economic system in the philippines essay

The Philippine economy under the pandemic: From Asian tiger to sick man again?

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August 2, 2021

In 2019, the Philippines was one of the fastest growing economies in the world. It finally shed its “sick man of Asia” reputation obtained during the economic collapse towards the end of the Ferdinand Marcos regime in the mid-1980s. After decades of painstaking reform — not to mention paying back debts incurred under the dictatorship — the country’s economic renaissance took root in the decade prior to the pandemic. Posting over 6 percent average annual growth between 2010 and 2019 (computed from the Philippine Statistics Authority data on GDP growth rates at constant 2018 prices), the Philippines was touted as the next Asian tiger economy .

That was prior to COVID-19.

The rude awakening from the pandemic was that a services- and remittances-led growth model doesn’t do too well in a global disease outbreak. The Philippines’ economic growth faltered in 2020 — entering negative territory for the first time since 1999 — and the country experienced one of the deepest contractions in the Association of Southeast Asian Nations (ASEAN) that year (Figure 1).

Figure 1: GDP growth for selected ASEAN countries

And while the government forecasts a slight rebound in 2021, some analysts are concerned over an uncertain and weak recovery, due to the country’s protracted lockdown and inability to shift to a more efficient containment strategy. The Philippines has relied instead on draconian mobility restrictions across large sections of the country’s key cities and growth hubs every time a COVID-19 surge threatens to overwhelm the country’s health system.

What went wrong?

How does one of the fastest growing economies in Asia falter? It would be too simplistic to blame this all on the pandemic.

First, the Philippines’ economic model itself appears more vulnerable to disease outbreak. It is built around the mobility of people, yet tourism, services, and remittances-fed growth are all vulnerable to pandemic-induced lockdowns and consumer confidence decline. International travel plunged, tourism came to a grinding halt, and domestic lockdowns and mobility restrictions crippled the retail sector, restaurants, and hospitality industry. Fortunately, the country’s business process outsourcing (BPO) sector is demonstrating some resilience — yet its main markets have been hit heavily by the pandemic, forcing the sector to rapidly upskill and adjust to emerging opportunities under the new normal.

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Second, pandemic handling was also problematic. Lockdown is useful if it buys a country time to strengthen health systems and test-trace-treat systems. These are the building blocks of more efficient containment of the disease. However, if a country fails to strengthen these systems, then it squanders the time that lockdown affords it. This seems to be the case for the Philippines, which made global headlines for implementing one of the world’s longest lockdowns during the pandemic, yet failed to flatten its COVID-19 curve.

At the time of writing, the Philippines is again headed for another hard lockdown and it is still trying to graduate to a more efficient containment strategy amidst rising concerns over the delta variant which has spread across Southeast Asia . It seems stuck with on-again, off-again lockdowns, which are severely damaging to the economy, and will likely create negative expectations for future COVID-19 surges (Figure 2).

Figure 2 clarifies how the Philippine government resorted to stricter lockdowns to temper each surge in COVID-19 in the country so far.

Figure 2: Community quarantine regimes during the COVID-19 pandemic, Philippine National Capital Region (NCR ), March 2020 to June 2021

If the delta variant and other possible variants are near-term threats, then the lack of efficient containment can be expected to force the country back to draconian mobility restrictions as a last resort. Meanwhile, only two months of social transfers ( ayuda ) were provided by the central government during 16 months of lockdown by mid-2021. All this puts more pressure on an already weary population reeling from deep recession, job displacement, and long-term risks on human development . Low social transfers support in the midst of joblessness and rising hunger is also likely to weaken compliance with mobility restriction policies.

Third, the Philippines suffered from delays in its vaccination rollout which was initially hobbled by implementation and supply issues, and later affected by lingering vaccine hesitancy . These are all likely to delay recovery in the Philippines.

By now there are many clear lessons both from the Philippine experience and from emerging international best practices. In order to mount a more successful economic recovery, the Philippines must address the following key policy issues:

Build a more efficient containment strategy particularly against the threat of possible new variants principally by strengthening the test-trace-treat system. Based on lessons from other countries, test-trace-treat systems usually also involve comprehensive mass-testing strategies to better inform both the public and private sectors on the true state of infections among the population. In addition, integrated mobility databases (not fragmented city-based ones) also capacitate more effective and timely tracing. This kind of detailed and timely data allows for government and the private sector to better coordinate on nuanced containment strategies that target areas and communities that need help due to outbreak risk. And unlike a generalized lockdown, this targeted and data-informed strategy could allow other parts of the economy to remain more open than otherwise.
Strengthen the sufficiency and transparency of direct social protection in order to give immediate relief to poor and low-income households already severely impacted by the mishandling of the pandemic. This requires a rebalancing of the budget in favor of education, health, and social protection spending, in lieu of an over-emphasis on build-build-build infrastructure projects. This is also an opportunity to enhance the social protection system to create a safety net and concurrent database that covers not just the poor but also the vulnerable low- and lower-middle- income population. The chief concern here would be to introduce social protection innovations that prevent middle income Filipinos from sliding into poverty during a pandemic or other crisis.
Ramp-up vaccination to cover at least 70 percent of the population as soon as possible, and enlist the further support of the private sector and civil society in order to keep improving vaccine rollout. An effective communications campaign needs to be launched to counteract vaccine hesitancy, building on trustworthy institutions (like academia, the Catholic Church, civil society and certain private sector partners) in order to better protect the population against the threat of delta or another variant affecting the Philippines. It will also help if parts of government could stop the politically-motivated fearmongering on vaccines, as had occurred with the dengue fever vaccine, Dengvaxia, which continues to sow doubts and fears among parts of the population .
Create a build-back-better strategy anchored on universal and inclusive healthcare. Among other things, such a strategy should a) acknowledge the critically important role of the private sector and civil society in pandemic response and healthcare sector cooperation, and b) underpin pandemic response around lasting investments in institutions and technology that enhance contact tracing (e-platforms), testing (labs), and universal healthcare with lower out-of-pocket costs and higher inclusivity. The latter requires a more inclusive, well-funded, and better-governed health insurance system.

As much of ASEAN reels from the spread of the delta variant, it is critical that the Philippines takes these steps to help allay concerns over the country’s preparedness to handle new variants emerging, while also recalibrating expectations in favor of resuscitating its economy. Only then can the Philippines avoid becoming the sick man of Asia again, and return to the rapid and steady growth of the pre-pandemic decade.

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Philippine Economic Interplay: Where Market Meets Governance

The economic framework of the Philippines is a fusion, harmonizing aspects of market-driven dynamics and government-guided intervention. Rooted in agriculture, manufacturing, services, and overseas remittances, its system operates through a blend of private sector autonomy and state-regulated control.

What do the Freedom Indexes Reveal?

The Freedom Indexes paint a mixed picture of freedom in the Philippines, with some areas showcasing progress while others experience challenges. Here’s a breakdown of what the indexes reveal:

Economic Freedom (Heritage Foundation):

Rank: 80th;
Strengths: Low tax burden, relatively open to foreign investment;
Weaknesses: High levels of corruption, limited access to financing, poor infrastructure.

Other Indexes:

World Justice Project: 83rd in Rule of Law;
Transparency International: 115th in Corruption Perception Index.

The Freedom Indexes indicate that the Philippines enjoys some degree of political and civil liberties but faces significant challenges in areas such as human rights, rule of law, and online freedom. The country’s economic freedom is also hampered by corruption and infrastructure weaknesses.

Is the Philippines a capitalist economy?

The economic system in the Philippines can be characterized as a mixed economy that incorporates both capitalist and interventionist elements. Here’s a breakdown:

Capitalist Elements:

Private Sector Dominance: A significant portion of economic activity is driven by private enterprises making decisions based on market forces like demand, supply, and competition;
Market-Driven Dynamics: Industries such as manufacturing, services (like BPO and tourism), and retail operate based on market demands, with companies striving for profitability and efficiency.

Interventionist Aspects:

Government Involvement: The state plays a role in regulating and influencing certain sectors of the economy. This intervention can include policies, regulations, and public investment in key industries;
Public Sector Control: While the private sector has a substantial role, the government retains influence over areas like infrastructure development, utilities, and strategic industries.

Mixed Economy Dynamics:

Varied Ownership: Ownership of businesses and industries ranges from private to state-owned or controlled enterprises;
Policy Influence: Economic policies often reflect a combination of free-market principles and state intervention to address social welfare and economic stability.

The Philippines’ economic system is not purely capitalist, as it involves a significant degree of government participation and regulation. This mixed approach aims to leverage the benefits of market mechanisms while also addressing social welfare and stability concerns through state intervention.

Public Sector Employment and Economic Influence

The volume of public sector employees serves as a barometer for government involvement in the economy. With 9.1% of the workforce engaged in the public sector (2019), the country’s mixed economy reveals a delicate balance where specific economic realms operate under diverse policy umbrellas, distinguishing between state and private control.

Insight from the Philippines’ Corporate Giants

Analyzing prominent corporate entities like SM Investments sheds light on the economic landscape. As a private conglomerate, SM Investments’ expansive presence in retail, banking, property, and mining reflects the country’s blend of private ownership and market dominance.

Unraveling Historical Influences

A comprehensive understanding of the Philippine economic system necessitates delving into its historical underpinnings. The legacy of colonial rule, characterized by uneven land distribution and foreign capital reliance, coupled with post-independence policies centered on import substitution and export promotion, has shaped the contemporary mixed economy. Moreover, the global economic sphere, marked by globalization and increased integration, has significantly impacted the nation’s economic fabric.

The economic system of the Philippines, a result of multifaceted historical factors, embodies a delicate interplay between market forces and government intervention. From colonial legacies to contemporary globalization, these influences have forged a complex yet adaptive mixed economy that navigates a nuanced path between private autonomy and state guidance.

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Essay on Economic Issues In The Philippines

Students are often asked to write an essay on Economic Issues In The Philippines in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Economic Issues In The Philippines

The Philippines suffers from high poverty rates. Many people lack basic needs like food, shelter, and clothing. This is because jobs are scarce and many are low paying. The government is trying to create more jobs and improve living conditions, but progress is slow.

Unemployment

Unemployment is another big issue. There aren’t enough jobs for everyone. This leads to people not having money to buy things they need. The government is working on this problem by trying to attract more businesses to the Philippines.

Education in the Philippines is not always good quality. Many schools lack resources like books and computers. This makes it hard for students to learn and succeed. The government knows this is a problem and is working to improve schools.

Infrastructure

The Philippines needs better infrastructure, like roads and buildings. Poor infrastructure can make it hard for businesses to operate and for people to get to work. The government is investing in infrastructure to try to fix this problem.

Corruption is a big problem in the Philippines. It makes it hard for the government to improve the economy because money is not always used correctly. The government is trying to stop corruption, but it is a difficult problem to solve.

