Economics

Economics play an important role in shaping the future of every person. Derived from the word "Oikonomiko" (Greek), it means "management of the home." Modern economics tackle the same kind of management in a broader scale – the country.

Economics deal with the efficient utilization of scarce resources to produce goods and services. As time passes, resources such as food, timber and land start to dwindle. Unfortunately, demand for these goods run in an inverse proportion, and it has been a problem to address such need from very meager means.

The Philippine economy is an anomaly in the Asia-Pacific region in that it has lagged behind other economies, such as those of Singapore, South Korea, and Taiwan. From a position as one of the wealthiest countries in Asia after World War II, the Philippines are now one of the poorest. Since the 1970s, which were a relatively prosperous decade, the Philippines have failed to achieve a sustained period of rapid economic growth and have suffered from recurring economic crises. This persistent underperformance has occurred in spite of the Philippines' rich natural and human resources.

The reasons are rooted partly in history, partly in policy. As a legacy of the U.S. colonial period, oligopolies have dominated the economy, particularly in agriculture, where farmland continues to be concentrated in large estates. In the post-World War II period, the Philippines pursued a strategy of import substitution industrialization, whereby domestic goods are substituted for imports. This strategy required protectionist measures, which led to inefficiencies and the misallocation of resources. Although some trade protectionist measures were relaxed in the early twenty-first century, the Philippine Supreme Court continues to support restrictions on foreign ownership of land and other assets in effect since the constitution of 1935. These restrictions, plus widespread graft and corruption, have suppressed inbound foreign direct investment. A historically low rate of taxation--only about 15 percent of gross domestic product (GDP), partly as a result of widespread tax evasion--has led to underinvestment in infrastructure and uneven economic development.

The National Capital Region around Manila, which produces about 36 percent of GDP with only 12 percent of the population, is much more prosperous than rural areas, where much of the population depends on subsistence living. The traditional lack of job opportunities has led many Filipinos to seek employment outside the country, notably in the Persian Gulf states. Remittances to family members back home--equivalent to 10 percent of GDP--have partially offset a relatively low national rate of savings of about 15 to 18 percent, about average for the Organization for Economic Cooperation and Development, but below average for the region. Current account and budget deficits exacerbate the impact of the low savings rate on growth.

Although trade barriers were scaled back, industrial cartels split up, limited reform measures taken in the late twentieth century, political instability, continuing high levels of corruption, and resistance to reforms by entrenched interests have prevented the Philippines from pursuing a consistent and effective economic course. The industrial sector continues to decline relative to services, an economic bright spot in which the Philippines apparently enjoys a comparative advantage, although some argue that services represent an employer of last resort. Agriculture, while still important, consumes a disproportionate 37 percent share of the workforce, with a significant contingent farming and fishing at the subsistence level. In 2003 the services sector accounted for about 53 percent of GDP; industry, 32 percent; and agriculture, forestry, and fishing, 15 percent.

Poverty is a serious problem in the Philippines. In 2003 per capita gross national income was US$1,080, below the US$1,390 average for lower-middle-income countries. Reflecting regional disparities, in 2003 about 11 percent of Filipinos lived on less than US$1 per day and 40 percent on less than US$2 per day, according to the World Bank. However, the Philippine National Statistical Coordination Board found that fewer than 25 percent of families were living below the poverty line in 2003, down from 27.5 percent in 2000.

Gross Domestic Product (GDP): In 2003 the gross domestic product (GDP) of the Philippines was US$80.6 billion, or US$1,080 on a per capita basis. According to purchasing power parity (PPP), however, GDP in 2003 was US$390.7 billion or US$4,600 per capita. In 2003, the Philippines achieved real economic growth of 4.5 percent, roughly the same as in 2002. However, with the population expanding by about 2.4 percent annually--one of the highest rates in Asia--the actual improvement in living standards is modest.

Government Budget/Deficit

The budget has shown a deficit every year since 1998, but trends in the early twenty-first century are encouraging. In 2004 the deficit was US$3.4 billion, or about 3.9 percent of gross domestic product (GDP), conforming to the government's increasingly stringent targets for the second consecutive year. Although the ratings agency Standard and Poor's downgraded the Philippines' credit rating in January 2005 in view of negative perceptions of the country's fiscal position, the government expects to follow through on plans to raise excise taxes in an effort to close the remaining revenue gap. However, the government does not project a balanced budget until 2009. Historically, the persistent budget deficit, the result of overspending and poor collection by the Bureau of Internal Revenue, has placed restraints on economic growth.

