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PHILIPPINE LABOR

AND THE ECONOMY

COURSE GUIDEBOOK
AND
SELECTED READINGS
2008

JORGE V. SIBAL
University of the Philippines
Industrial Relations
Alumni Association, Inc.
(UP-IRAA)
Diliman, Quezon City

i
PHILIPPINE LABOR AND THE ECONOMY
Jorge V. Sibal (2008)

TABLE OF CONTENTS

Page
 Foreword ………………………………………………………. iii
 Preface and Acknowledgement ………………………………… iv
 Curriculum Vitae of Professor Jorge V. Sibal ……………… vii

Theoretical Underpinnings

1. Industrial Relations and the Social Sciences ……………………….. 1


2. Systems Approach in the Study of IR ……………………………….. 4
3. Industrial Relations and the Economic System ………………………. 8
4. Industrial Relations and Economic Development …………………… 13
5. Industrial Relations Environment …………………………………… 18
6. The Entrepreneur and the Development of Science and Technology …. 25
7. The Entrepreneurs and the Economy ………………………….......... 28

Economic Policies and Issues

8. Wages of Labor ……............................................................................... 32


9. Incomes Policy ………………………………………………………… 40
10. Trade and Investment Theories and Globalization ………………… 51
11. Trade and Investment Policies …………………………………….. 57
12. Fiscal Policy and Taxation ………………………………………… 66
13. Financial System and Monetary Policy ………………………………… 76
14. Money and Banking …………………………………………………… 83
15. Non-Bank Financial Institutions ………………………………………… 88
16. Capital Market and Long-term Financing ………………………… 96
17. The Philippine Labor Situation ………………………………………… 100
18. Issues and Problems in the Philippine Industrial Relations System …….. 113
19. Policy Issues and Challenges in the Philippine Labor Sector ………… 125
20. Industrial Culture and Industrialization ………………………………… 136
21. Strengthening Offshoring in the Philippines ………………………… 153
22. Measuring the Informal Sector in the Philippines and the Trends in Asia .. 167
23. Local Government Unit Practices in Labor Protection in the ………...…. 182
Informal Sector
24. Globalization and Changes in Labor Market Policies and ……………… 195
Industrial Relations Practices
25. Appendixes of Charts, Figures and Tables …………………………… 224

U.P. Industrial Relations Alumni Association, Inc. (UP-IRAA)


U.P. School of Labor and Industrial Relations, Bonifacio Hall, Diliman, Quezon City

ii
UP INDUSTRIAL RELATIONS ALUMNI ASSOCIATION
UP ALUMNI ASSOCIATION CHAPTER

FOREWORD
This is a must reading for all students and practitioners of Industrial Relations in
the Philippines. Prof. Jorge V. Sibal very clearly and comprehensively discussed the
theoretical foundations that support the study of the field of Industrial Relations.

Prof. Sibal aptly situated the application of the theoretical foundations within the
context of the Philippine setting. An analysis of the history of trade unionism in the
Philippines as well as relevant empirical data demonstrated the operation of various
theories in Industrial Relations. These historical background and contemporary data
provided valuable insights on the dynamics of today’s Industrial Relations. Taking a look
beyond the Philippine setting, Prof. Sibal also discussed the effects and implications of
globalization on the Industrial Relations system in the country.

ARTHUR LUIS P. FLORENTIN


President
UP Industrial Relations Alumni Association

May 1, 2008

iii
PREFACE AND ACKNOWLEDGEMENT

The author of this Guidebook on Philippine Labor and the Economy is currently
the Dean of the University of the Philippines School of Labor and Industrial Relations
(UP SOLAIR). Dean Jorge V. Sibal is also an affiliate faculty of the UP Open University,
UP Baguio, UP Mindanao and UP Cebu. He was a former lecturer at the MBA programs
of UP College Business Administration and De La Salle University and at the BSBA,
MBA and MPA programs of the Philippine Women’s University.

Dean Sibal wrote this Guidebook primarily for students, facilitators, tutors and
learners in the course on “Labor and the Economy” at the UP SOLAIR and in subjects on
“Labor Economics” and “Personnel and Industrial Relations” in other schools both at the
collegiate and graduate studies levels. It can be used in the traditional face-to-face mode
of teaching and facilitating or using the mixed on-line mode.

Dean Sibal developed and used the Guidebook for the course IR 204- “Labor and
The Economy” in the schoolyear 2001-2002 using the cyber classes platforms at the
University Virtual Learning Experience (UVLE) http://uvle.up.edu.ph and at the Yahoo
Education Web course http://groups.yahoo.com/group/ir204-A.

Professor Sibal wrote some of the original modules in this Guidebook for college
and graduate students at the Philippine Women’s University at Quezon City Campus.
These modules were updated, rewritten and used as a guidebook for UP SOLAIR in
1998. With the Central Book’s publish on demand concept, it is now printed for other
faculty, tutors and facilitators in other Universities, Schools and Training institutions.

Aside from the teaching modules, Dean Sibal included as reading materials some
of his selected researches and articles presented in conferences and forums. Some were
published in local and international journals and publications. These are:

1. “Issues and Problems in the Philippine Industrial Relations System” was


published in the 2005 issue of UP SOLAIR’s Philippine Journal of Labor and
Industrial Relations (PJLIR) edited by Marie Aganon. It was used as a resource
material in the subject BA 152 (Human Resource Management) at the UP College
of Business Administration on September 5, 2005.

2. “Policy Issues and Challenges in the Philippine Labor Sector” was a plenary
paper on the pre-conference on “Workers at the Center of Human Development”
on July 9, 2007 at U.P. Balay Internasyonal (Balay Kalinaw), Quezon City
sponsored by the Philippine Legislators’ Committee on Population and
Development Foundation, Inc. (PLCPD) and Philippine Employer-Labor Social
Partners, Inc. (PELSPI). It was later presented as a paper on “The Employment
Situation of the Country” on February 13, 2008 at the Maryhill School of
Theology, Quezon City, sponsored by Bishop Deogracias Iniguez, Jr. DD and the
Kilusang Makabansang Ekonomiya.

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3. “Industrial Culture and Industrialization” was published in the 2002 issue of the
Philippine Journal of Labor and Industrial Relations. It was a research funded by
the Fair Trade Alliance. The paper became the basis of several papers presented.
Among these were: a) “Industrial Culture and Solidarity (Tangkilikan
Economics)” at the Youth Summer Institute on Fair Trade Economics on May 25-
27, 2007 at the International Institute of Rural Reconstruction, Silang Cavite
sponsored by Fair Trade Alliance; and b) “Growth and Development in the
Philippines and its Sociological Dimensions”, 1st Junior Social Scientists’
Conference of the Philippines on February 10, 2007 at the UP School of
Economics Auditorium, sponsored by UP School of Economics Advisory
Council, UP Association of Political Science Majors, UP Kalipunan ng Mag-aaral
ng Sosyolohiya, UP Kalipunan sa Agham Panlipunan at Pilosopiyang Pilipino and
Samahan sa Agham Pampulitika.

4. “Strengthening Offshoring in the Philippines: Issues and Concerns” was


published at the UP Forum, July-August 2006, pp. 1-5,
http://www.up.edu.ph/upforum.php and in the Friedrich Ebert Stiftung
Foundation webpage http://www.fes.org.ph. It was presented in the Call Center
Roundtable Discussion II on June 21, 2006 at UP SOLAIR. It was cited by other
writers like Albert F. Haw in “Managing Attrition Rate in the Call Center
Industry”, PMAP Newsletter, July, 2006, http://www.pmap.org.ph/newsletter/ and
the NEDA writer of “Brighter and Brighter”, devpulse, March 15, 2007,
http://www.neda.gov.ph/devpulse/pdf_files.

5. “Measuring the Informal Sector in the Philippines and the Trends in Asia” was
presented at the 10th National Convention on Statistics on October 1-2, 2007 at
the EDSA Shangri-La Hotel, Mandaluyong City sponsored by the National
Statistical Coordination Board (NCSB). It was also published at their conference
website.

6. “LGU Practices in Promoting Labor Protection in the Informal Sector” was


presented at the National Policy Conference on the Legal Empowerment of the
Poor in the Philippines on July 25-26, 2007 at Makati Shangri-La Hotel, Makati
City. It was sponsored by the Economic Social and Cultural Rights-Asia in
partnership with the UN Development Program-Manila and the U.P National
College of Public Administration and Governance. Prof. Sibal’s recommendations
were incorporated in the book The Way Forward: A Policy Resource Book on
Legal Empowerment of the Poor in the Philippines (2007). Prof. Sibal’s paper
was published as “Social Partnership of Civil Society, Government and the
Private Sector in Improving Working Conditions in the Informal Sector” at the
Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR,
2007, pp. 20-41.

7. “Globalization and Changes at the Workplaces” was an article written by Prof.


Sibal based on a paper he co-authored with Maragtas Amante and Catalina

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Tolentino titled “Globalization and Changes in Work and Employment
Conditions in the Philippines”. It was presented at the Workshop on Globalization
and Changes in Employment Conditions in Asia and the Pacific on February 22-
23, 2007 at Lexington Hotel in Seoul, Korea under the sponsorship of the ILO and
Korea Labor Institute (KLI). The KLI later published the paper as Chapter 9
“Philippines” of the book Globalization and Changes in Employment Conditions
in Asia and the Pacific (December 2007), pp. 461-501. It was edited by Sangheon
Lee and Jai-Joon Hur.

The author wishes to thank all his students, co-faculty members, facilitators and tutors
in all the schools and training institutions that he has taught or presented his papers.
He also extends his gratitude to the U.P. Industrial Relations Alumni Association
(UP-IRAA), through its President Arthur Luis P. Florentin for the printing and Prof.
Luz Co-Laguitao, UP IRAA Vice President, for the final editing of this guidebook.

Dean Sibal dedicates this guidebook to his loving parents Felix P. Sibal and Lydia
Villadolid Sibal, his wife Xenia Sayoc-Sibal, children Voltaire, Charlton, Dennis,
Felix II, Nadia, Antonio and Leandro, children-in-law Jasmin, Rhona, Romilinda,
Regina and Mark, and grandchildren Sophia, Steffan, Sean, Iris, Charisse and
Lorenzo.

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PROFESSOR JORGE V. SIBAL

 Professor 9, Graduate Studies Program in Industrial Relations, University of the


Philippines- Diliman
 BSBA ‘71, Diploma in IR ‘79, Master of IR ’82, UP Diliman
 National Expert, Asian Productivity Organization, Tokyo, Japan, 2002-03, 2006-06
 Social Compliance Associate, ECOP, ILO and Verite, 2003
 President, Nikkeiren Alumni Association, 2002-03
 Corporate Secretary, Philippine Industrial Relations Society (PIRS), 2002-03
 Licensed Real Estate Broker & Director, Sibal Realty and Development Corporation
(property owner and lessor)
 Vice Chair and Trustee, Urban Missionaries Foundation, Inc., 2002-2004
 Elected NGO-PO-Coop. Representative, Quezon City Development Council, 1995-
98, 2001-04

Formerly-
 Dean, UP SOLAIR
 Professor, MIR/Dip. IR Program, UP Cebu, Lahug, Cebu City: MM-IR/Dip.IR
Program, School of Management, UP Mindanao, Davao City; and MM-IR Program,
Management Sciences Division, UP College Baguio, Baguio City
 Director, UP SOLAIR Center for Labor & Grassroots Initiatives (CLGI),
2002 Gawad Chanselor awardee for “Best Extension Program”
 Officer-in-Charge, UPSOLAIR, September 1 – December 31, 1998 and January 3 to
July 31, 2005
 Coordinator, UP SOLAIR Labor Education and Extension Program (LEEP), 1996
Sikap-Gawa Industrial Peace awardee for training and research by the Bishops-
Businessmen’s Conference for Human Development and 1996 Gawad Chanselor
awardee for "Pinakamahusay na Pahinungod” (Best in Public Service)
 Senior Lecturer, MBA Program, UP College of Business Administration
 Professor, Graduate Studies in Business and Economics (GSBE) Program, De la Salle
University, Manila and MBA/MPA Program, Philippine Women’s University,
Quezon City
 Director, Sports Development, Quezon City Government
 Consultant, Vice Mayor’s Office, Quezon City Government
 Marketing Consultant, Real Estate Exchange, Inc., Makati
 Personnel and Administrative Manager, Black Mountain, Inc., Makati
 Project Manager, Bancom Realty Corporation, Makati
 Account Manager, J. Walter Thompson Co. Ltd. (Mla.), Manila
 President, UP IR Alumni Association-UPAA Chapter
Address:
89-G West Avenue, Quezon City, Metro Manila, Philippines, 3008, Mobile # 0917- 6076233, E-mail-
sibal_jorge@yahoo.com , http://www.freewebs.com/jorge_sibal

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INDUSTRIAL RELATIONS AND THE SOCIAL SCIENCES

Ludwig Von Bertalanfy (1968) defined social science as the study of social
systems - human groups, societies or humanity as a whole. The various disciplines in the
social sciences include Economics, Sociology, Political Science, Management,
Anthropology, Linguistics, Communications, Humanities, Industrial Psychology and
Law.

The social science disciplines are all interdependent fields of endeavors and not
isolated from each other. They can be broadly classified into the fields of Economics,
Political Science, Industrial Sociology and Psychology. Sociology is the broadest
discipline in the social sciences. It is the study of human society itself. Economics and
Business Management focus on the production sub-system of society - how scarce
resources are transformed into goods and services needed by society.

Lesson Objective:

Provide the learners a wholistic perspective of Industrial Relations (IR) as a


multi-disciplinary field of study in the social sciences.

Political Science and Law focus on the leadership or governance and rule making
sub-system of society or how the society is able to maintain stability and growth.
Anthropology, Linguistics, Humanities and Industrial Psychology focus on the socio-
cultural sub-system of society, or how people interact and communicate with each other
and in the process form their distinct characteristics, norms and culture.

Figure 1. The Various Social Science Disciplines

POLITICAL SCIENCE and


MANAGEMENT- the study of
governance or leadership in an
organization.

SOCIOLOGY- the
study of society or
social system.
ECONOMICS- the ANTHROPOLOGY/
study of production INDUSTRIAL
or the conversion of PSYCHOLOGY- the
resources into goods study of cultures of
and services. society and group
behavior.

1
Industrial Relations is a study of human relations in the workplace. The discipline
involves Sociology, Economics, Management, Political Science, Law, Anthropology,
Communications, Industrial Psychology and other disciplines in the social sciences. IR is
a multi-disciplinary field of study in the social sciences.

An IR practitioner must be a social scientist, able to utilize the various scientific


laws and principles of Economics, Sociology, Political Science, Management, Law,
Anthropology, Communications and Industrial Psychology in order to arrive at a more
objective view of human relations in the workplace.

Figure 2. IR and the Social Sciences

ECONOMICS /
SOCIOLOGY

IR / HRM
ANTHROPOLOGY/
POLITICAL INDUSTRIAL
SCIENCE / PSYCHOLOGY
MANAGEMENT

C.J. Margerison (1969) gave meaning to IR as a multi-disciplinary subject. IR has


a number of interdependent aspects which has become the special study in certain
subjects. Taken together, these functional aspects and the academic subject areas
constitute the field of IR.

Table 1. Type of Workplace Relationships

IR AREAS ACADEMIC SUBJECT AREAS


Contractual Relations Economics, Law and Political Science
Organizational Relations Industrial Sociology
Interpersonal Relations Social Psychology

Theories and Predictions in IR

The objectives of science are to summarize existing knowledge; explain present


events and relationships; and predict future events and relationships based on existing
knowledge and principles embodied in a theory or hypothesis.

The scientific process is enumerated as follows:

1. Stage of sensual perception of observable phenomena or events;

2
2. Stage of cognition and formulation of hypothesis;
3. Stage of theorizing or integrating different hypothesis and other theories into a
general theory and systems model;
4. Stage of testing the theory and model with research and practice, further
observations and experiments and if possible, laboratory work or statistical
inference; and
5. Stage of proving or disproving theories and models and hence acquiring scientific
knowledge (Selltiz, 1959).

Proven theories or hypothesis, considered to be true, are scientific laws. Selltiz noted that
scientific laws and theories are dialectically related. In contrast with earlier times when a
theory or knowledge is considered a final explanation, Selltiz said that both theory and
knowledge are provisional, He stated that-

“Today, a theory is always held with some tentativeness, no matter how


great the accumulation of findings consistent with it. It is considered as
the most probable or most efficient way of accounting for those findings in
the light of present knowledge, but is always open to revision. It is not a
final formulation.”

IR theories, researches and technologies should always be viewed with caution. An IR


technology such as collective bargaining is proven very effective in North America and
Western Europe. It may or may not be very effective in an Asian setting. Unlike
replications or predictions in the natural sciences where accuracy is certain, replications
or predictions in the field of IR and the social sciences are viewed with certain degree of
tentativeness.

This makes the field of IR exciting and dynamic. The development of scientific
knowledge in IR can only proceed with the continuing unity and interaction of theorizing
and researching. Theories should guide researches and researchers should test theories in
order to arrive at a scientific knowledge. Scientific knowledge, on the other hand, leads to
better and higher level of theories, which in turn lead to higher level of researches.

Learning Activity:

1. Why is IR a multi-disciplinary field of study in the social sciences?


2. IR practices and techniques in the west may or may not be applicable in the
east. Explain and give specific examples.

References:

Bertalanfy, Ludwig Von, 1968, General Systems Theory, New York.


Margerison C.J., 1969, “What do we mean by Industrial Relations? A Behavioral
Science Approach,” British Journal of Industrial Relations, Vol. 7.
Selltiz, Claire (Editor), 1959, Research Methods in Social Relations, Holt,
Rinchart and Winston Inc.

3
SYSTEMS APPROACH
IN THE STUDY OF INDUSTRIAL RELATIONS

A system is an organized entity and a complex whole, whether conceptual or


physical. It is an assemblage or combination of parts.

The systems approach is a method of analysis of the complex whole. It considers


parts as sub-systems and their interrelationship in a supra-system and also provides a
means of concentrating on the synergistic such as- the whole is greater than the sum of its
parts.

The systems approach is like a task force method of analysis and problem solving
in the field of Business Administration. Because of the vastness of scope and the
complexity of operations of today’s business enterprise, the decisions of a business leader
are supported by analysis and recommendations of a task force - multi-discipline staff
composed of experts in the various sciences. In a similar manner, the IR field is
concerned with a very complex sub-system of a social system, human relations in the
workplace.

Lesson Objective:

Equip the learners with the systems method of analysis in the study of IR.

Types of Systems

Systems are classified as closed systems which are associated with non-living
matters and open systems which are associated with living matters and human societies.

A closed system is a self-contained system with well-defined boundaries. The


components of this system are observable and measurable; its process is mechanical and
repetitive. The interaction of the closed system with its environment is minimal and
outcomes of these interactions are accurately predictable. An open system, on the other
hand, constantly interacts with its environment and its parts dynamically and constantly
go in and out of the system through permeable boundaries.

Systems approach applies to both natural and social sciences. This approach is, in
fact, the bridge between the two bodies of sciences. Natural sciences are divided into
physical sciences and biological sciences. From the established laws and principles of
natural sciences, a new field of sciences specializing in the study of social system or
human societies developed. Called the social sciences, the accepted disciplines include
Sociology, Economics, Anthropology, Political Science, Law, Management, Linguistics
and Industrial Psychology.

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The application of systems approach in the sciences is summarized in Table 2.

Table 2. Matrix of Types of Sciences and Systems

TYPE OF CLOSED SYSTEM OPEN SYSTEM


SCIENCE/SYSTEM
NATURAL PHYSICAL SCIENCES- BIOLOGICAL SCIENCES-
SCIENCES Concerned with non-living concerned with living matters
matters (physical and (biological systems) which are
mechanical systems) which concerns of Biology, Zoology,
are the concerns of Physics, Agronomy, Medicine, etc.
Chemistry, etc.
SOCIAL SOCIAL SCIENCES-
SCIENCES concerned with human and social
-- systems which are the concerns of
Sociology, Economics, Political
Science, Anthropology, Industrial
Psychology, etc.

The scientific tools of mathematics, statistics, logic and history are applied to all
sciences. Predictions in the natural sciences are more exact compared to those in the
social sciences. In the natural sciences, a hypothesis can be tested in the laboratory or
through mathematical calculations and logic. In the social sciences, hypothesis can only
be tested in actual situations since certain components of a social system (open system)
cannot be exactly duplicated to permit simple laboratory work, or exactly measured to
allow accurate predictions through mathematical computations.

Figure 3. A Systems Model

SUPRA SYSTEM OR
ENVIRONMENT

INPUTS TRANSFORMATION OUTPUTS


SYSTEM

FEEDBACK
Flow of materials, information, ideas, etc.

Characteristics of an Open System

An open system has the following characteristics:

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1. Inputs - economic resources, ideas, information, values, beliefs, etc. from the
environments;

2. Process or transformation of inputs - utilization of inputs like managing,


manufacturing, budgeting, etc. In IR, the process is called rule-making;

3. Outputs - profits or losses, collective bargaining agreement, rules, decisions, policies,


etc.:

4. Boundaries - limits, interfaces, areas of interpenetration;

5. Systems as a cycle of events - inputs coming from the environment and processed to
become outputs;

6. Hierarchy of elements - parts as sub-system and parts of sub-system as sub-sub-


systems;

7. Negative entropy - system decay due to lack of or too much inputs;

8. Dynamic state equilibrium and dis-equilibrium - continuous influence from the


environment;

9. Feedback mechanism - thermostat mechanism, detector;

10. Adaptive and maintenance mechanism - reactive mechanism;

11. Growth through internal elaboration - pro-active mechanism;

12. Equifinality - final results may be initial activities.

Model Building in Industrial Relations

Theorizing, researching and experimenting are basic processes in science. A


systems method in theorizing is model-building. Models are conceptualized to simplify
and present into comprehensible form a complex system or process. The advantage of
modeling is to speed up analysis and synthesis, explanation of events and phenomena and
predictions of potential outcomes.

The danger of modeling is oversimplification since a complex system or


organization is reduced to a conceptual skeleton and some of the vital parts of the
anatomy or its complex environments might have been cut out. In such cases, the
expected outcomes are not achieved.

In the field of IR, theories and models of IR systems, processes and technologies

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abound. Most of these models come from Northern America and Western Europe.
Collective bargaining theories and models in the Philippines originated from the Wagner
Act of the United States but we have an entirely different system of collective bargaining
in the country compared with the bipartite system of the USA.

Systems modeling in the field of IR nevertheless has hastened the adaptation and
development of the Philippine IR system. Especially now under the period of
liberalization and globalization, delays in the adaptation and development in the IR
system would also cause the delay and retardation of the growth and development of the
economic, political and cultural systems of the Philippine society.

Learning Activities:

1. Why is the systems approach a very important method of analysis in the study of IR?

2. How can modeling speed up or retard the adaptation and development of the
Philippine IR system? Illustrate and explain.

References:

Bertalanfy, Ludwig Von, 1968, General Systems Theory, New York.


Margerison C.J., 1969, “What do we mean by Industrial Relations? A Behavioral
Science Approach,” British Journal of Industrial Relations, Vol. 7.
Selltiz, Claire (Editor), 1959, Research Methods in Social Relations, Holt,
Rinchart and Winston Inc.

7
INDUSTRIAL RELATIONS AND THE ECONOMIC SYSTEM

Economics is a science which deals with wealth-getting and wealth-using activities.


It deals with activities of people in:

1. Making a living (working or laboring);


2. Transforming resources into goods and services (production); and
3. Exchanging goods and services to satisfy human wants (commerce).

Labor is the most important component of any economic activity. Without labor, there will
be no economic process. There will be no social organization.

Lesson Objective:

1. Enable the learners to comprehend the correlation between the disciplines of


industrial relations and economics; and
2. Explain the key concepts and the development of industrial relations and the
economy.

Industrial Relations (IR) is the study of relations of people engaged in economic


activities. It is also called labor economics or the directions and consequences of decisions
and choices made by people in their economic activities. Others call it Managerial
Economics or Human Resource Management (HRM) whose focus is on the decision-
making process made by the leading elites of the economic unit or organization.

The main concern of IR or HRM is decision-making process in the workplace. It is


affected by different economic philosophies and ideologies. These economic philosophies
can be broadly categorized as:

1. Free-enterprise or capitalist economic philosophy (classical economics);


2. State-enterprise or socialist economic philosophy (Marxist economics); and
3. Mixed-enterprise (private, state and labor enterprises-led economic system) or
mixed economics (neo-classical or post-socialist economics).

Let us compare the different features of the 3 economic systems. This is shown in Table 3.

Table 3. Comparing the Major Economic Systems


Free Enterprise Economic Socialist Economic System Mixed Economic System
System
Philosophy is very Philosophy is very Combines both
individualistic and profit socialistic, point of view is philosophies, some are
driven common good and profit driven and others by
collectivist common good
Adam Smith- free Karl Marx- state enterprise Keynesian – state
enterprise, market driven and state initiated intervention or post Marxist,
development development state, labor and private
initiated development
Free market-led production Planned economy and state Economy is state planned
and price adjustments are determines demand and and directed but production
due to equilibrium (or adjusts prices and exchange are market
“invisible hand”) driven
Focus of economic growth Growth is focused on state Combines growth with
is private capital capital formation and equity in private, state and
accumulation income equity labor capital formation
Economic Policies
Trade- Deregulated and Mercantilist and inward Mixed and selective
outward looking looking largely labor and
state
Investment – Liberalized Private ventures are minimal Mixed- private, state and
and private labor ventures
Fiscal- State resources are State resources are in Mixed- state resources are
in infrastructure and infrastructure, social more in infrastructure &
investments are privatized services and state social services and less in
enterprises enterprises
Monetary- Deregulated and Banks are state owned and Mixed– monetary system is
minimal state interference, controlled & monetary regulated/influenced and
banks are privatized policies are state-controlled banks are private, state and
labor owned
Incomes- Low wage policy, High wage policy, state Mixed and variable wage
employment is the concern provides employment and policies and state intervenes
of the private sector social services to provide jobs
Dominant industrializing Revolutionary intellectuals Middle class, revolutionary
elites- Middle class and (communists / socialists and intellectuals and state
capitalists state bureaucrats) bureaucrats
IR system- Unilateral Committee system– socialist Bi-partite, tri-partite, con-
decision making sultative, co-determination

Stages of Economic Development

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There are 6 distinct stages of economic development:

1. Primitive communal production or the hunting and fishing stage


2. Pastoral and subsistence agriculture stage (slave system)
3. Agricultural system (feudal system)
4. Modern agricultural system and handicraft stage (advanced feudalism, colonialism and
mercantilism, also pre-capitalist stage)
5. Industrial period
a) free-enterprise or capitalist system
b) state enterprise or socialist system
6. Post-industrial period or mixed enterprise economic systems and globalization (others
also call this stage as neo-colonialist or imperialist stage and characterized by the
global transfer of surplus goods and capital from the more developed nations to the
less developed nations)

Description of the Stages of Economic Development

1. Primitive communal stage

a. Economic activities were mainly hunting and food gathering. Man was dependent on
nature (forest and bodies of water) for subsistence. Technologies and instruments of
production were stones, spears and later bows-and-arrows (from stone age to metal
age). The family is the center of economic activity. Economy is tribal and
independent.
b. IR system and management/leadership- Decision making is unilateral, usually vested
on the chieftain or head of the family. Management is based on customs and
traditions. Consultative management is also practiced when a council of elders acts
as adviser to the tribal chieftain or the head of the family.
c. Socio-cultural activities- Nature worship of sun, trees, animals, etc. Cultural rituals
developed for animal or idol worship.

2. Pastoral and subsistence agriculture

a. Economic activities- Man began to domesticate and breed animals and did not
entirely depend on nature for subsistence. Among the characteristics of the economy
are: animal pasture and search for pasture lands; use of fire; barter trade; the concept
of private ownership; the distinctions between rich and poor; the use of precious
metals and stones; and the development of serfdom. Subsistence agriculture started.
b. IR system and management- Group of families form villages. Class distinction and
serfdom emerged. Management is still based on customs and decision-making is
unilateral, sometimes consultative.
c. Socio-cultural activities- Tribal worship cum religious leaders and medicine men.

3. Agricultural Stage

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a. Economic Activities- Tribes settle more permanently as agriculture developed side-
by-side with land ownership. Slavery grew rapidly and each village was largely self-
sufficient. Commerce was not yet extensive. Barter and use of money (coinage)
were the medium of exchange.
b. IR system and management- Village heads now enact rules and regulations. IR
system is still unilateral, sometimes consultative. The state has come into existence.
c. Socio-cultural activities- Tribal worship versus more organized religions like Islam,
Judaism, early Catholicism, etc.

3. Modern agricultural system and handicraft stage. This is also the stage of advanced
feudalism, colonialism and mercantilism.

a. Economic activities- Modern and commercial agriculture expanded commerce and


trade. Merchant groups were organized, mostly allied with the state and money
began to be used in large scale. Handicrafts and manufacturers also grew, especially
those allied with the state through mercantilism and protectionism.
b. IR system and management- Free labor now competes with serfdom. Dynastic elites
dominate both government and private enterprises. Management is still custom,
unilateral and sometimes consultative.
c. Social-cultural activities- Predominance of more organized religions allied with the
states.

4. Industrial period- There were 2 distinct types of industrial periods -- the free enterprise
or capitalist system and the state-enterprise or socialist system. The distinction
between the 2 types has been previously discussed.

5. Post-industrial period or the stage of mixed economics system and globalization. This
was also discussed in comparison with the capitalist and socialist economic systems.

State Intervention in Development

State intervention is a vital ingredient in economic development. There is,


however, no standard formula in state intervention. According to Dejillas (1996), “the
degree of state intervention on the operations of the market varies from one economy to
another. It is least felt in so-called laissez-faire economies but very strong in state or
socialist economies. Between these two extremes are several degrees of state
interference.”

State intervention is needed in order to achieve the 3 basic goals of economic


development- economic growth, equitable sharing of incomes and economic stability.
These 3 basic goals are interdependent of each other. Economic growth coupled with
equitable sharing of income would lead to economic stability. Growth and inequity

11
(traditional economics “trickle down effect”) or equity without development (socialist
experience) will both lead to economic instability.

The Philippine Economy

The Philippine economy is a mixed economy. It is operating along the framework


of both free enterprise and state socialism, but more capitalist than socialist. The Philippine
Constitution and the NEDA’s Medium Term Philippine Development Plan (MTPDP) will
attest to this.

The Constitution is a firm believer of a market economy and recognizes that the
private sector is the main engine of growth. At the same time however, the Constitution
declares that it is the duty of the state to promote distributive justice and to intervene
when the common good so requires. This is reflected in the goals of the MTPDP whose
twin thrusts are global competitiveness (private sector-led growth) side-by-side with
people empowerment and income redistribution (Habito, 1996).

The framework of Philippine economic growth is described by Almonte (1996) as


having the following components:

1. Political stability and civil order;


2. Rule of law and security of business contracts;
3. Sound macro-economic policy; and
4. Infrastructure both physical (roads, bridges, electricity, ports, etc.) and social like
health care and HRD or investments in human capital like basic education and
skills training.

Exercise:

 Explain why the development of an industrial relations system is dependent on


economic development. Cite specific examples.

References:
Celeste, J., D. Capino and Z. Ella, 1956, Economics, Manila: Manlapaz Publishing
Co., Inc.
Dejillas, Leopoldo (Ed.), 1996, Towards a Strong and Stable Market Economy in
the Philippines, Makati City: Institute for Development Research and Studies. (See
articles of L. Dejillas, C.F. Habito and J. Almonte).
Todaro, Michael, 1977, Economic Development and the Third World, New York:
Longman Inc.

12
INDUSTRIAL RELATIONS ENVIRONMENT

An IR environment is anything outside the boundary or limit of an IR system. It is


also called a suprasystem. It can also be classified depending on its proximity or distance
to the organization, either as external or internal environment.

Lesson Objective:

Orient the learners on the various components of the industrial relations (IR)
environment (economic, legal-political and social-cultural components) and the impact
(as inputs) to the IR process of rule making or decision making.

The system of IR is also used interchangeably with Human Resources Management


(HRM). Both involve the process of rule making and decision-making on matters affecting
the workplace specially labor-management relations. Decision-making involves planning,
organizing, actuating (leading) and controlling (POAC). Rules and decisions are made
either through unilateral actions, bipartite or tripartite consultations, co-determination or
committee actions.

The elements or resources in the environment serve as the inputs to the decision-
making process. Environmental changes lead to changes in the organizational systems.
Labor-management relations become disharmonious depending on the extent of the
changes in the various components of the environment.

Chris Argyris (1964) views organizations as a systematic whole with mutually


dependent parts. There should be unity of goals among the environment (suprasystem),
the organization (system) and the parts (subsystems). A disunity of goals would mean
dysfunction or disequilibrium in the organization.

There must be a tolerance for the balance within each part and among parts that
contribute to the whole, that is, among individuals and groups within the organization.
The role of IR/HRM is to mediate between the internal maintenance mechanism of the
organization and the achievement of the organization goals.

Internal Environment as Subsystem of IRS

The decision-making process in the managerial subsystem according to George C.


Homans (1950) is affected by internal environments or subsystems like the goals and
values, technological, psycho-social and structural subsystems. This is illustrated in Figure
5:
Figure 5. System Model of a Business Organization

INPUTS PROCESS OUTPUTS

BUSINESS ORGANIZATION
Economic
6 M’s (materials, money. Goals
markets, manpower, & Values Technological
machines and methods) Subsystem Subsystem
IDEAS (HRM) Managerial
Lego-Political Managerial Decision
Laws & Government Subsystem
Institutions psycho- Structural
social
Subsystem Subsystem
Socio-cultural
norms, traditions
& beliefs

SOCIETY/ENVIRONMENTAL
SUPRA-SYSTEM

The managerial subsystem (HRM) involves the setting of goals of the organization,
the establishment of controls, the motivation of personnel and the organization of the
various activities of the organization (POAC).

HRM is affected by the goals and values subsystem which is determined by the
goals and values of the larger society. An organization, being a subsystem of society,
merely performs a specific goal or function for society.

The technological subsystem is composed of machines, tools and equipment


(hardware) and knowledge, skills, know-how and other production techniques (software)
which are needed to accomplish goals to transform economic inputs into outputs
(products and services).

The psychosocial subsystem comprises of individual and group behavior, norms


and habits that prevail in the organization, the structural subsystem are managerial
techniques in which the over all tasks of the organization are divided (differentiated for
efficiency in the mass production process) and coordinated (integrated). Such mechanisms
include organizational charts, position classification, job evaluation, rules and procedures,
etc.

External Environment

Using John T. Dunlop’s IR systems model (1964), the components of IR


environments are illustrated in Figure 6 (firm level):

19
Figure 6. Environment of an Enterprise

Cultural Social- Political sub- Legal-political


environment- Cultural system- environment-
MGT.
Norms, beliefs, sub- Management Laws and political
traditions and system- style, IR process institutions (Labor
cultural Corporate Code, DOLE, etc.
culture and Labor
institutions
(family, norms
Technological sub-
community,
system- Machines,
schools,
methods, techniques,
entertainment
skills
and mass media

Economic environment- Market & technological


trends like subcontracting, labor flexibility, etc.

Cultural Environment

Culture is defined by KDHM1 (1964) as that complex whole which include


knowledge, beliefs, art, morals, customs and other capabilities and habits acquired by a
person as a member of society. It is therefore anything learned in society.

A cultural system is actually an immaterial system unlike an economic system.


Cultures are products of cultural institutions in society through a process called
socialization. Socialization requires individuals and groups to assimilate the organization’s
values and norms in order for the social organization to survive and prosper. The major
cultural institutions are family, community, church, school and entertainment and mass
media.

Among the cultural institutions, the family and community continue as the most
influential. Entertainment and mass media institution is fast growing in influence and even
surpassing the church and school in terms of cultural influence especially in more
developed and industrialized areas.

Cultures are affected by technology and by culture itself. According to KDHM,


industrialization (or changes in the production system of an organization) is brought about
by a minority group or elite through the introduction of newer or better technologies.
Organizational changes usually start as a small sector (or subculture) which will later

1
Clark Kerr, John Dunlop, F. Harbison and C. Myers (KDHM).

20
spread until it becomes the dominant system of production. This transformation is resisted
by the majority but in the long-run, the newer and better technology and culture are
always bound to win.

In the past, cultural changes are technology induced. People are made to adapt to
machines. Inability to do so would mean being fired out from the organization. Machine-
paced production changes during the Industrial Revolution era (scientific management
school of Frederick Taylor) resulted in higher productivity side-by-side with worker
alienation and resentment. This has given rise to trade union formation and the bipartite
system of labor-management relations.

Management now is more proactive and uses organizational development (OD)


technologies derived from the human relations school and human resources management.
The introduction of new cultures precedes technological innovations. Culture-bound OD
and HRD strategies and technologies are among the latest trends in the field of IR/HRM.

Legal-Political Environment

Legal refers to law and political refers to societal leadership and governance.
Legal-political environment therefore refers to laws and political-economic leaders of
society. Laws represent the over-all goals of society and the law makers of the dominant
power elites.

KDHM classify political and economic elites as dynastic (landed aristocrats),


middle class (neo-liberals or social democrats), revolutionary intellectuals (socialists-
traditional Marxist or post-Marxist), colonial administrators (foreign managers /
administrators), nationalists (local managers / administrators), etc.

According to Argyris, organizational goals should be congruent with the over-all


goals of society. Changes in laws and political governance would impact on IR and HRM.
A very conservative legal and political system would retard the growth of IR and HR
processes while an advanced set-up would induce changes in the IR/HR system.

Laws can either become instruments for the preservation of status quo
(conservative) or mechanisms for change (progressive). The kind of laws that will be
enacted (conservative or progressive) depends largely on the political and economic elites
in power. Being called the will of those in power, laws will be conservative if those in
power are “conservatives”, or progressive if those in leadership are “progressives”.

Legal and political systems have direct impact on IR/HR system. KDHM define a
political system as a system of governance whose basic process is the ability of an elite
group or groups to assert leadership, power or influence in the larger organization or
society. Nowadays, political systems are gearing towards pluralism and inter-group/party

21
coalitions. In a pluralist system, dynamism is its main feature whereby different power
elites change positions within a shorter time span than before.

In the Philippines for example, colonial administrators and the local dynastic and a
segment of the middle class elites (U.S. and President Quezon) enacted the Industrial
Peace Act of 1953 (RA 875) which institutionalized US-style collective bargaining system
(bipartism) in the Philippines. This new IR system was specifically introduced to control
the activities of revolutionary intellectuals (communists and socialists) and nationalist
elites in influencing the trade union movement in the country.

Bipartism in the Philippines, despite its legal enactment, has covered no more than
12 per cent of the labor force. Majority of the IR processes in the country continue to be
of the unilateral and consultative types. This means that legal-political inputs in the IR/HR
system are not the sole variables in changing the IR processes. Social-cultural and
economic inputs from the environment are the other important variables that affect the
IR/HR system.

Economic Environment

Economic refers to the process of transforming the scarce economic resources into
goods and services in order to satisfy the needs of society. Its basic concern is production
of goods and services out of the various inputs (manpower, materials, money, markets,
machines and methods or 6 Ms). Machines and methods are actually called technology or
hardware and software, respectively. In the Marxist economic model, they are referred to
as instruments of production. A typical model of an economic system is illustrated in
Figure 7.

In the macro- economic model, let us first focus on the basic circular flow of the 2
basic actors -- the producers and consumers. The producers transform the resources (or
investments with the symbol “N”) into goods and services which are later sold to the
consumers. A counter circular flow of money illustrates the system of exchange
transactions. The producers’ resources (N) come from the factors of production (land,
labor, capital and entrepreneurial know how), loans or investments from local and foreign
banks, government projects and imports from abroad.

Production results into incomes (Y) which is redistributed as rents (for land),
wages (for labor), interests/dividends (for capital) and profits/surpluses (for
entrepreneurship). Aside from the producers and consumers, two other local actors are
important in an economic system -- the central bank and the government. Bank collects
surplus money (savings) and lends them out to both producers and consumers as loans.
The government, as the fourth local actor, collects taxes in order to maintain local
infrastructure like roads, bridges, electricity, sea and airports, water systems, etc., social
services like housing, education, health, etc., peace and order (police and military) and
even basic investments like power generation, transportation, etc.

22
The government assumes a very important role in the economy. It is, in fact,
capable of directing or manipulating the economy through policy making in areas of trade
and investments (local and international), income distribution, monetary system, fiscal
administration, etc.

Figure 7. The Macro-Economic Model

Land Labor Capital Entrepreneurship

Foreign investments, OFWs remittances, loans, grants, etc.


Trade & N
Investment
Policies Loans Imports
Gov’ts services,
Goods & Services projects,
Purchases investments

CONSU- PRODU- BANKS/ GOVERN-


Global
MERS CERS Quasi- MENT
(Rest of the
(Citizens, (Social Banks
World)
private & enterprises,
Trade and
state entities) private and Monetary Fiscal
state) Investment
Policies Policies
Policies

Expenditures
Savings
Taxes, Tariffs
Exports
Y
Debt repayment, TNC remittances, capital flight, etc.

Rent Wages Interests / Profits /


Dividends Surpluses

The economic system serves as a vital environment and input to the IR/HR system.
Human relationship in the workplace is largely dependent on the kind of production
system. In a feudal-agricultural economy, the IR/HR system would most likely be a
paternalistic unilateral decision making or at most consultative type which is prevalent in
Philippine and Asian industries which are still dominated by micro, small and medium
enterprises. North American and West European industries are predominantly bipartite
and tripartite IR/HR systems.

23
Learning Activities

1. Among the major components of the industrial relations environment, which


component/s do you think has/have the greatest impact to the IR/HR process? Which
component/s do you think has/have the least impact? Justify or illustrate.

2. Among the organization’s subsystems (using Argyris model), which do you think has
the greatest impact to IR/HR process? Justify or illustrate. Which do you think has the
least impact? Justify or illustrate.

References:

Argyris, Chris, 1964, Integrating the Individual and the Organization, New York:
John Wiley and Sons, Inc.
Homans, George, 1950, The Human Group, New York, Brace & World, Inc.
Dunlop, John T., 1958, Industrial Relations System, Illinois: Southern Illinois
University Press.
Kerr, C., J. Dunlop, F. Harbison, C. Myers, 1964, Industrialism and Industrial
Man, New York, Oxford.

24
THE ENTREPRENEUR AND THE DEVELOPMENT OF
SCIENCE AND TECHNOLOGY

One of the most important contributions of entrepreneurs to economic


development is the innovation and proper utilization of technologies. If there is no
entrepreneur, there will also be no technologies.

Lesson Objective:

Orient the learners on the role of entrepreneurs in the development of science,


technology, economy and industrial relations.

Technology is the practical application of scientific knowledge in the process of


producing goods and services. Technology is classified into two- hardware likes machines,
tools, equipment, materials, etc. and software like techniques, methods, management and
other organizational capabilities.

The actors in the development of technologies are as follows:

1. Originator - entrepreneur - inventor, scientist and engineer (creative risk-takers)


2. Developer - entrepreneur-manufacturer
3. Expediter - entrepreneur-businessman (merchant)
4. Operator - entrepreneur-manager, professional, technocrat, technician and skilled
worker

Illustrated in Figure 8 is the relationship between science and the innovation of


technologies.

Figure 8: Scientific and Technological Processes

Phenomenon
(problem) Research & Inventions (prototype
Development technologies)

Basic & Applied


Sciences

Inventions (prototype Technological Commercialized


technologies) Innovations Products and Services

Sciences and
Experiments

25
Technological innovation is the transformation of a prototype technology into a
commercially produced technology (hardware or software). The entrepreneur is the chief
engineer in technological development. The steps in technological process are as follows:

1. Preparing a project feasibility study;


2. Deciding to invest and organize/expand the business;
3. Implementing the project feasibility plans- finance, construction, production,
marketing, human resources development, etc.;
4. Dry-running the business operations; and
5. Starting commercial operations.

Entrepreneurs are involved in the different types of technologies. Among these


technologies are:

1. Materials technology as in extracting, harvesting, processing, fabricating,


mixing of materials, etc. used in various industries including agricultural and chemical
industries.
2. Equipment technology like designing and manufacture of equipment, tools,
instruments, gadgets, machines, etc.
3. Energy technology like energy generation and distribution.
4. Information and communications technology- computer and internet based
collection, storage, processing, usage and dissemination of information and data
5. Life technology like health care, medicine, breeding and genetic engineering for
biological systems.
6. Management technologies classified as planning, organizing, leading and
controlling a business enterprise or decision making in general.
7. Culture-bound technologies used in mass media and entertainment, tourism,
sports and other arts.

According to Alvin Toffler (1970), there are three levels of technologies.

1. First wave – technologies before the industrial period like commercial


agriculture and small-scale, labor intensive and crafts-based manufacturing
characterized by the putting-out system of operations.
2. Second wave – technologies from Industrial Revolution until World War II
based on factory-assembly line, steel, chemical and heavy machineries.
3. Third wave – technologies developed after the world energy crisis in the 1970s
or the post-industrial period that are based on computers, micro-electronics, robotics,
laser, fiber optics, genetic engineering, plastics, metal alloy, etc. The production system
is global, subcontracted and very competitive.

There are two ways in acquiring technologies. The first is through endogenous
technological innovation or the development of local technologies. The second is through
the exogenous method or the importation or replication of foreign technologies through
different modes of technology transfers like marketing contracts, franchising, licensing
contract, foreign subsidiary operations, shared services management contracts, joint

26
venture, build-operate-transfer (BOT), build-and-transfer (BT), etc. Exogenous transfer of
technology involves replication and adoption (reverse engineering).

According to Manuel Villar, an advocate of entrepreneurism in the government,


people idolize actors and politicians compared to the entrepreneurs. More people will
invest their money in politicians rather on entrepreneurs. Even entrepreneurs in the past
have invested more on politicians rather than on technological innovation in order to
preserve or improve their businesses. This is one of the reasons why the resources in the
country were not properly utilized. Technological acquisition and innovation in the country
lagged behind hence the development of the economy was also hampered.

It should be the entrepreneurs that should be idolized by the youth in addition to


the politicians and the artists. The entrepreneurs are the ones who could lead the nation
towards industrialization and progress.

According to scientists from the University of the Philippines, the technological


standing of the Philippines compared to other countries is described below:

1. 10-15 years behind Thailand and Malaysia;


2. 20-30 years behind Korea, Taiwan, Singapore, Hong Kong, Brazil and Mexico; and
3. 50-75 years behind Japan, USA, Germany and other highly developed countries.

The technological state of the country is still in the pre-industrial stage that is
based in agriculture and services. Roger Posadas (1956) suggested the process of
technological leapfrogging or reverse engineering in order that the country can catch up in
the industrialization process. In order to attain the NIC status, the country should be
capable of the following:

1. Able to fully utilize the country’s human, economic and cultural resources; and
2. Able to produce its own equipment, tools, chemicals and machines in the
transformation of the country’s various resources into finished products and services.

It is the country’s entrepreneurs who can successfully lead this national


challenge.

Exercise:

Who are the Filipino entrepreneurs? As industrializing elites, what are their strengths and
shortcomings? Discuss.

References:

Posadas, Roger, 1986, “Leapfrogging the Scientific Technological Gap”, Diliman


Review, Jan. to Feb. 1986.
Toffler, Alvin, 1970, Future Shock, USA: Random House.

27
THE ENTREPRENEURS AND THE ECONOMY

An entrepreneur is a person, group or entity who is able to start, take risk and
manage a business or enterprise. If there is no entrepreneur, all other inputs in the
production process like land, capital and technology would not be processed in order to
produce goods and services needed by the market.

Entrepreneurism means a system of starting (or planning, financing and


organizing), taking risks and managing a business enterprises or an economic activity.

Lesson Objective:

Orient the learners on entrepreneurs and the economy, the types of entrepreneurs and
their role in the civil society.

There are 3 types of entrepreneurship:

1. Private entrepreneurship– Business enterprises under this type are organized for
pecuniary interest or profit maximization. The overriding philosophy of this type
is rooted on free enterprise system or “Laissez Faire” (or let things alone for the
private enterprises as espoused by Adam Smith.

This philosophy is against mercantilism and aristocratic rule, where one is born to
rule. They believe that a person is motivated only by his personal interests. The
state must not interfere in the economic affairs of the nation. Nor should the
economy be planned by the state. Planning is freewheeling and is guided by the
market forces. An “invisible hand” according to Adam Smith guides the supply
and demand to an equilibrium in a free enterprises system.

“Every man, as long as he does not violate the laws of justice, is


left perfectly free to pursue his own interest in his own way, to
bring both his industry and capital into competition with those of
any other man, or order of men”.
Private entrepreneurship is being advocated by the middle class elites and foreign
businesses. These middle class groups are rooted on the merchandizing class,
craftsmen and those schooled in business schools.
2. State entrepreneurship- Business enterprises are organized and managed by the
state for the following objectives:

a. The business is very strategic and there is fear of private interest


monopolizing the business and taking advantage of the workers and the
consumers; and

28
b. The industry is critical to the development of the economy but the private
sector is reluctant in investing because of the large capital and technological
requirement that entail very large business risks.

There are two philosophies that guide state entrepreneurship. One is mercantilism and the
other is socialism. Mercantilism is advocated by nationalist leaders and dynastic elites
(land-based aristocrats). Marxist socialism, on the other hand, is being advocated by
communist revolutionary intellectuals. Another type of socialist, known as anachro-
syndicalists agree with the Marxist socialists that there should be no private ownership of
the means of production; these should not be owned by the state but collectively owned
by the people through communes, cooperatives and other peoples’ enterprises.

Both socialist groups believe in state intervention and state planning. Collective
interests must be the guidance in running enterprises. It is the government and peoples’
enterprises that can safeguard and serve the interest of the workers and the consumers.
Both are believers of the doctrine of economic protectionism.

3. Peoples’ Social Entrepreneurship

Peoples’ Social Enterprises (PSEs) are business or economic activities that are
capitalized, organized and managed by the workers themselves. PSEs are important
components of a mixed economy, an economy characterized by state planning with the
state itself, private and peoples’ enterprises actively participating in the production
processes under a market-driven economy.

PSEs are characterized as:

1. Owned, organized and managed by the member/workers themselves for their


common good,
2. Usually non-profit and surplus generating; and
3. Usually started for self-help and may grow into big and complicated
businesses.

There are 5 types of PSEs:

1. Small family enterprises and simple partnerships where family members or


partners exclusively operate and manage their own businesses with no hired
employees;
2. Enterprises run and managed by non-government organizations (NGOs) and
trade unions;
3. Cooperatives that are stock (or registered under RA No. 6938) or non-stock
like electric cooperatives;
4. Associative enterprises registered as corporations but owned and managed
cooperatively. Among the examples are microfinancing entities, employees’

29
savings and loans association (ESLA), mutual benefit association (MBA),
pension fund, etc.; and
5. Communal enterprises.

The mixed economy model was an offshoot of the crisis of both capitalism and socialism
in developed economies which resulted to industrialization but featured workers’
deprivation through low wages, miserable working conditions, undemocratic leadership
by the elites and suppression of the workers’ right to organize. The mixed economy
model tried to remedy the shortcomings of both the capitalist and socialist models.
One of the popular mixed economy models was formulated by John Meynard
Keynes. The Keynesian principles introduced calibrated forms of state interventions
classified as the monetarist and the fiscal policy approaches in order to resuscitate the
ailing economy of the United States during the great depression period of the 1930s.
In the socialist countries in Asia, China and Vietnam allowed and encouraged
private enterprises to participate in the development and modernization of their respective
socialist economies under the Communist Party leadership. This is referred to as market-
led socialist development. Both the Keynesian or neo-classical economies and the
market-led socialist economies are examples of mixed economies that dominate the
world today. In fact, there are no known pure laissez or socialist economies that exist
today. The three types of enterprises- state, private and PSEs exist side-by-side in
producing goods and services to meet the needs of their economies under a set of plans
formulated by the government.

Entrepreneurism and the Economy

An economy of a nation is basically concerned with the production of goods and


services to respond to both the domestic and international market needs. The important
inputs in an economic system are physical resource and human resource inputs like land,
labor, capital, entrepreneurship and their actors- landowners, workers, capitalists/owners
and entrepreneurs/managers. The physical resource inputs are also referred to as the 6
Ms- manpower, materials, markets, money, machines, methods (skills, management,
procedures, etc.). A macro-economic model is shown in Figure 7 (page 23 of this book).

Entrepreneurship is one of the most important inputs in an economic system. If


there is no entrepreneur, land, labor and capital can not be processed to produce products
and services that are needed by the markets. It is the entrepreneur who creates and
improves technologies in order to survive competition. The entrepreneur decides which
technologies can be adopted in its production processes in order to maintain an efficient
and competitive production processes.

Entrepreneurs contribute the following to the development of the economy:

1. Job creation;
2. Production of goods and services (economic development);
3. Taxes paid to the government;
4. Teaching of the values of hard work and honesty;

30
5. Training of leaders of the community; and
6. Community development.

Globalization trends show that global corporations are fast expanding worldwide
and state enterprises are weakening and are being taken over by these global capitalists
via privatization. If these trends will continue, these global corporations will eventually
control the global markets which may result to monopolies or oligopolies that will be
detrimental to the world’s populace and the civil society.

The Need for Entrepreneurism in the Civil Society

Entrepreneurism and the production of goods and services for the global markets
cannot be left alone only to the private and state enterprises. There should be a healthy
balance between private and state enterprises. Since the state enterprises are weakening,
PSEs must be reinforced by the state in order to give healthy competition to the private
sector. But entrepreneurism cannot be learned overnight. For example, modern
cooperatives like the Mondragon cooperatives of Spain, the NTUC enterprises of
Singapore and people’s microfinancing entities should be scientifically learned and re-
learned. These are examples of PSEs that need to be replicated all over the world.

Exercise:

Now that we know the importance of entrepreneurs in our lives and society, who
should be the better practitioners of entrepreneurism in the Philippines? The young
who are more idealistic or the older people who are more experienced and mature?
Debate on this issue.

REFERENCES:

SERDEF, 1989, Introduction to Entrepreneurship, Quezon City: UP ISSI


Sibal, Jorge, 1993, “The Self-Managed Enterprises at the Vision of a Mixed
Economy”, Quezon City: UP SOLAIR (manuscript)
Posadas, Roger, 1986, “Leapfrogging the Scientific Technological Gap”, Diliman
Review, Jan.-Feb., 1986, Quezon City, U.P.
Clark Kerr, et. al., 1964, Industrialism and the Industrial Man, New York:
Oxford.

31
WAGES OF LABOR

A wage is a type of income or the amount received by a worker in exchange of his


labor. It is categorized either as money (nominal) wage or real wage to reflect its
purchasing power of consumer goods and services. Wages can also come in the form of
commissions, fees, payments in kinds and employee benefits. Wages usually comes as
compensation packages that include the base pay and various employee benefits like
allowances, insurances, commissions, bonuses and other privileges.

Aside from wages, the other types of income are property incomes such as rents,
interests and dividends and transfer of payments such as proceeds from social security or
unemployment insurance usually coming from the government (Samuelson and
Nordhaus, 1989).

There are several perspectives on wages. Among the 3 IR actors, labor looks at it
as income, management as an expense and government as a source of taxes and savings.
Entrepreneurs look at it as markets for their products and services.

Figure 9. Industrial Relations Actors’ Perspectives on Wages

WORKER EMPLOYER
Income Expense
WAGES
ENTREPRENEURS
GOVERNMENT
Markets
Taxes and Savings

Theories on Wages

1. Marginal Productivity Theory

In accordance with the philosophy of profit maximization, a firm will hire


additional labor and expand production as long as doing so would increase profits.

Bernardo Villegas (1991) explained that according to the theory on marginal


productivity of labor (MPL), each additional worker contributes an increasing increment
to output because of the advantages of division of labor and specialization. The increment
will reach a certain peak level and this will start to decline.

Among the more important criticisms against the marginal productivity theory is
that there are other motivations for hiring labor aside from profit maximization such as
interest in obtaining power or community respect and providing jobs for family members
and kin.

32
2. Theory on Surplus Value of Labor

Karl Marx theory on surplus value of labor assumes the existence of a mass of
dispossessed workers who are “free” to work or starve in a capitalist society. Because of
excess supply of labor, the capitalist class can in general keep the workers’ wages from
rising above subsistence level, that is, wages do not normally exceed the value of labor
power (Eaton, 1966).

