The Philippines Industrialization: A Disaster
Summary
TLDRThe Philippines, despite being labeled as a 'newly industrialized country,' has not fully industrialized. It faces challenges in infrastructure, governance, and education, and remains reliant on agriculture and remittances. Its manufacturing sector lags behind neighbors like Vietnam and Thailand, with a lower percentage of GDP from manufacturing. Historical policies and a focus on services rather than manufacturing have contributed to this lag. While the service sector, including BPO, has grown, there are concerns about over-reliance and future competition. The country's unique economic model has bypassed traditional industrialization, but there are ongoing efforts to boost manufacturing and address the trade deficit.
Takeaways
- 🌟 The Philippines is often misunderstood as fully industrialized despite being classified as a 'newly industrialized country'.
- 🏭 The country's manufacturing sector contributes only about 18% to its GDP, which is significantly lower compared to its neighbors.
- 📈 The Philippines has a unique economic trajectory, skipping the industrial phase and moving from agriculture to services.
- 💼 The service sector, particularly Business Process Outsourcing (BPO), has been a significant driver of the Philippine economy.
- 💼 The value added by the service sector to the GDP is the highest in the region, standing at 61% as of 2021.
- 🏗️ Historical policies like 'Philippine First' and protectionism have hindered the growth of a robust manufacturing sector.
- 🔍 The country's industrialization has been affected by oligarchism, lack of export-oriented subsidies, and insufficient government support.
- 💼 The reliance on remittances from Overseas Filipino Workers is a significant factor in the economy, highlighting the service sector's importance.
- 🚀 The Philippines' economic model, while unique, faces challenges from competition and technological advancements like AI.
- 🔄 There is a merchandise trade deficit, indicating a weak exportation of goods, which a stronger manufacturing sector could help address.
Q & A
What does the term 'newly industrialized countries' imply about the Philippines?
-The term suggests that the Philippines has developed a significant manufacturing sector, but this is often misunderstood as the country has not fully industrialized and still faces challenges in infrastructure, governance, and education.
Why is the Philippines' industrialization phase considered lagging?
-The Philippines' industrialization is lagging because its manufacturing sector contributes less to GDP compared to its neighbors, and it has not been able to develop a strong manufacturing base like some of its regional peers.
What is the Philippines' GDP percentage attributed to manufacturing as of 2021?
-As of 2021, the Philippines' manufacturing sector contributes approximately 18% to its GDP, which is lower than many of its neighboring countries.
How does the Philippines' service sector compare to its manufacturing sector in terms of GDP contribution?
-The service sector in the Philippines contributes a higher percentage to GDP than the manufacturing sector. As of 2021, services account for 61% of the GDP, which is the highest among its neighbors.
What historical policies have hindered the growth of the manufacturing sector in the Philippines?
-Historical policies such as 'Philippine First' with high tariffs and non-tariff barriers, and various industrialization plans that were dismissed due to internal and external shocks have hindered the growth of the manufacturing sector.
Why has the Philippines been successful in the Business Process Outsourcing (BPO) industry?
-The Philippines has been successful in the BPO industry due to its English-speaking workforce and the growth of this sector as an alternative to boost its economy when the manufacturing sector lagged.
What are the potential threats to the continued growth of the BPO industry in the Philippines?
-Potential threats to the BPO industry include intense competition from countries like India, which offer lower wages, and the rise of Artificial Intelligence, which may automate some call center jobs.
Why is it important for the Philippines to not over-rely on its service sector?
-Over-reliance on the service sector could be risky as it may not provide long-term stability. The BPO industry, for example, faces competition and technological disruption. Additionally, manufacturing often adds more value per worker and can help reduce merchandise trade deficits.
What is the merchandise trade deficit of the Philippines in 2022?
-In 2022, the Philippines is projected to have a merchandise trade deficit of more than 50 billion dollars, partly due to weak exportation of goods.
What are some of the government initiatives aimed at improving the manufacturing sector in the Philippines?
-Government initiatives include foreign investment-led projects and partnerships with local companies like SteelAsia Manufacturing Corporation to build steel factories and other manufacturing facilities.
What is the value added per worker in the manufacturing sector compared to the service sector in the Philippines?
