Self-inflicted

We know trust is earned. But, being too late in the day to earn, could it also be bought?

Against the backdrop of very dismal opinion poll numbers, the administration is trying to shore up its political position by flooding the field with subsidies, distributing free rice and wildly raising wage rates. All these threaten to widen the deficit, bring us closer to a debt crisis and actually force poverty and unemployment rates to rise.

Regime survival is, of course, a valid concern. But a frantic regime is always forced into short-sighted policies. Such policies could bring down the entire political order like a house of cards.

The Marcos II administration has never been accused of excellence in governance. Under its watch, the worst corruption scandal exploded. It has not only failed to build the homes and classrooms it promised, it allowed an agricultural crisis to fester. It not only failed to sustain the infrastructure program necessary to improve the economy’s efficiency, its inability to properly control national spending means it will exit without a legacy project of any scale.

By the time this administration ends, it would have borrowed more than any preceding presidency – and without a pandemic to justify the reckless spending. The national debt will be the monument it leaves behind.

Everything else – the agricultural sector,  the educational system, the housing program – will be worse off than when this administration found them. The country, once contending to be a global growth leader, is now at the bottom of the ASEAN Six. Investments are leaving the economy. We are again derided as the Sick Man of Asia.

There is a price for accessing power without a vision for what the country could become. We are paying that price now.

In its rush to win popularity points, the administration even politicized wage-setting. In the process, it set off an economic storm that could set us back many more years.

Last July 9, the DOLE-NCR issued Wage Order 27 that raises the mandated daily minimum wage by P85. The wage order was issued over strong dissenting opinions from private sector representatives in the tripartite wage council.

Even the normally discrete BSP Governor expressed surprise at the magnitude of the wage increase. He warned that inflation could push beyond our control.

The Foundation for Economic Freedom (FEF), an influential policy-advocacy group composed of independent economists, was so alarmed it quickly issued a public statement calling for the suspension of the wage order pending review. For a while, policymakers seemed inclined to suspend the wage order.

This week, however, the Palace spokesperson announced that the wage order will push through as is. It seems the Marcos presidency is more alarmed of angry trade unionists showing up on the day of the State of the Nation Address than they are concerned with the profoundly adverse economic implications of this badly conceived wage order.

It its statement, the FEF warned the P85 daily wage increase will fuel an inflationary wage-price spiral. The wage order creates sharp distortions between wages and actual economic output. It adds further upward pressure on an already elevated inflation.

The FEF describes the wage order as a “cruel penalty” on the poor and unemployed. At its prescribed wage levels, the order will swiftly erode the purchasing power of consumers, canceling out any nominal wage gains for the employed. As businesses cut back on hiring, the wage order will penalize unemployed and underemployed Filipinos the most. The wage order presents a higher barrier to entry that locks out more Filipinos from economic mobility.

Already facing many difficulties, the wage order will worsen the situation for micro-, small- and medium enterprises. With significantly increased operating and logistics costs, the wage order could push many enterprises over the edge. Many of the country’s businesses are already operating on very thin margins.

Furthermore, the wage order is an investment deterrent. It adds to the unpredictability in our regulatory environment that is already a bane for investors.

Finally, the FEF argues that the wage order constitutes a threat to our macroeconomic stability. Employers will pass on the 12 percent wage hike to consumers in order to survive. In the expected inflationary shock, monetary authorities will have to impose higher interest rates. This will further worsen an already inhospitable business environment. Our economic expansion can only slow even more, resulting in higher poverty incidence.

Oil prices may fluctuate. But wage rates are sticky phenomena. No one in this country will accept wage-reduction as a tool for faster economic growth.

The FEF calls for an “immediate return to evidence-based, tripartite wage-setting that aligns wage growth with productivity gains and macroeconomic realities.” The wage order breaks the balance between protecting workers and keeping a healthy environment for enterprises to grow.

In a word, the wage order shoots our economy in the foot. It will condemn our economy to stagnation. It will produce even worse disinvestments.

But who will review this wage order?

Certainly not the labor secretary who has little background for the job and a disposition to submit to political dictate. He has said nothing about this issue which riles the entire business community.

Certainly, not the President. This was the man who claimed to have read every line in the 2025 national budget. This is the man who dreads angry unionists marching against his forthcoming speech.