The difference between the value of labor power and wages pegged at subsistence
level is what Marx calls the “surplus value” or the amount that capitalists exploit from the
workers. According to Eaton, the subsistence level of wages depends on the worker’s
physical needs, customary and historically developed needs, requirements for upkeep of
family and expenses for education and training.

Marx’s theory remains relevant at present since the world remains to be


predominantly capitalist. The notion however of eliminating or dispossessing the
capitalist class so that the workers can instead sell their labor power to state enterprises
and organizations under the party of the proletariat did not seem to eliminate the
exploitation or extraction of labor surplus from the working class. Aside from pressuring
the capitalist class and the government bureaucrats and politicians through collective
bargaining and pressure politics, the workers can also organize themselves into collective
or group enterprises and distribute the resulting surplus values of their labor power
among themselves and the members of the community.

3. Subsistence Theory of Wages

English economists during the first quarter of the 19 th century contend that wage
is determined by cost of subsistence. If wages were increased above the subsistence level,
birth rate would increase and the increase in labor supply would bring wages back to the
subsistence level. The theory contends that wages of labor would always be just enough
to give them the bare necessities of life- food, shelter and clothing (Celeste, Capino and
Ella, 1973).

Various factors in the labor market have changed tremendously from the 19 th
century and certain labor markets especially in the industrialized economies have
experienced average wage rates way above the subsistence level. In the underdeveloped
economies on the other hand, average wages rates usually fall below the subsistence
level.

In the Philippines for example which is a developing economy, the basis for a just
wage rate according to Caparas, Jr. (1969) is a threshold family budget which would
allow a worker and his family a decent life- enough food, clothing, shelter, education,
health, personal care, security, savings for emergencies, savings for unemployment and
old age, and eventually, a piece of property.

33
4. Bargaining Theory of Wages

According to Calapan (1996), the proponents of this theory are Adam Smith, John
Davidson (1898), Maurice Dobb (1933) and J. Pen. The theory avers that no single factor
determines wages rates. In any labor market, there may be a diversity of rates for the
same type of labor. This diversity is caused by difference in the bargains made by various
employers and their employees, or the unions/works councils/committees representing
the employees if organized.

The major factors that determine the employers’ upper limits in pricing wages are
productivity of labor, profitability of business and the possibility of substituting labor
with machinery. The lower limits factors include the minimum wage fixed by the
government, labor mobility and community standards for just wages.

Differences in Wages

Wages differ from worker to worker and company to company. The major causes
of wages differentials are:

1. Differences in values, education, skills and abilities of labor resulting to


differences in labor productivity;
2. Differences in occupation and intensity of work;
3. Differences in nature of business/industry, company size, geographical
location and government mandated wages standards;
4. Effect of discrimination – sex, race, religion, etc.;
5. Differences in company’s ability to pay and management generosity and
philosophy; and
6. Degree of pressure from aggressive employees/supervisors and/or unions.

At the firm level, there are additional causes of wage inequities. These are:

1. Favoritism among supervisors;


2. Seniority;
3. Faulty classification of jobs due to absence of job evaluation; and
4. Outdated compensation plan or absence of said plan.

Determining the Wage Level

Determining the wage level is a function of the supply and demand for labor.
Increased supply of labor causes the wage rate to decrease while the increased demand
for labor causes the wage rate to rise. This is illustrated in the chart below where the
wage rate (W1) is determined by the intersection of the supply and demand curves of
labor.

34
Supply and Demand of Labor and Wage Determination

Wage
Rate SL
W2

W1

DL

Labor Inputs
L2 L1
W1 = Wage Rate
L2 = Number of Workers Employed

If the wage is increased (W2), less workers will be employed (L2). Either some of the
entrepreneurs will close down since they will no longer be competitive or they will shift
to more machine-intensive operations.

Supply and Demand for Labor

The factors affecting the supply of labor are as follows:

1. Population growth and death rates;


2. Mobility of labor (internal and external migration);
3. Age of population-
 A young population means more people outside the labor force (those
below 15 years of age, students and less retired people), while
 An aging population means less students and young people and more
retired people;
4. Labor Force Participation Rate-
 Size of studentry and persons with disability,
 Retirement age, and
 Marital status, presence of children and incomes of husbands;
5. Work Hours prescribed by law (per day, per week and per month); and
6. Other characteristics of the labor force (economic, political and socio-cultural)
such as literacy and skills of labor, entrepreneurial traits, value for education,
etc.

The factors affecting the demand for labor are the following:

1. Rate of investments for both local and foreign-


 Economics policies attracting investments such as industry dispersal
program, savings rate and capital availability in the banking system and
the capital market, infrastructures, economic zones, etc., and

35
 Political stability and crime rate;
2. Government fiscal spending for economic and social services such as
infrastructures, housing, education and skills training, etc.;
3. Nature of investments-
 Labor intensive vs capital intensive,
 Large scale vs small scale industries/enterprises,
 Manufacturing vs agriculture and services, and
 Local vs foreign investment; and
4. Labor Flexibilization and Productivity.

Process of Wage Determination

Determining the wage level is also a political process since the factors in
determining the wage equilibrium are:

1. Bargaining strength of management and labor;


2. State intervention (corporatism) and tripartism; and
3. Minimum working standards laws.

There are common arguments for or against high or low wage policies. Employers are
usually for low wages while labor is at the opposite view. Below is a summary of the pros
and cons of high or low wage policies:

High Wages Low Wages


1. Shift in machine intensive operations 1. More labor intensive operations
2. Possible closure of small and medium 2. More vibrant small and medium
enterprises enterprises
3. May contribute to high prices 3. May lead to stable prices
4. Lesser wage earners per family 4. More wage earners per family
5. May lead to labor efficiency 5. May attract more investments
6. May increase incomes of workers in the 6. Incomes may be dispersed to the
formal sector workers in the informal sector

Minimum Wage Fixing

In the Philippines, the first minimum wage law (RA No. 602) was passed in 1951.
Among the several factors in minimum wage fixing are (Calapan, 1996):

1. Demand for living wages;


2. Wage adjustment vis-à-vis the consumer price index (CPI);
3. Cost of living;
4. Needs of workers and their families;
5. Need to induce industries to invest in the countrysides;
6. Improvement in the standards of living;

36
7. Prevailing wage levels;
8. Fair return on capital invested and employers’ capacity to pay;
9. Effects on employment generation and family income;
10. Productivity; and
11. Equitable distribution of income and wealth along the imperatives of
economic and social development.

Calapan observed that in practice since 1951 when the first minimum wage law was
enacted, the main factor being considered was the rise in cost of living. Other criteria
lacked the statistical data to serve as a concrete basis for minimum wage determination.

The Present Wage Rationalization Act

RA No. 6727 of 1989 serves as the present mechanism for regional minimum
wage determination through the National Wages and Productivity Commission (NWPC)
and the Regional Tripartite Wages and Productivity Boards (RTWPB) in 14
administrative regions all over the country.

NWPC is mandated to formulate policies and guidelines on wages, incomes and


productivity improvement at the enterprise, industry and national levels. The RTWPBs
are tasked to serve as the implementing arm of the NWPC, to undertake programs for
productivity improvements, and to fix the minimum wage rates applicable in their
respective regions, provinces and industries.

Now that the minimum wage fixing has been decentralized to the different
regions, the highest minimum wages are in the most urbanized areas in the country-
Metro Manila, Southern Luzon and Metro Cebu.

Wage Adjustments

Aganon (1999) listed 5 reasons for wage adjustments: general adjustments;


adjustment for merit increases; adjustments for promotions; CBA-related adjustments;
cost of living adjustments; adjustments caused by wages orders; wage distortion; and
wage compression.

Wage adjustments may be for everybody or selected employees. In making a


generalized wages adjustment, the pay increases may be of equal amount or equal
percentage. The usual reasons for wage adjustments are increases in cost of living, a new
CBA or wage order, and the desire of the company to remain competitive and be able to
retain competent employees.

Unlike a generalized increase, pay increases for merit or promotion are


individualized performance-based pay adjustments. Merit increases are usually done
during the employee anniversary date or a common annual date after the conduct of the
employees’ performance appraisals. The amount of increase depends on the company’s
ability to pay, performance, competitor practices and the expectation of the employee.

37
Increases may be in the form of percentage increase, bonuses or step-wise increase
(Aganon, 1999).

Wage Distortion and Compression

Wage distortion and compression are caused by:

1. Implementation of various wages orders;


2. Individual salary adjustments;
3. Differences in individual hiring rates at the time of entry;
4. Salary increases due to promotions; and
5. CBA increases.

Aganon defines wage compression as the narrowing of wage differentials between


positions. This can be gauged by calculating the difference in the average wages between
2 positions that are adjacent in order/rank. If there are some decreasing percentage
differences over time over different positions, there is a wage compression.

Art. 124 of the Labor Code defines wage distortions as “a situation where an
increase in prescribed wage rate results in the elimination or severe contraction of
intentional quantitative difference in wage and salary rates between and among employee
groups in an establishment as to effectively obliterate the distinction embodied in such
wage structure based on skills, length of service and other logical basis of difference”.

Aganon presented several options in cases of wage distortions-

1. Same amount or percentage increase to all jobs even if the law does not
mandate across the board increases. This does not however reward good
performance.
2. Proportional percentage increase using some formula adjustments which may
be across the board or a ceiling may be stipulated.
3. Grant a temporary realignment allowance (TRA). By using the minimum
wage as a ceiling, the TRA is given before a job evaluation (JE) is conducted.
After the JE, the TRA is integrated to the new pay.
4. Grant some kind of temporary cost of living allowance until the next CBA,
wage order or company initiated general merit increases.
5. Give varying percentage increases by job or pay group. This may be based on
pay level so that the lower paid groups will get higher percentage increase.
This may result in wage compression and dissentions from the upper brackets.
6. Conduct JE and benchmarking of wages with others in the industry to justify
wage adjustments.
Computing Wage Distortion Adjustments (WDA)

In unionized companies, unresolved labor-management disputes concerning wage


distortions are brought to voluntary arbitrators for resolution (Aganon, 1999). Some of
the formulas of WDA are presented as follows (Amante, 1999):

38
1. The Pineda Formula (1989):

WDA = [Current minimum / wage of employee] x [wage increase]

2. Jimenez, Ofreneo, de las Alas (JODA) formula (for employees below the new
minimum, but above the old minimum):

WDA = [(wage of employee – old minimum rate) / 2] + [new adj. min. wage]

3. Wirerope formula (for crediting wage increases under CBA):

WDA = [existing min. / employee wage] x [mandated wage inc. – CBA inc.]

4. PCS formula (provides for a variable formula base rate):

WDA = [existing min. wage / formula base rate] x [mandated wage increase]
Where formula base increase = (actual wage rate + agreed adj. amount)

5. Statistical formula (Carian formula):

WDA = [percentile weight of pay group x applicable wage inc.] + old rate
Example: Employee receives 190 pesos and belongs to the 75th percentile
group, the applicable wage increase is 13 pesos.
WDA = [0.75 x 13] + [190] = 9.75 + 190 = 199.75

References:

Aganon, Marie E., 1999, “Salary Administration”, Quezon City: UP SOLAIR


Center for Industry Productivity and Competitiveness, 1999 (unpublished article).
Amante, Maragtas S.V., 1999, “Handling Pay Compression and Wage
Distortion”, Quezon City: UP SOLAIR (unpublished article).
Azucena, C. A., 1997, Everyone’s Labor Code, Manila: Rex Book Store, Manila.
Calapan, Asuncion, 1996, Linkages Between Wages and Productivity in the
Philippine Manufacturing Sector: Evidence from Macro and Micro Data (Master’s
thesis), Quezon City: UP SOLAIR.
Caparas, Jr., J.L.L., 1999, “Determining the Threshold Family Budget”,
Philippine Labor Review, January to June 1999, Manila: ILS, Department of Labor and
Employment.
Celeste, J.L., D. Capino and Z. Ella, 1973, Economics, Manila: Manlapaz
Publishing House.
Eaton, John, 1966, Political Economy, New York: International Publishers.
Samuelson, and Nordhaus, 1989, Economics, Singapore: McGraw Hill Book Co.
Villegas, Bernardo, 1991, Guide to Economics for Filipinos.

39
INCOMES POLICY

People work and invest their resources to earn incomes. Incomes make them
afford goods and services to satisfy their needs. Incomes lead to consumption and
consumption leads to investments. This cyclical flow in economics is shown Figure 10.

Figure 10. Circular Flow in Economics

INVESTMENTS
INVESTMENTS

PRODUCTION CONSUMPTION
CONSUMPTION

INCOMES

Incomes are actually payments to the actors or contributors to the production


processes which include rent to the real estate owners, interests and dividends to money
lenders and investors, salaries, wages and other employee benefits to the workers,
employees and managers, and profits and surpluses to entrepreneurs (either private, state
or labor).

How incomes are produced by and distributed to the actors of the economic
system are the important concerns of the government in any society that is
underdeveloped, developing or developed. An underdeveloped economy is usually
characterized by low incomes coupled with inequitable income distribution among
classes and regions. Property owners, money lender (or bankers) and investors or
capitalists generally receive most of the incomes earned in the society while the workers
and employees receive the least. Urban areas get more income than the agricultural rural
areas. Underdeveloped economies are generally characterized by widespread poverty,
high levels of unemployment and underemployment and low productivity.

The more stable developed economy on the other hand is characterized by high
incomes and high productivity which are more or less distributed equitably among classes
and regions. It is generally characterized with relatively large sectors of middle class
wage earners, who together with the other actors of the economic system comprise a very
vibrant market of consumers.

40
The Concept of Incomes Policy

The government, being the lead actor in the development efforts of any society is
tasked primarily to tackle the problems of economic growth and income inequity. Its
basic control mechanism is incomes policy formulation and implementation.

The concept of incomes policy is a set of policies which attempt to influence the
level of wages, or the payment given to labor in the production of goods and services and
to blunt the effects of inflation (Dacoco and Dano, 1993). Government policies in trade,
investments, fiscal and monetary are necessary instruments in order to increase the
country’s incomes in general and empower the poor in particular.

The basic strategies of incomes policy are first, to expand incomes through
increased production, and second, to redistribute said incomes as equitably as possible.
Redistributing incomes is a function of state taxation and fiscal spending, rural
development, provision of social services and enforcement of labor and environmental
standards. This requires increasing the capabilities and welfare of the poor through basic
education, HRD, public health and other social services. Government taxation should be
more progressive and oriented towards taxing the rich more than the poor. Industries and
basic infrastructure should be dispersed to the regions where most of the poor are. The
population management program must be pursued.

In the workplaces, industrial peace and harmony among the actors of industrial
relations should be promoted and maintained. The workers, whether organized or
unorganized should be assisted by the government in pursuing more equitable income
sharing through various forms of IR and HR mechanisms and processes.

These are very tough objectives since the political forces in power are usually the
owners of the major forces of production. They are also the main actors in increasing
investments, production and incomes. This concept of increasing economic growth is
very compatible with the ruling elites since they will be the main beneficiaries of the said
economic growth. The dilemma lies in trying to redistribute the fruits of increased
economic growth to the other actors of the production system, or the laboring classes,
who are normally not part of the ruling elites.

It is for this reason why a pluralist form of governance and the political
emancipation of the laboring classes are the necessary prerequisites of the successful
implementation of incomes policy. After all, the political and economic empowerment of
the mass of workers and other producers would mean a more vibrant mass of consumers
that will help assure a continuous and long lasting economic growth.

The specific objective of incomes policy is to overcome poverty which is very


prevalent in underdeveloped and developing economies. Overcoming poverty also means
that everybody’s minimum needs should be satisfied. These needs are basically the
physical needs that are necessary to stay alive and be able to work, and the social needs
that give a person human dignity.

41
Typical in any developing economy, the main focus of the Philippine incomes
policy is the elimination of widespread poverty and the reversal of the growing trend of
income inequality. Poverty is defined as a condition or quality of being poor. A
multidimensional schematic framework of poverty and underdevelopment is illustrated in
Figure 11.

Figure 11. Poverty and Underdevelopment: A Multi-dimentional


Schematic Framework1

HIGH High Labor HIGH Low Labor LOW


POPULATION Supply UNEMPLOYMENT Supply INVESTMENT
GROWTH AND UNDER PER
RATES EMPLOYMENT CAPITA

Inadequate
POOR Poor Work Managerial LIMITED
HEALTH Attitudes LOW EDUCA-
LABOR Skills
AND TIONAL
NUTRITION FORCE OPPORTUNI
PRODUCTIVITY TIES

LOW INCOME
AND
HIGH POVERTY
High Fertility Low Savings

LOW LEVEL OF LIVING


LOW SELF ESTEEM
LIMITED FREEDOM

1
Based on Michael Todaro, Economic Development in the Third World, Longham Inc., New York, 1989.

42
Causes and Measures of Poverty

There are several causes of poverty. Among these are:

1. Failure of growth and lack of employment opportunities;


2. Low levels of entrepreneurial, managerial and other technological capabilities;
3. Inequities in income distribution;
4. Maldistribution of resources; and
5. Overpopulation.

There are several ways in measuring poverty. The most common approach is drawing a
poverty line. Poverty lines can be based on food threshold, or the minimum cost of food
items needed to satisfy the basic nutritional requirements of an average person or family.
Also called the subsistence threshold, the Food and Nutrition Research Institute (FNRI)
determines the type of food, prices, availability and dietary habits per region in
determining the amount of food threshold. In the case of rice which is the biggest item in
the food menu, the price of the cheapest variety in the market is used in computing the
provincial food threshold. The National Statistical Coordination Board (NSCB) then
computes the poverty line at various levels- municipality, city, province, region and
national.

Another basis for computing the poverty line is the daily minimum cost of living
threshold. The value of non-food items derived from the Family Income and Expenditure
Survey (FIES) is added to the food threshold to get the minimum daily cost of living
threshold. The government’s figure of the national average poverty line in 2003 is 12,309
pesos a year, or 33.72 pesos a day. For a family of 5, the cost of living threshold is 169
pesos a day making 25 per cent of families under the poverty line. On a total population
basis, the government statistics show that 3 out of 10 Filipinos (30 per cent) are poor.

The World Bank (2008) estimates that in 2003, 14.8 per cent of Filipinos are poor
using $1per day as poverty line. In 1985, the figure was 22.8 per cent signifying a 35 per
cent drop in 18 years. Those earning less than $2 a day, or 43 per cent, are categorized as
near poor which decreased by 30 per cent in 18 years from 61.3 per cent in 1985. Ibon
Foundation’s estimate of the daily cost of living threshold per family in 2002 is 435
pesos. Thus, IBON says that 88 per cent of families are poor.

The Social Weather Stations (SWS) determines the poverty level of people
through a simple survey of self-rated poverty. The respondents are asked if they feel or
consider themselves poor. According to Mangahas (2008), the SWS data show that self-
rated poverty is declining but hunger is on the rise (Table 6). He added that the economic
growth of 2007 did not help the hungry but only trickled down to the marginal poor.

43
Table 6. Hunger and Self Rated Poverty based on Quarterly Figures
(Figures in per cent), 2000-2007

Year Hunger Self-rated Poverty


2000 10.8 56.5
2001 11.4 62.0
2002 10.1 62.8
2003 7.0 59.5
2004 11.8 51.2
2005 14.3 52.8
2006 16.7 54.2
2007 17.8 49.5
Source of data: Social Weather Stations

NSCB Secretary General Romulo Virola (2006) reported the status of


undernourishment in the Philippines compared with Southeast Asia. Using data from
FAO (http://www.fao.org), Virola reported the following:

1. On food availability, the country was ahead of Thailand, Vietnam, Lao PDR
and Cambodia in 1990-1992. By 2000 – 2002, Vietnam and Thailand had
caught up with the Philippines with Lao PDR getting close.
2. In 1990 – 1992, there were more undernourished Filipinos than other
Southeast Asian except the Vietnamese and the Indonesians. By 200-2002,
undernourished Filipinos were the biggest group of undernourished Southeast
Asians.

Income Distribution

Distribution of incomes can be measured in several ways (Todaro, 1989).

1. Size Distribution

These are the measures most commonly used. Persons or households are arranged
and divided into distinct groups or sizes. A common method is to divide the population
into successive quintiles (in groups of five) or deciles (in groups of ten) according to the
ascending income levels. Each group’s share of the national income is determined and
compared to other groups. The more technical ways of measuring income inequality are
the Lorenz Curve and the Gini Coefficients.

2. Functional Distribution (or Factor Share Distribution)

This measure on income distribution uses the factors of production- wages for
labor, rent for property owners, interests and dividends for money lenders/bankers and
investors, and profits or surpluses for entrepreneurs. This method looks into the
percentage that labor receives and this is compared to the shares received by the other

44
actors of the economy – the owners of other resources like land, capital and
entrepreneurship.

3. Human Poverty Index (HPI) and Human Development Index (HDI)

The UNDP in its Human Development Report 1997 introduced the HPI and HDI
as new measures of income inequality. “Instead of looking at income – the traditional
measure of poverty – the HPI looks at whether the people in developing world have the
basic choices and opportunities to lead a long and healthy life and to enjoy a decent
standard of living”. 2 HPI is based on 3 variables – the lifespan of the people, availability
of basic education and access to basic social services like health facilities, safe water and
reasonable nutrition.

Included in the HPI survey in 1997 were 78 countries. The top performers (or the
countries that were able to reduce human poverty to less than 10 per cent were Trinidad,
Tobago, Cuba, Chile, Singapore and Costa Rica. At the bottom were Niger, Sierra Leone,
Burkina Faso, Ethiopia. Mali, Cambodia and Mozambique where human poverty
exceeded 50 per cent. The HPI ranking of the Philippines is 19.

Another measure is the HDI which measures the progress of a nation in terms of
life expectancy, educational attainment and income. Of the 175 countries surveyed in
1997, the topnotchers were Canada, France, Norway, USA and Netherlands. Top among
the developing countries were Hong Kong, Cyprus and Barbados. The Philippines ranked
98 out of 175.

Income Inequality in the Philippines

Despite the vows of all past administrations including the present Arroyo
government to fight poverty, the outcomes always appear to be in the losing end. In a
UNDP study, Joseph Lim of the U.P. School of Economics said that the Philippines,
compared to other countries in East Asia, has been faring poorly in the fight to reduce
poverty. Lim said that poverty reduction in the Philippines is the worst performer among
all the major countries in East Asia which were able to reduce the absolute number of
poor people across the years (Dancel, 1998). Malaysia and Thailand reduced their
poverty from 11 per cent in 1985 to less than 1 per cent in 1995, while Indonesia
improved its record from 65 per cent in 1975 to 11.4 per cent in 1995.

In the Philippines, the distribution of income continues to be very inequitable as


the poor fails to improve their lot (Tadeffa, 1993). Despite the high 4.67 per cent GDP
growth rate from 2001-2006, poverty worsened from 2003 – 2006 (Mangahas, 2008
citing NSCB and SWS data; and Dumlao, 2008 citing an ADB study). Mangahas cited
the following indicators:

2
_____, “Canada, France, Norway Lead Human Development Rankings”, Philippine Daily Inquirer, June
13, 1997, p. B9.

45
1. The average annual income per family in real terms fell from 148,000 pesos in
2003 to 144,000 pesos in 2006.
2. The spending on food by the poorest 30 per cent of families rose from 48 per
cent of their expenditures in 2003 to 59 per cent in 2006.
3. The number of poor families rose from 24.4 per cent (4 million families) in
2003 to 26.9 per cent (4.7 million families) in 2006, citing NSCB data.

The ADB study noted the country’s Gini coefficient of per capita income at more than
0.45 is the highest among Southeast Asian countries. The country had fallen way behind
its East and Southeast Asian neighbors over the past 5 decades (Dumlao, 2008). Nearly 4
million Filipinos were pushed back into poverty between 2003 and 2006. Balicasan
(1999) explained the following trends in economic growth, inequality and poverty in the
Philippines:

1. The distribution of wealth is highly unequal compared to most East Asian


countries.
2. Economic growth has not benefited the poor and poverty alleviation measures
were inferior compared to most Asian countries. There is high level of poverty
in the country compared to other countries of similar stage of development.
3. The number of urban poor families is increasing. However, the high rural
poverty incidence has remained at 47 per cent of families in 2000 from 46.3
per cent in 1988.
4. There is high inequality between regions.
5. The poor loses from globalization via jobless growth. Efficiency-led growth
comes at the expense of local jobs and well-being of the workers.
6. Efficiency-led growth as a prescription to poverty alleviation would not work
well in the country.

Income inequality in the country has two dimensions- inequality among classes and
inequality among regions.

1. Inequality among Classes

Chart 1- Shares of Incomes of the Poorest 10% and the Richest 10% (1985-2003)

40
35
30
25 poorest 10%
20 richest 10%
15
10
5
0
1985 1988 1991 1994 1997 2000 2003

Source: World Bank

46
The World Bank (2008) reported that the share of the income of the richest 10 per
cent grew by 5 per cent in 18 years from 32.7 per cent in 1985 to 34.2 per cent in 2003.
On the other hand, the share of the poorest 10 per cent dropped by 20 per cent in 18 years
from 2.77 per cent in 1985 to 2.21 per cent in 2003. For the whole period 1985-2003, the
annual mean is a mere 2.5 per cent share of the poorest 10 per cent to the national income
(Chart 2).

Chart 2. Average Family Income Decile Groups (1994 and 1997)

PhP
500,000 PhP 491,658
450,000
400,000
350,000
300,000 1994 1997
250,000
200,000
150,000
100,000 PhP 20,821
50,000
0
1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

Per NSO’s report on income distribution in 1994 and 1998 (Chart 2), the richest
10 per cent of Filipino families is the only sector increasing its share of the total income.
The income shares of families from the first to the 9 th decile decreased from 1994 to
1997. Only families belonging to the 10th decile (richest 10 per cent families) registered
an increase of 4.2 percentage points in their income share. Their 1994 share in the
national income of 35.5 per cent increased to 39.7 per cent in 1997, or nearly 2/5 th of the
national income.

In 1994, the average income of the top 10 per cent was 19 times of the poorest 10
per cent. This increased further to 23.8 times higher in 1997. All sectors’ incomes
increased from 1994 to 1997 but those in the higher sectors enjoyed higher increases
making the income distribution inequitable.

Comparing the increases in incomes and expenditures, the average family


incomes from 1994 to 1997 increased by 21 per cent while the average expenditures
increased slightly lower at 20.3 per cent. The food expenditures during the period
covered decreased from 47.8 per cent of total expenditures in 1994 to 43.9 per cent in
1997. The poorest 10 per cent of the population got only 1.7 per cent of the total incomes
while the richest 10 per cent got 39.7 per cent. The richest 20 per cent got 55.8 per cent,

47
or more than half of the total income. Only 24.1 per cent of the total incomes was divided
among the 60 per cent of the population (AFP, 1998).

2. Inequality Among Regions

The Philippine Human Development (PHD) Report of 1994 and the ADB Report
of 2005 (Schelzig, 2005) confirmed the income inequality among regions. In the years
1985, 1991 and 2000, the poverty incidence on a regional basis is highest in Bicol and
Northern, Western and Central Mindanao. In the 10 poorest provinces in 2000, more than
half of all families have remained poor. Most of the poor provinces are in Mindanao.
Poverty incidence is lowest in Metro Manila and its surrounding regions (Central Luzon
and Southern Tagalog or Calabarzon) and the Ilocos region.

Based on the GDP per capita, the poorest regions are Bicol (where the poverty
incidence is also highest), Eastern Visayas, Cagayan Valley and Western Mindanao.
Southern and Northern Mindanao, while ranking high or above average in terms of GDP
per capita, performed badly in terms of poverty alleviation. These are cases where the
fruits of increased production failed to trickle down to the poor.

Habito (2008) reported that in 2003, the poverty estimates have been recorded
down to the municipality, city and province level using the World Bank poverty mapping
technique. On a per province comparison, the poorest province is Zamboanga del Norte
with 65 percent of families under poverty line in 2003. In 2000, Zamboanga del Norte’s
poverty level was only 47 per cent. Maguindanao was second with 60 per cent poverty
figure and Masbate was third at 56 per cent. Masbate used to occupy the top spot in 2000
at 61 per cent.

The town of Hajji Panglima Tahil (Marungas) in Sulu has the biggest number
poor at almost 90 per cent in 2003. It was followed by Bulalacao (San Pedro) in Oriental
Mindoro with 87 per cent. Of the poorest towns with poverty incidence of 74 per cent and
above, 28 are in Mindanao, 10 in Luzon and 2 in the Visayas, both in Aklan. Lanao del
Sur, Sulu and Maguindanao account for the largest numbers of poorest municipalities
with 9, 8 and 7 towns respectively.

Lesson from Past Incomes Policies

Prof. John Lewis of Princeton University summed up several lessons from various
incomes policies in the past (Arroyo, 1998). Applying these lessons to the Philippines,
the guidelines include the following:

1. Increase production and productivity

The idea is redistribution from a growing pie. The culture of self-reliance and not
of dependence should guide the capability building programs for the poor through
increased public services in education, HRD and health.

48
2. Decentralize governance and devolve the delivery of basic services to the LGUs
and tap the networks the NGOs and peoples’ organizations (P0s).

Use the market to guide decentralization and devolution. According to Prof.


Lewis, “Markets do not deal compassionately with the weak and disadvantaged.
Nevertheless, freeing markets may give the poor some net gains by relieving them from
discriminations that the hierarchy and the elites impose…”

Turn to local groups and NGO networks. The poor should organize themselves
for empowerment and they should be weaned from the patron-client (donor-dependent)
relations. Prof. Lewis however warned that the LGUs in the third world are usually
controlled by the rural (dynastic) elites. The networks of NGOs and P0s can be utilized to
counter-balance the elite power in the countrysides.

Mobilize local resources. Local tax money should be used for local projects.
Locals are more likely to pay taxes as long as the money is used in activities that they
approved.

3. Encourage local develop planning.

Since the private sector will normally just cluster around urban settlements (like
in “poblacion” or town proper), the LGU should lead in local development planning. Pre-
planned public works and government investments can help solve inequities among
classes and places in the countrysides.

4. Promote growth and equity in agriculture.

People in the provinces are very dependent in agriculture. Growth and


redistribution in the agriculture sector are very important. There is a need to push hard the
programs on land reform, cooperatives, entrepreneurship and rural industrialization in the
rural communities.

5. Promote HRD for rural development.

The government should invest more in human infrastructure- a corps of skilled


government technicians and professionals coupled with socio-economic infrastructure
like irrigation systems, school building and health facilities.

6. Mobilize women for development.

According to Prof. Lewis, women’s specific economic and household roles must
receive attention. Increasing female literacy for example will greatly impact in increasing
the literacy levels of the young workforce.

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7. Exert special attention to the poorest of the poor.

The poorest people are usually squeezed out into the least fertile and inaccessible
lands. They are most vulnerable to climactic problems like droughts, floods and
typhoons. They have to forage hardest for fuel wood. Hence, the poor tends to denude the
forests and harm the environment most. Programs should be formulated and implemented
to address this specific concern.

References:

AFP, 1998, “Richest Filipinos getting richer”, Philippine Daily Inquirer, July 15,
1998.
Arroyo, Dennis, 1998, “Lessons learned from pro-poor policies”, Philippine Daily
Inquirer, June 1, 1998, p. C1.
Balicasan, Arsenio, 1999, “What Do We Really Know- or Don’t Know- about
Economic Inequality and Poverty in the Philippines”, Causes of Poverty: Myths, Facts
and Policies, Balicasan and Fujisaki (eds), Quezon City: UP Press.
Dacoco, Alminda and Mary Magdalene Dano, 1993, “An Executive Summary of
the Report on Incomes Policy”, Quezon City: UP SOLAIR (unpublished).
Dancel, Raul, 1998, “Three out of 5 Pinoys feel poorer, study shows”, Philippine
Daily Inquirer, June 23, 1998, pp. 1 and 17.
Dumlao, Doris, 2008, “ADB: OFW remittance don’t trickle down to the poor”,
Philippine Daily Inquirer, March 7, 2007, pp. 1 and 19.
Habito, Cielito, 2006, “Who are the poor?”, Philippine Daily Inquirer, August 21,
2006, p. B2.
Mangahas, Mahar, 2008, “Admitting that poverty can rise”, Philippine Daily
Inquirer, March 8, 2008.
Schelzig, Karin, 2005, Poverty in the Philippines: Income, Assets and Access,
Mandaluyong City: Asian Development Bank.
Tadeffa, Nieves, 1994, “Fighting Poverty in the Philippines, Major Challenge to
Development”, Quezon City: UP SOLAIR (unpublished termpaper).
Todaro, M., 1989, Economic Development in the Third World, New York:
Longham, Inc.
Virola, Romulo, 2006, “Gutom ba ba?”, Labstat Updates, March 2006, Manila:
DOLE BLES.
World Bank, 2008, “World Perspective Monde”,
http://www.worldperspective.usherbrook.ca/bilan/servlet (viewed March 11, 2008).

50
TRADE AND INVESTMENT THEORIES AND GLOBALIZATION

Investments and trade go hand-in-hand. These activities (investing and trading)


together with managerial decision making (managerial economics) make the core
concerns in the study of economics.

Investments result in the start or continuation of production of goods and services.


The investors, who undertake investments locally (domestic) and globally (transnational
corporations-TNCs) assemble various economic resources such as land, labor, capital and
other tangible and intangible resources in order to transform them into production units or
enterprises. These investors are known as industrialists and finance capitalists (bankers).

Enterprises produce goods and services. Because we are in a modern period,


goods and services are produced in commercial quantities and have to be traded in order
to reach their intended markets locally and globally. Those who undertake the trading and
marketing of goods and services are the traders and merchants. They are also known as
the commercial capitalists-entrepreneurs.

Trade is the process of exchanging goods and services at agreed prices or


considerations. As an economic activity, trade contributes positively to the following:

1. Efficiency and Productivity

Through the principle of comparative advantage, certain producers (or countries)


will be encouraged to specialize in producing and selling products and services that they
can produce at the lowest relative costs due to factor endowments (availability of
resources and the required technologies to process said resources).

2. General Lowering of Prices

The lesser the restraints in trade and investments or the freer the market, prices
will generally be lower as a result of more players and competition in the market. This
will of course benefit the consumers in general.

3. Transfer of Technology

As newer and better goods and services are introduced in the markets, people are
exposed to better machines and techniques in production. Old technologies become
obsolete and forced to be discarded and producers will have to replace them with the
most appropriate technologies in order to survive competition.

Over-all, trade, especially if unhampered, is said to be an engine of investments


and economic growth.

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The System of Free Trade

The present advocacy of free trade is led by no less than the International
Monetary Fund (IMF) and the World Bank (International Bank for Reconstruction and
Development-IBRD). Among the early advocates of free trade (“classical economists”)
are David Ricardo, John Stuart Mill, Adam Smith (“Wealth of Nations”, 1776) and Jean
Baptiste Say (French).

According to the classical economic theory, free trade is the primary engine of
economic growth because of the comparative advantage theory. Under the “Laissez
Faire” doctrine of Adam Smith (“Let things alone.”), there should be minimal state
intervention in the economic affairs and these economic activities should be the sole
concerns of private capitalists. Smith is a believer of the economics of free trade and free
markets. Says Smith, “the search for private gains and profits is a natural function of
man, and that as long as men are given the freedom to pursue that function, an invisible
hand will guide their work towards society’s welfare, even [if] they had not planned, or
thought of, that welfare”.

Jean Baptiste Say added, “As long as market forces operate freely, there cannot be
a condition of oversupply or overproduction in an economy”.

The classical free trade model was later refined by Swedish economists Eli
Hecksher and Bectil Ohlin (neo-classical factor endowment trade theory) which explains
globalization and the international specialization in production and division of labor.

Mercantilism and Protectionism

Unrestricted trade however can also contribute negatively to economic growth.


Among the situations are as follows:

1. The comparative advantage theory works well between trade of two parties
(or countries) that are almost of similar technological levels. In cases where
their technological levels are different, the party with a higher technological
level will be selling high value and higher priced goods and services in
exchange for the low value and lower priced goods and services of the less
developed or underdeveloped country. This will result in the indebtedness of
the poorer countries and the further enrichment of the richer countries.

2. Free trade can weaken the sovereignty, independence and self-reliance of


weaker nations. Less developed countries (LDCs) and underdeveloped
nations are not encouraged to, or unable to produce the basic goods and
services that they need and they become dependent to the more developed
nations via importation. This situation may thus lead to exploitation and
colonialization.

52
The above reasons are the basis for the economic philosophy of mercantilism and
economic protectionism. This economic philosophy was adopted by France in the 17th
century in an effort to industrialize. The main principles of mercantilism are the
following:

1. State intervention and protectionism in the development of local or domestic


industries.
2. The objective of trade is import substitution – or trying to lessen imports by
locally manufacturing or producing essential goods and services.

Among the advocates of mercantilism are (Lichauco, 1988):

1. Jean Baptiste Colbert of France in the 17th century. As Finance minister under
King Louis XIV, Colbert initiated the drive to make France industrialized in
order to rival England.
2. Alexander Hamilton (1791) of the United States. As Secretary of Treasury
under President George Washington, Hamilton submitted a “plan for the
economic development of the American union”. According to Hamilton, the
United States, “like England, must become a manufacturing economy, and for
this, she must pursue mercantilist policies”.
3. Friedrich List and Otto Von Bismarck (mid-18th century) of Germany.
Inspired by the industrialization of the United States of America, List and
Bismarck promoted the protection of both industry and agriculture in
Germany.
4. The Meiji Rulers of Japan (1868). The Japanese strategies were major land
reform and heavy industrialization wherein the state pioneered and directly
engaged in industries in the absence of native private entrepreneurs.

Trade Policies

There are basically two categories of trade policies- the free trade policy and the
mercantilist or protectionist trade policy. The two are compared below:

Free Trade Policy Mercantilist Trade Policy


> Unrestricted trade among nations via > Trade is restricted by import tariffs or
multilateral trade agreements like the quotas, exchange rate controls,
GATT and the World Trade Organization international commodity agreement (barter
(WTO), or bilateral trade agreement trade), and economic integration (or
between 2 nations. common market).
> Outward-looking development policies > Inward-looking development policies
via export promotion and free movement of through state protection of local or
goods, capital, workers and enterprises. domestic industries (import substitution)
and trade restrictions.

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The basic categories of trade policies can be further classified as (Todaro, 1994):

1. Primary outward-looking policies

Export of agricultural products and other raw materials. This was experienced in
the Philippines during the Spanish and American colonial periods whereby exports were
exchanged with finished manufactured products from Spain and the United States.

2. Secondary outward-looking policies

The promotion of export of manufactured goods. This is the present policy of the
Philippine government. This will be discussed in more details in another article.

3. Primary inward-looking policies

Mainly agricultural self-sufficiency. This was what China under Mao Tse Tung
did and also the case of Burma under a socialist regime.

4. Secondary inward-looking policies

Manufactured commodity self-sufficiency through import substitution. This was


the basic strategy of the Philippines during the decade of the 50s up to the 70s.

The Development Strategies Under Globalization

1. The Import Substitution Industrialization (ISI) (Todaro, 1994)

Most countries that have industrialized initially passed through the import
substitution (or protectionist) trade policies. The usual stages of ISI strategies are as
follows:

a) First stage ISI- Substitution of simple consumer goods via domestic production
(tertiary processing). This is the easiest ISI stage.
b) Second stage ISI- “Infant industry” protectionism or the shift to the more
sophisticated manufacturing processes in the secondary processing like
engineering industries, manufacture of tools, parts, chemicals, components, etc.
c) Third stage ISI- Domestic industrial diversification for greater industrial
expansion and export promotion (forward and backward linkaging-
merchandising and attempts to develop primary industries like steel,
petrochemicals, power and electricity, etc.).

2. The Export Oriented Industrialization (EOI)


After the third stage ISI, the trade policies shift to the export oriented
industrialization (EOI) strategies where domestic industries are “internationalized”
through forward and backward linkaging via globalization.

54
Gary Gerreffi (1996) cited the experiences of Asia. “Countries are incorporated
into the global economy through international production, trade and financial networks
that are dominated by foreign capital” (transnational corporations-TNCs). The TNC
global operations employ three types of international capital:

1. Industrial Capital- Vertically integrated TNCs that establish international


production and trade networks through overseas subsidiaries.
2. Commercial Capital.- Large retailers, merchandisers of brandname products and
trading companies that create and control global sourcing networks typically
headquartered in developed countries, coordinated from semi-peripheral locations
(the newly industrializing countries-NIEs), and with production concentrated in
the low-wage periphery (less developed countries-LDCs and underdeveloped
countries).
3. Finance Capital- Commercial banks, official international lending institutions
(such as the IMF and the World Bank), and to a lesser degree, portfolio investors
(like the Soros of Spain) that supply the short-term funds used to finance global
production and trade.

There are two types of global economic networks of TNCs. These are (Gereffi, 1996):

1. The producer-driver TNC manufacturers which subcontract production through


forward and backward linkaging via multi-layered global production systems
involving thousands of firms (parent, subsidiaries and subcontractors/joint
ventures). Producer-driven TNCs are engaged in capital- and technology-
intensive industries like automotive, aircraft, computers, semi-conductors and
heavy machineries. An example is a typical Japanese automaker’s production
system which comprises 170 first-tier, 4,700 second-tier and 31,600 tier
subcontractors.

2. The buyer-driven TNCs engaged in commercial operations are retailers, designers


and trading companies involved in labor-intensive consumer goods industries like
garments, footwear, toys, housewares, consumer electronics, and other
handcrafted items (furniture, ornaments). Through multi-layered subcontractor
networks in the LDCs, specifications are supplied by large retailers and designers
for production in the low wage countries. These are new breeds of manufacturers
without factories like retailers (Wal-Mart, Sears Roebuck and J.C. Penney),
footwear companies (Nike and Reebok), and fashion companies (Liz Clairol).
They focus in designing and marketing which they order through subcontracting.

Countries connected to the global networks perform 5 major export roles as follows:

1. Primary product exports of agricultural products which include processed


industrial commodities and non-traditional agricultural exports.

55
2. Assembled manufactured goods (like apparels and electronics using imported
components) of enterprises usually located in industrial and export processing
zones (EPZs).
3. Production of components for export using selected local inputs in the
manufacture/assembly of machineries and consumer durables like automobiles
and computers.
4. Original equipment manufacturing (OEM) whereby contractors make finished
goods to be sold under another company’s brandname.
5. Original brandname manufacturing (OBM) whereby manufacturers make goods
for exports and sale under their own label.

References:

Cenir, Marcelo and Agnes Mendaros, 1998, “The Philippine Trade and
Investment Policies”, Quezon City: UP SOLAIR (unpublished termpaper).
Gereffi, Gary, 1996, “Commodity Chain and Regional Division of Labor in East
Asia”, Journal of Asian Business, Vol. 12, No. 1, 1996, pp. 75-112.
Lichauco, Alejandro, 1988, Nationalist Economics, Quezon City : Spes Institute,
Inc.
Todaro, Michael, 1994, Economic Development, New York: Layman Publishing.

56
THE PHILIPPINE TRADE AND INVESTMENT POLICY

In the typical macro-economic model, the two basic actors are the producers and
consumers. The producers transform resources into goods and services that are sold to the
consumers. Production results into incomes that are distributed as rents for landowners,
wages for labor, interests/dividends for capitalists/investors and profits/surpluses for
entrepreneurs.

Aside from the producers and consumers, the two other actors are the central bank
and the government. The bank collects surplus money (savings) and lends them to
producers and consumers. The government on the other hand, collects taxes in order to
maintain local infrastructure like roads, bridges, electricity, sea and airports, water
facilities, etc., social services like housing, education, health, etc., peace and order (e.g.,
police and military) and even basic investments like power generation, transportation, etc.
(Cenir and Mendaros, 1998)

Constitutional Provisions on Trade and Investments

In the areas of trade and investments, the government assumes a very substantial
role of directing or manipulating the economy through formulation of policies. The
thrusts of the government in trade and investments are specified in Art. XII, Sec. 1, of the
Philippine Constitution.

“The goals of the national economy are a more equitable distribution of


opportunities, income and wealth; a sustained increase in the amount of
goods and services produced by the nation for the benefit of the people; and
an expanding productivity as the key to raising the quality of life for all,
especially the underprivileged.

“The State shall promote industrialization and full employment based on


sound agricultural reform, through industries that make full and efficient
use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect the Filipino
enterprises against unfair foreign competition and trade practices.

“In pursuit of these goals, all sectors of the economy and all regions of the
country shall be given optimum opportunity to develop. Private enterprises
including corporations, cooperatives and similar collective organizations,
shall be encouraged to broaden the base of their ownership.”

On trade policy, Art. XII, Sec. 13 of the Constitution states that “the State shall pursue a
trade policy that serves the general welfare and utilizes all forms and arrangements on the
basis of equality and reciprocity”.

57
Trade and Investments Policies

The Philippines pursued three types of economic development/industrialization


strategies. These are:

1. The Agri-based Development Strategy (primary outward-looking policies)


associated with the pre-war free trade policy imposed by its colonizers – Spain
and the United States.

2. The Import-Substituting Industrialization (ISI) Strategy (secondary inward-


looking policies) undertaken by the local dynastic elites and US colonial
administrators in the 1950s.

3. The Export-oriented Industrialization (EOI) Strategy (secondary outward-


looking policies) based on labor-intensive manufacturing which has been
vigorously promoted by the government technocrats since the 1970s.

Each type of development or industrialization strategy contributed to a certain level of


economic growth for the country. However, the initial burst of growth, limited and not
sustainable, was followed by a cyclical crisis.

The Philippine Economy during the Colonial Periods

During the last half of Spanish colonial rule, the Philippines was opened to world
commerce through the Manila-Acapulco galleon trade. This spurred the growth of export
agricultural products that include sugar, coconut, tobacco, indigo and hemp.

After the 1898 Treaty of Paris where the Spain ceded the Philippines to the United
States for $20 million, the American colonial administrators strengthened the colonial
economy under a free trade arrangement between the Philippines and the U.S. Thus, the
first three decades of American rule resulted to the steady expansion of export crops,
which led to the limited development of agriculture-based tertiary process manufacturing
(e.g., sugar and coconut processing) and internal commerce. Manila and other urban port
areas that participated in the export crop economy under free trade with the U.S. became
the seat of early manufacturing and industrialization.

In the 1930s, the Great Depression in the US brought crisis to the Philippine
colonial economy. The almost 30 per cent decline in exports in 1931-1935 triggered
massive labor and peasant unrests. In response, President Manuel Quezon of the
Philippine Commonwealth government launched a Social Justice Program patterned after
US President Roosevelt’s New Deal Program. Local trade and import-substituting
industries were encouraged as a result of the crisis giving rise to an increase in locally
manufactured products.

After the Second World War, the free trade arrangement was restored through
parity rights given to the Americans operating in the Philippines in exchange for the

58
political independence granted to the Philippines in July 4, 1946. The war-torn economy
failed to generate the export earnings needed to finance the post war appetite for imported
American goods and rehabilitation. Despite the American war damage payments, this
resulted to a serious balance of payments (BOP) crisis which again triggered labor and
peasant unrests. This became part of the bigger political-economic crisis which was
highlighted by the communist-led armed uprising.

Import-Substituting Industrialization (ISI) Strategy

Faced with a severe BOP crisis, Congress enacted on July 15, 1948 R.A. No. 330
(Import Control Act) which authorized the President “to establish a system of import
control by regulating imports of non-essential and luxury articles, creating an import
control board authorizing the issuance of rules and regulations to carry into effect such
control”. With the enactment of the law, President Elpidio Quirino issued in 1949 a series
of executive orders restricting the importation of non-essential and luxury goods and
prescribing import quotas for a number of commodities.

The newly established Central Bank of the Philippines (CBP) intervened in the
economy by supplementing the import controls with foreign exchange control measures.
The import and foreign exchange controls became the deliberate program for the
promotion of import-substituting industries. Filipino industrialists and American
companies took advantage of the program to develop light import-replacing industries.
The American distributors of imported products set-up Philippine subsidiaries engaged in
the tertiary processing or the packaging and assembly of semi-processed and semi-knock
down parts of the imported products they used to distribute.

Because of the ISI strategy, the Philippines registered annual double-digit growth
rates in the 1950s. The growth however slackened in the 1960s and it soon became clear
that the economy was facing an insurmountable BOP crisis because the ISI industries
were all very dependent on imported capital equipment, machineries, tools, parts and
techniques. Under the pressure from the IMF, the agri-mineral-timber exporters and the
American Chamber of Commerce, President Diosdado Macapagal devalued the peso and
removed the import and foreign exchange controls (“decontrol program”).

The failure of the ISI strategy was caused by the following factors:

1. Most of the beneficiaries of the ISI programs were US firms (3 out of 4


companies set up in 1950s were foreign subsidiaries and joint ventures).
2. Their investments were limited to tertiary processing and engaged in capital
intensive processes which were heavily subsidized and protected by the state.
3. There were very limited forward and backward linkaging and these ISI
industries managed to control the local market via industry cartels or
oligopolies and monopolies. They did not expand to the export market for
more efficiency, economies of scale and competitiveness.

59
4. There was no genuine land reform program to democratize the Philippine
society and to increase the incomes of the vast rural population thereby
expanding the local market to encourage industrialization.
5. Worse, the ISI strategy only institutionalized patronage political system and
crony capitalism which preserved the dominance of the local dynastic elites in
the country’s political system.

With the BOP deficits, the government adopted the IMF-recommended policies of
opening up the economy through peso devaluation and the enactment of measures
encouraging foreign investments and export-oriented production. The growing IMF clout
in policy making was reinforced by the rise in the bureaucracy of Western-trained middle
class elites or technocrats. On the other hand, the political clout of the local dynastic
elites who were sufficiently represented in Congress, media and certain government
agencies prevented any substantial lowering of protection to local industries (Ofreneo,
1993).

What took place in the 1960s was a gradual shift toward export orientation while
protection for local industry was provided in tariffs and other forms. President Ferdinand
Marcos, who succeeded President Macapagal in 1966, continued the decontrol program
but maintained the tariff protection program even if the various official pronouncements
stressed export promotion and a liberal economic order.

Ofreneo (1993) observed that the decontrol program resulted in a neither-here-


nor-there situation. The level of new foreign investments was negligible and there was
hardly any perceptible trend in the reorientation of actual industrial production toward the
export market. Robert Baldwin, who did a survey on industry and policy changes in the
1960s, concluded that the “significant liberalization effort that could have established the
basis for a new type of export-oriented growth was not achieved and the import-
substituting manufacturing was felt in a relatively stagnant state. In short, the 1960s
witnessed some kind of stalemate in economic directions.

One consequence of this situation was that the country lost the initiative
accelerating the economy towards industrialization game as it muddled through the
1960s. In a way, the country’s growth decelerated in the 1960s neither because of the
“easy phase” of import substitution was exhausted, nor because the country did not
become more outward-looking. The growth process weakened primarily because there
was a great deal of confusion in economic directions.

Thus, by the late 1960s, the Philippines was once again in the throes of a serious
BOP crisis. This forced Marcos administration to turn to IMF, which prescribed another
drastic devaluation of the peso through the “floating rate” mechanism, with pesos initially
contracting to 6.50 pesos to $1.00 in 1970. The Board of Investments was established and
three investment and export incentive laws were created:

60
1. R.A. No. 5185 (Investments Incentives Act), which gave various incentives to
foreign and domestic investors going into preferred areas such as export-
oriented production.
2. R.A. No. 5455 (Foreign Business Regulation Act of 1970), which removed the
restrictions on the repatriation of profits and other investment incentives; and
3. R.A. No. 6135 (Export Incentives Act), which gave additional incentives to
export producers.

Export-Oriented Industrialization (EOI) Strategy

Upon the declaration of Martial Law in 1972, Marcos elevated the export-oriented
industrialization (EOI) strategy to a central state policy. The abolition of the Philippine
Congress and the restrictions on labor and militant groups in society aided the adoption of
this policy. Moreover, the IMF and the World Bank helped organize a Consultative
Group of Creditor Countries (CGCC) that would help finance EOI-related projects under
the CGCC’ s programs of “development financing”.

The Philippines became a beneficiary of huge amounts of loans from multilateral


and bilateral development agencies as well as from international commercial banks,
which were then awash with petrodollars. Infrastructure for labor-intensive export-
oriented industries such as free-trade zones and bonded warehousing manufacturing
(BWM) units for those engaged in re-export manufacturing were developed, while all
kinds of incentives encouraging investments in EOI undertakings were decreed by the
martial law regime. Consequently, the Philippines registered a respectable GNP growth
rate of almost 7 per cent a year in the 1970s due to a debt-fueled infrastructure
development program and the flow of new EOI investments.

Graft and corruption and cronyism under the Marcos regime took its toll on the
economy. By early 1980s, the economy was on a recessionary trend and was once again
facing another severe BOP crisis. The EOI industries, which accounted for less than 5 per
cent of the total manufacturing output in 1977 and which were dependent on imported
raw materials (e.g., the export-oriented electronics assembly work), were not enough to
make up for the declining earnings from Philippine primary products (export crops,
minerals and timber) and the rising cost of servicing the growing foreign debt.

The Structural Adjustment Program (SAP)

The World Bank came into the picture with a new development program called
SAP. This called for the full liberalization of the economy and the removal of all
remaining ISI protection still enjoyed by some industries. The economy was further
opened up to global competition and export industries were promoted based on the
country’s comparative advantage which was believed to be cheap labor. The Marcos
regime accepted the SAP which was accompanied by a $200-million WB Structural
Adjustment Loan (SAL). The adjustment measures include the following:

1. Downward restructuring of the tariff system and the liberalization of imports;

61
2. New export enhancing scheme;
3. Restructuring of the investment incentives system to facilitate investment
application processing and encourage export ventures;
4. Rationalization of certain industries such as textile, cement, electronics, etc.;
5. Financial reforms such as the “flexible” exchange rate for the peso, interest
rate deregulation and “unibanking” reforms in the banking industry;
6. Fiscal reforms such as better mobilization of domestic resources through tax
and non-tax measures;
7. Dismantling of government monopolies and privatization of some government
corporations; and
8. Continuing diversification of energy resources.

The SAP coincided with the recessionary period of the first half of the 1980s. It was
carried out against the backdrop of negative external economic factors, e.g., new round of
oil price hikes, upsurge in world interest rates and the collapse in the prices of Philippine
exports- minerals (gold and copper) and agricultural products (sugar and coconut). SAP
was also complemented by the “bitter pill” of austerity- tight money, reduced fiscal
expenditures, increased taxation, etc.- all imposed by the IMF through its stabilization
program for the country.

Domestic industries, especially those catering to the local market suffered


extremely. Despite the suspension of the import liberalization program in the late 1983
due to dollar scarcity, manufacturing was plagued by a number of formidable problems-
the crisis in the letters of credit (foreign creditors shifted to a cash-basis transaction
because of the uncertainties over the debt crisis), ever-rising interest rates, increased costs
of production, and drastically reduced market demand. Thus, while the growth rates for
the entire economy progressively shrank, the decline of manufacturing was bigger than
that of the other sectors of the economy. The share of manufacturing on over-all
employment went down from 11 per cent to 9.7 per cent in 1985.

The Aquino Government (1986-1992)

The economic crisis eased somewhat with the rise to power of a new government
in February 1986. The economy improved with the return of the political normalcy
through the so-called “people power revolution”, the price recovery in the world market
of the country’s major primary exports (gold, copper, sugar and coconut), increased
demand in the Philippine-sewn garments and assembled electronics, and the fall in the
price of oil. Also, the IMF which has been harsh on the Marcos regime in its twilight
years, eased up in the Aquino administration, allowing the latter to engage in massive
pump-priming activities in 1986-1988.

The Aquino administration did not only continue the SAP but also deepened and
broadened its implementation, especially with regard to the import liberalization program
which was reactivated (Marcos suspended the program in 1983) with the liberalization of
700 items in 1986, dismantling some government-supported monopolies (associated with
certain Marcos cronies) and the implementation of the privatization program. But unlike

62
the Marcos administration, the implementation of the various SAP measures did not
provoke much resistance from the business community (except the import liberalization
program) nor caused them much anguish. In the first place, the most difficult adjustments
had already taken place. As the WB put it, “the industry is leaner as a result of the deep
recession in 1984-85, which enabled only the strongest firms to survive”.

President Corazon Aquino honored all foreign debts incurred by previous


administrations included those tainted with fraud and corruption. To ease the debt service
burden and to attract foreign investments, the Aquino economic managers implemented
the Brady plan which sold at big discounts Philippine debts in exchange for assets
sequestered by the government. Urban-based investments mostly in real estate, services
and infrastructure were initiated at the expense of beefing up the power generation
infrastructure which was in deficit due to the mothballing of the Bataan Nuclear Power
plant. This power infrastructure deficit will later take its toll of power shortage in the next
administration.

