Survey of Philippine Development Research II by Ronald Yacat

Survey of Philippine Development Research II

PHILIPPINEINSTITU'FE FOR DEVELOPMENTSTUDIES

Board of Trustees Chairman Placido L. Mapa, Jr. Mem be rs Manuel S. Alba Armand Fabella Jaime C. Laya Filologo L. Pante, Jr.

The Philippine Institute for DevelopmentStudies is a nonstock, nonprofit, governmentresearchinstitution engagedin long-term,policy-orientedresearch. It was estabfishedon September26, 1977 by virtue of PresidentialDecree No. 1201. Through the lnstimte's activities,it hoped thatpolicy-orientedresearch on Philippine social and economic development can beexpandedin sucha mannerm to more directly and systematically assist the governmentin planningand policy-making. PIDS pubfishesthe output of its researchprogram as part of its fffort to promote the utilization of research findings and recommendations.The views expressed in published reports, however, do not necessarilyreflect those of the Institute.

Printed in the Philippines by Rapid Lithographics

Foreword

The six papers in this volume (the second in the series)represent the continuing efforts of the Philippine Institute for Development Studies to highlight and integrate the fmdings and recommendations of development research in the country and to assist in identifying future directions for policy-oriented research. They deal with the following topics: forest and mineral policies, foreign investments, pubtic finance, and population and development. As in the previous volume, the views expressed by the researchers are solely their own. We wish to reiterate our hope that, by publishing these surveys, PIDS can be of service to poficy makers, planners, researchers students of development, and those who are interested in Philippine socioeconomic development.

December1982

FILOLOGOPANTE,JR. Pre_ent Philippine Institute for Development Studies

Contents

Foreword Tables

v xv

RESEARCH ON FOREST POLICIES FOR PHILIPPINE DEVELOPMENT PLANNING: A SURVEY by Marian Segura-de los Angeles I.

Introduction

Special Characteristics of Forest Production Broad Forest Management Issues 5 Scope of the Study 5 II.

Economics of Timber Production

A. The Optimal Harvest Age of Forests 6 Economic Theory of Forest Harvesting 6 The Philippine Case 12 B. Factors Leading to Overcutting of Forests 14 The Selective Logging System (SLS) 14 Allowable Annual Cut Determination 16 Economic Aspects 17 Common Property Considerations Use of High Discount Rates 17 Pricing of Inputs and Outputs IlL The Forest Renewal Problem

19 20 "

Forest Renewal Through Private Enterprise

viii

Contents Upland Development and the Shifting Cultivation Problem Watershed Development 27

IV. Multiple Use Forestry Wildlife, Recreation and Rangelands Minor Forest Products 30 V.

Economics of Wood Processing

Supply and Demand for Philippine Timber Products Competitiveness of Philippine Wood Exports 32 Resource Productivity Studies 34 The Log Export Ban 35 Marketing Aspects 37 Processing of Minor Forest Products 39 VI. Research and Policy Issues Introduction 39

Basic Issues in Forestry Development Planning Concluding Remarks 44 Bibliography

RESEARCH ON MINERALS FOR PHILIPPINE DEVELOPMENT PLANNING: A SURVEY by Teodoro M. Santos Part i 56 I.

Introduction

General Statements 56 Classification of Minerals

Stages of the Mineral Industry 59 Characteristics of the Mineral Industry Exhaustibility 63 Risks 64 Capital Intensity and Long Lead Time Location Specific 67 II.

Basic Concepts and Principles Mineral Demand 68 Market and Prices 68 Concentration 69 Substitution 69

Contents

Intensity of Use Cyclical Volatility III.

70 71

Stock Concepts of Mineral Supply

Resource Concepts 72 Reserves and Resources 72 Identified and Undiscovered Resources Resource Base 73

Estimating Resources Along the Geological Dimension Undiscovered Resources 76 Geographic Analogy of McKelvey Multivariate Discriminant Model of Harris and Euresty

Measuring Resources Along Cost-Price Dimension Resource Inventory Techniques 78 Grade Tonnage Relation 78 Resource Base

In Ordinary Rocks In the Ocean 79 The Atmosphere

79 80

Mineral Products Without Limitation

Long-Run Supply Function of Minerals Economic Theory of Mineral Production Sources of Rent 83 The Pure Theory of Exhaustion

80 82

Models of Intertemporal Allocation 89 Industry Equilibrium Under HoteUing's Rule: Rising Prices Case 89 Firm and Industry Equilibrium Under the Gray-Scott Rule: Declining Cost Case 92 IV.

Selected Topics on Resources

A Resource Transformation Model Role of Minerals in Development Factors of Mineral Development Conceptual Framework 100 Conflict Over Rent

93 96 100

101

Some Policy Guides or Issues

104

Elements of a Model Mineral Development Law

105

Contents The Canadian Mineral Development Formula U.S. Land Management Law: The Framework of Mineral Development 110 Part II V.

110

113

The Domestic Mineral Industry

113

Policies, Strategies and Programs for Mineral Development 113 Policy Objectives 114 Problems and Strategies Programs and Projects

115 117.

Status and Problems of Mineral Development Factor Endowment 118 Technology 121. Global Economic Environment Domestic Environment 123 Investments 126 Incentives 126 Constraints on Development VI.

Summary

118

122

129

135

Conclusions and Recommendations Factor Endowment 135 Technology 136 Global Economic Development Domestic Environment 137 Investments 138 Priorities 139 Bibliography Foreign Bibliography Local Bibliography

135

136

142 147

FOREIGN DIRECT INVESTMENT IN THE PHILIPPINES: A REVIEW OF THE LITERATURE and Ernesto M. Valencia I. II.

Introduction

by Charles W. Lindsey

153

Attitudes, Policy, and Regulation

155

Contents

III.

Size of Foreign,lnvestment in the Fhilipl_nes,

IV.

Factors Affecting the Decision to Invest

Benefits and Costs: Some Preliminaries

VI.

Capital Contribution

176

VII.

Balance of Payments

186

VIII. IX. X.

Employment and Labor Relations

Training and SkiLlDevelopment

XII.

Monopoly, Power, and Influence Summary and Conclusions Bibliography

171

195

200

XI.

XIII.

168

189

Factor Intensity, Wages, and Profits Technology Transfer

162

206 210

220

223

PUBLIC FINANCE IN THE PHILIPPINES: A REVIEW OF THE LITERATURE 1.

Introduction

Taxation

by Rosario G. btanasan

233 234

2.1 Evolution and the Present Structure of Philippine Taxes 234 2.2 Philippine Tax Revenues, 1957-1978 2.3 Issues on Taxation 261 3.

Government Expenditure_Govemment 3.1 Growth and Pattern of Government Expenditures 268 3.2 Issues on Government Expenditures

The Budget System

255

Savings

275

276

4.1 A Historical Perspective on the Philippine Budget System 276 4.2 Issues on the Budget System 279 5.

Public Debt

280

268

xii

Contents 5.1 Growth and Pattern of Public Debt 5.2 Issues on Public Debt 283

Summary

280

284

Bibliography

285

POPULATION AND DEVELOPMENT RESEARCH IN THE PHILIPPINES: A SURVEY by Ale/andro N. Herein I.

Introduction

288

Background

289

Coverage and Approach II.

Mortality

290

291

Levels, Trends and Differentials Determinants 294

292

Consequences 298 Impact of Public Policy 298 Towards a Research Agenda 299 III.

Fertility

301

Levels, Trends and Differentials Determinants 303

301

Consequences of Fertility Trends 310 Impact of Public Policy 315 Towards a Research Agenda 316 IV.

Internal Migration

318

Patterns of Migration 318 Determinants of Internal Migration Consequences of Internal Migration Migration of Women 327 Impact of Public Policy 329 Towards a Research Agenda 330 V.

International

Migration

Levels and Trends 331 Determinants 334 Consequences Public Policy

336 337

331

319 325

Contents Towards a Research Agenda VI.

xiii

338

A Summary and Elements of a Research Agenda Bibliography

338

343

POPULATION AND DEVELOPMENT RESEARCH IN THE NORTH MINDANAO REGION by Francis C. Mad/gan, & J., Marilou Palabrica-Costello, and Lita C. Palma Introduction by Francis C. Madigan Mortality by Lita C Palma Fertility by Francis C Madigan

350

358 367

Nuptiality by Marilou Palabrica_os_ello

378

Internal Migration by Marilou Palabrica-Costello

410

International Migration by Marilou Palabrica-Costello Conclusion and Research Agenda from a Planner's Viewpoint by Francis C. Madigan 436

431

Tables

Segura-de los Angeles Paper 1 2

Some Financial Maturity Models ........................ Forest Research and Policy Priorities .....................

8 45

San tos Paper 1 2 3 4 5 6 7 8

Classification of Minerals ............................. Stages of the Mineral Industry .......................... Classes of Mineral Reserves and Resource Estimates ........... Types of Maps Prepared by the Bureau of Mines .............. Specific Tax Incentives .............................. Taxes Payable Generally by the Mineral Industry ............. partial List of Government Reservations with Mineral Exploration Permits .................. .............. Mineral Research or Policy Priority ......................

58 60 74 119 127 130 132 140

xvi

Tables

Man.an Paper 1 2 3 4

The Personal Income Tax Rate Schedule ................... The Gift Tax Rate Schedule ........................... The Estate Tax Rate Schedule .......................... The Structure of the Sales Tax .........................

235 239 240 242

5 6 7

Specific Taxes in the Philippines ........................ Export Tax Rates .................................. Summary of Incentives Under the Omnibus Investments Code .......................................... Consolidated Financial Statements on Income and

244 246

Expenditures (General Fund), 1957-1978 .................. Functional Expenditure of the National Government .......... Total Government Expenditure and Gross National Product ........................................ Public Debt by Status and Level of Government ........ . ..... Public Debt by Maturity .............................

256 270

8 9 10 11 12

250

274 281 283

Survey of Philippine Development Research II

Research on Forest Policies for Philippine

Development

Planning:

A Survey

Marian

Segura-de

los Angeles

I. INTRODUCTION Special Characteristics of Forest Production Forests may be distinguished from other natural resourcesin terms of their potential renewability and their being land-intensive. The production of forests is largely dependent on timber production which, in turn, has the following peculiarities relevant to forest management (Gregory 1972): (1) (2) (3) (4) (5) (6) (7)

immobility of standing timber; long time period involved in production; dual nature of staading timber; high ratio of inventory to annual production; flexibilitics in production and marketing; aggregative nature of forests; and externalities.

Immobility refers to the standing tree which has econonnc value, or "stump-age." The cutting and transporting of trees to a market, or logging, is necessary for the conversion of stumpage into more Senior Lecturer, University

of the Philippines School

of Economics.

MarianSeguradelosAngeles

usable forms. Thus, in addition to the fact that growing stumpage entails the use of resources and must assure a return to the forest grower, so must due returns accrue to logging as an economic activity. Valuations of such returns have implications on the pricing of trees which are to be cut and removed from the forest: they may differ widely when the forest grower is not the harvester/logger, as is true in many cases in the Philippines. Compared to most productive activities, the growing of trees requires a relatively longer time period, especially when the trees are of the hardwood species. Philippine dipterocarp forests, or hardwood-producing forests which constitute 90 per cent of the country's forests, have evolved over generations of adaptation to the bioclimatic conditions of the tropics. Being so, due consideration of time as an important input to the production of dipterocarp forest should be made with respect to harvests and the conduct of forest renewal activities. Such time intensity of forest production is compounded by the dual nature of standing timber: "The standing tree is at once the final product and the factory which produces that product." A decision to harvest the product is thus also a decision to temporarily liquidate the producing factory. Concomitant with long forest production periods is the high ratio of inventory to annual production. That is, forest growing stock relative to its growth is high. This implies that outlays to preserve or improve the growing stock in activities such as forest protection and silvicultural treatments may need to be made. Flexibilities of production and marketing come in varying degrees. On the other hand, there is the one-way flexibility in terms of the long time period involved in growing stumpage and the short time it takes to convert them into logs. On the other hand, there are also the multiple flexibilities in forest management in terms of: (a) the ability to extract multiple products from forests and trees, and (b) the ability to postpone harvest and still produce the same goods and services. The aggregative nature of forests means that trees should not be treated individually, but as a whole community growing within a set of ecological conditions. Since trees grow "aggregatively" and in the process use up large tracts of land, communities surrounding a forest area are significantly affected by forest activities. In addition, the other services that forests produce which are nontimber

ForeStPolicies for Development Planning

are also important. These include the followin_ recreation_ completion of the hydrological cycle, habitat for wildlife, scenery, and the like. The problem of managing forests, therefore, also entails management of these other products and services. Broad Forest Management Issues The question of how benefits and costs from using a potentiality renewable resource such as forests could be optimized for the Philippine economy can therefore be best understood initially by recognizing that policies affect forest management through their impact on physical, economic and institutional considerations in resource conservation. 1 More concretely, these considerations include: physical and economic supply of forest vroducts and services, demand for such products and services, control of resources used in forest production, and market mechanisms. Policy issues which are relevant to such considerations may be analyzed from two viewpoints: those of the individual components of the economic system, such as the producers and consumers, and those of society in general. Though Philippine forests are publicly owned, they are used privately under a system of granting concessiom, licenses, and permits. Their management, therefore, is on a comanagement basis, where government imposes controls on the manner in which forests are used by private individuals. The main objectives of comanagership spelled out by Reyes (1978) are: (a)to promote greater efficiency in the exploitation and use of timber and other forest resources; and (b) to promote the stability and growth of the forest industries so that they may provide continuing employmerit to the rural cmnmunities and help improve the quality of life in these areas. Thus, the effectiveness of conservation concepts and policies depends on the explicit recognition of such objectives in private and public terms which, at times, may not be in harmony with each other. Scope of the Study This review will therefore focus on specific public and private forest management issues in terms of how peculiarities of timber are incorporated into forest decision-making. Physical, economic, and I. The term "conservation"here is broadly defined as " v_iseuse?'of a resource,followingCiriacy-Wantrup (1963).

.MarianSegura-delosAngeles

institutional considerations are treated simultaneously in dealing with such issues. Of course, discussions will revolve around basic economic principles of supply and demand. Section II focuses on forest management for timber production. It looks into the intertemporal allocation of access and use of timber factors which have led to overcutting of trees, and/or lack of •forest renewal activities. Section III tackles some important issues of the forest renewal problem which have a beating on policy-making while section IV focuses on multiple use forestry_ Section V tackles the wood processing industries. Section VI then synthesizes the research issues raised in the first three parts and also summarizes •forest policy bottlenecks for the country. II. ECONOMICSOF TIMBERPRODUCTION Economic literature on the exploitation of a potentiality renewable natural resource focuses on the following interests: (1)the derivation of an optimal rate of resource use under certain optimization •criteria, •and (2) the effect of various market characteristics and resource use criteria on the long-run Stock of the resource. The relevance of such concerns to sustained production from forests arises •from at least three important characteristics of timber production: potential renewability, long renewal periods, and externalities involved in forest use. A. The Optimal Harvest Age ol" Forests . Economic

Theory of Forest Harvesting

Interest among • economists and forest managers in resource harvest rates initially developed around the nonoptimality of the maximum sustained yield (MSY) theory earlier advocated by most natural scientists as a guide in determining resource use rates. Briefly, the MSYtheory says that the stock of a resource must be maintained at a •level of maximum sustainable productivity.-In forestry terms, this means arriving at a rotation or cutting cycle which .maximizes maximum total yield. 2 The following variations of this theory include revenue and cost considerations suchas: (a) maximizing mean 2. "Rotatioff' means the period of years required to establishand _ow timber to a specified condition of maturity. The specific term used for uneven-aged ••forestsis "efitting cycle."

ForestPolicies for Development Planning

annual revenue, and (b) maximizing mean annual net revenue (excluding interest char_s). Expressing yield in revenue terms, the rotation periods chosen following these criteria may be depicted graphically as follows: Figure1. The gem lnterest Models of FinmeielMaturity

Revenue Total Costs

_(t)

,, I I

,, !

' i

Here, the total revenue curve follows the shape (and corresponding marginal productivity characteristics) of the usual total product curve, where lime (t) is the variable input Note that the total revenue curve, R(t), does not emanate from the origin; this is because economic yield from timber production can be expected only after some degree of maturity has been reached by the forest stand. OC represents regeneration costs. The rotation period, 0,4, is arrived at when total revenue is maximized; OB when average annual revenue is maximized; andOD when average net annual revenue is maximized. Because such harvest criteria neglect the opportunity cost of locking capital into standing timber for a considerable span of time, they have been called "zero interest" models.

MarianSegura-de los Angeles

Due consideration of capital cost came with the development of the various optimization criteria under various assumptions, as shown by formulas 1-5 in Table 1 reproduced from Bentley and Teeguaxden (1965). The three "zero interest" models are also included for comparison purposes (formulas 6-8). Table 1. Some Financial Maturity Models a Solution

ExpressionMaximized

1. General present net worth

SpecialAssumptions

R(t) - C(1 + i)r -

[L(1 + i)t - L)

lr ffi (1

+ i) t

Manager fixed

2. Faustmann' s soil rent present net R(t) - C(1 + 0 t worth orland L = eexpectation value .(1 + i)t -- 1 3. Duerf s present net worth [R(t)/(1 - i)t] - C 4. General internal

t / R (t) + L ia ffi _/ C+L

5. Bouldin_s internal rate of return

t / R(t)

iaffi _/

6. Maximum total revenue 7. Average annual

R(t)

gross revenue or mean annual value increment

8. Forest rent or average annual net revenue

R(t)

-- C t

Land fixed

Manager fixed; land value is zero; one rotation 1

Capital fixed Capital fixed; land value is zero

Interest rate is zero; one rotation Land fixed; interest rate is zero; no regeneration cost Land fixed; interest rate is zero.

a For purposesof simplication,intermediatecosts andrevenuesate not reflectedin these models. Notations used are as follows: t R{t) C {t) i

-= = =

rotation length revenue from harvest in year t cost function interest rate

average interest rate (or internal rate of return)

ForestPolicies for Development Planning

L n

= =

landvalue returnto the entrepreneur.

The first five models differ in fixity of and returns to production constraints, and in maximization over one rotation versus an infinite number of rotations. The general present net worth model (equation 1) assumes that the forest enterprise has access to all factor markets; it awards land its market price and maximizes an economic surplus that goes to the entrepreneur. The Faustmann model (equation 2) assumes land as fixed, and maximizes all economic surplus to it. Both models assume an infinite number of rotations. Duerr's present net worth (equation 3) maximizes over one rotation period returns to the entrepreneur. The internal rate of return models (equations 4 and 5) maxinuze the rate of return to capital" and differ from each other only in terms of the inclusion of land values.

C+ I'T+L

_ _._F

_I"+L

_re

2Â˘ TheGenera/Present Net Worth Model

./__11

_/_1111

lit)

Figure 2c. Duerr_Present Net Worth Model N.B.: All Y-axesare in logarithmicscale.

J_un_2b. TheF,,u_tmcmn or Soil Rent Model

R(t )

R(t)+L

_c(;)

R(t)

Figure2d. The Maximum Internal Rate of Return Model

MarianSegura-delosAngeles

The most accepted and widely used among these five models are the first three, although controversy on which retum to maximize still continues. 3 Such controversy revolves around whether timber growing can be viewed as one which can compete with other economic ventures in terms of capital efficiency. The five criteria vary in terms of which constraints the forestmanager is faced with, and what time frame he is considering for managing the forests. When land is the constraint, then it would be economically sound for him to maximize land expectation value (equatio n 2); when capital is the constraint, the internal rote of return models would be more applicable (equations 4 and 5). However, equations 4 and 5, which represent the return to capital, have been argued to be inapplicable for forest growing, because the latter is said to be unable to compete with normal economic activities due to its time-intensity. Moreover, for countries where population growth exerts a lot of p_ssure on the land, as in the LDCs,, maximization of land expectation value has been advocated. Thus, most calculations in forestry decisions have been based on the use of rates of interest which are lower than the market rate of interest, and which generally approach that of a social discount rate (Ferguson and Reilly 1976). A rate which would be conservation oriented would be in the vicinity of 5 per cent (Myers (1977). The problem of deciding on the exploitation rate of renewable resources from society's point of view has been treated in the following manner: (1) by using a safe minimum standard to avoid the adverse ecological effects of overexploitation; (2) by analyzing resource systems under steady state conditions; and (3) by making operational resource use decisions by looking into adjustments between supply and demand. Implied in all this is the desire to preserve the positive environmental influences of forests, and the need to consider intertemporal/intergenerational equity in access to and use of a potentially renewable resource. Ciriacy-Wantrup (1963) advocated that, as a general rule, a limit to the exploitation of potentially renewable resources must be set to prevent the impairment of their biological renewal. This implies a criterion which avoids a critical zonebeyond which resource depletion becomes irreversible. 3. See, for instance, the articles of Thompson (1966), Holt (1976), Smith (1967), Samuelson(1979), and Myers(1977). The second andthird models are actuallyvariationsof the generalpresentnet worth model.

Forest Policiesfor DevelopmentPlanning

The analysis of resource use using steady-state systems may be categorized as follows: (a) those whcih use dynamic optimization models to derive steady-state conditions, and (b) those which use a static framework, with the steady-state conditions as given. Among those who use dynamic optimization models are Plourde (1970), Burt and Cummings (1970), and Beddington, Watts, and Wright (1975). Plourde uses the calculus of variations in dealing with the problem of the use of a social discount factor vls-a-vls" ' " optimality in resource exploitation. Burt and Cummings examine production and investment in natural resource industries and optimize a social welfare function as well. Beddington, Watts, and Wright have as their objective function the maximization of the present value of the profits obtained from selling the harvest from the resource, using optimal control theory under various combinations of the following conditions: (a) the resource is harvested from a common or private pool, and (b) there is perfect Competition or monopoly power in the resource market. Among those using a static framework is Smith (1968) whose work deals mainly with fisheries exploitation. In the case of forestry, Naslund (1969), Schreuder (1968)and Samuelson (1979) are among those who have made important contributions to the problem of determining forest exploitation rules. Naslund and Samuelson both came up with a rule which generalizes Faustmann's formula (which has become known as the traditional forest regulation model). The more important thing to point out is that such models try to incorporate the resource exploitation decision into more general problems such as the rate at which capital is to be accumulated over time, consumption rates, population growth rates, and intertemporal allocation of forest use. Thus, they come up with derivations of sustained yield in the same manner that economists have treated growth via golden rules and modified golden rules (Plourde 1970). For this reason the term "economic sustained yield" has replaced mere "sustained yield." The employment of such concepts which link harvesting decisions with national supply, demand, and growth considerations was recently conducted by Walker (1975) in his formulation of ECHO (economic harvest optimization). Basically, ECHO incorporates supply and demand concepts with timber growth and renewal. The amount of timber to harvest, investments needed for intensive forest manage" ment, and allocation of land for commercial timber production were

MarianSegura-delos Angeles

simultaneously determined for national forests in the U.S. Although these could also be done using Faustmann's approach (as pointed out by Gaffney 1960), ECHO is more flexible in terms of handling downward sloping demand curves. The Philippine Case Philippine forest management aims to promote optimum sustained yield, which is defined as the "continuous or periodic production of forest products in a working unit for the purpose of achieving at the earliest practicable time an approximate balance between growth and harvest or use." (P.D. 705; P.D. 1559). As expounded by Revilla (1977), the following are the elements of sustained yield: continuity of harvests, the periodic time interval during which the products axe obtained, and the area on which sustained yield is to be practised. This is supposed to have the following results: (a) forest conservation for the benefit of future generations; (b) amelioration of uncertainty in the forest industries; (c) stabilization of communities; (d) provision of regular incomes; and (e) protection of social values. In the same paper, Revilla points out the following: (a) (b)

(c)

the area basis for sustained yield may be the nation, the region, or a forest management unit; forest management, being an economic activity, should explicitly consider economic considerations, such as growth and profit in the case of the firm; and a forest unit in a given situation either makes an economic sustained yield unit or its does not.

Thus, Revilla proposes a reinterpretation of the sustained yield concept into an economic sustained yield concept. He adds that the factors which make (or do not make) an area an economic sustained yield area, such as the size of the area vis-a-vis its ability to meet the demand for goods and services, and the economic constraints, may be manipulated to allow for sustainability. Indeed, explicit recognition and consideration of the economic forces which govern forest use seems to be in order. In fact, a brief examination of such forces which lead to forest overcutting (section B below) bears this out. Such study will have to be conducted both at the forest management unit level and from the standpoint of the nation. For the latter, economic concerns shall be the broader issues of Philippine supply and demand for various forest timber

Forest.Policies for Development Planning

products and services, foreign trade, and the like. The only comprehensive treatment of the country's alternative futures with respect to Philippine forest use is the PREPF study (1977) which focused on the determination of the physical supply of forests and the demand for major Philippine timber products. The study reveals that problems between balancing potential timber supply and local need for wood products will not be felt between now and 2000 A.D., but rather during the post-2000 era. To prepare ourselves for a possible timber crisis during the period 2000-2026, we should invest in forest renewal activities and consider the limitation of wood exports. The latter may not be feasible though, since earnings from wood exports ate also important in view of the country's balance of payments problems. This implies that more attention should be paid to the renewal of forests (denuded and inadequately stocked) to augment future timber supply. While the PREPF study points out the trade-offs which need to be considered when deciding on forest exploitation and renewal rates, it does not attempt to quantify the costs and benefits implied by various alternative futures for timber supply and local requirements. Thus, policy issues such as the log export ban, reforestation using various schemes, the allocation of forest land for various uses, and similar issues still remained untaclded. Nevertheless, workable analytical tools, which when integrated with the PREPF studies can provide more definite answers to such policy issues, have already been developed. Most noteworthy of these are the works of Revilla (1978), Sibal (1978), and Nguyen (1974). Revilia (1978) developed a model for the management of dipterocarp forest stands. A computer simulation model was used, allowing varying demand and interest rate levels, and cost considerations, among others. The application of such a study on a representative sample of the logging concessions in the country, together with forestry investment, wood, export, supply and demand considerations, would allow for a more integrated approach to determining the national forest exploitation rates, wood exports, and forest renewal problems. In this regard, the studies of Nguyen (on wood production, investment, and export) and Sibal (on wood export supply and demand interactions) should prove very useful. All together, then, an extension of the PREPF study which makes use of Revilla's model and defines in explicit terms costs and benefits (in the manner of Nguyen 1974 and Sibal 1978), among others,

MarianSegura-delosAngeles

would provide a workable analytical mechanism for investigating national forest policy issues such as forest exploitation and renewal rates. B. Factors Leading to Overeu tting of Forests The rate of forest drain has been estimated at 172,000 hectares per year from 1962 to the mid-1970's and at 204,000 hectares per annum for the period 1969-76 (PREPF 1977). Criticisms over the estimate of both rates include the following: (1):the calculation of 172,000 hectares per year is based on the arithmetic mean which is misleading because the actual drain for the earlier years was actually much higher than that of the recent years (Arellano 1979); and (2)the PREPF figure is partly based on an estimate of 1976 forest cover using LANDSAT photointerpretation, the methodology of which has been subject to varied criticisms. 4 The more important things to note, though, are the factors which led to forest drain. These factors may be summarized as follows (Segura etal. 1977): (1) land classification was biased towards nonforest use, (2) there was a slow rate of land classification, (3) there was inappropriate policing of forest users to conform with forest rules and regulations, and (4) uneconomic sized concessions of short duration were granted. The first two factors will be treated along land-use problems elsewhere in the paper, while the last two will be analyzed, together with other factors notpointed out in the earlier study, in the following subsections. Although the main focus here is the economic environment under which forests had been overcut, relevant technological aspects will also be discussed briefly. The Selective Logging System (SLS) The implementation of sustained yield for the uneven-aged forest of the Philippines is via the selective logging system (SLS) which provides for the cutting and removal of mature, overmature, and defective trees while ensuring the healthy growth of residual trees. The following phases characterize the. system: tree marking, residual inventory, and timber stand improvement (TSI). The marking of trees for cutting insures that adequate residual stock is left, which would grow into harvestable stocks in the future. Residual inventory is conducted after the harvest operations in order to pro4. This occurred on several occasions during which the PREPF forest cover estimates were discussed.

ForestPolicies for Development Planning

vide a basis for predicting the next cyclic cut, as well as for checking whether damagehas been done to the residual trees (i.e., destructive logging has taken place). Timber stand improvement is conducted to assure a healthy growth of the newly cut forests. The evaluation by Revilla (1978) of the selective logging system indicates that, if properly implemented, SLS could be one suitable timber management system for our dipterocarp forests. The problem seems to lie partly in the lack of implementation of all three phases of the SLS. Such deficiency in implementation may be caused by the system's shortcomings as pointed out in Revilla's study, namely: (a)

the system is implemented nationwide without allowance for variations among timber management units in factors such as climate, site accessibility, adequacy of stand density, and economic conditions; and (b) lack of flexibility because of the use of a fixed percentage for the marking goal of the residual stand, and reliance on residual inventory as a means of controlling logging operations.

It is possible, then, that because the system is "difficult to implement, ''5 most concessionaires opt for the overcutting of trees and the payment of frees. Although a recent study points out that SLS is financially sound in terms of returns per peso investment for the two logging setups analyzed (Rebugio 1979), such a finding cannot bÂ˘ generalized for all logging setupsin the nation. Moreover, whereas Rebugio's study calculated net return per peso invesment to fall within the range 1.70- 2.56 a recalculation by Cabanayan (1980) allowing for a lower share of the allowable cut being actually harvested on account of government rules and depressed log m_kets came up with a net return per pcs0 investment of from 0.269 to 0.67 per cent only. Until more rigorous researches are conducted, however, such findings should not be considered conclusive. The following shortcomings of Rcbugio's study have been pointed out by Agbayani (1980): (a) the analysis considered only one cyclic cut instead of a perpetual series of cuts which is the case under sustained yield concepts, and (b) treatment coats which arc spent during the third phase of timber stand impxovement were overlooked. Since Cabanayan's study follows Rebugio's procedure except 5. That the system is difficult to implement has been pointed out in several occasions, one of which was duringa PREPF workshop attended by the researcher.

MarianSegura-delosAngeles

for the assumption regarding percentage log production out of the allowable annual cut, it also suffers from similar flaws. Moreover, a reexamination of the selective logging system and AAC determination must be conducted simultaneously with a deftnition of economic sustained yield (Revilla 1978), inasmuch as any harvesting scheme should be feasible within the given set of economic and biological conditions. Such an investigation must also confider variations of SLS as well as alternatives to the system. ALLOWABLE ANNUAL CUT DETERMINATION

The amount of cut which would allow for sustaining yield over time is determined by the allowable annual cut (AAC) formula, which calculates the maximum yearly cut allowed for a particular forest unit. Only mature, ovennature, and defective trees are logged selectively from the forest. The AAC is calculated based on conside* rations for subsequent yield from the forest; specifically, it is calculated on two cutting cycles. Though based on sustained yield concepts, the formula used for determining the AAC employs a growth and yield prediction model which tends to overestimate future yield from second-growth forests (Revilla 1977). Such a model was developed by using data obtained from forests which are of relatively better quality than most Philippine forests (Rule 1980). 6 Thus, the general use of such a model for all forest management units in the country, including those with inferior growing conditions, leads to overestimates (and overconfidence) of future harvests, most of which have been found to be unrealistic (Revflla 1975). Newer and more complete growth and yield predictions have already been developed since then and should now be used as basis for such formula (e.g., Canonizado 1976;Bonita and Revilla 1977). These latter models allow for the following crucial factors which affect future forest yield: quality of site or growing conditions, years elapsed after logging, and initial density of residual forests. Moreover, the AAC formula itself is unrealistic in that it assumes that equal cuts should be obtained from forests for two cutting cycles, and it does not allow for the explicit recognition of certain economic considerations (Revilla 1977). Thus, there is an urgent need to revise this formula to allow for an infinite number of cutting 6. This was gathered practitioners.

through

informal

talks with foresters

and other forest

ForestPolicies for Development Planning

cycles, and economic sustained yield concepts. This should be a subject for future research which would incorporate the biological constraints with the economic. Again, this could be made operational for each forest management unit (the license) as well as for national forest management considerations. Eeonomie Aspects Resource overexploitation may result from the following: (1) common property aspects of the resource, (2) use of high discount rates,_and (3) imperfect pricing of inputs and outputs. COMMON

PROPERTY CONSIDERATIONS

The common propertytheoryof resourceoverexploitation refers to that case when there is virtually free access (or open access) to the resource. Gordon (1954), in analyzing the overfishing problem of certain f'tsh species, points out that such aspect leads to nonpricing of the natural resource itself, which is also an input to production. This results in high economic rents initially realized from fishing. Overcrowding eventually follows among fishermen, and even when the rent is dissipated among the many f'tsherrnen (resulting in losses), high unemployment rates either discourage or disable exit from the industry (Clark 1973). Such phenomena could be said to be true also for some forest users, specifically loggers and shifting cultivators. Low taxes and charges paid by loggers for their harvesting business (Segura et al. 1977) may be equivalent to the condition of underpricing stumpage. When taken together with the buoyant log export market in the sixties, this may have led to the extremely high profits in logging/log export activities, and the consequent proliferation of fly-by-night loggers. In the case of shifting cultivation, virtually ineffective forest protection, increasing landlessness, and a general lack of orientation fox the conservation/preservation of anythingpublic may be counted as factors which led to forest misuse. USEOFHiGHDISCOUNT RATES Even when entry to a renewable resource-based industry is not easy, resource overexploitation could be observed, as in fi_hing with high-powered ships (a capital-intensive industry). Such a phenomenon results from the use of high discount factors by resource users (Clark 1973, Ciriacy-Wantrup 1963, Pearce and Rose 1975). When the latter are faced with capital constraints and yet need to use capi-

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tal intensive technology, they maximize the return to capital. This may also be true for the capital intensive loggers in the country. In fact, the use of high discount rates which may have resulted in forest overcutting by concessionaires and licensees may have actually been compounded by the following factors: (a) uncertainty about receipts from future harvests of second-growth forest because of the relatively short tenure for licenses (vis-a-vis the long time needed for forest regeneration); and (b) the granting of small-sized concessions, thereby necessitating the need to recover high capital investments in logging equipment in a forest (Segura et al. 1977). One may argue, then, that in addition to the lack of conservation ethic on the part of the loggers, the economic constraints that they faced may have actually led them to the "economically sound" decision of overcutting the forest as well. In the case of shifting cultivators, the majority of whom are at subsistence levels of living, high preference rates for meeti_ng present needs are most likely reinforced by short,term (one-year) forest occupancy permits for the duration of which they are supposed to conduct soil conservation measures or face ejection from the forests. To date, forest occupancy permits are granted for two years and can be renewed, provided ample proof of developing the occupied upland area is present. High preference rates for present consumption may be true not only for the private users of forests; they may also be true for planners of low-income, capital-poor, less developed countries who have had to focus attention on the immediate needs of the populace. In fact, for most countries, it is only when symptoms of resource exploitation and environmental problems are felt that concern is expressed over natural resource rrianagement problems. This does not necessarily imply, however, that a general lowering of the interest rate needs to be imposed to encourage resource conservation projects and activities. Scott (1972) and Myers (1977), for instance, point out that a general lowering of i would induce more investments and higher economic growth rates, which in turn would put more pressure on resource exploitation. What is feasible, though, is a lowering of i for resource conservation projects, as is being done now to encourage investment in tree plantations in the Philippines. Whether such lowering of interest rates is sufficient still needs to be investigated along with rates of return that could be expected

ForestPolicies for Development Planning

from tree plantations managed by businessmen and/or small upland farmers. Studies need to be conducted on the availment of such incentive and on the nature of the capital market which is available to tree growers. PP_CINcoF INPUTSANDOUTPUTS Among the benefits of" forest production arc ecological balance, recreation, provision of potential water supply, and wood products. The first three arc generally long-run benefits whose use is mostly nonmutually exclusive. Thus, theil" valuation is difficult to quantify in monetary terms. Consequently, the value that has been generally attached to forests has been that of standing timber only, resulting in an underpricing of the total forest value. This has party led to wasteful and often destructive forest use, whose costs to society have been difficult to estimate. Moreover, even the value of standing timber (or stumpage) itself has been underestimated. As stated earlier, Philippine forests are publicly owned and their use for logging purposes has been awarded to private individuals through the licensing system. Such individuals pay the following fees: forest charges, license fees, real property taxes, sales taxes, and export taxes. Of these taxes, forest charges were imposed for internal revenue generation, license fees for the permit to operate a business, real property taxes for the use of government land (P.D. 888), and the rest as forms of the usual excise taxes on produced goods None of these resemble stumpage appraisal, which allows for the computation of the value of final products, costs associated with producing it, and an allowance for profit and risks (Gerard 1917). Although such a system of attributing value to sturnpage as an input to production and as a basis for government to earn its due from being the public forest manager was advocated in the Philippines in the late fifties (Chinte 1957), it has not been adopted partly due to the difficulties involved in its calculation. However, an attempt was made by Serna (1974) to look into the employment of the stumpage appraisal system in connection with the valuation of timber concessions. Serna's study, in fact, involved a detailed examination of the costs associated with operating a forest concession. More recently, though, a l_rger number of decision-makers have indicated favoring the stumpage appraisal system as a more efficient way of valuing standing timber (NR.MC 1980). But legal problems in

MarianSegura-de,losAngeles

implementing it were pointed out due to the fact that : (a)it has been considered to go hand-in-hand with bidding as a basis for awarding concessions, and (b) the major portions of Philippine timberproducing forests have already been awarded as concessions/licenses. A suggestion was then made to apply it for future new concessions, and to adjust forest charges during the interim period (during which licenses are expiring). The more important thing to note is that forest concessionaires must be made to pay a fair price to the public, at the same time that the latter allows the former to earn returns as an entrepreneur, under the economic constraints within which logging/manufacturing is conducted. In fact, the user cost concept (Nautiyal 1977) must be examined for possible incorporation into forest taxation determination, and as a possible tool for regulating cuts from forests. For instance, standing timber should not be priced so low that it encourages wasteful use of the resource. Certainly, the move to integrate forest charges_ fees, and other collections into one fee, and with upward adjustments, is a step in the right direction, in terms of allowing the government to earn due revenue from the forest. For future studies on the forest taxation system, due attention to the various forms of taxation and their corresponding effects should be made. For instance, in its current form and value which approximate that of a severance tax, forest charges should not be expected to drastically affect the decision to harvest, at least in theoretical terms (Gregory 1972). In the case of real property taxes which are collected regardless of whether harvests are made or not, the opposite case may be true. Returns from forest harvests are expected to be earned periodically (i.e., not necessarily annually); yet, real property taxes are supposed to be collected annually. The longer time periods involved in forestry production make this tax burdensome, when compared, say, to a yield tax (Gregory 1972). It is perhaps no wonder, then, that clamor for the amendment of current real property taxes for timber has been expressed (Aral_ez and Baggayan 1978). III. THE FOREST RENEWALPROBLEM Government effort to restore forest vegetation met the following problems during the last tWO decades (Viado 1964): (a) (b)

inadequate funds for labor wages; lack of vehicles, tractors, and other

equipment

needed

for

Forest Policies for Development Planning

(c)

(d) (e) (f)

better management of reforestation projects; lack of technical personnel to undertake research work and other technical duties which have a direct bearing on reforestation activities; absence of audiovisual apparatus and printing machines to enhance its reforestation work; kaingeros and other illegal occupants; and reforestation of forest areas outside the jurisdiction of the reforestation administration.

While such problems have been tackled through administrative reform, increased budget for refoiestation projects, research on technical aspects Of forest renewal, and increased extension work in forestry, the more basic problem of lack of planning in reforestation work in general remains a major undertaking. Such a problem is widely recognized among experts on forestry issues (NRMC 1980); in particular, indiscriminate tree planting has been said to characterize the reforestation effort in the country. Among the recommendations made by the same group of experts was the direct involvement of the private sector in forest renewal efforts; in addition, a caveat was expressed that hardwood species should not entirely be replaced by the softwood, fast-growing species, on which current reforestation efforts seem to have focused. Forest Renewal Through Private Enterprise Similar economic factors which led to destructive forest activities (such as illegal logging, overcutting, and slash-and-burn cultivation techniques) may be said to have partly caused the lack of interest among private forest users in seriously conducting forest renewal activities. These are: high time preference rates, short-lived tenure in forest use, and misvaluation of costs and benefits of timber production. Perhaps to partly grapple with such economic constraints, the following recommendations were made during the 1978 First Philippine Forestry Congress (Arafiez and Baggayan 1978): (1)

(2)

tax incentives, such as capital gain treatment of growing timber; 100 per cent exemption from income taxes of "all investments derived from any and all sources put into tree planting": abolition of the real property tax on timber growing land; and abolition of application fees, harvest fees, and the like; revision of the policy on tenure to allow for forest land use

(3)

MarianSeguradelosAngeles for more than fifty years; providing for an environment which would make the wood industry more viable, such as: more liberal log export allocations, facilitation in the processing of documents, and the like.

Such recommendations need to be studied in the light of the following: the need to restore protective forest cover in critically denuded areas in the country; possible supply bottlenecks in world timber products (including wood-based energy); and the need for products of fast-growing wood species, both by local and foreign consumers. Research on such recommendation should take into account existing studies on the establishment of forest plantations, such as those summarized below. Mindajao (1978) reports average financial rates of return of 59 per cent for tree farmers of the Paper Industries Corporation of the Philippines (PICOP) who were f'manced by the Development Bank of the Philippines (DBP). PICOP tree farmers who did not avail themselves of DBP assistance earned an average return of 53 per cent while working on smaller-sized farms. The tree farming scheme of PICOP involves the provision of inputs and technical knowhow to the participating tree farmers, as well as the assurance of a ready market (with PICOP as the buyer) for their produce. Mindajao's study on the PICOP tree farmers shows that two main reasons for continued farmer participation in the venture are high returns on family investment and the presence of an assured market. Among nonparticipating farmers also interviewed in the same study, the following reasons were cited for nonparticipation' (arranged according to degree of importance): lack of suitable land, lack of family manpower, lack of time to attend to tree farming, and not wanting to wait for too long a time before trees could be harvested. Indeed, the availability of land is an important factor to consider when reforestation work is to be done by forest dwellers. In the PICOP case the participating farmers were landowners themselves. Some views informally expressed on the PICOP tree farming scheme also point out that PICOP did not have to invest in infrastructure anymore, inasmuch as it already had one in its present concession. Thus, the PICOP scheme entailed only the expansion of its operations to include tree farmers located in the periphery of its forest concession; the tree farmers' pulptimber augmented PICOP's

ForestPolicies for Development Planning own pulp_nber concession.

supply from the latter's plantations

23 within the

In a separate study, Gendrano (1974) looked into the feasibility of a tree farm bring established by an already existing pulp and paper manufacturing firm. Gendrano calculated a potential rate of return of 27 per cent. Such studies, however, provide only indications of what to expect of tree farms. More complete studies which are relevant to the reforestation needs of denuded upland areas should include the following aspects: the establishment of tree farms and infrastructure needs for marketing, and the processing component. While denuded areas are found in Luzon and Visayas, the majority of the efficient processing plants for timber products are found in Mindanao and the immediate vicinity of Metropolitan Manila. With the much repeated complaint about costly transport and freight services in the country seriously affecting our ability to proeess wood products which would be competitive in the international market (Economic Development Foundation 1968; Sanvictores 1975; PDCP 1977), the need to plan for forest renewal cure marketing and processing needs becomes a must. Future investigation into the marketing aspect of forest renewal must look into the possibility of creating a log market where sellers and buyers could meet (Clawson 1978). This may be more important for reforestation projects which would focus on the less bulky woodproducing species. Government reforestation work has accelerated only in the last decade. And there are doubts whether the government can afford to shoulder the expenses to reforest five million hectares of denuded land (Monsalud 1977), especially because reforestation work in such areas entails heavy financing (Sanvictores 1979_. The generation of funds for various reforesfation strategies needs to be explored. The proposal.of Monsalud (1977) to have BFD roforestation work supplemented by a quasi-government agency is worth considering in this regard. It was suggested that funds be generhted through additional forest charges on concessionaires and licensees. A concomitant study would be one that could determine the ira: pacts of forestry development activities of the private sector. The most comprehensive study on the community impacts of a forestry concession was conducted by Gutierrez (1973). His subject was the Paper Industries Corporation of the Philippines (PICOP). Here, the areas where PICOP could substantially increase its positive effects

MarianSeguradelosAngeles

on the communities surrounding the concession were also identified. Mindajao's (1978) study, on the other hand, focused on the direct beneficiaries of the PICOP tree farming project from the farmer's viewpoint. His attempt to evaluate costs and benefits from the public's viewpoint yielded an economic rate of return of 23 per cent, after allowances for loans and shadow prices for labor were made. Upland Deoelopment and the Shifting Cultivation Problem The problem of shifting cultivation is expected to become more acute with increasing landlessness and high population growth rates. Whereas there is no agreement on the extent of the kaingin problem (Serna .1972), recognition of the need to develop appropriate strategies for managing forest occupants has been exhibited. In fact, the following government efforts in developing forest occupants into more productive farmers are being tried: resettlement approach, the family approach, communal tree farming, and other variations. â&#x20AC;˘ Resettlement entails the transferring of the shifting cultivators to areas more suitable for agricultural production. Attempts at resettlement, however, have not shown much success. Reyes (1977), in a study of kaingeros' attitude toward resettlement, found that a high level of knowledge of the beneficiaries could not guarantee a favorable attitude towards being resettled. It has also been pointed out that for a resettlement to be viable, high capital outlays need to be undertaken for the development of infrastructure and social services, as well as income-generating activities. Moreover, the problem of finding vacant public lands for resettlement areas needs to be tackled (Beloso 1970). The family approach of forest occuPancy management at Malaybalay, Bukidnon assigns lots to families for reforestation. Intercropping with food crops is allowed until it is no longer feasible, i.e., when trees have grown to sizes which do not enable agricultural crops to survive. The farmers are then paid according to trees grown, and then transferred to another area. On the other hand, the Pantabangan scheme entails the growing of seedlings by families in their own backyards or in a communal nursery. They plant tree seedlings in three to five hectare lots and are paid via six installments in two years' time. Both the Malaybalay and Pantabangan reforestation schemes follow the "taungya" system of the Burmese forestry villages (Pol-

ForestPolicies for Development Planning

lisco 1978). They basically follow the concept of hiring kaingero families for reforestation work, while at the same time allowing them to grow agricultural crops for their immediate needs. The government takes over the maintenance and protection of estabfished plantations after the end of the two-year contract with the farmers (Baggayan 1977). Whether such an approach in hiring people to do reforestation work is a permanent solution to the forest denudation problem remains to be investigated upon. It is possible that if compensation is too low, the shifting cultivators would prefer to grow agricultural crops (Binua 1971 ). And, in some cases, the kaingeros themselves have been suspected to be the same ones who set ftre to the areas where reforestation work was done. This may be attributed to the lack of alternative means of livelihood; burning the area where they conducted reforestation work would mean that the shifting cultivators would be hired again to reforest the area (Segura-de los Angeles 1980). This is one caveat which should also be considered in reforestation work by the private sector inasmuch as forest renew째 al by the forest concessionaires also runs along the same strategy of hiring forest occupants (Sanvictores 1964). The need to develop a total approach to kaingin management is now widely recognized as a result of insights gained from various sociological studies on shifting cultivators (e.g., Duldulao 1977; Rebugio 1969). In fact the term "agroforestation" has been used also to describe the strategy being adopted in the Forest Occupancy Management Program of the government. While agroforestation, as det'med in several ways, 7 may also be a business undertaking for the nonkaingeros, Duldulao (1979) points out that priority should be given to the kaingeros and the landless farmers for the following reasons: (1) they are in the best position to develop lands since they could use their own labor in the process; only a small amount of financial assistance may be required from government to make the program succeed if these are the groups who get the leases; and (2) kaingeros have already occupied the land, so that even if they were to be driven out, they would most likely put up a resistance. Indeed, the potential for developing the uplands seems to lie in the abundance of labor in these areas, and in the need for political 7. A summaryof the different meanings of agroforestationmay be found in Segura-delos Angeles(1979).

MarianSeguradelosAngeles

stability. Whether the development of the uplands through the management of shifting cultivators is less costly still remains to be seen; the need for establishing infrastructure and social services in these areas may also entail more funds. It we were to compare publicly managed reforestation projects with the private sector's strategy of restoring forest renewal, however, the latter may still be more expensive. The more important thing to note, however, is that the shifting cultivators' problem can no longer be ignored. That is, whatever upland development activities will be conducted in the future should be complementary; otherwise, none of these will have sustainable effects. A recent investigation into pilot agroforestation projects, for instance, points out that the land-use problems in an upland area in the Northern Philippines were a combination of the erring loggers' problem, encroachment by pasture lessees and kaingeros, and landgrabbers, forces which threaten the initial gains of the pilot agroforestry project in the area (Seguradelos Angeles 1980). Most studies conducted on upland farmers focus on their basic characteristics; that is, research on upland farming, having been conducted on a case study basis, has concentrated on the socioeconomic prof'ding of the farmers. 8 While these are useful for providing benchmark information on the farmers, there is a need to direct such research towards problem-solving. Questions on the maximum population density sustainable for various cropping systems, the optimum cropping mix and cycles, credit support; labor utilization, and the like need to be answered in order that sustainable strategies for upland development could be evolved (Llapitan 1979; Cagampang 1972). The problem of implementation also needs to be looked into. How will existing institutions be tapped for upland development? â&#x20AC;˘ The only on-going study on the institutional framework of upland development is that being conducted by the Upland Hydroeeology Program at the University of the Philippines in Los Ba_os (Sajise 1980). Another important issue is that of dealing with the cultural minorities and the need for developing them within norms acceptable to their traditions. An important work by Palma-Gil (1976) provides an initial working framework for a total approach towards 8. See, for instance, the studiessummarizedby Librero(1977), del Castillo (1979), and Ganapin(1979).

ForestPolicies for Development Planning

the development of minorities. This study highlights the following strategies: (a) agricultural resource mobilization,(b) external and internal market development, and (c) the development of supportive infrastructure and institution building. With respect to the land tenure problem (briefly mentioned in section II), the granting of a two-year forest occupancy permit to shifting cultivators may be an insufficient incentive towards developing the land. While the granting of such a permit, as provided for in BFD circular No. 9, Series of 1980, is an improvement over the one-year permits earlier provided by law, the period may not be adequate for the shifting cultivator to prove that he has undertaken upland development activities which are supposed to include the. planting of trees. When examined against the 25-year lease allowed for 100-hectare industrial tree plantations and/or agroforest farms, and the ten-hectare tree farm lease agreements (MNR Administrative Order No. 4, 1980), the two-year forest occupancy perrriit is really short term. The recent launching of the Communal Tree Farming (CTF) Program represents a marked improvement for forest occupancy management. The program has earmarked at least ten hectares for awarding on a 25-year lease to a group (e.g., barangay) of farmers for development into agroforest farms (BFD 1980). A necessary condition to a CTF is the formation of strong farmers' organization, which would entail more efforts at human resource development activities, for the distantly located shifting cultivators. Wateshed Deoelopmen t Watershed development has been a main concern with the realization of water supply and demand bottlenecks. The management of forest for watershed protection has, however, been hampered by lack of technical information on the physical, biological, and climatic factors of watershed renewal. Thus, on-going research for watershed development has focused on the inventory of such factors (UPLB-UHP 1978, 1977, 1979;Umali 1977). Feasibility studies on watershed management attempt to quantify the nontimber benefits of forest renewal. For example, the studies for Pantabangan and Magat watersheds (NIA and ECI 1978; NIA and Madecor 1979) include the following primary benefits: crop produetion_ grazing, forestry, reduced reservoir sedimentation, reduced damages to roads and resettlement_, and improved employment opportunities. Other benefits were mentioned; but these were

MarianSegura-delosAngeles

not attributed solely to the project because of the presence of other complementary projects, to wit: the building of the darns and the development of the Upper Pampanga River Project. Watershed development for the protection of reservoirs necessitates the building of dams and the consequent displacement of communities. Thus, questions on the identification of project benefits and costs and their distribution have been raised along with problems attendant to the planning and implementation of watershed development activities. Follow-up studies on the conditions of displaced and resettled communities point out the following (NIA and UPIEP 1975): inadequacy of housing, water, and health facilities; and undervaluation of property lost due to inundation, for which payments were made by NIA to the residents of the old Pantabangan town. A more recent study by Floro (1980) highlighted the negative impacts of resettlement on the production/consumption activities of the families, several years after they have been displaced and resettled. Indeed, the need to focus on human resource development for such projects has been pointed out (Ymzon 1980). Moreover, the more basic issue of whether such similar community displacing projects is warranted has been raised (UGAT 1979). Another important aspect of watershed development is the complementarity of various development projects in upland areas (Segurade los Angeles 1980). A broader issue is the consistency of policies which affect projects in such areas. Saplaco (1979) points out the need to catalogue and evaluate policies relevant to watershed devel* opment. IV. MULTIPLEUSE FORESTRY While current management of Philippine forests follows the multiple-use concept, its operation is still at the initial stage. Although multiple-use districts already exist in the country, difficulties in putting them in more concrete terms arise due to the lack of technical information on the production possibilities of the numerous ways of using the forests (Revilla and Bonita 1978). And yet, the functioning of multiple-use forestry would be important in analyzing the trade-offs that may be involved in forest land use. An attempt was made by Sema (1980) to investigate the closing down of certain forest lands for watershed protection (PD 1559), wilderness areas (LOI 9"17), and food production areas (PD 472). The study's calculations of revenue lost due to the closing

ForestPolicies for Development Planning

down of commercial forests to logging amounted to P719 million per year of government revenue and $430.28 B annually, of foreign exchange earnings. Sema added, however, that such closing down of areas which otherwise could be logged is an indication of the high priority attached to nontimber forest uses, such as for wilderness, watershed, and food production. A workable model for examining multiple-use alternatives has already been developed, and may already be implemented for certain forest umts. Such a model was formulated and made operational by Balangue (1980) in looking into the development alternatives for Mt. Makiling. A goal programming model was used to allocate forest resources for recreation, water, timber, forage, nontimber products, and agricultural crops. Evaluation of alternative forest uses was in terms of environmental and economic impacts. A goal programming model has the following advantages over other resource allocation models: (1) it allows the use of various criteria, which need not be expressed in the same traits of measure (such as monetary terms, in most models); (2) such criteria may be prioritized according to the preferences of the decision-maker, the implementors, and/or the actual users; and (3) what are being minimized in the objective function are deviations from goals, rather than the usual optimization of a single measure of efficiency. For these reasons, such a model has been suggested to be employed for examining multiple uses of forest lands (Revflla 1977). The following subsections focus on the other uses of forest land and timber. Wildlife, Recreation and Rangelands Virtually no policy-oriented studies exist on wildlife management issues, forest use for recreation, and rangelands, though they are recognized to be important (Magno 1979, Alvarez 1979). Basic research on rangelands focuses on the maximization of rangeland productivity, and on the conservation effects of grazing, burning, and length of cutting interval. These need to be extended inasmuch as rangelands are important to food production. Control of rangeland activities, such as tenure area and durations, need to be assessed in terms of their effects on conservation and the diffusion of benefits. With respect to forest recreation, virtually no economic studies which have a bearing on policy formulation exist. The prospect of the average Filipino getting more inclined towards forest recreation

MarianSeguradelosAngeles

activities still appears weak, which is characteristic of demand for leisure in less developed countries. On the other hand, tourism development as a tool for national development may put pressure on forestrecreation; thus, it is important to evaluate the effects of tourism which is forest-based. Forest renewal efforts which are geared towards the development of these other nontimber products need to be evaluated in terms of their contribution to the communities where they are located. Thus, in this particular research need, microtype studies would be important for assessing specific policies and laws and their impact on socioeconomic goals. Minor Forest Products Forest renewal for minor forest products has become important because of the prospects of countryside and energy source development thrusts. The use of fuelwood as energy source has been explored in various feasibility studies (e.g., Estudillo et al. 1970). In the case of the wooden furniture industries, researchers have focused on the following problems (PCARR 1978): 9 unrealiability of the supply of raw materials, marketing, and credit needs, and the development of managerial skills. Since the furniture-making industry has vast potential for countryside development and the generation of foreign exchange, more policy-oriented studies should be undertaken to take account of these problems, particularly the more basic one of supply bottlenecks. In the case of dendroenergy, more basic information on the use of fuelwood for households needs to b_ gathered. Whereas the forest denudation problem is partly caused by the cutting of smallersized and younger trees for cooking, it may yet prove to be one which, if solved along forest renewal strategies, would result in huge amounts of savings in the energy import bill. This would be more important when finns (such as lumber kiln drying, bakeries, tobacco processing) would be able to develop more fully their technology for using dendroenergy. While basic researches are being conducted along this line 10 policy-oriented studies also need to be done which would focus on the following: government support for dendro9. The PCARRstudy actuallysummarizes'severalresearcheson variousproblems of the furniture-maltingindustry. 10. Such studies are summarizedin the proceedingsof the PhilippineForest ResearchSociety (1977).

ForestPoliciesfor Development Planning energy-using f'Lrms; involvement of the shifting cultivators tablishing energy farms, and the like.

31 in es-

V. ECONOMICSOF WOODPROCESSING Timber products gre in varied forms, among which are those for construction, infrasiructure support, furniture-making, paper products and Others. Focus on wood export processing as an alternative to exporting raw logs initially arose out of the following consideration: (1) expectation of higher government revenue from taxes, (2) generation of income and employment, and (3) additional output (Sicat 1958). More recently, one of the important additions to the pros of log processing has been the reduction in forest destruction (Cortez 1976). 11 Whether there are already sufficient studies on such a policy will be gleaned from the discussion below. Supply and Demand for Philippine Timber Products Philippine timber products had been largely export oriented due to the weak effective demand of the domestic market and highly buoyant export market (Segura et al. 1977). Since demand for wood production is a derived one, it is highly dependent on final woodusing activities such as construction, which in turn is more vibrant for the more developed countries. Most analyses of the market processed wood products have therefore been in terms of determining supply and demand conditions in the international market (Ricasio 1976, Segura 1977, Nguyen i974, Sibal 1974, Valdcpe_as 1969). Segura estimated total foreign demand for Philippine wood products through the use of per capita income of the importing countries and export prices of pulpwood, lumber and veneer, for purposes of projecting such demand in the future. The demand functions which were estimated using time series data for twenty year_ validated imporant economic concepts regarding timber demand: (1) that demand for necessaw construction materials (lumber) is less income and price elastic than demand for "luxury" construction material (plywood), and (2) that demand for an intermediate input (veneer) is less income and price elastic than demand for its final product (plywood). 11. Cortes's article is also a good referencefor the history of the log export ban and government measures taken to encourage domestic wood processing industries.

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Ricasio's study estimated foreign demand for the same Philippine wood products in terms of national income, housing activities, and prices in particular wood importing countries. Sibal's analysis focused on export supply and demand for Philippine logs, lumber, plywood and veneer, through a simultaneous system of equations. Such a model could be used to examine some government controls which could aid in increasing Philippine competitiveness in the foreign wood market, such as export taxes, price ceilings, and the like. Nguyen's study focused on the physical production functions for logs, lumber, plywood-veneer, and pulp/paper products. In addition, export supply functions and models for employment and investment in the forestry sector were also developed. In the case of local demand, only Segnra's study attempted to develop a wood consumption index for approximating the need for timber products by various construction activities. This was used to provide rough estimates for future local demand. It points out, however, that effective local demand for wood as a construction material had been weak because of low incomes and lack of support for low cost housing (pre-1977). And yet, housing needs had become acute. Some form of government intervention may be appropriate here especially with respect to the pricing of wood products sold in the domestic market. Domestic wood prices had generally followed international wood products' prices, and are too high for the average Filipino. A study is in order here for the tools by which the wood industry could serve the needs of the local populace. Competitiveness of Philippine Wood Exports Philippine wood product exports have been experiencing decreasing Competitiveness in the international wood market for the following reasons: (a) Although at the start of the processing industry some deficiencies in trade could already be observed, these were not immediately rectified because of the positive effects of the then preferential treatment for Philippine wood products in the U.S. market, effects of exchange rates and increasing demand (Brussier 1964). Such deficiencies include: the need for efficient machineries; need to improve organization of work; uneconomic plant sizes; and wasteful processing techniques. (b) For those small sized concessions which proliferated during the early sixties, logging was a more profitable activity (Valdepe-

Forest Policies forDevelopment Planning

ttas 1969); thus, the setting up of wood processing plants near concessions, as required by government much later, was accomplished only for purposes of following the law, rather than for serious consideration of wood processing. It is easy to believe then, that such plants were not built optimally, capacity-wise, among others. Even when attempts had already been made to overcome such deficiencies and inefficiencies through the consolidation of various concessions and improvements in wood processing and wood waste utilization, the country still experienced more weakening of its competitiveness in the foreign market. Several studies focused on these and came up with the following analyses (Sanvictores 1970, 1975; Medrano et al. 1976; PDCP 1977; Floro 1978; Villanueva 1978; Tecson 1978; Umali and Gamboa 1979): (a) high production costs due to: high prices of imported inputs vis-h-vishigh import content of wood products; increasing cost of electricity; (b) low percentage recovery rates in processing low quality logs, since the high quality logs are exported in raw form. Our wood exports cannot then compete with the wood exports of Taiwan, for instance, since the latter uses the higher quality logs imported from us; (c) marketing problems leading to high freight and transport costs; and (d) disadvantageous effects of taxes. The most comprehensive study conducted on wood industries and their exports was conducted by Floro (1978), who examined the development of the major wood processing 'industries in the light of the Philippine experience in import substitution and export substitution efforts. Floro investigated the factors which halted the takeoff stage in log export processing by analyzing backward and forward linkages via the input-output framework, capital/labor ratios and labor productivity in the fight of comparative advantage in labor. Among the study's important results are: (a) that most foreign competitors have a real comparative advantage in labor (in terms of labor productivity adjusted for wage rates); and Co)various controls imposed by the Philippines and its trading partners worsen the former's comparative disadvantage in wood processing.

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Floro also reiterated the marketing problems which had plagued the wood industries. Processed wood products have high import contents. And, certain policies have caused such dependence on imported inputs even more problematic. Umali and Gamboa (1979) point out that "tight monetary policies for deferred payment imports" affect the industry's ability to replace obsolete machinery and expand capacities. 12 Tariff protection of inputs has, in fact, been ranked third among the disincentives cited by pulp and paper establishments covered by Tecson's survey (1979). Other disincentives pointed out were: import restriction in inputs, domestic taxes on inputs, and minimum wage-control. among others. In terms of domestic resource cost, the analysis by Villanueva (1978) of the pulp and paper industry indicates that the Philippines has a comparative advantage only in the production of pulp. The domestic resource cost concept is an important tool in further analyzing Philippine competitiveness in various wood products and should be explored when analyzing the effects of various policies on taxation, log exportban, employment in wood-using sectors, and the like. 13 Resource Productivity

Studies

The use of labor-intensive technology and the need to increase waste utilization in the forest products industries have been key issues in the attempt to develop more competitiveness in the foreign market. In addition, the potential for countryside development through the forest products industries has been emlbhasized along with the forest renewal program. A recent study on labor use in Philippine forestry was conducted by the Bureau of Forest Development in a joint research undertaking with the International Labour Office and the Finnish government (1977). A major finding is that labor-intensive techniques which are also consistent with improved working conditions, safety, and ecology do exist in. the Philippine forestry sector. The use of such tech12. An important study on the development of laborqntensive techniques for the forestry sector is that being jointly undertaken by the Bureau of Forest Development, International Labour Office, and the Government of Finland (1977). 13. Studies conducted under the Industrial Promotions Policies Project (1979) shed light on the external (nonforest) policies which have significantly affected export processing industries.

ForestPolicies for Development Planning

niques, however, has not yet been optimized because of the influence of forest technologies in capital rich areas, such as Japan and the United States (American Pacific Coast), which have been the country's major trading partners in timber products. The following proposals were therefore made to encourage the implementation of these techniques: (1) the formation of a Forestry Employment and Technology Working Group, (2) the adoption of guidelines on mechanization, (3) investigation of incentives favorable to labor-use, (4) dissemination of information, and (5) efforts towards the training of workers. Basic research on waste utilization is no longer scarce. Mendonez (1972) looked into wood waste of timber removed from the forest and came up with a rate of utilization of only 20 per cent per 100 cubic meters of timber. The utilization rate for processing was found to be higher. More recent studies focused on the optimal use of wood wastes, such as those conducted by Decena (1975), de la Cruz (1975), and Momo (1980). Decena looked into the optimal allocation of logging waste among various alternative channels of processing; he concluded that logging waste contributes to the profitability of the whole system, and should therefore be processed. A similar conclusion was reached by dc la Cruz, who investigated the feasibility of using logging wastes as raw materials for the production of lumber, veneer, and plywood. Momo's study focused on the feasibility of using wood waste from logged-over areas and using them to run a 6-megawatt wood-fired steam power plant. This study points out that although such proeese sing of logging waste is economically feasible, the most effective method of gathering wood wastes still needs to be studied, extraction and hauling costs having been found to be major portitms of investments for such processing. The Log Export Ban The log export ban was formulated jectives (Cortes 1976):

to achieve the following ob-

(a) To rationalize the development of the wood industry through the: (a) phasing out of uneconomic sized plants; (b) development of integrated wood industry and complexes; and (c) establishment of wood industry centrals in strategic areas; (b) Draw in capital investment from abroad for wood processing ventures;

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(c) Accelerate our reforestation program in anticipation of the needs of our local processing plants; (d) Encourage the establishment of industrial tree plantations; and (e) Curb the alarming destruction and denudation of our forests by destructive logging. The gains expected from the eventual implementation of the ban were cited to be: employment generation; increased foreign exchange earned per unit volume of processed wood; lower costs of operating plants which would now be utilized at higher capacity; more competitiveness in the foreign market due to the production of better quality timber products; income generation; and infrastructure development at industrial complex sites. The ban was to be implemented within the environment that would be created with the revision of the Forestry Code in 1975. Initial opposition to the ban was expressed in a study by Armas (1976). Armas looked into the gains that would have been foregone, in foreign exchange measures, had the ban been implemented in 1976. He concluded that there would have been losses in foreign exchange earnings had the total ban been implemented; he also pointed out that while the Philippines is a forest resource-rich country she does not have a comparative advantage in the forest products market. A later study by Quilloy (1978) adds that had the total ban been implemented and all logs processed domestically; the domestic market would have had to absorb the processed wood products because the foreign markets would not have been able to do so. Indeed, the suspension of the total ban was recommended because of a sluggish wood exports market (P.D. 865). Quilloy also observed that additional employment would have been generated due to increased use of processing facilities. It would seem, then, that in the light of the findings of Floro and others on the lack of comparative advantage of processed Philippine wood exports mentioned above, and of marketing problems which will be explored in the next section, the ban's implementation could not yet be fully realized. A study by Villiran (1978) which looked into the backward and forward linkages of the wood-based industries emphasized that such linkages would be improved with the phasing out of log exports. The question of whether log production would decrease (and hence, domestic log production not markedly increase) remains to be researched. Whether log exporters would prefer to sell to the domestic market at much lower prices instead of maintaining the same

ForestPoliciesfor Development Planning

amount of logsprocesseddomestically which would thenbe soldat the usual prices needs to be investigated. The following aspects will have to be considered for such a studio: hoarding practices of wood products retailers; government price controls for logs and processed products; income constraints on the part of wood product buyers; and housing needs of the local populace. Forms of government intervention in the local market for wood products need to be explored. In addition, specific policies, such as the 7 per cent tax on domestically sold logs, which tend to push the final product's price upwards, also need to be evaluated. If both the export market and the local market remain sluggish, decreased operations in the wood processing industries might lead to a massive lay-off of unskilled and semiskilled workers and would aggravate the unemployment problem. Marketing Aspects The uneconomic location and size of processing plants, as well as the effects of tariff and taxation policies on wood export processing, are among the pressing issues which affect the marketing of forest products. Several studies on the wood industry, such as those of EDF (1968) and PDCP (1977), came up with the following results on the problems of forest products transport: (a) uneconomic location of processing plants; (b) inadequate port facilities, infrastructure support, and shipping vessels; and (c) monopolistic freight charges in the international shipping scene. The uneconomic lo_ation of processing plants may be said to have been caused by government policy, as well as by the orientation of the firms themselves. A survey by Moran (1978) of pulp and paper manufacturing concerns came up with the following factors considered by such firms in their choice of plant location (arranged according to rank): availability of raw materials, low seller's price on raw materials, low freight cost in obtaining raw materials, availability of skilled labor, and low freight cost in shipping final products. Their location may then be considered to be resource-oriented rather than market-oriented; this may be true also for lumber, plywood, and veneer manufacturing plants, where even bulkier raw materials (sawlogs) are involved. Moreover, government policy on the location of processing plants

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has also been resource-oriented. In the eargerness to promote local wood processing instead of exporting raw logs, the government required all concessionaires to be equipped with processing plants near or within the concessions. And yet, concessions are usually located in areas where infrastructure and utilities are not well developed, implying high electricity costs, among others. Thus, foreign buyers of processed wood products have had to gather them from several loading points all over the country, resulting in high transport costs (PDCP 1977). There is a need, then, to plan for the optimal allocation of processingplants, in coordination with the reforestation program, and taking into account the availability of infrastructure and utilities. Identification of log-excess and log-surplus areas is not sufficient for determining plant location site, for this neglects important marketing considerations, such as those mentioned above. While such a plant location study needs to be conducted on national and regional levels, firm-specific researches such as those mentioned below provide the tools of analysis which could be used for the larger study. Arano (1976) developed a log resource allocation model based on the transportation problem to evolve a program where total transportation costs of logs from 1,535 supply point.sin a Mindanao region are minimized. He found out that there is a need to establish an additional wood processing central; but whether this was better than expanding the capacities of existing plants was not determined in the study. Another study (Rapera 1978) used a mixed integer linear programming model to develop a plant-location-allocation model for Mindanao_ The optimal number, location, and production capacities of different types of wood processing plants were analyzed in terms of: (a)-minimizing log transport cost from log excess areas to processing plants; (b) minimizing total setup costs and product manufacturing costs; and (c) considering economies of scale associated with different plant sizes while meeting demand levels forspecific wood products. Rapera, however, cautioned against generalizations from the study.'s f'mdings, on account of the study's use of data which were based on assumptions. The working of such a study using more realistic data and incorporating more recent de_celopments (e.g., expansion of some ports, establishment of tree plantations) is urgently needed for analyzing the following: (1)implications on processing capacities and utiliza-

ForestPoliciesfor Development Planning

. tion with the full implementaUon of the log export ban, (2) demand levels which need to be satisfied to meet local requirements which would result in price stabilization, (3) huge investment outlays required for various plant types, and (4) economies of scale in wood processing. Accompanying studies on the following related matters also need to be made: (1) forms of incentives/disincentives to be used for optimal plant location, (2) creation of a marketing body for wood products, and (3) assurance of fulf'dling local needs for Wood products. Processing of Minor Forest Products The processing of minor forest products indicates a potential for development which could sere local needs, as well as help in generating additional foreign exchange. Some problems related to such development, however, pose challenging issues for policy research such as: (a) rampant dumping of surplus bookpaper by certain Asian countries (Mendrano et al. 1976); (b) seasonality of supply of raw materials in the case of furniture production (Moscoso et al. 1979); (c) difficulties met by foreign buyers in having to negotiate with numerous small producers who manufacture furniture products of various qualities (PCARR 1978); (d) scarcity of wood poles due to conflicts in licensing/use of a particular forest area (PCARR 1978); and (e) the need to increase capitalization for the furniture-making industry (PCARR 1978). Researches are needed in order to provide a basis for a more comprehensive planning in the minor forest products industries, which are generally labour-intensive and therefore significant for rural development. VI. RESEARCHAND POLICYISSUES Introduction The following are the objectives of the Philippine Forestry lopment Program (Cortez 1979):

Deve-

(a) to develop and maintain the country's resources at maximum productivity to assure that they will make maximum contribuâ&#x20AC;˘ tion to the national welfare;

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(b) to complete the reforestation of all barren areas with top priority given to the 1.4 million hectares of degraded critical watersheds; (c) to concentrate and stabilize forest occupancy in order to minimize, if not entirely eliminate, the destructive activities of filegal encroachers in the forests; and (d) to promote ecological balance by requiting forest users to adopt environmentally sound methods of exploiting forest resources. in the same paper, Cortes outlines the following _ldopted for achieving these objectives:

basic strategies

(a) the application of the multiple use and sustained yield forest management principles to develop the full potentials of the forests with due attention to environmental quality; (b) closer supervision and control over forest users; (c) intensified reforestation activity through citizen participation and availment of foreign assistance; (d) a comprehensive forest protection program for all forest lands. Such objectives and strategies are cognizant of the potential renewability of forests, and the many products and services which it can provide. Achievement of the objectives is spelled out in more detail in BFD (1976, 1980), among others, as a result of BFD's collaborative work with the Presidential Committee on Wood Industries Development (PWCID), a major forest policy-making body in the country. Policy formulation efforts of PWCID are spelled out in its accomplishment reports (PCWID 1'979, 1980). Basic Issues in Forestry Development Planning 1. The Need for an Inventory of Factors Philippine Forestry Sector

of Production

in its

A prerequisite to the formulation of strategies for the development of a sector is knowledge of the available quantities and qualities of factors of production, which include: land and its attributes, labor, capital, and technology. Although inventory types of studies on these have already been conducted by DAP (1975), NRMC (Lachowski et al. 1978; Lorenzo et al. 1979); BFD/ILO/Government of Finland (1977), and PCWID (1977), there is a need to continue conducting these studies, and in more detail. This would necessitate the gathering of information initially at grotmd level, instead of through satellite photos, secondary data sources, or aerial photographs, in o_rder to account for the following aspects; cropping systems of up-

ForestPoliciesfor Development Planning

land farmers; socioeconomic profile of upland farmers; work condition of laborers in forest-based industries; and biophysical, climatic, and other factors which need to be considered in forest renewal activities and ttie development of upland communities (Raros 1979). Existing research units which are gatheriug such information, such as the UPLB-UHP (Raros and Sajise 1976), UNESCO-MAB, and private institutions conducting project prefeasibility studies are focusing on a few pilot areas only. Hence, not all their findings are recommendations which can be used to apply to all the other areas of the country. Moreover, because of the multidimensional aspects of forestry, there is a need to conduct an inventory type of study in a holistic manner, instead of the current practice of researchers focusing on specific aspects in one particular area. This way, the interaction between the different factors of production in forestry is taken into account. The availability of basic information on forest land would then allow an assessment of the productive capacities and the design of management schemes which are sustainable (Revilla 1979; Umali 1979). Various costs and benefits associated with such schemes could then be identified and evaluated against a specific set of criteria for optimizing the contribution of the forestry sector to development objectives. 2. Formulation of A Framework for A Comprehensive Forestry Development Program The demands on the forestry sector will continue to increase in quantity and variety as the country pursues its various development goals. Specifically, the need for food, energy, water, and ecological balance, in addition to the traditionally recognized use of forests for timber production, will exert more pressure on forest production, conservation and utilization. The role that forests would assume in the nation's pursuit of growth and development objectives needs to be specified through a set of criteria, which would then have to be identified, while taking into account the peculiar characteristics of forestry production. Only when such criteria are concretized, in forestry terms, can forestry development strategies be formulated and made operational. Such formulation of a comprehensive forestry development program would entail the participation of various disciplinesand agencies, as well as of the private sector. It would also require the evaluation

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of the various impacts of certain forest activities on nearby communities in terms of the latter's quality of life. This implies a better understanding of the sector's role in rural development programs of the government. While several studies abroad provide insights into forest induslries and rural development effects (e.g., Grayson 1976), conclusions cannot be easily drawn from them because of dissimilarifles in the conditions among the various countries studied. 3. Operationalization of Multiple Use and Economic SustainedYield ForestryConcepts Given the assessment of resources and capabilities of the forestry sector, and a forestry development program which would optimize the sector's contribution to development goals, multiple use forestry and sustained yield forestry management can be operationalized in more concrete and realistic terms. Sustained yield forestmanagement would then be defined in terms of biological, ecological, and economic terms. From the public sector's viewpoint, sustained yield forestry would take into account self reliance in forest-based commodities and services, and the distribution of these within a generation and across different generations. Such economic, sustained yield forestry would most likely result in multiple use forestry as well. From the private sector's side, economic sustained yield, in practice, would mean perpetuation of the life of the firm, given the economic constralnts it faces. All of these would entail a close monitoring of the following relationships: supply (physical and economic) and demand (local and foreign; needs versus effective demand) adjustments and corresponding market controls, valuation of amenities and services provided by forests, foreign exchange, and labor, among others. 4. Evaluation of Forest Renewal Strategies Microlevel studies of present forest renewal strategies need to be conducted,, in order to provide insights on their appropriateness to local conditions. The following aspects should be included in such studies: (a) completeness of the strategy (plantation establishment; processing and marketing aspects; use of local labor and indigenous materials and technology); (b) identification of beneficiaries and bearers of costs of a particular project; and (c) availability of support facilities and infrastructure.

ForestPolicies for Development Planning

The strategies which need to be evaluated in these terms are: family approach of reforestation; communal tree farming, PROFEM, industrial tree plantations, agroforest farms, tree farm lease agreements, contract reforestation, and others. At the macro level, there is a need to identify the various demands for wood products of reforestation projects, the establishment of strategically located processing centers, forest products marketing arrangements, and the like. 5. Studies on the Local Environment Within Which Forest Development Strategies are Being Implemented There is a need to constantly assess the economic, political, anti institutional environment within which forestry development i._ taking place. This impfies relating the economic demands on the forest and wood industries to the controls (whether economic, technological, or legal) used for satisfying such demands. Under this would fall studies on specific policies on taxation, tenure of concessions, permits, and leases, pricing policies, and legal controls, such as the cancellation of licenses, permits, and the like. An integrated study on the local environment which affects forest development would allow policy-makers to view the manner by which economic, legal, and other factors interact to produce positive or negative effects on certain forestry development goals. Though such studies have already been attempted .(e.g., Floro 1978, $egura et al. 1977), they need to be continued due to new thrusts in forest policy formulation and implementation. The conduct of these studies before policy formulation or implementation would allow one to predict whether the controls envisioned for encouraging forestry development would be effective or would just result in attempts to circumvent laws. The review of the literature in section lI indicates that attempts will always be made to circumvent laws which are not framed realistically. Moreover, this results in the following negative effects: the practice of graft and corruption; too much effort on the part of government in policing and punishing lawbreakers, instead of doing more productive activities; the need for trying to rectify the ill effects of wrongdoings of private users of forests, some of which may be irreversible. The following cases ave cited for illustration purposes: (1) the prosecution of the shifting cultivators in the past, and (2) various

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attempts at punishing illegal and destructive loggers. Only when the Forest Occupancy Management program was formulated did authorities view the problem of shifting cultivation as part of the broader problems of poverty, landlessness, and productivity. With respect to erring loggers, the most recent punishment tried was the cancellation of licenses. Casual observation, however, showed that after such cancellation, other forest destructive activities followed (e.g., Revilla 1980; Segura-de los Angeles 1980). Furthermore, license cancellation results in uncertainty about the tenure of other loggers. Greater uncertainty implies higher time preference rates for present earnings which, in turn, could result in more forest destructive activities. These are certainly urgent areas for research, which should also examine the administrative feasibility of formulating logging policies and regulation systems which are favorable to forestry development and forest renewal via the employment of economic sustained-yield concepts. 6.

Continuous Monitoring of the Global Environment Affecting the Philippine Forestry Sector As shown in section II and V, forest destructive activities are also affected by the international trade for wood products. (Forestry development is partly being geared towards trade.) It is therefore imperative to define well the role of the forestry sector in foreign trade, and to tackle the issues on the need for developing self-sufficiency in forest-based commodities. Concluding Remarks The specific policy and research issues discussed in detail in sections II-V and broadly discussed in the previous sections are presented in Table 2 and are ranked according to priorities for research. A rank of 1 indicates the highest priority. This paper attempted to review and synthesize researches and policies which have implications on policy formulation in the Philippine development effort in general, and forestry development, in particular. Of the one hundred or so references on the Philippine forestry sector which are included in this paper, only around 20 per cent can really be considered to be policy-oriented. 14 And such studies are 14. It must be noted here, that basic and applied researches which abound in Philippine forestry literature are not includedin this review.For a summaryof such researches,see PFRS (1977) andmaterialsof I_CARR,FORI, FORPRIDECOM,BFD, PCWID,and the UPLBCollegeof Forestry, arn6ngothers.

ForestPoliciesfor DevelopmentPlanning

Table 2. Forest Research and Policy Priorities Topic Inventory of Factors of Production in the Forestry Sector 1. Forest resources 2. Capital investment 3. Labor 4. Shifting cultivators Formulation of a Framework for a Comprehensive Forestry Development Program 1. Case studies on the local impacts of forest-based activities on developmental areas of concern 2. Local use of forest products and commodities 3. Availment of forest recreation facilities, parks and wildlife reserves by local and foreign visitors 4. Cost-benefit analysis of dendro-energy development 5. Food production in upland communities 6. Government revenue from the forestry sector; income and employment in forest lands; foreign exchange generated 7. Formulation of ,criteria to be used in analyzing forest development activities in concrete and operational terms Operationalization of Multiple Use and Economic Sustained Yield Forestry Concepts 1. Factors which affect forest harvest decision in the private sector 2. Cost considerations in forest production activities 3. Evaluation of the selective logging system and the allowable annual cut formula 4. Supply and demand of forest-based products and services at the national and regional levels 5. Valuation of costs and benefits of various forests harvest decision criteria; of various multiple use schemes 6. Self-sufficiency in specific forest products Evaluation of Forest Renewal Strategies 1. Case studies on the family approach to forest occupancy management; communal tree farming; industrial tree plantation; etc. 2. Cost-benefit analysis of alternative forest renewal strategies 3. Infrastructure and social facilities in upland communities

Rank

2 3 2 2

1 1 3 1 4

2 2 1" 1

2 1

1 1 2

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Table 2 (Continued) Topic

Rank

4. Components of watershed development strategies: institutional linkages; human resource development; marketing and processing facilities 5. Generation of funds for various forest renewal strategies " Studies

5. 6.

