Achieving and Sustaining Competitiveness in the Global Era: The Case of Company ABC (Part 1)

ANTO COMETA

The rewards and costs of achieving and sustaining competitiveness in the global era are fundamental in the placement of interests both of the business and the workers. Advancements in technology alongside with the competitive nature of the market has led most if not all organizations to look for viable ways of augmenting its ability to perform in order to avoid extinction. Increasing the efficiency and productivity of the business which is generally reflected in the company’s capability to maintain its profitability and still sustain the needs of the business as well as its workers are the perceived elements for its survival. Altering the processes and structure of the organization are largely the utilized ways in response to the dilemma or challenges imposed by the situation. However, modifications in the existing structure and processes of the organization in order to adapt to the changing requirements of the competitive market have crucial consequences not only the workers but also to the business. Various issues and conflicts arise which most of time are unfavorable to both parties. Careful analysis of the rewards and costs may present possible ways and approaches on how to manage and deal with the conflicting interests of the business and the (different levels of) workers.

The circumstances presented in Company ABC - the current situation that’s being faced by the banking institution as well as its workers, could lead to potential problems wherein both could lose its footing in the product and labor markets. At the least, six (6) major interrelated and to some extent overlapping issues were identified. These put forward conflicting interests whereby each holds central stakes in the continued existence of the business or the organization; these are (1) general skills and competencies, (2) organizational overhaul, (3) business efficiency and profitability , (4) compensation and wage dispersion, (5) resource allocation, and (6) benefits distribution. Preventive measures or negotiated agreements should be explored and taken so not to come across these concerns or worsen the condition which could put the entire organization in the red.

The rewards and costs of achieving and sustaining competitiveness in the global era are fundamental in the placement of interests both of the business and the workers. Advancements in technology alongside with the competitive nature of the market has led most if not all organizations to look for viable ways of augmenting its ability to perform in order to avoid extinction. Increasing the efficiency and productivity of the business which is generally reflected in the company’s capability to maintain its profitability and still sustain the needs of the business as well as its workers are the perceived elements for its survival. Altering the processes and structure of the organization are largely the utilized ways in response to the dilemma or challenges imposed by the situation. However, modifications in the existing structure and processes of the organization in order to adapt to the changing requirements of the competitive market have crucial consequences not only the workers but also to the business. Various issues and conflicts arise which most of time are unfavorable to both parties. Careful analysis of the rewards and costs may present possible ways and approaches on how to manage and deal with the conflicting interests of the business and the (different levels of) workers.

The circumstances presented in Company ABC - the current situation that’s being faced by the banking institution as well as its workers, could lead to potential problems wherein both could lose its footing in the product and labor markets. At the least, six (6) major interrelated and to some extent overlapping issues were identified. These put forward conflicting interests whereby each holds central stakes in the continued existence of the business or the organization; these are (1) general skills and competencies, (2) organizational overhaul, (3) business efficiency and profitability , (4) compensation and wage dispersion, (5) resource allocation, and (6) benefits distribution. Preventive measures or negotiated agreements should be explored and taken so not to come across these concerns or worsen the condition which could put the entire organization in the red.

Issues, Interests and Positions

1. General Skills and Competencies

The organization recognizes the need to keep pace with the changing demands and needs of the business and the market. In the last three years of the bank’s operations, older employees have contributed less than the younger employees. This didn’t mean that they exerted less effort but simply due to the acquisition of the skills needed in handling the new banking technology. In the interview conducted it showed that those who are at their 30s to 40s (regardless of gender) want more skills training and competency upgrading. As for those over their forties want the company to find ways of maximizing their experience, rather than simply introducing potentially job-shedding technological changes.

It is of equal importance and concern to the workers and the business to continually upgrade the skills and competencies required in order for the organization at the very least to maintain its survival in the market. There are two probable positions that could be taken in order to address the concern relating to the matter. In so far as the set of skills and competencies needed, developing training programs is one of the options that could be taken. Another, which could be deemed as a radical move, those deemed performing below the satisfactory level could be booted out of the organization.