250 Words Essay on Economic Issues In The Philippines

Introduction.

The Philippines, a Southeast Asian country, faces numerous economic problems. These issues include poverty, unemployment, and corruption. Let’s explore these issues in detail.

Poverty is a significant problem in the Philippines. Despite the country’s economic growth, many people still live in harsh conditions. They struggle to afford basic needs like food, shelter, and education. The government is trying to reduce poverty, but progress is slow.

Another big issue is unemployment. Many Filipinos do not have jobs, especially young people. This problem is due to a lack of job opportunities and skills mismatch. A lot of people have skills that do not match the jobs available.

Corruption is also a major issue in the Philippines. It affects the economy because money that should be used for public services ends up in the wrong hands. This problem hinders economic development and increases poverty.

To sum up, the Philippines faces several economic issues. These problems include poverty, unemployment, and corruption. Solving these issues is not easy, but with the right policies and actions, the country can improve its economy.

500 Words Essay on Economic Issues In The Philippines

The economy of the philippines.

The Philippines is a country in Southeast Asia made up of over 7,000 islands. Its economy is mixed, meaning it has both private businesses and government involvement. The country’s economy has seen growth in recent years, but it still faces many challenges.

Issue 1: Poverty

One of the main economic problems in the Philippines is poverty. Despite economic growth, a big part of the population still lives in poverty. This means many people don’t have enough money for basic needs like food, shelter, and education. Poverty is more common in rural areas where farming is the main source of income.

Issue 2: Unemployment

Unemployment is another big problem. This means there are people who want to work but can’t find jobs. The COVID-19 pandemic made this worse, as many businesses had to close. The government is trying to create more jobs, but it’s a slow process.

Issue 3: Inequality

Inequality is another issue. This means that the wealth in the country is not shared equally. A small group of people own a big part of the country’s wealth, while many others have very little. This makes it hard for people to improve their lives.

Issue 4: Natural Disasters

The Philippines is often hit by natural disasters like typhoons, earthquakes, and volcanic eruptions. These disasters damage homes, roads, and businesses, which hurts the economy. The government has to spend a lot of money to repair the damage and help people recover.

Issue 5: Dependence on Overseas Workers

A lot of Filipinos work in other countries and send money back home. This money is a big part of the country’s income. But it also means the country depends a lot on other countries’ economies. If these countries face economic problems, it can hurt the Philippines too.

Ways to Improve

To solve these problems, the government is working on several things. They are trying to help farmers by providing better tools and training. They are also trying to create more jobs, especially in manufacturing and services. They are investing in education to give people better skills for these jobs. And they are working on improving the country’s infrastructure to make it more resilient to natural disasters.

In conclusion, while the Philippines has made progress, it still faces many economic challenges. By focusing on reducing poverty, creating jobs, reducing inequality, and improving resilience to natural disasters, the country can continue to grow and improve the lives of its people.

That’s it! I hope the essay helped you.

If you’re looking for more, here are essays on other interesting topics:

Essay on Breakfast
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Over the past decade, the Philippine development story has attracted international attention as it transformed from being the “Sick Man of Asia” to “Asia’s Rising Tiger”. However, the country’s strong growth momentum was abruptly interrupted by the COVID-19 pandemic, which continues to cast a huge shadow over its development outlook. With the country now at the crossroads, this paper reflects on and draws lessons for economic development and policy by examining the country’s three main economic episodes over the post-independence era: (a) the period of moderately strong growth from 1946 to the late 1970s, (b) the tumultuous crisis years from the late 1970s to the early 1990s, and (c) the period from the early 1990s to the 2019 when it rejoined the dynamic East Asian mainstream. Through comparative analysis, the paper also seeks to understand the country’s development dynamics and political economy. We conclude by highlighting elements of a recovery and reform agenda in the post-pandemic era.

Key Words: Philippines, economic development, economic history, political economy, institutions, COVID-19, ASEAN, comparative analysis

JEL codes: E02, I0, N15, O10, O43, O53, P52

Updated: 10 April 2024 / Responsible Officer: Crawford Engagement / Page Contact: CAP Web Team

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Philippine economic development, looking backwards and forward: An interpretative essay

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The Economic System of the Philippines: An Analysis

What is the economic system of the Philippines? The economy of the Philippines is based on a mixed economy. The country’s economic system combines elements of a market economy and a planned economy.

The Philippine economy relies on agriculture (e.g., rice, coconuts), manufacturing (electronics, garments), services (BPO, tourism), mining, and overseas remittances.

In the Philippines, the economy is composed of a private sector, consisting of individuals and businesses that make autonomous decisions based on self-interest, and a public sector, where the state determines the production and distribution of certain goods and services . No country is purely capitalist or purely communist.

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What do the freedom indexes tell about the economic system of the Philippines?

Now, to determine if a country is mostly a market economy or a planned economy, it is useful to examine some economic indexes. For instance, according to the 2022 Index of Economic Freedom, which measures the ability of every human to control his own labor and property, the Philippines is ranked 80th globally and 15th in Asia-Pacific indicating that the country has a moderately free economy.

In a similar way, the 2022 Freedom House index evaluates the state of political rights and civil liberties globally. Generally, market economies tend to align more with democracy and freedom, while command economies tend to be characterized by greater state control and fewer democratic and civil liberty protections.

The Philippines gets a score of 55/100, which qualifies it as Partly Free. The Philippines is considered to have a government that does not control what people do, and people can make their own economic decisions. Still, it is only considered an electoral democracy, lacking full liberal democratic protections.

The Link Between Public Sector Employment and the Economic System of the Philippines

An indicator of the extent to which the State is involved in the economy is the number of public sector employees. In the Philippines, according to ILOSTAT, the number of public sector employees as a percentage of the total workforce is 9.1% (2019).

In the country’s mixed economy, the number of public sector employees as a percentage of the total workforce varies based on the specific policies and practices adopted by the State. Some economic activities are left to the private sector while others are under government control. The bigger the public sector the closer the economy is to being a command economy.

What do the biggest companies in the Philippines say about the country’s economic system?

The biggest company in the Philippines should also be looked at, as well as whether it is a state-owned or private company. In this case, SM Investments is a conglomerate with interests in banking, retail, property, and mining. It is the country’s dominant player in retail with 208 stores nationwide. Of these, 47 are SM Department Stores; 38 are SM Supermarkets; 37 are SM Hypermarkets, and 86 are SaveMore branches.

The company is owned by multiple private shareholders.

The historical factors that have influenced the economic system of the Philippines

The current mixed economy system of the Philippines in the last century is a result of a combination of factors, including the country’s colonial history, its post-independence economic policies, and the global economic environment.

Colonial rule left the country with a legacy of unequal land distribution, a weak industrial base, and a reliance on foreign capital. Post-independence economic policies focused on import substitution and export promotion, while the global economic environment has been characterized by increased economic integration and globalization.

These factors have all contributed to the current mixed economy system of the Philippines.

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The Economic System of the Philippines An Analysis

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Juan D. Montoya

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Employees work at a call center in Davao City, Philippines: investing more in digital infrastructure can further support the country’s outsourcing industry (photo: Lean Daval Jr/Reuters/Newscom)

IMF Country Focus

The Philippines' Economic Outlook in Six Charts

September 27, 2018

The Philippine economy continues to perform strongly, due in part to robust public investment, with growth projected at 6.5 percent for 2018, and 6.7 percent in 2019, the IMF said in its latest annual economic assessment.

What does 2023 hold for the Philippines’ economy?

The COVID-19 pandemic and other geopolitical events have caused a global crisis over the past couple of years. Major upheavals of this scale are not unknown—in the 20th century, various significant events shook the world, like both World Wars and the Cold War. Between these periods of disruption, global events played out across three “eras”: the Post-War Boom after the Second World War, the Era of Contention from 1972 to 1974, and the Era of Markets from 1989 to 1992, each of which had distinct characteristics and opportunities.

The effects of the current crisis, both humanitarian and economic, cannot be underestimated. However, as the world continues to emerge from the pandemic, business leaders can take advantage of these upheavals, and shape innovation and growth—as evidenced in previous eras—by anticipating future disruptions and shaping strategies accordingly. This kind of “era thinking” is particularly valuable in the Philippines, where disruptions caused by the conflict in Ukraine and international supply-chain crises have had a clear impact.

Looking ahead into 2023, the economic forecast for the Philippines remains a moving target. After a record 10 percent contraction in 2020, the country may bounce back in 2023 with projected growth of around 5.3 percent, though it will hardly rise above preCOVID-19 levels (exhibit).

Key challenges face the country: significantly high unemployment numbers; a high inflation rate (forecast to reach 5.1 percent in 2023); rising policy rates; import and export bottlenecks; and the declining strength of the Philippine peso against the American dollar. 1 “2023 inflation seen topping official target,” Manila Times , January 13, 2023.

The state of the Philippines’ economy in seven major sectors

This article analyzes seven key sectors that offer a detailed insight into the state of the Philippines’ economy in 2023 and beyond. As the data shows, the outlook is complex—there are serious issues to address, but also reasons for optimism.

Real estate and construction

Several global and macroeconomic shocks will likely impact the Philippines’ post-pandemic economic recovery in the real estate and construction sectors. Policy rates may reach 6.25 percent in the first half of 2023, which would negatively impact home lending rates and increase the strain on a sector that must also address the increased costs of construction and logistics caused by supply-chain issues.

Nonetheless, more optimistic projections include an expansion in real estate investment opportunities and the emergence of green real estate, a promising step toward the Philippines’ goal to reduce carbon emissions by 75 percent by 2030. 1 “Philippines raises carbon emissions target to 75 percent by 2030,” Reuters, April 16, 2021.

Much of the sector is expected to recover to pre-pandemic levels by the end of 2023, and construction by the end of 2024. Much of this growth will likely be driven by residential building construction, predicted to grow by 12 percent. Non-residential construction, by contrast, has yet to recover to pre-pandemic levels.

There will likely be an increased demand for office space, caused by companies introducing return-to-office policies, as well as a resurgence in the need for industrial, retail, and leisure spaces, both of which would boost sector-wide growth.

Another consideration is hybrid working—this is in fact higher in the Philippines than the global norm. 1 Vaughn Alviar, “Hybrid work is the future,” Philippines Daily Inquirer , March 11, 2022. Office spaces may need to be reinvented as companies look to adopt more hybrid ways of working. This could result in vacancy rates persisting, however the growth of coworking facilities and the desire for sustainable buildings will necessitate innovations in construction techniques and leasing agreements, thus encouraging sector-wide growth.

Travel and hospitality

The outlook for the travel and hospitality sector is strong, with a full recovery to pre-pandemic levels expected by 2024. Outbound and inbound travel may be sluggish due to remaining international travel restrictions and further health and safety concerns: 71 percent of Asian countries still impose travel restrictions to varying degrees; Europe is more lenient with 50 percent of countries imposing no restrictions at all.

