2050 take me there – BusinessWorld
The National Economic and Development Authority (NEDA) dropped a bombshell when it released the result of a six-month study that estimated the economic cost of COVID-19 over the next four decades to reach 41 trillion pesos and that the economy is expected to return to the pre-pandemic growth trend only after 10 years. The main assumption is that consumption and investment are likely to remain sluggish for some time to come. As Socio-Economic Planning Secretary Karl Kendrick T. Chua said in the presentation: “Consumption and investment will be lower over the next 10 years due to lower demand in sectors that require social distancing (eg, entertainment, tourism, restaurants, public transport). Therefore, tax revenues will be lower.
I appreciate this attempt by our NEDA economists to use the scientific methods of long-range forecasting and present value analysis to demonstrate the catastrophic results of the very poor judgment of the President and his interagency working group for the management of Emerging Infectious Diseases (IATF) to overemphasize health issues during the pandemic in almost total disregard for what was happening to the economy by imposing the region’s longest and most frequent lockdowns. It is well known that the NEDA has always taken what I consider the right position, which is that long lockdowns, school closures and other measures that hurt the economy were unwarranted. The findings of their study have, in my view, a clear objective of changing the mindset of our government decision-makers, if not immediately, at least of those who will be elected in May 2022. Voters should provide the ineffective response to the pandemic. of this current Administration a major stake in the next elections.
However, I would like to present an alternative scenario based on a more optimistic assumption of what will happen to consumption and investment from at least the second half of 2022.
I maintain that social distancing and other extreme lockdown measures will be a thing of the past by the second half of next year. Filipinos will treat the pandemic as endemic and learn to live with it the same way they have lived with the regular flu for decades. They will not tolerate the flawed policies of this current administration such as school closings and closures. Due to the strong fundamentals that have not been erased by the pandemic (what I called in the series of articles titled “Aspiring for High Income Status,” Demographic, Geographic and Time Dividends), investors and investors foreigners will quickly regain their entrepreneurial sense. spirit and compensate for the sharp decline in capital accumulation in 2020 and 2021.
In fact, it was a happy coincidence that when news about the NEDA screenings appeared on the news, Megaworld announced that it would invest around 40 billion pesos to develop beachfront and inland properties. Spanning 462 hectares in San Vicente, Palawan in an “ecotourism commune. This is just one example of the optimistic outlook for investors as they consider the long-term potentials of the Philippine economy, despite pandemic. The pandemic did not take away Palawan’s potential to be one of the most visited island groups in the world in the years to come. It was ranked by an international leisure and tourism magazine as the best beach resort in the world, ahead of other tourist destinations such as Bali and Hawaii.
I would like to present an alternative long term economic scenario for the Philippines. I still believe the Philippines can achieve advanced economy status by 2050, despite the temporary scars the pandemic has left on consumption, investment, health and education in particular.
In the five-part series of articles titled “Aspiring for High Income Status”, we saw that the longer-term forecast made by economists for the Philippine economy was that of the Hong Kong and Shanghai Banking Corporation (HSBC) which , in 2012, projected that by 2050, the Philippines will have the 16e largest economy in the world. We have also seen that a good number of independent think tanks, financial and economic development institutions, and international agencies like the World Bank and the Asian Development Bank have started to think positively about the future of China. Philippine economy at the beginning of the third millennium.
We have also seen that it is one thing to achieve middle income status and another to be part of the First World. It took South Korea 60 years (1960 to 2021) to be promoted by the United Nations Conference on Trade and Development (UNCTAD) to be part of the club of advanced countries. Despite revenues that already exceeded $ 25,000, the country continued to be viewed as an emerging market. It should also be noted that despite the recent upgrade of South Korea to the status of advanced economy (first world), the country still faces the problem of a very inequitable distribution of income and wealth. In a recent article in the Financial Time (September 8), Prime Minister Kim Boo-Kyum lamented the plight of the country’s poverty-stricken elderly population, the very generation that rebuilt the country after the Korean War. Despite the status of “advanced economy”, there is unprecedented poverty among the elderly, high youth unemployment, rising house prices, growing household debt and soaring household costs. ‘education. Poverty now affects more than 40% of those over 65, the highest percentage among OECD members, while nearly one in ten young South Koreans are unemployed. No country today should be under the illusion that if it moves to high-income status it will run out of poverty and inequity issues.