2. Organizational Overhaul

This includes re-forming or re-organizing the structure, processes and design of the organization. The organizational structure, processes and design characterize the roles and functions carried out by each worker and are representative of the vertical and horizontal relationships within the organization. Moreover, these outline the appropriate channels and approaches for strategic information flow and decision making. The bank worries about losing its competitive edge if more efficient ways of organizing the work process are not introduced.

Modifying the organizational structure processes and design to achieve higher organizational productivity both operational and financial which is the aim of the business is of significant concern of the management. This is the most likely position to be taken by the company in order to effectively utilize and gain higher control over these concerns.

3. Business Efficiency and Profitability

The main thrust of the business is to deliver and achieve bottom-line returns which are chiefly dealt with higher asset utilization at prominently lower costs. This is the idea behind the business’s asset management and successful profit realization. This is of utmost concern of the business. Previously, the bank was perceived as financially stable having five solid years of increasing its profitability. Moreover, it was seen in the high productivity of the workers – with every peso spent on the individual worker it yields five pesos of net income. However, with the situation that could subvert the financial stability of the business diagnosing which works effectively and what’s hampering the efficiency and profitability could be the management’s action towards the resolution of this particular dilemma.

Increasing the bank’s efficiency to generate higher productivity while maintaining or lowering the overheads is the most likely position to be taken. This could be achieved by taking out those employing labor flexibilization measures. This is to maximize the current set of resources that the organization have while minimizing the cost of operations.

4. Compensation and Wage Dispersion

Wage is deemed as a central driving force (but not exclusive) in the delivery and performance of individuals within the organization. Determining the tolerable wage differentials in so far as seniority, position and rank levels in the organization is concerned as well as being compensated for the output and performance carried out is of importance to the company but exceedingly to the workforce.

The significant contributions to the business and organization such as increased profitability, output delivered and performance carried out is perceived to be directly related to the compensation to be given out. It could be seen on the survey conducted which had shown concerns on the part of those workers who are relatively new which raised the idea of pegging pay to skills and performance. Moreover, the demand made by the junior officers to increase the salary differentials between them and the rank and file as well as to the senior officers to be narrowed down.

Disparity in wage levels has an effect on the productivity or efficiency as well as motivation on the part of the workers. This also posits a relational conflict in both horizontal and vertical dimensions. The most probable position to be taken by the organization would be to provide performance and skill-based pay as well as to increase the base pay given to the junior officers.

5. Resource Allocation

The basic allocation of resources is the preference of which items to finance, what level of support it would receive and which items could be left unfunded. More often than not, businesses would invest on units or groups which generate higher productivity and profitability than those which were not. Moreover, those classified as high profit centers in contrast to those deemed as cost or low generating profit centers are mostly likely to be given high priority.

This concern is of equal interest on workers and management. The most probable position to be taken by the management would be in favor of the demands made by those individuals or group which yielded high levels of productivity and made significant contributions in terms of increasing the bank’s profitability. Failure to provide the pleas could result in the decreased morale and motivation of those workers which could eventually lead to their decreased productivity which also affects the business’ profitability. It could also be the case (which is more likely to occur) that these workers would leave the company and transfer to other organizations even to the competitors.

6. Benefits Distribution

Benefits more often than not are considered to be part of the entire wage or compensation arrangement given to the workers. Companies recognize the value of benefit packages in the organization as key factors in the individual’s consideration for an employment opportunity, employee morale and motivation as well as reduction in staff turn over. Thus, the benefits offered in the organization are quite essential to the overall employment picture.

It was identified that there were different needs in terms of benefits acquisition in the organization. These vary depending on the age group and (civil) status classification of the worker - workers who are married want child-minding facilities as oppose to those who are still single who prefers to have programs for fitness and wellness; those in their thirties to forties yearn for more skills training and competency upgrading in contrast to those over their forties and fifties who want the Bank to find ways of maximizing their experience and would consider an early retirement program plus assistance in setting up their own businesses should they retire, respectively. Moreover, the position of the union in general is simply to improve what is currently being enjoyed since the workers deserve to be rewarded for their hard work which brought the organization to where it is today.

