INTRODUCTION

Like all other countries, the Philippines has been severely affected by the COVID-19 pandemic that has engulfed the world since early 2020. As of this writing, growth performance for 2020 had been the worst since the country’s debt crisis in the 1980s (NEDA 2020; World Bank 2020). Most analysts expect the country to recover fully in late 2022 at the earliest. Conservative estimates place the number of Filipinos put out of work at one million due to government-mandated lockdowns; early in the lockdown, approximately more than 11 million out of the 18 million casual and temporary workers on the main island of Luzon have been affected by the crisis (Muyrong 2020). Close to four million of these workers were employed in the micro- and small-enterprise sector, as well as the retail and transportation sectors, which have been significantly affected by the crisis. Of these two sectors, only the food retail business was allowed to operate during the Luzon shutdown from April to May 2020 (Macaraeg 2020). There can be no doubt of the pandemic’s severe and lasting toll on the country’s efforts to reduce poverty and increase human development opportunities.

This turn of events becomes even more striking since the Philippines has performed well over the past decade relative to its historical record of growth and poverty reduction. Growth accelerated significantly and steadily since the mid-2000s; employment growth improved, decreasing the share of individuals and families below the poverty line. The country’s economic performance since 2012 has been regarded as among the best in the region (World Bank 2018a), amid cautious hopes that the country had finally shed its traditional label of being “an East Asian exception” (Clarete, Esguerra, and Hill 2018).

Among the immediate effects of these changes in welfare over the past years has been an increasing differentiation among Filipino households. The proportion of households belonging to categories between the richest and lowest income classes has increased—there has been an expansion in what may be called the “middle classes” of society. This is visible in the explosion in the number of retail-trade establishments, including large shopping malls; the expansion of demand for residential developments; and the rise in spending on consumer durables, including mobile devices, motor vehicles and household appliances.

INTRODUCTION

Competition disciplines firms to subjugate other objectives to the pursuit of profits, thereby enhancing market efficiency. In his Wealth of Nations, Adam Smith (2008) describes competition as the “exercise of allocating productive resources to their most highly valued uses and encouraging efficiency”. Competition can also incentivize product variety and prices, thus enhancing consumer welfare. Moreover, it plays an important role in encouraging innovation, increasing productivity and propelling growth, thereby promoting a country’s sustained economic development.

Effective competition does not necessarily follow from the mere existence of many competing firms, however. Inappropriate government policies and firm conduct can impair competition and hinder its role in economic development. Weak institutions and rent-seeking by special interests may inhibit competition-enhancing reforms, restrict opportunities for innovation and diminish consumer welfare. This is where competition policy plays a role. Competition policy encompasses competition advocacy as well as laws and regulations concerning anticompetitive behaviour and production structures (Motta 2004). Competition law is a set of enforceable legal rules designed to prevent the abuse of market dominance and anticompetitive behaviour and to break down barriers to entry. Competition advocacy promotes a culture of competition as well as consumer interests (Clark 2005; Rakić 2018). Since effective competition can improve income distribution as well as innovation and productivity, competition policy can be critical in achieving inclusive growth and sustained development.

To investigate the impact of the adoption of competition law on long-term economic growth, we constructed a cross-country data set from 1975 to 2015. Countries may choose to adopt—or not adopt— competition law depending on their circumstances, including level of economic development, institutions and geography. Considering endogeneity and self-selection, we employ an endogenous switching regression, allowing for the interdependence of economic growth and adoption of competition law. Our analysis shows that adoption increased the growth rates in adopting countries but would have decreased growth in non-adopting countries.

In addition to correcting the abuses of anticompetitive behaviour, competition policy should be designed to promote innovation and productivity growth and be well coordinated with trade and domestic policies. We review these arguments, focusing on Asian countries. While the design and organization of competition authorities in Asia vary according to each country’s historical and economic situation, we focus on South Korea, Thailand and the Philippines to capture the characteristics of the competition law and authorities at various stages of maturity.

BACKGROUND

In theory, employment growth is one of the dynamic gains expected from increased competition in markets. The basic intuition is that with increased competition, factor productivity increases, prices of goods and services are lower and, consequently, demand for goods, services and labour is higher (Nickell 1999; Layard, Nickell, and Jackman 1991; Hay and Liu 1997; OECD 1997). Firms could also dynamically respond to competition that could increase output and demand for labour, such as introduce new and improved products and processes that will require or result in the hiring of more workers (Aghion et al. 2005; Pianta 2005). In the short run, however, competitive pressures could force firms to undertake cost-cutting measures, including retrenching employees. Hence, an important concern among economic managers is whether competition kills or creates jobs (OECD 2015).

