2006: The Economics of Hype

Jan. 01, 2007

2006: Davao Today's Year-End Series

Administration propaganda one-sidedly presents growth, peso appreciation, lower public deficits and foreign investments as if these were development ends in themselves. But the deteriorating social conditions of joblessness, hunger and poverty are the sharpest rebuttal of any government economic hype.

IBON Foundation

MANILA — The government has been bombarding the public for months with news of a supposedly strengthening economy: continued growth, strong peso, low budget deficits, improving credit ratings and continuing foreign investments. Big business has dutifully joined the chorus with segments even visibly taking the political side of the beleaguered Arroyo administration. Yet the reality of historic joblessness, deepening poverty and hunger of tens of millions of Filipinos is undeniable.

The seeming contradiction merely shows different sides of the same coin a national economy that, especially under the Arroyo watch, does not serve the needs of the people. The economic good news has been good only for foreign creditors, investors and the administration which works so hard to deliver what they want. However even the good news as such will likely be short-lived with the underlying fiscal crunch and continuing borrowing portending problems in the near future. The domestic economy remains weak and, moreover, excessively vulnerable to global economic disturbances.

The year just passed has seen four significant economic trends: 1) the continuing historic jobs crisis; 2) the implementation of burdensome economic policies to address the governments fiscal crisis; 3) the increasing dependence of the domestic economy on external sourcing of financing, especially overseas remittances; and 4) continued efforts to open up the economy to foreign trade and investment. Since all these happen in the context of a backward and pre-industrial economy, their adverse implications are far-reaching: the people have suffered in the year gone by, are likely to suffer even more in the medium-term, and absent real changes in economic policies will continue to suffer even beyond this.

Historic joblessness

The biggest failure of the Arroyo regime is the unprecedented lack of jobs where the country is facing its worst jobs crisis. That this is happening amid continued economic growth (5.4 percent growth in gross domestic product in the first three quarters of 2006) and higher net income of corporations (32.5 percent increase in earnings of companies listed in the Philippine Stock Exchange in the first nine months of 2006) underscores the problem of an inequitable economy that favors a few while increasingly unable to provide jobs for millions of Filipinos.

There were 4.0 million unemployed Filipinos and 7.3 million underemployed in 2006 i.e. 11.3 million Filipinos or nearly a third of the labor force were either jobless or, even if employed, nonetheless still seeking more work. (This dismal reality is barely concealed by a convenient change in the definition of unemployment last April 2005 that reduces the officially reported rate by around three percent and the number by around 1.5 million.)

The problem is clearly not just momentary. The average annual unemployment rate of 11.3 percent and underemployment rate of 18.5 percent over the last six years is the worst six-year period in the countrys history, which indicates a deep-seated problem. While the unemployment rate has remained stable around a high 11 percent, the underemployment rate on the other hand has severely deteriorated and increased by some five percentage points in the last six years to nearly 22 percent. This draws attention to the worsening quality of employment and how already having a job is increasingly not even enough.

A particular development in 2006 is the sudden drastic drop in the labor force participation rate (LFPR) which fell from 67.0 percent in 2005 to 65.4 percent in 2006. The LFPR measures how many Filipinos over 15 years old are looking for work and thus considered part of the labor force. The drop in the LFPR implies that some 890,000 Filipinos (equivalent to the difference had the LFPR remained the same since the year before) ceased to be considered part of the labor force. Considering the previous five years of record joblessness, it is possible that many or all of these 890,000 Filipinos are discouraged job-seekers. If so, their departure from the labor force has the effect of greatly reducing reported unemployment.

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