Despite this, hotel occupancy is expected to rise as more foreign tourists visit the Philippines. China’s removal of quarantine on arrival from January 8, 2023, and Hong Kong’s withdrawal of mandatory quarantine on arrival in September 2022, are both reasons for optimism. If mainland China’s air travel were to recover at the same pace as Hong Kong’s, four million air passengers a month out of China can be expected by the second quarter of 2023, pushing air travel back up to 40 percent of pre-COVID-19 levels.

Several key trends are expected to influence economic recovery in the sector, the impacts of which may be both positive and negative. High inflation, for example, has increased airlines’ operating expenses. The weakening peso, by contrast, could have a positive effect by encouraging locals to travel and spend within the country rather than abroad. In fact, local air travel is already on the rise and is expected to reach preCOVID-19 levels in the second half of 2023. 1 Katlene O. Cacho, “Air travel approaches pre-pandemic levels,” SunStar, December 20, 2022

The growth of “revenge travel” (travelling widely and often to make up for time and opportunities lost during the COVID-19 pandemic and attendant travel restrictions) also contributes to the robust growth of leisure travel, while business travel is recovering more slowly. This is largely due to the inconsistent travel restrictions between countries, and remote working tools that do away with the necessity of meeting in person.

Sustainable tourism and increased awareness of eco-friendly travel options may not negatively affect the number of tourists visiting the Philippines, but they will likely change how visitors and locals arrive in, and travel through, the country. The fact that the hospitality industry has recovered more significantly than airlines shows this. Other contributing factors include the increase in domestic travel and the popularity of the “digital-nomad” lifestyle, which allows travelers to live and work for extended periods in their destinations of choice, rather than flying between destinations frequently.

Financial services

The strength of the Philippines’ financial services sector in 2023 will likely be subject to two key factors: interest rate hikes and rising inflation. Interest rate hikes could have a positive effect by widening the net-interest margin, but macrovolatility could cause a slowdown in new loans. Rising inflation will likely increase the pressure on wages and increase operational costs.

The financial sector is already responding to these challenges. It is prioritizing the interoperability and digitization in top banks, and the country’s central bank, Bangko Sentral ng Philipinas, is expected to increase interest rate hikes to keep up with inflation. 1 Lawrence Agcaoili, “More BSP rate hikes boom as inflation spikes,” Philstar Global, January 6, 2023.

Banks have taken additional steps. These include recovering nonperforming loans, reducing loan loss provisions with an outlook on improved credit status, and the emergence of digital neobanks, which offer higher savings interest rates and faster customer acquisition. Perhaps most crucially, there are growing efforts to make banking more accessible and inclusive. The growth of digital banking is significant: in 2021, 60 percent of Filipinos used digital banking (a sharp increase from 17 percent in 2019), and growth is expected to accelerate in 2023. 2 “2021 financial inclusion survey,” Bangko Sentral ng Pilipinas, 2021.

Growth in the Philippines’ energy sector contracted to 4.8 percent in 2022 and is expected to rebound to 5.5 percent in 2023. However, the sector needs to ensure that this growth target can be met given looming supply constraints and while accelerating the transition to green energy.

Due to a growing population, an economy coupled with the depletion of domestic gas from the Malampaya gas field, and a heavy reliance on imported fuel, a power supply shortage is expected closer to 2024 to 2025. 1 “Malampaya depletion expected by 1st quarter of 2027,” BusinessWorld, May 19, 2021. This will put sustained upward pressure on prices and an urgency to bring greenfield capacity online.

On the energy transition, major players are addressing the challenge by diversifying energy assets across the board, with investments in cleaner technologies such as solar, hydro, and battery energy storage systems. These efforts are underway in both the private and public sectors. For example, the Philippine government has introduced measures to improve the availability and sustainability of energy. Legislation has been passed to reduce fuel and power costs via subsidies for transport operators, boost investments in indigenous energy resources such as coal, and strengthen electric cooperatives for broader access to electrification. 2 Philippine energy plan 2020–2040, Department of Energy, Republic of the Philippines.

The Philippines may generate enough energy to cover its consumption needs, but the supply-demand balance will remain tight, with clear downside risks. Threats to the energy supply include rising oil and gas prices, supply-chain disruptions, and currency depreciation.

The healthcare sector experienced strong growth during the COVID-19 pandemic: in 2021, healthcare services increased by 14.1 percent and pharmaceutical manufacturing by 12.9 percent. Growth stalled in 2022 (3.9 percent and 8.25 percent for healthcare services and pharmaceuticals respectively), and this trend is expected to continue in 2023. While demand will continue to grow, the sector will have to address three major challenges.

First, rising inflation will impact costs for service providers and manufacturers, though prices will initially lag due to procurement contracts being set in advance. One of the biggest drivers of inflation is an increase in healthcare wages, especially of hospital staff such as nurses, who are in short supply locally and globally. Second, supply-chain disruptions will drive up medicine price variations and production inefficiencies, particularly as the Philippines is a net importer of pharmaceuticals. And third, turnover levels for health workers are expected to remain high, straining the capacity of service providers and potentially resulting in a poor quality of healthcare.

To address these challenges, the sector is renewing the emphasis on universal healthcare and building robust healthcare ecosystems. The Department of Health aims to close the supply-demand gap in healthcare by increasing facilities in areas outside Metro Manila and making medicines more affordable. 1 “Universal health care,” Department of Health, Republic of the Philippines.

In the private sector, key players are investing strategically to cover the healthcare value chain, and making concerted efforts to tap into growing online markets through electronic medical records, all-in-one telemedicine and consultation apps, and other ancillary services.

The Philippines’ healthcare sector is so vast that broad, sector-wide forecasts can sometimes obscure as much as they reveal. The outlook becomes clearer when subsectors are evaluated on their own terms, as they diverge widely in market size, are subject to different trends, and experience different rates of growth. The healthcare providers subsector, for example, boasts a larger market size than the products and payors subsectors combined.

Despite significant growth in 2022, the Philippines still has some catching up to do. There is no doubt that it faces global macroeconomic headwinds in 2023, however big pockets of opportunity exist within each of its biggest sectors. To grasp these as soon as possible, companies need to rethink how they deliver to customers and operate their businesses. With such strategies in place for possible future disruptions, the Philippines can stand strong and continue to grow its economy in the year ahead.

Jon Canto is a partner in the Manila office, where Kristine Romano is a partner and Danice Parel and Vicah Villanueva are consultants.

The authors wish to thank Aaron Ong, Ryan Delos Reyes, and Jeongmin Seong for their contributions to this article.

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[OPINION] 10 years of writing about Philippine economics

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[OPINION] 10 years of writing about Philippine economics

ALEJANDRO EDORIA

Today marks my 10 th year contributing economics op-ed pieces for Rappler. How time flies! And what a blast it has been!

My longtime editor, Chay Hofileña, likes to joke about this by saying this is my longest relationship yet. Kidding aside, I’m truly grateful to her for taking a chance on the unsolicited email of a 23-year-old graduate student a decade ago, and liking my style of writing about economic issues.

Since then Ma’am Chay – as well as the other lovely and redoubtable Rappler manangs – showed me the ropes and taught me lots about journalism, which I didn’t really study formally. Now I’d like to think my writing is all the better for it.

To date I’ve written 322 articles for Rappler (including this one), initially appearing in the iSpeak and IMHO sections, then graduating into the Thought Leaders section starting September 10, 2016.

Through my pieces, I’ve captured some pretty big developments and shifts in Philippine economics and politics. Let me share with you 10 pieces that encapsulate that journey.

1. Kasambahay Law: Its unintended consequences (January 31, 2013)

The article that started it all. For one reason or another, I felt strongly about this piece of legislation when it was signed into law by the late former president Benigno Aquino III on January 18, 2013. Applying (rather naively, I admit) basic lessons from microeconomics, I argued that legislating the wages of househelps or kasambahay might lead to some of them becoming unemployed if their employers’ couldn’t afford it.

Unfortunately, years later, the implementation of the Kasambahay Law remains poor . Although there are now help desks in DOLE regional offices catering to househelps specifically, many househelps remain unaware of the benefits they’re entitled to under the law. Many employers are also not complying. Monitoring of househelp remains difficult because of DOLE’s lack of staff, as well as the difficulty of gaining access to many househelps’ areas of work.

Economists’ understanding of the minimum wage has also drastically shifted since then. Whereas before economists were deathly afraid of minimum wage hikes (because they supposedly lead to unemployment), the empirical evidence for that is a lot weaker now. In certain contexts, higher minimum wages may even lead to higher employment.

The lessons: just because a law is approved doesn’t mean it will be implemented, and the feared of unintended consequences will pan out. (Maybe the poor implementation itself is also an unintended consequence?) Also, don’t take textbook economic models and theories too seriously.

2. Marcos years marked ‘golden age’ of PH economy? Look at the data (March 5, 2016)

This piece was inspired by the BusinessWorld piece of my former professor, Dr. Emmanuel de Dios of the UP School of Economics, on the same topic. After reading that, I decided to dig deeper, and that got me obsessed about Martial Law economics. I discovered for myself that there’s a ton of empirical data showing that Martial Law was not the country’s “golden age,” and in this piece I shared some of those data.

At that time, I was elated by the splash this article made. But I overestimated the power of data to change people’s minds about an issue, and underestimated the strength of the Marcoses’ propaganda machine, the social media echo chambers, and the cognitive biases that could lead people to prefer falsehoods to truth.

Since then Martial Law economics has been a key research interest. In February 2023, I will be publishing my first book – False Nostalgia: The Marcos Golden Age Myths and How to Debunk Them – combining 7 years’ worth of research on Martial Law economics. The starting point of that journey was this Rappler piece.

3. Free tuition alone won’t make college any more accessible (March 9, 2017)

Through my pieces, I get to indirectly participate in legislative debates and proposals. One of the memorable pieces of legislation in the past years was the free tuition law, that made college education free in all state universities and colleges, as well as local ones.

Using past research and government data, I showed that the richest fifth of tertiary students are overrepresented vis-à-vis the poorest fifth. So, arguably, the free tuition law stands to give billions worth of subsidies to rich kids who can actually afford to pay for college tuition. What a waste! This subsidy of course posed as a fiscal strain: why should the government subsidize the rich this way?

I remember receiving praise from colleagues saying the original article (there was also a follow-up piece in 2019) was a great use of statistics to argue for sound economics. But I remember receiving a lot of flak as well on Twitter from those from the Left (especially the young ones), saying I should stop spewing such “neoliberal” BS. The attacks were so intense I had to leave Twitter for a few days and let things subside.

As with many legislative proposals, politics and populism trump economics. Former president Rodrigo Duterte signed the free tuition law in August that year.

