What is ailing the Philippine economy?

Click here to read Part I

In the world without "friction costs," this would not have mattered. Unfortunately, we know that there are significant costs for both access and distribution. As we often point out, international transport between Tokyo and Manila is actually cheaper than inter island shipping between Luzon and Mindanao. Should we still wonder why we are not price competitive on many products?

What is being emphasized is that our overall economic process is fundamentally disjoint. Just think of how large the upside potential is if only further integration can be achieved. The policy consequence to all these is that the strategy of having "critical industries" may work better for us as a local concept rather than at the national level. It may actually be worth looking at products that would be suitable for inter-regional trade even if these products are not "competitive" either nationally or globally.

Following the same reasoning, a bottom-up industrial policy may actually suit us better than the traditional top-down approach because it does take into account demographic realities. As a step forward, it does seem more practical to think in terms of what the different regions offer for themselves and to other regions before we even think of the country’s competitive advantages.

This takes a different spin on the long-standing policy of identifying strategic industries. It does not offer a radical new theory but it certainly does not take away from the general idea of pushing our strengths. What it does is to recognize our inherent structural make-up and to evolve the industrial policy from there. This is expected to improve local market dynamics, serve the needs of consumers, and improve welfare through increased economic activity and subsequently cash flows.

For the National Government, its clear role would be to provide any remedial measure that would improve the access (via infrastructure, coordinated business permits etc.) of both consumers and producers to such cross-geographical activity. This can be conceptualized and coordinated at the national level but the policy execution must clearly be at the local government level with sufficient discretion. Starting from our limited infrastructure and convoluted procedural requirements, these alone will require its full attention.