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MAPPING THE FUTURE
Philippine Daily Inquirer / October 04, 2021
In 1980, the revised Corporation Code was signed into law in order to “establish a new concept of business corporations so that they are not merely entities established for private gain but effective partners of the national government in spreading the benefits of capitalism for the social and economic development of the nation.” This planted the seed for the social license of corporate business as a force for inclusive development in the country.
The Philippine Constitution of 1987 further reminded business corporations of their inclusivity mandate when it stipulated that “the use of property bears a social function, and all economic agents shall contribute to the common good. … Corporations, … shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands.”
Scandals
In 2002, the Securities and Exchange Commission (SEC), in the wake of scandals, which had rocked the Western world led by the bankruptcy of Enron, promulgated the Code of Corporate Governance.
The new Code defined corporate governance as “a system whereby shareholders, creditors and other stakeholders (emphasis added) of a corporation ensure that management enhances the value of the corporation as it competes in an increasingly global market place.”
With this innovative introduction of the stakeholder concept, the SEC signaled to board directors and managers of business corporations to consider not only the interests of shareholders and creditors, but also those of other parties who are affected by or have an interest in the activities of the corporation. The SEC further expanded the stakeholder principle in the 2016 revision of the Code of Corporate Governance for Publicly-Listed Companies (PLCs) by explicitly mentioning employees as stakeholders and mandating the participation of employees in the corporate governance process.
Finally, in 2018, the SEC released its Sustainability Reporting Guidelines for PLCs. The guidelines call on PLCs to disclose economic, environmental and social activities, which contribute to sustainability. Disclosures under the social category include employee management, workplace conditions, labor standards and human rights.The chronology of legal and regulatory developments shows that inclusive stakeholder capitalism is the country’s public policy. Specifically, the government has progressively directed corporate businesses to uplift the welfare of employees, as they pursue growth for their shareholders.
Upliftment
Has corporate growth translated to employee upliftment?
Some economic analysts consider the 2010s as the most prosperous period in the history of Philippine development.
OFW remittances were robust, averaging about $25 billion a year and with about the same level of annual revenues from the BPO sector. The country’s credit rating was upgraded to investment level for the first time. On the strength of these and the soaring revenue growth among the top 1000 corporations, the economy grew more than 6 percent annually, on the average, more than doubling from P9 trillion in 2010 to P19 trillion in 2019. The Philippine Stock Exchange Index also more than doubled, from around 3,000 in 2010 to around 8,000 in 2019.
What happened to poverty? At the start of the 2010s, 26.3 percent of Filipinos (23.3 million, or about 4 million families) were considered officially poor.
The country committed, as part of the UN Millennium Development Goals, to bring down the poverty rate to 17.2 percent by 2015. We missed the goal by a lot, reducing poverty only to 21.6 percent. We did close the decade officially with poverty incidence at 16.6 percent.
Strikingly, the wealthiest Filipinos benefited tremendously from the decade’s record economic and capital market growth. Former National Economic and Development Authority Chief Cielito Habito remarked that “the increased wealth of our richest 40 individuals alone is already equivalent to the bulk—76.5 percent, or more than three-fourths—of the country’s overall increase in income last year!” He lamented our “oligarchic economy where the bulk of the nation’s wealth and income is in the hands of a few.”
Consistent with Ciel’s observation, The Economist reported that during the 2010s, the Philippines had the slowest rate of poverty reduction among its neighboring countries. The World Bank data also show that the country had the slowest rate of growth for its middle class, surpassed by Vietnam, Indonesia and Thailand. Looking at the decade broadly, therefore, the country’s economic growth was not inclusive.
In relation to employees, the World Bank has called attention to the problem of the employed Filipino poor.
Its 2018 report, Making Growth Work for the Poor, the bank observed that “poor-quality jobs (or “in-work poverty”), rather than unemployment, is the key challenge in the Philippines.” The report elaborated that “the primary constraint facing poor households in urban areas is the low level of wages paid to unskilled workers.”
In summary, the 2010s were marked by what Delano Villanueva, a former economist at the International Monetary Fund, would refer to as “social extraction”—a process where the elite benefit from the political order to increase the returns on its already substantial capital advantage while underpaying workers, most of whom are the poor.
The way forward
The UN Sustainable Development Goals challenged countries to achieve decent work alongside economic growth.
The International Labor Organization defines decent work as “work that is productive, delivers a fair income with security and social protection, safeguards basic rights, offers equality of opportunity and treatment, prospects for personal development and the chance for recognition and to have your voice heard.” Corporate businesses will need to work hard to provide this.
On Sept. 28, the Shareholders of the Philippines held its annual summit with the theme “Building better businesses: Shifting the focus from shareholders to stakeholders.”
The main guest speaker, Ambassador Benedicto Yujuico, president of the Philippine Chamber of Commerce and Industry, argued that “the pandemic has created the context in which transformative adaptation is at least possible. We have the unique opportunity to reset and rebuild the economy in an inclusive and sustainable manner, one in which we can expand our economy’s capability to create decent and quality jobs, especially that we have a young expanding labor force.”
Pandemic
As we adapt to the pandemic, corporate businesses can uplift employees only if they provide quality jobs that develop their workers’ productive capacity while compensating them enough to live decent lives.
This will require substantial investment in human capital development and cut into the returns of the wealthiest, but this will surely spread the benefits of capitalism more effectively and benefit everyone in the long run. Let us avoid the mistakes of the 2010s. Let’s really make business and economic growth inclusive this time.
benito.teehankee@dlsu.edu.ph.
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