Inflation

During 2004, inflation rose sharply to a 7.9 percent annual rate in the month of December from a 3.3 percent annual rate in January. For the full year, inflation was 5.5 percent, up from 3.0 percent in 2003. The rise in inflation reflected the combined impact of a depreciating peso and rising petroleum prices. However, inflation remains well below the peak levels approaching 12 percent registered during the Asian financial crisis of 1997­98.

Agriculture, Forestry, and Fishing: From 2001 through June 2004, crops accounted for about 49 percent of the value of all agricultural production, livestock and poultry for about 33 percent, and fishing for about 18 percent. In order of value, the major crops were rice, coconut, corn, bananas, sugarcane, mangoes, and pineapples. The major livestock and poultry were hogs, water buffalo, cattle, goats, and chickens. Dairy farming was negligible, accounting for less than 0.5 percent of both the value and volume of all agricultural production.

The diet of the Philippines consists mainly of rice, fish, and vegetables, with occasional chicken and pork. Since at least 1985, agriculture, forestry, and fishing generally have grown in output and the number of persons employed but declined in their contribution to the gross domestic product (GDP), their percentage of the total labor force, and their amount of the total land area. Although the absolute number of persons employed in agriculture, forestry, and fishing has grown, that number as a percentage of the number of persons actually employed in the total labor force fell from about 50 percent in 1985 to about 37 percent in late 2004.

From 1991 to 2002, both the total number of farms and the total area of farmland decreased, respectively, from 4.6 million to 4.5 million farms and from about 9.9 million hectares to 9.2 million hectares of farmland. The average size of each farm decreased from 2.2 hectares to 2.0 hectares per farm.

Forestry accounts for less than 1 percent of the total labor force and only about 0.4 percent of the value of all agricultural production, but at 72,000 square kilometers, it accounts for about 45 percent of all agricultural lands and about 25 percent of the total national land area. Once a major industry and the leading earner of foreign exchange in the 1960s, forestry has declined sharply in importance as a result of rapid deforestation. From a position as the world's leading exporter of tropical hardwoods in the 1970s, the Philippines became a net importer of forest products by the 1990s. Then in 1990 the Department of Environment and Natural Resources announced a 25-year plan for the sustainable development of the nation's forests. The Congress of the Philippines is considering a nationwide ban on logging; such bans already have been introduced in several provinces.

Fishing consists of municipal fishing, which uses no boats at all, rafts, or boats less than three tons; commercial fishing, which uses boats of three tons or more; and aquaculture farms. In 2004 municipal fishing accounted for about 34 percent of the value of all fishing production, 31 percent of the volume, and 85 percent of the fishing labor force. Commercial fishing accounted for 36 percent of the value, 32 percent of the volume, but only 1 percent of the fishing labor force. Aquaculture accounted for 30 percent of the value, 37 percent of the volume, and 14 percent of the fishing labor force.

Welfare

The Philippines social security system was established in 1957 and is compulsory for all employees, public and private. Retirement is compulsory at age 65 but optional at 60. An employees' compensation program, added in 1975, pays double compensation for work-related death, injury, or illness to employees who are not self-employed. The Philippine Health Insurance Corporation was established in 1995 to administer the National Health Insurance Program, with the stated goal of providing universal coverage. Annual premiums are about US$22. Retirees who have reached the age of 65, or who are older than 60 but not yet 65 and have already paid 120 monthly premiums, pay nothing. Depending on their level of income, heads of poorer households may pay the annual premium and have it include three other family members, as well as themselves. Indigents may have their entire premiums paid in part by the national government and in part by their local government. Benefits do not necessarily cover the full costs of medical expenses, and many poor people still cannot afford to pay the difference.

Economic Systems

The distribution of wealth in Philippine society works in a reciprocal manner. The top 10% of the population earn 15 times than the poorest 10%. Furthermore, 40% of the population only has access to a meager 10% of the wealth. In this scenario, it’s obvious that certain factors are manipulated because of an economy coming from these three basic systems:

• Traditional Economics

  Traditional economics is the basis for all simple trade. It comes in the form of barter trade. Most of its idealism is based on tradition, culture and uncomplicated commerce. Rules governing such trade come from elders and customs found within the given body. In addition, the allocations of the tasks are inherited through generations. Traditional economics may be self-sustaining, but it doesn’t have much room for market growth and large profits. It only addresses the basic needs of the society.

