Is Team Marcos Justified Its Economic Swagger?

A few weeks ago, the Philippines’ Finance Secretary Ralph Recto took to the stage and made a bold declaration. By 2033, he claimed, the country’s economy could triple in size, reaching upwards of a trillion dollars, which would place it “in the league” of Japan, South Korea, and China. This year, he added, the economy is expected to grow by as much as 6.3 percent, potentially outpacing Vietnam. Will such optimism lead President Ferdinand Marcos Jr. to abandon his reformist agenda and embrace populism? As William Pesek recently wrote for Nikkei Asia, “modern history is flush with examples of Philippine leaders shelving structural upgrades once growth tops 5% or 6%.”

Politically, the Philippines suffers from a Latin American-like curse due to how geography and history have shaped its patterns of land ownership. After Malaysia, it has long had the least arable land use per person. Most of the Philippines is mountainous, and many of its islands are underpopulated. The good land available has been owned by a small fraction of society for centuries, leading to massive wealth inequality. Small-scale farmers own poor, labor-intensive land, creating little capital for self-advancement or (historically) reasons for major infrastructure projects. Based on the Gini index, the Philippines is the most unequal Southeast Asian country after Singapore.

This inequality leads to wild swings in politics as populists and reformists attempt to overcorrect. The reformist Fidel Ramos was followed by the populists Joseph Estrada and Gloria Macapagal Arroyo, before the reformist Benigno Aquino III entered office. He was then succeeded by the populist Rodrigo Duterte. Populists claim they’ll tackle the land oligarchy and redistribute wealth, usually through massive transfers from the state to the people, raising living standards for as long as the money flows and making them susceptible to corruption charges. Typically, they fail and resort to short-term policy gestures. Reformists then arrive, stating that the economy needs long-term stabilization, but their policies are often seen as privileging the elite, paving the way for the next populist.

Where Marcos lands is a matter for the Malacañang Palace. Sara Duterte, the China-leaning vice president and Rodrigo’s daughter, is already positioning herself for a presidential run in 2028, criticizing Marcos for focusing too much on foreign policy and not enough on basic economic issues. (She resigned from his Cabinet last week.) His decision to decrease rice tariffs this month, making imports cheaper, is a populist response to this pressure. Three-quarters of Filipinos are dissatisfied with Marcos’ economic policy, primarily due to the pesky inflation affecting most Asian countries.

Marcos has surprised many since entering office. One hopes that he will continue to pursue balanced policies. There are the usual business-side issues. According to the IMF, labor productivity in the Philippines is higher than in Vietnam and mainland Southeast Asian states, but it lags behind Indonesia and is almost a third worse than in Malaysia. In terms of ease of doing business, it also trails its maritime Southeast Asian competitors. Infrastructure is poor, and Marcos Jr.’s decision to suspend some planned Chinese-funded projects hasn’t helped. (That said, the Philippines is defying the narrative that rejecting Chinese capital leads to economic collapse.)

There are also more existential issues that need addressing. The Philippines isn’t overly reliant on trade; exports account for just 28 percent of GDP, the second-lowest in Southeast Asia after Indonesia. By comparison, Vietnam’s exports are equivalent to 93 percent of GDP. However, the data masks a lot. The Philippines is the world’s largest importer of rice and imports 86 percent of its fertilizers, so it isn’t self-sufficient in food inputs. Its energy self-sufficiency has dropped from 62 percent in 2009 to 51 percent. This cannot be allowed to continue, but whatever fixes there are will be massively inflationary. Any president will need to have a serious conversation with the public about why they’re going to have to suffer to make the country more economically secure.

That said, there are justifications for Finance Secretary Recto’s bullishness. One reason cannot be undone by any president. Many Asian states are facing a demographic abyss; it’s unclear how China will function as it loses a third of its workforce in the coming decades. The Philippines, however, arguably has the healthiest demographic future of any Asian state. Between now and 2050, its working-age population will increase from 75 million to 104 million. The Philippines won’t become an “aging” society until the end of this decade, and it won’t become “aged” until the 2060s. This thirty-year gap is because Filipinos are still having tons of children.

Indeed, a significant proportion of the growing workforce will remain young. By 2050, around 16 percent of the population will be aged 15-34, compared with 17 percent today. Because the population is growing, this age cohort will actually increase in size in real terms. In contrast, Thailand and Vietnam will see their 15-34-year-olds account for only 9 and 13 percent of their populations, respectively – and they are decreasing percentages of decreasing populations.

This age group drives manufacturing, consumption, and childbearing. It also means there will be tens of millions more Filipinos to work abroad. Filipino labor is in high demand and will be even more sought after as Japan, South Korea, most of Europe, and countries like Thailand and Singapore will soon experience the crises that come from having “aged” or “superaged” societies. Consequently, Manila can count on increasing remittances and the soft-power benefits that its emigrants provide. State coffers will not be overly strained either. By 2050, just 15 percent of the population will be over 60, so Manila won’t need major spending on pensions and healthcare. In Thailand, over-60s will account for almost 40 percent of the population by 2050, and in Malaysia, around 25 percent.

Marcos’ domestic opponents are hammering him for apparently being overly focused on foreign policy. But this could be his enduring achievement. For the simple reason that he hasn’t called Europeans “sons of bitches,” unlike his predecessor, the European Union has reciprocated by offering the Philippines a free-trade agreement. Many will argue with this, but the world is deglobalizing. The United States is slowly but surely taking an “American Continent-First” approach, but a few other partners will be welcomed into the clan.

Under Marcos, Manila has sensibly re-established itself in America’s “friends and family” network, which includes Australia and Japan; the Philippine-U.S.-Japan trilateral is vital for defense but also for the economy, such as with the Luzon Economic Corridor. As Defense Secretary Lloyd Austin told reporters when he hosted Marcos in Washington in April: “The United States and the Philippines are more than allies – we’re family.” Washington is no longer handing out free trade agreements to anyone, but being within the American family means the Philippines’ place in the U.S. Generalized System of Preferences, which offers duty-free privileges, is secure.

Security-wise, under President Joe Biden, Washington has taken the position that it will be a financier of partners in their wars, such as Ukraine and Israel, but won’t put boots on the ground. A conflict in Taiwan or the Philippines would probably be the exception. A number of Republican intellectuals, like Elbridge Colby, contend that America’s diminished military capacity means it must choose only one region that it would defend and that region should be the Indo-Pacific.

So, domestically, Marcos’ reformist instincts may be scuppered by inflation and pressure to focus on the short-term interests of the poor. But he has got the big decision right. Unlike its hedging neighbors in Southeast Asia, Manila understands that choosing both sides in the U.S.-China rivalry was a luxury of the 2010s. Better to join America’s friends and family club early, before the registration period ends.