PANDEMIC PROMPTS RECKONING OF PHL’S RECENT PAST, NEAR FUTURE

‘TWAS the night before the eighteenth of March, when all through streets in front of houses not a creature was stirring, not even a mouse. The laughter of children and the chatter of women faded into hushed tones. Three million hungry denizens of the metropolis silenced to sleep grumbling stomachs.

Welcome to the “bubble,” a dystopian-like world previously stowed in the pages of books of fiction by Isaac Asimov, Ray Bradbury, Orson Scott Card, Cormac Mccarthy and George Orwell.

Asimov allowed robots to march the earth and Bradbury brought humans to Mars. Card viewed a military school in space from the eyes of a child and Orwell introduced Big Brother’s totalitarianism. Mccarthy trekked the road in search of scarce basic need: food.

Albeit not 100-percent accurate, their words presented a future eerily becoming the present: robots, tablets, space exploration even the kitchen wonder “Instapot” for “automeals” ubiquitous. The kernel of this future was linked to the tampering of a nucleus the cell, the idea unknowing that a virus almost the size of a nucleus would give birth to what was only imagined.

Nonetheless, the more the future and the present intertwine; the more the world changes, the more things stayed the same: lack of access to resources, hunger and poverty linger among the masses.

And they look to leaders for hope.

“The country was pushed into the future much earlier than it has prepared for,” Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang told the Businessmirror.

Back to the future

UNITED Nations Under-secretary-general and Executive Secretary of Escap Armida Salsiah Alisjahbana pointed out the pandemic has exacerbated the existing inequalities making it even more difficult to achieve the Sustainable Development Goals (SDGS).

These existing problems include weak health systems and low social security. There’re also the problems of “high informality,” inadequate fiscal space and high disparities in income and wealth, digital access, education and financial inclusion. Add to these are environmental stress and uneven access to vaccines.

All these have made the region’s progress to attain the SDGS uneven.

Alisjahbana said that even before the pandemic, the region was already off-track in attaining the goals. The pandemic will likely worsen this progress, she added.

Alisjahbana said the pandemic is already pushing countries in the region to follow a K-shaped recovery where inequality is expected to widen. This means the poor will continue to spiral downward while the rich enjoy the benefits of growth.

Upended by pandemic

LAST year, the Philippine economy tanked and posted a contraction of 9.5 percent, the lowest gross domestic product (GDP) growth recorded since the Second World War. Traditional production sectors that contributed

significantly to economic growth e.g. industry and services, hiccupped amid the lockdowns.

Household consumption, the Philippine economy’s primary strength, suffered and shrank 7.9 percent last year, given that millions lost their jobs.

Former Socioeconomic Planning Secretary Dante B. Canlas told the Businessmirror that last year, one in 10 members of the labor force became jobless, forcing one in five families to fall below the poverty line.

This, he said, could lead poverty incidence to reach 20 percent once the 2021 Family Income and Expenditure Survey (FIES) is released by the Philippine Statistics Authority (PSA). The survey is conducted every three years; the last survey being done in 2018.

“From the standpoint of human welfare, the above means a profound decline in living standards of several Filipinos after notable improvements over at least the past two decades,” Canlas told the Businessmirror.

He said the pandemic, a health shock, carried economic repercussions that outweighed other shocks. The latter includes the oil-price shocks in the 1980s, the 1997 Asian financial crisis and the 2008 global financial crisis.

Sectors badly hit

CANLAS explained to the Businessmirror that the spread of the coronavirus tiny at 50 nanometers to 140 nanometers had the ability to disrupt economic and business activities that caused both consumption and investment activities to sharply decline.

Ang said the decline in these activities is why the economy’s recovery is slow. Key sectors that significantly contributed to its growth remained “generally muted.” He said these key sectors are trade, transportation, accommodation and construction that contracted 5.7 percent, 31.2 percent, 44.7 percent and 28 percent, respectively in 2020.