The Ramos Administration (1992-1998)

According to the 1987 World Bank Report, the Philippines is classified as having
a trade-orientation of moderately inward-looking from 1963-1985 (Todaro, 1994). But
afterwards, the trade and investments policies adopted by the country became more
outward-looking in orientation, though there are still some noticeable import-substituting
industries. The outward-looking orientation of the Ramos program of government is
manifested in the 1992-1998 Medium Term Philippine Development Program (MTPDP)
or the Philippines 2000 of President Fidel Ramos.

The major trade and investments policies of the Ramos government under the
MTPDP were guided by the banner of deregulation and democratization and international
competitiveness. The country became aggressive in promoting trade through accelerated
tariff reduction by active involvement in multilateral trade agreements with the world
through the World Trade Organization, Asia-Pacific Economic Cooperation (APEC),
ASEAN Free Trade Agreement (AFTA) and Brunei, Indonesia, Malaysia, Philippines-
East Asia Growth Area (BIMP-EAGA).

To encourage investments, the Ramos administration extensively used new modes


of foreign and local borrowings like the build-operate-transfer investment schemes to
boost local business and solve the power crisis. This is in addition to the government
programs under the MTPDP which included construction of basic infrastructure, attract
foreign investors through liberalized investments rules and duty-free industrial and export
processing zones, investments in education and HRD, and anti-monopoly measures and
deregulation in selected industries like power, telecommunications, etc.

To solve the power crisis, Ramos used special constitutional powers and issued
licenses to independent power producers to construct power plants within 24 months at
guaranteed purchase price of electricity. Government assets like the Fort Bonifacio
military camp were sold to raise funds for agricultural modernization and the Armed

63
Forces of the Philippines. There was a semblance of economic recovery and political
stability despite communist and Bangsa Moro insurgencies when the Asian financial
crisis happened in 1997. As a result, there were massive closures of manufacturing
enterprises especially the small and medium ones. The government was not prepared for
the crisis and was not able to immediately provide safety nets for the displaced workers
and enterprises.

President Joseph Estrada (1998-2001)

Faced with the aftermath of the Asian financial crisis, the short-lived Estrada
administration adopted a pro-poor program of government through the Social Reform and
Poverty Alleviation Act of 1997 and the Agriculture and Fisheries Modernization Act of
1997. Like the industrial sector, agriculture was likewise threatened by globalization and
the financial crisis.

The Estrada administration’s trade and investments policies continued the


previous administrations’ programs committed to bilateral and multilateral agreements
and the attraction of foreign capital and technology to augment low domestic savings and
investments. Trade policies were focused in lowering cost of exports while investment
attraction was through further liberalization of foreign investor-ownership rules like in
retail, land ownership, etc. Telecommunications, shipping and sugar industries were
deregulated and the build-operate-own (BOO) and build-operate-transfer (BOT) concept
of capital formation was expanded to other large-scale infrastructure projects.

President Gloria Arroyo, 2001-present

After succeeding an impeached President Estrada, the Arroyo administration


focused on programs of job preservation and generation amidst the chronic fiscal crisis
and the perceived rampant graft and corruption in the government. President Arroyo was
reelected in 2004 but the continuing fiscal crisis was exacerbated by a political crisis
caused by alleged electoral fraud.

Arroyo’s trade and investments policies were actually a continuation of export-


oriented industrialization strategies of the past administrations. The foremost investment
strategy is to enhance industry and service competitiveness through deregulation,
privatization and liberalization of foreign trade. Skills-building and education programs
were implemented to promote full, decent and productive employment. Infrastructure
development was focused to support tourism and transportation industries like the roll-in
roll-out nautical highway. In order to reduce the fiscal deficits, the government increased
the value added taxes.

To enhance the fast rising business process offshoring (BPO) and call center
industries, the government improved the legal, judicial and administrative framework for
internet security and privacy, multi-media convergence and high-speed connectivity to
encourage knowledge and software development and e-service centers. At the same time,
agricultural support services such as irrigation, training and credit and technology

64
extension system were intensified. The government also increased the welfare programs
for the Filipino migrant workers and their families in order to preserve and enhance the
positive contributions of OFWs to the consumption led-economic growth.

Except for the increase in value added taxes and the program on deregulation,
privatization and liberalization of foreign trade which are typical World Bank-IMF and
World Trade Organization advocacy programs, most of the government programs were
populist enough and attracted cooperation and partnership with vital social partners like
the employers, professionals, labor and trade unions, political groups and party list
organizations, NGOs, cooperatives, peoples’ organizations (P0s), media, academe,
military and police, church leaders, etc.

The Arroyo administration reported a sustained economic growth after 7 years at


the helm of government and the economy. From 2001 to 2006, the GDP grew at an
average of 4.67 per cent and 7.3 per cent in 2007. The ADB explained that the GDP
growth was caused by consumption spending and government pump priming activities.
The high 2007 growth was associated with election spending. The ADB noted that public
and private investments remained sluggish and their share in GDP continued to decline
(Dumlao, 2008).

Foreign direct investments in 2002-2006 amounted to $1.1 billion while Thailand


had $6.1 billion and Malaysia, $3.9 billion. The Philippines has smaller and narrowing
industrial base compared to its neighbors. In 2005, the share of manufacturing in the
country’s GDP was about 23.5 per cent while Thailand has 34.8 per cent and Malaysia at
30.6 per cent. The ADB identified at least major constraint to the Philippine growth: tight
fiscal situation; declining public investments in infrastructure which is only 1/6 th of per
capita paved road length of Thailand and 1/4th that of Malaysia; high power costs
compared to the rest of Asia; and corruption and unstable political situation (Dumlao,
2008). Despite a declining manufacturing sector, the economy was lifted by the service
industries and other factors like the OFW earnings, the traditional electronics export
industry and the rising mining, BPO and construction industries.

References:
Cenir, Marcelo and Agnes Mendaros, 1998, “The Philippine Trade and
Investments Policies”, Quezon City: UP SOLAIR (unpublished).
Dumlao, Doris, 2008, “ADB: OFW remittances don’t trickle down to the poor”,
Philippine Daily Inquirer, March 7, 2008, pp.1 and A19.
Nolledo, Jose, 1986, The 1987 Constitution of the Republic of the Philippines,
Quezon City: National Bookstore.
Ofreneo, Rene, 1993, The Philippine Industrialization & Industrial Relations,
Quezon City: University of the Philippines Press.
Todaro, Michael, 1994 Economic Development, 5th Edition, New York: Longham
Publishing.
_____, The Fookien Times Philippine Yearbook, 1998 Edition.
_____, “The 10-point program of the Estrada Presidency”, Philippine Daily
Inquirer, June 30, 1998.

65
FISCAL POLICY AND TAXATION

Fiscal policy refers to the shaping of public revenues (taxation), expenditures,


investments and debt in order to achieve a desired economic growth, stability and
progress. The framework of a fiscal policy is illustrated in Figure 12.

Figure 12. Framework of a Fiscal Policy

Resource Mobilization Resource Utilization Desired Effects

 EXPENSES
>Social Services
>Infrastructure
> Peace & Order
 ECONOMIC
 TAXATION GROWTH,
 DEBTS  PUBLIC STABILITY &
 Internal INVESTMENTS PROGRESS
 External >GCs & GOCCs  SOCIAL JUSTICE
 POLITICAL
STABILITY
 DEBT
SERVICING

Fiscal policy, in contrast with monetary policy, is the more decisive way of
mobilizing domestic and foreign resources in order to help dampen the swings of the
business cycle and to contribute towards the maintenance of a growing economy devoid
of high and volatile inflation. Specifically, fiscal policy plays the modulating roles to-

1. Contract the economy during economic boom, and


2. Expand the economy during recession or recovery.

As studied by neo-classical economist John Meynard Keynes, the economy follows a


business cycle (Figure 13).

Figure 13. The Business Cycle


BOOM
(PEAK)
RECOVERY RECESSION
(EXPANSION) (CONTRACTION)

DEPRESSION

66
1. Recovery and Expansion. Coming from poor business conditions, the
economy recovers due to expansionary fiscal policy which will lead to
economic recovery and prosperity.
2. Peak (Boom). This is the highest stage of economic growth as a result of
expansion. The government usually contracts the economy to prevent
recession.
3. Recession. Production is now in excess as a result of decreased consumption.
Cutbacks in production lead to lay-offs and further reduction in consumption.
The government usually engages in an expansionary fiscal policy. A recession
is a result of a continuous decline of an economy for several years.
4. Depression. If the recession does not proceed to recovery, depression comes
in. The government usually engages in more expansionary fiscal policy
through extensive local and foreign borrowings.

Specific Roles of Fiscal Policy

In promoting economic stability, the government through fiscal policy can expand
or contract the economy through the following:

1. Increase the national savings rate.


 By increasing taxes
 By increasing mandatory deductions on salaries for long term needs of the
employees like housing, retirement pensions, insurances (life, medical,
etc.)
 By reducing government deficits.

2. Raise the level of public investments.


 The government is obliged to engage in development projects like
infrastructure development (power, electricity, roads, air and sea ports,
water, etc.) if the private sector does not invest due to very high capital
and technological outlay.
 If the private sector enters infrastructure development through BOT, BOO,
etc., the government resorts to regulations.

3. Provide incentives to private enterprises and cooperatives (and labor


enterprises).
 The government grants direct subsidies and other incentives to specific
industries under the Board of Investments or grants tax exemptions to
cooperatives and small/micro-enterprises.

4. Provide for non-inflationary development financing.


 Public savings in government financial institutions (GFIs like the LBP,
DBP, etc.) and non-bank financial institutions (NBFIs like the GSIS, SSS,
Pag-ibig, etc.) or resources raised through government bonds by the

67
Treasury are channeled to targeted industries that are essential to
development.

5. Manage the public debt.


 Good management of government indebtedness sourced locally and
abroad will lead to benefits to present and future generations, and vice
versa.

6. Provide a more equitable distribution of income.


 Through a progressive public taxation and expenditures, the rich are taxed
more while the government expenditures are skewed to the poorer
segments of the population like provision for social services in public
education, training and health.

Taxation

Taxation is the principal instrument of public resource mobilization under the


fiscal policy. The other instrument, which must be used only occasionally as contingency
measures, is domestic and foreign borrowings.

A tax is a compulsory contribution from the person to the government to defray


the expenses incurred in the common interest of all without reference to special benefits
conferred upon taxpayer (Briones, 1983).

Theories of Taxation

1. John Meynard Keynes introduced during the 1930s two new concepts in the
doctrine of classical economics. First, he justified state intervention in the
economic affairs through price regulation, taxation and public borrowing.
Second, he introduced deficit spending through large scale borrowings to
finance development.

2. Adam Smith’s Canon of Taxation defined an ideal tax system as follows:


 Equity. Taxes must be based on the taxpayer’s ability to pay, as
measured by his size of income.
 Certainty. Taxpayers should know which taxes they are subject to, the
amount to pay, and the manner of payment.
 Convenience. It should be convenient to pay taxes in terms of time,
place and manner of payment.
 Economy. Tax administration must not involve too much expenses on
the government.

The essential characteristics of a tax are as follows:

1. It is an enforced contribution.
2. It is generally payable in money.

68
3. It is proportionate in character.
4. It is levied on persons, properties or transactions.
5. It is levied by the state which has jurisdiction over the person or property.
6. It is levied by the lawmaking body of the state (or the House of
Representatives of the Philippine Congress).
7. It is levied for public purposes.

A system of taxation serves as an instrument of fiscal policy for development goals.


These specific goals include capital formation, allocation of resources, redistribution of
incomes and wealth, and economic stability.

Classification of Taxes

Taxes are classified as follows (Teodoro and de Leon, 1989):

1. As to the subject matter


 Personal taxes like a residence tax.
 Property taxes like a real estate tax.
 Excise taxes like privilege taxes on business, occupations, estate, donors,
and income taxes.

2. As to purpose
 General, fiscal or revenue like an income or sales tax.
 Special or regulatory like protective tariffs or custom duties in imports in
order to protect local industries against foreign competitors.

3. As to scope (or authority imposing the tax)


 National taxes like the national internal revenue taxes, custom duties and
other national taxes imposed by special laws.
 Local taxes or those imposed by local government units (LGUs) like the
provincial/municipal governments, cities and barangays.

4. As to amount paid
 Special taxes like taxes on wines, cigars, cigarettes, gasoline, etc.
 Ad valorem like real estate tax, tax on matches, etc.

5. As to who bears the burden


 Direct taxes like individual or corporate taxes, residence taxes, etc.
 Indirect taxes like sales taxes, VAT, specific taxes, custom duties,
amusement taxes, privilege taxes, etc.

6. As to rate
 Proportional taxes like real property taxes, sales taxes, etc.
 Progressive taxes like income taxes.
 Regressive taxes like sales taxes, VAT, etc.

69
Direct taxes are those taxes that cannot be shifted from an individual. Most of the direct
taxes are imposed on the rich because of their large incomes and properties. Hence, direct
taxation is progressive taxation. Indirect taxes, on the other hand, may be shifted to others
(usually the consumers) so that the person assessed with the tax will not have to pay it.
Because most of the indirect taxes are passed on to the poor, they are called regressive
taxes.

Using the classification of direct (or progressive) tax and indirect (or regressive) tax,
below is a classification of the various taxes:

Direct Taxes Indirect Taxes


 Properties Tax  Excise Taxes
 Income Tax  License and Business Tax
 Amnesty Tax  Import Duty
 Residence Tax  Documentary Stamps
 Estate Tax  Franchise Tax
 Inheritance Tax  Stabilization Tax
 Corporate Tax  Value Added Tax (VAT)
 Immigration Tax  Export Tax
 Motor Vehicle Tax  Charges on Forest Products
 Energy Tax  Wharfage Fees
 Travel Tax  Fines and Penalties
 Transfer Tax (Estate & Donor’s
Tax)

Elements of a Taxation System

A taxation system is composed of the following:

1. Tax laws which include the Constitutional provisions on taxation 1, statutes,


rules and regulations under the Secretary of Finance, administrative rulings
and opinions and judicial decisions by the Supreme Court and the Court of
Tax Appeals.

2. Tax structure, tax rate and tax base. These relate to tables, charts and
anything related to revenue productivity, tax progressiveness and equality,
political and social goals of the government.

3. Tax administration. This refers to the process of ascertaining, assessment and


imposition of the tax liability; the actual collection of taxes, and the

1
The power to tax is inherent in sovereignty. It can be exercised even if the Constitution is silent on the
subject.

70
settlement of tax disputes and imposition of penalties for violators of tax
laws. The main agencies that are concerned with these functions are-

 Bureau of Internal Revenue (BIR) for the assessment and collection of all
national internal revenues, fees and charges. In 1991, the BIR collected
65 per cent of all government revenues.
 Bureau of Customs (BOC) for the assessment and collection of all
revenues from imported articles and all other duties, fees, charges, fines,
and penalties accruing under the Tariffs and Customs Law. The BOC and
other government agencies collected 35 per cent of the total revenues of
the government in 1991.
 Others like the DOTC-LTO, PAGCOR, PCSO, etc.

4. Public tax consciousness. This refers to the level of voluntary and honest
compliance of tax obligations by the people. Tax consciousness encompasses
the attitudes of people manifested in their compliance with tax obligations,
their interests or motives in meeting or evading these obligations, their
awareness of the tax laws and regulations, their views on the disposition of
tax collection and their attitude toward tax administration.

Major Problems in Fiscal Policy

Among the major problems in fiscal policy in the country are:

1. Low National Savings Rate

The Philippines savings rate is among the lowest in Asia. This means that
consumption spending and short term investments are high. A higher national savings
rate would mean more mobilization of local financial resources that can be used for
investment spending (long-term investments). According to the World Bank (2008), the
country’s gross domestic savings as percentage of GDP dropped by 35 per cent in 45
years from 16.2 per cent in 1960 to 10.5 per cent in 2005. The annual mean for the entire
45 years is 19.4 per cent with a highest level in 1979 at 28.1 per cent and the lowest at
2005. The present economic growth of the Philippine economy is fueled by consumption
spending rather than investment spending. The earnings of the OFWs and the robust
service sector and electronics export mainly contribute to this growth.

2. Low Efficiency in Revenue Collections

The efficiency of revenue collections needs to be improved as far as increasing


the tax base and improving the collection efficiency is concerned. Still with a low tax
effort of 15.5 per cent in 1997 (NTRC, 2000) due primarily to “embarrassing levels of tax
evasion” and graft and corruption in tax collection, the Bureau on Internal Revenue has to
rely on indirect taxes. The value added taxes and tariffs make up 70 per cent of tax
revenues” (Arroyo, 1998). The tax collection efforts improved in 2006 after the VAT rate

71
was increased from 10 to 12 per cent in 2005 and several tax exemptions were reduced
(World Bank, 2007).

Out of 60 million Filipinos, there are only 2.4 million filers, of which 1.6 million
are tax payers. This means that out of 100 Filipinos, only 7 are registered with the BIR.
These are people with Tax Identification Numbers (TIN). Out of these 7 people, less than
3 actually pay their taxes (Castro, 1994). According to the 1991 UNDP study, actual
collections from potential taxes of 61 billion pesos, the actual collection was only 21
billion pesos. This means that 66 per cent of taxes were evaded. Earlier in 1985, the tax
evasion ratio was estimated at 73 per cent.

The Philippines has the lowest tax effort at 15.5 percent from 1992-1997
compared to Indonesia, Malaysia, Thailand, Singapore and Korea. Malaysia has the
highest tax effort at 21.3 per cent. On the growth of revenues of these countries during
the same period, Indonesia’s record was the highest at 18.2 per cent while Singapore has
the lowest record at 10.8 per cent (NTRC, 2000). The good thing about the BIR record is
that the tax effort percentage has been improving from 1982 to 1997 (Table 7).

Table 7. BIR Collection and Tax Efforts


(CY 1982-1992, 1992-1997)
Year Collections (Billion Annual Growth Tax Effort (%)
Pesos) Rate (%)
1992-1997 -- -- 15.5
1992 133.9 15.70 9.77
1990 104.04 26.58 9.66
1988 63.39 8.21 7.97
1986 46.00 12.80 7.88
1984 20.07 46.49 6.31
1982 20.07 6.60 6.40
Source: 1992-1997 data from NTRC

The UNDP study pinpointed “bureaucratic problems” as the primary cause of tax
evasion problems. The BIR, on the other hand, blames low operating budget and limited
personnel as the culprits. At the end of 1993, there were only 11,000 members of the BIR
family, or 1 BIR personnel for every 163 taxpayers. It has only a budget of 1.8 billion
pesos and its task is to raise 250 billion pesos in a year’s time (Castro, 1994; Diokno,
2005).

Another reason for the low tax efforts in the country is that tax collection is
relying on a system of self-assessment wherein the responsibility of declaring the tax
obligations belongs to the taxpayers themselves. This means that tax collection is very
dependent in tax consciousness. Tax consciousness is heightened if the taxpayers believe
that their tax money is put to good use and the tax gatherers from the government are
competent and honest. It is obvious that most people believe that most tax collectors are

72
corrupt and that the tax moneys are not put into good use. Tax consciousness is indeed a
big problem.

To improve the tax efforts, new measures were implemented in 2007 by the
government. These include increase in audits, improvements in taxpayer registration,
simplification of tax bracket for excise taxes and curbing smuggling at the Bureau of
Customs (World Bank, 2007).

The Bureau of Customs is the second largest contributor to the government


coffers. It collected 27.8 per cent of revenues from 1991-2000. The biggest problem of
the Bureau is smuggling, both outright smuggling and technical smuggling. The
government loses 150 to 200 billion pesos a year in lost import duties, VAT, income tax,
excise tax and other local taxes. This is almost equal to the annual government deficit and
could pay one fourth of the Philippine external debt in 5 years. Smuggling is carried out
through mis-declaration, under-valuation and mis-classification of imports to the more
sophisticated ‘tactics’ of shipment diversion, vessel transfer and ‘swing’ operations. In
response to heavy pressures from manufacturers, labor and civil society, the government
has been active in anti-smuggling operations. The NTRC (2000) outlined the following
steps in curbing smuggling:

a. Enhance existing automated processes and institute new ones, possibly to


all ports in the country;
b. Strictly enforce laws and regulations to increase duties on imports;
c. Closely monitor importers who avail of tax and duty exemption;
d. Thoroughly implement post entry audit of import transactions after release
of goods; and
e. Improve efficiency in arresting smugglers.

3. High Debt Servicing

The total government debt as a percentage of GDP grew by 36 per cent in 14


years from 51.3 per cent in 1990 to 69.9 per cent in 2004. The government is forced to
resort to foreign borrowing due to the shortfall in revenue collections. The debt service
ate up 33.6 per cent of the total budget in 1994 and 39 per cent in 1999 (World Bank,
2008).

The implementation of foreign assisted projects has been delayed substantially


due to the following: delays in releases in cash allocation; insufficient counterpart funds;
right of way and squatter relocation problems; environmental issues; slow documentation
of paid expenditures and poor performance of contractors.

4. Low Level of Progressiveness of the Tax Structure

The outcome is more income inequity. According to an NTRC study, the


Philippine tax structure is second lowest in progressivity among the 10 ASEAN
countries. Malaysia scored the lowest while Indonesia has the most progressive tax

73
structure. The Philippine 1993 data show that the direct taxes (leveled on the rich)
amounted only to 33.7 per cent (83.5 billion pesos) while the indirect taxes which are
leveled on the poor amounted to 66.3 per cent (164.4 billion pesos).

5. Inefficient Use of Government Resources

The country ranks high in corruption index. In addition to graft and corruption,
there are still other forms of wastage of financial and material resources that extensively
plague the government. Among these are:

a. Cost overruns of infrastructure projects;


b. Costly undertakings of non-priority programs and/or not thoroughly
planned projects;
c. Construction of buildings that may not after all be utilized;
d. Infrastructure construction the benefits of which are far outweighed by
the costs;
e. Undertaking of vast and complex projects that the people may not
substantially benefit from;
f. Acquisition of capital equipment and facilities that in the long run will
deteriorate because of non-use;
g. Purchase of expensive high-tech machines that are not utilized because
of lack of trained technicians or inadequate preparations prior to
acquisition; and
h. Neglected maintenance, resulting in non-use of certain machines and
equipment given in the form of donation or commodity assistance 2.

6. Inefficiency of Government Enterprises

The inefficiency and uncompetitiveness of the government corporate sector is


being remedied by drastic reforms and reengineering, privatization or joint ventures. In
the areas of priority investments that are identified with the government sector
investments, private sector participation is enhanced through joint ventures, build-operate
and own (BOO), build-operate and transfer (BOT) or build and operate in order to
minimize the exposure of the national government.

Closing Remarks

President Gloria Arroyo summed the government’s fiscal administration as


successful. In her address to the Philippine Chamber of Commerce and Industry at the
Manila Hotel in October 2007, President Arroyo told the business leaders that the fiscal
discipline that her administration has accomplished resulted to tax collection efficiency
towards a balanced budget, pre-payment of debts and investments of billions in human
and physical structure (OPS, 2007). Economist Benjamin Diokno (2005) on the other
hand assessed the fiscal performance of the government as having large fiscal deficits

2
Perfecto L. Padilla, The Wastage of Government Financial and Material Resources, p. 293.

74
caused by falling tax efforts and underspending for education, public and health
infrastructure.

References:

Arroyo, Dennis, 1998, “Why is there value added tax?”, Philippine Daily
Inquirer, November 30, 1998, p. C5.
Arroyo, Dennis, 1998, “Why is the Philippines so poor?”, Philippine Daily
Inquirer, December 21, 1998, pp. C1-C2.
Briones, Leonor, 1983, Philippine Public Fiscal Administration, Manila: National
Research Council of the Philippines,
Castro Jr., Salvador Antonio, 1994, “Taxation: Its Role in the Philippines’
Development”, UP SOLAIR, Quezon City: Diliman (unpublished term paper).
Diokno, Benjamin, 2005, “Economic Fiscal Policy Determinants of Public
Deficit: The Philippine Case”, Quezon City: UP School of Economics
National Tax Research Center, 2000, “Comparative Tax Sources of Selected
ASEAN Countries: 1992-1997”, TRJ2000 Vol. XII, No. 6-A.
National Tax Research Center, 2000, “Analysis of the Bureau of Customs
Collections, 1991-2000”, TRJ2000 Vol. XIV, No. 3.
Office of the Press Secretary, 2007, “PGMA welcomes Erap’s support to her pro-
poor programs”, October 2007, http://www.news.ops.gov.ph/archives2007/oct27.htm
(viewed March 10, 2008).
Teodoro, Benjamin and Hector de Leon, 1989, The Law on Income Taxation,
Manila: Rex Book Store.
World Bank, 2007, “Country Brief: Development Progress”,
http://www.worldbank.org.ph/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFI
C/PHILIPPINESEXTN/ (viewed, March 10, 2008).
World Bank, 2008, “World Perspective Monde”,
http://www.worldperspective.usherbrook.ca/bilan/servlet (viewed March 11, 2008).

75
FINANCIAL SYSTEM AND MONETARY POLICY

The Philippine financial system is composed of the network of institutions


authorized by law to engage in the generation, circulation and control of money and
credit in the country. These institutions are classified as:

1. Bangko Sentral ng Pilipinas

Banking Institutions
a. Universal Banks
b. Commercial Banks
c. Thrift Banks
d. Rural Banks
e. Cooperative Banks
f. Islamic Banks
g. Microfinance Banks

Non-Bank Financial Institutions w Quasi Banking Functions


a. Investment Houses
b. Financing Companies
c. Securities Dealers
d. Investment Companies
e. Fund Managers

2. Non-Bank Financial Institutions (NBFIs)


a. Lending Investors
b. Pawnshops
c. Government NBFIs
d. Venture Capital Corporations
e. Insurance Companies

Shown in Figure 14 is the structure of the financial system of a country. The central bank
is at the apex of the financial system and all the major banking institutions are under its
regulations. In the Philippines, the central bank is performed by the Bangko Sentral ng
Pilipinas (BSP).

The Role of the Financial System

The financial system serves as the intermediary between savers and spenders.
This is illustrated in Figure 15:

There are several types of savers: individuals, juridical persons and the
government. There are also different users of funds: consumers, investors and
businessmen/enterprises and governments. The volume of savings is dependent on the

76
level of GNP and the savings rate. If the savings rate is low, a growing economy usually
borrows funds from abroad. Savings are either private or public savings. Private savings
are affected by cultural, technological and lego-political factors like being thrifty and
frugal, banks having ATMs and convenient facilities to encourage savings and the
mandatory membership to pension funds. Public savings are dampened if the government
incurs budget deficit and bolstered if the government enjoys a budget surplus.
Government reforms in taxation, privatization and reduction of government subsidies
have resulted in budget surplus and increase in public savings.

The efficiency of the financial systems determines how fund users are able to use
the excess funds of savers in their spending patterns. In general, an economy is more
sustainable if there are more investment spending than consumption spending or if more
local products are bought than imported ones. The intermediation process of the financial
system allows the transformation of short-term funds into long-term uses for various
forms of investments.

Figure 14. The Financial System of the Philippines

Philippine Financial System

Bangko Sentral ng Non-Bank Financial Non-Bank


Pilipinas Institutions (w/ Quasi Financial
Banking Functions) Institutions

Universal Banks
Investment House Lending Investors

Commercial Banks
Pawnshops
Financing
Thrift Banks Companies
Gov’t NBFIs

Rural Banks Securities Dealers


Venture Capital
Corporations
Cooperative Banks
Investment
Companies Insurance
Islamic Banks Companies

Fund Managers
Microfinance Banks

77
Figure 15: Monetary-Financial-Income Chain Linking Sources of Funds with Users

Users of Funds
Income Sources of Funds Financial (Spenders)
(GNP) (Savers) Interme-
diaries 1. Consumer
1. Individuals Borrowings Invest-
ments
2. Businesses 2. Productive
>Partnerships Businesses
>Corporations Banks and >Agriculture
Other >Industry
3. Trust Funds Institutions >Commerce
Con-
4. Gov’t Funds sump-
4. Gov’t Units
> Social tion
> National
Security >Local
> Trust Funds >Corporate
Agencies

The Monetary System

The financial system is essentially the business of money. It is the monetary or


circulatory system of the nation’s economy. Financial resources or money is likened to
the blood that nourishes the entire economic system. If there are less savings and money,
the economy becomes anemic. If there is too much money, the economy might inflate
and prices may not be controllable.

Money supply is part of domestic liquidity along with quasi-money. Money


supply is the total amount of peso circulation in the economy plus the total amount of
demand deposits in the bank. Quasi-moneys are funds deposited as savings and time
deposits in banks as well as deposit substitutes. Deposit substitutes are funds obtained
from the public principally through the money market.

Monetary Policies

The money supply can make or unmake a developing economy. It is administered


by the Bangko Sentral ng Pilipinas through monetary policies. Monetary policies are the
deliberate efforts of the central bank to control money supply and credit conditions for
the purpose of achieving certain broad economic objectives. The central bank through a
central monetary authority takes charge of monetary policies.

78
The traditional objectives of monetary policies are:

1. Stabilize the general price level to prevent inflationary and deflationary


movements;
2. Promote full employment;
3. Effect adequate economic growth; and
4. Promote and maintain external equilibrium in order to preserve the international
value of the peso.

The BSP is a publicly-owned, non-profit government bank which can issue currencies
and is the ultimate source of money. It is the government’s banker, agent and financial
advisor, a banker’s bank, the lender of last resort, and the custodian of the country’s
foreign exchange resources.

Control Instruments in Monetary Policies

There are two ways to implement a monetary policy. These are:

1. Expansionary policy or easy money; and


2. Contractionary policy or tight money.

The central bank utilizes the following alternative instruments to control money supply.

1. The use of open market operations. The types are:

a. Repurchase Agreements (RPs) -- interest bearing loans given by the central


bank to other banks on the basis of government securities as collaterals. It
can come in the form of:
-- regular RPs -- loans not exceeding 15 days
-- overnight RPs -- 1 night only

b. Reverse Repurchase Agreements (RRPs) – The central bank borrows funds


from other banks using BSP’s holdings a collateral with an agreement to
repay the loan at specific rate and period of time. There are 2 types of RRPs:
term -- 7 to 14 days loan
overnight -- 1 day borrowing

c. Outright Contract -- purchase or sale of government securities done on


account of the central bank’s portfolio.

d. Central Bank’s Certificate of Indebtedness.

2. Control of the bank’s reserve requirements -- this is traditionally employed as


a protection to depositors by ensuring the liquidity or solvency and the capability of
the banking system to meet the withdrawal requirements of the depositors. The BSP

79
requires all banks and quasi banks to maintain reserves against funds held in trust and
deposit a minimum of 25 per cent of said reserve fund to the BSP.

3. Use of discounting policy – The central bank purchases a bank’s asset at a


discount. As practiced in the Philippines, this is a privilege extended to banks to borrow
or secure loans or advances from the central bank.

4. Use of moral suasion -- The central bank influences or convinces the banks to
contribute to the attainment of the monetary goals. It may take the form of a request for
voluntary restraint on lending or priority in lending to different sectors.

Illustration of Controls

Illustrated below are the applications of the instruments of control in formulating


monetary policy:

Instrument of Control Expansionary Policy Contractionary Policy


1. Control of the reserve Reduce reserve requirement Raise reserve
requirement of the bank requirement
2. Use of discounting facility Reduce the discount rate Raise the discount rate
3. Use of open market Purchase of government Sale of government
operations bonds by GSP in the open bonds by GSP in the
market open market
4. Use of moral suasion Encourage bankers to lend Discourage bankers to
more lend more

In a developing economy, the trend in the reserve requirement is expansionary. As


the central bank reduces the reserve requirement, more money is made available for
loans.

The use of discounting facility is applied usually to banks in distress. The bank
issues a promissory note to the BSP to borrow or advance money. The BSP sets the
discount rate. A high discount rate is contractionary while a low discount rate is
expansionary.

In the open market operations, the central bank buys and sells government bonds
and securities. If the central bank buys back the bonds, it pumps money into the economy
which results into an expansionary policy.

Resources of the Financial System of the Philippines

Commercial banks and expanded commercial banks account for 74.9 per cent of
the total resources of the Philippine financial system in October 2002. Typical in
developing countries, commercial banks are usually tied-up with foreign commercial
banks and they finance mostly large domestic and export industries.

80
Rural banks account only for 1.93 per cent of the total resources of the financial
system. This is the typical characteristic of the financial system of a developing economy,
that is, the presence of an informal and often exploitative credit network serving the bulk
of the rural and informal urban economy.

Table 8. Assets of the Philippine Financial System


(In Billion Pesos) (1990, 1995, 2000, Oct. 2002)

Institutions October 2000 1995 1990


2002
Total 4,223.5 4,023.8 2,049.3 800.2
Commercial Banks 3,165.2 3,013.5 1,347.3 539.7
Thrift Bank 273.1 245.8 143.3 37.6
Specialized Gov’t Banks1 -- -- 68.1 18.5
Rural Banks 81.3 67.3 36.6 13.8
Non-Bank Financial Intermediaries 703.8 697.1 453.8 190.5
w/ Quasi-Banking Function
 Investment Houses 25.6 25.6 11.3 6.3
 Financing Companies 6.5 9.8 3.3 4.7
w/o Quasi-Banking Function
 Investment Houses 32.1 35.9 15.9 3.4
 Financing Companies 16.6 16.1 24.3 6.7
 Investment Companies 13.9 13.9 13.4 10.9
 Securities Dealers/Brokers-HO 11.2 11.2 8.3 2.4
 Lending Investors 6.7 6.7 5.1 1.3
 Pawnshops 13.8 10.7 7.7 2.6
 Venture Capital Corp.-HO -- -- -- 0.1
 Private Insurance Companies 157.5 157.5 100.2 36.2
 Mutual Bldg & Loan Assn. 516.7 0.4 0.1 --
 Non-Stock Savings & Loan Assn. 54.3 41.9 13.3 4.7
 Fund Managers -- -- -- 2.8
 GSIS 214.9 181.0 85.2 36.0
 SSS 145.6 181.7 101.5 51.5
 Gov’t Non-Bank Financial Inst.-HO 4.1 4.0 63.6 20.2
Source: Dept. of Economic Research, Bangko Sentral; ng Pilipinas

Non-bank financial institutions account for 6.67 per cent of the total resources of
the financial system, making them the second most dominant financial institutions in the
country. Thrift banks come in at third or 6.47 per cent of the total financial resources.

1
Consolidated with commercial banks and investment companies

81
Chart 3: Total Resources of the Financial System of the Philippines, 2002

Commercial Bank
NBFI
Thrift Banks
Rural Bank
Gov't Bank

References:
__________, “1996, Growth Without Pain”, Banking in Business No. 6, Vol. 1,
Makati City: News Events and Trends.
__________, “Raising Our National Savings Rate,” Banking in Business No. 4,
Vol. 1, Makati City: News Events and Trend.
Calapan, A.S. and L. Santiago-Tuazon, 1996. “A Report on the Philippine
Monetary and Financial Policy,” Quezon City: UP SOLAIR (unpublished).
Claveria, M.L., A.L. Ruiz and Y. Vallejo, 1992, “Summary Report on Monetary
and Financial Policies,” Quezon City: UP SOLAIR (unpublished).
Erni, M.G., 1991, “Monetary and Financial Policy”, Quezon City: UP SOLAIR
(unpublished).
Torreja, Jr., Magno, 2003, “Philippine Financial System”, Money and Banking in
the Philippines, Manila: Bangko Sentral ng Pilipinas.

82
MONEY AND BANKING

Money is an acceptable medium of exchange. Though only a creation of the mind


and is usually in paper, it has value because people have confidence or trust in it and was
issued in limited quantities.

Origin of Money

Money was created in order to facilitate trade. Barter trade is really very difficult
and the early mediums of exchange were goods like cows, sacks of wheat, etc. Later,
precious metals, because of their limited availability, were used. The earliest use of silver
for payment happened in Mesopotamia in 2500 B.C.

Coins

Coins in standardized weight and made of precious metals (gold, silver, etc.) were
used to remove the weighing process in every trade transaction. These standardized coins
were minted by governments in Asia as early as 7th century B.C. Coins made it
convenient for the state to pay salaries of officials and public expenditures and to collect
taxes and fines. Coins therefore usually bear the emblem of the state or ruler. Coins also
became very useful to merchants and their usage quickly spread from Asia Minor to
Mediterranean and Europe.

Paper Money

Paper currencies were first issued by a government in China in 11th century. They
were however distrusted and not accepted by merchants. The first European bank notes
were printed in Sweden in 1661 due to the scarcity of coins.

Governments back up their respective currencies with gold in order to gain the
trust of merchants in local and international transactions. The United States after World
War II notes in its dollar bill that said money is equivalent to one thirty-fifth of a troy
ounce of gold. The US dollar was accepted as international currency since dollars can be
redeemed for gold from the US Treasury. However, because of the strong demand for
gold, the US suspended the gold-exchange standard in 1971 and formally abandoned it in
1978. Hence the values of currencies were no longer fixed and each currency is valued
depending on the stability of the government and the economy of the country. Gold bars
and foreign currencies are now kept by governments for reserve purposes and to stabilize
their economies.

Plastic Money

At present, a new form of money is fast being used, plastic money. This is best
explained by Peter White of National Geographic Magazine:

83
“Say I’m in Paris, it’s late evening, and I need money, quickly. The bank I go to is
closed, of course, but outside sits an ATM, an automated teller machine, and look what
can be made to happen, thanks to computers and high speed telecommunications.

I insert my ATM card from my bank in Washington, D.C., and punch in my


identification and the amount of 1,500 francs, roughly equivalent to $300. The French
bank’s computers detect that it’s not their card, so my request goes to the CIRRUS
System’s inter-European switching center in Belgium, which detects that it’s not a
European card. The electronic message is transmitted to the global switching center in
Detroit, which recognizes that it’s from my bank in Washington. The request goes there,
and the bank verifies that there’s more than $300 in my account and deducts $300 plus a
fee of $1.50. Then it’s back to Detroit, to Belgium, and to the Paris Bank and its ATM --
and out comes $300 in French francs. Total elapsed time: 16 seconds.”

Plastic money, or charge cards and credit cards are increasing in usage. In the
U.S., more than 150 million have used them in 1993 to draw cash from bonds due to
make payments. It is the trend in the future -- a cashless society.

Money and Banking

A bank is a financial institution which deals in credits or debts. In the middle ages
in Europe, banks can not operate because the church bans usury, or the lending of money
at interest. According to Peter White (1993), banks started with the use of a “bill of
exchange” in fairs in the champagne region of northeastern France in the 13th century.
The “bill of exchange” looks like a currency exchange transaction and no interest charges
are involved. However, in the process of exchange of currencies, the interest is hidden
and added in the exchange.

Banking in the Philippines started in 1830. Among the banks established during
the Spanish period which are still in operations are the Bank of Philippine Islands (1851)
and the Monte de Piedad Savings Bank (1852).

Economic Importance of Banks

Banks accumulate savings by promoting thrift among the people and providing a
safe place for their money. Out of these savings, bank manufactures credits or loans to
business enterprises and individuals. This is illustrated in the macro-economic model in
Figure 7 (page 23).

Banks facilitate and direct the use of money for production, consumption and
trade. They lend money to the government, being the largest purchasers and holders of
government bonds. They also sell these bonds and other negotiable instruments to the
public. Banks also provide the public with currencies and coins and replace those unfit
for circulation.

84
The functions of a bank are as follows: 1) accumulates savings by promoting
thrift; 2) makes loans; 3) buys/holds government bonds and sells them to the public; 4)
creates a medium of exchange through demand deposits and other negotiable
instruments; 5) invests funds; 6) clears and transfers funds; 7) provides safe deposits
services; 8) handles payroll of firms; 9) collects taxes for the government; 10) collects
amortizations for others; 11) deals in foreign exchange transactions; and 12) facilitates
international transactions.

Banks are classified according to services rendered. These are: 1) commercial


bank; 2) savings and mortgage bank; 3) trust company; 4) rural bank; 5) investment bank;
6) building and loan association; 7) cooperative bank; 8) unibank; 9) central bank; 10)
offshore banking unit; and 11) world bank.

Banks can also be classified according to the form of organization: 1) unit bank;
2) branch bank; 3) chain bank; and 4) group bank. They can also be categorized as
domestic or foreign bank.

Types of Banks According to Services Rendered

1. A Universal Bank can function as a commercial bank and an investment house. It


can invest in equities of allied and non-allied enterprises as may be determined by
the Bangko Sentral ng Pilipinas (BSP). It needs a minimum capital of 4.95 billion
pesos.

2. A Commercial Bank is authorized to do the following: 1) accept drafts and issue


letters of credit; 2) discount and negotiate promissory notes, drafts, bills of
exchange and other evidences of debts; 3) accept or create demand deposits; 4)
receive other types of deposits and deposit substitutes; 5) buy and sell foreign
exchange and gold or silver bullion; 6) acquire marketable bonds and other debt
securities; and 7) extend credit subject to BSP rules. A commercial bank may
only invest in equities of allied enterprises which shall not exceed 35 per cent of
the net worth of the bank and subject to approval of the BSP. The minimum
capitalization of a commercial bank is 2.4 billion pesos.

3. A Thrift Bank is established to mobilize small savings and provide loans at easier
terms to small and medium enterprises. The minimum capitalization of a thrift
bank is 53 million pesos outside Metro Manila and 325 million pesos within
Metro Manila. There are 3 types of thrift banks- savings bank, private
development bank and stock savings and loan association.

4. A Rural Bank is established to provide credit to farmers and merchants or their


cooperatives and other people in the community. The minimum capitalization is
2.6 million pesos for 5th and 6th class municipalities and 26 million pesos if within
Metro Manila.

85
5. A Cooperative Bank is a duly registered association of cooperatives and non-
profit associations that are voluntarily joined together to form a cooperative bank.
It is registered with the Cooperative Development Authority and is under the
supervision of the BSP. It can also receive financial aid from the government and
the BSP in behalf of the cooperative bank, primaries and federations.

6. An Islamic Bank is formed to accelerate the socio-economic development of the


Autonomous Region of Mindanao based on the Islamic concepts of banking.

7. A Microfinance Bank is designed to provide a broad range of financial services


that include deposits, loans, payment services, money transfers and insurance
services for the poor and low-income households and micro-enterprises.

Types of Banks According to Form of Organization

1. A Unit Bank is an independent bank. It has no formal or corporate connection


with other institutions. It formulates its own policies.
2. A Branch Bank is a branch of a main bank and is dependent on the head office for
policies and direction.
3. A Chain Bank is a bank owned by a group of individuals who formulate the
policies of the bank.
4. A Group Bank is owned by a holding company engaged in the banking business.
It is similar to the Chain Bank.

Types of Banks According to Place of Organization

1. A Domestic Bank is organized under the Philippine laws and is doing business in
the country.
2. A Foreign Bank is organized under the laws of a foreign country and is doing
business here by branching or joint venture

Types of Bank Loans

There are several types of bank loans. These are:

1. Commercial Loan. It is granted for short period (2 to 6 months) to help the


borrower in his working capital needs. This loan is availed of by merchants,
manufacturers, wholesalers, etc. for production, distribution of goods, stocking up
of inventories or advancing receivables. It is paid out of sales and collections. It
is also called a self-liquidating loan.

2. Real Estate Loan. It is a loan to finance the construction, purchase or


improvement of rural and urban properties. The property is usually mortgaged to
guarantee the loan and with longer terms. Money loaned usually comes from

86
savings deposits which are usually turned over very slowly. This loan is usually
paid in equal monthly amortizations.

3. Industrial Loan. Usually availed of by manufacturers and public utility firms to


finance the acquisition of new or additional plant and machinery for expansion
purposes. This loan is long term and repaid in amortizations. The bank usually
evaluates the soundness and feasibility of the project/business.

4. Personal Loan. It is generally for consumption purposes or to meet personal


obligations like illness. The integrity of the borrower (character) and the size and
regularity of his incomes are very important criteria in the availment of this type
of loan.

References:

Calapan, A.S. and L. Santiago-Tuazon, 1996, “A Report on the Philippine


Monetary and Financial Policy,” Quezon City: UP SOLAIR (unpublished).
Tetangco, Jr., Amando, 2003, “Money and baking in Philippine Setting”, Money
and Banking in the Philippines, Manila: Bangko Sentral ng Pilipinas.
White, Peter, 1993, “The Power of Money”, National Geographic Magazine,
Washington D.C: National Geographic Society, January 1993.

87
NON-BANK FINANCIAL INSTITUTIONS

Non-bank financial institutions (NBFIs) have been playing greater roles in the
financial system of the Philippines. These NBFIs account for 6.67 per cent of the total
resources of the financial system, or second to commercial banks. The NBFIs also
account for 16.5 per cent of the total assets of the financial system in 2002.

An NBFI is engaged in innovative financial operations of channeling funds of


lenders-savers to fund users outside of the usual savings and loans. Traditional banking is
basically accumulating money through savings and selling the same money through
loans. An NBFI converts the money or loans into specific products or services like
insurance, financing the purchase of motor vehicle or housing unit, stocks, bonds, and
other securities, pre-need services like education plans, health, retirement pension,
memorial services, etc.

The BSP listed down below the various NBFIs. Only financing companies and
investment houses may be allowed by the BSP to perform quasi-banking business. A
NBFI performs quasi-banking operations if it borrows funds from the public (or more
than 19 creditors) for purposes of relending or purchasing of receivables, but it is not
allowed to offer savings deposit services.

1. Investments Houses
2. Financing Companies
3. Investment Companies
4. Lending Investors
5. Pawnshops
6. Insurance Companies
7. Fund Managers and Pension Funds
8. Government NBFIs: GSIS, SSS, PHIVIDEC, NHMFC, NDC, Small Business
Guarantee and Finance Corporation and the Philippine Export and Foreign Loan
Guarantee Corporation
9. Non-stock Savings and Loan Associations
10. Building and Loan Associations
11. Venture Capital Corporations
12. Cooperatives
13. Securities Dealers and Brokers

Investment Houses

An investment house is a financial enterprise primarily engaged in the


underwriting of securities of other enterprises, both government and private. Governed by
the Investment Houses Law of 1973, the principal role of the investment house is capital
formation. Among the business activities of an investment house are financial
consultancy, portfolio management, assistance to companies in mergers and takeovers,

88
stockbrokering, etc. The minimum paid up capital of an investment house is 300 million
pesos and majority of its voting stocks should be owned by Filipinos (Reyes, 2003)

Financing Companies

Financing companies raise funds by issuing commercial papers like stocks and
bonds and use these funds to finance, usually in small amounts, the purchases of
consumers and enterprises. A stock is a certificate of ownership of an enterprise and
earns dividends while a bond is a certificate of indebtedness (long term) and interest
bearing. The difference between the financing company and a bank is that while a bank
accumulates small deposits and lends them in large loans, a financing company borrows
in large amounts and relends them in smaller amounts.

The minimum paid-up capitalization of financing companies is: 10 million pesos


for those in Metro Manila area; 5 million pesos for first-class cities outside Metro Manila
area; 2.5 million pesos for second-class cities and first-class municipalities; 1 million
pesos for third-class cities and second-class municipalities; and 500,000 pesos for fourth-
class cities and third-class municipalities and below. Sixty per cent of the capital of a
financing company must be owned by Filipinos. Financing companies are very flexible
and are able to suit the needs of fund users compared with banks.

Financing companies are classified into 3 types:

1. Sales Financing Companies make loans to customers for purchases from a


particular retailer or manufacturer.
2. Consumer Financing Companies make loans to customers to buy specific items
like a motor vehicle, housing unit (equity financing), furniture, equipment,
appliances or to refinance small debts. Usually, customers of finance companies
can not obtain credit from other sources and they are charged higher interest rates.
3. Business Financing Companies engaged in specialized forms of credits to
businesses like purchasing accounts receivables at discounts (factoring and check
discounting) and leasing equipment like computers, airplanes, construction
equipment, etc. either in a pure lease or lease purchase contracts.

Lending Investors

Lending investors (LIs) are individuals or entities giving secured or unsecured


loans to individuals and enterprises. They are not allowed to engage in pawnbroking
(accept personal properties as securities for loans), financing (leasing or discounting
commercial papers), or fund/portfolio management. LIs should conduct their business in
accordance with RA No. 3765 (“Truth in Lending Act”). LIs are not allowed to borrow
from more than 19 lenders.

Pawnshops

89
A pawnshop refers to a single proprietor or entity engaged in the business of
lending money secured by personal properties delivered. If organized as a juridical
person, it should be at least 70 per cent Filipino-owned. It is also called a pawn broker,
pawn brokerage, agencia de empenos in Spanish or bahay sanglaan in Filipino. The credit
transaction of a pawnshop usually involves loans with “pledge,” “mortgage” or “chattel
mortgage”. The usual items pawned are jewelries, real estate, appliances and other
personal properties. Pawnshops are governed by PD No. 114 (“The Pawnshop Regulation
Act”).

Like other NBFIs, pawnshop are authorized to lend in short-term loans but not
allowed to accept deposits. Unlike in other countries, pawnshops in the Philippines
belong to the formal financial system. Pawnshops are among the easiest and most
convenient sources of credit to small borrowers who are usually not qualified to obtain
loans from other financial institutions. They are widely patronized in the rural areas and
in the informal sector because of the so-called “pawnshop mentality”. This mentality is
explained by old folks- “The moment you start earning, buy some jewelries, you can
pawn them later when you encounter financial problems”.

Pawnshops must have a minimum paid-up capital of 100,000 pesos and are not
allowed to borrow from more than 19 lenders. They usually have linkages with banks
which serve as depository of their reserves or sources of loans for additional liquidity.
Pawnshops actually retail bank loans to small borrowers. In Hagonoy, Bulacan for
example, the assets of 5 pawnshops range from 500,000 to 5 million pesos. They usually
lend at 5 to 10 per cent interest per month at a loanable amount of 60 to 70 per cent of the
appraised value of the pawned personal property.

Insurance Companies

Insurance companies sell insurance policies and the premiums or payments


collected are used to invest in assets like bonds, stocks, mortgages and other loans. The
incomes from these assets are used to pay out claims on these policies. They are
supervised by the SEC and the Insurance Commission.

Insurance, or protection from the future uncertainties, can be classified as life


insurance and non-life insurance or property insurance. Life insurance companies
specialize in selling policies that provide income to beneficiaries if a person dies,
incapacitated by illness or retires. Non-life insurance companies specialize in policies that
pay for losses incurred as a result of accidents, fire or theft.

Risks vary from person to person or from property to property. After applying
actuarial science in the study of various risks, premiums of insurance policies vary from
each other. Such that, the insurance business leads to the tendencies of adverse selection
and moral hazard.

Adverse selection is the tendency for the most risky person or property to be the
most insured while moral hazards is the tendency for the insured person to take less

90
precaution in avoiding the risks covered by the policy. To minimize adverse selection and
moral hazard, insurance companies practice screening of applicants, risk-based premium,
restrictions provision (exclusion of certain risks), prevention of fraud (claim
investigation), deductibles, co-insurance and limits in the amount of insurance.

A life insurance company can be organized either as a stock company or a mutual


company. The former is owned by stockbrokers while the latter is technically owned by
the policy holders. The largest insurance companies like Prudential and Metropolitan Life
are mutual companies. Mutual companies own more than half of the assets of the
industry. The stock companies comprise over 90 per cent of all life insurance companies
and are much smaller than the mutual companies.

There are 2 forms of life insurance: the permanent life insurance and the
temporary or term insurance. Permanent life insurance policies have constant premium
and combines savings while term insurance range from 1 year to 5 years, are pure
insurance and offer no cash value after the term. Because of actuarial science and the
high degree of predictability of death rates, life insurance companies can hold on to long-
term assets -- bonds, commercial mortgages and stocks and can manage to be not very
liquid.

Property losses on the other hand, are more uncertain than death rate in
population. Property insurance companies are therefore more liquid and are investing in
short term government securities and municipal bonds. Risks insured range from fire,
theft, negligence, malpractice, earthquakes, motor vehicle accidents, etc. For large risks,
several firms join together to write a policy to share the risks.

Fund Managers and Pension Funds

A fund manager is an entity or natural person is engaged in administering


properties or money for the benefit of the owner or a third person. The goal of the fund
manager is to maximize the returns of the investments, entrusted money or property.

A pension fund, like insurance, provides another kind of protection -- income


payments on retirement. It can be organized by employers, unions or private persons and
funds are accumulated through the contributions of the participants.

The typical features of a pension fund are as follows:

1. Minimum period of enrolment to the plan before entitlement to benefits, let us say
5 years; and
2. On the method of determining benefits, a pension can either be a contribution plan
or benefits plan. In the contribution plan, the benefits are determined by the
amount of contribution to the plan and the earnings thereof. In the benefits plan,
the benefits (or future income payment) are determined in advance.

There are two types of pension funds, the private and the government pension plans.

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A private pension fund can be managed either by a bank or life insurance
company. The contributions are shared by both the employer and the employees.
Contributions are tax deductible. Because the benefits to be paid out of the fund are very
predictable, the fund manager can invest in long-term securities, bonds and stocks. Some
of the common problems in pension funds are underfunding, mismanagement, fraudulent
practices, etc.

Government Non-Bank Financial Institutions

The government NBFIs include the Government Service Insurance System


(GSIS), Social Security System (SSS), Philippine Veterans Investment Corporation
(PHIVIDEC), National Home Mortgage Finance Corporation (NHMFC), National
Development Company (NDC), Small Business Guarantee and Finance Corporation and
the Philippine Export and Foreign Loan Guarantee Corporation.

The government pension plans are administered by the GSIS for government
employees and the SSS for private employees. The GSIS also provides insurance for
government-owned properties. It also grants several loans to members that include salary,
emergency, housing loans, etc. The SSS, on the other hand, provides benefits to its
members like death, disability, sickness, maternity and old age. It also provides loans like
salary, calamity, housing, educational, hospitalization, etc.

The PHIVIDEC was created by PD No. 243 and amended by PD No. 918 to
promote the well-being of the veterans and the retirees of the Armed Forces of the
Philippines. The NHMFC (or Pag-Ibig Fund) was created to purchase mortgages
originated by both private and public institutions utilizing long-term funds principally by
the SSS, GSIS and the Home Development Fund.

The NDC was organized to pursue commercial, industrial, agricultural and mining
ventures for economic recovery. It is also authorized to contract loans and other
obligations and to guarantee domestic and foreign loans and other indebtedness. The
Small Business Guarantee and Finance Corporation was created by RA No. 6977 (Magna
Carta Enterprises) to promote, develop and assist small and medium-enterprises.

Non-stock Savings and Loan Association (SLAs)

A non-stock SLA is a corporation organized under RA No. 3779 (Savings and


Loan Act of 1963 as amended) and engaged in the business of accumulating the savings
of its members for loans to members and investments in government securities. Its
membership is confined to a well-defined group of persons (usually employees of
institutions). It accepts deposits or grants loans to members only. It is not allowed to
transact business with the general public. It cannot be registered with the SEC unless
approved by the BSP. An SLA is not allowed to borrow from more than 19 lenders and
its borrowings should not exceed 20 per cent of its total assets.

92
In 1996, there were 88 non-stock SLAs all over the country with 700,000
individual members and a reach of 3 million people. The biggest of these SLAs is the
Armed Forces and Public Savings and Loan Association, Inc. (AFPSLAI) which was
organized in 1972.

In 1993, the AFPSLAI has assets of 4.81 billion pesos and a net income of 817.2
million pesos. It has membership of 317,000, a reserve fund of 276.81 million pesos and
equity of 4.2 billion pesos. It employs 950 personnel and has declared dividends of 666
million pesos in 1993. Among the activities and businesses of the AFPSLAI are savings,
capital and time deposits, and loans for salary, emergency, calamity, commercial,
livelihood, home mortgage, real estate/ housing, education and appliances.

Building and Loan Associations

The BLA is a corporation whose capital stock is required to be paid in regular


periodic payments. Its main activity is to loan its own and borrowed funds from
stockholders and secured by unemcumbered real estate and the pledge of shares of its
stockholders. It encourages industry, savings and homebuilding among its members.

Venture Capital Corporations

VCCs are entities organized by private banks, the National Development


Corporation (NDC), the Technology and Livelihood Resource Center (TLRC) and other
government agencies. The objective of a VCC is to develop, promote and assist through
debt and equity financing small and medium enterprises with assets not exceeding 4
million pesos. VCCs were established under PD No. 1688 of 1980.

