment figures further underscores the problem of an economy that doesn't provide sufficient livelihoods for some 42% of the labor force. A 1999 household survey even found that almost three out of ten homes got half or more of their incomes from family members working overseas.

All in all, real incomes today are even less than at the start of the 1980s.4 The government officially counted some 31.3 million Filipinos or 40% of the population as poor in 2000. Yet a more realistic poverty line as much as doubles this - a result which is more consistent with survey results earlier this year in which over 70% of respondents rated themselves as poor.5 Around 16.5 million Filipinos or 2.6 million families went to bed hungry, again according to official estimates. Private profiteering from the provision of public goods is also well underway: power and water utilities have recently applied for rate hikes of as much as 94-134%.

Yet the country's elites continued to prosper. While the share in total income of the bottom half of the population fell from 20.3% in 1988 to 17.8% in 2000, the share cornered by the top fifth actually rose from 51.8% to 54.8%. This stunning and worsening inequality is brute affirmation that the rich have it good even when times are bad.

Unsound fundamentals

After two decades of imperialist globalization the people and the economy are unambiguously worse off. The economy is producing less of what the people need and, in fact, is increasingly less able to afford getting these from abroad.

Agriculture is critical given some 80 million Filipinos to feed. Yet agricultural liberalization and state neglect have increased food insecurity and insufficiency. The average annual agricultural growth rate of just 1.5% from 1980-2000 was far below the 4.2% rate of 20 years before. Domestic food production per capita today is even lower than at the end of the 1970s.

Because of this the country is more and more dependent on foreign sources of food. Take the 1990s: comparing the five years after 1994 when the country acceded to the WTO with the five years before them, rice imports increased by 540%, corn by 320%, poultry by 580%, beef by 230%, pork by 120% and fish by 45%. Correspondingly, the US$1.3 billion agricultural trade surplus turned into a US$3.5 billion deficit. We're already the world's sixth biggest rice importer.

These are alarming. The country is chronically short of foreign exchange as it is. Moreover, the government has already gone far in surrendering the country's policy-making sovereignty to imperialism - the last thing we need is to be caught in a food stranglehold of our own making. The sector's backwardness also shows in its inability to genuinely modernize and achieve the increases in productivity needed to boost rural incomes and raise savings for industrialization. This shows up in how its share in gross national product (GNP) fell from 25% in 1981 to only 18.9% last year.

There are people behind these numbers. The agricultural sector lost over a million jobs between 1994 and 2000, increasing rural poverty by 690,000 families. Even those still able to farm had to settle for farm-gate prices for their products which were collapsing by 5% to as much as 32%.

And it's not as if an industrial sector flourished at the expense of agriculture. The rush of cheap imports and lack of industrial policy badly ravaged an already stunted sector: per capita production of textiles in 2000 was half that in 1986; metal industries' output was 17% lower, and that of food, beverage and tobacco products was 10% less. Overall, manufacturing's share in national output actually fell from 26.7% in 1983 to 23.1% in 2001, which is even less than the 24.5% share in 1960.

This is notwithstanding the crown jewel of the "Philippines 2000" hoopla: high-tech electronics manufactures, especially of semiconductors, which are over 70% of total exports. According to the National Statistics Office (NSO), electronics exports rose from US$2.8 billion in 1992 to US$13.1 billion in 1997.6 The Department of Trade and Industry (DTI) boasted of a historic high of US$27.2 billion in 2000. These seem like a lot of money.

Yet it's well-known that the country's export enclaves are little more than assembly areas with over 80% of electronics components imported. There's also the less mentioned fact that electronics manufacturing added a piddling 4.6% to GDP in 2000, averaging just 3.9% in the period 1991-2000. It contributed barely 1% to total employment last year: a measly 307,000 jobs out of almost 30 million employed and underemployed. Put another way, there were 12 times more unemployed Filipinos than jobs in the electronics industry. The issue is even starker if we take just information and communications technology (ICT)-related manufacturing: there were only 177,000 jobs in 2000.

