Protecting Philippine economy

Globalization and the unwavering faith in a free market economy were the economic and political mantras in the 1990s. Governments from the United States to Europe to Russia and to Communist China started loosening controls on travel, investment and trade.

These changes were predicted to reduce global poverty and even strengthen the growth of democracies all over the world.

Sometime in the early decade of the 21st century was the start of a second look at these so-called economic “fundamentals.”

The financial crisis of 2007 to 2009 was an eye opener, when even the largest financial institutions had to turn to government to come up with rescue packages.

A few years after the crisis, there was another seismic change in the economic and political landscape.  The United Kingdom in a referendum voted to leave the European Union, then the shining example of the benefits of free trade and market economy.

While the citizens of the major urban centers, especially London, voted to stay in the European Union, the rest of the country voted to leave the EU. Executives and employees of financial services company voted overwhelmingly to stay in the EU; the fishermen, rural workers and the folks in the towns voted to exit from the EU.

On the geopolitical level, the United States and China embarked on a trade war. A lot of literature was now emerging that started pointing out that even though globalization and free trade did bring about global prosperity, the benefits were not evenly and fairly disturbed among the people. Even on a macro level, China was the main beneficiary of globalization.

Because of unfair competition, countries like China which subsidize its business sector were able to compete against even the poorest countries.  Countries like the Philippines were among the victims of this globalization. In believing the gospel of free trade and market economy, several industries in the Philippines suddenly disappeared. One example is the footwear industry which used to be centered in Marikina. The Philippines used to export shoes. Then seemingly overnight we were importing shoes from China.

There is no question that the highest socio-economic classes in countries like the Philippines benefitted from globalization. It soon became apparent, however, that the benefits did not redound to the lower classes. In fact, the business sector conveniently used globalization as an excuse to keep wages low. The excuse is that low wages are needed for companies to remain competitive.

This has led to the economic feature where the ratio of the salary of the highest paid to the lowest paid in the same company has become so high it is unconscionable.

One of the previous mantras for a free market economy is that higher profits mean higher dividends for the rich, which in turn will “trickle down” and benefit even the lowest paid laborer.  This, of course, did not happen. Instead of sharing the excess largesse, the rich splurge their newfound millions on themselves and their families. Even Pope Francis has said that the “trickle down” theory has not worked.

One political consequence of this rising inequality has been the rise of populist leaders. This is not only true in the Philippines but also in countries like the United States, which has seen populist leaders like Donald Trump.

In recent years, there has been a revolt against globalization. There are many terms to define this new phenomenon. Some call it “global resilience” or economic statecraft. One common term that has been used is “homeland economics.” The global recession brought about by the pandemic in 2020 has served to increase the belief that governments should do more to direct the economy and depend less on the free market system.

The exploitation of the price of oil reaching unheard of heights has also convinced governments that they must secure alternatives to all types of strategic commodities and not just rely on the market economy.

Terms like economic security and food security were now being considered as even more potent than military security. Economic direction was now being set not only by traditional economists but also by geopolitical strategists.  This trend has reached a point where Ursula von der Leyen, the president of the European Commission, said recently that the European Union is “the first major economy to set out a strategy on economic security.” Narendra Modi, India’s prime minister, has laid out a program which he calls “economic self-reliance.”  US President Joe Biden has laid out a program which he calls Bidenomics. It calls for a return of manufacturing to the United States and a strategy of competing against China for economic superiority.

I believe that it is time that the Philippines also reexamines its economic strategy to focus on economic and food security. It is also time to finally put to rest the belief in the trickle-down theory and move towards legally mandating a minimum wage that will allow the average Filipino family to live a decent life. I am of course referring to the living wage.

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