Philippine Economy in the Asian Century

Posted on Posted in 2018-2019

Written by: Enrique B. Halili

Last February 26, 2020, The Ateneo Economics Association held its annual KamalAEAn talk, entitled “Philippine Economy in The Asian Century” in the Ching Tan Room, Ateneo de Manila University, Quezon City. The talk was given by esteemed writer John West, who authored the book “Asian Century… On a Knife-Edge”. West primarily discussed the history of the Asian economy, as well as lessons the Philippines could learn from its neighboring countries in a time dubbed as “The Asian Century”.

Asian Economy Throughout the Years

West began his talk by giving some context to the “Asian Century” by asserting that even before the 19th Century, it could be said that most Asian countries have always prospered. He stated that during this time, Asia had ⅔ of the world population and ⅔ of the world Gross Domestic Product (GDP). 

However, the situation did not stay like this, as the Industrial Revolution in the west as well as colonialism paved the way for the decline of Asia. This was intensified by certain countries such as China experiencing internal problems, and the effects of World War II which were felt throughout the continent. 

After WWII, West stated that Asia experienced a kind of Renaissance wherein multiple countries prospered and thrived. This renaissance, however, sadly did not include the Philippines, which continued to experience several problems. In comparison to countries, the Philippines’ GDP per capita was $8,951, meaning it was well behind countries like Japan, Korea, Malaysia, Thailand, China, and Indonesia. When it comes to the rate of poverty, the Philippines has proven to be behind many neighbors, implying that not everyone has been benefiting from this economy.

On the more positive side, the country has seen steady growth in the more recent years. Since around the year 2000,  Philippine economy has become one of the fastest growing economies. In addition, income inequality is high in the Philippines and much higher than countries like Thailand, Vietnam, and China, same as Indonesia and below Malaysia. 

Lessons to Learn

According to West, the Philippines has much to learn from its neighboring Asian countries. He compared the country to India, and how they are similar in terms of weak manufacturing. However, while the Philippines is lagging behind its neighbors its economy has come a long way over the past couple of decades. While it is no longer the sick man of Asia, it can still do considerably much better, and actually has the potential to become a star of the Asian century.

The potential that the Philippines holds can be realized by taking into account the strengths of other Asian countries such as Japan, South Korea and Vietnam, which have all experienced rapid progress. West also suggested the potential of Global Value Chains (GVCs) for manufacturing, stating that it could serve as a “fast track to development”, citing products such as the iPhone as an example, which is produced in several countries. The main risk of this, however, would be the middle income trap, meaning constant expansion of business would be needed. To put it simply, West explained it as “Instead of helping build the next iPhone… invent the next iPhone”. The problem here was that the Philippines is slow to hook onto manufacturing GVCs, which is unfortunate considering the many possible benefits.

Demographics and demographic transition are other factors that could also be looked into, as the Philippines benefited from demographic dividend, meaning increasing working age population. In fact, the working age population of the Philippines could increase from almost 70 million in 2019 to 97 million in 2050.

Urbanization and its effects could also prove to be advantageous, according to West. This could be a great force for development, with the movement of people from countryside to towns and cities, taking place everywhere in Asia. As citizens start to migrate from the countryside to more highly populated areas such as towns and cities, they can move from low-productivity to higher-productivity jobs. This means that cities could potentially serve as hubs for innovation in the future. It is important to note that the risk inherent in urbanization is urban poverty and slums, as some 38% of the Philippines’ urban population would live in slums. The solution offered by West to combat these effects are “jobs, jobs, jobs”, and “infrastructure, infrastructure infrastructure”.

Looking forward

To end the talk, West explained that the Philippines has indeed come a long way from the struggles of being the “Sick Man of Asia”. However, he stresses that there is still a long way to go for the country, and as such it may be high time to learn from neighboring countries. This is because, for West, “your neighbors provide many lessons to help you do better”.

Burning Questions

A short Q&A session took place after the talk, where some students got the opportunity to raise some questions and clarifications.

One student asked a question regarding Foreign Direct Investment (FDI) and infrastructure, stating that they have the tendency to be “two-faced”, since on one hand this allows the Philippines to be part of the GVC, but on the other hand it may lead the country to be vulnerable to “debt traps”. She brought up the Belt and Road initiative of China, wherein investments are made in developing countries such as Sri Lanka and the Philippines, only to leave them in debt as interests go up. Her question to West was “How do you reconcile both FDI and infrastructure given that they both can be a good and a bad thing?”.

To answer the question, West contextualized the issue further. He explained that in the case of successful countries like Japan and China, they did not borrow money to finance their infrastructure. On the other hand, the Philippines lacks the funds to finance infrastructure due to the fact that “no one pays tax”. According to West, The best way to improve infrastructure is to finance it yourself, allowing the country to reap the benefits such as attracting investment and political independence without being left in debt. In terms of addressing the Belt and Road initiative, West’s advice was to carefully analyze every deal to make sure it is in the interest of the country and that will truly be beneficial.

Another student asked about the general prominence of “sweatshops” in association with the global value chain, and their tendency to foster harsh working conditions. West lauded the student for bringing up a relevant and pressing issue, saying that for countries that are particularly poor, the working conditions may be cruel and sometimes exploitative. For him, the hope is that by the time the country is able to “climb the ladder” and become more successful, that the working conditions will improve as well. A specific example of this would be China, which used to house numerous sweatshops before growing into a more sophisticated economy.

After entertaining the students’ questions, West distributed free copies of his book to lucky students and posed for some pictures. After this, the event officially ended with a word from the hosts.

For more information, you can visit:

https://asiancenturyinstitute.com/development/1588-philippine-economy-in-the-asian-century?fbclid=IwAR3EjeT5TJsCyisCjDHyxf8IR6wAmX52_1Xrg6OA8XdEufydYMps_tta5Pc

 

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