7. 8.

on the Local Environment

2 3

within

Which Forest Development Strategies are Being Implemented Analysis of the taxation and pricing policies in the forestry sector in relation to economic sustained yield.concepts Evaluation of the system by which'use of forest lands is awarded for specific purposes; in terms of conservation orientation, economic sustained yield forestry from the private user's viewpoint; equity considerations Analysis of the punitive measures ta ken against destructive agents of forests: erring loggers; shifting cultivators; hunters, etc. Inventory of infrastructure, port, shipping, and other marketing facilities for forest products Analysis of local marketing arrangements of forest products Government policies affecting the use of forest-based products, such as housing, price controls on wood products; fuelwood. use; and the like Analysis of measures taken by the firms for the final implementation of the log export ban Given the forest renewal program, and forest harvesting decisions based on economic sustained yield concepts, determine the optimum location of processing plants, investment in human resources, infrastructure, and the like

Continuous Monitoring of the Global Environment Affecting the PhilippineForestry Sector 1. Assessment of competitiveness of Philippine forest products in the foreign market 2. Evaluation of marketing arrangements entered into with other forest products sources

3 3

4 2

" 3

5 3

Forest Pol;ciesfor DevelopmentPlanning

Table 2 (Continued) Topic 3. Analysis of foreign trade controls (tariffs, quotas, etc.) in terms of their impact on specific forest development activities Others 1. Reexamination of the log export ban andconditions itwasbasedon 2. Optimum investment inhuman resources in forestry; assessment offorestry educational system and forestry extension 3. Analysis of the availability and availment of financial capital in the forestry sector 4. Evaluation of consistency between general policies and implementing rules and regulations 5. Analysis of existing mechanisms in the conduct and utilization of research in forestry

Rank

3 3

not easily accessible to the policy-makers since a majority of them are written in too technical terms. It is therefore recommended that: (1) more policy-oriented researches be conducted on forestry development issues, (2) efforts be taken for a fuller utilization of studies on these issues, and (3) future studies be conducted in a more coordinated and cotlaborative manner. The latter recommendation arises from the view that a number of forestry development problems are caused by a lack of a holistic view of the forestry sector. Forestry development planning, being one which has the potential of achieving multiple objectives, needs to be undertaken by various disciplines and institutions. While there is coordination among various government policy-makers on policy formulation in the form of inter-agency meetings, consultative groups, and the like, it usually happens in an ad hoc manner, i.e., when there is already a visibly urgent need to revise policies. It is doubtful whether separate policy recommendations made by various researchers, who have had the time to investigate problematic areas in a more detailed manner, reach policy-makers in comprehensible forms at all. The problem /_pounded when a particular policy-maker consults a researcher who bei_ngs to the same discipline he is in.

MarianSegura-de los Angeles BIBLIOGRAPHY

A. Local Sources Agbayani, F.V. "Selective Logging: An Analysis from the Public's Point of View." Paper submitted in partial fulfillment of the requirements of FRM 227 (Economic Analysis of Forest Policy), University of the Philippines in Los Ba_os, 1979-80. Alvarez, J. B. Jr. "Problems, Issues, and Strategies on Wildlife Management in the Philippines." Paper presented at the Fifth Natural Resources Management Forum, 26 February 1979, Natural Resources Management Center, Asian Institute of Tourism. Ara_o, R.R. "Optimal Log Allocation Among Wood Processing industries.". Master's thesis, University of the Philippines in Los Ba_os, 1976. Aranez, G.B., and Baggayan, R.B. "Reforestation and Afforestation in the Philippines." Paper presented during the First Philippine Forestry Congress, 2.6 October 1978, Philippine Village Hotel, Manila. Armas, A. "A Social Cost-Benefit Analysis on the Total Ban of Log Exports in CY 1976." Discussion Paper No. 75-3, Development Academy of the Philippines Special Studies Program, 1975. Baggayan, R.B. "A Place of Afforestation/Reforestation in Hill-Country Development." Asian Forest Industries, September.December 1977, pp. 25-26. Balangue, T. O., A Goal Programming Model for an Integrated Use Forest Management Problem. Master's thesis, University of the Philippines in Los Ba_os, 1980. Beloso, R. Resettling the Kainginero. Philippine Lumberman, July 1970. Binua, T. A rejoinder to FORPRIDECOM Commissioner's Suggestion to the Kaingin Problem. Philippine Lumbemmn, December 1971. Bonita, M.L. "Philippine Lands and Forests, 2000 A.D." Third Lecture for the Guillermo Ponce Professofiar Chair in Logging Engineering. University of the Philippines in Los Ba_os, 1978. Bonita, M.L., and ReviUa, A.V. Jr. Philippine Forest Resources: 1976-2026. In PREPF (1977). Bureau of Forest Development (BFD). Plans and Programs for 1976-2000. Quezon City, 1976. _. Primer on the Communal Tree Farming Program. Quezon City, 1980. Cabanayan, O.C. "Selective Logging: An Analysis from the Public's Point of View." Paper submitted in partial fulfillment of FILM 227 (Economic Analysis of Forest Policy), University of the Philippines in Los Bathos, 1979-80. Cagampang, F. The Use of Credit in a Guided Cooperative Program with Sedentary Manobo Farmers in Sta. Cruz, Quezon, Bulddnon: A Case Study. University of the Philippines in Los Baffos, October 1972. Canonizado, J.A. Yield Prediction Function for Cut-Over Dipterocarp._t_i_. Master's thesis. University of the Philippines in Los Bat3os, 1976.

Forest Policiesfor DevelopmentPlanning

Chinte, F.O. "Stumpage Appraisal asBasis for Awarding Timber Licenses." Bureau of Forest Development, 1977. Mimeographed. Cortes, E.V. "The Log Export Ban." As/an Forest Industries, Yearbook 1976. _, "A Review of the National Forestry Development Program." Paper react at the Forestry Alumni Homecoming, 18 April 1979, University of the Philippines in LoS Banos. Decena, A. "A Power-Generating Set-up for an Oil Conserving Integrated Wood Processing Industry in the South." Philippine Lumberman, October 1976. De la Cruz, R. Z. "Technical and Economic Feasibility of Utili_i,g Logging Wastes." Master's thesis, University of the Philippines in Los Ba_os, 1975. Del Castitlo, R.A. "Population Data in Slash and Bum Forestry Communities in the Philippines." Paper presented at the preproject implementation consultation of the. U.N. FPA/FAO Project, 13-15 December 1978, institute of Population Studies, Chulalongkom University, Thaflmd. Development Academy of the Philippines. Inventory of Natural Resources. Papers of the Inventory of Natural Resources Project. Volume V. Duldulao, A.C. "Kainginero's Perceptions and Attitudes Towards Forest Conservation in Mt. Makiling, Lagun_" Unive_ty of the Philippines in Los Banos, 1975. Mimeographed. Duldu_ao, A.C. SOciological Aspects of Agro-Forestry. In PCARR (1979). Estudillo, C.P.; Villanueva, E.P.; and Bawagan, P.V. '_Some Aspects of a Feasibility Study in Fuelwood and Charcoal Production from ipil-lpir" Lumberman, April 1980. Floro, M,S. "Economic Effects of Resettlement on the Organization of production, Consumption, _and Distribution in Barrio Villarica, Pantabangan, Nueva Ecija." Paper presented at the Seminar-Workshop c_ the SocioEconomic arid.Institutional Considerations of Upland Development Sport; sored, by the Program for Environmental Science and Management, 4-6 August 1980, University of the Philippines in Los Bafios. Ganapin, D. L Jr. "Factors of Underdevelopment in Kaingin Communities." Paper submitted in partial fulfillment of the requhements of AG, Ed. 285, University of thePhilippines in Los Banos, 1978-79. Gendrano, O.A. "T_ee Farming: A FeasibiUty Study for Butaan." Master's

thasis,AsianInstituteof)hna_ment, 1974. Gutierrez, R.C. "The Impact of PlCOP in the Socio-Econmnic Development of â&#x20AC;˘ ,Bislig," Master's thesis. Asian Institute of Manasement, 1973. Lachowslti, H.M.; Dietrich, D.L.; Umali; R.M.; Aqnino, E.A.; and Basa, V.A. "'Laudsat-Assisted Forest Inventory of the philipl_ne Islands." NRMC Research Monograph No. 4, 1978. IAbrero, A.R. '_ocio-Economic Considerations in Hilly Land Development." Paper presented 8t the International Workshop on Hilly Land Development, 3-6 August 1977, Legazpi City. Llapitan, E.A. _Agro-forestation: The BFD Experience. In PCARR (1979a).

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Lorenzo, E. N.: de Jesus, B. R. Jr., and Jara, R. S. Assessment of Mangrove Forest Deterioration in Zamboanga Peninsula, Philippines, Using Landsat MSS Data. NRMC Research Monograph No. 2, 1979. Madriaga, J. A: "Productivity and Resource Use in Moluccan Sau Pulptimber Plantations in PICOP, Bislig del Sur." Master's thesis, University of the Philippines at Los Ba_os, 1980. Magno, R. A. "Conservation and Management of Parks and in the Philippines." Paper presented at the NRMC Forum on Natural Resources, Asian Institute of Tourism, 30 August 1979. Mendonez, B. C. "A Study of the Rate of Utilization and Wastage of Three Selected Natural Resources - Land, Forest and Fishing." Master's thesis, Ateneo de Manila University, 1972. Mendrano, E. M.; Blanco, B. R.; and Amio, E.C. "Technological and Economic Problems of the Pulp and Paper Industry." FORPRIDECOM (Mimeographed). U.P. in Los Ba_os, Laguna. Mindajao, N. M. "The Economies of Agro-Forestly." In Proceedings of the AgroForestry Symposium/Workshop, PCARR, 19-21 December 1979, Los Banes, Laguna. Memo, J. B. "Economic Study of Utilizing Wood Wastes as Fuel in an Integrated Forest Products Firm." Master's thesis, U.P. at Los Ba_os, College, Laguna, 1980. Monsalud, M. R. "A Radical Solution to the Reforestation Problem," Asian Forest Industries (Sept. - Dec. 1977). Moran, P. B. "The Impact of Regional Policies on the Location Choices of Some Manufacturing Firms." Industrial Promotions Policies Project, Working Paper No. !1, July 1978. Moscoso, V. P.; Moseoso, N. M.; and Cuaresma, T. G. "Raw Material Requirements and Consumption of the Wooded Furniture and Joinery Industries," Asian Forest lndustries (Jan.-April 1979). National Irrigation Administration (NIA) and Engineering Consultants, Inc. (ECI). Pantabangan Watershed Management Report. Draft Feasibility Report, Erosion Control Study. Vol. I-IV. November 1978. National Irrisation Administration (NIA) and Mandala Agricultural Development Corporation (Madecor). Pantabangan and Magat Watershed Management and Erosion Control Projects, Feasibility Report, 1979. National Irrigation Adminis_ation (NIA) and University of the Philinvines Institute of Environmental Planning (UPIEP). Pantabangan Rese tflement. 1975. Natural Resources Management Center (NRMC), "An Assessment of Philippine Forestry Management Problems and Issues: A Delphi Approach." NRMC Policy Studies Series No. 1, 1980. Nguyen, D. An Econometric Model of Philippine Wood Production and Export. Master's thesis, U.P. at Los Ba_os, College, Laguna, 1974. Palma-Gil B. "An Ikalahan Development Plan through the Kalahan Educational Foundation, Inc." Master's thesis, Asian Institute of Management, 1976.

Forest Policiesfor DevelopmentPlanning

Philippine Council for Agriculture and Resources Research (PCARR)• Forest Products and Industries in the Philippines. PCARR project no• 174. Volume I: Timber and Wood Products by F. L. Tesoro, E.D. Belio, and F. Poliisco, 1978. • Timber and Timber Products Commodity, State of the Art for the Wood Furniture Industry of the Philippines. Mimeographed. 1979. --. Proceedings of the Agro-Forestry Sympo_um/Workshop. PCARR, Los Banos, Lagtma. 19-21 December 1979a. Philippine Forest Research Society (PFRS). Symposium Proceedings, College, Laguna, 15-16 December 1977. Pollisco, F. S. "Agrisilvi_lture Concepts and Practices." Special Paper for the Eighth World Forestry Congress on the Theme: Forests for People, 16-28 October 1978, Jakarta, Indonesia. -. "Reforestation and Silvicultural Techniques for the Regeneration of RP Forests." As_m Forestlndus_i_, Yearbook 1976• Populatton, Resources, Environment and the Philippine Future (PREPF): Scenarios for the Year 2000. A research consortium of the Development Academy of the Philippines, the U.P. School of Economics, and the U.P. Population Institute. Voleme II-3A. Philippine Forest Resources, 1977. Private Development Corporation of the Philippines (PDCP),The Wood Industry. Manila, 1977. Presidential Committee on Wood Industries Development (PCWID). 1976 Staffs. tical Kit on Forestry and Forest-Based Industries. March 1977. --. PCWID Annual Report, 1979. Quezon City, 1980. -. PCWID Performance Report, 1974-1979. Quezon City, 1980. Quinoy, A.B. An Economic Analysis of the Policy on Log Exports. A research problem submitted to the Program in Development Economics, University of the Philippines, Quezon City, 1978. Rapere, C. L. "A Programming Solution to the Plant Location-Allocation Problem in Forestry." Master's thesis, University of the Philippines at Los Ba_os, College,Laguna, 1978. Rapera, R. B. "Cut Scheduling in Industrial Forest Plantations by Linear Pingramming." Master's thesis, U.P. at Los Ba_os, CoUege, Laguna, 1976• Rebugio, A. L. "Financial Feasibility of Selective Logging: A Case Study." Paper presented at the Fifth Anniversary Sympmium of the Forest Research Institute, 18 December 1979, College, Laguna. Revilla, Adolfo V. Jr. The Economic Sustained Yield Forest Management Theory. College of Forestry, U.P. at Los Ba_os. Mimeographed. 1975. • "Operationalizing Multiple Use Forest Management in the Philippines." Paper presented at the U.P. Forestry A1umm Homecoming Symposium, 13-14 April 1977• College, Laguna. -. "Land Assessment and Management for Sustainable Uses in the Philippines." Paper presented at the Conference on Forest Land Assessment and

MarianSegura-de los Angeles Management for Sustainable Uses, 19-20 June 1979, East-West Center, Honolulu.

"Framework for a Comprehensive Forestry Development Program for the Philippines." SEARCA Professorial Chair Lecture in Forest Resources Management, 21 August 1980, College, Laguna. Revilla, A.V., and Bonita, M.L. "Directions for Development of the Philippine Forest Resources." Paper presented at the First Philippine Forestry Congress, 2-6 October 1978, Manila 1978. Reyes, I. E. "The Role of Communication on the Knowledge and Attitude of Mr. Maldling Kaingineros Towards Resettlement." Master's thesis, U.P. at Los Ba_os, College, Laguna, 1977. Reyes, L.D. "Co.managership on Forest Resource Use." Paper presented at the First Philippine Forestry Congress, 2-6 October 1978, Manila. Ricasio, S. "Long Term Export Prospects with Respect to Domestic Supply and World Demand for Philippine Processed Wood Products." Paper submitted for Certificate in Program in Development Economics. University of the Philippines, Quezon City, 1976• Rule, L. C. "Selective Logging: An Analysis from the Public's Point of View." Paper submitted in partial fulfdlment of the requirements of FRM 227, U.P. at Los Bat_os,College, Laguna, Second Semester 1979-80. • "Aras-Asan Timber Company's Approach to the Kaingin Problem," Forest Leaves XV (1964). Sanvictores, J.G. "Afforestation Work and the International Afro.forestry Development Project in Surigao del Sur." In Proceedings of the AgueForestry Symposium]Workshop, PCARR, 19-21 December 1979. Los Banes, Laguna. Saplaeo, S. R. "Watershed Management in the Philippines." Paper presented at the Natural Resources Management Center Forum, 26 April 1979, Asian Institute of Tourism. _;egura, M. "Demand for Philippine Timber Products in the Year 2000." In Population, Resources, Environment and the Philippine Future (PREPF): Scenarios for the Year 2000. A research consortium of the Development Academy of the Philippines, the U.P. School of Economics, and the U.P. Population Institute. Volume II-3A. Philippine Forest Resources; 1977. Segura-de los Angeles, M. "Agro-Forestry Development Projects: Economic and Social Impact Analysis." ESIA/WID (Micro) Discussion Paper No. 79-34, Philippine Center for Economic Development, October 1979• . "Agro-forestry Development Projects: Description of Project Areas and Activities." ESIA/WID (Micro) Discussion Paper No. 80-16, Philippine Center for Economic Development, October 1980. Serna, C. B. "Kaingin: Facts, Figures and Why;" Philippine Lumberman (April 1972). . "A Technique for Determining the Value of a Timber Coneeuion." Master's thesis, Asian Institute of Management, Makati, 1974.

Forest Policiesfor DevelopmentPlanning

â&#x20AC;˘ Current Policies in Forest Land Use: Their Implications to National Development." Paper presented at the Symtmsium: on Research andPolicy Issues _on Land Resonmes Allocation for the Philippines at the Forest Research Institute, College, Laguna, 1980. Sibal, P. V. "An Econ_nottic Analysis of Supply and Demand for Forest Products in the Philippines." Master's thesis, U.P. at Los BaEos, College, Laguna, 1978. Sieat, G. P. "Domestic Economic Gains Foregone by Exports of Logs and Lure. bet." Discussioft Paper, No. 68-5, Institute of Economic Development and Reeearch,University of the Philippines, Quezon City, 1968. Tagudar, E. "Agro.Forestry as Practised in PICOP," A_m Forest lndwb_es (May.August 1973). Tecson, G. "Some Effects of Industrial Promotion Policks on Selected Manufacturing Establishments." Industrial Promotions Policies Project, Working Paper No. 24. U. P. School of Economics, Diliman, Quezon City, 1979. Tomboc, C. C. "Growth, Yield and Economic Rotation of Bagras Pulptimber in the PICOP Plantations." Master's the_s, U.P. at Los Ba_os, College, Laguaa, 1976. Ugnayang Pang-Agham Tao CUGAT).Papers of the Second National Conference of UGAT, U.P. Baguio, 22-24 April 1979. In AGHAM-TAO, II (December 1979). Umali, R. M. "Forest Land Assessment and Management for Sustainable Uses in the Phil/ppines." Paper presented during the Conference on Freest Land Assessment and_Mmasemont for Sustainable Uses, 19-28 June 1979, East. West Center, Honolulu, Hawaii. , _,_and Gamboa, M.A. Jr. "The Exportation of Philippine Mahogany Hardwood." Natm_ Resources Management Center Research Moaogrs_ No. 1, 1979, . Umali, C. G. and Pameron, F. R. "Major Researches in Range Management in the Ph_ppines," 8y_atrop II (1977): 23-20. Univer_ty.. of the ,Pbt_.nI_l_ at Los Ba_os/Upl_d ,Hydroecology l_og_n (UPLB/UI-IP). Annual Reports, 1977, 1979; Policy Report, 1978. UPLBDNR.NIA-F_rd Foundation. .. ValdepeTtas, V. B. "lntema//oaal Tradeand lnvesUneat Allocation in the Philip,,pineWood.BasedIndustries." Master's thesis, Univenity of the l_hilippines, Diliman, QuezonCity,1969. Versara,N. _'Financial RotationfortheProductionof Ipil-lpil Firewood." Master's thesis, StateUniversity ofNew York,Collqle of Forestzy atSyracme .Unilersity, 1960. , Veraeionv A.G.. ,Agro-Fmesuy: The PICOP Experieace," In Sanvictores, J.G. "Afforestation Work and /he International Agm_Forestry Development Project in Sur/gao del Sur." In Proceedings of the Agro-Forestw Sympo. slun_orlo_op, PCARR, 1.9-21 December 1979, Los Ba_os, Laguna. Viado, J. "Vital Problems Confronting Reforestation in the Pllil/pl_nes," PM/ip-

MarianSegura-de los Angeles

pine Lumberman X (1964): 14-18. Villiran, E.A. "An Input-Output Study of the Philippine Wood.Based Industries." MaSter's thesis, University of the Philippines, Diliman, Quezon City, i978. Villanueva, M. F. "A Domestic Resource Cost Analysis of the Pulp and Paper Industry." Industrial Promotions Policies Project Working Paper No. 19. U.P. School of Economics, Diliman, Quezon City, 1978. Ymzon, G. de la Costa. "Rumblings from an Upland (the Pantabangan Expe. rience)." Paper.presented at the Seminar-Workshop on the Socio.Economic and Institutional Aspects of Upland Development sponsored by the Program for Environmental Science and Management, U.P. at Los Ba_os, College, Laguna, 4-6 August 1980. B. Foreign Sources Beddington, Watts, and Wright. "Optimal Cropping of Sel f-Reproducible Na tu ral Resources," Econometrics XLIII (1975): 789-802. Bentley, W. R. and Teeguarden, D. E. "Financial Maturity: A Theoretical Review," ForestScienee XI (1965): 76-87. Brussier, J. Financial Analysis of the Plywood Industry. World Bank Resident Mission. Manila, June 1964. Bureau of Forest Development (BFD)/International Labour Office/Government of Finland. Appropriate Technology in Philippine Forestry. Report on the Joint BFD/ILO/Govemment of Finland Project. Geneva, 1977. Burt, O. R., and Cummings, R. G. "Production and Investment in Natural Resource Industries, "American Economic .Review LX (I 970): 576-90. Ciriacy-Wantrup, S.V. Resources Conservation: Economics and Policies. Berkeley: University of California Division of Agricultural Sciences, 1963. Clark C.W. "The Economics of Over-Exploitation," Science, CLXXXI (1973): 630-34. Clawson, M. "Public Log Markets as a Tool in Forest Management," Land Economics LIV (1978). Ferguson, I. S. and Reilly, J. J. "The Social Discount Rate and Opportunity Cost of Capital in Forestry Development Projects." In Grayson, A.J., ed. Evaluation of the Contribution of Forestry to Economic Development. Forestry Commission Bulletin No. 56. London, 1976. Floro, M. S. "Export Processing in the Philippine Wood Industries." Master's thesis, Monash University, Australia, 1978. Gaffney, M. M. "Concepts of Financial Maturity of Timber and other Assets." Raleigh: North Carolina State College, Deparlrnent of Agricultural Eco. nomics, September 1957. Gregory, G. Forest Resource Economies. New York, 1972. Gerard, J. "Forest Service Stumpage Appraisals," American Journal of Fores. try XV (1917): 708-25.

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Gordon, H. S. "Economic Theory of a Common Property Resource: The Fishery ," Journal of Poh'tical Economy LXII (1954):124-42. Holt, L. "In Defense of the Traditional Forest Regulation •Model," Journal of Forestry LXV (1967): 123-24. Klemperer, W.D. "Economic Analysis Applied to Forestw: Does it Short-Change Future Generations?,"Joumal o[Forestry (Sept. 1976). Mindajao, N. M. "Smallholder Forestry and Rural Development: A Case Study of the PICOP Project in Bislig, Surigao del Sur, Philippines." Ph.D. dissertation. University of Minnesota, 1978. Myers, N. "Discounting and Depletion: The Case of Tropical Forests," P_utures IX (1977): 502.9. Naslund, B. "Optimal Rotation and Thinning," Forest Science XV (1969): 446.51. Nautiyal, J.C. "Use Cost in Renewable Natural Resources," Caned/an Journal of Agricultural Economics XVIII (1978): 95-103. Pearce, D.W. and Rose, J. The Economics of Natund Resource Depletion. New York: John Wiley and Seas, 1975. Plourde, C.G. "A Simple Model of Repleniahable Natural Resource Exploitation," American Economic Review LX (1970): 518-22. Rebugio, L. "Shifting Cultivation, Population Density, and Settlement Patterns." Paper read at the Yale School of Forestry as partial requirement for the degree of Master of Forestry, February 1969. Sartorius, P., and Henle, H. Forestry and Economic Development. New York: Praeger, Inc., 1968. Samuelson, P. A. "Economics of Forestry in an Evolving Society," £eonomle Inquiry XlV (1979): 466-91. Revilla, A;,V. Jr. "Simulation Analysis of Almmative Forest Management Stratvgi_ for:Difllippine Diptoroc_rp Forests." Ph.D. dissertation, Yale Uai_rsity Sed_l _"Fox.trY, t978. Schreudor_ ;G.F. '°l_ Simultaneous De_rminatio0 of Optimal Thinaing Sd_dule and Rotation for an Even-Aged Forest," Forest Seden_ X'VII(1971): 333-39. Scott, A,D. Natural P_ouree_. the Economics of Comervelion, 2nd ed. Toron_o: Mdellaad_tewatt,* 1972. : Smith, V." L. "Ec0n'bmics of Production from Natural Resources," Araetican Economic Revicw LXVHI (1968): 409-31. Th0mpson,E. F. "rradltioual Forest Regulation Model: An Economic Critique," Jouma/ofPo_try_LXIV (1966): 750-52. United NatiOns, Food and Agricultural Organization. Phi/lpp/nes: Demons_, ,_ and Training in Forestry, Forest Range and Wal_n#,edManagement. Manila, Match 1971. Walker, J. "What the Forest and Rangeland Renewable Resources Planning Act Means to the Timber Industry." In S. U. Rich, ed. Jgco/o_, Enui_ementllism and Future Timber Supply. Proceedings of a Current Issues Conference, 18 March 1975.

Research

on Minerals for Philippine

Development

Planning:

A Survey

Teodoro M. Santos

PART I BASIC CONCEPTSAND PRINCIPLES OF THEMINERALINDUSTRY

INTRODUCTION General Statements The mining industry is one of the few industries that fuel the engine of economic and social development of the country. Like the sugar and coconut industries it earns foreign exchange which the country transforms into self-regenerating'industrial and social capital, along with a host of other benefits, inelu:ding government revenues. Unlike the coconut and sugar industries, it is not encumbered by the problem of tenancy and does not compete for the use of premium agricultural lands. It therefore has the potential of further increasing its contributions to national development with the least strain being experienced by other sectors of society. We might ask if this industry can still enhance its contributions to national welfare, and if so, how can it be made to increase its contributions? Can government policy be used to boost the industry's contribution? Will research help the industry? This work aims to assess mineral related researches with the view of identifying areas in Professorof Geology,Universityof thePhilippines.

Mineralsfor Development Planning

which researches or related activities may be necessary in order to enhance the contribution of the industry to national development. This work consists of two steps. First, the basic concepts and principles of the mineral industry are set down to make them more intelligible, at the same time mapping our areas in which researches of consequence have been done elsewhere. Second, using researches done in other parts of the world as reference, researches done domestically are then assessed to determine what they have covered and what they have not, concluding with a set of recommendations for future research. Although minerals include categories like fuel, metallics and nonmetallics, this work focuses only on metallics due to time constraints. However, most principles applicable to one are also applicable to the others. Classifiea_on of Minerals Natural resources may be broadly classified into flow and fund resources (Reyno!ds.et al. 1974, pp. 116-27). Flow resources consist of those inexhaustible resources whose present supplies are not d_ed by p_wiot_ use; they are either nonstorable or storeable such as sunlight and rain water. On the other hand, fund resources consist of exha_tible, resources which may be either renewable or nonrenewable as exemplified by forests and copper deposits. Most mineral resources belong to the Class of nonrenewable resources although some mineral resources (e.g.,, magnesium from sea _vater and mtr_gen ,from the air),are really renewable. The tet_ '_mi_et_al" is used here in the legal or commercial sere rather than in,the sfrict mineral_gi_al definition. For instance,,,_the Phittppihe Mineral ResourcesI_lopme_nt Decree of 1974 (l_npir_n.d.; p. 3): defined mi_etzls =as'"." . :all naturally occurring inOrganic su.bst_ttceS-_ solid, liquid or any:intermediate state inch/ding coal. Soil which suppbrts organic life, sand ._l gravel, guano, petroleum, geothermal energy andnatural gas are included in this term::..." Although minerals have been classified in many ways depending on bi_jectives, they may be classified for the present purpose into fuels, metals', ,and nonmetals. Minerals which serve as a source of energy are called fuel minerals. FoSsil fuels which are stored solar-energy such as petroleum, natural gas, eoal, lignite, peat, shale oil, and tar sands belong to this group. Minerals which contain radioactive elements, such as uranium and thorium are also fuels. Heat stored in the rocks (geothermal energy)

l-eodoro M. Santos ]'able 1. Classification of Minerals

Fuels

Metals

Petroleum, natural gas, coals, lignite, peat, uranium, thorium Shale oil, tar sands Geothermal heat Precious gold, silver, platinum Base metalsferrous or ferro-alloys, lil_ iron, chromium, nickel, manganese; nonferrous like copper, lead, zinc, tin and mercury.

Nonmetals or Industrial minerals

are also classified

as mineral

The

common

sources

Construction materials- cement, limestone, adobe, gravel and sand. Chemicals - phosphates, potash, industrial salt, sulfuric acid Ceramics- clay, dolomite, chromite Abrasivesdiamond, corundum, garnet characterized by: (a) high bulk, low unit cost; (b) market demanding specifications; (c) specialized processing and testing techniques; (d) importance of customer service; and (e) interaction of growth of industrial minerals with growth of urban areas.

fuel.

of metals

are called metallic

minerals.

The

metals may be divided into precious and base metals. Gold, silver and platinum are precious metals. On the other hand, base metals may still be divided into ferrous and nonferrous. Ferrous metals consist of iron and other metals that alloy with iron in steel making. such as manganese, nickel, and chromium while the other metals like copper,

lead, zinc, tin, and mercury

are nonferrous.

Nonmetallic minerals are a large group of minerals which are useful neither as a source of energy nor as a specific element. They are useful in various industries for a great variety of functions. They may serve as construction materials such as cement, gravel and sand, marble and adobe stone. Phosphates, potash, industrial salt, limestone and sulfur are of course vital to the chemical industries. Clays, dolomite, and chromite, among others, are important ceramics raw materials. Abrasives like diamond corundum and garnet axe indispensable to many industries. :These nonmetallic minerals are charae-

MineralsforDevelopment Planning

torized by high bulk and low unit value, Nonmetallic minerals are closely tied to the growth of urban areas and of industries. In fact, "to a very large extent industrial growth means growth of the industrial mineral industry" (Toombs and Andrews 1976, pp. 42-5 l). This work focuses mainly on metallic minerals since the mineral industry in the country deals mainly with metallic minerals. Time and" resource constraints, in addition to the institutional separation of fuel and metallic mineral industries, force this work to concentrate on the metallic minerals. Apart from the classification of minerals, a discussion of the various stages of the mineral industry could also provide important insight into the nature and problems of the mineral industry. Stages of the Mineral Industry Valuable insight into the behavior of the mineral industry can be obtained by examining its various production stages. Given any specific objective, policy need be directed, only to a specific stage rather than to all stages with greater efficiency and economy. Furthermore, each stage can be regarded as a production process with_distinct inputsand outputs. Different writers recognize slightly different stages, no doubt because of their varying experiences. A writer from a developing country (e.g., Santiilan ' 1977, pp. 150-52)usu_ly emphasizes the exploration, development, mining and milling, concentrating, and marketing stages whereas one from a developed country (e.g., see Gluschke et al.-1979, p. 2) may not even metnion exploration as a distinct stage but instead include semifabriCation and fabricatio;_ stages, which is a rather extreme view. This section presents _ the â&#x20AC;˘_tages of a fully developed mineral industry so that some Of them may;,be missing in any specific country. A summary of the _tages of mining is given in Table 2. The exploration stage is very importar/t in any mineral _dustry. It consmts of all activities essential to the discovery and delineation dr" an,..economically promising resource,.including the establishment of legal fights. Prospecting, geological mapping, geochemical and geophysicalsurveysand even test drilling, tunneling and test pRting to establish the existence of a _sOurce which is promising enough in terms of its quality and size are the usual activities under this stage. The much ballyhooed risks of the mineral industry are encountered at this stage. Activities under this stage may grade into the development and infrastructure stage.

Teodoro M. Santos

Table 2. Stages of the Mineral Industry Modified After T. Santillan and W. Gluschke-

EXPLORATION STAGE Prospecting; laying down of claims Execution of mining lease, contracts Detailed geologic survey, mapping Preliminary drilling, sampling, tunneling DEVELOPMENT STAGE Establishment of mineral reserves through systematic sampling Preparation of reserves for extraction Technical, economic and financial feasibility studies Pilot plant construction (optional) MINING STAGE

drilling, tunneling,

Extraction of ore from the ground either for feeding into the mills or for shipment to consumer depending on quality of ore. MILLINGAND CONCENTRATING STAGE For crushing and grinding of the ore and for separating undesirable minerals to produce a mixture containing a sufficient amount of desirable minerals for economic extraction. End product is a co_lCentrate which may be shipped to a smelter, the consumer of concentrates. (For copper concentrates, copper content may be 25- 30%.) MARKETING AND TRANSPORTATION STAGE Transporting to market and sales to consumers of marketable product which may be direct shipping ores, concentrates, crude metal, refined metal, or semifabriÂ˘ated metal. SMELTING STAGE Concentrates or direct shipping ore ate treated to produce impure metal usually not yet ready for use. For copper the product at this stage is called blister copper. REFINING STAGE Crude or impure metal is _eated at this stage to produce what may be transformed into products which may be used as raw materials for manufacturing. In copper, 99.9% pure cathode copper may be produced at this stage. SEMIFABRICATING STAGE Refined metal is transformed into semifirLished products such _ sheets, tubes, bars and wires for copper and sheets, billets, shapes, bars and coils for iron and steel. FABRICATING STAGE Semifabricated metals ces, machineries,

are manufactured etc.

into products lil_

cats, applian-

Mineralsfor Development Planning

The development of a. mineral deposit consists mainly of tran_'ormln_, resources discovered and .located during the exploration stage into reserves which form the basis for future production. Expensive systematic drilling, tunneling, pitting and sampling, of the deposit to. establish its .magnitude and quality within the requirements of sound eagineering practice and bartkability are done at this stage.. But even ff a large and sufficiency high grade deposit is established economic recoverability has to he proven yet by treating largetonnages inpilot plants. Due to the large investmentsneeded, a feasibility study, both technical and financial, must be made to assess the effects of various factors such as tonnage, grade, distance to nearest road, distance to market, costs, taxes and fluctuating prices upon the profitability of the deposit. Given that the project is feasible within reasonable limits, then necessary infrastructures such as roads, bridges, ports, power lines, water system, township, school, hospital, and the like, may he constructed. Thus, the development and,infrastructurestage consists of investments in producing at least a minimum size and grade of reserves and of,activities and facilities necessary for extracting reserves, and of the marketing of products, This stage is thus risky, time consuming ,and, capital intensive, Expenditures in the tens of millions of pesos may be incurred here only to f'md out later that the project is unprofitable. After the blocking of adequate ore reserves facilities for ore extraction, milling and concentration must be put up for the mining and milling stage. Very detailed knowledge about the distribution and concentration of, the metals must he obtained in, order to have adequate control of the product. For under_round mines a system of holes :and openivc, s are constructed to have access to the ore body and .to install the .necessary facilities for brJ_ing .the ore-_to themill, for ventilation, ligkting and blasting. As .f_'.open pit _s, power shovels., and powerful haulers, along with_ectricaL and water facilities, have to he installed. Of course, dy_mites and driRing equipmerit are needed to break up the rocks. .. , _. The .ores are _ and ground to proper sizes in. the. mill and then made to pass through concentratomto remove undesirable components. For instance, copper ore with O.S per-cent copper is transformed into a product containing 25-30 per cent copper after passing through the concentrator. A large amount of energy is needed during the crushing and grinding process while tons of expensive chemicals are used during concentration. Therefore, the

TeodoroM. Santos

output of the mining and milling stage is a marketable product, the concentrate, which may be sent to smelters for final extraction of the metal. Most mining operations in the Philippines end at this stage except the nickel of Marinduque Mining and the primary gold mines which continue into the smelting stage To be useful, the metal from the concentrates must be extracted and refined in the smeltiiag and refining stage. By applying heat upon the concentrates which are treated with various chemical reagents, a crude metal, say 95 per cent pure copper, may be produded. Impurities of silicates, sulfur, gold, silver, iron and others must be removed in the refining stage by employing large amounts of electricity .to produce, say, copper with 99.9 per cent purity along with gold, silver and other metal by-products. The metal product at this stage then becomes ready for processing into semifinished or manufactured products. The refined metals are therefore sold to semifabrication plants which transform them into sheets, strips, bars, rods, tubes, wires, bronze, and brass. These in turn become ready for fabrication into final product_ such as automobiles, machines, appliances, and the like. The marketing stage is therefore the end of every mineral industry because the usual objective of mining is to transform the ore into cash. What may be sold are direct smelting ores (very high grade), concentrates, crude metal, refined metal or semiprocessed metal, depending on the quality of the ore or on the degree of vertical integration of the firm, This means that marketing may follow after any of the following stages: mining; milling, smelting, refining1 and semifabricating. â&#x20AC;˘ The nature or the product sold by the mineral industry has profound effects on the value of sales, transportation costs, magnitude of required investments, and social benefits and costs. This is so because large investments are involved in each of the stages past the â&#x20AC;˘exploration. In addition, the value of the products â&#x20AC;˘increases as more processing is done while the cost of transporting to the market diminishes. Consequently, more foreign exchange, taxes and employment are generated as more stages are traversed by-the industry. Closely related to the stages of the mineral industry are its characteristics which may provide additional insight into the behavior of the industry. Characteristics of the Mineral Industry The mineral

industry

is said to be area specific,

risky, capital

Minerals for Development Planning

intensive,exhaustible and associatedwith a long lead time. EXHAUSTIBILITY

The fact that minerals are finite, exhaustible or wasting assets generates concern over their future availability and raises the question of equity of allocation within and between generations. Two views on exhaustion - the physical and economic - are helpful in underst_ding this problem. Under the physical view it is held that since the mineral supply is f'mite and since, demand is increasing exponentially, then supply would have to be depleted sooner or later. Applied to the existing reserves of minerals (and energy) Meadows et al. (1972) painted a very grim picture of future mineral supply. For instance, at the 1972-74 rate of consumption only, the reserves of a few minerals will last a hundred years or more at zero growth rate; if consumption grows at 5 per cent per annum, only potash would last for a hundred years while only three (out of 30 minerals) would last for about fifty years; and if the annual â&#x20AC;˘growth of consumption is l0 per cent, only potash will last more than 50 years while the remaining 29 minerals will have their reserves consumed in less than 40 years, many in less than 20 years. When the pressure of exponential growth of consumption was applied to all the metals contained in the accessible portion of the earth's .crust down to three kilometers, regardless of whether they earl be economically extracted or not (resource base), it was discovered that at a 5 per cent growth rate most metals would be exhausted in about 300 years, and that at-a 10-per cent growth rate most metals would not last for 200 years (Tilton 1977, pp. 12-13). Such a bleak scenario of minerals is questioned on several counts. First, reserves are very conservative estimates of mineral supply since they measure only what are known economic deposits. However, resource base is perhaps an upper limit for available minerals. Second, the effect of technology either on supply or demand is not taken into account since it is assumed to remain constant despite the pressure of increasing scarcity. Third, the effect of recycling is not considered. Finally, there is a body of evidence indicating that the growth in per capita consumption decreases as a certain threshold per capita income is approached beyond which per capita eonsumpt-

TeodoroM. Santos

ion declines (intensity of use hypothesis). The economic view of .exhaustion stipulates that even if physical resources remain infinite the real costs of finding and processing them will rise as producers are forced to turn to poorer deposits, thereby forcing society to curtail its mineral demand. This argument implies that economic exhaustion (i.e., when demand is zero) will set in long before physical exhaustion is felt. When this view was tested empirically for 1870-1957 it was discovered that the real costs of producing minerals declined from 210 index points in 1.870 to 47 in 1957. This phenomena! cost reduction was ascribed to new discoveries and technological innovations (Barnett and Morse 1963; see also Tiltoh 1977, p. 11). Of course, there is no assurance that technology and new discoveries will continue to decrease production costs in the future: RISKS

It is common knowledge that. mining is a risky business. But in what sense is mining riskier than other businesses? Like other businesses it suffers from the difficulty of predictingcosts and prices perhaps to a greater extent, due to greater volatility of prices, as they are affected by global factors beyond the control of local authorities, such as inflation and the spiralling of energy price (economic risks). Like other businesses, it faces the danger of defaulting payment on its loans because cost and prices did not _rn out as expected, perhaps to a greater degree because of the long lag time between the decision to produce and actual production, in addition to the considerably larger amounts involved (fiiaancial risks). It is also true that accidents are more frequent and more serous in mining operations than in most other industries because of the generally hazardous conditions obtaining in a mine where cave-ins, explosions, and fires, among others, could cause major disasters (operational risk). (See Tilton 197.7, pp. 28-30; CRC 1973, pp. 6-7.) But there are risks which are indeed unique to the mineral industry, and these shouldbe carefully examined to appreciate the behavior of the industry. Two are given below which are based on the discussion by Brooks (1976) and Armstrong (1974). First, raw materials for mining are mainly ore reserves, But, at best, reserves can only be estimated and are therefore always associated with errors. The best estimated reserves usually differ from the

Minerals for Development Planning

true value by about 20 per cent (McKinstry 1948) so that very expensive plants and equipment may be installed only to run out of ores before investments are recovered. Greater uncertainties, however, are associated with the search for ore bodies (exploration stage) which may be developed later into reserves. A study by Morgan (1970) of the operations of large mining companies with a high level of technical expertise indicates the following uncertainties and costs associated with exploration: (a)

(b)

(c)

(d)

(e)

In a terrain comParable to the Basin Range Province of the U.S. tile chance of discovering a property that will yield a total revenue of $100 million was roughly 1 in 150, and for a deposit ten times as large the odds were 1 in 1,000. A study based on 4,865 properties in Canada and 285 mining districts in the U.S. indicated that the chance of discovering a deposit of $50 million or larger was about 1 - 2 per cent. A company spending from $1,500,000 to $3,000,000 per year in mineral exploration and research should have a better than 50 per cent chance of success in exploring in many different geological environments within say 6-10 years. Large companies generally spend 3-20 per cent (generally less than 10 percent)of their cash flow before tax on exploration and research but small mining firms spend more in their effort to survive and improve their position.j On the average, at 40 per cent tax rate and 9 per cent interest the present value of exploration costs at the point of decision to produce is $31 million while the cost of development and construction amounts to $55 million.

Experiences in the Philippines support the findings above. For instance, it was reported that "out of 1,000 exploration ventures initiated only 7 proceeded to production, and of these only 2 became profitable." Again Henry Brimo cited that "... from 1933 to 1938 at least 800 Philippine mining companies probably examined at least 8,000 prospects (a conservative estimate indeed!). Only 42 reached the production stage, 4 are still operating though only 2 are profitable." These data indicate that exploration risks incurred in the Philippines are higher than those reported for high caliber large mining companies abroad, a situation that is to be expected since very few local firms, if at all, are at par with the best in the word. As the above data indicate, the high risks associated with the

TeodoroM. Santos

exploration and development stages indeed set the mineral industry from the rest of other industries. Another risk that is particularly patent to the mineral and other natural resources industries may be called political risks. What these risks are, or what they consist of, may be gleaned from the words of an international economist who studied the African mineral industries for a long time (Armstrong 1974). Western and Japanese mining companies are reluctant to put their money in Africa for fear the rules will be changed soon thereafterand they will eitherlose their investments or make it back too slowly with too little control... . . . And indeed the trend toward African government to acquire sharesand even majority ownershipin heretofore foreign Owned companies -- mineral and petroleum being prime targets -began in the late 1960s. At least 26 African countries have nationalized one or more firms. A recently published United Nations Survey showed a body count of 875 companies nationalized in 62 countries around the world since 1960.... The risks, in essence, consist of changes in rules governing mineral investments. This is disturbing because the feasibility of a project must be evaluated according to a set of rules; if they change before the life of the project has expired, then its profitability comes into question. Therefore, frequent changes in rules affecting the mineral industries are repugnant to both foreign and local investors. For instance, representatives of the local mining industry state that the stability of government policies was one if not the most important factor necessary for long run development of the mining industry. The ad hoc â&#x20AC;˘ changes in government regulations and policies have adversely affected all attempts by mining companies to plan long-range, upsetting profitability projections, financing schemes and foreign investment calculations... (CRC 1978, p. 2). What makes the mineral industry particularly susceptible to political risks is the perception that exhaustible and nonrenewable minerals are part of the nationalheritage, and that therefore the people must extra from them the maximum welfare possible. Perception of welfare or what is good for the people frequently changes; hence, rules intended to safeguard national welfare do likewise. The adverse effects of abrupt policy changes in many contries resulting in drastic reduction in production and reserves are well documented (Moran 1973; International Monetary Fund i 973; Tilton 1977).

Mineralsfor Development Planning CAPITAL

INTENSITY

AND LONG LEAD TIME

Any discussion of the various stages of the mineral industry would suggest that it requires large investments. Although the exploration stage is quite expensive, development, smelting and refining stages are all the more expensive. The capital intensity in the mineral industry is strongly indicated by the projects listed below. Iron Mine and Pelletizing Plant in Fire Lake, Quebec (on steam in 1977) $510 million Cerro Colorado Copper Project in Panama Mining up to concentrate (1977) - $800 million Dizon Gold-Copper Project in Zambales, R.P., Mining to concentrates (1979) $100 million PASAR Copper Smelter Project in Isabel, Leyte, ILP. (1980) - $350 million Aluminum Smelter Complex, Isabel, Leyte, R.P. (1980) - $450 million The capital intensity of the mineral industry becomes more obvious if we realize that on the average it takes an investment of 짜55,000 in fixed assets to create a job in the mineral industry against the P15,000 per worker in other industries (CRC 1975, p. 68). Mineral projects, being large and complex, take a long time to plan, finance and construct. Large projects like the Toquepala Copper Project in Peru and Cerro Colorado in Panama took at least 10 years before full production was attained. Many copper mines in the Philippines like Marcopper, Sto. Nino of Baguio Gold, Surigao, Samar, Batong Buhay, Dizon and Bobok of Benguet Corporation took about 10 years to develop before becoming productive (CRC 1973, p. 7). LOCATION

SPECIFIC

Another important characteristic of the mineral industry is that a mine can only be built where a mineral occurs. In the case of ores, this means that most "mining operations are generally located in hinterlands which are usually inaccessible via the public roads" (CRC 1973, p. l) because ores are generally found in mountains which are

TeodoroM. Santos

far removed from well-established settlements. Consequently, the mining firms have had to build roads connected to the nearest existing government roads, along with townships, hospitals, schools, power and water system and recreational facilities,among others, to induce workers to stay. Two important conclusions may thus.be deduced from the location of mines in the hinterlands. First, it is obvious that mining firms •spend a large amount on what may be called social infrastructures and•amenities which are not directly connected with production. Second, by providing a nucleus of economic and social •activities in an area where they did not exist before and by linking it with roads to more developed communities nearby, a mining firm serves as an agent of rural or countryside development, perhaps unwittingly. If such activities are merged with the government's development plan in a given mineral district, more profound and lasting changes may be achieved. • II. BASICCONCEPTSAND PRINCIPLES This chapter covers the basic concepts and principles relating to mineral demand and supply. •Factors affecting demand are first discussed, followed, by a more extensive discussion of supply concepts and theories governing their behavior. Emphasis is given on the supply aspect since minerals differ from other commodities more on the supply than on the demand side. Mineral Demand several concepts are important in understanding mineral demand. They are the market, prices, concentration, substitution, intensity of use, and cyclical volatility. MARKET

AND PRICES

Minerals are international commodities which are sold in the world market at prices which reflect transportation and handling costs. Of the total value of commodities moving in world trade in the early 1960's 26 per cent was mineral. About 40 per cent of these minerals originate from developing countries and are exported to industrialized countries. Minerals sold by developing countries are usually in the form of crudely processed ores or metals whereas exports from developed countries are more highly processed. In bulk and value, petroleum is dominant, followed by iron ore and steel, bauxite and

MineralsforDevelopment Planning

alumina, and the traditional, highly valued nonferrous metals such as copper,, tin, zinc, lead, gold, and silver (McCaskiU 1976). Much of the minerals moving in international trade are bound either by long- and short-term contracts. Short-term contracts are negotiated every year while long-term contracts are made to last for more than a year, on the average for about five years. Due to many uncertainties in the market, frequent renegotiations of the terms of contract, particularly prices and volumes, are made (Santos 1976). A smaller volume of refined metals is sold in commodity markets such as the London Metal Exchange (LME) and the New York Commodity Exchange (COMEX). These markets are essentially competitive; hence, their prices reflect the demand-supply imbalances in the market even if they represent but a small volume (10-20 per cent) of the metals. Metals hke gold, silver, copper, tin, lead, and zinc are traded in theseexchanges. Another type of market exists in the United States wherein prices are administered by producers and axe set to reflect the more stable long-term movement of prices (Gluschke et al. 1979, p. 9; Tilton 1977). Prices in the various markets cited above perform functions other than just pricing thesmall volume of metals sold in them. They are used as references for pricing the greater volume of metals that are bound in short- and long-term contracts. CONCENTRATION

Prices are affected by the degree of monopoly in the market. A high degree of control of supply by few producers (consumers) could give them the power to dictate prices. Studies on the concentration of production indicate that a large number of minerals are organized along oligopoly lines; for instance., four of the biggest producers accounted for 99 per cent of platinum, 82 per cent of nickel, 80 per cent of phosphates, 73 per cent of chromite, 86 per cent of cobait, 60 per cent of copper, and 48 per cent of iron ore. Similarly, an oligopolistic situation obtains in the buyer's market. Notwithstanding the high degree of concentration, it appears that no dominant producer or consumer who could dictate prices _xists (Johnson 1976, p. 30-34; Gluschke 1979). SUBSTITUTION

The demand

for minerals, derives from the demand for the goods

TeodoroM.Santos

and services which are produced Out of them. For instance, copper is demanded because it transmits electricity or messages efficiently; there is no demand for copper per se. In short, there is demand for any material like a mirieral for the function it serves in a product or process. It is for this reason that substitution is universal among minerals. Aluminum substitutes for copper in electrical transmission just .as aluminum and plastics substitute for steel in car manufacture and structural constructions. Aside from the substitution of materials in the same product or process, a product or process may be replaced by a radically different means of achieving the function it performs such as the transmission of long distance messages by satellite rather than underground cables. The first type may be called material substitution while the second may be called functional substitution. Substitution is important because the use of a relatively abundant material in place of increasingly scarce materials helps offset and may even postpone indefinitely the tendency for real material costs to rise due to depletion. Since substitution plays a role in the growth of material demand, it has to be considered in forecasting future requirements. Factors affecting substitution, among others, are relative prices, government regulation, consumer preferences, technological innovations, and product competition (Tilton 1979). INTENSITY

OF USE

Intensity of use refers to the material cost of producing a unit of national product. It may be defined in terms of, say, kilograms of copper consumed to produce a dollar of GNP. Defined in this fashion, intensity of use describes an inverted U-shaped locus when plotted against per capita income. This is called the "law" of materials demand. Such behavior reflects the chan_ing structure of a nation's economy. In the early stages of a country's development rapidly increasing use of minerals takes place as infrastructures such as roads, bridges, buildings and heavy industries, dams and power plants, among others, are built. As maturestages of economic growth are approached, the rate of consumption of materials diminishes until a maximum level is reached; thus subsequen t economic activities increasingly focus on less material consuming service activities (Malenbaum 1975).

Minerals for Development Planning

CYCLICAL VOLATILITY

Many difficulties of mineral producers and consumers alike are rooted in the wide and unpredictable fluctuations of mineral demand and prices, a phenomenon we call cyclical volatility. Among the important factors affecting it are low, short-run price elasticities of supply and demand, and large income elasticities (Tflton 1977). Minerals have a low, short-run price elasticity of supply. As long as excess capacity exists, mineral supply is responsive to price changes. However, as full capacity is approached, even very large price increases may not be effective in eliciting substantial increases in production since a long time intervenes between the decision to produce and actual production. Similarly, the demand for minerals does not respond to price changes well because users have fixed plant capacities which require years to expand. Even if substitutes arc available at appropriate prices, existing facilities are not likely to be scrapped so long as variable costs can be recovered. Or at the least, substantial costs and time are involved in retooling and retraining workers in order to be able to use a substitute material. On the other hand, as economic activities expand the demand for capital and durable goods into which minerals are made expands. During a contractionary period, the demand for capital and durable goods likewise declines. The demand curves for minerals, therefore, shift frequently in response to the changing phases of the business cycle, thus accounting for the cyclical volatility of demand and prices. The amplitude of the fluctuation in demand and prices is exacerbated by a number of factors, namely, the increasing synchronization of the business cycles in the developed countries, speculation, and stockpiling activities. The effect of the first is self-explanatory but some explanation may be needed for the last two. When mineral prices start declining, fabricators anticipate a further decline so that they draw from existing stocks instead of buying in the market, hoping to buy at a later time. Stocking when supply is abundant does not make sense since it entails costs and brings no advantages. But as prices move upward, consumers rush to the market to buy their current requirements as they stock up too for future use. Although fabricators axe more concerned with lowering costs than making profits, their behavior parallels that of the true speculators who try to make profits by "selling short" when prices

TeodoroM. Santos

are moving down and "buying long" when prices are moving up. Certain governments stockpile a number of materials to avoid the adverse effect of shortages or embargoes on their military preparedness and economies. Since the volumes involved are substantial, the stockpiling activities could stimulate prices to move upwards. However, when the stockpiling authorities withdraw from the market, that portion of the supply which came about in response to stockpiling will remain unsold and cause a glut in the market, forcing prices to move down. III. STOCKCONCEPTSOF MINERALSUPPLY (OR LONG.RUNMINERALSUPPLY) Resource Concepts How much mineral may be available in a given place and time is certainly a crucial question in mineral economics. But this brings us to the more fundamental question of how much mineral stocks we really have in the ground. Alternatively, we can ask: what are the measures of mineral stocks? Ultimately, therefore, it is necessary to clarify the commonly misunderstood concept of mineral stocks, viz., resources and resource base. The following discussions are based on the paper by Brooks (1976) which reviewed extensively the concepts used by different authors. The various mineral stock concepts may be defined within two important dimensions. The first is the cost-price (cost/price)dimension which captures the effects of factors that influence the prices or the costs of producing minerals. Another dimension indicates the degree of geologic certainty (probability) which one can attach to estimates of mineral stocks. The latter dimension implies that mineral stock concepts cannot be measured absolutely; they can only be estimated. Considering the volatility of mineral prices and the diversity of factors affecting costs, one realizes that mineral stock estimates are changeable and that they are not only subject to the influence of physico-chemical forces but highly susceptible, too, to social, political and economic factors, RESERVES ANDRESOURCES On the basis of an increasing cost-price ratio, mineral stocks may be classified into reserves, submarginal resources, and latent re-

Mineralsfor DevelopmentPlanning

sources. Reserves consist of mineral stocks which are economically exploitable under existing technological economic, social, and political conditions. A group of mineral deposits and submarginal resources may not be economic to extract under present conditions but may become economic if some improvement in technological, economic, social or political conditions comes about. A very substantial improvement in the cost-price ratio brought by technological innovations, more favorable prices, or more stable socio-political conditions may transform latent resources into reserves, Note that latent resources may move upward to submarginal resources or even to reserves; and that, conversely, reserves may move downward to a submarginal or latent resource category depending on the costprice situation. IDENTIFIED

AND UNDISCOVERED

RESOURCES

Using the geologic dimension, reserves, submarginal resources and latent resources may be divided into identified and discovered. Certainty of knowledge about the mineral stock is high for the identified resources but low for the undiscovered. Minerals under the undiscovered category may be elevated to identified by exploration, i.e., greater geologic certainty about mineral stocks can be had by investments in exploration. RESOURCE

BASE

Finally, another important mineral stock concept not definable within the cost-price-geologic dimension must be recognized. This is the resource base. This concept disregards the economic dimension but is mainly based On technological and physico-chemical factors. It reflects the upper limit of a given resource based on existing and foreseeable technologies. One may talk about a country's copper, gold, iron, coal or petroleum resource base. The Philippine copper resource base may be defined, for example, as all the copper metal contained in the rocks within the upper three-kilometer zone of the earth's crust under the country's territory. The three-kilometer zone is set by current technology and may change depending on the nature of the mineral (whether liquid or solid). The significance, therefore, of the resource base is that it gives the policy-maker a rough idea of the maximum amount of a given mineral that could

Table

3. Classes

of Mineral

(After

â&#x20AC;˘ _' o

Degrees

"_ E

.2 __" ,._

of knowledge

Reserve Brooks

about the resource (geologic

Recoverable unde.r â&#x20AC;˘market and techn.ologic _ _ _

conditions

Proved reserves

"_ _ o _

Recoverable prices up to 2 limes those prevailing now or with comparable advance in technology'

Recoverable at prices 2 to 10 times those prevhiling now or with comparable advance in technology

n O'

Total

reserves

Identified

submargiz)al

latent

dimension) In undiscovered districts Undiscovered

Inferred reserves

Probable Possible Reserves Reserves Undeveloped Reserves

Identified

Estimates*

1976)

In known deposits or districts Identified reserves Measured reserves Indicated reserves

Developed

and Resource

resources**

rcsourccs**

Tolal iden tified resources

Increasing uncertainty Fotal Potenlial Reserves

Reserves

eD"d 0D.

Undiscovered submarginal

Potentia_ submarginal

resources

Undiscovered latent resources

Potential latent resources

Undiscovered resources

Total potent resources

*The block of resources described by these eslimates accounts for only a part, generally a small part, of theresource base. **The terms measured, mdica*.ed and inferred may also be applied to known _tbmarginal and latent resources where knowledge of them is sufficiently detailed to warrant differentiation in the degree of certainty of the estimates,

O o o'_

Mineralsfor Development Planning

become available under the most favorable conditions. There are other factors that influence the nature of a mineral stock which may become very important locally. For instance, even if a large copper deposit of a given grade occurs in a locality, it could either be classified as reserve, submarginal, resource, or latent resource depending on how much of the metal is recoverable, or whether it is located in an inaccessible place or contains excessive deleterious impurities. Estimating Resources Along the Geological Dimension Some of the methods for measuring reserves, resources and resource base are presented under this section with the aim of further clarifying the meaning of such concepts and identifying some of the important variables that affect them. Reserves are either identified or undiscovered. Identified resources may still be subdivided into categories like measured, indicated and inferred. Definitions Of various categories of identified reserves are given below (Brooks 1976, p. 145). Measured reserves are those for which tonnage is computed from dimensions revealed in outcrops, trenches, working and drill holes and for which the grade is computed from the results of the detailed sampling.The sites for inspec. tion, sampling and measurement are spaced so closely and the geologiccharacter is well defined that size, shape, and mineral content are well established. The computed grade and tonnage are judged to be accurate within limits which are stated, and no such limit is judged to be different from the computed tonnage or grade by more than 20 per cent. Indicated reserves,on the other hand, are those for which tonnage and grade are computed party from specific measurements, samples or production data and partly from projection for reasonable distance on geologic evidence. The samplings are either too widely or inappropriately spaced to permit the mineral bodies to be outlined completely or the gradeestablished throughout. Finally, inferred reserves are those for which quantitative estimates are based largely on broad knowledge for which there are few, if any, samples or measurements. The estimates are based on an assumed continuity or repetition of which there is geologicevidence... The measured-indicated-inferred reserves terminology indicates clearly that as precision of reserve estimate increases, investments in tunneling, trenching, drilling and-sampling proportionately increase. Because of the large expense associated with developing reserves, particularly measured (or its equivalent) ones, the mineral producers tend to develop just the minimum amount to justify a given capital outlay..Hence, reserves are very conservative estimates of what may

-/6

TeodoroM.Santos

be available. Reserve terminologies parallel to measured-indicatedinferred are in use, particularly by mining organizations. Methods of estimating identified reserves are well-developed and presented in books on mining geology or mine valuation. UNDISCOVERED

RESERVES

To some writers (McKelvey 1973, pp. 67-82) it is important to distinguish between undiscovered resources located in known districts and resources in unknown districts. Theterms _hypothetical resources and speculative resources are applied to resources in known and unknown mineral districts, respeotively. Many geologists prefer the use of these terms, However, in the scheme we are presenting, undiscovered reserves are used to designate unknown resources which can be extracted at a profit under existing conditions. How these unknown reserves (resources) are measured without being discovered is illustrated below. Two examples are considered - geographic analogy and the statistical distribution technique. G, GEOGRAPHIC

ANALOGY

OF MeKELVEY

This method is suitable for investigating large areas. A relationship of the following type is assumed

(l)

R =kA

where R equals metal reserves in tons; A equals crustal abundance of a metal expressed in per cent; and k equals a Constant equal to 106 - 101째 for all metals, 109 - 1010 for old metals, and 106 - 109 for new metals. The constants have been evaluated for areas in which extensive information concerning previous mineral production, current reserves, and metal abundance is available. For a large area of interest, the unknown reserves may be estimated by determining the average concentration of t-he metal contained in the crust and plugging it in the equation above. This method calls for extensive analysis of the crustal composition of various areas (see Figure 1). MULTIVARIATE DISCRIMINANT HARRIS AND EURESTY

MODEL OF

Unlike the Geographic Analogy, this method yields more precise results even for relatively small areas. It postulates a relation of the following type:

Mineralsfor DevelopmentPlanning

Figure 1. U.S. Reserves of Elements Compared to Their Crustal Abundances (aftvr McKetvey 1969, p. 235)

4Fei

lo'_ .= P. -

o =

/ / ,o/C.o

/ /

°Zy

,,(3 "*"

Bs°

/ /

.0_ _ 105

--=.

,/ 10 3

/ .

If 10-6

Cd" / eBt 9Ag

. I 10-4

Abundance

(A) in

So I/

earth's

"T_

.e I

",- . C

/ _..

+-._/

_Sb /

,,"°

_-+"_/,_.

I i0-2

crust

(percent)

•

Teodoro M. Santos

112)

B -- ao + alX l + a2X 2 + . . . +anX n + E

where R = reserves, say in tons; X1, X 2 ... X n are geologic variables such as area of a given rock type, number of fractures per unit area, and so on; E is the stochastic error term; and al , a 2..... an are coefficients determined for a known area. The above equation can be used to estimate the unknown reserves in an unknown area (provided it is geologically similar to the control areas) by plugging in the measured â&#x20AC;˘ values of the geological variables. This technique, therefore, requires the availability of accurate and detailed geologic maps. Measuring Resources A long Cost-Price Dimension Measurement of resources can be done by extension along the cost/price dimension. In most instances, only identified resources are measured since gathering information on undiscovered resources does not seem warranted by the great expense. RESOURCE INVENTORY TECHNIQUES

Ideally, resources may be compiled by indicating how much can be made available at different levels of costs. This requires the resolving of various characteristics such as location, tonnage, grade, and ore to waste ratio into costs. Alternatively, the amount of each metal of interest that may be made available for every additional unit of capital may also be tabulated. In this way, reserves, submarginal â&#x20AC;˘resources and latent resources can be easily determined. The usual practice, however, consists of identifying certain properties which correlate closely with costs such as grade, ore to waste ratio, and thickness of seam and then tabulating them against tonnage. More complete works involve a detailed description of the various characteristics of individual deposits for an inventory. GRADE TONNAGE RELATION

Finally a relationship between ore grade and tonnage for certain types of deposits can be used to measure resources. For instance, a version of the so-called "Lasky's principle" states that the ore tonnage increases as average grade decreases, that is: (3)

G =K 1 -K 2 logR

where G -_ the average grade; K 1 -- highest naturally occurring grade

Mineralsfor DeveiopmentPlanning

of the deposit; K 2 = model grade; R = cumulative tonnage of metal bearing rock. Since, given the deposit type for a given metal, one can delineate reserves from submarginal and marginal resources, the above relation can be used to measure various types of resources. This technique is said to be an effective tool for planning for any given mine, but more importantly it suggests that the above equation yields a representative description of the total resources of a given metal as it occurs within a given type of ore deposits. This technique has been applied to the assessment of certain copper, phosphate, vanadium, manganese and chromite resources (Brooks 1976, p. 175). After showing how resources and reserves may be measured, and whether they are known or unknown, we will turn to the measurement of the resource base. Resource Base In order to measure the resource base of any particular country, it is essential to have a detailed analysis of the co.ncentration and distribution of the various elements in various regions of the crust. Large quantities of elements are known to occur even in the upper portion of the earth's crust, in the water and in the atmosphere. A few examples may illustrate the need and procedure for measuring the resource base. IN ORDINARY

ROCKS

Igneous rocks are known to contain vast amounts of metals. However, the concentration of each metal may vary depending on its nature and location. Hence, chemical analysis of the rocks in a given country must be done to estimate the amount of each metal contained in the rocks. For instance, detailed analysis of the Conway Granite ha New Hampshire (Brooks 1976, p. 153)indicated the presence among others of a large amount of thorium, which may _ecome an important source of fuel for breeder reactors. IN THE OCEAN

The oceans, like the rocks, are also vast reservoirs of elements. Mnong the most abundant are chlorine, sodium, magnesium, sulfur, and calcium. However, metals like iron, copper, uranium and gold are also present though in much smaller amounts. In fact, the oceans are presently the source of virtually inexhaustible sodium, chlorine, and magnesium. Hence, it is also necessary to have reliable chemical analyses of the various bodies of water in a given locality to deduce its resource base.

80 I

TeodoroM.Santos,

THE ATMOSPHERE

Finally, the atmosphere consists of elements in gaseous forms. Among the abundant elements in the atmosphere with their average proportions are nitrogen (75.52 per cent), oxygen (23.14 per cent), argon (1.29 per cent), and carbon dioxide (0.05 per cent). Other elements are neon, helium, krypton, hydrogen, xenon, and radon. Analyses of these elements may also be done for various localities to establish how much of each may be available. Mineral Products Without Limitation It is clear from the preceding section that vast amounts of metals and other elements can be derived from ordinary rocks, sea water, and the atmosphere. Elements in sea water and the atmosphere are even being constantly replenished. Hence, ordinary rocks, sea water and the atmosphere could become sources _of mineral products without limitations. When these resources become economically feasible (as magnesium, sodium, chlorine, oxygen, and nitrogen are already), the cost of producing stock will become negligible. Consequently, exploration as well as exhaustion may be eliminated. The extraction of minerals from resources without limit is completely analogous to manufacturing. A decision on the recovery of mineral products will be based largely on plant costs, not natural resource costs. Resources without limitations set the upper limit on the prices that can be obtained from conventional sources of supply. This cannot exceed the cost of extraction from a geologically unlimited source for it will be tapped as soon as prices reach a level high enough to make it profitable. Long-R un Supply Function of Minerals Discussions on the stock concepts of minerals can serve as basis for deducing at least the shape of the long-run supply of minerals. However, it is important to first explain what short run, medium run, and long run mean. There are two important elements that determine the time frame of mineral production, namely, the reserves and the mine capacity. Depending on the various characteristics of a mineral deposit such as its size or type, it is possible to identify certain time horizons during which: (1) neither reserves nor mine capacity, or (2) either reserves or mine capacity only, or (3) both reserves and mine capacity earl be increased. These time frames may be respectively referred to as the

Minerals for Development Planning

Figure 2a. Long Run Mineral Supply

Price/ Cast

A Quantity Figure 2b. An.tomy

o[ Por_on of Mir_ml

Supply Curve

Price/ I

'ResauroesI,

ReBorves

II I

Limitless Resaurce

Quantity

short ran, mediumrun, andlongrun. In deducing the long-run supply curve of minerals, the following principles are essential: (1) All stock concepts are more estimates and therefore subject to errors. Some stocks are more precisely determined than others. (2) Stocks def'med from the cost price point of view, viz., reserves, submarginal and latent resources, are associated with uncertainties arising from estimates of prices and costs. (3) Stocks defined based on geologic knowledge such as known and undiscoveredreservesare associated mainly with uncertainties in the estimates of sizes and grades. (4) At least for some minerals and at a .certain level of costs, a virtually limitless amount of resources may be available

TeodoroM. Santos

(5)

which tend to define the upper limit of prices for the minerals. As lower quality (higher costs) resources become economic, supply expands very considerably.

The preceding principles imply that the long-run supply of a mineral ideally appears like a zigzag "curve" as shown in Figure 2. Here the supply "curve" is shown as indeed composed of a series of broken bands with varying widths indicating the cost-price uncertainties. In addition, similar bands are associated with the horizontal components of the band which indicate the geologic indeterminacies of resource estimates. The uppermost band represents the upper limit to which all prices converge. The step-lie character of the bands, which increase in width towards a higher level, indicates the general trend that more resources can become available at higher costs. Alternatively, it implies that the price elasticity of supply increases as price increases and even approaches infinity as the level of limitless resources is reached. Further implications of the supply function have a t_earing on how supply may be expanded. Supply can be expanded either by movement along the cost/price dimension or along the geologic dimension. Since costs may be influenced by technological improvement, by improvement of human skills, by development of infrastructures, by easy credit, or by government policies, and since prices are moreover affected by product improvement, access to market and government policies, among others, then any or all of these factors may be managed to expand supply. Similarly, expansion of supply can also be effected by decreasing uncertainties about mineral deposits as can be done by increasing investments in basic geologic information and exploration. Suffice it to say for the moment that a proper understanding of the deduced supply function can be used to explain a number of resource, phenomena and broadly predict mirieral resource behavior. This supply function can therefore be used for-policy-

making.

Economic

Theory of Mineral Production

This section sets down briefly the facts and principles that govern the behavior of a mineral industry or firm. It identifies _nd discusses the motive force that impels mineral production to move one way or the other, deduces the conditions for equilibrium, and presents some possible solutions for determining how much and when to

Minerals for Development Planning

produce and at what price. Discussions in this section are mainly based on the excellent review by Morse (1976), inspired by Gordon (1975), and assured by Solow (1974). SOURCES OF RENT A mineral deposit is very much like any man-made capital such as a truck or a petrochemical plant. Both a man-made capital and a mineral deposit provide streams of benefits or useful services over time which terminate at some future time. They differ, however, in the sense that the man-made capital is reproducible while a mineral deposit is exhaustible. A unit of mineral extracted from the ground is lost from the mine forever, so that the mineral becomes scarcer as more are produced. Consequently, a rational operator will not produce a mineral unless its price exceeds costs, or if he realizes positive rent because he could always postpone production and reserve the mineral until such time that rents could be realized. The reservation of minerals for future production is essentially an act of investment in mineral resources motivated by the desire to earn rent. In order to understand mineral rent more deeply, let us now discuss the source of rent. Assuming competitive market conditions in the short run, a firm may lrmd itself charging a price that exceeds the cost of production, i.e., a surplus. If such arises from natural resources it is called rent; but if it is realized from man-made capital it is called either quasirent or pure profit. Our main concern at present is rent. We can distinguish three kinds of rents, the Malthusian, Ricardian, and rent due to exhaustion. Under the Malthusian scheme, land (or mineral resources) is homogeneous in quality and f'Lxed in amount. In the .early stage of production enough land is available for any use, and it will be used to the point where the marginal product is zero, given any mix of labor and capital. Under this situation, land is essentially a free good andits opportunity cost or the return from one best alternative employment is zero, and no price can be charged for the use of the land. However ff all lands were under cultivation a price could be charged for the use of a unit. In fact, users will be willing to pay a price for the use of the land because of th_ resulting resource scarcity; this price may be called Malthusian rent. It is the cost of using a finite resource wMeh has become scarce relative to the demand it is facing. The Ricardian system, however, presumes that resources (minerals) are relatively limitless but of different economic quality. That

TeodoroM.Santos

is, the costs of production from different pieces of land are different, which may arise due to variation in fertility, location and other attributes. Given the technology and the level of labor and capital employment, there is always some piece of land which yields zero rent, For land which is better than marginal, the price of the product exceeds costs. This surplus resulting from the differences in resource quality is called Ricardian rent. Finally, in the exploitation of exhaustible resources such as minerals, rent must be a logical condition for production. As a finite exhaustible resource is produced and used, it is depleted and becomes ,scarcer; hence, its price rises. A producer, therefore, must decide whether to produce now or in the future knowing that if a certain minimum surplus is not realizable now it will be in the future. Hence, a rational producer must charge a "reservation price" for producing now instead of in the future. This reservation price is the opportunity cost of present production, the rent due to exhaustion and the guiding principle for the allocation of exhaustible resources. It follows that even the least "profitable" mine must earn some rent. THE PURE THEORY

OF EXHAUSTION

Although the pure theory applies to the production of exhaustible, limited and irreplaceable resources, the emphasis here is on mining. This section aims to identifythe major factors and principles that govern mineral production. Specifically it seeks to find the conditions for equilibrium of the firm. The theo_ assumes that under competition every mine earns at least a "normal" rent. In particular, subsequent discussions refer 'to.mines (marginal mines) which earn but the normal .rent. The theory further presumes that a mineral producer will try" to maximize the present value of the rent earned over the entire life of the mine. For a marginal mine, let R* be the rent earned over the period t, which is the difference between the total revenue (R) and total cost (C). Then (4)

R* (qt) = R (qt) - C (qt)

The notation qt desig nates the output during time t. A similar definitional equation can be written for marginal rent MR*, where MR is marginal revenue and MC is marginal cost:

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(5)

= MR

MR * (qt)

(qt)

- MC

(qt)

Given the rent for any time period, the mine operator must maximize the present value of the rents 0ccruing to the mine subject to some constraints. The objective function of the mining firm may therefore be stated as follows: (6)

Max

T _ t=0

Max

[R (qt)-

C (qt)]

e -rt

R*(qt)e

t=O

Subject to

T _ t=0

-rt

qt _ Q _ 0

where T is the terminal period of the mine when reserves run out, Q equals the total mine reserves, and r is the discount rate. Alternatively, equation (3) may be written in terms of the La Grange multiplier; hence, (7)

L(qo,...,qr,

X) =

T _, t=o

,, R*(qt)e-rt

)t(

T _, t=0

,. qt

_Q)

Subject to: T

( _, QT.t=0

Q)<0

In order to maximize the preceding function equation (4) and equate to zero:

(8)

(qo ....

, qt,

_) = MR*

(qt)

e-rt

we differentiate

-- _k = 0

d(qt)

for any time t. For the case of t = T we have (9)

d(q,_

(qo,

....

qt,_k)

=MR*

(qr)

e-rt

= 0

Teodoro M. Santos

By subtracting equation (6) from equation (5), we get the necessary and sufficient condition for the equilibrium of a mining firm, that is, (10)

MR*(qt)=MR*(qT)e

-r(T-t)

Subject to t--0_ qt - Q < 0 This equation states the optimal condition for producing a finite exhaustible resource, though in a form that is not easy to understand. It says that the marginal rent for any time, t, is measured by the. marginal rent at the period of exhaustion, T, discounted to time t.. Alternatively, equation (10) states that the marginal rent for any year t equ_-ls the present value of the marginal rent for year T, where present refers to time t. Alternative and more comprehensible statements of the equilibrium of the firm may be stated if t -- 0, that is, when the point of reference is the time when the mine is just starting. Hence, equation. (10) takes the form (11)

MR*' (qo) = MR*(qr)

e-rt

Equation (11) states that the present value of the marginal rent at the terminal period "of'the" mine must equal the marginal rent when the mine started (t = 0). Dividing both sides of equation (11) by e- rt we get (12)

MR*(q_)

= MR* (qo)

eft.

which .indicates that at equilibrium the marginal rent must grow exponentially according to the "normal" rate of interest such that at the terminal period the marginal, rent equals the compound marginal rent at the beginning of the period. If, say, MR*(qr) were greater than MR * (qo) erT_ then the operator could realize more rent by producing at a later period rather than earlier; however, if MR* (qr) were less than MR _ (qo)err, then the operator would be induced to produce, more during the earlier, period because he"stands to realize more rent thereby..Therefore, equation (12). indeed states the condition under which the mine operator would not like to alter

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his production pattern because there is no other schedule that would allow him to realize more rent. More revealing relations impinging on pricing an exhaustible product comes to the surface if we express marginal rent in terms of its components, i.e., MR* = MR - MC. The general equilibrium condition in equation (10) now takes the form {13)

MR*(qt)=MR

(qt)-MC(qt)=MR*(qt)

er(t-T)

which by rewriting becomes (14)

MR (qt)=MC(qt)+MR

* (qr)er_ t-r)

This shows that at equilibrium the mining firm will not set marginal revenue to marginal cost, as any competitive firm would, but for any level of output, qt, the equilibrium operator will set marginal revenue equal to cost plus the present value of the marginal rent foregone in the future due to the output.today. The marginal rent foregone in the future is the marginal opportunity cost, which is otherwise called reservation cost or marginal user cost. We may therefore define marginal user cost, MuC, as follows: ( 15)

MuC (qt) = MR* (qT) er(t- r) = MC*(qt)

where MC* (qt) is the marginal aggregate cost of the mine operator. If price equals marginal revenue, as it should under competition, then equation (14) says that the price of a mineral product exceeds cost by the amount of the'marginal user cost. To generally.e, at equilibrium, those producing exhaustible products must charge a price larger than that of those dealing in nc_aexhaustible resources. The price charged by the extractive firm must be greater by the amount of the opportunity cost foregone in the future. A final form of the equilibrium condition for the mining firm may be developed to address some problems on the social plane, such as conservation or pollution. By analogy of the equilibrium condition for ordinary firm, MR = MC, where we interpret revenue as benefits and cost as cost or damage, we can state the criterion of equilibrium for a mining and related f'mn as

88 (16)

TeodoroM. Santos MuB (qt) - MuC(qt)

which says that equilibrium requires the equality of marginal user benefit (MuB) and marginal user cost for any time t and output q. Equation (16) indicates further that production shifts toward the present if marginal benefit exceeds marginalcost and into the future if marginal cost is greater. Additional information may be extracted if marginal user cost and marginal user benefit are defined in more detail, tlence, (17)

MuB (qo) = MR *'(qo) = MR (qo)

(18)

MuC(qo)

-- MR*(qT)e

-rt

- MC (qo).

= [MR (qt) - MC(qt)]

e-rt

We note that the marginal user cost nmst measure tile present negative value to society of future decrement of output, the measure of the marginal social cost of exhaustion. If firms deliberately consider the marginal user cost in their pricing behavior, then exhaustion is indeed a social problem; otherwise, exhaustion is not considered a problem worth bothering about. It is now appropriate to inquire under what conditions exhaustion would be ignored by the mining firms of industry. An examination of equation (18) provides a few answers: (1) If T is very large, then MuC approaches zero. This means that if the stock of resources is vet/ large relative to output then the producer will not worry about exhaustion. A similar effect would come about if there is a large volume of a substitute or if alternatives exist. (2) MuC also approaches zero if the opportunity cost of capital is very high. This means that when capital is very scarce, or when investments become extremely risky, or when inflation gallops at extremely high rates, then the effect of exhaustion may be ignored. (3) If marginal rent approaches zero, either because marginal costs are too high or marginal revenues are too low, exhaustion will also be ignored. This implies that all factors tending to make mineral prices low, or making costs quite high, will ignore exhaustion. (4) Other factors which tend to undermine the operation of a competitive market such as lack of informaiion, immobility of .economic factors, unreasonably high taxes, and monopsony, among others, would also undermine efforts at conservation.

Mineralsfor DcvelupmentPlanning

Models of In tertemporal A llocation The question of how much to produce, at any time, and at what price, can be answered if a mechanism exists so that marginal rent grows at a rate equal to the opportunity rate of interest. Since MR* = MR - MC, marginal rent can only increase if either (1) MR rises as MC remains constant or if (2) MR remains constant as MC decreases. The first leads to the rising price case or Hotelling-Herfindahl-Gordon model, while the second gives rise to the decreasing cost case or the Gray-Scott model. Tiiaugh these models require highly restrictive conditions, they provide a valuable insight into the allocation problem of the mining firm. INDUSTRY EQUILIBRIUM UNDER HOTELLING'S RULE:

RISINGPRICESCASE Under competitive equilibrium, the rent due to the ore in the ground must grow at the market rate of interest, r. If the rent grows faster tharr r, there will be no production since the mine operator could increase rent by producing in the future; while if rent grows more slowly than r, the operator will shift production towards the present, since he will: earn more by reinvesting his income at theprevailing market rate.,, :In symbol, Hotelling's Rule may be stated as follows: (19)

Rt = (Po - zrC) e rt

where R t is rent in year t. Po is price at the. beginning of the period, A---Cis constant average cost which is equal to the marginal cost, ana r is the market rate of interest. Since Rt = (Pt - AC), then equation (19) becomes (20)

Pt = (Po) -/]-C)ert

+ AT

This indicates that if rent grows at the market rate of interest, then the price of the mineral commodity must grow less rapidly. Figure 3 illustrates the conditions surrounding Hotelling's rule. Panel (a) indicates the cost curves of a representative f_rn which produces qn amount of cost pl _ MC = AC = constant: Price increa-

Figure 36 Rising Price Case, With Industry Increasing, to HoteUing's Rule (after Mo_e !976)

Price and Unit Cost

According

Price PT

--_ " PT _-

atzero output

rminal

.... I- - -_. Successiveprices of J.... _ /which competitive J _ firms setloutput as - ..... I....... _ industry output falls

Pi2

Pie

â&#x20AC;˘

.-'

IA+output-_ I 0

--I

(a) Quantity output Produce by nth Competitive Equitbirium Firm

t 2

[ t 4

t 6

t e

t_o

ll2

_b) Equilibrium Time Path of Industry Price

i,_

",o',.:;,oZo'/Qo "_, _JI2

q13=O12

q,_ = Qe

Quantity

[c) Industry Price and Quantity Demanded

Mineralsfor DevelopmentPlanning

â&#x20AC;˘ Figure 3b. Situation of the Typical Firm and its Relation to Industry Equilibrium; Decreasing Cost Case (after Morae 1976) Price dnd Unit Cost

E _'---

I .R;

I I I ! i I I

, I

q,_q,o

(a) Output

nth Competitive

Equilibrium

t,o

ti2T

(b) Firm

Equilibrium

Time

Marginal

Path of nm Firm's Royalty

ses from Po up to Pt at which time the ore is exhausted, as demand is reduced to zero. In Panel (b) the path traced by increasing price is drawn starting from t=o, to t=T. For any time t, the difference between the price curve and the constant cost line represents rent as illustrated by R*6. In Panel (c) the demand for minerals, presumably covered by the industry output, is indicated by the intersection of a horizontal price line and the industry demand curve. Note that at the beginning, of the period, the demand of the industry was qa = Qo, then decreases progressivelyuntil it equaled zero at tffi7".The diagram shows that increase in "price" (or rent) is achieved through rising

TeodoroM.Santos

prices, while, increasing prices presumably scarcity of the resource.

occur due to the increasing

FIRM AND INDUSTRY EQUILIBRIUM UNDER THE GRAY-SCOTT RULE: DECLINING COST CASE

This model asserts that market price will remain fixed indefinitely and achieve the required growth rate of marginal rent by reducing output and cost. The equilibrium condition under the present situation is (21)

MR* o = MRt_ e-rt

or in terms of the component (22)

(P-

MC) -- (P-MCt)e

of marginal rent -rt

where P is the constant price. Under conditions shown in Figure 3b, increasing marginal rent is realized by decreasing cost and production. Figure 3b shows the equilibrium situation of a typical firm, the cost curves and decreasing output over time, and the path traced by increasing marginal rent from t = to to t--T. The differences between the constant line P -- P and the marginal cost curve which decreases from qo to .qT' measure the marginal rent, MRt*, for various levels of output. Common assumptions for the two models above are: 1) 2) 3) 4) 5) 6)

All firms have identical production functions. All the markets in which they operate are competitive â&#x20AC;˘and all the firms are marginal. Each firm produces .either at minimum average cost so that MC -- AC or does not produce at all. Costs do not change as a function of cumulative output. Demand, technology and other relevant parametric conditions are constant. Each firm has perfect knowledge about all facts bearing o,i its decision concerning output, demand function, and stock of ore in the ground.

