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Building a strong economic foundation for nation-building

CROSSROADS TOWARD PHILIPPINE ECONOMIC AND SOCIAL PROGRESS - Gerardo P. Sicat (The Philippine Star) - October 14, 2020 - 12:00am

To commemorate the 500th essay of this column, I deal with a lofty topic: the road toward assuring a stable and successful nation, a Filipino nation.

Modest or moderate success in nation-building. For a starting proposition, let me say that our country is, despite its many problems, a succeeding nation-state. That success, however, has not been impressive. The nation faces many problems that are often the consequences of the wrong choices we, or our leaders, have made for us.

To cite only one, our nation has consciously failed to restrain the nation’s high population growth. As a result, after several decades of independence, ours has become one of the most populous countries of the world, given our land mass and economic capacity.

That population level has restrained the economic growth to raise the nation’s own living standards as fast as we want. Every new effort to invest on growth is partly diverted toward meeting the nation’s rudimentary needs of attending to the support of an economically-dependent population and trying to uplift people still living in absolute poverty.

Some neighbors experience deepening successes. Impressive, however, is a constellation of neighboring countries and economies that have attained notable and, in some cases, spectacular, growth in our midst. Many expert observers call them the great success stories of development in our contemporary times.

Their strategy of early growth was to generate jobs for the people by simply expanding investment opportunities, using all resources possible. They made simple, uncomplicated investment decisions, encouraging private capital, including foreign, to set up enterprises that employed more workers. They supported policies that expanded the growth of such enterprises to expand their markets beyond their domestic confines.

While starting with limited resources, their strategy succeeded in building an army of reliant workers who rose by their own bootstraps, encouraged by simple rules of government support. Steadily, workers were able to feed and school their own families with the help of employment that a prospering economy sustained and enabled. At the same time, the governments used their investment resources to provide more physical and social infrastructures to broaden the scope of possible development.

Each succeeding decade developed the broadening of worker skills while supporting their economic markets to expand opportunities. The governments of such countries looked to distant markets through foreign trade to expand the markets for their production. Such efforts were helped by the inflow of foreign capital which also helped to accelerate the expansion of their market reach. And as this went on, capital investments and worker productivity led to rising wages over time.

The overall story sums up in rising living standards for their respective nations. This propitious outcome was followed by improving and widening the choices that their people reached for. Eventually, this also led to a rise in self-confidence. Such factors have promoted improving democratic choices for the people.

Living up to our true potentials is our failure so far. Our success in nation-building so far is very modest. In many column essays I have harked back to some reasons for this failure. Summarizing, however, this inadequacy of success has been hampered by the following.

First: ‘original sin’. It goes back to the original sin of independence. The 1934 Constitution, put specific rather than, simply, guiding principles to regulate the participation of foreign capital in the economy in three major fields: investments in land, in public utilities, and in the exploitation of natural resources.

All countries desire to put limits and to channel wanted foreign investments. But to put specific provisions of law in the constitution was essentially legislating-for-all-time, with no room for flexibility as the nation’s circumstances warranted. (These provisions continue to harm the country’s investment choices to this day.)

Second: protectionism. A second major reason was the road that led toward a long period of protectionism in industrial and trade policy in the country.

At the beginning of our political independence in 1946, when the country became a victim of war destruction and the hardship of occupation by a foreign power, we received a major shot in the arm that was even more substantial in per capita terms, than the aid given under the Marshall Plan to countries that received that aid.

The American aid was the war damage payments under the rehabilitation law and the trade adjustment program over a 25 year period, which provided relatively high quotas for sugar and coconut product exports to the US and a preferential trade agreement on the range of all other traded goods with the US. In addition to this, there were then large American military expenditures that benefited the country’s balance of payments and a program of economic assistance, mainly on grant basis, that came from the US development assistance program. After the Second World War, a victorious America was generous to the world, but it was much more generous to the Philippines, the colonial ward that it reluctantly gave political independence to through the means of aid and adjustment.

These early acts (and bilateral agreements between former master and ward) enabled a fast economic recovery. But after five years of this recovery, our country opted for a different road of economic growth – industrial protectionism inspired by the same phenomenon that was going on around the world. Unlike many East Asian neighbors that found a way out of their own early protectionism, we continued to implement ours over a longer period of time.

Third: politics of stalemate. Because our political tutelage was learned from the American political system, our leaders put in place a political system that was an image of that model.

Partly because of the protectionist industrial framework that was in place, a culture of high patronage of supporters and friends, and a high level of corruption resulted. Essentially, it led to a political framework that took the nation toward a series of major mistakes in decisions taken.

A major element of the system of checks and balances was to encourage a model of slow decision-making and one that often produced stalemate.

(To be continued)

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.p h/gpsicat/

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