World Competitiveness: Philippines Jumps to 65th Place

The World Economic Forum (WEF) recently released, The Global Competitiveness Report for 2012-2013 which attempts to measure relative competitiveness among 144 nations that provides “insight into the drivers of their productivity and prosperity”

It is important to highlight that the competitive ranking have been defined by the WEF as

as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be earned by an economy. The productivity level also determines the rates of return obtained by investments in an economy, which in turn are the fundamental drivers of its growth rates. In other words, a more competitive economy is one that is likely to sustain growth.

Here is the roster of the top 30 most competitive nations.

Notice that the WEF says the ranking is about productivity, and not about “cheap labor”.

If competitiveness is about the “cheap labor” then the Philippines and Africa will be on top of the list. Unfortunately mainstream demagoguery has obstinately been focused on this, so as to justify the inflationist-interventionists doctrines.

Also notice that the most competitive nations have been developed economies. The GCI rankings have been closely aligned with the list of most economically free nations (Heritage Foundation: 2012 Index of Economic Freedom).

It is important to note that the above rankings are comparative or relatively based. This implies that changes in standings may not necessarily translate to advancement or deterioration in domestic policies but about quantified comparative measures.

First the good news.

According to the report, the Philippines leapt from 75^th to 65^th

Yet despite the huge gains, which obviously will be construed and used by the mainstream and political forces to grab credit as “achievement” for the administration, the Philippines trails vastly behind the ASEAN peers.

Curiously Africa’s Rwanda has even been ahead.

The bad news is that despite the remarkable gains, the gap in the per capita GDP figures has been widening relative to our developing Asian peers.

This means that yes the Philippines has shown material progress but such gains has not been enough to cope up with the scale of advancement in the region.

Lastly, the reason for the lag in productivity has been about over politicization of the domestic economy which has been manifested through a bloated bureaucracy, lack of infrastructure (which has been politically determined—see below), tax and labor regulations and high tax rates.

Of course corruption has still been the biggest deterrent to business. But, in truth, corruption signifies as symptoms of interventionism expressed through arbitrary policies and regulations, the bureaucracy, welfare-warfare state and state determined allocation of resources.

The informal economy, which is also a symptom of interventionism, takes up a huge chunk of economic activities. This is a clear manifestation of the failures of interventionism and of the incumbent political institutions.

Ironically the salutary conditions of the shadow economy could be suggestive of the alternative positive aspects of corruption, where people pay bribe money to authorities in order to do productive endeavors. This in spite of the major negative attribution on the survey.

The burgeoning informal gold mining sector, which comes mostly in response to recently imposed higher taxes should serve as a wonderful anecdotal example.

Yet the media and the social desirability bias afflicted pop culture cheers about the Php 407 billion proposed infrastructure or so-called “investment” spending without the realization that productive money will be diverted to the pockets of cronies (who will get the contracts), bureaucrats (who will pick the winners) and politicians (which most likely will be the source of electoral finance for the upcoming 2013 national elections).

chart from US Global Investors

All these supposed stimulus will only translate to greater inequality (enrichment of the political class and of the politically connected enterprises), more debts, higher taxes (for the middle class and the politically unconnected), more PRICE inflation (which will be blamed on the private sector) and importantly adds to the ballooning bubble dynamics driven by current easy money policies.

These so-called public work policies are a chimera, as the great Professor Ludwig von Mises explained.

The fundamental error of the interventionists consists in the fact that they ignore the shortage of capital goods. In their eyes the depression is merely caused by a mysterious lack of the people's propensity both to consume and to invest. While the only real problem is to produce more and to consume less in order to increase the stock of capital goods available, the interventionists want to increase both consumption and investment. They want the government to embark upon projects which are unprofitable precisely because the factors of production needed for their execution must be withdrawn from other lines of employment in which they would fulfill wants the satisfaction of which the consumers consider more urgent. They do not realize that such public works must considerably intensify the real evil, the shortage of capital goods.

For media and the dumb downed (“madlang people”) electorate which sees this as good news hardly understands that effects of so-called government stimulus would be based on the illusions of statistics [mainstream economic statistics are based on Keynesian formula constructs] and not from real growth.

Thus, temporary good news will eventually become long term bad news.

However, despite such realities, the relatively better competitive standings today will likely continue to improve. Again, this is hardly because of internal ‘business friendly’ improvements but because of positional standings which will mostly be determined by the political responses to the unfolding crisis abroad.

Again the WEF’s GCI

The global economy faces a number of significant and interrelated challenges that could hamper a genuine upturn after an economic crisis half a decade long in much of the world, especially in the most advanced economies. The persisting financial difficulties in the periphery of the euro zone have led to a long-lasting and unresolved sovereign debt crisis that has now reached the boiling point. The possibility of Greece and perhaps other countries leaving the euro is now a distinct prospect, with potentially devastating consequences for the region and beyond. This development is coupled with the risk of a weak recovery in several other advanced economies outside of Europe—notably in the United States, where political gridlock on fiscal tightening could dampen the growth outlook. Furthermore, given the expected slowdown in economic growth in China, India, and other emerging markets, reinforced by a potential decline in global trade and volatile capital flows, it is not clear which regions can drive growth and employment creation in the short to medium term

The big picture gives us an objective dimension of the real developments rather than fall for trap to political demagoguery

Updated to add:

I was unaware when I wrote a few hours back that the competitiveness issue accounts for today's main headline story.

Has Globalization been Responsible for US Economic Woes?