Minerals for Development Planning

Although the preceding models were developed under highly specialized conditions, they serve as important devices for analyzing the effects of changes in the industry. For; instance, the effects of â&#x20AC;˘ cumulative output,â&#x20AC;˘ research, substitution, exploration and development upon stocks were analyzed by Morse (1976, pp. 242-44)using the two models. At thisâ&#x20AC;˘ point we have already sketched the basic framework of the theory of mineral supply. The following section focuses on a number of selected issues affecting the mineral industry with strong policy implications. IV. SELECTEDTOPICSON RESOURCES Topics which are deemed useful for formulating mineral policies are treated under this heading. Among them are a model for transforming exhaustible resources into renewable and increasing assets, the role of minerals in development, factors of mineral development, the conflict.over .sharing of mineral rent. and sonie policy guidelines. A Resource Transformation Model A unit of exhaustible resource, say a ton of ore, can either be consumed, invested in capital goods, or reserved for the future. Whichever alternative is taken will affect the welfare of the present and future generations in some way. Morse (1976) developed a model, which is presented in abstract form below, that investigates tne consequences if a ton of ore is consumed, invested .in productive capital or reserved for the future,- an:exercise leads to important insights as to what the present generation _nay do to enhance the welfare of future generations. Implicit in the model is the assumption that the use of a preference rate in evaluating investments is biased in favor of the .present generation and that discounting future values to the present is a way by which the present generation protects itself against the claims of the future generation. On the other hand, saving by investing in productive capital goods is a mechanism by which the present provides for the welfare of the future generation. In fact, even the present generation derives benefits while its investments grow. The model is presented below. Suppose that by mining a ton of minexal today we can increase the output of either consumption goods CO, or capital goods, I o, such

TeodoroM. Santos

that the value of the additional social-product, Yo, obtainable by producing the mineral rather than reserving it is MRo*, the marginal rent at present. Hence Yo = Co = Io -- MRo* although Co, I o and MR o * are mutually exclusive. -rhis means that the mineral can be transformed into a consumable or productive man-made asset. It may be assumed, moreover, that if we invest in a productive asset there ,viii be continuous reinvestments so that I grows at the rate s. If Yt is the level of socialoutput for time t, then we have: (23)

Yt = lo est

The present value of Yt is therefore (24)

Yo 1 = Yt e- rt,

where r is the going rate of time discount. If s ---r, it follows that Yo 1 = Io -- Yo ; then whether the mineral is transformed into consumption goods, Co, or into productive assets, Io, is a matter of indifference to theinvestor and his generation. However, the mineral consumed now does not benefit the future generation, whereas the latter will benefit from the increased flow of goods and services resulting from the invested ore. Therefore, the future generation will prefer that the present generation had invested rather than consumed the mineral it produced. If, however, the mine owner elects-to reserve the mineral rather than consume or J;tvest it, and suppose that the marginal rent, MRo* , grows at the rate _ then the marginal rent for any period MR*t is: (25)

MRt* = MRo * eat

and its present value MR o ** is (26_

MRo ** = MRo * e- rt

If o = r, then MRo* = MRo**; hence, the mine owner would be indifferent whether he is engaged in reserving the mineral or in investing it in man-made assets. As for the future generation, it will prefer that the investment in productive assets had been made since it would then benefit from .the flow Of goods and services, while merely keeping the mineral in the ground will confer nothing except

Mineralsfor Development Planning

that the mineral may still be available for use. In particular, as far as the owner is concerned, reservation and investment in productive assets is a matter of indifference since the private benefit that could accrue to him from either is the same, but as far as the future society is concerned, it will have gained nothing because the rent that the owner derived would be balanced by the cost of extraction (assuming a marginal mine for simplicity), which is actually a loss to society (if the mine owner is momentarily excluded). In fact, as a consequence of reservation, future society would be poorer by the amount of goods and services that might have been made available, including the capital that would have grown, had the ore been extracted and invested in productive assets. In real life, it is most likely that part of the produce will be invested and part will be consumed. But of course there are situations in which the mineral produced is either completely consumed, reserved, or invested. Several important principles can be deduced from the model: (1) An exhaustible asset can be transformed into renewable and growing man-made assets, an act which is biased in favor of future generations, though the present generation derives benefits, too, in the form of employment and increased goods and services, as the asset grows into the future. (2) Reserving an exhaustible resource into the future benefits only the (future) owner but not society as a whole, since the social gain from the rent would be exactly negated by the social cost of producing the mineral; in fact, the future generation shall have been worse off by the amount of goods and services that did not materialize consequent to reserving the mineral instead of investing in man-made social capital, such as schools, hospitals, roads, factories, professionals, and the like. (3) By consuming all products of exhaustible resources-only the present generation stands to benefit while the resources are lost to the future generation forever. (4) Conventional discounting can be biased in favor of the present or future generation, or be made neutral, by manipulatingthe discount rate so that it is respectivelY, greater, less than, or equal to the real growth of capital stock or of production. These conclusions imply that the present generation can ethically and rationally draw from the stock of exhaustible resources to optimize economic growth, as Solow (1978) concluded, 1 provided that it adds to the stock of reproducible capital. In fact, the statement can be made even stronger, that is, the present generation must '

TeodoroM.Santos

harness its stock of exhaustible resources and invest at least a reasonable proportion in renewable man-made capital to improve the lot of the future generation. Mere reservation, though preferable to present consumption, is suboptimal to the welfare of future generation. Role of Minerals in Development Natural resources play an important role in the development of societies. The juxtaposition of coal and iron, for instance, in countries like England, the U.S.A., and Germany has been cited as the basis for their becoming-great industrial countries. Although some authors insist that possession of minerals is not indispensable to development, as the experience of resource poor countries such as Japan and the Netherlands indicates, still minerals are needed and must be procured through trade. The broad theoretical basis on tire role of minerals in growth was authoritatively developed Oy Barnett and Morse (1963) while the more specific contributions of minerals to developing and developed countries were articulated by F._-cDivitt and Jeffreys (1976), and Toombs and Andrews (1976). The idea_ presented below are derived from these works, The strong awareness about the importance of resources held the classical economists - Malthus, Ricardo and Mill - to the formulation of what is now known as the doctrine of increasing resource scarcity which predicts that "scarcity of natural resources would lead to eventually diminishing social returns to economic effort with retardation and eventual cessation of economic growth." Implicit in the doctrine is the changing role of resources in the various stages of economic growth; abundance in the early stage feeds growth by compensating for deficiency in man-made capital and labor with abundant resources, while more abundant capital and skilled labor during the later stages propel growth, although constrained by increasing resource scarcity. The notion of the changing role oÂŁ resources over time should tie this section to the transformation of depletable resources into man-made resources. The doclrine of increasing resource scarcity makes stringent assumptions. Among others, it presumes (1) a complete knowledge of resources, (2) that the social production function is one of constant returns to scale with a single homogeneous product, and (3) that there is no social and technological progress. Three variants of the hypothesis with somewhat differing promises -Utopian, Malthusian and Ricardian - are recognized. To rclate the hypothesis to the real

Mincralsfor DevelopmentPlanning

world the simplifying assumptions are relaxed. In symbols, the hypothesis takes the form. O=f(R,L,

C),

where O -- the homogeneous social product; R = resource; L-- labor, and C = man-made capital, all expressed in physical units. Under the Utopian case, natural resources are presumed homogeneous and unlimited relative to demand. Growth, then, is constrained not by the scarcity of resources bur rather by limited man-made capital and labor. Assuming that technology remains constant, requiring a constant C/L ratio, growth proceeds only if capital increases relatively faster than labor. Without capital growth while population increases, it is possible to experience negative economic growth, even in a Utopia, where resources are unlimited. But, as shown earlier, exhaustible resources can be transformed into manmade capital, so that the latter can grow at least at the same pace as labor. Hence, although in the Utopian case resources do not seem important to economic growth because they are unlimited and do not constrain growth, their value arises from the premise that they can be transformed into currently scarce man-made resources which can accelerate growth. In short, while natural resources are qm'te plentiful they are not an important impediment to growth but are valuable as a factor facilitating economic growth. The early stage of a society's development, when resources are relatively more abundant than the demand of population, is akin to this Utopian case. By assuming that resources are f'mite and exhaustible, the UtOpian case transforms into the Malthusian model'. Basically, it describes a Utopian _growth path, constrained only by the availability of labor and capital, until the upper limit of resources is met. Growth rate diminishes as this limit is reached, as a result of diminishing returns to labor-capital input until growth grinds to a halt. Depletion of finite resources hastens the approach of growth to its destined limit. More appropriate to mineral resources analysis is the Ricardian model. It differs from the Malthusian model in assuming that resources are (1) unlimited in amount, (2) heterogeneous in economic quality, and (3) used in the order of decreasing economic quality. This model implies that the decreasing quality of resources constraints growth to a lesser extent while high quality resources are

TeodoroM. Santos

available, but increasingly as it becomes necessary to utilize lower grade resources. The limit to growth is reached when additional labor-capital input yields no extra output. As in the Malthusian model, depletion hastens the approach of the limits to growth. Clearly, the preceding models show the important, though grim, implication of increasingly scarce natural resources to economic growth under a set of restrictive assumptions, such as fixed sociotechnical conditions, homogeneous product, complete knowledge and sequential use of resources. When these conditions are relaxed one after the other, to bring them into correspondence withreality, the grim implications are alleviated if not completely banished. For instance, bY relaxing product homogeneity, one recognizes the possibility of shifting from a product which has become expensive due to increasing resource scarcity to a substitute which is relatively cheaper, thus relieving part of the burden on the scarce resource and arresting the approach to the limit to growth. The more numerous and diverse the products are, the more effective becomes the substitution antidote in parrying resource scarcity. By relaxing complete knowledge and fixed sociotechnical conditions, the adverse impact of fixed and exhaustible resources on growth is minimized, or even becomes meaningless, since new resources will be discovered by exploration or created by technological innovations and by providing new social, political and economic arrangements. An empirical test of the increasing resource scarcity hypothesis for the U.S.A. for the period from 1870.to 1957 was very revealing. Instead of increasing costs as predicted, it was shown that the costs of producing natural resource products, such as mineral and agricultural, substantially decreased except f_r forest products which increased. This phenomenon was ascribed to the nonoperation of the restrictive assumptions, particularly to the variety of substitutions and discoveries and the numerous technological innovations during . the period. The Malthusian spectre recently surfaced (Meadows et al. 1972), again warning the world about a catastrophic approach to the limits to growth due to, among others, the exhaustion of limited resources. The preceding discussions can be used to analyze the implication of this modem form of the-Malthusian doctrine. But the ultimate relevance of this piece of work is its message thatnatural resources a_re important to society and must be considered seriously in designing any policy or program for society.

Mineralsfor DevelopmentPlanning

Focusing on mineral resources, McDivitt and Jefferey (1976) articulated the thesis that the development of mineral resources, especially for societies in the early stage of development, had been (though not in all cases) and still is instrumental in promoting growth and development. Among the specific contributions are foreign exchange which can be used to secure man4nade capital, government revenues for building infrastructure and maintaining peace, profits and royalties which can be reinvested, employment and wages, and a positive effect on other economic sectors which provide the mining operations with goods and services. Being situated in areas which are undeveloped and barely populated, the development of a mine requires the construction of roads, bridges, power facilities, schools, hospitals, and other social amenities. But most important, the exposure of people to highly complex operations which are nontraditional and scientific helps create an environment that is receptive to development. Mining, therefore, contributes to growth by way of capital formation, by stimulating activities in other industries, by providing employment, and by increasing national product and government revenues. It contributes to social and economic development by helping create an atmosphere which is receptive to development, providing mobility, and educational and health care facilities where none existed before. It is also true, however, that the operation of mining facilities had not resulted in effective development in some places for reasons that have to be properly understood. Viewed from another angle, Toombs and Andrews (1976) indicated that minerals are also important to developed economies because they are an essential input even to their manufacturing and service industries. Though mining contributes but a small fraction to national product, it is argued that mineral-based products contribute very substantially to national production. Needless to say, without mineral-based fuels, industries will grind to a halt. It is implicit in the paper that possession of mineral resources is not essential for economic growth and development, provided they are obtained through trade; but without minerals these great industrial countries could not have attained their present status. If minerals are indeed important to the growth of a society, how then can we promote their development to increase their contribution to national welfare? What are the factors that affect its development?

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Factors of Mineral Development Factors affecting mineral development which may be used as a broad framework for designing a mineral development policy are identified in this section. It is followed by a discussion of the source of conflict that attends the sharing of rent. Finally, we focus on some policy topics which have an important bearing on mineral resources development. CONCEPTUAL

FRAMEWORK

Mineral development can be thought of as a production process in which development depends upon a number of variables. It may be conceptualized as follows (after Santos and Salita, 1980; Santos and Golez 1979): (28)

Q = f (F, G, E,/, T)

that is, the development of the mineral industry, Q, depends upon factor endowment, F; domestic social, political and economic conditions, G; global economic environment, E; investments, I; and state of technology, T. A factor refers to a material or agent which provides valuable services in production. It may be physical, human or institutional. The physical factors may be favorable geology, various types of resources, or reserves. On the other hand, human resources represent people with skills, experience, or knowledge which enable them to perform efficiently a given task. Institutions refer to those agencies that plan, manage and develop industries. In general, the greater the factor endowment, the better are the chances for development. The state of technology refers to the processes, techniques, procedures and stock of knowledge which a country may avail itself of for mineral production and related activities. It may also refer to the stage of development of the country and may be constrained by the availability of a work force in sufficient numbers and possessing diverse skills to fill the needs of the various stages of mineral and related operation, as well as by institutions that promote and facilitate such activities such as schools, laboratories, research institutes, and regulatory bodies. In a sense the state of technology can be conceived of as an element of a country's factor endowment. Whether a country's mineral industry will prosper or not, given adequate technology, institutions, mineral resources and a pool of â&#x20AC;˘skilled manpower, will depend not only on the peace and order situa-

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tion but also on the attitudes and perceptions about the need for the industry. The perceived value of the mineral industry to the national welfare within the context of the prevailing political, economic and social arrangement determines the nature of policies and laws that govern the industry. Since minerals are global commodities, the domestic mineral industry isaffected by international developments. Factorsaffecting world demand, supply and prices, as well as access to the market, â&#x20AC;˘ influence the domestic industry. Booms, recessions, wars, and rebellions, among others, affect the supply-demand balance and prices. So does a major technological breakthrough such as the mining of oceannodules. Finally, investments areessential to the developmentof themineralindustry. Investmentsin exploration, developmentand productionfacilities are familiar. But lessfamiliar ones come in the form of geologicmaps, surveys,monographs,mining schools,research institutes, and the like. The size and quality of the country's factor endowment is therefore determined by the level of investment. These factors, which are indeed very complex, either promote or inhibit the development of the mineral industry. Any major problem in any of these variables could thwart mineral development, but they must coexist to have a viable mineral industry. The domestic economic, social and political conditions t-rod expression in government policies and actions. Any conflict between the mining operator and the host government in the partitioning of rent may be disruptive; hence, an analysis of the sources of conflict in dividing rent is given below. Conflict Over Rent Granted that private investments are essential to mineral development, it is necessary to avoid conflicts between investors and the host government. Knowledge of the sources of conflict may therefore be helpful in avoiding such conflicts. Since the division of profits or rents is a common source of controversy or misunderstanding, the kinds of rents, their composition and policy implications are discussed below based on the works of MikeseU (1971) and Tilton (1977). As indicated earlier, rent from mineral operation is that portion of price that remains after subtracting the variable costs or out-ofpocket expenditure of the firm. The magnitude of rents varies among

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TeodoroM. Santos

projects because of their differences in such characteristics as grade, tonnage, amount of overburden, mineralogy and location, among others, as shown in the lower panel of Figure 4 where A, B,..., H are different projects. It is instructive to decompose into its components the rent associated with the operation, as was done in the lower panel of Figure 4. The price of a mineral commodity may be divided into three categories: (1) minimum possible variable cost, (2) economic rent earned by the government, and (3) economic rent earned by the f'trm. As stated earlier, a finn must recover its variable costs, or its outof-pocket expenditures, in â&#x20AC;˘order to stay in operation. Or else, it would be rational for it to quit. Rent earned by the government consists of taxes and government requirements. Income tax, royalties, bonus, sales tax, and export tax are examples of rents which accrue to the national treasury. But impositions such as the requirement to control air and water pollution, to locate industrial zones outside a restricted zone, or the conversion of oil-burning plants to coal burning, are also rents earned by the government, measured by their costs, though not normally understood as such. Five elements comprise the rent earned by a mineral firm: rent due to public policy, rent due to supply constraints, pure rent, quasi-rent, and rent due to ability. For policy-makers who are trying to maximize public revenue, it is necessary to understand the implications of appropriating any or all of these rents. Rents which may be taken away from an operating firm without serious supply implications are: (1) Rent due to pfiblic policy which may arise because countries treat their mineral industries differently, e.g., one may charge 50 per cent income tax, while another may require just 35 per cent; or one may permit depletion allowance, while others would completely disallow it. In short, this rent usually results from public policy designed to attract inuestments but which differ from one country to another because of varying perceptions about the social value of the enterprise. (2) Rent due to supply constraint which may arise because a firm may be large enough to affect, at least in part, production and price levels. (3) Pure rent, which results from a mine's superior attributes, such as high grade, large tonnage, shallow burial, and low cost location. Although these rents may be taken away from an operating firm withoutadversely affecting production, such an act will diminish the attractiveness of new investments.

Minerals

Figure

for Development

4. Sources

and

for a Mineral

Planning

Composition

Industry

IIItl

103

of Economic

(after

Tilton

Rents

1977)

(o) Relation of economic rents earned hypothetical projects A-H

by firms to variable

costs,

Price and variable costs ;! Pl ,,

Econom

" O_

c rents earned ii

_Price i_ ;; II '

_,. II #

by firms

i !! i

_ i,It

iII t

i j

c I_

it I

ill

i i

_e Ot

E 04

Oe.

project

Output m

(b) Components

of economic rents and varidble

Pll

gi-........ '

costs,

_-, Rent to ability

"m_-:' Quosirent

f i....... -_--_ i Ii 4_F R6nf due to supply constraints • _ ......... ., •I _ Pure rent O',r......... 7 _-_ Rent due to public policy c iI I _P -loxes b I

4- - Cost of government

requirements

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,t- - Minimum Oz m

possible variable costs

...... _>

rent earned r-ll_ I iIk# I i i i I'i by I'#firm •

i / 1 J "_ Economic I:> rent earned

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i • ,',.,,

104

TeodoroM.Santos

Quasi-rent and rent to ability can only be appropriated at certain costs., Quasi-rent corresponds to returns to fixed factors such as capital. Since on0e committed capital cannot be easily transferred, a firm will still continue to operate without quasi-rent provided it recovers variable costs. This situation, however, would discourage additional caPital outlay leading to deterioration of existing facilities and drive away new invesments. Finally, rent to ability derives from a firm's specialized skill, knowledge, experience, market, connecttion, or technology which enables it to produce at costs lower than others. This rent must be captured by the firm or else it Will simply cease from operation because ability resides in factors that are mobile. Tilton .(1977) and Mikesell (1971) discussed cases in which conflicts between the host countries and the investors in the division of rent. led to deterioration of the investment climate, resulting in subsequent reduced investments. This was the case in Canada and Australia during 1970-74, in Chile in the 1960's, as well as in Peru-, Papua, Zambia and Zaire after World War II. Moran (1974) even made avery incisive analysis of the struggle for the nationaliT, ation of Chilean coppermines. The preceding discussion described the various components of price and their behavioral implications relative to the firm. They can help the development planners in finding a way to induce firms to contribute to de_'eiopment in an optimal way. However, it may be difficult to measure these concepts which are conceptually useful (Hughs 1978). Apart from rent sharing, conflict may also arise when the government expects a firm to contribute to activities such as equalization in income distribution, provision for employment, manpower training, protection in the environment, and the like, which may be inconsistent with the goals of a private enterprise. These problems, along with rent-sharing, are important policy issues. Some Policy Guides or Issues â&#x20AC;˘ Broad policy guidelines which are elements of a model mineral policy, and a brief review of mineral policies in the U.S.A. are presented here. The important role of natural resources in a country's development is generally recognized (UN 1970). Such role may be intema-, lized in a country' s mineral policy subject to the following princi-

Mineralsfor Development Planning

pies: (l) A country has the inalienable right to sovereignty over its own natural resources and must be able to exercise this right in the interest of its own development, in accordance with its laws and treaty oblivations. (2) Development of natural resources is an obligation of a government to its own people because it is the basic element of development in the country, and to the international community because of the economic, technological and social interdependencies of countries of the world. (3) The country as a whole must benefit from resource development. (4) The natural resource operation must seek to promote general development to the extent possible, as would, for example, the construction of all-weather roads where none existed before. (5) The long- and short-term effects must be balanced. The imPlementation of these resource policies may vary according to the following constraints: (1) degree of development and absolute economic wealth of the country; (2) immediacy of need; (3) ecological characteristics of the country; (4) nature of the resource, considering things like its value to life or value per unit weight; (5) population density; and (6) level of education and institutional development, taking into account the quality of available trained personnel, as well as the administrative and analytical se_vice (UN 1970). More specific guidelines, however, may be needed to effectmineral development. Such guidelines may be deduced from a model as spelled out below. ELEMENTS OFAMODEL MINERAL DEVELOPMENT LAW1 There are three factors that must be considered in developing a mineral d'evelopment law: First, the objectives must be deafly specified; but whatever they are they must "seek to bring about the maximum ultimate recovery of the resource, at the time when it is needed, arrd at costs which contemporary economy can afford." Second, the law must consider the interests of the state, viz., (1) that the state is a sovereign with plenary power over the property within its boundaries, whether owned by the state, its nationals, or by foreigners; and (2) that in most nations of the world the state is a proprietary interest of the surface owner. Third, the law must recognize 1. MaterialsPresented under this heading ate abstracted from the work of Ely Northeutt (1969).

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the interest of the miner in attracting venture capital. These interests vary according to stages. We now go into the elments that must be written into a mineral law by stages. In the reconnaissance stage, the desirable elements are: (1) the right to explore a maximum area, not necessarily on an exclusive basis, to enable the miner to decide on the areas he will apply for later on on an exclusive basis; and (2) the right to freely import the â&#x20AC;˘equipment for such reconnaissance and to ship it home again after it has served its purpose. During the exploration stage two basis clements are essential to the investor: (1) tile exclusive right to occupy a defined area and to explore the mineralsâ&#x20AC;˘ that interest him; (2) the assurance that, if he discovers minerals, he will have an exclusive right to develop and produce them, on known terms, to the maximum extent possible, in advance of his making his exploration investment and subject to a minimum likelihood of change in those terms. Six assurances are required by investors in the production stage, namely: (1) securityof tenure for a period long enough to recover the investment, plus a profit commensurate with the risk and the magnitude of the investment made in the search for, and development of, mineral deposit; (2) the right to develop the resource he has discovered in accordance with his best business and technical judgement; (3) the right to sell or dispose of the minerals produced and to retain the proceeds; (4) the right to repartriate capital, profits and equipment; (5) assurance of reasonable limitations on the State's financial exactions; and (6) the right _o resort to an impartial tribunal to decide disputes between the miner and the State. A third interest that must be considered in developing mineral laws is the interest of the consumer. A mine'ral development law that necessitateshigh costs and high taxes may price that nation's mineral .â&#x20AC;˘production out of the international market, or a mineral law that puts pressure on the miner to produce and export may leave the domestic users with very little of the resource at prohibitive prices. Here now are the elements of a model mineral development law that attempts to reconcile the interests of consumers, producers. and the.State: (1) administration; (2) the documents of title for reconnaissance, exploration and production; (3)financial provisions; and (4) settlement of disputes. Administration. An agency of the government must be authorized

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to issue documents of title coveting reconnaissance, exploration , and production. Three characteristics must be possessed by the adminisrative machinery: (1) mineral law must be administered by honest and competent men who must be properly paid; (2) transactions must be consummated with dispatch which can be made possible if power is concentrated in a single agency that keeps records, grants import licenses for equipment, issues mineral titles, collects royalties and taxes, grants permits for repatriation of capital and profits, among others; and (3) a workable central system of maps and records must exist to help applicants for mineral exploration to determine which lahds are open and for what minerals. Before documents of title are issued, it is necessary to indicate who have the rights to the title, whether foreign corporations or nationals are allowed to possess them, and under what conditions. Documents of title. For reconnaissance permits, identification of the holder, assurance of the right to import equipment free of duty and to repatriate it, and perhaps the requirement that the prospector turn to the government the result of his investigations, such as ecological maps, if he does not apply for exploration license, are necessary. The permit may confer no right to sink wells or dig mines but may give a right to make seismic surveys and the like and use radio equipment. AS for exploration licenses, only three sets of elements need be specified. First, as stated earlier, a mining company which is willing to take the risk of mineral exploration must be guaranteed the following: (1) exclusive fight to occupy a given area for a reasonable period so that he could protect any discoveries; (2) exclusive right, if minerals are found, to a lease or concession to exploit them for a long period of time, on terms fairly defined at the time the investment is first risked. The State, on the other hand, is entitled to demand that the holder shall indeed explore the mineral land and not simply sit on it for speculative purposes. Four kinds of incentives avoid this problem: (1) restriction of the exploration license to a relatively short period and few renewals; (2) stipulation of a minimum stated amount of work or expenditures; (3) possible relinquishment of fixed percentages of the original area on each renewal; and (4) imposition of a surface tax, its rate per unit area increasing with the number of such areas and over time, on the occasion of each renewal. These incentives can help the State in ensuring rational exploration.

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Production concessions. A production concession confers upon the holder the exclusive right to mine, produce and sell minerals over a long period of time. The following must be stated: (I) A production concession shall be issued as a matter of right to the holder of an exploration license who makes a commercial discovery. (2) If the area granted is large, then pressure should be exerted on the concessionalre to either develop or rclinquigh it. (3) The term of the permit must be long enough (at least 20 years) to make it commensurate with the hazards of assembling capital and developing production. Normally, the title must be renewed upon expiry provided that the holder could show evidence of having reasonably developed the property. Safeguards, however, may be necessary which may take the form of progressively increasing rentals on undeveloped blocks of the concession area or requiring the relinquishment of undeveloped areas; proof of adequate development as a prerequisite to renewal of a block; and forefeiture of a block for failure to produce for a specified period of time. It is, however, against the interest of both the State and the operator for the concession to terminate at the end of a fixed period of time with theexpectation that someone else will succeed him. It is against the former's interest because the concessionaire is under economic pressure to "high grade" the mine, or to produce at the maximum rate regardless of optimal rate, knowing that he will lose what he leaves in the ground; and is against the latter's interest because the shorter the tenure, the less the value of his leasehold for any purpose. It is merefore essential from the State's viewpoint for adequate conservation practices to be enforced. Financial prooisions or revenues to the 8tare. The State's usual role in the mineral industry has always been that of a tax collector and royalty owner. Nowadays, the State is increasingly participating as a working interest. Taxes. It is said that that is a wise law which consolidates most, if not all, levies into a single tax on net income, and recognizes that a large part of the proceeds of a mine is not income at all but a return of capital, and that this segment of the proceeds should not be subject to income tax. Capital must be attracted for the risky mining business in competition with investments that involve very little risk, butwhich in many undeveloped countries nevertheless pay high rates of return. Tax incentives are an important inducement. If the tax is primarily contingent on the miner's success, that is, on

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income from a profitable production, and if the State is willing to share the gamble that the miner must take, then the gamble is more attractive than if the investor were to be subjected to ad valorem taxes on the plant and equipment which represent the investment that he has gambled. Bonus and royalties. A royalty denotes money paid to any landowner, public or private, who grants a fight to exploit the minerals which he owns. A bonus represents a fixed amount, payable once only, to the landowner on his execution of the document of title. Royalty is usually a percentage of the value of mineral produced at the point of shipment, essentially a tax on gross income. State participation. One of the latest developments in the mineral field has been the participation of government as equity holder. This takes on many forms: (1) an outfight grant of stock, free of charge, to the sovereign; (2) an option to buy stock which sometimes comes from the reimbursement of part of the exploration expense, or in some cases takes the form of a joint venture between a State corporation and a privately-owned one. A t'mal option is direct involvement through a government enterprise, which becomes a direct instrument for mineral development, or a means for acquiring participatory interest in a foreign company through joint ventures or stock purchase. Settlement of disputes. The last element of the Model Mineral Development Law is the fair settlement of disputes. Before a mining company makes an investment in a distant and undeveloped country that is to remain there for a very long time, it needs a reassurance that any disagreements which will inevitably arise out of its operations during that protracted period will be fairly resolved by an impartial judiciary. The problem is in Finding a mutually acceptable mechanism for resolving disputes between the host government and the foreign private investors. Three principal ways have been found by less developed countries to reassure an investor of the safety of his long-term investment. First and most important is the existence of an established judicial system with a reputation for fairness. Second is conciliation through mediators, and third is arbitration. The last concept has found expression in the "Convention on the Settlement of Investment Disputes between States and Nationals of Other States" which was negotiated under the auspices of the International Bank for Reconstruction and Development and signed by 62 States.

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The preceding statements show that a State which seeks to develop its mineral resources has a variety of options from a broad spectrum of policy choices. Despite the inf'mite combinations of policy choices, the central thesis of successful mineral laws the world over is fair play. If it is present, the law can be implemented through any number of mechanisms; otherwise the words are hollow and the law fails to achieve its purpose. THE CANADIANMINERALDEVELOPMENTFORMULA It is of interest to quote here the highly successful Canadian formula for mineral development as reported by W. Keith Buch, chief of Canada's Mineral Resources Division, to a U.N. conference: (1) Security of land tenure. At each stage of exploration, development and production, the rules of the game must be clearly defined and constantly and impartially implemented. (2) Generous disposition of mineral rights. Mineral exploration has a high element of risk. The taking of this risk should be made as attractive as possible. The economic return to the nation can be obtained at a later stage. (3) The granting of tax incentives. In Canadian experience this is the main ingredient. It consists of: (a) a three-year tax exempt period of new mines; (b) a 3346 depletion allowance, in perpetuity; (c) a provision permitting recovery of exploration and reproduction expenses. (d) freedom from capital gains tax; (e) special excise tax and customs tariff provision for mining equipment; (0 generous depreciation allowances; (g) incentives for further processing; (h) other special tax inducements as circumstances warrant from time to time. All these provide permissive recovery of capital investment, giving recognition to the inirinsic risks of mineral development. In,principle, also, they could provide insurance against the changing attitude of changing governments. This Canadian

formula

for mineral

development

tratiori of parts of the model we are discussing. was also applied in the successfuldevelopment mineral industry (King 1969). .U.S. LAND MANAGEMENT MINERAL DEVELOPMENT

LAW: THE FRAMEWORK

This review is based on the work law encompasses rules concerning the

is a concrete

illus-

A similar formula of the Australian

of Dempsey (1972). ownership of mines

Mining and the

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relationship between miners and other users of lands, along with the enforcement of such rules by the State. The rights and duties embodied in these rules comprise the framework for mineral development. Broad categories of mining rules are: (1) rules permitting private parties to acquire for mining purposes land owned by the State; (2) rules providing for the resolution of disputes between rival claimants where lands of a state are available for acquisition on a nonexclusive basis; (3) rules concerning the conduct of exploration and mining on lands where the minerals and surface estates are owned by different parties; (4) rules dealing with the impact which exploration and mining may have on adjoining lands which are owned by others; (5) rules dealing with the impacts of land use on the public at large; and (6) rules discouraging wastes of resources. The primary reason for the success of U.S. mineral law in developing a vigorous mineral industry during the last century can be attributed to its enforcement by the reasonably efficient and fair judicial system. Although the law originated from Congress, other laws were developed by the courts and executive bodies that dealt with minerals. Another factor that contributed to successful mineral development was the legal framework which permitted the development of the mineral industry by the private sector. Several important goals of government are embodied in the mineral laws: First, they were used to generate revenue to support government. Second, they promoted regional development. Areas in the West (California and Nevada), for instance, were initially developed on account of their rich mineral resources. Third, mineral laws were also used to realize certain strategic objectives such as the conservation of war materials. The laws are dynamic and change according to changing perceptions about the value of minerals to aaational welfare. Under the existing framework the mineral requirements of the country must be supplied. However, a number of developments make this goal difficult to attain. The withdrawal of public lands from the coverage of mineral disposal laws has created problems for mineral explorers and producers, making it difficult to assure that mineral goals will be achieved with domestic production. For instance, lands containing valuable deposits of uranium and oil shale have been withdrawn from disposal, hampering the private development of these resources. The National Environmental Policy Act is having an enormous

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impact upon public land management and disposal. This Act, which is based upon sound environmental policy goals, has become the basis of the severe disruption of mineral producing activities. The environmental impact statement provision of this Act and its enforcement by the courts have disrupted major mineral projects such as the well-known Alaska pipeline and Louisiana offshore oil and gas base sale indicated. Confusion in the laws governing minerals reflects a confusion in policies. To achieve the mineral objectives of the country, the confused policies must be rectified. First, it might be necessary to apply some dominant use theory in the formulation of mineral policy and laws. Unnecessary restrictions on exploration and mining must be eliminated. The Public Land Law Review Commission, for example, came to the conclusion that mineral exploration and development should have a preference over some or all other uses on much of public land. In urban areas where gravel and sand suppliers are becoming scarce, there is an emerging comprehension of the need for protection of sand and gravel deposits from urban development. In the environmental field, the U.S. is also facing some tough choices. It is believed that after going to some extremes, environmental standards will be made economically tolerable. To support its mineral-based economy, the U.S. may be forced to make a choice between conservation (wise use) and preservation (abstinence). Another point that may be raised towards rationalizing the existing legal framework is: land tenure must not be used to accomplish other policy goals. For instance, there is now the attempt to make land tenure a condition for environmental compliance. Conditions threatening tenure diminish the value of the mineral property and make it difficult to secure f'mancing for development. There are many other ways to achieve environmental goals without affecting security of tenure. Finally, fragmentation of policies and confusion in their enforcement due to the "proliferation of agencies must be remedied. This Situation prevents the achievement of the goals of mineral development and instead leads to the unnece_ary dissipation of energies which could otherwise have been harnessed for more productive efforts. Kneese (1976) presented an incisive analysis of existing resource policies and concluded that they are now inconsistent, outdated and grossly over-dependent on direct regulation alongside a defective

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system of economic incentives..Such policies likewise fail to recognize the interdependeneies among resource problems, including those of energy and environmental resources. The paper recommends reduced reliance on direct regulation, increased reliance on economic incentives, measures to cancel unfavorable distributive effects, measures to improve the competitiveness and performance of the natural resource industries, and reorganization, both legislative and administrative, of branches of government. The ease of the U.S. indicates that mineral policies even in a highly developed eotintry with a long tradition of vigorous mineral industry can stand substantial improvements. Among the issues that tend to undermine mineral development are the growing concern over the environment, conservation, threat to stability of land tenure, taxation, and the increasing reliance on direct regulation rather than on a system of incentives.

PART ii TIlE DOMESTIC MINERAl. INDUSTRY

V. THEDOMESTICMINERALINDUSTRY Policies, Strategies and Programs for Mineral Development Government policies are a potent and dynamic agent in shaping the course of mineral development. They sum up the prevailing views of government about the social value of minerals and provide directions in the march toward development. They must therefore serve as the unifying principles in mineral development. Although the subject has been treated by various writers, the following account is based on Leido, (1977), Caoili (1978), Bureau of Mines (1978), and Fernandez (1980).

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POLICY OBJECTIVES

Minister Jose Leido clearly stated that the ultimate goal of the Ministry of Natural Resources is the socioeconomic development of. the people through natural resources exploitation. In this connection, he enumerated a number of policy guidelines for mineral development: .(1)

(2.) (3) (4) (5)

Improvement of the socioeconomic conditions of the people, widened distribution of benefits, and democratization of wealth. Inducement of the development of other activities and industries. Optimal use of resources by adopting the most efficient technologies. Assessment of natural resources to program and maximize utilization and provide for replacement. Development, revitalization and conservation of natural resources for the present and future generation.

It is significant that the enhancement neither of foreign exchange earnings nor of government revenues is explicitly stated above. Even the. policy guidelines, as stated bythe Ministry's Head of Planning Services (A. Caoili), does not identify foreign exchange and government revenues as parameters of. policy. However, both recognized the importance of the mineral industry as foreign exchange earners. The Bureau of Mines, however, recognized foreign exchange earnings as a policyvariable, but it is perhaps more instructive to quote the. mineral policies as stated by the Bureau since they are more specific: (1 ) To attain a more equitable distribution of wealth; (2) To expand employment opportunities; (3) To promote social development; (4) To promote countryside development; (5) To increase foreign exchange earnings;." " (6) To attain self-reliance in the supply of important commodities; and (7) To strike a balance between exploitation and conservation with due consideration to environmental protection. The lisling of the policy objectives, as well as their .consistency; is quite significant. These objectives epitomize the perception of pertinent official views as to what the mineral industry can. do well for the country. It must be recognized that only one of these policy

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variables can be maximized while the others either serve as constraints or are realized as the objective variable is maximized. We may ask: which of these variables can the industry maximize to achieve the most impact on the other objectives? Alternatively, are these objectives really the most appropriate? PROBLEMS

AND STRATEGIES

The mineral development strategies embody the policies and take into consideration the problems of the mineral industry. Fernandez (1980) identified the following problems of the Philippine Mining Industry: (1)

(2) (3) (4) (5) (6) (7) (8)

In general, the mining industry's most pressing problem is maintaining an adequate return on investment as capital and operating costs soar; Increasing environmental protection and pollution control regulations; Lack of capital necessary to sustain exploration and development efforts; Lack of domestic mineral processing facilities which restrains the use of indigenous raw materials; Lack of infrastructure facilities which holds back the expanâ&#x20AC;˘ sion of existing plants; Dependence on the economies of a few countries which affects the mining sector's growth and development; Lack of geologic baseline date which impedes exploration activities; and Lack of skilled and semiskilled workers needed by the industry.

In a _oad way, these problems very well represent the difficulties faced by the industry. In another sense, the problems as stated are too broad, hence vague and ill-understood, to be used in designing effective policy instruments with which to solve them. Some of these problems appear overstated, while others are understated. In any case, much needs to be done in order to understand the nature and magnitude of their effects on mineral development and, ultimately, national development and growth. Guided by policies and cognizant of the problems, the following strategies have been adopted to promote mineral developments (Fernandez 1980):

116 (1) (2) (3) (4) (5) (6)

TeodoroM. Santos Acceleration of geologic surveys and identification of high mineral potential areas; Setting up of a data banking system; Provision of financial incentives, and technical and infrastructure supports; Streamlining of administrative/bureaucratic processes; Research on identified priority areas; Expansion of existing technical support facilities, making them available to end-users.

In addition to the preceding strategies, the Bureau of Mines (1978a) added the items below which in some cases overlap with those already mentioned but more clearly articulate the desired course of action: (7)

(8) (9)

(10) (11)

Development of the mineral industry as primarily the function of private enterprise, although the government could provide direction as well as administrative and technical support; Encouragement of foreign investments and joint ventures in the development of certain mineral resources; Provision of incentives, particularly to processed mineral commodities; lending facilities of DBP, PNB and Central Bank, especially to small miners, including studies of taxes and tariff; Provision of infrastructure support to mining operations and exports, such as feeder roads and port facilities; and Improvement of market access by diversifying markets and eliminating disincentives to exports.

Although variously put under strategy or policy objectives, I classify the following items as constraints" to mineral development: (1) (2)

Minimization or elimination protection; and Conservation.

of pollution

or environmental

The variety of these strategies will certainly lead to conflicts. For instance, considering the limited resources availabl e , one may ask, which should take precedence, provision of infrastructure and related incentives to the industry or the setting up of data banks? Or, how should mapping and survey activities be prioritized? Granted some criteria for prioritization, how do we know if they lead to the best solutions for solving the industry problems or achieving

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social goals? We may further ask, to what extent should any given strategy be employed or a constraint applied? And finally, what pitfalls are there in applying a specific strategy, such as the opening up of the lending facilities of institutions such as the DBP and PNB to mining f'mns both small ang big? The motives of a strategy or policy may be good but the impact to society may be catastrophic if not properly guided! PROGRAMS

AND PROJECTS

The Mineral Development Plan is envisioned to reach the following targets (Bureau of Mines 1978a): (1)

(2) (3) (4)

An increase in the contribution of minerals to gross domestic product to about 2.8 per cent by 1982 instead of the usual 2 per cent or lower. This requires an annual growth rate of 13.3 per cent during the period 1978-1983. Growth in total export earnings of the country by 23.8 per cent annually for the period 1978-1983. An increase in employment in mining from 70,000 in 1977 to 80,000 in 1983. The development of mining communities which is expected to occur during the period of countryside development which will be promoted by the establishment of roads, ports, communication system, power and cottage industries, among others.

As to program, two are identified by the Bureau of Mines (1978a): first, during the period 1978-83, six copper and two gold projects are expected to come on steam. Secondly, metal-lmsed projects such as the copper smelter, iron and steel mills, and alumina smelting facilities, among others, are also expected to rise during the period. Fernandez (1980) enumerated ten programs which are aimed at implementing the policies according to the strategies stated earlier. Their titles are: 1) 2) 3) 4) 5) 6) 7)

Geologic Data and Mineral Lands Management System Geologic Survey Program Offshore Mineral Surveys Program Research Program Manpower DevelopmentProgram Equipment Acquisition Program Institutional Restructuring Program

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8) Mineral Resources Incentives Program 9) Environmental Protection Program 10) infrastructure â&#x20AC;˘Development Program. These titles are partly self-explanatory but the details are spelled out in the source. The Bureau of Mines (1978a) fists down a great variety of specific activities exceeding 190 items. More than 95 per cent of these activities are technical, directed at the inventory of mineral resources. The rest Pertain to environmental activities and to the social aspects of mining which have been barely implemented due to lack of personnel. Status and Pro blerns of Mineral Development Researches on the domestic mineral industry are viewed here from the framework of the industry's development. In effect, the researches are examined as they provide information on the develop ment variables discussed in an earlier section. There is an uneven distribution of researches among the development variables, perhaps reflecting the developing state of the country rather than irrational behavior. For instance, out of 125 titles we examined 37.6 per cent were associated withâ&#x20AC;˘ mineral endowment, 20.8 per cent with technology, 13.6 per cent touched on the global economic environment, 23.2 per cent dealt with the domestic environment, and 4.8 per cent focused on investments. Considerable gaps in information are appa:ent even as the most heavily researched areas show abundant inadequacies. FACTOR ENDOWMENT

As indicated earlier, this consists of variables without which no mineral industry could occur. They may be called geological, institutional and human resources. The bulk of mineral researches deals with the generation of basic geologic information which serves as a valuable input to the various stages of the mineral industry. Such â&#x20AC;˘ information likewise becomes the. basis for estimating the mineral resources of the country. They come in the form of maps, geological papers of various kinds, and tables. These works may be seen in the bibliographies of geological literature (Aquino 1974; Aquino and Santos 1971; Bureau of Mines 1979; Teves 1953). Examples of works mentioned above are the various geologic

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maps, mineral maps, and tectonic maps; papers on the geology of various areas in the country; and assessments of reserves and resources of mineral commodities like coal, copper, iron, chromite, silica, dolomite and limestone, in places like Kalinga-Apayao, Benguet or Surigao (Bureau of Mines 1969; Mendeleev 1976; Kintanar and Luna 1976). Some of the important findings in these works are given in summaries (Bacuta 1979; Philippine Republic 1975; and Ministry of Natural Resources 1979). Areas covered by reconnaissance survey as of 1975 amounted to 18.13 million hectares or 60.59 per cent of the total land area, and as of 1979 the areas covered by detailed and semidetalled surveys amounted to 1.75 million hectares, or 5.85 per cent of the country's total land area, while those areas granted leases amounted to 180,290 hectares, or only 0.60 per cent of the country's land area. Estimates of known and discoverable resources were also made for copper, gold, nickel, iron, manganese, and other minerals (see Table 4). Considering the small proportion of areas that have already undergone semidetailed and detailed surveys, much still remains to be surveyed. In fact, systematic geologic, geochemical and geophysical studies have yet to be done to cover the need for quality geologic information which remains sorely inadequate (Tupas 1977, Austria 1977a). Expansion of the economic zone offshore has further magnified the basic works that need to be done. Researches concerning our institutional and human resources Table4. Types of MapsPreparedby the Bureauof Mines Nameof map 1. Geologicalmap of the Philippines 2. Mineraldistribution map of the Phils. 3. Geology and mineral resources map of the Philippines 4. Geologicmap of the Philippines

Scale

Dateof publication

Coverage

Remarks

1:1,000.000

1963

entire Phil. 8 sheets/set

1:2,500,000

1973

elitire Phil.

1:250,000 1:5,000,000

1974 Reports of present by provinces _vestigation 1976

entire Phil. in tracingpaper ready for printing

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Table 4 (Continued) Name of map

Scale

Date of publication

1 :5,000,000

1976

entire Phil.

the Philippines 1:1,600,000 a. Copper1974 b. Iron1974 c. Coal1976 d. Chromite1976 e. Gold1976 f. Manganese1976 g. Other metallic ore deposits1976 h. Nonmetallic deposits1976 7. ERTS-1 Photomosaic of the Philippines 1: 1,000,000

1973

entire Phil. base map PCGS using polyconic projections unpublished maps

5. Structural/tectonic map of the Philippines 6. Mineral maps of

8. Geologic map (coast lines)

9. Geologic map-Land sat interpretation

10. Magnetic intensity map 11. Residual map 12. Normal running average map 13. Second vertical derivative map 14. Simple Bouguer map ,_urce:

1:50,000

1 :50,000

Coverage

Remarks

entire Phil. dates taken Oct. 72-Nov. 73 accomplishment as of Sept. ' 80

as of Sept.' 80

1. Eastern Surigao del N orte 2. Leyte 3. Negros

100% 80% 80%

1. Ilocos Norte 2. Central Luzon

100% 80%

1:250,000 1:250,000

- do- do-

Samar Mindoro

100% 100%

1:250,000

- do-

Mindoro

100%

1:250,000

- do-

Mindoro

20%

1:250,000

- do-

Mindoro

50%

Basic data from the Bureau of Mines.

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are scarce. Suffice it to say that we have the basic legal and bureaucratic framework (e.g., Commonwealth Act 137, P.D. 463, Bureau of Mines) without which the mineral industry could not thrive. We also have a body of skilled manpower on which the industry depends, a fact generally taken for granted but which was strongly felt at the time when the industry had to import foreign miners (Santos and Salita 1980). We even have a number of schools which produce geologists, mining engineers, and metallurgists (Sonido 1977). Undoubtedly, our existing institutions and manpower axe still inadequate in quality and quantity, and studies are desirable in order to understand how they can contribute further tomineral development. TECHNOLOGY

Being an international industry, mining must make use of the most efficient technology to remain competitive. But because the generation of mining technology is beyond the means of a developing country, new technology must be imported and adopted for the various stages of mining. Even here the proper choice and costs of technology pose a difficult problem (Tupas 1977). Austria (1976b) pointed out the numerous technologies that enter in the various stages of the mineral industry. Studies mainly of adaptation to local conditions can be seen in various bibliographies (Aquino 1974; Aquino and Santos 1971; Bureau of Mines 1978b, 1978c). In certain situations it is imperative to develop technologies locally to suit the peculiarity of our materials. For instance, such studies must be done to make economic the extraction of our vast lateritic iron ore resources, and to apply the direct reduction technology to produce iron or of local materials (e.g., Weir 1977; San Miguel, Pedron and Sison 1962; San Migucl, Pcdron and Magwakas 1963). The effect of some technologies on the industry can be very profound (Santos and Salita 1980). For instance, the revolution in bulk shipping and the discovery of huge, low-cost iron ores in places like Australia, India and Brazil have made Philippine direct shipping iron ores noncompetitive in the world market during the 1960's only to resurrect in the 1970's when pelletizing technology was perfected, making magnetite sands economic. Again, the adoption of open pit mining technology to copper extraction completely changed the structure of this industry and brought it to an eminent position among world producers. Many technologies and changes that could affect the domestic industry arc emerging without their implications

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being understood. The new energy situation, the mining of sea nodules, hydrometallurgy, and electronic data processing, among others, are forces which will affect mineral technology and development, and their effects on the local industry must be understood. Researchers appreciate the inadequacy of research activities in the country which may be due to inadequate facilities, few qualified researchers, and inadequate incentives (Punongbayan 1979). A large body of researches done by the industry are presumably being kept in confidential files. These pertain undoubtedly to exploration, development, mining, andmilling. GLOBAL

ECONOMIC

ENVIRONMENT

Developments in various parts of the world affect the domestic mineral industry both in the long term and in the short term. Factors that expand global l demand generally favor the local industry while those that expand supply adversely affect it. Since the local industry has to sell in the world market it must remain competitive_ Access to markets of various Countries may be critical especially in obtaining a fair price for local minerals. The movement of prices affects revenues and may influence profits and investments. In short, all factors affecting the world mineral market invariably affect the domestic induslry. Although there seems to be a general consensus that global events affect the local industry, an in-depth research on this is apparently wanting. Some of the effects of global events may be culled from the work of Santos and Salita (1980). The rapid growth of the local gold induslry in the 1930's was a response to the increase in gold price from $20.67 to $35.00 per ounce. However, the deterioration of the primary gold industry since the 1950'S resulted from the decline irt.real price since nominalprice was officially pegged at $35.00 per ounce. The decision of the U.S. Government to let gold seek its own price level in the market during the 1970's was predicted to stimulate the growth Of the local primary gold industry. With respect to copper, its rapid growth during the 1960's and 1970's was ascribed among others to the rapid growth of the Japanese economy as well as to the expansion in demand due to the Korean and Vietnam wars.

Expectations about the political developments in South Africa (a major chromite producer) have apparently boosted the local exploration and development of chromite deposits, and uncertainty about

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its political future makes consumers look for alternative sources. In nickel, the entry of other producers in Australia, New Caledonia, Indonesia and the Philippines has broken the control on price by International Nickel of Canada, resulting in depressed prices. Some studies noted that the dependence of the local copper industry on the Japanese market gave the Japanese considerable market power which permitted them to secure favorable termsat the expense of the local copper industry. For instance, a cutback on copper purchase was resorted to during times of slack demand with serious consequences for the local industry (Dy and Estanisiao 1972; CRC 1973; Martinez 1975). A great variety of global issues affecting the mineral industry must be studied in the context of the local industry. For instance, under what terms should government-to-government copper sales be contracted? What effects would joining the CIPEC (organization of copper producing countries) have on the industry? Why do we need to import iron ores when we have considerable reserves? What am the effects of high energy costs and high taxes on the industry's ability to compete? In the plans to produce metallic copper, aluminum and steel, what problems do we expect to encounter which may hamper the success of these projects? How do we stabilize or maximize export earnings from minerals? Finally, how will supply and demand shape up in the coming years and how will this affect our market shares? The study of the global economic" environment affecting mineral supply, demand, prices and availability is a serious business which governments like those of the U.S., USSR, UK, Japan, West Germany, France, and Canada, among others, fred important to undertake. This is so because their industrial prosperity and even national survival depend to a large extent on minerals. Similar researches will undoubtedly be of considerable benefit to the country. DOMESTIC ENVIRONMENT

The domestic environment refers to the sum total of economic, social and political factors which ultimately determine policies. With respect to the mineral industry, its value to society, be it actual or perceived, determines the environment that breeds mineral policies, given the existing political situation. Despite the paucity of policy-related researches, almost every writer dealing with minerals has something to say about what good

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or harm they do and what should be done to them. Some of the important works that may be consulted on the subject are those of Medalla 1977; Medalla and Pefiangco t977; CRC 1974; CRC 1973; Dy and Estanislao 1972; Esguerra 1969; Fernandez 1980; Ranoa 1969; Santos and Salita 1980; Soncuya and Lo 1980; Gonzales 1979; Leido 1977; Caoili 1978; Bureau of Mines 1978a; Agawin and Oliva 1979; MIRDC 1974, 1976, including the various laws governing minerals. These works either analyze or state the benefits or bad effects from _e industry, what the industry should do or could do, and what should be done to promote its development or check the bad things it brings. Most writers acknowledge the important role of the mineral industry as a foreign exchange earner. Minister Leido (1977) recognized this role when he said that the mineral industry plays a "pivotal role in nationaldevelopment" by providing badly needed foreign exchange. The industry is also cited as an important source of tax revenues, a provider for job opportunities, and a contributor to national production. All these were acknowledged in the works cited above. Further processing of the metals by producing metallic copper, nickel, aluminum and steel is also perceived as an important step towards the industrialization of the country, as such metals become the raw materials for raw-material-starved domestic metal-based industries, in addition to realizing higher value added and enhmacing the goal of market diversification (Ronquillo 1978: MIRDC 1974. 1976; Estabillo 1979; Caoili 1978; and Bureau of Mflles 1978a). No less important but less prominently known is the fact that mining operations contribute to rural development by providing employment; tax revenues; social services such as hospitals, schools, and manpower training; and most important, an "environment that conduces to development" (Soncuya and Lo 1980; Bureau of Mines 1980a; Gonzales 1979). In recognition of this, some government agencies have sought to establish baseline information on the socioeconomic impact of mining (Bureau of Mines 1980a) and, in fact, specified that the industry should contribute to regional and rural development (Bureau of Mines 1978a; Fernandez 1980). The perceived value of the industry leads to the view, at least in some quarters, that the development of the mineral industry must be encouraged as evidenced in tax and other types of incentives

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like tax exemptions, subsidy, and planned construction of infrastructure in mineralized areas (Gozon 1950; Guzman and Esguerra 1969; Roa 1969; Fernandez 1980; Bureau of Mines 1978a; Philippines, Dept. of Finance 1973; Destreza 1979). Notwithstanding the benefits, the industry is aiso recognized as responsible for environmental degradation and pollution and that it depletes nonrenewable minerals to the detaiment of future generations. (Bureau of Mines 1978a, 1980b, 1980c; Medalla 1977; Caoili 1978; Zamora 1980). Consequently, measures to alleviate ecological damage, reduce pollution, and penalize polluters and compensate victims have surfaced. There is also the view in some quarters that the mineral industry is a "pampered industry." Deputy Minister Aguenza exemplified this when he said: "I think the mineral industry is one of the most awarded industries in the country in terms of incentives. I don't think the government can give more than what the industry is getting now, nor will the cabinet, the NEDA or Minister Virata be predisposed to grant additional incentives for the mining industry" (Punongbayan 1979). This attitude most likely results from the view that themining industry is mainly owned by rich people. Government officials, however, are keen at providing incentives to small miners (Business Day, Nov. 27, 1980; Bureau of Mines 1978a; Comsti and Relova 1976). Increasingly, the processing of ores into usable metals rather than concentrates is becoming a desirable social goal for several reasons. First, further processing permits the production of more values out of the same unit of ore. Second, this will allow more flexibility in marketing since even developing countries can use the ref'med metal, thus lessening the dependence upon very few developed countries. Third, substantial savings on costs of transportation can be realized. But the most important reason is the conviction that metal processing will lead to the emergence of other industries such as fertilizer, electrical and metal fabrication which will lead to the industrialization of the country. As a matter of fact, there is already the framework for a modest ferrous and nonferrous metal fabricating industry Which depends upon highly variable imported raw materials. Though private gains may be minimal in processing (about 6.0 per cent return on investment for copper smelter) the social returns may be substantial (AlonzoCapistrano 1969; Dy and Estanislao 1972; Estabillo 1977; MIRDC 1974, 1976; Puyat 1976; Ronquillo 1978).

12_

TeodoroM.Sant_

INVESTMENTS

Investments are a crucial problem inthe mineral industry because without them mineral production would not be possible. Given possible sources, investments may be committed only if there is a better chance of making profits at reasonable risks than elsewhere. We therefore focus here on studies that deal with the system of incentives and disincentives which in the ultimate analysis determines the profitability and risk of a mineral venture. Money raised from domestic sources such as the stock market and banks, among others, represents but a small portion of investments in mining. Long- and medium-term foreign equity may also be available (Santillan 1977; Herrera 1977; Tsuda 1978). (a)

Incentives

Cognizant of the need for foreign investments, the government has adopted a "policy of encouragement and attraction" with respect to preferred areas of investments, as expressed for instance in the Export Incentives Act (RA 6135) and Investment Incentives Act (I_A 5186) which guarantee foreign investors the opportunity to recover their investments, earn reasonable profits and repatriate them (Lava n.d.). More specifically, the Mineral Development Act of 1974 (P.D. 463), as amended, has provided a mechanism whereby a foreign firm can act as a service contractor to the government or any domestic firm and earn at most 40 per cent of the net proceeds before tax as fee (which may include dividendsif the contractor is also a stockholder). Considerable tax incentives are available in the mining industry which are granted by the Investment Incentives Act and the Mineral Development Act of 1974 which include, among others, exemption from tariff duties and compensating tax on the import of equipment and spare parts and, in appropriate cases, exemption from all taxes except income tax for five years (Gison n.d.; Carpio 1977). Table 5 summarizes the important tax incentives available to mineral producers. These incentives, among others, have substantially contributed to the development of the local mineral industry during the 1960's and 1970's (Tolentino 1972; Santos and Salita 1980). Apart from tax exemptions cited above, other forms of incentives have also been made available to the mineral industry. For instance, the government has extended subsidy to the gold industry since 1954 through the Gold Industry Assistance Act (a system of tax reliefs),

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Table 5. SpecificTax Incentives A. The Investment Incentives Act (Republic Act No. 5186). This Act grants preferentia} tax and other benefits to registered enterprises in preferred areas, i.e., those sectors which are of crucial importance to the natioffs .development. Two categories are recognized, viz., preferred pioneer and preferred nonpioneer. Incentives to Preferred Nonpioneer enterprises 1. Deduction from taxable income of all capitalized organizational and preoperational expenses over a period of not more than 10 years from the date of operation. 2. Accelerated depreciation of fixed assets. 3. Carry-forward of net operating losses incurred in any of the first 10 years of operation for the followingsix years. 4. Total or partial exemption from tariff duties and compensating tax on importations of capital machinery, equipment, and spare parts, within seven years from the date of registration of the enterprise. under certain conditions. 5. Tax credit equal to 100% of the value of the compensating tax and customs duties that would have been paid on machinery and equipment purchased from a domestic manufacturer had these items been imported. Another tax credit equal to 50% of such compensating tax and customs duties is given to the domestic manufacturer. 6. Credit for taxes withheld on interest payments of foreign loans if no such credit is enjoyed by the lender in his eonntry and the registered enterprise has assumed the liability to pay the tax. 7. Deduction from taxable income of certain amounts to be determined by the Board of Investments (BOI) of undistributed profits reinvested by a registered enterprise in its capital stock for procuremerit or expansion of machinery and equipment used in its business. 8. Anti-dumping protection with respect to importation of goods and commodities that unfairly or unnecessarily compete with those produced by the registered enterprise. 9. Additional deduction from taxable income of 50% of expenses, but not exceeding 10% of the direct labor wage, incurred for upgrading unskilled labor. 10. Preferential treatment in the grant of government loans but this incentive can be availed of only by enterprises which are Philippine nationals. B. Incentives to Pioneer Enterprises 1. Exemption from all taxes under the National Internal code, except income tax on a gradually diminishing scale.

Revenue

2. Postoperative tariff protection to an extent not exceeding 50% of dutiable value of imported items similar to those being manufactured by the pioneer enterprises.

128

Teodoro M. Santos C. Export Incentives Granted by the Investment Incentives Act 1, A tax credit equal to the sales, compensating and specific taxes and duties paid on raw materials and supplies and in the manufacture of export products and part thereof. 2. Additional deduction from taxable income for the first five years from registration, of direct labor cost and local raw materials used in the manufacture of export products but not exceeding 25% of total revenue. However, the local raw material component of traditional exports is excluded from the allowed deduction. D. Incentives from the Mineral Resources Development Act of 1974 1. Exemption from all taxes, fees and other charges that may be imposed by any local governing body such as cities or provinces. 2. Exemption from all taxes, except income tax, for a period starting from the date of exploration and ending five years from the date of commercial production on importation of machineries, equipment, suppUes and materials required for the mining operations. 3. Exemption from all taxes except income tax for the same five-year period on all mining claims, improvements thereon and mineral products derived therefrom. Source: C. Gison "Studies in International Fiscal Law: Taxation of the ExtractiveIndustries," Vol. LXIIIa (n.d.), pp. 459-73.

indicating the government's firm commitment to protect the industry when necessary (Republic of the Philippines, Dept. of Finance, 1973; Comia and Narcisa 1979; Destmza 1979). More recent developments indicate the efforts of the government to infuse public funds into the industry. For instance, the Development Bank of the Philippines has Coal Financing as well as Gold Financing Programs. In the latter, t_ 100 million annually was allotted for 1_975-79 (Ampongan 1977). More recently, it was reported that both the Philippine National Bank and the Development Bank of the Philippines, which already have a ta1.5 billion loan exposure in a mining company which is in trouble, have allotted an additional P300 million to finance the construction of its facilities (Business Day, 6 October 1980, p. 7). There is also agitation to create a Loan Fund for small mining (Bulletin Today, 6 May 1980, p. 25). All this indicates the growing willing-

of the government to venture into the risky and capital intensive mineral industry, certainly an important area for research and policy. Other forms of incentive, among others, consist of (1) mechanisms for facilitating the processing of applications for various mineral actiness

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vities, (2) the prevention of the occurrence or speedy settlement of conflicting claims, and (3) the provision for continuity of operation despite litigation. Another form of incentive is illustrated by the effort of government to improve the quality, variety, quantity and accessibility of technical information and services and the provision for infrastructures such as roads, power facilities, and ports (e.g., Bureau of Mines 1978a; Fernandez 1980). (b) Constraints on Development Despite the avowed goal of the government to hasten the growth of the mineral industry in order to help f'mance the ambitious national development plan, other objectives generate forces that tend to undermine the development of the industry. Such forces may be classified under (1) "problem taxes," and (2) "problem regulations." In a nutshell, the issues against "problem taxes" are that: (1) they create an uncertain investment environment in which rational longterm planning becomes impossible, and (2) they are crude in the sense that they affect both earnings and capital, both profitable and losing mines. They lead to confusion as to the real intention of the government, and to frustrations for those who have made strong commitments based on very liberal incentives. For convenience of reference, the taxes normally paid by mining firms axe summarized in Table 6. This may be used in conjunction with the table on incentives to appreciate the incentives. Table 6. Taxes Payable Generally by the Mining Industry A.

Corporate Income Tax For domestic corporation (incorporate d under Philippine laws), the income tax rate is 2 5% for the first P 100,000 of net income from worldwide sources and 35% on the excess. For resident foreign corporation, the income tax rates are the same as for the domestic corporation except that they are based on net income from Philippine operations only. If the corporation is closely held (50% owned by or for not more than five persons) or its net income exceeds 10%'of its net worth, in the case of a domestic corporation, or its net assets in the Philippines, in the case of a resident foreign branch, an additional tax of 5%is imposed, based on the same taxable income subject to the 20-30% rates. Mining Taxes Base a. Leased lands 1. Occupation fee

Per hectare

Tax _2.00

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Teodoro M. Santos

Table 6 (Continued)

2. Rentals Coal First 10 years After 10 years Other Mineral 3. Royalties Coal

Gold All other Minerals

Base

Tax

Per hectare Per hectare Per hectare

tt 5.00 10.00 2.00

Per ton (1016 kg)

Actual market of gross output ActUal market value of annual gross output

Such amount stated in the lease but not less than i_0.20 1.5% 2%

b. Mineral lands not under lease Ad valorem tax

Actual market 2% except gold value of gross which is subannual output jeet to 1.5% Source: Comelio Gison, "Studies in InternationalFiscal Law: Taxationof the Extractive Industries,"voL LXIIIa(n.d.), pp.459-73. The problem taxes may be illuslrated by the controversy on the: (1) phasing out of the percentage depletion allowance; (2) export tax; (3) premium tax; and (4) increased ad valorem tax. Depletion allowance basically is a device to decrease the tax payment of a mining firm to replenish the f'Lxed mineral stock being depleted by production, a concept accepted in many countries such as the United States. It was introduced into the country's mineral law in 1960 by Republic Act No. 2698 which allowed a firm to deduct 23 per cent of gross income, but not to exceed 50 per cent of net inome, before income tax is calculated. The depletion allowance, as conceived above, was formally revised by P.D. 69 and Revenue Regulation 5-76 of 2 April 1976, which set down the rules on the computation of Costdepletion which essentially reduced depletion allowance to the recovery of the costs of development and exploration of a producing property, not otherwise recoverable by depreciation. More detailed discussions of the issues can be found in the literature (Carpio 1977; Tolentino 1972; Base Metals Association of the Philippines, Inc. 1972; CRC 1973). Imposition of Export Tax and Premium Duty was introduced

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P.D. 230. It was suspended by Executive Order Nos. 434, 450, 457, and 588, and later reimposed by Executive Order No. 581. The export tax imposes a 4.0 per cent tax on the free-on-board (f.o.b.) value of the mineral, while the premium lax slaps a 20 per cent duty on the mineral value based on the difference between actual price and a base price determined by the Bureau of Customs (Business Day, 4 June 1980, p. 1; Carpio 1977; Business Day, 27 Nov. 1980, p. 17). A most recent controversy on mine taxation centered on Batas Pambansa No. 43 which increased the ad oalorem tax on mineral production from 1.5 - 2.0 per cent to 5.0 per cent. To soften the impact of the law P.D. 1724 was passed to give the President the power to revise lax rates, especially for marginal mines, when the national interest so requires. Shorn of all verbiage, the tax was intended to raise funds in a simple (in the sense of easy to collect) way. But objections to it were raised based on the fact that (1) the lax was not considered in the evaluation of the projects now operating and (2) the investors committed lar_ investments under the assumption of more liberal tax environment. The objections are heightened by the fact that the tax will bite not only into the profits of the profitable mines but likewise into the returning capital of marginal and submarginal mines. Under the situation only three out of about 200 firms will earn some profits at levels that could keep them marginal (Garcia 1980, Business Day, 27 Nov. 1980, p. 17; Business Day, 4 June 1980, p.1). Aside from the "problem taxes," there are also regulations, that adversely affect the mineral industry. These regulations are mainly premised on the need to protect the environment either for its own sake or for society. These consist of: (1) the requirement of Environmental Impact Statement (EIS) for any mineral project; (2) the declaration of certain areas as excluded from mineral activities; (3) requirements for arresting environmental degradation; and (4) frees to compensate victims of pollution. The regulation that projects which tend to affect the environment should submit a formal report on such impacts and what it plans to do with them, to be approved by the Government, is mandated by P.D. 1151. A new decree, P.D. 1586, was issued in 1979 to give more teeth to P.D. 1151. The Environmental Impact Statement (EIS) is thought in some quarters to be expensive, difficult to prepare, and bordering on the "esoteric" (Punongbayan 1979). If experience of the U.S. is arty indication of things to come, then this

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particular requirement will lead to lengthy legal battles which will delay the construction of projects and cost a lot of money. Recent local experiences are pertinent. The copper smelter originally proposed for construction in San Juan, Batangas and expected to come on stream in 1979 is now being constructed in Isabel, Leyte, and may come on stream only in 1982 because of environmental controversy, a delay of at least three years, not to mention the costs associated with the transfer and delay. Again, apprehension about the safety of the Bataan Nuclear Plant caused a delay in its construction plus a very hefty increase in costs from $1.2 billion before the revision (which called for additional environmental safeguards) to $1.9 billion. Large tracts of land ate also being closed to mineral development in the form of bird and wildlife sanctuaries, military reservations, tourist reserves, forest and watershed reservations. Whatever minerals are in these vast tracts of land will not be made available to society. Although parts may be later released for mining purposes, the protess is difficult and lengthy (Bulletin Today, 16 May 1980, p. 25; 19 May 1980). (See Table 7.) Table 7. Partial list of Government Reservations With Mineral Exploration Permits Name of government reservation 1. Central Cordillera Forest Reserve (Northern Luzon), 1929 2. Sta. Cruz Reforestation Project, Zambales, 1964 3. Mt. Lingat Forest Reserve, Mindoro 4. Talavera River Watershed Forest Reseffe, Nueva Ecija and Vizcaya 5. Masbate Forest Reserve 6. bit. Kabanulan Forest Reserve, Davao, 1966 7. Mt. Balakan Forest Reserve Cotabato, 1967 8. Mansalay Forest Reserve Oriental Mindoro, 1966 9. Kasibu Forest Reserve Nueva Vizcaya 1967

Area of reservaffon 697,138.19 has. (82,360.90 has. excluded from reservation) 7,779.64 has.

Total areaof mining prospects/exploration 43,558.42 has.

371.70 has.

15,216.00 has.

7,000.00 has.

37,29 5.3 5 has. 34,4 87.01 has.

994.76 has. 4,570.36 has.

20,420.00 has.

9,376.01 has.

17,208.00 has.

226.00 has.

15,2 55.00 has.

5,000.00 has.

16,619.00 has.

4,173.00 has.

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Table 7 (Continued) Name ofgovernmen t reser_atlon I0. Dibudalan Mountain Forest Reserve, Subprovince of Aurora, Quezon, 1966 11. Mt. Sugarloaf Forest Reserve, Zamboanga del Sur and Notre, 1966 12. Northern Ilocos Norte Forest Reserve 13. Southern Ilocos Notre Forest Reserve 14. Katipunan-ManukanMolave Forest Reserve 15. Pantabangan Watershed, Nueva Ecija 16. Mabini-Dasol-Infanta Forest Reserve, Pangasinan 17. Magat River Forest Reserve 18. Communal Forest and Reforestation Project, Benguet 19. Abulog River Forest Reserve, KaJinga, Apayao 20. Casiguran and Mangian Forest Reserve 21. Mt. Mobanghil Forest Reserve, ZambaJes 22. Southern Zambales Forest Reserve 23. Umiray River Forest Reserve, Quezon 24. Marinduque Forest Reserve 2 5. Northern Mindoro Forest Reserve 26. Narra Agricultural Settlement, Palawan 27. Central Palawan Resettlement Project 28. Mr. Lamtotao Forest Reserve, Davao 29. Impasugong Forest Reserve, Bukidnon 30. Tunsawea-MaJayal Forest Reserve, Zamboanf_

Areaof regervation

Total area ofmlnlng prospects/exolora_on

3,7 54.00 has.

2,632.71 has.

50,178.00 has.

2,7 87.50 has.

105,242.00 has.

1,753. l 5has.

22,687.70 has. -

783.56 has.

5,103.00 has.

1,024.4 5 has. 1,606.3 8 has.

79.98 has.

379.79 has.

6,239.00 has.

948.31 has.

572.33 has.

4,106.24 has. 36 5.54 has.

480.42 has.

3,376.08 has.

14,881.34 has.

2,6 59.00 has.

84.06 has.

2,847.72 has.

Source: BasicDatafromPhilippineBuzeauof Mines.

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Agawin and Oliva (1979) investigated the effect of P.D. 1520, which declared beach areas as tourist zone, on the iron ore industry of the country. The ban on beach mining extinguished the rapidly growing magnetite sand mining industry, resulting in the loss of about 2,000 jobs, _93 million annual sales, 1a7.7 million taxes, and the transformation of all valuable minerals in the beaches, such as iron, chromite and silica, into ordinary sands and pebbles. This problem is known to a number of our government officials (Caoifi 1978). The government also requires the restoration of mined out areas to their original State (P.D. 1198), or to a condition suitable for habitation, or agriculture and related activities. Abatement of tallings pollution for sometime has been in the limelight. Tailings pond and related facilities to alleviate pollution from tailings run in the tens or even hundreds of millions of pesos. For instance, a project proposed by the Bureau of Mines to solve siltation due to mine railings in the Baguio District runs in the order of _ 450 million. A new decree, P.D. 1251, imposed fees on pollution by private owners to compensate the victims (Vitug n.d.; Business Day, 27 Nov., p. 19; Zamora 1980). Finally, mineral lessees are also required to submit a work program prescribing a minimum amount of expenditure for improvement per hectare annually (e.g., ]P 250/ha. for metallic deposits). Lessees are also required to take measures aimed at providing for the growth and development of any industry other than mining suitable to the people residing in the area when the mine is already exhausted (Bulletin Today, 24 June 1980, p. 20; Bureau of Mines and Geosciences 1980c, p. 37). The discussions under investments leave the impression that the mineral development policies are in a confused state. On the one hand_ there is a set of generous incentives designed to attract investors; on the other hand, there is a battery of taxes and regulations that attack not only the rent but also the invested capital. Such ambivalence may be costly in the sense that the government foregoes collecting certain tax revenues, hoping that the act will induce a certain level of development which may never materialize because it is discouraged by the constraints. It appears that both the regulators and the regulated are unaware that the costs of regulation are part of the social benefits, along with taxes, foreign exchange earnings and employment.

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VI. SUMMARY Conclusions and Recommendations This review paper was designed to scan the whole spectrum of the Philippine Mineral Industry to see where gaps in information or policy exist and to spot problem areas. Despite the rarity of honest-to-goodness researches, especially in the field of mineral economics and policy, I think I have def'mitely identified voids in information as well as problems in policy. The issues I raised, including the approach and framework, are spelled out in Part One. In fact, the conclusions and recommendations are presented in the development framework constructed in Part One, or under the variables of such model. FACTOR ENDOWMENT

Our assessment of research efforts indicates a heavy concentration on various types of surveys, mapping, and resource inventories which have led to the accumulation of knowledge about the country's geological and mineral wealth. These efforts, along with those of the private sector, have provided the basic information for a mining sector that the country can be proud of, especially among developing countries. It is well that there is emphasis on these works because they cover the sort of activities that should occupy government agencies since their products are publi_ goods and private firms cannot be expected to do them. Of course much Still needs to be surveyed, mapped, studied and evaluated especially as new developments increase our economic zone, new needs require the investigation of new parameters, and new technologies suggest fresh approaches. However, there is a need to improve the quality of work being done and to ensure that they will be adequate in amount and quality for rational national planning. For instance, the surveys being carried out do not contain information that is needed to measure the country's mineral resource base and the resource inventories are not of the form that is useful for national economic planning, as spelled out in Part One. It may be necessary to examine if the present organization of institutions dealing with the mineral industry is the best arrangement possible. More efficiency may be gained if, as some people say, the geological survey is detached from the regulatory functions of the Bureau of Mines. The need for better geological schools, laboratories, and research

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TeodoroM. Santos

institutes must be studied and provided for especially as the development requirements of the country expand. In particular, the need for a high caliber graduate school in the geological and mineral sciences may be urgent. TECHNOLOGY

Being an international industry, mining must use the latest or most efficient technology. By and large, the private sector takes care of its technology needs, but tends to be too myopic or conservative or unwilling to undertake certain activities with large public components. As an old vanguard of the mineral industry suggested (Faretta 1977), it may be useful if some entity continuously monitored, reviewed and published technological or technical changes taking place in various parts of the world. We may add, moreover, the need for studying the implications of such developments to the domestic scene. Researches to develop our own indigenous iron, chromium, and aluminum resources must be encouraged. Again, since researches are bred in the graduate school, at least one good quality school in the geological and mineral sciences must be developed. This will also facilitate the monitoring of new developments as well as technology transfer. Finally, since a lot of mineral and geological data are gathered by private firms, such data must be submitted to the proper government entity for compilation, collation, interpretation, and publication after a reasonable time. This will ensure the continuous and progressive growth of mineral and geological information without too much cost duplication. The data must be made accessible to interested investigators after a specified time. GLOBAL ECONOMICDEVELOPMENT

Developments in various parts of the world affect domestic industries. This is amply demonstrated by the account on the expansionary effect of increased gold prices on the domestic gold industry before World War II, followed by its subsequent decline during the 1950's, 1960's and early 1970's, due to the decline in the real price of gold. A similar dependence of the local industries on world events is indicated by the cases of copper, iron, ore, and chromite. It is therefore expedient to make systematic and continuing stu-

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dies of the markets for various minerals from our point of view. The domestic industry must always be viewed as part of the world picture. The nature and extent of topics pertinent to researck and policy are illustrated below. To remain competitive, the comparative advantage of the domestic mineral industry must be maintained. This requires know!edge about the movement of production costs and the factors affecting them. Specifically, mineral policies and taxation, as well as the costs of capital, labor, transportation, energy and environmental control, need to be studied. Access to market must also be carefully studied. Considering the various stages of production, alternative markets and the barriers that must be hurdled to effect trade must be analyzed. Terms obtainable from alternative markets must be evaluated so that the best may be availed of. The evolution of old and new markets must be analyzed to anticipate changes, mitigate their adverse effects, and amplify favorable ones. The effects of activities like joining a commodity agreement, a cartel, or stockpiling on the domestic economy must be carefully studied and evaluated. As domestic industrialization proceeds, its mineral requirements must be anticipated and alternative sources identified. In short, studies of the world markets for the minerals which we export or use, their supply, demand, prices, and availability, including forces that tend to distort market operation, must be made in the context of local conditions to develop policies that enhance or protect the country's interests. DOM_.STIC F.NVIRONM_.NT Crucial to the development of mineral policies are the perceptions about tho costs and benefits of the industry to national welfare, regardless of whether such perceptions are real or imagined, true or false. On the one hand, the role ot the industry as an important foreign exchange earner is universally acknowledged. This is reinforced by its contribution to government revenues, employment, and national product. Although less known, the industry also contributes significantly to rural or regional development. On the other hand, some groups think that the industry is pampered with tax exemptions and other incentives even while degrading the environment.

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It is also coupled with the belief, mainly false, that the industry is extremely lucrative and that its profits benefit only a few wealthy stockholders. These perceptions have led to the development of mineral policies which are replete with incentives countervailed by controversial taxes and rigorous environmental rules. Numerous issues and topics need to be investigated to arrive at a more rational mineral policy. Some of the topics are illustrated below. Given the characteristics of the mineral industry (which must be established first), what role can it do best towards national develop, merit? Granted that such a role is identified and pursued, what other national goals may be promoted? Having identified the optimal goal, what are the alternative strategies that may be used? Concerning the "balance" between environmental protection and development, research and debates must be done to establish where the desirable level must be, given our stage of development. We must determine the social costs (and benefits) of environmental control and decide how much we want to pay in terms of unemployment and taxes foregone, among others. We must ask, who benefits from certain environmental measures, the poor, the rich, the tourists, or Mother Nature? We must also investigate if the influx of literature, counsels and advices from developed countries serves to protect their comparative advantage vis-_i-vis developing Countries and at the same time makes the latter a market for their antipollution gadgets and technologies. How does a mining firm help in the development of the community where it is cited? How may the creative and desirable contributions be amplified without much-imposed requirements or regulations? How can the government harness the development energies in the mining f'trms to achieve regional development? How desirable or effective is the current requirement on the mining firms to develop nonmining industries? Regarding small miners, what role in the national plan do they play? In what ways can the government help them best? On matters of strategy, it may be useful to know under what situations direct regulation is preferable over market operation. INVESTMENTS

A prime problem of mining is where to get developmentfunds. The bulk of funds is mainly loans and partly equity from foreign sources. Domestic funds are secured from the stock market, govern-

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ment fmandal institutions and private banks, and other sources. A service contract arrangement was added to provide an additional venue for tapping foreign investments. There is a system of tax incentives which makes the mineral industry one of the "most awarded." However, in recent years the government has been exacting higher taxes during profitable years in the form of an ad valorem tax, an export tax, and a premium duty. To compound the situation, a series of laws and regulations have been passed which restrict the operations of mining firms and tend to increasecosts. Consequently, the investment situation in the mineral industry has become complex with many uncertainties which may arrest its growth in the future. Some issues and problems that may need further study are illustrated below. Considering the cost of government requirements and regulations, is the mineral industry still the favored one it used to be7 In the light of the principles reviewed in Part One, what should be considered a fair return on investments? If the mineral industry were treated like a public utility, would it continue to grow at the usual pace? What are the implications of reduced mineral production to national welfare? Given the ad valorem, export and premium taxes, what are their implications to mineral investments? How fair are these taxes? Are they not confiscatory? Considering the various tax incentives, by how much do they affect the value of a mine? With regard to the various requirements and regulations, it is important to evaluate their costs (benefits) both to the firm and society.

