SONA 2015: A Legacy of A Disconnected Economy

Economic elitism has been the norm for the economy but the growth in wealth and profits for a few has been striking under the Aquino administration

IBON Features— Pres. Benigno S. Aquino III will give his last state of the nation address (SONA) at the opening of Congress next week. After so many political controversies, with the heads of state of Asia Pacific Economic Cooperation (APEC) members arriving for their summit in November, and with the May 2016 elections on the horizon, the president will likely play up the state of the economy under his watch. It is important not to take the claims that will be made at face value.

Achievements?

The Aquino administration’s hype about the Philippine economy is straightforward: the Philippines is one of the world’s fastest growing economies and the last five years have shown what good governance can do for the country. The government is not yet claiming that the growth is already inclusive – there are too many poor Filipinos for it to do that. But it insists that it is seeking “inclusive growth” and that there is already progress.

Its approach is familiar by now. The overarching framework is so-called good governance. One part of this is the popular drive against government corruption which wastes public resources, enriches bureaucrats and causes inefficiency. The other part is making the economy more business- and foreign investor-friendly because, it is argued, greater private profit-seeking and being “competitive” is the key to national development.

The administration likes to highlight certain measures. It repeats the infrastructure theme already so used by the Marcos, Ramos and Arroyo administrations before it. This involves mostly transport infrastructure of roads and railways (especially in and around the National Capital Region or NCR), airports, and sea ports but also some water and other projects. National road projects account for a large part of infrastructure spending and are funded the traditional way with public funds. The highest-profile big-ticket infrastructure projects however will be implemented with profit-oriented Public-Private Partnership (PPP) schemes; only ten out of 54 declared priority projects have been awarded so far.

Unable to resolve the crisis of joblessness, the government’s flagship anti-poverty effort is the conditional cash transfer (CCT) dole-out under the Pantawid Pamilyang Pilipino Program (4Ps). The reported 4.5 million beneficiaries as of end-2014 already includes 218,000 beneficiary families living in the street, displaced by disasters, and in other special circumstances who were added after the regular CCT program was criticized for being too household-based.

The government also boasts about large public investments in social spending. In education it claims to have addressed backlogs in schools, classrooms, desks, textbooks and teachers inherited from the previous Arroyo administration. It does not report new backlogs since 2010 though and uses the controversial shift to K-to-12 to divert from this.

The administration claims to seek Universal Health Care but it does this not through improving the public hospital system but by increased funding for the health insurance scheme Philhealth. The scheme’s coverage is greatly exaggerated and Filipinos still pay for some 68% of their personal health care needs out-of-pocket. Worryingly, even these vital social services have been subjected to profit-seeking with breakthrough PPP projects in building schools and in privatizing hospitals.

The administration is enthusiastic about its supposed achievements. Over all other indicators it is proudest about economic growth which became second only to China in the region and among the 30 fastest worldwide. Gross domestic product (GDP) grew at an annual average of 6.3% over the 2010-2014 period.

The administration trumpets investment grade credit ratings from the major international ratings agencies Standard & Poor’s, Fitch and Moody’s. It is also excited about favorable assessments of the country’s “competitiveness” by the business-oriented World Bank, World Economic Forum (WEF) and Heritage Foundation. Net foreign direct investment (FDI) increased almost six-fold from 2010 to US$6.2 billion in 2014.

The economy under Pres. Aquino has supposedly broken from its past of just 5% long-term trend growth. Continuity between this government and the next is said to be more important than ever because the rapid growth has to be sustained over the next decade or so for the benefits to really start to be felt widely.

Development?

But rather than being encouraging, this actually draws attention to the exclusionary nature of growth in the last few years. It is apparently acceptable that years of economic growth still mainly benefits just a few rich families, corporations, and foreign transnational firms while the number of poor and unemployed continues to increase. This is acceptable because, experts say, that is how an economy works. Inequality is normal. It takes time for economic gains to “trickle down”. Business activity and rising profits are important because these will eventually benefit the majority of poor Filipinos.

The wealth of the 10 richest Filipinos has already more than tripled under the Aquino administration from Php630 billion in 2010 to Php2.2 trillion in 2015, or a 250% increase. The net income of the country’s some 260 listed firms on the Philippine Stock Exchange (PSE) rose from Php438 billion in 2010 to Php583 billion in 2014, or a 33% increase. The net income of the country’s Top 1000 corporations grew from Php804 billion in 2010 to Php1.0 trillion in 2013, or a 26% increase.

In contrast, the real value of the average daily basic pay of millions of workers nationwide increased by less than Php9 or just 3.5% between 2010 and 2014. The mandated minimum wage is highest in NCR but even here its real value only rose by Php17 or by less than 5% since June 2010.

The number of poor and unemployed Filipinos has continued to swell. Since the start of the Aquino administration the number of poor Filipinos has likely increased by some 2.5 million to 25.8 million poor in 2014, using the very low official poverty thresholds. This is despite Php178 billion being spent on the 4Ps CCT program over the period 2010-2014.

IBON’s latest national survey in May 2015 had seven out of 10 respondents (67%) seeing themselves as poor – which would be equivalent to 67 million poor Filipinos. This larger figure is more consistent with the 66 million poor Filipinos earlier calculated by IBON using Family Income and Expenditure Survey (FIES) data for 2012. This massive poverty is despite the government’s reportedly augmented Php78 billion CCT budget for 2015.

