Jobless growth

THE Philippines should be happy to belong to the Asia Pacific region, a collection of fast-growing economies that are the envy of the rest of the world. In the last three years, the region—which includes the two powerhouses China and India—has been growing close to 7 percent, dragging the country along at its slower but still decent rate of 5.2 percent. Amid these glowing growth figures, however, is the continuing reality of worsening unemployment, joblessness, and inequality.

Yes, that’s what the latest report from the United Nations (Economic and Social Survey of Asia and the Pacific 2006) is telling us and policy makers in the country’s planning bodies had better take heed. The report acknowledged that the region has proved to be resilient in the face of global shocks, including rising prices and slowdown in global trade, and has been growing robustly in the last decade or two, yet it also noted that economic growth has not been able to soak up joblessness in the region. Inequality is also on the rise.

Nowhere is this observation more true than in the Philippines. We hear the hype every day: that the country’s services sector has been saving the day for the Philippine economy in the last several years, that call centers and business process outsourcing companies are giving job options to fresh graduates, particularly those who can speak good English, and that the country’s export sector has been selling mostly microchips, a far cry from the day when Filipinos were largely drawers of water and hewers of wood. The country is indeed undergoing an economic transformation that most “analysts” had failed to foresee about a decade ago. The country’s unemployment figures, however, remain at double-digit rates (using the old definition), with the jobless people numbering close to 4 million people.

The old economic theory says that economic growth necessarily addresses poverty, as higher volumes of economic activity require the hiring of more workers. This wisdom still holds, but the reports also says that the relationship between growth and job creation has been weakening lately, owing to a host of factors—including high birth rates and technological change (e.g. computerization, downsizing, among others).

The study also points to the pervasive of fiscal incentives that cheapened capital, thus providing more incentives among factory managers to substitute machines where they could have hired more workers.

But the most important reason is the lack of the appropriate policy environment for small and medium enterprises, thus raising the cost of entrepreneurship. This problem is especially true in the Philippines where an entrepreneur needs several months of hopping from one government agency to another just to get the papers signed by bureaucrats. Barriers to entry in business are forcing small entrepreneurs to go underground, thus depriving them of the opportunities to establish partnerships with other bigger business organizations.

The government’s failure to provide adequate economic infrastructure linking the countryside to the economic centers has constrained the spread of economic activities, thus limiting the capability of the economy to generate more jobs. In the last several decades, the bulk of the government infrastructure spending has been concentrated on urban areas, thus deepening the rural-urban divide. The urban bias of the government infrastructure policy, therefore, may have contributed to the growth of urban-based outsourcing industry; but this emerging industry itself is not capable of generating broad-based economic growth.

Overall, what the report tells us is that high economic growth alone, as in the experience of China and India, is not sufficient to address poverty and joblessness. In the Philippines where economic growth is not as robust, the growth of the services sector should be complimented by reforms, including the removal of unnecessary barriers to entrepreneurial activity, higher expenditure on higher rural infrastructure, and higher expenditure on education, and skills upgrading. In Malaysia, efforts to attract foreign direct investments have been accompanied by greater efforts to develop the country’s human resources. This is the reason why, high economic growth in this country is bringing in a lot of jobs and reducing poverty. Why couldn’t the Philippines do the same?