There are, however, skeptics who do not believe in long-term projections such as the one made by HSBC in 2012. They say so many unforeseen events and seismic shocks can affect both national and global scenarios. of a given economy. . The case of South Korea should dispel this doubt, however. There were many shocking events between 1960 and 2021 (among them, the terrorist attack of September 11, 2001 against the United States, the Arab Spring, the numerous regional wars in the Middle East, the oil shocks of the 1970s, etc.). Because South Korean leaders have focused on institution building throughout these six decades, it has managed to take its place among the first world economies.
In fact, in an AfDB Discussion Paper 571, written by Jong-Wha Lee, South Korea’s long-term path to high-income status has been very well documented. The document showed that despite unpredictable events that appear to militate against long-term development, the Republic of Korea has experienced impressive growth over the past half century. The country has achieved an average annual GDP growth rate exceeding 7.1%, increasing the level of real income per capita GDP at international prices by nearly 26 times. Average GDP growth rates accelerated to 7.5% in the 1960s, 8.8% in the 1970s and 9.3% in the 1980s.
The road to development was not without serious obstacles. During the East Asian financial crisis from 1997 to 1998, South Korea suffered a 7% drop in its GDP due to the huge and sudden reversal of short-term capital flows triggered by the panic international investors. The underlying structural problems in the economy, including under-supervised financial systems and an over-leveraged corporate sector, also led to the build-up of vulnerabilities that paved the way for the crisis, applying the shock to the economy. . This financial crisis slowed growth during the first decade of the new millennium to an annual rate of 4.1%. Then, exactly a decade later, from 2008 to 2009, South Korea suffered yet another shock. The global financial collapse, which resulted from the subprime mortgage crisis in the United States, hurt South Korea’s economy due to the fallout from global trade and financial markets. The country’s GDP growth rate slowed to 0.3% in 2009.
These crises illustrate that long-term projections of an economy can still be valid, despite unforeseen shocks and crises as long as a country has strong institutions. It can also be noted that South Korea has had to overcome serious political shocks. President Park Chung Hee was assassinated after nearly 20 years of rule; Chun Doo-hwan was sentenced to life imprisonment for his role in the Gwangju massacre; and Roh Tae-woo was jailed on the same count as Chun; Lee Myung-bak was sentenced to 15 years in prison for embezzling $ 22 billion; Park Geun-hye was sentenced to 25 years in prison on various corruption charges.
As long as a country can count on strong fundamentals based on sound market-oriented institutions, an educated population, a minimum of good governance practices, and long-term political stability, its economy can go from low status to weak. income to at least an upper middle income economy or even a fully advanced economy.
In the case of South Korea, the economy has avoided falling into the middle-income trap by implementing the following policy measures over the past 50 years. Its first major step was to focus on improving its rural infrastructure and agricultural productivity, notably through the Saemaul Undung movement. He emphasized export-oriented labor-intensive industrialization at the start of his industrialization strategy. The highest priority has been given to investing in quality education and scientific research. It capitalized on its demographic dividend for as long as it lasted. Its leaders have been able to downplay crony capitalism by choosing the entrepreneurs to lavish state subsidies and aid on on the basis of genuine business acumen and proven success rather than personal connections. The whole of society has capitalized on the strong patriotism and work ethic of its citizens, characteristics which also explain a high rate of domestic savings during the crucial stage of its development process.
To be continued.
Bernardo M. Villegas holds a doctorate. in Economics from Harvard, is Professor Emeritus at the University of Asia and the Pacific and Visiting Professor at IESE Business School in Barcelona, Spain. He was a member of the Constitutional Commission from 1986.