Our economy isn't as bad as you think

Media

Part of Panorama

Title: Our economy isn't as bad as you think
Creator: Amado Castro
Language: English
Source: Panorama X (10) October 1958
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Fulltext: OUR ECONOMY ISN’T AS BAD AS YOU THINK * * Writer claims we are on the "take-off" stage to better times * * By AMADO CASTRO Acting Director, Institute of Economic Development and Research, University of the Philippines The Philippines is now an economy in transition. We can cite reams of statis tics to support this statement, but for our purposes the more significant figures will suffice. To begin with, there is the ag gregative measure, national in come: the data show that this has about doubled in a decade. Then as to the origin of this income by industries, the ear liest statistics carry us back to only 1938 and in that year, by the estimate of the Joint Phil ippine American Finance Com mission, 65.8% of net national product originated in agricul ture, 7.2 per cent in mining, but only 3.0 per cent in manufactur ing. Our study shows how agri culture has been expanding ab solutely while declining in im portance relatively; in 1946 it accounted for 47.8 per cent of national income; in 1950, for 42.2; in 1957 for 37.8 per cent. On the other hand the growth of manufacturing is a signifi cant contrast: from 7.8 per cent in 1946, to 8.5 per cent in 1950, and 14.0 in 1957. The change can be seen more dramatical ly if we consider that manufac turing quadrupled from 1946 to 1957, and more than doubled from 1950 to 1957. This shift in our economy is also reflected in employment patterns. In 1939, 75.6 per cent of our work force was in pri OCTOBER 1958 21 mary occupations (agriculture, fishing, forestry, hunting) ; in 1956 the Philippine Statistical Survey of Households showed that the proportion had gone down to 58.5 per cent. Workers in secondary industries (manu facturing, mining and quarry ing, construction) went up from 9.7% of the total in 1939 to 15.3 per cent in 1956. In ter tiary activity (trade, transporta tion, utilities, and other serv ices) the rise was from 12.7 per cent to 23 per cent. yy ext we can turn to inter national trade, where our problems have been concentra tion in products and concentra tion in direction of trade. Brief ly, whereas before the war three products (sugar, coconut, aba ca) made up approximately 90 per cent of our exports, in re cent years the list of major ex ports has expanded to five— coconut, suj»ar, forest products, base metals and abaca. Our pat tern of export products is slight ly more diversified. More meaningful, however, is the diversification of markets, for this is a factor more sus ceptible to human remedial ac tion and less dictated by na tural endowment. Here com mendable progress is demons trated: we have become less de pendent on the United States market. In the period just be fore the war, 80 to 85 per cent of our trade was yith the Unit ed States; in 1956 this propor tion fell to 56.6 per cent and in 1957 dropped further to 53.6 per cent. Hirschman (in National Po wer and the Structure of For eign Trade) has devised a meas ure of concentration in trade, where an index of 100 repre sents a situation when all of a country’s trade is with one other country alone, and an index of zero means an infinite number of equal trading partners. Mr. Hirschman has suggested a threshold of 40 as the dividing line between undue concentra tion and proper diversification; from an export index of 78.0 in 1938 to 56.3 in 1957. This is no proof that our trade is pro perly diversified as yet, but is an indication that we are solv ing the problem. If we consider the import side, we can use the familiar Central Bank classification of goods as capital goods, raw mat erials and consumer goods. From 1949 to 1957, consumer goods fell from 64.4 per cent of total imports to 21.9 per cent. Raw materials, on the other hand, rose from 9.4 per cent to 19.6 per cent. In terms of absolutes, the amount of con sumer goods imported in 1957 was approximately one-third of that of 1949, but raw mater ials and capital goods were over two times the totals in 1949. It is true that the bulk of the raw materials is intended for con 22 Panorama version into consumer goods, but the point is that the final consumer-goods industries are located in this country, not in another. One last set of statistics: the outstanding loans, discounts and overdrafts of commercial banks. At the end of 1950, 34.4 per cent of these loans were for agriculture, 35.5 for commerce, 13.2 per cent for real estate, and only 5.3 for industries. Sev en years later, in 1957, outstand ing loans were almost three times greater, and the distribu tion pattern was significantly altered; down to 27.8 per cent for agriculture, 32.4 for com merce, 8.4 per cent for real es tate, and this is to be noted, a jump to 19.0 per cent for in dustry. One can go on with a recital of statistics: the climb in in dices of production, the rising tempo of capital formation, the shift in the' government budget, the expansion of ACCFA cred its, the growing activities of the more than one hundred rural banks. The point is not hard to make: this is a steadily expand ing economy with an average rise in national product of 5 to 7 per cent per year, and while the advance is not spectacular, it is undoubtedly impressive. Furthermore, the country is growing in directions that pro mise a good future. I think we all agree to con sider as desirable goals an in crease in per capita incomes, coupled with a more equitable distribution of those returns. These would be accomplished, on the one hand, by expansion and heightened efficiency in agriculture, and secondly, by a rapid rise in the industrial sec tor to absorb a population that will more and more be unable to find employment on the farms. By and large these are where we are heading. et me put forth the argu ment more strongly. In W. W. Rostow’s scheme (The Pro cess of Economic Growth), there are three stages of economic development: the pre-condition state, the take-off of an agricul tural economy into industrial ization, and the period of self sustained growth. I believe that the Philippines is now in the take-off stage to economic deve lopment. This is the phase when a bridge is crossed on the road to a sustained rise in per capita income. Here transformation take place in areas which work back their effects on economics —changes in psychological, so ciological, political patterns. As for economic factors, we find emerging a significant number (though obviously not an oversupply) of entrepreneurs, a re ceptive climate for innovation, increasing pressure for the in vestment which will lead to en hanced production capacity. October 1958 23 How did this passage to the take-off stage come about? While I am sure a more detailed analysis of the transition is called for, perhaps that can be left for econoipic historians to undertake later when they can summon