“Global competitiveness” has long been an idea around which many countries, including the Philippines, have rallied their efforts for achieving economic development. The thinking goes that if a country is more globally competitive, the more likely it will grow and prosper faster over time.
The most influential definition of global competitiveness is perhaps that of the World Economic Forum, espoused through its annual Global Competitiveness Report (GCR). For the WEF, global competitiveness is to possess a certain set of “institutions, policies and factors” that raise a country’s productivity, which, in turn, determines the level of prosperity achievable and the rates of return on investments made into the economy.
Our economic managers—from past administrations to the present—have used the GCR as a barometer for the government’s efforts, often citing the Philippines’s gains in the report as a sign of continuous progress.
In fact, the Philippines has consistently improved on its competitiveness rankings. For the 2008-2009 GCR, we ranked 71st out of 134 countries. In the 2018-2019 edition released last week, we were 56th out of 140. Although methodology changes have been introduced over the years, it’s clear that we’ve improved and become more competitive—at least in the WEF’s terms.
Some, however, have pointed out problems with focusing on global competitiveness. For instance, Vaiva Petryle from Vilnius University in Lithuania argued in a 2016 paper that there was a weak—if not non-existent—relationship between a country’s GCR ranking and its GDP growth. A 2015 paper by researchers from the Gdansk University of Technology found that with the exception of some large economies like China, India, the United States and Russia, the GCR is not successful in predicting economic growth for up to 114 countries surveyed.
Where then could we anchor our attempts at sustaining our high economic growth and ensuring its inclusivity? At the 44th Philippine Business Conference organized by the Philippine Chamber of Commerce and Industry (PCCI), I suggested that we tackle that challenge through the perspective of “economic complexity,” described by Professor Ricardo Hausmann of the Kennedy School of Government and Professor Cesar A. Hidalgo of MIT.
In a 2011 study, Hausmann and Hidalgo found that a given area—a municipality, a city or an entire country—becomes prosperous when it produces and trades a diverse array of goods and services that are complex and uncommon (i.e. not produced by many countries). They then argued that economic complexity was a better predictor of future economic growth and development.
One can gauge the economic complexity of a given product based on the “personbytes”—or the amount and diversity of know-how, talents or skills—needed to produce said product. For instance, a coconut would need fewer personbytes to be produced, compared to x-ray machines, cargo ships, airplanes or satellites. Where only one person is needed to plant, maintain and harvest the coconut tree, hundreds—if not thousands—are needed to produce and export x-ray machines, cargo ships, airplanes or satellites.
Hausmann and Hidalgo’s assertions may sound obvious. But they also demonstrated that economic complexity does not always correlate with wealth and prosperity—suggesting that a country with a sophisticated economy may not necessarily realize the full potential of this complexity.
According to their 2016 Atlas of Economic Complexity, the Philippines ranked 30th out of 127 (a jump of 36 places since 2000), making us the fourth most complex economy in Asean—behind Thailand (#27), Malaysia (#22) and Singapore (#5). We already export products in up to 60 categories—with ICT services and electronic integrated circuit, which are fairly complex products, being our main offerings.
But in terms of the growth potential based on economic complexity, we ranked 11th in the entire world. That is to say, we can potentially export more and expand our base for growth if we find new synergies between the industries and services that we already have to come up with new, more complex and non-ubiquitous products.
Of course, this isn’t to say that we should abandon the rubric of “global competitiveness” as outlined by the WEF. But our efforts at pushing our economy would definitely gain some nuance—and even better success—if we consider “complexity” one of our economic goals.
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Sen. Sonny M. Angara was elected in 2013, and is now the chairman of the Senate Committees on Local Government, and Ways and Means.
E-mail: sensonnyangara@yahoo.com| Facebook, Twitter & Instagram: @sonnyangara.