Neoliberal economics continues, but nationalist change still possible

IBON FEATURES | POSITION PAPER | 5 October 2016

IBON Foundation | #114 Timog Ave. Quezon City | 9276986 | www.ibon.org

On the Duterte administration’s economic direction in its first 100 days

Neoliberal economics continues, but nationalist change still possible

​​IBON FEATURES - 

There is still much to be done for the Duterte administration to overcome the Philippine government's stubborn adherence to old and discredited anti-Filipino neoliberalism. This overrides and is inconsistent with Pres. Rodrigo Duterte’s otherwise pro-poor and pro-Filipino pronouncements. This is also notwithstanding the welcome appointment of activists and progressives to important cabinet and other positions on agrarian reform, social welfare and development, labor and employment, anti-poverty, and the environment.

In particular, the 10-point economic agenda of the economic team still upholds the failed notion that creating the most profitable market conditions for big business, especially big foreign investors, is the best strategy for economic development. This is certainly the best strategy to increase foreign corporate and oligarch profits but it does not and can never deliver socioeconomic development for the poor majority. 

The recent experience under the old Aquino administration underscores this. The rapid economic growth greatly increased the wealth and profits of a few -- but the historic crisis of joblessness worsened, covering unemployment and deteriorating quality of work, and tens of millions remain in crushing poverty. Agriculture and fisheries weakened while genuinely Filipino industry continued to decline.

The continued neglect of national industrialization is especially glaring. The economic team wrongly equates "made in the Philippines" by foreign investors as industrialization even if what is really needed is "made by Filipinos" or by Filipino industrial firms. The government's industrial policy is, at best, for foreign manufacturers and their subcontractors to set up shop in the Philippines so that the country's cheap labor and raw materials keep getting exploited by foreign industrial powers.

Nothing in the economic team's official thrusts support pro-Filipino industrialization. Yet Filipino industries producing using the country's rich natural and human resources are necessary for the majority of Filipinos to truly benefit from these resources.

A few developments in the first 100 days do create the potential for the needed shift in economic strategy -- the progress of peace talks with the National Democratic Front of the Philippines (NDFP) and pronouncements that the government will adopt a more independent foreign policy. It is still early and the Duterte administration treats these as largely political matters but taking them to their logical socioeconomic conclusions will yield vast benefits for the economy and the Filipino people. They can be crucial elements for reorienting national economic policy towards the new, progressive, and long-term national industrialization policy that is so vital for the country's development. They deserve the people's full support and enthusiasm.

Positive: Pro-Filipino stance

1.       The continued progress in peace negotiations between the government and the NDFP is an important high-level process of the Duterte government for addressing the nation’s economic woes. The second round of the talks take up the crucial peace agenda of socioeconomic reforms with the comprehensive agreement on social and economic reforms (CASER) already described as their "center of gravity". This is because the CASER tackles the country's underdevelopment which creates the conditions for armed conflict. Concluding a substantial peace deal creates the possibility of a seismic shift from destructive neoliberal economics to nationalist and pro-people economic policy.

2.       The president’s recent pronouncements of adopting an independent foreign policy, including his criticisms of the US, can be the start of a real shift in foreign policy where the country navigates regional and global geopolitics as a sovereign nation rather than a vassal state of the US. The president has criticized the US for its interference in the Philippines, military exercises in Mindanao, and even the violent colonization of the Philippines and subjugation of the Moro population. He has also threatened to stop implementation of the Enhanced Defense Cooperation Agreement (EDCA) and expel US military forces. On the other hand, he has expressed interest in closer ties with China and Russia. This includes bilateral talks and greater diplomacy with China on disputes in the South China Sea/West Philippine Sea in contrast to the previous administration’s US-driven militarist approach. This patriotism on geopolitical matters can and should be extended to the economy with greater economic nationalism.

Negative: Neoliberal agenda

1.       Nothing in the economic team's official thrusts support pro-Filipino industrialization. The People's Agenda listed a few initial and very doable proposals for promoting national industrialization for national development but none have been adopted in any form. Indeed, the undue importance that is still given to attracting foreign investment and to further opening up the economy even undermines potentially positive statements such as about building the steel industry as the backbone of industrialization.

2.       Economic strategy is still geared to attracting foreign investors to set up their low value-added enclave firms or to subordinate Filipino small- and medium enterprises (SMEs) to their global value chains. This does not put the country on the road to eventually being able to produce Filipino products from our rich natural and human resources. Such a strategy on the contrary ensures that the country's mineral and agricultural resources and our vast skilled labor force will still be exploited by foreign firms or otherwise still benefit foreign economies.