The country's investment and industrial policies don't create jobs, develop or transfer technologies, or cause the accumulation of domestic capital. The result is low productivity, perpetual heavy imports of capital and intermediate goods, and enclave export manufacturing isolated from the rest of the economy. Which is why industry fails to deliver jobs. The share of manufacturing employment to total employment was down to 9.0% in 2001 from 9.8% in 1983 - levels which are very much lower than the 12% share in 1960.

All these point to an economy that's being hollowed out. An economy with degraded agriculture and manufacturing sectors simply won't create jobs nor generate any substantial economic surplus. Domestic savings for instance are dismally low compared with countries with more deliberate industrial strategies. Our average savings rate of 19% of GDP from 1996-2001 compares unfavorably with Vietnam's 23%, Indonesia's 27%, Thailand's 33%, Malaysia's 45%, and Singapore's 49%.

Foreign capital comes in to fill our savings-investment gap but the adverse effects are twofold. There is an implicit outflow in the future through debt service and profit repatriation. In addition, investment activities come to be determined by what will be profitable for foreign capital rather than what's needed for domestic development.

Beneath the hype

The other macroeconomic indicators are no better. The peso has devalued some 400% against the U.S. dollar since 1980, from around P11 to the US$1 to today's around P51. Debunking the claim that devaluations improve trade, the chronic trade deficit has continued to increase through all these years. A trade deficit of over US$52 billion has been accumulated between 1983 and last year despite the crisis-induced "surpluses" since 1998. The resulting higher cost of all foreign goods, service and financing sends perpetual shockwaves across the import- and foreign capital-dependent economy.

The foreign debt stock in turn tripled to US$52.4 billion in 2001 from US$17.3 billion in 1980. At 75% of GDP, the country's foreign debt is nearing the levels during the early-1980s debt crisis.

But what of the manufactures exports and foreign investment that the government makes so much of? What indeed. The problem is that these aren't the development ends in themselves that they're often made out to be. They'd be meaningful to the extent that they foster domestic agriculture and industry, create jobs, increase incomes and reduce poverty. Without these they're only meaningful for the profits of big exporting businesses, foreign investors and their financiers.

Which is precisely the problem with the grandiose "Philippines 2000" project and all its export- and foreign investment-fixated ilk. Globalists gloated about exports increasing by 250% and foreign direct investment by 216% between the 1980s and the 1990s. Merchandise exports soared from US$7.1 billion in 1988 to US$73.3 billion in 2000, most of which was of electronics exports; annual net foreign direct investment also went up from US$983 million to US$1.6 billion.

Government public relations went on overdrive and trumpeted the country being on the threshold of industrialization. Yet what wasn't said is bothersome. A trade deficit of US$49.9 billion was still built up over that same period (it was less than 8% of GDP in the early 1990s but soared to a high of nearly 14% in 1997). The unemployment rate still increased from 9.6% to 11.2% and domestic manufacturing, as pointed out earlier, even deteriorated.

If exports and investments mean anything in terms of job creation, trade performance or industrialization, it certainly doesn't show in the figures. In fact these clearly point in the opposite direction.

But that's not the end of it. "Globalization" policies have recklessly exposed the country to external sources of instability at a time when the inherent instability of the global economy has heightened considerably. This creates significant uncertainty. So much needs to be done to build a more solid domestic economic base. Except that the greater uncertainty precludes long-term investment, expanded productive capacity, sustained increases in output and productivity, employment growth, and poverty reduction.

Smoke and mirrors

What of the so-called wonder years of the mid-1990s? Considering that those years are still looked upon fondly by many, it's useful to see just what they were about - in particular how they were less a sign of impending prosperity than an affirmation of how little growth, not to speak of social development, can be squeezed out of a backward semi-feudal economy.

