Economic Change Must be Structural to Go Beyond Trickle Down Effects 319.0 lyrics



Finance Secretary Cesar Purisima listed the “structural” reforms in the Aquino Administration’s program for economic change in a recent BusinessWorld Online article, Gov’t sets higher growth target for 2012, on June 18, 2011:

The government has to pursue structural adjustments — investments in infrastructure, reforms to boost competitiveness and simplified regulations

to reach the realistic goal of 6.5% – or better, the stretch goal of 7%-8% of GDP growth.

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Unfortunately, I do not think that the “structural” economic changes proposed do not directly address the problem of structural unemployment that has stayed above 7% and underemployment at above 19% for a long time even before the present Administration.

All three adjustments assume trickle down effects and may achieve growth during the Aquino Administration based on the neoclassical economic planning framework.

Business World.

Cesar Purisima. 2012 growth targets.
Purisima sets 6.5% as realistic growth goal for 2012. Click image for Business World article.

The growth target needed to achieve catchup

In a previous post Planning as Mixed Economy is Best for Emerging Markets and Philippines on April 2011, I determined that the Philippines needs steady 7% growth until 2028 under three Presidents to catch-up.

Yet, growth must not be attained just for its own sake. It is merely the top line that, with other policies, allows inclusive development that benefits all the people.

The challenge is structural because economic change must be sustained over the term of three successive Presidents.

Beyond priming the pump with cyclical growth via investments in public-private partnerships in its current term, the Aquino Administration must design and nurture “perpetually-lived” institutions like program-based political parties, courts that support the rule of law and sanctity of contracts that sustain growth through the next two terms.

President Aquino ought to start thinking of his legacy, of what will come next
The biggest challenge is to set the stage so that the next two Presidents will carry on and sustain the growth for 12 more years.

Presumably, it means that the next two Presidents will not tear down what has been accomplished but build on it.

That is not well supported in our recent history. Only President Cory had, F V Ramos, his anointed successor elected and he did build up in the economy – his notable success with reforms in the telecommunication sector – on the political reforms under President Cory.

This is the bigger challenge – building on strengths … to get the next two Presidents elected who will build on the Aquino economic change program going forward.

The Liberal Party is the obvious carrier of this legacy as the core of a political coalition to sustain economic change and growth.
Unfortunately, as a well-known political strategist noted, the Liberal Party seems to have been hollowed in the past year and seems to have lost its way. Let us keep our fingers crossed …

Douglass North. Wallis. Wiengast. Violence and social orders.
North, Wallis and Weingast propose an approach to institutional change toward an Open Access society. Click image for Amazon link.

Note: I just discovered John V.C. Nye’s excellent paper on new institutional economics and reforms for the Philippines presented at the Bangko Sentral on January 14, 2011. John Nye made North, Wallis and Weingast’s Violence and Social Orders (2009 Cambridge University Press) a key reference for his paper as economic change framework.
I am now reading this book that is the latest from the new institutional economics school. John Nye’s paper and this book will be the subject of a future post.)

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