The concern is particularly relevant in countries where antitrust law is relatively new. In the Philippines, the competition law came to force in 2015, after over two decades of congressional deliberations. The Philippine Competition Act (PCA) prohibits anticompetitive agreements, abuse of dominant position, and anticompetitive mergers and acquisitions in all sectors of the economy (Republic Act No. 10667, An Act Providing for a National Competition Policy Prohibiting Anti‑Competitive Agreements, Abuse of Dominant Position and Anti‑Competitive Mergers and Acquisitions, Establishing the Philippine Competition Commission and Appropriating Funds Therefor).

Scholars have characterized the Philippine economy, particularly the manufacturing sector, as highly concentrated (Medalla 2003). Aldaba (2008) points to historical factors causing such concentration, particularly the protectionist policies in the 1950s up to the early 1980s, when removal of tariff and non-tariff barriers was initiated. Further, barriers to trade combined with heavy government regulation, as well as government-tolerated collusive practices, have contributed to the oligopolistic structure of the Philippine manufacturing industry. Protectionism also stems from several highly restrictive economic provisions in the Philippine Constitution. According to Sicat (2005):

INTRODUCTION

The Philippine economy has often been characterized as a laggard, an “East Asian exception”, and a “Latin American economy in East Asia”. The forward-looking Asian Development Bank (ADB) publication, Asia 2050, (ADB 2011) classifies the country with the region’s slower growing economies, including Afghanistan, Nepal, Myanmar and North Korea. But as the eminent Filipino economist Felipe Medalla has observed, the Philippines is an “average” economy, in the sense that its long-term economic performance is similar to the global average. Over the period 1960–2018, for example, the country’s per capita gross domestic product (GDP) in real terms rose 2.9 times, exactly the same as that for the world as a whole. In other words, it is its deviation from the record of some very dynamic Asian economies that is distinctive; in global terms, its performance is not unusual.

Importantly, these averages conceal a great deal of variation over time. Most countries have episodes of faster and slower growth, booms and busts. This is certainly the case for the post-independence Philippine economy. In fact, in this paper we argue that three more or less distinct periods are observable. Although the periods are not precise, they are approximately:

• 1. From independence (1946) to the late 1970s: high initial expectations, slowing growth

• 2. From the late 1970s to the early 1990s: growing into a deep and extended crisis

• 3. From the early 1990s to 2019: recovery, rejoining the East Asian economic mainstream

To these may now be added the current period, 2020–21, of the COVID-19 pandemic-induced health and economic crisis, which introduces a sharp discontinuity into our analysis.

There are therefore periods of both modest and quite strong economic growth, together with two major crisis episodes—the macroeconomic and political crisis of 1984–86 and its aftermath, and the COVID-19 pandemic of 2020–21. Note also that the three main economic episodes correspond loosely, but not exactly, to the country’s political periods—that is, the democratic eras of 1946–72 and after 1986, and the authoritarian era of 1972–86, of Martial Law and its aftermath.

It is instructive to examine these episodes and draw inferences from them.

INTRODUCTION

Paul Krugman’s 1994 Foreign Affairs article, “The Myth of Asia’s Miracle”, is one of the most widely read and debated essays ever written by an economist. In this justly famous polemic, Krugman debunks the notion that the rapid economic growth occurring in much of Asia over the two decades from the mid-1970s to the mid-1990s was attributable to forces that defy conventional economic logic. He contends instead that the source was boringly conventional, but also unsustainable. His conceptual target is summarized in the title of an influential World Bank report of the previous year, The East Asian Miracle. According to Krugman, there was no miracle. He was right about that, but wrong about the true sources of Asia’s growth.

The analytical basis for Krugman’s discussion is growth accounting, an approach to understanding the sources of economic growth that rests on the distinction between growth of output deriving from increases in the quantities of inputs employed and increases in the amount of output obtained per unit of these inputs—their productivity. The seminal contribution of Robert Solow (1957) relates the growth of output per worker in the United States to the growth of the capital stock per worker. Solow estimates that only 12.5 per cent of the long-term increase in the former was due to increases in the latter. The remaining 87.5 per cent was an unexplained residual, which Solow identifies as technical change.

