Only National Industrialization with Community-Based Enterprises Can Put an End to Poverty

Economic development program without industrializing strategy has no substance. Prosperity can never be attained without industrial development. 

by Rafael Nelson M. Aboganda

THE REAL measure of economic development is the prosperity of the population as a whole or its direct opposite: the level of poverty! This means the optimal measure of development is the people’s living standards in terms of housing, employment/working conditions, education, health care including mother-child care, care of the elderly, and a variety of social benefits, among others. In other words, economic development is measured in terms of the country’s industrial progress supported by community-based enterprises.

The Philippine government contends that the growth of GNP (5.5% in 2003) and GDP (4.5% in 2003 and 6.4% during the first quarter of this year) indicates that the country is now entering a new phase of economic progress based on solid economic foundations laid down by President GMA. The Ramos administration attained 7% GNP growth, also claiming sound economic fundamentals, yet it was swiftly undermined by the crisis of 1997. Why? Simple, because of insubstantial economic policies—the solid foundation is hollow. Our economic policies lack substance that can lead to national prosperity; in point of fact, it has carried us to the quagmire of poverty.

The truth is very clear, the government from the presidency of Diosdado Macapagal (DM) to his daughter, Gloria Macapagal-Arroyo, has failed to improve the living standards of the ordinary Filipino due mainly to inadequate economic policies which lack the key ingredient: national industrialization. President DM instituted “decontrol of foreign exchange transactions and devaluation of the peso.” President Ferdinand Marcos expanded exports, primarily labor-intensive manufactures that the West needed; removed control on foreign investments and protection of domestic industries; and relied on foreign loans and export of manpower to finance increasing budgetary and trade deficits. On the other hand, President GMA continued the structural adjustment measures of “liberalization, deregulation and privatization” in the overall context of “globalization” promoted by previous administrations of Corazon Aquino, Fidel Ramos and Joseph Estrada.

The continuing insubstantial economic policies of the government, habitually predicated on the growth of GNP/GDP, with no deliberate industrializing strategies, punctuated by lack of state investments, industrial targeting and tariff protection, have generated careless development. The outcome is recurring economic crises bordering to economic stagnation. The end result is undoubtedly poverty characterized by massive unemployment, malnutrition and hunger, rising prices, decline in quality of basic education, restrictive access to health care, chronic trade and balance-of-payments deficits, etcetera, etcetera.

The serious policy failures include, among many others, the failed land reform, dependence on foreign debts, globalist economic programs resulting in the satellization of the economy, non-protection of local manufactures, domestic manufacturers and retailers, and most important the lack of definitive industrialization program.

On the contrary, government policy-makers and business executives of the most progressive countries are one in proclaiming that only an out-and-out industrialization can create economic miracles. But our economic planners and policy-makers never learned. No one would accept that our economic backwardness and continuing economic crisis are in many ways due to poor, insubstantial economic policies.

The Current Economic Situation

We created the current poverty situation by carrying on the four-fold economic policies of unproductive liberalization, ineffective privatization and unwieldy deregulation, anchored on indiscriminate globalist economic program in the context of free-trade, a.k.a. “globalization.”

The major elements of our national situation may be described as follows: General crisis of infrastructures—power, communications, road and transport systems; breakdown of national and social institutions—poor justice system or inequality under the law, dysfunctional bureaucracy, scalawags in military and police establishments, “cheating” in tax payments; increasing national debt—religious servicing of the swollen foreign and domestic debt resulting in high interest rates, low savings, budget deficits, continual trade and balance-of-payments deficits, extremely high cost of doing business; and the notoriously inequitable income distribution, rising prices and a weakened labor market, punctuated by failed land reform.

More specifically, the national situation is characterized by the following:

PGMA stated that the country should “maintain highest educational standards.” however Max Soliven in his Philippine Star column pointed out, “There’s nothing to maintain: Our education system sucks. In Asia, report after report reveals, we’ve sunk to the bottom of the heap in the past few decades, with even our most distinguished institutions of learning the University of the Philippines, Ateneo de Manila University and De La Salle University falling to the lower 80s.”  He continued, “Of the top ten technological institutions in Asia, not one of ours is rated more than mediocre, while five of the Top Ten are identified as being in India! It’s time for a reality check, not grandiose declaration about ‘highest standards’.”

On the other hand, economic nationalists pointed out that GMA missed out the most important element that will solve current economic crises, “The development of our capacity to produce for ourselves the capital goods and intermediate goods.” They said the only way out of our predicament of slow growth and recurrent recession is industrialization. They pointed out, Ms. Arroyo never mentioned national industrialization in her development strategy up to now.

