Opportunities abound for PH in weak global economy, says Sachs

Prominent American economist Jeffrey Sachs sees the global economy remaining under stress from the synchronized weakness in the US, Europe and Japan, growing environmental instability and geopolitical risks arising from the scramble for scarce resources.

For the Philippines, Sachs said in an interview with Inquirer on Friday that the country should benefit from the dynamism of the Asian region, and that the economic integration planned by the Association of Southeast Asian Nations would be a big help.

Part of the growing optimism on previously neglected Southeast Asian countries like the Philippines, Indonesia and Vietnam, Sachs said, was due to “spillover” effect from China, improved governance and better terms of trade as certain commodity exports saw price increases globally.

“In general, a well-run country in the middle of the fastest-growing region of the world should be able to take advantage of that,” said Sachs, who was in town for the Asian Development Bank annual meeting.

On the spillover effect, Sachs noted that soaring wage costs in China had basically reduced surplus labor from the countryside “from a flood to a trickle.”  As China now had to upgrade its technological focus, Sachs said a lot of labor-intensive capital was moving to other countries.

“In general, China’s growth is a benefit for the Asian region because things will readjust so that there will be job creation in some sectors in the Philippines responding to either the Chinese market or replacing China in their markets and we see some of these happening now,” he said.

Sachs is the director of the Earth Institute at Columbia University and also Quetelet Professor of Sustainable Development and Health Policy and Management. He is one of the most well-known economists in the world, and is a special advisor to United Nations Secretary-General Ban Ki-moon on the Millennium Development Goals, having held the same position under former UN Secretary-General Kofi Annan.

The economist said he first visited the Philippines shortly after President Corazon Aquino came to power, when the country had just made the transition to democracy.

He said the country was then “unstable” and the idea of it becoming a major investment destination was far off.

“It’s wonderful to look at the progress over 25 years,” Sachs said. “President Aquino now is making real headway and the new challenge is 21st century challenges.”

In general, Sachs said the world economy was still “too fragile.” As such, he said regulators in each country would need to closely monitor real estate bubbles and overlending to real estate. If excessive hot money would flow to constructing residences and commercial structures, this could only create bubbles, he said. Such risks were present even in Asia, Sachs said, which was why China had to resort to tightening measures.

“I think the world is in a very complicated stage right now. First, the high-income world is in an unusually synchronized crisis, Europe is back in recession, US is stuck in slow growth. Japan is stuck in slow growth and so there really is a multi-speed world economy. It’s putting a lot of stress on the world because old patterns of trade and growth have to change,” Sachs said.

“Asia of course grew on the basis of rapid exports to Europe and US. That won’t be possible moving forward so Asia has to find an alternative means of growth—much more regional, much more trade with other developing regions like Africa and Latin America, much more domestic-centered strategy, impose pollution control, build sustainable cities and so on,” he said.

Sachs also expressed concern on growing environmental instability as manifested by extreme storms, heatwaves, more droughts and floods.

“Not only are these already very costly but they are just the beginning of what’s coming,” Sachs said.

Another major concern for Sachs is the dramatic changes in the geopolitical scene.

“We’re going from an era of US leadership to a multipolar world of very little leadership. Each country or region of the big powers-China, India, EU and US—is much more looking after themselves. They have their own problems, their own politics and there is no clear global leadership right now to really solve a lot of these very, very big problems,” Sachs said.

On one hand, Sachs said it may be good that the world was becoming multi-polar but, on the other hand, he said there wasn’t any international system of cooperation and governance that’s working effectively.

The UN secretary-general to whom he serves as adviser, Sachs said, was working very hard to make it work.

“But it’s very difficult and when the US leads less, no other region steps forward to take that extra responsibility. The world is a bit adrift right now,” he said.