Professional Documents
Culture Documents
Sibal Philippine Labor and The Economy 2008
Sibal Philippine Labor and The Economy 2008
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
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.
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:
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.
iv
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.
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.
v
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.
vi
PROFESSOR JORGE V. SIBAL
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
vii
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:
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.
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.
ECONOMICS /
SOCIOLOGY
IR / HRM
ANTHROPOLOGY/
POLITICAL INDUSTRIAL
SCIENCE / PSYCHOLOGY
MANAGEMENT
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-
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:
References:
3
SYSTEMS APPROACH
IN THE STUDY OF INDUSTRIAL RELATIONS
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.
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.
4
The application of systems approach in the sciences is summarized in Table 2.
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.
SUPRA SYSTEM OR
ENVIRONMENT
FEEDBACK
Flow of materials, information, ideas, etc.
5
1. Inputs - economic resources, ideas, information, values, beliefs, etc. from the
environments;
5. Systems as a cycle of events - inputs coming from the environment and processed to
become outputs;
In the field of IR, theories and models of IR systems, processes and technologies
6
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:
7
INDUSTRIAL RELATIONS AND THE ECONOMIC SYSTEM
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:
Let us compare the different features of the 3 economic systems. This is shown in Table 3.
9
There are 6 distinct stages of economic development:
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.
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
10
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.
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.
11
(traditional economics “trickle down effect”) or equity without development (socialist
experience) will both lead to economic instability.
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).
Exercise:
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
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 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.
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.
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.
External Environment
19
Figure 6. Environment of an Enterprise
Cultural Environment
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.
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.
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.
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.
Expenditures
Savings
Taxes, Tariffs
Exports
Y
Debt repayment, TNC remittances, capital flight, etc.
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
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
Lesson Objective:
Phenomenon
(problem) Research & Inventions (prototype
Development technologies)
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:
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).
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.
Exercise:
Who are the Filipino entrepreneurs? As industrializing elites, what are their strengths and
shortcomings? Discuss.
References:
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.
Lesson Objective:
Orient the learners on entrepreneurs and the economy, the types of entrepreneurs and
their role in the civil society.
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.
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.
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.
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.
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.
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:
31
WAGES OF LABOR
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.
WORKER EMPLOYER
Income Expense
WAGES
ENTREPRENEURS
GOVERNMENT
Markets
Taxes and Savings
Theories on Wages
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.
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:
At the firm level, there are additional causes of wage inequities. These are:
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.
The factors affecting the demand for labor are the following:
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.
Determining the wage level is also a political process since the factors in
determining the wage equilibrium are:
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:
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):
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.
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.
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
37
Increases may be in the form of percentage increase, bonuses or step-wise increase
(Aganon, 1999).
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”.
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)
38
1. The Pineda Formula (1989):
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]
WDA = [existing min. / employee wage] x [mandated wage inc. – CBA inc.]
WDA = [existing min. wage / formula base rate] x [mandated wage increase]
Where formula base increase = (actual wage rate + agreed adj. amount)
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:
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.
INVESTMENTS
INVESTMENTS
PRODUCTION CONSUMPTION
CONSUMPTION
INCOMES
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.
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.
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
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 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
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
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.
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.
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.
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.
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:
Income inequality in the country has two dimensions- inequality among classes and
inequality among regions.
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
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).
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.
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).
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.
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:
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).
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.
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.
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.
49
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
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.
51
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.
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.
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. 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:
53
The basic categories of trade policies can be further classified as (Todaro, 1994):
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.
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.
Mainly agricultural self-sufficiency. This was what China under Mao Tse Tung
did and also the case of Burma under a socialist regime.
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.).
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:
There are two types of global economic networks of TNCs. These are (Gereffi, 1996):
Countries connected to the global networks perform 5 major export roles as follows:
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)
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.
“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
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.
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:
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.
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.
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”.
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 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:
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.
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”.
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 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.
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.
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.
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
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-
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.
In promoting economic stability, the government through fiscal policy can expand
or contract the economy through the following:
67
Treasury are channeled to targeted industries that are essential to
development.
Taxation
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.
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.
Classification of 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.
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.
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:
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.
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.
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.
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).
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).
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).
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:
Closing Remarks
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
Banking Institutions
a. Universal Banks
b. Commercial Banks
c. Thrift Banks
d. Rural Banks
e. Cooperative Banks
f. Islamic Banks
g. Microfinance Banks
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 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.
Universal Banks
Investment House Lending Investors
Commercial Banks
Pawnshops
Financing
Thrift Banks Companies
Gov’t NBFIs
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
Monetary Policies
78
The traditional objectives of monetary policies are:
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.
The central bank utilizes the following alternative instruments to control money supply.
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.
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
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.
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.
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
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.
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.
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).
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 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.
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.
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.
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
86
savings deposits which are usually turned over very slowly. This loan is usually
paid in equal monthly amortizations.
References:
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.
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
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.
Lending Investors
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
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.
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.
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.
91
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.
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.
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.
