Business World, 6 February 2013


The strong economic growth in 2012 has missed terribly in addressing the most serious problem of the economy: the big and rising number of unemployed and underemployed. Even as the gross domestic product (GDP) grew by 6.6%, some 882,000 jobs disappeared, while another 799,000 people of working age lost interest in looking for a job. As of October last year, there were 2.8 million unemployed and 7.2 million underemployed workers. Last year’s growth may be described aptly as “job-shedding” growth.

Unemployment rate worsened to 6.8% in October 2012 from 6.4% in October 2011; underemployment rate was practically unchanged, to 19.0% from 19.1%. Translated into warm bodies, these numbers mean that some 10 million Filipino workers were either unemployed or underemployed.

Unemployment rate is much worse in the Philippines compared to its ASEAN-5 neighbors. It is 3.0% (Q3 2012) in Malaysia, 6.14% (August 2012) in Indonesia, 0.56% (October 2012) in Thailand, and 2.06% (Q3 2010) in Vietnam.

But this picture of joblessness is gloomier in reality.

First, the unemployment rate was only 6.8% because less people looked for a job last year. The labor force participation rate (LFPR), the share of people of working age who are looking for a job, has gone down to 63.9% in October 2012 from 66.3% in October 2011. The most recent LFPR is the worst since October 2008, at the height of the global economic crisis. If more workers who right now are sitting on the sidelines decide to join, or rejoin, the work force, the joblessness problem would be more serious.

Second, the total employed workers concealed many who didn’t get paid. Of the total employed workers, some 10.8% or 4.1 million workers are unpaid family workers. Seriously?

And what about those who are working abroad because they can’t find gainful employment at home. Imagine what would happen if, say, one-fourth of the 10 million overseas Filipino workers decide to return to the Philippines to work at home. But isn’t that the dream of many Filipinos working abroad, many of whom are barely surviving in a much harsher, riskier and weaker world economy?

The government should address this formidable joblessness problem if it wants growth to be inclusive. “The need for good jobs — jobs that raise real wages or bring people out of poverty — is an overwhelming challenge,” Motoo Konishi, World Bank country director, told hundreds of local and international delegates to the Philippine Development Forum held in Davao City.

Looking ahead, if the Aquino III administration truly wants economic growth to be inclusive, Konishi estimates that the Philippines needs to create some 14.6 million new jobs in the Philippines between now and 2016 — that is, in addition to the 10 million unemployed and underemployed, some 1.1 million enter the labor force every year.

The numbers suggest that pattern of growth that we’ve seen in 2012 is grossly inadequate in addressing the unemployment problem. It’s not a good model for future growth. Remember: jobs were lost, not created.

Konishi said that all the sectors in the economy, particularly agribusiness and agriculture, must contribute to address joblessness and reduce poverty.

Speaking in the same forum in Davao, Economic Planning Secretary Arsenio Balisacan agreed. We need to focus on priority economic drivers, specially employment, to meet the targeted inclusive growth of the Aquino administration, he said.

Balisacan identified the following new drivers of growth: manufacturing, business process outsourcing (BPO), tourism and agri-business. He estimated that $3 billion in investments in BPO, tourism and agribusiness would create 621,000 jobs, both directly and indirectly through multiplier effects. But that’s not enough compared to 14.6 million new jobs needed between now and 2016.

The unemployment problem is overwhelming. But the tasks ahead to encourage job-creating activities is equally daunting. The first order of business is financing. One can’t talk of a doable plan without identifying the sources of financing.

The government needs a lot of money to build the infrastructure needed to modernize agriculture; airports, seaports, roads and bridges, water systems and facilities to encourage tourism. It needs to invest in new energy capacities in order to ensure adequate and reliable power supply which are needed to revive manufacturing.

The government boasts of the existence of fiscal space. But that is illusory. It exists only simply because the government has not been allocating enough resources for public infrastructure in the last two and a half years. And the small budget that has been authorized for public infrastructure has not been implemented on time.

The government has to reform the tax system in order to finance its infrastructure needs. And while waiting for tax reforms to generate more resources, it should be willing to tolerate larger deficits for as long as they are used to fund worthwhile public infrastructure. The government’s myopic plan to reduce the budget deficit-to-GDP ratio to 2% (from an original zero deficit) by 2016 is the single biggest factor against pursuing a more aggressive public investment program.

While the cost of money is at rock-bottom, this is the best time to borrow money to finance much needed public infrastructure. One can’t hope for a strong, sustainable growth without investing in physical infrastructure and human resource development; that would be a classic case of daydreaming.

I agree that we need to modernize agriculture, revive manufacturing, and develop tourism in order to create a lot of steady and decent jobs for Filipinos. But each of these sectors require specific government actions for it to move forward.

Below is a short to-do list:

Modernization of agriculture: Make agrarian reform work; focus on the issuance of individual titles to agrarian reform beneficiaries. Economies of scale in agriculture should be allowed to work by amending some restrictive provisions in the Philippine Constitution.

Revive manufacturing: Address the high power costs and the imminent power supply shortage. The focus should be on relatively lower-cost power sources (hydro, geothermal, nuclear). Stem the appreciation of the peso through stronger administrative measures.

Develop tourism: Resolve the NAIA-3 controversy now. It symbolizes what’s wrong with this country and why one should avoid doing business in the Philippines. Build better airports, seaports and other infrastructure-related facilities.

Prioritize, prioritize, prioritize. The government should focus its limited resources on a few tourist sites. The choice of what tourist destinations to develop and what airports and other public infrastructures to build should be left to professionals — not professional politicians. The spate of international airports in the Philippines (Vietnam has two, the Philippines has too many) reflects on how economic decisions are swayed by politics. Finally, the State should maintain peace and order and reduce criminality everywhere.

Promises are cheap and oftentimes useless. And when the problem is so overwhelming, the government should identify, adopt, and implement key measures now, with the expectation that they would bring about the desired results in the future.