AS a child we were probably all asked at one time or another what we wanted to be when we grow up. The eventual decision that we made was presumably because of both our skills and desires. External factors and opportunities weighed in and, of course, we needed and wanted to make money.
It is not much different, at least in theory, from nations. It is not so much a matter of the government having to choose what “job” the country must take. Nonetheless, government policy can, and maybe should, provide a focus and even incentives for how national income is earned.
Government policies and the implementation helped build the massive overseas work force that provides income to the Philippines.
Governments are like people, sometimes—maybe too often—making bad “career” choices. In an effort that was politically and economically motivated, the US government created the stock market and housing crash of 2008. That is not an exaggeration.
The global debt crisis was precipitated by the collapse of the US mortgage market that had been financed by lenders from almost all countries, the Philippines and Southeast Asia being an exception.
Beginning in 1999, US government mortgage lenders Fannie Mae and Freddie Mac made home loans accessible to borrowers who had bad credit and a higher risk of defaulting on those loans. In 1995 President Bill Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods.
We have a continuing debate in the Philippines about how to best grow the economy. We know that overseas workers’ remittances have been a significant part of our growth.
From encompassing 3 percent of the GDP in 1988, remittances’ share of gross domestic product (GDP) grew to 12 percent in 2004. However, since 2011 (9.8 percent) it has stayed at a 9.65 percent yearly average.
We are told that government should help increase the amount of GDP from exports, which is relatively low at 25 percent of the GDP. This is the comparison of our neighbors: Malaysia 61 percent, Vietnam 105 percent, Thailand 52 percent, and Indonesia 17 percent. Interestingly, the share of global GDP from trade has been decreasing from 61 percent in 2008 to the current 52 percent.
The problem is not as much as our low export of goods and services but our negative balance of trade because of high amounts of imports. Aside from “electronic products” (25 percent of imports), we spend a fortune on “mineral fuels” at 21 percent of imports. Now if some of the social media economic experts could figure out where we can get free crude oil or find major domestic production, we would be in great shape.
Before you get too excited about the prospects of South China Sea oil, while China warns everyone to stay away, the only place they have explored for oil in the region is well within their own exclusive economic zone.
Household consumption is about 60 percent of global GDP. For the first quarter, Philippine household consumption was 78 percent. Government spending is important—in 2016 it was 19 percent of GDP and is now up to 27 percent. But too much of the growth is from increased borrowing.
Capital investment is critical and here is where we are lacking—with only 17.4 percent of GDP, the same as Italy, which is not exactly an economic growth mentor at 5.8 percent growth and 6 percent inflation. Here we lag far behind our peers: Indonesia, 32; Vietnam, 27; Thailand, 24; and Malaysia, 20.
The best way to grow the economy, increase wealth, and lower poverty is to incentivize the private sector to invest and create jobs. That should be the priority.