I realized then that my pieces can be quite triggering for some groups ascribing to certain closely held narratives or ideologies. But so long as I’m using data and evidence to back up my claims, I should be fine.

4. Why is Philippine inflation now the highest in ASEAN? (September 6, 2018)

Discussing macroeconomic statistics and trends is a recurring theme of my Rappler pieces. In fact, macro developments have significantly shifted my teaching and research interests in this direction (vis-à-vis microeconomics).

One of the more memorable trends I wrote about was the spell of high inflation in 2018. That year inflation reached a nine-year high, and was also the highest inflation rate in ASEAN around September and October. I had fun triangulating the reasons for this, with factors ranging from the rice shortage brought about by the Duterte administration, the rising trade deficit, inflation expectations, and the ill timing of the TRAIN law, which raised excise taxes just as world oil prices were rising.

I also rebutted claims by the Duterte economic managers then that rising inflation was “not alarming” and “quite normal in a fast-growing economy.” Such rebuttals have irked the economic managers a number of times, based on reports from my friends in different agencies. Little do those officials know that I receive a lot of positive feedback (even encouragement) as well from many economist colleagues, who are just constrained from speaking out in one way or another.

5. Dengvaxia scare: How rumors caused viral outbreaks (January 16, 2019)

I use my Rappler pieces to show that economics can be related to other fields of study, such as public health.

I particularly liked writing this piece about the ill effects of the Dengvaxia scare perpetrated by certain personalities of the Duterte administration. In a nutshell, disinformation surrounding the new dengue vaccine spilled over to other vaccines, and parents ended up not having their children take basic shots for measles and like diseases. Hence, all sorts of otherwise preventable epidemics spread across the country. The opening sentence captured it rather nicely: “Fake news can kill, and the Dengvaxia scare is a perfect example of it.”

This was a perfect illustration of so-called “negative externalities” in economics. And I remember incorporating this piece in my microeconomics classes back then. Little did we know that the Dengvaxia scare would presage the even greater troubles wrought by the global pandemic just one year later.

6. Dismal PISA rankings: A wake-up call for Filipinos (December 4, 2019)

Education issues have always been close to my heart, and I was particularly devasted by news that we ranked so poorly in the 2018 Programme for International Student Assessment (PISA). Specifically, we ranked dead last in reading, and second to last in math and science.

Later, even more bad news came when we also ranked dead last in the 2019 TIMSS (Trends in International Mathematics and Science Study). Meanwhile, the first ever Southeast Asia Primary Learning Metrics in 2019 also showed that 9 in 10 schoolchildren in the Philippines can’t read basic texts.

Long story short, we’re experiencing a full-blown education crisis – undoubtedly worsened by the pandemic, what with the extremely long school closures and the “learning losses” from online classes.

I argued that all these studies ought to be a wake-up call for Filipinos. But the attitude from education officials has been characterized by denialism and gaslighting. The Department of Education, for instance, complained that they were not consulted for a World Bank education report. After that, the World Bank took down their report from their website. I wrote about this in “ 8 facts from WB education report they don’t want you to read .”

7. Why Filipinos need to stay at home until June (or even longer) (March 19, 2020)

By far my most viral piece ever (pun unintended). I wrote about this days after Duterte imposed the first COVID lockdown nationwide. At the time, everyone was at a loss about what’s going on, and nobody knew until when Duterte’s strict lockdowns would last.

I saw some analyses on Facebook by experts in biomedical data and biostatistics, showing the exponential rise of COVID-19 cases that necessitates prolonged lockdowns up to at least June that year. This was quite concerning to a lot of people: many people thought the lockdowns would just last days or a few weeks.

But little did we know that the lockdowns would be a lot longer than that, with some form of mobility restrictions lasting up to 2 years or more, with varying degrees of strictness nationwide (I discovered recently that the lockdowns were very severe in places like Camiguin Island). Also, the lockdowns would turn out to be a political tool of the Duterte administration to subjugate people, especially the poor.

COVID would dominate a lot of my Rappler pieces since then: constituting maybe a fourth of all my pieces, ranging from the economics of lockdowns , the health versus economy trade-off , the inadequate and slow distribution of economic aid , the glacial pace of vaccination , the Duterte government’s wrong budget priorities (I collaborated a lot with my friends Zy-za Suzara and Luis Abad on this topic), and pandemic-related corruption (e.g., Pharmally).

Fast-forward to 2023, our lives are normalizing now. But I’m glad to be able to document the economics of the pandemic through Rappler; later I might just write a book about it.

8. 10 Build, Build, Build projects that started in previous admins (June 23, 2021)

My Rappler columns are often a venue to debunk some of the lies and misconceptions said by government officials. And quite a few people look forward to my pieces when it comes to economic mistruths.

The Duterte administration was particularly fond of boasting about its “flagship” economic project, an infrastructure spending spree called “Build, Build, Build” (BBB). However, upon closer inspection, many of projects under BBB were in fact started by previous administrations. My friend Zy-za Suzara, formerly with the Department of Budget and Management, co-wrote this piece with me on the rampant credit-grabbing of the Duterte administration.

Some other pieces I wrote on economic lies include those about the “ Duterte Legacy ,” the statistics behind the war on drugs , the TRAIN law , and the recurring claim that we would soon be an “ upper-middle income country ” (we’re still not).

9. Malubha ang state of the nation (July 23, 2021)

Up until the middle of 2021, I’ve been writing almost exclusively in English. But months before the pivotal 2022 elections, there was growing concern about the looming possibility of another Marcos presidency. And I figured I needed to write more in Filipino (if not exclusively in Filipino) to try to reach a wider audience with my economics pieces, especially those that would figure in the electoral debates and discussions. I started with this piece, on the last State of the Nation Address of former president Duterte.

Writing in Filipino was quite liberating for me: I could write quicker, and I could use the nuances of everyday language in a way I couldn’t do with English. For instance, I found myself incorporating more jokes and witticisms, as well as pop culture references. Most of all, I discovered that there was indeed a huge reader base of articles in Filipino: interactions and engagement with my pieces blew up.

I wrote in Filipino until end of 2022, and switched back to English just recently. But I may still put in some Filipino pieces here and there.

10. Budol of the century (May 12, 2022)

Even if my column is primarily about economics, I can’t avoid writing about politics from time to time. This piece was written a few days after the 2022 elections, when the partial and unofficial results showed that another yet Marcos would sit in Malacañang.

Apart from showing some of the election results across the regions, I explored possible reasons for the landslide win of the teamup between Bongbong Marcos and Sara Duterte. These include intense regionalism (which pervades much of everyday life, culture, and politics), “networked disinformation,” historical distortions, and the broken educational system. These are pretty much the same issues that led to the landslide win of administration senators in the 2019 midterm elections, which I also wrote about in “ Why is Duterte still so popular ?”

All in all, writing for Rappler in the past decade has been an unalloyed boon for me and my career. My writing has made me grow as a writer and economist, and I’ve also made a ton of new friends along the way. (I’ve irked some people, too, from all sides of the political spectrum. But I guess that’s an occupational hazard, and one more measure of the impact of one’s writing.)

Here’s to another 10 years of writing for Rappler! – Rappler.com

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of the forthcoming book, False Nostalgia: The Marcos Golden Age Myths and How to Debunk Them . JC’s views are independent of his affiliations. Follow him on Twitter ( @jcpunongbayan ) and Usapang Econ Podcast .

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The Oxford Handbook of Asian Business Systems

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9 The Philippines: Inequality–Trapped Capitalism

Mari Kondo is Professor at the Graduate School of Business, Doshisha University, Kyoto, Japan.

Published: 16 December 2013
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This article provides an overview of the institutional structure of the business system of the Philippines. It explores the role of the state, the financial system, ownership, and corporate governance, the internal structure of the firm (management), employment relations, education and skills formation, inter-company relations (networks), and social capital. It argues that the Philippine state is predatory and its business system exemplifies inequality-trapped capitalism, a configuration in which inequalities beget further inequalities and thus continued poverty. The resulting power differentials in society are connected to paternalism and clientelism in society and management. Given that the Philippines is already a leading source of migrant labour, its likely trajectory is toward exodus, or migration-trapped, capitalism. This article contributes directly to the business systems and varieties of capitalism literature and identifies institutional contingencies for comparative and international social science research in general.

The Philippines, with its 92.3 million people ( NSO 2012 ), is presently the world’s twelfth most populous country ( CIA 2012 ). Of the total, about five million Filipinos, who are known to be cheerful and capable English-speaking workers, are dispersed across more than 190 countries and territories ( Tyner 2009 ). Strategically situated geographically, the Philippines is considered one of the Pacific gateways to Asia.

In the management literature, however, despite these advantages in terms of people and location, the Philippines is mentioned much less frequently than most other Asian societies. This is because the Philippine economic performance has been consistently poorer than that of its neighbours—and these days, the gap is widening.

While many of its neighbour countries have experienced an ‘economic miracle’ at one time or another, the Philippines has not. Even vis-à-vis its South East Asian neighbours with relatively slower growth, its performance has been lagging. For example, while its per capita GDP was roughly twice Thailand’s and three times that of Indonesia in 1960, in 2006 it was less than half of Thailand’s and almost the same as Indonesia’s ( Canlas, Cham, and Zhuang 2011 ). At this point it is apparent that the Philippine business system manifests certain systemic problems leading to the perpetual deterioration of its economy. Given the belief that one can learn more from failure than from success, the overarching objective of this chapter is to shed light on the Philippine phenomenon by describing its business system. Three particular questions come to mind:

What characteristics of the Philippine business system lie behind the persistent underperformance of the country’s economy?

How is the Philippine business system evolving while global markets and economies— that is, global business systems—are further integrating?

What insights can the Philippine experience provide?

Philippine Economy and Society

Vis-à-vis other Asian countries, Philippine’ history is unique because it is the only country to experience both Spanish colonization and American rule, earning it a nickname as the ‘Latin America of Asia’. The Philippine economy and society have five distinct characteristics:

A historically high level of inequality, and slow poverty eradication even when the economy is growing.

An economy driven by private consumption, with industries that are not very competitive and do not provide enough jobs, but lean towards business process outsourcing, that is, ‘skill export’, instead.

An economy financed by remittances from overseas by ‘exported’ workers.

Fragmentation and extreme family-centredness, reinforced by folkloric Catholicism.

Fast population growth (or an economy that is ‘growing people for export’ ( Kaye 2010 : 30).

The Philippines is a highly unequal society. Its Gini coefficient of 045.8 in 2006 ranked it 36th of 136 countries ( CIA 2012 ). The economy has been basically run by and made for big elite business families, some of them descendants of landowners with huge landholdings during Spanish rule. The IBON Foundation (2011 : 2) reported that ‘in 2009, the poorest half (50%) of Filipino families accounted for just 19.8 per cent of total income compared to the richest fifth (20%) which accounted for 51.9 per cent; the income of the richest 10 per cent of households is eighteen times that of the poorest 10 per cent of households’. The Asian Development Bank ( ADB 2007a ) reported a similar trend.

