The Structure Of Crisis, The Crisis of Structure


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Presentation during the Freedom from Debt Coalition (FDC) Eastern Visayas Chapter General Assembly held at Tacloban, Leyte last December 19, 2009. Derived from previous presentation during the Waging Peace in the Philippines Conference of 2009 held in Ateneo de Manila University last December 9, 2009.

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The Structure Of Crisis, The Crisis of Structure

  1. 1. The Structure of CrisisThe Crisis of Structure<br />Structural Causes and Effects of the Converging Crises <br />of the Philippine Economy and Society<br />James Matthew B. Miraflor<br />Campaigner, Freedom from Debt Coalition<br />
  2. 2. Development and Peace: The Maguindanao Case<br />That Maguindanao (had been under Martial Law by virtue of Proc. No. 1959) is virtually an area where central government failed and where warlords rule is happening amidst a stark economic reality.<br />From 2000 to 2003, Maguindanao has remained the 2nd poorest province in the Philippines.<br />The poverty incidence has worsened from 59.3% in 2000 to 60.4% in 2001, the National Statistical Coordination Board (NSCB) reported. <br />Maguindanao has am HDI (Human Development Index) of .461, with a rank of 73rd among 79 provinces in 2000, then 2nd lowest in 2003.<br />
  3. 3. Stark Inequalities<br />This, while the Ampatuans are known for lavishness.<br />Two years ago, Q-11 television reported that Autonomous Region in Muslim Mindanao Gov. Zaldy Ampatuan and his father Maguindanao Gov. Andal Ampatuan distributed the P1,000 bills shortly after arriving at Ninoy Aquino International Airport (NAIA), disrupting operation.<br />That the Ampatuan clan is rich and powerful may be related to the fact that Internal Revenue Allotment (IRA) is increasing over the years, and Maguindanao received exactly P1,593,823,229.00 in 2006 alone.<br />Despite its &quot;autonomous&quot; nature, the ARMM receives approximately 98% of its operating revenue from the NG.<br />
  4. 4. The Bane of Inequality<br />The question then is: How did we arrive at this stark situation of extreme inequality?<br />What policies did the government have in the past which eventually led to, or arguably, maintained a situation of, a very small clique of elite families, dynasties and warlords and vast majority of poor citizens?<br />Will it get worse today, given the global financial and climate crisis, the current fiscal and economic crisis?<br />
  5. 5. Outline<br />Gradual Deterioration: Historical Trends in the Philippine Economy and Employment<br />The Current Financial Crisis: Ramifications to the Philippine Economy<br />Government Response to the Crisis: Deceptive, Inadequate, Myopic<br />A Social Crisis in the Offing?<br />Alternatives: Industrial Integration and a High Wage Labor Regime<br />Climate Debt and Climate Crisis<br />
  6. 6. Neoliberalism’s IMPACT on INDUSTRY AND the Labor Sector<br />1. De-industrialization and Unemployment<br />Why are the majority of Filipinos poor? <br />
  7. 7. Government Policies on Trade, Industry, and Employment<br />Financial liberalization to allow entry of foreign capital, cheap labor policy (via contractualization, setting very low minimum wage, and union busting to prevent wage extenders) to attract them.<br />Trade liberalization to allow the entry of cheap imports, make domestic industy more efficient through foreign competition<br />What are the effects of these policies to the Philippine economy?<br />
  8. 8. The Philippine Economic Structure<br />The economic structure can best be assessed via comparing the components of the Gross Domestic Product (GDP) – Agriculture, Industry (which includes Manufacturing), and Services<br />Due to trade liberalization policies by the government, and lack of basic industry support, Philippine manufacturing shrunk relative to its ASEAN neighbors.<br />
  9. 9. Gradual Economic Structuring: The Decline 0f Agro Industry<br />Agriculture suffered a continuous decline in GDP share, from 40.4% in 1946 to 18.8% in 2004. Industry, which started at 20.9% in 1946 but peaked at 41.0% in 1981, ended up at 33.6% at 2004. Manufacturing fell from 29.1% in 1974 to 24.4% in 2004. <br />Services, however, which started at 38.8% in 1946, grew to 47.6% in 2004.<br />
  10. 10. Source: National Statistical Coordination Board<br />
  11. 11. LABOR RESTRUCTURING<br />Together with the economy, the labor sector composition has radically been changed also.<br />The labor force share in the Agriculture and Industry category declined significantly throughout the years. Meanwhile, the workforce share in the service industries grew from 34.0% in 1998 to 43.0% in 2005.<br />This is unfortunate because it is agriculture and industry that is the most labor-intensive amongst industries.<br />This is the reason for the unresolved unemployment througout the years.<br />
  12. 12. Source: National Statistics Office<br />
