Second of three parts
This will annoy those who bought into the hype, and must now be awakened.
The decision to pitch the Philippines as the next Asian Economic Miracle at the World Economic Forum was a “punch at the moon,” to use a popular Filipino saying. You could score a knockout. Or it could also be a humbling reality check.
Judging by what has followed since the WEF wrapped up, the Aquino administration has found out what happens when you try to see the nation only as you wish it to be, rather than the way it really is.
Aquino’s team was utterly convinced that it is now our time on center stage. But it’s not. They thought they had the creative skills to pull it off; they didn’t. And they thought, if not now, never. And yet, and yet, there is the APEC summit next year, when the world will literally be in town. With a better script, who knows?
The Asian economic miracle
The miracle theme was always a tough sell, and it was especially tough because only our economic managers were proclaiming the miracle. No serious international journalist or group had come up with a report that said the Philippine economy had attained tiger status.
It was made tougher still by the fact that when economists and analysts speak of the Asian miracle, they are speaking of a particular group of countries, and they are referring to a phenomenal accomplishment that followed from the decisions of governments and their application of particular policies that effected the economic transformation.
The term “Asian miracle” was used by economists to describe the extraordinary economic growth in East and Southeast Asia after World War II, beginning with Japan, which in four decades went from a poor, defeated country to the second largest economy in the world, increasing per capita income tenfold. This was a feat that took leaders of the industrial revolution about 150 years to accomplish.
Japan’s success in turn was replicated by a similar economic miracle in high-performing Asian economies in the 1960s, ‘70s and ‘80s during the 20th century.
These economies were Hong Kong, Singapore, Korea and Taiwan.
In Korea, GNP per capita tripled in less than two decades. There were comparable accelerations in the growth rates of Hong Kong, Singapore and Taiwan. These four economies began to be called “The Four Asian Dragons” or “The Four Asian Tigers” in the 1980s.
Of course, as GDP_grew exponentiually, so did per capita incomes and standards of living.
Millions were brought into the middle class within two decades. The World Bank added the phrase “Southeast/East Asian Economic Miracle” to the economic lexicon when it published the book, The East Asian Miracle: Economic Growth and Public Policy, in 1993.
As economic dynamism soared in East Asia, other countries in Southeast Asia sought also to replicate the high growth in their economies. And many were quite successful.
For these new growth countries, The term Tiger Cub Economies was coined and it collectively refers to the economies of Indonesia, Malaysia, the Philippines, and Thailand, the four dominant countries in Southeast Asia.
They were called Tiger Cub Economies because they followed the same export-driven model of economic development used by the Four Asian Tigers. The four newly industrialized countries in Southeast Asia are rising Tigers in their own right.
Policies that led to High growth
Numerous studies of the Asian economic miracle have distilled the key policies and factors that led to economic transformation in East and Southeast Asia. These policies enable us to understand why the Philippines has been slow to achieve tiger status, and why at the WEF there was much skepticism that the Philippine economy personifies the new Asian miracle.
The policies that were instrumental in creating the Assian miracle can be broken down into the following:
1. Prudent macroeconomic policies.
The tiger economies Hong Kong, China, Singapore, Korea and Taiwan and the southeast Asian newly industrializing economies (Indonesia, Malaysia and Thailand) had relatively small fiscal deficits, and inflation rates were typically moderate. Real interest rates have been quite stable. They achieved realistic exchange rates.
Such macro economic stability has also been achieved by the Philippines, thanks to the BSP.
2. Market-oriented policies
Market-oriented policies focus on the liberalization of trade, accompanied by decreased government regulation and intervention, and thus less rent-seeking, all conducive to the functioning of a market economy.
Both imports and capital flow were gradually liberalized.
Fiscal deficit was comparatively low.
The share of government expenditures in GDP was small
The governments in all East Asian countries invested heavily in infrastructure and human capital to support rapid increases in manufactured output and exports.
In addition there was little intervention in the labor market.
Philippines still has to make massive investments in infrastructure. The Aquino government has been slower at this than previous administrations.
3. Open trade policies.
Rapid growth in exports a central feature.
Open economies grew at 4.5% in 70s and 80s.
Closed economies grew only at 0.7% per year.
Recently, East Asian economies have started to shift away from extensive use of selected export-promotion policies.
4. Industrial policy
Attract foreign direct investment to transfer technology.
Direct picking of winners through industrial policy has not fared well.
Protectionism for some industries penalizes other industries.
5. Investment in education
Human capital makes investment more productive.
It facilitates the adoption of modern technology, and enables the establishment of an efficient bureaucracy.
The Philippines still has to make this supreme commitment to invest in human capital through education.
Universal primary schooling.
Literacy rates exceptionally high.
Contribution of improvements in education large in tiger economies.
6. Institutional issues
Good governance and strong institutional performance in the public sector are important for economic growth.
Successful growth has demanded a high level of bureaucratic capacity, close coordination between the public and private sectors, and the need to avoid rent-seeking behavior.
All characterized by considerable inefficiency in the region, except in Singapore.
1997 crisis revealed weaknesses in governance.
Much reform needed in the Philippines.
Institutional quality is measured by
1. Quality of the bureaucracy.
2. Rule of law. Soundness of political institutions,strong judicial system, orderly political succession, low risk of confiscation and nationalization.
3. Repudiation of contracts by government.
Based on this index, Japan, Singapore, Taipei and China are ranked high in the institutional quality scale, while the Philippines and Indonesia, both known for weak institutions, score particularly low.
Poor institutions are the primary culprits for low economic growth in Indonesia and the Philippines.
No miracle without hard work
This quick review of policies underpinning high growth explains why it was hard for the Aquino team to make the case for the Philippines as a new Asian miracle. There are still so many gaps and holes to fill.
As the famous saying goes, there is no miracle without hard work.
Former budget secretary Benjamin Diokno, in his column yesterday, provided this revealing observation: “Unless he has a miraculous recovery, President Aquino III is likely to be the most austere and the most inept president in recent Philippine history. Thus far, he has the lowest productive budget (total spending less interest payments) and the least infrastructure spending, both as percentage of gross domestic product (GDP).
“Yet, the Philippines needs to spend more for public infrastructure due to its wide infrastructure backlogs compared to the other Asean-5 peers, decades of neglect, and series of natural calamities. Still, the Aquino administration allocated less resources for public projects, dilly-dallied on the approval of key infrastructure projects (airports, urban transit systems and highways), and failed to implement on time what little has been authorized in the budget.”
Hence, there was no miracle. We remain a tiger cub economy.