WHY IS THE PHILIPPINES POOR?

WHY IS THE PHILIPPINES POOR?

Overseas Filipino workers ask why the Philippines remains to be a poor country while many of our East Asian neighbors, who used to be less developed economically than we (such as South Korea, Taiwan, Singapore, Malaysia) have eradicated or significantly reduced mass poverty.

Why are close to 30 percent of our population still suffering from dehumanizing poverty? It is grinding poverty that drives millions of Filipinos to incur very high social and spiritual costs, leaving their loved ones at home, in order to eke out a decent living for their respective families.

It is easy to blame corrupt government officials and greedy capitalists for our enduring poverty. Without condoning corruption and dishonest practices, one must point out that, with the exception of Singapore, East Asian countries that have eliminated poverty were also notorious for corruption. Just think of Japan, South Korea, Malaysia, and Thailand. Their government officials and private entrepreneurs were not exactly paragons of honesty and fair play during the decades when their respective economies were growing by leaps and bounds. Every society has to uproot corruption for moral reasons.

The neo-Malthusians blame rapid population growth for our poverty situation. One would find this explanation laughable especially during these times when the only countries in Asia that are posting positive GDP growth rates are the countries with huge populations, and therefore sizable domestic markets which partly immunize them from collapsing export markets. If one takes a look at the so-called emerging markets that are forecasted to dominate the global economy in the next 20 years, they have a common denominator: they all have at least 50 million people, i.e., Brazil, Russia, India, China, Indonesia, Pakistan, Mexico, Indonesia, Vietnam, the Philippines, etc.

Large and young populations have two advantages: They provide low labor costs and attractive consumer markets. The ones who are afraid that the Philippines will have Standing Room Only (SRO) if our population keeps growing should be told that our rich East Asian neighbors have population densities much higher than the Philippines: Singapore (7,223 per sq. km), Hong Kong (6,501), Taiwan (625), and South Korea (483). When Philippine population peaks in 2025, the population density will not even exceed 400 persons per sq. km. In addition, the Philippines is much richer in natural resources than the above-mentioned countries.

Then why is the Philippines poor?

The main answer is that for 30 long years after the Second World War, our leaders adopted economic policies that fostered an inward-looking, import-substitution industrialization based on protectionist, anti-market, and ultra-nationalist ideologies not very different from what most Latin American countries implemented with the same dire consequences. Over-reacting to our colonial past (as did the Latin Americans), we equated economic development with capital-intensive industrialization that did nothing to address our massive unemployment and underemployment problem. The worst consequence of these failed economic policies was not the eventual demise of the so-called infant industries that never grew up. The most devastating result was the almost criminal neglect of countryside and agricultural development. Because we used up our capital resources in the white elephants of the manufacturing sector, there were no resources left to build farm-to-market roads, irrigation systems, post-harvest facilities, seaports, and airports that were essential to making our small farmers productive. Agrarian reform failed, not because of the fragmentation of land, but because we did not provide the small farmers with the wherewithals to be both productive and cost-effective.

The political economy of import-substitution industrialization (ISI) in the Philippines

Import substitution industrialization (ISI) is a trade and economic policy that advocates replacing foreign imports with domestic production. ISI is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products.

Import Substitution Industrialization (ISI) came to emergence in the post-World War II era in Latin American countries. ISI seeks to protect local industries through various avenues such as tariffs, import quotas and subsidized government loans. Those countries practicing ISI seek to develop production channels for every stage of a product, not just the final product. ISI runs counter to the economic theory of comparative advantage, where countries specialize in the production of goods in which they have a particular advantage, and then engage in international trade.

1. one must contrast the decolonization process in the country. 
2. Philippine industrialization came later, and lacked the depth of industrialization. Moreover, there are variations in the role played by foreign capital. 
3. the populism was absent in the Philippines, labor was a weaker force in Philippine society, and appeals to curd the power of the oligarchy and foreign firms were not prominent among Philippine government leaders who formulated ISI policies. 
4.Philippine state enterprises were curbed rather than promoted during the ISI period, and the military was a marginal force in the process of industrialization. 
5. agrarian interests remained far more powerful in the Philippines and were even able to regain a dominant role in the 1960s

One could also examine how the nature of the regime that followed the declaration of martial law in 1972, as well as the direction of economic change it pursued

The economy of the Philippines is an anomaly in the Asia-Pacific region in that it has lagged behind other economies, such as those of Singapore, South Korea, and Taiwan. From a position as one of the wealthiest countries in Asia after World War II, the Philippines is now one of the poorest. Since the 1970s, which were a relatively prosperous decade, the Philippines has failed to achieve a sustained period of rapid economic growth and has suffered from recurring economic crises. This persistent underperformance has occurred in spite of the Philippines’ rich natural and human resources.

The reasons are rooted partly in history, partly in policy.

As a legacy of the U.S. colonial period, oligopolies have dominated the economy, particularly in agriculture, where farmland continues to be concentrated in large estates. In the post-World War II period, the Philippines pursued a strategy of import substitution industrialization, whereby domestic goods are substituted for imports. This strategy required protectionist measures, which led to inefficiencies and the misallocation of resources. Although some trade protectionist measures were relaxed in the early twenty-first century, the Supreme Court continues to support restrictions on foreign ownership of land and other assets in effect since the constitution of 1935. These restrictions, plus widespread graft and corruption, have suppressed inbound foreign direct investment. A historically low rate of taxation—only about 15 percent of gross domestic product (GDP), partly as a result of widespread tax evasion—has led to underinvestment in infrastructure and uneven economic development. 

Poverty is a serious problem in the Philippines. 

In 2003 per capita gross national income was US$1,080, below the US$1,390 average for lower-middle-income countries. Reflecting regional disparities, in 2003 about 11 percent of Filipinos lived on less than US$1 per day and 40 percent on less than US$2 per day, according to the World Bank. The overall poverty rate declined from 33 percent (25.4 million people) in 2000 to 30.4 percent (23.5 million people) in 2003. Poverty is more concentrated in rural than in urban areas.

The traditional lack of job opportunities has led many Filipinos to seek employment outside the country, notably in the Persian Gulf states. Remittances to family members back home—equivalent to 10 percent of GDP—have partially offset a relatively low national rate of savings of about 15 to 18 percent, about average for the Organization for Economic Cooperation and Development, but below average for the region. Current account and budget deficits exacerbate the impact of the low savings rate on growth.