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Pitching in for inclusive growth in Philippines

I’m often asked what needs to be done for the Philippines to achieve inclusive growth, or economic growth with widest participation and whose attendant benefits are felt by all. We all know the Philippine economy has lately been growing faster than most in the region, but having that growth come from a broader base and uplift the lives of the least endowed among us remains elusive.

What will bring about more inclusive growth in the economy? We need more of our economy’s growth to come from sectoral inclusive growth drivers. And to be an effective driver of inclusive growth, an economic sector must meet two important criteria:

One, the sector must be job-rich or labor-intensive. It must employ large numbers of workers, such that growth in the sector will also translate into similar growth in jobs. A sad commentary to the lack of inclusiveness in our 2013 economic growth is the fact that while the economy grew by a hefty 7.2 percent, the number of jobs actually grew by a mere 0.17 percent then.

Two, the sector must have strong and wide interlinkages with the rest of the domestic economy. That is, it must rely on other domestic industries for its inputs such as raw materials and intermediate goods (backward linkages), or its products must find use as inputs by other domestic industries (forward linkages).

Growth in such a highly interlinked sector would thus have greater multiplier effects, hence broader benefits. Our electronics sector satisfies the employment criterion, but not the linkages criterion. Note that our top export is electronics (mainly intermediate products like circuit boards and semiconductors), but our top import is also electronics (more basic components that we assemble into the products we export).

This implies that the value added by our domestic economy in our top export is confined to assembly labor. There has been wide consensus that agriculture/agribusiness, tourism and manufacturing are the sectors that best satisfy the two criteria, hence are the most potent drivers of inclusive growth.

An inclusive economy is also one where micro, small and medium enterprises are strong contributors to total employment and economic output. MSMEs comprise 99.6 percent of all firms in the country and contribute an estimated 61 percent of all jobs. But they account for only 32 percent of total value added or gross domestic product. This means that the top 0.4 percent of our firms already account for 68 percent (more than two-thirds) of our total economic output and incomes.

A 2008 Indonesian study showed the Philippines’ 32 percent SME GDP share to be the smallest among its neighbours, with Indonesia’s SME output share at 57 percent, Malaysia’s and Thailand’s at 47 percent, Vietnam’s at 42 percent, and Singapore’s at 35 percent. The same study cited a 60-percent SME GDP share for China, 55 percent for Japan, and 50 percent for Korea.

These comparative data suggest that Philippine SMEs may be lagging in productivity behind their counterparts in our neighbours. This could very well reflect the persistent hurdles faced by our SMEs in terms of access to finance, technology, raw materials and markets. Thus, our lack of inclusive growth relative to our neighbours may simply be mirroring our failure to address the difficulties faced by our SMEs.

Even as government policies and initiatives can have a crucial role in fostering inclusion and broad-based growth, government alone cannot bring it about. I used to be fond of saying that sustainable development is not something government does for its people; rather, it is something that the people collectively attain for themselves. One can very well say the same about inclusive growth.

The government can provide the enabling conditions, incentive structures and conducive policy environment, but unless people do their part and take the right actions, inclusive growth will still not come about. All sectors of society can in fact contribute to making inclusive growth and sustainable development a reality.

Big business can pitch in, for example, by venturing more into agribusiness and manufacturing, and move beyond the seeming preference by the country’s wealthiest for services, particularly finance, real estate and utilities. Banks can deliberately help serve the financing needs of the MSME sector more actively.

Large firms can also opt for more inclusive value chains, rather than take control of their entire value chain via vertical integration. Known examples are how Jollibee procures onions from hundreds of small farmers around the country, and how Nestle does the same with coffee.

Meanwhile, small firms can do their share by being more willing to cluster together, team up and unite to take advantage of volume demands especially from export markets, rather than be content with staying small in a “kanya-kanya” (individualistic) environment.

For their part, workers could take more initiative to help improve productivity at the production floor and the workplace ― but employers must also be willing to commensurately reward worker-initiated cost savings and productivity improvements.

The youth can pitch in too, by aspiring through their studies not to merely find a job and work for someone else ― but instead aspire to eventually create jobs for others.

And we consumers can be more conscious and deliberate about patronising small local businesses whenever we have the choice. I can think of many more ways how each of us can pitch in for inclusive growth; I’m sure the reader can too.

Maybe it’s time we stopped counting too much on government to bring inclusive growth about. We can in fact all start pitching in.

By Cielito F. Habito

Cielito F. Habito is a professor of economics at Ateneo de Manila University. ― Ed.

(Philippine Daily Inquirer/Asia News Network)