PRIORITIES In this final section we present a list of topics, problems, or issues which are considered important for the development of the mineral industry. By no means can we claim the list to be exhaustive, but in any case the problems identified flow from the analyses and disoassions in this paper. Conceivably, many others can be identified by going over the work (see Table 8).

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Teodoro M. Santos Table 8. Mineral Research or Pofiey Priorities Topic

Factor Endowment 1. Review or Revision of Certain Plans or Activities of Government to Suit the Need for Socio Economic Planning 2. A Study of the Need for a Geological Survey Separate from the Bureau of Mines 3. The Need for Improved Geological and Mineral Schools and Laboratories 4. The Need for a Strong Graduate School in the Geological and Mineral Sciences Technology 1. Monitoring and Reviewing of Technological and Technical Advances in Various Parts of the World and Analysis of Their Implications to Domestic Industry 2. Development of Technologies to Harness Certain Domestic Mineral Resources (e.g., Laterite) 3. Mechanism for Securing, Storing, Analyzing, Synthesizing and.Disseminating Mineral Data from the Private Sector Global Economic Environment 1. Comparative Study of Mineral Policies and Taxation 2. Study of Comparative Mineral Costs 3. Study of World Mineral Markets in the Context of' the Philippine Situation 4. Study of Alternative Mineral Markets Which May be Tapped for Philippine Exports or Imports 5. Study of Commodity Agreement, Cartel and Stockpiling of Certain Minerals and Their Possible Effects on the Domestic Industry Domestic Environment 1. Given the Characteristics of the Mineral Industry, What Role can It do Best to Promote National Development? 2. What Mineral Strategies May be Used to Pursue the Development Goals of Government? 3. What are the Social Costs and Benefits of Environmental Control Relative to Mining

Priority

4 2 1

3 5

2 1 2

1 2 1

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Table 8 (Continued) Topic 4. Where Should the Proper Balance Between Environmental Protection and Development Be? 5. Who Benefit from Environmental Protection More? Rich? Poor? Tourists? Mother Nature? 6. How Does Our Environmental Policy Affect Our Mineral Comparative Advantage? 7. How Does a Mining Firm Help in the Development of the Community Where it is Located? 8. How can the Government Harness the Development Energies in the Mining Firms to Achieve Regional Development? 9. What Role do Small Miners Play in National Development? How Can the Government Help them Best? I0. To What Extent, or Under What Conditions Should Direct Regulation be Preferred Over Market Mechanism? Investments 1. What Should be the Fair Rate of Return to Mining? 2. In the Light of the New Taxes and Regulations, How Favored is the Mineral Industry? 3. Given Ad Valorern, Export and Premium Taxes, What are Their Implications to Mineral Investments? How Fair are They? 4. How Do Incentives and Environmental Regulation Affect the Value of a Mine 5. What are the Effects of Banning Large Tracts of Land from Mineral Exploration, and Exploitation on Supply? 6. Considering the Efforts of Government to Help in Financing the Mineral Industry, Evaluate the Soundness of the Policy 7. What ate the Economic Characteristics of the Mineral Industry Which are Important to Policy (Elasticity of Supply, Economies of Scale, etc.)? 8. Study of How Environmental Regulation may be" lhternalized' in the Market Process 9. Trade-offs in Foreign Investments in MineralsPros and Cons 10. An Approach Towards a Single Profit TaxThe Equivalent of Percentage Taxes and Regulation

Priority

1 1 1 1 2

2 2

1 1

3 2 3 3

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Problems identified scarcity of information five, one has the highest

are prioritized on the in the area considered. priority

FOREIGN

basis of urgency and On a scale of one to

and five the lowest.

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Metalsand Minerals," Resources Policy (1978): 135-45. IMF. "Fall Off in Venezuelan Petroleum Production Offsets British Activity in Other Areas," IMF Survey (February 1973):62.63. Jacobsen, J.B.E. "Copper Deposits in Time and Space," Mineral Science and Engineering_ 7 (1975): 337-77. Johnson, Charles J. "Cartels in Minerals and Metals," Mining Congress Journal 62 (1976): 30-34. Jorge, Elias Victor. "Sources of Economic Growth in Latin American Countries," Review of Economics and Statistics 60 (1978). King, R.W.L. "A Review of Commonwealth Incentives and Encouragement for the Australian Mineral Industry." Seminar on Mining Legislation and Admi. nistration, 16-23 October 1969. Manila: ECAFE, 1969. Kneese, Alien V. "Natural Resources Policy, 1975-1985," Journal of Environ. mental Economics and Management 3 (1976): 253-88. Kasumaatmadsa, Mochtar. Survey of Indonesian Economic Law. Bandung: Cibantar Press 1974. La Riva, Anibal. "The Iron and Steel Industry of Latin America." Master's thesis, Department of Mineral Economics, Pennsylvania State University, 1974. Major, Robert L., "The Role of the Middleman in the International Mineral Raw Material Trade." Master's thesis, Department of Mineral Economics, Pennsylvania State University, 1965. Malenbaum, Wilfred. "Metals for Man's Survival," Mining Congress Journal 61 (1975): 46-48. Manners, Gerald. "The Future Markets For Minerals," Resourees Policy (1978): 100-105. The Changing World Market for Iron Ore 1950-1980, An Economic Geography. Baltimore: Published for Resources for the Future, Inc., Johns Hopkins Press, 1971. MeCaskfll, J.C. "Minerals and International Trade." In Economics of the Mineral Industries, edited by W. Vogely. 3rd ed., New York: A.I.M.E., 1976. McGregor, Ian. "Natural Distribution of Metals and Some Economic Effects," The Annals of the Academy of Political and Social Sciences 420 (1975): 32-44. Mckelveyl V.W. "Mineral Resource Estimates and Public Policy," American Scientist 60 (1972): 32-40. McMahon, A.D. Copper, A Materials Survey. U.S. Department of Interior, Bureau of Mines' Information Circular 8225. Washington, D.C.: Government Printing Office, 1965. Meadows, Donella et al. The Limits to Growth. New York: Universe Books, 1972. McKinstry, Hugh. Mining Geology. New York: Prentice Hall, 1948. Mtkesell, Raymond F. and Associates. Foreign Investment in the Petroleum

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Stewardson, B. R. "The Nature of Competition in the World Market for Defined Copper," Economic Record (1970). Stiglitz, Joseph. "Growth in Exhaustible Natural Resources: The Competitive Economy," Review of Economic Studies (Special Issue) (1974). Tilton, John E. "Understanding Material Substitution," Earth and Mineral Science Bulletin 48 (1979): 49, 52-54. . The Future of NonFuel Minerals. Washington, D.C.: The Brookings Institutions, 1977. . "Prospects for International Cooperation in Critical Materials: The Case of International Commodity Agreements." Mimeographed. Department of Mineral Economies, Pennsylvania State University, 1975. . "The Growing Concern Over Metal Raw Materials." Mimeographed. Department of Mineral Economics, Pennsylvania State University, 1974. Toombs, R.B., and Andrews, P.W. "Minerals and Modem Industrial Economics." In Economies of the Mineral Industry, edited by W. A. Vogely. New York: A.I.M.E., 1976. Tucker, Edwin W. Legal Regulation of the Environment: Text, Cases.and ProbIctus. St. Paul Minnesota: West Publishing Company, 1972. United Nations, Non-Ferrous Metals: Copper, Aluminum, Tin, Lead and Zinc. (A Survey of Their Production and Potential in Developing Countries). New York: United Nations, 1972. U.N. Department of Economic and Social Affairs. Natural Resources of Developing Countries: Investigation, Development and Rational Utilization. New York: United Nations, 1970. United Nations Department of Economic and Social Affairs. Mineral Resources Development with Particular Reference To the Developing Countries. New York: United Nations, 1970a. United Nations Department of Economic and Social Affairs. Survey of Iron Ore Resources: Occurrence and Appraisal. New York: United Nations, 1970b. United Nations. The World Market for Iron Ore. New YorK: United Nations, 1968. Wodd Trade in Steel and Steel Demand in Developing Countries. New York_ United Nations, 1967. United Nations. Economic Aspects of Iron-Ore Preparation. Geneva: United Nations, 1966. . Survey of World Iron-Ore Resources: Occurrence, Appraisal, and Use. NewYork: United Nations, 1955. United States National Academy of Science and National Science Foundation, Committee on Resources and Man, Resources anclMan. San Francisco: W.H. Freeman and Company, 1969. Vousden, Neff. "Basic Theoretical Issues of Resource Depletion," Journal of Economic Theory; VI (1973): 126-43.

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Foreign Direct Investment Philippines:

Charles

in the

A Review of the Literature

W. Lindsey

and Ernesto

Valencia

I. INTRODUCTION This is a review of the literature on foreign direct investment in the Philippines since independence. This demarcation is appropriate inaSmuch as the difference in the sectoral pattetn of foreign investment in the pre- and the postindependence periods, especially following the imposition of exchange and import .controls in 1949, is quite large (Columbia University 1958, pp. 146-47). In the latter period, the greatest proportion of investment by noncitizens has been in manufacturing; therefore, we will primarily be concerned with this sector of the economy. During the past 30 years direct foreign investment, other than by Chinese nationals, has been virtually synonymous with investment by transnational corporations (TNC's). We will use the terms almost *Assistant Professor,Trinity College, Hartford, Connecticut, and Instructor, School of Economics, University of the Philippines, respectively.Tbe research was largely carried out while Lindsey was Visiting Associate Professor at the School of Economics. Arnold Oliva, Teofflo Pilando, Jr., and Jose Raymund Vergarawereresearchassistants their efforts areappreciated. The views expressed in this study are those of the authors and do not necessarilyreflect those of the Institute.

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interchangeably. Also, we do not feel that there is any useful distinction between the terms "transnational" and "multinational." Our preference is for the former, but we also use the latter on occasion. In this century, at least prior to the decade of the 1970's, Americans and Chinese were the dominant non-Filipino owners of productive assets in the Philippines. Although the Chinese presence in the economy has figured prominently in discussions concerning the extent or the desirability of Filipino control of various sectors of the economy, particularly in the early postindependence period, the issue usually has been considered a subject separate from that of foreign investment. The latter has focused more on the actions of Americans, Europeans, and Japanese. We will follow this pattern; Chinese investments will be referred to only in passing. Neither will we be concerned with foreign investment in the form of loans, either public or private. The reason is not so much that investments of this type are unimportant; quite the contrary, particularly in recent years. Rather it is that the subject has not received substantial treatment in the literature. In addition_ different questions may be raised about loans and equity investments. Therefore, we will concentrate on the latter. We attempt to cover as much of the literature as possible, that written both in the Philippines and abroad. We consulted library catalogues of major universities and relevant government offices in the Metro Manila area, indexes of the various social science disciplines, dissertation abstracts, and the Philippine Index of Periocticals. Reference was made to the bibliography by Pascua (1978)and to the work of others who have previously reviewed parts of the literature on foreign investment in the Philippines. This includes Espiritu (1977), Magallona (1977), Stauffer (1979), Subido (1975), Suva Martin (1972), and Tsuda et al. (1978). We find that there is a quite sizable amount of writing on foreign direct investment in the Philippines, ranging from academic inquiry to political debate to speeches for business groups. There is no easy rule to follow in deciding what to and what not to include. Facts and arguments that we feel arerelevant to our purpose at times appeared in pieces that otherwise would not be considered serious work. But judgment has to be exercised. We include those items that can be classified as broadly economic in nature, that introduce new data or information or present new or different analysis, and

ForeignDirectInvestment in thePhilippines

155

that use a historical or analytical approach. Works of widely varying quality and sophistication are mentioned. We tried to be catholic, but our biases no doubt intrude. For this we apologize. As it is, however, we include somewhat over one-third of our initial bibliography (copies of which can be supplied to interested persons upon request). The topics we cover are taken up separately in benefit/cost fashion; however, on occasion we go beyond this segmented approach and touch on more encompassing issues. We normally do not examine a particular author's work as such, but rather extract the data, facts, and conclusions that are pertinent to the particular issue under consideration. In a few places,.however, we do critically examine the theoretical and analytical argument presented. We have attempted to, present the state of knowledge on the subject as it is currently in the Philippines. We cover considerable ground, but the reader should be aware that there are few areas in which the results appear incontrovertible. If only those pieces were included in which the author presented sufficient data and argument to prove his or her point beyond dispute, the bibliography would indeed be very short. Many of the conclusions presented are open to doubt; we question some of them in the review ourselves. We encourage others to do likewise, hopefully improving on the quantity and quality of both the data and the discussion. Lastly, we should mention that almost all the papers, articles, and books included in this survey deal specifially with the Philippines (at least the chapters or section to which we refer). A major exception are the monographs of Thomas Allen, which cover all of Southeast Asia. Inasmuch as his study was commissioned by the Philippine government's Inter-Agency Working Group as part of its investigation of foreign investment in the Philippines, we feel it is relevant to this review. II. ATTITUDES,POLICY,AND REGULATION There are at least three reasons why studies on foreign investment in the Philippines are important. First, both historically and currently, foreign investment has been of sufficient importance in the economy to have an impact upon the pace and pattern of the country's development. This we take up in the next section. Second, Filipinos perceive foreign investment to be significant and, consequently,

156

Charles W. Lindsey & Ernesto M. Valencia

hold strong views on whether its presence is desirable or not. And third, the policy of the national government has, with variations, been encouraging of foreign investment since independence. We now take up the second and third points. Economic nationalism traditionally has been an important ingredient of the intellectual and political climate of Philippine society. Since independence there has been a rapid Filipinization of much of the economy. Writing summarizes this movement.

a decade

and

a half

ago,

Golay

Equally remarkable has been the rapid Filipinization of allmajor economic se,ctors, hnporting, other than industrial raw materials and equipment for direct use, was steadily diverted to Filipino enterprises by import controls. Export production, with the exceptions of mining, where foreign capital and management are still prominent, and the production and processing of pineapples and manufacture of desiccated coconut by American-owned enterprises, today is substantially in Filipino hands. Internal commerce, with the major exceptions of the ubiquitous international oil distributing firms, is dominated by Filipino ownership and management and heavy nationalist pressures are being maintained on the remaining Chinese and Western interests. Retail trade and trade in rice and corn, long dominated by the Chinese; have been reserved by law to â&#x20AC;˘ Filipinos and substitute Filipino marketing structures apparently have materialized with little dislocation. Similarly public utility services, including internal transport and communications, are today essentially Filipino-owned and managed. Finally the postwar period has seen the emergence, with government encouragement and subsidization, of a complex structure of money and capital market institutions owned and controlled by Filipinos (1966, pp. 103.104; underscoring supplied). There have been changes since the mid-1960's, but with the possible exception of the financial sector, it would be difficult to argue with what Golay has written. It should be noted, however, that no mention is made of manufacturing. Elsewhere, Golay specifically exempts manufacturing as an area being closed off to noncitizens. The reason is that "Filipinos generally - elites as well as the 'man in thestreet' - have avowed persistently that foreign capital is necessary if economic development and expansion in employment opportunities are to keep pace with the growth in population" (1969, p. 64). If by Filipinization one means the exclusion of non-Filipinos, then we would have to question Golay's thesis that "all major economic sectors" have become Filipinized. Those he excepted mining, pineapple production and processing, petroleum, and manufacturing - are not unimportant areas of the economy. In fact, they are at the center of both discussion and policy in the area of eco-

Foreign Direct investment in the Philippines nomic foreign Gleek

development. For that reason investment has been controversial. articulates

a view that

is not

the

157

continued

limited

presence

to foreign

observers.

The influence of the American-owned firm has historically been profoundly democratic in its hiring, training and advancement policies; in its emphasis on the importance of building a mass market; in its promotion of the spread of ownership (of either the local or parent company). This thrust was in the early years invested with heavily ideological content, but as time went on, its chief motivation was rationally based on visions of economic development and the broader markets it generates. Whether we think of Philippine Bducation, with the impetus it gave to education, the early Meraleo and its extension of mass transit, the bus and embroidery pioneers, the exploration of mineral resources, consumer goods manufacturing, or the media industry - all participating American firms spread education and income, in ways favorable to economic development (1975, p. 178). Those holding contrary views - and they are not of one mind often question the efficacy, if not of capitalism in general, at least of its unregulated operation at the world level on the economic development of the Philippines. The dominant institution of international capitalism, the transnational corporation, receives particular â&#x20AC;˘scrutiny. Constantino, for example, questions the benefit of TNC-Ied industrialization. Instead of economic development which will benefit the people, there results a distorted development not responsive to the people's needs but profitable to the global enterprises. Instead of using its own resources for its own people, such a country is drained of its natural riches in exchange for a pittance in the form of temporarily higher employment levels and the chimera of technological know-how. For precisely, to assure the perpetuation of the captured country's dependence which is the basis for their own profits, the global enterprises will impart only such technology as suits their purposes (1978, p. 123). MagaUona,

the

other

hand,

is more

fluence of TNC's on national decision-making. one of "national economic security."

concerned The

with issue

the

in-

to him is

The key factor in the problem is the foreign ownership or control which the TNCs hold in the country's means o[ production and distribution. Such form of domination shifts the whole fulcrum of the national economy, from the collective interest of the broadest ranks of the population in their own independent social progress and economic development, to the demands of global profit maximization of the TNCs... â&#x20AC;˘.. the government is likely to equate the development process with the profit strategy of the TNCs, whose dominant position in the economy creates further

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conditions for the government to reinforce their presence as a prerequisite to economic stability (1977, p. 122, underscoring in the original). Lichauco brings in the role of the international agencies in establishing policies that are conducive to the internationalization of the economic life Of the Philippines. He argues that the four basic policies that are deemed essential from the international perspective are harmful to the -national economy. These include keeping the economy open to international trade and capital, encouraging foreign investment, adhering to monetary and fiscal austerity, and using devaluation as the remedy to balance of payments difficulties (1973, pp. 21-23). Recently, Stauffer conducted what he calls an interview-dialogue with 26 informed individuals on the subject of TNC's in the Philippines: academics, people in the government agencies dealing with TNC's, and representatives of the business community (1.979, pp. 16-36). He attempts to summarize the views, of those generally in favor of foreign investment and those who are largely critical. On the pro side, the following comments weremade: (1) there is little choice other than to have TNC â&#x20AC;˘investment; (2) critics of TNC's are fighting modernization and the need for industry, discipline, order, and rationalization; (3) TNC's help the Philippines in terms of better production, exports, skill development, healthy competition, .encouragement of small and medium scale business, and â&#x20AC;˘(continuous) technology inflow; â&#x20AC;˘(4) there is no need for local R & D, although the presence of TNC's reduces attempts at selfreliance; ' and (5) the TNC's are needed for access to world markets and world brand names (pp. 35-39). The critics also made several points: (1) the Philippines could have gone for independent industrialization in the early 1970's; (2) TNC's kill off the national bourgeoisie, get the best brains, and have close relations (along with other large corporations) with Philippine government agencies;(3) foreign governments intervene in Philippine affairs on behalf of TNC's; (4) TNC's have "national styles" (the Japanese are more aggressive than the Americans); (5) TNC'S hurt small business and create a belief in the superiority of foreign products; and lastly, (6) some business people feel that they can compete with TNC's (pp. 39-42). In reviewing a portion of the recent literature on foreign investment in the Philippines, Stauffer points out that much of it has been critical. He explains why this is the case. "The 'other side' to the

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debate, of course, exists in the established policies of the government's development program and the overarching 'business culture' that permeates society... "(1979, p. 52). The need to lay out a larger vision, much less .to subject it to scrutiny, is, one suspects, not deemed necessary by the proponents of foreign investment. The views of government officials are of particular importance. The policies they enact and the regulations they enforce have considerable impact on the economy. Both success and failure in the development process of the Philippines has been laid at their door. One reason is that the government is a major actor in the economy. In addition, the "business culture" of which Stauffer speaks does not include laissez-faire as a tenet. One of the earlier postindependence works on foreign investment in the Philippines described Philippine enterprise in the following way: When the American business community in the Philippines uses the term "free enterprise," it is thinking of the same institutional set-up their counterparts in the United States are concerned with. When, on the other hand, Filipino businessmentalk of "free enterprise," they appear to think of a "private" rather than of a "free" enterpriseeconomy. In other words, while they are, as a rule, opposed to direct governmentactivities in businessundertakings, except perhaps when the governmentis satisfied with the role ot_a junior partner, they yet clamor for government protection, subsidies,incentives, and discrimination (mostly against "Miens") to an extent to which appears more representative of a "corporate state" rather than of a capitalist free enterprise economy (Columbia University 1958, p. 92). Leaving aside the authors' view of American "free enterprise,'" it remains true that there is considerable involvement by the Philippine government ha the economy, including those parts in which foreigners invest. Cagampang-de Castro (1977) provides a detailed examination of the legal framework surrounding private foreign investment. One chapter examines the impact of Philippine nationalism on law and regulation; anotherdealswith foreignenterprise doingbusiness in thePhilippines, discussing def'mitions, capacityto sueand be sued,legal jurisdiction, formsof business, and mechanics of controlof decision-making in the corporateform of business; and a thirdchapterfocuseson specificregulations and legal problemsthatarisefrom a transnational corporation operating ina developing economy. Bacufigan(1978)has put together a collection of articles on the regulation ofTNC's.The first halfofhiscollection, extracted from Tsuda etal.(I978),presents a historical overviewof foreigninvest-

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ment in the Philippines as well as a considerable amount of data. Then, there are sections on the regulatory powers of government agencies over TNC's: the Central Bank, Board of Investments, National Economic and Development Authority, and the Securities and Exchange Commission. The volume ends with a "critical appraisal" section on the need to regulate TNC's. The United Nations Joint CTC/ESCAP Unit on Transnational Corporations Working Paper No. 11 (1980) is a summary of the Bacungan collection. Robinson includes a chapter on the Philippines in his Study of the regulation of entry of foreign investment in 15 countries. The Philippines, according to the author, "has the most complex em_" control system in the world" (1976, p. xix). The very complexity of the system imates criticism. Indeed, members of the [Board of Investments] staff admitted that they themselves did not have a full understanding of all laws, regulations, and procedures, One suspects-that, given this complexity, almost any project (assuming that foreign ownership be held with the appropriate limits) could be justified on'some basis (p. 150). Other articles describing government policy towards foreign investment and the relevant legal considerations include Allen (1973a, 1.973b, 1973c, 1974), Bautista (1979), Canlas (1977), Draper (1974), and Virata (1972a). Allen (1974) and Draper have undertaken comparative discussions of foreign investment policies of ASEAN member governments. In addition, Allen lists suggestions made by Japanese and American investors whom he interviewed as to what policies they would like to see implemented in Southeast Asia (1973, pp. 43-44; 1973b, p. 40). After pointing out that there is control over the entry of foreign investment in the Philippines, Virata makes a rather controversial statement: "Once the business is established, the companies, whether foreign or owned by Filipinos, operate on equal footing" 1972a, p. 262). Golay argues that, on the contrary, the implementation of exchange and import controls in the 1950's and the judicial interpretation of the Retail Natiotmlization Law, to cite two examples, resulted in Filipino businesses receiving favored treatment (1969, pp. 61, 68). Henares agrees with Golay that government policy was not neutral during the period of import and exchange controls, but he disagrees on who the beneficiaries were. He gives examples to buttress his positio'n that in spite of a Filipino first policy by the Central Bank, foreigners were able to get foreign exchange "to preempt the most profitable business opportunities in the country." (1979a, p. 147).

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The termination of the Laurel-Langley Agreement on 4 July 1974 brought to an end an American imposed provision whereby the Philippine government agreed to accord citizens of the United States national treatment in engaging in certain economic activities. The discussions arid. negotiations surrounding the adjustments in the status of Americans, particularly the legal problems of divestment of land ownership, are examined by Landes and Landes (1977). The authors give two estimates of the amount of land to Ire divested: 3,550 hectares as of 1972 and 2,648 hectares as of 1974. They. identify 117 U.S. firms that are affected by the end of the "parity" agreement. By mid-1976, 84 of these firms had complied with the new legal situation, while 26 had not (leaving seven unaccounted for) (II, pp. 208-10). Relevant Supreme Court rulings, the political climate of the time, government policies, and private sector views are discussed in chapter III. In chapter IV the actqal process of divestment is described. Three options were available, each involving either sale or donation of the 'affected land or other assets. One entails no further interest in the property; another, a lease-back arrangement, and the third, the creation of a holding company with lease_back. Transferees include government agencies, charitable organizations, and "friendly" firms, on the one hand, and employees' pension funds, on the other (IV, pp. 137-41). Criteria in three parts are put forward by Landes and Landes to examine the vaiious divestment mechanisms: "bona .fide absolute transfer of property ownership, qualifications of transferee [i.e., transferee is a Filipino citizen], and minimization of the financing required for transfer [to avoid disruption of financial markets]" (IV, p. 137). The authors question whether or not those transfers that involved pension funds meet the bona .fMe requirement (IV, (pp. 143-44). They conclude that the change that took place with the expiration of the Laurel-Langley Agreement "did not take [the] form of either [a] mass exodus of US investors or the state escheat of US business or land holdings by [the] Philippine government. It seems then that, without resorting to these radical means by either side, both parties succeeded to gain [sic] what they wanted from the change" (IV, p. 147). Nevertheless, they go on to note that the rental on the lease-backed lands was often less than 2 per cent oftheirvalue, reflecting "the relatively weak position of the Philippine government,

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which has chosen deliberately to minimize [needed] for divestment" (IV, .pp. 148-49).

necessary

finance

III. SIZE OF FOREIGNINVESTMENTIN THEPHILIPPINES The importance of equity investment by noncitizens has been a central issue in the literature. In this section we look at the relevant statistics. Although there is more to the question of significance or importance than the data reviewed here, quantitative information is basic to the discussion. In addition, most of the contributions have not gone beyond looking at the numbers involved. A major Preindependence discussion of the size of foreign investment in the Philippines is that of Callis (1942; see also 1943). His primary source of information was a survey by the United States Tariff Commission (1937); see also 1931), although additional references were cited, particularly for non-American investment. Data on American investment during this period can be obtained from publications of the United States Department of Commerce. Callis considered the Tariff Commission data preferable because it (1) was based on the appraised value of assets rather than on book value and (2)included investments of American residents in the Philippines, a significant component of investment by U.S. citizens in the Philippines at that time (p. 12). Other estimates ofpreindependence foreign investment data can be found in Philippines, Technical Committee (1944) and Inamura (i978). For discussions of the data in addition to that of Callis, see Golay (1966), Landes and Landes (1977), Subido (1975), Suva Martin (1972), and Tsuda et al. (1978). Since 1948, major sources of statistics have included the Economic Census of the Philippines for the years 1948 and 1961 (Philippines, Bureau o_ the Census and Statistics 1953, 1965), the "Study of Private Foreign Investments in the Philippines: Interim Report" (Philippines, Inter,Agency Working Group 1972c; see also 1972b), and the Survey of Current Business and other publications of the United States Department of Commerce (1955, 1960, and no date). Itchon (1958) cites data published by the Securities and Exchange Commission on newly registered firms, as well as information collected by the Central Bank on firms engaging in foreign exchange transactions in 1956. Bantegui (1965) gathered statistics for the period 1956-65 on 108 American firms out of the 157 registered in

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the Philippines at that time, and Poblador (1971) collected data for 1964 and 1965 on corporations with assets of at least PI.0 million. Valdepe_as (1970) gives as one of his data sources the "Survey of Foreign Participation in Philippine Industry," wh_h is a report of the Industry Survey Committee (Department of Commerco and Industry, Bureau of the Census and Statistics, and Securities and Exchange Commission) released in March 1967. The U.S. Department of Commerce statistics have the advantage of being a series so that changes over time can be observed. During most of the twentieth century, when American investments formed the bulk of non-Chinese, foreign investment in the Philippines, the pattern of U.S. investment was often used as a proxy for the total. However, as investments by Japanese finns became a larger part of the total, reliance on American data became increasingly inadequate. Statistical information from Japan should be accessed. See the discussion in Tsuda (1978, p. 3). Since 1968, Business Day has been publishingyearly lists of the 1,000 largest nonfinancial corporations in the economy. In some years (e.g., the issue for 1974), the publication included articles which identified subsidiaries of transnational corporations. Those included are usually wholly owned; therefore, the lists should not be considered comprehensive. For several years in the 1960's the Business Review (University of the East) compiled lists of the 100 and 150 largest firms in the economy (see the August issues beginning in 1963 and the one for December 1963). Both the Business Day and the Business Review publications have been used by researchers to identify foreign investment among the larger firms in the economy. Yoshihara (1971a, 1971b, 1971c, and 1971d), for example, gathered information on ownership for large firms listed in Business Day's 1,000 Largest Corporations, 1968. Tsuda et al. (1978) and McDougald (1981) attempt to establish the population of firms with foreign-owned equity as well as the smaller group of fh'ms with equity investments by TNC's. A quick glance is sufficient to see that the two lists are not the same. In addition to the two-year difference in time periods in which ownership information was collected, the discrepancy is no doubt attributable to the difficulty in establishing the larger population from which firms with foreign-equity are to be selected, as well as in obtaining the correct ownership information from the Securities and Exchange Commission or other sources. A related problem is

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that of identifying the nationality of the ultimate owner. For example, if firm X and firm Y are both incorporated in the Philippines, with 51 per cent of firm X owned by finn Y and 51 per cent of term Y owned by noneitizens (the remaining 49 per cent being owned by Filipinos in both cases), is firm X to be considered foreignowned? Poblador (1971, p. 5), Lindsey (1976, pp. 134-35), and Cagampang-de Castro (1977, pp. 74-77) discuss this question. In recent studies of foreign investment in the Philippines, the terms foreign investor and transnational (or multinational) corporation have been used almost interchangeably. Some have provided deftnitions of TNC's, but most have not. Villegas et al. provide criteria in three parts and claim to have used them to identify TNC's among the 1,000 largest firms in the country in 1975 (1977, p. 33). However, their sample appears to be limited to those TNC's listed in the 1974 issue of Business Day's 1,000 Largest Corportions for which information is included in the 1975 issue of that publication. Questions of. quality of data, comparability or-data sources, coverage, types of assets to be included, and percentage of equity participation necessary for control or substantial influence, with a few major exceptions that we will refer to in the course of this review, have not been major topics of discussion in studies on foreign investment. The reader should bear this in mind as we briefly look at the statistics that have been presented in'the literature. Callis reports American investment in the Philippines at U.S.$200 million in 1935, 80 per cent of which was direct investment. It was "considerably below British investments in Malaya or Dutch investments in Netherlands India." Nevertheless, the U.S. was by far the largest investor in the Philippines, comprising about 50 per cent of direct foreign investment (40 per cent if estimates of resident Chinese are included) (1942, pp. 12-13, 22). Statistics presented by Inamura for the same year list the Americantotal at a slightly higher figure than that given by Callis; but inasmuch as he includes Filipino as well as foreign ownership, the American share remains at the 50 per cent level. Interestingly, the proportions which Inamura reports to be owned by Filipinos (14.5 per cent) and Spanish (6.7 per cent) sum to approximately the proportion Callis attributes to the Spanish (22 per cent) (1978, p. 39). No doubt there were substantial difficulties in assigning nationality. U.S. Department of Commerce figures are much lower than those presented by Callis and Inamura: U.S.$92 million in 1936. At the

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end of the postwar recovery period, 1950, the Department estimated American investments in the Philippines at U:S.$149 million. By 1960 it was U.S.$414 million, or almost triple the 1950 figure. In 1970 it was U.S.$640 million, and by 1979 it had increased to U.S.$1,317 million (Tsuda et al. 1978, III, p. 31; Survey of Current Business August 1980, p. 27). If anything, the share of foreign investment owned by U.S. citizens has become even more â&#x20AC;˘significant than it was in the mid-1930's. In 1970 it was estimated that almost 80 per cent of foreign-owned equity among 900 of the largest 1,000 firms in the economy was American (Philippines, Inter-Agency 1972a, p. 16). On the basis of the aggregate statistics, however, the Philippines has not in the past nor does it currently loom large in the overall foreign investment of the United States. This point is stressed by Golay (1980). The investments are no doubt very important to individual U.S. citizens and firms, but not to the group of foreign investors as a whole. If there are specific areas of investment that are in some sense crucial or strategic to the United States, we have not seen the ease made. Landes and Landes (1977, II, p. 184) calculate the portion of U.S. overseas investment located in the Philippines for selected years since 1929 as varying between 0.6 and 1.3 per cent, with a declining â&#x20AC;˘trend. Callis (1942, pp. 10-11) cites the following reasons for these low figures during the colonial and commonwealth periods: (1) American proximity to the raw producing areas of Canada and tropical Central America.; (2) the lack of special incentives offered to Americans investing in the Philippines; (3) restrictive land holding laws; (4) problems of double taxation; and (5) knowledge that the United States might withdraw from the Philippines. On the other hand, prior to independence there is little question that foreign investment was a significant force in the Philippines. Inamura sets the share of Filipinos in ownership of other than agricultural lands and real estate in 1935 at less than 15 per cent of the total. Golay (1980), on the other hand, places the American share of Philippine capital stock other than in agricultural lands in the mid-1930's at 22.3 per cent. If, as Callis argues, the Americans controlled about one-half of foreign investments, the portion of the total owned by Filipinos would be approximately 55 per cent. Although the foreign portion implied4n Golay's calculations is much smaller than Inamura suggests, it is still quite substantial.

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The Economic Cerrsus of the Philippines, 1948 reports that Filipinos controlled 52 per cent of the total assets in the seven nonfinancial sectors of the economy in that year. Foreigners owned the majority of assets, however, in four of the seven sectors: electricity (82 per cent), mining (58 pe r cent), commerce (54 per cent), and manufacturing (51 per cent) (Columbia University 1958, p. 51). Since 1948, the issue has not been so clear. Overall, the share of productive assets owned by noncitizens has decreased. Surapath (1965, p. 78) calculates that Americans' share in the assets of the 150 largest industrial and commercial firms in 1963 was 30 per cent, and that their equity share was 35 per cent. The Inter-Agency Working Group estimates noncitizens' share of the equity of 900 of the 1,000 largest finns in 1970 (Philippines, Inter-Agency 1972c, _J. 16) to be 40 per cent. If smaller economic units are included, no doubt the foreign controlled proportion would be even smaller. In addition, there has been a shift in the sectoral location of foreign investment. Almost 80 per cent of U.S. direct investment in the Philippines as of 1935 was in mining (23 per cent), public Utilities (20 per cent), sugar centrals (1.4 per cent), plantations (12 per cent), and merchandising (11 per cent) (Callis 1942, p. 17). The investments of other major foreign participants in the preindependence period were in commerce and finance (Chinese, British), abaca plantations and base metal mining (Japanese), and gold and silver mining and tobacco (Spanish) (U.S., Department of Commerce 1955, pp.. 7-8). In the post-World War II period, however, manufacturing has become the principal recipient of foreign investment. In their study, Tsuda et al. (I 978, II, pp. 26-27) found that manufacturing accotmted for 56 per cent of total foreign investment in the mid-1970'S, with t'mance and insurance, mining and quarrying, and trade accounting for between 12 and 14 per cent each. The Inter-Agency Working Group found very nearly thesame distribution for 1970 (1972c, p. 21). If attention is restricted to the larger f'trrns in the economy, the relative importance of foreign investment increases. For example, Poblad0r (1971, pp. 22 and 39) reports that in 1965 Filipinos owned 83.6 per cent of the equity of firms in the nonfinancial sector of the economy with net adjusted assets of between 짜1.0 million and t_10.0 million. However, the proportion was significantly less 60.2 per cent - for firms with assets of at least t_10.0 million. The proportion was further reduced to 57.2 per cent for the group of

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firms among'the 100 largest. Lindsey (1976, p. 136) finds a similar pattern in the ownership of manufacturing firms in 1970. Among the 5 or 10 largest firms, approximately one-half of the firm assets are owned by noncitizens, but for the 60 or 100 largest, the proportion,is less than 40 per cent. Foreign investment is not evenly spread in the economy as we haveseen. Nor is it equally distributed among the manufacturing industries; its importance is greater in some than in others. Using data from the Economic Census of the Philippines, 1961, Valdepefias (1970, pp. 549-50) looks at the percentage of output attributable to foreign-owned fn'ms (defined to be firms with less than 60 per cent Filipino-owned equity). At the two-digit ISIC level of aggregation, in only four manufacturing ,f'u-ms is more than 50 per cent of total output in 1961 attributable to foreign firms: metal products (52 per cent), rubber products (58 per cent), chemicals and chemical products (69 per cent), and petroleum (100 per cent). Restricting his analysis to larger firms, Lindsey (1976, p. 141) finds foreign participation somewhat greater than did Valdepefias: in eight of 20 two-digit ISIC manufacturing industries at least 40 per cent of the assets of fn-rns which are among the 100 largest is foreign-owned. Magallona (1977, p. 109) also argues that foreign participation is significant in _veral industries. After examining the industrial location of TNC's as presented in Business Day's 1,000 Largest Corporations, 1974, he makes the following observation: "Out of 15 industry lines in the manufacturing sector where TNC's are strong, they enjoy virtual monopoly in four, dominate four others, and are prominent in all other lines." Villegas et al. (1977, pp. 39-40), using the 1975 issue of the Business Day publication, arrive at a similar conclusion. The 85 TNC's in their study can be placed under 22 industries at the threedigit level of classification. In nine of these idnustries, the TNC-affiliated firms account for more than 50 per cent of the total assets for firms among the 1,000 largest. This leads the authors to speak of the "overwhelming presence" of TNC's. Summarizing, we find that the dominant position of foreign investment that existed prior to independence has been reduced substantially. Filipinization, at least in some sectors of the economy, is surely a reality. Nevertheless, foreign participation in the economy

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cannot be viewed as quantitatively unimportant. This is particularly the case if one's attention is restricted to the larger economic units. There has been a shift in the sectoral composition of foreign investment, with manufacturing becoming the major recipient of foreignowned equity. Within manufacturing, foreign investment appears concentrated in certain industries, and in those industries foreign control looms large. The significance of the pattern or evolution of foreign participation has not been addressed in this section. Here we have simply presented data. The quantitative information has a bearing on such significance, but the latter is a much larger issue. We shall take up the topic prior to concluding this review. Now we turn to more narrowly defined issues under the rubric of determinants of foreign investment and benefit/cost analysis. IV. FACTORSAFFECTING THE DECISIONTO INVEST The decision-making process of investing firms, particularly the transnationals, is complex; no one reason can be singled out. At times, global considerations dominated. One American executive put it this way: After we consolidated our markets in the United States, we turned to Canada and South America. When We consolidated our market and facilities there, we turned to Europe. Wehave now consolidated our market and facilitiesin Europe, and we will now turn to the developing countries of Asia and Africa (quoted in Allen 1973b, p. 4). A Japanese investigator described practices of firms from his country in the postwar period until the mid-1970's as going into "enterprises which assured Japan of a steady or sustained supply of natural resources" (Inamura !978, p. 55). The concern with natural resources also played a role in early American investment in the Philippines. In the past, external forces representedby needs of the United Stat_s for basic raw materials were clearly a major factor influencing the characterof the bulk of foreign investment and the timing of such ventures. The development of sugar and coconut production, for example, came when there was a high demandfor these products (U.S. Department of Commerce 1955, p. 9)_ Alien (1973a, 1973b, 1973c) and Lindsey (1981a) utilize the interview and questionnaire approach in an attempt to gain an understanding of the determinants of recent foreign investment. Both f'md

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thedomestic market (its size and growth potential) to be the major consideration of investors. Japanese respondents in Allen's survey list raw materials as the second most important factor, while the Americans are more concerned about acquiring a low-cost base to manufacture for export. According to Allen .(1973a, pp. 11 and 20; 1973b, pp. 14-17) this latter factor will become more important in the future in Japanese decision-making. The managers interviewed by Lindsey (1981a, pp. 10-12), on the other hand, mention tariffs and other trade restrictions as the second most important consideration in their firms' decision to invest. Third in the list of determinants are factors concerned with labor, both its cost and its skill. Allen differentiates between reasons for investing and conduciveness of the investment climate. Political and economic stability is at the top of the list; without stability the respondents say they would "definitely not invest." There is also a general concern expressed for access to foreign exchange. Beyond these two considerations the Japanese appear to be more interested in the stability of the labor force, good joint venture partners, and access to local finance. On the other hand, lack of restrictions on equity participation and adequate support facilities are mentioned by Americans as being important. Allen asked his respondents what policies they would like to see the Southeast Asian governments implement. He ends his monographs by summarizing the views (1973a, pp. 16-18; 1973b, p. 19). Inamura also mentions political stability as a major concern of the Japanese. In addition, he notes the importance of the termination of the Laurel-Langley Agreement and the ratification of the Japan-Philippine Treaty of Amity, Commerce, and Navigation (1978, pp. 55-57). Other authors, including government officials, mention in passing both reasons for investing and the political and economic climate. The chapter by Stikker (1971) in the Asian Development Bank volume Southeast A sia _ Economy in the 1970's contains a rather extensive list. Entitled "The Impact of Private Foreign Investment," the section on the Philippines appears to be much more concerned with assessing the suitability of the Philippine economy for foreign investment. In the two surveys, a few factors were mentioned as not being of major consideration. Lindsey's respondents markedgovernment incentives (as contrasted with restrictions or requirements) as

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being unimportant, while Allen questions the significance of tax incentives. Interestingly, Allen does not emphasize profitability. It was clear from the interviews that while profits are an underlying force in all [Japanese] investments, the return to a specificproject in isolation plays a minireal role. The effect on overall consolidated accounts of the subsidiaries overseas and the home plants over a period of time is the more meaningful basis for consideration (1973a, p. 1ln; similar comments are made in 1973b about American investors, p. 18). The one attempt to quantify the determinants of foreign investment in the Philippines is that of Subido (1974, 1975). The author concludes, "On the whole, the findings from the study provide empirical support to the hypothesis that the rate of return is the primary determinant of direct foreign invesment" (1974, p. 257). She uses two sets of data for her investigation: a time series of American investment from 1950 to 1970 from the U.S. Department of Commerce, and a cross-section of all foreign invesments for the period 1965-1970 from the Inter-Agency Working Group. In the time series analysis, investment is explained primarily by profit rate and a dummy variable distinguishing the years of import and exchange controls from the period without controls. The coefficient for value added in manufacturing is not significant, and the nominal tariff and wage rate variables, although discussed in the text, are not included in the equations presented. Subido (1974, p. 258) interprets the statistical significance of the dummy variable as evidence "that decontrol had a positive effect on foreign equity investment." The fact that the average rate of growth of U.S. investments in the Philippines in the 1950's was double that of the 1960's seems to put her comment at variance with the historical record. (See Tsuda et al. 1978, III, p. 37.) Also, it would have been useful in interpreting the results to have had some explanation as to why the overall profit rate of American investment varied in the first place. Subido uses a threshold model to explain foreign investment in her cross-section model. Below certain levels, the profit rate and growth rate of revenue are postulated to be positively related to the size of foreign investment; above those levels, the relationship does not hold. The model is estimated for different cut-off points for 6 groupings of firms, and the results tended to confirm the threshold hypothesis, though more so for the profit rate than the growth rate variable. The effective rate of protection is not significant. On the

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other hand, long-term debt is highly significant in almost all groupings. In her discussion, Subido refers to Allen's comment that both Japanese and American investors desire to use loan financing and concludes that there will be a "direct relationship" between the variable and foreign investment; she does not say, though, in which direction or why (1974, p. 249). Also, the use of 1970 profit rates to explain 1965-1970 investment is bothersome; it would have been preferable in our view to have used 1965 profit rates. Subido's work is important in part because her results differ substantially from those of Allen and Lindsey. They find market size and growth, tariffs, and low-cost production possibilities to be the major determinants of the decision to invest, while Subido does not. More work in this area is needed to reconcile the difference in survey and econometric work. V. BENEFITS AND COSTS: SOMEPRELIMINARIES The debates between proponents and critics of foreign investment can usually be described in terms of benefits and costs. Even when this is not the case, these calculations are almost always a part of the argument. Noted below are items that are often referred to in the literature The list is not exhaustive, but it is representative. The reader will note that, for every point, there are positions pro and contra. Benefits of Foreign Invesment 1. Provide needed capital 2. Improve the balance of payments through a. Capital inflow b. Exports c. Import substitution 3. Transfer technology 4. Generate employment opportunities a. Directly by hiring workers b. Indirectly through purchases of materials and services for the production process and through employees spending incomes 5. Develop and upgrade the skills of workers 6. Develop and upgrade management capabilities 7. Stimulate new industries a. Directly through investment b. Indirectly through purchases and sales (linkages)

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Stimulate competition Increase national income Develop natural resource industries of the country Contribute to the growth, development, and modernization of the economy Costs (Limits to Benefits) of Foreign Invesmen t 1.Utilize local capital at the expense of domestic enterprise; use retained earnings rather than new capital 2. Worsen balance of payments by a. Repatriating capital and remitting profits, royalties, technical and management fees, and other service incomes b. Restricting the exports of goods produced by local subsidiaries c. Maintaining a high import content in goods produced by local subsidiaries 3. Transfer inappropriate and/or outdated technology; transfer only portions of relevant technologies; restrict dissemination of technology throughout the economy by patents, secrets, and other means; undertake only insignificant amounts of research and development locally 4. Limit employment generation a. Directly because of high capital intensity of production units. b. Indirectly because of high import content of production processes and because of limited direct employment 5. Confine skill development to a few areas, because of limited demand for other than unskilled labor, and because of limited range of skills utilized due to simple nature of equipment and processes transferred to the local economy 6. Restrict development of local managerial talent because control of operations is to a large extent retained by the home or regional office of the foreign investor, and because expatriates are used in key positions 7. Contribute little to the stimulation of new industries because a. Investment by foreigners is usually in industries in which others - foreigners or Filipinos - are already producing b. Linkage effects are limited due to high import content of goods produced by foreign firms and because local production is usually not of intermediate goods 8. Create monopoly preserves, driving out local producers, and use worldwide economic power to intimidate potential Filipino competitors

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9. Contribute to the skewness of the existing distribution of income lO. Deplete and exhaust the natural resources of the country for the â&#x20AC;˘ benefit of foreigners 1 1. Distort the pattern of production; reinforce the existing pattern of wealth and power; infringe upon the sovereignty of the nation; and perpetuate and intensify the dependent, as contrasted with independent or autonomous, condition of the economy and society

Seve commentsshouldbe madeaboutthe above-mentioned list. First,few, if any, haveattempteda comprehensive benefit/ costanalysis forthePhilippine situation; what islisted isa compilationof the pointsof many writers. Second,theview of any one writermay includefactors thatfall both on thebenefit sideand the costside.Also therehas been almostno attemptto strikea balancebetweenthem (butseebelow);most writers havetakenup only one or two of thepointslisted above.Fourth,not much isknown abouttheimpactofgovernmentpolicies. Relatively little isknownabouttheinteraction ofindustrial policies andforeign investment in the Philippines. The casual relationshiphas not been examined; the structure of industrialpolicies, not dearly defined un_ recently; and foreign investment data is often inadequate. (Subido 1978, as quoted in Tsuda et al. 1978, III,p, 20.) Finally, the issues mentioned in the last item on each of the above lists - development, modernization, dependency, and impact on social relations, wealth, and power - go well beyond the normal benefit/cost calculus. They are the most imp_ttnt issues, the other more narrowly defined items, deriving their significance in large part from their relationship to these more difficult questions. The complexity of the analysis required to investigate them, however, is enormous. Even the best attempts must necessarily be condilional, and often the suggestive rather than the definitive must do. Inasmuch as a combination of sociological, political, and economic theory is required, the chances for consensus are nil. The advantage of inquiring into the more narrowly defined topics thus presents itself. The results obtained can help limit the arena of debate over the more complex issues. Therefore, we largely confine this review to the former. Cumagun 0979) is the only author of which we ate aware who consciously attempts to use socioeconomic criteria to evaluate the

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CharlesW. Lindsey.&ErnestoM. Valencia

social impact of foreign investment. In addition, he uses business criteria to assess private benefit. Industries are ranked by both criteria and divided into groups based upon whether their private and/ or social benefit is high or low. High and low, however, remain undefined. The author looks at the concentration of transnational firm activity in each industry, concentration being measured in turn by sales, assets, and number of firms. The object of the exercise, of course, is to relate industrial concentration to benefit and cost. Cumagun finds TNC's concentrated in the high public-high private and high public-low private groups of industries. Unfortunately, he does not say which concentration measure is used, nor does he put forth any explanation for the pattern that he found. The results, however, tend to support Cumagun's conclusion. As a conclusion, this paper reiterates in the affirmative the originalpremise of the study: that multinationals have contributed positively to our economic growth, and that given the proper guidelines and perspective, MNCscan be harnessed to contribute even more in our country's quest for faster socioeconomic development (p. 134). If we look at Cumagun's indexes, even more problems arise. For his socioeconomic criteria, he uses 6 variables: export orientation, import-substitution potential, forward linkages, backward linkages, value added per worker, and value added per capital. Beyond th_ inevitable questions of whether the proper variables were chosen or the proper weights employed, there is a more basic problem. The first four variables are all expressed as percentages of industry output; the last two, unfortunately, are not. In particular, value added per worker will be larger than the other variables by several orders of magnitude, and this is not compensated by the weighting scheme. If Cumagun's calculations are as he describes, the socioeconomic criteria amount to not much more than dividing industries on the basis of value added per worker. Thus, although his approach is quite interesting, his results do not provide us with an understanding of the socioeconomic contribution of multinational firms. There has also been one attempt to construct a general equilibrium model of the foreign investment process in the Philippines. Although not strictly an effort in benefit/cost analysis, we take it up here because it addresses several issues simultaneously (and because there is no other place that a discussion of it can be conveniently inserted). Bos, Sanders and Secchi (1974, pp. 74-78) built a macroeconomic

Foreign DirectInvestment inthePhilippines

175

model to examine the impact of private foreign invesment in developing countries. Since the Philippines is one of the countries to which the model is applied, we shall examine their work. The authors' model consists of 38 equations divided into a foreign sector (19 equations)and the rest of economy and total economy (19 equations). It is a supply side model, dependent largely on the rate of growth of capital. All 19 equations in the foreign sector can be reduced to functions of the initial size of the stock of foreign capital, a (constant) rate of growth of foreign capital, or,and time, t. The rest of the economy and total economy equations are somewhat more complicated, mainly for two reasons. First, the domestic component of investment is a residual, the difference between total domestic financial resource and that portion of domestic financial resources that foreigners wish to utilize. The assumption that foreigners have first access to domestic resources is fraught with implications that the authors do not take time to explore. The second complicating factor is the balance of payments. There are no autonomous capital flows from abroad; all increases in foreign capital occur to offset current account deficits and bring the balance of payments into equilibrium. Remembering that foreign investment grows at a constant rate and that foreigners have first claim on domestic resources, the amount of domestic resources that they will actually claim depends on the balance of payments gap. Domestic investment appears as a residual based upon past history and the current actions of foreigners. Both those elements are variable. Having developed their general model, Bos et al. proceed to derive a "marginal effect." According to the authors, the marginal approach "is useful in many practical situations, with little data availability, or an irregular behavior of [the private foreign investment] sector" (p. 108). To get their marginal effect, however, additional restrictive assumptions are necessary, making it very difficult for the model to describe "irregular behavior." The chapter on the Philippines utilizes the marginal approach because the requisite data are available only for 1964 and 1965, After discussing data difficulties and the simplifications necessary to estimate coefficients, and after pointing out that the results are sensitive to these assumptions, they present their conclusions: private foreign investment in the Philippines, although a small part of GNP, still contributes favorably to the growth of income;

176

CharlesW.Lindsey& ErnestoM. Valencia

the balance of payments deficit that results from foreign investment is limited; and savings generated directly and indirectly by foreign investment is small (p. 229). Given the limitations of their general model and the restrictive assumptions of the "marginal" approach, it is difficult to believe that their work provides any useful contribution to our understanding of foreign investment in the Philippines. The authors seem to concur on this: they write in their chapter on the Philippines that "the exercise can be considered a 'case study of the Philippines,' but, most of all, it represents an empirical application of the methodology.., " (p. 228). V1. CAPITAL CONTRIBUTION Among the first items mentioned in most listings of the benefits of foreign investment is that of the contribution of capital funds. Given the relatively low level of per capita GDP in third world countries, it is argued that there is a lack of sufficient saving to undertake the investment necessary for development; assistance from the outside is needed. B. Villegas has been among the strongest advocates Of foreign investment for this reason. In B. Villegas et al. (1977, p. 24) he and his colleagues go so far as to define foreign direct investment as "the inflow of foreign currency into the country for investment purposes." Given the debates, both for the Philippine case and elsewhere, on whether foreign equity inyestments entail a significant inflow of funds, and given the broad nature of their discussion, it is interesting that the authors defme the process in this manner. But it is indicative of the importance they, and others place on financial flows. They also argue that the bulk of foreign capital must be from direct investment rather than from loans. Several reasons am given: there are limits to what foreign creditors will lend; the Central Bank is monitoring additional loans because of the large size of the existing foreign debt; and Filipinos are unlikely to obtain foreign loans in areas such as pioneer or preferred projects. "It would be unrealistic to expect that foreign creditors would be willing to lend large amounts to Filipinos who are venturing for the first time in new industrial projects" (pp. 17-18). A cursory look at balance of payments figures (see Table 1) shows that loans, both official and private, have been an important source of foreign capital for the Philippines, particularly since the mid-1960's. The position of B. Villegas et al.

Foreign Direct Investmentin the Philippines

177

Table 1. Net Flows of Equity and Loan Capital to the Philippiaes (In million U_. Dollars)

•Pear

Net direct investmenta

(Ij 1979

88.16

1978 t,'977 1976 1975 1974 1973 1.972 1971 1970 1969 1968 1967 1966 ] 965 1964 1963 1962 1961_

171.00 216.49 143.68 125.1 5 28.02 64.49 77.02 (3.90) (24.30) 7,3 5 (2.73) (16.00) (30.00) (10.00) (3.60) (10.40) (3.20) (47.90)

Total

766.53

Net long.term lo¢lncapital Private

Official

(2)

Is)

238.70

912.50

209.2 5 133.93 336.4 8: 125.96:32.23 (5. l O) (35.90) (34.40)' 89.52 82.4 5 105.60 13.00 (25.00) (23.00) 19.10 (32.00) (27.50) (58.20) 114 5.12'

6 81.86 527.97 703.42 232.71 112.4 5 77.1 5 82.3 5 69.80 41.36 ' 14.09 36.10 3.00 1.00 56.00 9.90 4.80 9.60 (14.30) 3 561 .'/6

a.'Head_ngs'iath_-Batanoeof PaymentsStatementsvaryoverthe years;therefore,_ items includedno doubt are not the same throughout.-Theeompaxisembetweendirecti_i_ meritandloans must thus be interpretedas only approximate. _r_:

CentralBaak of the Philippines.Report. Variousissue_.

(1977) may have s_e relevance in the long term, but forthe presml# and near future their first argument does not appear to hold,.,Tkeir third point, however, is.both the most important and..themo_-:_trigu_ g..W¢wo_d like to see the evidence. Analysis oi' the flow a0d utilization of loan capitol tSat_tmpor_,_

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CharlesW.Lindsey& ErnestoM.Valencia

topic. However, inasmuch as most of the literature On foreign investment in the Philippines deals primarily with equity participation, we shall refer to it only infrequently in this review. From the official point of view, equity investments by non-Filipinos have been viewed as supplementary to local saving. "Our policy-makers realize that the bulk of investment comes from domestic savings and no matter how liberal the fiscal incentives may be, only a small number of foreign investors do come" (Virata 1972a, p. 263). The contentious point in the literature has been rather more basic, namely, has there been for any def'med period of time a net inflow of equity-linked f'mancial resources into the country? Although the statistics are not as complete or as precise as one would desire, the numbers have usually not been the issue. Rather, the debate has been one of definition and logic. See discussions in Bantegui (1965), Surapath (1965), Inter-Agency Working Group (Philippines 1972b, 1972c), Espiritu (1977), MagaUona (1977), B. Villegas et al. (1977), E. M. Villegas (1978), Tsuda et al. (1978),Cumagun • (1979), and Henares (1979a). Three major sources on fmancial flows have been used: the suntey by the Inter-Agency Working Group, balance of payments statistics from the Central Bank of the Philippines as published in its annual Report or from its Department of Economic Research, and the Survey of Current Business or other publications of the U.S. Department of Commerce. Although coverage and definitions differ, the results do not. When net equity capital flows are compared with income remittance by parent firms abroad, the latter is larger, often by one or more orders of magnitude. This is true for any .reasonable time period since independonce. Tsuda et al. gathered data •from the Department of Commerce publications for the period •1946 to 1976. In seven of the 31 years (1957, 1963-65, 1967, 1969, and 1974) net capital inflow was greater than income received by U.S. parent companies. In the other 24 years, this was not the case. For the elltire period, remittances w'efe approximately double eapitalinflOws (I978,'IIi, pp. 31-33). : • Sta_Sstics from the Cetitral Bank ar_ 'given in 8. Vilte'gas et hi. (1977, p. 59) for the period 1965 to 1971 and by Magallona (1977, p. I15) for:the period 1964 to; 1973. Henares (1979a, p. 164)gives summaries for the 1949-60 and 1964-76 period. Inasmuch as there are small discrepancies in the information reported and the time

Foreign DirectInvestment inthePhilippines

179

periods presented are relatively short, we decided to gather the data ourselves (see Table 2). The reader will note that the classification of what is included differs slightly by column due to data limitations: investment inflow and capital repatriation refer to foreignowned resources; portfolio capital movements include international transactions in Philippine securities by both foreigners and (presumably) nonresident Filipinos; and investment income, fees, and royalties are the gross outflows. Two totals are given.The fzrstdoes not include management fees and copyright and royalty payments; the second does. The reason is that much of the payments in these categories are used to transfer income on investments by foreigners, but some of it is payment by Filipino firms. Thus, given the available statistics, the fLrst total is an understatement of the situation, and the second may be an overstatement. For the 20-year period beginning in 1961, using the more narrowly defined impact of foreign investment on domestic saving (Total I), ordy in four years (1973, 1975, 1976, and 1978) did net capital inflow exceed remittances. If the broader definition is used, outflows exceeded inflows every year except 1975. The total outflow is just short of U.S.$1.0billion. For the period 1949-60 Henares (1979a, p. 164) reported a net outflow of U.S,$207 million The Inter.Agency Working Group data for the period 1955 to 1970 on 900 large firms show that the net inflow of equity capital minus remitted incomes sume to - P379 million or - U.$.$95 million (Philippines, 1972c, pp. 83-84). All agree, more or less, on the numbers; however, the conclusions differ dramatically. Ma_ilona (1977, p. 114), a critic, argues that foreign investments "entail a siphoning off of considerable scarce resources from the country." The proponents counter that reati_ could have been otherwise. Somemayuse thesedatato proveone point:that_ usedto harassforeign investorswtlh too manyresUictionsand with a veryuncertaininvestmentatmosphere.Consequently, foreignersinvestedverylittleadditionalcapitalin the Philippines 03.Villesaset al.1977,p. 59). A corollary of this counter-factual approach is that the situation could now be reversedon a sustained basis. Simulations to determine under what conditions and, importantly, for how long such a sustained inflow could occur, could further the discussion along these lines.

Table 2. Net Flow of Forei8_ Direct Investment

and Remittances

of Profits, Eaming_, and Dividends

(InmarionU.S.dollars)

Year

Dtrect _.._e's_tm_t •inflow.:_. :I}:..

-Withdrawal of equity capital tnvested in the Phih'ppines a, b :2/

Net portfolio capital inflow b (3)

Remittance of pro[its, earnings, and dividends c (4}

Managementfeesand copyright and royalty payments c {3)

Total I . (6] (6)-(I)-(2} + (3)-(4)

Total II (7) (7/-(6)-H)

•

1980 1979 1978 1977

'221.94 62.07 -13i.31 130.4'8

10435 85.07 20.52 I2.08

( 0.I0) 13.22 3.63 6.26

145.57 90.70 85.17 158.50

56;44 53.68 36.32 29.70

( 28.08) (100.48) ,29.25_. "_ :(:33.84)

( 84.52) •(154.16) ( 7.07) (63.54)

"_ [-5"

1976 1975 1974

90.70 1 i_6.39 64.00

24.62 17.53 60.39

16.16 27.31 24.45

68.22 72.77 79.83

38.28 37.35 16.59

14.02 53.40 (51.77)

(24.26) 16.05 (68.36)

_" "< rn

1973 1972 1971 1970 1969 1968

R2.Z4 "1.40 _3.i3 4.28 6.17 6.30

28.73 4.12 29.61 4.25 12.34

11.32 (1.53) 2.07 1.48 1.57 0.10

59.51 32.91 26.32 24.55 47.39 79.36

12.25 4.51 2.74 3.14 4.67 7.51

5.82 (46.46) (25.24) (48.40) (43.90) ( 85.30)

(6.43) (50.97) (27.98) (51.54) (48.57) ( 92.81)

1967

"9.60

17.91

(0.56)

55.01

5.85

(63.88)

(69.73)

1966 1965 1964

2_1.37 16._6 8.98

33.67 25.99 12.3 8

(0.73) -

26.34 I7.03 13.06

2.56 3.34 :1.62

(29.37) (26.06) (i6.46)

(41.93) (29.40) (18.08)

1963 19.62

6.56 /_i.24

15.53 1_.50:

12.5_ 19.9']

0.46 -

(2t.52) (23.17)

(21.98) (23.17)

1 _1

l1.80

51.30 d"

40.93

(90.43)

r3.42

_, _1 -.

Total Total

997.42

588.31

104.65

1,1 55.63

317.01

(64i.87)

. (958.88)

1968-80 Total

920.91

417.03

105.94

970.60

303.18

t-_360.98)

(664,16)

t973-80

899.63

353.29

102.25

760.27

280.61

(111.68)

(392.29)

a. Entry is that of foreign-owned direct investment, not the s_m of foreign-owned and Fiti_jim._-ownedcapital movements.

-n O "_

b. Direct investment (Columns 1 and 2) iefe'rs to investments in firms outside oft he stock exchange. Portfolio investment (Column 3)refers to investments that take place through purchase and sale on the stocl_ exchange, as welt as other security transactions. It would have been desirable to exclude the latter. c. Entry is a gross outflows, not net flows. d. Includes sale of Meralco.

Source: Central Bank of the Philippines, Department of Economic Research. Data for i978 through t980, from invisible receipts and disbursements accounts; data for other years, from balance of payments accounts. .

< ,-_ _= __ co

182

Charles W. Lindsey & Ernesto M. Valencia

Currently, the more the surnlning of capital Some say not.

substantive debate centers around whether flows and income remittances is legitimate.

The comparison [between capital flows and remittances] does not prove that direct foreign investment is undesirable. The two sets of data are so completely unrelated that even if the entry of new capital would dwindle to zero, there is no reason for remittances of profits and earnings to also drop to zero (B. Villegas e t al. 1977, p. 59). Critics always make statements like "$8 were remitted for every dollar that was brought into the country." These statements are made because of the confusion between the concepts of flows and the concept of stocks. They are comparing remittances which are the returns for accumulated investments (stocks) against new investments (flows) (Cumagun 1979, p. 70). Magallona,

on the other hand,

feels the comparison

is appropriate.

It can be argued that the profit remitted for a particular year is not necessarily profit earned on investment of that stone year. This argument might hold true if each year is taken separately and considered in isolation from each individual yearly record. The problem precisely is raised by a consistent negative net outflow over a number of years taken, together (1977, p. 116). As in many debates, the addressing different issues. part, incorrect as we shall statements are vague, they that could be classified as Sixto K. Roxas IiI in NEPA

participants are talking past each other, B. Villegas et al. and Cumagun are, in show below. However, although their do appear to make a legitimate point a long-term balance of payments issue. (1974) states it more clearly.

All foreign finance must eventuaUy be liquidated by a net export of real resources from the country. Whether the financing from abroad come in the form of loans or equity, ultimately the servicing of it and its eventual retirement or repatriation must be effected by a next export of Philippine goods and services. If the finance has achieved for the country a net increase in production and productivity commensurate with the cost of it, then the foreign investment is self-liquidating .... For a foreign investment to be advantageous, it must produce net real growth in the natio11's capability to produce or earn or save foreign exchange. We shall explore this issue in the following section. Here we are concerned with the capital, or saving, contribution of foreign investment. Since the flows are across .national boundaries, they impact upon the balance of payments and can be analyzed by examining the balance of payments. Nevertheless, the capital contribution of foreign investment is a separate issue from the balance of payments contribution. Discussions of the former usually make" reference to the

work

of Caimes,

entitled

Some

Leading

Principles

of Political

ForeignDirect Investmenfin the Philippines

183

Economy. Wri_g in the 1870's, Caimes described the foreign investment process as constituting four stages: immature debtor, mature debtor, immature creditor, and mature creditor. It is the first two of these wlfich are of interest in discussing the Philippine situation. (What follows is drawn from Gordon, 1962, pp. 18-21.) In the immature debtor stage, the foreign investment involves a net flow of funds into the recipient country, allowing it to run a net import balance on goods and services (excluding profits and other se_._fce payments connected with the foreign investment). There is a traI".'_:ferof capital. However, as profits and other remittances begin to occur and as capital is repatriated, part of any new investment nvast be used to offset the outflows. If the latter exceeds the forme__ -4_e country becomes a mature debtor, the second of Cai_vzTesb_tages (it need not concem us here whether the stages shov;;:_!:,ccur in strict order o1 if the movement from one to another is reve-sible). The country is then no longer an importer of capital fur, ds, net; rather it is on balance an exporter and consequently must run an export balance on the trade and service account as described above. The question of whether the foreign investment process is making (or has made) a capital contribution to the Philippines can be translated to a question of whether the country is, with respect to foreign direct investment, an hnmature debtor or a mature debtor. The data reviewed above show filat, with the possible exception of a few Scattered. years; the economy has not been since 1949 a net h_aporter of equity-capital related finance. Those who claim that the domestic saving of the Philippines is being (or has in the past been)increased because of direct foreign investment are simply incorrect on the basis of the available reformation. They, like B. Villegas et al., may feel that the problem is due to past restrictions and that with enlightened poficies there could be a net inflow. But it is hacumbent upon them to demonstrate the level of foreign investment that would now be needed and the rate at which it must grow for the country to return to the immature debtor stage. They should also give some indication of how long they expect the country to remain an immature debtor before it ag_,finreverts to the mature debtor stage. Having n'_ade the point, some additional discussion is required. First, was the Philippines ever an immature debtor for a sustained period, or, to put the question differently, has foreign investment in the form of equity capital, net of the associated income pay-

184

CharlesW.Lindsey& ErnestoM. Valencia

ments, ever made a contribution to agg_gate saving in the Philippines? If so, it would have to be prior to independence. We have not come across a data series that would throw fight upon this important question. Many of the foreign investors during the American colonial period were resident in the Philippines, often beginning small and growing through reinvestment of profits and local â&#x20AC;˘ borrowing. (For some vignettes of American-owned businesses, see Gleek (1975).) It is quite possible that there was always a net outflow. Second, according to Cairnes's typology, being a mature debtor i_ associated with an export balance on the trade and services ac_mtmt (other than remittances). Since the .Philippines has persistently run a current account deficit, there must be a problem somewhere in the argument. The answer is that we have focused on equity in, vestments and related incomes. If loans are included, the Philippines has been an immature debtor for most of the past 30 years. Significant portions of the loans, however, have been to covet deficits on the trade and services account; they have not been for investment purposes. If we contrme ourselves to private loans, there is not a consensus. Magallona (1977, p. 117) presents Central Bank, data on private loans, equity investment and the associated income flows ttmt show an almost U.S.$3.0 billion net outflow for the period 1964,73. On the other hand, the statistics from the survey of the Inter-Agency Working Group indicat_ a net inflow of a little over 91.0 billion between 1955 and 1970 (1972b: [8]; 1972c p. 83). Part of the qifference may be because the last mentioned data refer to nonresidents rather than foreigners, but not very much. The discrepancy is too great; this is an area that needs much moredetailed examination. Thirdly, there is a separate argument in favor of foreign investment as a source of finance that has nothing to do with foreigners' contribution to the aggregate level of saving, although it is often cOnfused with this issue. The discussion starts from the inability or unwillingness of localfinancial institutions and otherwealthholders to providefunds for largeprojectsthrough long-termloans.It follows, then,thatforeign sources, particularly equitysources, must be tapped. An example of this type .of argument is found in: B. VRlegas et al.Afterpointingout thatthÂ˘,asseta of mul"ti_tt_0_al firmsin theirstudy of._,pe_oleum _d motor vehicle mduslzi_l came toa totalofover, l_4,9billion in 1975,theygo on tosay:

ForeignDirect Investmentin the Philippines

185

Considering this staggering amount which is roughly around 42 percent of our international reserves of $1.5 Bin 1975, we could not have made any headway in these two sub-industries without any investments from the MNC's..It is precisely because of tiffs that the Philippines welcomes foreign,investments to help in the development and economic growth ofthe country (1977, p. 41). A comparison of net capital flows and related income remittances is not relevant to this â&#x20AC;˘issue. Investigations of the control and utilization of wealth and. finance,..however, would be pertinent. For example, legislation provides that foreign investment greater than 40 per cent of total equity be allowed in certahl areas of the economy only if Filipino investors do. not exploit the industry within, a stipulated period .of .time. Why is it that in some of these industries Filipino capitalists, are not investing when foreign firms are? To this point our. discussion has focused on the extent to which capital resources are .flowing in from abroad. Another equally important issue in the literature has been whether or not foreign-owned firms have made excessive use of domestic credit sources. Bantegui (1965, p. 8 and Table â&#x20AC;˘ VIII) presents information on source of funds for 108 American-owned firms for the period 1956-65. Eighty-four per cent of the. total .was generated witlm_ the Philippines or from other non-U.S, sources. The remaining 16 per cent includes net new investment and reinvested earnings. He argues that the. f0reignowned, firms were rei.Ying heavily on the local financial market. Suva Martin (1972, p. 582) arrived at the same conclusion. Alsaaty (1973, pp. 91 and 95) makes â&#x20AC;˘ the point that firms lend as well as borrow. The flrirteen foreign-owned firms in. his study were net lenders of short-term funds between 1966 and 1968, but were net borrowers for the longer period 1966-70. Henares reports that during the 1971-76 period the 31 foreignowned firms on which he obtained informati'on finmlced 74 per cent of their increase in local assets from local sources. He gives several examples, the most. extreme of which is that of Ford Philippines. From their 1975 financial statement, Henares (1979a, pp. 153-54) determined that Ford Motor Company had invested only t_1.3 million which, after losses, was reduced to t_4.8 million. Ford, however, had borrowed locally t_168.5 million mid has acquired the authority to issue short-term commercial paper for t_232.95 million m ore. Using data from the Central Bank, B. Villegas et al. (1977, pp. 45 and 47) examined the structure of borrowings of transnationalfirms. The ratio of local to foreign borrowinN of the TNC's was 51:49 in

186

CharlesW.LindSey :&ErnestoM. Valencia

1970 and 49:51 in 1975. The authors note, however, :tha_.'the_are wide variations in the ratio, from 93:7 in the soap and detriment industry and 73:27 in the pharmaceutical industry to 10:90 in the chemical industry. The main reasonforconcerninthisareaisthatfirmswitth Stibstantial foreign-owned equity, Usually TNC's, can obtain preferential treatment from financial institutions because their foreign owners possess high credit ratings (Espiritu 1977, p. 45). Dang (I977_p. 154), however, notes other factors that might have a bearing: devaluationrisks, interest ratelevels, and liberal remission policies. The Philippine governmenthasreactedto thecasethatforeigners arcovcrborrowing locally. The CentralBank issueda circular tYing themaximum amount thatcouldbe borrowedby firmswithforeignowned equityto thesizeof foreign investment. Whetherthepattern willchangeremainstobe seen. VII.BALANCE OF PAYMENTS In theprevioussectionwe examined thecapital contribution of foreigninvestors, themost importantaspectof whichistheflowâ&#x20AC;˘of money capitalfrom abroadand therepatriation of earnings, fees, etc.Inasmuch asthisisan in_rnational process, itimpactsupon the balanceof payments.Infact, mucliofthediscussion intheliterature about foreigninvestmentin thePhilippines under the headingof balanceof payments effects islimitedto capital and profitflows. Thisistoonarrow;thebalanceofpaymentseffectofforeign investment coversamuch widerarea. The most systematic attempttoexaminethebalanceofpayments impactof foreign investmentin thePhilippines initsbroadcontext is the dissertation of Dasari (1972). He undertakes a classification scheme, dividing the balance _of payments impact into three broad areas: initial effects, recurrenf effects, and terminal effects (13.5). The difficulty with attempts to estimate the balance ofpayment_ impact of foreign investment iS that the pro_ss requires making '(if onlyimplidfly) codnter factual hypotheses: _what would hav_ "happened if theforeign investmentdidnot occur.The researcher Canen_ vision a situatibn in WhiCh Only one pattiL'nlar foreign inve_t_neilf projectdid not occur,in which no foreigninvestmenthad,:d_Ze_ occurred, as well as many other alternatives. And,. of cotm_,_he-_or she explicitly or implicitly situates their alternative in an economic, political, societal, and cultural environment which may or may not

ForeiSn,,D_feet .Investment _,the Philippines

18"/

resemble what a_eJdsts. Dasari's altemat/vo, _a_tioMs are ord_r:,marginally ;diff_uent.from the _tual: (l):_eat_of the ieve&-of.output_cu_tly_preduced by.,the local, sttbsidia_, by 4reports at _woeld_prices;. (2) reI_emen* of_the level of ou_u_ by local finns; (3) rept_cement ,by_!_hl areas where there _ctees.not ,ctm'enfly_exiBt domesliO _petiticn, and production by :domestic competitors where, they. c_tty exist; ands,l_fly,/(4) the _m¢_ as (3,) except,til_ local ,outpUt,:of Competl. tots does ,not. e_pen_' .t_.more-than d_bie _,its cufrent_-l_iL(pp; 93-95). , In !his empiti_abwOrkthe author eltmnines 17,firms=mith,at least 5 t .per cent foreign_ equity:.for the four,year perJod_1966k70; :Only under the assumptions of alternative (2) above does the balat_ of payments _wOrsen,,,as,a _eonsequeaoe of'.theAbreign: investmea¢, Otherwlse_.there, me d¢cided_ tmprovements,!mms_,_ ,as,a:zest_t; of_iniport repkecementfpp_,lO_..i_Y2, 1.6D-64).:. .. :.:. :_lt wo_i by oMy to;._ggest other_equally, _or peflmps_moze_:de; si_le_ _t_m_i scetlarios_ F_r, examI_ one ndgitt_[eok_t_theim,, paet_o_,_fom_o_t¢ j_mmmption_,, parti_tlai_f ,of;_,luxu_ item, iOr_ one might look at the impact of incxeased domestic value added, In _his_,exerc_se_/: Dssari_implieitly atmme_ _that the ic_msmnption p_ttems_do.not/al_er _ar_d ,that.domestic _bmducersmake/pm4actio= and.:othex,,business',-decisions preeisely:tn_;_the,.same fashic_,:as:the foreign iu_! More ir_ortant_,commentS, however_'_c_, _be ,ditected::at iI_i's d_t_ ,aJsd_ _J_e:assnmptio_s that he, used. RtSt, _heh_ _f_rmatiea for onJy_l 7 _,ftrm=_,and the.-impact: on/_he ibalance. of. payments under_,eed_ hypothesized alternative: _xiu widel.l_._l'mm,,,:ftrm_tO fira_,The,,dze_f_the variations ht,emdtm_tion,wi_:_tlte ,limited sample si_es,leads, oae, to q_ 4hei me re,new., of.tile a_,that aee pt_ettted, ,Thi_ _eelitt8 _i_._einforoed -byrthe. short, fotil_eax that was _nvestigate&, ;::Givens:!the, time.. frame :of the smdy,_Dasad .,does n ot_nclude:uade_ initial.:effects the. original investments ,of-,the, fmms.mtrveye¢,He: ae. knowtedses ,..thatthis presents a proble_m,(p.i 22),pleadinglac_of 4ate. It .cannot be so easily dismissed_ howeve¢_ laaamuchas heuseaa firm level,_mi_o, _p_,, the, ooe_quen_e: of eot _hati__tiea frem_ _ _inifial_-m_ _, the _Mrm-_ ._fl_ty,imwar&is _th_t_a_Tml_ tial effects" calculated are not meaningful. Lastly, the author, atodbes most of the, benetit ot .[omign invest,

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ment to reduced imports, but in his calculations he does not take irate account the import content_ of domestically produced, or for that matter: domestically purchased, inputs. Although precise numbers would be difficult to fred, attomion should be given to this problem. Lindsoy (1981a, p. 74) reports "that many of the executives in the firms he surveyed mentioned that their locally pre, cured inputs are heavily import dependent. This is particularly true of manufactured inputs ,_ contrasted with raw materials. In addition, the Philippines:is heavily _dependent at present on the world market for its energy supplies. Dasari collected data for a period prior to the escalation in energy costs, It would be interesting to see howmuch, if any, his conclusions would be altered by the changed situation .... . Although we believe the criti_-m of Dasari's work that we have put forth are substantive and raise doubts about the size, if not the direction, of the impact of foreiBn investment on the Philippine l_anoe of payments, it must:,be emphasized that his is the only work with which we are familiar that has attempted a systematic analysis of the issue. It should_be an inducement, if not a guide_ for Others. ' So far w¢ have not touonaQ on men'npa¢t oi exports on the hal+ ance of payments. Dasafl_,has!little to ssyabout this. As has_been discussed in many places, _th0'l_ilippinos enteredan importsubstitutionindustrialization processshortlyafterindependence.: Since tlm mid-to lain1960'stherehave beert..ongoing effortsby ithe ¢ovornment to shiftthe_evonomy toward an.exportorientation, in: :part for: balance of payments reasons, It ism-grind that foreign ire'esters, particularly tlwT.NC_s, could play, a major rolein this process. They'have the _equisimlmowl_dge and worldwidemarlmt ¢onneotions. However, the-bulk of,fO:mign invostrrmnt in, the Philip pines-.,today is of the. impOrt,s_bstitution variely., Among firmsin this category, there has been relatively little effort to incaema ithe level of exports (Lindsey :19_,1_ pp. 83-84). Many TNC's: go ,sOfar as to .in¢lude_ ¢,lausos: in 'liceming, and other; :agre_mer_ts,_ith.,the local affiliate that forbid exports either entirely or to certain _$kmS or,:in.somemms_ _without tim,oonsant of.the_ for6ign invcstor,(Mirata 1972b). Althou#,_suoh arrangements, are no limger ltUow_d_inl,tl_ Philippines, _there is. little _to, preven_ :tacit agreements _'mt _mSutt in one form of restriction or a/tother. Among a smaller group of mostly agricultural or mining enter-

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prises or <newer manufacturers, however, we do see significant exports. Cumagun (1979,_pp. 50-58) reports that in 1975 almost 20 per cent of the exports of firms registered with the Board of Investments (BOI) came from firms linked withTNC's. B. Villegas et al. (1977, p. 64) include a table showing that in 1975 TNC's registered with the BOI in the agro-based industries exported an equivalent of 89 per cent of their sales. Those in the mining andminerals industry exported 76 per cent; those in the metal-based industrie._, 43 per cent; arid in the chemical industries 74 per cent of the sales ofregistered enterprises came fromexports. Grosssalesfigures may overstate theTNC's contributiOn, particularly forthosewhich aremanufacturers. The Philippines hascreated a number of exportprocessing zones(EPZ's)to encouragethe developmentof manufacturing industries thatareorientedtoward the world market.Itishoped thatEPZ'swillgeneratea significant amount of foreign exchange.The reality, however,may be different. SnoW (1977;p. 73)reportsthat,when queried, "a highEPZ official statedthattheprimaryforeignexchangegainenvisioned fromforeigninvestors was the retentionof the dollarequivalent of their overheadexpenses.This consistedof wages to labor,rentalsof buildings) _d payments for utilities." The zone, however, 'is advertised asbeing low Cost in terms of these items: Snow goes on to say that other officials mentioned the purchase of local raw materials and 'taxes as additional sources of foreign exchange. From his obsero vationL however, he felt that these would not be significant. Whether he is Correct'depends: partly on the volume of activity in the EPZ's and partly on what,the officials feel am adequate earnings. ,

VIII. EWIPLOYMENT AND LABORRELATIONS Tlle'major source of aggregate data on direct employment in firms with foreign equi W is the Inter-Agency Working Group. Calculations were made in two ways. First, the sample of 900 f'mns was divided into three groups: those with foreign equity less than 30 per cent of the individual firm's total, those with foreign equity of at le_t 60 per cent, and those in between, Employment totals can then be obtained foreach group. In 1970, there were I_ _771 th_tsand persons employed in the Philippines, 102 thousand, or 0.87 per gtnt, of which were employed in sampled firms ill whlch foreign _quity was. at least 60 per cent. These are usu_lly m_ferted to as fo/_ign-owned firms. If we include all firms with foreign 'equity of at least 30 per

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cent, the total rises to 144 thousand, or 1.22 per cent of total employment (Philippines, Inter-Agency Working Group 1972b:[6]). The second approach was to assume that the proportion of employment in a given firm that occurs directly as a consequence of foreign investment is equal to the share of that firm's equity that is foreign-owned. This method produces an estimate of 120 thousand workers, or 1.02 per cent of total employment (Philippines, lnter-, AgencyWorking Group 1972c, p. 59). An exercise such as this cannot but involve numerous conceptual problems. For example, if one is interested in employment in foreign-controlled firms, the issue of what constitutes control occurs. In laws and regulations dealing with foreign investment in the Philippines, 40 per cent foreign equity is often used as the official dividing line. This being the case, the breaking of the spectrum at 30 per cent and 60 per cent, as was done by the Inter-Agency Working Group, does not allow computations consistent with customary approach in the Philippines. It is probably safe to say that the two estimates provide useful bounds to the range of estimates of employment in foreign-controUed firms. Alternatively, one could be interested in employment directly. attributable to foreign investment. The second approach of the Inter-Agency Working Group appears to have had this in mind. The rule of thumb that foreign-generated employment is proportional to foreign-owned equity is a good first approximation. However,it ignores such questions as whether the particular fLrmSwould have been in existence if there were no foreign investment, whether other, domestically-owned fLrmS,either entered or were driven out of the industry because of a particular foreign investment, or to what extent the firm's productive assets (to which total finn employment is related) were acquired through loans rather than equity investment. â&#x20AC;˘Finally, both estimates were from a sample of firms. Not all firms, or aU firms with foreign equity, were included. However, employment in firms with significant foreign equity that are not among the largest 900 (and hence not included in the Inter-Agency Working Group's sample) are sufficiently small so as not to appreciably affect the results. The most signi'ficant conclusion that can be drawn from these figttres is that fpreign investment contributes relatively little to total employment in the Philippines. Whether one regards the 0.87 per \

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cent or the 1.02 per cent or the 1.22 per cent as the appropriate estimate, the total is not significant. The International Labour Office (ILO) in its study of the Philippines took the 1972 Bureau of the Census and Statistics estimate of open unemployment of 6.1 per cent and added an "inadequate income measure of underemployment" to arrive at a total unemployment figure of roughly 25 per cent (1974, pp. 6-7). The two unemployment estimates gre 5 and 20 times the largest of our three estimates of employment due to foreign investment. Looking at direct employment attributable to foreign investment by sector, only in mining and quarrying and manufacturing axe the figures significant. In mining and quarw_g, the estimate is quite sensitive to the alternative assumption chosen. In firms with foreign equity of at least 60 per cent, the figure is 13.28 per cent, but whe_i the allowable foreign equity is reduced to 30 per cent, the proportion of sector employment in foreign f'mnsjumps to 35.11 per cent. For manUfacturing it _s 5.74 per cent and 7.22 per cent, respectively (Philippines, Inter-Agency Working Group 1972b: [6] ), Using the prol_/tional method of estimating employment due to f0_ign investment, the percentage in mining and quarrying is 17.4, and in manufacturing, it is 6.9 (Subido 1973, pp. 254-55). Care should be exercised in drawing qclaclusio_s from these figures. In particular, to shift the question of "employment contribution" from level of the overall eccmomy to that of a securerdoes not lead anywhere. Although sectoral figures on the significance of foreign investment for such variables as ownership, output, revenue, and training may have meaning, this is not the case for©mployment, Since the subject of employment is generally raised in con L_t to its oppoSiie, unemployment, to hold otherwise"would rexlUir¢_e to assume, at the least, that the work force is highly immobile amoag sectors. To this point we have been careful to indicate that it iS "direct" employment that is being discussed. There is in addition employment generated "indirectly" by foreign Investment as a result of interindustry linkages and the Keynesian multiplier mechanism. Theae does not appear to have been any attempt to estimate the framer, although it is generally thought to be small. ... becauseof the.nature of the iadustri_il;-¢aa4nthe pastwhichis_ated towardsimport-substituting andimport-using goo_: the backw_¢and foaward establishedmayhavebeenfew and the in¢c_nae effectslimited.Thus,

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the employment opportunities from this source may also have been minimal (Subido 1973, p. 265). Torres (1977, p. 164) concurs when he states that "indirect employment generation through the stimulation of local industries.., by foreign firms has been very minimal." Using a simple four-equation Keynesian-type model and data from Inter-Agency Working Group study, Subido obtains an estimation of the indirect employment effect of foreign investment of 448,645 (p. 259). Combined with the direct employment effect calculated using the second approach described above, the total employment effect is equal to 4.8 per cent of the employed work force in 1970. To put it in a different way, it is equivalent to almost 80 per cent of the measured unemployment that year and 20 per cent of the total unemployment as calculated by the ILO. If correct, these figures imply that foreign investment has had a rather substantial impact on unemployment, at least as it is officially measured. However, some observations are in order. Subido takes care to qualify her results, pointing out that given the simple model that she used, employment estimates should be viewed as potential rather than actual. Her model assumes instantaneous adjustment, with no rigidities in the supply side or imperfections in the labor market (p. 259). There are other difficulties, however, which should be briefly mentioned. First, she disaggregates by sector to take account of different labor-output ratios, but then assumes that the Keynesian multiplier in each sector is the same as the aggregate and that all income generated from an investment in a given sector occurs in that sector. Second, the estimated contribution of foreign investment is overstated unless the propensity to import capital equipment for projects with foreign participation is no higher than the aggregate propensity of the entire economy (not just for investment goods), an unlikely situation. The major problem, however, is that the investment figure used is not the amount of expenditure by foreign capitalists in 1970; rather, it is the stock of foreign investment existing in 1970 as reported in the Inter-Agency Study (p. 257). The latter figure would obviously be only a fraction of the former, and so would the resulting employment due to foreign investment in 1970. There have been a few other references to employment due to foreign investment. Tsuda et al. (1978, II, p. 34) identified 324 firms in 1976 among the 1,000 largest which had at least some for-

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eign-owned equity. These firms employed a total of 241,635 workers. Since this figure includes workers employed in firms with only, say, 1 per cent foreign-owned equity, it can only be considered an extreme upper bound. Alsaaty (1973, pp. 66-68) reports that the rate of growth of employment in foreign subsidiaries in his sample was greater than the increase in the index of employment in manufacturing as a whole. Morales (1975), on the other hand, found for her sample of firms in the food and chemical industries that, on average, employment in TNC subsidiaries grew at a slower rate than in Filipino-owned firms, although the former initially employed more workers. It should not be suprising that in the Philipines, with its sizable population, largely rural, foreign investment neither makes a major contribution to employment nor significantly reduces the rates of unemployment and underemployment. There are few places in the Third World where this is the case. In fact, the Philippines has done better than the average. The latest InternationalLabor Organization(ILO) [sic] study shows that multinational enterprises have created ll to 12 million jobs in industrializedhost countries and two million in developingcountriesup to 1975. Since the figure for developing countries representsonly 0.3 per cent of the work force there, the impact does not appearconsiderable(F_piritu1977, p. 12). All this is not to gainsay the view that a job is a job and all the better. Rather it is only pointing out that foreign investment is not and, for that matter, will not make a significant contribution in the area of employment creation, direct or indirect, in the Philippines. The second area that we wish to take up in this section is labor relations in firms with foreign investment. There have been only two â&#x20AC;˘or three studies in the Philippines that-provide information on this subject. Kas_ow 0978) compares labor relations in TNC subsidiaries in Malaysia, Singapore, and the Philippines. Union officials say that it is easier to unionize workers and bargain with manage= menl in TNC subsidiaries than in firms owned by nationals. They explain that the latter are more likely to be hostile. Some Americanbased TNC's, however, are exceptions to this generalization. Kassalow feels tha[ the management styles in the TNC subsidiaries _eveal traces of their parent firm's national origin or, in some cases, company traditicfl. The executives tend to use the TNC's job evaluation system and methods of wage determination. In addition, they often check with the home office before accepting settlements with unions.