According to Krugman, the empirical evidence assembled by earlier studies on East Asia reveals that, in contrast with Solow’s findings for the United States, Asia’s rapid per capita growth was due almost entirely to growth in the quantity of factor inputs employed per head of population, which he calls “perspiration”. The “perspiration” had two components: increases in the size of the workforce per head of population—labour force participation—and increases in the quantities of capital inputs applied per worker. These capital inputs consisted of physical capital (in the form of machines, buildings and public infrastructure), and human capital (in the form of education and vocational training). When all these inputs were accounted for, the difference between the actual growth of output per worker and the growth attributable to increases in the quantity of inputs applied per worker—Solow’s residual productivity growth, which Krugman calls “inspiration”—was negligible.

INTRODUCTION

Agriculture is an important part of the Philippine economy. Almost a third of the country’s total land area of 30 million hectares was devoted to agriculture in 2015 (PSA 2017). As in other Asian countries, the share of agriculture in the gross domestic product (GDP) has declined with economic development—from 17.3 per cent of GDP in 1980 to 10.2 per cent in 2020. Employment in agriculture has fallen from 51.9 per cent in 1987 to a still high 24.5 per cent in 2020. This underscores agriculture’s continued importance as a source of income for households, especially in the rural areas (World Bank 2018). However, the sector’s annual agricultural productivity growth of 2.87 per cent from 1961 to 2012 has lagged compared with the 3.73 per cent of Indonesia, 4.10 per cent of Malaysia, 3.21 per cent of Thailand, 3.67 per cent of Myanmar and 4.16 per cent of Vietnam (AGRIMAG 2018). The challenges faced by the sector continue to be amplified by the increasing domestic and foreign demand for food due to continued economic growth, rising population and increasing involvement in international trade—amid losses of arable land because of extensive structural changes and urbanization and agriculture’s vulnerability to natural disasters, including climate change. Food insecurity, malnutrition and rural poverty have thus remained issues to be addressed.

Climate change is defined here as medium- and long-term changes in average climate, including temperature and rainfall, as projected by general circulation models. The stress caused by these longer-term changes will further increase the country’s already high vulnerability to climate and weather, including higher frequency and intensity of heatwaves, floods, droughts and typhoons that contribute to land degradation, reduced water availability and increased incidence of climate-sensitive infectious diseases. Climate change can disrupt crop productivity, which, in turn, affects domestic agricultural production, consumption and food security. Such consequences are triggered by both the direct impacts on agricultural production and changes in international prices because of climate change, considering the global nature of the phenomenon, which would then stimulate changes in domestic prices that could adversely affect Philippine agriculture and the country’s overall economy.

INTRODUCTION

It is my great honour to participate in this Festschrift to recognize the contribution of Professor Arsenio M. Balisacan in development economics, especially in agricultural and rural development. I took his course on macroeconomics at the University of the Philippines Los Baños in the late 1980s; we have closely kept in touch through various academic activities and conferences since the early 1990s. Professor Balisacan has contributed significantly to our understanding of rural development and poverty reduction in Asia, in general, and the Philippines, in particular. Because of this, I decided to write this paper on facilitating a more inclusive agricultural transformation, focusing on China, the Philippines and three other Southeast Asian countries for which I have data.

China and Southeast Asia are interesting cases because they have experienced rapid economic growth. Average annual growth of gross domestic product (GDP) in China and Southeast Asia recorded 9.5 per cent and 5.0 per cent, respectively, in 1990–2019, which were much higher than the 3.3 per cent global GDP annual growth rate over the same period. China and Southeast Asia have also experienced rapid urbanization. The share of urban population increased from 19 per cent in 1980 to 61 per cent in 2019 in China; it was from 26 per cent to nearly 50 per cent in Southeast Asia for the same period.

The rising income and urbanization have resulted in significant changes in the food demand and rural transformation in China and Southeast Asia. In general, as income increased and urban areas expanded, so has consumer demand for more food and diversified diets (Reardon and Timmer 2014). In responding to the food demand changes, agricultural production has also been gradually shifting from cereal to non-cereal commodities, including high-value crops, livestock and fishery. Urbanization and structural transformation have been accompanied also by rapid growth of off-farm employment in China and many countries in Asia (Haggblade, Hazell, and Reardon 2010; Hoang, Cong, and Ulubasoglu 2014; Huang and Shi 2021).

In Asia, rural transformation within agriculture is often associated with the fall in rural poverty (IFAD 2016).

INTRODUCTION

This paper explores spatial inequality in the Philippines during the American colonial period. Although there is sizable literature on regional development and dynamics in the Philippines in the late twentieth century (see Balisacan and Hill 2007; Estudillo 1997), comparatively little has been said about the economic and development disparities across regions in the early twentieth century, and how these disparities may have been shaped during the American colonial rule.

