Part III of open letter to BOI
This is a continuation of our open letter to Usec Ceferino Rodolfo, BOI Managing Head, and Director Corazon Dichosa.
The BOI-sponsored forum on “Leveraging Trade and Investment Policies to Implement a Modern Industrial Strategy” (December 9-10, 2021) shows the continuing commitment of BOI to the national goal of industrialization. The title of the forum is aligned with the goal stated in the Constitution, which says that a primordial task of the State is to “promote industrialization and full employment” (Section 1, Article XII).
But as amplified in the book of Norio Usui (Taking the Right Road to Inclusive Growth, ADB, 2012), the Philippine industrial and agricultural sectors failed to take off in the 1980s to 2000s. Those are lost decades for the country. Remember, in the 1960s, the World Bank ranked the Philippines second to Japan in Asia’s march towards industrialization. And then in the 1980s, we were left behind by the Asian tigers (Hong Kong, Singapore, South Korea and Taiwan); in the 1990s, by Malaysia and Thailand; and at the turn of the millennium, by China.
Now in the presentation given in the BOI forum by Dr. Annette Balaoing of the UP School of Economics, the growth of the industrial sector from 2000 to 2018 was described as weak. The sector is uncompetitive and has limited domestic linkages. We agree. Latest outcome? In 2021, even Vietnam, whose per capita GDP was a fraction of the Philippines in the 1970s, was reported to have overtaken us.
So why are we lagging behind all these countries? How can we succeed in climbing the higher rungs of the industrial ladder?
Dear Usec Rodolfo and Director Dichosa, there are many debates on these topics. When the BOI decided to embrace “industrial policy” as an official policy in 2012, we thought these debates have been resolved. Apparently not. Based on the issues raised in the BOI forum, we would like to raise the following:
First, we cannot forge ahead if we do not recognize the weaknesses of the industrial strategy being promoted by Neda since the 1970s. The point is that the last five decades are decades of neo-liberalism, with our economic planners obsessed with the idea of opening up the economy to foreign trade and investment in a laissez faire or open sesame fashion. The general assumption was that investments and jobs would flourish automatically under a liberalized, deregulated and privatized economic environment.
To say that the roots of the country’s economic problem was protectionism, as practiced in the 1950s and 1960s, is false. It is a leap in logic. Remember the decades of the 1950s up to early1970s were decades of industrial transformation for the country. So why blame the import-substituting policy of the 1950s-1960s for the industrial stagnation that happened from the 1970s to the present, which are decades of industrial export promotion under the trade-investment liberalization regime pursued by Neda?
Also, remember all the Asian countries which have overtaken the Philippines are all original practitioners of protectionist import substitution in the early decades of their industrial growth before they combined protectionist import substitution with the following policies: protectionist export promotion, aggressive acquisition of technology and rounded development of the economy. Just read the economic history of South Korea and China.
Second, strong and decisive State intervention in the promotion of industrialization is critical. On this point, we are in agreement with Dr. Balaoing. This is why we are wondering what has happened to the numerous industry mapping exercises, involving around 40 industries, instigated by the BOI in 2012?
Apparently, there is a continuing hesitancy on the part of the government to exercise its leadership in the active promotion and intervention in growing certain sectors. The triad policies crafted by the IMF-World Bank in the 1970s-1980s—trade and investment liberalization, economic deregulation and privatization—are the dominant policies. No to State-led intervention or active support for any major industry.
Is this not the reason why the government has given up on maintaining the National Steel Corporation (NSC) in Iligan? Under a professional all-Filipino management team, the NSC was doing well (profitably in the black) in the 1970s-1980s until it was privatized and sold to Malaysian and other foreign investors with no vision of supporting an industrialized Philippines. And then for two or so decades, the NSC was allowed to gather rust.
The hesitancy is also clearly reflected in the failure of the government to help promote the ancillary industries that can process the copper cathodes produced by PASAR in Isabel, Leyte. PASAR has been in Isabel for half a century already. Still, it has limited or no linkages with the local copper-mining companies and with industries which can transform the copper cathodes into numerous intermediate and final/consumer products with higher values. Imagine the jobs that can be created should an integrated copper industry be developed in a depressed province like Leyte.
And not to be forgotten, we have the Hanjin shipyard case. Hanjin declared bankruptcy in 2019. It let go of over 20,000 workers in the 300-hectare Subic facility. It was seen as a big economic setback for the country.
However, the Philippine Navy, UP CIDS researchers and a number of Filipino boat builders saw the Hanjin case as an opportunity for the Philippines to build an honest-to-goodness shipbuilding industry catering not only to the needs of the Philippine Navy but also the requirements of the domestic market for efficient and modern RORO ships (not decrepit second-hand imports), cargo ships and small and medium boats for the 7,000 plus islands. Even the BOI expressed interest in the possibility of the country having a shipbuilding industry of its own.
But what has happened? Nothing. Apparently, the dominant economic policy framework has remained fully in place: rely solely or mainly on foreign investments.
Of course, foreign investors, if goaded or nudged to go into investment areas where the Philippines lacks capital, know-how and market, can be good allies in development. But is there a country in the world which has managed to develop industrially by relying solely on foreign investments?
More 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.