This matter is of high concern to the workers. The needs may differ but they are not necessarily conflicting. It could be perceived that the needs cited if taken all together have varying levels of significance and appeal to the worker. If the organization decides to grant the need(s) one group over the other, it could likely cause tension and discord within the horizontal dimension. The most feasible action to be taken by the management considering the cost (as well as if it’s lucrative in the long term) is through the collective bargaining agreement scheme.

Achieving and Sustaining Competitiveness in the Global Era: The Case of Company ABC (Part 2)

ANTO COMETA

Analyzing and Resolving the Issues

The major dilemma as outlined by the issues and probable concerns perceived to be encountered by the company is principally attached in the organization’s view of losing its competitive edge in the market. With the introduction of new technology, international standards in the management of risks using mathematical models, sophisticated regulatory and compliance requirements resulting from laws seeking to accommodate e-transactions among others pose a tight spot in the efficiency of the organization to adeptly address the concerns of the business and the workers.

Among the six identified issues and concerns, there are three that could be deemed crucial. These need extreme focus in order to facilitate the resolution of the problem and avoid adverse consequences that may arise from those. It doesn’t mean however, that the rest are of low significance. The remaining three from the identified critical issues and concerns are developmental consequences which are also central to the dilemma.

The first critical issue relates to the financial or banking institution’s business efficiency and productivity. If the organization considered increasing the bank’s efficiency to generate higher productivity while maintaining or lowering the overheads by applying labor flexibility it could be the case that instead of achieving what is desired the converse could occur this could be considered as the worst alternative instead of being the best option. We do not shelve that there are several benefits that could be attained by applying labor flexibilization measures. The advantages by implementing such measures in the company are exceedingly significant to the operations of the business. On the firm’s end it would provide savings or profit - operational or overhead costs for not hiring additional manpower, and better resource allocation. On the part of its workers, it facilitates in the acquisition of several skills primarily related or needed for business operations. Together with the benefits that could be acquired by applying such measures, there are also negative implications that affect not only the business and but also its workers. In line with applying labor flexibility, modifying the organizational structure, processes and design follows. This is to justify or legitimize the utilization of such measures applied in the organization specifically to its workers.

However, applying labor flexibilization measures as well as changes in the organizational structure processes and design without careful analysis, strategic implementation and compatibility with the laws governing the rights of the workers could lead to further costs than rewards. If this happens, increased worker woes on employment matter leads to job discontentment. In the case of most workers in relation with the commonly used labor flexibilization measures applied in companies correlates more distressing views which are human capital exploitation and unfair labor practices. As stated in Article 247 of the Philippine Labor Code, unfair labor practices are not only violations of the civil rights of both labor and management but are also criminal offenses against the State which shall be subject to prosecution and punishment as herein provided.

There were several case studies conducted for financial institutions showed that cost reduction is just one way of profit maximization. Banks that tried to maximize profits by raising revenues while reducing costs is quite effective, but there are also those who provide higher quality services that raised costs yet also raised revenue more than the cost increases. It could be perceived that the results suggested that methods that exclude revenues when assessing performance may be misleading (Berger and Mester, 2001). Organizations should run the business in the interest of meeting not just their own needs but also other important stakeholders such as the workers since they are also contributors which have impact on the performance of the business. The best alternative is to look for other methods or have a consultation as to what would be the measures that could increase efficiency and productivity without encountering such concerns.

The second is compensation appended with the worker’s benefits. Benefits more often than not are considered to be part of the entire wage or compensation arrangement given to the workers. Companies recognize the value of benefit packages in the organization as key factors in the individual’s consideration for an employment opportunity, employee morale and motivation as well as reduction in staff turn over. Thus, the benefits offered in the organization are quite essential to the overall employment picture.

