ReInventing Philippines Inc.,

In 2000, hoping to reduce the high unemployment rates, the French government passed a law mandating a reduction in the workweek from 39 hours to 35 hours. The government had hoped that if France worked fewer hours, companies would have to hire more people.  The law however, failed to lower the unemployment rate, and it was stuck at 10 percent.

The rise in labor costs had the predictable effect of reducing job creation while increasing the incentives for businesses to automate.  In 2005, the French Assembly watered down that law.

Our attempt at holiday economics seems to be based on the same principles that there are a fixed number of hours to be worked, and by declaring more holidays, businesses would hire more people.

It was also envisioned that more holidays means more people can go out and spend. This was patterned after Japan.  The Japanese, however, were overworked and had very high savings.  A holiday would afford them rest, and would afford them to go out and spend, helping the economy. The problem is that the Filipinos don’t really have that much savings to spend on the first place.

This is the same as trying to benefit the worker by raising minimum wage.  However, services like products follow the law of supply and demand -when prices are expensive, you buy less.  When wages rise, businesses will hire less people.  This attempt to subvert the law of supply and demand creates an insider/outsider problem. If you have work, you are better off, but if you are an outsider, ( no job), it actually lessens your chances of getting hired.

Declaring more holidays does not benefit the businesses nor the worker. You don’t grow the economy by working less.  You grow it by increasing your productivity and working more.

Productivity is efficiency that maximizes output while minimizing inputs.  In the United States, it is the most important indicator that is tracked every quarter. If your productivity is going up, it almost always follows that your competitiveness, as well as your quality of living goes up. Regretfully, it is not given much importance or credence in the Philippines.

If low wages were the sole barometer of where companies want to invest, they would all be going to Africa.  When NAFTA ( North American free Trade Agreement) was signed which allows Mexico free access to the United States market, it was predicted that the Americans would lose their jobs to the Mexicans, who are willing to work at minimum 5 or 6 times less salary.  But that has not happened. If the American worker is more educated, and skilled, and as a result can produce units or value 10 times more, then he can still be a more valid alternative.

The reason why China is so strong, is that while its wages have doubled since 2000, its productivity have risen almost fourfold. In contrast, productivity of the Filipino workers was noted to have risen only 2.3 percent in the 1995 -2000 timeframe, and by a marginal 0.9 percent in 2000-2005.

Take, for instance, two firms, firm A and firm B, with the same level of output. Firm A however utilizes lesser input than firm B. Thus, firm A is more productive. With lesser usage of input, it is expected that firm A will have a lower cost of production and can charge a lower price for its products. Consequently, it is likely to have a larger market share and higher revenues.

Improving productivity through skills training and education is essential in attaining global competitiveness with the end goal of achieving sustained economic growth.

Argentina was one of the richest countries in the world during the turn of the 20^th century, even more so than France and Italy. Philippines was the second richest country after Japan in the 1950s.

Both countries wealth has since declined compared to many countries, and this is an often cited example of how incompetent or corrupt government policies can often relegate a rich country into a basketcase. But other than bad government, what really happened was how a single set of fortunate circumstance can rapidly propel a person up, and the failure of same can as rapidly pull a person or a country down.

In the case of Argentina, it became rich because at the turn of the century, its export of wheat and beef was prized and in demand in Europe.  In the Philippines, it was because it had abundant agriculture produce in sugar, coconut, abaca, as well as timber, gold and copper, most of which were fetching very good prices.

As in companies, no product or service is forever, and the most important thing is to use the profits and money to rapidly improve education and infrastructure so that the success can be broad based and enduring.  In the case of both Argentina and the Philippines, the failure to invest and diversify( most of the money was either spent on expensive imports, or squirreled away in private accounts)  meant that when other nations can produce as efficiently the farm products, or when the forests were depleted, or when mineral prices went downhill, the feast was over.

For instance, low mineral and oil prices contributed as much to the unwinding of the Soviet Union in 1989, as well as its financial collapse in 1998.  On the same token, Russia is so much more stronger financially in the decade of 2000-2010 because of high gas and mineral prices.

The only common denominator of rich countries is the high quality and skills of its human capital and infrastructure, as well as its attractiveness in terms of quality of life, and ease of doing business, and not its natural resource.

Moreover, the excessive dependence on one product can make the country susceptible to the Dutch Disease.

The disease is so called and was named after a phenomena that hit the Netherlands.  In the mid 1970s, the country had rich natural gas deposits, and the soaring price of it  made it a valuable export, and pretty soon, money started to come, which strengthened the exchange rate.

The strong exchange rate made the other Dutch exports uncompetitive, and shut down many industries.  Since the gas industry employed very few people, what it essentially masked that while the export numbers look healthy, and therefore the country appears rich, in actuality, a lot of people were actually thrown out of jobs.

Witnessed countries with strong oil exports in the Middle East, and it most normally means that other industries fail to develop.  Zambia used to have a strong agriculture export, and a growing tourism industry.  When the copper prices became better, they began exporting it on volume, and the strong currency killed their agriculture and the labor intensive tourism industry.

