“Growth” built on maldevelopment

BPO and labor export as growth drivers is an aberration because their prevalence is symptomatic of the economy’s continuing failure to industrialize (Photo from callcenterphilippines.com)

Written for The Philippine Online Chronicles

The National Statistical Coordination Board (NSCB) reported that the Philippine gross domestic product (GDP) grew by 7.1% in the third quarter of 2012. The expansion was beyond the general expectation of 5.4% and second only to China’s 7.7 percent. Encouraged by the “surprising growth”, government chief economist Arsenio Balisacan is predicting that the country will surpass its 5-6% growth target for 2012. Earlier, the International Monetary Fund (IMF) also forecast that the Philippines will grow faster than projected and could become the only economy in the world that will beat expectations.

It’s not every day that the economy outperforms forecasts and ranks behind the region’s largest economy so this must be good news, right? But if you are assuming that we are finally on the path toward sustained and inclusive growth thanks to the good governance reforms of the Aquino administration, you might want to rethink your optimism.

Because the hard truth is that our supposed economic growth is an aberration, a result of our maldevelopment. It is “growth” that is being spurred by volatile foreign capital and markets and not by dynamic and reliable domestic productive sectors. It is growth that underlines the structural defects of our economy. Thus, it could never be banked on to produce long-term jobs and curb poverty, much less jumpstart national industrialization. (For a discussion on job creation and inclusive growth, read this earlier article on GDP growth.)

Let us look at the latest national accounts released by the NSCB. The 7.1% expansion in the GDP was mainly the result of the extraordinary performance of the construction sector both in the production and consumption sides. NSCB data show that by industrial origin, the gross value added (GVA) in construction grew by 24.3% in the third quarter, the largest among all sectors. Manufacturing, on the other hand, expanded by just 5.7 percent. Meanwhile, construction expenditure expanded by 24.8% during the same period, easily the fastest growth rate among all types of expenditures that contributed to the GDP growth. (See Table)

What’s driving the scorching growth in construction? Is the country constructing new infrastructure and factories to support the building of national industries? Is the economy producing domestically sourced surplus income that spurs the demand for residential construction?

Sadly, no. The high growth in construction, and consequently the acceleration in the GDP growth, is mainly attributable to the inflows of funds from external sources, in particular the foreign direct investments (FDI) for the business process outsourcing (BPO) sector and the remittances of overseas Filipino workers (OFWs). These externally driven funds are fuelling the so-called “construction boom” in the country, which in turn pushed the substantial GDP growth.

BPO, according to industry sources, has been driving up demand for new office space which is expected to hit a record 400,000 to half a million square meters this year, or an increase of as much as 25% from 2011. Such expansion in BPO commercial space is extremely limited to the country’s BPO hubs. Of the 2.2 million square meters in additional office space for BPO up to 2015, 69% are in Quezon City, Makati, Mandaluyong and Manila while the rest is in other major urban centers like the cities of Davao and Cebu. Certainly, this isn’t inclusive growth both geographically and in terms of the demographic of the domestic labor market. Meanwhile, OFWs continue to stimulate residential construction, with foreign buying of property increasing by 61% this year, according to industry sources.

Why is growth stimulated by BPO and OFWs an aberration?  Because their predominance in economic production is actually symptomatic of the country’s continuing failure to develop and industrialize. Both are the results of the domestic economy’s longstanding structural inability to generate sustainable and productive jobs from vibrant local industries including the manufacture of consumer and industrial goods and modernized agriculture.

Without a national industrialization plan, we are forced to rely on what the US and other rich countries require us to do for their advanced economies.  Since the 1970s, they made us production workers in their global assembly lines and factories. Since the 2000s, they made us call center agents to service the various needs of their clients. In both cases, the rationale has been the same – for American and other foreign firms to exploit our cheap labor in order to cut costs and maximize their profits. To be sure, they do create some jobs but just enough to meet their needs while the jobs generated are totally detached from our own development needs. They are just squeezing dry our labor and human resources while the economy is left with crumbs in the form of several million dollars in investments and several hundred thousand jobs amid tens of millions in employment needs.

The same thing is true with labor export that deprives the economy of the productive capacity of its own work force. Certainly, the remittances keep the economy afloat and provide the much needed boost for consumer spending. But when measured against what is being taken away from us when millions of our skilled workers, scientists and engineers, health workers, teachers, etc. use their invaluable skills to serve the needs of other countries instead of ours, the net impact is far more disastrous economically (not to mention the social costs of labor export).

The maldevelopment of our economy is further emphasized when Malacañang and the IMF boast that the Philippines will continue to grow and be resilient amid the global economic crisis. The reason behind such resilience is not because the economy is internally-driven but because our main drivers of growth – BPO and labor export – are precisely useful cost-cutting schemes for the crisis-hit economies of the First World to cope with the economic crunch. In other words, we may continue to “grow” amid the global crisis at the great expense of our workers who will be forced to accept further exploitative arrangements in the form of more depressed wages and lack of social protection whether as an irregular call center agent here or an undocumented migrant worker in the States.

A country of call center agents and exported workers will just never industrialize. ###

2 thoughts on ““Growth” built on maldevelopment

  1. Indeed volatile! I could not agree more. While our development is debt-based, we need to satisfy the requirements of our creditors and bleed the citizenry with more taxes to justify more loans. The 90% majority of the nation become disenfranchised by this trend so that nobody would dare develop small scale and cottage industries. Only the major corporations are the ones driving the economy leaving the masses in abject poverty.

    Uplifting the lives of the masses through productivity is now paralized by the dole-out of the “cash transfer”. OFWs are more looked upon as the main dollar-earner while while the importers are continually draining it.

  2. “results of the domestic economy’s longstanding structural inability to generate sustainable and productive jobs from vibrant local industries”

    You hit the nail there, buddy.

    However, just to reply on the comment above, cash-transfer is actually good if it will be seen as a motivation for families to send their kids to school. The problem now, is it does become a dole-out system because the government does not know how to clearly pin point its target families. The same problem exists with PhilHealth.

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