-As of 2019, the value added per worker in the industry sector of the Philippines is over $14,511, which is about 50 percent more than the $9,312 in the services sector.
Outlines
🏭 Understanding the Misconception of Philippine Industrialization
This paragraph explores the misconception surrounding the Philippines as a newly industrialized country. While the country is classified as such, it has not fully industrialized. Instead, it continues to rely on agriculture, services, and remittances from overseas workers. The country's industrial sector, particularly manufacturing, lags behind its neighbors like Vietnam, Thailand, and Malaysia. Data from the World Bank shows that the Philippines' manufacturing value added to GDP is lower than many of its regional peers. Historical and policy decisions are also highlighted, such as protectionist measures in the 1950s that stunted the growth of local industries.
💼 Historical and Structural Factors Behind Industrial Lag
This paragraph delves into the historical challenges and policy decisions that hindered the Philippines' industrial growth. The government's 'Philippine First' policy in the 1950s, aimed at protecting local businesses through tariffs, failed to foster competitive industries. Attempts to grow sectors like steel and electronics saw mixed results, with failures in steel privatization and reliance on low-value-added electronic manufacturing. The 1970s' industrialization projects also faltered due to internal and external issues. Scholars argue that oligarchism, protectionism, and lack of export-oriented subsidies contributed to the industrial lag, alongside prioritization of self-interest by the elites over national development.
📊 The Leapfrog Economy: Agriculture to Services
This paragraph explains how the Philippines bypassed the typical path of industrialization, jumping from an agriculture-based economy to a service-oriented one. Unlike other countries, which transition from agriculture to manufacturing before entering the service sector, the Philippines grew its service economy through business process outsourcing (BPO) and overseas remittances. As of 2021, services contributed 61% to the GDP, outperforming many neighboring countries. However, there are concerns about over-reliance on the service sector, with competition from India and the potential impact of AI on BPO jobs being significant risks.
⚠️ Addressing the Challenges and the Future of Industrialization
This paragraph highlights the potential risks of relying too heavily on the service sector, particularly the BPO industry, which faces competition from India and technological advancements like AI. Manufacturing is suggested as a critical area for the Philippines to focus on due to its higher value added per worker compared to services. Additionally, manufacturing could help reduce the country’s merchandise trade deficit, which reached over $50 billion in 2022. The paragraph ends by noting ongoing government initiatives and foreign investment projects aimed at boosting the industrial sector, although many of these projects remain unrealized.
🤔 Final Thoughts: Service vs. Industry in the Philippines
In the final paragraph, viewers are invited to reflect on the discussion about the Philippines' industrial and service sectors. The narrator encourages engagement by asking whether the country should continue to prioritize its booming service sector or focus on addressing the gaps in industrialization. The video concludes by thanking viewers for watching.
Mindmap
Keywords
💡Newly Industrialized Countries
💡Manufacturing Prowess
💡Agriculture-based Economy
💡Service Sector
💡Infrastructure
💡Overseas Filipino Workers
💡Business Process Outsourcing (BPO)
💡Value Added
💡Trade Deficit
💡Foreign Direct Investment (FDI)
💡SteelAsia Manufacturing Corporation
Highlights
The Philippines is recognized as a 'newly industrialized country' by international organizations.
The term 'newly industrialized country' is often misunderstood, with people assuming the Philippines has fully industrialized.
The country has developed its manufacturing sector but still faces significant challenges in infrastructure, governance, and education.
The Philippines is heavily reliant on agriculture, services, and remittances from overseas workers.
Manufacturing's contribution to GDP is only about 18%, which is lower than most of its neighbors.
Vietnam, Thailand, and Malaysia have higher manufacturing value added as a percentage of GDP compared to the Philippines.
The industry sector's value added to GDP in the Philippines is lagging behind its neighbors.
The Philippines' value added in manufacturing is significantly lower than that of Vietnam and Malaysia.
Historical policies like 'Philippine First' led to high tariffs and non-tariff barriers, hindering the growth of a strong manufacturing sector.
The Philippines failed to compete internationally and domestically in manufacturing, unlike its neighbors.
