IN the April 14 strategy meeting of the Cabinet on how to manage the economy amid the Covid-19 crisis, the Department of Finance (DOF) cited a quotation from John Maynard Keynes, which reads: “The long run is a misleading guide to current affairs….In the long run we are all dead.”
Interestingly, the we-are-all-dead-in-the-long-run quotation from Keynes has the following continuation: “Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.” (Keynes, “Tract on Monetary Reform,” 1923)
The foregoing reminds us of the obsession by the architects of PDP 2017-2022 to project sustained GDP growth up to 2040 as the main instrument to transform the country into an advanced middle-class economy. The issues of social and economic inequality, labor precarity and informality, and ecological balance and sustainability are given marginal attention in the said PDP. Further, the writers of PDP 2017-2022 have failed to reflect on the numerous misses in growth targets in the past that were projected by the gung-ho economic liberalizers, such as the following: Philippines becoming a newly-industrialized country when it adopted National Economic and Development Authority’s (Neda) labor-intensive industrial strategy in the 1970s; Philippines becoming a major industrial and agricultural exporting nation by joining the World Trade Organization (WTO) in 1995, and so on and so forth.
With the pandemic, it is indeed useless to draw up economic policies around the PDP’s growth-growth-growth program. The world economy is in recession. The GVC system in Asia and around the world is broken. And the Philippines, with its dependence on migrant remittances and BPO earnings likely to go down, is in no position to achieve a miraculous rapid “V” recovery in a short time. It is going to be a prolonged “U” recovery, if not an “L” recovery with a long horizontal base. Indeed, in the long run, the economy shall be dead, like what happened in the 1980s despite the rosy projections made by Neda in the 1970s, or what happened at the turn of the millennium despite the overly optimistic projections by the liberalizers on increased export earnings and job creation due to membership in the WTO.
Now back to Keynes. The basic idea of this 20th century economist is that the government should play an activist role in boosting aggregate demand during crisis periods to arrest further decline of the economy and trigger an economic upturn. This idea became the guiding economic doctrine of the world in taming the Great Depression of the 1930s. Keynesianism got further entrenched in the 1940s-1960s when a war-ravaged Western Europe combined growth promotion with massive social welfare spending to cover unemployment insurance and the health, education and other basic needs of the citizenry.
However, Keynesianism got buried in the late 1970s up to the turn of the millennium with the dominant rise of neo-liberalism, an economic doctrine that promotes untrammelled free trade and minimalism in government’s role in the markets. The IMF and the World Bank marketed neo-liberalism among debt-dependent economies as the pathway to growth and imposed acceptance of the doctrine by requiring borrowers to adopt the triple “structural adjustment” programs of trade and investment liberalization, privatization and economic deregulation.
Today, the world has rediscovered Keynesianism as a weapon to counter economic downturns. Earlier, during the 2008-2010 global financial crisis, affected governments resorted to Keynesian-style stimulus spending in order to revive their respective economies. The United States allocated a trillion dollar budget under the Troubled Assets Reform Program.
Today, with the Covid-19 pandemic unchecked, governments worldwide are once more engaged in stimulus spending, this time at twice or more than what they did in 2008-2010. A good example is the United States. As of April 23, 2020, the US government has enacted the following budgetary allocations: $2.3 trillion (around 11 percent of GDP) for the Coronavirus Aid, Relief and Economy Security Act, $484 billion for “Paycheck Protection Program and Health Care Enhancement,” $8.3 billion for the “Coronavirus Preparedness and Response” program, and $192 billion for the “Families First Coronavirus Response” program.
In the Philippines, the DOF and Neda (under a new leadership) are leading the Keynesian-style offensive against the ill economic effects of the coronavirus. The DOF has a P1.4 trillion “four-pillar” programs: a) emergency support for vulnerable groups, b) expanded medical resources to contain Covid-19 and provide safety for the frontliners, c) fiscal and monetary measures to finance emergency initiatives and keep the economy afloat, and d) an economic recovery plan to create jobs and sustain growth.
However, the details related to the four programs remain to be fleshed out, or are still not clear to the public, especially to the barangay officials, micro, small and medium enterprises entrepreneurs, farmers’ associations, trade unions and CSOs. It will be wise for DOF and Neda to do more IEC programs and to be fully transparent on how these programs are designed and how they shall be implemented. There is clearly a need for broad and continuing consultations with all the major sectors of Philippine society.
In this context, this column would like to raise the following questions:
Are these four pillars addressing the weaknesses uncovered by the Covid crisis, namely: Drop in migrant remittances and return migration of a substantial number of overseas Filipino workers, decline of earnings from the call center-BPO sector, weakened electronics and auto parts production due to disrupted GVC system worldwide, fall in tourism receipts, collapse of consumption in the service industry due to the foregoing, anemic agricultural sector, and the existence of a huge chain nationwide of informal
sector colonies?
Is the government still bent on pursuing its flagship program, the trillion-peso “Build, Build, Build” program, based on its original design? Can this program be tweaked or modified, so that infra development shall focus more on the upgrading and renewal of the urban, rural, peri-urban, highland and coastal poor communities? If the big corporations are not interested in BBB for the poor, can the government transform CSOs and organized barangays as partner developers?
The point is that the Covid-19 crisis presents an opportunity to economic planners to address the concerns of the poor in a direct and decisive manner, not through the trickle-down economics implicit in the 2017-2022 PDP blueprint. In the Keynesian-style spending in America in the 1930s, the infra development was focused on creating jobs for the unemployed through public works, forest management, water and sewer line development and so on. In Western Europe, in the post-war period, the focus was on the mobilization of the displaced to rebuild their war-ravaged communities and industrial plants. And in both cases (United States and Western Europe), the governments also gave special attention in recognizing the workers’ right to form unions, bargain collectively and even participate in corporate governance through a system called works councils. Is this not the right formula for people empowerment?
In short, stimulus spending should not be done in the abstract, that is, without identifying major players and beneficiaries and clarifying the role of the poor. Are they objects of development, or are they active partners in building a stronger Philippines?
(Next week: an alternative development agenda in Covid times).