On the backs of overseas workers

Michael Alan Hamlin

Posted on July 17, 2009

Veteran investigative journalist Greg Rushford writes in “Clan Warfare Hobbles the Philippine Economy” in the July issue of Far Eastern Economic Review that last year’s rise in Philippine gross domestic product (GDP) “was earned on the backs of nine million to 11 million overseas workers who mostly toiled as servants in Singapore and Hong Kong, sending some $16 billion in remittances to their families.” Mr. Rushford was reacting to President Gloria Macapagal-Arroyo’s recent statement during a state visit to Japan that, “the Philippines is finally unlocking its full potential.”

He continued, suggesting that if we were to “subtract those remittances, which amount to roughly 10% of GDP (not to mention the foreign aid from the World Bank, the ADB, the Americans, Norwegians, Canadians, Germans, Swedes, Australians and Japanese), the Philippine growth would plummet.” Mr. Rushford argues that the Philippines’ potential won’t be realized as long as economic growth is held back by “the unhealthy confluence” of a weak state and powerful political oligarchies that hobble economic opportunity.

While Mr. Rushford certainly isn’t the only observer of the Philippine condition to come to this conclusion-he cites author and historian Wilson McCoy, who came to a similar conclusion in his 1994 book, Anarchy of Families-Mr. Rushford’s commentary is notable. For one, he uses Mr. McCoy’s framework for economic disaster to explain the Arroyo Administration’s attack on Meralco, and suggests that the episode-in which a state employee pension fund sought to wrest control of the electricity distributor from the Lopez Group-is just the latest example of the clan warfare that has kept the Philippines’ economic potential hobbled for centuries.

Second, Mr. Rushford is influential, and his observations of the Philippines regularly find themselves on the pages of the world’s most respected publications. Aside from FEER, his commentary frequently appears in The Wall Street Journal . Both publications are owned by Dow Jones, owned by media giant News Corporation. In June last year, Mr. Rushford also took issue with Ms. Arroyo’s claims of economic progress on the WSJ opinion page, an influential read for potential foreign investors.

Third, Mr. Rushford is probably right. Seventy percent of the Philippines’ 92-million population works in agriculture, fisheries, and forestry-where incomes are lowest-and the 45% of households in the six lowest income brackets earn just 16% of total household income. If the Philippines’ potential is being unlocked, it hasn’t yet trickled down to these individuals.

However, the point isn’t that nothing good is happening in the Philippines. It is that much more good is needed to unlock the country’s potential. While the success of the business process outsourcing (BPO) industry has been well-established, the sad fact is that BPO generated only about a third of the value of remittances by overseas workers last year. There are signs that the semiconductor industry-which accounts for about two thirds of exports-is on the mend. The industry employs about the same number of Filipinos as BPO-around 400,000-but exports have marginal value add and the industry is under competitive threat.

Real estate is also recovering, but 30% of sales according to one industry executive I spoke to recently is generated by overseas workers, and BPO is driving commercial demand. Since it is unlikely that the Philippines will ever be a competitive export manufacturing economy, agriculture is chronically unproductive, and the waters surrounding the Philippines have been overfished, more service jobs similar to those offered by the BPO industry are needed. But with educational infrastructure crumbling, how are workers going to be developed?

Earlier this week the Management Association of the Philippines released the results of a business confidence survey it conducted this month. The results show that 47% of respondents believe that in six months, the economy is going to be in the same condition it is now. Another 12.5% said it will be in worse shape. While 41% of respondents believe that the economy will be in better shape in six months, almost 60% believe the Philippines’ potential remains securely locked away. Slightly less than half of respondents said their personal business situation would improve.

Mr. Rushford ultimately concludes that there is no reason why the Philippines can’t perform as well as the Asian neighbors that have virtually all left the Philippine economy in their dust. But for that to happen, obstacles to growth that have kept the Philippines hobbled must be deconstructed. That will involve sacrifices by the clans that currently control the economy. What are the chances that they will be made?

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