Philippine political economy: Why the corrupt triumph
In last Friday’s business forum hosted by the Mandaue Chamber of Commerce and Industry, Asian Development Bank Senior Economist Norio Usui mentioned two things about Philippine labor. One is that Philippine labor is one of the least productive when compared to our close neighbors in Asia. The second is that our wage rate is also high in relation to our neighbors which drives investors away. One speaker who followed Usui spoke of the behavior of different generations of Filipinos at work and how to deal with them. Another spoke of entrepreneurship and the need for more of this among our people for us to progress.
In the open forum, I said that the low productivity of Philippine labor speaks volumes not only of the quality of our workers but also of the kind of managers and entrepreneurs we have. Also, I said that high wage rate is not necessarily true in the country because the minimum wage rate mandated by government is meant only to protect workers from going down to an inhuman level of existence.
Here I would like to elucidate my points.
Education and training or lack thereof help determine the productivity of labor, but much of the performance of labor also depends on how they are organized and managed by business. Poor organization and management also leads to lower productivity. Moreover, while it is accepted that the objective of business is to maximize profits, doing so need not necessarily mean paying the lowest wage possible. It is also accepted that paying low wages lessens the incentive of workers to perform well, leading to lower labor productivity and overall profits in the end. This much is true unless business can show that Maslow was wrong when he put at the base of his pyramid on the hierarchy of human needs the fulfillment of man’s basic needs for existence which can only be meet by reasonable compensation.
Another point I would like to clarify is about how the wage rate is determined. In a market economy like ours, what labor receives, given his skills, knowledge and experience, depends on two things – the strength of demand for labor and the number of workers seeking employment. If the number of workers seeking work exceeds the number of jobs opened, the employers have more bargaining power to lower the wage. This is the situation today and is the reason our workers are not getting their fair share of the nation’s produce.
But then, what determines the strength of demand and supply of labor?
Demand for labor is a derived demand for goods and services that labor can produce when hired. If the demand for these things are low, the demand for labor is also low. In turn, the level of demand for goods and services can also be high or low depending on the income of our people. The higher the income, the higher their consumption or purchase of goods and services. Another factor that determines the demand for goods and services is investment demand or demand for things that are needed to set up a new business. When investment demand is high, more workers will be hired to produce investments goods and services. Once the new investment project is put into operation, more workers will also be hired to run these new business.
Finally, there are also such a thing as government demand for goods and services for its operations and implementation of various development programs and projects and export demand for goods and services that are no longer need. When government and export demand are high, there will be great demand also for labor from business to produce what the government and the foreigners want. How much government demand there is depends on its budget and how much export we can make also depends on the competitiveness of our products based on the quality and price in the global market. Government expenditures and exports comprise just around 20 percent and 30 percent of our gross domestic product and this also speaks volumes about our government capability and global competitiveness. These are very low figures compared to the progressive countries near us.
On the side of labor supply, the main determinant is population growth and the increase in the working age group that comes with population growth. About two thirds of our working age group joins the labor force. Data from the National Statistics Office showed that last year, close to one million people were added to our labor force of which 73.6 percent were employed while 26.4 were not employed. Last year’s new unemployed plus the unemployed portion of the previous supply of labor totaled 2.8 million or 7.0 percent of the total labor force. This, together with 20 percent of the employed who were actually underemployed and who therefore are seeking new or additional work is what makes it hard for our workers to bargain for higher wages. Many of our entrepreneurs or businessmen are taking advantage of this, hence the poverty of our workers.
Overall, how the country creates more jobs to satisfy everyone seeking work and improve their well-being is a political economy matter. Political economy is about how the nation is managed to make it rich and strong. That our nation is poor and weak despite more than a century of independence also speaks volumes about the kind of political leaders that we have. They are no good and need changing, which I also hope to be accomplished by democratic means such as elections.
However, as long as many of our people are poor, the inept and corrupt politicians can always manipulate the results of elections. And given the temptation of the benefits they enjoy while in power, I do not see any hope for our politicians to reform themselves. Just look at how they cling to the pork barrel despite public outrage over their misuse of the funds.
But there will be reform if there are enough people among us who has the courage to lead the way. For it has been said that “All that is necessary for the triumph of evil is that good men do nothing.”
