Philippines' Real Economic Achilles Heel: An Educational Crisis?

Lately, the Philippines has -- for a number of good reasons -- enjoyed the limelight, emerging as an increasingly impressive economic bright spot in Asia.

Receiving a stamp of approval from the world's leading credit rating agencies, namely Fitch, S&P, and Moody's, the country stands as a full-fledged investment-grade economy. This, at least theoretically, means the Philippines is expected to enjoy more high quality investment in greater volume at a lower cost.

Then you have the World Economic Forum's latest competitiveness report, which firmly places the Philippines among most dynamic emerging economies, capping years of stunning leapfrog in the global rankings: Between 2009 and 2013, the Philippines jumped from the 87th to the 59th most competitive economy in the world, now featuring among top 50 economies across 33 indicators, ranging from macroeconomic environment to financial market development.

Yet, one of the most bizarre aspects of the Philippines' bid for economic take-off is the seemingly inverse relationship between its glittering growth figures, on one hand, and the alarming decline in the prestige and rankings of its leading universities, on the other.

Varying development agencies, above all the Asian Development Bank (ADB), have consistently emphasized the lack of inclusive development in the country, with unemployment and poverty affecting large sections of the society. And naturally, much of the focus among development experts has shifted to the necessity of reviving the manufacturing and agricultural sector to resolve such anomaly. There has been, however, relatively scant attention paid to the country's education crisis, which has been beset by underinvestment, declining reputation, and relative stagnation by regional standards.

But a closer look at varying economic miracles across Asia and beyond reveals the strong correlation between systematic investment in the educational sector, on one hand, and sustained economic growth, on the other. Thus, the Philippines isn't expected to credibly feature among breakout nations, unless it also gets its education sector in order.

The Inverse Relationship

Generally, rising economic fortunes is supposed to translate into larger investments in the welfare and well-being of the citizens. After all, an expanding economic pie means the fiscal base of the government expands, citizens' expectations about goods and services rises, and consumers can reach deeper into their pockets to raise overall quality of living.

In our highly competitive world, where trillions of dollars constantly revolve around in search of new markets and opportunities, there is always a growing pressure on up-and-coming economies to market themselves as attractive, competent and stable societies. And this means more attention is -- and should be -- paid to marketing the country's main assets to a wide array of global investors and observers. No wonder, emerging economies such as China, Turkey, Brazil, Indonesia, and United Arab Emirates (UAE) have seen a steady and impressive rise in the profile and quality of their universities.

Despite growing at an average rate of six to seven percent in recent years, the Philippines, home to a number of prestigious and long-established universities such as the University of the Philippines (UP), Ateneo De Manila University (ADMU), De La Salle University (DLSU), and University of Santo Tomas (UST), has seen a pretty dramatic decline in the profile of its flagship educational institutions.

For years, the "Quartet" of UP, ADMU, DLSU and UST has consistently ranked among the world's top 500 elite universities, with UP and ADMU comfortably featuring among Asia's tier-1 universities. The Philippines' grasp of the English language has been an obvious source of competitive edge over other developing countries, with UP and ADMU ranking among the world's top 50 universities in English Language and literature.

But just as the country's economic status has improved, ending decades of anemic growth and uncertainty, the Philippines' leading universities struggle to maintain their global and regional presence. In 2009, for instance, ADMU ranked 234th in the world, pulling ahead of its long-time rival, UP, which ranked 262nd, in the QS Survey. This year, none of the Philippine schools featured in the Times Higher Education top 400 schools, with the QS Survey showing a similar decline.

To be fair, many of these rankings have come under attack for their supposedly flawed methodologies, while other critics have gone as far as dismissing them as advertising stunts for well-heeled institutions. On the other hand, if one looks at more stringent surveys such as the Shanghai Jiao Tong world universities rankings, which heavily relies on research output and the quality of faculty, top Philippine schools have actually been pretty absent in the list -- clearly indicating the dearth of investment in building up the Research and Development (R&D) capacity of leading institutions. Therefore, what we are actually observing now is how even "softer" surveys, which heavily rely on indicators such as reputation and international faculty and students population, are expressing their dismay at Philippine universities.

The Philippines' basic education sector has been long criticized for its inability to adequately prepare and train much of the population, forcing a draconian reform under the Aquino administration, but the country's leading educational institutions are also paying the prize of underinvestment and lack of prioritization by both the state as well as private institutions.

The focus on capital widening, instead of capital deepening, as well as budget cuts have seen a relatively small share of the country's GDP stretched thin among a vast network of state-owned universities, while some private schools have been criticized for prioritizing profit and advertising -- anchored by high spending on popular sports such as basketball -- over quality and faculty development.

An underwhelming incentive structure, from low faculty compensation rates to underinvestment in research and infrastructure, is chipping away at the Quartet's historical prestige and status in Asia and beyond, with a limited number of international academics displaying interest in working in the country. And yet we don't see commensurate unease among the public, neither in the mainstream media nor among policy-making circles in the country.

Meanwhile, many commentators continue to simplistically overemphasize the country's edge in the English language, which has obviously neither been decisive in brining in high-quality investment nor ensuring sustained economic development since the country's independence in early 20th century. And the government seems to show little interest in increasing the country's dismal R&D funding.

The Long-Term Economic Impact Economists and experts, including myself, have been constantly emphasizing the lopsided dynamics of the Philippines' growth trajectory, which has been largely dependent on remittance-driven boom in low-end services, retail, and real estate.

This is obviously neither inclusive nor sustainable, because the country's growth engines are benefiting only a small population, lack economies of scale, only marginally improve labor productivity, and are highly dependent on inbound remittances from millions of Overseas Filipino Workers (OFW).

What is the solution? As mentioned earlier, the answer to the country's legions of poor and underemployed is a robust manufacturing and agricultural foundation, which can provide stable, well-paying jobs for a large portion of the society. And this requires a much more strategic re-conceptualization of industrial and trade policy in the country.

But what is often missed in the ongoing debate over the Philippines' economic trajectory is the necessity to revive the educational sector, especially the (leading) universities, which are crucial to producing a high-quality workforce for high-end investments from abroad. After all, in addition to infrastructure and regulatory certainty, large-scale Greenfield investments are tied to the availability of skilled labor and the capacity of the host country to absorb new technologies.

The advent of trade in chains of production has allowed countries such as Thailand and China to engage in accelerated industrialization, as major global companies relocate their production networks, capital, and technology to more cost-effective destinations among emerging economies.

For countries such as the Philippines, which seek to emulate the high-growth trajectory of more advanced emerging markets, we see not only problems in terms of regulation and infrastructure, but potentially the lack of skilled labor, specifically in engineering and science, in an event of large-scale investments by global investors across a range of higher-end industries, from manufacturing to pharmaceuticals and electronics.

Investors in high-investment destinations such as Vietnam and Indonesia are already raising concerns over the availability of skilled labor, while others are keeping their eyes on alternative destinations, which can offer a more diversified and robust labor market.

There are ongoing efforts in the Philippines to improve the educational sector as well as the universities, with leading institutions such as UP inviting private-sector participation and fostering international linkages to ramp up R&D capacity and improve infrastructure. Yet, overall spending on education are lacking in both absolute and relative terms, especially as other East Asian countries, from Singapore to China and South Korea, pull ahead in global rankings and compete for high-end investments from the developed world.

If the Philippines truly seeks to join the ranks of developed nations in coming decades, investing in its educational sector, especially its universities, is pivotal. And recent surveys should be taken more seriously, since they reflect a long-standing structural weakness in need of decisive reform. For now, it seems that the government is more focused on basic education, credit ratings, and retaining high GDP growth.