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Ramos (1974) reports that trade unionists in the Philippines are mainly concemed with immediate economic issues (what he calls "rice-and-fish" unionism), inasmuch as TNC's generally pay higher wages than Filipino employers,. Ramos's results would imply that foreign-owned firms would have relatively more peaceful labor relations. According to Tones this appears to be the case. Out of 66 recorded strikes during theperiod from December 1975 to July 1976, only 4 (7%) were positively identified as occurring in multinational firms. We have no ready explanation though for this situation until sufficient studies have been made. Labor leaders, however, say that this relative absence of acute industrial strike [sic] in foreign firms could be accounted to the relatively better level of satisfaction of employees in these firms due to better compensation rates and benefits which foreign firms usually can afford to give. This assumption is bolstered by the fact that around 70% of the strikes that occurred last year involved wage-related issues including the granting of allowances and other fringe benefits (1977, p. 167). Part of the reason for the relatively good labor-management relations in TNC subsidiary firms is that these firms are relatively more powerful in their dealings with unions. Given their worldwide operations, Torres points out that it would be difficult for a union to exert economic pressure on a subsidiary. The parent firm can shift production to other subsidiaries (p. 179). In another paper Ramos (1978) compares the attitudes of workers in an American-owned factory with those of workers in a Filipinoowned factory. The primary interest of workers in their unions in both plants is job protection. When problems arise for a worker, the kurnpaclre (ritual relative) system is resorted to. The workers in the Filipino-owned firm exhibit a higher prol_ensity to form kumpaclre relations with persons of influence and authority such as foremen. In the American-owned firm, supervisors are regarded more as bosses. However, as new, younger managers are coming into the Filipino firm, Ramos finds that the patron-client relations are eroding. There are a few studies of problems of management in joint venture where the executives are from two countries with different cultures. In interviews with the management of several Filpino-Japanese joint ventures, Tsuda and David found considerable tension in the area of labor relations. Tsuda (1977) reports that Japanese investors feel sympathetic towards Filipino workers. In Japan, they say, the worker is perceived as a partner, while in thePhilippines, he is considered a personal servant of the owner. Repression and "buying

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off" of the labor movement can only make workers submissive. Submissiveness produces apathy and, consequently, the workers are less productive. Instead there should be incentives. In another paper, David and Tsuda (1978) report that Japanese joint venture partners feel that their Filipino counterpart tries to protect profits through low wages and lack of spending on health and safety. He has little concern for employees or their loyalty. On the other hand, David and David (n.d.) cite management opinions that the entry of foreign personnel into a Filipino firm through a joint venture does not result in a change in the working conditions. Especially in Filipino-Japanese joint ventures, foreign executives seem to be totally excluded from pohcyanaking affecting conditions of employment. IX. FACTORINTENSITY,WAGES,ANDPROFITS A major theme in explaining the pace and pattern of industrialization in the Philippines is that inveslanent in manufacturing has been overly capital intensive. Further, it is generally held by economists that the inappropriate factor utilization has been largely the consequence of (incorrect) government policy. Sitar (1972, p. 213) makes the argument with specific reference to foreign investment prior to the devaluation of the peso in the early 1960's: "The major policy implication [of the study] is that policy towards the promotion of industrial activity, in whatever forms it has taken, was responsible for bringing in the specific pattern of foreign investments observed in this country." His position is a rather polar one in that it implies the government has overriding influence on the pattern of industrialization and, particularly, foreign investment. That being the case, it also must accept responsibility for the pattern being other than that which is most desirable. The empirical work that has been undertaken unfortunately does not allow us to test Sieat's thesis. What has been done, however, give us some information on the capital intensity of industries in which foreigners invest and the differences in choice of factors in foreign- and Filipino-owned firms. In addition, there are data available on wages paid and profits earned in domestic- and foreign-owned firms. Subido (1974, pp. 262-63) briefly examines the industrial location of foreign investment, using data from the Inter-Agency Working Group. Selecting a capital-labor ratio of PlO,000 as the (arbitrary)

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dividing line between capital and labor-intensive industries, she finds that almost 85 per cent of foreign investment in 1970 is located in capital-intensive industries. The author concludes that labor-intensive industries have benefited little from foreign investment. Mason undertook a rather detailed study of factor Proportions and productivity of American- and Filipino-owned firms in the late 1960's. His work is reported in the most detail in his 1969 work. Mason (1970) is a published version of part of the larger report. In Mason (1971) and Mason (1973) some additional data from Mexico are included, but the results are not substantially affected. He reports that U.S.-owned finns in the Philippines are more heavily represented in capital-intensive manufacturing industries than are non-American firms, a finding similar to Subido's. However, among the 130 largest firms in the manufacturing sector, capital employed per worker in American-owned firms is not significantly different from that employed by other firms, when the comparison is made on an industry-by-industry basis. Nevertheless, in the nine manufacturing industries in which Mason surveyed firms (one American and one Filipino firm per industry), U.S. firms were found to employ more capital per worker (1969, pp. 17-18). Mason concludes: "U.S. firms operate differently than their local counterparts yet outcomes are not vastly different" (1971 p. 62). He also argues, without testing the proposition, that there is a serious misallocation of capital in the Philippines which is a consequence of factor market price distortion (1969, p. 22; 1971, p. 61). The author measures capital in five different ways, expressing a concern for problems of valuation. The particular choice of measure is of some importance, for in only five of the nine surveyed industries does the same firm turn out to be the more capital intensive one by all five measures. Also, the nationality of the more capitalintensive firm is dependent upon the choice of measures, with the U.S.-owned firms being the more capital intensive in as few as four of the nine industries and in as many as seven. One problem, Mason points out, is that Filipino firms tend to be older and possess more land, while American firms tend to have more bUildings and equipment and carry a higher level of inventory. In addition, the composition of the work force in the two groups of firms is different. Whether American-owned firms _ more capital intensive than Filipino-owned firms thus depends upon the definition used (1969, pp. 18-22, 114).

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Mason also examines the productivity of the surveyed finns and the relationship between productivity and factor intensity. Four measures of productivity are used in order to maintain consistency between the definitions of productivity and capital. In six of the nine industries, there is agreement among the measures as to which firm in an industry is the more productive, but in two of these the identity of the capital-intensive finn is not constant. When using value added per employee as the productivity measure, Mason (1969, p. 115) finds that under one definition of capital the majority of the more productive firms are capital intensive, but under another definition, they are labor intensive. To get around some of these difficulties, Mason (1969, p. 60) attempts to measure a total factor productivity. Unfortunately, his measure is flawed. The numerator is the sum of the wage bill (with no adjustments) and a measure of capital services that he calculates, while the denominator is value added. The ratio turns out to be different from unity to the extent that his measure of capital services is different from the actual share of value added going to capital. Since no attempt is made to make the firms comparable by using the same weights, there is, in reality, no theoretical or empirical significance to his measure. The difficulty can be seen by referring to Mason's discussion. Asourmeasure ofproductivity, wecanusethetotal value offactoxs employed perdollar ofvalue added. We arenotdefining a production function inthe usuallyacceptedsense of the total exhaustionof outputby rew_rdsto factor inputs.Ourdefinitio_tal]owsfora residualorprofitwhichcanbeeitherpositive ornegative(1971, pp.32-33). His conclusions, therefore, concerning the relation of factor proportions to productivity are not of use when flow concepts are used. The Inter-Agency WorkingGroup also looks into the question of factor intensity. Their results, at variancewith the overall conclusion of Mason, show that Filipino-owned fLrmsare more capital intensive than foreign-owned firms, both in the manufacturing sector as a whole and in 15 of 20 two-digit ISIC manufacturing industries (1972b). Explanations of factor intensity usually make reference to relative earnings. Here we find general agreements: foreign-owned firms, particularly American, pay larger wages and report higher profit rates than locally-owned (Filipino and Chinese) firms. Bulatao, using the data of the Inter-Agency Working Group, finds wages higher in

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foreign-owned firms, not only overall, but also when firms are disaggregated by sector and industry (1973, pp. 274,275,286). Mason arrives at the same conclusion for finns in the same industry when comparisons are made by job category (1969, p. 135). Bulatao (p. 289) refers to a study of 75 firms with results similar to Mason's. Tan (1979, p. 289) f'mds workers in American-owned fh-ms in the garment and textile industries have larger earnings than those in Filipino and Chinese firms when they are divided into age groups. The Inter-Agency Working Group reports the median rate of return on equity of foreign-owned firms is about triple that of Filipinoowned firms (1972b: [9] ). Yoshihara ranks firms by rate of return. Foreign-owned subsidiaries are the highest, followed by joint ventures, Filipino-Chinese-owned f'mns, and Filipino-owned finns, in that order. The subsidiaries' average rate of return is about three times that of Filipino-owned finns (1971e, p. 279). Lindsey's resuits are similar (1976, p. 201). Many business people, however, are skeptical of the magnitude of the reported differences in profit rates, if not the direction. Nevertheless, since the published data are used by those whose writings we are reviewing and since no contrary statistics have appeared, we shall assume that data are at least qualitatively accurate. â&#x20AC;˘The most obvious point that follows is that foreign- and Filipinoowned firms cannot be analyzed as if both are profit maximizers, operating efficiently under conditions of perfect competition, and with the same choices in technology available. Differences in technology, in efficiency, or in some other variable, in addition to the wage-profit ratio, must be brought into the explanation. Bulatao (1973, p. 288) suggests that foreign-owned firms are more productive either because of better technologies or became workers are better trained, and thus these finns pay higher wages. Mason (1971, p. 63) feels that U.S. finns generally produce more technically refined products; this would point to a technology difference. Tan (1979, pp. 236-39) points out that organizational decision-making and labor relations could be a factor. B. ViUegas et al., on the other hand, feel the difference is largely a matter of efficiency: Admittedly, it is painful for a Filipino to recognize the truth about our relative backwardness in managerial and technical competence. But one has to be realistic. Our experience at industrialization is barely a quarter of a century old. The foreign firms we are dealing with have been at the game for more than a

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century. Them is, therefore,nothing degradingabout the evidencejustunearthed [that Filipino firms pay lower wagesand eam a lower rateof retum] (1977, p. s8). These comments, however, do not explain why foreign-owned fn-ms are overrepresentcd in capital-intensiye industries. The theory of foreign investment put forth by Hymer (1976) and supported by Kindleberger (1978), however, is relevant. In addition, it is consistent with the observed wage and profit rate statistics. Hymer argues that a foreign investor must have some type of advantage over which it has control in order to be able to compete with local investors. This monopoly position may be technologically based and, to the extent more. advanced technology is associated with capital intensity, more likely to be found in capital-intensive industries. Whatever the advantage, however,monopoly returnswillaccrueto theparticularfirms; therefore, both profits and wagesshouldbe higherthan thenorm. A related argumentismade by Henares(1979a,p. 150). He feels that as a consequence of both parity rights and the attitudes of those in power in the Philippines, American investors were able to capture the most profitable opportunities. The paint and rubber industries are given as examples. The choice of production process within an industry is usually thought to be related to the wage-profit ratio. Other factors, however, may be of importance, particularly for TNC's with their worldwide operations. Two-thirds of the responding firms in Lindsey's survey report that initially they used equipment similar to that being used in their affiliated TNC's home country plants at the time they started operations. Half the remaining finns initially used equipment similar to that used in their .TNC's home country plants at some prior period of time (1981a, p. 19). Ngo Huy Lien (1980, p. 3) notes that 14 of the 24 foreign-owned f'Lrmsin the Bataan Export Processing Zone with whom he spoke a_. using the same production method as is being used in the home country of their parent firm, while seven brought in a production method that has been adapted in some ways for Philippine conditions. Only three of the 24 firms are using production processes that are different from home country plants of their parent company. Mason (1969, p. 157), on the other hand, finds that 11 of the 18 firms in his sample are using equipment that is different from that in the U.S. Two others did not have sufficient knowledge to make a judgment. The remaining five, presumably foreign-owned, said that al-

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though their firms' plants in the Philippines are similar to those in the U.S., they are staffed differently and certain mechanized processes are excluded. Lasserre and Boiset (1980, p. 66) gathered information on 21 plants built in the ASEAN region involving European TNC's. In only four cases was the plant design done locally. The other 17 plants were designed in Europe; however, in seven cases adaptations were included that had beela suggested by individuals in Southeast Asia who were connected with the project. X. TECHNOLOGYTRANSFER There have been only a few articles specifically addressed to the subject of transfer of technology to the Philippines, and they have largely been overviews of the situation. (See Aseniero 1979; Constantino 1978; B. ViUegas 1976; and Lasserre and Boiset 1980.)However, there have been case studies and references in other works that, together with the articles just referred to, give some indication of the nature and extent of the transfer process currently. First, we will look at what is happening: what technologies are being transferred by foreign investors whether or not they are new to the economy, and to what extent a diffusion process is occurring. Second, we will briefly examine writings on the appropriateness of this technology for the Philippines. Mien gathered information in interviews with American and Japanese investors in Southeast Asia on the type of the production processes being used in their firms' plants in the region. For both groups, simple process production accounts for a substantial majority of the projects, although it appears that the proportion of projects that are multi-product and complex product processes is higher in the Philippines than elsewhere in Southeast Asia (1973a, pp. 26-31; 1973b, pp. 27-30). Snow (1977) reports that most of the plants he visited in 1974 in the Bataan Export Processing Zone are low technology; low skill textile, garment, and shoe factories. The Ford stamping plant is the major exception. Scale of production and the availability of needed skilled workers are mentioned as the most important considerations in the selection of products to be produced and process to be used. However, Mien adds that for the Japanese "emphasis was placed on ,trade (i.e., the flow of materials and supplies from Japan)... "(1973a, p. 31). Lasserre and Boiset differentiate between downstream and up-

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stream technologies, arguing that them is more technology transfer in the latter. Interestingly they add that in the strategies of both European and ASEAN businessmen, "the acquisition of technology does not play a big role; market considerations are more important... "(1980, pp. 4, 50). Although for every piece of equipment or process there must be someone who first uses it, in the Philippine context this does not mean that every foreign investor brings in something new. In fact, the opposite may be more nearly the case. Almost 80 per cent of the firms from which Lindsey obtained information said that equipment similar to that being used in their plants is being used elsewhere in the Philippines. Only about one-third of the respondents claimed to be the first to use a particular piece of equipment locally. Further, almost 90 per cent said that the equipment they are using is available on the open market. Approximately half of these make modifications of that equipment for their own use. This, however, has more to do with the quality and efficiency of production than with the ability to secure the necessary equipment for production in the f'LeStplace (1981a, pp. 28-31). Control of or access to equipment does not appear to be the major source of advantage of TNC's nor is it their major area of contribution. Research and development is another area where the contribution of TNC's is small or nonexistent. Mason (1971, p. 64) found that the firms he interviewed are not extensively involved in research. Alsaaty (1973, p. 106) reports that the finns in his survey spend on average 0.7 per cent of the net sales on R & D. Interestingly, 50 per cent of local finns reported expenditures in this area, while only 30 per cent of the foreign-owned firms did. Half of the managers with whom Lindsey spoke said they are engaged in R & D; however, little of the activity is in basic research or in developing new products. Rather efforts are primarily directed toward quality control, process alteration, or marketing strategies. Adaptations often need to be made because of climatic differences between the Philippines and the country where the product was originally developed, or because of local preferences of color, taste, smell and even hearing (1981a, pp. 34-35; see also Allen 1971b, pp. 3334). The significant element in the TNC's transfer of technology to the Philipphies (or_ to put it a different way, the element that gives them a competitive edge over domestic producers) is in process technology, not equipment: process, experience, quality.

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As oneexecutiveput it: the basic equipmentis the kettle- textbooktechnology. But then thereisthe art- ThistheMNF.affiliated firmsfelt wastheirstrong point. Evenif the processtechnologycould be purchased,the accumulated experienceof theMNFgavethemanadvantage(Lindsey1981a,p. 33). Allen arrives at the same conclusion (1973a, p. 36). In his view, however, the situation is not as bleak as it would seem if we focus on the technology "package" rather than its components. The packageof technologyis importantas it is only with foreigninvestment that a groupof technologycomponentscan be transferred.In fact the wider package- market,technology,organization,finance- constitutes a strong argumentfor foreigninvestments.The actualstrengthof the argumentappears to be diminishedwhenit isexamineditem-by-item(1973b,p. 34). This position is rather weak. Precisely what is it that is to be gained other than the sum of the components? Weak components, when added together, unless they reinforce each other in some manner or interact to produce something that is different than their individual contributions summed, do not make more than a weak whole. The significance of Allen's work is that he went beyond the superficial view that the erection of a plant and its operation necessarily involves technology transfer to a more penetrating look at the substance of the process. It is unfortunate that he draws back from the implications of his fmdings in his conclusion. Cumagun, one of the few to undertake a case study of technology transfer, examines the advertising and pharmaceutical industries. In doing so, he provides an excellent example of how private welfare and social welfare criteria are confused. The author begins by showing how subsidiaries ofiarge, transnational advertisingfirms were able to take over the accounts of local affiliates of transnational firms from Filipino advertising companies because of contacts abroad between the two parent TNC's. The TNC advertising subsidiary, according to Cumagun, has a monopolistic advantage. Moreover, having captured the market, the advertising giants effect little transfer of technology. Cumagun argues that the advertising strategies of the subsidiaries are developed abroad; then, the package is sent to the Philippines and implemented locally. Even if the advertising subsidiary employees are Filipinos, there is little benefit to the country. All that is done at the subsidiarylevel is to extend or adapt an already existing plan. He goes on to detail the entrance of transnational advertising agencies, their rise in importance in the industry, and the TNC connection of their clients (1979, pp. 162-82).

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In his second case study, Cumagun examines the pharmaceutical industry, noting that there is little transfer of technology and no R & D. Only in the areas of assembly and therapy is some transfer occurring. He then excuses the transnational pharmaceutical fn'ms by arguing that basic manufacture of drugs is expensive, economies of scale are involved, and, anyway, the firms are making available the benefits of science paid for elsewhere. Of course, this ignores the licensing fees paid by local subsidiaries, as well as profits and other equity related incomes that are remitted (1979, pp. 183-94). In his discussion of the advertising industry, Cumagun takes a social perspective: success of the TNC results from monopolistic advantage and there is little t_ansfer of technology. In looking at the pharmaceutical industry, however, the interest of the firms dominates. Surely, in practice the private interests of the TNC's must be taken into account, or, rather, they cannot be totally ignored. But in analyzing their impact upon the Philippine economy, it should be from a social perspective. Economies of scale, for example, have little to do with why transnational pharmaceutical companies do not engage in intermediate production in the Philippines. For them the world is the relevant market, not the Philippines. When it is in the interest of TNC's to establish large-scale, basic industries in the Philippines, they do so. EspirJtu (1977, pp. 15-!5) and Constantine (1978, pp. 238-39) mention the establishment of the Philippine Sintering Plant by Kawasaki Steel Corporation of Japan. Kido (1977) discusses the project in detail. Unfortunately, oftentimes the reasoning behind a TNC's establishment of a plant producing intermediate or ba_c goods in a Third World country is outside the influence of local officials. In the case of Kawasaki Steel, as the authors point out, the sintering plant was not erected in Japan because of the widespread protest of the Japanese people over pollution associated with its operation. Important as the initial transfer of technology is the extent to which the TNC, as transferer, facilitates the movement of the new technology into the rest of the economy. This diffusion process can occur in several ways: licensing agreements, copying (with the TNC serving as a model), subcontracting, management and technical advice on a free basis or otherwise, and transfer of employees to locally-owned firms, among others. A study was undertaken in the early 1970's of licensing agree-

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merits between, foreign firms and firms registered in the Philippines (Virata 1972b). Magallona points out that the majority of licensing agreements identified are between a TNC and a local firm in which it has substantial equity interest (1977, p. 121). In such cases, how useful is the transfer of technology to the society? Diffusion of transferred technology, however, cannot only come about in the direct manner Magaliona speaks of, but also made indirectly by subsidiaries sourcing inputs locally and/or providing technical assistance, to their suppliersor to other local firms. Mason believes that most of the influence of U.S. firms in the Philippines is indirect, exerted through competition. There are only rarely forreal mechanisms to transfer technical or managerial knowledge of U.S. subsidiaries to Filipino firms. He concludes that there is "little evidence that [Filipino] practices were strongly influenced by U.S. fnTns regardless of the type of relationship whether it be competitor, customer, supplier, or licensor" (1969, pp. 169-70). Lindsey's results are similar. Only one-fourth of the responding finns in his survey believe that their production methods have served as a model for other firms in the economy. Also, only a few managers said that their firms had assistedlocal companies over the past five years (1981a, pp. 30, 75). Finally, as we shall discussin the next section, there appears to be relatively little transfer of workers and managers from TNC-affiliated to domestically-owned firms. Overall, the conclusion must be that there is relatively little transfer of technology occurring and that that which is taking place to a great extent remains under the control of TNC's. If you will, it exists in an enclave. This situation is in part a consequence of the simple process-technology that is being transferred. There is tittle room for horizontal or vertical linkages or skill development (Allen 1973b, p. 29). But, of course, there are other reasons. To the extent that the position of TNC's is due to their worldwide system of operations, they are going to be reluctant to engage in local sourcing that might initially be less profitable. Also, they are going to be reluctant to part with technologies over which they have monopolistic control. For example, Lasserre and Boiset (1980, p. 60) point out that European TNC's in their investments and licensing agreements in the ASEAN region use coding of raw materials, purchase agreements, knowhow, and patents to protect their technologies.

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The subject of appropriateness of translbrred technology is an important one in the literature, although it is not always discussed under this heading. We are using the term here in its general meaning, including but not limited to the intermediate technology usage. Some discuss the issue as one of correct factor proportions; the transferred technology is too capital intensive. Others argue that TNC's are transferring only labor-intensive, standardized technology to take advantage of cheap, unskilled labor. The difference in Views is to some degree one of insufficient infermarion. More important, however, is that there are two issues involved, although this is not always apparent from the discussions. Those who argue that TNC's are using overly capital-intensive production processes - taking either a neoclassical, factor proportions or an intermediate technology approach - draw attention to the ext_nt of unemployment (and perhaps skill availability) and the low level of saving in the Philippines. The important issue to this group is a domestic one, and the solution demands a more labor-intensive industrialization process than now exists. The literature on this topic is considerable, but since it is concerned with investment in general and not just that portion initiated by foreigners, we shall not take it up. The dominant issue to those holding the other view is as much political as economic, international as domestic. Transferred technology is not compared with some hypothetical alternative in which the stock of machinery and equipment of the same valuation would fully employ the labor force. Rather', it is compared with the larger pool of technology that exists in the world or that is owned by TNC's. It is in this sense that the technology being transferred is labor intensive. Unemployment is not the issue. Rather, it is the "deleterious attempts of global enterprises to effect a new international division of labour . . . " (Constantine 1978, p. 229). The present pattern of foreign investment by TNC's has created an tindesirable situation for Third World countries. "Technology, on which they rely as a means of achieving independence, becomes a medium of dependence. This trend, at any rate, prevents the host country from taking the path of independent development" (Magallona 1977, p. 129). Lindsey (1981b) argues that this technological dependence results from the partial nature of the transfers. A discussion of the theories of development of those who take a more orthodox economic approach and those who bring in pofitical

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and social factors, and an inquiry into the theoretical debates involved, would take us far beyond our purpose. However, in ending this section, we will briefly summarize one investigation that used a political economy approach. Tadem (1978) looks at the demand in Japan for fishery products available in the Philippines and the involvement of Japanese in the Philippine fishing industry. Trade involves fishery products flowing both ways: the Philippines exports raw fish and imports canned mackerel and sardines (quality fish in exchange for cheaper kinds). He argues that the Japanese foreign assistance, investment, and loans are not used to modernize the Philippine fisheries industry for the benefit of Filipinos, but are designed for increasing production for export for the Japanese market. The author draws particular attention to Japanese involvement in the development of the fishing port of Navotas and the displacing effect on Filipino workers and marketers. He concludes by emphasizing the need to view Japanese interest in the Philippine fisheries industry in the context of the overall economic strategy of Japan towards the Philippines. XI. TRAINING AND SKILL DEVELOPMENT In almost any list of the beneficial effects of foreign investment, particularly by multinational firms, manpower development and training will be ranked rather high. There is a widespread view in the Philippines, both within the private sector and without, that transnational firms have played a key role in the development of high level manpower in the economy. There also appears to be a consensus that foreign investment contributes substantially to increasing the pool of skilled workers. In this section we will review the literature that makes reference to the subject. It is a general complaint among industrialists in the Philippines that there are shortages of workers with required skills and that training institutions and universities do not provide sufficiently or properly trained technical graduates. Foreign-owned firms are no exception, although the shortages do not appear to be sufficiently acute, according to Mason, to require alterations in production methods (1971, p. 57; see also Ngo 1980, p. 9). It should be mentioned, however, that in reading the literature it is difficult to separate complaints about insufficient numbers or training of entry level personnel of various skills, on the one hand, from complaints about the lack of experienced workers, on the other.

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Moreover, the area of complaint must be rather small. In the firms Lindsey interviewed, unskilled workers account for an average of 42 per cent of the firms' work forces, a figure that is increased to around 63 per cent if the office staff is included. Skilled workers average just under 25 per cent of the work force, while supervisors and professional and managerial staff accounted for 4 per cent and 9 per cent, respectively (1981a, p. 38). This latter group, the ones to whom most training is directed, comprise only slightly more than one-third of the total. Snow reports that of the 15 mostly small to medium sized f'trms that he interviewed in the Bataan Export Processing Zone (only two of which had no foreign-owned equity), 13 have no formal orientation program before sending workers to the shop floor. The majority use supervisors, "line leaders," and others to teach newcomers. The emphasis is on discipline and socialization to the standards of the workplace. With the major exceptions of the Ford stamping plant and a textile mill, over 85 per cent of the workers are women, usually young. The workers are generally taught only one specific task. If a worker learned to make an entire garment, one manager reasoned, she would probably leave the factory and set up her own shop. Snow goes on to say that "the managers of the companies operatingin 1975, with few exceptions, confLrmed that relatively few sophisticated skills were being taught" (1977, pp. 97-101). Allen notes that the technologies being used by American and Japanese investors are generally simple processes in which there is little development of the skill of the work force. In the export-oriented industries, for example, Japanese firms usually manufacture products that are at the cheaper, less sophisticated end of the market where there is strong price competition. Cheap labor with few skills is employed (Allen 1973a, pp. 30-31; 1973b, p. 29). Ten of the 18 fLrmS surveyed by Mason provide some training: on-the-job, short courses, seminars, and specialized training abroad. Only seven of them (four American-owned and three Filipinoowned), however, have a formal budget for training, and it is small, ranging from 0.4 per cent to 3 per cent of the wage bill (Mason 1969, pp. 139-42). Alsaaty (1973, pp. 66-73) reports that 80 per cent of the foreignowned firms in his sample have some type of training program, and half of this group has sent at least two Filipinos abroad during the 1966-70 period. However only about 9 per cent of the workers

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in these firms had some training during the 1966-70 period. Programs average two months in duration with most of the efforts directed towards management and technical personnel. The average budget for these programs was 0.2 per cent of the firms' net sales. Nineteen firms surveyed by Lindsey provided information on their training practces. An equivalent of almost 40 per cent of these companies' total 1979 work force received at least some training during the past five years. The significance of this figure, however, is lessened when job turnover is taken into account; the average duration of employment is only six years. A large majority of those trained (70 per cent) are production workers, but they receive mostly on-the-job training. The training period for this group ranged from two to three days to over a year and a half, with an average of about two weeks. On the other hand, professional and managerial staff, about 9 per cent of the responding f'trms' work force, accounted for almost one-half of the participants' full-time training programs. The median duration of such programs is four to five weeks, double that of the on-the-job training programs. Lindsey also found that there was a rather narrow range of skills demanded by TNC employers: mostly machine operators, carpenters, mechanics, and other repairmen. In most areas there is an existing pool of skilled manpower. The foreign-owned firm sees itself primarily as upgrading or "focusing" the skills, rather than enlarging the local pool. Finally, the employers reported that both skilled workers and managers are not, by and large, transferring from TNC firms to domestic firms. Tho_e employees changing jobs, if they are not going abroad, are transferring to other TNC firms (1981a, pp. 46-59). Ngo Huy Lien (1980, p. 13) finds the same pattern. Mason notes that American-owned and Filipino-owned firms differ in their staff'mg methods, skill mix, and perception of areas of skill shortage. U.S. ftrms employ a relatively larger proportion of their labor force in executive, technical and semi- or unskilled categories, while Filipino firms used relatively more professional and skilled employees. He suggests that the difference might be partly because U.S. firms produce technically mote sophisticated products. Standardization also plays a role. U.S. firms have long experience in the production of technically refined products and have developed well defined procedures for their production under a wide variety of... they can employ low level skills in the production pro_ss.

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At the same time, however, to see that the proceduresare being propedy followed and implemented, a larger input of supervisory talent is required (1969, pp. 128-30).

At the beginning of this section, it was remarked that there is the general perception that TNC's have contributed to the development of managers in the Philippines. Although this appears to be the case, at least in comparison with the extent of training of skilled workers, there has been considerable discussion as to whether Filipinos are actually allowed to assume the reins of power. See, for example, Espiritu (1977, pp. 13-14). This is in part a question of control, but it also involves training and development of managerial capabilities. So, we will _ke it up here. Forty per cent of the firms Alsaaty interviewed employ expatriate personnel, with the larger firms having the larger number (1973, pp. 74-76). Allen reports that in joint ventures with significant Japanese equity, Japanese personnel normally occupy the key positions, citing lack of trained manpower as the reason. American firms f'md it essential to bring in outsiders during the early stages of an operation. However, as locals are trained, the U.S. personnel are replaced. In addition, some local staff are sent abroad for training (1973a, p. 25; 1973b, p. 25). Lindsey (1981a, pp. 39-40) also inquired into this issue. Twentysix f'u'mssupplied information, eight of which say they are completely Filipirdzed. Five more employ a foreigner only in the top position. At the other end of the spectrum, three executives said that more than five expatriates are generally employed at one time in their rums. The usual reason given for the employment of expatriates is the lack of qualified Filipinos. Lindsey found upon inquiry that the situation is more complicated: company policy is important, as is home office judgement, as to whether a local qualified person is available; some executives explained that hiring policies were currently changing and that foreigners were being phased out; a few referred to long-standing prejudices (of their predecessors); and one was worried about the impact on the pay structure of Filipino employees if a Filipino was brought into a high paying position. Some, in justifying the local employ of foreigners, point to the seconding of Filipinos abroad (1981a, pp. 42-44). In joint ventures, the employment of expatriates in high positions raises unique issues; the distinction between training ar/d doing it

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one's own way becomes blurred. A series of studies have come out of the Third World Studies Center at the University of the Philippines discussing the cultural and management problems of joint ventures in the Philippines, particularly between Filipinos and Japanese (Tsuda 1977; David 1978; David and Tsuda 1978; and David and David undated; see also Lasserre and Boiset 1980). The Japanese feel that the family-run style of business is the source of much difficulty and is the most backward feature of Filipino business. They feel that Filipino owners are too authoritarian, personally making decisions, thereby not allowing the development of good managers. This is intensified by the lack of an institutionalized promotion process. The emphasis on short-term growth is felt to be counterproductive at the micro level (long-run profitability) and at the macro level (development of the Philippine economy). The low pay of workers and repressive measures of Filipino employers result, in the view of the Japanese, in submissive employees who neither work hard nor have a commitment to the firm. Filipinos, on the other hand, see their Japanese counterparts as narrow minded and rigid. They feel that the contractual agreements involve overly restrictive clauses and that equipment imported by the â&#x20AC;˘ Japanese partner are often older models or second hand. The Japanese technical advisors at times "counter manage" the workers in the factory. And, the Japanese do not want the Filipinos to compete with Japanese firms on the world market. Finally, inasmuch as the Japanese often bring more to the joint venture than the Filipino loans, markets, raw materials, technology - their relative power in the organization is greater than that which the Japanese/Filipino equity ratio would suggest. XII. MONOPOLY,POWER,AND INFLUENCE Many foreign investors, particularly the transnational corporations, are sufficiently large to have a significant impact upon the economic environments in which they operate. There is concern that the TNC's engage in business practices that are to their advantage in their worldwide operations, but are detrimental for the economic development of the host countries. What precisely constitutes such behavior is not easy to define; L. Bautista, however, provides a description. The precise coverage of restrictive business practices would not be possible. Restrictive pragtizes have grown out of the circumstances in which the enter-

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priseshave found themselves.As a result, it has beenvery difficult to come up with the definitionthat wouldcoverall restrictivepractices.Theyareeasierto define, however, when discovered.With the changing methods of trade and business, new types of restrictivebusiness practiceshave surfaced. Based on existing practices there are five broad categories of restrictive businesspractices: (1) the collaboration of enterprises by means of restrictive agreementsor the establishment of so-called"cartels" to impose conditions on the market, which are beneficial to themselves and frequently detrimental to other enterprisesor consumers;(2) abuse of dominant market power; (3) growth in market through acquisitions, mergers and takeovers;(4) existence of monopoly or the growth of monopoly through internal expansion by the enterprise itself; and (5) practices directly affecting consumers. Of these practices, multinational firmsin developingcountries have often been accusedof practicesin categories 1 to 3 (1977, pp. 142-43). Espiritu (1977, pp. 57-58) mentions the following specific areas of concern in the Philippines: restrictions on exports of local f'Lrms (product, geographical market, and/or brand name), either at all or without prior approval of the TNC licensor; tied4n purchases of raw materials; restrictions on method of production; payment of minimum royalty and other fees; patent process improvement by licensee accruing to licensor; agreements construed and disputes settled according to laws of other countries; and restrictions on termination of agreements. Several studies have examined the possibility of monopolistic behavior by TNC's in specific industries. One of these has been conducted on the banking industry. The opening of the commercial banking system in April 1973 gave rise to some concern. Lava (1976) examines the size of the resulting financial flows for the three-year period ending in 1976, as well as the impact upon decision-making in the banking system. In 1976 he e.sfimates that almost 30per cent of the net worth of the private commercial banks was foreign-owned. The inflow of equity capital and counterpart loans for the three years was about 5 per cent of total foreign exchange receipts. Although this might have had some positive impact on the balance of payments in the short term, he questions the long-term benefit. The capital inflow, he feels, did help to moderate the recession arising from the 1973 oil crisis, and it had little inflationary impact. Although the foreign banks probably influence the operations of the banks in which they invest, it does not appear that they axe able to control bank policies. Finally, Lava are _es that the solution to problems of stability of the banking system in the Philippines is not increased size of individual banks. Rather it is the removal of

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corrupt or incompetent management. Two studies deal specifically with the automobile industry. Both give a background on the development of the industry in the Philippines, including the creation of the Progressive Car Manufacturing Program. Laxa et al. (1979) discuss the state of technology in the local industry, including the increase in the amount of subcontracting. They examine the practice of using a deletion allowance approach to pricing and the impact on car prices as local content increases. They point out that although the TNC's in the industry have consistently reported losses, locally-owned firms have reported profits. Ohara is more concerned with the world strategy and operations of transnational auto manufacturers, and he looks at their operations in the Philippines in light of this: the Progressive Car Manufacturing Program (PCMP); the development of an "Asian" car; and the local content and pricing policies of the manufacturers. He examines the operation of Ford Motor Company in some depth, particularly its world market strategy. Ohara feels that its strategy is based on two opposing principles. First, Ford attempts to maintain as direct a control over its overseas subsidiaries as possible. He quotes the President of Ford Asia-Pacific and South Africa as saying in 1972 that the company had no plans of selling stocks of Ford Philippines to Filipino investors, adding that "the top managers of the company would not want any dilution in the management of Ford Motor Company's international operations" (1977, p. 176). Second, the company tries to overcome the limits of national boundaries and cultural differences. As a Vice-President of Ford put it: "It is our goal to be in every single country there is. We at Ford Motor Company look at a world without boundaries. We don't consider ourselves basically an American company" (p. 176). Ohara _identifies economic nationalism as it pertains to the automobile in terms of "a people's acquisition of the technological ability and the productive means to manufacture cars" (p. 189). He then argues that the PCMP and the operations of the transnational automobile firms do not significantly contribute to the realization of this aspiration. Rather, the TNC's try to present "the goal of world industry and the Filipino dream of nationalism.., as one and the same thing" (p. 189-90). It is, in Ohara's view, unthinkable that the specialized production _n the Philippine automobile industry will be expanded by the TNC's under the PCMP guidelines to

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complete domestic production. On the other hand, attempt by the TNC's to tie nationalist aspirations to a consumption pattern based on a preference for foreign products and a vision of the Philippines as a "motorized society" has a distorting effect on Filipino culture and society (p. 193). There has been one major investigation of licensing agreements, particularly those that potentially limit exports. The survey covers 527 firms with foreign-owned equity and/or technical collaboration agreements with foreign firms in the period ending in 1970 (Virata 1972b; p. 1-9). The sampling method is not discussed; therefore, one must be careful in drawing conclusions. For example, Magab lena points out that the majority of the agreements summarized in the study are between TNC's and their local subsidiaries or branches and f'm'ns in which they hold the majority of the equity. He draws the following conclusion: These points clearlyshow that transferof technologyin the Philippines,as dominatedby the TNCs,is a misnomer.It is a misleadinglabel forintracorporate transactions,indicatingthat if there is any technologytransferredthis is cloneby the TNCsto themselves.Licensingagreementsin the handsof the TNCs are not arm's length transactionsbut arecontracts in which both the licensorandlicenseeare thesamecorporateinterestorperson(1977,p. 121). It is not with the logic of MagaUona's point that we quibble; in fact, we agree. Rather it is the link with Virata's data. Surely the sample is large enough to he of interest and importance. However, since we do not know the population or sampling method, we cannot make a judgement as to how representive the data are. More importantly, it is well-known that subsidiaries and parent f'LrmS do not need formal agre, _ents; they are, as MagaUonapoints out, the same corporate interest or person. His point is as relevant to purported transfer of technology without agreements as it is to those with agreements. Finally, it is a bad proxy, in our view, to use the number of licensing agreements as a measure of technology transfer. Without knowing their contents, as well as the extent of implementation, there is no way of knowing much about the nature or extent or usefulness of the technology covered by the agreement. Virata (1972b, pp. 10-12) provides a short summary of the royalty fees paid under the contracts, but inasmuch as information was not available on 40 per cent of them, it is difficult to arrive at conclusions. The most important part of the work is that dealing with restric-

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tire clauses. Half of the 254 agreements surveyed contain restrictive clauses: 82, or almost two-thirds, involve export restrictions, and 67, or over 50 per cent, include tie-in purchases of raw materials (p. 12), Examples are given for the automobile, pharmaceutical, and petroleum industries. "The [pharmaceutical] industry is foreign-dominated and details of licensing agreements between subsidiaries and parent companies have not been made public; most often, the agreements consist of informal instructions from a parent to a subsidiary "" (1972b, p. 18; emphasis added). Lindsey (1981a, p. 84) finds the same type of informal arrangements with respect to exports in some of the firms that he interviewed. Managers say they cannot export to many areas without encroaching on the market of their parent TNC or another of its subsidiaries or affiliates. In the automobile industry, there is widespread use of "deletion allowances," the practice of subtracting the price of a part deleted from the overall price of an imported, completely knocked down automobile. Ohara (1977, p. 175) points out that the deletion allowance is usually set at a price far lower than the price of the same component imported as a spare part. Thus, a process of transfer pricing exists. Virata's concern is more with the impact on local manufacturing. "Since the major components are not available locally, it would be to the advantage of the licensee to import the entire package . . . " (1972b, p. 17). He concludes by pointing out the seriousness of the issue of tied-in purchases since it involves very large amounts of foreign exchange. The same is true, of course, for restrictions on exports. Others mention the problem of restrictive agreements in passing. David and David (n.d.) note that the Filipino partners of joint ventures with whom they spoke complain about the restrictive clauses between the joint venture and the Japanese TNC partner. They give as example the need to obtain the express consent of the TNC before entering into business relationships with other companies, and controls over product development. In 1977 and 1979, E. Bautista published articles on the drug industry in the Philippines, the latter one in collaboration with Clemente. The articles are quite critical, pointing to the dominant share of the market in the hands of TNC's; the limiting of domestic production to compounding and packaging (95 per cent of the industry's raw materials being imported); the lack of local R & D,

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the unnecessarily high cost of imports (transfer pricing), the high profits, dividends, and royalties repatriated; and the overuse of brand, rather than generic, names. Examples of the cost of importation of specific drugs by TNC subsidiaries versus the cost of importation by non-TNC drug firms are given (E. Bautista 1977; Clemente and Bautista 1979). The Drug Association of the Philippines, in an undated paper, replied to the Clemente and Bautista paper. It argued that the expenditure on drugs in the Philippines is not unreasonable, that much of the data presented by Clemente and Bautista were wrong, and that the use of generic drugs is not to be preferred over brand name drugs. Unfortunately, the debate has not been pursued. It is an important issue, and further inquiry would increase substantially our knowledge of the role of foreign investment in the Philippines. The issue of transfer pricing has been taken up by others. Langley examines the operations of the petroleum industry in the Philippines in the 1950's and 1960's. She concludes that the Philippines was a "captive market" of the oil TNC's and that the average f.o.b, price in the Philippines was substantially higher ($0.30 to $0.40 per barrel) than that paid by independent buyers or by countries with more bargaining power. Although the country gained by importing crude and refining it domestically (the industry estimated this at $25 million in the mid-1960's), this gain was reduced significantly through the process of transfer pricing estimated by Langley to be in the order of $I0 million (1970, pp. 40.41). Dang (1977, pp.102-3) makes the following comment on price setting in joint ventures in Taiwan and the Philippines. â&#x20AC;˘.. the parent retained control of this function [price determination]although the degree of flexibility of the subsidiaryvaried from company to company. Some firms recommended a set of prices to the parent for approval.Others simply presented cost data to the parent who determined the worldwidepricing strategy for all affiliates. And still others adopted formulae provided by the parent in their dealings with distributors in overseasmarkets. Regardlessof the degree of local autonomy, price policies were coordinated at regionalmeetings and ultimately were decided upon at the parent level. In one case, the poor profit performance of one subsidiaryin the sample could be partiallyattributed to the fact that 95% of its exports had been made to or through the parent and affiliated companiesand yet it wasconstrainedin the determinationof sales prices. Dang also found that the TNC parent dominated both importing and exporting decision-making. They "exercised a high degree of control

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over import versus local content policies .... " and the bulk of the overseas sales of the local firm were made to related companies of the TNC (pp. 108, 100). Mention should be made of the study made by the Corporate Information Center of the National Council of Churches which "explores the nature and extent of American multinational investment in the Philippines and its relationship to the economic development policies of the Philippine government, and martial law" (1973, p. 6). The work includes several industry studies, including fruit products, automobiles, petroleum, rubber, banking, timber, mining, and sugar. Also there are chapters on the history of American investment in the Philippines and on the reaction of American f'u'ms to martial law. The material, while broad in scope and interesting, is largely introductory. Most of the information is from newspapers and other secondary sources. Joint ventures have been promoted as one means of transferring control of productive resources to local capitalists. In his study of joint ventures in Taiwan and the Philippines, Dang casts doubt on this view. Defining control in terms of the degree of autonomy of the local firm from its affiliated TNC and the relative roles of the local partner and the TNC managers, Dang concludes that there is no relationship between the proportion of foreign ownership and the extent of control exerted by the TNC. The reason is "simply because in almost all cases, the local partners contribute little beyond capital investment .... Furthermore, the local partners are often not interested in management of the firm. Rather, they consider the investment as diversification strategy in their personal investment portfolio" (p. 225). The implication here is that, one, economic resources within the Philippines are concentrated in the hands of a relatively few local capitalists, and two, it is these capitalists that are the primary jointventure partners of foreign investors. Lindsey has shown that the structure of Philippine manufacturing is highly concentrated. For 1970, the three-establishment value added concentration ratio averaged 36 per cent at the two-digit ISIC level of aggregation. In addition, a significant part of the interindustry_ difference in price-cost margins is explained by value added concentration (1977, pp. 308-9). Elsewhere, he examines the relative size of firms in Philippine manufaeturing. In 1970, over half of the total assets of the 500 largest manufacturing firms was accounted for by the 60 largest ftrms and

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over 60 per cent of the assets of the latter was controlled by the 20 largest firms (1979, pp. 190, 192). Doherty (1979, p. 100) approaches the subject from a different direction, going beyond Lindsey's work by looking at the pattern Of control over the corporate sector. He brings together a considerable amount of information on interlocking directorates between 12 commercial banks and various corporations in the economy. It is not designed to be exhaustive; rather, as the title states, it is preliminary. Nonetheless, the.links between the banks, especially five of them, and the financial, manufacturing, commercial, and service sectors of the economy are considerable. The 12 banks have 684 director inter. locks with 305 enterprises. Many of the identified enterprises are foreign-owned or have foreign equity. Although not the major purpose of his monograph, Doherty does point to the interlocking directorates between these firms and the 12 banks, thus showing which local capitalists are linked with particular foreign firms. The work ean be criticized in several ways. First, it is not clear why, in the Philippines, banks should be the organizing unit around which control and interrelatedness are examined. Second, given the importance of forefgn investment in the economy, it could have been given more attention. Third, its organization and exposition leave something to be desired and some obviously incorrect comments could be omitted, Nevertheless, as a preliminary study the work by Doherty succeeds in providing a considerable amount of information. Tsuda (1978), in ,avery interesting study ,of Japanese-Filipino joint ventures, also _shows the dominant participation of the Filipino elite. He identifies :25,."leadin$" Filipino paxtnors and 21 "other'" Filipino partners, on the one hand, and 6 major Japanese business groups (the kigyo-shudan), on the other. Sixty-eight major joint ventures between the Japanese business groups and the Filipino partne/s account for 81.6 per cent of Japanese investment in all JapaneseFilipino joint ventures. Fifty-eight of these were with the 'leading" Filipino partners, accounting for 78.4 per cent of all Japanese investment. Forty of the 68 were among the 1,000 largest firms in the Philippines in 1976, as were four other Japanese-Filipino joint ventures (pp. 79, 151-15 ). It should be noted that in attemp.ting to view Japanese investment in the Philippines as dominated almost entirely by joint ventures,

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Tsuda includes Kawasaki Steel's Philippine Sintering Plant in Mindanao. Accounting for 44.7 per cent of all Japanese investment in the Philippines at the time of Tsuda's study, its Japanese equity was 짜478.6 million. In contrast, the Philippine government had invested la300; this is 0.0000627 per cent of the total (p. 34). Obviously the Philippine equity participation is insignificant although the size of the sintering plant demands that it be included in studies of Japanese foreign investment in the Philippines. One could argue that the negotiations surrounding the investment by Kawasaki and the creation of the Philippine Veterans Investment and Development Corporation to purchase the land on which the sintefing plant sits, involve "jointness" in the investment project (see Kido 1977). But the case is not made in Tsuda's work. This should not detract significantly, however, from the information that he has presented. The concentration of Filipino joint-venture partners among the Filipino elite can be explained by referring to the factors that Japanese investors emphasize in selecting partners: access to capital, access to raw materials, access to markets (including third country markets), and durability and/or access to political influence (David and Tsuda 1978). It is obviously the elite that has the wealth and business and political connections to meet these requirements. Cagampang-de Castro (1977, p. 163) discusses a legal reason for the concentration and suggests a possible solution. The bias.which the system has in favor of joint venturessupportsthe idea of a few large local and foreign enterprises dominating the business environment. In an economy where wealth is concentrated in a smallpercentage of the population and business organizations commonly in the form of close family corporations, these same interests continue to be the only availablepartners of foreign investors who can do business only through joint ventures with Filipino interests. As long as Philippine anti-trust policy is within the framework of penal law, prompt control of anti-competitive practices will not be possible. The establishment of a central administrative body charged with investigating and evaluating anti-competitive effects of certain business practices is necessary. Finally, we wish to refer to studies whose focus is not so much on the aggregate benefits and costs of foreign investment or on the traditional concerns of economists studying monopoly; rather the subject of these papers is the impact of the TNC on the lives of the people, an d the environment in the immediate vicinity of its operations. The\consequence of a very unequal power relationship is stark. Snow (1977) interviewed workers, mostly immigrants, in Mafiveles near the Bataan Ex_ott Processing Zone. He presents information on their

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background, attitudes, and patterns of living. Kido (1977) discusses the displacing of entire barrios to make way for the Philippine Sintering Plant. The industry receiving the most attention, however, is fruit products: the pineapple and banana industries in Mindanao. It is not, perhaps, that the behavior of firms in this industry is significantly different from firms in other industries. Located away from industrial centers, however, the consequences of their actions axe more apparent to the observer. Friesen and Stolzfus (1978) discuss the impact of two subsidiaries of Castle and Cook, DOLEFIL (Dole Philippines) and STANFILCO, on the areas in Mindanao where they operate pineapple and banana plantations. They describe the lease agreements between these two TNC subsidiaries and the government-owned National Development Corporation (NDC), on the one hand, and local farmers, on the other. The rental of t_63 per hectare from NDC appears rather low to the authors. They argue that although General Santos City has become a business town, the lives of individual farmers involved with the two growers have not improved. Further they feel the ecology of the land is being upset by erosion and the use of chemicals. The high technology being used is inappropriate for the state of local development and needs of the community. In addition, the two firms exert â&#x20AC;˘monopoly control in the market for agricultural inputs such as fertilizer and the marketing of pineapples and bananas. The power of the TNC is such that there is little the local inhabitants can do, Broad (1980), in an article provocatively entitled "Our Children Are Being Kidnapped," discusses the expansion of corporate farming in Bukidnon and its impact on the people being displaced. She focuses particularly on the activities of the local subsidiary of Del Monte, Philippine Packing Corporation, She details the role of land speculation, the connivance of individuals of the Bureau of Lands, the intimidation of the people, and the detailed language of the growers agreements. Finally, the most comprehensive of these studies is the report on the banana industry by David et al (1981). The development of the banana industry in Mindanao is explained; its dependence upon Japan and the vicissitudes of that market axe discussed; and the technical, economic and social problems of production are explored. The three American and one Japanese TNC's involved in growing and marketing use different approaches. United Brands is associated with only one grower. I)Â˘1 Monte uses nine corporate farmers, while the

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Castle and Cook subsidiary, STANFILCO, uses 350 or so small growers. There are many complaints about the nature of the growers agreements, particularly with STANFILCO. David et al., in contrast with the two articles just mentioned, link the impact of the TNC on the inhabitants of the pineapple and banana growing area with the economy at the world level. The authors explain that there are many problems associated with rapid growth of Philippine operations; both because of the growing Japanese market and because of the Philippines capturing the shares of Ecuador and other Central American countries. However, the market has recently peaked. Rising input and failing market prices are placing a squeeze on both producers and marketers. David et al. argue that the agreements which the TNC's have with the growers place most of the uncertainty on the latter. In addition, the size of the TNC's gives them the power to protect themselves at the expense of growers, many of whom are in debt and hence at the mercy of the TNC's. XIII. SUMMARYAND CONCLUSIONS To the average person on the street there is relatively little criticism of foreign investment, although particularly egregious acts are not ignored and the Japanese generally come in for more scrutiny than the Americans. The style of business with which the TNC's are associated, the apparent modernness of their factories, and, of course, their obvious success in identifying their products in the eyes of the consumer with success and development, are subject to admiration if not awe. All of this may be less today than it was 25 or 30 years ago, but it is there. However, when we turn to literature, we fred it to a considerable extent, critical. Why is there this discrepancy? Part of the reason can be attributed to perspective. For some success at the individual level - person, family, and/or firm - is the dominant concern; all else is by the way. Others who try to take a social perspective feel there is a close parallel, if not one-to-one correspondence, between the needs, priorities, and goals of foreign investors (or perhaps business enterprise in general) and those of the national economy. The problem is to place the latter in consonance with the former. Histoi_ and observation, however, have convinced many that the situation is better characterized in terms of incongruities and con-

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flicts than in terms of harmonies. The studies reviewed here by and large :support this view. The argument that foreign investment has made Substantial contributions to the economic development of the Philippines is a weak one; significant costs and minor benefits are more the order of things. It may well be that the particular topics which we reviewed in arriving at this conclusion - and they are the ones which proponents and critics alike have focused - are not the proper ones. If so, we would be interested in seeing both argument and data. Not all the blame for the current state of affairs should be laid at the door of the TNC's, however. For example, it is unrealistic to expect foreign-owned enterprises to contribute significantly to the reduction of unemployment and underemployment by hiring a large number of workers. Their presence is simply not that great. On the other hand, it is not too much to expect them to contribute more to employment indirectly - as well as to industrial development in general - by increased local sourcing. In other areas, it is unclear whether the contribution of TNC's should be improved: their capital contribution is a case in paint. The data on net equity capital movements and the associated income flows, as well as transfer pricing and other monopoly rents, suggest that there may be an excessive drain of domestic resources. However, to completely reverse this outflow on a sustained basis would necessitate a very rapid growth of foreign investment. Whether this is practicable or desirable is surely debatable. Management training is the one area in which there is geaaeral agreement that a substantial contribution has been made. Although home-country personnel still hold the top position(s) in some TNCaffdiated firms, the use of expatriates doesnot appear generally to be a contentious issue. Rather it is concern about the locus of decision-making: to what extent does the local firm have autonomy in making decisions that are in its interest in the context of the local economy, and to what extent does the home office of the TNC, with its global perspective and interest, control the actions of its affiliate? Transfer of technology, including the development of a skilled work force, is an area of research in which the surface has just been scratched. What has been done, however, is not encouraging. The simple, last stage production processes that are employed; the insignificant diffusion of the transferred technology to domestic firms,

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and the monopoly advantages that accrue to the TNC-affiliated firms from their knowledge of the production processes, as well as from their accumulation of experience, limit the potential benefit of foreign investment to the national economy. In addition, the concentration of wealth and control of productive assets that exists in the Philippines may have contributed to the current state of affairs. In the introduction to this review, readers were warned that few of the topics covered have been adequately researched, and in most areas our knowledge is rather thin. Nowhere is this more true than in the subject of the balance of payments contribution of foreign investment. There are adequate data on capital and associated income flows; the existence of a sustained net outflow is generally agreed upon. However, little is known of the impact of importsubstitution, exports, transfer pricing, management, royalty and other fees, and so forth on the balance of payments. From our reading of the data we conclude that, at least in a quantitative sense, foreign investment must be considered a significant element in the Philippine economy. This is more true in an aggregate sense in the colonial and commonwealth periods than currently. But Filipinization notwithstanding, firms with foreign-owned equity are among the largest and most important in mining and in many manufacturing industries. How closely they should be identified with the pace and pattern of Philippine economic development, however, has not been sufficiently examined. Another area that has been widely discussed but insufficiently described or analyzed is the role that government policy-makers envision for transnational firms in their economic development plans, the purpose, of the policies designed to impact upon the activities of foreign investors, and the relationship between the role envisioned and policies implemented, on the one hand, and the behavior of TNC's, on the other. It is unclear to us precisely what is desired or expected from foreign investment, and to what extent success has been achieved. Neither is it clear what conclusions should be drawn from the critics of foreign investment in the Philippines: what alternative course of development is pictured; what must occur for it to succeed; what will be the role, if any, of foreign investment; and what are the chances for success? Crystal ball gazing or completely worked out scenarios are not necessary, but the presentation of idoas and

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analysis subjected to scrutiny would be useful. It is only when we understand the nature of the economic development process which both the proponents and critics of TNC's feel is most appropriate for the Philippines, and the role they envision for foreign investment in that process, that we can place their analysis and conclusions in perspective. As we have tried to show, there has been considerable analysis of foreign investment in the Philippines. However, much more needs to be undertaken, and it needs to be linked with studies on other areas of the economy and with the economic development of the country in general.

BIBLIOGRAPHY Many ofthereferences listed beloware, unfortunately, unpublished; others arenoteasily located. To minimize search efforts forthosewishing togainaccesstothese materials, we haveindicated thelibraries intheMetroManila area wherewe foundthem.Onlyonelibrary islisted foreachdocument, although itmay befoundinseveral places. Some items am personal copies. Theymay be available inlocal libraries; we didnotcheck. Also,we lookedfora reference first attheSchoolofEconomics Library attheUniversity ofthePhilippines. If itwasnotthere, onlythendidwe lookelsewhere. The following abbreviations are used: UPAC - Univer_ty of the Philippines,AsianCenter Library UPALEC - University of the Philippines, Asian Labor Education Center L_rary UPBA - Universityof the Philippines,College of BusinessAdministration Library UPLC - University of the Philipl_aes, LawCenterLibrary UPMF - University of the Philippines, FilipinianaSection of the MainLibrabry UI_ L - University ofthePhilippines, MainLibrary UPSE - University of the Philippines, School of EconomicsLibrary UPTW - University of the Philippines, ThirdWorldStudies Center. AIPC - Ateneo de Manila University,Institute of PhilippineCulture Library ARL - Ateneo de ManilaUniversity,RizalLibrary CRC - Centerfor Researchand CommunicationLibrary.

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Allen, Thomas W. Direct Investment of Japanese Enterprises in Southeast Asia: A Study of Motivations, Characteristics andAttitudes. ECOCEN Study No. 1. Bangkok: Economic Cooperation Centre for the Asian and Pacific Region, 1973a, UPSE. ._ . Direct Investment of United States Enterprises in Southeast Asia: A Study of Motivations, Characteristics and Attitudes. ECOCEN Study No. 2. Bangkok: Economic Cooperation Centre for the Asian and Pacific Region, 1973b. ___ . Direct Investment of European Enterprises in Southeast Asia: A Study of Motivations, Characteristics and Attitudes. ECOCEN Study No. 3. Bangkok: Economic Cooperation Centre for the Asian and Pacific Region, 1973c. • "Policies of ASEAN Countries Towards Direct Foreign Investment." SEADAG Papers 74-4. New York: Southeast Asia Development Advisory Group of the Asia Society, 1974• Alsaaty, Falik M.H. "The Impact of Foreign Private Direct Investment on the Economic Development of the Philippines." Ph.D. dissertation, New York University, 1973, UPMF. Aseniero, George C, "Multinational Corporations and Technology Transfer." In Multinational Corporations in the Philippines, edited by Wflfredo Clemente, Froilan B. Bacu_gan and Federico Laxa. Mimeographed. Makati: Technology Resource Center, 1979• UPMF. Bacu_gan, Froflan, and Research Associates. "The Regulation of Tranmational Corporations in the Philippines." Quezon City: College of Law, University of the Philippines, 1978. Bantegui, Bemardino. "AspeCts of U.S. Investments in the Philippines: CY 1956CY 1965." Mimeographed. Manila: National Economic Council, 1965. UPSE. Bautista, Esteban B. "Multinationals and the Drug Industry in the Philippines," Law and Development (177): 181-98. Journal issue also published as Philippine Perspectives on Multinational Corporations by Augusto Caesar Espiritu et al. UPE Bautista, Lilia. "Restrictive Business Practices of Multinational Corporations," Law and Development (1977): 139-54• Journal issue also published as Philippine Perspective on Multinational Corporations by Augusto Caesar Espiritu et al. UPSE. • "Multinational Corporations and Philippine Policies on Foreign Investment." In "Multinational Corporations in the Philippines," edited by Wilfredo Clemente, Froilan B. Bacungan, and Federico Laxa.Mimeographed. Makati: Technology Resource Center, 1979• UPMF. Bos, H.C., Sanders, Martin; and Secchi, Carlo. Private Foreign Investment in Developing Countries: A Quantitative Study on the Evaluation of the Macro-Economic Effects. International Studies in Economics and Econome-

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tries, Vol. VII. Boston and Dordrecht, Holland: D. Reidel, 1974. UPSE. Broad, Robin. "Our Children Are Being Kidnapped," Bulletin of Concerned Asian Scholar 12 (1980): 2-9• Bulatao, Edmundo. "Wage Effects of Foreign Investments," Philippine Economic doumal XII (1973): 271-93• UPSE. • Business Day's 1000 Largest Corporations (Annual). Quezon City: Enterprise Publications, UPSE. • Business Review. (Manila: Faculty Club of the College of Business Administration, University of the East). Cagampang-de Castro, Soledad Monteroso. Foreign Business Enterprise in the Philippines: A Study of the Legal Framework in a Developing Economy. Quezon City: Multiplex Publamark, 1977. UPSE. CaUls, Helmut G. "Foreign Capita] in Southeast Asia." Mimeographed. New York: International Secretariat, Institute of Pacific Relations, 1942. UPMF. Callis, Hehnut G. "Capital Investment in Southeast Asia and Philippines," Annuals of the American Academy of Political and Social Science 226 (March 1943): 22-31• ARL. Canlas, Guillermo M. Jr. "The Legal Aspects of Foreign Investments in the Philippines," Philippine Law Journal 52 (1977)• UPLC. Central Bank of the Philippines. Annual Report. Manila. UPSE. Clemente, Wilfredo, and Bautista, Esteban. "The Cost of Technology Transfer: The Case of the Philippine Drug Industry." In "Multinational Corporations in the Philippines," edited by Wilfredo Clemente, Froilan B. Bacu_gan, and Federico Laxa. Makati: Technology Resource Center, 1979. Mimeographed. UPMF. Clemente, Wilfredo II; Bacu_gan, Froilan; and Laxa, Federico, eds. "Multinational Corporations in the Philippines." Makati: Technology Resource Center, 1979. Mimeographed. UPML. Columbia University. "Joint International Business Ventures in the Philippines." Mimeographed. Manila, 1958• (The material in this study was incorporated into Joint International Business Ventures, edited by Wolfgang Friedman and George Kalmanoff. New York: Columbia University Press, 1961.) Study undertaken by the following members of the Social Economy Association: Joachim Ahrensdorf, Quirico Camus, Jr., Amado Castro, Armand Fabella, Benito Legarda, Jr., Thomas R. McHale, and Sixto K. Roxas. UPSE. Comtantino, Renato. "Global Enterprises and the Transfer of Technology." In Neocolonial Identity and Counter.Consciousness by Renato Constantine, pp. 227-45. London: Merlin Press, 1978. Corporate Information Center. The Philippines: American Corporations, Martial Law, and Underdevelopment. New York: fIX)C, Corporate Information Center of the National Council of Churches of Christ in the U.S.A., Report No. 57, 1973. UPSE. Cumagun, Antonio G. "Multinational Corporations and the Economic Develop-

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ment of the Philippines as a Host Country: The Need for a Policy Framework." Manila: Jose P. Laurel Memorial Foundation and Center for Research and Communication. Mimeographed. CRC. Dasari, Dakshinamurthy. "Balance-of-Payments Effects of Direct Foreign Investment: A Case Study of the Philippines." Ph.D. dissertation, New York University, 1972. UPMF. David, Randolf. "Aspects of Filipino Experience with Transnational Corporations." Third World Studies Center. Philippines in the Third World Papers Series No. 7. Quezon City: University of the Philippines, College of Arts and Sciences, 1973. UPTW. David, Randolf, and David, Karina. "Multinational Management in Ten Philippine-Based Corporations: A Sociological Study." n.d. UPTW. David, Randolf; Rivera, Temario C.; Abinales, Patricio N.; Teves, Oliver G., and Resabal, Procopio S. Jr. "Transnational Corporations and the Philippine Banana Export Industry." Third World Studies Center Commodity Studies No. 2. Quezon City: University of the Philippines, College of Arts and Sciences, 1981. Mimeographed. UPTW. David, Randolf and Tsuda, Mamom. "The Policies of Major Japanese-Filipino Joint Ventures: A Sociological View." Third World Studies Center. Third World Paper Series No. 8. Quezon City: University of the Philippines, College of Arts. and Sciences, 1978. Mimeographed. Also in Wilfredo Clemente et al. eds., "Multinational Corporations in the Philippines." UPTW. Doherty, John F. A. Preliminary Study o[ Interloeking Directorates Among Financial, Commercial, Manufae'turing, and Service Enazrprises in the Phil. ippines. Manila, 1979. Draper, Charles. Private Foreign Investment in ASEAN: A Study of Trends, Policies, Incentives and Impediments. ECOCEN Study No. 7. Bangkok: Economic Cooperation Centre for the Asian and Pacific Region, 1974. Drug Association of the Philippines. "A Case Study on the Pharmaceutical Industry: Reply of the Drug Association of the Philippines to the Case Study Ineluded in the Volume: Multinational Corporations in the Philippines." Mimeographed. n.d. Espiritu, Augusto Cesar. "A Filipino Looks at Multinational Corporations," Law and Development (University of the Philippines Law Center 1977): 1-97. (Journal issue also published as Philippine Perspectives on Multina. tional Corporations by Augusto Cesar Espiritu et al. )UPSE. et al. Philippine Perspectives on Multinational Corporations. Quezon City: University of the Philippines Law Center, 1978. This book is the 1977 issue of Law and Development (University of the Philippines Law Center). UPSE. Friesen, Dorothy, and Stolzfus, Gene. ,Castle and Cook in Mindanao." Third World Studies Center. Third World Studies Discussion Paper No. 5. Quezon

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City: University of the Philippines, College of Arts and Sciences, 1978. Mimeographed. UPTW. Gleeck, Lewis E. Jr. American Business and Philippine Economic De_lopment. Manila: Carmelo and Bauermann, 1975. UPMF. Golay, Frank H. "Economic Collaboration: The Role of American Investment." In Philippine-American Relations, edited by Frank H. Golay, pp. 95-124. Manila: Solidaridad Publishing House, 1966. Originally published as The United States and the Philippines. Englewood Cliffs, New Jersey: Prentice ttall, 1966. UPSE. (,olay, Frank H. "The Philippines." In Underdeoelopment and Economic Nationalism in Southeast Asia, edited by Frank H. Golay et al., pp. 21-110. Ithaca: Cornel] University Press, 1969. UPSE. (;olay, Frank. Talk at 1980 Tagaytay Seminar(sponsored by the U.S. Embassy). Punta Baluarte, Batangas, July, 1980. Gordon, Wendell C. "Foreign Investment," University of Houston Business Review (Fall 1962). Henares, Hilarion M. Jr. "Financial Structure and Capital Movements of Foreign Corporations in the Philippines." In "Multinational Corporations in the Philippines," edited by Wilfredo Clemente, Froilan B. Bacungan and Federico Laxa. Makati: Technology Resource Center, 1979a. Mimeographed. UPMF. Hymer, Stephen H. The International Operations of National Firms: A Study of Direct Foreign Investment. Cambridge and London: The MIT Press, ! 976. UPSE. lnamura, Raiji. "Philippine Industrialization: Plant Imports and Direct Investment from Japan and the United States," Monthly Report (Tokyo: Research Institute of Overseas Investment, The Export-Import Bank of Japan), Special Issue (MarCh 1978). International Labour Office. Sharing in Development: A Programme of Employment, Equity and Growth for the Philippines. Geneva: International Labour Office, and Manila: National Economic and Development Authority, 1974. UPSE. ltchon, G. "Statistical Inquiry into Postwar Foreign Investments in the Philippines." Master's thesis, University of the Philippines, 1958. UPSE. Kassalow, Everett M. "Aspects of Labor Relations in Multinational Companies: An Overview of Three Asian Countries," International Labour Review 117 (1978): 263-87. UPSE. Kido, Junko. "Philippines: Kawasaki Steel Corporation's Sinister Plant in Mindanao." In Free Trade Zones and Industrialization of Asia, a special issue of Ampo: Japan.Asia Quarterly Review (Tokyo 1977): 120-38. Kindleberger, Charles P., and Lindert, Peter H. International Economics, 6th ed. Homewood, Ill.: Richard D. Irwin, Inc., 1978. UPSE. Landes, Haru; and Landes, James E. "Divestment of U.S. Equity and L:"ld Holding in the Philippines, 1970-1976." Reprint from Aoyama Keieal

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Renshu 2 Aoyama Economic Review, 29, Nos. _L 2-4 and 30, No. 1 (October 1977-June 1, 1979. (In English). Langley, Kathleen M. "The Economics of the International Petroleum Industry and the Economy of the Philippines," The Philippine Review of Business and Economics VII (29-58. UPSE. Lasserre, Philippe; and Boiset, Max. "The Transfer of Technology from European to ASEAN Enterprises: Strategies and Practices in the Chemical and Pharmaceutical Sectors." Fontainebleau, France: Euro-Asia Centre, INSEAD (European lnstitue of Business Administration), 1980. Lava, Horacio C. "Transnational Banking Corporations in the Philippine Commercial Banking System." Quezon City: University of the Philippines, College of Business Administration, 1976. Mimeographed. UPSE. Laxa, Federico; Cordenas, Egidio; Federizon, Ramon; and Gesmundo, Marcia. "The Philippine Automobile Industry." In "Multinational Corporations in the Philippines," edited by Wilfredo Clemente, Froflan B. Bacungan, and Federico Laxa. Makati: Technology Resource Center, 1979. Mimeographed. UPMF. Lichauco, Alejandro. The Lichauco Paper: Imperialism in the Philippines. New York; Monthly Review Press, 1973. UPSE. Lindsey, Charles W. "Concentration in Philippine Manufacturing, 1960-1970." Ph.D. dissertation, University of Texas at Austin, 1976. UPSE. "Market Concentration in Philippine Manufacturing, 1960-1970." Philippine Economic Journal XVI (1977): 289-312. UPSE. -;"Size Structure, Turnover, and Mobility of the Largest Manufacturing Firms in a Developing Country: The Case of the Philippines," Journal of Industrial Economics 28 (1979): 189-200. UPSE. --; "The Development Contribution of Multinational Firms in the Philippines: A Summary of A Survey of 28 Firms." Discussion Paper 81-06. Quezon City: University of the Philippines, School of Economics, 1981a. UPSE. -. "Technology, Skill, and Economic Development." In process, 1981b. AIPC. Magallona, Merlin M. "Transnational Corporations: Toward a Definition of a National Economic Security Problem and its Resolution," Law and Development (University of the Philippines Law Center, 1977): 98-133. (Journal issue also published as Philippine Perspectives on Multinational Corporations by Augusto Caesar Espiritu et al.) UPSE. Mason, Robert Hal. "The Relative Factor Proportions in Manufacturing: A Pilot Study Comparing U.S..Owned Subsidiaries and Local Counterparts in the Philippines." Discussion Paper. Washington: United States Agency for International Development, May 1969. UPSE. __ . "Some Aspects of Technology Transfer: A Case Study Comparing U.S. Subsidiaries and Local Counferparts in the Philippines," Philippine Economic Journal IX (1970): 83-108. UPSE.

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. The Transfer of Technology and the Factor Proportions Problem: The Philippines and Mexico. UNITAR Research Report No. 10. New York: United Nations Institute for Training and Research, 1971. UPAC. __ . "Some Observations on the Choice of Technology by Multinational Firms in Developing Countries," Review of Economics and Statistics 54 (1973): 349-55; IPSE. McDougald, Charles C. "Multinational Corporations ill the Philippines, 1978." Prepared for the American Chamber of Commerce in the Philippines. Mimeographed. (The 1980 draft of this paper contains a more encompassing list of firms with foreign-owned equity.) Morales, Rhodora S. "Employment and Wage Effects of MNCs in the Philippines." Undergraduate thesis, University of the Philippines, 1975. UPSE. NEPA (National Economic Protectionist Association). "Papers and Proceedings of the Forum on 'The Role of Foreign Investment in National Progress,' " March, 1974. Ngo Huy Lien. "Transfer of Technology Through Foreign Firm: Possibilities and Limitations." Paper presented to the Joint Seminar of the Institute for Development Studies, University of Santo Tomas and Institut fur Entwick. lungs-politik, University of Freiburg, Federal Repubhc of Germany, 17-21 March, 1980, Manila. Ohara, Ken. "Strategies for the Asian Regionalism - Wodd Auto-Industries and National Governments." In Free Trade Zones and Industrialization of Asta, a special issue of Ampo: Japan-Asia Quarterly Review (Tokyo, 1977): 169-97. Pascua, Maria Divina Almoradic. "Multinational Corporations in the Philippines: An Annotated Bibliography." Master's thesis, University of the Philippines, 1978. UPML. Paterno, Vicente. "Multinational Corporations and Host Governments," Law and Development (1977): 134-38. Journal issue also published as Philippine Perspectives on Multinational Corporations by Augusto Cesar Espiritu et al. UPSE. Philippines, Bureau of the Census and Statistics. Economic Census of the Phih'ppines, 1961. Manila, 1965. Philippines, Industry Survey Committee. "Survey of Foreign Participation in Philippine Industry." Manila, 1967. Philippines, Inter.Agency Working Group. "Foreign Investment Study: Case Study of 70 Firms in the Philippines." Mimeographed. 1972a. __ . "Study of Private Foreign Investment in the Philippines (as of l)ecember 31, 1970)." (This is a pamphlet summarizing information in the "Interim Report" and other studies.) 1972b. UPSE. __ . "Study of Private Foreign Investments in the Philippines: Interim Report." Mimeographed. 1972c.

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CharlesW. Lindsey & Ernesto M .Valencia

Philippines, Technical Committee to the President of the Philippines. AmericanPhilippine Trade Relations. Report TC-1. Washington, 1944. UPML. Poblador, Niceto. Foreign Investment in the Major Non-Financial Corporate Sector of the Philippines, 1964 and 1965. Quezon City: University of the Philippines, 1971. UPSE. Ramos, Elias T. "Trade Unions and Multinationals." ALEC Report (Asian Labor Education Center, University of the Philippines) IV (1974):7-12. UPALEC. Ramos, Elias T. "The Union, the Kumpadre System and Dualistic Plant.Level Industrial Relations," Philippine Review of Business and Economics XI (1978): 39-56. UPSE, Robinson, Richard D. National Control of Foreign Business Entry: Survey of Fifteen Countries. New York: Praeger Publishers, 1976. UPSE. Sicat, Gerardo P. "Incentives and Foreign Investments." Chapter 10 of Economic Policy and Philippine Development. Quezon City: University of the Philippines Press, 1972. UPSE. Snow, Robert Thomas. "Dependent Development and the New Industrial Worker: The Case of the Export Processing Zone in the Philippines." Ph.D. dissertation, Harvard University, 1977. AIPC. Stauffer, Robert B. "Trasnational Corporations and the Transnational Political Economy of Development: The Continuing Debate." Mimeographed. 1979. Philippine Journal of Public Administration (forthcoming). UPTW. Stikker, Dirk U. "The Impact of Private Foreign Investment." In Asian Development Bank, Southeast Asia's Economy in the 1970s. New York: Praeger Publishing, 1971. UPSE. Subido, Chita Tanchoco. "Employment Effects of Direct Foreign Investment," Philippine Economic Journal XII (1973): 251-70. UPSE. __ . "Determinants of Direct Foreign Investments," Philippine Economic Jouraal XIII (174): 231-59. UPSE. "Determinants of Direct Foreign Investment in the Philippines." Ph.D. dissertation, University of the Philippines, 1975. UPSE. Ph.D. dissertation, University of the Philippines, 1975. UPSE. __ . "Industrial Policies and Foreign Investment: The Philippine Experience." In Industrial Policies, Foreign Investment and Labor in Asian Countries. Proceedings of the 1.977 Asian Regional Conference on Industrial Relations. Tokyo: The Japan Institute of Labor, 1977. UPALEC. Surapath, Tiamchai. "U.S. Direct Investments in Philippine Manufacturing Industry." Master's thesis, University of the Philippines, 1965. UPSE. Suva Martin, Felipe. "United States Direct Investment in the Philippines." Ph.D. dissertation, Massachusetts Institute of Technology, 1972. Tadem, E.C. "Japanese Interests in the Philippines' Fishing Industry." Third World Studies Center, Philippines in the Third World Papers, Series No. 6. Quezon City: University of the Philippines, College of Arts and Sciences, 1978. UPTW.

