While past government reforms have brought the Philippines to upper-middle-income country (UMIC) status, researchers at state-run policy think tank Philippine Institute for Development Studies (PIDS) warned that macroeconomic stability has yet to translate into sustained productivity growth, quality employment, and large-scale human capital transformation.

PIDS’ discussion paper, titled “Reshaping Economic Institutions for Transformational Partnerships in Human Capital Development,” published last Tuesday, Aug. 25, argued that the country’s development constraints stem not from a lack of policies or resources but from fragmented institutional arrangements.

Authored by PIDS senior research fellows John Paolo R. Rivera, Michael Ralph M. Abrigo, and Valerie Gilbert T. Ulep, the paper said these arrangements lead to misaligned incentives, uneven implementation capacity, regulatory uncertainty, and weak coordination between public and private institutions, impeding sustained investment in education, training, health, and productivity-enhancing services.

The researchers identified four interrelated institutional constraints that weaken long-term investment in human capital: fragmentation and coordination failures, uneven implementation capacity, short policy horizons and weak credible commitment, and learning and incentive failures.

The study noted that responsibilities for human capital development are distributed across multiple government agencies, financing mechanisms, and levels of government, creating problems when mandates, resources, and accountability mechanisms are poorly coordinated.

In the health sector, for instance, overlapping functions among the Department of Health (DOH), state-run Philippine Health Insurance Corp. (PhilHealth), and local government units (LGUs) can weaken strategic purchasing and integrated care.

The researchers also pointed to a gap between policy design and actual implementation, particularly for complex reforms.

Implementing the Universal Health Care (UHC) Act requires reforms involving strategic purchasing, provider payment, integrated healthcare networks, information systems, and national-local coordination, while education reforms require teacher preparation, curriculum development, learning materials, school leadership, and monitoring systems to move together.

The study also noted that human capital investments such as early childhood care and development (ECCD), preventive health, and workforce skills require years before their full economic and social benefits become evident.

In contrast, the country’s relatively short political cycles, which run every three to six years, can encourage governments to prioritize investments that deliver immediate and visible political returns.

The researchers said this mismatch can undermine continuity, as priorities may shift with changes in leadership and agencies may have to realign programs and resources instead of sustaining long-term reforms.

Meanwhile, firms may underinvest in workforce development because trained workers can easily transfer to other employers, while the wider benefits of education, health, and innovation extend beyond the individuals and firms making the investments.

The study also highlighted weaknesses in institutional learning, citing debates over the mother tongue-based multilingual education (MTB-MLE) program.

While process evaluations identified implementation constraints, more recent impact evaluations found significant improvements in learning outcomes when instructional languages matched students’ mother tongues.

The researchers said policy debates often failed to distinguish implementation failure from policy failure, illustrating how weak information systems, limited use of evidence, and issues concerning the timely availability of evaluation evidence can distort policy decisions.

Similar information problems exist in health financing, where fragmented administrative databases constrain provider monitoring and strategic purchasing, and in skills development, where limited labor market intelligence contributes to persistent mismatches between training and employer demand.

Given these challenges, the study recommended shifting from a program-centered approach to an institution-centered approach, without replacing sector-specific reforms.

This entails strengthening the institutional architecture that allows education, health, labor market, innovation, and productive sector policies to work together, with the researchers stressing that the objective is not simply to create more partnerships but to build better institutions that enable productive partnerships.

The study said the government should act not only as a financier or service provider but also as an “institutional architect” that establishes the rules, incentives, information systems, and coordination mechanisms needed to make investments mutually reinforcing.

Among its five policy recommendations is strengthening coordination around shared human capital outcomes through improved mechanisms for joint planning, budgeting, implementation, and accountability across agencies and levels of government.

The researchers also called for stronger, credible long-term commitments by providing sufficient predictability in regulatory frameworks, financing arrangements, and major reform directions to encourage complementary long-term investments while retaining mechanisms for evidence-based adaptation.

Another recommendation is to build stronger institutional learning and information systems by integrating administrative data, monitoring and evaluation, labor-market information, and feedback mechanisms more systematically into policy implementation.

The study also recommended aligning incentives for public and private co-investment through financing, regulation, contracting, provider-payment systems, training arrangements, and other policy instruments that encourage investments with broader social returns.

This includes reducing unnecessary regulatory uncertainty, sharing appropriate risks and costs, and creating mechanisms for meaningful participation in workforce development, health, innovation, and productivity-enhancing services.

Finally, the researchers called for strengthening the state’s capacity to implement and sustain complex reforms by investing in technical capability, regulatory expertise, digital systems, public financial management, coordination capacity, and implementation skills.

“The Philippines does not face a choice between investing in human capital and strengthening institutions. Institutional reform is itself a prerequisite for making human capital investment effective, sustained, and productive,” the authors wrote.

“By improving how incentives are structured, how economic actors coordinate, how evidence informs decisions, and how commitments are sustained over time, institutional quality can serve as a leverage point for transforming individual investments into collective capabilities and sustained economic transformation,” they added. - Danielle T. Bayani