Cooperatives

A cooperative is a duly registered association of persons with a common bond of


interest, who have voluntarily joined together to achieve a lawful common social or
economic end, making equitable contributions to the capital required and accepting a fair
share of the risks and benefits of the undertaking in accordance with the universally
accepted cooperative principles (RA No. 6938 or the Cooperative Code of the
Philippines).

Cooperatives are classified as primary, secondary and tertiary cooperatives. The


members of a primary cooperative are individuals or natural persons while those of a
secondary cooperative (cooperative federation) are primary cooperatives and registered
non-profit organizations (NGOs). Examples of NGOs are associations, trade unions,
foundations, political parties or even another cooperative federation. The members of a
tertiary cooperative (cooperative union) are all types of cooperatives at the provincial,
city, regional and national levels. Cooperative unions are organized to articulate, advance
and protect the interest and welfare of the cooperative movement (Versoza, 1991).

93
A cooperative can engage in any type of legal business. This has become the basis
of the types of cooperatives:

1. Credit Cooperative or Union (savings and credit business)- promotes thrift


among its members and creates funds in order to grant loans for productive and
providential purposes.
2. Consumers Cooperative (retail and wholesale business)- one which procures
and distributes needed commodities to members ad non-members.
3. Producers Cooperative (farm or factory-based production, processing or
manufacturing business) -- one which undertakes joint production whether agricultural or
industrial.
4. Marketing Cooperative (purchasing and distribution business)- one which
engages in the supply of production inputs to members and markets their products.
5. Service Cooperative (all other service business)- one which engages in medical
and dental care, hospitalization, transportation, insurance, housing, labor, electric light
and power, communication and other services.
6. Multi-purpose Cooperative- one which combines two or more of the business
activities of these different types of cooperatives.

References:

____________, Money and Banking, Quezon City: UP School of Economics.


Confederation of Non-Stock Savings and Loan Association, Inc., 1996, “An
Urgent Appeal to the Philippine Senate, June 27, 1996, Philippine Daily Inquirer.
Cabalquinto, E., 1995, “Organizations Run and Managed by Military Officers,”
Quezon City: UP SOLAIR (unpublished).
Reyes, Alberto, 2003, “Supervision of Financial Institutions”, Money and
Banking in the Philippines, Manila: Bangko Sentral ng Pilipinas.
Sibal, Jorge, 1998, Cooperative Principles, Benefits, Duties and Responsibilities
of Cooperative Members, Quezon City: UP SOLAIR (unpublished).
Taruc, M.L.B., 1991, “XYZ Bank Savings and Loan Association,” Quezon City:
UP SOLAIR (unpublished).
Tetangco, Jr., Amando, 2003, “Money and Banking in Philippine Setting”, Money
and banking in the Philippines, Manila: Bangko Sentral ng Pilipinas.
Versoza, Manuel, 1991, The Philippine Cooperative Law, Annotated, Quezon
City: Adrian Printing Co., Inc.

94
Table 9: Activities in the Philippine Financial System (PFS)
Money Markets- Capital Markets
Type of Loans
Secondary Market
Institution CL1 REL2 IL3 PL4 Over the Organized Primary
Counter Exchange Market
A. Banks
1. Universal Bank5 X X X X X X X
2. Commercial X X X X X X
3. Thrift Bank
 Stock SLA X X X
 Savings & X X X
Mortgage
 Private Dev. X
4. Rural Bank X
5. Coop Bank X X X X
B. Non-Bank F.I.
1. Finance Co. X X X
2. Pawnshop X X
3. Lending Investor X X
4. Non-stock SLA X X X X
5. Insurance X X X X
Corp./Coop
6. Trust Company X X
7. Pension Fund X X
Mgr.
8. Non-bank GFI X X X X X X
9. Investment X X
Co./Mutual Fund
10. Bldg and Loan X X X
Association
11. Investment X X X X X
Bank/House
12. Securities X X
Dealer/Broker
13. Cooperative X X X X

1
Commercial Loan (2 – 6 months)
2
Real Estate Loan (REL)
3
Industrial Loan (IL)
4
Personal Loan (PL)
5
Also performs non-bank financial operations in addition to a commercial bank.

95
Capital Market and Long-term Financing

A capital market consists of financial institutions that facilitate transactions in


long term financial instruments like common stocks and bonds. Long term refers to
maturity period beyond one year. It brings together investors with funds and corporations
in need of funds. The key players in the capital market are commercial bankers,
institutional investors like insurance companies, pension funds, investment banks,
investment companies and securities dealers and brokers.

Long term investments are crucial to economic development. Large scale projects
in manufacturing, construction and agriculture cannot materialize without long-term
financing and the capital market. This is the reason why the government is developing the
stock market in its monetary policies in order to further boost local and external-
generated savings and capital formation.

The Capital Market

The capital market is composed of an organized securities exchange (PSE or the


Philippine Stock Exchange) and the over-the-counter markets. An organized securities
exchange like the PSE is a tangible entity with a building and the financial instruments
are traded in their premises. The over-the-counter markets have no specific locations or
buildings, are intangible and are primarily telephone markets. Sometimes, it is also
called money market. They include all security markets sold outside the organized
exchange.

The Organized Stock Exchange

The business of the PSE is conducted by its members who occupy “seats”. The
PSE members are major brokerage firms. This membership permits the brokerage house
to use the facilities of the exchange to effect trades.

The advantages of an organized stock exchange are the following:

1. It provides a continuous market and a series of continuous securities prices.


Trading is facilitated in large volumes and the big variance between the asking
and selling prices of securities is reduced.
2. Prices of securities are set by competitive forces in a manner of an auction. These
prices are immediately and widely published for the public knowledge.
3. The floatation and pricing of new offerings by corporations are facilitated thereby
helping business raise new long term capital faster.

96
Figure 16- The Capital Market

advises sells
Investment Bankers

underwrites sells
Secondary
Securities Primary Market
Fund Users >Stocks Market Investors
>Organized > Institutions
>Corporations >Bonds Exchange > Individuals
>LGUs >etc. >Over-the-
issues Counter
buys
Securities Dealers/ sells
Brokers

Listing Requirements

In order to use the facilities of an organized exchange, a corporation has to


comply with the listing requirements. Usually, the general criteria for listing are
profitability, size of assets, market value of stocks and extent of public ownership. The
actual listing requirements differ from exchange to exchange.

Those corporations who cannot comply with the listing requirements of the
exchanges trade their securities in the over-the-counter markets. Most of the transactions
here are done by securities dealers and brokers. They profit out of the difference between
the bid price and the asked price. Prices in the over-the-counter markets are not as
continuous as in the organized exchange.

The Philippine Stock Market

In 1988, only one-fourth of 1 per cent of the population was active in the stock
market. At present, securities traded at the PSE have exceeded 400 billion pesos making
it one of the most buoyant in Asia. The government is helping develop the stock market
by strengthening regulations to protect investors and reducing taxes in stocks.

Small investors are encouraged to invest in the stock market. Petron and Meralco
allowed their respective workforce to invest in stocks through employees’ stock option
plans (ESOPs). The SSS has allowed interested members to borrow money for
investments in securities of selected blue chip corporations.

97
Primary and Secondary Markets

A primary market is a financial market in which new issues of securities like


bonds or stocks are sold by the issuing corporation or government to the initial buyers. A
secondary market then trades the securities previously sold in the primary market through
the organized exchange or the over-the-counter markets. The investment bankers are
firms that assist in the initial sale of the securities in the primary market, while securities
brokers and dealers assist in the trading of securities in the secondary markets.

The Actors of the Philippine Capital Market

The major actors in the local capital markets are non-bank financial institutions as
follows:

1. Investment Banks or Investment Houses;


2. Investment Companies; and
3. Securities Brokers and Dealers.

Investment Banks

An investment bank or investment house is a financial specialist in facilitating the


sale of securities of a corporation. Although called an investment banker, it is actually not
a bank and is not involved in depositing and lending functions.

The investment banker performs 3 basic functions -- advising, underwriting and


distributing. As an adviser, the investment banker counsels whether the corporation will
issue bonds or stocks. He advises on the price of the offerings, the maturity and interest
rates of bonds.

As an underwriter, the investment banker guarantees the corporation a price in


their securities and then sells them to the capital market. If the size of the issue is big, the
investment banker may team-up with other investment bankers to form a syndicate to
underwrite the issue jointly and share the risks involved.

The investment banker then distributes the securities to the general public by
advertisements or directly contracting potential buyers like banks, insurance companies,
mutual funds, pension funds, etc.

The activities of the investment banks and the operations of the primary markets
are regulated by the Securities and Exchange Commission (SEC).

Investment Companies and Mutual Funds

Among the most common form of investment companies are the mutual funds.
Mutual funds are financial institutions that pool the investments of many small
shareholders in order to buy securities in larger volumes and avail of volume discounts in

98
brokerage commissions. Most mutual funds specialize in common stocks and other debt
instruments of specialized industries like oil and energy and local and foreign
corporations and governments including the tax exempt municipal bonds.

There are two forms of mutual funds: the open-end and the close-end fund. The
most common structure is the open-end fund wherein shares can be redeemed anytime at
price determined by the asset value of the fund. The close-end fund on the other hand
sells a fixed number of non-redeemable shares in initial offering and later traded in the
over-the counter market like a common stock. An open-end fund is more liquid than the
close-end fund since it shares are redeemable anytime.

A new type of mutual fund is the money market mutual fund. This fund invests in
short-term debt instruments (less than a year) of very high quality like treasury bills,
commercial papers and bank certificates of deposits. These funds allow the shareholders
to redeem shares by writing checks above some minimum amount on the fund’s account
at a commercial bank.

Securities Brokers and Dealers

Securities brokers and dealers conduct trading in the secondary markets. Being
pure middlemen, brokers act as agents in the purchase or sale of securities. They match
buyers with sellers and are paid brokerage commissions. Dealers on the other hand buy or
hold securities inventories and sell them at higher price. This is also called the “spread”
or income of the dealer which is the difference between the bid price and the asked price.
This is a high risk business since dealers hold on to securities whose prices quickly rise or
fall. Brokerage firms engage in all three securities market activities, acting as brokers,
dealers and investment bankers.

References:

__________, ”Why Capital Market Reform is Crucial to our Growth?” and “How
to Make Money in Stocks,” Banking on Business, Vol. 1, No. 5, News Events Trends,
Manila.
Petty, J.W., A.J. Keon, O.F. Scott, Jr. and J.D. Martin, 1993, Basic Financial
Management, 6th Edition, New Jersey: Prentice-Hall International, Inc.

99
THE PHILIPPINE LABOR SITUATION

The Philippine population is expected to reach 90.4 million in 2008. Growing at a


fast rate of over 2.36 per cent, it is the 7th largest in Asia and the 16th most populous in
the worldi. Considered one of the fastest growth rates in Asia, the country’s population
grows at 1.8 million a year, or 3 persons per minute (NSO, 2000). Urban population
accounts for 48 per cent in 2000.

The Philippines is 81 per cent Catholic, the only one in Asia. Islam accounts for 5
per cent, Evangelicals at 2.8 per cent and other Christians (Aglipayan, Iglesia ni Cristo,
etc.) at 11 per cent. The ethnic groups are composed of Tagalog (28 per cent), Cebuano
(13 per cent), Ilocano (9 per cent), Bisaya (7.5 per cent), Hiligaynon/Ilongo (7.5 percent),
Bicol (6.0 per cent), Waray (3.3 per cent) and others (NSO, 2000).

Most Filipinos are young with half of the population below 21 years old. Thirty
five per cent are below 15 years of age. Most Filipinos belong to big families. The
average family size is 5-6 members which is supported by 1 to 2 bread earners. The
Philippine population of 15 years and over is shown below:

1986 - 33.5 million


1991 - 38.8 million
1996 - 44.6 millionii
2000 - 49.5 million
Jan. 2008- 57.4 million (preliminary, NSO)

The Philippine labor force totals 36.4 million in 2008 with a 63.4 per cent labor
force participation rate.

Education of the Labor Force

The Philippines is among the Asian countries with high literacy rates. In 2000, 9
out of 10 Filipinos are able to read and write. In Metro Manila, 98 per cent are literate
(Table 10). On functional literacy, 84 per cent of the population aged 10-16 can read,
write and compute and 40 per cent are at least high graduates in 2003 (Table 11).

Table 10- Literacy Rate of Household Population 10 Years Old and Over by Region,
Philippines: 1970, 1980, 1990 and 2000

Region 1970 1980 1990 2000


Philippines 83.4 92.7 93.5 92.3
National Capital Region 96.0 96.6 99.1 98.1
Cordillera Administrative Region 72.1 76.2 89.0 90.5
Region I- Ilocos Region 84.4 86.0 95.8 95.2
Region II- Cagayan Valley 62.1 81.4 91.3 91.7
Region III- Central Luzon 90.4 88.5 97.8 94.8

100
Region IV- Southern Tagalog 90.8 85.8 96.8 94.0
Region V- Bicol Region 86.4 83.5 95.3 92.7
Region VI- Western Visayas 82.2 81.2 93.0 93.0
Region VII- Central Visayas 78.0 76.0 91.0 91.6
Region VIII- Eastern Visayas 77.6 76.5 89.8 89.9
Region IX- Western Mindanao 65.5 65.0 81.3 85.2
Region X- Northern Mindanao 83.7 83.4 92.9 91.4
Region XI- Southern Mindanao 79.1 80.1 91.9 90.1
Region XII- Central Mindanao 66.7 66.5 83.0 87.0
Region XIII- Caraga - - - 92.0
ARMM – Autonomous Region of Muslim Mindanao - - - 68.7
Sources of Data: National Statistics Office, 1970, 1980 and2000, Census of Population and Housing, 1990

Table 11. Percentage of Population 10 to 64 Years Old Who are Classified into the
Different Functional Literacy Levels, Philippines 2003

Functional literacy levels Both Male Female


sexes
Philippines (No. in ‘000) 57,588 28,947 28,641
Level 0- cannot read and write 9.1 10.6 7.6
Level 1- can read and write 88.6 86.8 90.4
Level 2- can read, write and compute 84.1 81.9 86.3
Level 3- can read, write, compute and comprehend 65.8 62.9 68.8
Level 4- high school graduate or higher 40.5 38.4 42.7
Undertemined 2.3 2.6 2.0
Source: NSO, http://www.census.gov.ph/data/sectordata/2003/fl03_lsf01.htm

The Philippines maintains a free public education system of 6 years in elementary


(primary) and 4 years in secondary (high school) education. The government allocates the
biggest budget to education (Capones, 1998). From 1985 to 2005, the budget for
education increased from 1.5 per cent of GDP in 1985 to 3.5 per cent in 2000 and tapered
to 2.7 per cent in 2005 (Table 13). The bulk of the budget went to basic education (Table
12).

Table 12. Budgetary Appropriation for Philippine Educational System


by Level of Education and by Agency (in '000 pesos, FY 2002 to FY 2006

Particulars FY 2006 - FY FY FY FY
proposed 2005 2004 2003 2002
Total (‘000) 121,600 114,480 108,433 109,987 106,050

1. Basic Education (DepEd) 118,038 110,995 105,295 106,708 103,050

2. Higher Education (CHED) 1,140 1,107 1,052 664 754

3.Tech/Voc Education (TESDA) 2,421 2,411 2,085 2,614 2,161

101
Note: Only selected agencies were covered to represent each level of education. DepEd - Department of
Education; CHED - Commission on Higher Education; TESDA - Technical Education Skills and
Development Authority.

Source: Department of Budget and Management.

Table 13. Public Expenditure on Education (Total Spending as a Percentage of


GDP), Philippines, 1985-2005

1985 1990 1995 2000 2005

1.3 2.9 3.0 3.5 2.7


Source: World Bank, http://devdata.worldbank.org/edstats/SummaryEducationProfiles/CountryData

As of April 1999, the education of the labor force is summarized as follows: those
in college number 6.7 million (23 per cent of total labor force); in high school, 10.3
million (35 per cent); in elementary, 11.5 million (39 per cent), and no grade completed,
856,000 (0.3 per cent). It is very common in the urban areas to employ college graduates
for clerical jobs that normally require only high school graduates.

While the Philippines enjoys a comparative advantage in literacy rate compared to


other Asian countries, it may soon lose the said advantage since other ASEAN countries
are almost spending more on education compared to the Philippines. The country’s
average spending of 3.6 per cent of GNP for education is low compared to Malaysia at
6.0 per cent of GNP and almost the same as Indonesia at 3.7 per cent and Thailand at 3.6
per cent (Doronila, 1998).

Skills of the Labor Force

According to an ILO research in 1999, the skilled labor force in the country
accounted only 11 per cent of the population 15 years and above. Most were unskilled
(Amante, Ofreneo & Ortiz, 1999). In 2008, laborers and unskilled workers comprise 31.6
per cent of the total employed population. Farmers, forestry workers and fishermen are
still a large group of workers with 18.2 per cent. In 1992, as shown in Table 19, farmers
and forestry workers used to be the biggest occupation groups which account for 44.7 per
cent of the total employed. Factory workers and laborers increased from 22.5 per cent in
1992 to 40 per cent in 2006 which are mostly accounted by non-regular workers.

The ILO study showed that there were more skilled male workers than females,
reaching up to seventy per cent of the skilled workforce. Most of the women acquired
their skills through formal schooling and training. Three fifths of the skilled workforce
acquired their skills through experience or apprenticeship while 1/5th acquired them
through formal schooling and training. Most of skilled workers are concentrated in a few

102
developed regions- Metro Manila, Southern Tagalog (Region 4), Central Luzon (Region
3) and Central Visayas/Metro Cebu (Region 7).

Unemployment and Underemployment

The Philippines suffers from high unemployment and underemployment, the


highest among the ASEAN countries. Table 14 shows the trends in unemployment and
underemployment. This is caused by two major factors- high birth rate of 2.36 per cent
and insufficient job creation and preservation. The majority of the jobs created were of
low quality and insufficient to meet the high number of entrants to the labor force.

Table 14. Unemployment and Underemployment


(5 year averages) 1975-2004, 2004, 2005, 2008

Unemployment (%) Underemployment (%)


1975-1980 5.40 12.68
1981-1985 9.93 24.88
1985-1990 10.48 21.88
1991-1994 9.50 20.00
1995-1999 9.32 20.82
2000-2004 11.40 18.10
2004 11.00 (6.5- ILO) 17.50
2005 11.30 (7.3- ILO) 16.10
Jan. 2008 (preliminary, NSO) (7.4- ILO) 18.9
* 1998 figures based on NSO April rounds statistics, 2004 based on BLES statistics

Figure 17- Causes of High Unemployment and Underemployment

Supply side- High labor entrants Crisis in labor and High


Demand side- Insufficient job creation the economy- high Poverty
& declining agri-industrial growth unemployment and &
underemployment Hunger

Felipe and Lanzona (2005) explained the problems of labor market. The
entrants in the labor force exceeded the jobs created; and the jobs created were mostly
low quality jobs in the services sector (67 per cent) and the rest divided equally among
industry and agriculture which contributed very little to economic growth. As shown in
Table 15, addition to the labor force from 1996-2004 exceeded job creation. A total of 1.5
million workers were added to the unemployed labor force during the last 8 years.

103
Table 15. Addition to the Labor Force vs Job Creation (000s) (1996-2004)

Year Addition to the Job Creation Addition to


Labor Force Unemployment
1996 1,353 1,510 157
1997 621 530 ( 91)
1998 700 196 (504)
1999 (295) (170) (442)
2000 152 (290) (442)
2001 1,903 1,704 (199)
2002 1,122 906 (216)
2003 635 566 (69)
2004 1,289 976 (313)
1996-2004 7,480 5,928 (1,552)
Source: Soriano, Rene (2005)

The unemployment rate in January 2008 was estimated at 7.4 per cent with the
NCR having the highest unemployment rate at 12.5 per cent. There are more unemployed
males at 7.8 per cent compared to females at 6.7 per cent. Youth unemployment (ages
from 25-34) is high at 49.6 per cent of all unemployed while those at ages 25-34 account
for 30 per cent of all unemployed.
In 2005, the unemployment rate increased further to 11.3 per cent iii (Table 14)
because the increase in the labor force at 1.4 per cent was larger than the growth of
employment at 0.6 per cent. There was also high unemployment among the schooled-
29.3 per cent among high school graduates, 16.8 per cent among college undergraduates
and 17.3 per cent among college graduates (BLES, 2005).

Underemployment rates remain high at 18.9 in January 2008 (Table 14).


Employed persons who want additional hours of work are considered underemployed.
Most of the underemployed are in the agriculture sector at 49 per cent. Underemployed
persons in the services sector accounted for 35.8 per cent while those in the industry
sector, 14.9 percent. About 61.2 percent of the underemployed were reported as visibly
underemployed, or had been working for less than 40 hours a week.

Employment

From 1980 to 2003, the economy generated 14.7 million new jobs (or around
640,000 annual averages). The distribution is shown in Table 16. It should be noted that
manufacturing, the sector that has thrived in other South East Asian countries and the
source of quality decent jobs, has created only 1 million jobs in 22 years.

Table 16. Employment Generated by Sector and Number of Unemployed


(1980-2003)
Sector Number Percentage
Agriculture 6,039,000 41.0%
Services 5,501,000 37.3

104
Industry 3,196,000 21.7
[Includes manufacturing] [1,142,000] [ 7.7]
Total 14,736,000 100.0%
New Labor Entrants 17,705,000
Unemployment 2,567,000
Source: Felipe and Lanzona (2005)

Of the estimated 33.7 million employed persons in 2008, around one-half (50.2
per cent) were in the services sector, more than one-third (35 per cent) in the agriculture
sector and the rest (14.8 per cent) in the industry sector. These proportions were almost
the same as in January 2007 estimated at 50.5 per cent for services sector, 34.7 per cent
for agriculture sector and 14.8 per cent for industry sector. Most of the jobs created in
agriculture and the services sectors were low quality jobs. These trends are shown in
Table 17 and in Chart 4.

Table 17. Labor Absorption of Agriculture, Industry and Services


(in percentage)
Sector 1971 1981 1991 2000 2007
Agriculture 50.4 51.4 45.2 37.0 34.7
Industry 12.0 10.5 11.0 10.3 14.8
Services 37.6 38.1 43.8 52.7 50.5
Totals 100.0 100.0 100.0 100.0 100.0
Reference: Philippine Statistical Yearbook, National Statistics Coordination Board, 2007 data NSO.

Chart 4. Labor Absorption of Agriculture, Manufacturing and Services (in


percentage), 1971, 1981, 1991, 2000

60

50

40
Agriculture
30
Manufacturing
20 Services
10

0
1971 1981 1991 2000

Employed persons are either full-time or part-time workers. Full-time workers


work for 40 hours or more while part-time workers work for less than 40 hours. Six in
every 10 employed persons in January 2008 were full-time workers, with those working
for 40 to 48 hours having the highest proportion (40.8 per cent of total employed). Part-
time workers comprised 35.3 percent of the total employed.

Employed persons are classified as: wage and salary workers (51.7 per cent); self-
employed workers (32.3 per cent); unpaid family workers (12.2 per cent); and employers

105
(3.8 per cent). In January 2008, wage and salary workers work in private (38.2 per cent)
or government (7.9 per cent) establishments and in family-operated business. More than
half (51.7 per cent) of the total employed persons in January 2008 were wage and salary
workers mostly working for private establishments (38.2 per cent). More than one-third
of the total employed persons were own-account workers composed of self-employed
workers and employers (Table 18).

The private sector (mostly family-owned) is the biggest providers of jobs in the
Philippines. Most of these are in the informal sector composed of own account workers
and unpaid family workers which account for almost 45 per cent of employment.
Majority are in the rural areas engaged in vending and selling, crafts and manufacturing
(tailoring, dressmaking, baking and metal works). Unpaid family workers are those who
work without pay in a farm or business operated by a member of his/her family. These
workers perform household chores, agricultural activities and all around work in
homebased-micro-enterprises.

Table 18- Employment by Sector or Class of Worker (1992, 1999 and 2008)

Number in Million Percentage


1992 1999 2008 1992 1999 2008
Total Employed 23.69* 29.49 - 100.0 100.0 100.0
Wage and Salaried 10.65 14.22 - 45.0 48.2 51.7
Self-Employed 8.71 9.35 - 36.8 31.7 32.3
Unpaid Family Workers 3.57 4.46 - 15.0 15.1 12.2
Employers 0.77 1.45 - 3.2 4.9 3.8
*The 1997 employed workforce is 27.7 million with a 91.3 per cent employment rate (1997 Yearbook of
Labor Statistics, DOLE BLES).
Source: DOLE, BLES, 1999 2nd Quarter, 2008 figures, NSO ( http://www.census.gov.ph )

In 2006, farmers and forestry workers are now reduced to 19 per cent of the total
employed (Table 19). Factory workers and laborers increased from 22.5 per cent in 1999
to 40 per cent in 2006. Most of these workers and laborers were contractual workers.
Sales and services workers were reduced to less than 10 percent.

Table 19. Employment by Major Occupation Group (1992, 1999 and 2006)

Number in Million Percentage


1992 1999 2006 1992 1999 2006
Total Employed (‘000) 23.69 29.49 32.87 100.0 100.0 100.0
Professional and Technical Workers 1.35 1.67 2.26 5.7 5.6 6.8
Administrative, Executive & 0.28 0.60 3.76 1.2 2.0 11.5
Managerial Workers
Clerical Workers 0.98 1.30 1.46 4.1 4.4 4.5
Sales Workers 3.19 4.32 3.04* 13.5 14.6 9.3*
Service Workers 2.15 2.96 9.1 10.0
Trade and Related Workers/Special - - 2.90 - - 8.8
Occupations

106
Farmers, Fishermen and Forestry 10.60 11.97 6.27 44.7 40.6 19.1
Workers
Factory Workers and Laborers 5.11 6.63 13.16 21.6 22.5 40.1
nd
Source: DOLE, BLES, 1999 2 Quarter, 2008 figures, NSO ( http://www.census.gov.ph )
* Includes service workers.

Mobility of Workers

The Philippines is experiencing rapid urbanization as a result of globalization.


More than half of the country’s almost 36 million labor force are in the urban areas.
Labor mobility is enhanced by local and international migration. Internal migration is
encouraged by construction boom mostly in the cities, establishments of export
processing and industrial zones, improvements in infrastructure and transportation
systems and natural calamities in regions like typhoons, drought and lahar flows in
Central Luzon.

Rapid urbanization has brought many problems to Metro Manila and other highly
urbanized areas. Traffic jams, large urban slum communities, criminality, malnutrition
are some of the country’s serious social problems. Solving these problems has become
the major activities of both local and national governments.

External migration of both professionals and low-skilled workers is caused by the


fast paced growth in Asia, particularly the Middle East and Asian newly industrialized
economies. The phenomenon of the overseas Filipino worker (OFW), which started as a
short-term solution to high unemployment, has become a blessing in overcoming the
country’s foreign exchange problem.

Many Filipinos migrated or worked abroad because of uncertainty in the growth


of the country. Around 8 to 10 million land and sea-based Filipino workers worked as
immigrants and permanent residents, contract workers, and undocumented or illegal
migrants. Filipinos have reached 193 countries worldwide from the highly industrialized
to the poor countries in Africa. As of 2003, the biggest bulk were in Americas / Trust
Territories at 44 per cent, East and South Asia at 19 per cent, West Asia at 18 per cent,
Europe at 10.6 per cent, Oceania at 4 per cent, sea-based at 3.3 per cent, and Africa at
0.87 per cent (Opiniano, 2004).

Opiniano (2004) observed the following new trends in labor migration. More
Filipinos leave the country for temporary contract than those who leave for permanent
residence abroad. Of the 8 million OFWs, there were 3 million immigrants and
permanent residents and 5 million contract workers. The Asian newly industrialized
countries (NICs) have become the new destinations of OFWs aside from the Middle East.
Some 65 to 70 per cent of migrant workers were females. There are more service workers
particularly domestic helpers from the mid-80s to the 90s in contrast with production,
transport, construction and related workers in the 70s to mid-80s.

107
Almost half (48.2 per cent) of OFWs came from three fast developing regions-
Southern Tagalog (Region 4 at 17.85 per cent), National Capital Region (16.7 per cent)
and Central Luzon (Region 3 at 13.7 per cent). Their median age was 32 with males
having a higher median age at 35 and females at 29. Most were married (56 per cent) and
almost one third (31 per cent) were heads of family. The average OFW was at high
school level. OFWs with college and post graduate degrees constituted 12.3 per cent and
0.9 per cent respectively. With an average household size of 6 members, OFWs were
better off than other households with no overseas workers. They have more appliances
and bigger houses made of stronger materials.

Chart 5. Sources of OFW Remittances, 2005


USA & Canada= $6.54 Billion

Middle East (KSA, UAE &


Kuwait)= $1.3 Billion
East Asia (Japan, HK &
Singapore)= $0.94 Billion
Europe (Italy, UK &
Germany)= $0.86 Billion
Australia= $0.05 Billion

Other Countries= $0.99


Billion

Source of Data: Bangko Sentral ng Pilipinas

As present day economic heroes, the OFWs remitted $10.69 billion in 2005. This
was equivalent to 10.5 per cent of the GDP and about 20 per cent of the country’s
exports. More than 61 per cent came from North America (USA and Canada) at $6.54
billion. Middle East countries (Saudi Arabia, UAE and Kuwait) followed with $1.3
billion or 12.15 per cent. East Asia (Japan, Singapore and Hong Kong) was third at
$953.7 million (8.75 per cent), followed by Europe (Italy, U.K. and Germany) at $865.6
million (8.1 per cent). Australia contributed $49.9 million (0.46 per cent) and other
countries $997.3 million (9.3 per cent). This is shown in the Chart 5.

OFWs have fueled the economy through their consumer spending. Sixty four per
cent of OFW households were in urban areas. According to the 2000 Family Income and
Expenditure Survey, OFW households spent 460 billion pesos ($8.9 billion) in 2000.
They spent 13.6 billion pesos or $264 million (2.96 per cent) on durables while 12.5
billion pesos or $242 million (2.7 per cent) were spent on medicines and medical-related
expenses. One third of these expenses (152.7 billion pesos or $2.9 billion) were made in
the National Capital region. Southern Tagalog followed with 84.2 billion pesos or $1.6
billion (18.3 percent) and Central Luzon, 52.8 billion pesos or $1.03 billion (11.5 per
cent).

108
Table 20. OFW Households by Income Class, 2000

Income Class Monthly household No. of Households % share


income (in pesos)
A Above 300,000 1,260 0.1
B 100,000-299,999 14,486 0.5
Upper C 50,000- 99,999 96,113 3.6
Upper Broad C 30,000- 49,999 250.877 9.4
Lower Broad C 15,000- 29,999 836,407 31.5
D 6,000- 14,999 1,077,404 40.5
E Less than 6,000 381,913 14.4
Source: De Vera, Roberto (2003) using 2000 FUES data. The income class grouping here adopted a
classification done by the local market research group AC Nielsen.

A little less than half (45 per cent) of OFW households were part of the middle
class in 2000. Table 20 and Chart 6 showed that 1.18 million OFW households (44.5 per
cent) comprised the C income class (15,000 - 99,999 pesos or $291-$1,942 monthly
income) and 14,486 households (0.5 per cent) were in B income class (100,000 - 299,999
pesos or $1,942-$5,825). On top were 1,260 OFW class A households with incomes of
above 300,000 pesos ($5,825). Lower class OFW households numbered 1.46 million
(54.9 per cent) with the bigger bulk (40.5 per cent) belonging to class D and 14.4% class
E. Their incomes ranged from 14,999 pesos ($291) or less.

Chart 6. OFW Households’ by Income Classes, 2000

Class A- Above P300,000= 0.1%

Class B- P100,000-P299,999=
0.5%
Class C- P15,000-P99,999= 44.5%

Class D- P6,000-14,999= 40.5%

Class E- Less than P6,000= 14.4%

Source of Data: de Vera, Roberto (2003)

Because of their contribution to the nation, OFWs are encouraged and supported
by the government. The government’s policy on overseas employment is encompassed in
RA No. 8042- The Migrant Workers and Overseas Filipinos Act of 1995. Compared with
other developing countries, the Philippines serves as a model in taking care of its
overseas workers. Government institutions under the DOLE like the Philippine Overseas
Employment Administration (POEA) and the Overseas Workers Welfare Administration
(OWWA) assisted OFWs and their families.

Issues and problems concerning OFWs are summarized as follows (Villalba, 1997
as cited by Opiniano):

109
1. Structural issues include unskilled or low skilled OFWs who do low-status jobs
(like jobs that are dirty, dangerous and demeaning or 3Ds). They are vulnerable to
abuse and exploitation especially women migrant workers. Another is the
protectionist backlash against migrant workers especially in Europe. A third
problem is the weak bargaining position of migrant workers for fair treatment.

2. Rights issues since the rights of migrants and their families are not recognized in
both origin and sending countries. This is where many civil society groups are
quite active in augmenting the efforts of the government welfare officers and the
Philippine embassies and consulates abroad.

3. Pre-employment issues include problems in deployment: exorbitant recruitment


fees; illegal recruitment and work contracts; misinformation on overseas work
conditions; lack of on-site services and reentry programs; deskilling of educated
workforce; etc. These are tasked with the POEA.

4. Inadequate services to OFWs and their families.

Filipino sea-based workers faced many problems that included discrimination, high
placement fees, forced training activities, blacklisting by ship owners and manning
agencies, and health hazards like the contraction of HIV/AIDs. Filipinos comprised a
fifth of the world’s seafarers making the country the largest supplier of seafarers in the
world.

Shown in Figure 18 are the problems of OFWs based on the assessment of the
Department of Foreign Affairs and the International Labor Organization.

Figure 18. Problems of OFWs

On-site
Pre-departure >abusive & exploitative work conditions Return Migration
>high cost of >contract substitution >lack of opportunity
placement fees >lack of mechanism on protection & to absorb returning
>lack of info on compliance monitoring OFWs
policies of host >limited on-site services for OFWs >lack of savings
country >ill-attended health needs >inability to manage
>lack of preparation >rampant trafficking of women income
of OFWs and >social & cultural adaptation problems >broken families
families >incidence of violence >reintegration
>lack of domestic >lack of preparation for interracial problem of women
and employment marriages (social cost of
opportunities >lack of welfare & other officials to migration to the
attend to OFW needs family)
>lack of support from government of
host country

110
While the benefits of migrant workers are well known and appreciated, there are
also costs of migration. Among these are the following:

1. The brain drain especially if most of knowledge workers recruited abroad were
mission critical knowledge workersiv. The poaching of mission critical Filipino
workers has severely affected not only the quality of operations or production of
Filipino establishments but also their viability and competitiveness.

Among the mission critical skills that are being pirated in large scale were: pilots
and other aviation professionals; scientists and engineers; doctors, nurses and
other health professionals; computer engineers, programmers and technicians;
electric line men; accountants and managers; educators and researchers; ballet
dancers and other artists; etc. These poaching activities have endangered the
enterprises in health and medical services, aviation, steel manufacturing,
computer engineering, education, electric distribution, telecommunications, etc.

2. Cost of educating and training the migrant workers. This is borne both by the
government and the private sectors since basic education was provided free by the
state but most of the higher level education and skills training were undertaken by
private educational institutions and on-the-job training in Philippine enterprises.
For example, the societal losses in overproducing nurses to supply the overseas
demand were estimated at 28.9 billion pesos ($561 million). The country is now
the world’s biggest supplier of nurses. Another example is the loss in terms of
training costs of 1 to 2.2 million pesos ($19,417 - $42,718) for each pirated pilot
and around 1 to 1.6 million pesos ($219,417 - $31,608) for each airline mechanic
(Pangalangan, 2006; Lorenzo, 2000).

3. Social cost resulting from breakdown of some OFWs’ traditional families and
communities especially their effects on children, spouses, over-all family
development and on the OFWs themselves. Some OFWs have lost the motivation
to work when in the country because of the smallness in earnings compared to
what they can earn abroad. They would rather look for another overseas job and
remain idle while waiting for the next overseas job.

Summary

Philippine labor continues to benefit and suffer as the economy is continuously


recovering and progressing. Despite a high unemployment and underemployment in the
country, Filipino workers continue to struggle and survive by working in both local and
international workplaces and in formal and informal enterprises. The Philippine
economic development under globalization has resulted to jobless growth where most of
the beneficiaries are the rich people in the upper strata of society. Despite their relative
low incomes and many in poverty, the Filipino workers have made positive contributions
to the present development process through consumption spending and investments in
education and training. It is hoped that the resulting higher level of skills of the Filipino

111
workers will be utilized fully in the country in order to lead Philippine progress to higher
grounds.

References:

Amante, Maragtas, R. Ofreneo and I. Ortiz, 1999, Philippines- Skills Training and
Policy Reforms, Manila: International Labor Organization.
BLES, 2005, “Highlights of the October 2005 Labor Force Survey”, Labstat
Updates, Manila: DOLE Bureau of Labor Statistics, December 2005 .
Capones, Erlinda, 1998, “Human Resources and Regional Development: The
Philippine Case”, Philippine Labor Review, July to December 1998, Manila: Department
of Labor and Employment.
Doronila, Ma. Luisa, 1998, “The Emergence of Schools of the People and the
Transformation of the Philippine Educational System”, UP-CIDS Chronicle, January to
June 1998 issue, Quezon City: University of the Philippines.
Felipe, Jesus and Leonardo Lanzona, 2004, “Unemployment, Labor Laws and
Economic Policies on the Philippines”, Pasig City: Asian Development Bank.
Lorenzo, Marilyn, et. al., 2000, “Analysis of Policy Options in Addressing Nursing
Surplus and Globalization Effects in the Philippines”, The UP Manila Journal, Manila:
UP Manila, Jan.-Mar. 2000.
National Statistics Office, 2000, “Philippines, Additional Three Persons per
Minute”, http://www.census.gov.ph/data (viewed March 20, 2008).
Opiniano, Jeremaiah, 2004, Our Future Beside the Exodus: Migration and
Development Issues in the Philippines, Pasig City: Friedrich-Ebert Stiftung.
Pangalangan, Raul, 2006, “Why restrict the overseas Filipino professional?”,
Philippine Daily Inquirer, March 24, 2006, p. A12.
Soriano, Rene, 2005, “The Employers’ Role in Employment Generation”,
Conference on Labor Code: 30 Years and Beyond”, Quezon City, OSHC, April 14-15,
2005.
Statistics were taken from the Bureau of Labor and Employment Statistics, Bureau
of Working Conditions and National Statistics Office and other sources.

Endnotes:
i
Based on 1970 figures.
ii
DOLE BLES, 1997 Yearbook of Labor Statistics.
iii
Unemployment was redefined in accordance with the ILO definition which added availability to work in
addition to the old criteria of without work and looking or not looking for work. The 11.3 per cent
unemployment rate in 2005 became 7.3 per cent using the ILO definition.
iv
Mission critical occupations are those that enterprises consider core to carrying out their missions without
which mission-critical work cannot be completed.

112
ISSUES AND PROBLEMS IN THE
PHILIPPINE INDUSTRIAL RELATIONS SYSTEM

Introduction

Using the framework of the ILO in defining industrial relations (IR) as social relations
of production, workplaces and the IR actors in developing countries have been described and
characterized more clearly and their processes explained more accurately.

In a developing country like the Philippines, the dominant IR system is the


paternalistic unilateral decision making process practiced in most micro, small and medium
scale enterprises.

Collective bargaining system is practiced in big enterprises and is still a significant IR


process in the country. Bipartism is reinforced by a state dominated form of tripartism.

Bipartism in the Philippines was introduced by the American colonial administrators


in the 1950s with a promise that the country will soon industrialize like the USA. Trade
unionism and collective bargaining were important ingredients of development with equity in
an industrializing economy. Labor through their unions will be able to prevent exploitation by
the capitalist employers and thereby partake of the fruits of the development and
industrialization.

While the Philippines used to be the second most developed country in the Far East
next to Japan, it now lags behind in economic development as economic liberalization and
globalization deepens. With a stagnant industrial sector and a robust labor intensive services
sector, trade unionism in the country is in a rapid decline.

In the meantime, unemployment and underemployment continue to rise and the bulk
of the workforce continues to be marginalized through contractualization and informal work.
There is widespread non-compliance to labor standards especially in the informal sector
where the bigger bulk of the labor force is situated.

With scarce jobs and a weakened trade union movement, industrial peace prevails in
the country despite the widespread non-compliance to labor standards and poverty among the
poor working groups. There is now a call for unified actions among the various IR actors-
government, employers, labor and civil society in order to propel the country to catch up with
South East Asia’s fast development growth.

The crisis worsens as the actors continue their reactive stances. Dynastic elites still
dominate both the economic and state institutions, resulting in widespread inequity and
poverty. With a weakening formal sector which is the base of the trade union movement, the
labor sector has now expanded to social movement unionism and parliamentary politics
through the party list system.

113
Theoretical Framework

Industrial relations is defined as social relations in production (ILO, 1970). It covers


the behaviour and relations of people and groups of people at work: in formal and informal
sectors; in manufacturing, agriculture and services sectors; and among the employed, self-
employed, or even those non-wage or unpaid family workers (Thomas and Waterman, 1979).

IR as a field of study was born in the USA in the late 1910s during its industrializing
period. According to Kaufman (2004:1), its proponents were part of a reformist group critical
to the “callous and exploitative treatment of labour and believed the existing relation between
capital and labour were seriously unbalanced and inequitable”.

Kaufman emphasized that IR “was a reaction against the waste, human suffering and
social injustice associated with unrestrained profit making and employer power in the 19 th and
early 20th century capitalism. Out of these tensions grew a number of revolutionary and
reform movements, with the more radical groups dedicated to the overthrow of capitalism and
the wage system, while the more moderate ones sought to work within capitalism but soften
and humanize its rough edges”.

Going to developing countries undergoing similar development pains and using the
broadened concept of IR as social relations in production, Thomas and Waterman (1979:40)
observed that “it takes little imagination to discover that the powerless groups will not be the
groups that most benefit from the trading patterns”. They added that an improvement in the
urban economy would just trigger more migration from the rural areas, “thereby preventing
any improvement in living conditions for these groups”.

This is true in the Philippines. With the failure of industries to absorb the increasing
labor force, internal and external migration has accelerated and the majority of the labor force
is sheltered in the informal sector. Thomas and Waterman’s description fits the Philippine
situation:
“At the lowest level, one finds about 30 to 40 per cent of the labor force.
They are either unemployed, visibly or invisibly underemployed, or employed in
low earning jobs such as handicrafts, street trading, casual labor, etc.”

“The next layer – of about 35.4 per cent – consists of trade and service
workers, workmen and domestic servants; many of them with primary or even
secondary education. Their protection by labor legislation is minimal, but their
incomes are far beyond the lowest income bloc, some access to informal credit
markets is possible, and thus access to capital and some appropriate technology
is within reach”.

Types of IR Systems

Robert Cox (1971) identified nine types of IR systems:

114
1. The peasant-lord or feudal system where workers are bound to their traditional land-
based occupations. The lord is all powerful in relation to the worker, but his power is
tempered by an ethnic paternal obligation. The state does not enter the relationship except to
extract some of the surplus from production.

2. The primitive market system where some peasants have lost status or broken the ties
with the feudal system to become landless laborers. The wage contract appears. These
workers are mobile and have some choice of employment and thus some individual
bargaining power. They have no collective power since labor organizations do not exist. This
type of system is to be found among urban marginal populations in many developing
countries.

3. A small manufacturing or free enterprise system characterized by the formation of


an urban proletariat, greater stability of employment, greater skills on the part or workers and
the beginnings of trade union organizations. Employers tend to be paternalistic; but the efforts
of the state to extend more impersonal forms of protection into the employment situation may
be thwarted by employers who are also suspicious of and hostile to trade union growth.

4. The lifetime commitment or consultative system is a unique Japanese adaptation to


the requirements of long-term industrialization. Choice and mobility of workers are reduced
in exchange for security guarantee by a paternalistic employer. Since the workers’ security is
bound up with the enterprise, trade unions are enterprise unions. As employers and the state
are closely linked, unions tend to be politicized and oppositionist.

5. A bipartite system where labor is relatively specialized, skilled and mobile and trade
unions are strongly organized on a basis broader than the enterprise, e.g. the industry basis,
providing a countervailing power to employers and able to bargain directly with them.
Employers in this system also tend to be effectively organized. The state plays a minimum
role administering labor protective legislations and applying minimum standards, especially to
those outside the system.

6. A tripartite system where the state plays a more active role as a third party
bargaining with non-state employers and trade unions. The state is concerned with the
outcomes of collective bargaining, both because it is a large employer and because these
outcomes affect the attainment of the economic and social goals of public policy.

7. A corporatist-bureaucratic system where competitive party politics have been


suppressed but semi-autonomous organizations of employers and workers exist. There is little
effective collective bargaining and both worker and employer organizations seek satisfaction
mainly by direct pressure on the state which is the determining power.

8. A mobilizing systems where a political elite promotes mass organizations in the


informal sector of society, especially among peasants and the urban marginal population, i.e.
those not assimilated to modern modes of production. Workers are exhorted inspirationally to
dedicate themselves to constructing a restrain to the tendency of trade unions to advance the
interests of their particular members (“economism”). The political elites put the force of the

115
state behind its mobilizing effort and thereby weaken or eliminate the power of non-state
employers.

9. A socialist system which is logically a development of mobilizing systems. As


specialization of the roles increases with industrialization, workers have more choices of
occupation and employment. Trade unions and management are conceived as functionally
related agencies for the implementation of an economic policy integrally planned through the
state with the participation of those agencies. Although conflict of interest is in theory
excluded as the system matures, distinct interests appear between different groups of
management and workers. The inspirational quality of early mobilizing systems gives way to
a more emotionally neutral contractual employment relationship.

Political-economic Characteristics of the IR Systems

Taking off from Cox typologies, the 9 IR systems (plus the co-determination system)
are plotted in a socio-political matrix shown in Figure 19. The diagram shows their
diachronici sequential relations.

According to Thomas and Waterman, a country can have many IR systems that is
typical in less developed or developing segmented economies. Their political systems are
often hierarchical and their system of governance or management is unitary.

The Philippine IR System

The Philippines is typically a segmented economy with various IR systems. Its


political system is more hierarchical and unitary than competitive. Over-all, the Philippine IR
system is characterized as a corporatist bureaucratic IR system which is typical in developing
Asian countries.

The dominant form of governance in the country is a paternalistic, enterprise-based


unilateral decision making process practiced in micro, small and medium sized companies. In
2003, these enterprises accounted for more than 99 per cent of all business establishments in
the Philippines and employed 68 per cent of the recorded employment (Refer to Table 21).

Table 21- Distribution of Establishment by Employment Size and Employment, 2003


Employment Size Number of Establishments Employment
Micro (1-9 workers) 661,825 1,973,685
Rate (%) 92.00 38.95
Small (10-99) 52,474 1,126,668
Rate (%) 7.29 22.23
Medium (100-199) 2,460 340,809
Rate (%) 0.34 6.72
Large (200 & above) 2,661 1,625,932
Rate (%) 0.37 32.09
Total 719,420 5,067,194
Rate (%) 100.00 100.00
Source of Data: NSO (ASPBI), Leogardo 2005.

116
In the rural areas and in the informal sector, the prevalent IR systems are a
combination of the peasant-lord (feudal), primitive market and small manufacturing. Land-
based elite political families control both the political and business institutions.

The paternalistic unilateral decision making process is a one-way, top-down decision


making process described by Douglas McGregor as theory X. The basic assumption on the
workers is that they are lowly skilled, not motivated to work and are inherently lazy. Workers
therefore need to be directed and threatened with some forms of punishment.

Figure 19: Matrix Diagram of the 9 IR Systems


Political System
HIERARCHICAL COMPETITIVE
(Unitary) (Pluralist)

Economic System (1) Peasant-Lord


SEGMENTED
(Undeveloped) (2) Primitive
Market
(3) Small
Manufacturing
(Developing)
(8) Mobilizing
(China)

(7) Corporatist
bureaucratic
(3rd world)

(5) Bipartite
(US)

(4) Lifetime (8) Tripartite


INTEGRATED commitment (UK)
(Developed) (Japan)

(9) Socialist
(Russia)
(10) Co-determination/
works council
(Germany, EU)

CONVERGENCE OR PARALLEL COURSE?

117
The country’s formal sector is dominated by private and state enterprises run by elite
groups of bureaucrats, politicians and businessmen. The IR system in big enterprises is
characterized by enterprise bargaining and reinforced by tripartism where the state is the most
dominant actor.

In other enterprises in the formal sector, the Japanese influenced consultative


mechanism is slowly being incorporated in the unilateral decision making type of corporate
governance. Collective negotiations is practiced in the public sector and various labor-
management cooperation mechanisms are incorporated in the essentially top-down,
paternalistic management style in the private sector

Contemporary Issues in the Philippine IR System

1. Unionism and Collective Bargaining in the Philippines

Trade unionism and collective bargaining are not the dominant features of the
Philippine IR system. Ninety eight per cent of the labor force are not covered by collective
bargaining agreements (CBAs).

In 2003, labor organizations totaled 16,091 which covered 1,516,862 workers. This is
less than 10 per cent of the total wage and salary workers (Table 22). While the number of
labor organizations increased during the last 25 years, the number of union members declined
from 3.8 million in 2000 to 1.5 million in 2003. Unions now have fewer members as a result
of outsourcing and contractual employment (Bitonio, 1999). Workers in the formal sector
declined as globalization deepened (Macaraya, 2004).

Collective bargaining agreements (CBAs) in 2003 numbered 2,842 which covered


556,374 workers. This represents only 1.7 per cent of the labor force and 1.8 per cent of the
total employed (2004 Yearbook of Labor Statistics). This means that collective bargaining as
an IR process, although not insignificant, is not dominant even in the formal sector of the
economy.

The coverage of trade unions declined drastically from 30 per cent in 1995 to 9.9 per
cent of the wage and salaried workers in 2003. Salaried workers are mostly in the formal
sector. Majority of the labor force are in the informal sector and are not unionizable. In 2003,
more than half of trade unions (55 per cent) were in Metro Manila (Table 23). This was much
bigger in 1992 at 76.6 per cent.

Trade unions in the government sector grew from 29,407 members in 1987 to 253,355
in 2003, increasing more than 8 times in 16 years. This is despite of the fact that public sector
unions are not allowed to go on strike or engage in any other concerted activities. Despite the
small number of unionized workers in relation to the total labor force, the trade union
movement is still a very significant political force in the country. This is due to two main
reasons.

118
Table 22- Number and Membership of Existing Labor Organizations
by Type of Labor Organization and Percentage of Wage and Salary Workers,
Philippines: 1980, 1985, 1990, 1995, 2000 and 2003
Year 1980 1985 1990 1995 2000 2003
Total Labor Organization
Number 1,747 1,996 4,636 7,882 10,296 16,091
Membership 1,920,623 2,117,023 3,055,091 3,586,835 3,788,304 1,516,862
% of wage &
salary 27.0 24.1 29.7 30.2 27.2 9.9
workers
Private Sector- Independent
Number 1,630 1,868 4,292 7,283 9,430 14,629
Membership 412,649 477,687 718,023 781,572 883,515 756,854
Private Sector Federated
Number 110 121 145 159 166 170
Membership 1,507,974 1,639,336 2,241,398 2,669,712 2,727,595 506,653
Public Sector*
Number 29 (1987) 192 431 691 1,282
Membership 29,407 95,670 135,551 177,194 253,355
TU Center 7 7 7 9 9 10
*Registration of public sector unions started only in September 1987.
Sources of Data: Bureau of Labor Relations, 2004 Yearbook of Labor Statistics

The first is that they are concentrated in Metro Manila, the center of political, cultural
and economic activities in the country. Secondly, trade unions are federated nationwide. They
have expanded to the informal sector through their party list groups like Bayan Muna,
Anakpawis, Akbayan and Partido ng Manggagawa.

Table 23- Number and Membership of Existing Labor Organizations by Type of Labor
Organization, National Capital Region (NCR)- 1992, 1996, 2000 and 2003
Year 1992 1996 2000 2003
Total Labor Organization
Number 3,242 4,171 4,719 8,910
Membership (000) 2,408 2,144 2,815 874
Private Sector
Number n.a. n.a. 4,345 8,452
Membership (000) n.a. n.a. 2,688 731
Federated
Number 106 n.a. 129 134
Public Sector
Number 161 n.a. 245 324
Membership (000) 95 n.a. 127 143
Sources of Data: Bureau of Labor Relations, 2004 Yearbook of Labor Statistics

In the past and up to the present, the trade union movement has shown militancy. It is
capable of launching regional or nationwide strikes or protest actions. In 2003, more than 50
per cent of the unionized workers in the private and public sectors are federated.

119
Federated trade unions usually unite as one on common economic and political
demands. During Labor day celebrations, federated labor usually arrive at a consensus on
common demands. The government usually comes up with a package of benefits or incentives
to labor during May 1 celebrations.

2. Low Compliance to Labor Standards

There is high level of compliance to labor standards in certain industries/sectors which


include exporters, franchisees and large corporations with reputational risks. There is however
little level of compliance as one goes deeper down the supply chain and in small and micro-
enterprises that produce for the domestic market (Sibal, 2005).

In 2003, 41 per cent of 25,331 establishments inspected in the country violated various
labor standards. The highest violation was underpayment of minimum wage at 15.8 per cent.
In the National Capital region (NCR), 83 per cent of the 1,091 establishments inspected
violated labor standards. The highest form of violation was non-compliance with the
minimum wage at 41 per cent (2004 Yearbook of Labor Statistics).

Table 24- Number of Strikes/Lockout Notices Filed, Actual Strikes/Lockout, Workers


Involved and Man-days lost, Philippines: 1937-2003
Actual Strikes
Year Strikes/Lockout Total With W/o Workers Man-
Notices Filed Notice Notice Involved days lost
(000)
1937 n.a. 34 n.a. n.a. 2,954 n.a.
1940 n.a. 35 n.a. n.a. 6,165 n.a.
1946 n.a. 49 n.a. n.a. 40,149 n.a.
1950 n.a. 42 n.a. n.a. 8,111 n.a.
1955 n.a. 47 n.a. n.a. 14,547 591
1965 527 109 n.a. n.a. 55,229 612
1970 819 104 n.a. n.a. 36,852 995
1975Dec 13 5 1 4 1,760 4
1980 362 62 31 31 20,902 105
1985 1,175 371 309 62 111,265 2,458
1990 1,562 183 164 19 68,412 1,345
1995 904 94 78 16 54,412 584
2000 734 60 50 10 21,442 319
2003 606 38 38 -- 10,035 150

Enforcement of labor standards laws by the Department of Labor and Employment


(DOLE) through the Bureau of Working Conditions (BWC) is weak primarily due to the
limited number of labor inspectors. DOLE has shifted its thrust by encouraging voluntary
compliance particularly in enterprises with at least 200 workers through partnership with
labor, professional and employers’ organizations and other government agencies (Sibal,
2005).

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Despite the rampant violations of labor standards in the country, there is generally an
atmosphere of industrial peace in the Philippines. Strikes and man days lost have drastically
declined from 1985 to 2003 as shown in Table 24. In 2003, there were only 606 notices of
strike filed and 38 cases resulted into strikes. This involved only 10,035 workers with only
150,000 man-days lost.

The National Conciliation and Mediation Board of DOLE reported a consistent


decline of strikes in the past 2 decades, 1986 to 2003. Labor strikes went below a hundred for
the first time in 1994 (Cocio, 1997). In 2003, it is down to 38.

Chart 7- Number of Actual Work Stoppages, 1986-2003

500

400

300 No. of Strikes

200 3-D Colum n 2


3-D Colum n 3
100

0
1986 1988 1990 1992 1994 1996 2003

Source: National Conciliation and Mediation Board

It should be noted that the major issues in these strikes were not centered on violations
of labor standards (only 18.2 per cent in 2003) but on unfair labor practice as follows:

Table 25- Major Issues in Strikes, 2000 and 2003 (partial)

2000 2003
1. Illegal dismissal/suspension of union officers/members 33.5% 44.0%
2. Discrimination against/harassment of union members 39.9 53.3
3. Bargaining deadlock on economic issues 27.0 59.2
4. Bargaining deadlock on provisions not specified 20.2 -
5. Violations/non-implementation of CBA 18.1 19.1
6. Other ULP issues 52.2 73.8
7. Minimum wage/ECOLA 0.3 18.2
Sources of Data: Bureau of Labor Relations, 2004 Yearbook of Labor Statistics

Unionized big firms are complying with the minimum labor standards. The small and
medium-sized firms, especially those in the informal sector are not able to comply with the
labor standards. Very strict implementation of labor standards laws may result in massive
closures of small and uncompetitive enterprises. This will be more detrimental to the labor
sector already disadvantaged by the lingering high unemployment rate in the country.