The Philippine situation, according to extreme oppositionists, is as follows:

Kilusang Mayo Uno (KMU) said, “No specific program was laid down to create 6 to 10 million jobs. There are 37 million workers throughout the country, 10.8 million are unemployed or underemployed, and nine (9) million are OFWs.” The number of unemployed increased to 4.99 million last April. Government statistics show that unemployment rate increased to 13.7% in April from 12.2% in the same month last year. About 1.9 million Filipinos enter the labor force every year.

Kilusang Magbubukid ng Pilipinas (KMP) noted that GMA’s program would not benefit the farmers; in fact, “two million hectares of farm lands will be used for agribusiness to produce high value export crops.” KMP pointed out, “80% of Filipino farmers depend on rice farming, while 20% on corn.”

Gabriela National Alliance of Women’s Organizations reported 1,045 rape cases and 4,296 women were cruelly harmed or physically offended in 2003.

Concerned teachers and educators reported lack of 44,700 classrooms, 5.8 million chairs, 24 million textbooks and 49,200 teachers due to meager budget allocation for public education. While, youth organizations said, “Tuition fees have escalated 11% in more than 200 private tertiary schools this year.”

Economic analysts also noted, “Servicing the increasing public debt eats up about one-third of the national budget. The money should go to essential social services and infrastructure projects.” The government’s public debt stood at P3.8 trillion (90% of GDP) as of September 2003.

The country’s population with a growth rate of 2.36% will reach the 84-million mark this year, if it remains uncontrolled. This puts pressure on social services and infrastructure. It also causes overcrowding in urban areas.

It was further noted that poverty incidence has grown from 31.8% in 1997 to 33.7% in 2000, totaling 32 million poor Filipinos. It is estimated that more than 40% of the population now live below the poverty line.

President GMA should put all its effort to alleviate poverty and put the national economy in good order through an all-out industrialization process, the only way to create jobs.

In the last four years, economic analysts observed that domestic industries “lost market share to competing imports made cheaper by tariff cuts and other import liberalization measures, slow growth and the continuing devaluation and deteriorating balance of payments that are the harbingers of yet another foreign exchange crisis.”

Economic nationalists also noted that land reform policy “strongly favored the landowners, the educated, and the wealthy. Procedures such as land surveying, notice requirements, and excessive legal costs ensured that potential peasant benefactors did not gain access to land.” Other problems that led to the failed land reform are “extended land valuation process, vague guidelines for landowner compensation, extended landowner-tenant negotiations, lack of bureaucratic coordination, and inconsistent implementation.” The truth: Land reform has never been effectively implemented in the Philippines.

The sad thing is that President GMA’s economists claim the economy is performing well amidst the following facts, earlier described: rising balance of trade/payments, increasing prices, massive unemployment, low per capita income which has not increased significantly compared to so-called GNP/GDP growth, and the stifled purchasing value of the peso.

Probing deeper into other indicators of economic development, the country’s manufacturing sector is sluggish; the agricultural sector is still uncompetitive; and the export growth is conspicuously slowing down. Clearly, the Philippines has a lot of catching up to do in its “entigerment” process—now aimed at the full development of the service industries. Hence, more shopping malls, tourist plant facilities, etc. Entigerment can only be achieved through industrialization, nothing else!

In addition, despite the growth of GNP/GDP in the first semester this year, there are foreboding indicators of unsustainability of the growth process. If unchecked, this can lead to another economic bust. The most disturbing sign is the widening trade and balance-of-payment deficits.

Another sign is that the greater part of foreign investments went to stock market, T-bill purchases, shopping malls, and privatization of government-owned corporations. Moreover, the Philippines is one of the tail-enders among Foreign Direct Investment (FDI) recipients in 2003.

Undoubtedly, the more recent statistics indicate that the economy is not improving in real terms.

For these reasons, economic nationalists asked: “How bad does the situation have to be before the government economists admit they have failed? How bad do the economic indicators have to be to prove the erroneousness of free-market economics?”

They pointed out: “An underdeveloped economy that will rely solely on exports without taking the necessary steps to build its industrial base is doomed to chronic trade and balance-of-payments deficits and the resulting cycles of slow growth and recessions because it will, more often than not, import more than what it exports and will be unable to develop productive capacity in the industrial sector where opportunities for greater productivity are potentially higher.”

