Filipinos’ addiction to OFW remittances is incompatible with economic development

Look more closely at the facts surrounding the much-vaunted stellar growth of the Philippine over the last several years and one will find the same old disturbingly-familiar drivers of that growth. Or, rather, it is the absence of the right drivers that is more disturbing. Growth is still chugging along the traditional way — through spending stimulated by public works and foreign investment and, yes, the remittances of the Philippines’ legendary army of overseas workers. Absent is growth driven by sustained productivity gains on a solid foundation of an expanding capital base.

Presumably, efforts to build that capital base is underway under the “build build build” programme of the current government of Philippine President Rodrigo Duterte supposedly focusing on major public works to upgrade and expand the country’s decrepit infrastructure. The intent is, of course, to create the facilities needed to make the conduct of business more efficient — improved roads and rail to move goods faster and in bigger quantities, for example. The goal is to make Philippine industry more adept in the production of goods and services that could compete in the global market and also in the domestic market which is awash in imported stuff.

Evidently, this is where the big question lies — will all the money (much of it borrowed) spent on all that infrastructure translate to proportional returns in the form of increased productivity and the increased incomes expected to come with it? The answer to this lies in how Filipinos will use all that infrastructure. Will better infrastructure induce private citizens to contribute their part into the development equation through entrepreneurship and increased investment in the procurement and installation of capital equipment? If we build infrastructure, will the private sector step up?

Indeed, any form of investment is premised on the expectation that income will be generated by the capital created by said investment. Building roads, rail, bridges, and airports is just half of the equation. These facilities will contribute nothing to the economy unless business flows through these facilities — from farms and mines, to processing plants, and to factories — faster and in bigger volumes than the way it was before these were built. Beyond the jobs created through the construction of these facilities, jobs should be created by the increased business activity the completed facilities support and sustain.

More goods moved, more factories fed, more workers needed. With more jobs comes more consumers, pressure on supply, higher wages, and more consumption which, in turn, increases demand for more production.

Notice how funds sourced externally — through foreign investment, aid, loans, and, yes, OFW remittances — do not figure at all in the above circular equation once the wheels are in motion. It illustrates the important challenge Filipinos face — to build an economy that can sustain business activity from within. By working towards that goal, foreign capital and foreign-sourced income (such as those of OFWs) becomes less and less important. We need to see an economy that is less and less dependent on foreign capital and more and more reliant on domestic capital. This involves being good at producing and making stuff and doing so using one’s own capital. Only when Filipinos become good at making stuff — stuff people from all over the world want to buy — will they be considered on the path to national success.

Moving a national economy from being a net importer of capital to a self-sufficient one and, ultimately, to being a net exporter of capital is a long journey that will transcend many governments. But it is important that a strategy be put in place to ensure that we set our sights on that goal. Filipinos need leaders who look beyond merely stimulating job creation using public spending and “foreign investment” to creating a strong economy built upon a strong production foundation built through consistent investment in that foundation. To do that, it is not only about building infrastructure but ensuring that Filipinos are of the right calibre in terms of skill and work ethic to progressively employ that infrastructure and the capital created through it productively.