121
Labor-management cooperation schemes (LMCs) are special committees composed of
workers and management representatives tasked to improve labor-management relations and
the working environments, to increase productivity and to enhance the quality of worklife.

These LMCs are instituted in both unionized and non-unionized firms. Among the
most common forms of LMCs in the country are the Japanese-inspired quality circles,
committees for strategic planning, the tripartite industrial peace councils, etc.

LMCs are still new in the Philippines. In 2003, there were 227 LMCs which covered
6,193 workers in 256 establishments monitored by DOLE. Because of the non-adversarial
character of the LMCs and considering that majority of the labor force are still unorganized,
LMCs are being promoted as an addition and/or enhancement to the collective bargaining and
the paternalistic unilateral decision-making IR processes in the country.

Table 26- Labor Management Councils/Committees (LMCs) Organized,


Philippines, 1998, 2000 and 2003
Year 1998 2000 2003
Newly Organized 130 204 175
Establishment Covered 64 23 187
Workers Covered 3,961 3,835 5,057
Councils/Committees Reactivated 43 47 52
Establishment Covered 68 47 69
Workers Covered 1,254 1,202 1,136
Sources of Data: Bureau of Labor Relations, 2004 Yearbook of Labor Statistics

PROBLEMS AND RECOMMENDATIONS

Among the emerging problems in the present Philippine IR system and the suggested
remedies are discussed below:

1. The declining trade union membership and militancy may lead to further exploitation
of the workers especially among the contractual workers and those in the informal
sector. Under globalization, the state institutions, which are expected to protect the
working class, are weakened due to devolution, privatization, lowering of consumer
subsidies and other impositions of the WTO, World Bank and the IMF.

The trade union movement, which is the most organized and disciplined people’s
organization in the civil society should be strengthened rather than weakened in order
to protect the consumers and working class from possible abuses and exploitation
from the globalized private sector interests.

The trade union movement must seriously align itself, not distance from, the emerging
civil society organizations like cooperatives, peoples’ organizations, party list groups,
civic and religious associations, guild, crafts and professional/occupational
associations (Sibal and Tolentino, 2001). It should also participate in operating new

122
mechanisms for labor empowerment like collective negotiations, labor-management
committees/councils, employees’ stock options programs (ESOPs), quality circles
(QCs), etc.

The trade union movement should likewise support the institution of corporate codes
of conduct to promote self-regulation of labor standards compliance. It should also
actively partner with the government in the enforcement and remedial interventions to
correct labor standards violations (Sibal, 2005 and Leogardo, 2005).

2. If the political-economic crisis and increasing unemployment continue to rise, labor


militancy and work stoppages may be resurrected as the labor sector strengthens its
parliamentary struggles via civil society and party list organizations. This may hamper
economic recovery and development.

The recent events show the increasing alienation of the government from the labor
movement, the civil society and some segments of the industry. Instead of an
accommodating stance on the part of the government to the growing number of those
opposing it, it has imposed a hard line stance in dealing with them. It has reached a
point that dialogues among the social actors are becoming more difficult.

Hans Cacdac (2002) warned that “if the social partners do not get their acts together,
the harsh consequences shall be political and economic instability. Our ship will
collapse, and we will drown. The gains achieved by 100 years of Philippine unionism
shall have been for naught”.

To avert this possible scenario, management and government as IR actors should be


proactive and not be very reactive to labor policy reforms and promotion of labor
empowerment and social justice initiatives. The present administration should bend
backwards and open serious dialogues to settle their differences with the opposition
not only on IR issues but also on political concerns.

Should the present administration survive this difficult challenge, it should speed up
and give utmost priority to job creation programs in partnership with the major social
actors via some measures such as:

a. Minimize graft and corruption;


b. Reduce cost of production inputs like electricity, water, transportation,
communications, interest of capital, etc.;
c. Nurture local businesses via tariff protection and making smuggling a heinous
crime;
d. Improve infrastructure to catch up with the standards of South East Asia;
e. Rationalize skills training and educational institutions along with the needs of
targeted industries and economic sectors;
f. Raise consumer awareness and protection by campaigning for the patronage or
tangkilikan of locally produced quality products and services; and
g. Enact an anti-political dynasty law (Sibal, Ballescas, et.al, 2005).

123
References:

Bitonio, Benedicto Ernesto, 1999, “Unions on the Brink: Issues, Challenges and
Choices facing the Philippine Labor Movement in the 21 st Century”, “Philippine Industrial
Relations for the 21st Century: Emerging Issues, Challenges and Strategies, Quezon City: UP
SOLAIR and Philippine Industrial Relations Society
Cacdac, Hans Leo, 2002, “Cancellation of Union Registration as a Battlefield in
Labor-Management Relations”, Philippine Journal of Labor and Industrial Relations, 2002,
Quezon City: UP SOLAIR.
Cocio, Michael, 1997, Philippine Daily Inquirer, February 15, 1997.
Cox, Robert, 1971, “Approaches to a Futurology in Industrial Relations”,
International Institute for Labor Studies Bulletin No. 8, 1971, pp. 139-164.
Cox, Robert, Jeffrey Harrod, et. al., 1972, Future Industrial Relations: An Interim
Report, Geneva: Institute for Labor Studies.
International Labour Organization, 1970, International Institute of Labour Studies.
Kaufman, Bruce, 2004, The Global Evolution of Industrial Relations Events, Ideas
and the IIRA, Geneva: ILO.
Leogardo, Jr., Vicente, 2005, “Labor Standards and Self-regulation in Business”,
Conference on Philippine Labor Code: 30 Years and Beyond, 14-15 April 2005, Ichikawa
Hall, OHSC, Quezon City under the sponsorship of the Institute of Labor Studies of the
Department of Labor and Employment
Macaraya, Bach, 2004, “The Labor Market and Industrial Relations Environment:
Policy Issues and Options in a Global Economy”, Philippine Journal of Labor and Industrial
Relations 2004, Quezon City: UP SOLAIR.
Sibal, Ballescas, et.al, 2005, “The Forum Roundtable on Brain Drain in Philippine
Education, Forum, July-August 2005, Quezon City: University of the Philippines, pp. 8-12.
Sibal, Jorge and Catalina Tolentino, 2001, “Forms of Organizing and Bargaining:
Focus on the Philippine Informal Sector”, Changing Work and Employment Relations in
Globalizing Asia: Towards Decency and Fairness, Quezon City: UP SOLAIR and the
Philippine Industrial Relations Society.
Sibal, Jorge, 2005, “Workers Role in Promoting Compliance to Labor Standards”,
Conference on Philippine Labor Code: 30 Years and Beyond, 14-15 April 2005, Ichikawa
Hall, OHSC, Quezon City under the sponsorship of the Institute of Labor Studies of the
Department of Labor and Employment
Thomas, Henk and Peter Waterman, 1979, “How are We to Understand Labor
Relations in the Third World Today?”, Philippine Journal of Industrial Relations, 1978-1980,
Quezon City: UP Asian Labor Education Center.
Statistics were taken from the 2004 Bureau of Labor and Employment Statistics,
DOLE Regional Offices, Bureau of Labor Relations and National Statistics Office.

Endnotes:
i
According to Cox, the diachronic approach is directed to understanding the transformation of systems and thus
often focuses more on conflict than on equilibrium.

124
POLICY ISSUES AND CHALLENGES
IN THE PHILIPPINE LABOR SECTORi

The state and problems of the Philippine labor and the economy is reflected in the
summary of the Asia-Pacific Human Development Report 2006:48 on “Trade and Human
Development, The Asia-Pacific Experience”:

“The share of manufacturing output and export of high tech, skill


intensive products rose, while that of labor-intensive products declined…
Industries shifted towards greater capital intensity. Employment growth
rate plummeted even in the presence of faster growth in output.

There was ‘jobless growth’ both in agriculture and manufacturing.


The over-all unemployment rate increased, and labor market conditions
probably deteriorated for unskilled workers. The rising gaps between
urban and rural income, between capital and labor income and between
the incomes of skilled and unskilled workers have led to sharp increases in
inequality.

The failure of employment to rise and the growing income


disparities imply that the ‘trickle down’ effect of fast trade and income
growth on human development and poverty reduction is limited.”

Globalization and Industrial Development

The Philippine labor and the economy have not performed well in the last three
decades even after it has joined WTO in the last 10 years. With the lowering of tariffs,
many small to medium sized manufacturing and agricultural enterprises closed down
(Table 28) due to lack of preparations, safety nets and unfair playing field where
smuggled goods abound in the market. Investments in long-term industrial projects were
not encouraged and investors shifted to import or trading business for easier profits.

Since 1980, the share of manufacturing continued to decline (Table 27) unlike
in other Asian countries (Chart 9). The manufacturing to employment ratio over the last
two decades has not changed to about 4 per cent. In 2005, employment in industry grew
only at 0.05 percent due to the slack in manufacturing and construction (Labstat Updates,
2006).

Agriculture’s contribution to GDP continued to decline from 33.3 per cent in


1967 to 20.0 per cent in 2000. The service sector increased significantly from 36 per cent
in 1980 to 45.6 per cent in 2000. Hence, the Philippine growth pattern was characterized
by the increase in services with agricultural and industrial sectors declining ii. As of 2000,
more than half of the country’s employed labor force which used to be in agriculture was
absorbed by the service sector. Please refer to Table 17 (on page105) and Chart 8.

125
Table 27. Percent Share of Agriculture, Manufacturing, Other Industries and
Services to Gross Domestic Production (GDP), 1967, 1970, 1980, 1990, 2000

Sector 1967 1970 1980 1990 2000


Agriculture 33.3% 27.8% 23.5% 22.4%
20.0%
Industry-
>Manufacturing 18.3 22.5 27.6 25.6 24.8
>Other Industries 5.2 7.1 12.9 10.0 9.6
Services 43.2 42.6 36.0 42.0 45.6
Source of Data: National Statistics Coordination Board, Philippine Statistical Yearbook. Other industries
include mining and quarrying, construction, electricity, gas and water

Table 28. Establishments Resorting to Permanent Closure/Retrenchment Due to


Economic reasons and Workers Displaced (2000-2003)

2000 2001 2002 2003


Establishments reporting a) 2,258 2,589 3,403 3,262
 Closure 494 617 762 577
 Reduction of workforce 1,788 2,276 2,702 2,710
Workers displaced 67,624 71,864 80,091 67,977
 Closure 21,367 25,468 25,240 24,638
 Reduction of workforce 46,257 46,396 54,851 43,339
a) details may not
add up due to multiple reporting
Source of Data: Department of Labor and Employment and published in Birdtalk, July 15, 2004

Chart 8. Per cent Share of Agriculture, Manufacturing, Other Industries and


Services to Gross Domestic Production, 1967, 1970, 1980, 1990, 2000

50

40
Agriculture
30
Manufacturing
20 Other Industries
Services
10

0
1967 1970 1980 1990 2000

These trends continued up to the present. Employment in 2005 grew by 2.2 per
cent. This was driven by the service sector at 2.8 percent and supported by agriculture at
2.2 per cent (Labstat Updates, 2006).

The country’s export sector grew rapidly from 1980 led by electronics and
garments sectors. Both industries were spurred by global supply chain demands of
multinational retailers and producers as a result of increased trade liberalization. These

126
enterprises especially electronics are import dependent. They have to increase their
domestic value content (or climb the value chain) in order to sustain industrial growth
(Ofreneo, 2002; Lim and Montes, 2004).

Lately, garments have gone down when quotas were phased out in 2004 and are
losing to China and other cheaper garments producersiii. Electronics enterprises have
slowed down in 2000 and some electronics companies have transferred part, if not whole,
of their operations to China and Vietnam where power, infrastructure and labor are
cheaper.

Chart 9. Share of Manufacturing to Total Output (1980-2004)


Select Asian Economies

50
45
40

35
Percent share

30
25
20

15
10

0
Indo nesia M alaysia P hilippines Thailand Vietnam China
1980 15.2 19.6 27.6 23.1 19.2 44.2
1990 20.7 23.8 24.8 27.2 12.3 37
2000 27.7 31.1 22.2 33.6 18.6 43.6
2004 28.3 30.8 23 35.2 20.3 46

Source: ADB Key Indicators 2001, 2003, 2005.


Note: for China manufacturing also includes mining, electricity, gas and water

The share of manufactured exports increased from 60 per cent in 1985 to 90 per
cent in 2000 despite the overall decline of manufacturing and other industries (Villamil
and Hernandez, 2005). This growth in the export sector (Chart 10) is not enough to
compensate for the setbacks of other enterprises which have been neglected and even
discriminated by the lowering of tariffs for imports coming from countries which impose
higher tariffs such as China and Thailand. In fact, the average applied tariffs of Thailand
for industry and agriculture are three times those of the Philippines.

As shown in Chart 11, the contribution of electronics to the manufacturing value


added increased from a low 4.4 per cent in 1970 to 11.6 per cent in 2000. Food,
beverages and tobacco, garments, textiles and other traditional industries declined
moderately. Wood products and furniture declined from 7.8 per cent in 1970 to 2.4 per

127
cent in 2000. In the textile industry which had 300 firms in the 1970s, only five integrated
firms are still operating.

Chart 10. Electronics vs. Non-electronics exports 1992-2005

45
FOB Value of Exports in US$ Billion

40
35
30
25
20
15
10
5
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

electronics 2.97 3.78 4.89 7.55 10.61 14.98 19.87 25.34 26.57 21.62 24.32 24.18 26.73 27.28
Non-electronics 6.83 7.62 8.61 9.85 9.89 10.22 9.63 9.66 11.53 10.58 10.88 11.62 8.77 9.62
Total exports 9.8 11.4 13.5 17.4 20.5 25.2 29.5 35 38.1 32.2 35.2 35.8 35.5 36.9

electronics Non-electronics Total exports


Source :
Bureau of Export Trade Promotion

Chart 11. Structure of Manufacturing Output, 1970-2000


(% of Total Manufacturing Value Added)

60

50 Food, beverage & tobacco

40
Wood products & furniture
30
Electronics
20

10 Garments, footwear, textile &


leather
0
1970 1980 1985 1990 1995 2000

Source: Hill (2003)

Domestic producers are faced with higher cost of doing business in the country
due to high power cost, inadequate infrastructure, government red tapes and corruption,
and shaky peace and order situation while being exposed to a liberalized and globalized
domestic market. In l999, several drug and pharmaceutical multinationals transferred
their manufacturing operations to Thailand and Indonesia and shifted to importation and
distribution business. The Fair Trade Alliance on September 11, 2001 reported the
negative effect on the following industries-- steel, rubber and tire, shoe, tiles, coal,
medicines, cement, batteries and agricultural crops like sugar, corn, vegetables and rice.

128
Jobless Growth

A consolation to the weakening industry and agriculture sectors in the country is


the modest economic growth of 6 per cent in 2004. This was described by the World
Bank (2005) as the fastest in 16 years. Among the factors that contributed to this growth
were: 1) the electronics industry and offshore business process services estimated at $3.8
billion in 2006; 2) inflow of earnings of overseas Filipino workers (OFWs) amounting to
$11.6 billion in 2005iv; and 3) gross international reserves of $20.58 billion in 2006v.

It was only in electronics and garments where employment increased from 1975
to 1994. The per cent share of electronics to the total manufacturing employment
increased from 4.2 per cent in 1975 to 12.2 per cent in 1994. Garments share increased
from 6.4 per cent in 1975 to 16.3 per cent in 1994. All other industries’ share in
employment declined slightly with the exception of textile vi and wood products whose
employment shares declined by fifty percent from 14.2 per cent to 7.1 per cent and 10.6
per cent to 5.4 per cent, respectively.

ADB economist Felipe noted that the Philippine growth rate was driven by
domestic demand and consumer spending unlike the Asian NICs where exports led the
economic growth. According to the Economist.com (2005), the economy failed to “grow
fast enough to provide jobs for them”.vii

More than 8 million Filipinos (about 10 per cent of the population, of which 3
million were permanent residents) work abroad in land and sea based jobs and remitted
earnings equal to 8.8 per cent of the gross national product (GNP) in 2003 or 10.5 per
cent of the GDP. This was augmented by local employment from offshore business
processing jobs which is expected to generate more than $2 billion in 2006 viii.

With a $10.7 billion OFW earnings in 2005 remitted through the banking system
and an undetermined amount through informal channels, the country’s consumption-led
economic growth spurred urban growth in real estate, shopping malls and other services.
It has at the same time contributed to the strengthening of the currency against the US
dollar ix.

Majority of big enterprises benefited from increased consumer spending


brought about by the increased earnings of OFWs, and employment in offshore business
process services and non-traditional exports. San Miguel Corporation, Manila Electric
Company, Bayan Telecommunications Inc., United Laboratories, SM Investments, and
Jollibee Foods Corporation were among those that expanded operations locally and
abroad, particularly in other Asian countries.

The small and micro enterprises that account for 99 per cent of enterprises and 65
per cent of local employment are constantly threatened by cheap imports that include
those smuggled in the country. According to the Federation of Filipino Industries (FPI),
the government loses 174 billion pesos revenues a year from smuggling. The medium and

129
big enterprises were adversely affected external factors since many of their inputs like
raw materials, electricity and parts were dependent on imports.

The Problems Caused by Liberalization

The increase in unemployment and underemployment (Table 15, p. 104) which


exacerbates the problems of deficit fiscal spending, low delivery of social
services, poor infrastructure, armed communist insurgents and Muslim separatists
in the poorest areas of the country and political instability.

The shift of employment from industry and agriculture to the services (majority in
the low tech informal sector) (Table 18, p. 106) contributed to the country’s over-
all low productivity performance which increased only at 1 per cent per year on
the average in contrast with 4.4 per cent average of neighboring countries (China,
Indonesia, Korea, Malaysia, Singapore, Taiwan and Thailand) or 1.4 per cent for
all developing countries. For 4 decades, output per worker in the Philippines
increased only by 50 per cent while other East Asian countries increased by 450
per cent.

The increasing income inequality among classes and among regions (Sibal, 2002).
A 2004 ADB study noted that 40 per cent of Filipinos are living on $2 or less a
dayx. The 2005 last quarter survey of the Social Weather Station (SWS) reported
that the poverty situation worsened since it started surveying in mid-1998, with 17
per cent of the people saying they “they had nothing to eat at least once over a 3
month period”xi. This is because of the failure to develop the agro-industrial base
and not enough jobs were created to absorb the unemployed and the new entrants
in the labor force (Tables 15, p. 104 and Table 16, p. 104). There was no trickle
down effect to the poor.

The Economist (2005) noted the great disparities in ownership of assets, in income, in
levels of technology in production and in the geographical concentration of activity. The
National Capital Region (NCR) produced one-third of GDP. Being the richest region,
income per head was nine times that in the poorest region in 2001. Disparity is evident
between the richest and poorest households. In 2000, the richest 10 per cent of the
population had an income 23 times that of the poorest 10 per cent. Those living in
poverty were estimated at 39.4 per cent of the population in the same year, with the rate
in rural areas put at 46.9 per cent, whereas the poverty rate in the NCR was only 12.7 per
cent (Chart 1, p. 46).

The World Bank however, reported a different trend and cited the decline of the
incidence of poverty between 2000 and 2003. The number of poor declined from 25.4
million in 2000 to 23.5 million in 2003, or from 33 per cent to 30.4 per cent of the
population. It however placed certain precaution on its report (World Bank Report,
2005).

130
Virolaxii (2006) observed the following based on statistics from the United
Nations, Food and Agriculture Organization (FAO) and Philippine Statistical System
(PSS):
1. On food availability, the Philippines was ahead of Thailand, Vietnam, Lao
PDR and Cambodia in 1990-1992. By 2000-2002, Vietnam and Thailand
caught up with the Philippines and Lao PDR is getting close.
2. The country’s incidence of undernourishment was higher than the whole Asia
and the Pacific.
3. The Philippines has shown modest improvement in addressing poverty and
hunger but the Asian neighbors have succeeded at faster rates and overtaken
the country’s record.

General Strategies on the Problems of Labor and the Economy

Chapter 7 pf the UNDP Asia-Pacific Human Development Report of 2006 listed


an Eight-Point Agenda in helping solve the problems of industry. These are summarized
as follows:

1. Invest for competitiveness.


 Align basic infrastructure with national needs to gain competitiveness in
both the local and global markets.
 Focus human development on healthy, well-educated, skilled and flexible
workforce.
 Increase investments in research and development that will address the
needs of the poor people through public-private partnership.

2. Adopt strategic trade policies.


 Undertake industry targeting through selective time-bound protection and
enhance local competition to prevent local monopolies and crony
capitalism.

3. Restore a focus on agriculture.


 Restore national food security by protecting and assisting the farmer.

4. Combat jobless growth.


 Focus on labor-intensive industries and scale the value chain [forward and
backward linkaging].
 Allow enterprises to choose the lowest cost option for production but not
biased against labor. [Lower cost of doing business- power, infrastructure,
government bureaucracy, peace and order, cost of living, etc.]
 Allow labor flexibility arrangements.
 Strengthen state support to workers through health insurance, social
security, retraining and redeployment.

5. Prepare a new tax regime.

131
 Focus on new progressive taxes that will not hurt the poor. [This should
be instituted before import liberalization. Much of the income taxes are
levied on the wage and salaried workers in the formal sector.]

6. Maintain stable exchange rates.


 Maintain realistic exchange rate [by ‘managing floating’] that will
balance the producers and exporters’ interests.

7. Persist with multilateralism.


 Tie-up trade agreements with human development goals with preference
to multilateral trade relations.

8. Cooperate with neighbors.


 Focus more on regional trade pacts such as the ASEAN Free Trade
Agreement.
 Promote regional cooperation to accumulate foreign exchange reserves to
protect the region from another Asian financial crisis.

Another set of recommended strategies were presented by the Fair Trade Alliance (FTA).
The FTA is a multi-sectoral group of entrepreneurs, trade unions, non-government
organizations and other peoples’ organizations like farmers, youth, consumers, women,
religious, informal workers, environmental advocates, etc. It presented a national road
map encompassed in the FairTrade’s 5-Point Economic Program (or the Nationalist
Development Agenda) as follows:

1. Adopt a coherent, balanced and pro-Filipino development compass.


a. Junk the neo-liberal paradigm.
 Develop both the export and domestic markets,
 Rely on the contributions of both foreign and domestic investment,
 Preserve and strengthen local industry and jobs amidst global and
regional integration,
 Promote greater value addition and employment in existing capacities
through more value-adding and networking activities that give greater
depth and breadth to the agro-industrial structure,
 Depend less on foreign borrowings and advice,
 Strengthen national sovereignty and independence, and
 Promote global and regional integration in a calibrated and nuanced
way and is sensitive to the level of development of existing industries
and the development needs of the country.
b. Foster coherence in trade and development policies and define the national
interest in each trade agreement.

2. Rebuild the nation’s fences.


a. Recalibrate tariffs for locally-produced industrial and agricultural goods
should be adjusted upward to their maximum WTO binding rates.
b. Fortify the walls against smuggling.

132
c. Strengthen the safety net laws and the rules against unfair trade practices.
d. Promote genuine, not ruinous competition in a free economy.

3. Build up the nation’s productive capacity.


a. Resolve the fiscal and debt crisis now, but not at the expense of domestic
industry.
b. Mobilize domestic investments for recovery, jobs and incomes.
c. Rebuild the nation’s industrial base.
d. Rebuild the nation’s agricultural base.
e. Strategize the development of the service sector.
f. Scale the value chain.

4. Unleash the peoples’ productive capacity.

5. Develop a culture of industrialism, tangkilikan (patronage of locally-produced


products), excellence and economic nationalism.

Sustaining and Developing the Agro-Industrial Base

A final note of the FTA’s Nationalist Development Agenda in sustaining and


developing Philippine industry is quoted below:

“To sustain growth, an economy can not stand still. It must


continue improving. The agro-industrial structure must develop its
breadth, depth and sophistication which lead to economic dynamism and
continuous growth.

We need to grow from industry to industry. We need to scale the


chain, downstream or upstream or sidestream, in order to create values
and jobs. We need to develop industrial capacity at deepening levels of
sophistication. A good illustration of this is China. China joined the
electronics assembly business only 20 years ago and yet is now already
into its own original parts manufacture, production of basic materials
(wafer fabrication), application of electronics into Chinese goods and
doing research and development in electronics. In contrast, the
Philippines, which started in electronics assembly 30 years ago is now
still in the assembly work.

In the case of the call center and BPOs, why can the Philippines
not adopt what the Indians have been doing – scaling the IT and ICT-
enabled services. From data encoding to customer service, the Indians
have been offering all kinds of business solutions, including legal back-
ups in insurance cases, and producing all kinds of IT programs and sub-
programs. This propensity of the Indians to scale the chain has spread to

133
its domestic industry and agriculture, which are undergoing a major
modernization lift due to the application of IT.

The lack of agro-industrial linkages for many crops is a very good


illustration of our failure to scale the chain and create the necessary
technology to produce more values and jobs. In turn, this leads to a
shallow and weak agro-industrial base.

Hence, we are proposing that a strategic industry-government


partnership be forged solely on the issue of promoting these necessary
linkages and value creations. DTI, DA, DOST, CHED and TESDA should
be involved in this enterprise. Further, we should focus more on product
development and move away from the use of cheap labor and
subcontracting” (FTA, 2006),

References:

Economist, 2005, “In Search of Elusive Domestic Demand”, Bangkok:


economist.com, October 13, 2005,
http://www.economist.com/PrinterFriendly.cfm?story_id=5025883 , (opened 1.11.06-jvs)
Fair Trade Alliance, 2006, “Nationalist development Agenda: A Road Map for
Economic Revival, Growth and Sustainability”, Quezon City: Fair Trade Alliance.
Felipe, Jesus and Leonardo Lanzona, 2004, “Unemployment, Labor Laws and
Economic Policies on the Philippines”, Pasig City: Asian Development Bank.
Labstat Updates, 2006, Manila: DOLE Bureau of Labor Statistics.
Lim, Joseph and Manuel Montes, 2004, “Structural Adjustment Program after
Structural Adjustment Program, But Why Still No Development in the Philippines?”,
Quezon City: UP School of Economics (manuscript).
Ofreneo, Rene, 2002, “Globalization, Liberalization and Philippine Agro-
Industrial Readiness”, paper circulated during the 23 rd National Conference of
Employers, May 30-31, 2002 at Westin Plaza Hotel, Makati City.
Sibal, Jorge, 2002, “Measures of Economic Development: How the Philippines
Fares”, Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR.
Sibal, Jorge, 2005, “The Effects of Globalization and Economic Restructuring on
Philippine Labor Policies and the Responses of the Actors of the Philippine Industrial
Relations System”, International Society of Labour and Social Security Law (ISLSSL)
8th Asian Regional Congress, Holiday Inn Asia World, Taipei, October 31- November 3,
2005.
United Nations Development Program, 2006, Asia Pacific Human Development
Report 2006, Colombo: UNDP.
Villamil, Winfred and Joel Hernandez, 2005, “The Labor Market and
Adjustments…”, Conference on Production, Institutions, Policies and Regional
Cooperation, Angelo King International Conference Center Hotel, Manila, DLSU Angelo
King Institute for Economic and Business Studies and the International Development
Centre of Canada, Sept. 26-27, 2005.

134
Virola, Romulo, 2006, “Gutom Ka Ba? [Are You Hungry?]”, Labstat Update,
Manila: DOLE BLES, March 2006, pp. 1-5.
World Bank, 2005, “Philippines, From Short-term Growth to Sustained
Development”, April 15, 2005,
http://wdsbeta.worldbank.org/external/default/WDSContentServer/IW3P/IB/2005/05/10/
000112742_20050510170444/Rendered/INDEX/320550PH.txt (opened 12.30.05- jvs).

Endnotes:
i
Resource Speaker, Pre-conference on “Workers at the Center of Human Development”, July 9, 2007, U.P.
Balay Internasyonal (Balay Kalinaw), Quezon City, sponsored by the Philippine Legislators’ Committee on
Population and Development Foundation, Inc. (PLCPD) and the Philippine Employer-Labor Social
Partners, Inc. (PELSPI).
ii
Structural changes in the economy (or growth of industry and the decline in agriculture share to GDP) are
also measures of economic development. The transformation of an economy from agricultural to industrial
is an indication of a successful economic development.
iii
The garments industry today is partly alive simply because the United States has retained restrictions on
the imports of Chinese-sewn garments and textiles. But how long will this continue? (FTA 2006)
iv
Remo, Michelle, “UN urges freer flow of workers”, Philippine Daily Inquirer, April 12, 2006, p. B6.
Remo cited economist George Manzano’s report to the UN that the OFWs’ remittances contributed 13.7%
to the GDP. Other countries that benefited from overseas remittances in 2005 were India, $21.7 Billion and
China, $21.3 Billion.
v
How long shall we be able to retain the electronics assembly industry? And the call center industry? In
the electronics industry, we have seen the relocation of some companies to Vietnam and China. In the case
of the call center industry, how shall we be able to retain this industry once a new generation of IT-savvy
and English speaking Chinese, Vietnamese and other foreign graduates in developing countries join the
global labor force? (FTA 2006)
vi
The textile industry was booming in the l970s and l980s and partly modernizing in response to an
expanding market. The industry collapsed in the l990s due to widespread smuggling of textiles, yarns,
threads and other materials imported largely through the bonded warehousing facilities of some garments
exporters. The collapse was further aided by government neglect, which did not bother to take a second
look at the precarious situation of the textile industry and which did not have any ambition of developing
an integrated textile-garments industry (FTA 2006).
vii
The Economist (2005), “In Search of Elusive Domestic Demand”, Bangkok: economist.com, October 13,
2005, http://www.economist.com/PrinterFriendly.cfm?story_id=5025883 , (opened 1.11.06-jvs)
viii
Domingo, Ronnel, “Outsource industry seen growing”, Philippine Daily Inquirer, February 17, 2006, p.
B6
ix
Dumlao, Doris, “OFW remittances surge 16.5% to P977 M”, Philippine Daily Inquirer, March 16, 2006,
p. B1.
x
Asian Development Bank (2004) study on the economic status of the country under the Arroyo
administration (www.adb.org)
xi
Cabacungan Jr., Gil (2005), “Number of hungry Pinoys hits new high, says survey”, Philippine Daily
Inquirer, Jan. 7, 2005, pp. A1 & A4
xii
Dr. Romulo Virola is the secretary general of the National Statistical Coordination Board (NSCB),
chairman of the Statistical Research and Training Center (SRTC) and past present of the Philippine
Statistical Association.

135
INDUSTRIAL CULTURE AND INDUSTRIALIZATION

Industrialization is the common aspiration of all less developed and developing


countries. It is the process of introducing new technologies and cultures in order to
transform the nation’s economy and productive capacity. This transformation process
does not happen accidentally. It is planned and implemented, and most of the time,
struggled for by a core of industrializing groups.

Industrialization Process

A coalition of industrializing groups is the main engineer of the industrialization


process. This is shown in figure 20.

Figure 20- Model of Industrialization

Economic Factors
>technological level
>known natural
resources
>skills of knowledge
workers
>population growth
characteristics Actors- Coalition of
>capacity to Industrializing Groups
accumulate capital
Industrialists

Industrial Culture
>nationalism / State Bureau- Social-Cultural Industrial
patriotism crats/Political Leaders/Civil Revolution
>religious ethics Leaders Society and
>family system
>community norms,  Strategic Industrial Industria-
customs and traditions Plan lization
>education, science  Mechanism for
and technology norms Implementing
Industrial Plan
- state support
Political Factors - cultural
>system of governance transformation
>laws, rules and
regulations
>industrializing elites
>civil society
organizations and
institutions

136
The coalition of industrializing groups is composed of the following actors:

1. Industrialists, entrepreneurs and other knowledge workers (Sibal, 2003) united


by nationalism and patriotism from among the leaders of capitalist middle class,
socialist intellectuals, landed dynastics (realists) and foreign settlers and
naturalized Filipinos and their descendants like those of the Chinese, American
and Spanish origins.
2. State bureaucrats, technocrats and political leaders with patriotic and nationalist
ideals.
3. Civil society leaders and other progressive social-cultural organization leaders
like religious, civic leaders, educators, researchers, entertainers, media
personalities and other labor/NGO/pressure group leaders.

The coalition of industrializing groups should be able to dominate or occupy strategic


positions in the country’s economic enterprises, political and socio-cultural institutions.
With such strategic positionings, the industrializing groups may be able to formulate and
implement a national industrialization plan that will be supported actively by state and
civil society institutions. This is a vital step in the transformation of a developing
country’s economic, political and cultural systems.

In a global research on Industrialism and Industrial Man initiated and published


by the Harvard University in 1960, writers Clark Kerr, John T. Dunlop, Frederick H.
Harbison and Charles A. Myers (KDHM) noted that industrialization in many forms, and
not only capitalism and communism, is “stalking the earth, transforming almost all
features of older and traditional societies”

“We began to develop in particular, a sense of importance of


nationalism as a very real force at this stage in the history of the world.
We also developed a sense of the decline of the importance of
competing ideologies. More and more, the questions are technical as well
as philosophical … technicians are taking their place along with theorists”
(KDHM, 1960).

Roles of Industrializing Actors

Industrialists, entrepreneurs and other knowledge workers in the private, public


and civil society sectors study and apply new technologies and industrial culture. They
exercise leadership in the technical society and transform the skills, values, norms and
responsibilities of the workforce.

Industrialization “requires a rapidly increasing numbers and high proportion of


technical, professional and managerial personnel. This is equally true whether ownership
is private or public. This staff is concerned with the functions of planning, organizing,
directing, training and researching that have become indispensable to modern factory
production and to urban communities. They are a group continuously increasing in size
and significance. They require an ever higher degree of formal education and training,

137
and substantial resources in the community that tend to be devoted to their development”
(KDHM, 1960).

John Gokongwei Jr., (2004) head of the Philippine conglomerate firm engaged in
food manufacturing, textile manufacturing, petrochemicals, real estate,
telecommunications, airlines and banking and with operations in Asia underscored the
importance of industrialists and entrepreneurs in the industrialization process. “We may
have a productive and educated labor force, but we do not have an effective
entrepreneurial class who are the main drivers of growth in any country. Who else will
create jobs after all? …. If this continues, we will be a country that creates nothing and
imports everything”.

The state bureaucrats, technocrats and political leaders play a large role in the
industrialization process. They can provide the national framework of the
industrialization plan as well as programs needed to speed up industrialization such as
education and health services, infrastructures and regulation of relations between
managers and workers. “Modern industrialization does not see the withering away of the
state and its bureaucracy, rather the role of government agencies is expanded and
enhanced” (KDHM, 1960).

Contrary to the World Bank-IMF and WTO prescriptions of privatizing state


enterprises, KDHM noted that the “role of government in countries entering upon
industrialization, regardless of political form, may be expected to be greater than
before… It is extremely unlikely that latecomers can carry out such development without
relying very heavily on public operations”.

Civil society and labor leaders, whose traditional role is to watch over the
excesses of the state and private sectors, have a very important role in the
industrialization process, particularly in cultural transformation. Civil society sees global
corporation as strong threats to peoples’ democracies, self reliant economies and national
cultures. Global corporations, through the Word Bank, IMF and WTO, have no loyalty to
nations, communities or persons. Thus, local citizens’ movements align themselves with
domestic enterprises which are more accountable to their stakeholders (Alternatives to
Globalization, 2002).

It is in this light that the new labor movement is transforming itself into a social
movement unionism and is becoming an active component of the civil society. The
protests of the world labor movement today are more in favor of industrialization than
against it. In Israel, Ghana and Yugoslavia, labor organizations seek to assist the
industrialization process (KDHM, 1960).

In the Philippines, Alejandro Lichauco (1988) noted that “there are powerful
elements at work with a historic interest in preserving the country as a non-industrial state
specializing in the production and export of raw materials and light industrial goods and
forever dependent on others”. To counter such moves, Lichauco exhorted the
industrialists, government and civil society groups- schools, civic organizations, media,

138
and even the church to launch our local version of a cultural and intellectual revolution in
support of nationalist industrialization.

The Industrializing Groups

KDHM (1960) identified five types of industrializing elites who may introduce
the new technologies and cultures needed in the industrializing process. These are the
dynastic, middle class (capitalists), revolutionary intellectuals (socialists), colonial
administrators and nationalist leaders.

Of the five industrializing groups, the first three have been associated with
distinct philosophies and cultures. The dynastic leaders have advocated mercantilism and
feudal culture, the middle class, free enterprise capitalist philosophy, and the socialists,
state-initiated socialist industrialization.

The dynastic leaders are the most conservative among the industrializing groups.
They are rooted among the landlord class, hence their name dynastic from dynasty or rule
of kings. The dynastic leaders are engineers of modern agriculture - from subsistence
farming to commercial agriculture and trading. The dynastic leaders are of two categories
- the decadents who often gain or lose their power forcefully by war or revolution, or the
realists who adjust to the changing environments slowly just like the Zaibatus (Meiji
Shogunate) of Japan.

The middle class leaders are basically of the professionals (“schooled”),


merchandizing (money handlers) and master craftsmen in origin. These leaders are the
industrializing group of England and United States of America, often believers of free
enterprise doctrine of Adam Smith.

The revolutionary intellectuals are also of the professionals (or “educated”) but
unlike the middle class leaders who are prone to become capitalists (or “bourgeois”) they
are of the Marxist and socialist types. The revolutionary intellectuals are the
industrializing groups of socialist countries like the Soviet Union and China.

The last two industrializing groups, the colonial and nationalist leaders are
extensions of the first three industrializing groups. The colonial leaders are the
representatives of industrializing groups of a foreign, usually more advanced economy.
The nationalist leaders, on the other hand, are the representatives of the local
industrializing groups whose aim is to adapt to their country the philosophies and
technologies needed in the development process.

Colonial administrators are of two categories - the settler and the non-settler-type.
The settler groups are those who adopt and settle permanently in the country where they
operate and hence contribute to the industrialization of their adopted country. In the
Philippines, the insulares and the immigrant Chinese are examples of the settler type. The
industrializing elites of the United States, Canada, Australia and New Zealand were the
settler-type colonial administrators of Europe.

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The nationalist leaders are those who oppose the colonial administrators whom
they call imperialists. As mentioned earlier, they originate from the dynastic, middle class
and revolutionary intellectuals. In China, for example, Dr. Sun Yat Sen is a nationalist
middle class leader, Chairman Mao Zedong, a nationalist revolutionary intellectual and
Gen. Chiang Kai-shek, a nationalist dynastic leader.

The Struggle for Industrialization

The movements and struggles for industrialization of countries all over the world
revealed that a coalition of various industrializing groups is needed to engineer a
successful industrialization program. These various forces unite under the banner of
independence and nationalism. These nationalist industrializing groups usually aspire to
adapt the original philosophies and development strategies of the developed countries.

From the colonial, neo-colonial up to the present post-Fordist capitalist


globalization era, the biggest stumbling blocks in the industrialization movements of
developing countries are the colonial administrators of the developed countries and their
local neo-liberal allies. These anti-industrialization forces normally misguide the
governments of these developing nations by recommending or sometimes imposing
conditions on free trade and liberalized economic policies that they themselves did not
utilize during their days of industrialization.

Ha-Joon Chang (2002) calls this anti-industrialization strategy “kicking away the
ladder”. After analyzing development strategies of various countries in the world that
have industrialized, Ha-Joon concluded that developed countries “kicked away the
ladder” by insisting on developing countries to adopt policies and institutions that they
themselves did not use in order to develop. Economics professor Lance Taylor of the
USA’s New School University said that “leading economies used directed policies to
industrialize when they were less affluent and then told poorer countries NOT to do the
same, the incumbent rich always tell the poor to adopt a liberal policy stance”.

Despite this opposition from the anti-industrialization forces, KDHM predicted


that the industrializing groups of a newer system are bound to win over the leaders of an
older system. Hence the ultimate triumph of the industrializing forces.

“Industrialization is introduced by either native or alien elites,


by groups of men who seek to conquer the society through the superiority
of the new means of production. A war between the old society and the
new, the old elites and the new, takes place whether the conquest is an
internal or external one. The new, in the long run and under one
auspice or another, is always bound to win” (KDHM, 1960).

Industrialization Movements in the Global Era

140
During the cold-war era, the anti-industrialization forces propagated the myth that
there were only two models of industrialization to choose from. These were the capitalist
and the socialist models of industrialization. Developing economies were made to believe
that the choice is either of the two systems. Both the capitalist and socialist models of
industrialization propagated free trade. In the capitalist model, the doctrine behind free
trade is the theory of comparative advantage while in the socialist model, the doctrine is
world socialist development planning and specialization.

Both the capitalist and socialist industrialization strategies were in reality


strategies of “kicking away the ladder” as espoused by Ha-Joon. In Asia for example, the
Asian NICs (South Korea, Taiwan, Singapore, Thailand and Malaysia) have to defy
certain conditions from the World Bank and IMF and insist on their own nationalist
development strategies in order to advance their industrial development. When China was
still under the ambit of the USSR, its industrialization drive was thwarted prompting the
Chinese Communist Party under Chairman Mao Zedong to denounce the USSR as
practicing social imperialism.

KDHM observed that the USA-Great Britain model and the Soviet Union model
were not the only models for the newly emerging economies.

“Instead of two worlds, there were several in the middle of this century
of great transformation, and each of those several worlds was in transition…
We see a multilinear one. There are several roads, each of which leads to
industrialism”.

Industrialization does not follow a single mold or prescribed pattern. Underdeveloped


countries need not grow as an exact replica of any particular developed country. If these
were so, small nations like Singapore and Hong Kong would never have progressed and
industrialized. Most of the early industrialized countries were big countries with vast
natural resources.

It was also observed that it is not only the capitalists and the socialists who can
lead the industrialization movement. Industrialization is led by a coalition of
industrializing groups bounded by the culture of independence and nationalism. Both the
capitalists and socialists, being internationalists, have to capitalize on nationalism and
patriotism in order to inspire others in their drive towards industrialization. This is the
case of General Chiang Kai-shek of capitalist Taiwan and Premier Deng Xiaoping of
socialist China.

KDHM observed that there “is variety of leaders of industrialization movements,


with different objectives, starting with societies at varying degrees of backwardness,
confronting different obstacles, proceeding at quite different rates of speed, and using a
variety of political and social form. Nor does the industrialization process end in a single
stereotyped revolution”.

141
Culture and Industrialization

National culture either speeds up or retards industrialization. Developing


countries generally have segmented societies with wide class and culture gaps. The
traditional dominant culture is usually reactive to the newer industrialization process and
its industrial culture. To induce industrialization, the “pre-existing culture must adopt or
be broken as industrialization proceeds. The cultural patterns of industrialization may
move in rapidly, advance slowly, or be sealed off in a particular society. They may
penetrate deeply or shallowly, depending upon the nature and strength of the pre-existing
culture” (KDHM).

Industrialization either modifies or destroys traditional cultures. As the leading


industrializing groups adopt modern technologies in the economy through industrial
revolution, a subsequent cultural program must be launched. Ideally, cultural change
must precede the industrialization movement. This is a basic principle in organization
development and development economics. The speed of industrialization is therefore
dependent on the degree of resistance or receptiveness of society in the process of
modifying or destroying traditional cultures.

Cultural institutions like Churches and religions, family system, mass media and
entertainment, and community-based social institutions are major mechanisms that
facilitate the process of changing economies and societies. Today, with the economy and
speed of modern communication and transportation systems, ideas and cultural
institutions are fast modified through electronic media and entertainment via internet,
cable TV and the like.

According to KDHM, industrialization will be more rapid if the pre-existing


culture has the following characteristics:

1. Nuclear family system which tends to accentuate individual incentives to work,


save and invest;
2. Relatively open social structure which encourages equality of treatment and
advancement on the basis of ability;
3. Religious and ethical values which are favorable to economic gain and growth,
innovation and scientific change;
4. Legal system which encourage economic growth through protection of property
rights from arbitrary or capricious rule; and
5. Strong central governmental organization and the sense of being a nation which
can play a decisive role in economic development.

Industrialization on the other hand will be slackened if the following cultural factors will
impeded the advance of industrial culture (KDHM):

1. Extended family system which weakens industrial incentives to work, save and
invest, and which reserves key managerial positions for family members
regardless of relative competence of insiders and outsiders;

142
2. Class structure based on traditional social status rather than an economic
performance;
3. Traditional religious and ethical values which emphasize ‘place’ and ‘duty’
unrelated to economic gain or advancement, and oppose change and innovation,
particularly in science and technology;
4. Traditional customs and social norms which deny individual and property rights
and fail to guarantee observance of contracts; and
5. Decisive groups in the society which hinder or prevent the emergence of strong
nation-state.

Religion and Family Ties

The protestant ethics in the West, particularly US, Britain and Scandinavia, have
helped speed up industrialization through the promotion of the values of thrift, austerity
and capital accumulation. This is also true in Confucian ethics in Asia. In Japan, culture
and religion were preserved as modern technologies were being adopted. This was also
the case in France and Italy. In Spain, parts of Latin America and the Islamic world,
religion has been a factor in the slow pace of industrialization. In the case of China and
Soviet Union, religion was curtailed.

While an extended family system prevalent in underdeveloped economies


generally impedes industrialization as mentioned earlier, it may also give advantages to
industrialization where resources for capital formation are pooled, and it serves a cheap
source of family labor. In underdeveloped countries, family workers normally work as
unpaid family workers.

Nationalism

Development economists have identified the various components of industrial


culture that have been instrumental in the speeding up of the industrialization process.
These components of industrial culture include the following principles and beliefs:

1. Nationalism and patriotism;


2. Desire for a sovereign and independent nation;
3. Acceptance of modern sciences and technologies; and
4. Unity of industrializing actors- industrialists, state bureaucrats and social-cultural
leaders.

Nationalism is an integrating force in developing economies particularly in Asia where


wide class and cultural gaps exist between the elites and the impoverished masses. As
cited by KDHM, examples of countries where nationalism sped up the process of
economic development and industrialization were India under Prime Minister Nehru,
Israel, Japan, Turkey and the Philippines during the 1950s.

143
The Philippine Experience

While the Philippines today is considered an economic sluggard among the fast
growing Asian economies, it was during the 1950s the second fastest growing economy
in Asia, next to Japan. One of the major factors for this fast economic growth of the
Philippines in the 1950s was the nationalist industrial culture that prevailed among
emerging Filipino industrializing groups.

David Wurfel (1957), citing ECAFE’s Economic Survey of Asia and the Far East,
noted that the Philippines became the most industrialized economy in Southeast Asia
with manufacturing accounting for nearly 15 per cent of the net domestic product.
Manufacturing provided jobs for 13 per cent of the employed labor force.

The Philippines adopted a strategy of import substitution industrialization (ISI) as


an option to the failed free trade strategies imposed for several decades by colonial
powers Spain and the United States of America. During the colonial eras before 1950,
organized manufacturing of 5 or more workers were limited only in the processing of
agricultural products.

The 1962 report of the World Bank (Ofreneo, 1994) noted the fast growth of
domestic manufacturing in the 1950s at more than 10 per cent per annum. By 1960s,
manufacturing has become a significant segment of the economy. As a result, a vigorous
domestic entrepreneurial class has emerged and the nucleus of a skilled-labor force has
been formed.

Noted historian Frank Golay (1961, pp. 408-414) explained that the “rise of the
Filipino industrial class, with its entrepreneurial values” was one of the four sources of
growth in the post-war period. The three other sources of growth of industries were- a)
consistency of economic policy of import substitution, b) foreign inflow of capital mostly
from war damage payments, and c) the development of the internal domestic market.

Golay noted that the new industrial class changed the composition of the pre-war
economic elites dominated by the landed aristocracy bred by free trade export crop
monoculture and the so-called compradors [traders] who specialized in the import-export
and domestic distribution business.

In his book Nationalist Economics, political economist Alejandro Lichauco


(1988) identified the emerging industrializing groups of the 1950s that spearheaded on a
limited basis an aborted local industrialization.

“In the same decade, the country produced its own captains of industry,
among whom were Salvador Araneta, who pioneered the flour and engine
industries, Hilarion M. Henares, Jr., who made a name producing industrial
chemicals and school supplies. He was among the early pioneers of the modern
managerial system in the Philippines and would become, together with Araneta,
the main ideologue of the industrial community. Filemon Rodriguez, who

144
founded one of the most prestigious Filipino management companies; and
co-founded FILOIL, the first Filipino-owned oil refining company; Col.
Severo Santiago, who pioneered the production of telecommunications
equipment; Meneleo Carlos, Sr., who founded today’s largest
producer of industrial resins; Pablo Silva, who pioneered in foundries
and steel pipes; Jose Concecion, Sr., who pioneered the manufacture
of appliances; Jose Marcelo and Jacinto families, who pioneered the
steel industry; and numerous others who eventually organized the militant
Philippine Chamber of Industries which aggressively pushed for the
implementation of industrialization and of the ‘Filipino First’ Policy”.

Lichauco observed that it was this “class of industrial entrepreneurs and industrial
workers who pressed for the increased introduction of machines and machine technology
to the economy”.

Kicking Away the Ladder, Philippine Experience

The Import Substitution Industrialization (ISI) strategy was the successful first
step in the industrialization of Japan, South Korea, Taiwan and other Asian NICs. Even
in South America, Robert Boyer and other researchers noted that large public sector and
ISI “delivered impressive results for the Mexican economy (Aboites, 1986), and Brazil
(Coriat and Saboia, 1987). Back in the 1930s, even Argentina was able to modernize and
industrialize during an extended period, via a highly regulated economy and the search
for home grown technologies (Miotti, 1991)”.

In the Philippines however, the strategy was derailed by the anti-industrialization


forces of the United States and its neo-liberal local allies. This was a case of “kicking
away the ladder” which the country was already using.

The main reason why the ISI miserably failed in the country was because the US
strategic thinkers were way ahead of the Filipino industrializing groups. This was
explained by Nationalist statesman Senator Claro M. Recto (Lichauco, 1988):

“American anti-industrialization policy was rationalized (way


ahead of the ISI policy) sometime in 1945 or early 1946. The Bell Trade
Act, approved and passed in April 1946, was inconsistent with the
ideas of industrialization of the Philippines. The Deyster Plan which
was prepared by an American firm during the Roxas administration although
not exactly opposed to industrialization, proposed that it be limited, without
showing why. Ambassador Cowen openly advised our government and
people to maintain what he described as an agricultural and commercial
economy. In July 1950, Senator Sparkman, upon his return from the
Philippines, complained in a press interview that there was altogether
too much talk of industrialization here. He would concede light industry
but not heavy industry.”

145
Not satisfied with the Bell Trade Act of 1946, the national treatment given to US citizens
and corporations was extended up to 1974 with the Laurel-Langley Agreement of 1954.
Lichauco concluded that it was a “nationalism limited, and in fact, neutralized by the
national treatment extended by the government to American citizens and corporations
controlled by such citizens”.

The Mechanics and Failure of ISI

Under the ISI strategy, the newly established Central Bank of the Philippines
(CBP) intervened in the economy by supplementing the import controls with foreign
exchange control measures. The import and foreign exchange controls became the
deliberate program for the promotion of import-substituting industries. Filipino
industrialists and American companies took advantage of the program to develop light
import-replacing industries. The American distributors of imported products set-up
Philippine subsidiaries engaged in the tertiary processing or the packaging and assembly
of semi-processed and semi-knock down parts of the imported products they used to
distribute.

Because of the ISI strategy, the Philippines registered annual double-digit growth
rates in the 1950s. The growth however slackened in the 1960s and it soon became clear
that the economy was facing an insurmountable BOP crisis because the ISI industries
were all very dependent on imported capital equipment, machineries, tools, parts and
techniques. Under the pressure from the IMF, the agora-mineral-timber exporters and the
American Chamber of Commerce, President Diosdado Macapagal devalued the peso and
removed the import and foreign exchange controls (“decontrol program”).

The failure of the ISI strategy was caused by the following factors:

1. Most of the beneficiaries of the ISI programs were US firms (3 out of 4


companies set up in 1950s were foreign subsidiaries and joint ventures).
2. Their investments were limited to tertiary processing and engaged in capital
intensive processes which were heavily subsidized and protected by the state.
3. There were very limited forward and backward linkaging and these ISI industries
managed to control the local market via industry cartels or oligopolies and
monopolies. They did not expand to the export market for more efficiency,
economies of scale and competitiveness.
4. Colonial mentality contributed to the wasteful spending of resources. Foreign
cultures propagated by global corporations created new needs, redirected attitudes
and changed values such that consumption patterns and costly tastes developed
among the rich and the upper class favored the purchase of imported goods
(Constantino, 1984). Furthermore, many foreign and local firms practiced transfer
pricing and patronized foreign suppliers instead of local producers.
5. There was no genuine land reform program to democratize the Philippine society
and to increase the incomes of the vast rural population thereby expanding the
local market to encourage industrialization.

146
6. Worse, the ISI strategy only institutionalized patronage political system and crony
capitalism which preserved the dominance of the local dynastic elites and the neo-
liberal technocrats in the country’s political system.

Abandonment of the Nationalist Industrialization Policy

With the BOP deficits, the government was forced to go to the IMF and adopted
the IMF-recommended policies of opening up the economy through peso devaluation and
the enactment of measures encouraging foreign investments and export-oriented
production. The growing IMF clout in policy making was reinforced by the rise in the
bureaucracy of Western-trained neo-liberal minded technocrats. The process of kicking
the ladder for the country was almost completed.

According to the report of the International Forum on Globalization entitled


Alternative to Economic Globalization (2002), the shift to economic globalization was in
reality “an experiment, an economic model promoted by people and economists (neo-
liberals) who will most benefit from it”. The World Bank “invested in training and
education to indoctrinate scores of Third World bureaucrats and economists in an
economic ideology that equates development with export-led economic growth fueled by
borrowing and investments- that basic fallacy that remains a cornerstone of its policy
today”.

It should be noted that the ISI strategy, as explained by economist Amado Castro,
was undertaken by the government “in response to the balance of payment difficulties
experienced by the country in the late 1940s”. Arguing that the ISI strategy was not a
complete failure, Castro pointed out that statistics on imports indicated “a shift in the
composition of imports from finished consumer goods to capital goods” which meant that
‘backward integration (was) in fact taking place with domestic raw materials being
utilized to a greater extent.” (as quoted by Ofreneo, 1994).

What is lamentable is that the ISI strategy failed because it was derailed by anti-
industrialization forces. Instead of clearing the obstacles to the ISI strategies for
industrialization, it was completely abandoned in exchange of an experimental export-
oriented strategy that brought the economy back to the free trade colonial past.

Losers and Winners

The resulting decontrol program, which combined import liberalization,


devaluation and tight monetary policy, crippled the infant Filipino industrial class that
was born during the decade of the 1950s and aborted the process of industrialization
(Lichauco, 1988).

Lichauco explained how the decontrol program has favored the community of
foreign investors in four ways. These are:

147
1. It killed the “Filipino First” policy, and sharpened the already built-in advantage
enjoyed by foreign companies over Filipinos in the business world.
2. It enabled foreign firms unlimited profit remittances.
3. The currency devaluation made it cheaper for new foreign investors to invest or
buy into the economy.
4. Foreign companies were encouraged to raise their working capital from local
banks

After several decades of globalization and trade liberalization, studies now show, as
quoted from ILO Director General Juan Somavia in 1999, that “people in the high
income countries account for 20 per cent of world population but posses 90 per cent of
the GDP in the world. On the other hand, poorest people, which account for the lower 20
per cent of world population, posses only 1 per cent of GDP in the world” (Takagi,
2004).

The 2002 report of the International Forum on Globalization concluded that most
poor countries have never enjoyed much benefits from globalization. After three decades
of strong doses of IMF and WB medicine and less than three decades of WTO policies,
many have seen that globalization was a false promise. The policies were not designed to
benefit them but to benefit rich industrial countries and their global corporations.

Maneuvers of the Successful Asian NICs

There were successful industrialization programs in Asia even under the aegis of
the IMF-World Bank and WTO. Ronaldo Munck (2002) observed the “big advance in
industrialization of developing world under the aegis of mainly nationalist regimes”.
These industrialization programs were undertaken by the industrializing groups as a joint
responsibility of the government, private and to a certain extent the labor sector.

Ha-Joon and other development economists observed that there is a consensus


that the spectacular growth of Japan and other East Asian NICs except Hong Kong was
primarily due to activist industrial trade and technology policies of the state. With the
absence of entrepreneurial class in Japan, having come from a feudal economy, the Meiji
government established state-owned factories in shipbuilding, mining, textiles (cotton,
wool and silk), and military industries (zaibatsus). These factories were later sold to
private enterprises but were subsidized from 1870s to 1880s.