  13. 13. Unemployment and Warlordism<br />Failed economy facilitates the strengthening of “economic warlordism” in the country.<br />It is ultimately the lack of government action on the rising unemployment, a consequent of its de-industrializing policy, that creates new warlords in impoverished towns, as displaced workers of failing agriculture and industrial sectors look for employment in the underground economy. <br />Amid widespread economic desperation, holding the gun for a patriarch becomes an attractive choice for the unemployed. Political clans merely have to dangle them patronage to corrupt them.<br />
  14. 14. De-Industrialization and the Underground<br />De-industrialization resulted to the conversion of the real economy into an underground, illegal economy, <br />Just as the opening up of Mexico to the North American Free Trade Agreement (NAFTA) converted it from an industrializing country to the home of narcotic syndicates.<br />The best solution for warlordism and patronage politics is to strengthen the economic base through trade protection and giving people jobs with decent pay. <br />When people are secure with their livelihoods, the less likely will they be cowed into submission by elites and trapos. The people’s economic power can and must translate to political power.<br />
  15. 15. Alternative: Labor Migration<br />The main reason why OFWs are going out of the country, in the first place, is the largely unabated unemployment. <br />From 2.24 million people unemployed in 1988, it jumped to 4.25 million in 2004.<br />Labor exportation policy (LEP) evolved from being a stop-gap solution on unemployment (as invented by the Marcos administration, with then Labor Secretary Blas Ople as the brains) to a full-blown “development” strategy for the government.<br />Domestic unemployment, reliance on overseas employment.<br />
  16. 16. Source: National Statistics Office, POEA<br />
  17. 17. REMITTANCES: SUSTAINING CONSUMPTION DESPITE UNEMPLOYMENT<br />According to the Keynesian model, in a normal economy, de-industrialization and the consequent unemployment would reduce to decreased consumption, which would result into further decline of production.<br />In the Philippines, we see a different scenario, wherein high unemployment is mitigated by high volume of OFW remittances.<br />Thus, the services-based economic growth in the Philippines is also a consumption-driven one.<br />
  18. 18. Consumption-driven Economy<br />The%age of government spending and capital formation share in the GDP had remained stagnant, if not decreasing. <br />The export-import industries had significant and steep increase during the 90’s, while personal consumption is at the top over the years. <br />Interestingly, the rise in exportation/imporation is proportional to the decline in capital formation<br />The lack of capital formation may have been brought about by the lack of capacity to save and channel excess cash to banks for reinvestment, particularly because of low-income and high unemployment rate.<br />
  19. 19. Source: National Statistical Coordination Board<br />As trade grows, <br />Capital formation <br />Drops.<br />
  20. 20. Consequence on Taxation<br />Aside from low savings, the consequence of high unemployment, high labor export, policy is that the income tax base remains to be low.<br />Even with the purposive targeting of consumption, the largest chunk of the economy, via regressive taxes (Republic Act 9337 or the E-VAT), the revenue structure is not working. <br />Arroyo’s VAT-boosted and privatization-boosted revenue effort remains to be below that of Ramos, Estrada, and even Aquino.<br />
  21. 21. Source: Bangko Sentral ng Pilipinas, National Statistical Coordination Board<br />
  22. 22. Result: Growing deficit, Growing borrowings, Growing debt problem<br />The recourse of a cash-strapped government, in the face of massive debt servicing, is to borrow.<br />The debt problem is compounded by the current borrowing strategy of the government, which is to borrow in order to retire old debts and replace them with new ones at lower interest rates and longer maturity period.<br />We see then a growing deficit, and a borrowings and debt service policy going hand-in-hand.<br />
  23. 23. Source: Bureau of Treasury<br />Growing Deficit, Debt-driven strategy<br />
  24. 24. A convergence of crises: IS THE PHILIPPINES READY?<br />2. Enter the Global Economic Crunch and Climate Disasters<br />Given the country’s structural economic problems, are we ready for today’s convergence of economic, climate, and fiscal crises?<br />
  25. 25. Optimism amid crisis: unfounded?<br />The mainstream economists are already confident that the Philippines is on its way to “recovery” after the global economic crunch.<br /><ul><li>But data shows otherwise. Leading Economic Indicator (LEI) decline six consecutive quarters, now at very low -4.25 in the 3rd quarter of 2009 from +0.045 in the 1st quarter
  26. 26. LEI are indicators which gives us strong clues as to where the economy is heading. LEI are important for investors as they help predict what the economy will be like in the future. </li></li></ul><li>LeI’s Decline: A SIGNAL of GDP WEAKENING<br /><ul><li>During the 2009 1st quarter, among the negative contributors in the LEI are: number of new businesses (-0.197) and stock price index (-1.077), total merchandise imports (-0.008), and terms of trade index (-0.002).