The country's few successful industries, such as steel and electronics, faced issues that hindered growth.
The Ilijan steel mill's failure due to privatization and foreign investment issues is a significant setback for the country's manufacturing sector.
Electronic manufacturing is the only sector that has helped push growth, but it is filled with low-value added work.
The Philippines skipped the industrialization phase and went straight to a service-based economy.
The service sector's value added to GDP is the highest in the Philippines, making it an intensive service-based economy.
The Philippines' unique economic model addresses its lacking manufacturing sector but should not over-rely on the service sector.
The BPO industry faces challenges such as competition from India and the threat of AI taking over some jobs.
Manufacturing is important for the Philippines to alleviate the pressures of the country's merchandise trade deficit.
There are ongoing government initiatives and foreign investment-led projects aimed at addressing the industrial gap.
Many projects aimed at boosting the manufacturing sector are still unrealized, and there is much work to be done.
Transcripts
Amongst the largest feats that make the Philippines one of the fastest-growing
countries globally is that it joins the league of “newly industrialized countries”,
which is commonly recognized by international organizations. This term, however, is often
misunderstood. Due to its title, people think that the Philippines has already
industrialized. The country has developed its necessary manufacturing prowess. It is commonly
known that to become an industrialized country one would go from an agriculture-based economy,
where people work on farms to eventually working in factories. After jumping to a
manufacturing-based economy, a country would then head to the next stage of the finances and
service sector. This is the case as what most people think has happened in the Philippines,
the country is now at the stage of a booming service sector. This is what people have
misunderstood about the Philippines. It is a fact that the country did not become a fully
industrialized economy. It still faces tremendous challenges in terms of infrastructure, governance,
and education that need to be addressed to achieve sustainable economic development. Moreover,
the country is still heavily reliant on other factors such as agriculture, services, and even
remittances from overseas Filipino workers. Which are, unfortunately, still missing out on the high
value contribution of the entire industry sector. The best way to even understand how the country’s
industrialization phase is lagging is by looking at the data. The World Bank shows the value added
by manufacturing by the percentage of GDP. To this data, the Philippines as of 2021 has a value added
to GDP of about 18 percent, which is below most of its neighboring bloc. Vietnam, for instance,
has a value added percentage of 25 percent, whereas Thailand with 27 percent, Malaysia at 22
percent, and only Indonesia which inches beside the Philippines with 19 percent. Furthermore,
if we take a look at the entire industry sector, we may also see that the industry
data as a percentage of GDP still shows that the Philippines is lagging behind its neighboring
bloc. Vietnam has a 37.5 industry value added to GDP, whereas the Philippines with only 28.9
percent. This misconception of the Philippines is classified as a newly industrialized economy,
therefore, is misunderstood. In the same way, the value added to manufacturing,
even if we don’t classify it as a percentage of GDP, can also show how much the Philippines
is lagging. Value added in manufacturing in the Philippines is 69.5 billion dollars as of 2021,
Vietnam for instance has over 90 billion dollars, and Malaysia at 87.5 billion dollars. There is a
reason why the Philippines has become a lagging country when it comes to manufacturing and
having a robust industrialized sector. A quick historical overview can show us why.
Throughout history, there have been various cases of why the Philippines failed to adopt a strong
manufacturing sector. We can trace a story back to the 1950s. The Philippine government through
a policy called “the Philippine First” wanted to protect its little local companies. It placed high
tariffs and non-tariff barriers to entry. This resulted in international products being way
more expensive than usual, as a tariff is often a tax on imported goods. Some economists, however,
would probably say that this was the perfect move. Grow out the little local companies,
and then open up international competition. Indeed, however, the neo-liberal economists would
probably laugh at this, as the Philippines after decades of trying to grow its local companies have
failed to compete internationally, or even, the Philippines has never had a company that
would compete domestically. The country can’t manufacture automobiles, whereas neighbors such
as Thailand and Malaysia had gone ahead to become miracle successors to these industries. The only
few industries that the Philippines succeeded in were both steel and electronics. These, however,
also had their issues. Steel making had once made the country a leader in Asia. The Ilijan steel
mill was once regarded as one of the largest on the entire continent. However, due to a failure
in privatization, and foreign investments, the steel company failed. Rendering the only monument
the Philippines had at manufacturing to zero. Electronic manufacturing, on the other hand,
is the only one that has helped push growth to the entire manufacturing sector. However,
it is filled with low-value added work. The Philippines does not manufacture the entire
component, but rather, are the ones who test and package these finished products.
