‘The Ranis Report and Blas Ople at Labor’

(Continued)

(Part of the paper I am preparing in connection with the 50 year review of economic policy at the UP School of Economics.)

What is the true interest of labor regulation in an economy with high unemployment and underemployment? Should labor protection policy cover wage regulation to employed labor when doing so makes it more difficult for the many who are unemployed and underemployed to find a good job?

This dilemma has been a problem for public policy way back in the 1970s, and it is still true of the country today.

Blas Ople at Labor. The dominant player on labor issues during the Marcos years was Blas Ople, who became Labor secretary in 1967 during the president’s second term in office. A voracious reader, he projected a willingness to learn more about the economics of labor and employment.

When he proposed that ILO (International Labor Organization) undertake a country study on “development and employment,” I readily supported it.

Some months before I joined the government at NEC, former secretary Ople invited me to dinner to discuss my views (as a UP professor) on how South Korea and Taiwan succeeded in expanding their exports of labor-intensive goods that were bringing in rapid employment and income growth. A UN report by experts on labor and employment could do a better job in educating a labor secretary.

The Ranis Report. Finding the economic expert to head such a study was vital. I suggested Gustav Ranis, an economist of renown based at Yale University to head the study. Blas Ople readily agreed to this suggestion and ILO, which had a short list of its experts to do the job, finally concurred.

Ranis had achieved fame in development economics for operationalizing the famous W. Arthur Lewis model of development under unlimited supply of labor. The Philippines, like many East Asian countries during their early development, fitted that economic model, a populous economy with a high level of unemployment and underemployment because of the inadequacy of jobs and of capital investments.

Gustav Ranis was able to assemble a wide range of labor and development expertise taken from the ILO, the World Bank, and from well-known academic institutions. The Ranis mission’s work was formed before September 1972, but it finished its report during the early martial law period.

The Ranis Report echoed the findings of studies on the poor employment and inefficiency of the early industrialization of two decades before, resulting in inadequate employment and even worsened income distribution. It argued for a strong link between agriculture and industry in pushing for development and greater employment. It encouraged the government to be more aggressive in pushing exports from industry. This meant reducing protective tariffs gradually and without reversals.

Local labor unions strongly lobbied to get the study to support increasing the minimum wage to raise labor income and welfare. The Ranis Report saw no place for government to impose minimum wages on the basis of ability to pay or other specific industry criteria. Wage setting, it said, belonged to collective bargaining between labor and employer. Labor market conditions determine ultimately the level of wages. The minimum wage was a kind of “last, and not first,” resort in protecting labor.

In 1951 when the peso exchange rate was at the old pre-war colonial rate of two pesos to a dollar, the country adopted the first post-independence national minimum wage law.

Most countries in East Asia, on the other hand, had devalued currencies and for decades refused to set a minimum wage in their labor laws (even up to the 1970s). Instead they focused on promoting the expansion of jobs through the promotion of industry and commerce.

Labor wage-income adjustments during the external economic shocks. When the extreme external shocks hit the nation in the mid-70s, the immediate problem shifted to one of fighting high inflation. Relief from inflation of the common citizen became the obligatory issue. Under such stressful situation, price controls on energy prices, temporary income subsidies, and COLA (cost-of-living allowances) were immediate – the major concerns.

But into the backdoor also entered many new labor protection laws that were linked to mandatory wages earned by labor. All these had the effect of raising the unit cost of labor to employers permanently. Old issues like yearly bonuses decreed by the state came back. The short run remedies became a backdoor entry for raising the wage income of labor further by state intervention. Thus, the 13th month pay was made as an obligatory part of the yearly income, creating a further lumpsum addition to wage liabilities for domestic companies.

Further, Blas Ople received the mandate from the president to codify the labor laws and regulations. This was another opportunity for the integration of some department regulations into the status of law. Through the work on the Labor Code, the Labor department was able to centralize its function of adjudicating labor-management disputes.

Sometime soon, we would discover the impact of these measures on domestic employment issues. The efforts of the government to attract foreign direct investments in export-oriented endeavors in the electronics industries held well because the minimum pay of rank and file employment was within the cost calculus of the industry. But foreign investments in garments, footwear, household goods production were driven away by high wages in the country. The country priced itself out of those industries. Foreign investments in these industries that failed to come meant large employment loss to the country.

NEDA, the agency most concerned about the need to promote more employment, was outflanked politically in its efforts to improve the labor market rules that would tilt the balance in favor of domestic economy employment creation so that more “good” jobs in the organized sector of the economy could grow.

As a result of all these measures, it became less possible for Philippine labor to be absorbed by domestic industry at home. DOLE had become really DOLFE. Even today, it promotes work abroad rather than at home. In short, FE or foreign employment.

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