Weak Competition Dampens Entrepreneurship in the Country

Article excerpt

The lack of strong competition in the Philippines is discouraging the growth of new businesses and small and medium enterprises (SMEs) in the country. The more than 20 years of trade liberalization in the manufacturing sector has not resulted in any significant increase in competition, preventing the economy from reaping more of the benefits of trade liberalization. This is the gist of a paper prepared by Rafaelita Aldaba, Research Associate at the Philippine Institute for Development Studies (PIDS).

In her recent presentation at PIDS, Aldaba explained that competition is one of the major channels through which trade liberalization affects the economy. Competition is important in fostering innovation and technology adoption which leads to increases in competitiveness, productivity, and growth that could have large consequences for poverty and inequality reduction in the Philippines.

A culture of competition is characterized by the efficient allocation of resources and production processes, competition among firms in both price and quality, innovation of new products, and consumers being able to benefit from the resulting efficiency. However, evidence shows that most of these characteristics are absent indicating that competition in the country has remained weak.

Since the early 1980s, the Philippines has implemented market-oriented reforms that were intended to stimulate competition, induce firm efficiency, and introduce technological change through new investment. The last twenty years of trade liberalization considerably reduced high rates of effective protection in the country. Nevertheless, the protection structure continues to be uneven, with some sectors receiving relatively higher levels of protection than others. Petrochemicals, float glass, and steel are prominent examples of raw materials receiving higher duties than their finished products.

"Our trade liberalization process has been reversed many times in the past due to the intense lobbying by strong interest groups for higher protection; hence, a policy of selective protection emerged causing tremendous distortions in our trade and economic structure. …