September 26, 2006 · Posted in: Governance
Prospects for economic growth
DESPITE grim predictions following the 1997 Asian financial crisis, analysts have been pleasantly surprised by the continuous economic growth of the Philippines, Thailand, Malaysia, Indonesia, South Korea and the rest of the East Asia region. The five countries were the hardest hit in the crisis.
Since 1998 the region’s gross domestic product has almost doubled by over 9 percent per year, reaching $4 trillion by 2005, according to the World Bank (WB). Other economic indicators are similarly rosy: exports have grown to one- fifth of the world’s total, or over $2 trillion per year. The region is the largest destination for foreign direct investment and has $1.6 trillion worth of foreign exchange reserves.
There are 300 million fewer people who live on at least two dollars a day (the World Bank’s per capita expenditure definition of living in poverty) than there were in 1998.
An active middle class continues to advocate democratic economic affairs, while business-friendly reforms are being implemented throughout the region.
All of this has prompted the WB to declare that an “economic renaissance” is unfolding in the region. Yet much remains to be done in order to reap the full benefits of the so-called renaissance. The WB examines the East Asian renaissance and initially suggests some prospects for growth in the draft version of its paper “An East Asian Renaissance: Ideas for Economic Growth”. (Read the full report here)
“An ambitious region should perhaps have more ambitious poverty reduction targets”, says the WB. It estimates that 585 million East Asians are still poor. This figure includes 35 million Filipinos.
Along with economic growth, the WB says that inequality seems to have increased in the region, with the exception of Thailand.
Rapid economic growth in East Asia has resulted in massive urbanization, and a heavy reliance on mega-cities. In 2003, 10.4 million people lived in Manila. 61% of the total population of the Philippines lives in an urban area.
People flock to cities because of “agglomeration economies.” Cities provides spaces where “people benefit form ideas that others create,” according to the WB. Entrepreneurs with similar economic interests band together to create new ideas and translate them into production. Markets for labor, capital, intermediate, and final goods emerge, that enable cities enable to save costs and increase efficiency. A wider range of skilled workers is available to employers. Workers and entrepreneurs are able to learn from each other due to a spillover of knowledge.
Yet the dynamism of cities also breeds inequality, because the concentration of industries in a single location attracts investment and a labor force that may result in the neglect of the rest of the country.
Gaps between urban and rural poverty have been rising in the Philippines. City dwellers receive an average 2.5 more years of education that their rural counterparts. There is a difference of almost ten years between infant mortality in urban and rural areas in the Philippines.
Governments have tried to spread investment and control the flow of migration, with varying degrees of success. In the Philippines, “introduction of export promotion and regional development policies (for example, export processing zones and industrial estates at other locations) failed to prevent or significantly reduce the heavy concentration of manufacturing” in Manila and peripheral areas, according to a study cited by the WB, led by E.M. Pernia.
Political stability tends to decline with inequality, according to the WB. One factor in the occurrence of armed conflict in the country during 1986-2004 has been the “disparity in access to basic infrastructure and services, especially reliable water supply, electricity, and education,” according to a 2005 study by Edillon cited by the WB.
In addition to the loss of lives, says the WB, such social unrest hinders support for economic reforms and “disrupts the process of economic growth.”
In order to address poverty reduction, the WB proposes some general recommendations
- Invest in human capital, especially in policies to promote wider and more equal access to higher education.
- Facilitate migration, creating policies that will address in gaps rural-urban and cross-regional wage and income levels and ensure access to basic services for migrants in destination areas
- Invest in lagging regions, implementing policies to support greater job creation in the lagging areas through investments in physical and social infrastructure and measures to improve investment climate in smaller cities.
- Develop credit markets for the poor, in order to promote a more equitable distribution of the benefits of economic growth.
- Improve the coverage and performance of social protection systems such as unemployment and health insurance, pension systems, and targeted income-transfer programs.
- Promote greater fiscal equalization by providing greater resources to poorer areas and building adequate channels of accountability at different levels of government.
The WB’s recommendations are broad because countries in East Asia remain in different stages of development. Thus, “the nature of specific policy challenges and options for addressing the above priorities in different countries will vary with their level of development”.
There may also be “short-term trade-offs between promoting greater growth and more equity”. However, the WB says, “trading off a little bit of growth for more equity in the design and implementation of future public policies is likely to be good for long-term growth as well as equity and social cohesion in the region”
6 Responses to Prospects for economic growth
ryebosco
September 26th, 2006 at 6:24 am
Absolutely, an “economic renaissance” is gradually taking place in the Philippines though unnoticed by the majority, but it’s indeed happening. Efforts from the different sectors of society are contributing to make a positive evolution: Gawad Kalinga, Chinese businessmen planning to resurrect Escolta, Chabacanos in Mindanao learning the Spanish language for its global marketability, retiring Filipinos investing in the country, etc.