Those years were mainly a debt- and speculation-driven growth spurt. It wasn't even that impressive a spurt by either historical or regional standards. The peak real GDP growth rate of 5.8% in 1996 was still less than the average 5.9% rate attained by the country over the lengthy pre-"globalized" 1950-79 period. The average annual growth rate of 2.9 percent over 1991-2000 was also well below that of Indonesia (4.1%), Thailand (4.3%), Taiwan (5.8%), South Korea (6.0%), Malaysia (6.7%) and Singapore (7.5%).

In any case the sources of growth were as unsustainable as the development gains were illusory. The single biggest push came from the abnormal rush of foreign capital borne on an outrageous "Asian Miracle" fantasy. Portfolio inflows leapt from around US$140 million annually in the early 1990s to nearly US$7 billion in 1997; direct investments in turn rose from around $670 million to a peak of US$1.6 billion in 1995. The government raked in a privatization bonanza of P59 billion in 1994-95. Electronics exports were also propelled by the imaginary dawn of a new economy especially in the United States.

A seemingly virtuous cycle was set in motion. The stock market boomed and total market capitalization soared from about 15% of GDP in 1990 to some 97% in 1996. Bank lending grew 32% on average each year in the 1992-96 period, peaking at 41% growth in 1996. This was fueled by foreign funds: commercial banks' (KB) foreign exchange liabilities skyrocketed from US$520 million in 1993 to over US$7 billion in 1997. Real estate loans' share in the KB's loans outstanding rose the most - from 3.7% in 1992 to 10.4% in 1997 - even as agriculture's share fell from 9.6% to less than 4%.

But the development efficacy of the main growth areas is questionable. The construction industry grew the fastest with its 9.8% annual average clip between 1993 and 1997. The finance/housing and utilities sub-sectors each grew 8.4%, and transportation and communications by 5.6%. Yet none of these are the core of a production system that enables sustained and broad-based jobs generation and capital accumulation. On the contrary, their growth depends mainly on the availability of financing and on the overall level of economic activity. On the other hand, manufacturing grew at a much slower 4.5% and agriculture just 2.5% annually.

Though fleeting, the hype was infectious especially for those who were raking it in. Then the financial and dot-com bubbles burst and the economy returned to its more accustomed trend level of unremitting crisis.

The spectacular globalist propaganda of the times also obscured an enduring, serious and worsening defect of the Philippine economy: its dependence on foreign capital for investment and trade financing. Stunted industry is a basic problem. Another basic flaw stemming from this is the economy's unending and wide-ranging import-dependence. Imports from the most basic consumer items to complex producer goods have increased from 20% or so of GDP in the early 1980s to well over 50% in recent years, including a peak of 65% in 1997. Yet exports chronically lag and foreign debt service keeps on mounting.

Sans any real effort to deepen the domestic economy the government then resorts to even more debt and foreign investments, whether direct or speculative, at all costs. But though expedient in the short term, borrowings and foreign investments increase foreigners' claims on the economy as healthy and outflow over the long-run. Apart from being unsustainable sources of growth they actually even undermine the prospects for long-term growth by fostering a pattern of production and trade that cripples domestic agriculture and industry.

Right now though it's unlikely that foreign capital will come in at anywhere near the levels of the fantasy mid-1990s (nor would that even be a good thing). The giddy years when massive debt and speculation can be used to cover up for a festering crisis of overproduction are well and truly over. If anything, and in the absence of new ways to come up with fictitious capital, the coming years will see the end of blissful ignorance and the shock of reality as corporate and financial accounts are overhauled.

Reality shock

The global situation affirms the impossibility of a return to the debt- and speculation-driven mirage of the mid-1990s and warns of even worse to come, sooner if not later.

The underlying problem is the generalized slowdown of the global economy which started in the 1970s. Take the Group of 7 (G7) countries which account for over 65% of global GDP: the United States, Japan, Germany, France, Italy, United Kingdom, and Canada. Their average annual growth rates which ranged from 3% to 10% in the period 1964-73 fell to between 2% and 4% in 1983-92. From 1993 to last year they slowed even more to between negative growth and 3%.

