Where is the Philippines Headed?

Dean Jonathan Sale, UP School of Labor and Industrial Relations (UP-Solair) and me at the Radyo5 TV5 booth May 8, 2014 

My conversation with a UP Dean

written just before midnight 05.08.14

Just before the day closes, I saw the news that S&P has again upgraded the country’s credit rating status to a notch above investment grade.

Two hours before I learned of this development I was speaking with Dean Jonathan Sale of the UP School of Labor and Industrial Relations (SOLAIR).  I was picking his brain on several issues from the Enhanced Defense Cooperation Agreement (EDCA) to nagging labor issues such as Contractualization, Outsourcing and Retrenchment to Capitalism to the Pork Barrel misuse and ultimately a discussion on how we can make the country’s growth truly INCLUSIVE.

First off, he agrees that the military agreement signed during the recent visit of US President Barack Obama to the Philippines “seems to be a knee jerk reaction to very recent situations like our issue with China”.  We both agree that it is quite bothersome that the country is committing ten years’ use of our facilities (and then some) seemingly disregarding what our lawmakers had fought so strongly for in 1991 when we decided to close the US bases.

We also looked at the country’s direction in terms of the economy. The chunk of the growth is in the Service sector, leaving behind a malnourished Agricultural block and a non-improving Industrial and Manufacturing sector.

This is a big issue the government has to address if it’s sincere in making the growth inclusive and if its sincere in aiming for a good quality of life for its citizens.

Think BPO workers with their health, social, mental and security challenges. I spoke with BPO Workers Association President (BWAP) Ruben Torres last week and his worry is that “we might be cultivating a generation that will be very sick in the future because of the lifestyle their industry imposes on them”

I have long been saddened by OFWs producing a breed of children with absentee parents, not to mention the effect of an absent partner.  

Our farmers, revered in other cultures for their role of providing nourishment, mostly live in poverty. Their average age is almost retirement age. 

We have thousands of new graduates whose hope will slowly fade as they become part of the millions unemployed or underemployed.

And yet our economy is supposedly second only to China in terms of growth last year. By now, despite poverty eradicating measures, most will agree that the poor and arguably even the middle class do not feel this so called growth.

A possible solution was discussed by Dean Sale.

A type of Capitalism that I believe our policy makers should be shifting their serious attention to as it could be the long term answer to poverty and could be the route to make our growth more inclusive.

A shift to a type of Capitalism that is more collaborative.  The Philippines, in its proud democracy, follows a Liberal type of Capitalism, similar to what is adapted in the US, UK, Canada, Australia, New Zealand and Ireland.

As Dean Sale explained, in a Liberal Market Economy (LME), market forces dictate on the system. It encourages cost competition and fast innovation.  This is the reason why the Philippines’ BPO industry is booming, because companies in North America are cutting costs and looking elsewhere for cheaper business. We happen to be “elsewhere” in this case. In most cases, “elsewhere” is China.

This is also the reason why contractual workers (of the illegal and abusive kind) are increasing. Because the focus is to cut costs to increase profits.

On the other hand, economy and labor experts know that there is another kind of capitalism called Coordinated Market Economy (CME), where all the stakeholders coordinate and collaborate with each other to dictate and regulate the system.

For example a foreign auto firm wants to invest in a Coordinated Market Economy, it will have to pass through the whole auto industry sector represented by organizations such as (for example) the Auto Industry of the Philippines and the Association of Auto Manufacturers among others.  These organizations have actual powers to influence their own industry. These groups dictate standards on specifics of the industry such as wages, skills and professional practices based on agreements with workers.

Japan and several countries in Europe such as Denmark, Finland, Sweden, Germany, Switzerland, Australia and Belgium apply this variety of Capitalism.

As described in the Oxford index:

“CMEs tend to have high levels of job security, a good record on training and development, institutionalized forms of worker participation, based on works councils, and relatively cooperative relations between trade unions and employers' associations. These long-term, cooperative relations provide CMEs with their source of comparative advantage in the world economy: they tend to be good at process innovation and the production of high quality, high value-added goods in mature manufacturing industries.”

It has proven to produce gradual but steady improvements in the economy.

So why are we not looking into this model? Now I have yet to discuss that in detail with Dean Sale or an economist. 

So, back to the S&P upgrade.  We are considered an investment-worthy country coming out from junk status pre Benigno Aquino III’s term. We will hear phrases like “remarkable economic comeback” “towards the right track” “proof of good economics”.

But is it really? Will this country have the guts to look further than the US for models for growth?

And lastly, does anyone else see a possible connection between the Obama visit and the surprise S&P upgrade?