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Fairy-tale Economics: Root of the Nation’s Backwardness

(Last of two parts)

Despite the obligatory pro-poor rhetoric, economic policies retain everything that is essential to imperialism and which is at the root of our backwardness. Indeed what makes them even worse now than under previous regimes is the brazen junking of ideas of social justice and state responsibility for people's welfare.

By SONNY AFRICA
Bulatlat.com

The final element determining the nation’s economic prospects is what the government will do given all of the above.

The country’s economic performance in past decades is more than enough to conclude that the basic tendency of foreign- and elite-biased economic policy is to compromise the well-being of the people. Clearly all that's happened in recent years is an intensification of that tendency. The raging global crisis, meanwhile, is strong affirmation of the importance of a strong, independent and self-reliant domestic economy and the folly of making its and our people's fortunes depend on the whims and interests of foreign monopoly capital.

Yet the Arroyo administration is acting as if it's oblivious to this all. Despite the obligatory pro-poor rhetoric, economic policies retain everything that is essential to imperialism and which is at the root of our backwardness. Indeed what makes them even worse now than under previous regimes is the brazen junking of ideas of social justice and state responsibility for people's welfare.

The basic policy framework remains neoliberal globalization: trade and investment liberalization, privatization and deregulation. To begin with this means that past "globalizing" efforts will remain in place - given their dire impact so far that is disastrous in itself. Yet the aim is to deepen past efforts and go even further.

A single tariff of 5% is aimed for by 2004 with very few exceptions. Within the ASEAN Free Trade Area (AFTA), the target is for 60% of products to have zero duties come 2004; by 2010 virtually all products will have zero duties save for a handful of sensitive agricultural products (which, nonetheless, will have tariffs of only 5% or less). The move to replace quantitative restrictions on rice with tariffs has stalled but remains a priority. Local content requirements on automobiles are due to be relaxed, facilitating U.S. penetration of AFTA via the Philippines.

The unwarranted enthusiasm for expanding profitable opportunities for foreign capital through new financial instruments is particular cause for concern. Principal among these are new debt instruments through securitization and the fire-sale of domestic assets through Special Purpose Asset Vehicles (SPAV). Although ostensibly aimed at "deepening" capital markets the more likely result is to introduce new elements of volatility into the domestic financial system.

On a more traditional front, foreign investors are being offered a Philippine Constitution purged of the nationalist provisions that to some degree still hinder them. More liberal regulations and a more generous investment regime are already being crafted for foreign mining corporations. The government is also moving to "rationalize" investment incentives toward longer income tax holidays and more extended tax breaks across-the-board.

Noteworthy for being given undue developmental significance is the peculiar ICT policy thrust. The limitations of low value-added ICT manufacturing are self-evident. These will persist as long as foreigners' technological monopoly remains intact and as long as the only thing the domestic economy gains from pseudo-production are the salaries paid to cheap Filipino workers. Worse, it won't be long before the falsity of the exaggerated claims regarding ICT (especially regarding productivity gains) fully sink in and dampen export markets.

A similar set of limitations applies to ICT outsourcing: call centers, software development, animation, medical transcription and business process outsourcing. As with ICT manufacturing, these outsourcing services involve very heavy imports of equipment and facilities. All the country will be providing is, again, cheap labor albeit sitting before computers in air-conditioned rooms and speaking or writing in American English.

The job creating potential is grossly overstated in both cases - some hundreds of thousands at most against some 4 million jobless Filipinos. More so with the likes of giants China and India also in the game. It's a global race to the bottom which the Arroyo administration is foolishly fervent about. The biggest winner at the end of the day will just be the big ICT companies who will have their costs of doing business bid down to rock bottom (right where the supposed gains to host countries will also be). Little should also be read into "investment" figures of millions of dollars because most of these will go to imported goods and services. Yet the government is already falling over itself in expanding incentives for foreign ICT investors.