  27. 27. Interestingly, they roughly correspond to the 1st quarter GDP decline (at current prices) in capital formation (-0.2%), imports (-21.5%), and exports (-18.5%). </li></li></ul><li>LeI’s Decline: A SIGNAL of GDP WEAKENING<br />
  28. 28. HERE Comes earth’s wrath<br />Updated government reports reveal that crops, livestock, and farm structures destroyed by Ondoy and Pepeng is now reaching a staggering P12 billion.<br />Ondoy accounting for P6.8 billion while Pepeng’s damages reaches P5 billion, a cost which may climb further. <br />An estimated 400,000 hectares of rice fields have been affected, with 106,189 hectares totally destroyed. Rice crops destroyed by both weather disturbances have reached 560,000 metric tons, totaling P9.6 billion. <br />This is not to mention infrastructure damages which also run to billions of pesos as of this writing.<br />
  29. 29. Economic Impacts of the “Worst” Typhoons – Department of Agriculture<br />
  30. 30. Pressure to Spend Amid Growing Deficit<br /><ul><li>The government revealed that its budget deficit had soared 326.9% year-on-year from January to October, ending up with a deficit of PhP266.1 billion by the end of May compared with P62.3 billion deficit at the same period last year.
  31. 31. With this figure, the government now breached its full-year target deficit ceiling of PhP250 billion.
  32. 32. Actually, this deficit target is the largest in the Arroyo administration, and even larger than PhP210.741 billion deficit in 2002 during the fiscal crisis.</li></li></ul><li>Nearing A Fiscal Crisis?<br />
  33. 33. Deceptive, Inadequate, MYOPIC <br />3. Government Response to the Crisis<br />What is the government doing amidst all of these problems?<br />
  34. 34. (So-CALLED) 2009 Economic Resiliency Plan<br />
  35. 35.
  36. 36. Inadequate Response to Climate crises<br />Compare 2010 debt service figures to spending on health, natural resources, agriculture, and water resources development and flood control of measly P48.344 billion, P13.317 billion, P55.368 billion, and P14.602 billion respectively.<br />This is when flood-borne diseases such as leptospirosis is striking the metropolis, there is a need for mitigation measures such as reforestation, Ondoy and Pepeng wrought agricultural damages worth P6.766 billion and P1.25 billion respectively, and flood control adaptation measures has to be implemented.<br />
  37. 37. The Main Problem: Still Lack of Economic Development<br />The government is caught flat-footed amid the economic, climate, and fiscal crisis particularly because of our lack of development.<br />Government cannot spend because of lack of revenues collected<br />On top of lack of political will to resolve the debt and debt service problem <br />Declining government revenues because of shrinking industry and puny tax-base due to high unemployment<br />This is on top of tax inefficiency<br />
  38. 38. The Social Crisis Amid the Convergence of Crises<br />4. The Explosion of the Social Volcano<br />“Mapupuno na ba ang salop?”<br />
  39. 39.
  40. 40. The Performance and Trust RATINGS OF GMA (July-Aug 2009, in percent) – PULSE ASIA<br />
  41. 41. Crime Incidence (NSCB DATA, 2001-2007, per 100,000 population)<br />Criminality rised under the Arroyo administration.<br />
  42. 42. (Stopping) The Vicious Cycle<br />An volatile and deteriorating economy translates to an insecure society.<br />An insecure society, which does not accept the legitimacy of the rule of law, is one that is prone to social destabilization and decay, and ultimately, violence.<br />Regimes naturally gain legitimacy by providing the best possible economy for the citizens. Failing on this, legitimacy might be compromised, and so is authority.<br />We must thus push for economic governance that provides economic security for all, governance that steers the Philippine economy into inclusive prosperity.<br />
  43. 43. Integrated INDUSTRY anD HIGH-WAGE LABOR REGIME<br />5. Alternatives for a Modern and Properous Philippines <br />
  44. 44. Fragmented Industry<br />East Asian NICs focused high-value-added processing or commodity production, <br />In the Philippines, the failure to strategically link extraction (basic) industries with intermediate (processing) and finishing industries so as to diminish import-dependence relegated our economy into raw material extraction and/or low-value-added processing of imported products.<br />Our industries are integrated individually to foreign markets, not to each other.<br />
  45. 45. Proposal: Integrate the industries<br />Vertically integrate strategic domestic industries engaged in raw material extraction with those engaged in the production of finished consumer goods so as to service domestic consumer needs.<br />The integration of industry requires creating both supply and demand – and as such, requires government’s institutional support via subsidies (large projects require huge frontload expenses) and coordination (multiple supports are needed for several industries simultaneously).<br />What we need for this purpose are efficient and effective State Operated Enterprises (SOE) which can serve as linkages across industries (by providing supply and/or demand).<br />