He said that while the agriculture sector was “not hit as bad,” it continued to be plagued by weather disturbances. Toward the end of the year, storms and floods devastated crops in the Bicol Region and Cagayan Valley.

The manufacturing sector’s growth “was limited by the domestic lockdowns as well as the slow global economic recovery,” Ang told the Businessmirror.

Data from the PSA showed that the manufacturing output continued to contract in January at 17.6 percent. Average capacity utilization of the sector was at 46.1 percent in January, the second consecutive month that the average capacity utilization rate was below 50 percent.

“This leaves the government to help arrest further declines in the economy through unprecedented borrowing and spending,” Ang told the Businessmirror.

“Nonetheless, the effectivity of government actions were hampered by lack of formality and low levels of digitalization.”

IT adjustments

CANLAS explained to the Businessmirror that the disruption caused by the pandemic forced enterprises to adopt new production techniques, organizational structures and information technologies to be able to continue to do business.

All economic sectors adjusted, according to Canlas: work-fromhome arrangements were allowed and face-to-face team meetings were minimized. However, doing so also minimized coordination in the workplace.

Households also adjusted to new realities. Goods pharmaceutical, food and non-food were bought online and delivered at their doorstep via porters.

“These are the new modes, whether in agriculture, industry and services. As virtual approaches in production and consumption gain currency, some work-skills are rendered obsolete,” Canlas told the Businessmirror.

“To be rehired, laid-off workers need retraining to able to adjust to the new production techniques that have emerged. As workers go through spells of unemployment and underemployment while retraining, aggregate consumption suffers,” he added.

To note, some four million Filipinos were still jobless in January 2021.

Negative externality

THE pandemic exposed “the excesses of capitalism,” And told the Businessmirror

Market economics obeys natural laws that “put things into balance.” It is, he said, the role of other disciplines to place appropriate limits to achieve market equilibrium.

Ang explained to the Businessmirror this dynamic was observed in the agriculture sector.

The natural and organic way of agriculture means taking away chemicals that could be harmful to health over time. However, the lack of discipline paved the way for excesses in consumption and production, Ang explained.

But Canlas said that while capitalism had its limits, the economic shock brought by the pandemic did not show capitalism’s failure. The government stepping in to alleviate the suffering of millions by providing assistance in cash and in kind was expected in a shock such as the pandemic.

The Philippines, Canlas said, continues to rely on markets to conduct business and economic activities. The only problem is the outbreak of the pandemic, a negative externality, caused these markets to fail or falter. Negative externalities are “adverse thirdparty spillover effects.”

“Government intervention is indicated, which has several requirements. Good governance, in the sense of ‘zero-corruption’ in delivering the public health program designed to contain the pandemic is one prerequisite, for example,” Canlas said.

“Summing up, the Philippines is a mixed economy, neither purely capitalistic nor purely socialist, in the sense that the government owns solely the factors of production like labor and capital,” Canlas told the Businessmirror.

Embracing change

ANG said the lessons forced on the Philippines by the pandemic don’t necessarily lead to new economic models but to digitalization. He told the Businessmirror that digitalization will be needed to make the economy more resilient in the digital age.

All roads lead to digitalization, a mantra that has existed for many years, Ang said. However, the government and even logistics for agriculture remained analog, he added.

The economist told the Businessmirror that countries and even companies who were able to adopt to digital trends were the ones that survived during circuit breakers. All they had to do was shift their operations online, thereby, allowing their citizens to access public services and their workers to work remotely, wherever they were in the country or in the world.

“Our institutions are not fine tuning to the changing environment fast enough. This is what I call 2-steps ahead mentality for both government and firms,” Ang told the Businessmirror.

“For instance, elasticities of supply and demand clearly predict response and yet we continue to implement policies contrary to its expected outcomes.”

