Companies may invest more in machines than in people

Dr. Raul Fabella, professor emeritus of UP School of Economics, discusses inclusive capitalism in the Philippines during Wednesday’s Ayala-UPSE Regional Economic Forum at the City Sports Club. CDN PHOTO/LITO TECSON

ECONOMIST TAKE ON CONTRACTUALIZATION BAN

President Rodrigo Duterte’s new executive order (EO) against illegal contractualization may dampen anti-poverty efforts by putting pressure on companies to regularize all its employees, an economics expert said.

According to Dr. Raul Fabella, a national artist awardee and professor emeritus of the UP School of Economics, requiring companies to spend more on labor cost might push them to instead invest more in machines and less on people.

“What’s gonna happen is there will be greater investment in equipment that save labor, and in the long run, it might just be that there is less employment than what is hoped for. It is an untended consequence that may hurt our people,” Fabella said during a forum on inclusive capitalism in Cebu on Wednesday (May 2).

With contractualization, he said, the marginalized labor sectors would be able to secure income even if it would, in a sense, only be from time to time.

Bankrupt

With strict prohibition on contract-based labor, Fabella said that companies could not anymore hire contractors.

Regularizing all of their employees is also not an option, he said, as companies might be left bankrupt.

He said what would happen would be that these companies would let go of most of these contract-based workers, and maybe, they would retain some to be regularized.

He said and those, who would be cut off, would be left jobless.

Aside from this, he said regulating contractualization would also hurt the manufacturing sector which is a significant sector in terms of poverty reduction.

Poverty reduction

Citing records from other countries like China and Vietnam, Fabella said that there was a correlation between poverty reduction and the improvement of the manufacturing sector.

He said both countries had significantly reduced their poverty rates and in both countries, the share of the manufacturing sector was high, higher than the services sector.

In contrast, he said that in the Philippines, poverty reduction was only at a minimum.

Data also showed that in the Philippines, services sector had a bigger share than manufacturing sector.

“If you want poverty reduction, you might consider increasing the manufacturing share. But that is just correlation. It might not reflect in other countries,” he said.

According to Fabella, China was able to reduce their poverty incidence from 64 percent in 1990 to only four percent in 2015.

China’s success

In contrast, the Philippines was only able to reduce poverty levels from 34 percent in 1990 to 26 percent in 2015.

He said though that right now, it is at 21.6 percent.

“Why did China achieve success so spectacularly and the Philippines did not? In the process of China reducing poverty so drastically, its income inequality increased. China is a case where income inequality increased and at the same time poverty fell dramatically,” he said.

This is why, he said, low-income countries like the Philippines should train its focus and attention on poverty reduction efforts instead of equal income distribution.

Fabella said laws and policies against contractualization would hurt manufacturing companies in the Philippines.

He said that these companies would be constrained to regularize its employees, thus incurring higher labor costs.

He said these manufacturing companies would not be able to recover their costs through increasing the price of their products since their competitors are located in other countries and are not covered by these laws.

“It’s no way to help manufacturing. If you want poverty reduction, you better help manufacturing. And with this, you’re not helping manufacturing,” he said about efforts to end contractualization.

He cited House Bill No. 6908 or the Security of Tenure Bill passed by the House of Representatives. A similar bill is still being deliberated in the Senate.

Just last May 1, President Rodrigo Duterte also signed an executive order prohibiting illegal contracting and sub-contracting that is made to circumvent employees’ rights to security of tenure, self-organization and collective bargaining, and peaceful concerted activities.

At the same time, Fabella also encouraged conglomerates to take part in efforts towards inclusive capitalism.

“Inclusion is too important to be left to government. You have to contribute to inclusion,” he said.