The best way to understand the needs and at the same time agree or eliminate those which could not be granted is through the collective bargaining agreement. The needs identified have varying levels of significance and appeal to the worker, however, it doesn’t mean that these various needs are conflicting since these needs is dependent on the category (age and marital status) of the worker. If the organization decides to grant the need(s) one group over the other, it could likely cause tension and discord within the horizontal dimension. The best option for the management is really to negotiate with the union in order to arrive at a mutual agreement.

As for those demands made by individuals or group which yielded high levels of productivity and made significant contributions in terms of increasing the bank’s profitability one of the usual and conventional way of adjusting or modifying the base pay in order to reflect or make it appear higher than what is given is achieved by combining benefits and other incentives either monetary or non-monetary. The objectives of determining pay may have one or more that may be in discord with each other (De Siva, 1992). These objectives can be classified into four distinctive categories. First is equity which includes the narrowing of inequalities, wage increase of the lowest paid employees, the concept of equal pay for equal work value among others. The second is efficiency which is reflected in efforts to connect or associate part of the employee’s wage to the productivity or profit, performance whether group or individual as well as acquisition of both skills and knowledge related to the execution of job functions. The third perceived objective is related to the stability in the macro-economic aspect. This has something to do with the levels of employment as well as other related factors that of could either contribute or impede the balance and sustainability of development of the economy of a country. Last identified objective is the effective allocation of labor in the labor market. This particular objective relates to the mobility of workers whether geographical or industry related since the motive of doing such is to the idea of acquiring a net gain and not only to meet the individual’s basic requirements.

A lot of organizations are now in search of sustaining their competitiveness in the market by means of increasing the pay given to the employee. The type (s) of pay are mostly related to performance measures, this is primarily done in order to sop up the costs of labor of the organization at the same time motivate and recompense the employee for the performance. The conventional way of companies in order to secure increased wages and reward their employees is through job appraisal and promotion. However, due to the limitations on resources as well as achieving higher positions in the organization not to mention that current developments in the organizational structure becoming less hierarchical due to market demands and types of flexibility employed in the company, incorporating pay increases based on performance is perceived to be more attractive and effective rather than rewarding the worker through promotions this could be deemed as the best alternative option. One of the methods or strategies that is gaining acceptance throughout different industries particularly in the services sector in order to increase the productivity and profitability of the company at the same time rewarding the worker is through performance-based pay. Moreover, the trend in paying the employees is not for the output produced or even for the labor input rendered but simply for the time spent on the job (Blinder, 1990).

There are several theories in human motivation which incorporates pay or pay system as a driving force in motivating their workers to achieve, increase levels or maintain satisfactory performance. The systems of pay given to the workers are now being integrated as part of the human resource management of organizations. This is primarily done in order to achieve the business strategies and objectives whether financial or employee-related since both directly affect the operations of the business. Pay is viewed as a matching element or a dependent variable to the employee’s performance and productivity, by increasing or providing additional pay based on increased productivity and performance is an indication that the company could its financial profitability and could achieve its business objectives.

Its is noteworthy to take into consideration that in designing or structuring a performance pay system, the type of system should highly promote the kind of performance that the organization requires and not just to increase its revenue. Fundamental principles should be laid out and that the objectives and targets should be quite measurable or realizable. Furthermore, the achievement of the performance pay system should be supported by operative approaches and strategies so not to establish that the targets and objectives are impossible to attain. As necessary, employ consultation or increase the involvement in the decision making process or designing of the system. By employing such actions, it could generate efficient or effective ideas, approaches and strategies that could contribute or lead to the achievement of the goals. The organization should also have a feedback mechanism to review the processes, procedures, outcome among others of both pay system and the targets and objectives. It is a excellent avenue in determining and assessing the key factors of either success or failure.

