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What Booming Philippines Can Learn From Turkey, Brazil Protests: Centrality of Inclusive Growth and Manufacturing

The explosion in spontaneous protests should serve as a sobering reminder for rising economies such as the Philippines to avoid the mistakes of their more successful and prominent peers if they wish to move towards democratic deepening and full-fledged developed country status in the coming decades.
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Recent weeks have seen a dramatic explosion in social discontent among major emerging markets across the world, from Turkey, to Brazil, and now post-revolutionary Egypt. While autocratic governments seem to have dug in amid continuing uncertainty in the global economy, staving off popular dissatisfaction with a sophisticated mixture of intimidation, co-optation, and repression, democratically-elected governments in the developing world are revealing their vulnerability in coping with an economic downturn that is fueling spontaneous demonstrations, captivating the global media and rattling investors.

Egypt, reeling from a chaotic post-revolutionary politics, saw the downfall of its first democratically-elected president, after up to 17 million people took to the streets and demanded for a new government. The depth of frustration among protesters ran deep, so much so that they suddenly turned to the military as their savior -- the very same institution that held on to power for 18 months into the 2011 revolution, and was accused of heavy-handed crackdown on large-scale pro-democracy demonstrators in the iconic Tahrir Square and beyond. In Turkey, after a decade of democratic consolidation under the leadership of the Justice and Development Party (AKP), a seemingly mundane demonstration against the destruction of the venerable Gezi Park turned into a sustained stream of spontaneous demonstrations against Prime Minister Erdogan and his coterie. Shortly after, Brazil, amid much fanfare over hosting the much-anticipated Confederations Cup, saw a record number of people staging biggest demonstrations in almost 20 years, demanding for government accountability and basic services.

While calls for political pluralism and participative democracy colored historic protests across these three major emerging economies, notwithstanding the unique characteristics of each state, a more careful look reveals a more fundamental triggering element: an abrupt economic downturn, on the back of years of robust growth, which, more broadly, evinced the lack of inclusive development.

As Asia's top growing economy in the first quarter of 2013, and poised to register an impressive 7 percent growth this year, the Aquino administration proudly basks in the apparent success of its reforms, anchored by good governance initiatives and a conservative monetary-fiscal policy. With latest data on employment, hunger, and poverty showing little improvement, the government, should realize that as it sets to emulate the stellar record of considerably wealthier emerging markets such as Turkey and Brazil, it should also equally avoid their pitfalls. Precisely for this reason the Aquino administration should move from 'good governance' to the next phase of reform: inclusive growth backed by industrial revival. And the current depreciation of peso and slight improvement in manufacturing could help.

A Tale of Concentrated Growth

After years of above-average growth rates coupled with record-high investment inflow into Egypt, especially during the twilight years of the Mubarak regime, up to 40% of the population lived below the poverty line, with a combination of food insecurity exacerbating rising inequality between the privileged pro-regime clique and the working masses. The 2011 revolution, and the ensuing chaos that saw protesters first battling the military junta then the Muslim Brotherhood, just exacerbated Egypt's structural economic imbalances. In the absence of a dramatic turnabout in the country's economic paradigm, there was little reason for systemic improvement. In the end, even the poor and working class Egyptians joined the protests, backing a coup that toppled President Morsy, who was accused of autocratic governance and exclusionary politics by the secular opposition.

Yet, it was the earlier protests in Turkey that proved to be even more shocking. Under Erdogan's decade-long watch, the country saw its economy quadrupling in size, with average per capita rates more than tripling. The moderate Islamist AKP oversaw the transformation of Turkey from the "Sick Man of Europe" into the world's newest wunderkind. Most encouragingly, Erdogan was also able to force the perennially politicized military back to the barracks, establishing civilian supremacy -- a cornerstone of modern democracy. Cashing in on its electoral prowess, the AKP pressed for a successful referendum, which saw crucial constitutional reforms on the road to European Union (EU) membership. No wonder, Erdogan's party came to garner up to 50% of the votes in the latest parliamentary elections. Abroad, Erdogan became one of the world's most influential leaders, turning Turkey into a regional powerhouse and an international powerbroker. However, as AKP consolidated its political control, it also tightened the noose around its critics, from the opposition parties to the journalists and ultra-secular circles, and more overtly pushed for a conservative agenda. Yet, the AKP managed to silence its detractors as long as the economy did well. This year, however, saw a dramatic slow-down in the country's economy, dropping from a break-neck GDP growth rate of 9% in 2010-11 to just about 2.2% in 2012. It is far from certain whether Ankara could meet its 4 percent growth target this year.