It’s just impossible for the Philippines to remain stagnant because we have an industrious and reliable population; we have thousands of beautiful beaches; and for God’s sake, we speak English (the global language of business). As soon as corruption is KILLED, we’ll once again regain the status as the Pearl of the Orient.
One suggestion to the Department of Tourism: Please restore intramuros because it is our history and our crown jewel. We’ve all heard the phrase “if you build it, (they) will come.” Intramuros is well known outside the Philippines yet unappreciated locally. I’ve heard foreigners express disappointment when they come to the Philippines and see the poor state this ancient fort is in. Well, if we want to attract tourists and businesses, we gotta clean up and beautify. Not just in Manila but all over the Philippines. Let’s all do our part cleaning rivers, streets and buildings. One good place to start a renaissance is at the Luneta Hotel. The question is, will this structure be demolished or saved?
tongue in, anew
September 26th, 2006 at 6:43 am
We have been taught in school that economies that have reached bottom have nowhere to go but up.
The devastating effects of the 1997 Asian crisis also had great deals of lessons for us. Our banks are stronger, our financial decision-makers wiser. Even the consumers have made a major shift in paradigms.
As any stockmarket player will tell you, the best time to buy is when the market is on the upswing, but caution likewise dictates that any wise investor shall exercise extreme due diligence before he gambles his hard-earned money.
Such is the situation we Filipinos are in at present. While the positive economic indicators are there, as it has been long before Gloria’s gov’t usurped authority, the environment has not been so encouraging. We have consistently shared the unflattering position with the traditional bottom-dwellers by way most surveys conducted by lending, investment, political, and social organizations have been closely watching the country.
The usual culprits: red-tape, corruption, unstable peace and order, social inequity, insufficient infrastructure top the concerns foreign venture capitalists have for looking in other directions. And this gov’t, and all the gov’ts before it seemed to just ignore it.
The leadership often fails because it has avoided making the patriotic decisions in favor of the leader’s interests and those of his/her patrons. Often, greed shared by the few gets in the way of patriotism. Such vicious cycle that breed animosity between “them” and “us” results always in unending collisions based on personalities and not on principles and vision which seek permanence in the parameters by which governance is focused to achieve its goals for the long haul.
What is more unsettling today, is that when a much-abhorred leader’s hold on power hangs by a thread, all the country’s resources, institutions, and even spirit are considered collateral damage in a war she does not have the right to fight. Gloria’s survival is not the survival of the country and it is not within her stolen mandate to think otherwise. I hope this “war” is over soon, with the truth getting the upper hand, the people as the victors. Natural law dictates, what comes up, must come down.
Without the solid foundation of selflessness and patriotism, the mighty tower of economic prosperity, with all its decorations, will remain a pipe dream. Just like a stunted midget builds her sand castle and calls it her enchanted kingdom, watches as the next tide washes it down.
Global News Blog » Philippines - Light ash fall rains on Mayon villages
September 26th, 2006 at 8:16 pm
[…] Prospects for economic growthPhilippine Center for Investigative Journalism, Philippines – 19 hours ago… following the 1997 Asian financial crisis, analysts have been pleasantly surprised by the continuous economic growth of the Philippines, Thailand, Malaysia … […]
Ambuot Saimo
September 27th, 2006 at 12:35 am
This “economic rennaisance” taking place in the region is indeed incouraging. But the problem is it embodies the “whole of East Asia” which luckily, the Philippines is within the region and consequently was bouyed up by her neighbors particularly by the giants economies like Japan and China. This could be decieving and it’s a no brainer. For instance, if you are a bum earning only a notch above the minimum wage but living within the Dasma Village in Makati (because you are lucky enough to have inherited your parent’s house in that place) and should a statistics is conducted to find out the average annual income of the residents in the village, your annual income will appear many times bigger than your actual income because of the super millionaires living in the area.
Another example: In 2000 Income and Expenditure Statistics showed that the Philippines posted a total national income of 2.2 trillion pesos, the population was 76 million, the average family size is estimated to be five persons, and the average family income is PhP 144,000.00. If we will divide the PhP144,000 by five (the average number of person in the family) it will give us a per capita income of about PhP 28,800. (Almost the same thing results if we will divide PhP 2.2 trillion by 76,000,000 which is PhP 28,947.) If each person is earning this much, how come 34% or 26 million of the 76 million live below the poverty line of PhP 11,605.00 at the time? The reason is obvious- the no income or low income was bouyed up by the millionaires’ income.