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231

Tan, Edita A. "Media for Skills Formation," Philippine Economic Journal XVIII (1979): 230-55. UPSE. Torres, Ruben. "Multinational Corporations and Philippine Labor," Law and Development (1977): 162-80. Journal issue also published as Philippine Perspeeffves on Multinational Corporations by Augusto Caesar Espirity et el. (A different version of this article appeared in Wilfredo Clemente et al., "Multinational Corporations in the Philippines.") UPSE. Tran Thanh Dang. "Ownership, Control and Performance of the Multinational Corporation: A Study of U.S. Wholly-owned Subsidiaries and Joint Ventures in the Philippines and Taiwan." Ph.D. dissertation, University of California.at Los Angeles, 1977. Tsuda, Mamoru. "Understanding Industrial Relations in the Philippines: The Perspective of Resident Japanese Investors," Tale Industrial Relations Bu//effn 2 (1977). UPTW. Tsuda, Mamoru. A Preliminary Study of dapane_-Filipino Joint Ventures. Quezon City: Foundation for Nationalist Studies, 1978. UPAC. Tsuda, Mamoru; Tiglao, Rigoberto D.; and Atienza, Edith Sangalang. "The Impact of Multinational Corporations in the Philippines." Part I: "Profile of TNC Corporations and their Philippine Operations"; Part II: "A Study of Major Foreign and Foreign-Affiliated Corporations in the Philippines"; Part III: "A Review of Foreign Investment in the Philippines"; Part IV: "Bibliography of Materials on the TNCs in the Philippines." Quezon City: University of the Philippines Law Center and the U.S. Asian and Pacific Development Administration. 1978. Mimeographed. UPLC. United Nations, Joint CTC/ESCAP Unit on Transnational Corporations. "Monitoring and Regulating Transnational Corporations in the Philippines." WorkingPaper No. 11. Bangkok, 1980. United States, Department of Commerce. "Investment in the Philippines: Conditions and Outlook for the United States." Study prepared by Ada V. Espenshade. _Vashington,D.C., 1955, UPSE. "U.S. Business Investments in Foreign Countries." Washington, D.C., 1960. UPSA. _. "Revised Data Series on U.S. Direct Investment Abroad, 1966-1974." Washington, D.C. .8uruey of Current Busine_z. (In recent years foreign investment statistics have appeared in the August issue.) UPBA. United States, Tariff Commission. United $[utes-Philippine Tariff and Trade Re. lations. Report No. 18, second series. Washington, D.C. 1931, UPMF. . United States.Philippine Trade. Report No. 118, second series. Wa_a_tington,D.C., 1931. UPMF. Valdepcnas, Vicente Jr. "Foreign Operators in the Philippine Economy," Philippine Stu&'es 18(1970): 546-57. UI_E. ViUegas, Bernardo M. "Multinational Corporations and Transfer of Technology: Or How to Squeeze Every Ounce of Appropriate Technology from the Mul-

232

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tinational Corporations 'Toothpaste Tube.' " Mimeographed. Published in Economics and Society Series A (1976). CRC. Villegas, Bemardo M.; Lorenzo, Pastor Jr.; and Mendoza, Leonardo F. Jr. "The Multinational Corporation in the Philippines." Manila: Center for Research and Communication, 1977. Mimeographed. CRC. Villegas, E,M. "Foreign Investments and the Multinational Corporations in the Philippines," Philippine Social Science and Humanities Review, 42 (1978): 27-55. UPTW. Virata, Cesar. "Foreign Investment in Developing Countries: The Philippines." In Direct Foreign Inoestment in Asia and the Pacific, edited by Peter Drysdale, pp. 258-68. Canberra: Australian National University Press, 1972a. lAPSE. . Restrictions on Exports in Foreign Collaboration Agreements in the Republic of the Philippines. New York: United Nations Conference on Trade and Development, 1972b. . "A Ministerial Opinion," Asian Finance 1 (1975): 42-43. UPSE. Yoshihara, Kunio. "Foreign Business Interest in the Philippines: The Compilation of Data on Ownership by Nationality." Quezon City: University of the Philippines, School of Economics, February, 1971a. Mimeographed. UPSE. "The Philippine Manufacturing Corporations: The Compilatior of Financial and Ownership Data." Quezon City: University of the Philippines, School of Economics, March 1971b. Mimeographed. UPSE. "Foreign Business Interest in the Philippines: The Compilation of Data on Ownership by Nationality (Revised)." Quezon City: University of the Philippines, School of Economics, April 1971c. Mimeographed. UPSE. . "The Control of Philippine Manufacturing and Mining Corporations: Data Compilation." Quezon City: University of the Philippines, School of Economics, May 1971d. Mimeographed. UPSE. __ . "A Study of Philippine Manufacturing Corporation," The DeoelopingEconomies 9 (1971e): 268-89. UPSE.

Public Finance in the Philippines: A Review of the Literature

Rosario

G. Manasan

1. INTRODUCTION The area of public finance is one of special interest to policymakers primarily because of the obvious relationship between public finance and fiscal policy. Fiscal policy is, of course, one of the two major policy instruments (the other is monetary policy) available to the government in its effort to influence the various economic agents, to act in the direction it deems most conducive to economic development. If fiscal policy is to be effective, it is imperative that. policy-makers have a firm grasp and a better understariding of the various issues on public finance. It is the purpose of this paper to take a first step in bridging this gap by reviewing the existing literature in the field of public fmance in the Philippines.1 For purposes of organization, the said Research Fellow, Philippine Institute for Development Studies. 1. This paper does not pretend to be exhaustive and I wish to apologize to the various authors whose works have not been included in this survey.

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RosarioG. Manasan

area is divided into four main headings: (1) taxation, (2) government expenditures/government savings, (3) the budget system, and (4) public debt. A section is devoted to each of these major topics, and is broken down into two parts, one containing a historical perspective of the main heading and another which is devoted to a discussion of the various issues related to the main heading as gleaned from the existing works in the field. Section 6 presents a summary of the other chapters as well as a discussion of the research gaps in public finance.

2. TAXATION 2.1 Eoolution aria the PresentStrueture of Philippine Taxes In this section, we will take a look at developments in the Philippine tax scene over time. In particular, changes through the years and the existing structure and characteristics of the various tax categories will be considered. 2.1. I Direct Taxes Direct taxes are those that are imposed directly on the taxpayer. The burden of these taxes is not in general passed on to others. They are levied based on the ability-to-pay principle. Direct taxes may fall into the following categories: (1) personal income tax, (2) corporate income tax, (3) transfer taxes, and (4) others. 2.1.1.1

The Personal Income Tax

All citizens of the Philippines, whether residing in the country or not, with gross afinual income of at least t_1,800 are subject to the personal income tax. Resident citizens are taxed at steeply progressive rates based on their taxable net income derived from sources within the Philippines and abroad. The present rate structure starts with a 3 per cent tax rate on taxable income less than 1_2,000 and rises through a total of 37 steps to a maximum of 70 per cent on taxable income over 1_500,000 (Table 1). This structure has been in effect since 1968. Prior to 1968, a slightly simpler structure of 23 graduated rates ranging from 3 per cent to 60 per cent prevailed, From 1950 to 1959, the rate on the first income braeket was 5 per cent.

Public Financein the Philippines

235

Table I. The Personal Income Tax Rate Schedule Net TaxableIncome (_,er but not over I_ 2,000 4,000 6,000 8,000 10,000 ! 2,000 14,000 16,000 18,000 20,000 24,000 28,000 32,000 36,000 40,000 46 000 52 000 58 000 64 000 70 000 78 000 86 000 94 000 102,000 110,000 120,000 130,000 140,000 150,000 160,000 180,000 200,000 250,000 300,000 400,000 500,000

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 24,000 28,000 32,000 36,000 40,000 46,000 52,000 58,000 64,000 70,000 78,000 86,000 94,000 102,000 110,000 120,000 130,000 140,000 150,000 160,000 180,000 200,000 250,000 300,000 400,000 500,000 -

Tax rates of excess over It

60+ 180 + 360 + 600 + 880 + 1,200 + 1,560 + 1,960 + 2,400 + 2,880 + 3,960 + 5,160 + 6,480 + 7,920 + 9,480 + 12,000 + 14,640 17,400 + 20,280 + 23,280 + 27,440 + 31,760 + 36,240 + 40,800 + 45,440 + 51,340 57,340 + 63,440 + 69,640 + 75,940 + 88,740 + 101,749 66 134,740 + 168,240 + 236,240 + 350,240 +

Source: NationalInternalRevenueCode (NIRC)of 1977.

3% 6 9 12 14 16 18 20 22 24 27 30 33 36 39 42 44

48 â&#x20AC;˘50 52 54 56 57 58 59 60 61 62 63 64 65 67 68 69 70

236

RosarioG. Manasan

Nonresident citizens are taxed at the same rate on their taxable net income obtained from Philippine sources and at a simpler and lower rate structure on adjusted gross income from abroad. The rates on foreign income of resident citizens are as follows: Not over $6,000 Over $6,000 but not over $20,000 Over $20,000

1% 2% 3%

Resident aliens are taxed on the basis of their taxable net income obtained from'both Philippine and foreign sources at the same rate structure applicable to resident citizens. Nonresident aliens are classified into two categories for income tax purposes: (1) those who are engaged in trade or business, and (2) those who are not. The former are taxed based on their Philippine-source net income at the same rates applicable to resident citizens and resident aliens. The latter are taxed at a flat rate of 30 per cent of gross income derived from sources within the Philippines. Net taxable income includes all items of income (e.g., salaries, wages , commissions, interest earnings, divluends, business or trade income, royalties, capital gains, etc.) net of allowable deductions and exemptions. Amorlg others, allowable deductions include the following: (1) medical expenses not exceeding 1%00 each for the taxpayer, his spouse and each dependent up to a maximum of t_2,000; (2) basic tuition fees of taxpayer's higli school-aged dependents up to 1_250 each and a total of 1_1,000; (3) expenses incurred in the operation of a business or in the practice of a profession; (4) interest payment; (5) losses sustained during the taxable years; (6) allowance for depreciation of property; (7) charitable contributions up to a maximum of 6 per cent of net income; and (8) 10 per cent of the gross income of a working wife but not exceeding 1%00. In addition to these deductions, single individuals are allowed t_3,000 (1_1,800 prior to 1980) as exemption while married individuals or heads of family are entitled to t_6,0(10 or t_4,500 (t_3,000 before 1980) exemptions, respectively, plus 1_2,000 for each dependent. The total number of dependents for which exemptions may be claimed is limited to four. These exemptions represent the minimum sum required for subsistence.

PublicFinancein thePhilippines

237

2.1.1.2 The Corporate Income Tax At present, the Philippines has a dual rate system of corporate income taxation. This system was first introduced in 1959, but over the years the rates have been increased. Since 1968 the rates have remained at the same levels: a basic rate of 25 per cent (previously 22 per cent) on the first 짜100,000 of the net income and 35 per cent (previously 30 per cent) of the excess over this amount. Domestic corporations are taxed at the dual rate system de, scribed above on the basis of net income in the Philippines as well as income from foreign sources. Resident foreign corporations are taxed at the same rates based on net income from sources within the Philippines while nonresident foreign corporations are taxed at a fiat rate of 35 per cent of gross income derived from Philippine sources.

In addition, a 10 per cent (5 per cent prior to 1980) tax called the development tax is imposed on the appropriate bases for: (1) domestic corporations with net income in excess of 10 per cent of net worth; (2) resident foreign corporations with net income in excess of 10 per cent of net assets in the Philippines; and (3) closely held corporations. Several classes of corporate enterprises receive special treatment. Building and loan associations aze taxed at a rate of 12 per cent of net income while privy're educational institutions pay a tax of 10 per cent of net income. Prior to 1973, most educational institutions were exempted from the corporate income tax. Likewise, domestic life insurance companies are taxed at the lower rate of 8.75 per cent of net inveslrnent income or at the regular corporate tax rates, whichever yields the higher tax. 2.1.1.3 Transfer Taxes Transfer taxes in the Philippines are of two kinds: (1) the gift tax; and (2) the estate tax. They are usually imposed as a means of achieving a redistribution of wealth for equity objectives. 2.1.1.3.1

The Gitt Tax

The gift tax is imposed on the right to transfer property during the lifetime of the transferor. It is levied on the donor of real or personal property, on the basis of the net taxable

238

Rosario G. Manasan gift appraised at its fair market value at the time of the gift, if made in the form of personal property, or in accordance with the valuation of local assessors, if made in the form of real property. The net taxable gift is estimated as the aggregate of gross gifts less exemptions made during a particular calendar year. The gross gift consists of all valid transfers of property from one person to another. The exemptions include: (1) gifts made to the children of the donor on account of marriage up to a maximum oft_10,000 for each child; (2) donation to charitable, religious, cultural and social organizations and institutions; and (3) gifts valued at less than P1,000. Since 1973 net taxable gifts have been taxed at a graduated rate schedule of 15 steps ranging from 1.5 per cent for net gifts between Pl,000 and t_50,000 to 40 per cent for net gifts over 1_3,000,000 (Table 2). In 1980, an additional clause was included in the legislation which provides that if the beneficiary is a stranger the tax payable by the donor shall be either the amount computed in accordance with Table 2 or 20 per cent of the net gifts, whichever is higher. A stranger is a person who is not a brother, sister, spouse, ancestor and lineal descendant or a relative by consanguinity within the fourth degree of relationship of the donor. Before 1972, the gift tax was imposed on both donors and donees but at different rate schedules. The donor's tax rate ranged from 1 per cent of gifts between leS,000 and t_12,000 to 15 per cent of transfers exceeding tel,000,000 over 10 taxable brackets. On the other hand, the donee's tax rates ranged from 3 per cent of gifts less than 1t12,000 to 22per cent of gifts over 1_1,000,000 over 10 taxable brackets. With the issuance of Presidential Decree (PD) 69 in 1972, the gift tax on the beneficiary was abolished.

Table2. TheGift Tax Rate Schedule

Over

If the net gift is but not over

1,000 50,000 75,000 100,000

50,000 75,000 100,000 150,000

Plus

735 1,360 2,110

1.5% 2.5 3 6

The tax is of Excess over

1,000 50,000 75,000 100,000

PublicFinancein thePhilippines

239

Table2 (Conlmued) I/the

Over

net giftis but not ove_

150,000 200,000 300,000 400,000 500,000 625,000 750,000 875,000 1,000,000 2,000,000 3,000,000

200,000 300,000 400,000 500,000 625,000 750,000 875,000 1,000,000 2,000,000 3,000,000 -

Plu_ 5,110 9,610 21,610 36,610 54,610 80,860 110,860 145,860 185,860 545,860 925,860

9 12 15 18 21 24 28 32 36 38 40

Thetax is of Excessover 150,000 200,000 300,000 400,000 500,000 625,000 750,000 875,000 1,000,000 2,000,000 3,000,000

Source:NationalInternalRevenueCodeof 1977.

2.1.1.3.2

The Estate Tax

The estate tax is imposed on the right of an individual (the decedent) to transfer property at death. It is levied on the net estate of a decedent appraised at its fair market value at the time of his death. Net estate is equal to gross estate less allowable deductions and exemptions. The gross estate includes all items of property of the decedent (personal or real) at the time of his death. Among others, the list of allowable deductions includes: (1) funeral expenses; (2) judicial expenses in the administration of the estate; (3) decedents debt; (4) income and real estate taxes incurred during the decedent's lifetime; and (5) transfers for public purposes. At present, the net estate is taxed at rates ranging from 3 per cent of net estate between P10,000 and i_50,000 to 60 per cent of net estate over i_3,000,000 over 15 taxable brackets (Table 3). Before 1972, the rate structure was less progressive with a rate of 1 per cent of net estate between ira5,000 and ltl2,000 and 15 per cent of net estate in excess ofl_l,000,000 and 10 steps in between. Also, before 1972, an inheritance tax (paid by the beneficiaries) existed hand in hand with the estate tax.

240

Rosario G. Manasan Table 3. The Estate Tax Rate Schedule If the net estate is

The tax is

Over

but not over

10,000 50,000 75,000 100,000 150,000 200,000 300,000 400,000 500,000 625,000 750,000 875,000 1,000,000 2,000,000 3,000,000

50,000 75,000 100,000 150,000 200,000 300,000 400,000 500,000 625,000 750,000 875,000 1,000,000 2,000,000 3,000,000 -

Source:

National

2.1.2

Indirect

Internal

Revenue

Plus

1,200 2,200 3,450 8,450 15,950 35,950 60,950 90,950 134,750 184,250 240,350 303,450 833,450 1,393,450

3% 4 5 10 15 20 25 30 35 40 45 50 53 56 60

Of Excess Over

10,000 50,000 75,000 100,000 150,000 200,000 300,000 400,000 500,000 625,000 750,000 875,000 1,000,000 2,000,000 3,000,000

Code of 1977.

Taxes

taxes

are

those

levied

on the

production

and sales

goods and ser_ices. The major indirect taxes are: (1) the sales tax, (2) the specific tax, (3) the export tax, and (4) the import duty. 2.1.2.1

The Sales Tax

The sales tax is imposed on all goods exchanged in the country, whether domestically produced or imported, other than those subject to the specific tax or excise duties, those subject to the miller's tax, and exports and imports for the use of the armed forces. Tax rates vary according to the "essentiality" and origin of the commodities on which they are levied. Nonessential and semiessential articles are taxed at 50 and 25 per cent, respectively. Ordinary commodities are subject to a 10 per cent tax rate while essentials are taxed at 5 per cent. This four-pronged structure is further complicated by the imposition of lower rates on the locally manufactured versions of certain goods relative to their imported counterparts. For instance, certain locally produced

PublicFinancein thePhilippines

241

semiessentials like refrigerators, freezers, television sets, phonographs, tape recorders, etc., ate subject to a graduated rate structure (with the tax rates varying according to the given commodity's gross selling price and ranging from 10 to 25 per cent) while the imported varieties of these same goods axe taxed at the fiat rate of 25 per cent. Likewise, locally manufactured automobiles are taxed at rates varying from 10 to 70 per cent while imported automobiles are taxed at rates ranging from 100 to 200 per cent depending on the price of the automobile. In the same manner, locally manufactured medicine, laundry soaps and detergents, processed meat, milk, fish and other seafoods, writing pads, notebooks and lead pencils are subject to the 5 per cent tax on essenrials while their imported counterparts are levied the ordinary rate of 10 per cent. In addition, agricultural products produced locally are taxed at 1 per cent while the imported kinds axe taxed at 10 per cent. The base of the sales tax on domestic manufactures is the gross value in money of said commodities. A tax credit for all sales, specific and mining taxes paid on raw materials, parts and accessories forming part of the f'mished product is granted to all establishments. On the other hand, imports are taxed on the basis of the home consumption value of the given commodity plus 10 per cent thereof plus customs duty plus a mark-up of 25. per cent on agricultural products, essential and ordinary articles, 50 per cent on semiessential articles, and I00 per cent on nonessential articles. Imports for personal use, however, axe charged a compensating tax at the same rate as the sales tax but without the markup. It should be noted that higher effective rates are charged on the imported than on the locally manufactured variety of any given commodity with even higher effective rates on imported nonessential commodities. This provides an additional element of protection over and above tariffs by discriminating against imports in the domestic market. Table 4 gives a summary of the sales tax structure which has been in effect since 1978. From 1969 to 1977 processed food, ordinary, semiessential and essential articles were taxed at 5, 7, 40 and 70 per cent, respectively, based on the gross selling price less the cost of raw materials previously taxed at the same rate as the f'mished product.

242

Rosario G. Manasan Table 4. The Structure of the Sales Tax

Rate

Commodities

50%

Jewelry, pearls, precious and semiprecious stones and imitations thereof; perfumes, essences, extracts, toilet waters, cosmetics, hair dressings, hair restoratives, and toilet powders; Dice, mahjong sets and playing cards; and juke boxes;

25%

Luggage, trunks, valises,traveling bags, suitcases; etc.; Harpsichords and accordions; Firearms and ammunitions; Electric, gas or oil water heaters, electric mixers, whippers, juicers, electric vacuum cleaners or polishers; Washing machines, cloth dryers; Mechanical lighters; Textiles of silk, wool or linen;nylonorothersynethetic and/or chemicalfabrics exceptthoseprimarily intended forclothing; Toysandplaythings ofallsorts; Beveragecoolers, ice cream cabinets, water coolers, food and beveragestorage cabinets, ice-making machines,and milk cooler cabinets; Airconditioning units; Electricity and/orbatteryoperatedbeautyequipmentand accessories; and Pianos, electric orelectronic musical organs.

10% 5%

All articles not enumerated elsewhere. Wheat flour; Poultry, swine and cattlefeeds; Cement; Locally processed meat, milk, t'Lshand other seafoods; Locally manufactured medicine; Locally manufactured laundry soap and detergents; and Locally manufactured

writing pads, notebooks

and lead pencils.

Public Financein the Philippines

243

Table4 (Continued)

Rate 1%

Commodities Locally produced agricultural products.

10% - 25%a Fountain pens and balipens; Chairs, sofas, beds, desks, book cases, cabinets, etc.; Watches and clocks; Electric fans and exhaust fans; Electric gas and off stoves and ranges; Phonographs, tape recorders, video-tape car stereos, cassette-radio;

recorders, tape decks,

Television sets; Refrigerators and freezers 10% - 70% Locally manufactured automobiles 100% 200%

Imported automobiles

a. g_aduatedrates of 10-25 per cent dependingon priceforlocally manufactu_d itemsgrid flat rate of 25 percent forimported items. Source: NIRCof 1977 as amendedby P.D. 1357 andP.D. 1358.

The classification somewhat different

of commodities under these categories was from the existing system, being less reflective

of the essentiality principle. 2.1.2.2

Specific

Tax

The principal specific taxes in the Philippines are those on tobacco, alcoholic beverages, gasoline, and off. Excise duties are imposed on both imports and domestic production, with higher rates for imports. Table country.

5 provides

a summary

of prevailing

specific

taxes in the Â˘t

244

RosarioG. Manasan Table 5. Specific Taxes in the Philippines

Rate

Product

TaxBase

(Peso)

1,000 cigarettes

3.00

" "

5.00 8.00

" " " " " " "

14.00 20.00 22.00 25.00 37.00 45.00 55.00

Tobacco products Cigarettes Packed in 30's Retail price less than I_0.90 per pack Retail price from PO.90 to ial.25 Retail price more than _1.25 Packed in 20's Retail Retail Retail Retail Retail Retail Retail

price price price price price price price

less than 111.40 from Pl.40 to 1_1.75 from 111.75 to 1a2.05 from t_2.05 to P2.40 from 1t2.40 to P2.85 from 1_2.85 to P3.35 more than P3.35

Domestic cigarettes mechanically wrapped or packed

150 per cent of above rates

Imported cigarettes

82.00

Cigars Wholesale price less than P30 per 1,000 Wholesale price from 1_30 to P60 Wholesale price more than P60

1,000 cigars " "

2.30 4.60 7.00

kg. kg.

0.60 0.75

Produced from local raw materials Produced from local raw materials

proof liter

2.40

by small distillers Imported or produced from imported raw materials

proof liter

1.56

proof liter

35.00

Chewing tobacco Other tobacco products Alcoholic beverages Distilled spirit

Public Financein the Philippines

245

Table 5 (Continued) _odua

Ra_ (Pl_so)

T_x_

Wines Sparkling wines Imported sparkling wines Still wines (less than 14 per cent alcohol) Imported still wines (less than 14 per cent alcohol) Still wines (more than 14 per cent alcohol) Imported still wines (more than 14 per cent alcohol) Beer Imported beer Petroleum products Gasoline Premium Aviation Regular Naphtha Kerosene Lubricating oil Diesel fuel oil Bunker fuel oil Aviation turbo jet-A

LeG LeG (motive power) Thinners/solvents Asphalts Grease/Petroleum/Waxes Process gas

Liter of volume "

12.00 26.40

2.00

4A0

4.00

" " "

8.00 1.20 2.40

Liter of volume " " " " " " " " "

1.10 1.00 1.00 1.06 .09 .80 .255 .05 .64

xii

.21

" Liter of volume Kilot_-.s Kilogram Liter of volume

.255 .61 .12 .50 .03

gross of boxes kilogram metric ton

0 ._ 0.30 0.25

Matches (not over 80 in box) Fireworks Coal and coke Cinematographic films (less than 16 mm. more than 16 ram) Saccharine

linear meter kilogram

Miscellaneous excises

0.255 030 75.00

246

RosarioG. Manasan

Table S (Continued) Note:

Quartzto literx .946 Gallonsto liter x 3.78533. Barrels to fiterx 158.98386. U.S. barrels to liter x 161. Source: NationalInternalRevenueCode, 1977.

2.1.2.3

Export

Tax

Initially, the export tax was imposed in May 1970 in the form of a stabilization tax, the main purpose of which was to sop up some of the windfall gains accruing to exporters as a result of the currency devaluation in 1970. As originally planned, the stabilization tax rates were scheduled to decrease annually from initial levels of 10 and 8 per cent to zero in 1974. However, in July 1973, the temporary stabilization tax was replaced by a permanent export tax. The export tax is levied on exports of mineral, wood, coconut, sugar and other products on the basis of the gross f.o.b, value at the time of the shipment. Table 6 gives a picture of the export tax rotes in the Philippines.

Table 6. Export Tax Rates Mineral Products Copper ore and concentrates Iron ore and concentrates Chromite ore and concentrates Cement Gold

6% 4% 4% 4% 4%

Wood Products Logs Lumber Plywood and veneer

10% 4% 4%

Coconut Products Copra Coconut oil Copra meal and cake Desiccated coconut

6% 4% 4% 4%

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247

Table 6 (Cont_md) SugarProducts Centrifugalsugar Molasses

6% 4%

OtherProducts Abaca Banana " Pineapl_leproducts Tobaccoproducts Shrimpsand prawns

4% 4% 4% 4% 4%

Source: Tariff and Customs Code.

2.1.2.4

Import Tax

The Tariff and Customs Code promulgated in 1957 governs the taxation of imports in the Philippines. Initially, its rate schedule consisted of 34 different levels ranging from 0 to 250 per cent, making the Code highly complicated and unwieldy in terms of administration. This resulted in rampant smuggling, misdeclaration, undervaluation, and misclassification. In 1972, the Tariff and Customs Code Was overhauled when Presidential Decree 34 took effect. The rate structure was simplified by instituting only six levels: 10, 20, 30, 50, 70 and 100 per cent. The decree also reduced the number of commodity categories qualified for preferential tariff rates upon submission of certification papers from 16 to 14. In 1980, the peak rates of 70 and lO0 per cent were reduced 2.1.3 Tax Incentives Legislation providing incentives to the development of domestic industries is not new in the Philippines. Since the termination of U.S. sovereignty in 1946, various tax incentive laws have been enacted as part of the government's industrialization scheme. The first such law passed in the postwar periodwas Republic Act (RA) 35 which granted "new and necessary" industries exemptions from certain internal revenue taxes for a period of four years from the date of their organization. 2 Initially, "new and necessary" was 2. Included were the residence tax, the fbxed privilege tax on business, advance sales tax on imported materials, real estate tax, the income tax, and the sales tax.

248

RosarioG. Manasan

rather broadly defined. However, during the early fifties the term "necessary industry" was delimited to mean an industry which would have imported material content of at most 50 per cent of the gross value of output and which could operate on a commercially profitable scale after exemption. RA 901 passed in 1953 supplanted RA 35 and broadened the tax exemptions from customs duties. Also, tax privileges were extended from four to six years with a four-year transition period, during which time the proportion of taxes to be exempted declined gradually to zero. Under this Act, a new industry was "one not existing or operating on a commercial scale prior to January 1, 1945." A "necessary" industry was taken to refer to one that (a) contributed to the attainment of a stable and balanced economy, (b) could operate on a commercial scale, and (c) did not require imported material inputs greater than 60 per cent of the gross value of output. 3 Among those industries which were actually granted exemptions, food industries, basic metal products, textiles, chemicals and electrical machineries ranked high in the number of product lines exempted. In 1961, the Basic Industries Law (RA 3127) was passed. It provided for diminishing tax exemptions on importations of machinery, equipment and spare parts made by "basic" industries until Decemder 1970. Eighteen industries were explicitly classified as basic. Later, RA 4093 amended the law by deleting 12 industries and adding 10 more. The Investment Incentives Act (RA 5186) of 1967 ig generally considered as the single most important incentive legislation passed in the Philippines. This created the Board of Investments to administer the act. It grants a wide range of fiscal and other benefits to firms investing in priority industrial sectors and registered with the BOI. Investments may be registered under two classifications: "pioneer" or "preferred." "Pioneer" enterprises are those which introduce new products or new processes to the Philippines. "Preferred" 3. Included were the following: iron and steel products, processed local fuels, chemicals, copper and alloy products, refractors, processed foods, textile and fiber manufactured from local raw materials, fertilizers, agricultural equipment, refrigerators and air-conditioning machinery, porcelain products, raw plastic materials, paper and paper products, medicinal and pharmaceutical products, rubber', manufactures, electrical motors, office and school equipmerits and supplies, household and kitchen utensils, industrial abrasives and others which could be manufactured from by-products and .Wa_es of local agricultural materials.

PublicFinance inthePhilippines

249

areasof investmentare thosein which existingcapaciWis deemed to fall short of domestic market demand and estimated export potential. The Export Incentives Act (RA 61.35) was passed in 1970 in order to accelerate the export promotion drive of the country. As a complementary measure to the Investment Incentives Act, it replacea and liberalized the export incentives granted in the former by extenaing various incentives to all exporters of manufactured export products registered with the BOI. As a prereqaisite to registration, the product must be listed as an export product in the Export Priorities Plan; or if such product is not listed in the Plan, at least 50 per cent of its sale must qualify as an export. Basic.zlly, there are thxee types of enterprises that axe qualified for registration with the BOI under RA 6135. They axe: (a) a registered export producer, (b) a registered export trader, and (c) a registered service exporter. After the declaration of martial law in 1972, several presidential decrees have been promulgated amending the two incentive legislations discussed above. PD 92 (January 1973) and PD 485 (June 1974) have in large part liberalized the incentives granted earlier. Among others, PD 92 allows for the deductionof expansion reinvestmerit regardless of whether or not the profit reinvested is re_llzed from registered operations; for the part time use of tax exempt capital equipment in nonregistered operations; for the. availment of special tax credit for an amount equivalent to the sales, compensating and specific taxes on semimanufactured products used in the production of export products for an indefinite period (instead of 10 years); for the additional deduction from gross income of onehalf of the value of labor, training expenses incurred for upgrading the efficiency of unskilled labor; and the additional deduction from taxable income of an amount equivalent to labor and local raw material costs up to a maximum of 25 per cent of export revenue. However, certain provisionsof the said decreesremoved or restricted the implementationof some of the incentivesgrantedby the two basicincentive laws.For instance,PD 92 abolishedthe doublededuction of promotional expensesand shippingcostsof exporting firms registeredunder RA 5186. Likewise, it limits the expansion reinvestmentallowancefrom 100 per cent to 25,37,5_and 50 per cent of the amount reinvestedin the caseof nonpi0_er projectsu and to 50, 75 and 100 per cent in the caseof pi0fieerprojects. PD 485 grantspartial (instead of full) exemption/from customs

250

Rosario G. Manasan

duties and compensating tax on imported capital equipment, withdraws or limits the incentives granted under RA 5186 and RA 6135 when the registered enterprise has a paid-up capital of at least P500,000 and earns, for at least two years, profits in excess of 33.5 per cent of equity. In January 1981, the Omnibus Investments Code was promulgated. The said Code revised, amended and codified the Investment Incentives Act, the Export Incentives Act and the Agricultural Incentives Act (which was instituted in June 1977 to provide fiscal incentives to the agricultural sector). Among other incentives, the Code grants registered firms the following: (1) tax deduction of organizational and preoperating expenses, (2) accelerated depreciation, (3) net operating loss carryover, (4) expansion reinvestment allowance, (5) tax deduction of labor training expense, (6) tax deduction of a portion of export sales or its increment, (7) tax deduction of direct labor cost and local raw material cost, (8) exemption from tariff on imported capital equipment, (9) exemption from the export tax, and (10) credit for taxes paid on domestic capital equipment. (See Table 7 for a comprehensive listing._

Table 7. Summary of Incentives Under the Omnibus Investments Code

Export Incentives Pioneer

A. Rights and Guarantees to Register Enterprises • 1. Basic fights and guarantees under the Constitution 2. Right to repatriate Invest. ments and •remit earnings 3. Righ t tO remit foreign exchange fo service foreign loans and obligations arising from technological assistanee c0ntraets 4. Freedom from expropriation of investment

b_rms Non.

•Nonexporffng l_rms Non-

Agricultural Firms

pioneer

Pioneer

pioneer

Non. pioneer

Public Financein the Philippines

251

Table 7. (Continued)

Incentives

Nonexportlng Agricultural Export Firms Firms Firm_ NonNonNonPioneer pioneer Pioneer pioneer Pioneer pioneer

5. Freedom from requisition of investment, except in event of war or national emergency and only for the duration thereof B. Incentives to Register Producer Enterprises 1. Deduction of organization. al and preoperational expenses from taxable income over a period of not more than 10 years from start o f operation 1 2. Accelerated depreciation 2 3. Carry-over as deduction from taxable income of

net operating losses incurred in any of the first 10 years for the year immediately following said loss X 4. Exemption from tariff duties and compensating tax on imported machinery X9 5. Tax credit for taxes withheld on interest payments on foreign loans 6. Tax credit for expenditures on infrastructure works5 7. Right to employ foreign nationals 8.q Deduction from taxable income in the year reinvestment was made of a certain percentage of the amount of undistributed

252

'RosarioG. Manasan

Table 7 (Continued)

Incentives

9. 10. 11.

12. 13.

Nonexpordng Agricultural Export Pirms Plrms Firms NonNonNon. Pioneer pioneer Pioneer pioneer Pioneer pioneer

profits transferred to capital stock for procurement of machinery and equipment and other expansion Anti-dumping protection protection from government competition Deduction of labor train: ing expenses from taxable income equivalent to one.half of said expenses but not more than 10 per cent of direct labor wage Tax credit on domestic capital equipment. 8 Exemption from all NIRC taxes except income tax 9

14. Post-operative tariff â&#x20AC;˘protection 15. Tax exemptions on importation of breeding stocks and genetic materials 16. Deduction of research and development expenses from "taxable income. 11 17. Additional deduction from taxable income of freight and transportation expenses. 12 18. Tax credits equivalent to sales, compensating and specific taxes and duties on supPlies, raw materials and semi-

X6, X

X7 X

X6 X

X7 X

X8 X

X "'

., X

Public Financein the Philippines

253

Table 7 (Continued)

Incentives

NonexportingAgrlcul_ral Export l_rms Firm_ FYrms NonNon. Non. Ploneer pioneer Pioneer pioneer Pioneer pioneer

manufactured products used in the manufacture, processing or production of export products X 19. Additional tax deduction of direct labor cost and local raw material cost. 13 X 20. Exemption from the percentage tax on sales for articles sold to another export producer or export trader 21. Exemption from export tax, impost and fees 22. Additional deduction from taxable incoxne of 1 per cent of incremental export sales provided a brand new name is used. 23. Preference in the grant of government loans

C. Incentives:to Export Traders 1. Exemption from any export tax, fee or impost. 2. Exemption from specific and sales taxeson products exported by iL 3. Tax credit equivalent to the amount of specific and sales taxes on registered export products bought by it from export producer and subsequently exported. 4. Additional deduction of 20 per cent of its total export sales 5. Additional deduction of I per cent of its total export sales provided

254

Rosario G. Manasan

â&#x20AC;˘ Table 7 (Continued)

Incentives

it extends

Export Firms NonPioneer pioneer

Nonexporting Agricultural Firms Firms NonNonPioneer pioneer Pioneer pioneer

financial assistance to a

registered export producer. 14 6. Deduction from taxable income expenses for establishing taining offices abroad.

and main-

D. Incentives to Service Exporter 1. Deduction from taxable income of 50 per cent of its total export fees. 2_ Tax credit equivalent on the amount of specific, compensating and sales taxes and duties paid by it on raw materials and supplies used in producing the picture or recordhag that is exported.

1. For the purpose of this provision, organizational and prcoperating expenses shall include expenses for preinvestment studies, start-up costs, cost of initial recruitment and training and similar expense_ 2. Fixed assets may be depreciated to the extent of not more than twice as fast as normal rate of depreciation if expected life is 10 years or less; if expected life is more than 10 years, asset may be depreciated over any number of years between five years and expected life. 3. 50 per cent exemption on tariff duties and compensating tax on imported capital equipment. 4. Full exemption on tariff duties and compensating tax on imported capital equipment. 5. This provision is granted provided the registered enterprise establishes its plant in an area that the BOI designates as necessary for the proper dispersal of industry. 6. 50 per eenL 75 per cent or 100 per cent deduction from taxable income of expansion reinvestment` 7. 25 per cent, 37-112 per cent or 50 per cent deduction from taxable income of expansicat reinvestment` 8. The tax credit is equal to the tariff du_es and compensating tax that would have been paid on the capital equipment had it been imported. 9. 100 per cent exemption for the first five yeats; 75. per cent exemption for the sixth through eighth yeats; 50 per cent exemption for the ninth and tenth year; 20 per cent exemption for the eleventh and twelfth years; and 10 per cent exemption for the thirteenth through the fifteenth yeats.

'PublicFinancein the Philippines

255

Table 7 (Continued) 10. The additional deduction should not exceed 25 per cent of the research and development expenses and 25 per cent of management training expenses of Philippinenationals. 11. The additional deduction should not exceed 30 per cent of freight and transportation expenses. The deduction is allowed only if the enterprise is establishod in an area that the BOI designates as preferred for agriculturaldevelopmentand whichthe BOIfinds deficientin transportfacilities. 12. Such additional deduction should not exceed 25 per cent of its total exportrevenue. 13. The financial assistance should not be les_ than 20 per cent of the total export salesof the trader forthis provisionto hold. 14. Provided that the tax credit shall accrue to the registered export producer only after the other export producer or export trader has actually or constructively exportedsaidprSducts; 15. Provided that the shares representingthe contribution of the said financial institutions shall be offered for public sale to Philippine nationals through all the members of a registered Philippine stock exchange within a reasonable periodafter suchacquisition. Source: OmnibusInvestmentCode,6 January198I. In addition to the long list of incentives in the two basic incentive laws discussed above, the Philippine tax system is riddled with tax incentives which have been granted to particular industries through individual pieces of legislation. Among the more important ones pertain to cottage industries (RA 3470 as amended by RA 5326), chemical fertilizers (PD 135), mining (PD 237), textiles (RA 2351, RA 3127, RA 4086), overseas shipping and shipbuilding industries (RA 1407), tourism (PD 535 of 1977), and overseas construction (PD 1167). The most common feature of these laws is exemption from duties on imported capital goods and raw materials and from compensating sales taxes. Some of these laws, like the Cottage Industries Act, grant exemptions from all taxes except specific and income taxes. 2.2 Philippine Revenues

Tax Revenues, from taxation

1957-1978 by type of tax are presented

in Table 8.

Total tax collections grew at an average annual rate of 16.9 per cent during the period 1957-78. Over the years, the proportional increments in aggregate tax revenues had been fairly stable except for the sharp increases in 1964, 1971, 1973, 1974, and 1975. The growth rates of the different tax categories were very close to that of total collections except for the "other taxes" category which grew at 26.8 per cent per year on the average and excise taxes which exhibited the slowest upward movement at 12 per cent yearly on the

average.

Table 8. Consolidated Financial Statements on Income & Expenditures (General Fund), 1957-1978 (In Million pesos) 1978 REVENUE FROM TAXATION 20,167.5 Excess taxes 2,169.8 On imports 266.9 On domestic products 1,902.9 Fines and penalties ........ Miscellaneous ........ License and business taxes 4,569.7 On business 4,560.8 On other business 4.9 Fines and penalties 1.1 Miscellaneous 2.9 Income taxes 3,422.0 On business 2,538.4 On other than business 883.4 Fines and penalties 0.1 Miscellaneous ........ Imposed duties 5,412.0 On imports 5,403.2 Fines and penalties 5.2 Miscellaneous 3.6 Other taxes and duties 4,594.1 Documentary stamp tax 258.5 Export duties and/or stabilization

1977 16,350.5 2,912.1 76.3 2,835.8

19.76 14,405.1 2,562.1 49.5 2,512.5

1975 12,277.8 608.2 20.0 588.2

1974 9,217.0 481.0 26.2 323.4

1973 5,674.3 327.2 3.5 131.4

_ o_

1972 3,803.7 242.5 2.1 239.6

1971 3,240.3 327.8 1.0 326.3 7_

3,186.2 3,177.8 4.8 1.5 2.1 4,445.0 1,387.5 3,056.6 1.0

2,835.2 2,826.5 4.7 2.9 1.1 3,706.4 1,852.4 1,852.1 1,928.1

2,246.7 2,241.6 3.0 1.9 3 ,044.7 1,823.6 1,217.6 1.5

1,8433 1,836.5 2.4 1.8 2.7 2,717.5 1,850.9 865.3 1.2

1,029.1 1,011.6 I3.6 1.9 1.9 1,688.6 1,039.5 647.0 2.1

979.5 953.4 24.5 0.7 0.9 1,028.2 449.9 577.2 1.0

781.6 772.3 7.9 0.9 0.6 846.5 340.9 504.7 1.5

4,228.2 4,221.0 4,179.8 3,013.7 1,579.0 302.9

4,265.2 4,249.2 13.6 2.4 1,036.2 459.5

3,928.5 3,924.7 3.8 ..... 2,499.7 100.9

2,772.4 2,767.4 5.0

1,435.1 1,429.3 5.8

1,084.3 1,082.9 1.4

860.8 860.1 0.8

1,402.8 77.2

1,194.2 41.9

469.0 35.2

423.6 33.7

_. o Â˘_

,-n

Table 8 (Continued) 1978 tax on exports 427.5 Charges on forest products 63.9 Estate, gift and inheritance taxes 1,635.2 Residence tax 4.5 Franchise tax 25.8 Real property tax 60.3 Fines and penalties 9.0 Misfellaneous 2,109.4 NON-TAX REVENUE 16,305.8 Earnings and other credits 1,965.8 Operating and service 1,673.4 Miscellaneous income 279.3 Sales of assets 13.'1 Income from public assets Borrowings Extraordinary income TOTAL INCOME

REVENUE FROM TAXATION Excess taxes

1977 598.6 22.4 47.0 43.8 46.4 108.8 0.4 408.7 11,975.2 t,993.5 1,569.2 419.6 4.7

1976 293.1 33.3 28.3 2.4 69.1 ...... 0.9 149.6 8,742.5 1,300.1 1,104.4 184.9 9.6

1974

1973

1972

1971 -

1,990.2 25.2 26.9 t0.1 63.7

1,065.0 35.4 33.6 4.5 44.0

350.0 32.7 20.6 1.0 18.9

28.8 15.3 2.0 10.7

25.4 14.7 2.0 9.4

1.3 231.4 682.7 550.4 359.1 187.1 4.2

3.1 140.0 373.1 357.1 301.2 52.7 2.2

t .4 727.7 544.9 495.9 215.2 41.6 13.8

0.7 376.3 396.4 260.7 222.4 31.4 1.1

0.7 337.7 243.2 229.4 195.2 23.4 1.0

1.0

225.3

5.8

9.8

-Â˘

.... 16.3

49.0

135.7

13.8

"_" _.

14,010.8 329.2

9.825.7 156.0

7,579.9 (137_5)

87.7 44.6

36,473.4

28,325.6

23,147.7

12,960.8

9,590.4

6,219.2

4,200.1

3,483.5

1968 1,885.0 189.6

1967 1,705.5 210.1

1966 1,913.8 210.9

1965 1,336.7 168_3

1964 1,410.7 222.0

1963 1,236.3 165.2

3.4 182.9

4.0 206.0

20.6 190.3

9.7 158.6

9.9 212.1

(14.9) 180.2

1970 2,282.0 237.8

On imports On domestic products

2.3 235.5

Fines and penalties Miscellaneous

........ ........

1969 2,167.2 234.1 1.5 232.5

1.2

1975

,-"= 0--n 5" g 5"

â&#x20AC;˘

Table 8 (Continued) License and business taxes On business On other business Fines and penalties Miscellaneous Income taxes On business On other than bu_ness Fines and penalties Miscellaneous Imposed duties On imports Fines and penalties Miscellaneous Other taxes and duties Documentary stamp tax Export duties andor stabilization taxes on exports Charges on forest products Estate, gift and inheritance taxes Residecen tax Franchise tax Real property tax Fines and penalties Miscellaneous NON-TAX REVENUE Earnings and other credits

1970 641.9 632.6

1969 626.2 619.2

7.6 0.9 0.7 709.4 437.9 269.8 1.7 ...... 612.3 611.0 1,3 ...... 80.5 27.3

6.2 0.7 ..... 648.5 416.7 230.1 1.6

........ 17.0 16.0 1.1 6.8 ........ 0.9 11.4 210.2 193.9

1968 585.7 582.2

1967 533.9 529.0

1966 410.4 409;9

1965 365_3 365.6

1964 375.6 376.3

1963 336.1 332.7

2.9 0.6

4:3 0.6

(0.7) 1.2

(1.5) 1.1

2.3 0.8

495.2 337.9 156.1 1.2

401.8 272.0 128.9 1.0

378.9 275.7 101.9 1.2

379.8 261.8 116.9 0.9

583.7 579.7 4.0

546.1 544.2 1.9

496.9 494.6 2.4

355.6 353.9 1.6

380.2 378.6 1.6

74.7 27.4

68.3 26.1

62.8 22.2

57.9 22.4

43.2

(13) 0.6 341.6 247.4 91.7 1.1 1.4 419.1 4!8.1 999.3 • 52.3 18,3

312.4 234.8 76.0 i .6 372.9 369-8 3.1 49.6 17.6

19.4 i4.1 1.2 6.1

16.6 15.6 1.0 3.8

19.0 14.6 0.8 3.0

16.3 11.8 0.7 3.5

12.0 7.6 0.7

14.4 7.4 4.9 1.5

15.0 8.7 4.0 2.8

1.1 5.4 196.5• 186.1

1.0 4.2 247.6 181.8

1.0 2.2 252.3 147.3

1.2 2.0 138.2 101.0

0.9 22.0 155.0 134.4

0.8 5.0 644.1 540.2

0.7 0.8 759.6 648.2

-t.

o ¢_ ga

Table 8 (Continued) Operating and service Miscellaneous income Sales of assets Income from public assets Borrowings Extraordinary income TOTAL INCOME

1970

1969

1968

1967

1966

1965

1964

1963

163.0 24.1 0.3 6.5 .... 16.3

143.7 30.6 0.3 11.5

154.8 26.7 0.3 ......

117.9 28.7 0.7

77.9 22.6 0.5

72.4 27.5 34.5

66.5 26.8 446.9

65.2 15.7 567.3

10.4

65.4

105.0

15.0 22.2

17.2 3.4

85.1 18.8

102.4 9.0

._ e-

2,492.2

2 ,364.6

2,132.2

1,852.8

1,552.0

2,054.8

1,995.9

1,491.7

-I"1 m,

1962 REVENUE FROM TAXATION Excess taxes

1961

1960

1959

1958

1957

1,013.2 153.9

885.8 151.4

807.2 150.8

676.3 161.3

737.2 2t9.0

759.6 197.6

On imports On domestic products Fines and penalties Miscellaneous

(11.6) 165.5 ...... -

(7.2) 158.6

(3.1) 153.9

(2.3) 155.6

78.7 140.3

59.7 137.9

Li_me and business taxes On business On other business

271.7 268.6 2.5

220.4 220.4 -

Fines and penalties Miscellaneous Income taxes On business On other than business

0.6 ...... 249.8 194.5 54.3

.....

Fines and penalties Miscellaneous

0.9 ......

.....

300.3 297.9

249.1 248.6

Imposed duties On imports

234.2 211.6 22.6

8.0

182.9 182.9 -

147.6 147.6 -

155.1 t 53.2 1.9

180.8 179.7 1.1

208.8 187.8 21.0

"177.7 160.3 17.4

156.5 138.0 18.4

148.7 134.7 13.9

239.6 239.3

163.2 163.0

167.4 167.1

201.3 200.8

= 5" ._ -_ _. 5"

Table 8 (Continued) 1962 Fines and penalties Miscellaneous Other taxes and duties Documentary stamp tax Export duties and/or stabilization tax on exports Charges on forest products Estate, gift and inheritance taxes Residence tax Franchise tax Real property tax Fines and penalties Miscellaneous NON-TAX REVENUE Earnings and other credits Operating and service Miscellaneous income Sales of assets Income from public assets Borrowings Extraordinary income TOTAL INCOME

1961

2.3 -

0.5 -

1960 -

1959

1958

1957

0.2 0.2 26.5

37A

30.7

39.3

31.2

13.9

13.2

12.3

12.1

13.6

9.0

...... 9.4 5.8 3.5 2.2

6.8 5.0 3.2 1.6

7.0 4.5 3.2 2.1

5.9 6.2 3.1 1.0

5.6 6.0 2.8 0.8

5.3 5.2 2.6 0.7

...... 0.5 2.1 200.6 86.3 58.8 25.5 2.0

..... 0.9 198.0 73.4 53.3 14.2 5.9

(4.1) 149.6 68.8 53.5 15.3 -

( 1.8) 110.0 91.6 44.0 47.6 -

! 0.5 379.6 188.9 112.5 75.3 1.0

8.4 162.3 120.7 93.7 25.0 1.0

...... 100.9 13.4

110.8 13.8

70.0 10.8

10.0 8.2

185.0 5.7

35.0 6.6

1,213.9

1,084.0

960.7

786.3

1,117.0

921.4

Sources.' Commissionon Audit,Annual ConsolidatedReports of the Government, 1973-1978 Commissionon Audit,Annual Report of the Auditor Generalof the National Government, 1957-1992

0.4

0.3 25.0

o _. O

_째 =

PublicFinancein thePhilippines

261

In terms of their contribution to total tax collections, them had been some shift in the relative importance of the different tax categories except for license and business taxes whose share remained at rotighly 21 per cent over the years. The contribution of excise taxes and import duties declined from 24 per cent and 29 per cent in the earlier years to 12 per cent and 25 per cent, respectively, in the later years. On the other hand, the proportion of revenues attributable to other taxes and income taxes increased from 4.6 to 17 per cent and 20 to 25 per cent, respectively. Within the income tax category, the individual income tax is gaining in importance over the years. 2.3 Issues on Taxation In this section, the various issues in the field of taxation pertain to the Philippine setting and as they are tackled by in the area will be discussed. These issues cover the following (1) tax performance, (2) tax incidence, (3)allocative effects tion, (4) taxation and inflation, and (5) tax forecasting.

as they writers topics: of taxa-

2.3.1 Tax Ratio, Tax Effort, Tax Performance and Related Studies Tax performance is by far the most widely researched topic in the area of taxation. Tax performance refers to the degree to which a country's tax base or taxable capacity has been exploited in its effort to mobilize government resources. The most commonly used indices of tax performance are (1) the tax ratio, i.e., the ratio of taxes to gross national product (GNP), and (2) the tax effort index, i.e., the ratio of actual to predicted tax ratios. In the literature, the predicted tax ratio is referred to as "taxable capacity." Lotz and Morss (1967) and others following their approach regressed actual tax ratios on various explanatory variables affecting taxable capacity. The resulting equation was then used to "predict" taxable capacity given actual values of the explanatory variables. This predicted taxable capacity may be interpreted as the tax ratio that would have obtained had the government made the average tax effort. This approach implicitly assumes that all major factors affecting taxable capacity are included in the regression equation. Several writers had focused on intercountry tax performance comparisons. Lotz and Morss (1967), using 1963-65 data, ranked the Philippine tax ratio 44th from a sample of 52 less developed countries. In terms of tax effort the Philippines is number 41. They based their taxable capacity estimates on a regression equation with

262

RosarioG. Manasan

per capita income and export plus imports as explanatory variables reflecting the stage of economic development and the size of the foreign trade sector, respectively. Shin (1969) measured the tax ratio and tax effort index of 47 developed and developing nations for the period 196'3-65 and found that the Philippine tax ratio ranked 36th while the Philippine tax effort is number 43. As determinants of taxable capacity, Shin considered the share of agriculture ' to GNP, the rate of inflation, and the growth rate of the population. However, only the first and the last variable proved statistically sigrdficant. CheUiah (1971) studied the tax perfornlan ce of 49 developing coufitries. The Philippine tax ratio of 9.8 for 1966-68 ranked 40th while its tax effort index ranked 39th. The factors affecting taxable capacity included in this study are per capita nonexport income as a proxy for the level of economic development, share of mining in GNP as a proxy for the composition of income, and the ratio of nonmining exports to GNP as a proxy for the degree of openness. Bahl (1971) analyzed the tax effort in 1966-68 of 49 less developed countries and found that the Philippine tax effort index of 0.76 is number 39 from the top. He investigated three variables for his taxable capacity equation: (1) the stage of economic development as measured by the share of agriculture in gross domestic product (GDP), (2) the sectoral composition of income as measured by the share of mining in GDP, and (3) the size of the foreign trade sector as measured by the share of exports in GDP. The last variable was dropped from the estimating equation for taxable capacity because it was highly collinear with the second variable. Sicat variable was dropped from the estimating equation for taxable capacity because it was highly collinear with the second variable. Sicat (1972) likewise showed that the Philippine tax ratio was well below that of its Asian neighbors. To sum up, the intercountry studies discussed above indicate that the Philippine tax performance may be characterized as "low." Caballes (1975), on the other hand, used Philippine time series data from 1955 to 1970 in evaluating the country's tax performance. The actual tax ratio dropped from 13.5 per cent in 1955 to 11.7 per cent in 1970 while taxable capacity (as determined by per capita income-and the size of the foreign trade sector ) rose from 15 to 21 per cent over theperiod. This resulted in the decline ofthe tax effort index from 0.9 to 0.6. This indicates a "poor and at the same time deteriorating Philippine tax performance" during the

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period. She also proposed two alternative measures of tax performance: (1) the marginal tax rate (the ratio of the absolute change in tax yields to the absolute change in income for a given period) and (2) the income elasticity of tax revenue (the ratio of the percentage change in tax yields to the percentage change in gross income over a particular period). The marginal tax rate averaged 0.11 while the income elasticity of tax was 0.97 for the given time period. Caballes observed that "no pattern of improvement was seen in either the marginal tax rate or in the income elasticity.., confirming the conclusion that tax performance was poor." She further noted that this was due to "a failure to update antiquated tax laws; a failure to introduce new taxes,.., and the inability of the government, particularly the local governments, to fully exercise their powers." If one were to look at the tax ratios only, the implication is that the attainment of a high tax ratio in the context of ever increasing growth rates depends on the elasticity of taxes with respect to GNP. There are at least four tax elasticity studies in the Philippines. Sicat (1971) analyzed how tax revenue sources behave in relation to GNP. He regressed tax revenue in the current period on GNP lagged one semester for different tax subgroupings using 1954-70 data. He found out that most of the taxes have income elasticities exoeeding one based on his regression results (total elasticity is 1.097). He observed that "whether such elasticity values are an indication of the growing efficiency of the tax collecting machinery or of an increase in some tax rates is something that has not been fully verified; nevertheless, the elasticity values show a fairly optimistic assessment of the tax performance of the country.'" Sinay (1974) likewise obtained tax elasticity and tax buoyancy coefficients exceeding unity for the period 1961-72. She defined tax elasticity as the ratio of the proportional increase in tax revenues to the proportional increase in GN-P with the effects of discretionary factors siphoned out of the revenue increases and estimated this measure to be 1.04. She det_med tax buoyancy as the ratio of the percentage change in tax revenues to the percentage change in GNP with the revenue changes inclusive of the effects of discretionary factors. Tax buoyancy was estimated to be 1.31 for the period under study. In contrast, CabaUes (1975) estimated the income elasticity of aggregate tax revenue to be 0.97 for the pedxxt 1950-70. The National Tax Research Center (1975) analyzed the income elasticity of the individual and the income taxes for the years 1963-70. The

264

RosarioG. Manasan

aggregate income elasticity of a tax is partitioned into two components: (1) the rate elasticity, er, and (2) the base of elasticity, eb . The rate elasticity is the ratio of the percentage change in tax yield to the percentage change in tax base (the amount subject to tax) while the base elasticity is the ratio of the percentage change in the tax base to the percentage change in total income. Thus, e = ere b. The rate elasticity measures the progressiveness of the tax structure as well as tax administration improvements while the base elasticity measures the responsiveness of the tax base to increases in income. The results indicate that the individual income tax is inelastic with an aggregate elasticity of 0.98. The rate elasticity was estimated to be 1.081, reflecting a slightly progressive rate structure while the base elasticity was 0.9, indicating an inelastic base structure. On the other hand, the corporate income tax has an overall elasticity of 0.98 with a relatively higher rate elasticity of 1.15 and relatively lower base elasticity of 0.85. The inelasticity of both income taxes was attributed by the authors to the erosion of the tax base as a result of generous deduction and/or exemption allowances. It should be pointed out that all of the studies discussed above are based on 1960 data. No attempt has been made to improve on the said studies in terms of using a more recent data base. 2.3.2 Tax Incidence Tax incidence studies attempt to answer the question: "who bears the tax burden in the economy?" Taxation, in general, reduces the personal income, transfers in the form of gifts or inheritance and land rentals of some people, and increases the prices of goods and services consumed by others. These losses and price increases constitute the tax burden to these l_ople. In the Philippines, three tax incidence studies have been conducted. The f'trst one is that of the Joint Legislative-Executive Tax Commission (JLETC) which was based on a household survey of income and expenditures in 1961 (JLETC 1964). This study related the average tax paid to average income earned by each household group classified according to income levels, it was assumed that the individual income tax is generally not shifted forward while the corporate income tax tends to be passed on to consumers. As such, part of corporate income was distributed to the various income brackets based on the share of a given income class to total expenditures of all household while the rest was allocated to the highest income

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class. The tax burden of production and sales taxes was assumed to be more or less proportional to the quantity or value of taxable goods and services purchased by each income class. Taxes on income and property were shown to be progressive, with the effective tax rate of the poorest income group being 0.19 per cent and increasing monotonically to 42 per cent for the richest income group. Taxes on production and sales were regressive. The effective tax rate of this group of taxes decreases from 28 per cent for the poorest income group to 9.86 per cent for the richest income bracket. The regressiveness of the production and sales taxes was not offset by the progressiveness of the income and property taxes except for the topmost income bracket. This is reflected in the overall effective tax rate of 28 per cent for the lowest income group which declined to 14.5 per cent for the fifth richest income grouping and rose sharply to 52 per cent for the uppermost income bracket. Kintanar (1963a) looked into the ineidonce of some direct taxes using 1960 data. He considered five types of direct taxes: (1) individual income tax which was assumed to be borne by the statutory taxpayers; (2) corporate income, one-third of which was allocated to different income classes according to the percentage distribution of total household expenditures, another third assumed to be borne by the stockholders, and the remainder not allocated at all and presumed to remain in the corporation; (3) real property tax which was allocated according to the real property holdings of the various income classes; (4) transfer taxes which were distributed to the two highest income groups based on the distribution of income in said groups; and (5) residence taxes which were allocated according to the distribution of families by income class. Based on his estimates of effective tax rates by income class, he concluded that '"the direct taxes became distinctly progressive only after the income class lJ9,000 or higher; there was no clear progressivity in the tax rate structure in the lower income classes.'" NTRC (1974a) updated the JLETC study using the same methodology and 1971 data on family income and expenditures but breaking down the highest income bracket in the earlier study into three groups. The general direction of tha tax burden estimates of NTRC is the same as that of the JLETC. It should be noted that the results of these studies are determined largely by the assumptions made by the various authors as to how the different taxes are shifted or allocated to the different income

266.

Rosario(3. Manasan

classes. Furthermore, no attempt has been made to improve on these studies either by checking the applicability of said assumptions or by utilizing later data base. Nevertheless, the International Monetary Fund Mission headed by Richard Bird in 1974 (IMF 1975) concluded that "the [result of] tax reforms since martial law has therefore probably been that the better-off people in society.., pay a relatively higher proportion of their income in taxes than they did before." They further asserted, however, that "them is no question that it is within the power of the Philippines to have a significantly more progressive tax system than it now does." 2.3.3 Alloeative Effects o[ Taxation The imposition of taxes, in general, and tariff and indirect taxes, in particular, affects the allocation of produetive resources into the various industrial sectors. The effective rate of protection, defined as the percentage excess of domestic value added resulting from tariff and indirect tax protection or free trade value added in a given industry, is the most widely used indicator of the incentive structure provided to the different industries.by the tax system. An industry with a high effective rate of protection relative to that of another industry is said to be favored over the latter. There are two studies dealing with the estimation of the effective rates of protection of the different industries in the Philippines. Power and Sicat (1971 ) analyzed the structure of protection in 1965 while Tan (1979) investigated the protection system and its effects on resource flows in 1974. A comparison .of the findings of these two studies indicates that there is no substantial difference between the pattern of protection observed in 1965 and.that observed in 1974. The general conclusions of these studies may be summarized as follows: (1) manufacturing is favored over the other sectors; (2) exports, both manufactured and nonmanufactured, are penalized relative to laonexports; and (3) the finishing stage of producing consumption goods is favored over intermediate goods and capital goods production In addition to these biases brought about by the imposition of import duties and indirect taxes, the tax incentive scheme embodied in the Investment Incentives Act and the Export Incentives Act and available to selected industries introduces its own set of biases. The InternationalLabour Office (1974) and the IMF (1975) both pointed out that the existing set of incentives lowers the price of capital,

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thus inducing businessmen to invest more Jn capital and to use it less efficiently than is socially desirable in a country whore capital is scarce and labor is abundant. Gregorio (1979) investigated the set of fiscal incentives administered by the Board of Investments (BOI) in terms of its effects on the rate of remm (an important determinant of profitability and, consequently, of the amount of investment) and relative factor prices (a significant factor influencing relative factor use). She concluded that: (1) BOI incentives provide a substantial subsidy to any individual fh'm as reflected in the significant increase in the potential rate of return as a result of the various incentives; (2) the BOI package has a strong capital-cheapening effect, implying a serious bias against employment creation; (3) many of the incentives represent a circuitous way of achieving the policy goal, resulting in unwelcome side effects and in a dilution of the effectiveness of the incentive scheme. 2.3.4Inflation and Taxation NTRC (1977) analyzed the effects of inflation on the individual income tax structure for a ten-year period starting 1964 using hypothetical families with income levels ranging from t_2,000 to la40,000 per annum and family sizes of 2, 4 and 6. The study concluded that (1) the taxable portion of the constant real income had consistently increased over the period, implying that the value of exemptions and deductions in real terms had continually declined for the same period; (2) the real effective tax rates had risen steadily; (3) given the same real income, real disposable income had shrunk over the ten-year period as a consequence of larger tax obligations; and (4) families with more dependents and families in the lower income brackets were more adversely affected by inflation, e.g., the taxable portion of their constant real income and the real effective tax rate had increased faster. The paper attributes the above-mentioned findings to the fact that the taxable base increased with inflation inasmuch as the principal tax deductible items are expressed in nominal fLxed amounts. In a related study, NTRC (1980) looked into the possibility of increasing the personal exemptions in the individual income tax scheme as well as into the advantages and disadvantages of using an indexation scheme that will continue taxing each level of income at_approximately the same rates as in the base year.

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2.3.5 Tax Forecasting and Estimation of Public Revenue Needs Good estimates and forecasts of public revenue and/or tax revenues are important inputs into the budgetary process. Kintanar and Mijares (1965) attempted to set up a framework within which the collections of theBureau of Internal Revenue and the Bureau of Customs may be forecast. They proposed different estimation techniques for different tax types. For corporate and individual income taxes, their approach consisted of: (1) projecting ahead the number of corporations (or individuals) in each particular bracket for the given year by means of trend regression equation, and (2) multiplying this number by the mean net taxable income for the corresponding bracket. For taxes on commodities, license, business and occupation taxes, the forecasts were based on separate projections for each subcategory using any one of four regressions (linear, quadratic, cubic or exponential), whichever yields a better fit of tax collection and/or tax base on time. Diokno (1972), on the other hand, based his projections of public revenue needs for 1972-75 on a 12-equation econometric model of the public sector estimated with 1959-70 data, where GNP, the money wage rate and government inves_nent expenditures were considered exogenous while total public revenue and its components (direct taxes, indirect taxes, taxes from the foreign trade sector, and nontax revenues), government consumption expenditures and its components, government savings and government borrowings were considered endogenous. Essentially, Diokno's procedure involved the estimation of total public revenue and total government spending given values for his exogenous variables (usually the target values given in the national economic plan). He observed that, on the basis of planned income growth, the public revenue needs of the economy for 1972-75 cannot be sustained by the tax system. 3. GOVERNMENTEXPENDITURES/GOVERNMENTSAVINGS 3.1 Growth and Pattern of Government

Expenditures

Government expenditures may be classified according to functional use into five broad categories: (1) economic development expenditures, (2) social development expenditures, (3) national defeme expenditures, (4) general public services expenditures, and (5) debt services. Economic development expenditures include expenditures on agriculture and natural resources, on transportation and commu-

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nications, on commer_ and industry, and on other economic development efforts. On the other hand, social development expenditures consist of government outlay on education, public health and medicare, labor and welfare, and others. National defense expenditures may be subdivided into national security expenditure and expenditures for the maintenance of peace and order. Spendings on general administrative operations cover expenditures for the general government, legislative services, administration of justice, and pensions and gratuities. (See Table 9.) Total government expenditures increased at an average annual rate of 16.6 per cent from 1_1.116 billion in 1951 to _32.66 billion in 1979 (Table 10). Total government spending grew at an average of 10.4 per cent per annum between 1957 and 1979. During the first half of the seventies, government expenditure expanded at an accelerated pace (36.3 per cent annual rate of increase on the average), with the rate of increment reaching a peak of 57.6 per cent in 1975. From 1976 to the end of the seventies, this growth trend exhibited a tapering off with an average of 14 per cent per year. In real terms, total government expenditures grew at 7.8 per cent per year on the average from 1957 to 1978. 4 Prior to 1967 the growth of aggregate government spending was sluggish as reflected in an average 1.5 per cent rate of annual increase for the period as compared with the 29.2 per cent average yearly growth rate for 1967-79. The maximum rate of increase posted for any given year was 44 per cent (in 1973). Total government expenditures were approximately 9.2 per cent of GNP on the average for the period 1959-71. From 1972 to 1979, government expenditures as a proportion of GNP averaged 14 per cent, reflecting increased government spending during the martial law regime. Distributionwise, the pattern of government expenditures has remained stable over the years. The bulk of government spending is channeled to economic development and social services. Taken together, these two expenditure groupings account for approximately two-thirds of total government outlays. Until 1971, however, a slightly larger piece of the government expenditure pie went to the social development sector. From 1972 onwards, there was 4. Total government expenditures in real terms equal total government expenditures in current prices divided by the implicit price index for government consumption expendituresfromnational accounts statistics.

Table 9. Functional Expenditure of the National Govemment FY1979

FY1978

FY1977

FY1976

'FY1975

_. FY1974

FY1973

FYI972

Economic Deoeiopment/Seroices Agriculture and natural resources Commerce and industry Transportation and Communication Trad_ and tourism . Utilities and infrastructures Other economic development Social Deoelopment/seraices Education Public health and medicare • Social security, labor and welfare

12,500 2,248 592 ........ 320 9,340 9,014 4.366 1,227 528 • .

9,758 1,925 1,084

7,788 1,522 592

8,392 1,107 511

8,931 . 940 104

6,447 4,193.6 114

3,583 1,295 1,293

1,889 540 793

325 6,424 r6,647 3,415 1,301 651

187 5,487 •4,574 2,721 1,044 539

255 5,452 4,196 2,513 958 468

1,078 5,262 1,546 3,551 2,104 712 499

392 408 1,338 3,073 1,7t0 473 347

917 2,042 1,558 358 126

464 1,766 1,404 282 81

Housing and community amenities Other social development • National Defense National defense

2,709 184 4,690 ........

684 596 •3,497

270 4.325

255 4,004

236 3,541

156 386 1,940

1,211

800

3,509 1,796

4,880 3,226

3,877 2,452

3,600 2,193 •

2,044 1,354

1,447 578

1,250 -

72•5 -

90 1,213 114 ......

217 840 163

137 420 133

25 •295 55

842

373

Maintenance of peace and order General Go.tureen t/General Public Services • •General administration Contribution to international organization and arrangements Public order and safety General research . General _ovemment

........

113 790• 140

127 702 106

Table9.(Continued) FY1979 Legislative services Administration of Justice Pension and gratuities Other general public services Debt Service TotalExpenditure

FY1978

FY1977

FY1976

FY1975

...... .....

FY1974 -

F'f1973

FY1972

91 111

93 105

206 489 8,574

150 327 5,588

...... 296 2,947 32,660

434 2,324 27,t06

376 2,034 22,598

468 1,108 21,298

980 19,049

493 609 t2,517

FY I971

FY I970

FY1969

FY1968

FY1967

FY1966

1,277 301 121 642 214 1,539 1;244 226

1,283 260 96 686 241 1,412 1,132 226

1,132 302 80 560 239 1,214 987 182

923 219 77 521 .....

749 210 60 408

557 167 47 272

603 194 61 261

637 212 67 303

5" " g5" _.

106 1,047 873 143

.... 72 953 800 124

70 873 713 128

91 725 591 114

54 733 582 116

'_ -t2. -,

615 458 157

385 -

459 345 114

380 290 90

324 249 75

268 207 61

298 230 68

-v 4-O"

1_T1965

FY I904

_" -11

Economic Deoelopmen t/Services Agriculture and natural resources Commerce and industry Transportation andcommunication Trade and tourism Utilities and infrastructures Other economic development Social Droelopment/Seroiees Education Public healttl and medicate Social security, labor and welfare Housing and community amenities Other social development National Defense National defense Maintenance of peace and order

......... ........ ........ 747 543 204

Table 9 (Continued) FY1971

General Government/General Public Services General administration Contribution to international organization and arrangements Pubfic order and safety General research General government Legislative services Administration of justice Pension and gratuities Other general public services Debt Service Total Expenditure

508 ........

FY1970

499

FY1968

932

FY1967

356

320

FY1966

320

FY1965

294

FY1964

243

........ ........ ........ 317 81 86 24 .... 357 4,429

;_ 323 86 68 22.3 244 4,054 FY1963

Economic DevelopmentServices Agriculture and natural resources Commerce and industry Transportation and communication Trade and tourism Utilities and infrastructures Other economic development

FY1969

652 242 55 303 ....... 47

286 4,000 FY1962

232 52 54 18

208 45 51 16

204 54 48 13

187 54 34 18

153 52 34 4

160 2,945

129 2,531

154 2,228

140 2,035

157 2,068

FY1961

FY1960

420 105 54 227 =

496 128 53 265 .....

383 111 9 214

FY1959

306 95 13 176

23.1

FY1958

413 138 32 244

FY1957

439 143 39 221

o o Â˘_ _e

Table 9 (Continued) FYI963

FY1962

FY I961 FY1960

FYI959

FY1958

FY1957

SoeialDe_elopment/Seruices Education Public health and medicare

645 480 123

568 433 110

520 377 106

416 321 75

367 275 76

369 267 87

343 258 73

Social security, labor and welfare Housing and community amenities Other social development Naffonal Defense National defense

42 ....... ....... 273 208

Maintenance of peace and order General Govemment/GeneralPublicServiees General administration

64 189 .......

206 160

197 156

190 153

183 152

I77 149

157 138

46 165

40 130

37 129

31 101

27 95

19 85

Contribution to international organization and arrangements Public order and safety General research General government Legislative services Administration of justice Pension and gratuities Other general public services Debt 5erv_ee Totalgxpenditure

=m O" a--_ _= _ 5 -v

....... ....... ....... 112 40 26 10 ....... 94 1,853

"_ __. 112 29 22 2.4 110 1,469

85 17 19 9.5 70 1,4.13

79 17 15 18 78 1,196

70 13 15 4

69 10 13 3

58 9 13 5

54 1,011

68 1,122

92 1,116

bO .,,,I Ioo

274

Rosario G. Manasan Table 10. Total Government Expenditure and Gross'National Product (In million pesos)

Year

Total Government Expenditure

GNP (at current prices)

Expenditure GNP

1979 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 1968 1967 1966 1965 1964 1963 1962 1961 1960 1959 1958 1957

32,660 27,106 22,598 21,298 19,049 12,517 8,574 5,588 4,429 4,054 4,000 2,945 2,531 2,228 2,035 2,068 1,853 ] ,469 1.413 1,196 1,011 1,122 1,116

220,935 181,093 154,280 132,712 114,265 99,948 71,616 55,526 49,599 41,751 35,012 31 791 28 734 25 745 23 382 21 383 19 793 17 030 15 161 13 833 12.943 11,905 11,232

14.78 14.96 14.64 16.04 16.67 12.52 11.97 10.06 8.92 9.70 11.42 9.26 8.80 8.65 8.70 9.67 9.36 8.62 9.31 8.64 7.81 9.42 9.93

a shift in the expenditure thrust of the government as economic development was given more emphasis. National defense constituted roughly 15 per cent of total government spending during the period 1957-79. On the other hand, the share of general administrative operations in total government expenditure was at the 10 per cent level all throughout the period except in the years 1976, 1977 and 1978 when its share rose to 17 per cent. Debt service ate up 6 per cent of total government outlay up to 1977 when this proportion grew to 9 per cent. Among the subcategories, education maintained its number one position in terms of budgetary allocation with over 25 per cent of total government expenditure on the average while transportation and communication_ was second until

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275

1972. After 1974, however, utilities and infrastructure moved up in terms of its share in government spending, accounting for onequarter of the total figure. 3.2 Issues on Gooernment Expenditures To say that the literature on government expenditures in the Philippines is not voluminous is an understatement. Aside from works discussing the historical movements of government spending, other efforts in the field have concentrated on the following topics: (1) determinants of government expenditures, and (2) incidence of government expenditures. 3.2.1

Determinants of Gooemi,,ent Expenditures; Relation of Government Spending to Other Economic Variables Sicat (1971) related the levels of government expenditures to the movements of GNP level lagged one semester and obtained a marginal expenditure coefficient of 0.106 and an elasticity of 1.21. He pointed out that the expenditure regressions implied that "the expansion of the economy generates a greater increase in governmental expenditures" than,in total taxes (refer to subsection 2.3.1 for elasticity of taxes). He added that "the implications of these findings for the fiscal operation of the government are important for policymaking; in some cases, the generation of more tax revenues implies a much greater increase in total demands for expenditures and, therefore, generates also an increase in demand for some type of financing over and above the available tax resources." The regression of total expenditures on total taxes yielded a marginal coefficient of 1.386, confirming the fact that the government is not able to meet its expenditure requirements via taxation. Jurado and Encarnacion (1972)related different types of government expenditure items on different economic variables in their government submodel of the Philippine economy using data from 1955 to 1969. Expenditures for economic development were related to tax revenues and government borrowings while expenditures on social development were related not only to tax revenue plus borrowings but also to the size of the population that needs the services and wage rate that has to be paid to employees. Similarly, supply and demand factors were said to determine expenditures for national defense. The explanatory variables for this expenditure item included tax revenues and the wage rate. Debt service was related to outstanding debt while expenditures on general administrative

276 operations rate.

Rosario G. Manasan were determined

by the size of the population

and wage

3.2.2 Incidence of Government Expenditures Jayme (1974) studied the incidence of 12 government expenditure categories for the years 1961, 1965, and 1971 (years of the Family Income and Expenditure Survey (FIES) of the National Census and Statistics Office). She concluded that government expenditures were progressive in nature. NTRC (1974b) also investigated the incidence of govern men t expenditures using the 1971 FIES and somewhat more generous assumptions than those used by Jayme in assigning benefits to the lower income groups. The study concluded that govenlmcnt expenditure incidence is favorable to the lower income classes. E. Tan (1975) allocated the benefits of governmcnt expenditures to the different income brackets based on a national survey conducted in 1971 to obtain such allocators. From this, she cstilnatcd the effective rates of benefit by income class in 1971. She came up with the effective rate of 62.7 per cent for the income class below lal,000 with the rate of benefits decreasing monotonically to 10 per cent for the income class t_10,000 and over, indicating the progressive nature of government taxes. She concluded that "'the government sector, as a whole, hardly changed the distribution of incomc: the regressiveness of taxes were [sicl just of|_ct by the progressiveness of government spending." It should be noted that no effort has been done to ttpdatc thc above-mentioned studies after 1971. 4.. THE BUDGETSYSTEM 4.1 A Historical Perspective on the Philippine Budget System Philippine Commonwealth Act 246 (1938) entitled the "Budget Act " defines the "budget" as the financial program of the national government for a designated fiscal year, consisting of statements of estimated receipts and expenditures for the fiscal year for which it is intended to be effective based on the results of operations during the preceding fiscal years. This is different from the concept envisioned in Republic Act No. 992 entitled "An Act to Provide for a Budget System for the National Government" or the Revised Budget Act, which declares it the policy of congress that "the whole budgetary concept of the Government be based on functions, activities, and

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277

projects, in terms of 'expected results.' " The latter term is defined as "a delineation of the services and products, or benefits that will accrue to the public together with the estimated unit cost of each type of serviGÂ˘, and product or benefit." The Revised Budget Act also provided for the creation of the Budget Commission under the executive control and supervision of the President and broadened its functions from simple budget operations to include greater involvement in fiscal policy matters. Prior to the establishment of the Development Budget Coordination Committee (DBCC), the budget systems included the planning bodies, primarily the Presidential Economic Staff and the National Economic Council, and all other minor planning bodies especially concerned with the setting up of priority guidelines to allocate scarce government resources to the most vital needs of the country as well as to influence the direction and pattern of development in the private sector. DBCC, which is a National Economic and Development Authority (NEDA) subcommittee, studies ceilings applicable to revenues, expendit-ttres and borrowings. This committee consists of the Minister of the Budget as Chairman, and the Minister of Finance, Minister of Economic Planning, and Governor of the Central Bank as members. The DBCC estimates the anticipated revenues for the government on the basis of historical performance and projections of economic conditions for the incoming year. It likewise estimates the cost of implementing the projects needed to achieve the goals established in the development plan. If it is necessary to borrow in order to meet the Financial gap between projected revenues and the desired level of expenditures, the DBCC also estimates the maximum amount that the government can borrow without endangering its financial position. It is on the basis of these studies that a recommendation is made to the President, the cabinet and the legislative body on the total budgetary ceilings upon which the budget could be framed. The National Budget has long been recognized as an instrument for the effective implementation of the national development strategy. The principal objectives of the budget system of the Philippines are: (1) to carry on all government activities under a comprehensive fiscal plan developed, authorized and executed in accordance with the Constitution, prevailing statutes and the principles of sound public management; and (2) to provide for periodic review and disclo-

278

RosarioG. Manasan

sure of the budgetary status of the government. The budget process may be divided into four steps: (1) budget preparation, (2) legislative authorization, (3) budget execution and reporting, and (4) budget accountability. 4.1.1

Budget Preparation

Budget preparation is the first step and covers the estimation of government revenues, the determination of budgetary priorities and activities within the constraints imposed by available revenues and by borrowing limits, and the translation of approved priorities and activities into expenditure levels. Estimates are prepared by the various agencies of the government, collated and received, and f'malized by the President and then submitted to the legislative body as a basis for the preparation of the annual Appropriations Act. The document submitted to the Batasang Pambansa is in the form of a Budget Message, accompanied by analyses and statements conraining details of revenue, expenditures and debt, as well as an assessment of the anticipated impact of the budget on the country. Details of agency operations for the budget year and for past and current years accompany the message. 4.1.2 Legislative A u thorization Legislativeauthorization constitutes the second step in the budget process. The legislative body acts on the budget proposals of the President and formulates an Appropriations Act following the process established by the Constitution, which specifies that no money may be paid from the Treasury except in accordance with an appropriation made by Law. Appropriations are approved by the legislative body in the form of: (a) a General Appropriations law which covers most of the expenditures of the government, (b) various public works acts, (c) supplementia_g appropriation laws that are passed from time to time, and (d) certain automatic appropriations intended for specific purposes. As in other laws passed by the legislature, the Constitution provides for an approval of the Appropriations Act by the President. 4.1.3

Budget Execution

and Reporting

Budget execution and reporting covers the various operational aspects of budgeting. Once the budget is approved by the Batasang Pambansa, the responsibility for implementing it rests with the Budget Commission. This stage in the budget process consists of the activities necessary to place a Budget in operation and the action

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279

taken during operations. The establishment of obligational authority ceilings, the evaluation of work, financial plans for individual activities, the continuing review of government fiscal position, the regulation of fund release, the implementation of cash payment schedules, and other related activities comprise this phase of the budget cycle. The continuing work of budgeting includes the review of organizational developments, the study of position classifications and compensation plans, and generally the function of ensuring that funds are available in support of agency activities, given the limitation of approved appropriations and available cash. 4.1.4 Budget A ccoun tability The fourth phase, budget accountability, refers to the evaluation of the actual performance and of initially approved work targets. Obligations incurred, personnel hired and work accomplished are compared with the targets set at the time agency targets work were approved. Performance budgeting relates targeted work units, standard costs per unit of work, and the estimated expenditure level for each budgeting project. This phase completes the budget cycle by comparing actual expenditures and performance with the planned expenditure and performance levels. 4.2 Issues on the Budget System Issues on the budget system may be divided into: (1) the budget and economic development, and (2) administrative issues, 4.2.1 The Budget and Economic Development The work ot Fernandez (1973) is by far the most comprehensive attempt to describe and evaluate the country's economic development efforts through the national budget. Based on Lampman's (1967) estimates of the sources of growth in the Philippines, she concluded that the government's contribution to average GNP growth for the period 1955-65 is 0.35 of one per cent. Riha (1975), on the other hand, estimated the effect of budget changes in GNP using the demand type model used by Hansen (1969). He found out that year-to-year changes in the budget exerted an upward push on GNP of 0.63 per cent on the average for the period 1947-73. 4.2.2 Administrative Fernandez

(1975)

Issues pointed

out that

the "delineation

of budget

280

RosarioG. Manasan

expenditures into current operating and capital outlays tends to be misleading" inasmuch as current expenditures may contain a developmental element. She also noted that fiscal planning should imply planning the budget over the medium term rather than annually. This is especially critical when one considers the capital formation process which usually involves time lags. Claudio (1978) likewise stressed the need for long-term budgeting. She outlined the factors that must be taken into consideration in the preparation of a long-term budget. She also discussed the relationship of long-term budgeting to other budgeting approaches llke zero-base budgeting, key budgetary inclusion technique, and regional budgeting. V. PUBLIC DEBT 5.1 Growth and Pattem of Public Debt Public debt may be classified according to source: (1) internal or domestic, and (2) external or foreign. And public borrowing may be categorized into: (I) direct borrowings of both the national and local governments, (2) guaranteed and nonguaranteed debt of government corporations, and (3) debt of monetary institutions. Public debt may also be grouped according to maturity: (1)short-term debt (payable within one year), (2) medium-term debt (payable after one year but not beyond five years), and (3) long-term debt (payable beyond a period of five years). Total public borrowings exhibited a sustained upward movement from 1955 to 1979 (refer to Table 11). The average growth rate for the period was 18.8 per cent, with sharp increases in 1961, 1965, 1967, 1969, 1972, and 1974. Election years were 1961, 1965 and 1969, while 1967 was marked by the "rice and roads" program of President Ferdinand Marcos; and 1972 was the year of the big floods during wldch the government spent huge amounts for rehabilitation and 1974 witnessed the quadrupling of oil prices. Borrowings from abroad grew faster (26 per cent per annum) than domestic debt (15 per cent per year) on the average for the period 1955-79. The movement of external debt seemed to be tied to the balance of payments position of the country. For instance, in the early sixties, a decline in exte_al debt may be observed hand in hand with an improvement in the balance of payments position. Distribufionwise, the share of domestic borrowing in total public

Table 11. Public Debt by Status aad Level of Government On miltion pesos)

Nzr_ go__,

Lo_d _0_7.