The Meiji government also invested heavily on infrastructure like the rail system
in 1881. Although unprofitable, these state-initiated industries introduced new
technologies, developed the knowledge workers- managers, engineers, and the industrial
labor force and eventually a healthy local market.

In Taiwan, South Korea, Singapore and Malaysia, improvements did not come by
assiduously by following the dictates of the WB-IMF but by “doing the opposite of what
they prescribe. Asian countries that have had some brief successes in developing their
own economies did not cut their tariffs as demanded by the globalizing institutions,

148
permit foreign entry without controls, or eliminating existing support for domestic
business, local economies and local agriculture. Instead, those countries first developed
the ability to take care of their basic needs internally, rather than totally converting to an
export-based production system” (Alternatives to Globalization, 2002).

NICs like South Korea and Malaysia made use of many mechanisms, such as
trade-balancing requirements that the value of a foreign investor’s imports of raw
materials and components to the value of exports of the finished commodity, and ‘local
content’ regulations that mandated a certain percentage of the components that went into
the making of a product to be sourced locally (Alternatives to Globalization, 2002).

South Korea in 1960s, according to Yong-bum Park (2002) pursued state initiated
mobilization, similar to those done in socialist countries, aimed at nurturing high
standards of work ethics and cooperative attitudes among workers. ‘Industrial workers’
were “exhorted to work harder in fighting the patriotic war against poverty… The abject
poverty to which most Koreans were subjected for a long time provided a fertile ground
for economic incentives to induce hard work”.

In 1970s, Yong-bum continued, the Factory Saemaul Movement promoted the


enterprise family and hard work side-by-side with institutional reforms to fight the
negative effects of the oil price shock. The labor-management councils and also quality
circles promoted capital-labor cooperation towards productivity and competitiveness.

South Korea’s Chaebol enterprises replicated Japan’s zaibatsus or state


enterprises. Unlike other Asian NICs, it relied less on foreign direct investments and
licensing, and most on turn-key plants and imports of capital equipment (Kim, 1987 as
quoted by Yong-bum, 2002). The state-initiated industrial plan of South Korea also made
vocational training compulsory through the Vocational Training Act initiated in 1967 and
a compulsory primary education which raised the literacy rate from 22 per cent in 1945 to
90 per cent in 1960s.

“Japan, Korea and Taiwan were developed by pursuing –


simultaneously – aggressive export promotion, development of import
substitution at increasingly higher levels of industry (from light to medium
and heavy), protection of domestic industries, encouragement and assistance
to local entrepreneurs, institutional reforms in certain social spheres
(education, agriculture, etc.) and strong government intervention, specially
in planning. Such a path of development is quite different from what the
laissez-faire economists have been preaching: an unallayed deregulation in
order to favor the export market” (Ofreneo, 1994).

China, a latecomer in the industrialization movement in Asia, together with other


developing countries, continues to struggle at the WTO. Realizing that instituting major
domestic reforms and globalization are full of risks, China struggles to put pressure to the
EU and the US in opening up their markets.

149
China’s coalition of industrializing groups is led by Zhu Rongji and other socialist
state bureaucrats and reformist intellectuals together with their new found allies in the
non-state sector- the private sector and the fast growing middle class, entrepreneurs,
shareholding corporations, joint ventures with foreign investors, and community-owned
rural industries. The non-state sector in 2003 contributed to “74 per cent of industrial
output, 62.2 per cent of GDP and more than 100 per cent of the increase in employment”
(Mar and Richter, 2003).

“During the Asian financial crisis (in 1997), China did not follow
the IMF’s prescription. Premier Zhu Rongji refused to devalue the
Renminbi. Those nations that did follow the IMF’s prescription witnessed
first, economic and then political meltdown. Meantime, China’s
foreign exchange reserves soared reaching US $ 230 billion (2003), the
second largest in the world. Following its own course, China’s new
export economy is booming, drawing manufacturers from the West
and throughout Asia to relocate production in China. Meanwhile, a brisk
new pattern has arisen, tilting the economy away from an over-reliance
on exports, which proved to be the Achilles heel of the Asian tiger
economies” (Brahm, 2003).

The New Philippine Cultural Transformation

It is everyone’s realization that mass poverty cannot be eliminated or even


relieved with globalization and liberalization. As what Japan and other Asian NICs
realized long time ago, it only through industrialization that the country will be able to
achieve the ideals of nationalism, independence, democracy and progress.

It is the urgent task of the Philippine industrializing groups in the private,


government and civil society sectors to reenergize their struggle towards national
industrialization now that the cracks of the seemingly formidable promises of
globalization are glaringly showing.

The struggle for national industrialization should be preceded by cultural


transformation. The world’s people, as shown in Cancun, Doha and other momentous
civil society uprisings, have risen up and pushed to greater heights the global cultural
revolution.

One factor why the country has been a sluggard in Asia is that it is one of the
most thoroughly westernized in manner and attitudes. The country has a “complex value
system that intertwines the indigenous Filipino, Chinese, Spanish and American culture”
and the only Christian, English-speaking democracy in Asia” (Warner, 2003).

The country’s culture is known to be “colonial and damaged” and the people
exploited and kept in poverty by various colonial administrators. This has considerably
weakened the values of patriotism, nationalism and cooperation. Filipinos usually do not

150
trust each other and rely solely on extended family system. It is the system of individual
survival (or the crab mentality) that prevails in the average Filipino mind.

These are the major obstacles in the cultural transformation among Filipinos.
Inculcating the new industrial culture among Filipinos is a must in order to speed up the
much delayed and aborted national industrialization process. If the West has the
Protestant ethics and most of Asia, the Confucian ethics that have pushed
industrialization, the world’s civil society is now being aroused by the Christian ethics.

German Catholic Heinrich Pesch S.J. in 1918 wrote the book Ethics and National
Development. He called these Christian Ethics a “solidaristic system of human work”. It
has three basic principles:

1. The economy must be regulated in accord with the virtues of (social) justice and
(social) charity. It is the responsibility, and thus in the conscience of individuals
to make the economy work for the good of all, especially the poor.
2. The principle of subsidiarity (participatory democracy) where social and political
institutions at higher levels ought to intervene only when the individuals and
groups at the lower social and political levels cannot accomplish the tasks which
the common good requires.
3. The principle of autonomy and cooperation where people in various vocations and
occupations perform various functions necessary for the development of the
economy.

It is time that all Filipinos should put in their respective minds and consciences the three
basic principles of the Christian ethics in renewing our industrial culture.

References:

Brahm, Laurence, 2003, “Zhu Rongi’s ‘Managed Marketization of the Chinese


Economy”, China, Enabling a New Era of Changes, Singapore: John Wiley & Sons
(Asia) Pte Ltd.
Boyer, Robert, 1994, “Do Labor Institutions Matter for Economic Development?
A ‘Regulation’ Approach of the OECD and Latin America with an Extension to Asia”,
Workers, Economic Institutions and Economic Growth in Asia (Gerry Rodgers-Ed),
Geneva: International Institute for Labor Studies.
Constantino, Renato, 1984, Nationalist Alternative, Quezon City: Foundation for
Nationalist Studies.
Gokongwei Jr., John, 2004, “How to Make RP Economy Globally Competitive”,
Philippine Daily Inquirer, Feb. 23, 2004, p. B8.
Ha-Joon Chang, 2002, Kicking Away the Ladder, Development Strategy in
Historical Perspective, London: Anthem Press.
International Forum on Globalization, 2002, Alternative to Economic
Globalization (A Better World is Possible), San Francisco: Bennett Koehler Publishers,
Inc.

151
Kerr, Clark, John Dunlop, Frederick Harbison and Charles Myers (KDHM), 1960,
Industrialism and Industrial Man, Massachusetts: Harvard University Press.
Lichauco, Alejandro, 1988, Nationalist Economics, History, Theory and Practice,
Quezon City: Institute for Rural Industrialization, Inc.
Lichauco, Alejandro, 1986, Towards a New Economic Order and the Conquest of
Mass Poverty, Quezon City: SSP.
Mar, Pamela and Frank-Jurgen Richter, 2003, China, Enabling a New Era of
Changes, Singapore: John Wiley & Sons (Asia) Pte Ltd.
Munck, Ronaldo, 2002, Globalization and Labor, Manila: Ibon Books
Ofreneo, Rene, 1994, “The Labor Market, Protective Labor Institutions and
Economic Growth in the Philippines”, Workers, Economic Institutions and Economic
Growth in Asia (Gerry Rodgers-Ed), Geneva: International Institute for Labor Studies.
Pesch S.J., Henry, 1918, Ethics and the National Economy, Philippines: Divine
Word Publications, Inc.
Rodger, Gerry, 1994, “Workers, Economic Institutions and Economic Growth in
Asia, Geneva: International Institute for Labor Studies.
Sibal, Jorge, 2003, “Studies of Selected In-Company Training Strategies for
Knowledge Workers in the Philippines: Tokyo: Asian Productivity Organization.
Takagi, Tsuyoshi, 2004, “Global Economy and Decent Work”, Conference on
Industrial Relations in Enterprises in the Age of Globalization of Economy, sponsored by
the ILO Association of Japan, Inc., March 1, 2004, Mandarin Oriental Hotel, Makati
City, Philippines.
Warner, Malcolm (Ed.), 2003, Culture and Management in Asia, London:
RoutledgeCurzon.
Wurfel, David, 1957, “Trade Union Development and Labor Relations Policy in
the Philippines”, Industrial Labor Relations Review, Vol. 12, No. 4, July, pp. 582-608.
Yong-bum Park, 2002, “State Regulation, the Labor Market and Economic
Development: The Republic of Korea”, Kicking Away the Ladder, Development Strategy
in Historical Perspective (Ha-Joon-Ed), London: Anthem Press.

Endnotes:

Paper read at the “Research Colloquium of Economic Ideas” sponsored by the Fair Trade
Alliance, March 23, 2004 at PRRM Bldg., Quezon City. Prof. Jorge V. Sibal is a member-convenor for
NGOs of the Fair Trade Alliance, Vice Chairman and Trustee of the Urban Missionaries Foundation of the
Association of Major Religious Superiors of the Philippines (AMRSP) and 2-term elected representative
for NGOs-P0s of the Quezon City Development Council.

A knowledge worker is anyone who makes a living out of creating, manipulating or
disseminating knowledge. According to Peter Drucker, Management Challenges of the 21st Century, the
types of knowledge workers are- 1) High Level Knowledge Workers who are mostly mental workers like
professionals (doctors, teachers, consultants, etc.), managers, entrepreneurs, administrators, etc., and 2)
Knowledge Technologists or those who work with their hands and brains in the information technology
(IT) industry.

152
STRENGTHENING OFFSHORING IN THE PHILIPPINES:
ISSUES AND CONCERNSi

Background on Business Process Outsourcing

The business process outsourcing (BPO) industry sub-sector started in the


Philippines in 2001 when American Online (AOL) set-up an in-house call center at the
Clark special economic zone in Pampanga (Aquino, 2004). A call center is an office with
many employees in cubicles answering incoming telephone calls. The calls range from
people asking about their computers, card holders inquiring about their credit card
balances, subscribers checking their phone bills, and travellers booking their flights.

Rene Soriano (1985) explained that offshore outsourcing (or offshoring) was
made possible by internet communications technology (ICT). Business processes,
projects, tasks and jobs were transferred to virtual workforces across the world.
Companies now choose to farm out their call center jobs to countries where costs are
lower.

The main motivation for offshoring, according to Soriano (1985) was to minimize
production cost and maximize profits. Salaries in developing countries are 50 to 80 per
cent less than in the U.S.ii For example, the salary of a customer service representative
(CSR) in the U.S. is $25,000 while the cost in the Philippines and India are $2,828 and
$1,689, respectively iii . While costs are lower from the point of view of the U.S.
companies, the skilled and knowledge workers in the developing countries are benefited
by the increase in their incomes since their current salaries for local work are still lower
compared to the workers of the developed countries.

Many U.S. firms shut down and laid off their American call center employees and
transferred the jobs offshore to the developing countries. Internet service provider
Earthlink for example closed its call centers in Harrisburg, Pennsylvania and Roseville,
California and laid off 1,200 American call center workers iv . A Columbia University
survey of 45 U.S.-based companies showed that the Philippines was the second largest
recipient of outsourcing with almost 30 per cent of the market. Aside from the U.S.,
Australia and the U.K. were the other countries targeted for BPO services (Aquino, 2004).

Being the world’s third largest English-speaking country, the Philippines attracted
many college graduates by offering higher salaries than most other jobs. Expansion of the
BPO industry sub-sector has been described as moving at blistering pace. Economic
Planning Secretary Romulo Neri cited projections by the Board of Investments and two
industry groups (Business Process Association of the Philippines and the Commission on
Information, Communication and Technology) that the industry sub-sector will
experience a 52 per cent growth rate in revenues and 42 per cent in investments in 2006
(AFP, 2006).

153
Many enterprises in the contact sector business were large players and have
become the country’s most profitable firms. According to Nantes (2004), 63 contact
centers with 25,000 seats made $200 million in 2003. In 2005, BPO jobs increased by 63
per cent (162,250 jobs) and generated $1.8 billion earnings with $1 billion (or 56 per cent)
contributed by the call centers (PIA, 2006; Domingo, 2006). In 2006, $3.8 billion is
expected to be earned by 120 BPO companies and call centers are expected to contribute
at least 72 per cent. In 2010, the projected revenue is $10 billion (AFP, 2006).

Makati City and Eastwood in Libis, Quezon City were the main venues of contact
center operations with the industrial park facilities in Alabang, Muntinlupa City as close
second. There is now a shortage of office spaces in the urban areas. Construction and real
estate companies and 24-hour restaurants were immensely benefited by the booming
BPO enterprises.

The contact center companies have set up not only in Metro Manila but also in
other regional areas of the country. The Philippine economic zone authority (PEZA)
recorded an investment of 854 million pesos and the hiring of 3,802 call center workers
in February 2004. Convergys, the world’s largest contact center with 8,000 workers in the
country at present, invested the biggest at 257 million pesos. Ambergis Solutions
Philippines Inc. came in next with 233.5 million pesos investments and hired 650
Filipinos annually. Others included Sitel Customer Care Philippines Inc. at 196 million
pesos and 600 workers hired, PeopleSupport with 91 million pesos, and Pacifichub with
76 million pesos (Nantes, 2004).

Aside from Convergys, 4 other U.S.-based call centers (Teleperformance USA,


Teletech, InfoNXX and Epixtar) were reported to have expanded operations in Clark
Pampanga. In Cebu, other call centers expected to start or expand operations were
Convergys, Sykes Asia, Western WATS, Teradyne, Page Computers, Bigfoot Global
Solutions Inc. and 88th Floor (Nantes, 2004).

Components of the BPO Industry Sub-sector

1. Call or Contact Centers

The Philippine contact center industry is projected to grow by 100 per cent
annually by the Philippine Call Center Industry Benchmark Study of 2003. This positive
growth outlook is higher than other Asian competitor countries led by India at 65 per cent,
China at 41 per cent and Thailand and Malaysia at 15 per cent. Despite the country’s
comparative advantage in this industry, there are problems being encountered by the
industry which might hamper its expected growth. These problems are discussed later in
this paper. The country aims to serve 50 per cent of the global demand in the next 4-5
years (cantres.net, 2004).

154
2. Medical Transcription

This is another area where the Philippine has a comparative advantage in terms of
the availability of medical professionals, readiness of medical and computer training, and
the presence of ICT infrastructure.

According Eugenio Gonzales, President of a medical transcription educational


provider, some of the constraints in maximizing the opportunities in this sector are the
low awareness among potential knowledge medical workers of the opportunities in
establishing a career in this field, and the maintenance of the quality of services of the 17
Philippine-based medical transcription companies situated in Metro Manila, Baguio City
and Cebu. At present, the country’s share of the U.S. market is only 1 per cent which
according to the U.S. Department of Labor is expected to grow to $20 billion worldwide.

3. Computer Animation

This is another potential growth area in the BPO industry sub-sector. There are
around 22 small and medium-sized animation service providers that produced some $40
million revenues in 2004. According to Marlyn Montano, president of the Animation
Council of the Philippines, this sector is expected to grow by 25 per cent annually with a
new workforce demand of 1,500 computer animators in the next 3-5 years. The main
problem encountered by this sector is the lack of qualified manpower supply due to the
dearth of computer animation schools and training centers.

A computer animator must be an artist with at least one-year certificate on


computer/digital animation from a reputable school or training institution. Montano said
that there is a need to upgrade and establish first-rate schools and training centers aligned
to global animation standards.

4. Others BPO Services

These included higher value added professional services such as software


development, engineering and architectural design, human resource management services,
and other professional services like finance and accountancy, management consultancy,
etc. These inshore and offshore services can be developed further by the country.

Advantages of the BPO Industry Sub-sector

The business process outsourcing (BPO) industry sub-sector has several


advantages.

First, this newest sunshine industry effectively reverses the brain drain
phenomenon in the country. Our English-speaking knowledge workers and college
graduates were able to stay not only in the Metro Manila areas but also the country’s
various regional centers like Cebu City, Clark, Pampanga, Baguio City and Davao City.

155
Reuters (2005) reported that graduates in Baguio City felt that “they have a
realistic chance to stay in their hometown instead of joining the exodus overseas to
escape one of Asia’s highest unemployment rate [of more than 10 per cent]”. According
to Jose Ferreros, director of operations of ClientLogic’s Baguio plant, there is a
downstream effect on other local industries like the transport and food industryv.

The second advantage of the fast growing BPO industry sub-sector in the
Philippines is the large pool of 380,000 to 450,000 college graduates entering the labor
force every year with American English communication skills and knowledge in ICT.
The country has likewise a reliable and reasonably priced ICT infrastructure and most
importantly, relatively lower salaries of qualified personnel. An added plus is the
generally friendly and hospitable and western–oriented values of Filipinos in general.

Executives of multinational corporations said that that they would hire 30 college
graduates in finance and economics from the Philippines compared to India at 15. For
generalists and life sciences researchers, the Philippines again bested India at 25 versus
10, and 20 versus 15 respectively. Even in engineering which India has the distinct
advantage, the Philippines compared favourably. In terms of percentage to the total
population, the Philippines produced more college graduates than India (Beshouri, Farrell
and Umezawa, 2005).

Compared with 10 other countries, the Philippines has the second lowest hourly
wage for professionals at 13 per cent of the U.S. level. The Indians have the lowest
salaries at 12 per cent while wages in Malaysia were two times that of the Philippines
(Beshouri, Farrell and Umezawa, 2005). The cost of operating a call center seat in the
Philippines is second to India at an annual cost of $16,428 per seat compared to India at
$12,988 per seat and $90,994 per seat in Hong Kong (cantres.net, 2004). The country’s
comparison with the 10 countries is shown in Table 29.

Table 29. Comparative Strengths and Weaknesses of Offshoring Countries


(Scale of 1 to 5 from U.S. company’s point of view: 1= most attractive, 5= least attractive)

Country Total cost Vendor Access to Risk Business Quality of


(a) landscape market profile environ- infrastruc-
(b) ment ture
Philippines 1.5 4.5 3.5 3.9 3.7 2.8
India 1.5 2.2 3.5 2.7 3.6 3.3
Malaysia 1.7 4.7 3.3 2.2 3.4 2.5
China 1.8 3.7 1.8 3.4 3.6 2.5
Brazil 2.2 3.5 4.2 2.8 3.0 2.0
Mexico 2.2 4.7 2.8 3.5 2.6 2.0
Czech 2.6 4.7 3.5 2.2 3.0 3.0
Republic
Hungary 2.6 4.7 3.3 2.3 2.8 3.8
Poland 2.7 4.0 3.3 2.7 3.1 3.0
Russia 3.0 4.5 2.8 3.5 3.3 3.3

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(a) includes corporate taxes, cists of labor and infrastructure
(b) includes country’s domestic market as well as access to nearby countries (e.g. through trade
groups).
Source: Location Cost Index database, McKinsey Global Institute

According to the McKinsey report, U.S. companies ranked the Philippines at 2.1
next to India and Malaysia (2.0) in terms of attractiveness of location on a scale of 1 to 5
(1 as the most attractive). Following the Philippines are China (2.2), Brazil (2.3), Mexico
(2.4), Hungary (2.6), Czech Republic (2.6), Poland (2.8) and Russia (3.1).

The third advantage of the BPO industry sub-sector is its potential to grow further
not only in the contact [call] center offshoring services but also in other high value added
professional services like in medical transcriptions, animation, software development,
engineering and architectural design, human resource management services, and other
professional services like finance and accountancy, management consultancy, etc.

At present, this industry sub-sector is reportedly growing annually at 6.8 per cent.
The McKinsey Global Institute estimated that from 2003 to 2008, an additional 2.6
million offshore services jobs will be created around the world. In 2003, the Philippines
has supplied $1.7 billion worth of offshore services to the world. In the contact center
sub-sector alone, the country has around 100,000vi employees in 2005 (Beshouri, Farrell
and Umezawa, 2005). But there are now 30 countries competing for the offshore services
jobs compared to only 6 in 2001.

According to McKinsey Global Institute, India is the leading global supplier of


offshore services at $12.2 billion in 2003. It is followed by Iceland at $8.6 billion which
consisted primarily of their multinational corporations’ captive operations. Canada, Israel
and China followed next at $3.8 billion, $3.6 billion and $3.4 billion respectively. Asia
(excluding India and China) earned $2.3 billion while Latin America gained $1.8 billion.
The Philippines came in next at $1.7 billion and followed by Eastern Europe ($600
million), Mexico ($500 million), Australia ($400 million), Russia ($300 million),
Thailand ($100 million) and South Africa ($100 million).

In the contact center offshoring sub-sector alone, Reuters (2005) reported that
India and the Philippines will be competing for some 250,000 additional jobs that will be
created in the 2 countries up to 2009. At present, India has around 245,000 contact center
seats. The Philippines has the potential to create 250,000 contact center jobs and earn up
to $10 billionvii up to 2010. India’s advantage is that it has gone beyond contact centers to
higher margin jobs like animation, accounting, financial and engineering services, etc.

With the country ranking third in the knowledge and information-based jobs in
the 2002 Global Technology Index research of the META Group, Winston Pepito was
confident that the country will be the world’s contact center hub specializing in customer
service support. Pepito is the president of the successful Phil-Am Outsourcing Solutions,
Inc. based in Cebu City.

157
Admitting for example that India charged cheaper at $4 for data encoding versus
$10 in the country, Pepito said that more multinationals are choosing the Philippines
because of the higher quality work- fluency in American English and the helpful and
friendly nature of Filipino workers. Among these services are copyediting and indexing,
web design and maintenance, data conversion, data warehousing, data capture and data
entry, OCR and scanning services, proofreading, encoding and keyboarding, imaging
services and graphics design, typesetting and tagging.

Pepito mentioned medical transcription as a very promising outsourcing business


since the demand in U.S. hospitals has risen due to the federal regulations to convert
medical records into data format. The Philippines, being the largest supplier of nurses in
the world, has a large talent pool of medical professionals- doctors, nurses and medical
technologists. Seventeen medical transcription companies operate in the country with
1,200 workers. The Philippines at present occupies just 1 per cent share of the $12 billion
U.S. market composed of 80,000 medical transcriptionists. Planning Secretary Romulo
Neri said that the country should get at least 10 per cent or 8,000 jobs in this field (AFP,
2006).

Issues on the BPO Industry Sub-sector

1. Night Work Prohibition on Women Workers

Among the issues on the BPO industry sub-sector on labor laws and standards is
on night work prohibition on women workers.

Article 130 of the Labor Code prohibits women workers to work in night shifts.
Contact center workers (mostly females) are assigned in night duties because of the time
zone difference in the countries that they are servicing. This market demand factor
exempted women contact centers workers in night shift from the coverage of the law as
in the case of female hospital and media workers.

Night workers, according to Rene Soriano (1985) are exposed to greater risks as
compared to day time workers. As such, there is a need to address the difference in
working conditions to lessen the risks and difficulties of working at night. Among these
risks and difficulties are: potential danger and difficulty in availing of transport services;
effects on health and body rhythms in terms of sleep and nourishment; deprivation in
socialization opportunities like attending family and other social gatherings; etc.

Convergys Philippines Services Corporation (Convergys) viii, the country’s leading


contact center, implemented the following interventions to lessen or compensate the
negative effects of night work among its women workers:

a. Aside from the SSS benefit on maternity leave, women were given 15,000 pesos
($291) as a form of assistance for caesarian delivery and 10,000 pesos ($194) for
normal delivery.

158
b. A plan to put up a day care center in the company premises was not yet
operational.
c. A quarterly Family Day where employees brought their family members. The
purpose was to make the family members appreciate the job in the call center
industry.

A group in Convergys called Convergys Foundation which is not based in the Philippines
made sure that sites complied with the social requirements set by the country and by the
U.S.

Convergys’ employees were normally assigned in night shift or graveyard shift


from 10 pm to 6 am. Shifts were changed every three months. Seventy per cent of
employees were on night shift because the company followed eastern time. For working
in night shifts, employees were paid differential pay at 20 per cent of the employees’
hourly rate over and above the basic salary.

Pregnant employees were exempted from the night shifts. When employees leave
the office, they were accompanied by a security guard up to where they took a ride. They
have also made arrangements with Reno taxi company where employees can just call
when they needed a cab ride. In cases when there were rallies or weather disturbances, a
shuttle service was provided. In going to their workplaces, employees gathered at a
certain pick up point where they were transported to the company’s site.

2. Labor Only Contracting

Outsourcing or contracting out of jobs and services is one of the most


controversial issues in labor relations. Article 106 of the Labor Code recognized this as a
business strategy. According to Macaraya (1999), employers are free to contract out any
activity. The Code bans only one type of contracting which is considered as unfair labor
practice. This is called illegal “labor only” contracting.

An illegal labor only contracting is practiced if the person supplying workers to


an enterprise does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers recruited and
placed by the contractor are performing activities which are directly related to the
principal business of the enterprise. Bacungan (1999) opted for a stricter regulation of
labor only contracting.

In cases of legal labor only contracting, Article 106 states that if the contractor or
subcontractor fails to pay the workers, then the principal employer shall be jointly and
severally liable to the claims of the workers. Macaraya pointed out some problems like
the case of call centers whose principals are not located or has no office in the country.
Who will now pay the workers if the subcontractor is unable to do so? Another case is if
the subcontractor is a legal entity of the workers themselves like a cooperative as in the
case of agricultural plantations subjected to the land reform, or a company that has

159
organized its workers into a cooperative subcontractor. In this situation, do the workers
have any bargaining leverage or protection from the principal employer-client?

3. Change in Lifestyles of Contact Center Workers

Working in the contact center is stupefying, monotonous, frustrating and stressful.


As reported by Aquino (2004), aside from working in “ungodly” hours, some are
required to work at the computer 7.5 hours a day and give the same answers to the same
questions. They are exposed to racist and insulting remarks and they are not allowed to
retaliate or hang up without the team leader’s permission. When dealing with an irate
caller, they have to read a script three times to warn the caller of their improper behaviour
before they can drop the call. Worst, they are not supposed to be Filipinos when they talk
to their callers.

At the E-Telecare International Inc., HR Director Pamela Wu said that they have
policies, facilities and functions to help their agents cope with stress. She mentioned
some activities that make the working atmosphere “fun” through parties, raffles and the
“dressing up their work stations”. They have gaming rooms and lounges where agents
can relax and play in between shifts or during breaks. What compensates the agents with
the stressful work environment is that their work is financially rewarding.

4. Need for Strong Cooperation among the Key Actors: Employers, Government,
Educational and Training Institutions, Labor, etc.

Deanne Hernandez (2004) wrote an important concern that the industry should be
able to effectively manage its own rapid growth to protect itself from certain backlashes
usually associated with over expansion. Since the country appears to have the best
comparative advantage to become the world’s contact center capital in a few years and
displace India, the key actors of the industry sub-sector should be united under a common
vision, missions, goals and leadership.

Together, the concerns of the industry can be tackled more efficiently and
effectively: aligning the industry needs with the educational and training institutions; the
compiling and dissemination of industry statistics and data to include industry data
customer satisfaction indexes, periodic benchmarking and internal control within the
industry for continuous improvement; the consolidation of industry sub-sector efforts
through federations and associations; and the efforts to expand in the higher value added
BPO services.

5. Call Center Workers are Unorganizable

While the Labor Code guarantees all workers the right to organize, join or assist a
labor organization for purposes of collective bargaining, trade unionists are having
difficult time in organizing or recruiting call center workers. The usual reasons were that
call center workers are young professionals (“yuppies”), very mobile and can hop from
one company to another, and usually working in graveyard shifts (Balaba, 2006).

160
Balaba however cited the study of Jonathan Sale of UP SOLAIR that a majority
of the surveyed call center workers were interested in joining unions. The reasons cited
by the respondents were that they wanted better negotiating positions (despite their
relatively high salaries) since night shifts affected their health, and they encountered
heavy work pressure. Sale recommended that organizing efforts should be industry-based
and not enterprise-based due to the high attrition rate in the industry. Sale added that the
team leaders have higher prospects of being organized.

An example of a call center agents’ union is that of the Standard Chartered Bank.
They comprise 25 per cent of the membership of the Standard Chartered Employees
Union. According to their union President Eddie Divinagracia, the call center agents have
“a different terms and conditions of work, which makes it more important for them to be
organized” (Balaba, 2006).

Problems of the BPO Industry Sub-sector

Among the most pressing problems being confronted by the BPO industry sub-
sector are the following:

1. Lack of Competent Personnel for Middle and Upper Managerial Position

According to Bong Borja, Chairman of the Contact Center Association of the


Philippines, only 2-3 per cent of applicants for the middle and upper managerial positions
were hired. This was confirmed by the McKinsey report of 2005. The report cited that
small and medium enterprises mostly family owned are not prone to produce managerial
talents. Newspapers reported that call center executives were among the highest paid
executives in the country.

2. Mismatch Between School Curricula and Industry Demand

While ICT industry experts and executives confirmed the fast increasing demand
for ICT related professions like computer programmers, computer technicians, technical
support assistants, software development engineers, systems engineers, web developers,
technical supervisors, database administrators, network administrators, call center
workers, medical transcriptionists, computer animator, etc., only around 10 out of 100
applicants were accepted. Joaquin Quintos, president of IBM and Oscar Chang of Trend
Labs/Trend Micro (developer of anti-virus software) confirmed that there is a rampant
mismatch between school curricula and industry demand. Potential IT workers must
continuously upgrade their knowledge, competencies and skills in IT (Cantres.net, 2004).

The government and private sectors have initiated the following to remedy the
situation:
a. Making English as the medium of instruction per an Executive Order;

161
b. Proposal for the creation of the Department of Information and
Communications Technology from the National Computer Center under the
DOTC. A Commission on Information and Communications Technology
(CICT) now oversee the ICT sector in partnership with the private ICT
organizations and associations;
c. The mobilization of the Technical Skills Development Authority (TESDA),
Department of Education and the Commission on Higher Education to speed
up the setting of training infrastructure for call center agents; and
d. The institution of new curricula and training centers within educational
institutions like the Call Center Academy and the Anvaya Customer Contact
Training Center within the Mapua Institute of Technology in Manila (Nantes,
2004).

3. Lack of Awareness and Prohibitive Cost of ICT Certifications

According to the Computing Technology Industry Association, certifications


attest to the required level of knowledge or skill needed in managing or implementing
service or system. There are 3 types of IT certifications: the global/vendor-developed
certification; the vendor-neutral certifications; and the country–developed certifications.
Certification of workers and professionals simplifies recruitment, hiring and salary
administration.

There are over 100 ICT certification examinations available worldwide such as
Microsoft, CISCO, and COMPTIA. Some of these certification examinations are
expensive which discourage formal certification by qualified workers and professionals.
Government agencies and private ICT groups and associations have spearheaded a
program to promote ICT certifications by giving discounts ranging from 15 to 25 per cent
discounts for ICT examinations. Among the private groups were Microsoft, CISCO,
Oracle and Sun Microsystem (Cantres.net, 2004).

In terms of ICT professionals however, the country in 2002 produced 1,588


certified Microsoft professionals and was surpassed by Singapore at 5,942, Malaysia at
4,532, Thailand at 1,711 and Indonesia at 1,697 (Sibal, 2004).

4. Poor Environmental Factors to Attract ICT Investors

According to the McKinsey report (2005), the Philippines has the poorest risk
profile in terms of natural disasters, security threats, data theft and very few third-party
vendors. This is in addition to other factors like strict labor laws, high levels of corruption
and slow government bureaucracy. Opening up a cell center in the Philippines for
example is twice slower than in India or Malaysia. Another drawback is the less frequent
direct flights from the Philippines to distant markets.

The McKinsey report added that the Philippines has the highest electricity cost
and one of the most expensive telecommunications systems. In addition, another report
noted the existence of a digital divide in the country where ICT and computer facilities

162
are only concentrated in the urbanized areas. There is a need to improve the infrastructure
to attract more ICT enabled investments.

5. Poor ICT Infrastructure

With perhaps the exception of cellular phone subscribers at more than 6.3 million
for a penetration rate of almost 15 per cent and a very high per capita text messages,
almost all other indicators pale in comparison with other countries.

The number of personal computers (PCs) installed in the Philippines as of 2002


reached 1.37 million or barely 2 per cent of the total population. (International Data
Corporation as cited by Tesda, 2003). Sixty nine per cent of these PCs were located in
private businesses and only 13 per cent were in households. Government offices and
educational institutions accounted for only 10 and 6 per cent, respectively.

With a low PC usage in the country, internet penetration is also low at 2.0 per cent
of population which is surpassed by neighboring countries like Singapore at 24.9 per cent,
Malaysia at 15.8 per cent, Thailand at 3.8 per cent, Taiwan, and Hong Kong. The country
however fared better than Indonesia at 0.9 per cent, Vietnam at 0.3 per cent and Laos and
Cambodia at 0.1 per cent penetration rates.

Internet access are mostly in the urban areas and the records of the National
Telecommunications Commission (NTC) showed that only around 50 per cent of all
municipalities in the country have internet access. The reasons cited for low internet
access are high cost of PCs, high internet access rates, lack of telephone lines (9 lines per
100 persons), and unstable or lack of electricity (Sibal, 2004).

6. High Attrition Rates of Contact Center Workers

Retaining workers is one of the major problems of call centers because of the
scarcity of qualified workers among applicants. Half of the resigned agents leave for
higher pay for employment in a competitor call center. This is also called poaching of
employees among competing firms. It was reported that industry associations like the
Call Center Association of the Philippines (CCAP) were instituting measures to prevent
poaching of employees among themselves.

In a study conducted by Trini Ann Viray (2004) in a contact center company,


attrition was classified as either voluntary resignations or involuntary (termination,
counselled out, non-regularization or graceful exit). The company studied was a U.S.
based contact center providing customer care management solutions that include
technical support, marketing support and customer care services. It has been in operation
for 30 years with around 14,000 employees in 5 continents.

The over-all annual attrition of the company was 49.78 per cent. Voluntary
attrition was measured at 34.2 per cent and involuntary attrition was at 15.6 per cent.
Almost 57 per cent of the separated employees stayed with the company for only 3 to 6

163
months. Almost 14 per cent were separated after 7-12 months while 21 per cent were
separated after staying for 1 to 2 years. The separation rate of employees with more than
2 years tenure ranged from less than 1 per cent to 4 per cent.

The top reasons for attrition were:

a. Opportunities (31 per cent)- limited growth / opportunities for promotion;


b. Shift schedule (15.5 per cent)- night shift schedule;
c. Work task (10 per cent)- work lacks challenge; employees would like to
pursue a career related to their course taken up in college; and
d. Other reasons were policies (9 per cent), recognition (8 per cent), co-workers
(8 per cent), benefits (5 per cent), location (4 per cent), safety (4 per cent),
physical environment (3 per cent), and resources (2 per cent).

Among the interventions implemented by the company to solve the problem of


attrition were: the Kumustahan Session (getting feedback from employees); the New
Manager Assimilation Process; Focus Group Discussions conducted by the HR for
departments with high absenteeism rate; Voices (an annual open forum with employees);
and Global Satisfaction Survey.

Another study on attrition was done in 2004 in a reputable Makati-based contact


center that started in 1997. Admitting the attrition rates in this company was high as in
other call centers, the study identified some factors that caused this phenomenon. The
study confirmed two factors- job security and lack of career path- as among the reasons
for the high attrition rate in the company under study.

Summary and Concluding Remarks

There is indeed a need for strong coordinated national efforts among the key
actors in the BPO industry sub-sector to strengthen their sector in order to achieve an
achievable vision and mission of making the country the ICT hub in the world. As was
discussed in this paper, the comparative advantages of the Philippines in fulfilling this
national desire are so numerous that all it needs is to further capitalize and improve these
strengths.

The paper however also identified several constraints that may derail the industry
and the nation’s abetted goals in the next 3 to 5 years. Full cooperation of the government,
the various industry associations, the academe and the civil society are necessary in the
years to come.

References:

AFP, 2006, “Outsourcing seen as growth engine”, Philippine Daily Inquirer,


April 11, 2006, pp. A1 and A4.

164
Aquino, Norman, 2004, “Phone home: call center”, Business World, p. 26.
Bacungan, Froilan, 1999, “A Philippine Labor Code for the 21st Century”,
Philippine Industrial Relations for the 21st Century, Challenges and Strategies, Quezon
City: UP SOLAIR and Philippine Industrial Relations Society.
Balaba, Romer, 2006, “Call center agents need unions to address pressure at
work, as bargaining leverage”, Business World, January 27, 2006.
Beshouri, Christopher, Diana Farrell and Fusayo Umezawa, 2005, “Attracting
more offshoring to the Philippines”, The McKinsey Quarterly, October 24, 2005,
http://www.mckinseyquarterly.com/article_print.aspx?L2=7&L3=10&ar=1684 (opened
Feb. 2006- jvs)
Cantres.net, 2004, “Labor Market Intelligence Report- ICT Updates”, The
Contact, October 2004,
http://www.callcentres.net/CALLCENTRES/LIVE/me.get?site.sectionshow@CALL469
(opened 5.12.06- jvs)
Domingo, Ronnel, 2006, “Outsource industry seen growing”, Philippine Daily
Inquirer, February 17, 2006, p. B6.
Hernandez, Deanne, 2004, “Challenges for call center industry”, Business World,
June 15, 2004, p. 17.
Macaraya, B., 1999, “The Labor Code and the Unprotected Workers”,
Proceedings of the Philippine Industrial Relations Society National Conference, Diliman,
Quezon City, Philippines.
Nantes, Erwin, 2004, “Call centers see deluge of ‘knowledge workers’”, The
Manila Times, May 18, 2004, http://www.devjobsmail.com/articles/filipino-
articles1/filipino-article04.html (opened 5.12.06-jvs)
Pepito, Winston, “Philippine Catching up with India in the Outsourcing Industry”,
http://WzineArticles.com/?expert=Winston_Pepito
Philippine Information Agency, 2006, “Let the numbers speak- our economy is on
the upswing”, Philippine Daily Inquirer, April 25, 2006, p. A17.
Sibal, Jorge, 2004, “Transition from Production-Based to Knowledge-Based
Economy: Philippines”, Training Knowledge Workers, Tokyo: Asian Productivity
Organization.
Soriano, Rene, 1985, “Shift Work in the Philippines: The Management
Experience”, Shift Work and Related Issues in Asian Countries: Proceedings of the Asian
Regional tripartite Seminar on Shift Work and related Issues, Bangkok, May 13-17, 1985.
Viray, Trini Ann, 2004, “ABC Company’s HR Interventions on Absences,
Tardiness and Attrition”, Quezon City: UP SOLAIR (manuscript).

Endnotes:
i
Paper presented at the Call Center Roundtable Discussion II: “Departures of the Chosen Few: Stopping
the Endless Stream of Leavers in Calls Centers/BPOs”, UP SOLAIR, June 21, 2006 sponsored by UP
SOLAIR and the Center for Labor Education, Advocacy, Research and Development, Inc.
ii
http://www.callcentertimes.com
iii
http://www.payscale.com
iv
http://news.zdnet.com/2100-3513-5136120.html
v
Reuters 2005, “Call center boom heralds new nightlife in Baguio City”, May 10, 2005, MST, May 10,
2005, p. B1.

165
vi
The estimate of the Bureau of Investments in 2006 is 112,000 as per the Daily Star article “More call
center jobs in 2006”, http://www.devjobsmail.com/articles/filipino-articles1/filipino-article04.html
vii
Estimates by the Department of Labor and Employment.
viii
Prof. Jonahlee Asuncion interviewed in May 2006 two key HR executives of Convergys Philippines
Services Corporation at their offices at the 2nd Floor Diliman Commercial Center, Commonwealth Ave.,
Quezon City, Philippines. The two key informants were Ms. Tina V. Baclayo, HR manager and Ms.
Andrea T. Kho, HR specialist.

166
MEASURING THE INFORMAL SECTOR
IN THE PHILIPPINES AND THE TRENDS IN ASIA i

In the 2007 national consultation conference on legal empowerment of the


poor conducted by the UNDP in Manila, an NGO leader of a coalition of informal
sector groups in Metro Manila lamented the lack of concern of the government on
sidewalk vendors during the last decade.

When asked about the situation of the sidewalk vendors and the rest of the
informal sector workers, former Chief Justice of the Supreme Court Artemio
Panganiban opined that being a man of law, the first thing that can be done to
protect the informal sector workers is to have them defined by the law. The
former Chief Justice was himself a member of the informal sector as a child
worker selling newspapers as a result of povertyii.

Defining the Informal Sector

The first step that can to be done in order to measure the informal sector is
to define it. In 1993, the International Labour Organization attempted to define
the informal sector as:

“very small-scale units producing and distributing goods and


services, and consisting largely of independent, self-employed
producers in urban areas of developing countries, some of whom
also employ family labor and/or few hired workers or apprentices;
which operate with very little capital, or none at all; which utilize
low level of technology and skills, which therefore operate at low
level of productivity; and which generally provide very low and
irregular incomes and highly unstable employment to those who
work in it. They are informal in the sense that they are for the most
part unregistered and unrecorded in official statistics; they tend to
have little or no organized markets, to credit institutions, to formal
education and training institutions, or to many public services and
amenities; they are not recognized, supported or regulated by the
government; they are often compelled by circumstances to operate
outside the framework of law that are almost invariably beyond the
pale of social protection, labor legislation and protective measures
at the workplace” (Litong, et.al, 2002, p. 21).

The Philippine informal sector was officially defined in the Social Reform and
Poverty Alleviation Act of 1988 (RA 9485) as: “poor individuals who operate
businesses that are very small in scale and not registered with any national
government agency, and to workers in such enterprises who sell their services in
exchange for subsistence wages or other forms of compensation…”

167
The National Statistical Coordination Board (NSCB) defined informal
sector as follows (Lao & Inocian, 2007):

Conceptual definition:

The informal sector consists of ‘units’ engaged in the production of goods


and services with the primary objective of generating employment and
incomes to the persons concerned in order to earn a living.

These units typically operate at a low level of organization, with little or


no division between labor and capital as factors of production. It consists
of household unincorporated enterprises that are market and non-market
producers of goods as well as market producers of services.

Labor relations, where they exist, are based on casual employment,


kinship or personal and social relations rather than formal contractual
arrangements.

Operational definition

For statistical purposes, the informal sector shall refer to household


unincorporated enterprises which consist of both informal own-account
enterprises and enterprises of informal employers.

Informal own-account enterprises are household unincorporated


enterprises owned and operated by own-account workers, either alone or
in partnership with member/s of the same or other households which may
employ unpaid family workers as well as occasionally / seasonally hired
workers but do not employ employees on continuing basis.

Enterprises of informal employers are household unincorporated


enterprises owned and operated by own-account workers, either alone or
in partnership with members of the same or other household which
employ one or more employees on a continuing basis…”

The above definition generally conforms with the definition of the ILO (1993). It
however deviates in the following aspects:

1. The informal sector enterprises are “not registered or formally


approved by authorities”. The study of Alonzo and Abrera-Mangahas
(1990) revealed that 52.4 per cent of the informal sector enterprises
surveyed in Metro Manila were registered with the local government
unit while 25 per cent were registered with the DTI, SEC or a national
agency.

168
Registration was highest among professional services at 63.6 per cent
at national agencies, and 86 per cent at the level of LGUs. License to
operate among professional services is required.

The second highest is the transport services where franchises in


operating jeepneys, mini-buses, tricycles, etc. are needed. Sixty per
cent are registered with the national agencies while 88 per cent are
registered with the LGUs.

Registration is lowest in the construction services at 8.7 per cent for


national agencies and 28.3 per cent at the LGU level.

2. They are not “recorded in official statistics”. It will be shown in this


paper the statistics of the self-employed, own account and unpaid
family workers in the labor force.

Describing the Informal Sector

Dejillas (2000) identified the employment categories in the informal sector


as follows:

1. Homeworker- a person who works at, or near his/her home in the


production of goods for a fixed agreement with an employer or
contractor. They are usually paid on a piece-rate basis.
2. Self-employed or own-account worker- A person who has no employer
or contractor and operates business on his/her own. He/she does
everything, has no paid employee and assisted only by family
members on occasional basis.
3. Employer- A person similar to a self-employed but employs one or
more paid employees.
4. Employee- A paid employee in an informal enterprise.
5. Unpaid family worker- One who works without pay in a farm or
business operated by a member of his/her family. He/she works on
occasional basis.

There are statistics that confirm the following description of the informal
sector which is summarized as:

 Composed of self-employed or own account workers and unpaid


family workers;
 Are mostly homed-based, mostly unregistered, hardly paying direct
taxes and uninsured;
 Located both in urban and rural areas with mostly poor constituents;
 Engaged in both legal and illegal (or non-legitimate) activities; and

169
 Majority work purely in the informal sector but some are also working
on a limited period (on contractual arrangement) in the formal sector
as wage workers, consultants, sales agents, service providers, etc.;

The studies of Alonzo and Abrera-Mangahas (1990) and others show the
following data:

1. Nature of Activities. Seventy per cent are engaged in vending and


selling with 50 per cent operating sari-sari (variety) store, and 25 per
cent selling raw and cooked food. Twenty five per cent are engaged in
crafts and manufacturing where 55 per cent are in tailoring and
dressmaking, 25 per cent in bakery and 9.3 per cent in metal works.
2. Age. Most of the enterprises are young. Forty seven per cent are one
year old enterprises.
3. Marital Status. Thirty two per cent are single person operation and
only 34 per cent hire one worker. The highest number of workers hired
at an average of 2.5 is in manufacturing and vending while the lowest
number of hired workers is in the transport at 1.5.
4. Type of Organization. Of the small enterprises, none was incorporated.
Single proprietorship accounted to 86.3 per cent and partnership, 13.7
per cent.
5. Place of Business and Facilities. Only 12 per cent are in class C
structure while the rest are in class D/E structures. Those in the
construction sector have the poorest facilities. Lao and Inocian (2007)
observed that the condition of safety in the workplace is very
uncertain. The structure used in the informal sector are described as:

Per cent Share Description


43 Primarily residential
34 Primarily business w/ residential facilities
22.5 Used solely for business
41 Rent the structure
25.7 Own land and building

6. Starting the Business. Majority of the informal sector enterprises at


84.4 per cent were started by the head of the enterprise. Among the
reasons are:

Rank Reason
1 Need additional income
2 Need employment
3 Hard experience in the same line
4 Wants to be independent
5 As a hobby
6 Attracted by profitability
7 Obtained financial support

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8 Inherited from family

7. Source of Capital.

Per cent Share Source of capital


70.6 Savings
27.7 Relatives and friends
3.6 Professional money lenders
2.4 Bank and financing companies
0.6 Government program

Lao and Inocian said that capital credit for own-account / self-employed
may be available at staggering cost.

8. Problems Encountered.

Rank Nature of Problems Encountered Per cent


1 Lack of capital/credit 37.2
2 Limited market 12.6
3 Availability of materials 6.4
4 Collection of receivables 5.4
5 Inadequate technical knowhow 2.3
6 Personal problems 2.1

9. Assistance from Government

Per cent Description


98.5 No assistance
1.0 Loan assistance

10. Social Protection and Tenurial Status (Lao and Inocian, 2007):

Prevailing Own-account/self- Subsistence wage


concerns employed employee
1. Social Limited and voluntary Limited and voluntary
protection (SSS/Philhealth) (SSS/Philhealth)
2. Tenurial Uncertain- can always Very uncertain- may
status move his business have to find employment
location anywhere with the sector if needed
beyond the hostilities of or start his/her own
the authorities business

11. Location of the Informal Sector Workers. The Dejillas study (2000)
showed that majority of the informal sector workers are in the rural /
agricultural areas accounting to almost 64.2 per cent of the total

171
employed labor force in 1997. Those in the urban areas account for
36.1 per cent of the employed labor force.

The Declining Informal Sector and Increasing Non-Regular Workers

The traditional members of the informal sector (own account workers and
unpaid family workers) have declined from 58 per cent of the employed labor
force in 1980 to 50 per cent in 2005 (Table 30).

Table 30: Employed Workers by Class of Workers and Group as Formal and
Informal Sectors (in thousands except in per cent)

FORMAL INFORMAL
Year Wage & Own Unpaid Total – All Sectors
Salary Account Family Informal (Quantity)
Workers* Workers Workers Sector
(%) (%) (%) (%)
1980 42.4 36.9 20.7 57.6 17,154
1984 44.9 39.2 15.9 55.1 19,638
1989 46.1 38.4 15.1 53.5 21,908
1997 48.6 38.0 13.4 52.1 27,715
1998 49.3 37.5 13.5 50.7 27,911
1999 48.3 37.7 14.1 51.5 29,055
2000 50.7 37.1 12.2 49.3 -
2001 49.0 37.4 13.6 51.0 -
2002 48.3 38.5 13.2 51.7 -
2003 50.9 37.4 11.7 49.1 -
2004 51.7 36.6 11.6 48.3 -
2005 50.4 36.9 12.7 49.6 -
*Wage and salary workers are those working in private households, private establishments, family
operated activities, government and government corporation
Source of Data: NSO, DOLE

The decline in the number of workers in the informal sector is due to the
absorption of some of its members in the formal sector as non-regular or
contractual workers. Non-regular workers hired locally or overseas are absorbed
in formal establishments periodically. If we add the number of non-regular
employees and agency-hired workers to the informal sector, their numbers would
be increasing as experienced in the Asia and the Pacific region.

The Philippine Informal Sector and the Employment Trends in Asia

Lee and Eyraud (2007) assessed the changes in employment conditions in


Asia and the Pacific and concluded that employment in Asia is increasingly

172
‘informalized’. Lee and Eyraud clarified that the term ‘informalization’ includes
not only the traditional informal sector composed of the own account workers and
the contributing family workers but also the ‘casualized’ (or contractualized)
workers within formal establishments. Table 31 shows the extent of informal
sector in selected Asian countries.

Table 31: Measuring the Informal Sector in Asia (1996-2005)


(Figures in per cent)

Country 1996 1998 2000 200 200 200


2 4 5
Malaysia Formal 75.3 76.3 77.2 79.7 - -
Own account workers 18.0 17.7 17.1 15.5 - -
Contributing family workers 6.7 6.0 5.7 4.8 - -
Informal 24.7 23.7 22.8 20.3 - -
Philip- Formal 49.7 49.3 50.7 48.3 51.7 50.4
pines
Own account workers 34.8 37.5 37.1 38.5 36.6 36.9
Contributing family workers 15.5 13.5 12.2 13.2 11.6 12.7
Informal 50.3 50.7 49.3 51.7 48.3 49.6
Thailand Formal 40.2 39.0 42.9 43.2 46.9 -
Own account workers 30.8 31.2 30.1 31.2 30.8 -
Contributing family workers1 28.9 29.8 26.9 25.6 22.3 -
Informal 59.7 61.0 57.0 56.8 53.1 -
Vietnam Formal 17.5 21.2 18.6 20.8 26.1 -
Own account workers 36.3 40.8 43.0 40.4 41.2 -
Contributing family workers 45.8 37.8 37.0 37.9 32.7 -
Informal 82.12 78.6 80.0 78.3 73.9 -
Indonesia Formal 37.23 34.6 35.1 30.4 30.3 30.2
Informal 62.8 65.4 64.9 69.6 69.7 69.8
Source: ILO database, except Indonesia (national statistical office). Note: Informal employment
in Indonesia refers to all types of employment excluding employer and pair employees. Cited in
the paper of Lee and Eyraud, 2007.

There was also a rapid increase in service employment in the region. This
was an offshoot of the rural to urban migration where the informal sector with
abundant service job opportunities has been able to absorb the migrant
unemployed. It was observed that this has been associated with the decline in the
quality of jobs in many developing and transitioning economies.

1
Includes members of producers’ cooperatives
2
Formal and informal data does not equal 100%. There are types of workers who are considered
“not classified” either as formal or informal
3
year 1997 instead of 1996

173
Lee and Eyraud observed that ‘informalization’ of employment is also
increasing in the industrialized countries in Asia and the Pacific like Australia,
Japan and Korea through casual or temporary and part-time employment.

In illustrating the extent of ‘informalization’ within formal enterprises in


Asia, Lee and Eyraud cited the Philippine study which measured the increasing
number of non-regular workers (Sibal, 2007).

Increasing Non-regular Employment

The number of non-regular workers in the Philippines increased as firms


utilized various forms of flexible hiring. In a survey of establishments employing
10 or more workers from 1991-1997, the number of non-regular workers have
increased from 20.5 per cent in 1991 to 28 per cent in 1997 (Chart 12).

Chart 12. Non Regular Workers in Establishments Employing 10 or more


Workers, 1991-1997 (in thousands)
% of Non-Regular Workers to Total Employment

1997
Others- Casuals, part-time,
pakyao
1995
Commission-Paid

1993
Contractuals

1991
Non-regulars
0 5 10 15 20 25 30

Source: BLES, Survey of Specific Groups of Workers (SSGW), various years. Excludes
agriculture, fishery and forestry.

In another DOLE survey in 2004 covering 2.4 million workers in


establishments employing 20 or more workers, 26 per cent (or 628,500) were non-
regular employees (Figure 21).

Contractual or project-based workers accounted for 47 per cent of the


628,500 non-regular employees. The others were casual workers at 22.5 per cent
and probationary workers at 19.5 per cent (Chart 13).

174
Figure 21. Composition of Employment, Non-Agricultural Establishments
with 20 or More Workers, 2004

Total Employment= 2.413 M


(All Industry Groups)
Owners/Unpaid Workers
1.1% (20,600)
13.1%
Non-Regular
(628,500 or 26%) Managers/Executives
86.0% (316,000)
(20,600)
Regular
(1.4 M or 60%) Rank and File Workers
(2.077 Million)
Source: 2003/2004 BLES Integrated Survey

Chart 13. Category of Non-Regular Workers in Non-Agricultural


Establishments with 20 or More Workers, 2004

Total Non-Regular Workers= 628,500


Contractuals/Project Based
(47.4%)
Casuals (22.5%)

Probationary (19.5%)

Seasonal (5.5%)

Apprentices/Learners (5.2%)

Source: 2003 and 2004 BLES Integrated Survey

The contractual or project-based employees were mostly in


manufacturing, real estate, construction, wholesaling and retailing, and hotels and
restaurants as shown in Chart 14.

Chart 14. Contractual or Project-Based Employment in Non-Agricultural


Industries with 20 or More Workers, 2004

Manufacturing (28.3%)
Contractual/Project-Based Workers
(Percent Distribution)
R. Estate, Renting & Bus.
Activities (24.1%)
Construction (13.4%)

Wholesale & Retail


(12.3%)
Hotels & Restaurants
(10.3%)
Other Industries (11.4%)

Slice 7
Source: 2003/2004 BLES Integrated Survey

175
Almost 96 per cent of the non-regular workers were paid on time rate
basis. Most of them worked full-time (97.8 per cent) with a few on a part-time
basis (2.2 per cent). Among full-time workers, more than half (51.4 per cent) were
monthly paid. The daily paid workers numbered 44.7 per cent and the hourly-
paid 3.8 per cent. Only 4 per cent were paid in non-conventional mode, namely
piece-rate workers (2.3 per cent), commission workers (1.2 per cent),
pakyao/takay4 workers (0.3 per cent), task workers (0.2 per cent) and quota
workers (0.1 per cent) (Table 32).