Lastly, skills and competencies which encompass the general productivity of the organization in delivering the required output needed for the business. In order to address the issues concerning the skills and competencies of its workers, organizations should also provide trainings since these are quite beneficial to the company and its workers in achieving their goals both monetary and non-monetary, this could be perceived as the best alternative over a negotiated agreement. To reinforce the training programs, the company should employ Total Quality Management (TQM). TQM which consists of continuous improvement activities involving everyone in the organization, managers and workers alike in a totally integrated effort toward improving performance at every level ( Goetsch and Davis, 1997). It could be integrated as part of the organizational and professional development program. In a quality organization everyone is constantly learning. Management encourages employees to constantly elevate their level of technical skills and professional expertise. People gain an even greater mastery of their jobs and learn to broaden their capability (Scholtes as cited by Goetsch and Davis, 1997). The required set of skills and competencies are basic not only because these are elements essential to the execution of the assigned functions and tasks of the worker in order to achieve the desired output needed for the operations but also important for innovation and alignment of current and future goals and strategies of the organization.

References

Blinder, A. 1990, Paying for Productivity, The Brookings Institution, Washington

Berger, A. and Mester, L. 2001, Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation and Dynamic Changes in Competition (Working Paper), The Wharton School, University of Pennsylvania

De Silva, S. 1998, An Introduction to Performance and Skill-based Pay Systems, International Labor Office, Geneva

Goetsch, D. and Davis, S. 1997, Introduction to Total Quality – Quality Management for Production, Processing and Services, Second Edition, Prentice Hall, Ohio

The Philippine Labor Code, Department of Labor and Employment, http://www.dole.gov.ph

Addressing the Principle of Minimum Wage Fixing: An Initial Approach to an Efficient Labor Costing

ANTO COMETA

Several theories and models on wages have been developed in order to address the dilemma in the structure of labor costing. Fixing wages covers a wide range of factors affecting both the supply and demand of the labor market as well as economic and political conditions and policies of a country.

One of the components that need to be attended to is the principle of minimum wage fixing. Minimum wage is a good and reliable reference of the standard of living of the workers particularly in developing or third world countries such as the Philippines. In this particular case, the dependent variable which is the minimum wage determines the outcome or the output of the independent variable which is the living standard of the workers. This could assist in the initial approach on how to properly put forward an efficient labor costing policy and structure across economic sectors and industries.

According to the Labor Code of the Philippines, the determinant of the minimum wage in the country constitutes a near satisfactory level that could sustain the living conditions in terms of the basic necessities of the worker. “The regional minimum wages … shall be as nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency and general well-being of the employees within the framework of the national economic and social development program.”[1]

As avowed in the labor code, the minimum cost of labor ensures sufficient remuneration for the worker in order to suffice the cost of living or the standard living necessities of the individual (and their families). However, in this regard, the minimum wage does not entail improvement in the economic situation of the individual. This is just a mere “pay the rent” principle whereby an individual works in order to live by the day.

Minimum labor costing should intend to address poverty and guarantee the sustainability of the necessities of the workers and their families. A study conducted by Catherine Saget of the International Labour Organization (ILO) with reference to the minimum wage and its impact on the nation’s poverty suggests there is evidence to support that minimum labor costing can take an essential part in the reduction of poverty of a country. [2] In relation to the evidence, at least three premises should be sufficed - (1) most workers should be entitled to get at the least the minimum wage, (2) compliance of employers with the minimum wage regulation and there should be (3) no price increase in commodities following the augmentation in minimum wage. Accordingly, if the three conditions were met, the principle of minimum wage to surmount poverty and meet the requirements of satisfying the necessities of the workers and their families is feasible.

One of the major hindrances aside from the economic condition affecting the country and its labor market is the revenue acquisition of the employers. Employers are quite concerned in the maximization of their profits. Most if not all adheres to the principle of sticky wages. By not promptly responding to the changes in wage levels in the labor market, revenue exceeds the cost of hiring the worker. This is also applicable in hiring additional workforce in their business.

The principle in minimum wage fixing will remain abstract if it would not be applied and stringently implemented. The most viable way of addressing both social and economic issues and eventually arriving to a resolution is through social dialogue in different forms and levels between the tripartite partners.[3] In the paper published by the ILO authored by Tayo Fashoyin, discourse and consultation between the workers (with their organizations or trade unions), employers and the government as well as other relevant stakeholders is a useful measure of developing agreements on policy issues.

