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THE
Philippine Institute for Development Studies (PIDS) is
one of the most low-key but competent entities of
government. Though funded by the State, its experts and
scholars have, through the years—and under several
presidents—built up a well-deserved reputation as a
serious, competent think tank.
We say
this by way of introduction to underscore the need to
pay attention to a recent paper produced by two of the
PIDS’s most senior experts, warning everyone that
despite the impressive growth rates registered by the
services sector in recent years, mainly from the robust
business-process outsourcing (BPO) firms, the
Philippines cannot rely on it to achieve sustainable
gross domestic product (GDP) growth.
PIDS
president Josef Yap and research analyst Fatima Lourdes
del Prado, in a recent PIDS Policy Notes publication,
urged the government to continue supporting the
manufacturing sector, which they described as the true
engine of economic growth.
“The
Philippines, with its growing number of call centers,
seems to be emulating the experience of India, which may
be a case of overspecialization and does not necessarily
mirror the experience of industrialized countries,”
their policy notes cautioned.
The
authors explained that highlighting the importance of
the manufacturing sector would increase labor
productivity that, in turn, would increase the capacity
of the labor force to participate in nonindustrial
activities.
A
bothersome note: only the
Philippines,
said the authors, failed to increase the share of the
manufacturing sector between 1980 and 2005, compared
with Indonesia, Malaysia and Thailand. This caused the
country to lag behind its Asean counterparts in terms of
economic growth during this period, they said.
“Without
necessarily downplaying the significance of the services
sector, the statements above highlight the primacy of
manufacturing in economic development,” the authors
said. “It is, therefore, unwise to ‘abandon’ the
manufacturing sector in favor of the services sector in
order to lead the country to a high and sustained
economic growth.”
Indeed,
the warning is timely given the many recent warnings
about the sustainability of the
Philippines’
vaunted economic gains. As everyone knows, the economy
to this day relies heavily on the remittances of
millions of Filipino workers scattered in 180 countries;
and in recent years has increasingly relied on the
services sector, specifically the BPOs, as a source of
investment and jobs. But certain problems and factors
both in and out of the country make it unfeasible to
expect the BPO sector to be like some unlimited fountain
of growth.
As most
planners know, the wiser and prudent tack is to strive
for balanced growth built on a wider base of economic
activities.
To
strengthen and accelerate the growth of the
manufacturing sector, the PIDS authors precisely cited
the need to consider measures to expand the
manufacturing base.
They
cited recent studies showing that economic
diversification, particularly the manufacturing sector,
is a necessary condition for rapid economic development.
In
connection with this, it may be helpful to ponder the
trend in the German economy, going by a recent article
by Christian Reiermann. He wrote: “The comeback of
German manufacturing contradicts the notion that the
future belongs to the service industry. Manufacturing
firms are currently the engines of growth in the German
economy, even for the service sector.”
He
observed: “From Neugattersleben to Schrobenhausen to
Oberhausen—throughout Germany, for that
matter—manufacturing companies are reporting record
orders, production growth and hiring levels. For
decades, the gradual shift from a manufacturing to a
service-based economy seemed inevitable. It was seen as
virtually a law of nature that manufacturing’s share of
the economy must shrink while the service economy grows.
It was said that
Germany
no longer had a future as a manufacturing country, and
that jobs represented its last export product.”
But, the
report said, “Reality has refuted the theories, while
Germany’s economy continues to grow. Virtually all
production indicators are pointing upward. The
manufacturing sector is expected to grow by 4 percent
this year, a rate more than twice as fast the economy as
a whole.”
While
the German and Philippine economies may be worlds apart,
the point in citing this is that, as always, our own
local experts must continually challenge their own
facile assumptions, and avoid a tendency to go with the
herd, so to speak, instead of taking better stock of the
bigger picture.
Doubtless, the services sector has been one of the
redeeming factors of the economy in recent years, but
the lazy bureaucrats who craft policy and those who
implement them must stop taking the easy route. We
cannot anchor all our hopes on BPOs while allowing the
unsavory side effects of globalization, i.e., easier
routes to smuggling and dumping, to gouge out even the
most established of our industries and businesses.
To be
fair, the PIDS authors said that “while the services
sector cannot be an ‘engine of growth’ in the
Philippines,
there are nonetheless benefits to be gained from more
in-depth studies of its potential and sustainability
prospects in the country.”
They
noted that from 1991 to 2005, the share of the services
sector in India grew from 40 percent to 52 percent of
GDP, accounting for 63 percent of cumulative increase in
GDP during this period.
A large
portion of this growth was attributed to India’s
information-technology (IT) and IT-enabled services
sectors, which captured the increased demand from the
United States and other developed countries for this
type of services.
However,
the authors noted that a very small portion of India’s
labor force is employed by the sector. A similar threat
is found in the Philippines, where only 4 percent of the
country’s total labor force is absorbed by BPOs—and the
talent crunch is starting to hurt so much, partly owing
to the lack of skills of applicants vis-à-vis the lure
of other countries to the skilled ones.
Besides
the minimal impact on stable jobs, the authors added
that the nature of jobs outsourced to India barely
creates intellectual property for Indian firms, if at
all—thus heightening the risk that BPOs or contact
centers can very abruptly move out of India and, of
course, the Philippines. “Hence,” the authors said,
“fears about this growth being unsustainable may not be
unfounded.”
The
point is not to rain on the BPO parade. As a major
conference held this week indicated, there is so much to
look forward to in the BPO sector. But the government
experts must repeatedly be reminded against pinning all
their hopes on this sector. As labor history has shown,
the country dealt with the crisis of the 1970s by
deliberately sending workers abroad; it has spent the
last nearly four decades simply relying on labor
exports, like some panacea that allowed a lazy and
complacent government to ignore developments and plan
for a solid economic future. |
