I read the entertaining Bizbuzz almost as assiduously as I read the front pages. Business “tsismis” (gossip) can be relied on to provide an amusing note to the morning.
One recent Bizbuzz article, though, got me thinking and prompted me to write this blog-post. The article mentioned that Salcedo Auctions recently reported a record auction value of PHP 329 million, including fine art by Philippine masters such as Amorsolo, Manansala and Joya. The article goes on to conclude that the Philippines is a rich country masquerading as a poor one.
I checked the latest CIA Factbook per capita GDP rankings and the Philippines is number 154 out of 230 countries. The Philippines is in the bottom third of the rankings despite having the 34th largest economy in the world. To make matters worse, the Philippines has 7(!) billionaires in the 2017 Forbes list of the 500 Richest People in the World, while also having the 45th most unequal income distribution in the world ….
We are not a rich country masquerading as a poor one. We are a poor country with intolerable income inequality. This fact was unleashed in the last Presidential elections and has led to the political polarization we find our country in today.
The myth of trickle down economics
Sometime in 2014, then-President Aquino asked his Cabinet: What went wrong? High unemployment and poverty have persisted despite the strong economy. In short, trickle down economics had failed miserably. Rapid economic growth did not translate to sufficient economic opportunity for the poor.
Fast forward: Of the 4.6 unemployed as of January 2017, 2.1 million are either college undergraduates or high school graduates. There is a dire need to create more blue-collar jobs for this job-ready segment of the population.
The latest FDI statistics signal Code Red
The 24% decline in foreign direct investments (FDIs) down to about $ 3 billion in the first semester 2017 is a serious concern. Contrast this to around $ 20 billion for Vietnam during roughly the same period – a 52% increase! Further, if we deduct the figures for the reinvestment of profits, new FDIs actually saw a precipitous 90% drop. Clearly, the Duterte administration has been unable to present a more appealing narrative to prospective foreign investors and as a result the country has lost traction in the creation of manufacturing jobs. The latest statistics on rising unemployment and declining factory output bear this out.
The jobless often live and work in the informal sector. And this informality is, without doubt, the greatest obstacle to their financial inclusion. It is perhaps also the root cause to the perceived rapid growth in the country’s problem with illegal drugs. Drug abuse may be the escape of a people desperate for a better life.
If it wanted to strike at the heart of the problem rather than on the symptoms, the government will need to focus on job-creation. There are 2.1 million Filipinos ready and willing to take on jobs if only more factories can be set up in the country. Job-creation is the key to solving our worst problems and putting us back on the road to prosperity.
The government can smugly point to its “Build, Build, Build” program as a wellspring for new jobs but even that cannot fill the big need. Besides, potential contractors have also pointed out that a significant number of jobs required for the infrastructure projects they intend to bid for cannot be met by unskilled and semi-skilled labor and, as such, they will need to hire from abroad.
Broken model of prosperity
Umar Haique, in his 2016 article in the Harvard Business Review entitled “Business Leaders Have Abandoned the Middle Class”, concludes that the capitalist system represents a broken model of prosperity and that the rise of the fascists, anarchists and demagogues should not be a surprise. While he speaks from the perspective of the UK in the aftermath of Brexit, I believe that the lessons are equally true for the Philippines.
Our local private sector also has a responsibility to fulfill. The acceleration of technological innovation that has led to greater productivity for the world’s multinational companies not only has led to the economic stagnation of middle classes across the globe and now also threatens many of the work historically outsourced to the country. While resident companies can upskill their workers to offer them alternative opportunities, the prospect of higher unemployment is real. More needs to be done.
To compound matters, companies today cannot seem to offer job security as firmly as in the past – 30% of our labor force are non-regular workers. Non-regular workers are mostly our contractual labor.
Our economic enterprises need to devise more inclusive models where rank and file employees with meager pay are not consigned to be merely buyers of sachet-size products. Can employees then be involved as distributors, suppliers, retailers, and business partners, for instance? Employees need to have a meaningful stake in entrepreneurial pursuits and in innovations. The traditional method of incentivizing entrepreneurship by offering share ownership is laudable but is not nearly enough because these benefit only a minority of the worker population.
In today’s competitive world there are a hundred things we need to do right as a country. I do not have the answers. But I do know that the creation of 2.1 million jobs is the table stake for the country to finally attain prosperity. This should be top priority for the government.