Coming to agreements and formulating policies based on the consensus of concerned parties plays a fundamental function in shaping the labor market and relevant institutions as well as the economy of the country. An efficient minimum wage fixing could pave the way not only to an efficient structuring of labor costing but also to the development of the country and its economy.

---

[1] Art 124 of the Philippine Labor Code, www.dole.gove.ph/laborcode/

[2] Catherine Saget, Minimum Wage – Does it Cut Poverty?, http://www.ilo.org/public/

[3] Tayo Fashoyin, Social Dialogue and Labour Market Performance in the Philippines, http://www.ilo.org/public/

Rebuilding the Culture of Industrialism in the Philippines

ANTO COMETA

In the early 1980s, the economic condition of the country started to experience a stumbling block that has greatly affected the major sources of the nation’s revenue. This period marked the major decline in Philippine exports in the global market and has also affected the credit rating and borrowing of the country in international financial institutions. The fell of the industrial sector (as well as the agricultural sector) in the country could be attributed to the economic crises that the country has experienced. But was it mainly on these crises that the industrial sector had befallen to its current state? How could we revive an industry that has been in its lowest depth (as far as the country’s condition is concerned) for decades?

Before the 1970s, the country has been exporting primarily raw or semi processed goods such as mineral products. Years after, the country has been exporting manufactured commodities chiefly electronic components and garments.[1] This has boosted the Philippine economy which made the country more affluent compared to the neighboring countries in the region. However, the growth in Philippine industries stagnated – there were no increase in both production and employment. The manufacturing output of the county was cut down because of both political and economic crises in 1983.[2] By the middle of the period, the current administration then developed economic restructuring programs in order to propel the wobbly industry. The economic plan was then effective which made the industry working at full capacity again. However, the programs implemented not were not sustained or fell short of efficacy on a long term period.

The fall of the industry has evidently affected the labor sector. This increased drastically the rate of unemployment which led to the brutal fact of people going abroad to earn sufficient money for their families. The per capita income of the country was intolerable (actually until now). The 1993 GNP of the country was estimated at $830 having an annual GDP per capita growth of .065% between 1986 and 1993.[3] This has increased the percentage of the country’s population below the poverty line.

After a decade, the impact of globalization has significantly aggravated the current condition of the industrial sector in the country. The move towards globalization is not a dreadful economic step. However, the number and share of foreign equities in the business sector compared to local is increasing, thus affecting the domestic businesses in general. Currently, the largest sector in terms of the country’s economic revenue generating component is the services sector. Business Process Outsourcing (BPO) companies constitute the largest part of the services market. Ample number of the labor force in the Philippines is employed in these businesses, majority of which are operated by foreign entities.

There are still industrial businesses that are operating in the country. Although for the most part, these are oligopolistic businesses which are run by a handful of family business tycoons way back the start of industrialization in the country. They have survived by cutting down the cost of their operations - downsizing their manpower and usage of available technology for their businesses.

The attitude and practice of domestic entrepreneurship as well as investing in industrial businesses has been considerably decreasing if not nominal due to the economic impediments and lack of efficient programs, support and policies governing the domestic market. If we were to trace the setback, it started from the crises that the country have faced and has been intensified due to short lived and unsupported domestic economic strategies. If we were to revive the industrial sector, the government should pay much attention to the domestic market concerns. The government should invest more on reviving local industries such as setting limit if not a decrease in the entry of imports and expand the domestic industrial market output and exports. This should be backed up by both fiscal and monetary policies in order to protect and gain confidence that the industrial businesses could still be profitable.

---

[1] Economy of the Philippines, http://countrystudies.us/philippines/

[2] The Industry, http://countrystudies.us/philippines/

[3] The Philippines, http://www.unsystem.org/SCN/archives/rwns94update

The Benefits and Costs of Economy and Economic Growth

ANTO COMETA

The Philippines’ economy over the last 10 years could be referred to as a cyclical unsustainable nation. To be more precise, the economic crises that the country has experienced have ranged for more than a decade, but the last 10 years could be considered as a milestone in the country’s devastating condition.

