Philippine conservatism

On the problem of “jobless growth” and how to fix it

The last time the Philippines experienced an economic contraction was way back in 1998 in the aftermath of the Asian financial crisis. Since then, the country has posted 57 consecutive quarters of positive growth averaging 4.7 per cent in real terms year-on-year.

That may not be as fast as the Chinas or Indias of this world, but it is still pretty respectable considering the events both domestic and foreign that have occurred during this time (which include the impeachment trial of President Joseph Estrada, EDSA Dos and Tres, September 11, the crash and Enron scandal, the Oakwood mutiny, the global financial crisis, the Great Recession, and the current EU debt crisis, to name a few).

What do we mean by jobless growth?

Over the last seven years, 5.42 million net new jobs were created or an average of about 773,000 annually. This again is no mean feat. The only problem is that the labour force has also grown by about 5.49 million averaging an increase of around 785,000 new entrants per year 76,000 more than the jobs created since 2005.

If the growth of our workforce had been half as much, then the amount of jobs created would have been sufficient for the 2.8 million unemployed workers in 2012. If not for demographics, our unemployment rate would be much lower. Jobless growth in our context can best be described as a situation where economic growth fails to produce enough jobs to reduce the absolute number of unemployed workers in a sustained manner.

In the past, the economy’s inability to bring the number of the unemployed down was assigned to the growth rate not being fast enough. Instead of growing at an average rate of around 5 per cent, we needed to be growing at 7 per cent, or more.

Over the past three quarters, that is precisely the speed at which our economy has been expanding–above 7 per cent–which makes the employment figures for the April 2013 quarter all the more disappointing. Over the year, the number of those employed actually fell!

While we should not read too much into one quarter’s report (it is best to average four quarters’ worth of jobs data for the year to get a more realistic picture), it is still worth pondering how the economy could have expanded so much and yet not have made a dent in employment terms.

Examining “jobless growth”

Perhaps, much of the growth occurred as people moved from temporary and daily wage earnings into full-time, salaried employment as the labour force survey suggests. Increased income per worker rather than an increased number of workers might be a plausible explanation.


The other could be the increasing “financialisation” of the economy as the banking and finance sector posted one of the highest growth rates among all sectors. This means that growth came more in the form of profits, bonuses and commissions paid to the business elite and their shareholders. Financialisation has been blamed for jobless growth in the West, more recently.

Then there is technological progress. The construction industry, for instance, may have grown the fastest, but the use of new methods and materials might have made it less labour-intensive than before.

The same applies to manufacturing. Our country once specialised in garments and toy-making which were conducive to sweatshops, but we have since switched to electronics and semi-conductor production which makes use of automated processes. The rapid growth in durable equipment that occurred in the first quarter could have allowed businesses to substitute capital for labour.

How Philippine conservatism is to blame

This would all be fine if those who profited from growth gave back a proportionate amount of their earnings in the form of taxes. Unfortunately, the collection of taxes went down as a proportion of GDP in the first quarter of the year. Despite the best efforts and reassurances of the current administration to lift the tax collection effort, their ability to generate tax receipts in a manner that would keep pace with the growth of the economy, remains very much in doubt.

The unemployment situation would be even worse if not for the mobile and adaptable workers that we have. Over the past seven years, the country has on average deployed 1.3 million Filipinos each year to work abroad. If we had not done so, we would have had double digit unemployment rates during this time. There would have been greater poverty, crime and social unrest, not to mention less consumption, savings and investment.

The residential and commercial property sector as well as financial markets would not be experiencing the boom we are currently witnessing. The credit upgrades that our political elite boast of would not be possible either.

Yet, despite the extra impetus provided by ordinary Filipinos who are forced to earn their living from abroad, often under difficult conditions, separated from their loved ones, the conservative forces in our society have successfully marshalled resources to maintain the status quo or keep it from changing rapidly instead of opening up our socio-economic life to the dynamism that it requires.

First of all, the demographic burden that we have discussed above has been caused by conservative forces hindering the development of reproductive health policies for decades. As a result, the Philippines will only see its population peak sometime in the latter half of this century based on current estimates. This has created a situation where the country’s current growth rate is unable to provide a sufficient number of jobs for those entering the workforce.

Secondly, the low tax-to-GDP level in the country has been set by the oligarchic business community in complicity with dynastic political families who have been unwilling to contribute their fair share to improve our country’s physical, social and economic infrastructure, the very thing needed to boost investment. Of course that doesn’t bother them because as the big fishes in a small pond, they are able to keep their stranglehold on the nation’s resources.

As the government relies on the private sector to fund major infrastructure projects, large domestic conglomerates have successfully cornered these contracts. The tepid pace at which Public-Private Partnerships have been approved is due to the fact that interest from the global investment community has waned. This isn’t the sort of public private partnership we need. The correct form of partnership is for the business community to pay the right amount of tax for the government to do the investing, not the other way around.

Thirdly, other countries with more progressive leaders have created sovereign wealth funds from their balance of payments surpluses to invest in their nation’s development; but, the inherent conservatism among our policy elite restrains them from tapping the massive stock of foreign reserves generated primarily not through exports, nor by foreign direct investments, but by foreign remittances, to fund the infrastructure needs of the country.

This innate conservatism was on display during the last election. I did a thorough evaluation of the senatorial candidates—their policies and legislative proposals—and two of the most topical were the ones to increase “skills matching” activities and loans to micro, small and medium-size enterprises (MSMEs).

Now I have nothing against skills matching, but we know that there are skills shortages that if plugged would only solve a tiny fraction of the unemployment problem, and yet so many senatorial candidates ignored the elephant in the room, the massive, long-term unemployed in favour of the small target.

Similarly I have nothing against MSMEs, but we also know that MSMEs do not generate as much new employment, at least the kind that matters, i.e. the full-time, salaried kind. And yet they take up an inordinate amount of attention in our political discourse. The new ventures with high innovation content, the kind that generates higher incomes and greater employment were not even talked about, save for one candidate who took on board the sovereign wealth fund idea to fund them, but failed to get elected.

How do we rectify the problem

The notion of the state performing the role of investor of last resort, the source of funds for projects that are deemed too risky by private capital markets but could have massive potential, is seldom talked about. This is because our history is littered with incidents where our business elite have exploited their connections within government to fund their own pet projects. Rather than being the lender of last resort, the government has been the financier of first instance, or the source of “booty capital”.

Of course, given our innate conservatism, marked by a high tolerance for social inequality and low tolerance for risk, there is nothing that prevents us from focusing on the small target, the low hanging fruit, the necessary, but insufficient conditions for mass employment generation. We can continue focusing on providing the right “eco-system” for innovation and investment, lowering the cost of doing business and the like.

But what should happen if our overseas workers start being turned back in droves? What if that seemingly limitless source of jobs for our swelling labour force starts to run dry, whether this be due to economic nationalism (as in the case of Saudi Arabia with its policy favouring locals), border disputes (as in the case of Taiwan following the shooting by our coast guard of their fishermen), or some other unknown factor? What then?

Without this safety valve, will our conservative leaders still manage to keep an ironclad lid on our social cauldron? Even before it comes to a boil, they need to re-examine the basic framework for growth and development that has embodied their consensus for thirty odd years. In the past they have been good at socialising the cost of their projects and privatising the (super-) profits. It is time that we gear up the state to be able to fund development and innovative risk-takers and to capture a fair share of their rents for our people’s benefit.