Sustainability challenge TRADE Undersecretary Rafaelita M. Aldaba said the pandemic fast-tracked the country’s digitalization “journey.”

For one, the number of online businesses registered with the Department of Trade and

Industry (DTI) increased to 82,000 in October 2020 from only 1,700 in March that year. In terms of volume of online payment transactions, there was a 624-percent and 130-percent increase in the use of Instapay and PESONET electronic fund transfer services, Aldaba shared during a webinar co-organized by the Philippine Institute for Development Studies (PIDS) and the Asian Development Bank (ADB).

She also noted that traditional businesses and startups created digital business models to diversify their revenue streams. Aldaba said retail titans doubled efforts to upgrade their e-commerce systems to serve online clients better.

However, she lamented that these recent gains on digitalization may not be sustained. Aldaba said economic statistics “do not currently give a clear and integrated response to questions about the role, nature and size of platforms.”

Aldaba also said large international platforms currently have complicated structures. She explained that because of this, a number of transactions are routed and processed in multiple ways, making it challenging for National Statistics Offices (NSOS) to get a holistic view of a platform’s activities.

Subsequent impacts

ALDABA said that NSOS need to include platforms in their surveys to obtain data on turnover and employment. She added that policymakers need to assess and compare the country’s innovation progress with its counterparts.

Aldaba said this is important as digital innovation transforms markets and has “subsequent impacts on firms, market dynamics, people and communities.” She added that digital infrastructure is also needed as well as addressing regulatory constraints that limit competition.

Based on the National ICT Household Survey (NICTHS), more than half or 63.7 percent of interviewed communities do not have telecommunication towers in their areas.

Further, majority or 70.2 percent of interviewed barangays do not have fiber optic cables installed. The data also showed 87.8 percent of these barangays did not even have free wireless-fidelity (Wi-fi) connection.

Further, a recent World Bank report said that around 60 percent of Filipino households do not have access to the internet. This despite findings by a private firm that said Filipinos spend 10 hours online daily.

Mobile data connection WORLD Bank Economist Kevin Chua said most Filipinos relied on mobile data for Internet connection. Part of the reason is that digital connection in the Philippines is expensive, slow and has a low broadband penetration rate.

Where Internet services are available, Filipino consumers experience slow download speeds. At 16.76 megabytes per second (Mbps), the Philippines’s mobile broadband speed is much lower than the global average of 32.01 Mbps.

In the region, the report titled “A Better Normal Under Covid-19: Digitalizing the Philippine Economy Now,” said 3G/4G mobile average download speed stands at 13.26 Mbps compared to only 7 Mbps in the Philippines. Chua, lead author of the report, said the most commonly used in the country is 3G, which is the lower version of internet connection.

Further, in a joint report by the ADB, UN Economic and Social Commission for Asia and the Pacific (Escap) and the UN Development Programme (UNDP) released this week, countries like the Philippines still had low digital capacities.

Internet use low

THE report noted that digital capacities in many parts of the region are low. The report added that the Philippines and Lao PDR has a big gap in the share of adults with bank accounts between the top 60 percent and the bottom 40 percent of the income distribution.

Further, Internet use is lower among those in the bottom 40 percent of the population in the region. In the Philippines, Filipinos over 35 years old are the least connected while in Lao PDR, Internet connection is also affected by gender.

The data also showed that in Indonesia, Lao PDR and Viet Nam, among other countries, lower education levels are associated with low Internet use.

The report also noted that while digitization of wage payments in the Philippines is progressing, there is still an “ample scope for greater inclusion.”

“The region now must develop digital technology-based policy responses and mainstream data and statistics in (the region’s) recovery (from the pandemic),” Alisjahbana said at the 8th Asia-pacific Forum on Sustainable Development (APFSD) that started last Tuesday.

Reckoning with debt

GETTING the economy on track to an upward trajectory will require changes.

For one, Ang said, the country’s segmented view on health should be made more holistic. He told the Businessmirror that healthy living is a public good and can be aided by technology.