Furthermore, another historical point is If we trace back to the late 1970s, the government had
also once announced an industrialization plan, by introducing 11 big projects. From copper to
aluminum smelters. However, due to a wide range of issues led by internal and external shocks,
many of their plans had been dismissed. These issues through various sectors and historical
points have led the Philippines to have a lagging industrial sector. Some research articles and
economists themselves argue that it was solely because of oligarchism, protectionism, and a
lack of export-oriented subsidies. They say that oligarchs have become too rich to the point that
they don’t prioritize national development, but instead prioritize fattening their own pockets.
A lack of government support has also failed the industry sector, as entrepreneurs or even state
owned enterprises have not been encouraged enough to create a product for manufacturing purposes.
These answers, however, may still be a narrow answer to understanding why the Philippines'
industrialization failed. And there is a good argument for why it is also not an issue.
The Philippines economy to most people’s surprise in its developing stage had leaped
the industrialization phase. It went from an agriculture-based economy to a service-based
economy. This is contrary to what most developing countries face which first goes from agriculture
to manufacturing and then services. Arguments laid out, however, have pointed out that this was
necessary. The Philippines needed an alternative option to boost its economy. It also exported its
labor globally, which helped generate a source of Overseas Filipino remittances. Business Process
outsourcing has steadily grown and even made the Philippines, the world’s biggest. These all have
then collectively made the Philippines an intensive service-based economy. The same
data from the World Bank, which showcases the service value added by a percentage of
GDP shows that the Philippines is the highest with 61 percent as of 2021, only to be followed
by Thailand at 56.7 percent, whereas Vietnam at 41.2 percent. This unique factor that makes the
Philippines one of the only few to do so, would then make some people think that this is fine.
The Philippines is unique as they say, just like how unique other countries are. Not everyone
should be in the same economic standards. But while it is good to see that the Philippines
found its unique economic model to address its lacking manufacturing sector, it must,
however, not over rely on its service sector. For the most part, there is no guarantee that
Business Process Outsourcing will continue to bring tremendous benefits to the Philippines.
The BPO industry is driven by an ever-growing intensive competition. India, for instance,
is a very big contender. It can be argued that India would one day surpass the Philippines and
take much of the foreign investments placed there, simply because India poses lower wages
than the Philippines, and has an already strong relationship with many multinational companies.
Artificial Intelligence is also poised to take some jobs away from the call center industry.
Many economists and analysts have suggested that these are the challenges posed to the
BPO industry of the Philippines, which is why manufacturing should not be dismissed. Further,
it is also known that the value added per worker in manufacturing is often higher than
it is in services. The value added per worker of industry in the Philippines as of 2019 is over
14,511 dollars whereas in services is just 9,312 dollars, which is about 50 percent more. Lastly,
a manufacturing-oriented economy is also important as it can help alleviate the pressures of the
country’s merchandise trade deficit. In 2022, the Philippines will have incurred a merchandise trade
deficit of more than 50 billion dollars, which is partly due to its weak exportation of goods.
What we can say so far is that, while the Philippines has leapfrogged from
agriculture-based to service, there are still luckily several government
initiatives that are being addressed to help fix the gap. There have been numerous foreign
investment-led projects that are aimed to address this opportunity. For instance,
several Chinese-led projects have been implemented in the past few years. There
are also several other local-based companies such as SteelAsia Manufacturing Corporation, which are
continuously constructing steel-based factories around the Philippines, and have partnered up with
a Chinese company to potentially build another steel factory. However, as far as we know, many
of these projects are still unrealized. As long as the value added of manufacturing is still low,
we may, unfortunately, still see that the industrialization of the Philippines is
missing and that there is still much work that needs to be done to address it. But anyway,
do let us know what you think. Why do you think the Philippines has a lagging industrial sector?
Or do you think the Philippines should continue its booming services? Thanks for watching!
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