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A recurring question in the Philippines that crops up
almost anytime anywhere is, “Why has the Philippines not industrialized as much
as its East Asian neighbors?” It is a valid question, that opens up a plethora
of valid and invalid explanations.
In a paper two years ago by former PIDS economist and now
DTI Assistant Secretary Rafaelita M. Aldaba summarized recent Philippine industrial policy
as shown in table 1.
Source: Rafaelita Aldaba, “Twenty years after Philippine trade liberalization and
industrialization: what has happened and where do we go from here,” PIDS
Discussion Paper No. 2013-21, March 2013, Table 1.
It is a correct assessment, although it seems the import
substitution industrialization (ISI) policy was just more than two decades (1950-72),
not three. There was a “decontrol” policy or removal of quantitative
restrictions (QRs) in 1962, and starting in the mid-60s, a revival of manufacturing
was initiated but was not sustained.
Export orientation on a limited
scale was initiated in the mid-70s, coinciding with the world oil price shock
in 1973 and the period of cheap foreign loans due to over-flowing petro
dollars. It also coincided with some political stability because of political
repression during the Martial Law regime.
There is a short but good literature on world and
Philippines economic history from the late 1800s to the last decade written by
Dr. de Dios of the UP School of Economics (UPSE) and Dr. Williamson of Harvard
University. It shows that in Asia, the Philippines was third to Japan and China
to attain fast growth of 5 percent or more a century ago. It was not sustained
though, in the two decades before World War Two.
(Source: Bénétrix et al. (2012), Table 4. Cited by Emmanuel
S. de Dios and Jeffrey G. Williamson, “Deviant Behavior: A Century of
Philippine Industrialization”, UPSE Discussion Paper No. 2013-03, April 2013,
Table 3.)
The post-World War Two ISI period pushed annual growth
rates of Japan, Taiwan and S. Korea to double digits and the Philippines
resumed its early century dynamism.
Messrs de Dios and
Williamson noted that “While the
Philippines conformed to the industrial convergence pattern, it began to
deviate sharply from the pack in the 1980s.”
The years between 1984‐1991 was a “period of large‐scale relocation to Southeast Asia of Japanese
manufacturing industries in response to the yen revaluation following the
Plaza‐Louvre Accords. This wave of foreign direct investments (FDIs) benefited
Malaysia, Thailand, and Indonesia and led to the build‐up of a significant
export‐oriented manufacturing in those countries”, the two academics added.
The Philippines of course could not optimize its FDI
harvest that period because its Constitution made and ratified in 1986, does
not welcome huge FDIs in many sectors of the economy.
Nonetheless, the government of then President Corazon C.
Aquino in 1991 pursued a massive trade liberalization and official abandonment
of protectionism when it reduced tariffs to a range of 3%‐30%. The Ramos
administration continued the liberalization process capped by
the Philippines joining the World Trade Organization (WTO), and undertook a new
wave of tariff reductions in his last year in office in 1998.
Trade liberalization in the 90s was not just a
Philippines or Asian phenomenon but a global one.
After many decades of trade negotiations and deadlocks at
the United Nations Conference on Trade and Development (UNCTAD), the WTO was
formally created in 1994.
To summarize, the Philippines’ post-WW2 industrialization
policy can be categorized into three major periods: (1) trade protectionism and
import substitution from 1950-72, (2) limited liberalization and export
promotion from 1973-90, and (3)
accelerated trade liberalization from 1991 onwards, with “blips”of
protectionism in 1997-99 Asian financial turmoil, then 2008-2010 global financial crisis that started in the US.
Philippine membership
in the ASEAN (Association of South East Asian Nations) Free Trade Area,
Asia Pacific Economic Cooperation, various bilateral FTAs and Economic
Partnership Agreements, emerging Regional Comprehensive Economic Partnership
(RCEP, ASEAN + 6) and the lure of joining the Trans Pacific Partnership (TPP), are important alliances to sustain
trade and investment liberalization.
There are two important challenges for the Philippines to
optimize its membership in those mega
trade alliances: (1) remove investment protectionism by abolishing the
“reserved only for Filipinos” (or zero FDI) in some sectors, and 60-40
restrictions to FDIs in other sectors. And (2) relax services protectionism
especially in the practice of profession, where foreign professionals are
barred from practicing here while Filipino professionals are allowed in many
other countries.
Mr. Oplas is the President of
Minimal Government Thinkers, Inc., a Manila-based think tank advocating free
market economics, and a Fellow of the South East Asia Network for Development
(SEANET), a Kuala Lumpur-based regional center advocating free trade and free
mobility of people in the region.
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See also:
BWorld 61, 100 indicators better than GDP, June 03, 2016
BWorld 71, Free trade and higher income, July 11, 2016
BWorld 61, 100 indicators better than GDP, June 03, 2016
BWorld 71, Free trade and higher income, July 11, 2016
BWorld 72, Economic integration and disruption, July 25, 2016
BWorld 78, If the US becomes protectionist, who loses? August 11, 2016
BWorld 84, Eliminate red tape in the Philippine energy sector, October 08, 2016