• Command Economics

  The government runs the show in command economics. A centralized body that imposes decisions on how trade should be conducted within the state controls the flow of commerce. Prices are kept regular and stable all throughout the year and changes are done in uniform to other brands of the same commodity. There is a national order of priorities in command economics and crisis management is good under this environment. On the other hand, individual rights and freedom are often restricted.

• Laissez-faire Economics

  This system is a free-for-all market. The government has no control over prices and the rate of exchange of goods. There is an open interplay of market forces and individuals can freely decide on the goods that they want to purchase. Laissez-faire is very much influenced by the trends in supply and demand. In addition, the resources are privately owned. Initiative and creativity are often spawned from such environments because there’s no curtail from outside authorities. As liberating as this concept is, it does leave a nasty scar in society. Under this method, the gap between the rich and the poor widens because the market is open to abuse and monopoly.

As diverse as these three methods are, they are often used in combination. For example, there is free trade among business establishments (Laissez-faire), but some basic commodities such as food, energy and oil are controlled by the government to prevent monopolies and cartels (Command Economics). Traditional economics on the other hand, can be found in the simple exchange of goods between two parties. It’s just like paying for a can of Coke in a local convenience store or a simple shift of goods between friends. These methods result in a fourth kind of economy called the Mixed Economy.

In a mixed economy, there is a combination of the three methods and a prevailing system. For most democratic countries, the Laissez-faire system is dominant. The government lets market forces (supply and demand) take the reigns of commerce, but keeps certain commodities in control to prevent monopolies. In contrast, socialist and communist countries have command economics run the entire show. This is to have the government regulate prices to make them equal for the people; however, they let some open markets run to spur some growth.

Economics Tasks

It doesn’t really matter what proportion of economic systems are used in a certain country as long as it efficiently brings the goods and services needed. However, the important factor is determined by the attainment of such goals. They are called Economic Tasks and they act as the checklist for any given system to follow.

• Determine

  An economy must identify the resources available for their use. This is to estimate the goods that can be readily made. (Refer to the 4 basic choices.)

• Allocate

  In connection, after the goods have been manufactured and services rendered, the economy must be able to allocate them evenly among the people. The same goes for incoming investments in replacing capital goods and reproduction of fresh ones.

• Distribute

  Aside from the goods and services, wealth must also equally compensate the masses. They are given through four basic forms: wages – employment, profit – businesses, interest – banking and finance and rent – services and land.

• Define

  The people who hold economic power often direct the flow of industry and commerce. Because their decisions can either make or break the country, it’s very important to know who’s in the driver’s seat. In relation, this task can develop into an open question. "Are their decisions taking into consideration the welfare of the entire nation or for their own personal interests?"

• Acquire

  As they say, "No man is an island." The same ideology applies for countries as well. Hence, interdependence between countries must be established for an international economic order to take place. The distribution of goods and commodities must therefore be just among nations and controlled by a central agreement. Such examples of trade agreements are the GATT (General Agreement of Tariffs and Trade) and UNCTAD (UN Conference on Trade and Development).

Political Economics

Political economics is an extension of simple economics. It is the study of social and institutional processes in which groups belonging in the economic and social elite decide the allocation of scarce resources either for personal interests or for the masses.

Third World Economics

Taking economics in a traditional sense, it’s all about the efficient utilization and distribution of scarce resources to produce goods and services. Third World Economics goes beyond the scope. Aside from the basic fundamentals of economics, it also tackles the economic, social and political mechanisms in public and private sectors to bring rapid improvements in the poverty-stricken masses of developing countries. There is a drastic need to bring the fruits of economic progress to the lower classes in order to bridge the gap between affluence and poverty.

In such a situation, a lot of attention is paid to the elite class of society, a class that holds much influence over trade and industry. Since they hold most of the economic power, their decisions determine the distribution of goods and services to the lower classes. Aside from that, the government and perhaps a centralized economic system are vital to make such radical changes in the populace. In addition, since resources are even scarcer, minimizing costs and maximizing output, along with efficient distribution, are imperative factors in third world economics.

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