That’s the popular accusation thrown by progressives.

One example is from Jeffrey Sachs (Financial Times),

Globalisation has raised very serious adjustment challenges for the high-income world, and most high-income countries, notably the US, have failed to meet those challenges. The challenges include the loss of jobs and incomes of lower-skilled workers, a shift of manufacturing sector investments away from the transatlantic towards the emerging economies, a rise in energy costs occasioned by rapidly growing energy use in Asia, and an explosion of income and political power at the top of the income distribution, stoked by international tax havens and tax competition between jurisdictions.

Mr. Sachs essentially believes that political control must prevail over voluntary exchanges.

Here is the World Economic Forum’s (WEF) take on US competitiveness. (bold emphasis mine)

The United States continues the decline that began three years ago, falling one more position to 5th place. While many structural features continue to make its economy extremely productive, a number of escalating weaknesses have lowered the US ranking in recent years. US companies are highly sophisticated and innovative, supported by an excellent university system that collaborates admirably with the business sector in R&D. Combined with flexible labor markets and the scale opportunities afforded by the sheer size of its domestic economy—the largest in the world by far—these qualities continue to make the United States very competitive. On the other hand, there are some weaknesses in particular areas that have deepened since past assessments. The business community continues to be critical toward public and private institutions (39th).

In particular, its trust in politicians is not strong (50th), it remains concerned about the government’s ability to maintain arms-length relationships with the private sector (50th), and it considers that the government spends its resources relatively wastefully (66th). In comparison with last year, policymaking is assessed as less transparent (50th) and regulation as more burdensome (58th).

A lack of macroeconomic stability continues to be the United States’ greatest area of weakness (90th). Over the past decade, the country has been running repeated fiscal deficits, leading to burgeoning levels of public indebtedness that are likely to weigh heavily on the country’s future growth. On a more positive note, after having declined for two years in a row, measures of financial market development are showing a hesitant recovery, improving from 31st last year to 22nd overall this year in that pillar.

In sharp contrast to Mr. Sachs, the WEF sees that expanding government interventions (arms length relationships, transparency issues, burdensome regulations, fiscal deficits...I would add to that list minimum wage, Obamacare, taxes, various job mandates, unemployment benefits and regime uncertainty) as major factors responsible for the declining competitiveness of the US economy.

I would also place policies that trigger boom bust cycles and the growing welfare state (example record food stamps) and warfare state as major contributors too.

In short, by ignoring the ramifications of domestic policies and political developments, Mr. Sachs seems as confusing effects as the cause.

World Economic Forum on Global Network Readiness (Info Tech) and Global Competitiveness

The World Economic Forum (WEF) recently published two significant reports: one on Information Technology (IT), particularly on the ranking of Network Readiness, and the other, on Global Competitiveness.

In terms of the IT world, according to the WEF, Network Readiness Index (NRI) “mapped out the enabling factors driving networked readiness, which is the capacity of countries to fully benefit from new technologies in their competitiveness strategies and their citizens’ daily lives”.

The index, according to the WEF, has further “allowed private and public stakeholders to monitor progress for an ever-increasing number of economies all over the globe, as well as to identify competitive strengths and weaknesses in national networked readiness landscapes.”

A partial view of the global ranking of the NRI can be found below

The Philippines ranks 86^th in Network Readiness.

Read the report here

The second is the Global Competitiveness report.

A partial view of the WEF Global Competitiveness table shown below.

One would notice that the order of rankings of competitiveness seem to parallel that of the NRI.

The Philippines ranks 85^th here.

In measuring competitiveness based on the WEF methodology, technology readiness is just one of the 12 pillars.

In my view, as the world economy transitions into knowledge-based, and away from the industrial era configuration, competitiveness will greatly depend on the use of technology, which should bring about greater business process and organizational efficiency via increased specialization and on the tapping of niche markets.

Read the report here.

The Global Competitiveness Report 2010-2011

2009 Global Competitiveness Report And The Philippines

Here is the World Economic Forum's Global Competitiveness Report for 2009-2010

The top 25 ranking based on the interactive chart...
The report has the Switzerland dislodging the US for the top spot while Asia's Singapore has captured the 3rd spot.

Notice that 7 out of the top 20 most competitive countries are from Asia, particularly Singapore (3), Japan (8), Hong Kong (11), Taiwan (12), Australia (15), Korea (19) and New Zealand (20).
And the same Asian countries improved on their year on year rankings while most of the OECD economies has declined. (Hat Tip: News N Economics)

In other words, it can be deemed that Asia has used the crisis as an opportunity to lever up the competitive scales.


Unfortunately, for the Philippines, we still rank a dismal 87th, way below our ASEAN Neighbors.
Areas where we are systemically weak (red ellipses):

1) markets (goods, labor and financial/capital markets)
2) institutions
3) infrastructure
4) innovation

And the probable causes influencing such vulnerabilities...
Let me add that institutional and market weakness are interrelated. Yet innovation is mostly a byproduct of the market forces seeking to please consumers.

Institution/s captured by political related (rent seeking) forces won't likely be open to market reforms or development.

In addition, corruption is a symptom of big government, bureaucratic inefficiencies, political influences, instability of policies and unenforceable or selective implementation of regulations.

Whereas infrastructure weakness can always be resolved by economic openness or secondarily, government spending (not my choice)

Hence, the idea of virtuous leadership won't help unless it adopts more economic freedom and simultaneously act to tether on such dominant structural political forces that forestalls much needed market reforms, that leads to innovation and institutional stability.