Because the distribution of the fruits of growth is skewed, poverty eradication has been much slower in the Philippines than in its neighbours, notwithstanding an increase in per capita income ( Canlas, Khan, and Zhuang 2011 ). Between 2005 and 2006, about one-third of the population fell below the government-set poverty line, and more than 10 per cent fell under the $1-a-day absolute poverty line. More than 40 per cent of children belonged to poor households, and more than 20 per cent were part of subsistence-poor households ( PIDS 2012 ; ADB 2007a ).

The Philippine economy is not competitive, ranking 75th of 142 countries in the Global Competitiveness Report, almost at the bottom of the Asian countries listed ( Schwab 2010 ). Similarly, in the World Bank’s Doing Business report, the Philippines ranked 136th of 183 economies studied ( World Bank 2012 ).

The Philippine’ industrial sector has been stagnating, accounting for only 31.3 per cent of GDP in 2010 ( NSO 2012 ). This is low compared to the industrial shares of neighbouring South East Asian countries, particularly Indonesia (47%), Malaysia (50%), Thailand (45%), and Vietnam (42%) ( World Bank 2008 ). The small Philippine industrial sector absorbed only about 10 per cent of employment in the last fifty years, a fact that may well be a major consideration in explaining the country’s continuing poverty.

Low-productivity goods, such as food, beverages, textile, clothing, footwear, and similar items not requiring much inter-firm or intra-firm coordination (13.3% of GDP in 2005) dominate the domestic manufacturing sector ( Canlas, Khan, and Zhuang 2011 ). Lack of scale, innovation and technologies are among the weaknesses affecting competitiveness—‘innovation’ ranked 108th, while ‘technological readiness’ ranked 83rd in the Global Competitiveness Report ( Canlas, Khan, and Zhuang 2011 ; Schwab 2010 ).

Meanwhile, the service-sector share has increased to 54.8 per cent of GDP, generating 52 per cent of employment ( NSO 2012 ). A remarkable increase in the Business Process Outsourcing (BPO) industry, which includes call-centres, back-office operations, software development, and the like, has recently been noted. The economy is leaning towards exporting people’s skills.

Third, the Philippines is one of the top suppliers of migrant labour worldwide, such that the remittances of such workers to their families are keeping the Philippine economy afloat. Estimated at $18.3 billion in 2008, these remittances were the second largest source of export revenue ( Bangko Sentral ng Pilipina 2011 ). The actual contribution would be bigger if informal remittances were included. The Philippines is considered competitive in ‘exporting people’.

Fourth, being geographically and linguistically diverse, the Philippine society is fragmented. Its lack of a sense of unity has been always an issue in incidents requiring a certain level of coordination among players. Whether these involve labour unions, elite business, politicians, or others, they manifest a repeated pattern: Filipino groups easily break up.

What constitutes the backbone of Philippine society is the ‘family-centredness’ of individual Filipinos that comes partly from the Filipinos’ particular kinship system. Filipinos tend to put family before others. For example, business is primarily for the family, an idea that can be carried to extremes, such that public service is also considered to be for the sake of family wealth. Philippine Catholicism, which counts 80 per cent of the population among its affiliates, reinforces the social norms of family-centrism ( Abinales and Amoroso 2005 ), As I will elaborate later.

Fifth, between 1950 and 2010, the Philippine population increased almost fivefold ( Canlas, Cham, and Zhuang 2011 ; NSO 2012 ). Its population growth rate of 1.87 per cent remains Asia’s highest ( CIA 2012 ). The combination of kinship system, influence of the Catholic Church, and the government’s weak commitment to population control are acknowledged reasons behind this growth, but some pundits suggest the Philippines is, in fact, growing people for export ( Tyner 2004 , 2009 ; Kaye 2010 ).

Role of the State

In the Failed State Index of 2012, the Philippines is considered ‘critical’, ranking 56th among the fifty-nine states studied and one of the worst in South East Asia ( Freedom House 2012 ). Why is it failing? Scholars have tried to describe Philippine capitalism as the embodiment of ‘ersatz capitalism’ ( Yoshihara 1988 ), the ‘anarchy of families’ ( McCoy 1993 ), ‘booty capitalism’ ( Hutchcroft 1998 ), ‘rent capitalism’ ( Sidel 1999 ), and ‘crony capitalism’ ( Kang 2002 ); and the Philippine state as being an ‘anti-developmental state’ ( Bello et al. 2006 ).

At first glance, the Philippine state appears to be ‘anti-development’, with the state preying on its citizenry, making it fit to be referred to as a ‘predatory state’, as defined by Evans (1995) . However, there is debate among scholars as to whether the Philippine state is strong enough to be called ‘predatory’. On closer investigation, the state is weak in relation to the overwhelming power of big business and/or landed families. These families wield considerable influence over almost all aspects of state functions, thereby enhancing the cause of private accumulation ( McCoy 1993 ). Perhaps this explains why Hutchcroft (1998) categorized the Philippine state as a ‘patrimonial oligarchic state’: while the weak citizens are preyed on by the state, the state itself is weak and preyed upon by powerful oligarchic elite families whose economic bases are outside the state. In short, the state is weak in relation to the oligarchic elites, but sufficiently strong in relation to the people to function as a ‘predatory state’ ( Quimpo 2009 ). This designation calls for a closer look.

Since the Spanish period, Philippine public service has become widely known to provide opportunities for plunder to families in power ( World Bank 2000 ). Philippine bureaucracies have been less developed ( De Dios 2011 ). The number of politically appointed positions in the Philippines is double that in the USA ( World Bank 2000 ). Further, if one were elected to power in the country, one’s family and friends would likely occupy positions for political appointees ( World Bank 2001 ). Corruption remains rampant—the Corruption Perception Index is 2.6 out of ten, one of the worst in South East Asia ( Transparency International 2011 ). In terms of the division of public funds, the Philippines ranked 127th of the 142 countries in the Global Competitiveness Report ( Schwab 2010 ).

Because the potential returns from holding power are great, Philippine elections have become expensive investment exercises characterized by the ‘3Gs’—guns, gold, and goons. Global Integrity scored the political financing of elections extremely low, at 16 out of 100 ( Global Integrity 2011 ). Philippine democracy is yet far from perfect.

The Philippines is known for its active NGO sector ( Quimpo 2005 ). However, Philippine civil society does not necessarily function as checks and balances for business and the state ( Abinales and Amoroso 2005 ). NGOs frequently function as cogs of government ( Silliman and Noble 1998 ). Also, some businesses have created NGOs to ensure protection for elite’ interests, and even use these organizations to mobilize the masses, as evident in the ousting of two of the country’s presidents as a result of the emergence of popular movements ( Hedman 2006 ).

The legislature is controlled by the elite through pork barrel politics. Legislation usually reflects their interest, which is a major reason why Philippine land reform, given its legal loopholes, has been unsuccessful ( Abinales and Amoroso 2005 ). Likewise, the legislature has been resisting the introduction of progressive taxation and/or inheritance tax systems ( World Bank 2000 ). With the wealthy not properly taxed, the government suffers from chronic budget deficits: it has had to keep borrowing and dealing with large debt-service payments. The public trust that politicians enjoy is extremely low, ranking 128th among 142 countries ( Schwab 2010 ).

With the national coffers empty, the government cannot provide adequate basic services, such as education and health. It also cannot invest in public works, including infrastructure ( World Bank 2008 ). Philippine infrastructure is ranked 105th of 142 countries in the Global Competitiveness Report ( Schwab 2010 ). As Filipinos do not trust their government, the delegitimization score of the state is extremely high (7.9 out of 10) in the Failed State Index ( Freedom House 2012 ).

With the people not well served, the Philippines suffers from insurgencies, and it has South East Asia’s longest experience of communist guerrilla activity and a Muslim separatist movement ( Schiavo-Campo and Judd 2005 ). Its high scores in the categories of security apparatus (8.4) and group grievance (7.6) in the Failed State Index reflect these problems ( Freedom House 2012 ).

The government cannot exercise much power to regulate business. Usually, key business sectors, such as transportation, energy, telecommunications, other utilities, the financial sector, and the like, are controlled by a limited number of corporations that are part of conglomerates owned by big business families ( World Bank 2008 ). These families can easily influence the government, such that they are able to enjoy their rents, protect their business through setting up high entry barriers, and lessen competition. As a result, the cost of inputs for industries and the economy tends to be high. For example, the cost of power in the Philippines is considerable, just as the cost of financial intermediation is high ( ADB 2007b ). Reflecting these problems are the notably high score for factionalized elites (8.0) in the Failed State Index ( Freedom House 2012 ) and the low rankings for goods market efficiency, and market dominance, ranked 88th and 117th among the 142 countries in the Global Competitiveness Index ( Schwab 2010 ).

Perceived as among the weakest institutions in the Philippine state system are the judiciary and law enforcement systems, which are seen as partial and ineffective, respectively. Some judges can allegedly be bought, just as members of the police are sometimes linked to criminal activities ( World Bank 2000 , 2001 ). In the Global Integrity Report, the Philippines’ overall rating is ‘Very Weak’. Indicative of this is the large gap between a legal framework score of 84 out of 100 and an actual implementation score of 31 ( Transparency International 2011 ).

One area where the Philippine state functions well enough to be regarded as world-class is in its orchestration of the export of its people through various agencies. This will be further discussed in the Employment Relations section.

Financial System

In 2004, the Philippine banking sector controlled 64 per cent of the financial sector’s assets, while the market capitalization of the Philippine Stock Exchange was only 22 per cent, and non-bank financial institutions shared 14 per cent ( ADB 2005 ). The banking sector has dominated the Philippine financial system over the years, with domestic private banks serving as the key players of the highly concentrated sector ( IMF 2010 ).

In 2009, seven of the ten biggest banks belonged to conglomerates owned by elite families, and these seven owned about 60 per cent of bank assets ( IMF 2010 ). The banking sector has historically been known for its oligopolistic behaviour and its strong influence on the Bangko Sentral ng Pilipinas (BSP), the Philippines central bank, which is supposed to have regulatory powers over the sector ( Hutchcroft 1998 ; Krinks 2002 ).

Bank ownership provides various advantages to elite families. First, it is a great money-making apparatus. As the Philippine banking sector is oligopolistic and not rigorously regulated, deposit rates are relatively low, while lending rates are relatively high. The banks enjoy high spreads.

The second advantage comes from the banks’ investment in bonds issued by the government, which suffers from budget deficits. Government bonds constitute risk-free investments, and are thus easy money. They make up about a quarter of the banks’ assets, while loans comprise half ( IMF 2010 ).