In terms of sovereign debt, Ang said these must be treated differently from private debts. He said public debts are, in fact, investments that allow countries to address its challenges.

Action for Economic Reforms (AER) Coordinator Filomeno S. Sta. Ana III earlier said “Good economics allows heavy borrowing during a time of national emergency.”

“Public debt if used properly becomes an investment that allows the country as a whole to repay. In the same way, integrated and whole of society thinking that is 2 steps ahead will address the future society you want to build,” Ang told the Businessmirror. “[There is also a need to] fine tune the Ambisyon 2040 so that a holistic vision of the Filipino is improved.”

Resource allocation

CANLAS agreed with Ang about health systems and added that this and efforts to contain the pandemic should be part of the immediate and short-term focus of the government. He said efforts to strengthen the public-health program can help the country prevent another pandemic or health crisis in the future.

Further, Canlas said a strong public-health infrastructure would dampen the fear of the uncertainties brought about by the Covid-19 pandemic.

“This translates to higher savings that fund public and private investments in human, physical, and technological capital, the vital ingredients of growth and development.”

Canlas said the allocation of resources by the government through the General Appropriations Act must be done responsibly. This means the government must put in place a “deficit-reduction program” while protecting the core values of people in education, health and social overhead capital such as infrastructure and climate-change mitigation.

“Waste in government spending, such as, those stemming from pork-barrel allocations and corruption ‘a la Napoles,’ must be shunned,” Canlas emphasized.

Of utmost importance

TO address the country’s technology challenges, Aldaba said the DTI has adopted the Inclusive Innovation Industrial Strategy (i3s). This aims to create globally competitive and innovative industries by building an innovation and entrepreneurship ecosystem.

The i3s also aims to remove obstacles to allow the Philippines to attract more investments, strengthen the domestic supply chain, and deepen industries’ participation in global and regional value chains.

“By implementing the i3s, we can improve our competitiveness and introduce new goods, new processes, and new business models in the market, which can lead to more high-quality jobs, income opportunities and the emergence of new industries, thus resulting in an inclusive and sustainable industrial development,” she explained.

For De La Salle University Economist Maria Ella C. Oplas, fiscal policy moving forward is of utmost importance. Oplas said pump priming the economy is an important vehicle to allow the economy to recover. However, government response should be directed and evidence-based.

Further, Oplas said, the national government should also recognize the importance of the private sector. She said collaborative governance is the way to go, especially in times of crises.

“I have always believed in the minimal role of government and more role for private sector in boosting the economy.”

In the end, Canlas said the recovery from a crisis like the Covid-19 pandemic would take time.

Ultimately, she said, the top political leadership, particularly, the Chief Executive, matters greatly, especially during crises. He said countries led by transparency leaders who embrace science in addressing the pandemic were more successful in managing the crisis.

Remove fear

CANLAS and Oplas agreed that Filipinos should be guided by their knowledge of the country’s experience in voting in the forthcoming Presidential polls.

Oplas added that the need for Filipinos to be more discerning in choosing leaders should come into focus. This is not only highlighted in the government’s response to the pandemic but also in the inoculation of the general public.

“I would like to believe that our current president knows local governance but the challenge is his limited social capital. His network is Mindanao, which limited his access to great technocrats,” Oplas said. “We need the vaccine ASAP in order to remove the fear in people and they can finally go out.”

With everything that happened in 2020 and are still happening in 2021, books can be a constant reminder that while they provide a glimpse of far and distant worlds, it is people who deign to create them.

For economists, embracing the digital world and being hyperconnected is the norm and may be the norm for years to come. There is no going back. The future is indeed here.

“The key lesson [here] is that we should efficiently implement policies to make the country ready for the future,” Ang told the Businessmirror.

“Changing economic paradigms is good but it will take longer to adopt than simply improving what our institutions are currently designed for,” he added.