Venezuela used to have a strong export of chocolates, but the discovery of oil and its subsequent reliance on it, killed that industry, as well as many others.

This is the malady that we believe is affecting the Philippines.  The overseas Filipinos have essentially almost taken a sizable share of the dollar earnings of the country.

In 2009, the exports of the country fall to 38 billion, while officially the overseas Filipinos remitted over $18 billion dollars ( some say unofficial estimates of the remittance could be over $20 billion).  By these measures, the overseas income makes up over a third of the dollars receipts, and is largely responsible for the overflow of dollars that is presently purportedly saving our country, but actually is also wreaking havoc.

This remittance have mean that we have an exchange surplus which resulted in the peso being strengthened, and the government has made this a showcase of successful economic policy.

This masks a very big problem, because our strong currency means that we are becoming uncompetitive in many of our service exports, as well as agricultural, furniture, tourism  and other exports.  The exporters have bewailed this problem, and many of them have shut down operations – the Dutch Disease is starting to spread.

In countries which rely on one dominant export like oil, like Norway, or the Middle East, or even for those that are able to get a big surplus through a variety of exports, like Singapore or China, many of these countries have wisely made sure that the money is not converted into the local currency, and thus not contribute to its strength, but they have wisely use this to create sovereign funds that invests abroad in behalf of its citizens, money that will be ready to be used when the oil or the competitive advantage is gone.

The OFW bonanza will not endure and cannot endure – we have all so many of our people in other countries, that some countries understandably are concerned, and will limit Filipinos as immigrants.  The OFWs will not send money forever—when they are established as migrants or citizens of other countries, or when their dependents have also become independent, they will stop sending money. The OFW bonanza is a temporary phenomena, and cannot be our competitive economic agenda or serious ticket to prosperity for the country.

What happens after that?  What if by that time, many of our industries will have died, because during the feast, we have not wisely planned ahead, and instead of investing these money, we have instead spend it with abandon, and also did not prevent it from destroying our other industries? We missed that in the 1950s, and it looks like we will missed that again.  History repeats itself when we don’ t learn.

By most counts, there are now well over 10 million Filipinos working overseas.  The numbers continue to grow annually from over 600 thousand in the early 2000s to close to a million in 2009.  They are not found only in advanced countries but in almost every nook and cranny of the world, including Iraq, Haiti, Nigeria, and Sudan.  It is almost as if the dream of a Filipino is just to get out of the country, and any place is better than home. If there is one thing you can boast, it could be that the sun never sets on the OFW.

The OFWs (overseas filipino worker) are encouraged to go out as the local economy cannot find them jobs. It is worthwhile to note that many of them migrated not by choice but by necessity.  There are simply not that many jobs to offer locally. Even when close to a million migrate every year, and over 10 million has done so, the unemployment and underemployment rate totals nearly 30 percent.

This gets even more problematic in that more and more people are entering the labor force every year ( getting to 2 million now) , but the ability of the economy to absorb the workforce still stands at a few hundred thousand. There are two other bad repercussions here.

First, the people who leave are the most qualified.  It is because those who can will leave, and only those who can’t stay.  Losing skilled workers does not solve your employment problems, because as we said, the skilled people create opportunities, and their staying here can usually mean they create jobs for other people.  Many companies don’t invest in training because doing so will just mean they will lose the people to brain drain.  Many companies also can’t grow because they cannot find qualified people to staff their management and mid-supervisory position. And sending people out means broken families.

The government may be happy with the dollars they sent, but they could have contributed several times more than their remittances if they stay here.

I have many expatriate friends who tell me that working here has been a big inconvenience.  There are a lot of paperworks, and lots of payments, over and under the table.  It was almost as if people think it was patriotic to make your life hard and expensive for working here because you were getting a job away from a Filipino.

Meanwhile, the Bureau of Immigration announced that they have record revenues.  Is the immigration department supposed to be a money making thing?

If I were a businessman who owns a hotel with a parking lot, and the hotel business stinks, but the parking is earning good money, maybe it is time to think that the business could be improved if I offered free parking.

IF the Philippines can attract skilled immigrants, it should be encouraged. Well educated immigrants are almost always positive for a country.  In fact, half of Silicon valley startups are founded by immigrants (mostly Indians and Chinese.  Several notable tech companies were started by a Filipino immigrant – Dado Banatao), and these companies hire huge numbers of US workers.  Over 25 percent of America’s Nobel laureates are foreign born, and 40 percent of their doctorates in computer and engineering are foreign born.  Economists disagree on a lot of things, but almost all agree that the United States is a much more prosperous country, and has a lower unemployment rate by being open than by shutting its doors.

When skilled professionals live and work on a place, they benefit the place with their expertise, and create opportunities for everybody.  On the other hand, losing your best people to work overseas is  probably the worst, and least sustainable way to help the economy.