Stagnant industrialization

Yellow Pad

Stagnant industrialization

By Rene E. Ofreneo

In an ironic and historic twist, the trade union movement and the Asian Development Bank (ADB), which normally do not see eye to eye on development issues, suddenly found themselves united on one: reversing the industrial hollowing out of the Philippine economy. The ADB wrote that the Philippines has an ampaw economy whose growth cannot be sustained unless its eroded industrial base is rebuilt and fortified. The ADB study, aptly titled “Taking the Right Road to Inclusive Growth: Industrial Upgrading and Diversification in the Philippines (2012),} has been circulated in the business community and members of the Cabinet.

The Philippine civil society movement has long been denouncing the jobless and industry-less growth pattern under three decades of aimless economic liberalization and globalization. What is new is the bold admission by the ADB that growth has indeed been jobless and industry-less in the last three decades, from the 1980s up to the present. The share of manufacturing in total employment has gone down from 12% in the 1960s to roughly 8% today. In contrast, manufacturing in our ASEAN neighbors such as Vietnam, Indonesia, Thailand and Malaysia accounts for between 28 and 35% of total employment; China and the NICs have, of course, higher manufacturing employment. The author of the ADB report, Norio Usui, also wrote that the Philippines was a leader in industrial dynamism in Asia in the 1950s and 1960s; yet today, it is an industrial laggard in the region.

To the trade union movement, the above ADB findings are not new. Domestic industry and jobs are being clobbered by widespread and unchecked smuggling and the deep and unilateral tariff liberalization measures adopted by the economic technocrats without any clear adjustment and even information program for the affected. Even the Philippine ambassador to the WTO in Geneva was shocked when he saw that actual or applied Philippine industrial and agricultural tariffs in 2004-2005 were only one-third of the tariffs imposed by Thailand and China, both big exporters to the Philippines and to the world.

So where else do ADB and the trade union movement converge? The two sides recognize the need for an “industrial policy” to revive the industrialization process in the country. Industrial policy, ignored by many mainstream economists at the height of neo-liberalism in the 1980s and 1990s, is now being resurrected by the ADB and the World Bank, obviously due to the failure of the neo-liberal dogma in preventing the global financial crisis.

The ADB now thinks that industrial upgrading and diversification are not only desirable but also very much doable. Why indeed should the Philippines, a labor-intensive assembler of electronics for four decades, remain a labor-intensive assembler of electronics in the next four decades? Why can it not replicate the experience of South Korea, which made a successful transition from an electronics assembler in the 1970s to a diversified electronics manufacturer in the 1980s? This is best illustrated by Samsung, which started as a parts assembler for Sanyo, and which has now become a dominant global producer of a wide range of electronics products.

And why should the Philippines remain stuck at the customer servicing side of business process outsourcing? Why can it not emulate India’s experience in scaling up the IT ladder, designing and offering varied IT programming and ICT-enabled services to the outside world and to India’s domestic industry?

For such upgrading and diversification to happen, the ADB study argues the need for “public intervention” in order to improve information and coordination and “help entrepreneurs take advantage of market opportunities.” Had the ADB made this recommendation in the 1990s, this would have been denounced by the free-market disciples as an economic blasphemy, a hazardous formula for economic inefficiency and rent-seeking by the local industrial elite at the expense of the public coffers. Yet historical records show that Japan, the Asian NICs and now China have all taken this public-private industrial policy coordination as the guide in their steady march towards higher and higher levels of industrialization. As the World Bank Chief Economist Justin Lin put it, the global financial crisis revealed that all the developed countries have an industrial policy and prodigiously take care of their own in times of crisis.

The reality, however, is that industrial policy need not be translated into an expensive high tariff program, or a program of nurturing a few selected winners. What some local producers and exporters have been asking for in order to survive and grow in the Philippine market are very elementary.

How can local industry prosper in a market flooded with untaxed smuggled goods of varying shapes and sizes, a big percentage of which are global rejects being dumped in the Philippine market? Why are customs officials of other countries able to decisively reject ship loads of imports simply because there is doubt about their declared values, and yet here in the Philippines there is a lot of hemming and hawing about the validity of questionable imports? Why are there continuing reports that imported agricultural products, including swine, are able to get import permits only upon arrival? Why does the burden of proving injury always fall on the injured industry, which, very often, no longer has the resources to pursue safeguard cases? And why does Congress keep enacting laws creating duty-free ports just to be able to import fleets of duty-free cars and auto parts?

Relatedly, there should be “tariff calibration” or equalization, meaning Philippine tariffs should be pegged at a level equal to (need not be unilaterally lowered than) those of other exporting countries. And yes, there should be policy coherence and consistency in the implementation of tariff adjustments.

Rebuilding the industrial base means a revival of the industrial culture. This means above all some industrial visioning accompanied by public-private cooperation and consultation on industrial programming. To a certain extent, this is what the DTI is now doing, as illustrated by the recent industry road mapping it has done with the petrochemical industry. Such road mapping should involve the academe, especially the science community. Look at how the partnership between Taiwan’s Hsinchu University and Hsinchu Industrial Park has succeeded in producing Acer and Asus, the world’s leading notebooks.

The program to rebuild the industrial culture should also benefit from the positive attitude of the labor movement towards industry revival. This time, the trade unions themselves are asking for a clear-cut policy of industrialism and its all-out promotion nationwide. In Japan, in the 1960s, the miracle industrial economy was consolidated with the help of new-found cooperative partnership between Japanese employers and trade unions in support of the zero-defect program in manufacturing and the highly equitable productivity gain sharing program (roughly one-third of the gains to the corporation’s shareholders, one-third to the employees as added benefits, and one-third to the consumers in terms of cheaper products). Can the Philippines not forge a similar labor-management partnership in support of industry revival?

Finally, the Buy-Philippine movement also needs to be revived. However, its revival should not only focus on the value of tangkilikin but also on the value of excellence in product development in terms of quality, price, delivery and durability. For this, the government has a central role to play because it has a big say on whether the supporting infrastructure for doing business such as power are available and affordable (which can make and unmake industry) and whether the nation is able to produce the skills and talents needed by the emerging industry. Truly, a genuine public-private partnership in industrial policy is unavoidable, if the country wants to catch up with industrial East Asia.

Rene Ofreneo is a trustee and fellow of Action for Economic Reforms. He is a professor at the UP School of Labor and Industrial Relations.