Third, banks within conglomerates facilitate the extension of long-term, low-cost financing, even to some questionable projects within the groups, through the utilization of domestic deposits under depressed rates. Besides, these banks are able to access funding from the international market, often at relatively low cost. Further, although the central bank can check the soundness of lending, their regulatory power is limited ( Echanis 2006 ).

Fourth, easy access to bank financing allows owner-families to reduce their reliance on the capital market ( ADB 2005 ). Relative to the markets of other Asian countries, the Philippine Stock Exchange is very small, largely because many Philippine private corporations are virtually family owned and these families are not interested in losing their control by going public. In 2005, some 500 to 1000 companies were believed to be qualified to list ( ADB 2005 ); by 2008, however, there were only 246 listed companies in the Philippines ( IMF 2010 ).

Non-bank financial institutions are also small in the Philippines. While there are more than 150 insurance companies ( ADB 2005 ), premiums collected in 2008 made up only about 1 per cent of GDP ( IMF 2010 ). Philippine mutual funds are among the smallest in Asia, to the point that they were only 1.8 per cent of Thailand’s ( ADB 2005 ). In the absence of stronger state regulatory power, information on mutual funds is not sufficiently transparent or well disseminated; the funds are frequently hounded by scandals ( IMF 2010 ).

While the Philippine financial market remains minuscule and underdeveloped, capital flight has been observed to occur cyclically, or whenever a domestic economic crisis or political instability occur ( Baja 2006 ). In sum, the financial sector in the Philippines is notably small and underdeveloped. What exists is a system that caters to a very limited number of big business families and centres on their big banks, which provide patient capital.

It should also be noted that relatively depressed deposit rates discourage bank savings. The stock of net loans in the Philippines is equivalent to 35 per cent of GDP, rather low compared to other Asian countries ( IMF 2010 ). Naturally, the overall contribution of the Philippine financial sector to the country’s ordinary entrepreneurs is quite limited.

To further illustrate, only about 15 per cent of firms in the Philippines obtain financing for their working and investment capital needs from banks, while about 5 per cent use equity. The rest simply use their own funds or retained earnings ( World Bank 2006b ). In 2004, ADB (2005) surveyed 700 manufacturing firms and reported similar trends. More than half the working capital of these entities was funded internally, while only 20 per cent obtained bank or trade financing. A majority of Philippine firms do not use financing either from banks or the capital market. Instead, they maintain the status quo or try to grow within the constraints of internal financing.

Ownership and Corporate Governance

The ownership pattern of Philippine corporations can be divided into four categories: publicly listed, foreign owned, government owned, and privately owned. Privately owned firms are most numerous and usually family owned; even some publicly listed corporations are, in reality, family owned ( Saldaña 2001 ). Conglomerates of big business families are the main players in the Philippine economy, out-performing independent companies. These conglomerates hold 60 per cent of bank assets and 75 per cent of effective market capitalization ( Saldaña 2001 ; IMF 2010 ).

Conglomerates provide a significant challenge in terms of corporate governance. Banks and creditors cannot control them, because the banks themselves are owned by the families, and are being crowded out by public debt, which accounts for about 90 per cent ( Guinigundo 2005 ). Private debts are almost non-existent, constituting only 4 per cent of GDP ( ADB 2005 ; IMF 2010 ).

The market cannot control conglomerates either. As mentioned earlier, only a small number of qualified companies in the Philippines are listed on the Philippine Stock Exchange. Even fewer are actively traded. In 2004, the top 20 equities accounted for 80 per cent of trading volumes. The participation of foreign investors in the stock market is restricted.

Furthermore, publicly listed corporations may trade only 10–20 per cent of their stocks, the exact percentage being determined by the firm’s size ( Saldaña 2001 ). Usually, families do not want to lose control, so they circulate a minimum and continue to hold large blocks of shares. Since minority shareholders cannot influence corporate decisions, their rights can be easily ignored.

The structure of family conglomerates is complicated by the regulations to protect minority shareholding rights. Family-owned conglomerates often assume pyramidal structures, comprising holding companies, some publicly listed companies, and many privately owned companies. These holding companies are privately owned, with families usually holding more than 50 per cent. Moreover, through their holding companies and, sometimes, in a combination of these and cross-shareholdings within the conglomerates, families are usually able to control their publicly listed corporations ( Saldaña 2001 ; Echanis 2009 ). In 2009, among the top 100 listed companies, 74 companies each had a private company, most likely a holding company, as their largest shareholder. Meanwhile, 77 companies had a chief executive or chairman concurrently serving either as the chairman, or as an executive officer of their largest shareholding ( AIM Hills Governance Center 2011 ). This structure has has allowed funds to be easily transferred from one to another and has made it difficult for minority shareholder rights to be protected.

Quality auditing can play a key role in corporate governance. With the Philippine business sector being small, one particular accounting firm dominates, and its audits are sometimes known to be weak ( World Bank 2006a ). Setting up an independent board of directors can prove difficult because the community of the business elite in the Philippines is small, just as the number of individuals who have the qualifications and experience to serve as independent directors is limited. About 25 per cent of these directors are former executives of corporations ( AIM Hills Governance Center 2011 ) and tend to hold several board seats. Most likely, they are friends of the owner-families, so are unlikely to act against these families.

Unsurprisingly, corporate governance in the Philippines is ranked worst among eleven Asian economies. At 37 out of 100, the Philippine score is lower than that of Indonesia (40) and much below that of Singapore (67), which is in first position. The Philippines had particularly low scores in four of five categories: enforcement (15, Singapore: 60), corporate government culture (25, Singapore: 53), CG rules and practices (35 versus Singapore’s 65), and political and regulatory (37 versus Singapore’s 69) ( CLSA 2010 ). The World Bank’s Doing Business report ranked the Philippines 132nd among 183 economies in terms of Protecting Investors, equal to Timor-Leste (132nd), but far below Malaysia (4th), Thailand (12th), and Indonesia (44th) ( World Bank 2011 ).

After the Asian currency crisis, many mechanisms to improve corporate governance systems were rapidly installed in the Philippines throughout the 2000s ( Wong 2010 ). For example, the Code of Corporate Governance introduced in 2002 was further revised in 2009. However, various reports point out that the absence of effective enforcement systems, such as the imposition of serious penalties for offences associated with fraud, hinders further improvements in corporate governance ( Echanis 2006 , 2009 ; Wong 2009 ). It seems that the country faces the same constraints again and again. Without a functioning enforcement system of laws and regulations, nothing much can be done, particularly in the face of concentration of ownership and power in business.

Internal Structure of the Firm

Philippine businesses are largely family owned and were set up in the first place for families. Property rights are not well protected, and corporate governance mechanisms do not function well. In such an environment, family-business owners need to involve themselves directly in the management of their businesses.

In some cases, such as those involving conglomerates, families form family councils and meet once a week to make management decisions. Often, after the family council meetings, selected ‘confidante managers’ are called in to discuss further how to operationalize the decisions already made by the families. These executives are highly paid by the owners so that they are not tempted to exploit corporate wealth. Some corporations even have two separate HR sections, one directly relating to the owner CEOs and intended to handle confidante managers, and the other to handle the rest of the employees.

Beyond the inner circle executives, delegating responsibilities and coordinating tasks and information are little practised in Philippine corporations due to the difficulties inherent in the business context.

The internal structure of most corporations is hierarchical, a reflection of the very high power-distance in society. Pay and status are highly differentiated among managers and various layers of employees. Different groups eat different food in different places, wear different uniforms and clothing, commute via different types of vehicle, and reside in different kinds of place. What is more, the Labour Code and mode of communication differentiate supervisors from the rank and file. English tends to be used by those holding supervisory positions, while rank-and-file workers use Filipino and local dialects.

The socio-economic gap between regularized rank-and-file workers and casual workers is pronounced. Regularized rank-and-file workers, especially union members, are essentially labour aristocrats who enjoy job and income security by virtue of the Philippine Labour Code. On the other hand, casual workers, who are only allowed to work in the same company for less than six months, are extensively used and largely exploited: they are often paid less than minimum wages. Given the brief employment of casuals, combined with socio-economic gaps, delegation and coordination are even more difficult among the lower ranks.

Meanwhile, Philippine society is fragmented and full of mistrust. When a business is understood to have been set up for the benefit of the owner families, employees tend to feel exploited. In combination with weak property rights protection, this leads to low motivation and moral hazard. Many Filipino corporations suffer from corruption and moral hazards within. In an AIM survey ( AIM Hills Governance Centre 2005 ), 24 of 100 executives indicated that the ‘manipulation of corporate documents was acceptable under certain circumstances’, while 40 executives saw ‘nothing wrong with interfering with their firms’ bidding procedures’. They were averse to whistle-blowers, however. Given these tendencies, delegating responsibilities and tasks appears difficult.

Beneath the rhetoric of meritocracy, clientelism quietly but strongly affects every aspect of people management. Hierarchies of patron–client networks are evident from the top (i.e. owner) to the bottom (i.e. casuals), but especially among managers and supervisors, who are eligible to climb the corporate ladder whereas rank-and-file employees are rarely promoted ( Kondo 2008 ).

In organizations with large power-distance, clients function as the ‘eyes and ears’ of the patron: they monitor those holding subordinate positions. As clients are also expected to work hard to stay in the organization, they are subject to training to avert the possibility of a brain or skills drain in the company, in the event that some other employees are poached by another company, whether in the Philippines or abroad, as has frequently been the case. As a consequence, clients are likely to be promoted ( Kondo 2008 ).

However, most workers who do not have powerful patrons tend to become alienated. They are discouraged from investing in any new or additional skills specifically required for their jobs. Rather, in the hope of working overseas, some try to invest in the acquisition of more general skills and experiences usable in the international labour market.

Corporations also subscribe to paternalism, which targets all, but more so lower-ranked employees. To this end, management and business organizations try to convey the sense of a benevolent father-figure in one large happy family to their employees, for example by providing a 50kg sack of rice to each employee every month, or by providing stylish uniforms that can be worn outside work. Culturally selected images and practices of Roman Catholicism are frequently used to enhance the ‘benevolent father’ image.

Firms even extend paternalistic acts to neighbouring communities, especially when insurgency groups prevail. They also provide generous support to community activities, including the construction of chapels and daycare centres for kindergarten students ( PBSP 2000 ).

Employment Relations

With the country’s rapid population growth, the Philippine labour force is large, growing, and young. The population of individuals 15 years and above was 62.6 million in January 2012, a 1.15 million increase from the previous year ( DOLE 2012 ). With its industries uncompetitive, the Philippines has been suffering from high unemployment and underemployment rates, of 6.4 per cent and 19.1 per cent, respectively. Another 30 per cent or so are semi-unemployed ( NSO 2012 ).

