Wild yarns and stunted exports

By: Cielito F. Habito - @inquirerdotnet - Columnist/Philippine Daily Inquirer | November 02,2021 - 08:30 AM

In all of East and Southeast Asia, the Philippines was second only to Japan in average income in the late 1950s, based on data compiled by the late British economic historian Angus Maddison. Ours was among the faster-growing economies in our part of the world in the post-war decades, notes Dr. Florian Alburo in a 2018 paper. In particular, only Malaysia and Taiwan did better than the Philippines in merchandise exports in 1970 (with $1.6 billion and $1.4 billion respectively, against our $1.1 billion). We were at par with Indonesia, had more than South Korea and Singapore (both with $0.8 billion), and Thailand was even further behind with $0.7 billion.

The 1970s then saw us fall behind our neighbors, one by one. By 1980, those countries had all left us behind. Our $5.7 billion export earnings trailed behind Thailand’s $6.5 billion, Malaysia’s $12.9 billion, South Korea’s $17.5 billion, Singapore’s $18.2 billion, Taiwan’s $19.8 billion, and Indonesia’s $21.9 billion. And another 10 years later, we were still at a single-digit level of $8.2 billion, but the same neighbors already had three to eight times ours (Thailand had $23.4 billion, and Taiwan $66.2 billion). Far from the wild yarn that the Marcos dictatorship brought a supposed “golden age” for the economy, those were lost decades for us as our neighbors surged ahead while we languished in relative stagnation.

The 1990s were catch-up years for us, when our total export earnings grew nearly five (4.7) times from 1990 to 2000. Indonesia, Singapore, Thailand, and Malaysia saw theirs growing only 2.4, 2.6, 3, and 3.3 times, respectively. Vietnam outstripped our export growth even then, however, expanding 5.7 times in that decade. But our seeming export spurt was not to last, and we turned growth laggard again after the turn of the millennium. In the ensuing 20 years, our total export earnings expanded only 1.7 times to $65.2 billion. Meanwhile, exports of our Asean peers multiplied faster from already much higher levels: Malaysia saw its exports grow 2.4 times to $233.4 billion, Indonesia 2.6 times to $163.3 billion, Singapore 2.7 times to $373.7 billion, Thailand 3.3 times to $226.7 billion, and Vietnam a whopping 19.5 times to $282.7 billion—making our exports look paltry in comparison.

It’s no exaggeration to describe our export sector as stunted relative to our Asean peers, and it begs the question why. Alburo offers answers. All the above seven countries “began their reconstruction with import substitution as an immediate way to restore domestic industries” — which meant a “vast array of controls on international transactions” and high levels of trade protection on import-competing industries. But given domestic market limitations, they turned to export-oriented industrialization and shifted policies toward export promotion. The Philippines, however, “stayed too long in import substitution long after the rest had abandoned [it],” and even as it also professed an export promotion policy, it maintained a protection system for import substitution. “In effect, the two incentive systems offset each other, diminished potential backward linkages among industries, and gave confusing signals to economic agents,” he noted.

The country also differed from its peers in three elements critical to exports: supporting infrastructure, foreign direct investments (FDI), and exchange rate policy. Alburo cites how even with a relatively high road density, the proportion of paved roads in the Philippines remains among the lowest, and ports and telecommunication facilities have been inferior to that of our neighbors. Intricate rules and regulations, cumbersome registration process, and other non-economic factors led to the “relative FDI drought in the Philippines.” And while our “export tiger” neighbors deliberately undervalued their currencies to boost exports, Alburo shows data proving that we had “overvalued [our] currency for so long.” We’ve heard much about how child stunting amid escalated hunger presents a long-term threat to our country’s future. Moving forward, the other stunting — that of our export sector — merits similar urgent attention.

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TAGS: Angus Maddison, faster-growing economies in our part of the world in the post-war decades, golden age of the economy, Japan, Marcos dictatorship, Philippines, stunted exports, wild yarn

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