[John Nye is professor of economics at George Mason University and adjunct professor at the School of Economics, University of the Philippines. This interview appeared in Business World, 26 July 2012.]
Structural reforms urged to support growth gains
THE GOVERNMENT should aim for economic growth that is supported by structural reforms, not just one that is the result of “whims of macroeconomic forces,” a renowned economist said.
“Part of the reason why the Philippines is doing well right now is because other countries are doing badly,” George Mason University economist John C. Nye told BusinessWorld yesterday.
With sluggish recovery in the United States and an ongoing debt crisis in Europe, foreign portfolio investments are surging into the country, Mr. Nye explained.
“In a world where most countries are floundering, money is looking for somewhere to go. But money that comes in during a crisis can just as easily leave,” he added.
While the Philippines notched gross domestic product (GDP) growth of 6.4% in the first quarter — surprising both the government and the private sector as it exceeded the 5-6% full-year target — Mr. Nye stressed that this was just the first step.
“Doing well for one to two quarters, one to two years does not create strong growth,” he said.
In order to consistently attain a high level of growth, reforms must be pursued, the economist said. Citing Mongolia as an example, he said its GDP grew by a blistering 16.7% in the first quarter due to a prospering mining industry. However, he claimed that no reforms were being undertaken to ensure that the economy continues to expand beyond the boom.
“On the other hand, China, after a decade of strong economic growth, you can also say it has become more liberal and more open,” Mr. Nye said.
Policies have ensured that the business environment is more hospitable to foreign investments, and the agricultural poor can move to work in industrial centers, he explained.
“The Philippines is making progress, but the changes have been limited. We cannot rely on whims of macroeconomic forces that can turn at any time,” Mr. Nye said.
Among the necessary structural reforms are the integration of regional economies, the opening of labor markets and the relaxation of “misguided” zoning rules.
The agriculture sector also needs to be made more efficient instead of being propped up with subsidies and protectionist trade policies, he pointed out.
Mr. Nye emphasized that even in periods of strong economic growth, the productivity trends of the Philippines remains low. Remittances and overseas Filipino workers and receipts from the business process outsourcing industry have only been used to fund consumption instead of production, he said.
While Mr. Nye supported the progress made under the administration of President Benigno S.C. Aquino III — a high school classmate — he called for a reforms to go beyond the campaign of good governance.
“Moralism is just a small part of the solution,” he said. “Even if we implement our laws to the letter and without corruption, our economy would still cease to exist because our laws are inefficient and contradictory.”
Mr. Nye is in the country to prepare for the launch of the Angara Center for Law and Economics, a new think tank that promises to be the “home of the Filipino intellectual.”
The Angara Center aims to produce in-depth studies on the economy and international law in aid of legislation by providing grants to selected scholars.
“We don’t want to simply bring in international economists that have no knowledge of the Philippines and no ties to the experts here. We want the studies to be close to what is happening on the ground,” Mr. Nye said.
Its board, composed of various academics and policy makers — to be headed by Mr. Nye as the executive director — also hopes to bring in international experts to engage with their local counterparts.
The center will be holding its inaugural conference next Friday, to be headlined by economist Tyler Cowen of George Mason University. Other guest speakers include Alberto Simpser of the University of Chicago, Benito Arruñada of Pompeu Fabra University and Jeff Waincymer of Monash University. — D. C. J. Jiao