more perspective. At the moment, however, a sum mary survey of recent Philip pine economic history can be revealing. If we review the postwar years, a number of significant milestones stand out. We need not consider at length the years from 1945 to 1949 which are clearly part of the rehabilita tion period; the bulk of phys ical reconstruction, of restora tion of productio nand of fin ancial and monetary stabiliza tion was accomplished then, though plainly at the end of 1949 the reconstruction was not yet complete. The period began with confusion, but by 1948 some sort of stability in pro duction and consumption had been attained, as evidenced in the price statistics. This was also a time of unprecedented windfalls in foreign exchange and of freedom in enterprise, especially in import and export trade. December 1949, however, when exchange controls dropped from above, definitely marks the end of that hectic and free wheeling era. The Quirino period from 1949 to 1953 saw the launching of economic development plans, and the government role in these, important as part of the pre-condition stage, has been unjustly neglected. In 1949 with the establishment of the Central Bank came a credit of P200 mil lion to be used for government development projects—the Ma ria Cristina complex, Ambuklao dam, the NASSCO drydock to mention a few. As is well known, as we have had a number of economic plans since independence, mostly com pilations of the projects of in dividual government agencies, but in the Quirino period we began to see the partial imple mentation of these. In 1950 the Bell Mission took place. The tonic effect of their visit can not be underplayed: we have only to recall the 17 per cent foreign exchange tax, the mini mum wage law, the creation of PHILCUSA as a counterpart of the American aid agency (then ECA, later MSA, FOA and ICA). The foreign exchange tax ba lanced our budget and gave us the means to fight the Huks. The minimum wage law ensured mass purchasing power to ab sorb the goods we were going to produce. Aid from PHILCU SA and the United States—technical assistance as well as mat erial goods—has had an incal culable effect on our economic advance. 24 PanoraMa Q n the private front, con struction of the first oil refinery in the country began —a project calling not for a labor intensive process typical of an underdeveloped country, but for a highly technical, capi tal-intensive operation. How ever, even though much was done in the Quirino years, this was still the period when the inauguration of a zipper fac tory could draw rave notices from the press and the public at large. Evidently we were not yet at take-off; we were only entering the pre-condition stage. It is in the Magsaysay era where, I believe, the pre-condi tions were fulfilled and then we entered the take-off stage. Let us look at the year 1954. The peace and order problem was licked; the stage was set for concentration on productive ac tivities. In May the retail trade nationalization act was passed. This carries meaning not be cause the law itself had econo mic justification, but because for the first time a Philippine president disregarded tradition al modes of maintaining amity with closely-allied nations and allowed an expression of na tionalism to come. The impetus that this action gave to economic nationalism, which is almost an imperative for economic development in a country such as ours, cannot be disregarded. It is probable that the recession of mid-1956 may be traced in part to uncertainty and retrenchment among the Chinese (the other factor was very probably adverse turns in foreign trade—recession in the United States, a drop in the prices of abaca and other ex ports). But the recession was only a short-run consequence; for in the long run, the push given to Filipino entrepreneurs is a bigger contribution. Final ly, in 1954, economic controls were for the first time cons ciously and on a significant scale used as instruments of national economic development policy— to channel investments, to pro tect industries. The year 1955 was a continua tion of trends emerging in 1954; the second year of peace and order, the second year of the new nationalism. The signi ficant fact I would like to bring up here is the drop in the inter national reserve by more than $70 million in spite of controls —mute evidence of the pres sures being generated with ex panded incomes. These were pressures for consumer goods no less than for investment goods as businessmen began to grasp the profit opportunities opening up before them. y o my mind, however, the year 1956 is the most inter esting yet in the postwar per iod. This was when the LaurelLangley Act took effect; tariffs October 1958 25 were imposed on American goods, our trade began to veer towards Europe and Japan. It was also the year of the “great debate” — when charges and counter-charges flew in profu sion and seemed to reign, when the notion was widespread that the country was sliding down hill towards and unrelieved de pression. But to me it is plain that this is the year when the country was already in the take-off stage. The Philippine was not going to the dogs. Rather the contrary — exports were the highest ever; production, pro fits, businesses, bank deposits, tax collections, government ex penditures were expanding; and in a word, national income rose by well over 9 per cent — sure ly a remarkable achievement outside of a rehabilitation per iod. All this was accomplished without a fall ( but rather a rise) in our country’s international reserves. It is striking that the loudest complaints seem to come when one is most pros perous—perhaps discontent is an indispensable ingredient for progress. And the vigor with which the economic issues were debated is to me evidence of the liberated energy of the peo ple. It was of course too good to last, and in 1957 the growing pains were sharp. The year 1958 is one of retrenchment. But while we have to pause for a breathing spell, and cast about for outside assistance, still I believe we are steadily moving toward the same goal. Of course a word of caution is in order: an apparent take-off can be abortive too. But short of catas trophe or gross mis-government, I do not anticipate this probability. In the face of this experience of the last few years one can only be awed, excited and at the same time subdued. It is pertinent to remember that in many other emergent nations — Great Britain, the United States, Europe, Japan — econo mic development came even be fore the economists put in an appearance or at least made their presence felt. Surely, how ever, there is a place in our na tion’s economic development for more of honesty and good sense—businessmen, civil serv ants, economists—who will bend their efforts to the age that is before them. 26 Panorama * * ¥ “Why didn’t you take your medicine?” “I couldn’t, doctor. It says right here on the bot tle ‘Keep Tightly Corked.*”
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