Table 32. Total Paid Employment in Non-Agricultural Establishments with


20 or more Workers by Basis of Payment and Major Industry Group,
(Numbers in 000s) June 2004

Time Rate Workers


Major Industry Group Total Total-No./ Full- Full- Full- Part-
Paid % Time Time Time Time-
Employ Month- Daily Hour No. / %
- ment ly ly
All Industries 2,392.7 2,244.6/93.8 1,154.0 1,004.2 86.3 50.6 / 2.1
Mining & Quarrying 10.6 10.6 / 100 4.0 6.6 -- --
Manufacturing (b) 889.8 834.7 / 93.8 274.1 541.3 19.2 3.7 / 0.4
Electricity, Gas & Water Supply 59.0 58.4 / 98.9 51.8 6.2 (a) (a)
Construction 84.0 83.1 / 98.9 27.4 51.6 4.0 (a)
Wholesale & Retail 363.6 352.4 / 96.9 181.2 164.8 6.4 2.5 / 0.7
Hotels & Restaurants 125.5 102.7 / 81.9 47.8 34.4 20.4 22.8/18.0
Transport, Storage & 187.9 155.1 / 82.6 113.9 34.3 6.8 0.8 / 0.4
Communications
Financial Intermediation 101.3 100.8 / 99.5 95.4 4.9 (a) (a)
Real Estate, Renting & Business 268.4 267.5 / 99.7 129.6 124.7 13.0 (a)
Activities
Private Educational Services 188.9 170.7 / 90.4 148.5 7.6 14.5 17.8 / 9.4
Health & Social Work (Private) 59.6 56.8 / 95.3 44.3 11.8 0.6 1.0 / 1.7
Other Community, Social & 55.4 51.3 / 92.6 35.5 15.6 (a) 1.2 / 2.2
Personal Services

(a)- less than 500, (b)- excludes manufacturing of coke, petroleum and other fuel products due to
low response rate, Source: BLES, 2003/2004 BIT

In a 2002 survey of contractual workers in Metro Manila, the Labor Rights


and Democracy (Laride) reported that two thirds of their respondents earned
between 100 pesos ($1.94) to 250 pesos ($4.85) per day. Majority were not
covered by the Social Security System. Half of them lived in one-room house
with a bathroom annexed. Forty five per cent had no separate bedroom; 72 per
cent did not have a dining area; and 50 per cent did not have running water
(Daenekindt, 2002).

Manufacturing Sector

4
payments based on lot contract or tasks.

176
There were 894,932 workers in the manufacturing industry in 2004. This
represented 37 per cent of the 2.4 million workers in non-agricultural
establishments with 20 or more workers. The industry produced products ranging
from food, apparel, steel, cement, machineries and equipment, chemical products,
wood and furniture products, etc.

Twenty five per cent of the workers in the manufacturing sector were non-
regular. They were composed mainly of contractual/project-based workers (9.4
per cent), casual (6.7 per cent), probationary (4.1 per cent), apprentices/learners
(3.1 per cent) and seasonal (1.8 per cent).

Majority of the non-regular workers worked full time. Thirty per cent were
paid on monthly basis while 60 per cent were paid on daily basis. Manufacturing
also employed the most number of output-rate workers- the piece-rate workers,
the pakyao/takay workers, and the quota workers. There were very few hourly
paid workers (2.2 per cent), part-time workers (0.4 per cent), task workers (0.1 per
cent) and commission workers (0.1 per cent) in manufacturing (Table 33).

Table 33. Total Paid Employment in Non-Agricultural Establishments with


20 or more Workers by Basis of Payment and Major Industry Group,
(Numbers in 000s) June 2004

Output Rate Workers


Major Industry Group Total Piece Pakyao/ Task Quota Commis-
Paid Rate Takay sion (c)
Employ- No. / % No. / % No. / %
No. / % No./ %
ment
All Industries 2,392.7 54.5 / 2.3 6.9 / 0.3 5.2 / 0.2 2.2 / 0.1 28.7 / 1.2
Mining & Quarrying 10.6 -- -- -- -- --
Manufacturing (b) 889.8 42.7 / 4.8 4.8 / 0.5 0.9 / 0.1 1.8 / 0.2 1.0 / 0.1
Electricity, Gas & Water Supply 59.0 (a) (a) (a) -- (a)
Construction 84.0 (a) (a) (a) -- --
Wholesale & Retail 363.6 6.3 / 1.7 1.0 / 0.3 (a) (a) 1.1 / 0.3
Hotels & Restaurants 125.5 -- -- -- -- --
Transport, Storage & Communications 187.9 2.2 / 1.2 0.8 / 0.4 3.3 / 1.8 (a) 25.1 / 13.4
Financial Intermediation 101.3 -- -- (a) -- (a)
Real Estate, Renting & Business Activities 268.4 (a) -- (a) -- (a)
Private Educational Services 188.9 (a) -- (a) -- (a)
Health & Social Work (Private) 59.6 (a) -- (a) -- --
Other Community, S,ocial & Personal 55.4 2.1 / 3.8 -- -- (a) 0.7 / 1.3
Services

(a)- less than 500, (b)- excludes manufacturing of coke, petroleum and other fuel products due to
low response rate, (c) purely on commission with employer’s control and supervision, Source:
BLES, 2003/2004 BIT

Retail and Wholesale Trade Sector

The retail and wholesale trade was the second biggest employer among
non-agricultural establishments with 20 or more workers. It employed 367,703 in

177
2004 or 15 per cent of the 2.4 million workers employed in establishments
covered by the survey. Twenty five per cent of the employees were non-regulars,
the same percentage as in manufacturing.

Among the 94,155 non-regular employees, 39 per cent were contractual or


project based, 32 per cent were casuals, 19 per cent were on probation, and 9 per
cent were seasonal workers. By mode of payment, 96.5 per cent were paid based
on time rates with almost all workers (99.3 per cent) working on full-time basis.
Almost half of these fulltime workers (49.3 per cent) were monthly paid with 44.8
percent being daily paid. Only 1.7 per cent were hourly paid.

Output workers (piece rate, commission paid and pakyao) were very
minimal in numbers. However, there was noticeably a high number of
commission paid workers in the transport, storage and communications industry
at 25,177 workers or 13 per cent of the total output rate workers (Table 33).

Hiring Through Labor Contractors

Table 34 shows the profile of establishments that have resorted to


subcontracting. This survey did not include security and janitorial services.
Contracting is an arrangement whereby a principal agrees to put out with a
contractor or subcontractor the performance or completion of a specific job, work
or service within a pre-determined period.

Table 34. Non-Agricultural Establishments with 20 or more Workers


Resorting to Contracting Out by Employment Size, Ownership, Market Type
and Unionism, June 2003

Establishments resorting to
Subcontracting
Indicator No. of Number % Share % Distri-
Establishm bution
ents
Total 24,533 4,328 17.6 100.0
Employment Size
> 20-99 workers 19,839 3,010 15.2 69.5
> 100-199 workers 2,295 592 25.8 13.7
> 200 workers or more 2,399 726 30.3 16.8
Ownership
> Wholly Filipino 21,116 2,984 14.1 68.9
> With foreign equity 2,336 854 36.6 19.7
> Wholly foreign 1,081 490 45.3 11.3
Market Type
> Wholly domestic 20,384 3,048 15.0 70.4
>Export only 1,162 306 26.3 7.1
> Both market 2,987 974 32.6 22.5
Spread of Operations
> Multinational 2,025 887 43.8 20.5
> Not multinational 22,508 3,441 15.3 79.5

178
Unionism
> With Union 3,640 918 25.2 21.2
> Without union 20,893 3,410 16.3 78.8

Source: DOLE BLES, 2002-2003 BLES Integrated Survey

Thirty per cent of large sized enterprises (with 200 or more workers)
contracted out more jobs compared to medium-sized (100-199 workers)
companies at 25.8 per cent and small-sized (20-99 workers) companies at 15.2 per
cent. More foreign owned companies (45 per cent) and companies with foreign
capital (36.6 per cent) relied more on subcontractors than locally-owned firms (14
per cent). Those serving the local markets only have the lowest subcontracting
activities at 15 per cent compared to those serving both local and export markets
at 32.6 per cent. Those serving the export market only have lower subcontracting
activities at 26.3 per cent. These were mostly firms in the semiconductor industry
whose manufacturing inputs for assembly were mostly imported. Local inputs
were mostly labor and supervision. Unionized companies (25 per cent) utilized
more subcontractors compared with non-unionized companies (16 per cent).

The most common jobs/services contracted out were general


administrative services (41 per cent), production processes/assembly activities
(26.3 per cent) and transport services (20.9 per cent). Manufacturing companies
were the highest users of subcontracted production and assembly activities.
Service firms subcontracted mostly administrative and transport services.

Hiring Through Agencies

Another type of labor flexibility arrangement that intensified in the last 2


decades in response to globalization was the engagement of workers through
employment agencies. Agency-hired workers were not considered part of the
workforce of the business establishment. They were usually given employment
contracts of limited duration (usually less than 6 months) and were not entitled to
benefits given to regular employees.

As of June 2003, agency-hired workers comprised 10.8 per cent (316,000


workers) of the total number of persons engaged in non-agricultural
establishments with 20 or more workers. The average number of agency-hired
worker was 21 per establishment. Security services comprised the biggest bulk at
37 per cent. This was followed by production/assembly (23 per cent), janitorial
(15 per cent), marketing/sales (10.6 per cent), general administrative (3.3 per
cent), transport service (3 per cent), and others (7.5 per cent).

The bigger sized enterprises hired more agency workers than the smaller
firms. Companies with foreign capital, catering to the export-oriented, or
unionized hired more agency workers than firms that were Filipino-owned,
catering to the local market or non-unionized (DOLE Labstat Updates, 2006).

179
Concluding Statements

A disturbing conclusion of Lee and Eyraud (2007) is that “with the


‘informalization’ of employment, income/wage inequity has widened”. The
informal sector offers a reservoir of cheap surplus labor that can be tapped for
non-regular employment. As a result of the race to the bottom wage competition,
informal and non-regular workers tend to earn less than the formal sector workers,
thus increasing further the income inequity between the informal and formal
sectors.

The alternative approach to this disturbing trend is the race to the top wage
competition. This can be achieved through continuing skills upgrading of all
workers in the formal and informal sectors for labor flexibility and productivity,
and the advocacy and implementation of social compliance standards at the
workplace. Social compliance in the workplace can be achieved through various
modes- from the compulsory state legislations to the voluntary industry accords,
promotion of good practices and continuous improvement in the workplace.

Continuous monitoring and measuring of the condition of workers


especially in the informal sector is a very important component in this advocacy
of combating the race to the bottom tendencies that came along the increasing
‘informalization’ of employment in fast growing Asia and the rest of the world.

References:

Alonzo, Ruperto and M.A. Abrera-Mangahas, 1990, “The Informal Sector


in Metro Manila: Findings from a Recent Survey”, Geneva: ILO
Daenekindt, Roger, 2002, “Filipino Workers as Victims of Globalization”,
Philippine Journal of Labor and Industrial Relations, Quezon City: UP SOLAIR.
Dejillas, Leopoldo, 2000, Globalization, Gender and Employment in the
Informal Economy: The Case of the Philippines, Manila: ILO
DOLE Labstat Updates, 2006, “The 2005 Employment Situation”, Manila:
DOLE Bureau of Labor and Employment Statistics, January 2006.
ILO, 1993, Development of Urban Informal Sector: Policies and
Strategies Discussion Paper, Geneva: World Employment Programme, January
1993
Lao, Edmund and Jeremy Inocian, 2007, “The Future of the Workers in
the Informal Sector: Towards Fulfilling the Constitutional Mandate of Social
Justice and Human Rights in the Informal Sector”, Cebu City: ESCR Asia
(manuscript)
Lee, Sangheon and F. Eyraud, 2007, “Globalization, Deregulation
and Workers: Changes and Outcomes”, Workshop on Globalization and Changes
in Employment Conditions in Asia and the Pacific, Seoul: ILO and Korea Labor
Institute

180
Litong, Glenda, R. Lao and J. Apolonio, 2002, An Assessment of the
Situation of the Informal Sector in the Philippines: A Human Rights Perspective,
Manila: United Nations Development Programme
Sibal, Jorge, 2007, “Globalization and Changes in Work and Employment
Conditions in the Philippines”, Workshop on Globalization and Changes in
Employment Conditions in Asia and the Pacific, Seoul: ILO and Korea Labor
Institute

Endnotes:
i
Paper presented at the 10th National Convention on Statistics, 1-2 October, 2007, EDSA Shangri-
La Hotel, Mandaluyong City, sponsored by the National Statistical Coordination Board.
ii
Refer to the UNDP National Consultation in Manila by the Commission on Legal Empowerment
of the Poor, July 25-26, 2007, http://legalempowerment.undp.org/press/photos_philippines.html
(viewed Sept. 12, 1007).

181
LGU PRACTICES IN PROMOTING LABOR PROTECTION
IN THE INFORMAL SECTORi

The Philippines has a segmented economy and industrial relations system with a
shrinking formal sector whose wage and salaried employees (around 18 per cent of
employed labor force in 2003) are covered by legislated labor standards intended to
protect Philippine laborii.

On the other hand, the workers in the informal sector (unpaid family workers,
self-employed or own-account workers, piece rate and other local and overseas
contractual workers) are not usually covered by the formal sector labor laws. The workers
in the informal sector accounted for 65 per cent of the employed labor force and grew by
almost 2 million in 2003.

Approaches in Promoting Labor Protection in the Informal Sector

Verma (2005) formulated a framework in promoting compliance to labor


standards. In the extreme poles are the “soft approach” (or do nothing) and the “hard
approach” (or impose standards and sanctions).

The “hard approach” forces compliance. It should not be imposed to enterprises in


the informal sector. It should be initiated through laws and LGU ordinances, corporate or
industry codes and NGO advocacy campaigns. These recommendations are actually the
milder forms of the “hard approach” as shown below.

Approaches in Promoting Labor Standards Compliance

“Soft NGO Corporate National “Hard


approach” advocacy /Industry public approach”
(do nothing) campaigns Codes policies (impose
(Good standards &
practices) sanctions)

Drivers for Labor Protection in the Informal Sector

1. Presence or absence of local labor standards laws and corporate codes

While there are many laws that help promote labor protection in the informal
sector, they are subject to various interpretations. For example, some service cooperatives
engaged in labor contracting claim non-coverage from tax and labor laws which often
results in lower work standards for their members/workers. This has created conflicts
with private labor only contractors as these cooperative labor contractors are now
becoming bigger and directly competing with them.

182
The Barangay Micro Business Enterprise (BMBE) Law exempts most informal
sector enterprises from the minimum wage provision of the Labor Code. Many local
governments are still hesitant to apply the law in their own areas due to the tax exemption
stipulations of the law (Banzon-Natad, 2005).

The active participation of NGOs and private sector in the affairs of the Local
Development Councils (region, province, city, municipality and barangay) is mandatory
under the 1991 Local Government Code. But most of the country’s LGUs are devoid of
these organized/operating councils because of the lack of transparency in most LGU
operations. LGU heads fear that the NGOs and private sector organizations might meddle
into the affairs and transactions of local government executives.

2. Degree of advocacy and/or enforcement of labor protection measures by the social


partners at the LGU level- local tripartite councils, social accords and accepted practices
by locality, community, industry guilds/associations, etc.

Due to the limited number of labor inspectors (Amante, 2005), the DOLE has
shifted its thrust through voluntary compliance in big enterprises (200 or more workers)
through partnership with labor, professional and employers’ organizations and other
government agencies. This is in accordance with DOLE Department Order no. 57-07,
2004.

Inspection is maintained only at enterprises with 10-199 workers with priorities in


the following workplaces:

a. Existence of complaints, imminent danger or imminent occurrence of


accidents, illnesses or injuries;
b. Hazardous workplaces;
c. Construction sites; and
d. Establishments employing women and child workers.

In the informal sector, the DOLE will engage in advocacy and training to promote labor
protection in the informal sector, particularly in micro-enterprises of less than 10 workers
and those registered with the BMBE. It will seek the assistance of LGUs and NGOs in
these undertakings. As an institutional support, the expansion and creation of the tripartite
councils at the LGU or industry level is encouraged, as well as the strengthening of local
industry associations, business guilds, cooperatives and other forms of associations of
small and micro-enterprises.

3. Degree of tie-up with the formal sector enterprises or industry associations and
government agencies that uphold or require labor standards compliance.

Small and micro-enterprises in the informal sector, which comprise more than 99
per cent of all enterprises in the country, are linked up with the bigger enterprises of the
country. Various inputs like goods to sell, tools and equipment, etc. used by the informal

183
sector operators came from the formal sector. Some raw materials and goods are likewise
purchased by large enterprises for marketing or further processing.

Around 54 per cent of informal sector enterprises were registered with a


government agency, mostly with municipal business permit offices. They did this to
secure status and protection and to obtain a workplace. Among these enterprises are sari-
sari stores (variety neighborhood store), transport operators in bus, taxi, jeepney and
tricycle operation, and financing businesses.

Informal sector enterprises that are linked with the formal sector establishments
can be influenced more towards labor protection. This is true for small enterprises with
upstream relationship with big enterprises. The bigger enterprises that source their inputs
from the smaller enterprises usually impose high standards such as labor protection as
part of their terms and conditions. This is especially true of enterprises linked to the
global value chain.

Small enterprises linked to the supply chains of TNCs or local firms with
operations abroad and exporting to developed countries have no other option but to
comply with labor standards.

The informal sector enterprises have both low awareness and low level of
compliance with labor standards. Strict or forced enforcement of labor standards to the
informal sector may lead to dangerous consequences since the country is a labor surplus
economy and is competing with low wages economies in Asia.

Compliance with labor standards in the informal sector should not be drastically
imposed. Instead, it should be done through advocacy, good practices approach and
continuous improvement. The development of local corporate codes that will be applied
to the domestic formal sector should be encouraged since their suppliers and their
suppliers’ supplier would likely reach the informal sector. Another way to reach the
informal sector is through the NGOs, P0s and cooperatives.

4. Presence or absence of workers organizations in informal workplaces like trade unions,


cooperatives, crafts unions/guilds and peoples’ organizations (P0s)

The presence of trade unions in workplaces has contributed to the high level of
compliance to labor standards. But trade unions are hardly present in the informal sector.

Because of the declining trade union membership, trade unions are reinventing
themselves by uniting with or organizing other forms of workers’ organizations operating
in the informal sector like guilds, crafts unions, cooperatives, peoples’ organizations
(P0s) of vendors, farmers, drivers and other workers of similar occupations. From these
renewed forms of labor organizations, the advocacy campaign for new laws on labor
standards based on good or best practices and the formulation of industry codes among
industry, community, professions and occupations can be pursued.

184
5. Level of awareness of consumer groups and civil society organizations like NGOs,
church, academe, socio-civic groups, etc. on labor protection and standards and their
effects on consumer welfare and earnings of worker-consumers.

Majority of Filipino workers and consumers are usually price conscious and not
quality conscious. Hence, local products are easily under-priced by imported low quality
products or local producers scrimp on labor standards just to lower their costs of
production.

In the developed countries, consumer awareness and protection programs are


among the major drivers of social compliance and labor protection (Verite, 2003).
Retailers are pressured by consumers’ organization to impose social compliance
standards on products that they sell.

In the Philippines, the Buy Philippine-Made Products Movement and the Fair
Trade Alliance (FTA) iii are among the consumer advocates campaigning for the
patronage of locally produced products and services side-by-side with social compliance
and product quality standards. High quality consciousness among the informal
workplaces will surely raise the level for labor protection.

Philippine retailers do not impose compliance to local quality standards despite


the presence of local standards like the Philippine Quality Awards (PQA) iv and the
Philippine Products Standards under the supervision of the Bureau of Product Standards
(PS) of DTI. It is only in food products and medicines under the Bureau of Food and
Drugs (BFAD) that local quality standards are imposed. Compliance to labor standards
however is not a basis in the BFAD award.

LGU Good Practices that Promote Labor Protection in the Informal Sector

The most laudable good LGU practice happened like a miracle in Pampanga with
Governor Ed Panlilio at the helm. Immediately after assuming office, the governor
convened the provincial development council in accordance with the Local Government
Code and partnered with the civil society sector in the province.

Federico Pascual, Jr. (2007) reported that last July 2, 2007, all 82 personnel
involved with quarry collections were replaced. Thereafter, in just five days, 6.2 million
pesos was collected. By July 11, the provincial government earned 9.8 million pesos in
quarrying fees averaging 1 million pesos a day. This pares miserably with the previous
year’s collections of 30 million pesos by the former governor which can now be collected
in just 1 month.

The governor ordered the remittance of the lahar income to the barangays by the
month’s end to immediately help the informal sector. The government gets 150 pesos per
truck of sand/lahar where 30 per cent goes to the town where the quarry site is located, 40

185
per cent to the barangay (village), and 30 per cent to the provincial government. The
towns without quarrying sites will get 30 per cent of the provincial government’s share.

Informal Sector Registration

Elena Roaring (2003) documented several good LGU practices and innovations
that encourage the registration of informal sector enterprises. The successful programs of
the LGUs were attributed to the following factors:
The programs were supported and pushed by the local business community;
The support has assistance components biased for small firms; and
The services have simplified administration and are accompanied by information
campaigns.

The LGUs were encouraged to share their successful programs that include the
installation of computer softwares and work flow designs.

1. Simplifying LGU Registration Procedures

Better LGU registration procedures encourage registration of establishments in


the informal sector. Some licensing offices are designed in coffee shop style similar to
the amenities provided by the private sector in dealing with their clients.

LGUs have computerized their systems to speed up registration procedures.


These facilities facilitate both local and national registration like the DTI and SSS. These
are practiced in Las Piñas City, Muntinlupa City and Pasig City where processing time
has been reduced significantly. The other benefits of computerization are the maintenance
of a database of business registrants and automated assessments and computation of fees.

Other service innovations in LGUs include online services, e-services, one-stop


shops, and prompt business assistance. Some of these efforts have gone through
tremendous birth pains and are designed to mainstream the informal sector into the
registry systems and eventually facilitate labor protection.

For small LGUs where computerization is not very applicable, systems-sharing


among clusters of LGUs could be devised. Data integration could also be done at the
provincial level. The LGU registration of enterprises in the informal sector is needed for
local planning and development purposes.

2. Simplifying LGU Tax Structure and Collection System

Another good practice is the simplification of LGU tax structure by charging


fixed fees for small taxpayers. Fixed fees are charged per business size category- micro,
small, medium and large. Another way is by using more visible and measurable
indicators such as floor area. This is in contrast to the usual practice of using gross sales,
which is more difficult to verify and is subject to negotiation and corruption. Some LGUs
have increased revenue collections through promotions, assistance, and orderly but firm

186
adherence to regulations.

3. Promotional and Inspection Strategies of LGUs

Some of the strategies used by LGUs in successful inspection or compliance


monitoring were as follows:

Area-by-area, door-to-door inspection campaigns, oftentimes as part of education


and friendly information blitzes;
Directed surveys for databank maintenance, which facilitates enterprise visits and
information gathering about the enterprises;
Random monitoring and inspection;
Information programs using print and mass media;
Encouraging the business sector to promote compliance among their ranks;
Assistance to community-initiated efforts, including voluntary, self-regulation
programs within the informal sector;
Provision of incentives and assistance; and
Raids, penalties and closure blitzes, although this may not be perceived favorably
by those in the informal sector and by the public.

Roaring also reported that compliance with regulations by enterprises including the very
small ones is higher when:

Promotion and inspection staff are perceived to be credible and having integrity;
Information campaigns are well organized; and
There is an appreciation by the public of the value of taxation and regulations

4. Providing Economic Incentives to Encourage Registration

Through collective responsibility, informal groups could regulate their own ranks
while LGUs provide appropriate policies and support services. Voluntary and self-
regulation principles could be applied by the informal sector themselves and this
represents a more viable solution to the problem of their invisibility and lack of
regulation.

Other approaches which have been proposed involve use of government’s vast
resources and purchasing power to encourage the informal sector to register and at the
same time enhance its development. These approaches include:

Patronizing and promoting goods and services of the informal sector operators;
Removing bias against the informal sector in government procurement rules and
practices;
Organizing the informal sector operators in an association;
Adopting concessions and flexibilities to the informal sector; and
Using the informal sector to deliver public services.

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The advantages of LGUs’ patronage of informal sector operators are:

Substantial savings by purchasing from smaller companies;


Informal sector units are encouraged to register in order to access bigger markets;
Mistrust between informal operators and the LGU is minimized;
Helps LGU to assess the informal sector needs for future assistance like financing
and training; and
Encourages the private sector to purchase from the informal sector and harnesses
informal sector enterprises to grow and develop into more formal operations.

Subcontracting public services works through LGU partnership with cooperatives,


people’s organizations and other community associations is allowed under the Local
Government Code. These include garbage collection, street cleaning, and park
maintenance, exploitation of natural resources, business activities with significant
ecological impact (recycling, gathering of fish spawns, sustenance fishing and similar
activities), etc.

Other LGU Strategies

Robert Calingo (1998) identified various LGU strategies in helping the informal
sector. Among these were improving public market administration, local trade fairs and
exhibits, low cost housing, cultural enrichment, cooperative development and
environmental conservation.

In Legaspi City, the city government privatized the administration of the public
market and increased the market values of land in order to raise incomes to finance the
creation of new commercial districts. The project involved the construction of an
alternative road to the airport and a new market complex with bus, jeepney and tricycle
terminals. Property taxes increased by 36 per cent in 1996 and the earnings from the
rentals on public market stalls increased to almost 3 million pesos. This enabled the city
government to increase business opportunities not only in the expanded central business
districts but also to the rural parts of the city.

The mayor of Jones, Isabela launched a trade and fair exhibit in 1992 to generate
employment among housewives, unemployed, underemployed and youth who were given
basic and advanced skills training in handicrafts. Indigenous materials were used to
create more jobs. This has resulted to the integration of various handicraft works into the
Jones Integrated Handicrafts Products.

In Marikina City, the informal market vendors were provided with stalls,
promotions, and firm regulatory campaigns. In the City of Manila, rationalized sidewalk
vending activities produced millions in daily collections for the city’s coffers. In
Tagaytay City, the city government actively launched a campaign against the patronage
of illegal sidewalk vendors.

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The LGUs of Puerto Princesa in Palawan and Victorias in Negros Occidental have
implemented their respective low-cost housing projects for the poor in the early 1990s.
As a relocation project to prevent the increase of informal settlers in the coastal areas of
Puerto Princesa, the mayor personally chaired the Hosing Committee together with the
key city officials. In addition, the mayor also implemented the Bantay Puerto program, an
environment conservation intervention. It has 6 components- Bantay Gubat, Coastal
Areas Protection Project, Bantay Dagat, Special Monitoring Group, Civilian Task Force
and Cyanide Detection Test Group.

In Victorias, the low cost project called the “Dream Village” was funded by the
“Pabahay Municipal Bonds” which gave interest rates up to 8.5 per cent. The expected
beneficiaries were the 12,000 homeless people in the municipality who have no money to
start the housing project.

Bulacan province implemented both a cultural enrichment program and


cooperative development for livelihood and economic nationalism. The Bulacan governor
utilized the Kaunlaran sa Pagkakakisa [Progress in Unity] program to teach cooperative
operators the value of credit worthiness and economic nationalism.

Facilitating Membership in the SSS, PhilHealth, etc.

According to Eufemia Yap (2003), LGUs can facilitate informal sectors workers
to become self-employed members of SSS and PhilHealth. Through SSS membership,
a member can be entitled to sickness benefit, maternity benefit, disability benefit,
retirement benefit, death benefit, service loans (salary, calamity, stock investments,
special educational loan). PhilHealth has instituted two programs that are relevant to
the informal sector. These are the Individually Paying Program (IPP) and the Indigent
Program.

The IPP focuses on self-employed and the informally employed. Persons who
earn incomes below 3,500 pesos are required to pay a monthly contribution of 75 pesos.
This amount will entitle members and their dependents to a limited coverage for room
and board, laboratory tests, medicines and doctor’s fees when confined in a hospital.
Benefits depend on certain conditions such as type of illness (classified as “ordinary”;
“intensive”; “catastrophic”); type of hospital, (“primary”; “secondary”; “tertiary”), and
the type of medical services received (e.g. with surgery or simple confinement).

The Indigent Program focuses on enrolling the poorest 25 per cent of the
population. Eligible members are the poorest 20 per cent of each province or
municipality. This program is done with the consent and partnership of the various local
government units which provide counterpart contribution, together with the national
government. The benefits are similar to the IPP.
The SSS, Philhealth, ECC, Pag-ibig and other components of the state-owned
pension systems were designed for regular employment and not for self-employed and
non-regular employees. This has caused problems to the informal sector workers in terms

189
of remittances of payments, continuity of payments, etc. Many informal sector workers
have limited capacities to make regular contributions due to low and unstable incomes.

Yap (2003) identified some traditional social protection mechanisms in low-


income communities because of the inadequacy of formal social protection institutions.
These are based on bayanihan v and damayan vi , the traditional forms of family and
community support system in times calamities, illnesses, and death or major social events
such as marriage, birth and religious celebrations.
Many of these schemes begin as savings-based loan schemes wherein members
borrow money. Some have become successful. Examples of community-based schemes
are:
Health Care- free outpatient consultations and check-ups. In some cooperatives,
free medicines are given and partial reimbursements are also provided to help defray
hospitalization, laboratory and surgical costs. Some big cooperatives are able to maintain
a small clinic with medical staff for preventive and curative care, and dental care for
tooth extraction, oral prophylaxis and tooth filling. Under these schemes, more formal
means of collecting premiums are established for a specific set of benefits. Examples of
these schemes are the Bukidnon and Guimaras Health Insurance Programs and
Organizing Resources for Education and Training (ORT) Health Plus Scheme (OHPS) vii.

Death Benefit or Mortuary Assistance- This benefit is usually provided as a grant


and is often limited to members of a cooperative or organization. Some cooperatives
however include family members and even non-members in the benefits, subject to
certain terms and conditions. Mortuary assistance funds come mainly from members’
contributions. These contributions are usually deducted from members’ existing accounts
or from funds that are due the members such as dividends, patronage refunds and loans.
An example of a cooperative that provides this service is Novaliches Development
Cooperative (Novadeci) in Quezon City.

Scholarship and Other Risk Protection Benefit- Scholarship grants are provided to
children of regular members of cooperatives. Other forms of risk protection services are
designed to protect members against certain losses. These include crop insurance, loan
protection, life insurance and deposit guarantee. The crop insurance and the loan
protection are the most patronized. Loan protection and deposit guarantee services are
provided for affiliates of the National Confederation of Cooperatives through the Coop-
Life Mutual Benefits Services Association (CLIMBS). The Philippine Crop Insurance
Commission, on the other hand, provides crop insurance as facilitated by the
cooperatives.

Establishing LGU-based Tripartite Councils

The DOLE Institute for Labor Studies (2006) reported practices of LGU-based
tripartite councils in Metro Manila- Marikina, Mandaluyong, Makati, Valenzuela, Pasig,
Las Pinas and Pasay. These councils were created either through social accord/MOA or
LGU ordinance with the objective of serving as a forum for tripartite advisement and

190
consultation among labor, employer and government sectors in the formulation and
implementation of labor and social policies.

The expected roles of the DOLE in these councils are:

Provide secretariat/administrative and technical support only, 5 of 8 responses;


Advisory, labor education, advocacy, 4 responses;
Facilitating role only, 3 responses;
Leading and direct role, 1 response; and
Actively and directly manage the affairs and activities of the council, 0 response.

Among the facilitating and hindering factors for the development of the tripartite councils
were:

Facilitating Hindering
Open communication line Lack of funds
Sectoral cooperation Vested interests
Institutional support Lack of sectoral trust
Labor education Lack of advocacy

Present Challenges

Labor protection in the informal sector should not be imposed drastically. Instead
of having jobs with high labor standards, the poor informal sector workers might end up
with no jobs at all.

The labor standards should be placed at the end line of the process and not at the
starting line. Instead, initial indigenous labor protection practices should be researched
and documented. These should then be promoted for adoption or replication. Thereafter,
continuous improvement has to be practiced which will be guided by the labor standards.

Labor standards based on good practices should be industry or sector specific. For
example, the good practices of the Olongapo drivers transport cooperatives feature
drivers wearing uniforms, policing and disciplining their own ranks, courteous and safe
driving, color coding, clean and hygienic vehicles, mandatory membership with the SSS
and operating their own housing cooperative and gasoline stations. These good practices
may be propagated to all other transport workers and operators nationwide.

Another example are the clean public markets in Marikina City and Puerto
Princesa City which feature clean and clear vending areas and comfort rooms. The
market vendors not only retained their customers who are now being attracted by the
modern malls and supermarkets. These market vendors are now working in a healthy,
safe, environment-friendly and odor-free workplace.

Verite (2003) posed the following challenges to change agents (promoters of


compliance to labor standards) working with the informal sector:

191
1. The awareness and advocacy campaigns should focus on labor standards and
human rights issues.
2. It should also put emphasis on consumer awareness and protection program
which are important drivers of corporate social responsibility (CSR) and
social compliance.
3. It should make available consultancy and training at socialized rates to those
who want to practice CSR and social compliance.
4. It should disseminate labor standards based on good practices.

The gaps that need to be filled in order to promote compliance to labor standards in the
informal sector are as follows:

1. The need to improve corporate or business values, policy formulation,


practices and management systems.
2. Lack of mechanisms that will monitor and record compliance to good
practices in labor standards.
3. The need to change the mindset of the informal sector enterprises who are
averse to bureaucracy and paper works (recording).
4. The lack of time or interest of the informal sector business operators, owners
and workers in attending forums on best practices and compliance to labor
standards.
5. The lack of research and publicity on good practices on labor standards
compliance in the informal sector.
6. The general lack of appreciation of the informal sector enterprises on quality
production as additional expenses rather than an investment.
7. The lack of affordable consultancy, training and remediation services (Verite,
2003).

The priority tasks at present are to fill in these identified gaps towards promoting labor
protection in the informal sector. The social partnership among government, employer
organizations, labor and civil society groups, along with the emerging actors like the
academe, church-based NGOs, corporate foundations and party list groups should be
mobilized fully.

References:

Amante, Maragtas, 2005, “Social Accountability in Philippine Enterprises:


Moving Ahead in Advocacy”, Multipartite Policy Dialogue in Social Accountability,
Dusit Hotel, Makati City, March 15, 2005, sponsored by ECOP.
Banzon-Natad, Jessica, 2005, “Government Urged: Back Law to Help Micro-
Business”, Sun Star, January 25, 2005
http://www.sunstar.com.ph/static/ceb/2005/01/25/bus/gov.t.urged.back.law.to.help.micro.
business.html

192
Calingo, Robert, 1998, “Local Initiatives: Role of NGOs and LGUs”, Handbook
on the Informal Sector (Ed- Gilberto Llanto), Manila: Bishops-Businessmen’s
Conference for Human Development and DOLE.
DOLE Institute for Labor Studies, 2006, “Faces of Local Tripartism in the
National Capital Region”, September 22, 2006, Bayview Hotel, Manila.
Macaraya, B., 1999, “The Labor Code and the Unprotected Workers”,
Proceedings of the Philippine Industrial Relations Society National Conference, Diliman,
Quezon City, Philippines.
Pascual Jr., Federico, 2007, “Who pocketed millions in lahar quarrying fees?”,
PhilSTAR, July 15, 2007, http://www.manilamail.com/archive/jul2007/07jul15.htm
(viewed 7.24.07).
Roaring, Elena, 2003, "Government Regulatory System and the Informal Sector."
In Challenge of Informal Work in the Philippines. Edited by Sandra O. Yu. Manila:
International Labor organization.
Sibal, Jorge, 2004, “International Labor Standards and the Philippine Industrial
Relations System”, PIDS NEDA Makati City, Sept. 2004,
http://dirp4.pids.gov.ph/ris/seminars/2004_pptrtd829_sibal.pdf..
Tolentino, Catalina, Jorge Sibal and Bonifacio Macaranas, 2001, “Survey and
Assessment of Laws in the Informal Sector” Philippine Journal of Development, first
semester issue of 2001, PIDS.
____________, Verite, 2003, “A Training Course on Social Compliance in a
Factory-based Setting”, Antipolo City, Feb. 20-22, 2003, sponsored by ECOP, ILO
and Verite.
Verma, Anil, 2005, “Global Labor Standards: Can We Get from Here to There?”,
ILO Conference Room, Makati City, March 2005, sponsored by the ILO Association of
the Philippines (ILAPI).
Yap, Maria Eufemia, 2003, “Extending Social Protection to the Informal Sector”,
In Challenge of Informal Work in the Philippines. Edited by Sandra O. Yu. Manila:
International Labor organization.

Websites:
Bureau of Labor Relations, http://www.blr.dole.gov.ph
Bureau of Product Standards, http://www.dti.gov.ph/contentment/7/11/697.jsp
Bureau of Working Conditions, http://www.dole.gov.ph/

Endnotes:
i
Paper presented at the National Policy Conference on the Legal Empowerment of the Poor in the
Philippines, 25-26 July 2007 at Makati Shangri-La Hotel, Makati City, sponsored by the Economic Social
and Cultural Rights-Asia in partnership with the UN Development Program-Manila, U. P. National College
of Public Administration and Governance.
ii
Among those exempted from coverage are managerial employees, field personnel, unpaid family workers,
domestic helpers, persons in personal service of another and workers paid by results. The employment
relations outside the formal sector labor force include: boundary workers, commission paid, contractual
workers, job and service contracting, project employees, home workers, casual workers, part time, seasonal
workers and other forms of labor contracting (Macaraya, 1999).

193
iii
The “Buy Filipino Movement” with the slogan “Tangkilikin at Paunlarin ang Sariling Atin” (Patronize
and improve our own products) was initiated by the National Economic Protectionism Association (NEPA)
in 1934. It was the organized reaction of Filipino producers and intellectuals during the free trade period
imposed by the United States.
iv
PQA is the local equivalent of the Malcolm-Baldridge Award.
v
Bayanihan is traditional Filipino practice wherein community members come together to assist one in
need. This is usually exemplified by a group of rural folks lifting and transferring a traditional house.
vi
Damayan is a Filipino custom of extending financial and emotional support to a bereaved family. This
usually comes in the form of monetary contributions solicited from community members which are then
pooled together and given to the family of the deceased.
vii
ORT is an international NGO that operates mainly in La Union Province. In the early 1990s, the
organization was heavily involved in the setting up of Mother-Child Care Centers in villages in the
different municipalities in the province. In 1994, recognizing the potential of a collective effort to access
health care, the OHPS was implemented.

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GLOBALIZATION AND CHANGES IN LABOR MARKET
POLICIES AND IR PRACTICES

Introduction

Intense globalization in South East Asia contributed to the


fast growth of the region today. There is increased trade and investments from the
developed economies (USA, EU and Japan) and the newly industrialized economies
(Taiwan, So. Korea, Singapore, Malaysia, China, India, etc.)

The Philippine GDP growth rates during the last decade


have kept pace with the regional growth fueled by consumption spending brought about
by several factors which include incomes from overseas workers, electronics export
earnings, investments from BPOs, tourism and the robust services sector growth. Along
with state pump priming efforts on infrastructure and other public spending brought about
by increased VAT collections and borrowings through direct loans and build-operate-
transfer (BOT) arrangements, the economy has shown recovery and growth. It is still
subject of an ongoing debate on who have benefited from this initial growth and whether
this growth is sustainable in the long term.

The Philippine Economy in Transition

Lets us now review the development stages of the Philippine economy. The
Philippines went through the following stages of economic development:

1946-59 Post War Rehabilitation and Import Substitution Period- Refers to the setting
of tertiary assembly-line production industries with state protection.

1960-71 Decontrol and Limited Trade Liberalization Period- The country availed of
the IMF standby loan facilities to shore up the foreign exchange crisis brought
about by the shortcomings of the import substitution period.

1972-85 Martial Law and Post-Martial Law Period- This was the era characterized by
high debt-driven industries, trade liberalization and economic slowdown.

1986-pres. Globalization, Trade Liberalization and Privatization of State Enterprises-


There was economic restructuring at the national and firm levels for survival, growth and
competitiveness of local and multinational enterprises.

Effects of Globalization to Philippine Industrial Relations Actors

Globalization in the Philippines was accelerated since it


joined the World Trade Organization (WTO) and Asia-Pacific Economic Cooperation
(APEC) in 1990s. The country was a recipient of several structural adjustment loans from
the WB-IMF.

195
The Government

The government adopted the WB-IMF development


strategies of trade and investments liberalization. The schematic diagram in Figure 22
illustrates the core government strategies of trade liberalization, lowering of tariffs,
reduction of state subsidies, export promotion, foreign exchange decontrol and
investments incentives. Privatization and BOT projects complemented foreign
borrowings to build infrastructure and increase investments. State ownership of big
enterprises and operations of infrastructure declined.

Figure 22. Responses of IR Actors to Globalization

World Bank- Government-Development Strategies (Structural Adjustment Programs)


IMF  Reduction of state subsidies / privatization
-Structural  Import liberalization & reduction of tariff rates
Adjustment  Floatation of the peso
Loans (SALs)  Etc.

Employers Labor and Trade Unions


Cost Reduction/ Increase Productivity to Prevent  Redundancy /restructuring- reduction of jobs
Closure, Reengineering & Rightsizing  Outsourcing, sub-contracting & piece rates
 Flexibilization- internal & external  Reduction of union membership
 OD & HRD (TQM) investments  Reduction of union-initiated wages &
 Pro-active non-union /union-based HRD benefits adjustments

The Employers

Globalization resulted to “jobless growth” in the formal


industrial sector of the economy since global enterprises invested in capital-intensive
tertiary manufacturing processes or outsourced marketing operations to take advantage of
the country’s export potentials, local markets, cheap labor, ports, telecommunications,
etc. This trend jibed with the 2005 ILO study on the Key Indicators of the Labour Market
(KILM) that “globalization so far has not led to the creation of sufficient and sustainable
decent job opportunities around the world”. i

Local employers were thus exposed to intense


competition from global producers and importers of finished goods that included
smuggled items. Technological innovation, reengineering, human capability building and
new forms of labor flexibility became a must in order to offer better services at
competitive prices to consumers. Most of the big enterprises were able to adjust by
increasing productivity and competitiveness.

The Workers

196
Workers in developing and underdeveloped countries
were made to compete with workers in industrialized countries. Factories and offices in
developed countries were easily transferred elsewhere via international subcontracting
and offshoring. This has weakened the trade union movement in the country. The
decision making power in the country’s workplaces was moved away from the shop floor
since global companies decided on their subcontracted operations in their corporate
headquarters.

Labor cartels in the developed regions, particularly in the


US and Europe were also weakened due to the decline in worker unionization and trade
union initiated benefits. Trade unions were encouraged to engage in non-traditional
(sometimes non-collective bargaining) activities such as investments in labor enterprises,
renewed political unionism and organizing workers in the informal sector of the
economy. This widened the operations of the labor movement. In the Philippines, some
trade union-based party-list groups like the Anakpawis and Partido ng Manggagawa have
been elected as lawmakers in the Philippine Congress.

Globalization and the Labor Market Policies

President Ferdinand Marcos, 1965-1986

President Marcos adopted the strategy of debt-driven industrialization program


combined with a mix strategy of import substitution and trade liberalization. The massive
loans incurred by the Marcos administration were accompanied by graft and corruption.
This resulted to serious government fiscal deficits and industries were confronted with
intensified competition as a result of lowering of tariffs and generous incentives to
foreign investments. To preempt labor’s opposition to the economic liberalization under
the martial law regime, Marcos enacted the Labor Code to take labor’s initiative in
seeking reforms and adjustments to the worsening crisis. Marcos consolidated all existing
labor laws and legislations in the country. Citing then Labor Secretary Blas Ople,
Macaraya (2004) described the Labor Code as a social legislation that protected the
workers and their standards of living while at the same time promoting industrial
development.

The mixture of import substitution and debt-driven industrialization strategies


under martial law was supposed to enlarge the country’s economic pie. But since martial
law banned strikes and concerted actions of labor, it compensated this through social
justice provisions that protect the workers’ rights and improve their wages and
purchasing capacities through compulsory arbitration and wages adjustments via tripartite
dialogues and Presidential decrees.

President Corazon Aquino, 1986-1992

197
The Marcos debt-driven development strategies were derailed by people uprising
instigated by massive graft and corruption committed by the administration. In February
25, 1986, President Corazon Aquino was enthroned as a revolutionary President under
the first EDSA people power revolution. Thereafter, President Aquino continued the
government’s liberalized export-oriented development strategies. Labor law reforms were
immediately put in place in addition to the restoration of free collective bargaining and
the workers’ right to strike. New mechanisms for labor management cooperation were
experimented and incorporated in the Labor Code to prevent increasing industrial strifes
after the ban on strike was lifted.

President Aquino was threatened by a series of military uprisings mounted by the


right wing forces and strikes by the left wing forces agitated by liberalization and
globalization. In response, Aquino’s administration encouraged labor management
cooperation and new modes of settling industrial disputes through conciliation, mediation
and voluntary arbitration.

The National Conciliation and Mediation Board (NCMB) of DOLE reported a


consistent decline of strikes in the past 2 decades from 1986 to 2003. Labor strikes went
below a hundred for the first time in 1994. In 2003, it was down to 38 (Chart 7, p. 121).
The Comprehensive Agrarian Reform Law of 1988 and the Cooperative Code of 1990
were implemented to stabilize the countryside.

Globalization deepened in the Philippines from 1986 onwards. The Labor Code,
as observed by Macaraya (2004:5), was not able to respond fast enough to this change in
paradigm.

“It all began in 1987 when structural adjustments were introduced aimed
at reorienting the economy from import substitution to export led… The
most telling among these policy reforms was the lowering of tariffs and
other protective measures. This facilitated the entry of foreign-made goods
in the domestic market that in turn caused stiff competition… Domestic
industries were forced to export and implement reforms to make their
operations efficient. Among these reforms was re-engineering of
operations”.

The major labor law reforms enacted after 1986 were the institutionalization of
conciliation, mediation and voluntary arbitration as additional modes of settling labor
disputes which led to the creation of the National Conciliation and Mediation Board
(NCMB) under DOLE, the granting of the right to organize and engage in collective
negotiations among government workers, the abandonment of the one union-one industry
policy, more stringent processes in strikes or lock-outs, the tripartite regional minimum
wage determination in addition to national minimum wage fixing, among others.

Thereafter, many social legislations affecting the informal labor were enacted
which included the Comprehensive Agrarian Reform Law of 1988, Cooperative Code of
the Philippines of 1990, Cooperative Development Authority Law of 1990, Local

198
Government Code of 1991, Agriculture and Fisheries Modernization Act of 1997, Magna
Carta for Small Enterprises of 1997, Social Reform and Poverty Alleviation Act of 1997,
and the Barangay Micro-Business Enterprise (BMBE) Law of 2002. These labor laws
and social reforms undertaken by the different administrations of government were aimed
at preserving industrial peace in order to attract more local and foreign investments in the
country.

President Fidel Ramos, 1992-1998

President Ramos’ six-year term was characterized by economic recovery and


political stability despite communist insurgencies, a Bangsa Moro separatist movement in
Mindanao and the 1997 Asian Financial Crisis. The Ramos administration extensively
used new modes of foreign borrowings like the BOT investment schemes to attract
foreign capital in the country and solve the power crisis. Using special constitutional
powers, Ramos issued licenses to independent power producers to construct power plants
within 24 months at guaranteed purchase price of electricity.

Under the deregulation, devolution, decentralization and democratization


strategies of the Ramos administration, the 1991 Local Government Code was
implemented to encourage local and regional investments and capital formation. The sale
of major government assets like the Fort Bonifacio military camp was intended to fund
agricultural modernization and improve the facilities of the Armed Forces of the
Philippines.

In 1996, while the Ramos administration was enjoying a stable economic growth,
34,846 garment workers, mostly women were laid off (Rosalinda Ofreneo, 2001 citing
del Rosario, 1997). When the Asian Financial crisis occurred in 1997-1998, capital flight
was minimal but lay-offs and retrenchment almost tripled from 59,861 in 1997 to
155,198 in 1998. Closures of business establishments increased from 1,103 to 3,776.
Adding to the crisis was the El Nino drought (Aldaba, 2000; Tuano, 2002 and Lim,
1998).

The 76,700 workers (51 per cent) laid off in 1998 were permanent and 50,700
(33.7 per cent) were temporary. Some 27,700 workers (16 per cent) were subjected to job
rotations or reduction in the number of work hours. Thirty per cent of the retrenchments
were due to lack of market demand. More than 55 per cent of the retrenched firms were
in the National Capital region (NCR) and the others were mostly in neighboring regions
near the NCR. One third of the firms that retrenched were in manufacturing. Most of
these firms were small and medium firms rather than big firms (more than 100 workers).
Majority of the laid-off workers were 30 years of age or younger and holding permanent
jobs. Two-thirds were males and more than 21 per cent have completed college or post
graduate studies (Tuano, 2002).

Aldaba (2000) noted that the Ramos administration initially took lightly the need
for safety nets to cushion the negative impact of the crisis. But when the crisis deepened
in February 1998, a government initiated a multi-sectoral summit which proposed the

199
following interventions in addition to the mandatory 25 per cent cut in all government
expenditures:

1. Activate the Public Employment Service Offices (PESO) for job placements
and training and credit programs for the unemployed;
2. Establish a 200 million pesos ($3.8 million) emergency loan from the Social
Security System for displaced workers for setting up of small businesses;
3. Monitor prices of basic commodities by the Department of Trade and Industry
to check unscrupulous food dealers and suppliers;
4. Increase supply of rice in drought-infested areas specially in Mindanao; and
5. Establish a 4 billion pesos ($77.5 million) Enterprise Stabilization Guarantee
Fund for distressed small and medium enterprises.

Aside from the PESO, the DOLE initiated in 1998 the following projects:

 Phil-JobNet, an internet-based system of employment facilitation;


 Integrated Entrepreneurship Development Programme (IEDP) for
vocational training for micro-enterprises;
 Social accords between labor and management to minimize strikes and
lay-offs;
 Special Project for the Employment of Students (SPES) for children of
displaced workers;
 Rural works projects to construct feeder roads, canals, etc.
 Work Improvement to Increase Productivity for small enterprises; and
 Industrious, Systematic, Time-Conscious and Innovative (ISTIV) project
to raise productivity consciousness among workers and employers;

In response to the government’s initiative, the Personnel Management Association of the


Philippines (PMAP) undertook the following coping up mechanisms (Lim, 1998):

 Subcontracting and strategies for greater labor flexibility;


 Freeze hiring;
 Cuts in training activities;
 Retrenchments and downsizing;
 Minimal salary increases; and
 Multi-skilling of workers.

The Employers’ Confederation of the Philippines (ECOP), on the other hand, organized
two conferences in August 1998 and February 1999 which the government responded
positively (Tuano, 2002):

1. Improve access to the 5 billion pesos ($96.9 million) ‘Special Financing


Program’ of the Social Security System and the Government Service
Insurance System, for low-interest loans to distressed firms;
2. Establish a 200 million pesos ($3.8 million) ‘Enterprise Stabilization
Guarantee Fund’ to be implemented by the semi-public Small Business

200
Guarantee and Finance Corporation, which could secure up to 50 per cent of
loans made by small and medium sized companies;
3. Establish a 500 million pesos ($9.7 million) guarantee fund by the Trade and
Investment Development Corporation, a public company mandated to
improve the country’s export capacity by assisting export-oriented firms in
accessing bank loans;
4. Simplify inter-island trade inspection and monitoring procedures;
5. Reduce power rates by an average of 55 centavos (US 0.017 cents) per
kilowatt-hour for energy purchased directly from the state-owned power
distributor National Power Corporation by firms affected by the crisis.

Trade unions, NGOs and peoples’ organizations (P0s ii ) also engaged in projects and
activities on job preservation and creation, cost savings and restraints in strikes. Some
unions devised livelihood and training programs to dismissed or retrenched workers, job
placements and labor contracting for members. NGOs and P0s on the other hand
intensified their micro-credit, health and livelihood programs for the communities.

President Joseph Estrada, 1998-2001

The short-lived Estrada administration adopted a pro-poor program of


government through the Social Reform and Poverty Alleviation Act of 1997 and the
Agriculture and Fisheries Modernization Act of 1997. President Estrada was impeached
in November 2000 and removed from office by the second EDSA People Power Uprising
in January 2001.

Under the Social Reform Agenda (SRA), the National Anti-Poverty Commission
(NAPC) under the Office of the President pursued gender-responsive, sector-specific
programs that helped the disadvantaged groups such as women, youth, elderly and
persons with disabilities. Among the services rendered were financing consultancy and
training services, scholarships and training or project grants in micro-finance and micro-
enterprise.

However, the effects of the Asian financial crisis and retrenchments continued
under President Estrada. Guzman (2005:14-15) explained this in an economic and
political briefing (Table 35):

“Uninspired business activity and closure of farms have resulted in mass


unemployment. For instance, factory outputs went down in the first quarter
of the year for the eight consecutive months. Only 8 out of 20 factories
increased production while only 13 out of 100 operated at full capacity.
Everyday for the past 4 years, 8 establishments retrenched their workers or
closed down due to economic liberalization; 196 workers are being
displaced everyday as a result. Each year during the past 11 years, around
9,900 farms are being eliminated.”

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“Globalization as the cause of industrial stagnation and agricultural
bankruptcy is now common knowledge. Stiff competition and unresponsive
market has hastened the erosion of the manufacturing sector, which has
simply lost the capacity to create jobs. On the other hand, the influx of
imported agricultural products has killed small farms which comprise 75
per cent of Philippine farms. This is no longer the anguish of palay and corn
farmers alone since they have been recently joined by poultry raisers and
vegetable farmers”.

Agriculture was threatened by globalization not only because of lack of safety nets but
also due to lack of government support. According to the Department of Agriculture, the
state support to the Filipino farmer was $13 while Thailand and Malaysia were given by
their respective government’s subsidies of $900 and $1,800, respectively. The US
provided $50,000 to $100,000 annual subsidies to their farmers (Padilla, 2004). The
Federation of Philippine Industries (FPI) said that the country's average tariff of 6.7 per
cent was much lower than its counterparts in the region- 45.3 per cent: Indonesia, 10 per
cent; India, 32 per cent; Pakistan, 20.4 per cent; and Malaysia, 9.2 per cent.iii

Table 35. Establishments Resorting to Permanent Closure or Retrenchment Due to


Economic Reasons and Workers Displaced (2000-2003)

2000 2001 2002 2003


Establishments reporting a) 2,258 2,589 3,403 3,262
 Closure 494 617 762 577
 Reduction of workforce 1,788 2,276 2,702 2,710
Workers displaced 67,624 71,864 80,091 67,977
 Closure 21,367 25,468 25,240 24,638
 Reduction of workforce 46,257 46,396 54,851 43,339
a) details may not add up due to multiple reporting
Source of Data: Department of Labor and Employment and published in Birdtalk, July 15, 2004

In the automotive industry, the Fair Trade Alliance reported that smuggling and
used car importation caused worker lay-off of 7,000 in 1997-1999 and 2,800 in 2000-
2002. It was predicted that continuous second hand car parts smuggling and used car
importation threatened the jobs of 10,000 workers in the industry. iv Other industries
threatened as reported by the FTA were steel, agricultural crops such as sugar, rice, corn,
rubber and vegetables.

In the aviation industry, Philippine Airlines entered into the ten-year


rehabilitation plan after defaulting on $2.2 billion worth of debt in 1999, a situation
which was exacerbated by pilot and ground staff strikes. The restructuring process
caused the loss of 6,000 jobs and 35 aircrafts as reported by the AFP. Jaime Bautista
said that the restructuring process was expected to end by 2004 or early 2005, five years
ahead of schedule v . In desperation, the airline unions concluded a deal with

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management to drop bargaining rights and effectively freeze the wages and conditions
of workers for 10 yearsvi.

President Gloria Arroyo, 2001-present

Vice President Gloria Arroyo was sworn as President and served the unexpired
term of President Estrada. The Arroyo administration undertook an 8-point action plan
focused on the following miicroeconomic structural reformsvii:

1. Jumpstart housing;
2. Reduce transport cost from Mindanao to Luzon;
3. Build infrastructure to decongest Metro Manila;
4. Promote micro, small, and medium enterprises;
5. Increase fiscal resources;
6. Make Makat i a tourism dest inat ion;
7. Develop Bagong Nayo ng Pilipino Tourism Estate Alo ng Roxas Boulevard; and
8. Stimulate investments in agriculture.

These action plans were focused on job preservation and generation. Among the several
factors that hampered the government’s plans were the crisis-level fiscal deficits and the
perceived rampant graft and corruption in the government.

