Dutertenomics and economic prospects for the second decade

The May 2019 elections, where the Philippine polity dealt the opposition’s Otso-Diretso slate a 0-8 thrashing, is pregnant with meaning. The Filipino people, it seems, have voted to hand the last bastion of opposition – the Philippine Senate – to President Duterte. Having now a free hand, he can no longer blame the oppositionist obstructionism for meager progress in the economic space moving forward. There is less call to formally extend the Mindanao state of emergency to the whole country. The electoral victory seems to imply that the people have reaffirmed their implicit social contract with Dutertismo: less political space in return for more economic space. The next three years will reveal whether the Great Unwashed of this country has taught its snooty upper class a lesson in discernment. What can we glean from the first three years? First we look at the benchmark.

The previous administration defined what is possible for the Philippine economy both in quantity (a 6.5 percent average annual GDP growth) and in quality of growth (Manufacturing for the first time grew on annual average faster than Services). And it was dramatically inclusive: In October 27, 2016, the Philippine Statistics Authority announced that poverty incidence for 2015 dropped to 21.6 percent from the previous 26.2 percent (https://psa.gov. ph/content/poverty-incidence-among-filipinos-registered-2162015-psa). Under no other president was such a record ever attained. The label “new normal” for this achievement seems appropriate to differentiate it from the “old normal”: In the last 30 years, average GDP growth was 4.5 percent with

manufacturing always growing slower than Services. That was the three decades when we said goodbye metaphorically to the fold of the economically rampaging East Asia. The Duterte economic team bowed to exceed the new normal and return us to the fold.

How did Dutertenomics fare? In the first full year of the Duterte watch (2016-2017), GDP grew by 6.8 percent, with Manufacturing growing faster than Services; this is better than the new normal, as the Duterte economic cluster had hoped. The second full year growth was 6.1 percent GDP growth, with Manufacturing now growing slower than Services. A temporary hiccup, we hoped then. The Q1 2019 growth dipped further to 5.6 percent GDP growth, Manufacturing growing slower than Services. It is now unlikely that the third year growth will match the new normal. There is as yet no evidence that poverty incidence has significantly fallen; job creation, too, has not kept up with the predecessors’ record. Is the Philippine economy reverting to the old normal of slow economic growth, slow poverty reduction and economic mediocrity?

To be sure, there have been some progress in the policy front: TRAIN 1 is now a law to the relief of the middle class; the NFA’s exclusive power to import rice has been clipped; and a third telco player has been certified for yet to-be-realized benefit to consumers; Build, Build, Build is the correct policy to pursue given the backwardness in our infrastructure. But clouds of uncertainty are aplenty in the horizon: The proposed ENDO law now on the president’s desk is most worrying as it will raise labor cost and/or reduce job prospects for outsiders; TRABAHO’s (TRAIN 2) threatens uncertainty and attenuated incentives for

Manufacturing and exports to allow higher profit for service and property magnates and is spooking direct foreign investment in particular, and investment in general. There is little or no movement in agricultural land policy, which traditionally has driven private capital out of agriculture. The contemplated shift to a federalist system will throttle investment for five years or more moving forward. The trifling of the rule-of-law in—among others—the P1.1-billion penalty imposed on water concessionaires by the regulator MWSS, the very culprit in the March 2019 water crisis, stood the liability principle on its head and further eroded our country’s attraction to foreign and long-term investment.

Duterte’s politics is populist. But the boundary between the market and populism is not impermeable as Dutertenomics seemed to imply. In his first three years, Duterte hued gingerly and agitatedly to the shores of respect for the market. How will the May 2019 electoral reaffirmation of Dutertismo affect the tug-of-war between populism and the market in the next three years? Will this lurch to autocracy be used heretofore to enable the market to expand economic space, or will Duterte fall for the allure of quick populist gratification that stifles the market? This is the mother of all questions.

ENDO is a bell weather. If Duterte signs it into law, it can signal the onset of the season of unbridled populism. It can open the floodgates of excessive entitlements to noisy interest groups, like the left-led demand for excessive pay raise for public school teachers. This latter if accommodated will, in turn, further decimate the ranks of small town private schools who stand to lose mentors and leave only the very rich in the urban centers to afford quality private school education. Unbridled populism has already destroyed our agricultural economy by chasing the market and private capital out of the farm sector. Are we about to visit the same tragedy on our industrial sectors?

This is an enduring lesson of history: You trifle with market and you trifle with your future. Even if you’re an autocrat! Autocracy earns its keep only when deployed to grow the economic pie. Deng Xiaoping of China used his autocratic power to enable the market towards shared prosperity; Hugo Chavez and Nicolas Maduro of Venezuela used autocratic power to pursue aggressive populism that destroyed the market and engendered abject shared misery. Ferdinand Marcos used it simply to plunder government banks and enrich his cronies. Will the next decade’s refrain be, “Venezuela, here we come,” or will it be “East Asia we’re back!”?

***

Raul V. Fabella is a retired professor of the UP School of Economics, a member of the National Academy of Science and Technology and now an Honorary Professor at Asian Institute of Management. Weaving ideas in coffee shops is an integral part of his day. He gets his dopamine fix from hitting tennis balls with wife Teena and bicycling.