employment plan

The Power of One

Assessing PNoy’s freshman year: the good, the bad and the ugly

In numerology, the number 1 bears singular importance. The first, the start, the origin of anything bears significance and meaning in the sense that it opens up possibilities, it sets the scene, and it leads the way. The level of anticipation and anxiety is always highest at the start.

The mistakes and lessons, the first impressions and achievements all have lingering effects. So it is with the first year of PNoy’s administration: the learning curve, the birthing pains and the wall of public expectation he has had to scale was close to insurmountable.

Comparisons and contrasts

In assessing his first year, the problem of finding an appropriate yardstick has been highlighted before. For those that attempt it by way of contrast, PNoy has done a remarkable job in his first year simply by not being Mrs Arroyo. Some similarities can be drawn with his mother in that she too had to sort out a lot of problems left behind by Mr Marcos and high expectations on the part of the people.

Others like me have drawn some parallels between PNoy and Estrada in the way the president went about managing factions within his cabinet. Some have questioned the president’s work ethic. ‘Do nothing’ was a constant line of attack presented by his detractors.

The question here is, had PNoy not succeeded Mrs Arroyo, how would his first year have been measured? Corollary to this is, had PNoy not been an Aquino, how would we perceive or rate him? The nation treats PNoy almost like an older brother or ‘kuya’. His being the son of ‘Tita’ or Auntie Cory makes an objective assessment difficult because of kindred ties and the ‘halo’ effect.

Factoring out the ‘noise’

Then there is the problem of events outside the evaluatee’s control, or the noise factor. The worsening global economy emanating from the Eurozone, Japan and MENA as well as from the US, have been used to explain the weakening foreign investor confidence in the Philippines.

As Ben Diokno rightly points out, our relative performance to some of our ASEAN neighbors allows us to factor out the ‘noise’ in that our peers in the region all have experienced the same global slowdown, but as the first quarter data shows, they were able to increase their levels of foreign direct investments, while we saw ours shrink.

We need to bear this in mind whenever we hear officials justifying the slowdown in our economy by citing global affairs or cyclical factors like the elections of 2010. We might be maintaining growth in an absolute sense, but in a relative sense, we might fall behind our neighbors in the region. We therefore need to determine whether this poor performance relative to them is due to some of the things the administration is doing or failing to do.

Progress made

Having said that, I would first like to focus on the positive things I believe the administration has done. This would include both its tangible and intangible achievements. I will start with the tangibles.

The introduction of universal kindergarten in public schools which studies show provide long-term learning benefits, the reduction of hunger most recently attributable to the conditional cash transfers program which is really designed to address intergenerational poverty and not fix the unemployment problem in the near term, and the reform of government corporations and debt management which have led to meaningful savings for the government are all worth a positive rating.

With regard to intangibles, the confidence engendered by the government which has led to private domestic firms releasing pent-up demand for capital goods and the greater trust or faith in government leaders are two things that this administration can be congratulated for. If the government can continue to make inroads in these areas it will have done a tremendous service to the Filipino people.

Needs improvement

On the needs improvement column, I would have to cite firstly the government’s handling of its legislative agenda. Both the scope and the pace at which it has been pursuing this have serious flaws. The absence of the FOI and RH bill among its priority measures for instance was a major failing. The fact that it took nine months for it to hammer out its agenda led to meager legislative trophies in the first year.

Secondly, our response to China’s emerging role in the region as a superpower to counterbalance the US our traditional ally has been all over the place. First, we sided with China unnecessarily in not attending the Nobel Prize conferment ceremonies for one of its leading dissidents. Then, in handling the Spratlys issue, we engaged in sabre rattling by sending out a navy vessel into disputed territory, again unnecessarily. A more considered and strategic foreign policy is required.

Thirdly, in prosecuting cases against Mrs Arroyo and her allies, many will assail the efforts of PNoy as unsatisfactory or timid, as several church and citizen’s groups have done. Personally, I would not consider this too much of a problem, but I know that many have that expectation. So what I cite as a failure by this government is its inability to manage such high expectations. More importantly, I would like to see greater safeguards and economic measures put in place to ensure that the Ombudsman and Solicitor General’s office are well resourced to perform their functions.

Sharper focus required

Finally, I would like to cite areas that deserve sharper focus by this administration. These are things that the administration needs to prioritize if it is to make a lasting impact. The first has to do with its development strategies contained in the Philippine Development Plan 2011-2016. As I have stated in a three part series, entitled the National Development Program, there are serious gaps in the Plan that need to be addressed.

Secondly, in its first year, the government has shown serious shortcomings in its budget plans and execution. Having had a head start by way of Congress’s early approval of their budget, the government should have done better at releasing its funds for infrastructure projects. The practice of forced savings due to off-target collections also has to be addressed. This cannot continue as per the ratings agencies reports if the nation is to keep to its growth trajectory.

Thirdly, in generating much needed employment, this government has to start thinking ‘outside the box’ if it is to keep up with the growing workforce. PPP’s or public-private partnerships are an existing tool already wielded by preceding governments. For it to have a successful employment program, the administration will have to develop a robust industrial policy. To do that it needs to reshape the economic bureaucracy as I have pointed out here.

Looking back, moving forward

A periodic performance appraisal is always necessary for any government to benchmark itself against the undertaking it has given to the people, to celebrate successes and take stock of where it needs to improve or devote more attention to.

The first year of any government is always the hardest. Unexpected roadblocks and landmines often litter its path. The ability of any regime to survive its first year relatively unscathed or even stronger than before usually is a good indicator of the caliber of its leaders.

