National Economic and Development Authority, like the Department of Trade and Industry, has embraced industrial policy, on paper. After five decades of ignoring the central role of an activist state in the industrialization of a country, Neda is now trying to push the economy back to the industrial path of development.
In this connection, one major development instrument that Neda is trying to promote is the countrywide upgrading and diffusion of technological innovation. The National Innovation Council led by Neda released recently the “2023-2032 National Innovation Agenda and Strategy Document.” Accordingly, NIASD, through the advancement of technology, shall prevent the three “unwanted futures” for the country—“masakuna” (disaster-prone), “langit-lupa” (widespread inequalities) and “mabagal” (slow progress).
Through the NIASD and its Philippine Development Plan 2023-2028, Neda claims that the Philippines shall attain the status of an “upper middle income developing economy” within the term of PBBM. An upper middle developing economy is one with a per capita gross domestic product of over $4,000, a level already reached by Vietnam last year with its per capita GDP of $4,170. In contrast, the Philippines, whose per capita GDP was several times higher than Vietnam in the late 1980s, managed to register a per capita GDP of $3,633 in 2022. This means the Philippines has remained trapped in the category of a low-income developing economy for over five decades, that is, since the mid-1970s!
On NIASD, the overall message is industrial, agricultural and economic transformation through technological progress. For this purpose, Neda has set the following targets:
GERD (government expenditures on research and development) to rise from .3 percent of GDP to 1.8 percent (which is substantial but still low compared to spending by Asian heavyweights like China, Japan and South Korea, which have GERD ranging from 3 to 6 percent;
Ranking in the global innovation index rising from 59th (out of 132 countries) to 43rd by 2028; and
Multi-dimensional transformation of the economy into a “competitive and resilient” one.
Further, the government shall promote a supportive environment for R&D by re-engineering basic-technical-vocational and higher education, increasing national expenditures on R&D and its commercialization. There are also proposals on more scientific exploration, techno entrepreneurship, digitalization, innovative transformation of agriculture and various sectors of the economy, and yes, strengthening and upgrading of the manufacturing sector.
It is difficult to quarrel with Neda on the above NIASD goals and the different technological upgrading and R&D measures contained in the NIASD. However, there are missing elements in the NIASD that the policy makers should pay attention to. As it is, NIASD is long on rhetoric but short on details on how the culture and environment of innovation can be built up.
First, NIASD fails to discuss how the management of technology can address widespread poverty and inequality in the country. A prime example here is the situation in agriculture. PBBM officials talk of “clustering” farms, introduction of new machines and development of value chains, etc. Who will do this? They end up mentioning the role of big agribusiness firms as leaders and small farmers and landowners as followers. The endless social and economic conflicts in the countryside are easily traceable to the failure of the government to clarify on which side or which interests it is trying to uphold and promote. No amount of technology advisories and extension work will succeed in eradicating rural poverty if land reform (7 decades of stop-go implementation) remains unfinished and if the farmers are not treated as the rightful leaders in modernization. Neda even fails to connect NIASD with the SDGs (17 in all), which seek to address inequality and sustainability concerns.
Second, NIASD fails to address forcefully the importance of marrying technology advancement and acquisition with the full industrialization of the country. A national government successfully arranging the marriage of technological advancement and home-grown industry groups is amply illustrated in the stories of Asia’s industrializers: Japan, China, South Korea and Taiwan. But Neda only talks in generalities, of partnerships between business and the scientific community. Relatedly, NIASD fails to include in the agenda the proposal of Senator Sonny Angara regarding the promotion of “Tatak Pinoy” products being generated and developed across the country.
Third, NIASD has no program of “leapfrogging” or “catching up” in areas where the Philippines can excel or must invest. Easily, what comes to mind is the development of the maritime industry in an archipelagic country. Neda and DTI were given a low-hanging fruit when Hanjin, with its 300-hectare shipyard in Subic, collapsed and became bankrupt. Philippine Navy officials and local shipbuilding entrepreneurs expressed interest in the Hanjin facility to develop our capacity to build and repair naval vessels and to build Tatak Pinoy ocean-going sea vessels. Instead, the government gave the facility to an American company, Cerberus. The case of Hanjin is a clear proof that the Philippines still does not have a clear industrial policy. The declarations of DTI and Neda that they are embracing industrial policy remain paper declarations.
The reality is that sustained industrialization growth requires a dynamic spiral of innovation, learning and technology upgrading and their application in growing up the country’s industrial and agricultural base. And yet, this is not elaborated in NIASD. It appears that our Neda technocrats remain heavily influenced by their free-market mumbo-jumbo, with their naïve expectations that in an open economy, FDI would come in and would eventually help raise the technological base of the country. The job then of the government was simply graduate more engineers and technical personnel. History tells us that technological progress does not occur simply because there is openness in the market.
The reality is that the role of the government is crucial in industry upgrading processes and in developing a strong domestic science and technical base, which allows an economy to be creative, flexible and responsive to changing market situations.
Donna Doane of Fair Trade Alliance wrote that Japan and the Asian NICs have pursued innovation and technology development in varied ways but all focused their efforts on 1) moving the country up the technology ladder and developing “high-tech industries and technology clusters,” and 2) encouraging “low and medium tech” areas through the preservation and transformation of indigenous skills and technical skills (“technology blending” and clustering).
There is no space to discuss the specific details of the experiences of each of these countries in scaling up the technology laddering. But what is clear is that in each country, the role of a strong, visionary and developmental state is central. Japan and the Asian NICs single-mindedly pursued a program of industrial policy, which entailed government support in capacity building in strategic industrial areas (both domestic and export) which have the potentials of pushing industrialization at a higher and faster level even if initially these industries had no comparative advantage; for examples, car-making in Japan during the 1950s and steel making in South Korea in the 1970s. In a way, what China has done in the last four and a half decades is a replication on a grand scale of the industrial policy experience of Japan and the Asian NICs.
Now, can the Philippines emulate its successful Asian neighbors by taking a more explicit and assertive position in the promotion and unification of technological advancement and industrial development, especially in building up the capacity of local or domestic industry, at the regional and national levels? Can Neda adopt a clearer and stronger position on having a “Tatak Pinoy” in manufacturing and agriculture?