The only way out is industrialization

As pointed out above, may we repeat again what the economic nationalists proclaim: “The only way out of continuing economic crises is industrialization. The development of our capacity to produce for ourselves the capital goods and intermediate goods that make up the greater part of our imports is the way out of our predicament of slow growth and recurrent recession. Developing the industrial manufacturing sectors would end the import-dependence that leads to the balance-of-payments crises that have been causing repeated recessions. In addition, these are the sectors that have higher potential for achieving greater productivity. So, we will reduce the factors causing cyclicality and achieve higher levels of per capita income.”

The industrialization strategy must be coupled with the full development of community-based small- and medium-industries as well as micro-enterprises. National industrialization with community-based enterprises is the all-out approach to nationalist economic development.

This strategy is not really new. It is being implemented by China,VietnamandMalaysia. These countries are now entering national industrialization stage “in varying degrees and which will make them the second-wave NICs. The Philippines, for all the supposed ‘best performer’ enterprises claimed by NEDA, missed out on the first wave and will miss out again on this second-wave because of the free-market underdevelopment economics that dominate policy-making.”

The industrialization strategy requires a shifting of protection to upstream manufacturing, thereby integrating the manufacturing sector. “It also requires that whatever tariff reduction undertaken on previously protected sectors must be gradual enough to give them time to survive the adjustment process. If the downstream industries do not survive, the potential markets for upstream industries targeted for development will shrink or even disappear. Furthermore, tariff reduction must be undertaken in the context of multilateral or bilateral agreements that are mutually beneficial and do not sacrifice the imperative of developing capital and intermediate goods capacity-development.”

Industrialization requires proper balance between import liberalization and protection. Protection accelerates the development of domestic capacity. It shields the domestic sector from established exporters in other countries that can offer stiff competition because of their lower production costs, which may be due to objective efficiencies or subsidies they enjoy from their respective governments. Protection, in order to be genuinely developmental, must be temporary. Eventual de-protection by the removal of import controls, reduction of tariffs and phasing out of subsidies is also a necessary phase because it, if undertaken in a proper manner, encourages affected industries to become more efficient and competitive with respect to competing imports.

Industrial development hinges to a great extent on the employment of advanced technology. Sixty percent of the growth of economies that have developed comes from technological development.

The domestic sector must be the principal sector. Industrialization strategy means taking the domestic sector as the principal engine of growth. This means giving priority support to Filipino entrepreneurs and producers. This does not mean however that export opportunities should be neglected. “This only means that export promotion should be secondary to the stimulation of domestic demand and the domestic market-oriented production. We can consider the example of China that has been vigorously expanding markets and yet continues to depend primarily on the domestic sector. It is a good part for this reason that China has maintained a high growth rate of output despite the repeated shocks that have put other economies in crisis.”

Further, this means the economy should be fueled by domestic investments. Experience shows that Filipino investors far outdo foreign investors in contributing to the development of local productive capacity.

“Foreign investments must be encouraged only where there will be benefits that will accrue that will not be otherwise available.” Foreign investors are useful in developing export markets, introducing needed advanced technology, pioneering in new products and most of all, complementing domestic capital. “It is not correct to have an open door policy to foreign investments that will give them all the rights of Filipino investors.”

Technological modernization. Industrialization hinges to a great extent on the employment of advanced technology. “Sixty percent of the growth of economies that have developed comes from technological development. Only 40 percent is attributable to the increase in the stock of machinery and equipment and the employment of more manpower”, Popoy Valencia noted. The government and private sector should engage in research and development (R&D) that will access available technology and develop local industries. “The government must intervene and actively stimulate technological modernization of the economy, especially for the most backward sectors that have been left behind by the technological leaps that have taken place in the global economy.” More importantly, Filipino inventiveness should be tapped.

Industrialization cannot be achieved unless we develop technical skills of the labor sector as well as the needed managerial force. Scientific and technological education must be coupled with the institution of industrializing values, business and work ethics, social responsibility and nationalist ideals.

Industrial development plan. Industrialization means having a clear industrial plan for the nation, Rene Ofreneo emphasized. He said, “This would require the targeting and development of strategic industries which can insure sustained Philippine development in the medium and long run (e.g., steel, petrochemical, energy, etc.), on one hand, and which can create jobs for the millions (e.g., housing and other wage-goods industries as well as export industries with high value added), on the other. A clear industrial plan also means a clear outline of how local science, technology, the educational system and national human resources can be developed alongside Philippine industry and agriculture.” More importantly, economic planning means mobilizing the Filipino producer, the much-neglected “substance” in various Philippine economic development plans.

Economic development without industrialization is an illusion. Prosperity can never be attained without industrial development. Only industrialization can put an end to poverty!