Cororaton Says the Philippines Makes Nil Total Factor Productivity – 2 of 2

The global crisis and the elections of 2010 give a clear opportunity to re-organize the Philippine economy for long-term growth.

The crisis allows a new, zero-base look at economic assumptions now. New strategies must be developed to converge the Philippines with where the world will be. President Obama is trying to do this for the U.S. now.

Note: This post has been re-written in a more accessible and longer style. Please click here for link to Post 135, the better version.

The ideal candidate is one whose program targets growing Total Factor Productivity (TFP) in the long run. Now, there is a need to mobilize and increase jobs and capabilities to raise Factor Accumulation. The present Administration will do all it can to ‘make work’ or lose the chance to preserve its legacy in the next elections.

The goal ought be to enlarge the economic pie. From the present US$3,400 GDP per capita Purchasing Power Parity (PPP) (Source: CIA Factbook, 03/02/09), a reasonable target should be to bring per capita GDP to US$5,000 in 2016. This implies an annual growth rate of 6.9% inclusive of the present 2% population growth rate in the next eight years.

Two base strategies are available.

Firstly, build on existing strengths in the economy where we have a global presence (like medical care, ship manning). Stitch together the dual economy that keeps us as labor outsourcers by identifying gaps. Then fill these gaps with investments by changing the pay-off table. The goal is to increase the Philippine share of the global value chain for these sectors.

Secondly, get Filipinos to invest more in the Philippines like in the gaps above. Change the payoff table to reduce risk for Filipinos to invest here. The risk most Filipino investors fear is currency debasement via inflation, corruption and fiscal irresponsibility, and ultimately devaluation. Our Money Watch will monitor the value of the peso in future posts.

If we are clearly on the way to US$5,000, Filipinos overseas will seriously look at returning with their savings. And US$5,000 is statistically the point when reversal of diaspora happens.

Together, this path to re-organizing the economy by 2016 will build a base for sustainable growth. Dr Cororaton’s analysis is telling us what not to do … let’s take the right steps forward.

Don’t you think an army of innovators and entrepreneurs is the best hope for the country?

Click here for Post 1 of 2.

(Image used with permission from PIDS. Click image or here for hyperlink to PIDS source.)