Cooperatives
93
A cooperative can engage in any type of legal business. This has become the basis
of the types of cooperatives:
References:
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
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 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.
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
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.
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
The major actors in the local capital markets are non-bank financial institutions as
follows:
Investment Banks
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).
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 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 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:
The Philippine labor force totals 36.4 million in 2008 with a 63.4 per cent labor
force participation rate.
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
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
Particulars FY 2006 - FY FY FY FY
proposed 2005 2004 2003 2002
Total (‘000) 121,600 114,480 108,433 109,987 106,050
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.
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.
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).
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)
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).
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.
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.
60
50
40
Agriculture
30
Manufacturing
20 Services
10
0
1971 1981 1991 2000
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)
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)
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
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.
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.
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
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.
Class B- P100,000-P299,999=
0.5%
Class C- P15,000-P99,999= 44.5%
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.
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.
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
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.
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
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
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.
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.
115
state behind its mobilizing effort and thereby weaken or eliminate the power of non-state
employers.
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.
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.
(7) Corporatist
bureaucratic
(3rd world)
(5) Bipartite
(US)
(9) Socialist
(Russia)
(10) Co-determination/
works council
(Germany, EU)
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.
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).
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.
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).
120
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.
500
400
0
1986 1988 1990 1992 1994 1996 2003
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:
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.
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).
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”.
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:
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 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).
125
Table 27. Percent Share of Agriculture, Manufacturing, Other Industries and
Services to Gross Domestic Production (GDP), 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.
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
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.
127
cent in 2000. In the textile industry which had 300 firms in the 1970s, only five integrated
firms are still operating.
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
60
40
Wood products & furniture
30
Electronics
20
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
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.
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 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.
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.]
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:
132
c. Strengthen the safety net laws and the rules against unfair trade practices.
d. Promote genuine, not ruinous competition in a free economy.
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.
References:
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 Process
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:
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).
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.
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 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.
139
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 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.
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”.
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.
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”.
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.
141
Culture and Industrialization
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.
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.
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.
Nationalism
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 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 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”.
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)”.
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):
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”.
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:
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.
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.
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.
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.
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.
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”.
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).
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:
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
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).
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.
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.
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.
156
(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.
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.
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.
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.
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.
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?
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.
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).
Among the most pressing problems being confronted by the BPO industry sub-
sector are the following:
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).
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).
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.
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.
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).
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.
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.
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:
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
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.
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:
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:
Operational definition
The above definition generally conforms with the definition of the ILO (1993). It
however deviates in the following aspects:
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.
There are statistics that confirm the following description of the informal
sector which is summarized as:
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:
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
170
8 Inherited from family
7. Source of Capital.
Lao and Inocian said that capital credit for own-account / self-employed
may be available at staggering cost.
8. Problems Encountered.
10. Social Protection and Tenurial Status (Lao and Inocian, 2007):
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 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.
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.
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.
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.
174
Figure 21. Composition of Employment, Non-Agricultural Establishments
with 20 or More Workers, 2004
Probationary (19.5%)
Seasonal (5.5%)
Apprentices/Learners (5.2%)
Manufacturing (28.3%)
Contractual/Project-Based Workers
(Percent Distribution)
R. Estate, Renting & Bus.
Activities (24.1%)
Construction (13.4%)
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).
(a)- less than 500, (b)- excludes manufacturing of coke, petroleum and other fuel products due to
low response rate, Source: BLES, 2003/2004 BIT
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).
(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
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.
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).
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
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 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
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.
References:
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.
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.
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.
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.
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.
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 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.
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.
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.
186
adherence to regulations.
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
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.
187
The advantages of LGUs’ patronage of informal sector operators are:
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.
188
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.
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.
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.
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.
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.
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:
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:
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.
194
GLOBALIZATION AND CHANGES IN LABOR MARKET
POLICIES AND IR PRACTICES
Introduction
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.
195
The Government
The Employers
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.
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.
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
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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.
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
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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:
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):
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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.
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):
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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
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.
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management to drop bargaining rights and effectively freeze the wages and conditions
of workers for 10 yearsvi.
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.
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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.
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.
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 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.
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).
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.
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).
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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
Source of Data: BLES Integrated Survey 2004, Labstat Update, Dec. 2005.
Table 38. Mechanisms for Worker Participation in Decision & Policy Making
Processes in Non-agricultural Establishments Employing 20 or More (percentage
covered by practice), 2003
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.
Source of Data: BLES Integrated Survey 2004, Labstat Update, Dec. 2005
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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.
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.
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
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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).
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)
Table 40. Establishments Inspected on Technical Safety Standards, 1976, 1980, 1985,
1990, 1995
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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
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.
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.
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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).
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:
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.
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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.
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.
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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”.
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.
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The over-all effect to the SSS is its very viability. Serrano and Marasigan (2002:23)
pictured the following:
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.
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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.
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.
Among the reasons cited by Szal for the feminization of the work force under
globalization were:
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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.
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.
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
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.
References:
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
2. Figures
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
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.
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’.