ADB’s Imprudent Investments in the Philippines

From the ADB

The Asian Development Bank’s (ADB) Board of Directors today approved a $350-million Increasing Competitiveness for Inclusive Growth Program loan to help the Philippines improve its business climate through a mix of policy reforms and programs to promote competitiveness and develop labor skills among out-of-school youth.

“There has been marked improvement in the Philippines’ global competitiveness, but regulation, lack of domestic competition in key sectors, underinvestment in infrastructure and a mismatch of skills in the labor market are keeping the country from realizing its full potential,” said Kunio Senga, Director General of Southeast Asia Department.

To help young people better integrate into the labor market and develop workplace skills, ADB is working closely with the Department of Labor and Employment to design a youth job search program, called MyFirstJob, which will be piloted in 2013. The initial pilot will provide up to 1,600 youth with career counseling services, grants for vocational training, and internships with employers.

MyFirstJob is one of several initiatives that will be used to make the labor market more inclusive. Others include the tourism industry-led skills development program and a new tourism quality assurance and accreditation system that will improve skills and competitiveness in the tourism industry.

(bold highlights mine)

Well ADB seems to be throwing away taxpayers money on some wishful thinking measures that, in reality, treats the symptoms than the disease. These will represent taxpayers (ADB’s contributors) money down the drain, as well as more burden to Philippine taxpayers because of the spendthrift loan program.

First of all, the ADB admits that the problem has been one of "regulation and lack of domestic competition in key sectors". So the answer here is to substantially reduce regulatory and legal impediments as well as taxes and all of other barriers and costs to businesses. But ADB has been silent on the details of their proposed reforms.

Second, ADB sees another problem of “a mismatch of skills” in the domestic labor market.

Plagued by a poor investing climate, this only means that domestic markets has been heavily distorted by political interventions.

This is why many Filipinos would rather seek employment overseas and why commerce have largely been done underground or through the informal or shadow economy.

So how on earth does ADB know of a “skills mismatch”? By mere comparison with other economies?

In a free market environment or in market economies, economic systems emerge out of specialization (law of comparative advantage), so what may be advantageous for country X may not be advantageous for country Y. But specialization through the markets has not been sufficiently addressed, again out of political obstacles.

In essence, matching of skills and jobs is hardly the cause the problem but rather a symptom. Yet without a salutary marketplace, there hardly seems a way establish the domestic comparative advantage from which local labor market should cater to. ADB then seems to be presuming the possession of the right knowledge which it doesn't have.

ADB should instead address reforms based on the liberalization not only of labor markets but of the entire economy.

So what good does the MyFirstJob project do?

With the lack of investments, job searches won’t have any material impact. The answer, instead, is to CREATE JOBS through a business friendly environment. Job searches will become a natural dynamic once the business environment expands. Also, job searches can be accomplished by many private sector internet based platforms.

To add, tourism industry-led skills development program can also be handled by the private sector. Tourist enterprises would want to have employees with the right skills to meet the demand of their consumers for them to profit from.

So the demand of the industry will be reflected on supply as local citizens will conform with changes in the industry and of the economy. If the tourism industry continues to boom, so will the number of people who would want to join the sector by acquiring the skills required. And this will be most likely provided by schools or by enterprises themselves through in housing training or education outsourcing. This does NOT need the government.

However “new tourism quality assurance and accreditation system” only means more bureaucracy, red tape and regulations which ADB sees as a problem. So the ADB the loan proposes to do more of the same thing and expecting different results. Hasn't this been called insanity?

At the end of the day, the money that ADB lends money to the Philippine government accounts for as nothing more than political symbolism, wasted taxpayer resources (which means more tax burden for us) and a wonderful ($350 million) business opportunities for domestic cronies and for the pockets of political officials.

A side comment: Could this be the money used to recently pump up the local stock market?