The promotion of local industry is a good thing. No doubt. It creates jobs, results to a high value add to the economy, elevates technology and innovation and sustains a robust supply chain.
The question, though, is whether this is necessarily good for the consumer. Does it result to lower prices and better quality? In a free market economy, consumers vote with their wallets. When government resorts to protectionist policies, this distorts the ability of the market to discern the true value of a product or service. Local protection usually results to an uneven playing field that distorts market pricing and creates false equivalencies in terms of product value.
Consequently, this raises another issue. The concept of free markets is premised on having a competitive advantage that is organic, abundant and sustainable. When state protection becomes the source of competitiveness, this undermines the sustainability of industry and it also distorts the efficient use of scarce economic resources.
I believe that the Philippine economy has all the fundamentals that can make it a powerhouse. Among others, we have skilled labor, a reasonably high level of education, a large population base, strong domestic consumption, low government debt and a strong financial sector.
What we do not have can be remedied with the proper resolve and fiscal support. For one, physical infrastructure has long been sorely lacking in an archipelago that spans over 7000 islands. The build-build-build program of government is working to address this. For another, our corporate income tax structure is among the highest, if not the highest, in the region. The Corporate Recovery and Tax Incentives for Enterprises Act or CREATE is aimed at reforming this by bringing down our corporate taxes to 20-25%, more in line with other ASEAN countries. Yet another chink in our economic armour is the sad state of our digital capabilities. With only two major providers, service is spotty and unreliable. The government is aiming to solve this by allowing more licensees to operate.
Having said that, the Philippines needs to prepare for a sustainable growth that will meet the needs of its growing – and young – population. Education is key. But beyond that, creating jobs will be crucial. The government has focused much on our single biggest natural resource – good, hard-working, talented and industrious people. The rise of the Business Process Outsourcing (BPO) industry in the country has been phenomenal, outclassing even India whose population base is over a billion. The government, of course, also continues to nurture the Overseas Filipino Workers (OFW). Their remittances amounting to close to US$30 billion a year – and rising – is a critical pillar of our economy being that it feeds robust domestic consumption.
Sadly, the role of the local manufacturing industry has also lost its relevance in the Philippines. There was a time that the Philippines was considered the Tiger of Asia because of our clear and apparent strength in local manufacturing. As political instability undermined our economic fundamentals, though, manufacturing – which thrives on stability of supply chains – migrated to other countries. While the ASEAN and the rest of Asia entered the golden years of growth and prosperity in the wake of the Asian Financial Crisis, the Philippines languished.
As we look to the future, we see a sustained economic growth trajectory based on a big and young population that will drive domestic consumption. We need jobs and local industry to sustain this bright outlook. Local protection through penalties or increased tariffs will not spur investors or investments. On the contrary, I think it will retard it. Hopefully, a more meaningful basket of incentive-based policies will be put in place to nurture a much needed local manufacturing sector.
It is not too late. Post pandemic, there will be lots of opportunities to rebuild. The government should seize the moment and ride the tide of a renewed and reshaped global economy.