Internal debt Go_rnmen t c_orpor_lo_ Non. Cmarlmxeed _mon teed

Externaf debt

Y_r

To_

Monetary Natiem_d Local Go_emmen¢ instl_ riona _oo_t. I_o"t. c_mtRms

1955 1956 1957 1958

1,356 1,594 1,865 2,030

867 1,015 1,189 1,295

44 37 29 44

261 301 352 390

9 43 77 85

134 129 146 136

---

41 49 47 57

1959 1960 1961 1962

2,369 2,489 3,165 3,28[

1,463 1,454 L,730 1,789

38 27 23 23

417 588 590 593

140 69 267 342

---

129 164 123 131

148 142 239 230

33 46 I93 182

1963 1964 1965 1966 1967

3,359 3,554 5,056 5,572 6,695

1,801 1,859 r ,987 2 ,234 2,669

21 4 72 88 89

641 657 730 851 1,056

393 406 39 ! 388 387

119 137 517 684 599

245 278 706 652 597

140 193 652 676 1,298

!968 1969 1970

7,741 9,159 12,795

2 ,826 3,701 4,019

110 121 107

I ,_76 |*658 1.722

385 387 423

919

850 953 1,735

6 7

570 607 779

1,454 1,727 3,084

2,186 2,629 3,147 3,679 5,300 6,062 8,534 12,231 13,979

5 1 1 l 2 2 2 2

1,227 !.678 1.614 1.615 2,698 8,561 12,520 15.921 19,728

3,072 3,435 2,523 5,187 8,195 iO,lO1 7,706 !1,478 13,884

1971 14,197 4,287 104 1.674 498 1,140 1972 17,444 5,608 106 1,731 534 !,731 1973 20,815 7,294 96 1,559 446 3,138 t974 27, t 10 9,877 108 776 257 5.612 t975 37,033 I 1,416 128 1,116 287 7,893 1976 48.120 13,176 166 1,712 265 8,075 1977 56,126 15,262 220 2,286 286 9,3 IO 1978 72,10i 17,839 280 2,965 367 11,020 1979 84,051 19,070 288 3.084.9 485 13,531' .Tah'ee¢:CenUal Btnk/mnuel Repoxt and Statiltkzl BttRe_ 1979 end 1976. Fo_il_ ¢xchaaiw rotes fro'_v,t0ma] debt: 1955 to 1964 $1_00-PZ.00 1970 $1.00-P5.86 1965 $1.@0= IZ3.90 1971 $1.00- P6.4.3 1966 $I,@0- P3.f19 t972 $1.00 : _6..61 1967 $1.00 - P3,91 1973 $1.00 - P6.76 1968 $1.00 - P3,9 t 1974 $1.OO" P6.78 1969 $1.00 - _'5.92 Seor_ f_wfo_J_, exc_eal_e - NEDA-EPRS.

1975 1976 1977 t978 1979

$t.00-P7.25 $1,00 - P7.44 $1,00 " P7.40 $1.00" PT._ $1.00 = P7.57

Mo_e_m'y Ina_m_ons 20 16 12 ,._ e-o -rl 3"

3" "1_ __. -_l __. -I

I_ ClO "_

282

RosarioG. Manasan

debt declined from 87 per cent in 1955 to 43 per centin 1979. Correspondingly, the share of foreign borrowings increased from 13 to 57 per cent during the period. Over the years, the bulk of public borrowings had been used up by the national government and government corporations. However, monetary institutions have had an increasing share in public debt. • in 1970, the •Central Bank (CB) issued Central Bank Certificates of Indebtedness and for the first time the CB availed itself of borrowings from local sources. Long-term loans accounted for 87 per cent of total public borrowings in 1955 as compared to 45 per cent in 1979 (Table 12). In contrast, the share of medium-term and short-term loans increased during the period. This observed shift towards shorter-term loans may indicate that a bigger part of public borrowings is being used to f'mance noncapital expenditures. 5.2 Issues on Public Debt The literature on public debt in the Philippines has concentrated on two issues: (1) the level of debt, and (2) debt and inflation. 5.2.1 The Level of Debt and the Burden of Debt Sioson (1975) noted that compared to that of the U.S. and those of other Asian countries (Ceylon and Malaysia), the Philippine ratio of public debt to GNP is low. She also showed that interest payments and debt service (interest plus repayments) had remained low relative to total government expenditure. These ratios averaged 2.6 per cent and 6.6 per cent, respectively, over the period from 1950 to 1972. Another indicator of the burden of•debt used by Sioson is the external debt service ratio (repayment of external debt divided by total expor t earnings). From 1950 to 1961, this figure was relatively modest at 2.6 per cent. However, the external debt service ratio increased to an •average of 15 per cent between 1962 and 1972. 5.2.2 Public Debt and Inflation One of the causes often cited for inflation is public debt via its effect on the money supply level. Sioson (1975) concludes that "since money supply expansion, is not a principal factor in Philippine inflation, public borrowings which contribute to increases in moneysupply do not have a significant bearing in Philippine inflation." She based this statement on the works of Ross (1966) and Bautista (1975) which related the price level and changes in the price level to the money supply and found no significant relationship.

Table

12. Public

Debt

(in mHlioa

by Maturity

pesos)

fntemal Debt Long-term %a

External Debt

hftclale-term %

Short. terra %

Long.term %

Middle-term _

Short-term %

1955 1956 1957 1958 1959

1,356 1,594 1,856 2,030 2,369

1,156 1,181 967 94t 933

85.2 74.1 52.0 46.4 40.0

6 186 325 425 349

0.4 12.0 18.0 21.0 15.0

19 29 355 458 776

1.0 2.0 19.0 23.0 33.0

28 33 59 75 I 11

2 2 3 4 5

97 103 80 56 97

7 7 4 3 4

50 62 70 75 103

4 4 4 4 4

1960 1961 1962 1963 1964 1965 1966

2,489 3,165 3,281 3,359 3,554 5,056 5,572

1,251 1,811 1,825 1,702 1,332 1,455 1,682

50.0 57.2 56.0 51.0 38.0 29.0 30.0

221 177 337 531 663 506 341

9.0 6.0 i0.0 16.0 19.0 10.0 0.1

666 621 576 623 950 1,2 t9 1,538

27.0 20.0 18.0 19.0 27.0 24.0 28.0

I0[ 94 110 118 127 554 401

4 3 3 4 4 11 7

95 356 228 232 240 521 410

4 11 7 7 7 10 7

155 106 205 153 242 801 1.200

6 3 6 .5 7 1_ 22

1967 t968 1969 1970 1971

6,695 7,471 9,159 12,795 14,197

2,419 2,483 2,795 2,810 2,752

36.0 33.0 30.0 22.0 19.0

979 1,128 1,937 1,570 2,898

15.0 I5.0 21.0 12.0 20.0

802 986 1,134 2,811 2,057

12.0 13.0 12.0 22.0 15.0

425 476 612 1,I59 1,273

6 6 7 9 9

513 1,164 984 1,912 2,317

8 16 l1 15 16

1,557 1,234 1,697 2,533 2,900

23 i7 1_ 20 20

t972 1973 1974 1975 1976 1977 1978 1979

17,444 20,815 27,1 I0 37,033 48,120 56,126 72,101 84,051

2,628 3,342 4,656 5,878 7,614 9,694 12,769 8,672

15.0 I6.0 17.0 16.0 16.0 17.0 18.0 10.0

4,406 5,380 7,514 8,440 1.0,867 12,031 11,869 I4,750

23.0 26.0 23.0 23.0 23.0 21.0 17.0 18.0

3,027 3,8t2 4,459 6,221 4,921 5,640 7,832 13,036

17.0 18.0 16.0 17.0 10.0 t0.0 11.0 16.0

2,t76 3,174 4,212 6,344 15,135 19,t55 25,004 29,584

12 15 16 17 31 34 35 35

2,632 2,980 2,752 3,579 3,573 4,060 7,581 9,550

15 14 10 10 7 7 11 11

2,935 2,127 3,517 6,271 6,013 5,546 7,046 8,459

17 10 13 t7, 13 I0 IO 10

Sonrce:

C¢flt/at

BankAnnual Report andStatistical Report.

a. Figures represent the percentage to total debt for the year.

"_ ¢.. oE" "n "_" ¢_ 5" o_ ..¢ -_. -_ _--. ..n

t'J Oo ho

284

Rosario (3.Manasan

Of course, this is not exactly the best way to test the hypothesized relationship between public debt and inflation. 6. SUMMARY ANDCONCLUSION In the previous four sections, a historical background and a discussion of the major issues on taxation, government expenditure, the budget process, and public debt were presented. It is apparent that taxation attracted the greatest amount of interest and work effort in the area of public finance while the budget process and public debt were the least explored topics. Also, it may be observed that the bulk of the research work undertaken in public finance was conducted for the period of the sixties or earlier. In the 1970's, interest in the field seemed to be on the wane. At this point, an attempt will be made to identify some of the gaps in the research efforts in public finance based on the review of the literature that had just been undertaken. (1) The need for a more comprehensive fiscal incidence study is suggested. This should consist of a critical review of the assumptions made in previous studies with regard to the allocation of government expenditure benefits and tax burden to the various income groups, as well as a quantification of the incidence of other fiscal policies like price control on certain consumption goods, price support to certain outputs, subsidies on some inputs, etc. (2) Government revenue forecasting is another area worth looking into. Previous efforts along this line made use of very limited information (a subsample of the tax returns of the previous year). An improvement in forecasting would be an essential input in the government's long-term budgeting endeavor. (3) Substantive work on long-term budgeting is also imperative. This should include the development of an econometric projection model or a programming model or a combination of both in estimating the required figures for a long-term budget. (4) A study on the incidence of fiscal policy in the different industrial sectors is likewise suggested. This should include an investigation of the protective effects of internal taxes on the different industries. This would be a good complement to studies on effective protection rates in tracing the effects of the whole set of fiscal policies on resource allocation. (5) An integrated public sector model is also needed. Almost all of the previous work on public finance is fragmented in the sense that only one subsector, e.g., taxation, is considered. A model of the public sector should provide the badly needed cohesiveness by accounting for the interrelationship among the different subsectors.

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285

BIBLIOGRAPHY Bhal, Roy W. "A Regression Approach to Tax Effort and Tax Ratio Analysis," International Monetary Fund 8t_ff Papers 18 (1971). Bautista, Romeo. "Inflation in the Philippines, 1955-1974." In Philippine :Economic Problems in Perspect/ve, Jose Encamacion Jr. et al. Quezon City: School of Economics, University of the Philippines, 1975. Board of Investments. The Investment and Export Im_ntives Act (With CorrespondingAmendments). Manila: Government Printing Office, 1975. Budget Commission. Budget Operations Menua/, Manila: Bu_ean of Printing, 1968. Caballes, Aida. "A Study of Philippine Tax Performance." Master's then, University of the Philippines, 1975. Chelliah, Raja. "Trends in Taxation in Developing Countries," International Monetary Fund Staff Papers 18 (1971). Claudio, Comzon. "Developing a 'Blueprint' for Long-Term Bud_ting." In Symposium on Budget Management. Manila: Ministw oft he Budget, 1978. De |a Torte, Julieta. "The Cash Budget Systems of the Philippines." Program in Development Economics thesis, University of the Philippines, 1974. Diokno, Benjamin. "The Philippine Tax Systems and the Public Revenue Needs of the Philippines Economy FY 1972-1975." Program in Development Economics thesis, University of the Philippines, 1972. Fernandez, Felisa. The Budget protein and Economic Development: The Plu'lippine Experience, Manila: College of Public Administration, University of the Philippines, 1973. Gregorio, Rosario. "An Economic Analysis of the Effects of Philippine Fiscal Incentives for Industrial Promotion." In Industrial Promotion Policies in the Philippines, Romeo Bautista, John Power and _tes. Manila: Philippine Institute for Development Studies, 1979. Hausen, Bent. Fiscal Policy in 8even Countrie& 1958-1965. Paris: OECD, 1969. International Labour Office. Sharing in DevelopmenL" A Programme of Employment, Equity and Growth for the Philippine& Geneva: ILO, 1974. International Monetary Fund. Taxes and Tax Reforms in the Phtlipplau. Manila: National Tax Research Center, 1975. Jayme, Rebecca. "Redistribution of Income Through Government Expenditures." Master's thesis, University of the Philippines, 1979. Joint Legislative-Executive Tax Commission. A Study of the Tax Burden by Income Class in the Philippines. Manila: JLETC, 1964. Jurado, Gonzalo, and Encarnacion, Jose Jr. "A Government Submodel of the Philippine Economy, 1955-1969," Philippine Economic Journal XI (1972). Kintanar, Agustin Jr. "The Incidence of Some Direct Taxes in the Philippines, 1960," Philippine Economic Journal I1 (1963).

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. "An Analysis of the Effects of Certain Modifications in the Tax Structure in the Rate of Economic Development of the Philippines." Ph.D. dissertation, University of the Philippines, 1969. . Recent Fiscal Reforms in the Philippines. Quezon City: University of the Philippines Press, 1976. ___, and Mijares,Tito. "Estimation and Forecasting of Tax Revenue in the Philippines." IEDR Discussion Paper 65-02, University of the Philippines, 1965. I.ampman, Robert J. "The Sources of Post-War Economic Growth in the Philippines." In Jeffrey Williamson, "Economic Growth in the Philippines, 19471965: The Role of Traditional Input, Education and Technical Change," 1BDR Discussion Paper 67-08, School of Economics, University of the Philippines, 1967. Laya, Jaime. Budgetary Innovations in the New Society. Manila: Budget Commission, 1977. "A Framework for Long.Term Budgeting." In Philippine Budget Management. Manila: Budget Commission, 1975. Lotz, Jorgan, and Moras, Elliott. "Measuring Tax Effort in Developing Countries," International Monetary Fund Staff Papers 14 (1967). â&#x20AC;˘National Internal Revenue Code of the Philippines, 1977. National Tax Research Center. "Initial Report On Taxation and Income Redistribution: A Study of Tax Burden by Income Class, 1971," Tax Monthly 15 (1974a). "A Study of the Incidence of Government Expenditures by Income Class, 1971,"Tax Monthly 15 (1974b). Tax Incentives Before and After Marffal Law. Manila: NTRC, August 1974c. "Income Elasticity of the Individual and Corporate Income Taxes of the Philippines," NTRC Staff Papers (1975c). Assessment of Tax Reforms in the Phih'pplnes, September 21, 1972June 30, 1975. Manila: NTRC, 1975b. "The Effects of Inflation on the Philippine Individual Income Tax Structure," NTRC Staff Papers (1977). "Reexamination of the Personal Exemptions and the Feasibility of Employing an Indexation Scheme," Tax Monthly 21 (1980). Power, John. "Guidelines for Tariff Policy: A Critique." IEDR Discussion Paper 67-12, School of Economics, University of the Philippines, 1967. __, and Sicat, Gerardo. The Philippines: Industrialization and Trade Poliaies. London: Oxford University Press, 1971. Ricafrente, Fe. "The Philippine Public Debt and Its Management." Program in Development Economies thesis, University of the Philippines, 1977. Riha, Tomas. "Evaluation of Fiscal Performance of the Philippines, 1947-1975," IEDR Discussion Paper 75-07, School of Economics, University of the Philippines, 1975.

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Ross, Anthony. "Understanding the Philippine Inflation," Philippine Economic Journal V (1966). Shin, Kilman. "International Differences in Tax Ratio," Review of Economics and Statistics II(1969). Sicat, Gerardo. "An Analysis of the Investment Incentives Act of 1967." IEDR Discussion Paper 67-10, School of Economics, University of the Philippines, 1967. __.

'Economic Incentives, Industrialization and Employment in the Devel. oping Economics." IEDR Discussion Paper 68-30. School of Economics, University of the Philippines, 1968. __ . Aspects of Philippine Tax and Expenditure Policy. Manila: National Economic Council, 1971. __ . Taxation and Progress. Manila, National Economic Council, 1972. Sinay, Cream Gilda. "Buoyancy and Elasticity of the Philippine Tax System, 1961-1972." Program in Development Economics thesis, University of the Philippines, 1974. Sioson, Rosita. "The Pattern of Public Borrowing in the Philippines, 19501972." Master's thesis, School of Economics, University of the Philippines, 1975. TariffCode

of the Philippines, 1978.

Tan, Edita. "Taxation, Government Spending and Income Distribution in the Philippines." In Income Distribution, Employment and Economic Deveb opment in Southeast and East Asia, Council for Asian Manpower Studies. Manta/Tokyo: CAMSJapan Economic Research Center, July 1975. Tan, Norma. "The Structure of Protection and Resource Flows in the Philippines." In Industrial Promotion Policies in the Philippines, Romeo Bautista, John Power and Associates. Manila: Philippine Institute for Development Studies, 1979. Yoingco, Angel, and Quintos, VicentÂ˘. Philippine Tax System Under the New Society. Manila: GIC Enterprises Co. Inc., 1979. and Trinidad, Ruben. Fiscal Systems and Practices in Asian Countries. New York: Praegvr, 1968.

Population and Development Research in the Philippines: A Survey

Alejandro

N. Herrin

I. INTRODUCTION This paper attempts to review the state of social science research on population and development relationships in the Philippines with the aim of: (1) taking stock of what we know about such relationships as a guide to development planning, and (2) providing a basis for formulating recommendations to guide future research on the topic. The many population-related studies by independent investigators often contain reviews of past studies and suggestions for further research. In addition, efforts to bring together experts in various fields to focus on the status and directions of population-related research have also been made in the past (Concepcion 1966, 1969; Bulatao 1976). However, neither singly nor in combination do these efforts readily provide a unified view of the larger perspective needed for the development of a systematic knowledge base and a national research agenda specifically geared to the needs of policy-makers and planners in the 1980's. Professor

of Economics,

University

of the Philippines

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289

Background The increased concern about the role of population in develol_ ment led many governments at the turn of the 1970's to adopt an official population policy whose main focus was the reduction of the rapid population growth. The main population program was the family planning program aimed at providing contraceptive technology to reduce fertility. The rapid declines in fertility noted in some countries have been attributed in varying extent to the impact of such programs, it was difficult, however, to assess the impact such program has had on the population growth since the countries that had achieved the most rapid declines in fertility were also the ones which underwent rapid economic and social transformation. Among other factors, this led many governments to view rapid socioeconomic transformation as an important factor for the rapid and sustained decline in fertility. This view, further reinforced by discussions at international forums (e.g., the 1974 Bucharest Conference), has led to the recognition of the necessity of formulating population policies and programs as integral parts of the social and economic development strategy. The present concern in the Philippines for such integration has been more clearly stated in the report of the Special Committee to Review the Philippine Population Program (1978). Noting that while some efforts have been taken to link the Philippine Population Program with other economic and social dimensions of development, the Committee found that, to a large extent, the-program has remained essentially a family planning program. Moreover, the Committee observed that whenever population was considered in the formulation of development plans, it was often treated more as a demand variable than as a factor that can be influenced by economic and social development. Hence, the Committee recommended that "the Philippine Population Program should be designed on a broader scale and be fully integrated in the national development plans of the country. Economic, social and institutional policies and programs should be evolved with a conscious consideration of their impact on demographic behavior and objectives" (p. 122). Part of the failure to fully integrate population into the overall development plan is the difficulty of such integration at the operational level. This, in turn, is partly due to the complexity of the interaction between population and socioeconomic development,

290

AlejandroN. Herrin

and partly due to the inadequacy of the empirical knowledge base both internationally and nationally for the assessment of such interrelationships for development planning. An additional reason has been suggested, namely that "until recently, there has been an unclear institutional responsibility for advocating and overseeing the fuller integration of population in development concerns. This has resulted in a rather weak and uncoordinated effort towards integration" (Pante and Morales 1980). It is within the context of the above developments that this present effort to review social science research on population and development relationships in the Philippines is made. The ultimate aim is to hasten the operational integration of population in development concerns by expanding the knowledge base necessary to support such effort. Coverage and Approach A note on the coverage and approach of this review is in order. Population-related research has sometimes been classified into: (a) research on demographic levels, trends and patterns; (b) research on socioeconomic-demographic relationships; and (c) action or program-oriented research. In the Philippines, considerable work has been done with respect to the first and third of these categories and some recent attempts at synthesis have been made. (See Concepcion and Smith 1977 for the first category, and Laing 1979 for the third category.) The main focus of this review, therefore, will be on the second category of researches as indicated by the title of this paper. Within this second broad category of researches, the review is organized around the examination of empirical studies focusing primarily on themajor demographic variables, namely: (a) fertility, (b) mortality, and (c) migration. Within the fertility variable, studies dealing with nuptiality and other immediate correlates of fertility are .examined, while within the migration variable, studies dealing with internal and international migration are distinguished. Emphasis was placed on those empirical studies which analyzed data whose coverage included the nation as a whole (e.g., census, vital registration, national survey data) to reflect findings that would be representative of the national situation. For each of the major variables, the review is further organized around the following questions, modifying somewhat the approach

Population andDevelopment Research

291

adopted by the International Review Group of Social Science Research on Population and Development (1978): (a) How much is known about the determinants, including individual, household and community level determinants, of the variable and its components? (b) How much is known about the consequences of the particular demographic behavior for individuals and families; for geographical, communities and specific groups; and for the nation as a whole? (c)

How much is known about the impact of public policies and programs on the variable in question? In view of the existing synthesis of studies dealing with the levels, trends and patterns of the demographic variables in question, only a brief introduction is made in this review to put the subsequent discussions into proper perspective, and to identify issues that could later be elarifed by further research. The subsequent sections of this report are organized as follows. In the succeeding four sections, a review of studies is made focusing respectively on mortality, fertility, internal migration, and international migration. The final section highlights the more important findings regarding population and development relationships and the most critical gaps in knowledge requiring serious investigation. Both of these aspects are discussed within a simple framework of population-development relationships geared towards a policymaker's and planner's viewpoint. II. MORTALITY Writing in 1974, Flieger (1976) lamented the fact that, compared to fertility, information regarding mortality was quite scanty, and that whatever available information there was referred almost totally to the national population, leaving "an almost complete lack of mortality information for regions and provinces." Part of the problem has been that the major sources of data for tlae estimation of mortality were either deficient or defective. Vital registration data, for example, were only about 60 per cent complete for the Philippines in 1970, and the completeness of registration varied from 30 per cent in Western and Southern Mindanao to 80 per cent in Southern Tagalog (Abenoja and Flieger 1979). Censuses, on the other hand, contained defects in the age-sex structure data, making the application of

292

AlejandroN. Hcrrin

indirect estimation techniques difficult. The above assessment of the state of mortality information is still generally valid today. However, notable gains have been achieved since then, and studies in the last _ve years (although accumulating slowly and unevenly) have provided us more information than has heretofore been available. These developments include the emergence of new sources of data such as the sample vital registration system project of the National Census and Statistics Office implemented during the period 1971-73, and the 1968 and 1973 National Demographic Surveys. Paralleling these were the increased efforts to apply indirect techniques of mortality estimation from census, vital registration, and survey data to produce not only national mortality estimates but also differential mortality estimates by region, province, and social group. In spite of this progress, l_owever, important gaps in knowledge still exist especially in the area of mortality-development relationships, as the subsequent discussion will reveal. A review of available studies, however, provides some concrete basis for making inferences regarding their relationship. Levels, Trends and Differen tials National levels and trends. What we know about national mortality levels and trends in terms of such indicators as the crude death rate or the life expectancy at birth are based mostly upon the estimates of several investigators using different sources of data and measurement techniques (e.g., Aromin 1961, Lorimer 1966, Madigan and Avancefia 1965, Mijares 1976, Flieger 1976, Zablan 1975a). These sets of estimates compiled recently by Zablan (1978) reveal_ a pattern of gradually declining mortality from the earlier part of the century up to the beginning of World War II, a rapid decline during the postwar period up tothe end of the 1960's, and a slackening somewhat of the decline thereafter up to the early 1970's. Estimates for the mid- and late 1970's are hard to come by. The emerging pattern is roughly illustrated as follows. Estimates of life expectancy at birth place an upperbound value of 38 years in 1918 which increased to 40 years in 1938. From a level of 45 years in 1948, it rose to 59 years in 1968, and to around 6i years in 1973. The average annual increase in the respective periods are 0.10, 0.70 and 0.40 years. The rapid decline in mOrtality after World War II is a common

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observation in many developing countries. The major factor for such dramatic decline, especially in the earlier part of the postwar period, has often been attributed to effect of the introduction of relatively inexpensive public health measures more than to the effect of general economic development. While the relative quantitative contribution of each factor to mortality decline in the immediate postwar period has yet to be firmly established in the Philippines, one additional and perhaps more important finding that needs explanation is the slackening of the mortality decline in the most recent past. While one can expect an eventual slowing down of the rate of mortal. ity decline once some low level of mortality has been achieved, there is a suggestion that, on the basis of observed international mortality patterns, the slowing down of the mortality decline in the early 1970's may be somewhat premature. The average annual increment in life expectancy of 0.40 years observed between 1968 and 1973 is generally expected of populations which have achieved a high level of life expectancy of 70 years or so. If our estimate of life expectancy of around 60 years for that period is correct, the expected annual increment should have been still around 0.56 Years (UN'1956, cited in. Zablan 1977). That we are falling below the expected rate of mortality decline suggests the need for a more careful quantitative study of recent mortality determinants. Differentials. Several estimates of areal mortality differentials have been made. These include: (a) estimates from the NCSO's Sample Vital Registration Project which provide direct estimates of crude death rates by region for 1971 (Flieger 1976) and for 1971-73 (Mijares 1976), (b) indirect estimates by region and province using census and vital registratio_n data for 1970 (Flieger 1979), and (c) indirect estimates by region using 1968 and 1973 NDS data (e.g., Smith et al. 1975, Zablan 1975b). Zablan (1978).has provided a convenient summary of some of the results of the studies conducted using the 1973 NDS data. All these studies point to the fact that the mortality levels by region, and even by provinces within regions, are far from uniform, suggesting that a single national mortality estimate hides more than it reveals in terms of mortality conditions in the country. For example, the results of the analyses from the 1968 and 1973 NDS data summarized in Zablan (1978) show that the life expectancy at birth (a measure not affected by the age composition of the population) in 1973 ranged from a high Of 62-65 years in such regions as Metro

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Manila, Ilocos, Central Luzon, Southern Tagalog, Bicol, and Central Visayas to a low of 56-58 years in such regions as Northern Mindanao , Western Mindanao, Eastern Visayas, and Cagayan Valley. ThePhilippine average was around 61 years. In addition to the differential mortality levels, regional estimates for 1968 and 1973 further reveal areas where life expectancy has either declined or failed to increase as fast as in other regions. Regions with already low life expectancies in 1968 which declined further in 1973 include Cagayan Valley, Eastern Visayas, and Northern Mindanao. On the other hand, regions with already high life expectancies in 1968 which increased further in 1973 include Central Luzon, Southern Tagalog, Bicol, and Metro Manila. These differential trends tended to further widen existing regional mortality differentials over time. That some regions with high life expectancies in 1968 (Ilocos and Southern Mindanao) showed declines in life expectancies that tended to narrow differentials among regions somewhat is no consolation at all. Even differentials among provinces within a given region vary a great deal, sometimes by as much as 11-14 years of life expectancy, as in 1970 (Rizal vs. Palawan or ilocos Norte vs. Mt. Province) (Flieger's data, 1979). An analysis of mortality differentials by subgroups of the population based on the 1973 NDS data was made by Alcantara (1975). The results, however, are highly subject to measurement error which renders interpretation difficult. Nevertheless, the results tend to show that childhood mortality measured in terms of the probability of dying from birth to age two (q2) tends to be higher among farm wives than among professionals and related workers, and higher among wives with low than with high educational attainments. Likewise, childhood mortality is higher in the rural than in the urban areas. Determinants What the above data do not reveal, however, is why differentials occur, and why trends vary among regions, in some cases reversing a favorable trend. Practically no systematic effort has yet been made to quantitatively identify the determinants of both areal, and household or individual mortality levels and differentials. The most that has been done by way of empirical analysis has been to relateâ&#x20AC;˘ regional mortality levels with a set of socioeconomic indicators in an attempt

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to develop a regional typology by levels of health welfare (Zablan 1977) or by computing simple correlation coefficients between provincial mortality and a few socioeconomic variables (Abenoja and Lim 1979). Zablan (1977) related regional life expectancies at birth with several socioeconomic indicators to reflect average regional levels of nutrition, sanitation, income, health facilities, health manpower, infrastructure, literacy, urbanization, farm activity, and government per capita health expenditures. On the basis of the rank orders of the regions for the indicators, three types of region by level of health welfare were identified, namely: (a) regions with low levels of health welfare as exemplified by Cagayan Valley, Northern Mindanao, Western Mindanao, Southern Mindanao, Eastern Visayas, and Bicol, (b) regions with varying levels of health welfare as exemplified by Ilocos, Western Visayas, and Central Visayas ;.and (c) regions with high levels of health welfare as exemplified by Metro Manila, Southern Tagalog, and Central Luzon. Zablan suggests that the disparities in the levels of health welfare across regions seem to reflect to a large extent the degree of access to health services, and to a lesser extent, the level of socioeconomic development obtaining in the region (Zablan 1977). This exercise, while suggesting important socioeconomic demographic interrelationships, stopped short of attempting to quantify such possible relationships, say, through the application of multivariate statistical techniques. The purpose of the exercise was more to target areas where substantial mortality decline can be achieved through public interventions rather than to identify the determinants of the observed mortality differentials. In a different approach, Abenoja and Lira (1979) applied simple correlational analysis between 1970 provincial male life expectancy at birth in the Visayan regions and a few socioeconomic indicators. High positive and significant correlations were found between life expectancy and: (a) the opportunities for nonagricultural employment, indexed by the proportion of experienced workers in secondary and tertiarty sectors and by the number of large establishments per 10,000 population; (b) the average level of living as indexed by the percentage of households with refrigerators; and (c) the degree of urbanization as indexed by population density. The results of both the studies cited above, however, are inadequate to determine the effect of these socioeconomic factors on mortality. Both mortality and socioeconomic variables were measured either in

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the same year as in the case of the Abenoja and Lim study or even beyond the period of reference in which mortality levels were measured as in the case of the Zablan exercise. Such correlational findings, however, provide an initial basis for future testing of the hypothesis with respect to the determinants of areal mortality differentials. An indirect approach to the understanding of the major sets of determinants of mortality trend would be the analysis of the dif• ferent causes of deaths. This approach, which was used by Preston (1975, •1979) to examine international mortality trends, looks at those portions of the decline in mortality which can be attributed to the declines in deaths due to different diseases. The assumption is that diseases vary in the degree to which they. are responsive to living standards or are capable of being controlled b_, medical technology. Unfortunately, statistics, if any, on the causes of death are often unreliable in view of the inherent difficulty of assessing the precise cause of death, and are most likely to be incomplete. Nevertheless, from whatever data are available, mostly those collected by the Disease Intelligence Center of the Department (now Ministry) of Health, some tentative analysis can be made concerning the possible role played by general economic development and public health measures in reducing mortality in postwar Philippines. Data on•death rates by leading causes compiled from the above source and reported but unanalyzed by Zablan (1978) for the period from 1946 to 1972 reveal that death rates due to such diseases as pneumonia, influenza, bronchitis, dysentery, gastroenteritis, and nutritional deficiency, which are often associated with environmental changes due to economic development, have posted major declines since 1946. However, rates due to the control of such diseases as malaria, measles and tuberculosis, which are often associated with the application of inexpensive modern medical technology, have likewise declined. Between • 1946 and 1960 death rates due to all of the causes of death enumerated above declined by 57 per cent (from 888 to 383 per 100,000). Two-thirds of this decline was accounted for by the decline in mortality from the first set of causes. Between 1960 and 1972, mortality declined by only 18 per cent (383 to 315 per 100,000), a much slower rate, of which the first set of causes contributed again about 70 per cent of such decline. It would appear that mortality declines associated•broadly with general economic development have been more important

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than mortality declines associated with the introduction of inexpensive public health measures, especially in the more recent period. This would tend to be contrary to international opinion regarding mortality declines in the postwar era in less developed countries. Although this type of analysis is at best crude in view of the incompleteness and perhaps inaccuracy of data on the cause of death, and in view of the failure to account for the interaction between the two sources of mortality decline due to specific diseases, it suggests two important tentative hypotheses requiring further systematic study. First, the proportion of deaths due to causes easily amenable to reduction by inexpensive, narrowly-defined public health measures is quite low to start with, and any mortality reduction due to these causes, however large and rapid, would have a relatively minimal impact on overall mortality decline. Secondly, the rate of decline in mortality due to the first set of causes has considerably slowed down between 1960 and 1972, suggesting that further gains in mortality decline would have to be associated with the effects of a broad-based public health program and economic development. Just exactly what type of program and what type of development will have the greatest impact on mortality is still to be determined by more systematic social science research. Detailed analysis of better cause of death statistics could be an important aspect of such policy-oriented research from which a specific strategy of mortality reduction could be based. For example, the percentages of all deaths due to pneumonia and respiratory tuberculosis were still the highes t in 1972 as they were in 1946, both accounting for 27 per cent of all deaths. Clearly, significant mortality reduction can be achieved by strategies that bear upon such diseases. A set of studies which do not deal directly with mortality 'but which could provide a concrete hypothesis for the study of mortality determinants are those dealing with nutrition, morbidity, and the distribution and utilization of health services (Florencio 1977: Layo 1977; Paqueo 1977a, 1977b; Battad 1977, 1978; Adorna 1977). These studies collectively suggest large differentials in nutritional status and morbidity by type of diseases across regions and provinces as well as differentials in the distribution of health services. These differentials may well be directly rehted to the observed areal differences in mortality rates. At the household level, these studies suggest the importance of such variables as income and education, as well as household size and composition, as determi-

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nants of the incidence of malnutrition among preschoolers (Battad 1977, 1978; Paqueo 1977a). On the other hand, such factors as, (a) household size and composition, (b) environmental variables such as quality of drainage and quality of ventilation, (C) traditional health beliefs and health knowledge, and (d) education beyond elementary school, have been found to be significant predictors of morbidity, with the first two sets of variables being more significant than the latter two (Layo 1977). Together these factors indirectly affect mortality via their impact on nutrition and morbidity. Much more detailed analyses are needed, howeve r, before a set of definitive •conclusions could be made. Consequences The most discussed effect of declining mortality at the macro• level is the increase in population growth. At the household level, this is reflected in increased family size, as more babies survive to adulthood. While declining mortality may reduce fertility somewhat , the results of international studies show that the replacement effect of reduced mortality is less than compensatory, thus leaving a net effect of increased family size (Preston 1975a). In turn, the consequences of increased family size are often discussed in relation to fertility, and hence, • these studies will be treated in the next section. Impact of Public Policy Quantitative studies on the impact on mortality of public interventions, even specific health interventions, are practically nonexistent. This is probably due to•the strongly held, butunsystematically documented, view that the public health programs would naturally have an impact on mortality. Another reason may be the difficulty of evaluating, the impact of such programs in view of the limited data available and of the complex factors that affect mortality. A recent evaluation of a large-scale maternal and child healthbased family planning project implemented in Bohol, .for example, did not show a decline in mortality as conventionally measured during the five-year duration of the •project (1974-79). While many factors were probably responsible for this observed lack of mortality impact (e.g., short duration of observation pedod and relatively small sample size); the evaluators suggest that perhaps an important

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contributory factor may be that the project efforts were not closely tailored to the major causes of death, which.in turn was primarily due to the inadequate data on this aspect (Parade, Williamson, and Maturan 1980). Nevertheless, evaluations of the mortality impact of public health programs are necessary in order to determine what specific types of programs will tend to have the largest impact on mortality per unit of resource used. The concern for the need to reallocate resources within the health sector to redress existing geographical and social group imbalances could be guided by the results of such studies. Towards A Research Agenda The main problem from a policy and program standpoint seems to be the determination of the type of health program and the type of development that will have the greatest.effect on mortality. The research strategies suggested by the International Review Group of Social Science Research on Population and Development seem especially worthy of consideration, namely: (a)to increase the awareness of both policy-makers and the general public of the existing inequality in health status between the rich and the poor; (b) to establish more precisely the cost-effectiveness and likely mortality impact of reoriented health policies, and to make .such results wellknown; and (c) to determine the feasibility of reorienting health policies in the absence of broader changes in political and institutional structure (IRG 1979, p. 80). In the Philippine context, the above strategies could be operationalized more specifically in terms of studies dealing with determinants and consequences of, and the impact of public policy on, mortality and perhaps on two of its closest correlates;.morbidity and nutrition. Firstly, the earlier attempts to describe and analyze mortality differentials by geographical areas and by social groups need to be continued. New data sets that have become available since the 1973 NDS include several rounds of the Area Fertility Surveys (one round includes direct information on mortality), the 1978 RPFS, and the recently concluded 1980 census. The application of indirect estimation techniques such as the Brass methods, as earlier done, could be pursued. These methods, however, provide estimates of past mortality levels and patterns, and are more accurate for child mortality in the recent past than for adult mortality. The

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application of indirect estimation techniques from widowhood data has been shown to yield reasonable estimates of adult mortality in some international applications. This approach could be explored, and resulting estimates could be fitted with child mortality estimates to generate a complete and consistent set of age-specific mortality rates and life expectancies. In addition, infant mortality can be estimated from pregnancy history data collected in the abovementioned surveys, and from which analysis of differentials could also be made. Finally, even as vital registration is being improved, various techniques of estimation using vital registration data could still yield reasonable estimates of mortality trends. Secondly, a multivariate analysis of known or suspected determinants of mortality trends and differentials needs to be made. Since existing data sets do not often Contain such rich data on possible explanatory, variables, serious consideration should be made in collecting such information in future survey rounds of on-going demographic projects, or in designing new sur_eys specifically meant to implement such types of analyses. Complementary to such multivariate statistical analysis would be the careful in-depth microlevel analysis of the mechanisms by which broad socioeconomic correlates, e.g., income and education, affect mortality change. The first and second research'leads suggested above should likewise apply to morbidity and nutrition studies. Thirdly, cause of death statistics should regularly be compiled and analyzed for possible trends and differentials. While admittedly such data sets tend to be unreliable in view of the difficulty in most cases of determining the precise cause of death, they may still provide useful indicators of trends in types-of causes that could most effectively be affected by redesigned public health measures. Fourthly, there is a need to evaluate the mortality effects of a Wide range of public interventions, not only the more narrowly defined public healtli measures but also sueti programs as food and nutrition, water supply, housing, and environmental sanitation. The evaluation could also seek to what extent current interventions first affect the immediate correlates of mortality among the.population groups exhibiting highest mortality, namely, morbidity and malnutrition. While the evaluation of .such interventions is made difficult by the lack of adequate evaluative research methodology, the experience of the ESIA/WlD Projects could hopefully provide useful research strategies for such evaluations.

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III. FERTILITY Levels, Trends and Differentials Compared. to mortality, we have more information regarding levels, trends and differentials in fertility. While vital registration data still remain inadequate as a major source of reliable estimates, census data and, more recently, the national and regional, demographic surveys have provided current estimates of fertility at both the national and regional levels, as well as by social groups. What we know about fertility levels, trends and differentials were summarized recently in several studies (e.g., Concepcion and Smith 1977, de Guzman 1978, Concepcion and Mijares 1979, WFSoRPFS 1979). National level and trends. Available estimates of national fertility levels reveal a fairly constant birth rate ranging from 50 to 56 births per thousand population in the fLrst half of the century, gradually declining beginning in the 1950's to reach around 40 to 43 births per thousand in 1970. A somewhat faster decline occurred in the mid-1970's, so that by 1977, the crude birth rate had been reduced to around 30-32. Estimates of total fertility rate and total marital fertility rate for the more recent period from 1965 to 1977 likewise reveal a downward trend. Total fertility rate declined from 6.3 births per woman in 1965 to 5.89 in 1970 and then to 5.01 in I977. Total marital fertility rate, on the other hand, declined from its 1965 level of 9.67 births per ever married woman to 9.65 in 1970 and 9.10 in 1977 (WFS-RPFS 1979, Table 5.12). The evidence, however, indicates that the decline in fertility rates under age 25 has been due largely. to deferment of marriage than to reduction in fertility within marriage. In fact, marital fertility rates for the three periods have slightly increased for women aged 15-19 and 20-24. Within marriage, the declines started among women by age 25 and over, with the largest absolute declines occurring among women aged 25-39. This pattern suggests that older and higher parity women take the lead .in reducing fertility through contraception. This pattern of fertility decline reflects the relative roles played by the two proximate determinants of fertility change, to be described later, namely, changes in nuptiality patterns and changes in contraceptive prevalence. Regional dlfferential& Data from three national demographic surveys (1968 and 1973 NDS, and 1978 RPFS) provide .further information on rural-urban and regional fertility differentials. Preliminary estimates of mean children ever-born to ever-married'

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women who have been married 10-19 years at the time of the 1978 RPFS survey reveal lower fertility in the urban than in the rural areas. - 4.5 versus 5.3; and generally lower fertility in Metro Manila than in the rest of the country, with a gradient of higher fertility as one moves from Luzon to Visayas and to Mindanao - 4.2, 5.1, 5.2 and 5.4, respectively (WFS-RPFS 1979, Table 5.7). A similar regional pattern is observed for the period 1963-67 and 1968-72 from the 1968 and 1973 NDS data. In this latter set of data as reported by ..de Guzman (1978, Table 103), declining total fertility rates is evident in almost all regionswith the consequence of slightly narrowhug regional fertility differentials during the two periods. It is difficult at present, however, to pinpoint precisely the determinants of these more recent regional trends. Some earlier studies, however, have attempted to relate regibnal or provincial fertility differentials to several socioeconomic factors. Smith (197!) found that soeiocultural, demographic and socioeconomic faetors as indexed in 1938 by such factors as physical characteristics of dwellings, education, occupation, literacy, religion, sex ratio and density are negatively associated with the overall level of fertility in 1960 but that .this effect is felt almost exclusively via the association between these factors with the marriage pattern. The association with the level of marital fertility is negligible and in most cases positive. Regional fertility differentials could also have been due to differential migration patterns which affected nuptiality patterns (Smith 1975a): Relating regional fertility differentials observed in the 1960's to socioeconomic factors_ proxied by per capita incomes, and health conditions, proxied by infant mortality rates, Flieger (1975) found no definite association with respect to the former variable, and a slight positive relationship for the latter. Finally, Pascual (1971) related regional fertility to an index of regional development constructed by combining such indicators as the percentage of the population that is urban, the percentage of occupied dwelling units with radios, and the percentage of male labor force in nonagricultural occupations. She found a nonlinear relationship between these two variables, with fertility ratios (children ever born per 1,000 ever married women aged 35-44 or 45-54 increasing from the least developed areas to some level and decreasing thereafter. For both 1960 and 1968 where such a relationship was tested, the lowest fertility was found in the most and in the least developed regional groupings.

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Fertility differentials by social groups. Studies on fertility dif- " ferentials by social groups are many, and among the more intensive of these are those by Concepcion (1963, 1,964) and Pascual (1971). A recent summary of these studies is found in de Guzman (1978) incorporating data found in the 1973 NDS, while preliminary estimates from the 1978 RPFS are presented in WFS-RPFS (1979). In most general terms, fertility differentials have been more commonly noted, mostly in the hypothesized direction including possible nonlinearities, in social groups differing in education of the wife, occupation of the husband, income of the family or of the husband, work status of the woman, religion, type of households, and place of residence (rural-urban). Such information is suggestive of the factors affecting fertility. However, the lack of controls characterizing most descriptive analyses limits the usefulness of such analyses in assessing the effect of socioeconomic factors on fertility. Statistical analysis which controls for several explanatory variables from which further inferences can be made is described below. Determinants Some statistical associations. Several attempts have been made to distinguish several socioeconomic factors that are closely related to fertility by applying multivariate statistical analyses. Among the more dear-cut associations so far noted are those" between fertility (measured in terms of the number of children ever born), on the one hand, and education and income, on the other. Controlling for the timing and duration of marriage, age of woman and residence, Encarnacion (1973, 1975) and Canlas and Encamacion (1977) have found that there is a threshold level of education of the wife and family income such that the effect of each respective variable on fertility is positive below some threshold level and negative above it. Such results have been obtained using data from both the 1968 and 1973 national demographic survey. Among the less clear-cut statistical associations axe those between fertility and female labor force participation. Earlier studies that controlled for some possible confounding variables (Concepcion 1973, Feranil and de Guzman 1977)have suggested that female labor force participation per se may not greatly affect fertility; the type of work done and the place of work, to a large extent, are what really matter. Specifically, the f'mdings show that working women in

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highly urbanized areas, as well as those specifically engaged in economic activities away from their homes, in nonfamily enterprises or on an employee status, generally exhibited lower fertility. Women working in home or family arrangements exhibited fertility levels comparable wi_h those of nonworking women. More. recent econometric studies suggest that there is very little direct effect on fertility of female labor participation independent of other possible determinants notably duration of marriage (Herrin 1980), and likewise a very weak sequential relationship is observed between past female employment and current or expected fertility (Herrin 1980, Rosenzweig 1976). The observed variations between female employment and fertility can in fact be explained in large part by their dependence on a common set of economic and social factors (Herrin 1980). With respect .to the effect of mortality on fertility, Harman (1970) found that infant and child mortality had a significant positive impact on fertility especially among older women. The same relation was oberved when the perception of the risk of losing a child as measured by the community infant safety factor was used. Fernandez (1979) and Paqueo and Fernandez (1979) found that life expectancy appears to have an insignificant effect on the fertility of wives with family income below threshold values, while the effect is significantly negative above the threshold. While the studies cited above .(and others not cited) singly and in combination offer insights into the possible interaction between socioeconomic factors and demographic variables, the specific mechanisms involved in their interactions have yet to be firmly established. In most cases, the socioeconomic variables that are being related to fertility are merely proxies for the major determinants hypothesized. For example, in threshold-type studies, education and family income below some threshold are taken to represent more basically the level of health and nutrition of the mother which, in turn, directly affects her fecundity or capacity to bear live births. Social science research dealing directly with the effect of health and nutrition of mothers on fertility has yet to be conducted systematically in the Philippines. On the other hand, above some threshold values, both education and family income could represent a host of intervening factors which ultimately affect fertility. A review-of the international literature on the relation between education and fertility (for example, Cochrane 1978), suggests that education

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could affect fertility indirectly through its effect on the age at marriage, contraceptive knowledge, alternative satisfactions, infant mortality, etc. Following a framework developed by Davis and Blake (1956), understanding the determinants of fertility would require more intensive investigations on its more proximate determinants, i.e., those factors related to entry into unions, contraception, and gestation. Among the proximate determinants of fertility, nuptiality patterns and contraception have received attention in the recent past, notably in studies by Smith and Laing. Only recently have data and analyses been made on such other proximate determinants as breastfeeding, separation of spouses, age at menarche, etc. (WFS-RPFS 1979, Lalng 1979). Nuptiality patterns. It was mentioned earlier that fertility trends observed in the more recent period especially among younger women appear to be much more a result of changing nuptiality patterns than of declining marital fertility. Thus, continuing information on nuptiality patterns is important in understanding the processes behind fertility changes. A recent synthesis of available analyses on trends and differentials in nuptiality as well as inferences on the social processes involved was made by Smith (1978). Marital status distributions by age obtained from census data from 1903 to 1970 reveal a significant long-terms trend which is more pronounced for females than for males. The percentage of those never married increased steadily especially among younger women aged 15-19 and 20-24 over the seven decades, with the shift among women 15-19 years of age occurring before 1939, while for women aged 20-24 the shift occurred later (Smith 1978, Table 113). The singulate mean age at marriage has risen from 20.9 years in 1903 to 22.8 years in 1970. Data from the same _sources likewise reveal areal variations in marriage patterns both at the regional and provincial levels. Some .of the most sizable nuptiality differentials have been traced to the effects of selective migration with respect to age, sex and marital status. The overall nuptiality patterns have also been related to three important social processes as gleaned from the 1973 National Demographic Survey by Smith (1978). These are: (a) urbanization and the expanded role of females in rural-to-urban-transfers as they seek

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jobs and education; (b) the rise of mass education, and the increased. participation of females therein; and (c) the growth of the nonagricultural labor force, in which •females have also had an increasingly important role; The first factor tends to lower the sex ratio as migration to urban areas becomes female-dominated. This reduces the probability of early marriage. Data provided by Smith (1978), as well as the most recent preliminary estimates by WFS-RPFS (1979), show an increasing age at marriage as educational level increases. Finally, female employment especially in the modern sector and in high level jobs is associated with delayed marriage, partly due to the effect of education. In summary, the source of nuptiality change over the course of seven decades can be traced, on the one hand, to environmental pressure on the traditional system s of landholding in the rural sectors, and on the other, to several interrelated processes of modernization including urbanization, educational expa.nsion and the shifting composition of. the labor force. The first of-these forces had led to differential migration patterns which in turn affected marriage patterns in both .receiving and sending areas .in the earlier part of the century; while the second set of forces played an increasingly larger role during the postwar period especially beginning in the 1960's. If nuptiality is a determinant of fertility, how much of fertility change can be attributed to changes in the marriage pattern? Smith • (1975b), analyzing data from the 1900 census and the 1973 NDS, •found that between 1960 and 1970, 15 per cent of the decline in overall-fertility in. the Philippines could be attributed to nuptiality, while for the earlier period from1903.to 1960, 63.per cent of the decline _in. overall fertility was due .to nuptiality. Furthermore, large regional variations characterize the role of nuptiality in fertility change. Nuptiality accounts for all the changes in overall fertility in three regions,-and for between 40 and 73 per cent in five other regions. In Metro Manila, nuptialityaccounted for only less than five per cent of the Change in overallfertility from 1960 to 1•970. Metro Manila already had a much lower overall fertility by 1960 compared with the other regions: the more recent-decline in overall fertility, therefore, is due mostly to changes in marital fertility through Contraception. Contraception• and other determinants of marital fertility. The evidence on fertility levels .and. trends presented earlier suggests that

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the decline in total fertility rate observed in the period from 1965 to 1977 has been due to changes in nuptiality patterns especially among younger women, and to changes in marital fertility for women aged 25 years and over. Within marriage, however, fertility is proximately determined by several intermediate variables including contraception, involuntary infecundity, voluntary and involuntary abstinence, and induced and spontaneous abortions (Davis and Blake 1956). While several studies have been made on contraceptive prevalence which has increased from 16 per cent in 1968 to 42 per cent in 1978 (Laing 1979), very little data have been available until recently regarding the other proximate determinants of fertility. Laing (1979) tells of an analysis of 1974 National Accepter Survey (NAS) data which indicated that family planning accepters who breasffed their children were protected for over four months longer, on the average, than accepters who did not breastfeed. The effect of breastfeeding was equivalent to 0.15 births averted, comparable to the average protection provided by condoms following an acceptance of that method. In the recently completed 1978 WFS-RPFS survey, information was sought on factors other than age at marriage and use of contraception that have a direct effect on fertility. These included information on breastfeeding, postpartum amenorrhea, regularity of menstruation, frequency of sexual relations, postpartum abstinencel etc. A preliminary analysis ha_ been made of the data on breastfeeding, postpartum amenorrhea, postpartum sexual abstinence, temporary separation of spouses, and age at menarche. The results show in general that the length of breastfeeding, because of its suppressing effect on ovulation, is the factor that exerts the greatest influence on the length of the birth interval. Data for the last closed interval revealed that 85 per cent of women 15-49 years of age breastfed their child for an average of 11.2 months. Older women and those who reside in rural areas tendedto breastfeed their children slightly longer than other groups of women. The length of the postpartum amenorrhea is positively related to the length of breastfeeding in months. Women who did not breastfeed or who breastfed only for up to two months had a mean amenorrheic period of 3.5 months, while women who breastfed for a full year had a mean amenorrheic period of 8.6 months. Women who breastfed for 30 months had a â&#x20AC;˘mean amenorrheicperiodof 12,5months. Postpartumabstinence, if sufficiently prolonged,can lengthen

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the pregnancy intervals. The duration of postpartum abstinence is usually related to medical reasons, cultural norms, sociaJ pressure, and individual inclination. The data from the survey suggest, however, that postpartum abstinence does not constitute an important factor in determining the length of either the open or the last closed pregnancy interval. The majority of the women (56 per cent) had resumed sexual relations two months after the pregnancy had ended. Higher postpartum abstinence is directly but slightly related to age of the woman and indirectly to level of education. Temporary separation of spouses due to sickness, work or family obligations can also lengthen the pregnancy intervals. The available data, however, suggest that temporary separation is not widespread in the Philippines (only 3 per cent reported a temporary separation of 3 months or more), nor is it of long duration (the mean length of temporary separation of "allwomen is a mere 0.3 months). None of the background variables shows any relationship with duration of separation of spouses. Finally, the onset of menstruation, which is a biological factor influenced by women's general health and nutritional state, ranged from 12 to 19 years of a woman's age, averaging 13.9 years. The â&#x20AC;˘ data further reveal that younger women tended to have an earlier age at menarche. This suggests that the trend in health and nutritional levels in the country over the years may have affected this trend of increasing age at menarche, which in turn could have some influence on overall fertility. The trend towards later age at marriage, however, would tend to minimize the impact of this factor on overall fertility. In view of the deficiencies of the quality of the data noted by the study, more detailed analyses are required to assess the implications of these proximate determinants of marital fertility. Value of chiMren. One of the more recent social science contributions to the understanding of fertility is the literature on the value of children (VOC) conducted in several countries including the Philippines (e.g., Bulatao 1975, 1978, 1979a, 1979b; and Bulatao and Arnold 1977). The main purpose of the sutdies was to identify various domains in which, the Filipino child is perceived to provide some utility, and to determine whether the degree of a person's concern with these domains relates to childbearing preferences. One advantage of such an approach is that it puts the conventional economic cost-benefit calculus commonly suggested by

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economists into the broader social-cultural and psychological context of childbearing decisions. One disadvantage, however, is that the values are related more to fertility preferences rather than to actual fertility. Nevertheless, the results are interesting and, in most cases, reassuring for those who have confined their investigations solely to the economic determinants of fertility. In the more detailed analysis of the data obtained from a national sample of 1,691 wives and 382 of their husbands in 1975, Bulatao (1978) reports that the value domain within which children are considered are several: (a) the domain of instrumental assistance or practical help, (b) the domain of interactions that are socioemotionally rewarding, (c) the domain of psychological appreciation, (d) the domain of coping with social pressures, (e) the domain of marital security and closeness, (0 and the domain of family and kin preservation. The instrumental-assistance value, financial help expected of children, old age security, help with household chores, and caring for other children were found to be highly salient and most central values. However, the second domain, the one on interactions that are socioemotionally rewarding, such as companionship which the children provide, the opportunity to give and receive love and affection, happiness from being with children, etc., were about equal in salience to instrumental-assistance values and perhaps marginally ahead in centrality. The third and fourth domains were found to be both low in salience and in centrality while the fifth and the sixth were low in salience but high in centrality. The four major disvalues include: (a) emotional strain of having children, including worries about childbearing; (b) f'mancial problems caused or aggravated by children; (c) restriction on parents' activities and limitations on time for one's self or for one's spouse; and (d) concern about overpopulation. The results of the analysis indicate that financial co_ts were less salient than worries of childrearing, but appeared more central and ranked fh-st in importance among the disvalues. The other two sets of disvalues appeared less frequently and received less importance, indicating that few respondents see a child in the context of opportunity costs or the social costs of overpopulation. The analysis also revealed that the contribution of a child in each value domain depends on at least two factors - its sex and its birth ranking. Childbearing intentions are influenced by different considerations as a family grows. The analysis also revealed that Filipino

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parents appear to value children for largely individualistic re_isons. The respondents tend to be less influenced by pressures from relatives, from the community, or from religion as reasons for childbearing. "Such pressures may operate nevertheless through the value themselves, through couples internalizing, and identifying as their own personal motives the dominant cultural patterns to valuing children" (p. 171). Finally, changes in the perceived Values and disvalues of children may occur as modernization proceeds. In summary, the VOC studies, by'providing a better understanding of the values of children, should provide significant insights into fertility behavior as well as guide efforts toward fertility control that consider and, possibly compensate for, the values that may be lost as familes reduce their size. Consequences

of.Fertility

Trends

Relative to the studies dealing with the correlates of fertility, very few quantitative studies have been done on the actual consequences of fertility change either at the macro or the micro level. Part. of the reason is the lack of adequate and reliable historical data that would allow such quantitative analysis. Another reason is perhaps the fact that the persuasive rhetoric of the 1960's (both at the international and local levels) regarding the adverse consequences of rapid population growth convinced government authorities of the need to launch public programs to reduce the birth rate. Once such a commitment was obtained, there was little need for more detailed studies showing the _generally held but often simplistic view that rapid population growth will have adverse consequences on the national well-being. A review of available Philippine studies dealing with implications of high fertility is made below. Macro studies. Largely influenced by the earlier work of Coale and Hoover (1958) on the impact of alternative fertility trends, several studies have been conducted in the Philippines to examine the impact of alternative fertility trends on such macro variables as per capita income, saving and investments, and employment. In general, these macrolevel studies are simulation exercises to determine the economic implication of alternative fertility trends (or alternative population growth paths). They do not, therefore, reflect actual consequences of past demographic trends. Notable among these

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earlier studies are those by Larnpman (1967) and Ruprecht (1967, 1969). In examining some interactions between economic growth and population change in the Philippines, Lampman (1967) asked two questions: (a) what is the economic price or cost associated with the .postwar acceleration of population growth? and what economic benefits would flow from a gradual return to a lower rate of population growth?; and (b) given the present rate of population growth, what cost must be paid to accelerate the rate of economic growth? The answer to the first question is based on a simple mechanical exercise of assuming a given GNP, then calculating the per capita GNP under constant fertility and a sharp decline in fertility. Predictably, the result would be a higher per capita under the latter than in the former fertility regime. Similarly, given the level of GNP, since population will be larger under constant fertility, and a larger, population would require larger investments and social expenditures, the amount available for consumption will necessarily be lower under a higher fertility regime than under a declining one. 'Hence, consumption per capita will be lower under constant fertility. With respect to-the second question, the price of growth under the high rate of population growth situation will tend to be higher at both the aggregative level (more capital, more labor, more technical advance, and so forth) and the intersectoral and intergroup level (more risk, loss of preferred and secured status for some, and considerable change in the way of life for all). Ruprecht (1967), on the other hand, developed an econometric model which allows the projection of GNP as a function of land, capital, labor and time, and two submodels which allow for the projection of three alternative population growth, and of savings and investment. Having projected GNP, population growthrates, investment rates, etc., under different Conditions of fertility control, the advantage in terms of per capita GNP of immediate fertility control over no control or postponed control is demonstrated. One important implication of the exercise is that the initiation of fertility decline cannot wait until its. adverse economic effects have become apparent. By that time it may be too late as the population momentum at that point would be overpowering. Rupmcht (1979), in a subsequent study, attempted to analyze the impact of alternative population trends and the consequent growth of income on the structure of the .economy (in the inputoutput sense), on the assumption that different rates of population

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growth would have somewhat different effects on different sectors of the economy, with the growth of some sectors being retarded, and the growth of others perhaps accelerated. He also examined the employment implications of the resulting structural effect and, at a more disaggregated level, the structural imphcations on several manufacturing sectors. The results of the exercise suggest that, for the Philippines, "a reduction in fertility would contribute to an economic structure which emphasized non-agricultural activities to a greater extent, was more capable of providing full employment, and which produced in the manufacturing sector a greater inducement for subsequent growth" (p. l 1). Among other limitations of studies of the type represented above is the omission of the cost of a birth control program necessary to effect the fertility reduction in the First place. Such cost could in fact be sizable; hence there is a need to explicitly consider this cost in analyzing the macroeconomic benefits to be derived from reduced fertility. The recent work by Paqueo (1974, 1977) specifically addressed this issue of the cost of the public intervention to assess the implications of fertility reduction on the economy. In general, Paqueo constructed a family planning submodel that allows a translation of the number of family planning acceptors into births averted. This submodel is then grafted into a larger econometric model which is a modification of an earlier economic-demographic model developed by Encarnacion, Mangahas, Paqueo and Smith (1974) to analyze the economic effects of the birth control pro_am. In general, the results of the _imulation exercise by Paqueo suggest that the effect of birth control on per capita income and real wage rate is significant. Family incomes, however, appear largely unaffected, and the effect on the traditional investment-to-output ratio seems minimal. Of considerable significance is the f'mding that, while per capita incomes tend to increase, aggregate output due to a relatively smaller labor force is actually reduced. The payoff of the fertility reduction, therefore, is essentially due to the decrease in the number of persons sharing national output and not from increased production and saving. As Paqueo (1977) concludes: "This observation would suggest that population control does not necessarily lead to more rapid growth defined as sustained incma_ in total output. This interpretation should, of course, be qualified by the factthat many causal processes whereby family planning

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could enhance productivity and capital (human and material) formation are not included in the model. Nevertheless, in the light of the debate regarding development versus population control, it would seem appropriate to end this study by noting that family planning is not a substitute for effective development policies" (p. 215). In addition to the above studies looking at the probable consequences of alternative fertility (and, therefore, population growth) trends on per capita income and other aspects related to it, several studies have looked at specific sectors of the national economy that will be affected by population growth. These sectors include health, education, food, housing, natural resources and environment (Calzado et al. 1978, de la Paz 1978, Intengan 1978, Luna 1978, etc.). These studies generally suggest that, while rapid population growth exerts pressure on the demand for basic services, the problems associated with their provision are more directly due to a set of factors more complex than what a rapid increase in population would imply. Micro-level studies. Turning now to the microlevel impact of fertility change, several studies have focused on the impact of family size on family savings and expenditures (Peek 1974, Power 197!, Mangahas !974), on morbidity rates (Layo 1977), and on the nutritional status of household members (Battad 1977). Using data from the PSSH of the BCS for 1961, 1965 and 1971, Peek (1974) examined the effects of family size among others on household savings, defined alternatively as per capita savings, per household savings, and per adult equivalent savings. Among the tentative conclusions are as follows: (a) gross dependency burden (not taking into account the contribution of the dependents to family income) has a negative impact on the. savings rate which is only to a small extent offset by economies of scale in consumption; and (b) there is a negative life cycle effect on savings in terms of expected dependency burden, which more than offsets the positive economies of scale effect of savings. One limitation of Peek's study is that the effect of family size on family income is not explicitly considered in the model. Such effect, however, is considered by a study conducted by Mangahas (1974). This study attempted to quantify two processes by which family size may affect family expenditure (and, as a residual, savings). Firstly, he considered the relationship between family size and the number of workingfamily members. The size Ofthe family's working force then affects family income and, consequently, family expend-

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iture. Secondly, the study considered the relationship between family size and the number, of adult-equivalent consumers in the family. The latter variable, jointly with family income, determines family expenditure. The data used ..were the Family Income and Expenditure Surveys (FIES) of 1957, 1961, 1965 and 1971 of the Bureau of the Census and Statistics, and the National Demographic Survey (NDS) of 1968. The interrelationships, suggested are as follows: increases in family size lead to increases in the family labor force and, in turn, to increases the number in the number of working members, which, in Combination with the age of the household head, the education of the wife, and (in urban areas) the labor force participation of the wife,-then determine family income. In the second process, family size determines the number of equivalent adult members in the family. In combination with family income, this in turn determines the consumption level of the family. With respect to the potential effect of family size on morbidity., Layo (1977) found .that the most important determinants of total illness in the household as measured by the magnitude andsignificance of the regression coefficients are the number of household members 0-5 years old and the number of older members aged 45 and over controlling for such factors as education,per capita income, rural-urban residence, quality of drainage, of ventilation and of water, health beliefs and knowledge. For acute illness, the best predictors continue to be the demographic .variables especially the number of household members 0-5 years old. Battad (1977), in a study of the determinants of the nutritional status of Laguna preschoolers of 1975, found a negative effect of the number of children less than six years on a measure of child nutritional status,. 'controlling for such factors as income per capita, education of the mother, age and sex of the child, mother's nutritional status,-and incidence of chronic illness. The measure of child nutritional status is the ratio of the child's actual weight to the standard weight for age and sex. The main explanation for such negative relationship is as follows: the more young children, the. greater the time inputs into child care by the mother.and other household members, and the harder it gets to meet each child's nutrition needs. Battad. also states that the negative marginal effect of the number of children was larger .for 2-3 years olds than for 4-6 year olds. This is probably explained by

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the fact that children aged 2-3 years are still evolving feeding habits, are just starting to exercise self reliance, and still need inuch supervision from the mother. By the age of 4-_5, a child becomes more capable of handling the shift in the mother's attention but the nef effect may still be a lowering of nutritional status. Popkin (1976) found that an addition to the number of children aged zero to 6 years increased the Laguna mother's time for child care. That the nutritiorral status of children aged 0-2 was not significantly affected by an additional preschooler probably indicates that the Lagunamothers concentrate more attention on the newborn or younger preschoolers than on the Older ones. Boulier (1976) found that an additional infant increased a mother's time for child care mote than an additional older preschooler and that the increase moved according to family size. in larger families, more older children substituted for the mother's time; hence, the increase was not as large as in small families. This substitution of mother's care may contribute to the decline in older preschoolers' nutrition status. Impact of Public Policy Studies dealing with the impact of public interventions on fertility, other than that of the family planning program, are virtually nonexistent. The studies thus far available (e.g., Herrin 1979, on the impact of rural infrastructure, and Paqueo 1978, on the impact of public health and education) are as yet too tentative to provide firm guldelLnes for possible public policy redirection or program r_lesignning. Nevertheless, there i_ growing interest in evaluating the impact on demographic trends, notably fertiliW, of public programs primarily designed with nondemographie objectives in mind. While such evaluation activities currently suffer methodological and research design problems, such studies could have a significant contribution to policy-making and program design in the near future as studies (e.g., the ESIA/WlD Project) begin to cumulate. The past and current planning and design of public programs, therefore, can still be characterized as essentially population-responsive. Estimates of age,sex composition and geographical distribution of the population are virtually the only demographic inputs in d_e_g the scale and coverage of public programs,. The designing of public programs with a view to also affecting demographic variables

316 has yet to wait for research on the topic.

AlcjandroN. Herrin more definitive

results from social science

Towards a Research Agenda On the basis of the foregoing discussion of social science research bearing upon the relationship between fertility and economic development, several areas for further research seem worth exploring. Levels, trends and differentials. First, we have noted that more and: more demographic data of reasonably good quality are becoming available. These data sets include the censuses, the regular national derrtbgraphic surveys, and the several rounds of area fertility surveys. While determining the levels and trends at the national context will be a continuing task, there is a greater need now to emIyasize the estimation of regional and areal differentials in fertility levels and trends, and to pinpoint which areas are lagging behind in the overall trend in fertility decline. In addition to regional or areal differentialS, we need also to continually monitor fertility differentials by social groups to pinpoint which subgroups of the population are still exhibiting high fertility. Such information is essential for designing policies and programs that will effectively make a difference in reducing national fertility. This information is also important from the welfare point of view, to the extent that high fertility among some groups is shown to be associated with.negative effects on their socioeconomic and health welfare. Determinants. With respect to the determinants of fertility, several types of research can be suggested. F.irst, we have noted significant regional fertility differentials both in terms of levels and trends. Nevertheless, we have practically no studies in the more recent years examining the determinants of such differentials. Demographic surveys often collect only very limited information on the socioeconomic characteristics of the respondents and practically none on the communities where the respondents _reside. It will be extremely helpful in understandingthe current fertility declines observed in many regions to relate such demographic information to corresponding area-level information on socioeconomic factors likely to have affected such observed fertility trends, including the role of family planning inputs. One viable research approach might be to relate fertility trends to an analytical description of the soci_ economic changes that have occurred in the area combined with the

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knowledge of the timing of the availability and use of family planning inputs. At a more disaggregated level than regions, there seems to be a greater need for understanding fertility changes as they occur at the community or village level. At this level there seems to be a greater potential for combining institutional analysis with the usual microlevel statistical studies characteristic of past approaches in the Philippines. At this level, one needs to delineate the patterns of social organization in the community and examine how these patterns influence individual economic and demographic decisions. Microlevel decisions are to be viewed not only as responses to opportunities and constraints prevailing not only at the household level but also at the community level. Several issues can be investigated within such a research framework, including the economic roles of children, the distributional consequences of reproductive behavior, the impact of demographic factors on the economic and social structure of the eommurdty, as well as the influence of such structure on fertility behavior. Consequences of fertilitytrends. What has often been a neglected area in Philippine social science research is the distributional impact of alternative fertility trends. Studies that shed light on this issue could provide indicators as to where (among what groups) efforts to implement fertility policy would redound to the greatest national advantage (taking distributional goals into consideration). These studies might also suggest the advisability of policies of other kinds that would attempt to compensate for the distributive outcomes of current reproductive patterns. Demographic impact of public interventions. As stated earlier, studies on the demographic impact of public interventions are just beginning. As such, theoretically and methodologically sound research designs have yet to be developed. Cumulative experience in this area, however, could not only advance the state of the arts but also be#n to provide some guidelines for the possible restructuring of development strategies and programs to maximize the attainment of traditional development goals and demographic objectives as well. Emphasis may be placed on evaluating those programs geared towards raising the levels of educational opportunities for both males and females, improving health, and reducing mortality, promoting greater female participation, etc., that is, programs already desirable on traditional grounds and which already expend large amounts of

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the national budget. Knowledge of their possible additional indirect demographic impact could lead to a possible modification of such programs to maximize their overall developmental impact, or could lead to policies and programs that will minimize their possible adverse demographic consequences. IV. INTERNAL MIGRATION Patterns of Migration The cumulation of migration studies sinca the 1960's based upon census information and, more recently, upon the 1973 NDS has provided a broad picture of the size and pattern of population movements over the century. That substantial population movements have occurred in the Philippines is evidenced by the fact that in 1960 12.6 per cent of the population of all ages (representing some 3.4 million persons) were living in a region different from the one in which they were born, and in 1970 this lifetime migration figure was 13.2 percent or 4.8 million persons. Even in the much shorter period between 1960 and 1970, 8.3 per cent of the population 10 years old and over had moved to another region within the decade. This does not reflect population movements occurring within regions, and the multiple moves occurring between birth and the period of enumeration. Information on lifetime migrationup to 1960 points to the Jredominance of long distance movements involving either interJrovincial or interregional .transfers. This is characterized by relatively unidirectional, frontierward, male-dominated streams from rural origins torural destinations. During the period from 1960 to 1970, while long distance flows continued to be a major component of the total migration pattern, the directions and social compositions have changed. Counterstreams to the dominant ones have appeared, and a centripetalpull to the metropolitan region has steadily grown, replacing to a degree the centrifugal drive to the frontiers. These patterns contributed to the predominance of female migrants so much in evidence in data for the recent past (Smith 1977). Data on in-migration and out-migration rates from the 1960 and 1970 censuses compiled by Perez (1978) reveal which regions gained and lost populations through such movements. Prior to the 1960's, Cagayan Valley, Southern Tagalog including :Manila, and

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Mindanao were the major receiving areas, while the llocos, Central Luzon, and 'the Visayas were the major sending areas. Between 1960 and 1970, Southern Tagalog and two regions in Mindanao were the main receivers while two regions in the Visayas and Manila were the major' out-migration areas. The out-migration from Manila represented in most part the suburban movement into what is now known as Metro Manila and the adjacent areas of Southern Tagalog and central Luzon. Determinant8

of ln ternal Migration

Studies on the determinants of migration in the Philippines focused both on the determinants at the macro level (interprovincial or interregional migration) and on the determinants of household migration. Examples of these types of studies will be briefly described here. lnterprovineial determinants. Using the 1960 census data that crom-tabulated the population by province of birth and by province of residence, Zosa (1973) attempted to examine the relative effects on interprovincial migration rate (number of people born in province i but enumerated in province j) of selected provincial socioeconomic characteristics and of selected indicators of "movement-modifying" variables between origin and destination provinces. The lagged socioeconomic variables basically representing standardsof livingand employment opportunities were indexed by such factors as: (a) the difference in percentage of families using radios in 1948; (b) the difference in percentage of males employed respectively in extractive activities, in manufacturing industries, and in supportive services in 1939; and (c) the difference of unemployed males in 1948. On the other hand, the "movement-modifier" variables which arc assumed to facilitate migration are measures of physical and social distance between provinces; the latter for example being indexed by major ethnic affiliation and by frontier sta{us of the province. Severe multicollinearity among the above variables limit the results of the study even after prior selection with a larger set of variables has been made. Nevertheless, one set of regression results (when all variables were included), indicated that among the significant variables the socioeconomic pull factors (radio usage, extractive activities, manufacturing activities) were positively related to interprovincial flows. On the other hand, of the facilitator variables; ethnic factor and frontier factor were positively related, while distance and regional similarity were negatively related to interprovincial flows. All vat-

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iables together accounted for only 15 per cent of total variations. These results, interpreted broadly, are not inconsistent with what we might suspect from the earlier description of migration patterns. Movements have been directed toward areas where employment opportunities either in agricultural (rural and frontier destinations) or manufacturing activities (urban destinations) are available, and these areas often were of long distances and across regions from the areas of out-migration. Interregional determinants. Zachariah and Pernia (1975) looked at the correlations between ten socioeconomic indicators at both the origin and destination areas, and interregional migration during the 1969-70 period. Statistically positive significant zero-order correlations were obtained for the following variables: (a) total population in 1960, at origin and destination; (b) average family income in 1965, at destination; (c) average family income in 1965 of the bottom 30 per cent of the families at destination; and (d) unused agricultural land at destination. Statistically negative zero-order correlations were obtained for: (a) rural poor as a percentage of rural population at destination; (b) urban unemployment rate in 1970 at destination; and (c) percentage of the rural population which completed primary education in 1970. An important conclusion from these findings is that interregional migration in the Philippines during the period 1960-70 was determined more by the socioeconomic conditions in the receiving regions than by the conditions at the origin, i.e., the "pull" factors appeared more significant than the "push" factors. A stepwise regression of 20 independent variables (10 at origin and 10 at destination) including the above variables having significant zero order correlations indicated that only three variables made any significant contribution to explanation of the variation in interregional migration. These are the total population in 1960 at region of origin, average family income in 1965 at the region of destination, and total acreage of unused agricultural land potential in 1973 at region of destination. These three variables together explained 45 per cent of the total variation in interregional migration, with average family income having a relatively larger effect than the other two. Except for the variable total population which does not readily lend itself to easy interpretation (unless it is taken to represent a density-related lack of agricultural employment opportunity), the results appear consistent with earlier observations. The major inter-

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regional flows in the 1960-70 period have been to the more urbaâ&#x20AC;˘ nized and developed areas (i.e., Southern Tagalogand Manila)where average income has been relatively high and, to a significant but lesser extent, to Mindanao where agriculturalland potential has not yet been fully exploited. Individual and household determinants. The determinants of individual and household migration decisions can be inferred from data on reasons for leaving previous residence and for choosing current residence, on the one hand, and from data of migrant characteristics, on the other. Analysis of the same data set within a framework that allows for statistical control of relevant variables further enhances our inferences regarding the determinants of migration. Data from the 1973 NDS have been the main source of information for the above types of analyses thus far. Data obtained from the 1973 NDS survey on reasons for leaving the previous place of residence and for choosing current residence are tabulated into four categories, namely: (a)job related reasons, (b) familial masons,(c) education related reasons,and (d) others (Perez 1978). The data show that for both lifetime migrants Coirth to 1965) and for period migrants (1965 to 1973) who provided the necessary information, the economic factor dominated the other reasons for leaving previous residence. Job-related reasons were mentioned by 48 and 40 per cent of the respective migrants, followed by 31 and 37 per cent, respectively, for familial reasons, and 18 and 14 per cent, respetively, for educational reasons. The remaining migrants mentioned other reasons. The reasons for choosing current residence constitutes a second set of tabulation. For both lifetime migrants and period migrants who provided such information, 42 and 44 per cent respectively mentioned familial reasons, 18 and 16 per cent respectively mentioned job-related reasons, a mere 2 and 5 per cent mentioned education-related reasons, while 38 and 35 per cent respectively mentioned other reasons. Using this set of data from the same source, one observes that the role of economic factors was swamped by the importance of famifial reasons (e.g., to accompany or join paternal or other relatives, get married, etc.)in the migrant's choice of current residence in eiflter 1965 or 1973. How do we make heads or tails of this information? Given a lexicographic preference orderingscheme and on the basis of an earlier analysis by De Voretz (1972), one possible interpreta-

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tion to the above seemingly conflicting sets of data may be as follows: migrants place great emphasis on income gains from a move when deciding whether or not to move. Once the income gain criterion is achieved, the fmal decision on destination must meet other criteria including familial and other factors. Another possible ordering might be to rank education-related factors first; once this criterion is satisfied, the choice of destination would depend on whether or not other criteria have been satisfied. The characteristics of migrants comprise another set of data from which one can infer factors associated with migration. The 1973 NDS provides such source of data, with information on educational attainment, occupation, cash income, in addition to age and sex. An understanding of the relative significance of such factors in migration, however, is better made if the analysis allows for adequate statistical control for other variables, and when such personal characteristics are combined with household and areal factors that could affect the decision to migrate. Analyses such as this have been made by Pernia (1978, 1979). On the basis of information from the 1973 NDS, factors affecting migration decision from 1965 to 1973 by all persons, by household heads, and by persons who axe single were investigated by Pemia (1978) for each sex. The independent variables included: (a) age of migrant at midpoint of the period, (b) education as reported in 1973, (c) occupation as reported in 1965, (d) marital status in 1965, (e) household size in 1973, (f) cash income in 1972, (g) presence of relatives at destination, (h) nonagricultural residence in 1965, and (i) size of municipality of residence in 1973. Pemia's major findings suggest the following relationships. The level of education increases the probability of migration for all three types of persons, but slightly more so for male heads and male individuals than others. The probability of migration is higher for male individuals and single males, the higher the prestige level of previous occupation (i.e., white collar vs. blue collar occupations). The probability of migration is not significantly directly related to expected income at destination except for female heads and single males. For male individuals and male heads, it would appear that prospective employment or occupational mobiEty is a more important intervening consideration for migration than expected income per se. Employment at destination, however, is significantly related to male incomes at destination. For female individuals and single females, the results suggest that prospective

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education is a more significant intervening factor for both prospective occupational mobility and prospective income. Kinship types significantly increase the probability of migration of all persons, especially of females, indicating that kinship ties are important facilitators of final decisions to migrate at particular destinations. Finally, structural factors associted with nonagricultural residence at origin raise the probability of migration of individuals, but not of heads or single persons of either sex; and factors associated with larger population sizes of destination areas tend to increase the probability of migration among individuals, and among female heads and single females. Thus far, determinants of migration either on the aggregate (interprovincial or interregional) or micro level have been viewed in terms of all types of migration. There are various types of streams to be sure, and the 1973 NDS has provided information on their relative sizes. In the earlier period (birth to 1965), the more significant migration streams were rural-to-rural (33 per cent) rural-to-urban (30 per cent), and rural-to-metro (13 per cent). These accounted for three4ourths of the total volume of migration. From 1965 to 1973, the rural-to-urban flow became more significant (25 per cent), followed by rural-to-rural (20 per cent), rural-to-metro (15 per cent), and urban-to-rural (10 per cent), together accounting for 70 per cent of total migration. An additional flow, metro-to-metro, accounted for 13 per cent. Pernia (1979) extended his earlier analysis (Pemia 1978) to study the determinants of migration by type of sectoral flow, more specifically by rural-to-rural, rural-to-urban, rural-to-metro, and urban-torural flows. In addition, he looked at the determinants by type of migrants, namely chronic and return migrants. Chronic migrants are those who move two or three times to different destinations; while return migrants are those who move back to the area of origin. In contrast, stable migrants axe those who move once and stay put at destination. From the 1973 NDS data, 19 per cent of the 7.9 million migrants in 1973 were classified as chronic migrants while 7 per cent were return migrants. Factors affecting chronic migration are expected to vary from those determining return migration and those affecting the decision to move for the first time. The socioeconomic con_quences of such types of moves presumably would differ from the one-time types of migration. Using the same explanatory variables as in the previous study,

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Pernia's findings suggest the following major relationships. The level of education increases the probability of migration from rural to urban, for both sexes and from rural to metro for males, but decreases the probability of urban-to-rural migration for both sexes and from rural-to-rural for females. An interesting reversal of the importance of the effects of previous occupation and income at destination is revealed between the earlier study of migration involving all flows and this study of intersectoral flows. In the intersectoral flow regressions, income at destination increases the proability of all intersectoral migration for both sexes, except female migration from urban to rural areas. On the other hand, the previous occupation of the migrant was generally not a significant factor in all intersectoral migration except the migration of males from rural to urban. There seems to be no clear explanation of this result as yet. Disregarding the significance of the coefficients, however, one notes that a high occupation status at origin is positively related to rural-to-urban and rural-to-metro migration except for females in the latter flow, but that high occupational status at origin is negatively related to the reverse flow from urban to rural destinations. It appears, therefore, that the higher theeducation and the higher the occupational status, the lesser is the tendency to migrate from urban to rural areas. The results also suggest that those moving to the metro area come directly from agricultural areas rather than nonagricultural rural or urban areas, while the move to urban areas means a move to large urban places or municipalities. The movemen_ towards rural areas, however, tends to be more towards smaller areas, perhaps more frontier type ones. As in previous study, the presence of kin is a significant facilitator in all types of intersectoral moves. With respect to the factors affecting chronic migration, the following are some of the major findings. In addition to the commonly observed negative effects of age and the positive effects of education, factors such as occupational status and expected income appear significant for males to make repeated moves than it is for females; on the other hand, females tend to make repeated moves when kin are present and to go to large places. For return migration, age has a negative effect while neither expected income, previous occupational status nor educational level has any significant effect. The sign of the education coefficient, however,

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is negative, suggesting that more highly educated migrants are less likely to return to the place of origin. Finally, presence of kin significantly makes return migration more likely. In summary, in addition to migrants' age and sex selectivity, migrants of higher educational levels, higher previous occupational status, and higher expectation of income gain at destination, among others, have varying effects on the probability of migration dependhag upon the different types of moves, and upon whether the moves involve repeated mobility or a return to place of origin. Younger, relatively well-endowed individuals in terms of occupation and education tend to move to areas of great opportunity, and their move is however, may simply mean that the kin of perhaps similar personal endowment had, at a previous period, responded to the same set of factors as the present migrant. This selectivity of migrants in respect to several characteristics has important implications for both sending and destination areas, as the few studies in the Philippine analyzing such potential impact have shown. Consequences of In ternal Migration One can look at the consequences of migration at the macro level from the point of view of the area of origin and the area of destination, and from the micro level in terms of the impact on the migrants themselvesand on the families they left behind. Maerolevel consequences. A review of the international literatureon the economic impact of rapid migration, especially from rural to urban or metropolitan areas, suggests'that such impact could include: (a) increases in urban unemployment and underemployment, (b) fragmentation of the urban labor market into traditional and modern sectors, (c) increased congestion and environmental pollution, and (d) greater expenditures on and/or greater shortages of public services (IRG 1979). The quantitative effect of migration, independent of such factors as the natural growth of urban areas, the character of industrialization and labor absorptive capacities of urban industries, as well as the administrative efficiency in the provision of basic services such as housing, water, etc., however, has yet to be determined in the Philippines. These are all potential negative effects. What about positive effects? One can infer from the previous discussion on destinations of migrants that the out-migration to the frontier areas characteris_ tic of the earlier migration to Mindanao and Cagayan Valley has helped in developing the agricultural potential of these areas. Such

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suggestion, however, has yet to be put to strict empirical test. What about the demographic impact of migration in general? The age-sex selectivity of migrants directly affects the age-sex composition of both the sending and the receiving areas, and this could have a significant impact on nuptiality patterns and, therefore, on overall fertility (Smith 1975a). In addition, the migrant selectivity in terms of income and education, both of which are correlates of fertility, could directly affect overall area fertility in both sending and destination areas. In addition to this type of selectivity, urban migrants may be exposed considerably to fertility reducing forces in the urban area and, therefore, would tend to contribute to flae maintenance of rural-urban differentials (Hendershot 1971). What is the impact of out-migration from the point of view of the sending area? Again, some hypotheses have been suggested in the international literature including the possible- effect on agricultural productivity as a consequence of the migrant selectivity in age, sex, education, and skills. However, it has also been suggested that the possible correlation between productivity decline and outmigration may be explained by the operation of common antecedent factors such as soil quality and population density. One can also include the social and economic structure defining patterns of land tenure and access to modern agricultural technology as common -antecedent factors. Several important issues can be raised; however, the lack of studies thus far has hindered the resolution of the above and other issues. Inferences concerning the possible impact of out-migration on the living standards of the rural poor have been made by Zachariah and Pernia (1975) and by Pernia (1977). The fact that outmigrants are selective of age, education, skills and income may be inhibiting factors to the development of areas of origin. Secondly, the potential positive impact of remittances and of return migration may not be significant enough to make a difference. First, migration tends to be long-distance moves which reduce the probability of close contact between out-migrants and their areas of origin. Secondly, return migration tends to be selective of characteristics negatively related to potentials for development, i.e., older persons of lower education and skills have been shown to be the ones more likely to return. One possible positive impact of out-migrations, however, is that they may have been effective in reducing population pressure on the land in the poor .regions. Such inferences,

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however, merely suggest areas for more thorough quantitative investigation. What are the consequences of migration on the migrants themselves? Some evidence is available that migrants have raised their occupational status and incomes as a result of the move, independent of other factors (Pernia 1978). On the other hand, evidence has been presented on problems of migrant adjustments, economic as well as social, at the areas of destination, especially when such migrants end up in the squatter or slum sections of urban areas (e.g., Lopez and Hollnsteiner 1976). These migrants often have low educational levels, making them less able to obtain well-paying jobs in the urban modern sector. When sets of studies such as those of Pernia (1978) are juxtaposed with the studies such as those of Lopez and Hollnsteiner (1976), one can attempt to present a more complete picture of the consequences of the migration process. Migrants who tend to be positively selected in the areas of origin in terms of age, education and income immediately adjust themselves pretty well in urban settings, getting the better jobs and raising their incomes. Migrants who were negatively selected, on the other hand, tended to end up with low paying, unskilled, intermittent jobs, thereby exacerbating their initial poverty at the area of origin. In assessing the determinants and consequences of migration, both these groups and other social groups of migrants must be taken into account. And this suggests a broader approach to migration analysis: the need to examine the effect that. different factors have on specific types of population movement, as well as on migrants and potential migrants from different social classes. While the relatively few studies based on a large set of national survey data have gone a long way in determining the differential effect of socioeconomic factors on various interseetoral and types of migrants, much more needs to be done to move further at a more disaggregated level in examining the differential effect of these factors on various social groups if a more complete picture of the determinants and consequences of migration is to be obtained. Migration of Women One social group in which more detailed analysis has been made recently is the female migrants. Eviota and Smith (1979) compiled and analyzed data from censuses and from the 1973 NDS which revealed several interesting insights regarding the relationship between socioeconomic factors and the migration pattern of this parti-

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cular social group. First, women are numerically dominant in almost all kinds of contemporary Philippine migration, and they constitute a large majority in the recent urbanward migration of teenaged and young adult cohorts. Secondly, the pattern of female-dominant migration is an emergent one. As described above, the earlier migrations were male-dominated and frontierward. In the postwar, postindependence period, however, the new female-dominated pattern has become evident. Thirdly, two of the most prominent social changes in the twentieth century could possibly be linked with female migration to cities, namely: (a) the growth of education, and (b) the growth of the urban labor market. With respect to education, the evidence suggests that the mean level of educational attainment has risen across the population as a whole, and that sex differentials in educational attainment and literacy have been reduced substantially. These trends, combined with the selectivity of recent female migrants as well as males in educational attainment, have contributed to the drawing of relatively well-educated women into rural-to-urban migration streams. With respect to the second factor, the evidence indicates that labor market changes in the metropolitan economy have led to occupational changes as well, and that women now possessing educational attainments equal to those of men have moved into occupations formerly held by men. Data compiled by Eviota and Smith (1979) show that in 1903 professional and technical occupations were heavily dominated by men (sex ratio of. 4,686 males per 1000 females); by 1939, the sex ratio had declined to 963, and in 1970, it declined further to 456. Women, however, tended to be mostly confined to "professors and teachers" and 'haurses, etc." On the other hand, we also find a dramatic improvement in the sex ratio overall (2,449 in 1903, 639 in 1939, and 256 in 1970) in the "services, sports and related occupations," but little change in the distribution of women's occupation within the broad category. In 1903 as in 1970 roughly 90 per cent of all female service workers were "domestics." Looking now at the evidence showing the most common urban occupations of migrants and urban-born men and women based on 1973 NDS data, the authors observed a pattern of extreme occupational differentiation by migrant status and sex. Native working women tend to occupy the high prestige occupations while working female migrants occupy the service occupations, mostly housekeepers, cooks, maids, etc. The segregation is sharper in the Metro-

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politan area among in-migrants from rural areas, and among recent migrants..This differentiation is all the morn disturbing when compared with males. Educated male migrants tend to occupy white collar and craftsmen occupation while relatively educated women migrants are still predominantly in the service sectors. The picture improves among female migrants with some exposure to a college or university - 75 per cent of female working migrants are in white collar employment; however, these are mainly in clerical and sales categories, and still 20 per cent with college education are in the service sectors. An important issue that deserves careful study suggests itself, and this was forcefully summarized by Eviota and Smith (1979): "... what [do] these very prominent aggregate patterns mean for the life chances of the people involved?" (p. 18). Impact of Public Policy The preceding discussion on the areal and microlevel determinants of voluntary migration suggests that public policy and programs that directly or indirectly affect the spatial distribution of employment opportunities and of social services such as education, could have a significant influence on migration patterns. In fact, among the demographic processes, migration is perhaps the most sensitive to socioeconomic changes. Very little empirical assessment, however, has been made on the impact of such policies and programs on the observed pattern of migration. Policies and programs that potentially have an influence on voluntary migration would include: (a) the package of policies and measures associated with the import-substitution industrialization program of the government in the 1950's and 1960's; (b) the shift in public policy thrusts in the 1970's towards rural/agricultural development, exports promotion, regional dispersal of industry, and infrastruetural development in both urban and rural areas. An assess* ment of the impact of these broad policies and programs on internal migration, especially rural-urban migration, has yet to be made. Another set of policies and programs might be categorized into those that attempt to cope with the problems brought about by internal migration. Most of these programs deal with problems of urban growth especially in Metro Manila, such as housing programs, squatter relocatioll, slum reconstruction, etc. Again very little social science research has been done to evaluate the impact of these programs.

