The Philippines: Globalization and Labor Administration

Bach M. Macaraya

Paper Presented at the Asian Conference on Globalization and Labor Administration: Cross-Border

Labor Mobility, Social Security and Regional Integration

November 19-21, 2014, Manila, Philippines

No written or electronic reproduction of this document without

the author’s permission

Introduction

• One of the issues confronting laboradministration in the Philippines today concerns the relevance of the Labor Code in an economic regime called “supply sidism” – the economic paradigm of “globalization.” The laboradministration prescribed by the Labor Code is anchored on “demand sidism.” “Demand sidism” refers to a system in macroeconomics wherein demands are created in the market by increasing wages of the workers that in theory will assure economic growth and development.

Asian Development Bank Report

• ADB in its recent report pointed-out that “lower government spending, higher inflation, and monetary tightening forced it to revise its economic outlook on the Philippines from earlier 6.4 percent growth forecast this year, it was downgraded to 6.2 percent, and further from 6.7 percent in 2014 to 6.4 percent.”

Continuance

• It further pointed-out that “the most pressing national challenges are to improve infrastructure, attract more investment to generate better jobs, and further reduce poverty, which was at 24.9 % in the first half of last year, down three percentage points. It finally pointed out that “Job generation is insufficient despite strong GDP growth averaging 6.3 %” and “underemployment remains high at 18.3% of those employed because new jobs are largely part time or informal.”

Labor Administration and Economic System

• Labor administration is a subsystem of the larger economic system. Its provisions must be attuned or compatible to the prevailing economic system. Under “demand sidism” the Labor Code, as an economic instrument served the objectives of a) achieving economic growth by insuring that locally produced goods will have competitive advantage over imported goods in the highly tariff protected domestic market; and

Continuance

• b) delivering “social justice” or “welfare state” for the benefit of the Filipino working class that was expected to translate to higher demands for locally produced goods in the domestic market. The important instruments of “demand sidism” economic strategy were the protective tariff and other regulatory laws that were used to insure that domestic products will be cheaper and therefore and therefore had competitive advantage as against foreign made goods in the domestic market.

Continuance

• This unfortunately created an undesirable situation of domestic market dependency of domestic entrepreneur and thus foreclosing any efforts to move and sell their goods to the larger international market.

Stagflation

• In the late 1970’s the world economy experienced “stagflation.” “Stagflation” is an economic phenomenon wherein production of goods remain constant (stagnant) while its prices keep on rising (inflation). This created a problem for the world economy because any efforts to increase wages through minimum wage fixing and collective bargaining to create demands only feeds on inflation.

“Demand Sidism to Supply Sidism”

• In the early 1980’s IMF-World Bank prescribed a shift in economic paradigm from “demand sidism” to “supply sidism.” Among the important reforms introduced were “privatization,” “deregulation” and “tariff reforms.”

Privatization

• “Privatization” simply means that “the government should get out of business as this only create an unfair competition with the private sector because the government corporations were supported by tax payers money. In the Philippine the government was able to privatize incoming generating corporations like PNB and PAL but continued supporting non-income generating corporations that private sector refused to take over.

Deregulation

• “Deregulation” simply means that government should refrain from imposing unnecessary regulations on private corporation and to allow them to operate freely to achieve their objective of profit generation. As pointed-out by IMF-WB “the Philippines and other middle-income Asian economies enjoy better growth prospects than countries in other parts of the world but they must improve government institution and liberalized rigid labor and product market if they wish to reach the level of developed countries.”

Tariff Reforms

• As part of the concept of “globalization” tariff reforms was introduced by eliminating protective tariff to enable foreign made goods to enter freely the domestic market and thus with competition in the domestic market introduced it was calculated that domestic industries will be forced to get out from domestic market dependency and sell their products to the larger international or global market. Thus the term “globalization.”

Impact on Philippine Trade Unions

• The immediate impact of the change from “demand sidism” to “supply sidism” to the Philippine trade union movement was the decline in membership partly because of the high unemployment rate that followed the shift in economic paradigm. Szal argues that “one possible culprit of unemployment is “globalization” (supply sidism) that included trade liberalization among others.”

World Trade Organization (WTO)

• As Director General Pascual Lami of the WTO puts it “Globalization (or supply sidism) is multi-layered and complex phenomenon involving intensive political, social and economic interaction nationally and internationally.” The Philippine trade unions’ membership declined in 1986 when the economic paradigm was changed from “demand sidism” to “supply sidism.”

