Notes: On the IT-BPO industry and service-driven growth

On 7 April 2016, I attended a seminar organized by the School of Labor and Industrial Relations (SOLAIR) of the University of the Philippines Diliman and the Amsterdam Institute of Social Science Research (AISSR) of the University of Amsterdam on “The IT-BPO industry as catalyst for sustainable and inclusive service-driven growth: Illusion or opportunity?” (click here to download the program). The seminar ran for the whole day, but since I arrived in the afternoon, I managed to listen to only six talks on: middle class formation in the Philippines and in India (specifically Mumbai) and the effects of employment in the IT-BPO industry on their income distribution and consumption patterns; a comparative analysis of the offshore services sector in the Philippines and in India and their value capture trajectories in global production networks; economic and social upgrading in the IT-BPO industry and their implication for labor, and; whether the so-called “sunshine” IT-BPO industry can sustain the Philippine economy. I filled several pages of my journal with notes, but here are my main (and reductive) takeaways:

  • The Philippine (formal) economy is dominated by the (low-tech, labor-intensive) services sector, which (in 2013) accounted for 57% of economic output and 53% of employment. Other coexisting Philippine economies—export-oriented industrialization (EOI), import-subsisting industries (ISI), and the agrarian economy have steadily declined since the 1970s. The informal economy, however, is estimated by the Employers Confederation of the Philippines (ECOP) to involve 77% of the labor force.
  • Despite steady economic growth, there has been no statistically significant decrease in poverty because of income inequality: the middle and upper classes—the minority—retain control of ~77% of wealth; the majority are left to scramble for their leavings. What’s more: the middle classes, sharing more (profit-driven, “aspirational,” consumerist) values with the upper classes, tend to (knowingly or not) align with elite agenda.
  • Philippine economic growth is consumer-driven: rise in incomes, especially in urban centers, owing to the OFW phenomenon and BPOs (not to mention financialization and credit) allow for greater spending on non-essential goods and services. Profit, however, is not reinvested in national industries or human capital development, as in through higher education and other means of skills- and knowledge-upgrading. The services sector does not generally involve “knowledge-intensive, higher value-generating tasks.” Basically, we buy a lot of stuff; profit is captured by the likes of Henry Sy, while the workers of his consumerist empire remain in penury thanks to contractualization and labor exploitation.
  • The IT-BPO industries in the Philippines and India follow different development trajectories. The offshore services in India focus on higher-value, more knowledge-intensive, non-voice tasks, as in IT-enabled services of tele-banking, online education, e-commerce, etc., and hire more educated workers. The BPO industry in the Philippines, meanwhile, is dominated by call centers—apparently “voice tasks” are considered low-end work (this was news to me—we’re so proud of our neutrally accented English). Furthermore, many BPOs in India are owned by local entities, while the BPOs in the Philippines are multinationals—meaning, again, that capital flows out of the country more than into it. The Philippine offshore services sector has to evolve/be regulated in such a way as to capture value, for socioeconomic development to be realized.
  • Economic upgrading—moving from low- to high-value activities—does not necessarily lead to social upgrading, or the expansion of workers’ rights, wages, and benefits. Rather, the delivery of “world-class” service is expected at Third World rates. Social dialogue is hampered by the prohibition of labor unions in (most? all?) BPOs.
  • The Philippine economy cannot be sustained by OFWs and BPOs. For one, labor migration has plateaued because of many crises in the Middle East and Europe (oil price decline, terrorism, migrant problems, Eurozone crisis, etc.), as well as economic slowdown in China and recession in Japan. For another, tech developments and the automation of an increasing number of tasks pose threats to BPO workers.
  • Debates on the liberalization of the services sector rage on—though many of our industries are liberalized, laws remain relatively protective of the domestic services industry. In order to attract foreign direct investment (FDI), many are calling for charter change to fully liberalize the services sector, as well as other industries, like telecommunications, transportation, mining, and energy, given that perennial industry complaints—high cost of power, smuggling, insufficient infrastructure—remain unaddressed.
  • The Philippines has “no industry vision, no policy coherence,” according to Dr. Ofreneo, who also said that the country has “inconsistent government policies on FDIs and TTs [technology transfer]” and “wrong EOI modeling.” “NEDA and Arangkada are still bent on old neoliberal prescriptions!”
  • The new “cash-crops” of the Philippine elite under the Aquino regime are public-private partnerships. Following the decline of agricultural exports,  domestic manufacturing, and industrialization, largely due to decades of structural adjustment, trade liberalization, and mismanagement of monopolies created during the Marcos regime, Filipino capitalists (as epitomized by Henry Sy) have taken advantage not only of the protected industry of real estate development and labor contractualization, but also of the increasing privatization of public services.
  • There is an urgent need to revitalize the agricultural sector, given the problems of economic growth without agricultural or industrial development, food security in a country that is highly vulnerable to climate change, and the highly precarious state of farmers, who comprise one of the largest sectors of Philippine economy, yet remain the poorest and most exploited. I asked Dr. Ofreneo, But isn’t agricultural subsidy against the 1995 WTO Agreement on Agriculture? And he answered that developing countries are allowed to provide subsidies of up to ten percent of the total value of agricultural production (developed countries, five percent); the government provides a subsidy of about one percent. “So it’s not about violation [of trade agreements],” he said, “it’s about neglect.”

But then we know it doesn’t stop at neglect.



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