I think the best vehicle to find out if indeed our living standards have improved is to directly ask the people themselves particularly those families without a member or relative working abroad and regularly sending money home. They are the true “Philipine-only income” earners and from there we will find out how they fare or if there is really an improvement in their standard of living in the last couple of years.
At present, it looks like the 12 billion dollars OFWs, remittance are being integrated and included in the Pinoy family income and it could muddle the whole picture.
Let’s not rely on regional or global statistics because in some ways they deceptive and could blind us. The best person to figure out how much you earned is not your friend, neighbor or even your accountant but – YOU!
freewheel
October 1st, 2006 at 9:38 am
that is where the problem lies, Ambout Saimo.
relying solely on economic growth statistics, does not guarantee us that this directly translates a ‘growth’ in ordinary people’s pockets–an enigma once shared by a frustrated Disraeli; prompting him to blurt his now famous, ” Statistics is a lie”.
rightly so in a sense, for these indicators does not capture the whole picture of a country’s economy. to be generous, it does offer a peep on the probables but it does not pinpoint on the who’s, what’s and why’s.
your set of examples are just perfect–on the who’s. if i may add, the 4 recent inclusions of local taipans on Forbes billionaire’s list: another highlight of glaring disparity on distribution of wealth. enough of this ‘trickle-down theory’ espoused by some WB economists, as soon as i’ve learned how to read, it continues to remain to this day, a theory.
what factors are included in the statistics? all-time high prices of oil could have propelled the almost unbelievable prices in the supermarket shelves but does the wage-earner’s purchasing power kept pace: obviously, never.
a sizable chunk of the all-time high foreign debt may have resulted in rosy figures for now, but wait, how about comes payback time?
surely, there is a semblance of truth in the so-called ‘renaissance’ but the list of why’s is not long, in fact almost mainly because of the OFW’s remittances.
the 1997 financial near-collapse metamorphosed the 3 other countries economies into a more stronger, dispersed, and self-reliant ones.
‘Pinas broadsheets has been peddling the lie ever since (i hope PCIJ will set the record straight, not for purposes of self- flagellation but solutions can only be found if given the correct diagnosis), that they suffered with the same impact or even worse that we have, and in fact zeroed in on Thailand.
far from truth, for ample of reason. hope 2 will suffice: a.) slide in currency in terms of real percentage b.) Pinoys continue to troop and found work in that country (seen any Thai around in local industries?)
Malaysia, at WB’s behest then, unpegged the Ringgit versus the dollar. the latter is now ‘pleasantly surprised’ at Mahathir’s work?!
well, S. Korea is the Philippines biggest investor few years back (and US of A is at the far back) and continues to be at the top 3.
Indonesia may have suffered more than the others, but the country is far more rich in terms of natural resources and its people can always engaged into agri-farming given its vast lands,thus poised for earlier recovery.
the other side of econ growth indicators is econ omic development data. methinks, the two should always be presented together to arrive at a more reflective, nearer to reality perspective.
how much money spent to build roads versus real road span in terms of kilometers actually built;
capacity of school buildings built and the number of schoolkids sent to school every year, how many finishes 6th grade, from the initial data of 1st grade enrollees, and ready for the next level?
what percentage of the population has access to potable water, sewage, and affordable health services?
what is the life expectancy rate of Pinoys? how many deaths each year is attributed to poverty related illnesses: tubercolosis, gastro-intestinal disorders, etc., in relation to overall mortality data?
WB’s recommendation above is reflective of development data thrusts, albeit the wisdom of the second point, ‘facilitate migration’ is debatable.
China is making some important headway in declogging its big cities, by doing the opposite—regulate wholesale migration from rural to urban areas by extending incentives to peasants in the rural areas.
point is, reliance on economic growth data alone blurs and does not present a clear picture of an economy, as seen by Ambout Saimo. thus, data which economists call as economic development should be included to get a picture free from haze.
WB prescriptions, on the other hand, have not been always helpful in alleviating the lot of those who have less in life. they are viewpoints from that of the bankers, often fractured in terms of upholding true interests of the people.
to those who are in doubt, can anyone point to me of any country in the developing world that subscribed 100% to WB’s prescriptions and made it good?
looking forward to the day, when ideas to that of the bankers and of humanists, community workers, and activists are consolidated to serve a bigger audience–majority of the people.
Competitiveness Sources at The Explainer
October 4th, 2006 at 2:09 pm
[…] See also the PCIJ Blog for a roundup of prospects for economic growth. Mongster’s Nest also has some thoughts on 2006 World Competitiveness Yearbook. See crash pad, too, on the benchmark given the Philippines by the World Bank. […]