What are the goods and bads of an economy? In Bertell Ollman’s article - Market Economy: Advantages and Disadvantages[1] he discussed the seven main characteristics of a market economy in which both benefits and costs go together. The first characteristic is that people could buy the goods and services they want (or need) only if they have the money to buy for such. Second, Money is a necessity of life – actually this is a fact that no one could contest. Third, In order to acquire money (to suffice the first characteristic) people are forced to do and sell anything. Fourth, the objective of production and investment is to maximize its profit and not to satisfy the social needs. Fifth, the control over those who produce the wealth of the society is no longer carried out but through money and the conditions of a certain task that an individual accepts in order to earn. Sixth, allocation of limited goods is based on money and not through coupons or the basis of who worked harder and longer as well as who needs more than the other. Lastly, In view of the fact that no individual is held back in doing or trying to become wealthy, people gets the notion that each individual gets what they economically deserve.

Economy or the growth in the economy should lead its people to an elevated or at the least a decent living. Growth is already positive in theory or by definition and ideally it should be, but there are several implications when growth is combined with something that concerns the welfare of people and various institutions, such as a country’s economy.

When we say there’s growth in the economy what are the benefits that the people or the country gets? The primary advantage of the growth in economy in terms of the real GDP Per Capita is that the living standards of people improve. In the aspect of labor and employment, this only means that there’s an increase in the employment or reduction in unemployment. In an ideal economy, labor should be at full employment. According to Milton Friedman,[2] full employment means the lowest level of unemployment that can be sustained given the structure of the economy.

On the business side, it provides a higher business confidence which gives a positive effect on both local and global stock markets as well as to small and medium enterprises. And as for the government, this only means one thing (or maybe the other which is quite rampant in the country) – greater fiscal dividend. Since economic growth boosts revenue coming from taxes, the government could spend more money to finance (more) projects.

Growth in the economy however, does have several negative impacts or inevitable consequences particularly for third world countries having a market economy such as ours. One of the disadvantages as an economy grows is the risk of inflation. If the demand for the goods and services increase rapidly (thus affecting the cost to go down rapidly as well) in contrast to the long run productive potential, this could put pressure on the interest rates to rise which results to the loss in the competitiveness of domestic businesses in international markets.

Another, which is directly related and is much applicable in the country’s condition, is that as the economy grows, growth in social-economic inequalities also increases. Unequal distribution of the benefits from the economic growth in terms of profit allocation widens the gap between the people who has the more purchasing power to acquire goods and services as compared to those who have less. The tendency of rich people to become wealthier and the poor increasingly befalls to intolerable poverty. This could also mean increase in gaps between regions in the country which are unreached (or left) by economic reforms and projects as compared to those that are.

At the labor sector end – the risk or increase in workers exploitation. The most feasible movement of businesses to increase its profit is to increase its production and decrease its work force. This could be done either by labor downscale or cut back in employee benefits. Wealth accumulation is a prevalent behavior among the elite (primarily business owners) in order to maintain their stature. Wealth accumulation is a negative behavior and one of its manifestations is the unwillingness to allocate profit to capital. There are several ways to allocate or convert profit into capital. One is to improve the means of production by increasing technology, resources, and manpower. Another is to increase the labor wages to improve employee morale and therefore an increase in production.

The attributes outlined above suggest that in a market economy such as ours, the society’s or the economy’s survival is based on how we could maximize the capacity and resources to generate the means to suffice the necessities (at the least) of individuals (or the nation) and minimize the effects that go along with those.

---

[1] Bertell Ollman, Market Economy: Advantages and Disadvantages, Oct 1999, http://www.nyu.edu/projects/ollman

[2] Milton Friedman, Natural Rate of Unemployment, http://www.huppi.com

A Brief Assessment of the Status of Philippine Economy – Is It Growing or Groaning?