The Philippines was a country in shambles at the beginning of the twentieth century. Engaged in sporadic battles since the Revolution of 1896 and eventually declaring independence from Spain in 1898, the country found itself confronting yet another emerging empire, the United States. In 1898, just months after Spain ceded the Philippines to America via the Treaty of Paris, the nascent Philippine Republic waged war against its new colonial master. The atrocities inflicted on the population were staggering: the US army corralled men, women and children in Laguna and Batangas—about 300,000 of them—in concentration camps and razed houses, farms and livestock. The economic dislocation proved to be so widespread, it would take several decades for the country to recover (Corpuz 1997). The conflict also exacted a tremendous toll on human development, from which the Philippines took decades to recover. For instance, Bassino, Dovis, and Komlos (2018) find that Filipinos’ heights in the 1930s (a proxy for nutrition adequacy) took 60 years to recover from levels recorded back in the 1870s.

After quelling the armed resistance as well as co-opting Filipino elites by its “policy of attraction”, America embarked on an ambitious project to prepare Filipinos towards independence and self-government. This entailed building institutions such as the civil service, public infrastructure and economic policies for the “prosperity and contentment to the country of the Philippines” (Corpuz 1997). The thinking was that a dynamic Philippine economy, serving as “a ready and attractive field of enterprise”, will not be a burden to the American people (Booth 2012; Corpuz 1997).

As a result of this deliberate policy, and partly because the economy was coming from a low base, the country’s gross domestic product (GDP) grew by an average annual rate of 5.2 per cent from 1902 to 1910 and 5.79 per cent from 1910 to 1920.

A Festschrift is intended to review the origins, depth and breadth of the academic works by a noted scholar in the twilight of their career. From this perspective, writing a foreword to a Festschrift for Arsenio M. Balisacan is a strange task for me. Academically speaking, I think of Arsi as my grandson. His promise as a scholar was noted by Professor Cristina Crisostomo David when he enrolled in the master’s programme in agricultural economics at the University of the Philippines Los Baños in 1979. Tina was my PhD student in the early 1970s at the Food Research Institute at Stanford University, where she documented the striking role of fertilizer and rice prices in the political economy of Asian countries. Arsi continued this work at the University of the Philippines Los Baños under Tina’s direction, and then generalized the results into a conceptual approach to positive political economy in his PhD dissertation at the University of Hawaii, under the mentorship of Professor James A. Roumasset.

My first involvement with agricultural policy in the Philippines came in the early 1970s, when Arsi was still in high school. As part of the Stanford project on “the political economy of rice in Asia” that Tina David worked on, Wally Falcon and I commissioned eight country studies in East and Southeast Asia (including one on the United States by Leon Mears, a familiar name in the Philippines’ food policy circles). I worked closely with Mahar Mangahas on the Philippine study, so became acutely aware by 1975 just how complex the Philippines’ story was. I had drafted the Indonesian country study as a prototype for other country authors and worked closely with all of them right through the publication stage.

This earlier work on the region’s political economy of rice set me up for understanding Arsi’s work. My engagement with his work started with rice policy, but extended more broadly to the fields of agricultural development and the nature of pro-poor economic growth. Both fields are well represented in this Festschrift, via contributions from major authors in the field and through the inclusion of Arsi’s own path-breaking research in both fields.

INTRODUCTION

The Philippines struggled in the 1980s and 1990s to lower poverty levels amid an inward-oriented economic policy. Poverty levels hovered around 30–40 per cent until the year 2000. The situation can be traced largely to slow economic growth, which averaged only 1.3 per cent annually, and high unemployment, which averaged 9.3 per cent during those decades. In terms of economic structure, the average share of agriculture had fallen from more than 20 per cent in the 1980s to 16 per cent in 2000. Meanwhile, the share of services increased from about 40 per cent to 52 per cent, while that of industry remained largely unchanged. This effectively transitioned the country into a services-led economy without going through an industrialization phase typical in the evolution of similar economies.

As regards international trade, the country’s total trade was equivalent to one-third of the gross domestic product (GDP) in the 1980s, increasing to nearly 100 per cent of GDP in 1998 prior to the Asian financial crisis. Expanding trade was the natural outcome as the country embarked on a trade and financial liberalization policy, coupled with privatization, during this period. This strategy was aimed at increasing investment and export capacities. It included unilateral tariff reduction from the 1980s from up to 100 per cent to a range of 10–50 per cent. The country also participated actively in trade agreements, particularly the ASEAN Free Trade Area-Common Effective Preferential Tariff (AFTA‑CEPT) in 1993, the General Agreement on Tariffs and Trade‑World Trade Organization (GATT-WTO) in 1995, and the ASEAN Trade in Goods Agreement (ATIGA) in 2009. In addition, the country was party to free trade agreements entered into by the ASEAN bilaterally with China, Japan, Korea, and Australia and New Zealand during the 2000s.