Government hypocrisy is perhaps keenest when it comes to agriculture. Reflecting how the country remains mainly agricultural with some 60-70% of the population directly and indirectly depending on it for their livelihoods, "comprehensive rural development" is spoken with much flourish. The Agriculture and Fisheries Modernization Act (AFMA) is supposedly the centerpiece program. However the P24.2 billion spent for it last year is far less than the some P80 billion which went to the military and police and just a fraction of the P275.2 billion in total debt servicing.

Agrarian reform is also becoming less of a concern than ever before. Land distribution of 103,377 hectares in 2001 (with another 6,284 ha. so far this year) is barely half the annual average over the past 30 years of 190,047 ha. and even less than the then record low average performance under the Estrada administration of 133,355 ha. These don't yet consider mounting reports of bloated performance reports, reversals and land reconcentration.

So beyond a few showcase communities the vast (landless) peasantry suffer from usury, expensive farm inputs, no irrigation, and decrepit post-harvest facilities amidst a liberalized trade regime that floods local markets with cheap imported farm products.

All told, these aggravate the shrinking of domestic manufacturing, the long-standing weaknesses of agriculture, and the ever-deteriorating balance of payments. With these will come higher unemployment, lower real incomes and deepening poverty. Overall prospects are, in a word, bleak.

Signs of the times

The general downward trend is inexorable and it's against this that short-term data should be read. Government propagandists can be expected to cite figures selectively and out of context or, barring these, unduly downplay the worst aspects of the situation. But that would be dealing in half-truths.

Take the gloating about the country's growth outpacing that of our neighbors. Last year's figures are cited as well as those in the first quarter of this year of 3.8% GDP and 4.9% GNP growth. Though laughably played up as the Philippine economy "showing its resiliency" the overall picture says otherwise.

The country's poor average annual growth rate in real GDP in the last decade was below that of our regional neighbors Indonesia, Thailand and Malaysia.7 In that same period we also had the smallest industrial sector, the slowest manufacturing growth, the lowest savings and investment rates, and the highest ratio of debt to national output. This kind of economic performance is reflected in important social indicators and we also had the highest unemployment, greatest poverty incidence and worst inequality.8

The government also points out our low inflation and interest rates. But far from being due to any economic wizardry on the part of the country's economic managers, they are further symptoms of a deep social and economic crisis. Cash-strapped households are unable to make their needs felt in the marketplace. Businesses are inhibited from borrowing by the deepening economic gloom. As it is, net non-performing loans continue to edge up and, at almost P300 billion in April, are nearing 20% of total loans.

It's also nothing to brag about that the single biggest growth push in the first quarter came from overseas remittances which grew by an enormous 22.5%. This conceals the emasculation of the economy and the relegating of the labor force to cheap salaried workers for foreigners. This desperate measure to earn foreign exchange comes at great social cost to communities and, as part of an overall export-oriented and import-dependent strategy, serious long-term losses to the economy.

Still, even playing the short-term game yields sobering data. Take the official forecasts of real GDP growth of 4-4.5% and real GNP growth of 4.5-5% in 2002. This is probably aimed at projecting optimism more than anything else. The slowdown in manufacturing is still underway with 2% growth being the lowest in eleven quarters, since early 1999. The 2.9% contraction in exports is the fourth consecutive quarter of falling exports.

Investments fared poorly in the first quarter of 2002 from the same period last year. New investments registered with the Board of Investments (BoI) dropped 82.5% to P4.7 billion from P26.9 billion. Those registered by the Philippine Economic Zone Authority (PEZA) fell a steep 73.8% to P3.8 billion from P14.6 billion. Banko Sentral ng Pilipinas (BSP)-registered investments shrank 21.2% to US$488.7. These are even just registered - not actual - investments and it wouldn't be abnormal if only half of these eventually pushed through. As things stand, actual investments already fell 1.3% in the first quarter following a 1.5% shrinkage in the fourth quarter of last year.

Much is also made of first quarter 3.8% agricultural growth. But this is still consistent with how backward domestic agriculture remains captive to the vagaries of the weather. With or without so-called agriculture and fisheries modernization, quarterly agricultural growth rates since 1995 have varied wildly: from negative 11.5% to as high as 10.5%. The first quarter performance is in any case less than the average 4.6% growth over 1999-2001 and will very likely be followed by drastic drops in the rest of the year due to the onset of drought and the impending El Niño.