ANTO COMETA

Based on the figures released by the National Statistical Coordination Board (NSCB), from the year 2005 to 2006 the country’s GDP Per Capita has increased from 14,186 to 14,653 (in constant 1985 prices),[1] having a growth rate of 5.4% for the fiscal year 2006.[2] Early this year (2007) the incumbent Philippine President, Gloria Macapagal-Arroyo in her public statement announced that the first quarter of the current fiscal year (2007) had a 6.9% growth rate which outstripped last year’s performance. Moreover, Q1 of 2007 had the highest growth rate experienced over the past ten years. Does this entail that the Philippine economy is growing?

In any country or economic society, increase in the growth of the economy could be deemed as something positive. However, we have to carefully examine the country’s sources of economic growth and to which degree it affects the country’s economy in general in order to classify if indeed a certain country’s economy is growing.

How can we say that a certain economy is growing? According to the general definition of economic growth – “it is the increase in value of the goods and services produced by an economy. It is conventionally measured as the percent rate of increase in real gross domestic product or GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economic, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.”[3]

If we look closely at the essentials that directly influence the growth of the Philippine economy we would see that there’s a disparity between the figures and the real situation of the country. Let’s focus on the labor sector of the country. According to the survey conducted by the Labor Force Survey (LFS), as of October 2006 the rate of Labor Force Participation is 64.0%, this figure is lower than 2005 which was 64.8%. However, the Employment rate has increased from 92.6% (As of Oct 2005) – 92.7% (As of Oct 2006).[4] What does this imply? In an article written by Dave Llorito, a noted journalist and researcher focusing on globalization, international trade, business, politics, and public policy affecting urban life, environment, and agriculture stressed that the drop in Labor Force Participation rate from 2005 was an indication that a considerable number of Filipinos opted not to be part of the labor force either because they don’t expect to find a job or they are under (or over) qualified for a specific work. He also stated that the decrease in the underemployment rate was the result of people who got better jobs for the year 2006 were the people who are already part of the labor force.[5]

The growth of the labor and employment sector is a good indicator of the current economic condition a country. The current state of the Philippines reveals that there are a lot of local companies - particularly small and medium industries closing down, downsizing or being bought out by either a larger company or a foreign entity. Increase in foreign investments specifically business process outsourcing (BPO) in the country only suffices the short term and micro level provision of the country’s economic stability. This may appear beneficial in the country’s economy. However, we have to understand the scheme behind outsourcing. The prime mechanism behind every outsourced company is cheap labor. Outsourcing companies do place a high priority in the cost of operations of its business. In order to stay in the industry they must be at the forefront of the movement in the global sourcing market. The current outsourcing industry trend does not promise any stability for the Philippine market since there are a lot of Asian countries particularly China (which opened its door recently to the global market) that is more competitive in terms of labor cost effectiveness.

There are a lot aspects or factors that need to be taken into account in order to adequately say that a certain economy of a country is growing. If I were to base the real GDP Per Capita as the main indicator of the average standard of living of Filipinos as a result of the country’s economic condition, it would be far fetch to assert that the country’s economy is growing even if we base it on the premise that over a decade, the current fiscal year’s growth has been the highest. I guess it would be safe to assume that the country’s economic growth is far beyond mounting.

---

[1] National Statistical Coordination Board (NSCB), GDP Figures - National Accounts of the Philippines, 1996-2006, http://www.nscb.gov.ph

[2] National Economic Development Authority, Growth Rate Figure - Gross National Product at Constant 1985 Prices (annual Percent Change), 2006, http://www.neda.gov.ph

[3] Definition of Economic Growth, Wikipedia the Free Encyclopedia, http://www.wikipedia.com

[4] National Statistical Coordination Board (NSCB), Statistics - Labor and Employment, Oct 2005 – Oct 2006, http://www.nscb.gov.ph

[5] Dave Llorito, Philippines Without Borders - Alternative views on the Philippine economy, politics, governance, culture, media, and globalization, Is the Philippine economy hallowing out?, Dec 24, 2006, www.davidllorito.blogspot.com