As it is, world GDP growth fell from 4.7% in 2000 to 2.5% last year. Although the IMF optimistically estimates 2.8% growth this year and 4% next year, there is good reason to doubt that given the way the world's biggest economies are looking.

Slumping stock markets, volatile exchange rates, and downbeat producer and consumer confidence only tell part of the story. The principal problem is where demand can come from given the distorted pattern of capitalist maldevelopment. On one hand is, undoubtedly, massive productive capacity. Yet on the other hand, less visible, is an increasingly marginalized majority.

More than 80 countries have lower per capita incomes today than a decade ago. Per capita GDP growth rates of the bottom three-fourths of the world fell by at least five percentage points between 1960-80 and 1980-2000. The bottom fifth of the world earned 30 times less than the top fifth in 1960, 45 times less in 1980, and a staggering 74 times less in 1997. Some 3 billion people have less than US$2 a day to spend. According to the International Labor Organization (ILO), over a third of the world's labor force "are either unemployed, underemployed in terms of seeking more work or earn less than is needed to keep their families out of poverty."

Mounting debt and false profits - through the creation of ever more complex financial instruments but also through the doctoring of corporate books - made up for the diminishing purchasing power in the last decades. But these have been less and less effective in recent years as the limits of financial bubbles outstripping real economies were reached.

Japan, for instance, remains mired in its decade-long recessionary rut. Years of government spending that more than doubled public debt from around 60% of GDP in 1990 to over 140% today have done little to revive the economy. Official unemployment still nearly tripled to a record high of 5.6% and its bad loans may already be as high as 15% of GDP. Burdened by these its economy will continue to shrink perhaps by as much as 1.2% this year. Europe, on the other hand, is continuing with its slowdown at 0.1% growth in the first quarter of this year, from 0.35% in the same period in 2001, and has still to hit bottom.

Which is why it's the U.S. economy and its some 30% of global GDP that everyone is looking at to drive global growth. However, such hopes are placed on a precarious financial house of cards. American households breached a debt threshold in 2000 when, for the first time ever, they had more debt than disposable income. Corporate debt doubled since its levels in the mid-1990s to a record high of almost 12 times corporate profits today. There has already been a steep increase in the default rate on high-risk corporate bonds from 6.5% in 2000 to 11% last year, not even counting mounting downgrades of credit ratings. These indicate new heights of corporate financial vulnerability.

All of which preclude a return to the investment and stock market boom of the last decade especially given the vast scale, breadth and depth of the global crisis.

At the moment the main thing keeping the U.S. economy afloat is its being capital's haven of last resort - but this is also its main weakness. Over US$2.5 trillion in foreign capital has flowed into the United States since the early 1980s. But this massive sum also means considerable vulnerability to any outflows. Foreign investors and creditors are still willing to keep the money flowing. So far this has been enough to finance a huge current account deficit which reached US$450 billion in 2001, or some 5% of U.S. GDP, and could go to well over US$700 billion by 2003.

But the mixture of denial, desperate optimism, and buying into the United States' swaggering as the world's last remaining and greatest superpower can't go on forever. Tensions are already mounting as the United States becomes less coy about subsidizing and protecting its national economy. Indeed that can be expected to be the case as well with the rest of the world's big powers who, in any case, only "globalized" as was expedient for them. When the breaking point comes, the final and biggest bubble will truly have burst.

Meantime, the likes of the Philippines will have to contend with unstable and diminishing foreign capital inflows, sluggish and increasingly protected export markets, and a geopolitical environment made incendiary by the United States' self-proclaimed "borderless war on terror." Worst of all, the world's crisis-wracked imperialist powers' interest in prying open and monopolizing neocolonial economies for profitable opportunities is greater than ever before. The cheaper the raw materials and labor and the more of domestic markets captured the better for them. (Please refer to footnotes below Part II of this series.) Bulatlat.com

*This paper was written by the author for the Party-list Bayan Muna

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