Can conglomerates foster inclusive development in PH?

Sofia Tomacruz
Can conglomerates foster inclusive development in PH?
The country faces a dilemma in development as it strives to achieve growth and progress amid distress and poverty

MANILA, Philippines – The Philippines has been called a rising Asian tiger, posting some of the fastest economic growth rates the world has seen in the last few years. But despite this, much is left to be said about whether or not the perks of economic growth can be felt in the lives of all Filipinos.

The country faces a dilemma in development as it strives to achieve growth and progress amid distress and poverty, said Dr. Benito Teehankee, a management and organization professor at De La Salle University. 

“Big business,” which continue to dominate the Philippine economy, has been riding the economic boom, as shown in the conglomerates’ rapidly growing financial muscle, Teehankee said. But they cannot be the only ones experiencing prosperity. They should have a role in ensuring the rest of the population is not left behind. 

“I’ll call [the corporations] out but I need someone to step forward and come with me. Let’s hold them accountable,” Teehankee said in his keynote speech during the Center for Philippine Futuristics Studies’ gathering on March 30.  

Leading conglomerates in the Philippines include those run by families such as the Sys, Gokongweis, and Ayalas, whose groups operate the biggest network of malls, banks, food and drinks manufacturers, housing developments, utilities like power, roads, airports, water services, and almost everything that Filipinos use everyday. They are also among the most valuable corporations in the country. 

Data from the Philippine Stock Exchange show that SM Investments Corporation, SM Prime Holdings, JG Summit Holdings, Ayala Corporation, and Ayala Land are among the 5 listed firms with the biggest market capitalization. Their value has increased many times over — way more than the pace of most Filipinos getting out of poverty or moving up to middle income status.   

‘A disconnect, a contradiction’

The Philippines posted a 6.8% growth rate in 2016—the fastest in the region, coming in second only to India and at par with the economic growth of China.

Yet despite increased growth, the country’s poverty incidence rate is still among the highest in the region at 21.5%, according to latest surveys done by the Philippine Statistics Authority in 2015. It is the third highest in the region after Laos and Myanmmar.

“There is obviously something wrong. It is a disconnect, a contradiction. If your economy is growing then it should improve the quality of life of your people,” said Antonio Valdes, chairman of the advisory board of Carlos J Vales & Co. CPAs.

At fault

Who should take primary responsibility for inclusive growth, then?

Both government and conglomerates have roles in helping achieve inclusive growth, said Teehankee. Both should work to capture economic growth while fostering inclusive development for all Filipinos.

However, Teehankee said that reform in both groups is needed.

“We cannot afford to unduly demonize any sector because that would disengage the system. The key is to keep it moving, to talk and engage but also call certain spades, spades,” he said.

“Government is not passive. It is actively co-opted by corporations. Their [the corporations] lobby is very consistent, very well funded, and focused, whereas advocates are scattered and have to do this in our spare time. Clearly, there is an imbalance,” said Teehankee.

Teehankee said the lack of strong policy that addresses activities and functions of corporations needed to be changed. “If we cannot hold boards accountable for their decisions, nothing will work,” he said. It is in the boardroom where major shareholders make decisions that shape how the corporates deal with employees, customers, suppliers, and other stakeholders that link them to the rest of the population.  

“Conglomerates are led by people – they are managers, they have responsibilites. Governement has a role, but it’s not as if corporations are led by children. They are citizens of the country. They know that when they are given a social license, they have certain duties, which are created by such a license,” he said.

Guillermo Luz, private sector co-chairman of the National Competitiveness Council, added that difficulties were seen in industries where government bodies not only regulated activity, but also competed with other players.

“We often don’t realize—and need to look at closely is—that often times, a government agency is both your regulator and your competitor in the same business. It cuts across more industries than you imagine. We have to clean that up a little bit,” said Luz.

Lack of a long-term outlook is also a problem for programs that seek to improve citizens’ lives.

“The importance of long-term planning cannot be underestimated if we’re serious about inclusive growth. Unfortunately, long-term planning and political cycles don’t match and so this is the tension that we have,” said Luz. National and local leaders are elected into political office every 6 or 3 years, while companies make plans far longer than that.  

Multi-stakeholder approach

Moving forward, a multi-stakeholder approach in tackling inclusive development is recommended.

“Big businesses do not have all the solutions. This relies on a collaboration of many different sectors,” said Luz.

He added that, while big businesses have the unique ability to make necessary financial investments to foster inclusive economic growth, corporations could adress the issue on several levels. These include:

  • Developing expanded supply chains by integrating small and medium enterprises in value chains
  • Participating in public policy discussion and formation
  • Funding and investing in technology as well as research and development
  • Investing in for-profit social enterprises
  • Improving Corporate Social Responsibitly pratices, which both business and governement can invest in 

Teehankee added that government could invest in foreign links that would transfer technology to local firms, especially small enterprises.

Teehankee also said those who uphold the law must continue to call out wrongdoings. “The referee has to be mindful that it must blow the whistle when it sees abuse of power.” 

Paolo Borromeo, Managing Director and Group Head of Ayala Corporation, shared that government can help conglomerates in tackling the issue by upholding the sanctity of contracts and observing transparency when it comes to biddings and proposals for projects. 

 “What we’d like to see is government making sure that they uphold the sanctitiy of contracts. We’d like to see a fair and transparent process whatever form the public-private partnership takes,” said Borromeo. “If you win, you win fairly. Kung matalo ka (If you lose), you also lose fairly.”

Addressing both the economic and social welfare landscape of the country, Teehankee said new intiatives can be built on top of past efforts.

“The key is to address structural issues but also to multiply the efforts that have already been mentioned. We are not simply victims. We are actors and we can act,” he said.

Borromeo added, “It’s easy to feel depressed and negative about some of the statistics that we (the Philippines) have. We won’t solve it overnight, there are still a lot more things we can do to improve policy, procedure, competition, market forces but there’s also a lot of good that’s happened. May pag-asa pa tayo (We still have hope).”

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Sofia Tomacruz

Sofia Tomacruz covers defense and foreign affairs. Follow her on Twitter via @sofiatomacruz.