The Philippine Economy in 2050 – Report Card from Manila

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(Part 2)

The second reason I chose 2050 for this futuristic look at the Philippine economy is that I focus on South Korea as the best model among East Asian economies to emulate for the Philippines, despite some important differences in factor endowments and culture. South Korea was not finally declared an advanced economy by the United Nations Conference on Trade and Development (UNCTAD) until July 2021, about 25 to 30 years after reaching upper middle income status. in the late 1980s or early 1990s. The Philippine economy will achieve upper middle income status over the next three years, delayed by the pandemic. The year 2050 will be roughly 25 to 30 years after we reach upper middle income status, which, at today’s prices, is achieved by emerging markets when they are able to exceed a per capita income of $ 4,000.

By following the example of South Korea, we will be able to avoid the so-called middle income trap in which virtually all Latin American countries like Mexico, Argentina, Brazil and Chile were trapped in the last century. If we are not careful, we could forever be at the stage of an upper middle income economy and never reach the stage of an economy which, at today’s prices, would require at least $ 20,000 of income. per inhabitant. The middle-income trap refers to countries that are stagnant and fail to reach the levels of advanced countries. Many middle-income countries are caught in this trap: unable to compete with low-income, low-wage economies (such as Myanmar, Laos and Cambodia today) in manufactured exports and unable to compete with advanced economies in highly qualified innovations. These countries cannot move from resource-driven growth, with low-cost labor and capital, to productivity-driven growth in time. As Jesus Felipe reports in an article entitled “Tracking the Middle-Income Trap: What Is It, Who Is In It and Why?” Out of 124 countries for which the date is available in 2010, there were 52 middle-income countries, of which 35 were caught in the middle-income trap.

How South Korea escaped the middle-income trap. Based on my analysis of their development process over the past fifty years or so, South Koreans have escaped the middle income trap for the following reasons:

-They focused early on on rural infrastructure and improving agricultural productivity in their efforts to achieve sustainable and inclusive growth. Of particular note was the Saemaul Undung movement which mobilized both human and capital resources to improve the economic conditions of their rural villages. After this initial focus on farm-to-market roads and other rural infrastructure, they embarked on a very aggressive Build, Build, Build program which resulted in the construction of some of the highest quality infrastructure in the area. East Asian region.

-They capitalized on the demographic dividend they enjoyed after the Korean War by investing in labor-intensive, export-oriented industries which were then replaced by higher-tech industries at more capital intensive like steel, automotive, shipbuilding, chemicals, construction, etc. in a later stage of industrialization.

-They have invested heavily in high quality education and research. South Korea today has some of the best universities and research facilities in the Indo-Pacific region.

-They relied on Confucian culture to foster a highly motivated people with a strong work ethic as well as a strong propensity to save. Their high rates of domestic savings have enabled them to increase their rate of investment without relying too much on foreign direct investment.

-Although they are not free from corruption, their successive authoritarian rulers have practiced a crony capitalism based not on personal and family relationships, but on meritocracy based on real and proven entrepreneurial talents, as we have seen. found among the founders of chaebols such as Samsung, Hyundai, Lucky Gold Star and other conglomerates that have received certain grants and favors. This is in contrast to the crony capitalism current even now in the Philippines which is based on a personal relationship or pure friendship that often has nothing to do with a demonstrated business acumen.

The case of South Korea also responds to the skepticism of those who do not believe in long-term economic projections. They say that many unforeseen events and seismic shocks can affect the national and global scenarios facing a given economy. South Korea achieved advanced economy status despite numerous shocking events between 1960 and 2021. Among them, the oil shocks of the early 1970s, the September 11, 2001 terrorist attack on the United States, the spring Arab, numerous regional wars, financial crisis of which South Korea was one of the worst victims, and the Great Recession from 2008 to 2012. The domestic political scene was severely disrupted by the assassination of Park Chung Hee in 1979, the sentencing of Chun Doo-hwan to life imprisonment for his role in the Gwangju massacre; the imprisonment of Roh Tae-woo for the same chief as Chun; the sentencing of Lee Myung-back to 15 years for embezzling 22 billion dollars; and the sentencing of Park Geun-hye to 25 years on various corruption charges. Despite these economic and political shocks and setbacks, South Korea has achieved an average GDP growth of 7.1% over a fifty-year period. What mattered most were healthy market-oriented institutions, quality infrastructure, an educated population, minimal good governance practices, and long-term political stability (which was lacking in many Latin American countries) .

In the last decade or so before the pandemic, there were clear signs that the Philippine economy was moving towards the South Korean model in many sectors. Just before the pandemic, the Oxford Economics group published in November 2019 a list identifying 10 countries as the main emerging markets that will dominate the world economy in terms of economic growth over the next decade. The classification is as follows: 1.) India; 2.) the Philippines; 3.) Indonesia; 4.) China; 5.) Malaysia; 6.) Turkey; 7.) Thailand; 8.) Chile; 9.) Poland; and 10.) South Africa. The ranking took into account factors beyond the simple GDP numbers and also took into account the availability of finance and the growth of the workforce, in which the Philippines ranks very high due to its population. young (median age is 24), growing and English speaking. This demographic dividend (which has long since vanished in South Korea and the other East Asian ‘tigers’, is giving rise to the most powerful growth engines in the Philippine economy today and in the future. Intermediate: Over 10 million Filipinos Overseas (OFW) earn over $ 30 billion annually and some 1.4 million highly skilled workers in the BPO-IT industry, producing some $ 25 billion annually Both of these highly reliable sources of foreign exchange income and jobs will only grow stronger after the pandemic as a depopulated part of the developed world will depend heavily on Filipino workers to keep many of their industries and services operational. Due to its rapidly aging population, the Philippines will increasingly look to the Philippines for much needed supplies of nurses, health workers, teachers and health professionals. formatic.

The large population of 110 million, which grows by 1% each year, will peak at some 150 million over the next thirty years, providing a solid basis for growing demand for all types of products and industrial services. Domestic consumption, rather than exports, will be the main engine of economic growth, as is already the case in China and South Korea. Private consumption in 2050 will represent 70% of GDP. Another British think tank, the Center for Economics and Business Research (CEBR) gave a very positive assessment of the Philippine economy until December 2020, when COVID-19 was already raging around the world. In a world economic forecast for 193 countries through 2035, the CEBR predicted that the Philippine economy would improve by 10 places in the GDP ranking according to the World Economic League Table. Ranked 32nd in 2020, the Philippines is expected to improve by 10 positions to reach 22nd. They assumed an annual GDP growth rate of 6.7% between 2026 and 2032. Given the greater emphasis on rural and agricultural development by state officials as well as the private sector; the intensification of the Build, Build, Build program expected in the new Administration which will be in place in June 2022; emphasis on quality education; the strong recovery in tourism and travel expected by 2023; and the removal of legal and constitutional restrictions against foreign direct investment, I am convinced that there is a very high probability that by 2050, the Philippines could follow South Korea to achieve advanced economy status of here 2050. Now imagine what this advanced economy looks like in 2050. (To be continued.)


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