But most meaningful for the people is of course the jobs situation. Government officials often rattle off "job creation" figures without saying how many were on the other hand lost. For no matter how the government twists the situation, the bottom line is that some 4.9 million Filipinos were jobless in April - the most number of unemployed the country has ever seen. Increasing uncertain and low-paid employment is also nothing to brag about.

The 13.90% unemployment rate is the highest on record even taking into account the cyclicality in the labor market; the next highest was the 13.86% recorded in April 2000. Some 350 workers a day were displaced in the first two months of this year compared to the average rate of about 200 a day displaced in 2001. Any downplaying of the gravity of the situation and false promises of employment and livelihoods to come, as the government is more and more inclined to, is callousness of the highest order.

Subverting imperialism's logic

There is simply no sound economic logic to the government's maldevelopment policies. Truly redistributive agrarian reform would be the single most effective step to expanding the domestic market and for starting to build an economic surplus.

Genuine national industrialization in turn is the key to ending the bizarre phenomenon of jobless growth and for rapid capital accumulation. Widely available social services can only strengthen the people's productive potential. It's clear that trade, investment and social policies should serve these ends and not the other way around.

But there is, rather, the political logic of policy-making captured by foreign and domestic elite interests - by imperialism, in short. This points us toward the political solution of continuing to build people's organizations and social movements that struggle for a more liberating, democratic and humane alternative. Bulatlat.com

1 Average nominal tariffs were slashed 81% through various import liberalization programs including the ASEAN Free Trade Area (AFTA) launched in 1993, coming down to an average of 8% by 2000; import restrictions were also removed. On the foreign investment front, 100% foreign ownership has been allowed in all but a few sectors since 1991 and there's complete freedom to repatriate capital. Foreign exchange controls were dropped in 1993.

Water transport was liberalized and deregulated in 1992, telecommunications in 1993, banking and shipping in 1994, airlines in 1995, oil in 1996, and retail trade in 2000. Over US$3.5 billion worth of government assets were privatized including oil firms and water utilities. Essential road and power infrastructure was turned over to the private sector through build-operate-transfer (BOT) projects following deregulation in 1993. Hospitals began the process of "corporatization" around 1999.

The General Agreement on Tariffs and Trade (GATT) was ratified by the Senate in 1994 and the Philippines entered the World Trade Organization (WTO) in 1995. The WTO has explicitly governed domestic economic policy-making since then.

2 A "steep drop" is here taken to mean a fall in the real GDP growth rate of some two percentage points or more from the previous year.

3 Jobs can be classified in two ways: by hours worked (i.e. full-time and part-time) or by class of worker (i.e. wage and salary, own-account, unpaid family worker).

4 Around P12,581 last year compared to P12,643 in 1983, at constant 1985 prices.

5 The NSCB poverty estimate uses a low poverty threshold of P13,916 per person per year. A more reasonable, albeit still low, P28,013 increases poverty to 52.6 million Filipinos or 80% of the population.

6 The Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) meanwhile claims a jump from US$3 billion to US$14.9 billion.

7 The Philippines registered average annual growth of 2.9 percent over 1991-2000 which was lower than Indonesia's (4.1%), Thailand's (4.3%), and Malaysia's (6.7%) - not to mention Taiwan's (5.8%), South Korea's (6.0%) and Singapore's (7.5%).

8 Unemployment rates from 1991-2000: Philippines (9.7%), Thailand (2.9%), Malaysia (3.2%) and Indonesia (4.3%). Poverty incidence: Philippines (40% in 2000), Malaysia (8.1% in 1999), Thailand (12.9% in 1998) and Indonesia (23.4% in 1999)s. Inequality, measured as the ratio of the incomes of the top 20 to the bottom 20 percent of the population: Philippines (12.4% in 2000), Indonesia (4% in 1999), Thailand (9.3% in 2000) and Malaysia (12.3% in 1997).

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

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