• Economic growth vs economic development

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    MIKE WOOTTON

    MIKE WOOTTON

    I’ve just seen a schematic that shows you can now start a business in the Philippines in eight days through six steps! It would be interesting to know how many businesses have actually achieved that and what the fees were for doing it. It must be one of the most efficient systems in the world.

    In Singapore, the easiest place to do business, it takes 10 days and in the USA, 49 days. According to the World Bank, it took 165 days to start a business in the Philippines in 2015.

    Apparently, according to reports, 45 million man-days a year are lost throughout the world in satisfying bureaucratic requirements; that doesn’t seem anything like a realistic figure to me. That’s time that could otherwise be spent creating economic activity. The bureaucratic barriers get ever higher when they should be getting lower in order that entrepreneurial contributions to economic development can give real and fast value and that government can earn more through taxation in order to pursue its own contribution to development.

    Economic growth is but a part of economic development and it is this distinction that so misleads. The Philippines has, indeed, experienced economic growth but it has not achieved any meaningful economic development. In fact, it could be said that economic development has been negative, or at best, static whilst economic growth has made headlines. It’s a pity that the international credit rating agencies and financial pundits don’t seem to understand this and as a consequence, encourage great emphasis on sustaining a veneer of progress at the direct expense of everybody else.

    Economic development is basically an improvement in everybody’s quality of life, some may get more improvement than others but importantly everybody has to feel it. That is not the case at the moment. Before any state can contemplate a journey of real economic growth, government must provide properly for education and it must provide for health and social welfare. The 2016 Philippines national budget allots about 14.5 percent to education; the Malaysian national budget allots 25.6 percent. For health, the Philippines allots 4.3 percent, and Malaysia, nearly 11 percent. The UK’s national health service (care for all) used 18 percent of the national budget, and welfare (for the “have nots”) used 14 percent.

    There has been much media attention given to the government’s “underspending.” government spending being an area of potential job and infrastructure creation. The PPP projects have foundered; their starts and completion have been delayed. A main contributor to the underspends has been the bureaucratic gymnastics that it is necessary to go through to get anything done; getting land use rights, environmental permits and all the other permissions that need to be obtained are a nightmare and have been so for years; the government procurement law, with its focus on total mistrust, has been another major hurdle. There has also been a lot of mind and rule changes. Government spending is slow largely because government procedures and ways of working make it so. Attempting to pass whatever undertaking it may be over to the private sector doesn’t help either; in fact, it slows things down even more and then the private sector must still wrestle with the bureaucracy and the permits once it takes over responsibility. So much of the Philippines national budget must be spent on bureaucracy . . . most of which is designed specifically just to catch out low instances of dishonesty and which just impedes progress and economic development.

    It may be that in a land with a massive shortage of jobs that utilizing man-hours on bureaucratic procedures, the point of many, which seem (to me at least) difficult to justify, helps the national employment statistics. It may be that, for example, to be required to provide an affidavit of publication of an advert to somebody who has a copy of the published advert in their hand, is seen as one of many essential requirements. It is obviously not, other than to satisfy some bureaucratic rule.

    For government, for example, to spend more money on infrastructure development, setting aside the sacred cow of “fiscal restraint” will not have the impact intended unless it becomes much easier to do business. In a nation without an effective postal system and in which the bureaucratic procedures demand such tiresome and frequently meaningless exactitude, spending more money on government projects will, amongst other things, just jam up the traffic even more!

    This all begins to look the wrong way around. Spend more money on education; provide health care and even a public welfare safety net. Develop a more knowledgeable and informed society, which is made up of individuals prepared to take responsibility without fear of being jobless, moneyless and starving or being incapacitated because of a lack of medical attention. Spend less money on bureaucratic procedures and take the risk of being a bit trusting of one’s fellow men, and open things up for real economic development. It may just encourage people to believe that one day it really may be possible to start a business in the Philippines in eight days . . . as well as sustain its operation for more than six months.

    Mike can be contacted at mawootton@gmail.com

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    1 Comment

    1. Chris Pforr on

      Thank you Mike and I agree 100% that there’s a wide gulf between economic growth and economic development.
      Three comments:
      1. Re. “It’s a pity that the international credit rating agencies and financial pundits don’t seem to understand this”. I think they understand it perfectly. Their constituency is investors, not hungry Filipinos. Development requires sacrifice today for rewards tomorrow; today’s investors want their profits NOW.
      2. My perception of underspending is not that it’s an unfortunate consequence of bothersome bureaucratic barriers; it is rather a very intentional means for channeling funds publicly appropriated by Congress to secretive pots such as DAP (P620B in 2015) which are wholly and secretively controlled by the Administration.
      3. Bureaucratic minefields have not developed by happenstance, they have been intentionally created to create financial opportunities for those who offer to “speed up the process for you” and other corrupt practices (see 2. above).