Commerce

Everyday, it seems, all we get is bad economic news.

The latest information pertains to our domestic trade. According to the Philippine Statistics Authority (PSA), domestic trade dropped by 77.8 percent during the second quarter. What is being measured here is the volume of goods moving inter-island either by sea or by air.

The PSA reports that only 1.8 million tons of goods moved during the second quarter compared to 8.11 million tons for the same period in 2019. Food and live animals accounted for 625,000 tons or 36.4 percent of the total. Only 290,000 tons of manufactured goods moved.

There is only one explanation for this sharp drop in domestic trade: the lockdown.

Relaxation of quarantine restrictions in the third quarter could translate into some improvement in domestic trade volumes. But not by much, we could imagine. The recessionary trend continues into the third quarter.

For the devastated second quarter, official estimates of unemployment stood at about 17.7 percent. That is probably an underestimate. That largely reflects the number of formally employed persons losing their jobs. It is tough to measure the loss of employment in the informal sector.

If it is any consolation, the informal sector also tends to be more resilient. Informal workers shift sources of livelihood more quickly. Small businesses are quick to flourish as soon as the market shows signs of life.

In previous crises, such as the long 1983-86 contraction of the economy, it was the informal sector that saved us. But the single most important factor that kept domestic consumption going was the steady flow of remittances from our migrant workers. Remittance flows kept families fed, children educated and consumer demand strong.

Because of the global nature of the pandemic, nearly all economies have been pushed into recession. Even Australia, with its impressive record of 30 years of continuous growth, officially entered into recession last week.

Only China, the world’s second-largest economy, avoided falling into a recession. If the US economy enters into a long contraction and China maintains its (albeit lower) growth, the two economies could reach parity much sooner than expected. Access to the Chinese market has never been so valuable.

Close economic interaction with China is something many Filipinos disdain. But pragmatism dictates it. The large Asian economic power is the last growth driver on the horizon.

We need to be pragmatic as well in dealing with the economic downturn we are experiencing. In terms of magnitude, the contraction appears to be worse than what we experienced during the early eighties.

Although this runs against the core orthodoxy of the trade union movement, we need to dramatically relax labor standards. This will facilitate hiring of workers and soak up the flood of unemployment. It is immensely better to be employed under less than ideal conditions than to be unemployed.

This will drive the environmentalists up the wall: we need to get our mining industry going, even under less restrictive conditions. Our rich mineral deposits are national assets we have not fully benefitted from. Facing what could be a prolonged global recession, we need to export whatever we can. Otherwise, our terms of trade will rapidly deteriorate.

Our tourism industry showed much promise before the pandemic. It is a dollar-earning sector that requires the lowest capital per unit of return. But, alas, the tourists are not about to return anytime soon. Tens of thousands of jobs in the tourism industry are in danger of extinction.

In the second quarter, only our agricultural sector turned in some growth. This is a hopeful sign.

In the depths of recession, we need to invest as much as possible in agriculture. The proposed amendments to the Agri-Agra Law, expanding the coverage of qualified lending, will make additional financing available for this sector. But we will have to dramatically reform standing policies: allow farmland to be consolidated, more support for agribusinesses and shift government programs from subsidizing inputs to financing mechanization.

Some of our more militant farmers’ groups will not be happy with the direction of needed reforms. They run against their most deeply held ideological orthodoxies. But if we continue with the old policies, our agriculture will remain in purgatory.

Our enterprises will have to dramatically rethink the way they do business. In these tough times, we need to embrace digital technologies as quickly as we can. Even our farmers will have to embrace digital technologies to better link up with the market and rid the system of useless middlemen who can be easily replaced by websites.

This moment of extreme economic difficulty should have to be a period of reinvention. We cannot wait for the “new normal.” There is a new economy to be uncovered.

But the hard part might be the old orthodoxies we continue to hold on to, such as breaking up and redistributing agricultural estates (in the name of social justice), imposing high regulatory barriers to hiring workers (in the name of worker protection), restricting investment flows (in the name of nationalism) and frowning on extractive industries (in the name of environmental protection).

The recovery from this pandemic-induced global recession could take years. In fact, it could take a decade to recover the gains we have made in poverty reduction, employment and fiscal stability.

That possibly long period of recovery could be shortened if we adopt more pragmatic policies. Those economies that are more flexible will recover more quickly than others. Those enterprises that are more nimble will likely survive.

This long recession requires much rethinking.