How does a country become prosperous?

Published May 9, 2021, 12:25 AM

by Senator Sonny Angara


Senator Sonny Angara

This is but one of the big questions that I think about constantly as a legislator, considering that our home, the Philippines, a low-middle income country, stills deals with abject poverty, gaping inequalities, widespread hunger and malnutrition, homelessness, and joblessness — not to mention a raging pandemic.

I posed this same question during an online lecture which I delivered to graduate students of Stanford University’s Public Policy program. Noted economists and thinkers have already propounded several theories on this matter. But as I argued in the lecture, the most compelling framework  is the one proposed by Harvard University’s Ricardo Hausmann and MIT’s Cesar Hidalgo on economic complexity.

Economic complexity, according to Hausmann and Hidalgo, refers to the productive know-how or knowledge held by a society as expressed in the products and services it offers.  Using a mixture of big data, network analysis and creative visualizations, the two scholars have argued that this concept of economic complexity is the best indicator, determinant, and driver for whether a country prospers or not.

Their main thesis is that a given area — be it a city, a province, a state, or an entire country — becomes prosperous when it is able to produce and trade a diverse array of products and services that are complex and uncommon (or not ubiquitous). The better an area is able to accumulate productive knowledge and leverage such knowledge, the more likely it will develop and flourish.

An economically complex society has two basic characteristics — first, that they’ve accumulated a sufficient level of productive knowledge that is spread across many economic actors; and second, that they’ve successfully organized themselves or have established the environment where a diversity of actors can recombine this knowledge into actual products and services.

To an extent, the Philippines is performing respectably in the first characteristic. The fact that we are a net exporter of talent underscores this. Gaining the second characteristic is a bit more tricky. It’s almost as if one-half of the pursuit of economic complexity is a process of unification or consolidation at the national, macro level. It’s basically about a society getting its act together.

The experience of some of our textile and garments manufacturers illustrates this.  In the immediate months after a state of public health emergency was declared in March 2020, the country faced serious supply shortages of critical products such as personal protective equipment (PPEs), face masks, extraction kits, and other laboratory equipment needed to process test results.

To close some of the supply gaps, the Department of Trade and Industry (DTI) and select manufacturers worked hand-in-hand to transform the latter’s assembly lines to produce face masks and PPEs instead of uniforms or children’s clothes for export. Provisions were even put in the Bayanihan to Recover As One Act (Bayanihan 2 or RA 11494) saying that within a certain price threshold preference will be given for critical products, like PPEs, that are locally manufactured.

Recently, during a hearing of the Senate Committee on Economic Affairs, the Confederation of Philippine Manufacturers of PPEs (CPMP) shared that in response to the huge supply gap for PPEs, their members reinvested up to $35 million (roughly P1.67 billion) to repurpose portions of their factories to produce medical grade PPEs.  Even though they were ready to supply a sizable amount, hurdles arose with government procurement. They were outpriced, as the market was flooded with low-cost PPEs from China.  Apparently, in the latest bidding, CPMP secured only 14 percent of the P4.8-billion PPEs which government had bid out.

The CPMP members claimed that their products were competitive with international suppliers, but found it too difficult to compete because in some instances, prices were driven below industry rates. As a result, thousands of workers had to be laid off, and the repurposed portions of their factories are now semi-closed.

The DTI has since attributed to prevailing procurement rules the government’s inability to act on the “preference” for locally manufactured PPEs, leading to calls to amend the Government Procurement Reform Act or RA 9184.

Such is a clear example of how because of certain inconsistencies or incongruencies, we are unable to meaningfully leverage the productive capabilities of our domestic industries.  We intend to investigate more thoroughly why things happened the way they did for CPMP.

The message appears to be clear though — a country becomes prosperous, when it gets its act together.

Sen. Sonny Angara has been in public service for more than 16 years.  He has authored and sponsored more than 200 laws. He is currently serving his second term in the Senate.

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