  46. 46. Workers are Creator of Wealth, Determinant of Wealth’s value<br />Workers role as a value creator - upon utilizing capital goods and technology, transforms natural resources into tangible wealth. <br />Workers they do not just create wealth; they also determine the value of that wealth. <br />Members of the labor sector, as income-earners, are also the ones which inject the money back into the economy as consumers. <br />They serve as the consumption base which purchases much of the products created by society and thus, determines their relative values.<br />
  47. 47. Workers as National Savings, INVESTMENTS, and TAX Base<br />But a well-paid workforce doesn’t just serve as a consumption base <br />Its surplus income not consumed is also injected back into the economy in a form of:<br />Savings, which strengthens the banks and the national capital base (Japan)<br />Investments, via financial instruments such as stocks, for the improvement of the instruments of production (US)<br />It is also the revenue-generation base of the government for, with much of its revenues coming from employees’ income tax returns and consumers’ payment of value added taxes. <br />
  48. 48. PROPOSAL: A HIGH-WAGE LABOR REGIME<br />So as to expand the consumption, savings, and tax base of the government, the minimum wage must be increased so that workers have surplus income more than that (s)he needs to spend for decent living<br />The state must ensure that worker’s income is over and above the “living wage”<br />Living wage is for justice, Income beyond living wage is for economic development.<br />
  49. 49. We ARE THE CREDITORS<br />6. Climate Debt and Climate Crisis<br />Actual historical emissions<br />Equal individual shares (past)<br />
  50. 50. Climate Crisis »Changes in Perception<br />The climate crisis, and the ensuing social crisis, must change our perception on our situation.<br />In public finance, for example, our fiscal situationers usually tell us as of end-June 2009, that we are in debt to foreign countries, individuals and banks by as much as P1.851 trillion <br />Out of P4.227 trillion national government debt.<br />P1.059 trillion are foreign denominated securities.<br />P955 billion are US Dollar Bonds/Notes, P25.2 billion are Japanese Yen Bonds, and P78.2 billion are Euro bonds.<br />
  51. 51. Our Claim to First World: Climate Change<br />“Ondoy”, and the succeeding record-breaking supertyphoons, are manifestations of climate change which disturbs natural atmospheric cycles.<br />Atmospheric concentrations of greenhouse gases are higher today than anytime in millennia. <br />Emitted since industrial revolutions<br />Built up in the atmosphere, blanketing the Earth and causing considerable warming. <br />Responsibility for these emissions lies principally with the developed countries. Why?<br />
  52. 52. how about their debt to us?<br />With less than one fifth of the world’s population they have grown wealthy while emitting almost three quarters of all historic GHG emissions during industrialization periods<br />So called Annex 1 countries (includes G8 countries).<br />Actual historical emissions<br />Equal individual shares (past)<br />
  53. 53. US$24 Trillion Climate Debt<br />According to Jubilee South-APMDD, the initial minimum estinmate of the moentary equivalent climate debt owed to poor developing countries from 1800 to 2008 is about US$ 24 Trillion. <br />The climate debt owed by the rich countries to the world’s poor consists of - “adaptation debt” and “emission debt”.<br />The emission debt was shown at the last sliede.<br />Estimates show that developed countries have already taken a debt of 115 gigatons of carbon dioxide above their allocation of 125 gigatons.<br />
  54. 54. Adapation Debt<br />Apart from freeing the atmospheric space, developed countries should be accountable for the adverse impacts to poor communities and countries of their historical emissions. <br />These impacts constitute the “adaptation debt”, which are measured according to the losses and damages in the total production of goods and services of affected countries.<br />The costs of Ondoy and Pepeng(along with Frank and the El Niño phenomenon), for example, are part of the Adaptation Debt of Annex 1 countries to us.<br />
  55. 55. Rich Industrialized Countries Must Pay Up!<br />Climate negotiations must compel rich countries and corporations to fully pay for the Climate Debt they owe for causing climate change and devastating poor and vulnerable countries. <br />Financing must become the centerpiece of a new climate agreement to provide a basis for solving the global climate crisis and injustice.<br />Apart from emmission cuts, rich countries must suppoer adaptation and mitigation measures, through actual funds and technology transfer.<br />
  56. 56.<br />Freedom from Debt Coalition11 Matimpiin Street, BaRangay Pinyahan, Quezon City. 9246399. 9211985.<br />HANEP2020<br />