Employees can be categorized as regular, probationary, casual, contractual, or project-based. Insofar as regular employees are concerned, labour law protects both workers’ wage rights and their right to tenure. If terminated, workers frequently file cases, which can go up to the Supreme Court. To save time and expense, corporations often offer a payment so that employees will voluntarily leave their jobs—such as paying voluntary retirement benefits to an employee who has committed theft within the company, instead of firing the individual. Hiring and firing practices in the Philippines are ranked 113th and redundancy costs 118th among 142 countries in the Global Competitiveness Index ( Schwab 2010 ).

In terms of wages, the regional statutory minimum wage in the Philippines is always set by tripartite representation, with employers represented by the Employers Confederation of the Philippines. The minimum wage functions as a reference wage, especially for unskilled and semi-skilled labour ( Ofreneo 2003 ).

The Philippine Constitution guarantees the right of employees to form unions in order for them to be able to undertake collective bargaining. Workers may form rank-and-file unions or supervisory unions at the enterprise level. Collective Bargaining Agreements (CBAs) can be negotiated every five years, but the economic terms in CBAs, including wages and benefits, are initially good for three years and are renegotiated for the remaining two years. Thus, unionized corporations’ HR costs are fixed over multiple years.

A decreasing trend in unionization has been noted in the Philippines. In 2008, of the 38.9 million employed, only 1.7 million were unionized, and only 0.2 million workers were covered by collective bargaining agreements ( DOLE 2011 ). Fragmentation of unions, increase in flexible work arrangements, expanding service sectors, and massive labour migration are possible causes of the decline.

Likewise, in recent years, industrial relations have been peaceful. Days lost from actual strikes and lockouts significantly declined to 34,000 by 2010 ( DOLE 2011 ). Many corporations avoid unionization or promote industrial relations even with unions through the establishment of labour–management councils, which management uses to communicate with employees and hear their concerns ( Ofreneo 2003 ).

The highly protective labour regulations are rooted in the long history of the Philippine labour movement. Along the way, various types of union were created, including some close to the militant communist insurgency groups demanding social fairness.

When inequality is highly pronounced, elites need to subdue the poor to avert social conflict. Taming organized labour was an easy avenue towards this, eventually resulting in the creation of labour-protective laws. Most extant unionized firms were established when the Philippines adopted import-substitution industrialization policies after independence ( Ofreneo 2003 ). They were mostly in capital-intensive industries run by elite families that enjoyed protected rents. Since capital-intensive industries do not require many workers to begin with, it was easy to transfer some of the rents to their workers.

Currently, many Filipinos are unemployed, and millions leave the country to work abroad. For most Filipinos today, the labour market is not domestic, but overseas. This labour-force migration has been orchestrated by the state since the 1970s, with a very clear political view toward diffusing social unrest fuelled by unemployment, poverty, and the foreign exchange crisis. Even the 1974 Labour Code had provisions for this purpose ( Tyner 2004 ).

The main state apparatus for migration is the Philippine Overseas Employment Administration (POEA), which many governments overseas recognize as a ‘model’. Today, POEA processes more than 1.6 million workers a year ( POEA 2011 ). It has the power to formulate rules and regulations governing recruitment and to adjudicate on violations of these regulations.

POEA works closely with the National Labour Relations Commission, a quasi-judicial agency that resolves labour compensation disputes; with the Overseas Worker Welfare Administration, which is a financial agency managing overseas workers’ welfare funds; and with the Technical Education and Skills Development Authority, which is responsible for developing skills ( Agunias 2008 ; Ruiz 2008 ).

In order to promote migrant workers, the Philippine state refers to them as ‘heroes’ saving the country. Given that the policy—which seems to have been institutionalized by the massive number of people migrating, remitting money to make their families notably well off in their respective neighbourhoods, and coming back as ‘heroes’—it is not surprising that Filipino children now dream of working abroad, rather than in their own country. The entire society is now leaning towards the exportation of its labour force as a national industry.

Education and Skills Formation

Social interest in education has been very high in the Philippines, unlike in other developing countries ( Son 2011 ), because education is seen as having a good return on investment. According to the ADB (2009) , half of households whose heads never completed elementary education are poor. The attainment of higher education is deemed key to getting a decent job.

While education can be a great equalizer, it can also a great divider. Basic education in the Philippines can be categorized as either private or public. Basic private education entails 11–14 years of schooling prior to college, inclusive of pre-school. It caters mostly to children of wealthy families and offers better school facilities than public education. Basic public education is one of the shortest in the world, at ten years. Attended by the majority of the population, it offers little or no extracurricular activities and limited facilities ( Luz 2007 ). The drop-out rate of students in basic education is high, with fewer than 50 per cent of those entering Grade 1 completing Grade 10 or its equivalent ( World Bank 2004 ; Son and Jose 2011 ).

Reflecting government budget constraints, education spending was just 2.4 per cent of GDP in 2005, far less than in other South East Asian countries such as Malaysia (8.1%), Vietnam (4.4%), and Thailand (4.2%) ( Son and Jose 2011 ). Teachers’ salaries take up around 90 per cent of the education budget, so little remains for other expenses. Classrooms, textbooks, laboratory equipment, desks, etc. are all in short supply. Moreover, good-quality female teachers tend to go abroad to work as maids, for which they earn more, depriving the public school system of good educators ( World Bank 2004 ; Son and Jose 2011 ).

Perhaps, the most serious problem in Philippine education is its weakness in the field of science and technology, quality- and quantity-wise. Students’ proficiency in mathematics and science ranks among the lowest internationally. For instance, in the Global Competitiveness Index, the Philippines ranked 115th among 142 countries in quality of maths and science education ( Schwab 2010 ). In the Philippines, students are not encouraged to study technology-related disciplines, nor do they wish to do so. In the 2002–2003 school year, only six students received a doctorate in engineering and technology, and only thirteen in computer science, whereas 295,000 students got bachelor degrees ( Canlas, Khan, and Zhuang 2011 ). Thus, the Philippines has been unable to produce enough science and technology personnel to support industrial growth.

At the same time, the problem can be seen as a reflection of industry’s lack of interest in innovation. Most corporations rely on technological improvements by purchasing new equipment and machinery or by hiring trained or skilled personnel: they do not bother to undertake their own research and development ( Canlas, Khan, and Zhuang 2011 ). The number of full–time researchers in the Philippines is 81 per million people, far below Singapore (6088), Korea (4627), China (1071), Thailand (311), Indonesia (205), and Vietnam (115) ( Posadas 2009 ). Moreover, in 2006, the Philippines spent only 0.11 per cent of GDP on R&D, while Thailand spent 0.26 per cent and Malaysia, 0.69 per cent ( Canlas, Khan, and Zhuang 2011 ).

The state cannot take care of tertiary education because of budget constraints. Instead, it relies on private institutions, which have mushroomed. In 2011, of the 2247 higher education institutions, 1604 were private ( CHED 2011 ). Unfortunately, a number have become diploma mills, seeking profit instead of providing quality education ( Abrenica and Tecson 2003 ).

It should be noted that there are many private training institutions that prepare Filipinos for overseas labour markets, and they respond quickly to the needs of international markets. For example, a large number of workers obtain maritime and nursing education so they can work as seamen, or as nurses or caregivers overseas ( Alburo and Abella 2002 ; Ramirez 2002 ; Tyner 2004 ).

In contrast, Philippine corporations provide on-the-job training to regularized employees, especially those at supervisory and managerial levels. Big firms usually have a training department, and their professional HR officers organize various up-to-date Western-style managerial and technical training. Usually, they benchmark against practices prevalent in the USA ( Ofreneo 2003 ).

Although Philippine corporations train well, they face skills shortages and encounter difficulty in finding managers, professionals, and administrative staff with the right skills. Among the reasons cited for the skills shortage are high turnover, lack of quality educational training, emigration of skilled workers, and low starting pay ( Di Gropello 2010 ). Talented and experienced staff tend to take on international job assignments, particularly in developed countries that import professionals and block non-professional labour. This explains the drain in knowledge workers from the Philippines ( Alburo and Abella 2002 ).

Inter–Company Relations

Major elite families tend to have highly diversified conglomerates. However, there is no particular term for these conglomerates, and hardly any specialization can be seen within them ( Saldaña 2001 ). There have been exceptions whereby conglomerates forge linkages with foreign companies in order to tap into the latter’s resources, effectively gaining access to technologies ( Batalla 1999 ). However, finding any type of production network among Philippine corporations remains difficult. Because different conglomerates show high concentrations within each sector, the different families compete over a small pie rather than foster productive collaboration. It becomes a zero-sum game, and inter-elite rivalry is fierce.

The only exception reflects rent-seeking and risk-avoidance investment patterns, with elite families additionally forging ad hoc alliances to influence the sector’s regulatory agencies. Because of uncertainties associated with this regulatory capture, other firms, including SMEs and foreign entities, are hesitant to invest in these sectors in the Philippines ( World Bank 2007 ).

Big-business families in the Philippines tend to fall under one of the following categories: (i) they have roots in the colonial past, (ii) they have been protected by policies imposed by the government after independence, or (iii) they have only recently emerged. The traditional elite families are likely to have belonged to the landed class during the Spanish period, before being transformed into industrialists during the American period; they grew even bigger after World War II. For their part, overseas-Chinese Filipinos experienced various incidents of discrimination, but have gained prominence over the last two decades ( Krinks 2002 ). Among them, some collaboration has come about, sometimes with other overseas Chinese in South East and East Asia.

Regardless of the origins of these corporations, there are differences between the Philippine elite and elite leaders in other Asian countries in terms of intra-elite collaboration and rivalry. The Philippine elite is fragmented and lacks ‘a clear articulation of common goals and convergence of ideas regarding the state’ ( De Dios 2011 : 32; Kang 2002 ).

One hypothesis in this regard is that countries like India and Vietnam had to struggle for independence, whereas South Korea had to face threats from its neighbour. Therefore, elite leaders were forced to collaborate for the sake of broader goals. Philippine independence was guaranteed by the USA, and both country and elite leaders were under US protection, even after independence. The Philippine elite did not have to consider broader directions for the Philippines: all they needed to do was focus on narrow agendas dedicated to their personal or clans’ benefit ( De Dios 2011 ).

Social Capital

Family and religion are backbones of Philippine society. Filipino kinship is cognatic, putting equal emphasis on the male and female lines ( Wolters 1999 ; Abinales and Amoroso 2005 ). A characteristic of this system is a vast spread of kin and trust around an individual: extended family members can easily number hundreds.

Since an individual can have numerous family members, when that individual suffers, there are many on whom he or she can depend. For example, it is common practice for an unemployed person to stay with a faraway relative for many months until he or she finds a job. Reciprocity is also heavily emphasized, so that this extended family system serves as a mutual help and security system.

