Economist links manufacturing to more inclusive growth, poverty alleviation

Supporting the expansion of manufacturing is key to achieving sustained and inclusive economic development and to eradicating abject poverty in the Philippines, according to an eminent economist and academic.

Raul V. Fabella, national scientist and professor emeritus at the University of the Philippines School of Economics, said the contribution of manufacturing and industry to local output or the GDP, have declined in recent years, coinciding with developmental slowdown and unabated poverty in the country.

Referencing data from the World Bank for the period 1986-2009, Fabella noted that manufacturing share fell from 25 percent in 1986 to 19 percent in 2009, while industry share fell from 35 percent to 29 percent. In contrast, services share rose from 40 percent in 1986 to 57 percent in 2009.

The Philippines’s manufacturing sector has been bucking the trend observed among the least developed countries (LDCs) that are fast catching up with more developed peers, and is following the pattern observed in mature economies, Fabella said.

He said “catch-up LDCs” tend to post gains in the shares of manufacturing and industrial sectors, while recording either losses or gains in the share of the service sectors.

On the other hand, mature economies like South Korea manifest loss in the shares of industry and manufacturing, even as they mark gains or flat growth in services.

The Philippines “mimics mature economy trends,” Fabella observed during a recent presentation on the topic inclusive capitalism in low-income economies.

Comparing Philippine performance with those of fast-rising developing economies in Asia and those of developed nations from 1986 to 1996, Fabella showed that emerging economies during that period demonstrated big spikes in the shares of manufacturing and industry in relation to GDP. 

Indonesia, Malaysia, Thailand, and China all showed robust positive growth for manufacturing and industry during the 10-year period; in contrast, the shares of these two sectors in the Philippines contracted, while services posted healthy expansion during the period. 

In the same span of time, South Korea, Germany  and the United States registered growth surges in services share, while showing deep cuts in the shares of industry and manufacturing, Fabella added.

In terms of poverty reduction, meanwhile, Fabella cited figures showing how poverty rates in the Philippines were much lower than either China or Vietnam circa 1990, but that by around 2010, China and Vietnam had drastically lowered their poverty rates, while poverty in the Philippines remained high, having gone down only slightly.

The economist stressed that institutional and policy changes are needed to stimulate Philippine economic growth and significantly slash high poverty rates.  

He suggests “embracing rather than fearing a weak peso to sustain investment-led growth.” 

He also calls for the scaling up of the quantity and quality of Philippine infrastructure under the government’s “Build, Build, Build” program, and seeks the lowering of the cost of power, including by connecting the Visayas and Mindanao grids to give substantial new capacity to the Visayas region.

His other recommendations include for the government to amend the Public Service Act and lift the constitutional limits to foreign ownership, and continue its strategic retreat to its core competence by, for example, privatizing the Metro Rail Transit and Ninoy Aquino International Airport 1 and 3. 

He also recommends the implementation of the retail competition and open access