The Philippines needs stronger institutions to turn increased investments and major reforms in education, health, social protection, and skills development into higher productivity and sustained economic growth, according to state-run policy think tank Philippine Institute for Development Studies (PIDS).

In a recent discussion paper titled “Reshaping Economic Institutions for Transformational Partnerships in Human Capital Development,” PIDS said the country has strengthened its macroeconomic fundamentals and reached upper-middle-income status, but persistent gaps in learning, health-system integration, skills matching, enterprise participation, and productivity continue to hamper economic transformation.

The paper was authored by PIDS senior research fellows John Paolo R. Rivera, Michael Ralph M. Abrigo, and Valerie Gilbert T. Ulep.

“The Philippine development challenge is not the absence of reform,” PIDS quoted the paper’s authors as saying in an Aug. 30 statement.

The paper identified four interrelated institutional constraints: fragmentation and coordination failures; uneven implementation capacity; short policy horizons and weak credible commitment; and learning and incentive failures.

These weaknesses limit the benefits of investments in human capital because education, health, employment, and productivity are closely interconnected.

Educational outcomes, for instance, are influenced by health, nutrition, household conditions, and labor market opportunities, while skills generate greater economic value when businesses can put them to productive use.

Innovation likewise requires not only capable workers but also enterprises willing to invest in technology and improve their operations.

“Human capital is produced and utilized through an interconnected ecosystem and not through isolated sectoral interventions,” the authors said.

As a result, investments in one sector may deliver lower returns when complementary investments in other areas fail to keep pace.

The paper said fragmented investments can also prevent the government, businesses, households, and other stakeholders from realizing the full collective benefits of their individual efforts.

PIDS thus called for a shift from a program-centered to an institution-centered approach to human capital development.

Instead of focusing solely on higher spending or expanding individual programs, policymakers should strengthen institutions that allow investments across education, health, labor markets, innovation, and productive sectors to reinforce one another, according to the paper.

“Government acts only as a financier or service provider but also as an institutional architect,” the authors wrote.

In this role, the government establishes the rules, incentives, information systems, and coordination mechanisms needed to support collective action and encourage long-term investment.

The paper also proposed what it called “transformational partnerships,” or institutional arrangements that enable multiple stakeholders to coordinate long-term investments in human capital and productivity.

PIDS stressed, however, that the goal is not merely to establish more partnerships.

Unlike conventional public-private partnerships (PPPs), which are often focused on infrastructure and service delivery, transformational partnerships emphasize sustained collaboration on complex development challenges that cannot be addressed by a single institution.

“The policy objective is not more partnerships per se, but better institutions that enable productive partnerships,” the authors said.

The paper identified five priorities to improve the effectiveness of human capital investments: better coordination around shared outcomes; credible long-term commitments; stronger institutional learning and information systems; better-aligned incentives for public and private investments; and greater capacity to implement and sustain complex reforms.

“Institutional reform is itself a prerequisite for making human capital investment effective, sustained, and productive,” the authors said.