The number of unemployed Filipinos has likely risen by at least 100,000, the number of underemployed Filipinos by at least a million, and the number of merely part-time workers by at least 1.5 million. IBON estimates 12.2 million unemployed and underemployed Philippines as of 2014 consisting of 4.3 million unemployed and 7.9 million underemployed.

These estimates are not as precise as they should be because of various problems of comparability or incompleteness of available government data. But they are not unreasonable estimates. For instance the rise in poverty is calculated by using annual 2009 FIES data, approximated poverty magnitudes using first semester 2014 Annual Poverty Indicator Survey (APIS) results, and considering how poverty incidence rose from 24.6% in 2013 to 25.8% in 2014.

The employment estimates compensate for how recent official figures underestimate unemployment and underemployment by excluding or having incomplete Region VIII data. There were already 563,000 unemployed and underemployed in Region VIII before Typhoon Yolanda hit and this can only have grown given still unresolved livelihood and infrastructure problems in the aftermath.

As it is, even the latest comparable official figures for April 2015 (that exclude Leyte) clearly show the quality of work deteriorating. The economy is actually shedding full-time work and officially reported unemployment could be ignoring increasing numbers of discouraged job-seekers. This deterioration is also due to how the share of non-regular and agency-hired workers rose from 37% in 2008 to 44% in 2012, according to the government’s latest estimates. The number of contractual and other workers in insecure and poorly-paid work has been increasing in the last two years. As of April 2015, 15.5 million or 40% of employed Filipinos were in just part-time work with likely very low pay and scant benefits.

Economic elitism has been the norm for the economy for decades but the growth in wealth and profits for a few has been striking under the Aquino administration. There can be quibbling about the exact figures but the essential conclusion is ironclad: the years of rapid economic growth under the Aquino administration have made a few much richer while leaving the majority as poor as ever. Worse, the economy has become even more distorted and less able to provide secure jobs with decent pay to millions of Filipinos.

Progress?

All this raises some important questions. Why is there a disconnect between growth and development? And if the current conditions of most Filipinos are bad, are their prospects any better?

There is a disconnect because the economy is being managed by the Aquino administration according to what is immediately profitable for big domestic and foreign corporations rather than what the majority needs in terms of stable jobs and higher incomes over the long-term.

The most profitable opportunities in recent years have been in real estate, construction, finance, business process outsourcing (BPO, especially call centers) and overseas Filipino remittance-driven consumer spending. This is because of low global interest rates and the continued demand for cheap Filipino labor. The Aquino administration has relied on these sectors for economic growth rather than take the more strategic view of supporting domestic agriculture and building genuinely Filipino industry. Yet these latter production sectors are the more solid foundations of a strong domestic economy.

In the Top 1000 corporations the sectors which saw the biggest growth in profits between 2010 and 2013 are finance, insurance, real estate and business services (69% increase), wholesale and retail trade (47%) and construction (43%). Agriculture saw less than 14% growth and there was an 11% contraction in manufacturing, Among PSE-listed firms the biggest increase in net income between 2010 and 2014 were in property (26%), financials (26%), and holding firms that are heavily invested in property and construction (41%). There was a 2.1% contraction in the industrial sector.

The problem with real estate, construction, finance, BPOs, and remittance-driven consumer spending is that they are narrow and shallow sources of growth. They account for a relatively small share of total employment. Overall they have weak forward and backward linkages with the domestic economy either as suppliers of purchasers of inputs. They are also heavily concentrated in a few firms and in the NCR, Central Luzon and Calabarzon regions. So while specific businesses here may be very profitable there is actually a weak effect on overall Philippine economic development.

The drivers of growth should be domestic agriculture and Filipino industry, which is not the same as foreign investor-dominated industry. These production sectors have great potential to generate jobs and to support rising incomes. They can be the backbone of an economy in spanning agricultural and mineral raw materials, manufacturing, and high value services. They will drive Filipino science and technology. However production has continued its decades-long fall under the Aquino administration. Agriculture, manufacturing, construction and mining have cumulatively fallen from 39.5% of GDP in 2010 to 39.0% in 2014.

Despite its rich natural resources the Philippine economy is a service-oriented economy more than a producing one. This is most of all what compromises domestic job generation. Restoring the share of production in the economy to their levels in the 1960s and 1970s for instance could create an additional 2-2.5 million jobs.

The weak production is also what keeps the economy backward, incomes low, and growth slow. This is why the marked slowdown in growth since late 2013 is not surprising and why the administration’s blaming supposed government underspending is incorrect and only diverts from the real problem. Sustainable growth that really benefits the majority is impossible without real and significant Filipino production.

Lacking sound fundamentals, the country has just become more vulnerable to the inevitable global economic downturn. The recent financial difficulties in Greece and the rest of Europe as well as the China stock exchange turmoil are reminders of the chronic volatility of global capitalism.

The population will breach the 100 million-mark under the Aquino administration. Without any radical shift in economic policy, the prospects of the overwhelming number of these Filipinos will remain poor. The government has to protect and support Filipino agriculture and industry. The rights of farmers to land and its products, and of workers to an equitable share of their labor need to be upheld. The public education and health care system has to be strengthened and decent housing for all has to be ensured. Foreign trade and investment should serve the Philippine economy and not the other way around.

The continued deterioration of the economy in the last five years of the Aquino administration has made nationalist and pro-people economic development more urgent than ever. The president will report many things in the SONA to distract from how, in the most important things that matter, the economy and Filipinos have become worse off. For this to continue into the next administration is unacceptable. IBON Features

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