Commentary: Apec’s globalization hurts local SMEs

AMONG THE supposed aims of this year’s Asia Pacific Economic Cooperation (Apec) meetings is getting the little guys—the small and medium enterprises (SMEs)—on board the bandwagon of economic integration.

In particular, Apec is pushing for a greater role for SMEs in the global production and distribution systems of multinational and transnational corporations. Through the SMEs, economic growth is supposed to trickle down to the smallest players in the value chain.

In a sense, this is Apec’s way of addressing the highly inequitable distribution of wealth that globalization has fostered. It is an admission that trade and investment liberalization policies pushed by Apec, in connivance with the World Trade Organization (WTO), International Monetary Fund (IMF) and World Bank (WB), have benefited mainly the big global firms at the expense of the rest of the world, including the small and medium producers in developing economies like the Philippines.

As host of this year’s summit, the Aquino administration plays a big role in Apec’s posturing of concern for the weak and small. The Philippine government has even injected President Aquino’s hollow slogan of “inclusive growth” into Apec’s mix of feel-good jargon, with the SME sector as one of its poster boys.

But first we have to ask: What impact did three decades of trade and investment liberalization have on our SMEs? And will Apec’s newfound advocacy for SMEs do any better?

Economic liberalization policies since the late 1980s have caused the demise of our manufacturing sector, notably garments and textiles, footwear, rubber products, furniture, appliances, food and beverage, steel, chemicals, drugs and pharmaceuticals, many consumer goods and even agro-industrial products. Left by the government to fend for themselves, Filipino manufacturers and farmers have been decimated by the deluge of cheap imported goods and raw materi- als brought about by the government policy of slashing tariff rates to one of the lowest in Asean, not to mention toleration of rampant smuggling.

The numbers bear this out: From 1999 to 2010 alone, around 3,000 manufacturing firms closed shop, resulting in 214,000 jobs lost. At 22.6 percent average share of GDP, manufacturing is at its lowest levels in 60 years; agriculture, at 10.8 percent share of GDP, is the lowest in history.

Worst hit and still unable to recover from globalization’s disruptive impact on manufacturing since the late 1980s are our SMEs that used to produce consumer goods for the local market, or supply materials and services for larger, integrated local industries. Trade and investment liberalization has allowed this traditional role to be taken over by foreign suppliers and their local distributors.

Instead of integrating with local industries or graduating into large enterprises themselves, our beleaguered SMEs have in fact been shrinking into the equivalent of economic microorganisms. An overwhelming majority—697,077 or 91.5 percent of Filipino firms—is categorized as microenterprises, with a miniscule asset value of P3 million or less each and having just 1-9 employees. Of these, 51 percent are into wholesale and retail trade, meaning they don’t even produce anything.

This is probably why the Philippines insisted that Apec change its nomenclature—from “SME” to “MSME” (“M” for micro)—so as to include food carts, cell phone repair kiosks, sarisari stores, tricycle and pedicab operators, kakanin and pasalubong makers, pasa- load re- tailers, and the informal economy that comprises the vast majority of Filipino enterprises.

Unfortunately, these microenterprises, which contributed a mere 4.9 percent of value added to the economy and whose productivity is a mere 10 percent of large industries, are too small and inefficient to compete for a piece of the global or even regional value chain. Take note that the average life of such businesses is only 3-5 years.

Our real SMEs, which are supposed to benefit from Apec’s action plans, are already nearing extinction, with small firms comprising just 7.6 percent of all businesses and medium ones accounting for even lower, at 0.4 percent.

Unlike in industrialized economies, our SMEs have become orphans in their own country. They have little relation to our large industries, most of which source their equipment, parts and materials from abroad. Thus, there are hardly any forward or backward linkages with local SMEs, creating minimal value added to the economy. Such linkages are crucial to maintaining a robust and sustainable SME sector and building a truly industrial economy. Without it, one ends up with enclaves of import-dependent, assembly-type factories; a service sector that serves industries on other shores; and a massive trading sector dumping cheap, often smuggled, consumer goods from abroad. This in turn translates to low-paid, contractual jobs, if any.

It was Apec’s globalization agenda, zealously implemented by previous and the present administrations, that caused the mass destruction of our SME sector and discouraged the development of large-scale, integrated Filipino industries. Now here comes Apec again, claiming to provide yet another false solution to our problem of joblessness, mass poverty and underdevelopment.