We need more industries, not services
In 2010, the population of the Philippines was estimated at 94 million. That was 12th biggest in the world. In the same year, our Gross Domestic Product (GDP), which sums up the final output of goods and services we produced, stood at $199.6 billion. That was 46th biggest in the world. Had our productivity been the same as the average in the world, our GDP should have ranked 12th, too. With low GDP and high population, the result naturally was low per capita GDP or per capita income, which at $2,123 per Filipino in 2010, was only 123th in global rankings.
It is no wonder, that in the United Nations Development Programme’s (UNDP) latest measure of Human Development Index (HDI), the Philippines ranked 112th only out of 187 countries. The HDI is computed out of the country’s achievement not only in terms of per capita GDP but also in education and health. The level of health and education attained by the people, however, are also reflective of their material or economic well-being, which the per capita GDP aptly measures. Lower per capita GDP, therefore, means that our people would also have problems maintaining proper health and getting better education, thus the lower HDI for the Philippines.
Many things can explain our low per capita GDP. An Asian Development Bank (ADB) study that I mentioned in my last column cited lower productivity because of our inability to move our workers from low-productivity, low-paying jobs in agriculture to the high-productivity, high-paying jobs in industry. This is unfortunate because early in the development of the country after the last World War the Philippines was moving fast towards industrialization. Beginning in the 60s, however, our industrialization, which was powered mainly by the establishment of import substituting industries, soon reached its limit. This was due mainly to the fact that our newly developed import substituting industries were targeting only the domestic market, which although relatively large compared with that of many of our neighbors in Asia, was deficient in their demand because of low income.
Another factor was the difficulty of our newly established import substituting industries in getting enough foreign exchange to import more raw materials, machineries and equipment used for processing. Being focused mainly on the domestic market, the newly developed Philippine industries after the last war could not produce their own dollar to meet their imports. Instead, we got our supply of dollars from export of crops like sugar and copra, and from logging and mining, but they were also not sustainable, hence, the inability of our local industries to improt more and grow.
Japan after the war, and later South Korea, Taiwan and other tiger economies in Asia also went into import substitution but not for long. Realizing early on their limited domestic market, they soon went into export industrialization to grow fast. Doing so, of course, meant shifting much of their workers from low-productivity, low-paying jobs in agriculture to high-productivity, high-paying jobs in industry. The result was the rapid restructuring of their economy away from agriculture in favor of industry. As of the first five years of the last decade, for example, only 1.7 percent of the workers in Taiwan remained in agriculture. In Malaysia, it was 8.5 percent; and Thailand, 9.3 percent. Even Indonesia only had 15.1 percent of the workers left in agriculture in the same period. Compare this to our 19.6 percent.
When many of our workers are still devoted to low-productivity, low-paying agriculture, we should not be surprised if we also find many of our people in poverty. You might say, but that is only 19.1 percent, where were the rest of our workers? Well, sorry, to say that they were not in industry but in services which paid them just a little more. In the first five years of the last decade, only a third or 33 percent of our workers were found in industry. The rest, after taking out those found in agriculture, were in services which reached close to half or 47.1 percent of our total labor. The trend, unfortunately, still favors the services sector. Such atrend can only be explained again by our continued failure to industrialize. Now we talk more about tourism or the business process outsourcing industries but without deeper industrialization, including in export, it is hard to see how we can grow faster in a sustained manner, at say 6 percent to 8 percent per year.