We will have to say that the government despite all the sound and fury has survived relatively intact. The remaining five years will contain many twists and turns. Hopefully, the correct lessons from its first year will help inform these remaining years. For this reason, it is important for citizens to remain as engaged as they have been during this first year as we here at Propinoy are determined to be.

Predicting the coming labour shortage

When will the Philippines reach its tipping point?

Suck! That was the sound of jobs and investments being plucked out of the West and sunk into China. That was then.

As the world economy gradually recovered from the global financial crisis in 2010, there was talk of the People’s Republic finally having reached a tipping point that would see it transitioning from being a predominantly labour-surplus economy to one that suffers from labour-shortages.

Last week as the Benign One appealed to employers to give modest pay increases as a way of quieting labour groups following the May Day celebrations, authorities in China were for the first time entertaining the possibility of allowing their currency the Renminbi to appreciate to increase worker purchasing power and tamp down inflation.

Wages as a share of GDP in the People’s Republic had peaked in 1985 at 57% and then dropped to 37% in 2007 (making it one of the most capitalist big economies of the world). They are expected to rise steadily from now on. By 2020, a dramatically different picture will emerge. The words ‘cheap labour’ and ‘China’ may not hold together for very long; good news to the Western world which has been suffering enormous trade deficits with this manufacturing powerhouse from the East.

The shift from a predominantly young to an increasingly aging work force is the result of family planning policies instituted in the early-80s with the famously draconian one child policy enforced in urban centres being the most prominent among them. As the number of jobs available continues to outstrip their capacity to fill them, the Chinese communist party has increasingly allowed unions to exert their bargaining power in several sectors of the economy to prevent social unrest.

Today rising wage inflation and a demographic transition have some talking of a significant slow down in growth of the world’s second largest economy (from the 10 to 12 per cent experienced in the last decade to 7 or 8 per cent). Chinese wages are going to rise significantly over the course of the next decade. This will cause it to shift from an export driven economy to one that is mostly consumption driven.

The Philippine case for a tipping point

Because of the uneven distribution of human capital in the Philippines, comparatively higher wages and skills shortages in some areas exist alongside a substantial labour surplus. There are patches of skills shortage while large swathes of the populace are unable to find employment.

The record of job generation over the last twenty years has not been all that bad though. As I previously stated (in a piece entitled Jobless Growth: Fallacies part 2 posted last year in this space but no longer available): nearly twelve and a half million net new jobs were created compared to twenty five million in the US which has close to four times our population.

This led me about a year ago (in another piece entitled The Coming Labour Shortage posted in this space but no longer available) to predict when the country might approach a tipping point of its own. Using modest economic growth figures and a steady slowing of growth in the labour force (which have been observed over the past two decades) my optimistic forecast was for our transition to a labour shortage situation to begin as early as 2015/16.

The more realistic scenario I came up with is for the two to be in balance around 2020/21. Beyond that I predict that labour demand will outstrip supply (see graph right). Incidentally, the value of labour supply that I predicted for 2009 was off by 30 thousand from the actual growth that was recorded (it sounds big, but it represents only one tenth of one percent margin).

Had we consistently adopted a set of sound family planning policies as late as the 1990s, we would have seen a more balanced labour market. Unfortunately, reproductive health and family planning have not found traction in our country. It would be good if our leaders started focusing on the big picture rather than the daily to-ing and fro-ing over who wins in the daily 24 hour news cycle. I would much rather prefer a discussion about how to hasten the day when we no longer need to export our work force.

The good news is that even under the “do-nothing” scenario, we seem to be heading for a tipping point within a decade. The bad news is that this might lead us to think that we can sit back and literally, “do nothing.” A complacent administration might be content with maintaining current policy settings and engaging in populist rhetoric to gain short-term political wins. Unfortunately, this is too often the case.

As I mentioned last week in a three part series on the eve of the anniversary of his election into office, the presidency of the benevolent one has so far suffered from a lack of strategic focus. I laid out a case for the following:

As a result, the public that voted him into office has been experiencing what social scientists call cognitive dissonance or noise created by a deficit between what they were made to believe would come to them and what they ultimately experienced after buying into his candidacy.

The Employment Plan

The Employment Plan 2010-2016 released a few weeks ago aimed to create a net increase of one million jobs per year. It was a carbon copy of the past administration’s often missed policy goals. Unfortunately, we do not yet have a Freedom of Information Act that would allow us to scrutinize in minute detail the manner by which the government came up with this figure.

Is it plucked from thin air? Is it just one of those “stretch targets” as I suspect it is? Do they have detailed industry, occupational and regional breakdowns of these projections? If so, is there a coherent strategy for building the skills base in the right areas to avoid serious skills shortages as is already apparent in some occupations?

There is an oversupply of college educated graduates and not enough vocationally trained ones. The K-12 expansion of basic education hopes to address this imbalance by introducing school based training in the trade occupations by 2015-16. The lessons from advanced economies tell us that such training has to be continued by employers through an apprenticeship or on-the-job training program supported by the government.

Meanwhile programs to reduce school attrition like the cash payments to poor parents need to be put in place so that more and more primary students stay in school and are able to acquire enough skills to be gainfully employed. The upgrade of teachers, educational facilities and resources also requires funding. The role of former state polytechnics to provide a pathway from vocational education into higher education has to be defined.

Not enough energy has been spent explaining what these reforms would mean. Instead the president has been parrying allegations about his poor work ethic. Ten to twenty years from now, this will all seem so petty and meaningless. Today however it is on top of the agenda.

The year 2020 might seem so very far away, but it isn’t really. It is less than two presidential terms away. In the final analysis, if the Philippines were to follow in the footsteps of its East Asian counterparts in reaching a tipping point by then, it will only be because its leaders were willing to do the heavy lifting today.