To serve as a warning to the Philippines, Latin America fell into the Middle-Income Trap (MIT) due to premature deindustrialization, over-reliance on commodities, insufficient investment in human capital, weak state capacity, and high inequality. In contrast, the "tiger economies" of East Asia aggressively upgraded industries, invested heavily in R&D, and maintained long-term development strategies. Our present and future leaders—especially the Centennials and Millennials—must realize that the MIT is not about a lack of growth (the Philippine economy is currently one of the fastest-growing in the Indo-Pacific), but about a failure to transform the structure of the economy. Latin America’s experience—specifically in Brazil, Mexico, and Argentina—proves that growth without productivity, innovation, and institutional reform is unsustainable.

For whatever it is worth, I outline here a roadmap suggested by ChatGPT that can prevent the Philippines from falling into this trap. The first recommendation is to shift from consumption-led to productivity-led growth. Currently, consumption accounts for nearly 70% of GDP, while investment accounts for a little over 20%. Among successful East Asian economies that escaped the MIT, investment typically accounts for 30% to 35% of GDP. High investment levels guarantee significant productivity gains.

The Philippines must focus on improving productivity, particularly in agriculture, fisheries, and the MSME sector. We must raise Total Factor Productivity (TFP) through technological change and the scaling up of Filipino enterprises—helping them not just to survive, but to thrive. The great lesson from Latin America is that consumption without productivity leads to stagnation.

The most urgent reform is in the agricultural sector, which accounts for one-fourth of the labor force but less than 10% of GDP. This imbalance exposes the abysmally low productivity in this primary sector and jeopardizes food security. Low productivity keeps wages depressed and breeds mass poverty; approximately 75% of those below the poverty line (16% of the population) are in the Agriculture, Forestry, and Fisheries (AFF) sector. To address this, we must consolidate small farms—the result of a poorly implemented agrarian reform program—through cooperatives and corporate farming.

Furthermore, both the State and the private sector must increase investments in irrigation, post-harvest facilities, and cold chains. Farming should be integrated into the entire agribusiness supply chain, including logistics, processing, and exports. Even in South Korea and Taiwan, where fertile land was scarce, agricultural reform preceded the industrial takeoff. Fortunately, the current Marcos administration has prioritized AFF productivity, with progress visible as the sector grew by more than 3% in 2025 after years of languishing at 0% to 1%.

Following agricultural reform, the next priority is an industrial policy focused on upgrading rather than protectionism—the latter being the most serious policy error of the 1950s. We should avoid old-style import substitution and the permanent protection of inefficient firms like the plague. Instead, there should be targeted support for industries where the Philippines has a competitive advantage, such as electronics design and R&D, automotive parts, aerospace components, medical devices, green manufacturing, and shipbuilding. The goal is to support firms that learn and export rather than those that merely lobby.

We Filipinos often boast of our "demographic dividend." Unlike our East Asian neighbors, we have a young population with a median age of 26. However, this asset will come to naught if we do not invest heavily in human capital—specifically technical skills over mere academic degrees. There is a glaring mismatch between industry needs and school outputs. As President Marcos pointed out in his second SONA, we must reform the educational system to prioritize TESDA-type training for electromechanical workers, carpenters, and electricians at the Senior High School level.

Recommendations include:

1. Primary Level: Cultivating social virtues (akin to the Japanese model).

2. Elementary/High School: Strengthening basic education in math, science, and reading.

3. Private Sector: Incentivizing firms to invest in Enterprise-Based Learning and the upskilling of their workforce.

4. Brain Gain: A concerted effort to attract Filipino scientists and engineers back from abroad.

5. Fundamentally, the Middle-Income Trap is a skills trap.

Over the last 30 years, there have been significant efforts to strengthen institutions. The Bangko Sentral ng Pilipinas is now considered one of the best in Southeast Asia. Similarly professionalized are the Departments of Trade and Industry (DTI), Science and Technology (DOST), and the Budget (DBM). Conversely, institutions requiring urgent professionalization and governance reform include the graft-ridden Departments of Education, Health, and Finance (specifically the BIR), as well as Public Works and Highways—the center of the recent 2025 flood control scandal.

In response to that scandal, four progressive bills should be passed: the Anti-Dynasty Bill, the Independent People’s Commission Act, the Party-list System Reform Act, and the Citizens Reform Act. Reforms must be sustained across administrations; regulatory uncertainty discourages the Foreign Direct Investment (FDI) indispensable for technology transfer. Digitization will also be key in reducing corruption.

In short, the Philippines can avoid the Middle-Income Trap not by growing faster for a few years, but by becoming more productive, skilled, and better-governed for several decades. We have only the next 20 years to attain High-Income status. This leads us to Ambisyon Natin 2040, the long-term planning product of NEDA (now the DEPED).

To be continued.