President Arroyo was re-elected President in 2004 against a very popular


opposition candidate. Arroyo’s leadership was later rocked by a serious political crisis
caused by alleged electoral fraud (“Hello Garci” scandal) and graft and corruption.
Despite these controversies, President Arroyo unveiled in 2005 the following 4-point
macro-economic program of government viii.

1. Macroeconomic stability and equitable growth


 Reduce budget deficit via an increased value added taxes and inflation
targeting;
 Implement skill-building and education programs to promote full, decent
and productive employment;
 Maintain flexible exchange-rate system;
 Promote competitiveness of industry and services through deregulation,
privatization and liberalization of foreign trade;
 Improve legal, judicial and administrative framework for internet security
and privacy, multi-media convergence and high-speed connectivity to
encourage knowledge and software development and e-service centers;
and
 Develop infrastructure to support tourism and transportation industries like
the roll-in roll-out nautical highway.

2. Agriculture and fisheries modernization with social equity


 Step up agricultural support services such as irrigation, training and credit
and technology extension system;

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 Promote environment-friendly technologies and sustainable farming
practices that conserve natural resources; and
 Continue the total log ban in key areas.

3. Comprehensive human development and protecting the vulnerable


 Sustain investments in education and health to improve social and
economic mobility of individuals and households;
 Partner with the private sector in providing school buildings;
 Review compensation and incentive structure for public school teachers
 Increase textbook ratio in public school;
 Pursue reforms in raising Math, Science, English and computer skills;
 Assist local government in improving their capabilities in delivering
devolved basic health care;
 Expand the coverage of the national health insurance program;
 Make more affordable medicines to the masses;
 Address unmet needs for family planning services;
 Expand social security coverage and social safety nets to the low income
informal sector workers; and
 Provide welfare programs for the Filipino migrant workers and their
families through the Philippine Overseas Employment Agency (POEA)
and the Overseas Workers Welfare Fund (OWWA).

4. Good governance and the rule of law


 Engage civil society as “watch dogs” to promote good governance and
fight graft and corruption;
 Strengthen the criminal justice system including law enforcement and
police;
 Professionalize the Armed Forces of the Philippines (AFP) and the
Philippine National police (PNP); and
 Maintain or forge new agreements with the rebel groups (National
Democratic Front-NDF and MILF).

Except for the increase in value added taxes and the program on deregulation,
privatization and liberalization of foreign trade which are typical World Bank-IMF and
World Trade Organization advocacy programs, most of the government programs were
populist enough and attracted cooperation and partnership with vital social partners like
the employers, professionals, labor and trade unions, political groups and party list
organizations, NGOs, cooperatives, peoples’ organizations (P0s), media, academe,
military and police, church leaders, etc.

Due to the ongoing political crisis, the various social partners are split with the
more radical groups like the communist and socialist leaning party-list groups, the
followers of former President Joseph Estrada, the moderate Black and White Movement,
and some segments of the church and military opposing the administration. The more
conservative groups like the big employers, the ruling Lakas-NUCD party and their allied

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trade unions, NGOs and cooperatives, the military and police forces, and the mainstream
churches are aligned with the President and cooperating with her program of government.

The crisis of retrenchments brought by globalization continues under the present


Arroyo administration. In the Bicol Region in Southern Luzon (Region 5), the DOLE
reported that 1,292 jobs were lost due to retrenchment in 29 establishments. Industry
has the largest retrenchments at 902 lay-offs. No details were reported on how these laid
off workers were assisted by the government agencies. ix

Of the total 500,000 workers in the garments industry, a study predicted that
around 50 per cent of the work force would lose their jobs after the end of the quota
system under the multi-fiber agreement at the end of 2004.

The government itself is implementing a rationalization program under EO No.


366 with a 10 billion pesos ($193 million) budget for 2006. A study predicted that
420,000 jobs (or 30 per cent of jobs occupied by 1.2 million government employees)
may be lostx. The Department of Budget and Management (DBM) which is on top of
the rationalization program, reported that it has completed the implementation in two
government agencies- the Technology and Livelihood Resource Center (TLRC) and the
Civil Service Commission (CSC).

The TLRC’s workforce was reduced to “161 employees from 699 and its
operating costs reduced to 121 million pesos ($2.3 million) from 250 million pesos
($4.8 million) (salaries dropped from 73 million pesos to 25 million pesos or $1.4
million to $500,000). It paid 65 million pesos ($1.2 million) in compensation package to
employees who opted to retire.” The DBM reported that the reorganization is ongoing
in 14 agencies and 6 corporations. The rest of the 70 per cent of the executive branch
will submit their plans in the first half of 2006xi.

Actions of the Social Partners

The most common denominators among all the social partners are labor law
reforms (amending the Labor Code of the Philippines) and job preservation and
expansion.

The opposition groups view labor law reforms as strengthening unionism and
labor rights and weakening management and state prerogatives. Their concept of job
preservation and creation is to reverse the WTO’s policies on deregulation, privatization
and trade and investment liberalization. Their common agenda is to demand President’s
Arroyo’s resignation and push through with their reforms under the next presidential
successor.

The moderate to conservative social partners allied with President Arroyo view
labor law reforms in favor of responsible and cooperative unionism/civil society and
more management and state prerogatives. They view President Arroyo’s continuation as

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President as less risky in terms of investor-friendly business climate. They are however
concerned with improving the perceived high graft and corruption in the government.

Another common denominator among the social partners whether they are pro or
against President Arroyo is the promotion of decent work, social compliance/
international labor standards (ILS) and corporate social responsibility (CSR). These
programs incorporate the notion of promoting full employment (job creation and
preservation), socially sensitive enterprise restructuring (SSER), global competitiveness
and social protection and welfare of workers, etc.

Among the various accords of employer groups, trade unions, NGOs and
government agencies (GAs) were-

1. The “Social Accord for Industrial Peace and Stability” signed in October 4, 2004
by ECOP, various trade union federations (TUCP, FFW and TUPAS) and DOLE
(Amante, 2005).

2. The Tripartite Industrial Peace Council (TIPC) by the representatives of labor,


employers and government agencies (DOLE, DTI, DILG, NEDA, CSC, CHED,
DENR, TESDA and DOLE agencies NLRC, NCMB, NWPC, BLR, BWC and
BLE. Policy issues were discussed at the TIPC “which are promulgated as DOLE
department orders and other policy issuances such as those on contracting,
implementation of Book V (Labor Relations) of the Labor Code, security guards,
labor enforcement framework, the worst form of child labor, drug free workplace,
and the like” (Amante, 2005).

3. Promotion of corporate social responsibility (CSR) and the UN Global Compact


Initiatives among firms, and the “Big Brother, Small Brother” partnership in job
preservation and job creation. Under the “Big Brother, Small Brother” program,
big enterprises were encouraged to maximize business partnership like
outsourcing activities with local small, medium and even micro enterprises. This
will encourage them to assist smaller enterprises through technology transfers and
social compliance standards.

An example of this project is San Miguel Corporation’s contract with the local
government of Oriental Mindoro for the purchase of 500 million pesos ($9.7
million) worth of cassava from farmers’ cooperatives. The local government will
initially develop 10,000 hectares of land for cassava plantation which will be
doubled in the future to earn a total of 1 billion pesos ($18.4 million) incomexii.

Another example is the ShoeMart (SM) stores whose founder Henry Sy was
recently given a “Big Brother of Filipino Entrepreneur’s Award”. Through
partnership with SM, struggling cottage entrepreneurs like Ben Chan of Bench
and Johnlu Koa of French Baker were able to expand their markets not only
nationally but also internationallyxiii.

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4. Campaign against smuggling by the Fair Trade Alliance, an alliance of
manufacturers, employers, labor unions, NGOs, church groups and academe.
Annually, the government loses more than 175 billion pesos ($3.4 billion) of
revenues due to smuggling.

Effects of Globalization on Employment Conditions and IR Practices

The DOLE BLES Integrated Survey of 2003 reported the employment practices
of non-agricultural enterprises with 20 or more workers that included balancing work and
family life (Table 36), flexible work arrangements (Table 37), mechanisms for worker
participation in decision making (Table 38), and modes of settling grievances (Table 39).
The survey covered 6,000 establishments nationwide. For comparative purposes, these
practices were tallied separately for Filipino-owned, foreign-owned, with foreign equity,
unionized and non-unionized companies.

This survey covered mostly medium and big enterprises in the formal sector.
Compliance to local and international labor standards was higher in these enterprises. As
confirmed in this survey, foreign-owned companies, companies with foreign equities and
those with unions performed better in offering more decent work. Foreign-owned
companies or those with foreign equity are usually tied up with the global chain of
production and marketing. They are normally subjected to compliance standards.
Unionized firms also have more decent workplace because of the high awareness and
vigilance of trade unions in the local and international labor standards.

More than 60 per cent of establishments implemented balanced work and family
life programs in 2003. The percentages were higher in foreign-owned companies (79 per
cent), companies with foreign equities (68.9 per cent) and in unionized companies (65.4
per cent). More than 50 per cent of surveyed companies allowed extended maternity and
paternity leaves without pay. The practice of flexible work arrangement ranged from 31
per cent (for unionized) to 42 per cent. Facilities for employees with children were
minimal in most establishments at a range of 3.5 per cent to 6.5 per cent (Table 36).

Table 36. Balancing Work & Family Life Practices in Non-agricultural


Establishments Employing 20 or More (percentage covered by practice), 2003

Practices Filipino Foreign w/ Union- Non-


-owned -owned Foreign ized unioni
equity zed
Number surveyed 26,774 1,200 2,180 3,291 20,863
1. Implements work & family program 60.3% 79.2% 68.9% 65.4% 61.5%
2. Allows extended maternity leave w/o pay 54.8 61.8 58.6 54.0 55.7
3. Extended paternity leave w/o pay 49.5 61.7 58.2 51.9 50.8
4. More leave benefits to care for sick 40.2 33.7 42.4 47.4 38.9
5. Flexible work arrangements 32.7 37.9 41.7 31.0 34.2
6. Family planning/reproductive health programs 21.5 34.9 25.3 37.1 20.2
7. Extended paternity leave w/ pay 22.0 15.8 25.1 26.5 21.3
8. Extended maternity leave w/ pay 27.5 14.6 23.9 23.7 27.0

207
9. Special work arrangement for workers w/ 22.8 14.6 22.2 15.3 23.5
sick/elderly family members
10. Women worker w/ newly born child a special 21.2 10.1 25.6 11.5 22.6
work arrangement & necessary wage adjustment
11. Facilities for employers w/ children 6.5 3.5 4.2 6.2 6.2

Source of Data: BLES Integrated Survey 2004, Labstat Update, Dec. 2005

Half of the establishments practiced sliding flexible works arrangements. These


were higher in foreign firms, local firms with foreign equity and in non-unionized
companies. The practice of compressed workweek ranged from 30 to 39 per cent, or
higher in foreign companies and in unionized firms. On-call arrangement was lower at a
range of 16 to 31 per cent, or lower in foreign companies and in unionized firms.
Teleworking arrangement was a very minimal practice at 4 per cent or less (Table 37).

Table 37. Flexible Work Arrangement Practices in Non-agricultural


Establishments Employing 20 or More (percentage covered by practice), 2003

Practices Filipino Foreign w/ Union- Non-


-owned -owned Foreign ized unioni
equity zed
Number surveyed 26.774 1,200 2,180 3,291 20,863
1. Sliding flexible work arrangement 49.7% 52.5% 55.5% 44.4% 51.4%
2. Compressed workweek 31.0 38.9 29.5 37.7 30.3
3. On-call 29.9 20.0 26.0 16.4 30.7
4. Career breaks 21.3 17.1 23.7 29.7 20.1
5. Job sharing 14.4 9.4 15.1 11.0 14.7
6. Teleworking 2.7 1.3 4.1 0.2 3.1
7. Others 1.5 -- 0.1 -- --

Source of Data: BLES Integrated Survey 2004, Labstat Update, Dec. 2005.

Table 38 shows that worker participation in decision making was popular in


health and safety concerns that ranged from 44 to 69 per cent. Aside from safety and
health committees, other mechanisms used were suggestion schemes, quality circles,
productivity improvement committees, grievance machineries and LMCs. Grievance
machineries were notably higher among unionized firms since this was mandatory in
unions with collective bargaining agreements. It is also noted that LMCs were practiced
in more than 54 per cent of unionized establishments and only 15 per cent in non-
unionized firms.

Table 38. Mechanisms for Worker Participation in Decision & Policy Making
Processes in Non-agricultural Establishments Employing 20 or More (percentage
covered by practice), 2003

Practices Filipino Foreign w/ Union- Non-


-owned -owned Foreign ized unioni
equity zed

208
Number surveyed 26.774 1,200 2,180 3,291 20,863
1. Safety & health committee 44.5% 69.1% 58.1% 61.1% 44.7%
2. Suggestion schemes 38.0 47.6 50.0 41.9 38.8
3. Quality & productivity circles 29.4 36.6 32.3 40.2 28.4
4. Productivity improvement committee 28.4 35.7 37.0 40.1 27.9
5. Grievance machinery 24.6 36.2 36.7 40.1 27.9
6. Labor management council/committee 18.4 24.2 35.9 54.4 14.9
7. Joint committee & task force 16.9 32.2 25.5 26.0 17.2
8. Others 1.5 -- -- -- --

Source of Data: BLES Integrated Survey 2004, Labstat Update, Dec. 2005

Table 39 shows how grievances were settled. Most of these grievances were
settled by top management or their immediate superiors at a range of 50 to 80 per cent.
This affirms the paternalistic mode of settling disputes even in big enterprises. Settlement
of grievances through the grievance machinery ranged from a low 8 per cent in non-
unionized establishment to a high 47 per cent in unionized firms. Union officials were
used less in settling grievances even in unionized firms at only 23 per cent. Most of the
unsettled grievances were decided through voluntary arbitration at a range of 61 to 80 per
cent. Settlements of unresolved grievances through compulsory arbitration, strike or
preventive mediation were not very popular at a range of 3.8 to 25.5 per cent.

Table 39. Mode of Settling Grievances and Unresolved Grievances in Non-


agricultural Establishments Employing 20 or More (percentage covered by practice),
2003

Practices- Mode of Settling Grievances Filipino Foreign w/ Union- Non-


-owned -owned Foreign ized unioni
equity zed
Number surveyed 26.774 1,200 2,180 3,291 20,863
1. Resolved by top management 66.3% 82.4% 63.5% 52.1% 69.9%
2. Resolved by immediate supervisor 57.6 59.6 57.4 50.5 59.0
3. Through grievance machinery 12.5 20.2 26.5 47.1 8.1
4. Through LMC 8.1 13.9 18.4 32.5 5.1
5. Resolved by union official 3.3 3.0 7.8 23.0 --
6.No policy 0.6 0.1 0.1 0.11 0.5
7. Others 1.6 -- 0.4 -- --
Practices- Modes of Settling Unresolved
Grievances
1. Voluntary arbitration 67.8% 60.8% 79.9% 65.6% 65.7%
2. DOLE regional office 29.5 32.6 40.0 25.9 31.9
3. Compulsory arbitration 8.1 14.5 12.4 9.4 8.8
4. NCMB (notice of strike or preventive mediation) 3.8 11.2 11.7 25.5 --
5. Others 1.6 -- 1.1 -- --

Source of Data: BLES Integrated Survey 2004, Labstat Update, Dec. 2005

Effects on Health and Safety of Workers in the Workplace

209
Studies on how globalization has affected the health and safety of workers in the
workplace are still new. In theory, globalization must have contributed to the
improvement of the health and safety of the workers in workplaces at the formal level
because of the increasing awareness on heath, safety and environmental standards as a
result of the intensified campaigns by the ILO, UN, trade unions, NGOs and the civil
society groups. These supposed improvements however were only being felt at the bigger
enterprises in the developing countries, or in enterprises that were linked with the global
chain. The informal sector that catered more to the domestic demand has significantly
been expanding with no marked improvements in health and safety working conditions.

According to Dulce Estrella-Gust (1999), executive director of the DOLE


Occupational Safety and Health Center, around 6.3 million home workers operated at low
levels of technology in cramped and unhealthy premises with little regard to protection
against hazards, noise and toxic substances. Both the workers and their family members
were exposed to the same hazards. There was no comprehensive information available on
the prevalence of work injuries in this sector. Studies conducted on wood work, garments
and footwear, small scale mining have identified hazards as exposure to chemicals, poor
ventilation, lighting and unhygienic working environment.

The electronics and garment enterprises led the country’s manufactured exports.
Lu (2005) surveyed 630 female respondents in 23 of these enterprises in Laguna and
Cavite export processing zones. Most of the workers interviewed were young (age 24)
and majority (64.4 per cent) were single. Only 32 per cent were married. Forty one per
cent received 6001 - 8000 pesos ($116.50 - $155) monthly. Some 5 per cent received a
measly 4,000 pesos ($77.67) per month. Most of the establishments were large (200 or
more workers) with 54 per cent in the electronics sub-sector and 60 per cent in the
garment sub-sector.

Lu reported that the first leading ailment reported by the workers was upper
respiratory tract infection for both electronics and garment sub-sectors. In the electronics
sub-sector, the most prevalent physical hazards were noise, cold temperature, low
pressure and non-ionizing radiation. In the garment sub-sector, the hazards consisted of
noise, heat, low pressure and vibration. For the chemical hazards, the most prevalent in
the electronics sub-sector were dust fibers and smoke and fumes. Chemical fiber dusts
were most prevalent in the garment sub-sector accounting for 90 per cent of all
establishments.

The Bureau of Working Conditions reported in 1994 the following problems in


Philippine industries: isolation and fatigue; reproductive associated problems from
chemical exposures; injuries and disabilities from unsafe machines; allergies and
chemical burns; headaches and loss of sight from working with video terminal displays;
and localized muscular and back pains due to prolonged standing and repetitive and
strenuous work (BLES).

On a macro level, statistics in the past can be derived from the records of
compensated injuries and sicknesses claimed by employees covered by the Social

210
Security System (private employees) and the Government Service Insurance System
(government employees). It was only in 2000 that the DOLE BLES decided to improve
its 1990 to 1996 occupational injuries and sickness surveys. This makes the Philippines,
based on ILO records, the only country aside from the U.S.A. that undertakes such data
collection (Labstat, 2005).

From 2000 to 2003, occupational injuries in non-agricultural establishments


employing 20 or more workers have improved in terms of number of cases, frequency
rates, incidence rate, severity rate and average days lost. This is shown in Chart 15.

As shown in Tables 40 and 41, violations on technical safety standards were


moderate from 1970s to the mid-80s but increased during 1990 to 1995 prior to the Asian
financial crisis. At present, from 2000 to September 2005, violations have gone down to
low levels but increasing slightly from 11 to 14 per cent. Compliance to safety standards
appeared to be improving over the years. Almost 50 per cent of the violations were
corrected and benefited 20,000 to 30,000 workers annually.

Chart 15. Occupational Injuries in Non-Agricultural Establishments Employing 20


or More Workers, 2000 and 2003

45
40
35
30
25 Frequency rate (5.7% to 4.07%)
20
15 Incidence rate (14.1% to 9.75%)
10 Severity rate (43.7% to 27.3%)
5
0 Average days lost (7.8 to 6.8)
2000 2003
(Cases: (Cases:
26,100) 22,964)

Source: DOLE BLES

Table 40. Establishments Inspected on Technical Safety Standards, 1976, 1980, 1985,
1990, 1995

Year 1976 1980 1985 1990 1995


Establishments visited 9,075 9,080 5,272 8.081 9,908
Units inspected 16,379 14,399 12,244 16,886 18,765
Units found w/ violations 2,244 2,117 894 3,410 3,443
As percentage of units inspected (%) 13.7 14.7 7.3 20.2 18.3
Units w/ violations corrected n.a. n.a. n.a. 1,374 1,190
As percent of units w/ violations (%) n.a. n.a. n.a. 40.3 34.6
Workers benefited by corrections n.a. n.a. n.a. 569,993 350,187

Source: DOLE BLES and Regional Offices

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It should be noted that in 2004, the DOLE Bureau of Working Conditions
implemented a new labor standards enforcement framework under Department Order 57-
04 whereby inspections were done only in establishments with 10-199 workers. Those
with less than 10 workers were visited for technical assistance instead of inspections, and
those 200 or more workers were required self-assessments only.

The lack of government inspectors was the main reason for the changes. The
government also considered that most of the violators were micro and small enterprises
(less than 10 workers) that employed the most number of workers. Strict enforcement
might force these enterprises to close shop. DOLE now assists them to improve their
safety standards and practices.

Table 21. Establishments Inspected on Technical Safety Standards, 2000, 2003, 2004,
Sept. 2005

Year 2000 2003 2004 2005


(Sept.)
Establishment visited 7,841 7,954 a 7,660b 5,968
Units inspected 16,191 18,346 17,484 14,986
Units w/ violations 1,822 2,017 2,293 2,158
As percent of units inspected (%) 11.2 11.0 13.1 14.4
Units w/ violations corrected 910 1,263 1,114 853c
As percent of units w/ violations (%) 49.9 62.6 48.6 39.5
Workers benefited by corrections 39,733 42,993 32,096 23,972

a- Inspection conducted by NCR, Region IV-A and Region VIII mainly focused on complaint inspections
only. b- Starting 2004, data covers only establishments employing 10-199 workers based on the new Labor
Standards Enforcement Framework as per Department Order 57-04. Inspection coverage as follows: (1)
Technical Assistance Visits (TAVs) for less than 10 workers; (2) Inspection for 10-199 workers; and (3)
Self-assessment for 200 and more workers. C- Includes units found during the previous month(s) but
corrected during the reference month. Source of Data: DOLE Bureau of Working Conditions.

Effects on Women, Youth, Elderly and Migrant Workers

Labor Secretary Patricia Sto. Tomas (2001) admitted that displacement of


workers is regrettably one of the downsides of globalization. Among those adversely
affected were the most unskilled or young workers and the less flexible older workers.

Young Workers under Globalization

In a study on young workers (age 18-24), Amante (2001) reported that youth
workers in the Philippines comprised 58 per cent of the unemployed in 2001. This has
improved in 2005 (age 15-24) to 48.5 per cent but youth unemployment remained very
high compared to the national unemployment rate of 11.3 per cent. The primary reason
for the high unemployment among the youth was the lack of skills and competencies
expected by employers. Even among the educated youth, unemployment was still high.

212
Among high school graduates, the unemployment rate was 29.3 per cent, 16.8 per cent
among college undergraduates and 17.3 per cent among college graduates (BLES, 2005).

Amante’s study in 5 regions nationwide did not cover micro-enterprises (10


workers or less). Interviewed were 260 managers of enterprises. The study included
documents analysis of sample jobs advertised and published that were open for young
workers. The study identified that the following competencies were needed based on
advertised jobs:

 Computer literacy and IT skills were specified in 64 per cent advertisements- 84


per cent for professional jobs, 81 per cent for engineering, 67 per cent for sales,
97 per cent for banking and finance, 84 per cent for transport and
communications, 68 per cent for business services, and 58 per cent for retail and
trade.
 Educational requirements were getting higher.
 College degree was required for 87 per cent advertised job for young workers.
 No jobs were advertised for persons with disabilities.

The weaknesses of young workers, according to Amante were: low general knowledge;
lack of business knowledge or entrepreneurship; English language; creativity and
innovation; and ability to process new data information. On work attitudes, youth
workers lacked the following:

1. Ability to get the correct information (data processing skills);


2. Self control and self discipline;
3. Sense of caring about the organization;
4. Sense of responsibility; and
5. Teamwork.

For those who found employment, 71.3 per cent were non-regular workers (part time,
casual, temporary and insecure). Employers valued the following attitudes in hiring
young workers: honesty and integrity; teamwork; and self control and self discipline.
Among the skills desired by employers were: getting correct information or data;
communications skills; and problem solving. In addition, employers were also keen on
competencies such as prompt and timely habits, knowledge about the job, and functional
literacy.

Amante also found out that there was a wide gap between the local schools and
the employers’ needs. Only 51 per cent of employers observed that courses in schools
and the needs of the industries matched. There were severe mismatches in Calabarzon (at
28 per cent of employers’ observations), Muslim/Western Mindanao at 21 per cent, and
Central Luzon at 12 per cent.

Unemployment among young people was highest in rural communities especially


among women. Castro (2005) conducted a study among 193 rural women respondents
(age 15-30) in Munoz, Nueva Ecija to look into their employability status. Sixty per cent

213
of the respondents were unemployed at the time of the survey. Of the employed
respondents, 53 per cent were in the informal sector as storeowners, domestic helpers and
farm workers. The rest were employed in government and private entities.

Women in the rural areas were less skilled and educated than males. The reason
was that more female children dropped out of school to assume household duties
(Amante, 2001). When employed, females were mostly laborers and unskilled workers,
discriminated in employment and have lesser pay.

Majority (81 per cent) of the respondents earned less than 5,000 pesos ($97) per
month which was not enough to meet the basic needs of the family. Only 3 per cent
earned 10,000-19,999 pesos ($194 - $388) per month while 16 per cent earned 5,000 –
9,999 pesos ($97 - $194). The only job available to them is farm work which is seasonal
and available only during planting and harvesting seasons. When interviewed, a farm
supervisor said: “Farm work has no discrimination as long as you can bear the physical
demands of long and exhausting work. Many of the women in our barangay work in the
farm because there is no other option or else we go hungry” (Castro, 2005:43).

All the respondents received basic education: 41 per cent finished college; 42 per
cent finished high school; 6 per cent finished vocational course; and 11 per cent finished
elementary. They all agreed that education was needed for higher position in society.
Most of the respondents married young, believing that marriage could lead to economic
improvement. Sixty four per cent of married women were mostly likely to be
unemployed because they were not desired by employers. A stall owner remarked that
when a worker marries, she quits and takes care of her child.

Castro made the following conclusions:

1. While the young rural workers perceived their employability positively, the
jobs readily available in the area were farm and domestic work;
2. The limited formal sector jobs available required basic qualification standards
and the selection process was competitive and tainted by political connections.
Only a few of the young rural workers were absorbed in this sector; and
3. They need help in acquiring business knowledge and training in mechanical
and technical skills.

Elderly Workers under Globalization

The International Labor Organizations bracketed older workers as those in age 55


and over. These elderly workers were not just people to be taken cared of but were still
productive members of society who can still contribute to nation building. In 2004, there
were 7.9 million elderly workers whose numbers declined from a peak number of 8.5
million in 2003. This sector comprised 13 to 14.5 per cent of the labor force. Unlike in
most developed countries, the Philippine elderly group posted a negative growth rate in
2003 and 2004 (Labstat Updates, 2005).

214
From 1998 – 2004, the labor force participation rate of the elderly sector grew
from 55 to 58.5 percent. Almost 3/5th of the elderly workers or 4.6 million were
economically active to participate in the production of goods and services to the
economy. It also showed that the elderly workers chose to remain in the labor force rather
than retire from work. Employment rate of the elderly was 91.8 per cent in 2004 or an
unemployment rate of only 8.2 per cent which was lower than the national unemployment
rate of 11 per cent. Unlike the young workers, the elderly workers were not as negatively
affected by globalization.

There were more males (2.5 million) than females (1.7 million) in the elderly
labor force. Of the 4.3 million employed elderly workers, 60 per cent were males. Two
out five (40 per cent) were between 55-59 years of age and 34 per cent were with
elementary education. More than 2/3rds (71 per cent) were breadwinners or household
heads. More than half (53 per cent) were in part time jobs (or less than 40 hours a week).
Those working in agriculture accounted to 51 per cent and 39 per cent were in services.
Only 10 per cent were in industry with the bigger bulk in manufacturing at 6.5 per cent.

Underemployment among the elderly workers was 13.4 per cent in 2004 (or
569,000). Again, this was lower than the national underemployment rate of 17.5 per cent.
Just like younger workers, elderly workers were willing to work more to augment their
incomes. To encourage the elderly workers to work more for the economy, the
government enacted R.A. 7432 or the “Act to Maximize the Contribution of Senior
Citizens to Nation Building, Grant Benefits and Special Privileges and for Other
Purposes” as amended by R.A. 9257 or the “Expanded Senior Citizens Act of 2003”.

Globalization caused retrenchments and early retirements which affected


primarily the more elderly workers. Compounding this problem was the lack of flexibility
of the elderly to shift jobs or learn new skills if they were laid off or retired. In addition,
the pension fund systems in the country were affected by the globalization whereby the
number of pensioners increased but the number of contributors decreased due to the
shrinking of the formal sector employees.

The major social insurance institutions in the country are composed of the Social
Security System (SSS) for private employees, the Government Service Insurance System
(GSIS) for government employees and the AFP Retirement Separation and Benefit
System (RSBS) for military personnel. Serrano and Marasigan (2002) identified the
pressing problems of the SSS which is the biggest government pension institution in the
country and one of the most advanced in developing countries:

1. Limited coverage;
2. Poor compliance;
3. Limited levels of protection;
4. Fragmented institutional framework; sustainability and viability issues; and
5. Limited accessibility of the system particularly in the rural areas.

215
The over-all effect to the SSS is its very viability. Serrano and Marasigan (2002:23)
pictured the following:

“…Beginning 2021, the sustainability and social adequacy of the system


shall be questionable. Retirees after the year 2020 may find their
retirement or pension benefits declining. The worst hit would be SSS
members due for retirement in 2030 who may suffer a pension-less
retirement…”

GSIS although in a better shape is also in the same predicament as the SSS. The AFP
RSBS is in a more critical shape as it needed to pay pension benefits against meager
contributions from members. It has already reached a point that it is unable to fund the
obligated pensions or lump sum refund of contributions to retired or resigned soldiers xiv.

Sison (2005) summarized the various government actions which may lead to
consolidation and possibly the privatization of the pension funds. This would however
take several steps and it may take a long period to accomplish. The first step is to restore
the viability of the SSS, GSIS and RSBS funds. Closer supervision of their operations
may be done by an outside agency like the insurance commission which has been doing a
good job in monitoring the insurance industry in the country.

In the meantime, other social actors have been contributing their share in
softening the bad effects of lays-offs and early and compulsory retirements. Employers
have humanized retrenchments through proactive programs of workforce reduction or
socially-sensitive enterprise restructuring (SSER).

SSER programs have been a regular feature of the some of the country’s big firms
since lay-offs and retirements are unavoidable and predictable. Among the good practices
featured by Sibal (2003) were San Miguel Corporation, Manila Electric Company, United
Laboratories, Inc., etc.

Among these SSER programs were:

1. Outplacement counseling services- the process by which a terminated


employee is trained and counseled in the techniques of self-appraisal and in
securing a new job or other forms of earning a living.
2. Skills building for post employment which include livelihood and
entrepreneurship.
3. Knowledge in investing money in banks, quasi-banks and
corporations/cooperatives
4. Travel guide for retirees especially those desiring to travel locally or abroad
and those with children residing abroad
5. Private pension funds such as provident fund, employee stock option plan
(ESOP), etc.
6. Unemployment benefits such as medical benefits after employment, etc.

216
7. Employment recall system where laid-off employees are given priority in
future hiring should vacancies occur.

The civil society sector also contributed their share in providing social security services
to the informal sector which both the government and the private sectors failed to
adequately cover. Gonzales, Casuga, Estrada and Mongado (1999) identified NGOs and
cooperatives that provided social security assistance that included life insurance to poor
communities in the informal sector. Among them were the Coop-Life Mutual Benefit
Services Association (Climbs) and the Center for Community Transformation (CCT).
There were at least 30,000 operating NGOs and 35,000 registered cooperatives that
undertook activities for the poor and the disadvantaged.

Women Workers under Globalization

Since the onset of globalization as early as 1980s, there has been a growing
feminization of the labor force in an increasing labor force participation rate of women.
This is especially true in export-oriented manufacturing enterprises not only in the
Philippines but also in Thailand, Indonesia, Malaysia and Sri Lanka (Szal, 1999). The
promising electronics, garments and call center sub-sectors and light manufacturing
activities in export processing zones (EPZs) in the country were dominated by female
workers.

The employment of women workers is compatible with the nature of work that
developed in the country: more service-oriented work; more flexible work force
arrangement like sub-contracting, home-work arrangement and piece-rate work; and
more informal sector activities. Although employment opportunities for women have
increased, their incomes were still not at par with those of men.

While globalization gave employment opportunities to women workers, Pineda-


Ofreneo (2001) reported that it also caused the displacement of other women workers. As
a result of the progressive implementation of GATT in 1996, 34,846 garment workers
were laid-off. New and more efficient technology like computer aided embroidery
displaced many home workers in traditional embroidery areas in Bulacan, Rizal and
Laguna. Even in agriculture, Pineda-Ofreneo cited studies by the International Rice
Research Institute that direct seeding eliminated the female job of pulling and
transplanting seedlings. Likewise, threshers and other machines took away the female
task in harvesting and threshing.

Among the reasons cited by Szal for the feminization of the work force under
globalization were:

 Female employees were more tractable and subservient to managerial authority;


 They were less prone to organize or join trade unions;
 They were willing to accept lower wages and benefits;
 They were less likely to expect upward mobility; and

217
 They were easier to dismiss on the basis of life cycle criteria like marriage and
childbirth.

In export processing zones (EPZs), Edralin (2001) reported that young, unmarried
women were preferred because light manufacturing entails repetitive assembly line
operations requiring good eyesight, dexterity, patience and docility. Majority of these
women workers lived in nearby and far-lying rural areas where their families relied on
agricultural work. Working conditions were frequently long, arduous and dangerous. Few
women kept their jobs beyond 20s because employers usually fire those who marry and
start a family. Pregnancy and maternity leaves were not encouraged since these will
constrain workers in doing continuous and overtime work to cope up with consumer
demands.

Estrella-Gust (1999) noted that young women workers accounted for about 80 per
cent of people working in export processing zones. In another study, Edralin (1999) said
that 77 per cent of workers in Bataan export processing zone were women. In Baguio, it
was 65.2 per cent, 75 per cent in Mactan, Cebu, 74 per cent in Cavite and 70 per cent in
Calabarzon. In the garments export industry, 85 per cent of 500,000 workers were
women.

In the Edralin study, the average age of women employed in Calabarzon was 24
years old mostly from Cavite, Laguna and Batangas provinces. Most of them were
Catholics (85 per cent). More than half (56 per cent) completed high school, 37 per cent
finished college, and 4 per cent at elementary level. Majority (64 per cent) were single
and one third (31 per cent) were married. Majority (87 per cent) were rank-and-file
workers while 12 per cent were supervisory personnel. Majority were also regular
employees with an average length of service of 2 years.

Their aspirations ranged from “helping my family” (81 per cent), “having a house
and lot” (80 per cent), “having a higher pay” (75 per cent), “having a car” (68 per cent)
and “being promoted” (64 per cent). They were not so much concerned with “helping
others like fellow workers”, “fighting for women’s rights” and “helping their
community”.

The working conditions of the women workers were in accordance with the Labor
Code: 8 hours per day; regular meal time of 60 minutes and 15 minute breaks for snacks;
overtime pay; night shift differential pay; right to holiday pay; 5 days service incentive
leave per year of service; and 6 working days a week. Eighty seven per cent of the
workers said that their companies operated in the evening (10 pm to 6 am) and 60 per
cent of them have been assigned to a night shift schedule as production line workers or
operators, and quality inspectors. Most of the workers (87 per cent) worked on overtime
and were paid overtime pay.

Seventy per cent of the workers assessed their working conditions as good while
25 per cent assessed their working conditions as fair. The most frequent problems of the
workers were lack of leaves because they have to report to work even during rest days or

218
holidays. Another is the lack of salary increases other than the minimum wage increase.
Overload of work or tiring work is another frequent problem of the workers. Often, they
were too tired at home to do household chores or participate in community activities.

When asked if globalization has affected them, only 26 per cent (57 of 219) said
that their economic and social lives were affected by globalization. The rest (74 per cent)
believed that globalization had no effect at all on their lives. On the other hand, they
perceived that globalization has made their jobs easier because of the availability of
modern equipment like computers and high speed machines, and many people were given
the opportunity to be employed in the EPZs.

Edralin concluded that similar to other EPZ workers around the world, Filipino
women workers worked longs hours per day and even during rest days or holidays to
meet the demands of the customers of their companies in the local and global markets.
Compensation and working conditions were based on labor standards but were on the
minimum levels. They have less time to be concerned on women issues and to fight for
women’s rights in society.

In the electronics sub-sector, Lu (2005) identified the most prevalent issues as: the
need to upgrade skills; repetitive work; pressure in work; fast paced work; and work
entailed both physically and mentally demanding tasks. In the garments sub-sector, the
main issues were: need to upgrade skills; fast paced work; work entailed both physically
and mentally demanding tasks; pressure in work; and repetitive work.

Estrella-Gust on the other hand agreed that the benefits for women workers were
regular formal sector work and a package of standardized working conditions. But
salaries were often low and the enforcement of health and safety conditions was often
deficient. Specific risks included exposure to toxic substances in industries like
electronics and respiratory and muscolo-skeletal problems in the garments industry.

Lu (2005:5) cited the 1994 report of the Bureau of Working Conditions on the
problems of women workers in the industrial sector. These included: isolation and fatigue
from decreased communication; reproductive-associated problems such as spontaneous
abortion from chemical exposures; injuries and disabilities from unsafe machines;
allergies and chemical burns; headaches and loss of sights from working with video
terminal displays; and localized muscular and back pains due to prolonged standing and
repetitive strenuous work.

According to Tolentino (2004), women were more likely to remain in informal


work for longer periods because they performed dual work (home and workplace), and
the discrimination practiced against women in the formal sector workplaces. Women
workers in the informal sector earned low wages and have little or no social protection.
Most of these enterprises were unregistered and labor standards such as minimum wage,
and granting of social security benefits were not observed. Work in agriculture, domestic
settings and industrial home work was seasonal and income was unstable.

219
In family-operated micro-businesses like carinderia (small food shop),
dressmaking and retailing/trading (mostly sari-sari or variety stores and sidewalk
vending), women workers worked without hired help for 11-16 hours a day with
compensation less than the minimum wage. Many did not receive salaries.

Tolentino cited a study by Flores-Oebanda, et.al. (2001) on domestic workers who


were paid an average of 800 pesos ($15) per month. Very few employers covered their
domestic helpers with social security. Though on stay-in arrangement with their
employers, many bought their own supplies, medicines and sometimes their own food.
With their meager salaries, they usually contributed part of their incomes to their families
in the provinces. There were no accurate data on the number of domestic helpers. Many
of them were relatives of employers and considered unpaid family workers. They were
given support in form of schooling, allowances and free board and food.

Industrial home workers in footwear and garment production did their work at
home with minimum supervision. They can shift from own-account workers to
subcontractors if there were orders. If there were no orders, they would sell their produce
directly at the market. Work in agriculture involved weeding, harvesting and grains
processing. In fishing, women performed net making and preparation, catch preservation
and marketing.

With very limited social protection measures from the government, women
workers in the informal sector can be assisted by community-based NGOs or
cooperatives for social security related services. Among these NGOs cited by Tolentino
were Coop Life Mutual Benefits Services Association (CLIMBS), Center for Community
Transformation (church-based) and the Visayan Forum (NGO).

Summary

Globalization has directly influenced changes in the Philippine labor market


policies and industrial relations practices. Such policies and practices were adjusted to
support trade liberalization and attract foreign and local investments in order to create
more jobs and reduce poverty. Jobs created in the formal sector of the economy came
short of expectation as a result of machine intensive operations which needed more
skilled and flexible workers. Called jobless growth, formal sector employment including
the hiring of non-regular workers failed to reduce unemployment and underemployment
in the country. The benefits of the moderate economic growth accomplished by the
Philippines failed to trickle down to the poorest segment of society.

Philippine labor market policies attuned to globalization and trade liberalization


have also shown their weaknesses in the country. Too much reliance on trade with the
more developed countries and investments from multinational corporations has weakened
our internal production capabilities geared towards our local markets. The 1997-1998
Asian crisis wrought havoc in our small and medium enterprises which brought massive
closures and lay-offs to the detriment of the poor in our society.

220
Among the various sectors of the labor force, the young workers, due to lack of
skills, have suffered most from unemployment or underemployment. The young workers
have to settle in the informal sector either as own-account or unpaid family workers. If
ever they are able to find jobs in the formal sector, they usually start as contractual
workers. Upon gaining some experience, the young workers dare to improve their lot in
overseas employment for higher earning potentials.

As a consolation, the new labor market policies affected improvements in the


formal workplaces in the country. This has been affirmed by the ILO. Studies conducted
on formal establishments with 20 or more workers revealed positive changes in IR
practices such as balancing work and family life, flexible work arrangements, grievance
handling, corporate governance and health and safety. Even female workers, whose
employment increased as globalization deepened, benefited from enterprises set up in
industrial zones since they were given alternative options of work aside from the informal
rural and urban based farming, vending and other services.

References:

Aldaba, Fernando, 2000, “Globalization and Social Development in the


Philippines: Socio-Economic Impact of the East Asian Crisis”, Antwerp: Center for
ASEAN Studies, Center for International Management and Development.
Amante, Maragtas, 2001, “Employability and Demand for Critical Skills and
Competencies for Young Workers in the Philippines”, Quezon City: UP SOLAIR and
Children and Youth Foundation of the Philippines.
Amante, Maragtas, 2005, “Social Accountability in Philippine Enterprises:
Moving Ahead in Advocacy”, Multipartite Policy Dialogue in Social Accountability,
Dusit Hotel, Makati City, March 15, 2005, sponsored by ECOP.
Castro, Charisma, 2005, “Employability of Young Rural Workers”, Proceedings:
The Participation of Women in the Labor Market and Prevention of Sex Discrimination
in Employment, Taipei: International Society for Labour and Social Security Law 8 th
Asian Regional Congress.
Edralin, Divina, 2001, “Addressing the Situation of Women Working in the
Calabarzon, Philippines”, Philippine Journal of Labor and Industrial Relations, Quezon
City: UP SOLAIR.
Estrella-Gust, Dulce, 1999, “Occupational Safety and Health Challenges”,
Philippine Industrial Relations for the 21st Century, Challenges and Strategies, Quezon
City: UP SOLAIR and Philippine Industrial Relations Society.
Gonzales, Eduardo, M. Casuga, G, Estrada and B. Mongado, 1999, “Non-
Government Social Security Arrangements”, Social Security and Labor Insecurities
Under Globalization, Quezon City: UP SOLAIR and Friedrich-Ebert Stiftung.
Guzman, Rosario, 2004, “The Philippine Crisis: Will a New Presidency Still Make
a Difference?”, Birdtalk, Economic and Political Briefing, QC: Ibon Foundation, Inc.,
July 15, 2004.
Labstat Updates, 2005, “Are out Workplaces Safe?”, Manila: DOLE Bureau of
Labor Statistics, September-October 2005.

221
Labstat Updates, 2005, “Workforce Beyond ‘Prime Working Age’”, Manila: DOLE
Bureau of Labor Statistics, November 2005.
Labstat Updates, 2005, “Industrial Relations Practices in Unionized and Non-
unionized Establishments”, “Industrial Relations Practices in Wholly Filipino-Owned
Establishments”, “Industrial Relations Practices in Wholly Foreign-Owned
Establishments”, “Industrial Relations Practices in Establishments With Foreign Equity”,
Manila: DOLE Bureau of Labor Statistics, December 2005.
Lim, Joseph, 1998, “Social Impact and Responses to the Current East and
Financial Asian Crisis”, Social Impact of the Asian Financial Crisis, Seoul: Korea
Development Institute and UNDP.
Lu, Jinky, 2005, “Gender Issues in Diverse Manufacturing Industries in the
Philippines”, Proceedings: The Participation of Women in the Labor Market and
Prevention of Sex Discrimination in Employment, Taipei: International Society for
Labour and Social Security Law 8th Asian Regional Congress.
Macaraya, Bach, 2004, “The Labor Market and Industrial Relations Environment:
Policy Issues and Option in a Global Economy”, Philippine Journal of Labor and
Industrial Relations, Quezon City: UP SOLAIR, pp. 1-32.
Ofreneo, Rosalinda, 2001, “Gender and Political Economy of Globalization and
Technology”, Changing Work and Employment Relations in a Globalizing Asia: Towards
decency and Fairness, Manila: UP SOLAIR and Philippine Industrial Relations Society.
Padilla, Arnold, 2004, “The Economy in 2003: Crisis and Challenges Beyond
May Elections”, Birdtalk, Economic and Political Briefing, QC: Ibon Foundation, Inc.,
January 12, 2004.
Serrano, Melisa and Leian Marasigan, 2002, The Bases of Insecurity of the Social
Security System, Quezon City: UP SOLAIR and Friedrich-Ebert-Stiftung.
Sibal, Jorge, 2003, “Proactive Management of Lay-offs, Retirement and Other Post-
Employment Concerns”, Philippine Journal of Labor and Industrial Relations, Quezon
City: UP SOLAIR.
Sison, Geodicio, 2005, “Private Sector Initiatives in Old-Age Security: The
Philippine Experience”, Proceedings- Aging, Atypical Work and Labour Mobility:
Challenges of Social Security Law in 21st Century, Taipei: International Society for
Labour and Social Security Law 8th Asian Regional Congress.
Sto. Tomas, Patricia, 2001, “Keynote Address: 4th Asian Regional Congress of the
International Industrial Relations Association”, Changing Work and Employment
Relations in a Globalizing Asia: Towards decency and Fairness, Manila: UP SOLAIR
and Philippine Industrial Relations Society.
Szal, Richard, 1999, “Globalization, Employment and Industrial Relations: The
Case of the Philippines”, Philippine Industrial Relations for the 21st Century, Challenges
and Strategies, Quezon City: UP SOLAIR and Philippine Industrial Relations Society.
Tolentino, Catalina, 2004, “The Informal Sector: Women’s Dual Role and the
Social Protection”, Philippine Journal of Labor and Industrial Relations, Quezon City:
UP SOLAIR.
Tuano, Philip, 2002, “The Effects of the Asian Financial Crisis on the Philippine
Labour Market”, EADN Regional Project on the Social Impact of the Asian Financial
Crisis.

222
End Notes:
i
As quoted from ILO Director General Juan Somavia, ILO (2005), “ILO Report Sees Wide Gaps in Wages,
Productivity Gains”, ILO Dept. of Communication, Dec. 9, 2005,
http://www.ilo.org/public/english/bureau/inf/2005/48.htm (opened 1.11.06-jvs)
ii
Peoples’ organizations (P0s) are organizations of citizens based in communities like a neighborhood
association in a village (Barangay), municipality, city or province, or based in sectors like farmers, drivers,
women, indigenous peoples, etc. NGOs usually partner with P0s and other community-based groups,
entities or agencies in implementing their projects.
iii
Remo, Michelle (2003), “Government should push for removal of farm subsidies: FPI”, Inquirer News
Service, Aug. 15, 2003,
http://money.inq7.net/topstories/printable_topstories.php?yyyy=2003&mon=08&dd=16&file=8 (opened
1.11.06-jvs)
iv
____ (2005), “One-fifth of auto industry jobs lost- FTA”, Manila Times, March 10, 2005, p. B2.
v
Airline Industry Information (2004), “Philippine Airlines set to exit restructuring early”, Sept. 14, 2004,
http://www.findarticles.com/p/articles/mi_m0CWU/is_2004_Sept_13/ai_n6191474 (opened 1.11.06-jvs)
vi
World Socialist Website (1998), “Workers struggles around the world”, 7 November, 1998,
http://www.wsws.org/workers/1998/nov1998/lab-n07.shtml (opened 1.11.06-jvs)
vii
Neri, Romulo, socio-economic planning secretary, “2002 Economic Performance and Prospects for the
Next 18 Months”, www.neda.gov.ph
viii
2005 Statement of Nation Address (SONA)
ix
Ganace, Leo Martin (2006), “More than 1,200 lose jobs in Bicol”, Philippine Daily Inquirer, Jan. 9,
2006, p. A15
x
Serrano, Melisa and Mary Leian Marasigan (2005), “Issues and Concerns Facing Public Sector Unions in
the Philippines- A Preliminary Review”, National Dialogue on Government Rationalization: Addressing
Implementation and Transition Issues, Quezon City: UP SOLAIR, July 6, 2005
xi
Cabacungan, Jr., Gil (2006), “Under government rationalization program, lazy employees will remain”,
Philippine Daily Inquirer, Jan. 16, 2006, pp. B3-1 to B3-2
xii
Remo, Michelle, “SMC to buy P500 million worth of cassava from Mindoro yearly”, Philippine Daily
Inquirer, March 24, 2006, p. B-8.
xiii
_____ “Henry Sy: big brother of Filipino”, Philippine Daily Inquirer, March 24, 2006, p. B2-2.
xiv
Landingin, Roel (2005), “RSBS Blues: Up for Retirement”, ABS-CBNDYAB Cebu, June 15, 2005,
http://dyab-business.blogspot.com/2005_06_15_dyab-business_archive.html (opened- 1.20.06-jvs).

223
APPENDIXES OF CHARTS, FIGURES AND TABLES

1. Charts

No. Description Page


1. Shares of Incomes of the Poorest 10% and the Richest 10% (1985-2003) 46
2. Average Family Income Decile Groups (1994 and 1997) 47
3. Total Resources of the Financial System of the Philippines, 2002 82
4. Labor Absorption of Agriculture, Manufacturing and Services (in 105
percentage), 1971, 1981, 1991, 2000
5. Sources of OFW Remittances, 2005 108
6. OFW Households’ by Income Classes, 2000 109
7. Number of Actual Work Stoppages, 1986-2003 121
8. Per cent Share of Agriculture, Manufacturing, Other Industries and 126
Services to Gross Domestic Production, 1967, 1970, 1980, 1990, 2000
9. Share of Manufacturing to Total Output (1980-2004) Select Asian 127
Economies
10. Electronics vs. Non-electronics exports 1992-2005 128
11. Structure of Manufacturing Output, 1970-2000 (% of Total Manufacturing 128
Value Added)
12. Non Regular Workers in Establishments Employing 10 or more Workers, 174
1991-1997
13. Category of Non-Regular Workers in Non-Agricultural Establishments 175
with 20 or More Workers, 2004
14. Contractual/Project-Based Employment in Non-Agricultural Industries 175
with 20 or More Workers, 2004
15. Occupational Injuries in Non-Agricultural Establishments Employing 20 or 210
More Workers, 2000 and 2003

2. Figures

No. Description Page


1. The Various Social Science Disciplines 1
2. IR and the Social Sciences 2
3. A Systems Model 5
4. Science and Technology and IR Development 14
5. System Model of a Business Organization 19
6. Environment of an Enterprise 20
7. The Macro-Economic Model 23
8. Scientific and Technological Processes 25
9. Industrial Relations Actors’ Perspectives on Wages 32
10. Circular Flow in Economics 40
11. Poverty and Underdevelopment: A Multi-dimentional Schematic 42

224
Framework
12. Framework of a Fiscal Policy 66
13. The Business Cycle 66
14. The Financial System of the Philippines 77
15. Monetary-Financial-Income Chain Linking Sources of Funds with Users 78
16. The Capital Market 97
17. Causes of High Unemployment and Underemployment 103
18. Problems of OFWs 110
19. Matrix Diagram of the 9 IR Systems 117
20. Model of Industrialization 136
21. Composition of Employment, Non-Agricultural Establishments with 20 or 175
More Workers, 2004
22. Responses of IR Actors to Globalization 195

3. Tables

No. Description Page


1. Type of Workplace Relationships 2
2.. Matrix of Types of Sciences and Systems 5
3. Comparing the Major Economic Systems 9
4. Types of Entrepreneurs, Philosophies and Industrializing Elites 14
5. Share of Agriculture to GNP 17
6. Hunger and Self Rated Poverty based on Quarterly Figures (Figures in per 44
cent), 2000-2007
7. BIR Collection and Tax Efforts (CY 1982-1992, 1992-1997) 72
8. Assets of the Philippine Financial System (In Billion Pesos) (1990, 1995, 81
2000, Oct. 2002)
9. Activities in the Philippine Financial System 94
10. Literacy Rate of Household Population 10 Years Old and Over by Region, 100
Philippines: 1970, 1980, 1990 and 2000
11. Percentage of Population 10 to 64 Years Old Who are Classified into the 101
Different Functional Literacy Levels, Philippines 2003
12. Budgetary Appropriation for Philippine Educational System 101
by Level of Education and by Agency (in '000 pesos, FY 2002 to FY 2006
13. Public Expenditure on Education (Total Spending as a Percentage of GDP), 102
Philippines, 1985-2005
14. Unemployment and Underemployment (5 year averages) 1975-2004, 2004, 103
2005, 2008
15. Addition to the Labor Force vs Job Creation (000s) (1996-2004) 104
16. Employment Generated by Sector and Number of Unemployed (1980- 104
2003)
17. Labor Absorption of Agriculture, Industry and Services 105
18. Employment by Sector or Class of Worker (1992, 1999 and 2008) 106
19. Employment by Major Occupation Group (1992, 1999 and 2006) 106

225
20. OFW Households’ by Income Class 2000 109
21. Distribution of Establishment by Employment Size and Employment, 2003 116
22. Number and Membership of Existing Labor Organizations by Type of 119
Labor Organization and Percentage of Wage and Salary Workers,
Philippines: 1980, 1985, 1990, 1995, 2000 and 2003
23. Number and Membership of Existing Labor Organizations by Type of 119
Labor Organization, National Capital Region (NCR)- 1992, 1996, 2000 and
2003
24. Number of Strikes/Lockout Notices Filed, Actual Strikes/Lockout, 120
Workers Involved and Man-days lost, Philippines: 1937-2003
25. Major Issues in Strikes, 2000 and 2003 (partial) 121
26. Labor Management Councils/Committees (LMCs) Organized, Philippines, 122
1998, 2000 and 2003
27. Percent Share of Agriculture, Manufacturing, Other Industries and Services 126
to Gross Domestic Production (GDP), 1967, 1970, 1980, 1990, 2000
28. Establishments Resorting to Permanent Closure/Retrenchment Due to 126
Economic Reasons and Workers Displaced (2000-2003)
29. Comparative Strengths and Weaknesses of Offshoring Countries 156
30. Employed Workers by Class of Workers and Group as Formal and 172
Informal Sectors
31. Measuring the Informal Sector in Asia (1996-2005) 173
32. Total Paid Employment in Non-Agricultural Establishments with 20 or 176
more Workers by Basis of Payment and Major Industry Group, (Numbers
in 000s) June 2004
33. Total Paid Employment in Non-Agricultural Establishments with 20 or 177
more Workers by Basis of Payment and Major Industry Group, (Numbers
in 000s) June 2004
34. Non-Agricultural Establishments with 20 or more Workers Resorting to 178
Contracting Out by Employment Size, Ownership, Market Type and
Unionism, June 2004
35. Establishments Resorting to Permanent Closure/Retrenchment Due to 202
Economic Reasons and Workers Displaced (2000-2003)
36. Balancing Work and Family Life Practices in Non-agricultural 206
Establishments Employing 20 or More, 2003
37. Flexible Work Arrangement Practices in Non-agricultural Establishments 207
Employing 20 or More (percentage covered by practice), 2003
38. Mechanisms for Worker Participation in Decision and Policy Making 207
Processes in Non-agricultural Establishments Employing 20 or More, 2003
39. Mode of Settling Grievances and Unresolved Grievances in Non- 208
agricultural Establishments Employing 20 or More, 2003
40. Establishments Inspected on Technical Safety Standards, 1976, 1980, 1985, 210
1990, 1995
41. Establishments Inspected on Technical Safety Standards, 2000, 2003, 2004, 211
Sept. 2005

226
ABOUT THE AUTHOR

Few have been written and compiled into one intellectually analyzed and assessed
material such as this book on Philippine Labor and the Economy.

Apparently, a valuable repository of research papers in Industrial Relations, the book is a


helpful guide in the field of Management, Human Resource, Research, and Industrial
Relations. Just gathering and integrating them was a formidable task.

Dean Jorge V. Sibal is a well-loved Professor at the School of Labor and Industrial
Relations, University of the Philippines. I have known Dean Sibal to be a voracious
reader, a balanced person with tremendous energy for teaching and research; a prolific
writer and an engaging conversationalist. He is into multifarious tracks and programs,
here and abroad, with specialization in the world of Industrial Relations. He weaves his
experiences with those of his colleagues in the academe: faculty and students, as well as
his exposure in the private and government organizations. He lectures to the three IR
actors: Employers, Labor and Government.
This is a book that responds to the needs of the People Managers and Industrial Relations
practitioners across industries. May you enjoy and learn a lot from this literature; it is for
the ‘doers’ rather than for the ‘dreamers’.

Ms Luz Co-Laguitao, FPM


Editor