Despite a decade of robust growth and Foreign Direct Investment (FDI) boom, Turkey has one of the highest rates of youth unemployment and inequality among OECD countries, while struggling to move towards high-value-added manufacturing. A strong reliance on imports of technology, intermediate-goods, and services also meant that the government had to constantly manipulate interest rates in order to attract enough 'hot money' to cover a deteriorating trade deficit. When the government resorted to a dismissive and heavy-handed response to quell peaceful demonstrations against the demolition of the Gezi Park in Istanbul, there was a sudden explosion in discontent across the country. The political message was clear: Erdogen has to accommodate the other half of Turkey that didn't vote for him lest he undermines AKP's historic electoral dominance. In economic terms, an investment-dependent Turkey is warily watching how the markets are responding to the recent upsurge in political opposition.

While Turkey had a humbling moment of self-reflection, Brazil woke up to its own winter of discontent, ironically just as the country prepares to host the world's biggest sporting events in succession. After two decades of economic recovery and sustained growth, Brazil emerged as one of the leading rising economies, along China, India, and Russia. As a result, the country saw a dramatic boom in consumption, imports, and its Nouveau riche class. Despite the relative expansion of the middle classes, and successful anti-poverty program targeting indigent sectors, Brazil remains to be one of the world's most unequal states. Weak infrastructure, gang activity, and deforestation remain to be a large concern. Moreover, a decade-long boom in Chinese demand for basic commodities precipitated the 'de-industrialization' of countries such as Brazil, which have come to rely on agribusiness and offshore drilling to shore up their coffers. The commodity boom has, in turn, led to an over appreciation in the currency, hurting the manufacturing sector, which provided large-scale and well-paying jobs, and experienced impressive growth in recent times.

So, not all Brazilians were impressed with the economy, anxiously watching billions of dollars poured into new stadiums to impress the world, while public infrastructure is in tatters, growth is dismal, and the cost of living is skyrocketing. The heavy-handed response of the police ---purportedly to maintain 'rule of law' under the watchful gaze of international investors and media -- to peaceful demonstrations against bus and subway fare hikes precipitated a national outcry for government accountability and better basic services. In the end, President Dilma Rousseff - eying a re-election bid and a clear differentiation from Erdogan - caved in, promising necessary reforms to address the popular grievances.

Aquino Reforms 2.0

With less than three years before the end of his term, President Aquino -- widely lauded as one of the most successful democratic leaders in recent years -- has limited opportunity to address long-term structural challenges in need of resolution. Yet, bureaucratic inertia aside, the Aquino administration still holds sufficient leverage to contemplate heterodox economic thinking, which could lay down the foundation of structural re-balancing in the medium- to long-term.

As leading economists and experts have consistently mentioned, including the world's top development institutions such as the World Bank and the Asian Development Bank, in absence of a rebalancing towards manufacturing and agricultural development, the Philippines' pattern of growth will continue to fall short of adequately tackling double-digit underemployment and poverty rates. While expressed plans of ramping up the Conditional Cash Transfer (CCT) program -- an ingenious targeted subsidy for improving the health and education of indigent communities -- could make a dent, it is increasingly clear that the current policy paradigm at best fosters macroeconomic stability without balanced development on the ground, and at worst is vulnerable to systemic shocks on the regional and global economy.

Despite their stellar economic record and charisma, leaders such as Erdogan couldn't prevent the outpouring of discontent that has roiled Turkish markets and put into question the country's long-term growth trajectory. From Turkey to Brazil, a narrow focus on macroeconomic stability and booming (low-value-added or/and commodity) exports prevented the state from more aggressively addressing industrial upgrading and equitable growth. The explosion in spontaneous protests should serve as a sobering reminder for rising economies such as the Philippines to avoid the mistakes of their more successful and prominent peers if they wish to move towards democratic deepening and full-fledged developed country status in the coming decades.

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