More than 80 per cent of Filipinos are affiliated with the Roman Catholic Church ( CIA 2012 ), whose rituals and teachings reinforce strong family loyalty. The Church also provides people with a certain degree of social capital. Many Filipinos tend to hold a certain trust in God, believing themselves to be God’s created sons and daughters who appear equal before Him, regardless of wealth or poverty. They believe that God will destroy whoever destroys their trust in Him. Among the institutions studied in 2001, the Church enjoyed the highest trust score ( Abad 2006 ); consequently, it has substantial power, be it socially, economically, or politically.

However, beyond families and the Church, social capital in the Philippines is weak in terms of both interpersonal and institutional trust. The effects of the high level of inequality over a long period on Philippine society are worth noting. Societies thus characterized exhibit similar symptoms: the erosion of social cohesion, high frequency of social conflict, and insufficient protection of property rights ( Cornia and Court 2001 ). The Philippines suffers from this malaise ( Labonne, Biller, and Chase 2007 ). The mistrust prevailing in society is extremely taxing in almost all aspects of the Philippine business system.

As for interpersonal relations, beyond family and kin, Philippine society is characterized by fragmentation and mistrust. The general level of interpersonal trust among Filipinos is much lower than international levels, according to the World Value Survey of 2001 ( European Values Study Group and World Values Survey Association 2006 ). In this survey, Filipinos indicated that there were only a few they could trust completely (76%), expecting others to intend to take advantage (77%).

As for institutional trust, the country’s public sector is perceived to be highly corrupt, and people in general do not trust public authorities. The Philippine judiciary and law-enforcement agencies have been said to be the least trusted. The Philippines is a litigious society with comprehensive laws and regulations, but some lawyers, judges, and police officers can be bought. Birth certificates, licences, and other documents are easily forged. Crime and murder rates are high, and guns are also easily available. As discussed earlier, both communist and Muslim insurgent activities persist. Institutional trust is weak, as with property rights protection.

Institutional Complementarities

Similar to the business systems of advanced industrialized economies, such as the USA or Germany ( Hall and Soskice 2001 ), the Philippine business system is high in complementarities. However, in the Philippine case, these complementarities are such as to degrade its economy and competitiveness.

This chapter started with the question, ‘What is the root cause of the persistent underperformance of the country’s economy?’ To understand the root cause, the concept of the ‘inequality trap’ highlighted by the World Bank in its World Development Report of 2006 appears helpful ( World Bank 2005 ).

An inequality trap is a phenomenon whereby inequalities instigate more inequalities. When large power differences exist as an initial condition, they tend to shape political, economic, and socio-cultural institutions in directions that allow the current power structure to flourish or be maintained. Therefore, a society experiencing persistent and severe inequalities can more easily be trapped. Once trapped, inequalities persist even when the economy grows. Eventually that society’s capacity to be competitive will be eroded ( World Bank 2005 ).

As the Philippines is a patrimonial oligarchic state, its economy is characterized by a concentration of wealth among a small group of elite families, sometimes dating back to the Spanish or American period. Over time, even as the Philippine economy grew, poverty did not diminish. It is easy to imagine how the Philippines’ economic, political, and socio-cultural mores and institutions were historically shaped to allow these elite families to retain their power.

The Philippine business system can be seen as exemplifying ‘inequality-trapped capitalism’ as follows:

State: The power of elite families overwhelms the state. Insufficient tax collection, corruption, lack of fair competition, deviation of funds, and inefficient resource allocation generally favour the elite and big business. However, this makes it difficult for the state to invest in infrastructure and basic services, including education, which are key to raising people’s standards of living. Higher input prices from regulatory capture, such as those seen in electric power, cause public and business entrepreneurs to suffer.

Finance: Banking businesses provide wealth to big business families, while also meeting the financial needs of their conglomerates. But lower deposit rates do not mobilize people’s savings, and high finance costs hinder the growth of SMEs.

Corporate governance: Corporate governance measures through banks, stock market, and directors are ineffective, enabling big families to take advantage of minority shareholders. The stock market remains small and does not help entrepreneurs. The financial sector does not promote efficient resource allocation; instead, it further widens the financial gap among people.

The internal structure of the firm: The hierarchically divided structure of firms reflects and reinforces socio-economic divisions. Essentially nepotism, the patron-client system generally discourages workers from engaging and investing in upgrading their skills.

Employment relations: The heavy protection accorded to regular workers reflects an effort to buy industrial peace by channelling part of rents to regularized workers only when socio-economic inequalities are high. It increases the gap between regularized and non-regularized workers.

Education and skills formation: In spite of the social preference for education, the lack of public funds in support of education widens the socio-economic gaps.

Inter-company relations: Lack of inter-elite collaborations, except for lobbying and regulatory capture, prevent coordination that would help promote the country’s broad objectives, including the competitiveness of its industries.

Social capital: Prolonged high inequality weakens interpersonal and institutional social capital. The weak trust among people and social systems, especially in the judiciary and law enforcement, directly hampers the development of the financial system (e.g. from trust to mutual funds), corporate governance (e.g. from trust to auditing), internal firm structure (e.g. from trust, to people, to delegation and coordination), employment relations (e.g. firing), education and skills formation (e.g. meritocratic HR practices so workers will be motivated to invest in skills acquisition), and inter-company relations (e.g. inter-elite rivalry).

Evolutionary Dynamics

Responding to the ageing and decreasing populations of the developed world, among other factors, more than 250 million people around the globe hold, in one way or another, the status of migrant ( Kaye 2010 ). Amidst globalization, the Philippines business system, which exemplifies ‘inequality-trapped capitalism’, is integrated into global markets and economies. The Philippines is one of the top sourcing countries of migrant labour in the world, and a dawning of ‘exodus capitalism’ or ‘migration-trapped capitalism’ can be observed in the country.

We can further explain the trajectory from ‘inequality-trapped’ to ‘exodus’ or ‘migration-trapped’ capitalism in the Philippines. While inequalities persist, industries cannot be competitive, and uncompetitive industries cannot provide jobs nor realize earnings in foreign currencies. This has created an exodus tendency, and systems and institutions have developed to formalize it, to the extent that exporting people has become a ‘national industry’, involving almost every part of society. This has also created a ‘brain drain’, such that it is hard for the country to gain and maintain competitiveness. Once a country reaches this stage, it will need to keep exporting a proportion of its citizens just to stay afloat. This phenomenon is not restricted to the Philippines. However, among sourcing countries, Philippine migration institutions and systems are recognized as among the most sophisticated and influential in the world, with even the World Bank trying to facilitate the adoption of the Philippine model in other sourcing countries. Hence, the dawning of ‘exodus capitalism’ in the Philippines can be considered a sophisticated variant at this time. Its features can be summarized as follows:

State: The state orchestrates the exportation of its people through POEA and other agencies. The state works hard to develop labour markets by diplomacy.

Finance Institutions: Institutions for remittances are well developed.

Ownership and corporate governance: These are not directly related. (Consumption-oriented and domestic-oriented industries grow, without competitiveness getting in the way, thanks to the remittances.)

Internal structure of firms: Firms expect that they can source employees with overseas experience. Also, firms are prepared for the eventuality that employees may leave for overseas positions.

Employment relations: The Labour Code provides legitimacy for the state to orchestrate personnel export. POEA and other agencies regulate private recruitment agencies, and provide a certain level of protection to migrant workers.

Education: Many education institutions provide skills training, catering to overseas labour markets. English education is now valued.

Inter-company Relations: The state tries to collaborate with NGOs, educational institutions, and other sectors of society to ensure the success of ‘exporting people’ as an industry. It collaborates with media and mounts campaigns to educate people about how migrant workers are the ‘heroes’ of the Philippines. BPO industries as skills exporters proliferate. For some individuals, like IT engineers, working for a BPO facility prepares them well for overseas assignments.

Social Capital: Civil-society NGOs try to protect migrant workers. Families provide extended networks lending support at home and abroad. The Church provides support to overseas communities. The Church also maintains and promotes its anti-birth control stance.

The Philippine business system can be characterized as follows. The government is unable to do the following properly: regulate business, enforce laws, collect taxes, invest in infrastructure, or provide services to the people. The financial system is small and dominated by a limited number of banks belonging to conglomerates owned by big business families. Most Philippine corporations are family owned, with the more important ones being part of conglomerates owned by elite business families. Corporate governance is weak and not very relevant in such entities. The internal structure of corporations is hierarchical, a reflection of the very high power distance in Philippine society.

Patron–client relationships are heavily relied upon in almost all aspects of HR practice. Employment relations are rigid insofar as regular employees are concerned. The formerly militant labour unions are now less restive and industry relations more peaceful. Meanwhile, many Filipinos are unemployed and millions leave the country to work abroad.

Foreign observers of the Philippines note a deterioration in public education. Philippine education is particularly weak in science and technology, but industries themselves also show a lack of interest in R&D. Brain-drain is the issue here.

The conglomerates of major elite families are highly diversified rather than specialized, as manifested in their rather ad hoc responses to rent-seeking opportunities. These elites’ lack of initiative to move beyond the rather protected domestic market, combined with intra-elite rivalries, prevents them from cooperating towards coming up with innovations and enhancing efficiencies to create internationally competitive industries.

Social capital is very weak in the Philippines in terms of institutional and interpersonal trust. Filipinos rely on large extended families, a phenomenon leading to excessive family-centredness.

What insights can the Philippine experience provide? There are three. The first relates to ‘inequality-trapped capitalism’. Under ongoing globalization, many developed and developing countries have been experiencing increasing and persistent inequalities within their societies, as exemplified in the wide and rapid spread of the 2011 Occupy Wall Street demonstrations across the world. The Philippine experience points to the possibility of an undesirable trajectory of capitalism in the future, and it should be a warning to initiate serious efforts to make development as inclusive as possible.

The second insight relates to ‘exodus’ or ‘migration-trapped’ capitalism, which may be emerging quietly but steadily under twenty-first-century globalization. This is a form of capitalism characterized by mass migration and the convergence of domestic and international labour markets. Will this type of capitalism solve issues of inequality in the world at large? The answer has yet to be seen.

The third insight is the importance of studying failed or uncompetitive business systems. Management scholars have focused research on successful and competitive state cases for many years because of their impression that competition ultimately successfully solves many social issues. However, the global world today is not as successful or competitive as we would wish, experiencing frequent financial crisis and the deepening of certain social issues.

Management scholars may need to shed light on failed or uncompetitive capitalisms. This may be the right time to appreciate the rich lessons that unsuccessful state cases can provide for the future global world.

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Home — Essay Samples — Sociology — Globalization — The Impact of Globalization on the Philippine Economy

The Impact of Globalization on The Philippine Economy

Categories: Globalization Philippines

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Published: Jan 5, 2023

Words: 1665 | Pages: 4 | 9 min read

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The Influence of Globalization on the Philippine Economy

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