3.       The administration continues to negotiate unequal free trade agreements (FTA). The on-going talks for the Regional Comprehensive Economic Partnership (RCEP) and European Union-Philippines (EU-PH) FTA follow a template of liberalization in trade, investment, and the rest of the economy. These prematurely expose the economy to competition with advanced industrial powers, drastically restrict the country's space for national development policies, and will stifle Philippine development. The economic team is even aggressively seeking to join the US-dominated Transpacific Partnership (TPP) agreement despite this deal already facing rough sailing within the US as well as with some other countries involved. This surrender of economic sovereignty is a major contradiction to the president’s declared stance of an independent foreign policy.

4.       The economic team is biased for big business and other elite interests. There have not been any moves for meaningful wage hikes or to truly end contractualization, both of which are vigorously opposed by employers. The moratorium on land conversion so needed by farmers and proposed by the secretary for agrarian reform is being publicly contradicted by the government's economic managers to favor real estate, agribusiness and tourism interests in rural areas.

5.       The economic team continues to favor public private partnerships (PPPs). This means that public funds will continue to subsidize private profits from infrastructure projects. The public will bear the higher taxes needed for this as well as higher fees on utilities and services. More and more urban and rural resources and spaces will be turned over to oligarch profit-making rather than primarily used for the benefit of the people.

6.       The Department of Finance (DOF) is proposing to lower taxes on the rich while increasing those paid by the poor. The country's biggest corporations and wealthiest families will benefit from the neoliberal tax thrust of lower income taxes, estate taxes, donor and transaction taxes on land, and capital income taxes. The revenue loss will be offset by charging the poor higher prices on goods and services with value-added tax (VAT) being charged on previously exempt items, higher excise taxes on petroleum products, and a new sweets tax.

Challenges

The Duterte administration is still just in its first few months and its economic strategies are not necessarily already firmly established. It can still claim the development high ground with even just a few significant policy measures:

1.       Declare national industrialization the major strategy for Philippine development. The Duterte administration should immediately reorient national economic policy towards a new, progressive, and long-term national industrialization policy.

2.       Launch a nationwide "Buy Filipino, Build Filipino" campaign for Filipino producers and consumers to work together in building a pro-Filipino economy. This can be done immediately as a very easy but symbolically significant first step. Filipino manufacturers should correspondingly be given immediate relief by stopping corruption in the Bureau of Product Standards (BPS), Food and Drug Administration (FDA), and Bureau of Customs (BOC) that results in smuggling of cheap imports, by removing incentives giving undue advantage to foreign manufacturers, and by genuinely giving priority to Filipino-made products in government procurement.

3.       Institutionalize priority measures to promote national industrialization. This can start with the creation of a multi-sectoral National Industrialization Council involving the government, Filipino industrialists, micro and SMEs (MSMEs), labour unions, people's organizations, academe, and other civil society groups. Other measures include creating and implementing a National Industrialization Financing Program, an MSMEs for National Industrialization Program, a Filipino Industrial Science & Technology Strategy, and creating a Department for Industry and Commerce.

4.       Assert the country's economic sovereignty. This can be done by renegotiating or withdrawing from international economic deals that damage the national economy and that prevent the Philippines from using protectionist policies that the developed countries themselves used and even continue to use.

5.       Explore economic relations outside of its accustomed US-, Japan- and Western Europe-centric circles. The Duterte administration can pursue new arrangements for development finance, technical assistance and infrastructure projects with the Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB). It can explore deeper bilateral relations with China, Venezuela or Iran for infrastructure, iron and steel, oil and renewable energy ventures, with Cuba for medical research and biotechnology projects, with Norway for energy, metals and shipbuilding projects, with Sweden for telecommunications, iron steel, and automobile projects, and others.

6.       Unilaterally withdraw from the so-called Partnership for Growth (PFG) with the US. This sends an unequivocal signal that the country is adopting independent foreign economic policy. The US$739 million (Php33 billion) PfG is an intrusive US mechanism for directing Philippine economic policy. This US program seeks to shape the country's economic policy and institutional environment to become more open and profitable to US investors and corporations. These mean terms one-sidedly beneficial to foreign capital and against sustainable Filipino economic development. The PFG is the most comprehensive US intervention in economic policy-making today and is explicit in pointing out the Constitution as among the major hindrances to foreign, including American, investment.

7.       Take the lead to build or join a regional or global united front against the biggest and most aggressive advanced capitalist powers. Pres. Duterte is expressing anti-foreign intervention sentiments that are likely shared by many other countries in Southeast Asia and the rest of the world that have long been chafing under the interference of the traditional big foreign powers. Yet the rise of the BRICS as alternatives to the traditional economic powers creates new opportunities in the global economy despite the protracted economic stagnation. A new national development strategy can take advantage of this.

​-IBON FEATURES​

​IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.

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