Union Registered (Table 1)

• Trade Unions registered declined from 371 in 2006 to 260 and 159 in the years 2007 and 2008 respectively. The membership of the newly registered union also declined from 31,777 in 2006 to 24,076 and 14,806 in the years 2007 and 2008 respectively. “During the transition “demand side” to “supply side” economic paradigm, the Philippine economy was actually already in difficulty as can be seen by its devaluating currency, inability of the government to modernize agriculture, inability of industries to create jobs.”

Decline of the no. of CBA registered and of workers covered

• The number of collective bargaining registered and the workers covered also declined immediately following the shift from “demand sidism” to “supply sidism.” The number of CBA registered from 536 in 2006 to 318 and 154 for the years 2007 and 2008 respectively. The number of workers covered by the new CBA declined from 60,790 in 2006 to 44,374 and 37,333 in the years 2007 and 2008 respectively.

Continuance

• The number of workers covered by existing CBA also declined from 236,000 in 2006 to 218,000 and 226,000 in the years 2007 and 2008 respectively.

Year 2012 Situation

• After the initial decline of trade unions’ membership when “supply sidism” was introduced, later statistics show a slight increase in membership partly because of the uncertainties of their employment status caused by the shift in economic paradigm. But what was more revealing was the rapid increase of workers associations that are focused not on CBA but on mutual aid and comfort.

Existing Workers’ Organization and CBA up to 2012

• Workers covered by new CBA declined from, 87,442 in the year 2010 to 77,944 and 58,138 for the years 2011 and 2012 respectively. The no of existing CBA likewise declined from 1,413 in 2010 to 1,389 and 1,327 for the years 2011 and 2012 respectively. Workers covered by the total existing CBA however registered an increase from 212,000 in 2010 to 228,000 and 220,000 in the years 2011 and 2012 respectively.

Membership in registered workers association

• In contrast, membership of newly registered workers association that do not negotiate CBA with their employer but solely organized for mutual aid and protection increased from 116,708 in 2010 to 157,03 and 160,000 for the years 2011 and 2012 respectively.

Economic growth coupled with high unemployment and underemployment

• The other important concerns that must be dealt with are the employment less economic growth and the request of IMF-(World Bank) to amend the Constitution by “relaxing ownership to improve business climate” and “also the Labor Code.” For the year 2012 the Philippine economy grew by 6.6%. Unemployment remains high at 7.2% in January 2012 although it slightly declined to 7.1% in January 2013.

Continuance

• Underemployed persons defined as “those employed who want additional hours of work “increased by 919,000 or 13.4% from 7,018 million on January 2012 to 7,934 million a year earlier. The National Statistics Coordinating Board “recorded poverty incidence for the first half of 2012 at 27.9%.

Continuance

• ADB contended that the Philippine economy grew by 6.2% and is expected to grow by 6.4% in 2014; and that “job generation is insufficient despite strong gross domestic product (GDP) growth averaging 6.3%” and “underemployment remains high at 18.3% of those employed because new jobs are largely part time or informal.”

IMF-World Bank Concern

• Lastly and most important for this paper is the concern of the International Monetary Fund and the World Bank on the need to “liberalized rigid Labor and product market” that would support our thesis for the timeliness to amend our Labor Code to adjust to the larger new economic system called “supply sidism” of “globalization.”

Constinuance

• Thus we reiterate IMF-World Bank conclusion that “the Philippines and other middle-income Asian economies enjoy better growth prospects than countries in other parts of the world but they must improve government institution, and liberalized rigid labor and product markets if they wish to reach the level of developed countries.”

Postscript

• When this paper was originally written the efficacy of the IMF-World Bank as administrator of the world economy has not yet been put on issue. This year 2014 a split in the World Bank occurred when World Bank’s former Sr. Counsellor, an American Dr. Karen Hudes pointed out that “the continued printing of US currency without sufficient gold backing in conspiracy with large American

Continuance

• Corporations will eventually result to a worthless paper currency” and that “a new organization similar to the IMF-World Bank called the BRICS had recently appeared composed of Brazil, Russia, India, China and South Africa.” How this event will impact on the proposal to amend the Philippine LaborCode to attune its provisions to IMF-World prescription of “globalization” remains at this time speculations.