“Going back to normal” is the mantra of Philippine officials who seek a return to the pre-Covid economic situation. Going back to normal means going back to yesterday’s economy.
Is this possible? The Covid-19 pandemic has radically changed the way business is organized and the manner work is done in the Philippines and around the world. Just google the endless adjustments and changes being made by all the economic actors, from the restaurant business to the aviation industry. Even if a vaccine is successfully developed in the coming years, these adjustments and changes are likely to remain.
In this connection, a major policy challenge facing the Philippines is how to adjust to a global economic order that has radically changed in the light of the pandemic and other global “disruptions.” As outlined by United Nations Conference on Trade and Development (Unctad)in its World Investment Report 2020, the Covid-triggered economic crisis arrives on top of three major developments fragmenting the pre-Covid global production system.
The first disruptive development is the “New Industrial Revolution” (NIR), which is dubbed by the Davos summiteers as the “Fourth Industrial Revolution” or FIR. Major technology trends such as robotics-enabled automation, enhanced supply chain digitalization and 3D or additive manufacturing enable the multinational corporations to re-design work processes in a flexible manner and minimize any form of global outsourcing. Thus the phenomenon of “re-shoring,” meaning the MNCs are bringing back to their home countries the assembly and ancillary work they have outsourced to other countries. Factory Asia, which refers to the production of different parts and components outsourced by the MNCs to different Asian producers and assemblers, is now fragmenting.
The second disruptive development is the “growing economic nationalism” or trade protectionism among the developed countries. This is illustrated by the deepening trade conflicts between US and China and the silent (although largely unreported) trade conflicts between Japan and South Korea.
The third development—“im-perative of sustainability”—is also disruptive because it forces countries to modify industrial production processes in support of the global battle against global warming. Care for the environment can lead to job-displacing arrangement, for example, electric vehicle production has a very lean robotized set-up compared to the traditional car assembly that employs thousands of workers.
The Covid-19 pandemic has reinforced the foregoing trends. For example, the argument for the reduction of global production outsourcing now includes the need to avoid the spread of the virus.
As to economic protectionism, politicians in the developed countries do not hesitate to declare what their priorities are in crisis times—national interests first, jobs for citizens first. Thus in the United States, Donald Trump’s “America First” has now a competitor program in Joe Biden’s “Make in America” economic blueprint. This means the US-China trade war is likely to continue under a Biden presidency. Two major goals in “Make in America” program are to bring back critical supply chains that are not dependent on China and to give American manufacturers and workers incentives to enable them to compete with Asian producers for blue-collar manufacturing jobs.
As to the environmental issue, the quarantine response of most governments has surprised the environmentalists. Air has become cleaner because of the ban on transport vehicles. However, the efforts of governments and civil society organizations to reduce GHG emissions are continuing. This means continuing efforts too to re-engineer industrial plants in order to make them “green” or “greener.”
So what should the Philippines do? Quo vadis?
The response of the policy-makers to the fragmented and flattened global production system is unclear. However, the effort of some legislators and economic managers to push the CREATE bill lowering corporate income tax as a priority bill in order to attract FDI indicates a poor reading of the global economic situation. The Department of Trade and Industry should ask its Bureau of International Trade Relations and the Philippine Ambassador assigned to the World Trade Organization (WTO) headquarters in Geneva to provide the home office a rigorous assessment of the changing global economy and its implications on the Philippines.
Such an assessment should go beyond the Unctad analysis, which is focused mainly on the crumbling global value chain or global production system. Why, for instance, are the WTO rules being ignored by the United States and other countries? For developing countries, the WTO’s marching order is to liberalize trade and investment regimes, and yet, for the developed countries, the WTO’s posture is usually one of silent acquiescence to the latter’s abrasive behavior.
The point is that we really cannot go back to the “old normal” or the old ways of doing business. As it is, leading economists such as Joseph Stiglitz, Dani Rodrik, Nouriel Roubini and so on have all been proclaiming that the world has now entered a new era: a post-neo-liberal economic order. The “Washington Consensus” built around the doctrines of privatization, economic deregulation and investment/trade liberalization (translated by the IMF-WB into “structural adjustment program” or SAP) has been upended by the “Beijing Consensus,” which promotes domestic and export growth with a very strong and visible support from the government (and the Chinese Communist Party).
Is it not time for the Philippines to re-strategize its economic relations with the outside world based on new and emerging realities, not on the old paper assumptions being made by neo-liberal economists who keep dreaming of a borderless, seamless and rules-free world economy that does not exist? Is it not time for the new leadership of Neda to formally bury the SAP program, in place for over four decades, for the program is an utter failure in the delivery of jobs and welfare for the Filipino masses?
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