An open letter to Usec Rodolfo and BOI Director Dichosa.
Usec Ceferino Rodolfo, Managing Head of the Board of Investments, and Ms. Corazon Dichosa, Executive Director, Board of Investments:
Maraming salamat for the invitation to the dialogue (December 9-10) on “implementing a modern industrial strategy for the Philippines to strengthen Philippines industrial competitiveness for facilitating increased participation in global value chains, spur innovation, and contribute to inclusive growth”. Many thanks for reviving once more the national conversation on “industrial policy,” a much-maligned and misunderstood development strategy.
Much-maligned? Before 2012, “industrial policy,” which is generally defined as the concerted efforts of a State to promote economic transformation and industrial upgrading, was largely ignored by the country’s economic planners. It was frowned upon by the IMF-World Bank economists in the Washington Consensus decades of the 1980s-2000s. In 1972, upon the declaration of martial law, Neda’s liberal economists ignored “industrial policy” by promoting a program of labor-intensive export-oriented (LIEO) industrial production based on the liberalization of entry for foreign capital and integration of the Philippine economy in the world market.
Neda also ignored Resolution “Magna Carta of Social Justice and Economic Freedom” passed in the pre-ML period by a nationalistic Congress led by Speaker Jose B. Laurel. The thrust of the Magna Carta: for the Philippines to have a rounded or all-around development of the economy, that is, for the country, like Japan, to develop basic and mid-stream industries and avoid getting stuck at the low-end light-processing level. On the other hand, the thrust of Neda was to make the Philippines attractive to global investors by building infrastructures for re-export manufacturing such as export processing zones (the destination of the then emerging global value chain investments) and marketing the availability of cheap, productive and malleable Philippine labor. With LIEO, the Philippines deviated from the development path taken by Japan and the Asian NICs (Singapore, South Korea and Taiwan), which developed an integrated program of industrialization (light, medium and heavy) at home while promoting import substitution and export orientation at the same time.
The light industries which made the Philippines second to Japan in the industrialization process in Asia in the early 1960s (per World Bank study) were roundly denigrated by the liberal economists as products of “protectionist import-substituting industrial strategy” (ISI). Accordingly, these industries thrived on high tariff protection, not on “comparative advantage.” Some economists did not even hesitate to call these industries as “rent seeking.”
These economists forgot that after World War II and three centuries of Spanish and American colonialism, there were no Philippine industries to speak of. They also failed to see how Japan and the Asian NICs were successfully combining import substitution and export orientation and giving utmost protection to both their domestic and export industries such as cheap credit and assistance in acquiring and developing technology for both types of industry.
In brief, Usec Rodolfo and Director Dichosa, the failure of the Philippines to take off industrially is rooted in the narrow development framework pursued by Neda beginning in the 1970s with the support of neo-liberal economic advisers from the IMF-World Bank and the academe. The Board of Investments under then Minister Vicente Paterno in the 1970s tried to deviate from the narrow LIEO program by requiring foreign investors to help share or “transfer technology” to local industries such as the nascent car assembly industry. Unfortunately, the transfer process, through the increased use of locally-manufactured parts, was sabotaged by political interference, political-economic crisis in the 1980s and, in the 1990s, by the contradictory policy of liberalizing the importation of foreign-made parts.
The point is that a successful implementation of industrial policy requires a strong State with a clear industrial vision and capable of coordinating efforts towards the full realization of the vision. Industrial policy visioning and programming also require re-assessment of the old economic concept of “comparative advantage” and the newer concept of “revealed comparative advantage.” In 2000, JETRO wrote a long list of industries such as car, machine and other high-tech industries where China had no “comparative advantage”. What did China do? It ignored JETRO and simply pursued what it calls as “comparative-advantage-defying” program. Thus, today, China is now competing head to head with the United States and Japan on various science-and-technology-based industries.
So, back to 2012. Why did the Philippines, the DTI and BOI in particular, adopt industrial policy as an official policy? First, in 2008-2010, the World Bank acknowledged that all developed countries are committed to keeping their favored industries intact by providing survival support for “industries that are too big to fail.” Second, a maverick ADB economist by the name of Norio Usui, who was openly critical on how the neo-liberal economists mismanaged the Philippine economy (at least in his private conversations with CSOs), published the book Taking the Right Road to Inclusive Growth: Industrial Upgrading and Diversification in the Philippines. Somehow, Usui got the support of top ADB management, which funded the cross-archipelago talk of Usui on the importance of industrial policy. In the analysis of this author, one reason why Usui and ADB were supportive of the “new” industrial policy for the Philippines was to nudge the country to go higher up in the GVC chains outsourced by Japan and to snare labor-but-machine-intensive industries being phased out in Japan such as the ship repair industries.
A third reason for the adoption of industrial policy in 2012: BOI then was headed by Adrian Cristobal Jr., whose father was associated with the Filipino First movement in the 1950s-1960s. The Filipino First movement sprung up in the late 1950s because of the heightened awareness by political and economic leaders like Claro M. Recto and Gil Puyat that the Philippines should not get stuck in the low-end light-processing industries which were dependent on imported machines, industrial raw materials and fuel. Unfortunately, the Filipino First movement had a short life, shot down by the counter-propaganda launched by the US Embassy, which labeled the movement as Communist-inspired. But the movement resurfaced in the late 1960s when Congress united to vote for the Magna Carta for Social Justice and Economic Freedom, which carried essentially the same message of the Filipino First movement.
Now what has the BOI achieved after embracing industrial policy in 2012? More on this in the next issue.
Dr. Rene E. Ofreneo is a Professor Emeritus of the University of the Philippines.
For comments, please write to reneofreneo@gmail.com.