Beyond the opening of trade and relaxing of tariffs, the economy also implemented liberalization of industries to attract foreign investments. Annual foreign investment inflows had remained below US$1 billion from the 1980s to the 1990s. Liberalization and privatization reforms in the mid-1990s helped raise investments above US$2 billion, as investments were attracted in telecommunications, water utilities and banks, among others.

INTRODUCTION

Government subsidies have been used to pursue legitimate public interests when markets do not deliver optimal outcomes for society. They are used to promote priority sectors and establish growth areas that are aligned with the government’s development goals (Administrative Order No. 59, Rationalizing the Government Corporate Sector, issued on 16 February 1988 by President Corazon C. Aquino). In the Philippines, the reasons commonly cited for subsidizing the agriculture sector include the need for market stability and food security, as well as to help low-income farmers and aid rural development.

The Philippine agriculture sector has received substantial subsidies over time. Figure 23.1 shows the subsidies to the sector from 2010 to 2015, which averaged PHP3.36 billion annually. The subsectors receiving sizeable subsidies in 2014 were papaya growing, perennial trees (with edible nuts) growing, operation of irrigation systems through non‑cooperatives and seaweed farming; it was dairy farming in both 2013 and 2014. The subsectors of operation of irrigation systems through cooperatives and services to establish crops, promote their growth and protect them from pests and diseases, n.e.c. received subsidies for most years between 2010 and 2015. Such support for the agriculture sector is provided through government-owned and controlled corporations (GOCCs).

The government enacted the Philippine Competition Act (Republic Act 10667) in 2015. Despite the passage of this law, however, the competition environment in the country remains weak because there are other existing laws deemed inconsistent with this Act. For instance, GOCCs have charters providing for both proprietary and regulatory functions. Some of these corporations receive subsidies that affect competition in two ways (Neven and Veroudin 2008). One, they influence the behaviour of competitors as a response to that of the recipient. Two, firms behave relative to how the government reallocates rent via subsidies. These nonneutral policies distort the market. Limited competition slows down economic development and job creation in key sectors (Miralles Murciego et al. 2018). There has been no empirical study that estimates the effects of government subsidies on firms’ behaviour and the business environment. This study bridges this gap by examining the market structure and power of agriculture subsectors that receive government subsidies.

BACKGROUND AND INTRODUCTION

The past seven decades, starting in the 1950s, have seen rapid changes in the population age structure of most countries across the world, notably in the Asia-Pacific region. This phenomenon, known as the demographic transition, had opened a window of opportunity for countries to experience rapid economic growth over a fairly long period, accompanied by poverty reduction. Backed by right policies on human capital, labour market, public health, infrastructure and governance, the demographic transition had accounted for a substantial portion of the economic growth—known as the demographic dividend—experienced by the “Asian tigers” (mainly South Korea, Taiwan and Singapore) from the early 1960s to the 1990s.

Demographic transition is the link between population dynamics (or changing age structure) and economic development. It denotes a change from a situation of high fertility and high mortality to one of low fertility and low mortality (Figure 12.1). A country that undergoes demographic transition experiences sizable changes in the age distribution of the population, which, in turn, positively influence economic growth, given the right socio-economic policies.

The demographic transition has three phases, each having a different impact on a country’s economic growth and development. The first phase is an initial decline in infant mortality (death rate), with fertility rate (birth rate) remaining high. This leads to an expansion in the number of children, resulting in increased demand for basic education, primary health care, nutrition, and other services. This was the situation in the Philippines in 2000 (Figure 12.2). The country had an increasing youth dependency ratio (population aged 0–14 years to total population), posing a challenge to the economy as scarce resources had to be channelled to consumption spending instead of investment from savings for economic growth (Mapa and Bersales 2008).

In the second phase, the proportion of working-age population (persons aged 15–64 years) is larger relative to the young dependents (aged 0–14 years) and the older population (65 years and above). This was the situation in Thailand in 2000 (Figure 12.3). The policy challenge in the second phase is how the labour market can absorb the increased working-age group, particularly those aged 15–24 years.