Page last updated at 01:30 UTC, Tuesday, 11 February 2020 PH
I am fortunate that one of the very first videos I watched at the beginning of 2020 was an interview with Prime Minister Hsien Loong of Singapore on the Bloomberg New Economy Forum. Referring with great humility to Singapore as a “bonsai” model for China, he nevertheless inspired me to think seriously of the lessons we can learn from Singapore and the other “tiger” economies that reached First World status in the last century by adopting the appropriate economic policies. I am, of course, aware that, as the Prime Minister pointed out repeatedly, the political, cultural and demographic circumstances that these highly successful economies faced during their high-growth decades in the last century were very different from those of our own country. There are, however, enough similarities that can make possible our adapting their successful strategies to the present circumstances that we are facing in the first half of the twenty first century.
Considering that the four of them, i.e. Singapore, Hong Kong, Taiwan and South Korea, are now experiencing a most severe demographic crisis caused by very low fertility rates and the consequent rapid ageing, it is difficult to imagine that all of them enjoyed a baby boom after the Second World War and experienced their own version of a demographic dividend. In contrast with our foolish inward-looking, import-substitution industrialization strategy, all of them had the wisdom of making use of their demographic dividend by first producing, as a Special Report of The Economist (December 7, 2019) aptly described, “cotton shirts, plastic flowers and black wigs.” These very labor-intensive industries (as opposed to the capital-intensive ones that we started with) created full employment and generated enough incomes for their respective governments who, in turn, were wise enough to invest heavily in education, health and housing (with the exception of Hong Kong) so that they were able to soon enough graduate to producing “memory chips, laptops and equity derivatives.”
It was inspiring to hear Prime Minister Hsien Loong talk enthusiastically about how their Central Provident Fund enabled the Singaporean government to invest heavily in quality education, health care, and housing for the working class. In their own respective ways, the other tigers assigned the same high priority to these social expenditures, thus providing their respective economies with some of the most productive human resources in the developing world in the last century, accounting for their double-digit growth rates for most of the last thirty years of the twentieth century. It was during this golden era when the four, one after another, overcame the so-called middle-income trap and surpassed Japan in per capita income. Their accomplishments have been well noted in the Special Report of The Economist: “They have also gained ground on America. Singapore passed it in the 1990s; Hong Kong drew level in 2013; and the other two have narrowed the gap.”
It is obviously too late for us to focus on labor intensive manufacturing exports as summarized by the “cotton shirts, plastic flowers and black wigs” illustration. Our wages are already higher than those of other Southeast Asian countries like Vietnam, Myanmar, Laos and Cambodia. Our competitive advantage in labor-intensive sectors are in our export of manpower to other countries (there are more than 10 million Overseas Filipino Workers); the BPO-IT sector which is increasingly moving towards knowledge process outsourcing including data analytics away from voice-oriented BPOs which are the easiest to automate; and the highly-labor intensive tourism and entertainment industries. Manufacturing for exports is not as vital to our economy as it had been to the tiger economies which all had small population sizes. Even the relatively more populous South Korea and Taiwan depended on exports for their success. As The Economist reported, “South Korea began with tinplate, plywood and textiles. Its exporters benefited from cheap credit, exemptions from import duties and a devaluation of the won in 1964…From February 1965 until his assassination in 1979, President Park Chung-hee attended nearly every monthly meeting of the country’s export-promotion committee, sampling products and rallying businessmen over lunch.”
Taiwan followed more or less the same path. It started with cheap credit and tax breaks for exporters. Entrepreneurs responded by investing in a host of light industries, then followed by heavier industries such as shipbuilding and chemicals. At a later stage, science parks were established for more advanced industries such as optoelectronics and semiconductors. The clear example from the tiger economies about export promotion is the key role of tax incentives. It would be highly counterproductive as this time, as the Philippines is still facing stiff competition with the likes of Vietnam, Indonesia and Myanmar in such areas as semiconductors and electronic devices, to remove the incentives given to PEZA locators as is being proposed by the second phase of tax reforms called TRABAHO. Although the Philippines is fortunate not to be as dependent on exports for the growth of its GDP, as the tiger economies still are, we still have to remain competitive in the few export items in which we have a comparative advantage because our Build Build Build program will be needing as much foreign exchange we can earn. (To be continued)