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One will notice a certain asymmetry in the role of public policy in influencing and responding.to internal migration. On the one hand, the earlier public policies and programs seem to have been implemented without explicit regard to their population distribution consequences except perhaps for the resettlement and relocation schemes. Part of the reason is that these public policies and programs had objectives which were problem-specific and desirable in themselves. On the other hand, policies and programs that bear upon the problems of urban growth tend to point strongly to ruralurban migration as the main culprit in the emergence of such problems. Clearly_'much more needs to be known about how specifically certain aspects of public programs influence internal migration, and about how internal migration contributes to urban problems before one can design appropriate programs both to influence the pattern of, and to respond to the effects of, internal migration. Towards a Research Agenda In view of the fact that public policies and programs have multiple objectives, it is difficult to isolate policies and programs that are geared solely to influence or to respond to the effects of internal migration. Yet, to be able to explicitly assess the impact of public policy and programs on internal migration, it will be useful on the basis of what is already suggested by the studies on the determinants and consequences of internal migration to make a comprehensive descriptive inventory of public policies and programs that influence internal migration. (See Pernia and Paderanga (1980) for a review of policies influencing spatial development.) From such an inventory one can proceed to evaluate the impact of the efficiency of such programs in influencing internal migration. Such policies and programs could be divided into: (a) direct policies, e.g., resettlement or relocation shemes or (b) indirect policies, e.g., regional development and industrial location policies, regional dispersion of social and government services, etc. Questions that need to be answered on such an evaluation would include the degree to which policies adopted were actually implemented, to what extent they achieved the stated purposes, and whether what was achieved was desirable. Another major area of research is the study of the determinants of internal migration by building on the already available studies. These new sets of studies should look into the factors that influence various population subgroups to migrate or not to migrate, and with respect

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to the former, where they migrate. A third priority area will be on the consequences of internal migration. Them is a need to identify and quantify more systematically the economies and diseconomies of internal migration from the point of the sending areas as well as of the receiving areas, both at the macro level, and from the point of view of the migrant and the nonmigrant at the micro level. Finally, there is a need for continually monitoring migration patterns either through censuses or surveys. A detailed analysis should be made of broadpatterns of migration as well as of specific types of migration such as seasonal, return, intersectoral, etc. More important, there is a need to relate these pattersn to specific characteristics of the migrants themselves as well as of those who arc left behind. V. INTERNATIONAL MIGRATION As a component of population growth, international migration is of minor significance than the other demographic processes described earlier. The total volume of such migration is small relative to the total population. Yet, as Concepcion and Smith (1977) observed, the Philippines is one of a small number of developing societies for which international migration is a significant social-demographic phenomenon. The reasons are the out-migration historically has been linked to important internal population adjustments and that more recently international flow has involved large numbers of skilled professionals. The available Philippine studies dealing with international out-migration are reviewed here. Leve/s and Trends Whileadministrative procedures require the collection of information on a migrant such as visa forms, etc., such information is often available at the receiving country rather than the sending one, and as such it is often not easy to compile such statistics to determine the volume of emigrants regularly. Where information from the receiving country can be collected, either in their censuses or immigration statistics, it is still difficult to sort out accurately the permanent or longer-term migrants from the short-term or temporary ones. On the other hand, available data from various government agencies related to the temporary flow of migrant workers are necessarily incomplete in coverage, since they do not include those workers who migrated on their own. Hence, it is difficult to determine precisely the flow

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of emigrants at any given time. Estimates of the outflow of Filipinos to foreign lands have therefore relied on data compiled at the destination country, such as from census returns or from reports of the immigration office. Smith (1976), for example, used the annual reports of the U.S. Immigration and Naturalization Service to look at the trend in Filipino travel and migration to the U.S. from 1957 to 1972; and census returns, to determine both the growth of the Filipino population in the U.S. and its changing social composition. Gupta (1973), on the other hand, relied mainly on: (1) immigration statistics to determine the magnitude of immigrants to the United States, Canada and Australia, around the period from 1965 to 1971 ; (2) embassy figures to determine the volume of work permit holders to the United Kingdom; and (3) the Department of Labor's Registry of Employment Contracts to determine the volume of Philippine contract workers to several countries. A more recent study by Abella (1977) examined current trends in external migration from 1972 to 1977 based on the records of the Bureau of Employment Services (BES) which approves contracts for overseas employment, the National Seamen Board (NSB) which registers seamen and supervises over their recruitment, and the Overseas Employment Development Board (OEDB) which registers Filipino emigrants and undertakes the placement of Filipino workers overseas. Piecing together the results of these three studies, one can characterize the dominant patterns of Filipino emigration as follows. The first is the outflow of migrant workers in the early part of the century especially to the United States to work in the plantations in Hawaii and California. This flow involved largely single males coming mostly from the Ilocos region. Subsequent migration up to the 1950's had been small in magnitude, involving among others the migration of relatives of both sexes after the war. Much of the Ilocano migration was related by Smith to the general demographic and social structure of the Ilocos region and was linked to the general internal movements of Ilocanos. The second major pattern is the heavy outflow of Filipinos of all ages from various regions of the Philip-. pines after 1965, significantly associated with the U.S. Immigration and Nationality Act of 1965. (Migration was often of entire families.) This act abolished the old national origin quota system which limited the number of immigrants from a large number of Asian and African countries to 100 per country, and in turn: (a) established

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a ceiling of 170,000 immigrants annually from the Eastern Hemisphere and 120,000 from the Western Hemisphere; and (b) created an immigrant category of 17,000 positions to be fiUed by "professional, technical, and kindred workers" (Bello, Lynch, and Makil 1969). The effect on Filipino emigration to the U.S. can be gleaned from data compiled by Gupta (1973). The number of Filipinos subject to numerical limitations issued U.S. immigrant visas was 100 in 1965, in accordance with the level of the national quota. By 1969 it had increased 200 times, a level which was maintained in 1971. A large part of these emigrants are professionals and technical and allied workers with their families. The third major pattern of emigration involves contract workers or temporary migrant workers whose destinations tend tobe the Middle East, Europe and Asia. The growth of this temporary migration of workers has outstripped that of permanent migrants, with seamen accounting for around two-thirds of the number in the 1972-77 period. This recent migration is a response to the great demand for skilled and semi-skilled manpower in the international labor market. Abella (1977) observes: "The overseas labor market has become a very significant absorber of Filipino manpower. The number of Filipinos who found jobs overseas during the period 1972-1976 represent about ten per cent of the additions to the labor force during that period. The manufacturing sector managed to absorb only an additional 240,000 workers between February 1972 and August 1976, whereas the overseas labor market absorbed 169,321 workers during the same period from January 1972 to December 1976, excluding permanent emigrant workers." Clearly, much more reliable estimates need to be made on the outflow of Filipinos abroad to determine their significance. The usual sources of data contain inherent defects: the census of receiving countries includes both recent migrants and native-born Filipinos: the immigration statistics do not distinguish permanent from temporary migration; and employment service records do not capture nonorganized temporary migrants who take employment abroad on their own. Furthermore, there is a need to obtain more regular and systematic data on this phenomenon. On the problem of estimation, one might note that specialized surveys could be made to add to the existing pool of data sources. A Philippine Brain Drain survey conducted by Bello, Lynch and Makil (1969) for the 1948-63 period illustrates the potentials as well as

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the limitations of such an approach in the estimation of the "brain drain." Essentially, the study selected a sample of some 1,500 graduates of Philippine colleges from 1948 to 1963 whose courses were liberal arts, education, law, engineering and commerce. Questionnaires were sent to them to obtain information on postcollege studies, activities at the time of the survey, and where they lived. Their findings revealed that of all Filipinos who were graduated from Philippine colleges, about 7 per cent eventually took up permanent residence abroad. Of those who studied abroad after college, a maximum of about 40 per cent eventually emigrated. Factors associated with emigration include country of postcollege studies, sex, college course taken, college attended, and source of support. Emigrants tended to be those who have studied abroad, alumni of relatively high quality colleges and universities in the Manila area, and those who paid their own way during their studies. Of those who studied abroad females tend to emigrate more than men, while for those who did not study abroad, men tended to emigrate more than women. De term inan ts As may be expected, the factors motivating the migrants axe varied and complex depending on the type of migrant. The earlier migrant workers who went to the U.S. to work in plantations were probably just lured by the chance to obtain employment and by higher pay. The migration of the Ilocanos, in particular, was linked by Smith (1976) to the niggardly resource base provided by the region's topography and climate which gave rise, among others, to internal and foreign migration. Among the second wave of migrants consisting mostly of professionals and related workers, the main motivating factors would perhaps include better opportunities to practise their profession and to advance professionally, not to mention high wage rates. In a study of factors associated with the outflow of U.S.-educated Filipinos who had at least a Bachelor's degree and went to the U.S. for degree or specialized training during the years 1960-65, Cortez (1970)found that the propensity to emigrate was higher among persons with weak psychological, social and other ties or attachment to his home country, and who perceived little opportunity for themselves in the Philippines. Usually these tended also to be young, single females with no job to return to, and who were in the fields of natural sciences and engineering. McCarthy (1970) interviewed 100 "productive" scientists (each of whom had published at least one article other than

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his thesis) in 10 universities to determine how they viewed the world, their discipline, the society and their future. Questions were asked about the work conditions, networks, research opportunities and support, and intellectual environment. He found that there were more factors other than economic ones alone that influenced scientists to either stay or leave. The perception of a general lack of: (1) Opportunities for professional advancement like inability to do research, due either to the lack of facilities, support or time; (2) professional stimulation; and (3) links to the external scientific world were found instrumental in a scientist's decision to leave the country.

In a survey of 410 professionals who studied abroad at least two years or more and had returned home, Parel (1975) found that the greatest attraction for the respondents to stay abroad for a substantial time _thile they were completing their studies related to working conditions, availability of skilled assistants, close contact with developments in their profession, prospects for faster professional development, and good pay. Why did they return? A large majority of Parel's respondents reported that they were under legal obligations to return! In a study of determinants of the migration intentions of 319 Filipino graduate students in the United States, Card (1975) found that "push" factors from the Philippines were more relevant to migration than "pull" factors from the United States; valuation of the Philippines in terms of economic, social and professional opportunities was consistently a better predictor of migration than nature of experience in or attitudes toward the United States. Respondents tended to evaluate the Philippines less favorably than the U.S.; they also tended to identify more strongly with the U.S. than with the Philippines. A large portion of the so-caUed brain drain, is associated with the outflow of medical doctors and nurses. Hence, studies relating to their perceptions are especially important. Asperilla (1975)surveyed Filipino nurses in the New York, Philadelphia and Chicago areas who later returned to the Philippines regarding the reasons for their emigration in the first instance and their subsequent return. She found that the "pull" factors that encouraged migration were the opportunity for professional and personal growth, better remuneration, and the opportunity to travel and see places. On the other hand, the respondents returned to the Philippines because their visas had expired.

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The majority of the subjects, however, expressed their desire to return to the United States on an immigrant visa. In another study, Abad (1975) chose a random sample of 63 Filipino physicianswho were then affiliated _,ith New York hospitals and medical centers. He found that the most important reasons for these doctors remaining in the U.S. after training include the desire to acquire professional skills, to save money t_or personal use after return, and to wait for political developments in the Philippines. In short, motivations for migrating or intentions to migrate among professionals and skilled personnel are associated with economic and professional as well as social-psychological factors. Immigration laws and provisions being enforced in the receiving countries (again notably the U.S.), however, are on the other side of the equation. The Immigration Act of 1965 which relaxed restrictions on race and country of origin and placed greater emphasis on skills greatly facilitated the outflow of skilled manpower from the Philippines. The more recent development of an upward trend in the temporary migration of skilled contractual workers to such areas as the Middle East, Asia and Europe, however, can be traced tothe great demand for labor in these countries, and to the Philippine govern. ment policy of encouraging such outflow in a more organized manner.

Consequences What are the consequences of the outflow of skilled manpower from the Philippines? An assessment of these by social scientists has yet to be made systematically. Gupta (1973), for examtile, compared the outflow of Filipino professional workers in 1970 with the total stock of professionals at that time. In spite of severe limitations of the data, they nonetheless indicate that some 3 to 4 per cent of engineers of various types and of different categories of health and medical personnel have migrated out of the country. In terms of graduates in these fields in 1968-69, the percentage of outflow in 1970 amounted to 29 per cent for the first category and 50 per cent for the second. The largest outflow occurred among aeronautical engineers (50 per cent) and industrial engineers (47 per cent) in the first category; while in the second, the largest outflow occurred among physicians and surgeons (62 per cent), dentists (95 per cent), pharmacists (70 per cent), dieticians and nutritionists (87 per cent), and veterinarians (68 per cent). The effect of such heavy flows from

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cumulative stock or from recent graduates can be assessed in terms of the needs of the economy for such services. The loss to the country in terms of their potential services as well as the cost of their training and education, however, could be balanced against employment opportunities available to these skilled personnel at home and the amount of remittances they provide while abroad. These types of information, however, are unavailable at present to properly assess the cost to the country of suchoutflow. The same arguments can be made for the contractual workers to some degree. That the large outflow of these workers could ease up unemployment problemsis not dear from our presentknowledge, nor do we know anything aboat their impact on production and wagestructures. Clearly, much more detailed analyseson the impact of the outflow of skilled manpower (both the permanent and temporary (rues) are needed to guide policy on this matter. Another set of issuesthat has not been sufficiently addressedis the impact of return migrants on innovative behavior (McArthur Jr. 1975), on investments in the community (Griffiths 1975), and on the role of remittances. Public Policy In view of the general lack of knowledge of the magnitude of the manpower outflow and of its impact, it is not surprising that there is no definitive policy on the out-migration of such manpower. Several attempts, however, have been made to minimize the problem of manpower outflow, especially among doctors, scientists and exchange scholars. These actions which Gupta (1973) has identified include: (a) the Medical Care Act of 1969 which was expected to broaden employment opportunities for medical personnel in the Country; (b) the recent legislation for the establishment of a health science center in the University of the Philippines; (c) the development of community health service programs; (d) the expansion of rural health units; and (e) the creation of a science research fund, together with the setting up of a number of research institutes. Other programs include the government's arrangements made with the U.S. government so that the Exchange Visitors Program could be amended in such a way that certain persons specializing in fields which the Philippines is in need of will not normally get a waiver in the U.S. from the two years' previous foreign residence requirement. More recent attempts to address the problem of the brain drain include the Balik-Scientists Program and the requirement for

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natal intemship for doctors and nurses before they are allowed to go abroad for further studies or employment. On the other hand, there seems to be a policy of government to encourage the flow of contractuai workers to foreign countries in terms of group contract schemes in which control of remittances can be made. As a final note, a comprehensive public policy on international emigration of skilled manpower has yet to be made. However, much still needs to be known on which to base such a policy. Towards a Research Agenda To properly assess the magnitude of international migration, one needs to have reliable and up-to-date information of such migration in terms of its volume, reasons for migration, average length of stay, the amount of remittance and returned savings, Cost of migration, and the characteristics of migrants. In addition to the traditional sources of data, specialized surveys could be conducted to generate such information on a systematic basis. In addition, studies on me consequences of emigration are called for. What are the economic and social effects of the recently initiated flows of skilled and semiskilled workers? Part of the justification for such research is the insight it might reveal as to measures which the government could take to increase the benefits obtained from this migration by both the economy and the migrants themselves. Thirdly, there is need to evaluate current policies or measures to induce highly trained nationals to remain at home or for those abroad to return home, as well as policies regarding the organized export of semiskilled and skilled labor. The questions that need to be answered are: (a) to what degree was the policy actually implemented? (b) what was the design or mode of operation? (c) to what extent was the stated purpose achieved? and (d) how beneficial were the end results for the different parties concerned? Finally, one could reexamine the educational and training programs in an effort to redesign such programs that will prepare people to perform the jobs that are available and need to be done in the country. VI. A SUMMARYAND ELEMENTSOF A RESEARCHAGENDA Figure 1 describes a general framework for viewing populationdevelopment relationships from a policy-maker's and planner's perspective. In this framework, the demographic processes are determined by public sector policies and programs directly through nat-

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Figure 1. A Framework for Ancdyzing PopuMtion-Davelopment Relaffonships From a Planner's Viewpoint

(A)

Demo_

Anmd

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(v)

d the

....

eo_

Non.Demographic At_a_ of Concernas I)e_n,ni. nmts of Demographic

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1. Fertility 2. Mortality

Nou-Dmmosmld_ Areas of Co_m as Aff_l by Vemogml_u__ds

3. _

Income growth

Productlon/Productivity

Employment

lmptm_d envh_mment

Improvedenvironment Income d_ilmfi0a Pari_pafian Health/nutrition Educati(m/literscy EnerSy

•

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_tu_e Bdu_ti_/Mmpower de.dopm_t tnr,_tr_mte (_mti_l cnmm_wa_, ce_lene_ Natural

_tuea_u_ium_-y

n_mr-

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rowly based single-purpose programs, and indirectly through their effects on the other areas of development concern; at the same time, they influence the nature and level of public intervention through their effects on the attainment of the traditional developmental goals. The generally circular nature of the relationship is broken down into discrete units to highlight specific components of the population-development process vis-a-vis the role of public policy. To start off, the demographic processes of fertility, mortality and migration (Block A) determine at some given time period the size, growth and spatial distribution of the population. These changes could affect the attainment of development objectives reflected by the areas of concern (Block B), which in turn modify public policy to take account of the resulting population characteristics in determining the level of public intervention in the next planning period. In addition, the observed consequences of demographic trends on the areas of concern could generate policies and programs that directly affect the demographic processes themselves with the view of minimizing their adverse influence on the attainment of traditional developmenta! goals. A family planning program designed essentially to directly reduce the birth rate, a narrowly designed public health program to control epidemics, and a resettlement or relocation program designed narrowly to transfer people are examples of such direct public interventions since they are not meant to substantially affect the nondemographic areas of concern. Looking at the relationship from another point of view, the formulation of public policies and implementation of programs are determined by the needs of public authorities to affect changes in the nondemographic areas of concern, taking into account the exogenously determined population characteristics. These interventions would presumably affect these areas of concern in varying degrees according to both their intended and unintended effects. One set of such unintended effects could be those on changes in these areas of concern on the demographic processes. Hence, public interventions pursued essentially with nondemographic objectives in mind could have significant demographic consequences as well. Th_s simple framework allows us to highlight, the main findings and limitations of current social science research on populationdevelopment links. The first set of information necessary for policy-making and planning is of course the levels and trends in the

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demographic variables themselves. Our review reveals that we know more about fertility levels, less about migration, and much less about mortality; and generally, in each of these variables, we know more about levels and trends at the national level than at the subnational level and among social groups. Secondly, what do we know about the consequences of demographic trends? In most of the studies examined, demographic trends have been expressed in terms of rapid population growth, either through natural increase (the balance between births and deaths) in the case of the nation as a whole, or through natural increase and migration in the case of subnational areas, notably metropolitan and urban areas. Studies that examined the impact of rapid population growth at the national level point to the adverse effects of such growth on per capita income, employment and the provision of basic services such as education and health. None of these researches, however, studied the actual consequences of demographic trends; rather these consequences were inferred from the results of simulation exercises using economic-demographic models of different specifications. The above inferences can be extended at the subnational level with respect to the impact of rapid rural-urban migration on urban employment problems and the increased pressure in the provision of urban services. Studies at the micro level emphasized the effects of increased family size on savings, morbidity and nutritional status of children. With respect to the microlevel consequences of migration, both negative and positive effects on the migrants have been suggested depending upon the nature of migrant selectivity in terms of age, sex, and educational status. Knowledge of the consequences of demographic trends is necessary in order to generate interest in the need for a population policy. In view of the already strong commitment of the Philippine government to a population policy and program to affect demographic trends, the types of macro-consequence studies represented in the review have probably served this purpose adequataly. What is now critical, however, is the need for a type of consequence studies that determines precisely who are the most adversely affected by such demographic trends, what are their characteristics, and where they are located. Information, for example, on what geographical areas or social groups are most affected by high fertility, high mortality and rapid migration could help in the formulation of specific policies and

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programs geared directly towards these population groups. Thirdly, what do we know about the determinants of demographic trends? The studies reviewed suggest the existence of strong interaction among demographic variables: differential migration patterns can have a significant impact on nuptiality patterns and, therefore, on fertility; however, the effect of fertility on mortality (and vice versa) appears to be of lesser magnitude. In addition, the studies reviewed suggest that changes in the values of the nondemographic areas of concern could have a discernible impact on demographic trends: with respect to fertility, through changes in education and health, as well as through female employment via its effect on the age at marriage; with respect to migration, through availability of employment opporttmities and access to educational services; and finally with respect to mortality, through improved health and nutrition services and improved environmental sanitation. Hence, policies and programs that affect these areas of concern could have a discernible impact on demographic variables. What is not precisely known, however, is (a) the quantitative extent and the specific mechanisms through which these policies and programs affect these areas of concern; and (b) through what specific mechanisms and to what quantitative extent the changes in these broad nondemographic areas of concem in turn affect these demographic variables. These types of information are critical in the optimal design of policies and programs that address both the demographic and nondemographic objectives. Finally, what do we know about the policy-making process itself?. How do policy-makers formulate policies? From what type of information do they base these policies and programs? What additional types of information do they perceive they would need to do a better job? We know of no such studies thus far that might answer these questions. In the continuing dialogue between social science researchers and policy-makers, it seems that the question could be better answered by the policy-makers themselves!

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BIBLIOGRAPHY

Abad, R.G. "Migration Expectations of Filipino Medical Graduates: An Overview." Proceedings of Conference on International Migration From the Philippines. Honolulu, Hawaii: East-West Population Institute, East-West Center. _Ianuary, 1975. Abella, Manolo I. '_urrent Trends in External Migration," Philippine Labor Review 2 (1977): 95-104. Abenoja, M.K., and Flieger, W. "Philippine National and Regional Mortality Estimates for the Year 1970." Paper read at NEDA/NCSO/UNFPA.sponsored Seminar on Selected Population-Based Researches: Their Relevance to Development Planning 1979, Manila. Abenoja, M.K., and Lim, A.C. "Mortality in the Visayas," Philippine Quarterly of Culture and Society 7 (1979): 24505. Adoma, C. "The Distribution of Health Resources in the Philippines." Technical Report No. 1.7. Population, Resources, Environment and the Philippine Future: A Final Report. Volume IV-1.A, September 1977. Alcantara, Adelmar N. "Differential Mortality Among Population Subgroups." Research Note No. 63. Manila: University of the Philippines Population Institute, July 1975. Aromin, Basilio. "The Trend of Mortality in the Philippines: 1903 to 1960," The Statistical Reporb_r 5 (1961). Asperilla, P.F. "The Mobility of Filipino Nurses." In Proceedings of Conference on International Migration from the Philippines. Honolulu, Hawaii: EastWest Population Institute, East-West Center, 1975. Battad, J. "Determinants of Nutritional Status: A Case Study of Laguna Preschoolers, 19753' Technical Report No. 1.5. Population, Resources, Environment and the Philippine Future: A Final Report. Volume IV-1.A, September 1977. â&#x20AC;˘ "Determinants of Nutritional Status of Preschoolers," Ph/_/ppinÂ˘ Economic dournal XVII (1978): 154-67. Bello, Walden F,; Lynch, Frank; and Makil, Pefla O. "Brain Drain in the Philippines." In Modernization: Its Impact in the Philippines IV, edited by Walden F. Bello and Alfonso de Guzman II. Quezon City: Institute of Philippine Culture, Ateneo de Manila, 1969. Bulatao, Rodolfo A. The Value of Children: A Cross-National 8tuay Vol. 2: Philippima. Honolulu, Hawaii: East-West Population Institute, East-West Center, 1975. , ed. Plu'lippine Population Research: Papers and Proceedings of an Exports'Meeting. Makati, Rizal: Popttlation Center Foundation, 1976.

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, and Arnold, Fred. "Relationships Between the Value and Cost of Children and FeCtiliW: Cross-Cultural Evidence." In International Population Conference, Mexico 197Z Volume 1, pp. 141-56, Liege, Belgium: International Union for the Scientific Study of Population, 1977. • "The Value of a Filipino Child: Pleasure and Profit Against Cost and C_ncern." In Population of the Philippines, ESCAP Country Monograph Series No. 5. Bangkok: United Nations, 1978. • "On the Nature of the Transition in the Value of Children." Papers of the East.West Population Institute No. 60-A. Honolulu, Hawaii: EastWest Center, 1979a. • "Further Evidence of the Transition in the Value of Children." Papers of the East.West Population Institute No. 60-B. Honolulu, Hawaii: EastWest Center, 1979b. Boulier, Bryan L. "Children and Household Economic Activity in Laguna, Philippines." IEDR Discussion Paper 76-19, School of Economics, University of the Philippines, 1976. Calado, R.R. and ESCAP Secretariat. "Population Growth and Educational Development." In Population of the Philippines, pp. 231_1. Country Monograph Series No. 5. Bangkok: United Nations, 1978. Canlas, Dante B., and Encamacion, Jose Jr. "Income, Education, Fertility and Employment: Philippines 1973, "Philippine Review of Business and Econo. mics 14 (1977):1-28. Card, J.J. "Determinants of the Migration Intentions of Filipino Graduate Students in the U.S.A." In Proceedings of Conference on International Migra. tion iYom the Philippines• Honolulu, Hawaii: East-West Population Institute, East-West Center, 1975. Coale, Ansley J., and Hoover, Edgar M. Population Growth and Economic Deve. lopment in Low Income Countn'es. Princeton: Princeton University Press, 1958. Concepcion, Mercedes. B. "Fertility Differences Among Married Women in the Philippines." Ph.D. dissertation, University of Chicago, 1963. . "Some Socio-Economie Correlates of Completed Family Size, 1960." Phil_pine Sociological Review 12 (1964): 16-26. , ed. First Conference on Population, 1965. Quezon City: University of the Philippines Press, 1965• __ , ed. Philippine Population in the Seventies. Manta: Community Publishers, Inc. 1969. __ . "Female Employment and Fertility .in the Philippines," The Philip. pine Economic Journal XII (1973): 524.35. __ , and Smi_, P.C. 'The Demographic Situation in the Philippines: An Assessment in 1977." Papers of the East-West Population Institute No. 44, Honolulu, Hawaii: East-West Center, 1977• __ , and Mijares, Tito A. "Levels of Fertility and Contraception: Glimpses

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from the Republic of the Philippines Survey, t978." Paper read at Seminar on Population Based Researches: Their Relevance to Development Planning, UNFPA and NCSO, June 1979, Manila. Minleographed. Cochrane, S. H. Fertility md Education: What Do We Really Know? World Bank Staff Occasional Papers No. 26. Baltimore: The Johns Hopkins University Press, 1979. Cortes, Josefma R. "Factors Associated with the Outflow of High-Level Philippine Manpower," Philippine Sociological Review 18 (1970): 159-68. Davis, K. and Blal_e, J. "Social Structure and Fertility: An Analytical Frame. work," Economic Development and Cultural Change 4 (1955-56): 23135. Dela Paz, D.R. "Families, Households and Housing." In Population of the Philippines. Country Monograph Series No. 5. Bangkok: United Nations, 1978. De Guzman, Eliseo A. "Trends and Differentials in Fertility." In Population of the Philippines, Country Monograph Series No. 5. Bangkok: United Nations, 1978. De Voretz, D.J. "Migration in a Labor Surplus Economy," Philippine Economic Journal XI (1972): 58-80. Encarnacion, Jose Jr. "Family Income, Educational Level, Labor Force Participation and Fertility, " Philippine Economic Journal XII (1973): 536-49. , Mangahas, Mahar; Paqueo, Vicente B,; and Smith, Peter C. "An Econonuc-Demographic Model of the Philippines." In Studies in Philippine Economic-Demographic Relationships, edited by Agustin Kintanar Jr. et aL Quezon City: Univemty of the Philippines Economic Research Associates Inc. and Institute of Economic Development and Research, 1974. â&#x20AC;˘ "Family Income, Education, Labor Force Participation and Ferti]ity." In A Demogrophic Path to Modernity, edited by W. Flieger and P.C. Smith. Quezon City: University of the Philippines Press, 1975. â&#x20AC;˘ "Why Economic-Demographic Models Have Not Been Used in the Phil/ppines," Philippine Review of Economics and Businese 16 (1980): 27-32. Eviota, Elizabeth, and Smith, Peter C. "The Migration of Women in the Ph/lip. pines." Paper prepared for the Working Group on Women in Cities. Honolulu, Hawaii: East-WestPopulation Institute, East-West Center, 1979. Feranil, Imelda, and de Guzman, Eliseo A. "Female Participation in the Labor Force and Fertility in the Philippines," Philippine Labor Review 2 (1977): 53-70. Fernandez, Joseph D. "An Empirical Analysis of the Effect of Life Expectancy on the Fertility of Married Women in the Philippines, 1973: The Threshold Hypothesis." Master's thesis, University of the Philippines, 1979. Flieger, Wilhelm. "Fertility Levels and Fertility Trends." In A Demographic Path to Modernity, edited by W. Flieger and P.C. Smith. Quezon City: University of the Philippines Press, 1975.

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Florenci0, C. "Nutrition Problems in the Philippines and their Consequences." Technical Paper No. 1.2. Population, Resources, Environment and the Philippine Future: A Final Report. Volume IV-1 _A,September 1977. Griffiths, S. "Emigrants' Investments in Their Home Community." In Proceedings of Conference on International Migration From the Phih'ppines. Honolulu, Hawaii: East-West Population Institute, East-West Center, 1975. Gupta, M.L. "Outflow of High-Level Manpower from the Philippines," In_ernational Labour Review 107 (1973): 167-91. Harman, Alvin J. Fertility and Economic Behavior of Families in the Philippines. Santa Monica, California: The RAND Corporation, 1970. Hendershot, Gerry E. "Cityward Migration and Urban Fertility in the Philippines," Philippine Sociological Review 19 (1971): 183-92. Herfin, Alejandro N. "Rural Electrification andFertility Change in the Southem Philippines," Population and Development Review 5 (1979): 61-86. Intengan, C.L. "Population Growth, Nutritional Requirements and Food Supplies." In Population of the Philippines, Country Monograph Series No. 5. Bangkok: United Nations, 1978. International Review Group of Social Science Research on Population and Development. Social Science Research for Population Policy: Directions for the 1980s. Mexico City: IRG, El Colegio de Mexico, 1979. Laing; J.E. "Findings from Program-Oriented Population Research at UPPI." Paper read at the 2nd National Population Welfare Congress, 26-27 November, 1979, Philippine International Convention Center, Manila. Lampman, Robert ]. "Some Interactions Between Economic Growth and Population Change in the Philippines," Phih'ppine Economic Journal XVI (1967): 1-48. Layo, L. "Morbidity and the Philippine Welfare in the Year 2000." Technical Paper No. 1.3. Population, Resources, Environment and the Philippine Future: A Final Report. Volume IV-I .A, September 1977. Lopez, Maria Elena, and Hollnsteiner, Mary R. "People on the Move: Migrant â&#x20AC;˘Adaptations to Manila Residence." In Phitippine Population Research: Papers and Proceedings of an Experts' Meetings, edited by Rodolfo A. Bulatao. Makati, Rizal: Population Center Foundation, 1976. Lorimer, F.W. "Analysis and Projections of the Population of the Philippines." In First Conference on Population, 1965. Quezon City: University of the

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Philippines Press, 1966. Luna, T.W. "Population and Natural Resources." In Population of the Philip. pines, Country Monograph Series No. 5. Bangkok: United Nations, 1978. Madigan, F.C., and Avacena, R. "Some Recent Vital Rates and Trends in the Philippines: Estimates and Evaluation," Demo_uphy (1965):309-16. Mangshas, Mahar. "Family Size as a Determinant of Family Expenditure." Studies in Philippine Economic.Demographic Relationships, Agustin Kintanat Jr. et al. Quezon City: Unive_ty of the Philippines Economic Research Associates, Inc. and Institute of Economic Development and Research, 1974. McArthur, H.J. Jr. "Hawaiianos: A Study of Noninnovative Behavior." In Proceedings of Conference on In_mational Migration from the Philippines. Honolulu, Hawaii: East-West Population Institute, East-West Center, 1975. McCarthy, Florence E. The Local Environment of Filipino Scientists," Ph//ippine Sociolo#eal Review 18 (1970): 169-74. Mijares, T. A. "The Development and Maintenance of a Sample Vital Registration System in the Philippines." In Phil_pine Population Research, edited by Rodolfo A. Bulatao. Makati, Rizah Population Center Foundation, 1976. Pante, F. Jr., and Morales, E. "Population Policy and Development Planning: The Philippine Experience." Paper prepared for the Eleventh Summer Seminar in Population, June 29 - July 4 1980, Manila. Paqueo, Vicente B. "The Family Planning Evaluation Sub-Model." In Stua/es in Philippine Eeonomic-Derngn_hic Relationships, Agustin Kintanar Jr. et al. Quezon City: University of the Philippines Economic Research Associates, Inc. and Institute of Economic Development and Research, 1974. . "Economic-Demographic Interactions and the Impact of Investments in Population Control." Ph.D. disscrt,_on, University of the Philippines, 1977. __

. "An Empirical Analysis of the Prevalence of Malnutrition Among Preschoolers and Child Mortality." Technical Report No. 1.4. Population, Resources, Environment and the Philippine Future: A Final Report. Volume IV-1A, September 1977a. __ . "Household Utilization of Health Care Services: A Quantitative Analysis." Technical Report No. 1.6. Population, Resources, Environment and the Philippine Future: A Final Report. Volume IV-1.A, September 1977b. .

"An Analysis of the Fertility Effects of Public Programs: The Case of Education and Health," Philippine Economic douma/ XVIH (1978): 122-35. , and Fernandez, Joseph. "An Empirical Analysis of a Disequilibrium Model of Fertility Behavior and the Threshold Hypothesis: 1973 Philip. pines." Discussion Paper 79-14. Quezon City: Institute of Economic Development and Research, University of the Philippines, 1979.

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Parado, J.P.; WiUiamson, NE.; and Maturan, E.G., eds. Final Report of the Bohol Project (1974-1979). Tagbflaran, Bohol, 1980. Parel, C.P. "A Survey of Foreign.Trained Professionals in the Philippines." In Proceedings of Conference on International Migration from the Phil_ppines. Honolulu, Hawaii: East-WestPopulation Institute, East-West Center, i975. Pascual, Elvira M. "Differential Fertility in the Philippines," Philippine Sociological Review 19 (1971): 209-30. Peek, Peter. "Household Savings and Demographic Change in the Philippines." Population and Employment Working Paper No. 1. Geneva: International Labour Office, 1974. Perez, Aurora E. "Internal Migration." In Population of the Philippines, Country Monograph Series No. 5. Bangkok: United Nations, 1978. Pernia, E.M. "The Impact of Migration on Rural Areas in the Ph_ppines," Philippine Economic Journal XVI (1977): 160-70. . "Individual and Household Migration Decision," Philippine Economic JoumalXVII (1978): 259-84. "An Intersectoral and Sequential Analysis of Migration Decision: Philippines," The Philippine Review of Business and Economics 16 (1979): 4440. , and Paderanga, C.W. Jr. "Urbanization and Spatial Development in the Philippines: A Survey." Discussion Paper 80-01. School of Economics, University of the Philippines, 1980. Popkin, Barry M. "The Production of Child Welfare in Rural Filipino Households." IEDR Discussion Paper 70-17. School of Economics, University of the Philippines, 1976. Power, Victoria. "The Effect of Family Size on Savings: A Cross-Sectional Analysis." Master's thesis, School of Economics, University of the Philippines, 1971. Preston, Samuel H. "The Changing Relation Between Mortality and Level of Economic Development," Population Studies 24 (1975a): 231-48. __ . "Health Programs and Population Growth," Population andDeoelopmentReview 1 (1975b): 189-200. â&#x20AC;˘ "Causes and Consequences of Mortality Declines in Less Developed Countries." In Population and Economic Change in Less Developed Countr_s, edited by Richard Easterlin. Chicago: University of Chicago Press, 1979. Report of the Special Committee to Review the Philippine Population Program. 1978. Rosenzweig, Mark"R. "Female Work Experience, Employment Status, and Birth Expectations: Sequential Decision-Making in the Philippines," Demography 13 (1976): 335-56. Ruprecht,

T.K. "Fertility

Control and Per Capita Income in the Philippines:

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Some First Approximations," 21-48.

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. "Population Growth and Economic Structure: The Philippine Case." Mimeographed. Boston American Asian SocieW, 1969• Smith, Peter C. "Philippine Regional and Provincial Differentials in Marriage and Family Building: 1960," Philippine Sociological Review 19 (1971): 15982. ; Zablan, Zelda and Verina, Noel. "Preliminary Estimates of NationalLevel Mortality, 1960, 1968 and 1973, and Mortality Differentials Around 1970." Research Note No. 43. Manila: University of the Philippines Popu. lation Institute, 1975. __ . "Changing Patterns of Nuptiality." In A Demographic Path to Modernity: Patterns of Early.Transition in the Philippines, edited by W. Flieger and P.C. Smith. Quezon City: University of the Philippines Press, 1975a. . "The New Nuptiality: Recent Evidence of Delayed Marriage and a Projection to 2000," Philippine Sociological Review 23 (1975b): 7-20. "The Social Demography of Filipino Migrations Abroad," International Migration Review 10 (1976):307-53. • "The Evolving Pattern of Interregional Migration in the Philippines," Philippine Economic Journal XVI (1977): 121-59. __ . "Trends and Differentials in Nuptiality." In Population of the Philip. pines, ESCAP Monograph Series No. 5. Bangkok: United Nations, 1978. Wery, R., Rodgers, G. B.; Hopkins, M.D. "Bachue-2: Version-1. A Population and Employment Model for the Philippines." World Employment Programme Working Paper. Geneva: Intemational Labour Office, 1974. World Fertility Survey -- Republic of the Philippines Fertility Survey 1978. First Report. NCSO, UPPI, POPCOM, NEDA, 1979. Zablan, Zelda C. "The Evaluation of Existing Mortality Estimates; Philippines 1902-1973." Research Note No. 82. Manila: University of the Philippines Population Institute, 1975a. "Regional Differentials in Mortality: Philippines 1973." Research Note No. 64. Manila: University of the Philippines Population Institute, 1975b. __

. "The Prospects of Mortality in the Year 2000." Technical Report No. 2.1. Population, Resources, Environment and the Philippine Future, A Final Report. Volume III-2. University of the Philippines, September 1977. . "Trends and Differentials in Mortality." In Population of the Philippines, Country Monograph Series No. 5. Bangkok: United Nations, 1978. Zachariah, K.C.; and Pernia, Ernesto M. "Migration in the PkilJppines With Partieular Reference to Less Developed Regions of the Country." Mimeographed• 1975. Zosa, Imelda A. "A Multivariate Analysis of Migration Flows in the Philippines." Paper presented at ODA Manila Conference, 18-22 December 1973.

Population and Development

Research

in the North Mindanao Region

Francis C. Madigan, and Lita C. Falma

S.J.,

INTRODUCTION

Marilou

Palabrica-Costello

(by Francis C. Madigan)

This study surveys social science studies on population and development relationships pertaining to Region X or North Mindanao which is composed of the twin provinces, Agusan del Norte and del Sur, Misamis Occidental and Oriental, and the single provinces, Bulddnon, Camiguin, and Surigao del Norte. It summarizes what is known about such relationships in Region X to serve as an aid to development planning and a basis for formulating guides and recommendations for the use of development planners. The present study aims to produce, on the regional level, a synthesis of work on North Mindanao, similar to that authored by Herrin for the Philippines as a whole in 1981. Herrin notes in his report that population:development studies by individual investigators often review previous studies and make suggestions for future research. Further, conferences of experts from many disciplineshave attemptFr. Mad[ganis Director of'the Mindanao Center for Population Studies Research Institute for Mindanao Culture, Xavier University, Cagayan de Oro City. The other authors are also from Xavier University.

Population in theNorthMin_lanao Region

351

ed to focus on the status and directions of population and/or developmental research and work (Concepcion 1966, 1969; Madiga_ 1967; Bulatao 1976). But none of these efforts has produced a framework of systematic knowledge or a research agenda suitable for the needs of policy-makers and planners of the 1980's, either on the national or regional level. If a framework or a research agenda should be tailored to meet _he needs of policy.makers and planners, its model might be visualized as in Figure 1, taken from Herrin(1981, p. 59). This figure presents three areas of concern from a planner's point of view, together with the public sector policies and programs developed to deal with these concerns. These areas are the demographic concerns (affecting size, _rowth, and distributic_ of the population through fertility, mortality, and migration), and two sets of nondemograpldc Figure 1. A Framework for Analyzing Population-Developrnent Relationships From aPlanner's Viewpoint (A) d

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352

FrancisMadigan,MarilouPalabrica-Costello & Lira Palma

concerns. The first of these nondemographic sets are factors affected by demographic trends (e.g., income growth and distribution, productivity, environment, etc.), and the second are factors determining demographic trends (e.g., education, nutrition, employment, etc.). Through narrowly-based, single-purpose programs, a planner may attempt to deal directly with a particular phase of some area of concern, demographic 'or nondemographic. Indirectly through the effects of his project or program, an impact may be felt on the other areas of concern. The generally circular nature of the populationdevelopment relationship is indicated by the arrows. From the standpoint of the two-way naturd of the populationdevelopment relationship, Figure 1 leaves something to be desired. Figure 2 endeavors to further direct explicit attention to the planner's context and needs. Figure 1 gives no explicit attention to the point of entry of the planner. Figure 2 begins with the point of entry of planner or policy-maker (the first circle). It is a decision-making sphere or standpoint. The planner has limited funds to expend upon the large and possibly expensive set of programs or more limited projects elaborated to meet the various concerns and problems of the region. Choice or decision-making is necessary in order to select or recommend for selection particular programs or projects from all those singly possible to implement. These possible endeavors encompass a much broader segment of reality than the chiefly demographic areas of concern, and often include economic and social aspects with high immediate importance for urgent political and other discretionary reasons. The planner and policy-maker, therefore, must not merely formulate but select programs and policies so as to deal with the realities of his context. Clearly, he has many factors to balance and weigh before fmalizing a decision, of which there is only one set of the population-developmental implications of particular programs and projects. Nevertheless, it would conceivably be of great help to the planner to have at hand a synthesis of current research findings and thought on these population-developmental relationships to bring to bear upon choice among alternative specific programs or projects. If two projects have about the same weight and priority as far as their population or developmental aspects go, that project whose indirect effects upon demographic or nondemo_aphic developmental reality are more beneficial in terms of national or region-

Population in the North Mindanao Region

Figure 2. Conceptualiaatio_ of Population-Deoelopment a Government Planner's Perapeotiue

NONI_IO_LU_'IIC REALI'rIES (4)

Relationships

353

from

POPULATION STRUCTURE

(3o)

DEVELOPMENTA L CONCERN8 (5Y

pUBLICSECTOR, POLICY,FORMULATION (I)

1. Public _ctor Policy Fon_ulati_m Agricultural • • L: Demographic EdUcational Environmental Ethnic groups Health, nutrition, family planning Housing, social services, community dvvclopment Infzastzuctuxe, _ausportatiari, eommtmications, water msottrces, efzezgy,etc. Industry, trade employment"

DEVELOPMENTAL PROJECTSAND (2}

Income,in_)me._ bad disuib.tiea Natural _ourc_s ind, fisheries , Political participation of citizens Religion, religious activities Productivity Mmpowex, labor • Socialweave, , sezvices Taxation Vagrancy, "squatting," ¢dmioality O_er

354

Francis Madigan, Marilou Palabrica-Costello & Lira Palma

2. Developmental Pro_cts andPrograms Concrete projects and programs set up for the implementaUon and attainment of the goals of public sector policy and/or for the attainment of private sector policy or desires. ..

3. Population Processes and Structure a) Proce_'es: NuptialiW, ferlility, mortality, migration b) Structure: Size, rate of _owth, distribution, and composition of the population 4. Non-DemoSraphic Realities Income growth Distribution of income, property, land, other wealth Employment, unemplo_hnent, underemployment Environment (physical) Social integration, participation Health, nutrition Educational levels, labor quality, literacy Energy supply and demand (present and futuse) Political stability Labor force, economic harmony Occupational distribution Welfare realities and poverty Ethnic relationships Land use (urban and fund) Productivity Social mobility Religious distribution; religious attitudes

Law and order Other realities Status of women 5. Developmental Concerns Income levels, distribtttion_ growth Productivity Envirc_ment Social mobility Appropriate labor for_e profile, quality Growth, size, distribution, and migration of the population in relation to specificlocal_ties and in general " Health (disease prevention, cure), malnutrition Correspondence of labor oppommities and qualifies needed and of educational product Available low cost energy, energy supply Political and economic tranquili_ and harmony; satisfaction at least minimum acceptable levels Percentage and relationship of the poor to subsistence levels; access 1"ocredit Intergroup frictions (Muslims and Christians) Levels of productivity Distribution of land; tenure, systems Social mobiliw opportunities (extent and distribution) Criminality, vagrancy, squatting, misdemeanor; rate of increase, types, public attitudes , manner of detenenoe other developmental concerns

al goals would be the more desirable choice from his point of view, considering this aspect alone. Figure 2 attempts to show the steps his reasoning must take in numerical order. It is dearly not enough to consider the programs and projects in sphere 2 in terms only of their own qualities and internal properties. The two-way relationships of these activities must

Population in theNorthMindan_J_on

355

be co "_. red not only in _rms both of their populational and nonpopulational effects but also in terms of/ndim¢ t impact such effects _e fO_n W have upon other relovant reali!_,. In additi_m, the possible, feedback of__hange# in the populati_ ,.structure a_l processes_upo_.:policy, formulation and upon conc_te programs and projects .must be considered :and foreseen to the,extent practicable. In ad_lition, attention must be given to, the concerns arising bo_ formn de_og_,_phic, and _non_ographic reaiifie.s.._and changes in them (whi.ch.i_nemUy._._Ctl_p_ciated less for. the meelws than f_r,.tlmk effec_ upon_ngn&mographic reality). :_fhi[:.e:!.no,t;a_ the_ _,_phcres are considered ",m_.a synthesis,of populati_-d_e_¢lopmont !studies, it. appears desirable to show the. steps bY whi'¢h,_ planner attempts to helpisocicty, cope with those realities. _ smdi_ themse_es cb.iefly.messso_ted wire the .thir:dto fifth spheres but also feed back upon policy, f_rmulation._,($p_em 1) and upon the elaboration of and the_choice betwe_ p_-oj_cts

CONTEXT : Around l_/u, many governments adop_l: official polm_tkm policies, part_y, befause -_ tho,: foreign assistance, programs, of eertam

major ,de.toped..ootmtrieshad linked:theirforeign_.aid|o :programs for fertility, _redactlon_..a_d partly because jthexe ,w_s,.a gentiine coneern ov_r, _a_idpOpulation growth. The _ain tkrt_t of such _official populatizn_ _icies was g_nerally'a family_plamfing .program provid. ing ¢ontraceptive,.serviee_ and. supplies_ The' Ig_J..,wasa reducUtm in ferfih'l_. • Docline_in._rttl_ty liave m ,tact tmnsimed mmany ot _se_cotmtries. The declines have been attributed by numerous rescarcheas to the effects of these family planningprograrns.,on, the basis_t':studies carried out. Others have emphasized the diffieullties of such conciusions, p_ting out that the most rapid, deolines in fertility have eccuned_n countries that had undergone, rapid_social and economic change:-_'fhis line.of reasoning has led .mkny e.,tperts to befieve that d_eelopm_ along both social and econolni_nes isan_.esssntial ingredieatr-for an important and sustained decline.in fe_h'ty_: The World Population Congress,,in ,Bucharest .in.,19_74 _.remlted.im _statements .emphasizing the importance of-social and economi_d_elopment as an element in programs aimed at _ducing fertilit_:'.Sinve that lime, increased recognition has been given, at least on the vet-

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FrancisMadigan,MarilouPalabrica-Costello & LiraPalma

bal level, to the need for social and economic amelioration of economicaUy more disadvantaged social groupings. In 1978, a special committee reviewed the Philippine population policy, and expressed concern that the Philippine population prOgram up to that date had been mainly a family planning program. This Committee also observed that the presentation of population-development relationships in development planning tended to treat demographic aspects as demand variables rather than as variables which not only influence social and economic development but which are in turn influenced by social and_economie development. The Committee recommended an enlargement of the scope of the Philippine population program so as to integrate it into the national development plans, and the elaboration of broad development policies and programs, with attention to their probable effects on demographic behavior and national demographic goals. As Herrin (1981, p. 2) aptly points out, the difficulty of integration at the operational level' is a main reason for the absence of such integration in many concrete developmental projects and plans. These difficulties arise out of the complexity of interrelationships and interactions between population and development factors, as well as from the inadequacies of empirical knowledge on these interrelationships both in the Philippines and in the international front. The difficulties become greater as these interrelationships bear upon development planning. It is also true, not only in the Phifippines but in most countries, that clarity of the institutional responsibility for integration of population-development interrelationships into development plans and programs has not been achieved. This lack of clarity has also contributed to the difficulties of integrating tWo-way development-population interrelationships at the level of development planning in the Philippines (Pante and Morales 1980). Based on this background and in the context of Herrin's review of social science research on the national level (1981), this present research work will undertake a study of social science research on a regional level in North Mindanao (Region X). The ultimate goal, though, is to contribute to the operational integration of the two-way population-development interrelationships in both demographic and nondemographic program and project planning in the region by broadening the regional knowledge base requited for such integration.

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FRAMEWORKAND SCOPE In terms of development-population interactions, Herrin (1981, p. 3) notes the considerable attention given to action-oriented research and work on demographic trends, current levels, and patterns on the national level (whole Philippines) and the little attention paid to the study of the interrelation of socioeconomic and demographic factors. For this mason, his work focused chiefly on the relations of socioeconomic and demographic factors. The :developmen.t-population interaction is, however, broader than the sphe_ of socioeconomic and demographic interactions. And less attention at the regional level has been paid to syntheses of research on demographic aspects .and of action-oriented research. Thus, the present work will take a somewhat broader approach to the problem at the regional level than Herrin's study at the national level, to the extent of course that available data permit and the needs of planners warrant. The following analysis is organized around field studies concerned with the population processes: nuptiality, natality, mortality, and migration. The rates of these processes determine the shape of the population structure at any particular time: p0pfilation size, rate of growth, distribution, and migration. Most of the beneficial (and nonbeneficial) impacts of development upon population realities are concerned directly with effects related to population structure (the population is too large or too small; growing too rapidly or too slowly; contains few or too many of some types of labor categories, etc.). However, the processes are indirectly involved since their levels a_d characteristics sustain or change the populati_t strfictures. For each major variable, the present analysis is organized =round three questions suggested by Hen'in (1981, p. 4), which were in turn suggested by the Mexican-based International Review Group of Social Science Research on Population and Development (1978). T1_se.are: (a)

What is known about the determinants (causes, antecedents) of the particular process/factor including determinants on the individual, the household, the community, the provincial, and the regional levels of aggregation? (b) What is known about the consequences (effects, r_sults, correlates) of particular processes/factors on individuals, families or households, communities, provinces, and the region?

358 _c)

FrancisMadigan,MarilouPalabrica.Costello & LiraPalma What is known about the impact of public policies and programs on specific processes and factors?

The succeeding sections focus on nuptiality, natality, mortality, and migration. Available and relevant studies are noted. The final section integrates and highlights the more important findings relating to population and development interactions and focuses on the most critical gaps in knowledge which will require careful research. The discussion wili attempt to relate these findings about population-development relationships to the viewpoints of planners and policy-makers.

MORTALITY (by Lita C. Palma)

INTRODUCTION

Very few studies relating to mortality have been carried out in the Philippines. As Madigan (1981) has observed, mortality remains the step-daughter in Philippine population research. Moreover, there are even fewer studies that have gathered field data on mortality in Region X. Among these few studies are the following: 1. The dual record study of mortality in 8,000 households carded out in Cagayan de Oro City and four municipalities of Misamis Oriental (1971-75) by the Research Institute for Mindanao Culture (RIMCU), Xavier University, with a subsequent provincial probability sample of 7,000 households (1973-75). 2. A study of mortality in 2,000 households in Cagayan de Oro which treated levels and differentials by categories (Madigan 1972).

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3:A Tandomized response study carried out in 1973 by RIMCU, â&#x20AC;˘_ attempting to gauge the level of purposive concealment of death by _respondents (of the dual record study),and to gather related information. 4. Studies of childhood mortafity carried out between 1977 and 1981 by members of the Area Ferfili_T Survey consortium(OPS, RIMCU, UPPI, DRF), generally by Brass-type procedmes. Most information on mortality for Region X beyond these data are ba_cally secondary analyses of data already gathered by other agencies â&#x20AC;˘such as the censuses, vital registration reports, and similar useful statigtical reports, not only from the PUblic but also from the private sector. Reliable death rates cannot be determined from registration reports .wi/h population bases derived by inte_olation and extrapolation from census data (Balaba 1967). in. 1970, for example, the North Mind_inao'region achieved only a 44.2 per cent estimated level of death gegistration, one of the most deficient in the country. Southern Tagalog and the associated islands, on the other hand_. achieved, an estimated level of 90.5 per cent (Flieger et al. 1981). Madiganr, studying registered deaths in Cagayan de Ore City and MisamisOriental sometime in 1960, reported that 59 per cent of all provincial deaths in 1960 had not been registered. A randomized response study (Madigan, Abemathy, Herrin and Tan 1976) further indicated a very substantial degree of purposive conceah-nent of death. They also indicated that such concealment was very probably associated with previous failure to register these deaths. The various censuses have the usual defects in age and sex structure reporting common to developing countries which make difficult the proper application of indirect techniques. However, gains have been, made through the provision of more varied and sometimes better data: the 1971-73 sample registration system of the census authorities (NCSO), the 1973 National Demographic Survey, the Philip pine round of the AFS survey of 1978, the annual Area Fertility Surveys (1977-1980), and the Xavier University Dual Record $_stems, 1971-1975 and 1977-1980. LevelS, Trends, and Differentials Owing to the incomploteness,'if not deficiency, of da_ on mortality, little definite knowledge about levels, patterns and differentials in mortality has become available. On the other hand, most analysts

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and demographers agree that mortality was very high during the last quarter of the 19th century, declined gradually between 1903 and 1939, and declined rapidly during the postwar era (1945-1960). This has been conventionally attributed to successful control over specific diseases brought about by better medical and health services, by increased and more varied food production, and by other improvements in socioeconomic conditions. However, this decline has somewhat slackened between 1960 and 1975 as indicated in Re estimates obtained by different analysts (for example, Adams 1965, Madigan 1965, Mendoza-Pascual 1962, Aromin 1961, and Madigan and Avaceffa 196_). Although reference periods often overlapped, these estimates displayed a relatively narrow range of variation at least for crude death rates (Flieger, Abenoja and Lim 1981). Among other field studies conducted in the North Mindanao provinces or in the whole of Region X, the dual record study by RIMCU found unacceptably low levels in mortality in most semiannual data. The randomized response technique indicated a death rate of 11.5 deaths per thousand in the urban sample areas and 13.4 deaths in the rural areas for the year 1972. Purposive concealment of death was observed in both the dual record study and the randomizedresponse study. Madigan (1981) concludes that purposive concealment of death can be expected to be the highest, percentagewise, where incidence of underregistration of death is greatest, and to be smallest where underregistration of death is least. His conclusion appears well supported by the available data. For example, North Mindanao is one of the regions where death registration has been reported to be most deficient. The Area Fertility Study (OPS, RIMCU, UPPI) indicated a moderately high infant mortality. The Area Fertility Survey data for Region X using direct and indirect measurement approached also estimated overall mortality by age and sex (Madigan 1981) for 1978 at about 11 deaths per thousand for males and at about 8 deaths for females. Secondary analyses and studies of mortality have reached similar mortality estimates. For example, Lorimer in 1965 for the whole Philippines derived a central death rate of 14 deaths per 1,000 persons. He assumed a rate of decline in mortality during the 197580 period which implied that deaths during this period in the Philippines as a whole would range from 9.1 to 9.8 per 1,000 persons a year.

Population intheNorthMhndanao Region

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Differentials Despite the observed decline in mortality, large mortality differentials by region, residencc(rural-.urban), socioeconomic characteristics, and level of urbanization still exist in the Philippines (I-Ierrin et al. 1981, Zablan:1975, Flieger 1976, Mijares 1976, Abenoja and Flieger 1979, Flieger 1979, Smith et al. 1975, Cabigon 1980, Madigan 1981, and Alcantara 1975). Hcn_, for example, reported that in _e Philippines the 1970 male infant mortality rate varied from 81 de_athsper 1,000 births in Southern Tagalog (including Metro Manila) to 143 in Northern Mindanao while the male life expectancy variedfrom 46 years in Westem Mind_nao to 59 in Central Luzon. Madigan (1981), using AFS data for the North Mindanao and Southern Tagalog regions, examined differing levels of mortality within categories for five sets of social categories (income, education, occupation, social class, and place of residence). Results in terms of mortality ratios showed an association between educational level and mortality in both Southern Tagalog and North Mindanao regions. On the other hand, Abenoja and Lim (1979) found a negative asso, clarion for educational attainment with soci_conomic development and level mortality for 13 provinces in the Central and Western Visayas. However, unlike Madigan,whose social category data were aggregated at the household level, Abenoja and Lira were applying social category data aggregated only at the macro provincial level. Also contrary to the Abenoja-Lim finding, Alcantara (1975) found that socioeconomic status had a strong influence on level of mortality. Madigan's 1972 study of birth and death in Cagayan de Ore city showed clear and pronounced differentials between persons with more and persons with less advantage in terms of income, social status, occupation, and educational achievement. Evidence of regional differentials was also observed by Zablan (1975) who reports that life expectancies increased most in Luzon, next in the Visayas, and least in the Mindanao region. She reports compatible changes were also true of infant mortality rates. Zablan also reports finding declines in expectation of life in North Mindanao, Eastern Vjsayas, and in Cagayan Valley of Northern Luzon as opposed to increases in the Central Luzon, Metro Manila, Southern Tagalog, and Bicol Regions.

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Subgroup mortality because of smaller sample size is subject to greater measurement error. Thus, existing data sets may be less reliable. However, they do indicate a higher childhood mortality from birth to the end of age 2 for the children of farm wives, of wives with lower educational attainment, and of wives residing in rural places. Determinants With the exception of Madigan (1981) mortality studies in Region X have not specified precisely the determinants of mortality. However, a general idea of these determinants can be gleaned from such studies. For example, certain national studies strongly suggest that income, education, lower class social status (including lower class =ccupation), urbanization, malnutrition, poor sanitation, and inadequate access to skilled medical care are associated with higher mortality risks. In Region X, studies like that of Madigan (1981), Madigan et al. (i972 and others) have found that differential mortality by rural and urban residence is related to nutrition, sanitation, and provision of medical care. The same studies also found an association between employment (indirectly, through nutrition) and mortality level. Madigan and Cabaraban, analyzing Dual Record Study data (1980), found an association between electrification of home and lower mortality. The AFS study also estimated mortality by socioeconomic determinants, producing results which seem reasonable and which generally agree with those found by other researchers. Mortality determinants by cause of death have scarcely been analyzed for Region X. Available cause of death statistics do not appear sufficiently reliable. Data from the Disease Intelligence Center of the Ministry of Health for calendar years 1946-72 reported by Zablan (1978) would appear to indicate for the Philippines major declines in mortality (and incidence of cases) since 1946 from the major respiratory diseases and from gastroenteritis and dysentery, and they also indicate declines in mortality from malnutrition, as well as from malaria and tuberculosis. If these data (which are very incomplete and biased toward the relatively small urban and better income groups) could be relied upon, one would conclude that two-thirds of the mortality decline since 1946 was due to the decline in mortality from the major respiratory diseases, ga_troenteritis, and dysentery.

Population inthe.North Mindanao Region

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Data from this same source for the years 1960-72 would sug_st that the level of,mortality had fallen by abcmt_18 per cent during this period, witha decline inthe. same causes ,accounting farabout70 per cent of the trend. If true, this would mean that the,int_duation of relatively inexpensive health measures _hadbeen more important than general economic development in rC_ucing the level of mortality, a f'mding that runs counter to current international opinion on the determinants of mortality in the postwar period in developing cotmtries. This fact in itself raises serious questions about the validity of the data. Herrin (1981)suggests two.hypotheses for study: (t)_ the number of deaths from causes easily oontrolled by inexpensive epidemiological measun_.sis no longer l_r_ enough to produce more than: minimal effects upon the overall mortality rate, oven if very lar_D_ol_r_on_.. cutscouldbe made,in_ ,,the incidence, of.these deaths; and (2)therateofdecline innumberofdeaths-from mSl_ratorytractand _astroenteritiÂ˘ diseases ._Iowed down ,.sUl_trmtially in,the years1960-72,, and an apl_reciable..furtl_ter.declino will requi_ not ,onlya .widepublic healthprogram !..but alsosubstantial .and. broadly-based economicdevelopment. For example, ;i_i972.the percentage ofmortality frompneumoniaandpulmonarytuberculosis. wasas high as in 1946, 27 per oent. .,. Thus, a need exists for a study or studies segregating mortatlty = effects by causes of death based upon the n_ports of qualified me_li, cal personnel who attended before or at the time of death. :, Studies of nutrition, health services (distribution arid u_zalion included), and morbidity may be able to provide valuable hypothe_ sos to guide research.onthe determinants:of mortaliW (f_c-e_cample, Florencio 1977; Layo 1977; Paqueo 1977a, 1977b; Ba_sd t977, 1978; and Adorna 1977). Briefly, such studies indicate wide differentials in access to good nutrition and health services and in morbidity. Differential mortality by areais probably associated with these differentials in nutrition, health services, and morbidity, Studies assessing development projects in terms of their indirect effects upon mortality are another important research priority. While the direct effects of certain development projects like malaria control, tuberculosis control, and potable ;water projects-are fairly evident, we know very little of the indit_t effects upcm mcCtality of such development projects:as Masagana 99, irrigation projects, road building projects, and the like.

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Effects of Mortality Change on Migration, Fertility, and Developmen t Mortality or death brings suffering to families. While older persons may die sooner or later, the demise of children or of vigorous adults inflicts grief and sorrow on the family and close relatives, often intense pain on a dying person, and may leave a family orphaned of a father's support or a mother's care. Government policy is therefore naturally directed toward further reduction of the death rates, especially of the young. It is not impossible that a high mortality will persuade families to have higher birth rates, because they wish to "insure" themselves against too few children reaching adulthood, or specifically to "replace" decreased children or become their society in reacting thus to insure societal survival, or for all these masons. Further, women who lose an infant and stop breastfeeding will sooner become pregnant again, other things being equal. In a period of rapid mortality decline and slow or even nonexistent fertility decline, the size of the population may grow rapidly. On the other hand, if fertility declines to the point where it reaches a near balance with mortality, population growth may slow down or even cease entirely. The effects of mortality change upon migration may be complex. High mortality due to a serious epidemic may lead to heavy in-migration of the workers needed to replace workers who have died. On the other hand, comparative economic advantages in a region will lead to in-migration, which is heavy in proportion _o the extent of migration. A high birth rate in a region of low mortality and limited economic opportunity may itself engender, through urbanism, industrialism and other cultural backgrounds, attitudes leading to declining fertility and continued high rates of in-migration and]or immigration such as that which took place in urban U.S.A. from 1968 to the start of the present stagflation and business recession. Declining mortality during the period from 1903 to 1975 has been reflected in increases in household size because more children than before were living to adult ages, and adults were living longer. Quantitative studies on the impact of public projects upon mortality have been very ram, and so have follow-up studies of malaria, schistosomiasis, or other disease control projects to ascertain their contribution to the reduction of mortality. Such studies would admittedly be difficult to carry out because of the complexity of factors affecting mortality, but which are necessary for the estima-

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tion of the specific inputs needed to reduce mortality most per unit of resource allocation. Allocation of resources to ameliorate existing social and geographical imbalances would be best guided :by such research. Cost-benefit information on the mortality effects of the various development and health intervention projects of the government would therefore be a valuable asset to development planning. The research data :might also illuminate such questions as the feasibility of health and development policy reorientation without radical changes in the political, economic, institutional, and other social structures. ,i Studies in Region X on the determinants and consequences of mortality, especially in relation to nutrition and morbidity, are therefore dearly of very high pficcity. In summary, the need for better and more abundant mortality data, as well as for more precise, valid and reliable infolTnation on levels, differentials, and trends in infant, childhood, and adult mortality and for information on its determinants, is of high priority. Such data wall give Region X planners an insight into the true dimensions of mortality phenomena in the region, enable them to distinguis h development as well as health projects which have. l_ge direct and/or indirect effects upon mortality, and thus begin ,to come to grips with some o;f the. more important _:terminants of mortality in Region X. Information on the consequences of mortality changes would also enable planners to visualize, and better guide and control the effects upon population growth, distribution, and fertility as well as upon development of such changes and to foresee arfd guide them better.

BmUOGRAPHY " Aben9ja,MaednaK., and Lim, Alice C. "Mortality in the Vimyas." CebuCity: University of San Carlos,Office of PopulalionStudies, 1979. ____ _ and Flieger, Wilhelm. "Philippine National and Regional Mortality Estimates for the Year 1970." Cebu City: Urdveisity of San Carlos, Office of Population Studies, 1979. Adams, Edith. "Estimates of the Crude Birth RateOfthe Philiptflnesby Method of Reverie Survival." Cited in Francis C. Madigan, '_ome Recent Vital Trends in the Philippines: Estimates and Evaluation," Demography !I (1965).

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Alcantara, Adelamar N. "Differential Mortality Among Population Subgroups," Manila: University of the Philippines Population Institute, Research Note No. 25, 1975. Mimeographed. Aromin, Basilio. "The Trend of Mortality in the Philippines: 1903 to 1960," The Statistical Reporter 5 (1961), Balaba, Teresa. "Mortality Levels in Cagayan: Study of Death Rates and Expectancy of Life by Sex and Age in Medium Size Philippine City." Master's thesis, Xavier University, 1967. Cabigon, Josefma V. "Fertility and Mortality Changes in the Philippines, 19451977." Manta: University of the Philippines, Population Institute, Research Note No. 26, 1980. Mimeographed. Flieger, Wilhelm. "Some Comments on Current Mortality Information in the Philippines." In Philippine Population Research Papers and Proceedings of an Experts'Meeting, edited by Rodolfo A. Bulatao. Makati, Rizal: Population Center Foundation, 1976. â&#x20AC;˘ "Mortality in the Philippines in the Early 1970's: Preliminary Estimates." Cebu City: University of San Carlos, Office of Population Studies, 1979. __

; Abenoja, Macrina K.; and Lira, Alice C. On the Road to Longeoityi" 1970 National, Regional and Provincial Mortality Estimates for the Philippines. Cebu City: San Carlos Publications , 1981. Herrin, Alejandro N. "Population and Development Research in the Philippines: A Survey." Manta: Philippine Institute for Development Studies, 1981. __ ; Pardoko, Henry; Lira Lin Lean; and Chira Hongiadarom. "Pop'flation and Development in Asean: A StatUs Report." ASEAN-Australia Population Project: Population and Development Dynamics and the Man/Resource Balance, 1981. Lorimer, Frank W. "Analysis and Projections of the Population of the Philippines." Paper read at the First Conference on Population, 22-24 November 1965, Manila. Madigan, Francis C. "Some Recent Vital Rates and Trends in the Philippines: Estimates and Evaluation," Demography II (1965). . Birth and Death in Cagayan de Oro. Quezon City: Ateneo University Press, 1972. "Estimation of Philippine Mortality from Limited Data." Paper contributed to Session F. 25 of the IUSSP 19th General Conference, 9-16 â&#x20AC;˘ December, 1981, Manila. __ "A Study of Mortality by Direct and Indirect Measurement Techniques in Two Main Philippine Regions." Regular Report Series, AFS, Region IV, Southem Tagalog, and Region X, North Mindanao_ Report No. 5. Mtndanao Center for Population Studies, Research Institute >rMindanao Culture, Xavier University, 1981. ---, and Avancena, R. "Philippine Fertility andMortality with Special Refe-

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reace:ito the North Mindanao Region: A (D_iflque of Reeent Estimates, Part I: _The Philippines in General," Phg_i_ne 8o_lologieal4_v_up Xtl

..,_ 0964)., :: ; Abemathy, J.R.; Herrin, A.N.; and Tan_,Clarita. '°Purposive, Concealment of Death in,Household _;ulveys in Misa_nis_Ofiental Province,'_ Popu_UonStudies 20 (1976):295-303. _; de1Fierro, Alfonso Jr., and Cab_ban, Magdalena_ ,"Differential " iFertility and Mortafity by Period, Method_ogical Samp!es* Philippine _Population Laboratory, 1972-1975." Cagay_ de Oro: Resea/_h Institute for Mindanao Culture, 1977. , and Cabarabhn, Magdalena. "Dual Record System Can be Inexpensive: An Application in Western Misamis Oriental." Cagayan de Oro: Research institute for Mtndanao Cullure, 1980. Mendoza-Pasoual, Elvira. "Reinvestigation of Birth and Death StatiStics"i/1 the tq_ilippiaes," The Philit_ine 8_ffst/e/an II (1962): 1.71-89. Mija_es_ Ttto A. "'The Development and Maintenance of a Sample Vital Registration System in the Philippines." National Ce_gts and Statistics Office, Manila, 1975. Smith, Peter C.; Zablan, Zelda, and Virina, Noel. Preliminary Estimates of National Level Mortality, 1960, 1968, and 1973, and Mortality Differentials Around 1970. M.anila: University of the Phih" "_pines Populati_ Research Note N6.9, 1975. Mimeographed.

InStitute,

Zablan, Zelda C. "Regional Differentials in Mortality: Phllippiii_s, 1973." • Manila: Unive_ty of the Philippines PopulatiOn Institute_ Re,a/oh Note No. 28, 1975. Mimeographed. _._____. "lDaluatioa of P._iBtingMortality Estimates: Philippine_, 1902A973." ,,Mm_ia: U.P_P.I. Rmeareh Norte_Io. 82, 1975, Mimoographed.

'FERTIUTY (byFrancis C.Madigan)

Even without an analysis of mortality, the history of the Mindanao population wotdd have painted in red, the effect that mortality has l_g ,played thr .oughout Mindanao an(_l.._ the North Minda_ao Region

POPulation.

If half a milEon people are assumed

to have pop-

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ulated the Philippines in 1640.and if 20 per cent of these lived in Mindanao, the population there would have been 100,000. Good reasons exist for placing national and Mindanao fertility at 50 or more births per 1,000 population in 1640 and earlier. Assuming, therefore, 50 births per 9,000, and little voluntary outmigration from Mindanao up to 1900, if the death rate had been as low as 20 deaths per 1,000 during that time (a rate approximately twice as large as the present rate), the lesult today would be a population of 2.7 billion persons for Mindanao. If deaths had averaged even as many as 30 per 1,000 persons, Mindanao's population would today total 90 million persons. What do the records say? Clearly the death rate during the long period from 1640 to 1900 must have been higher, sometimes too high. The 1903 Census gives data for the years 1876-98, based upon Spanish parish records, which average to 39.7 deaths per 1,000 persons. In 1903, the death rate was as high as 133,even 182 deaths per 1,000 persons in some provinces (Madigan 1972, pp. 142-43). Reasons for high death rates for the period 1640-1903 are not hard to find. For quite a long period of time, the Spaniards were unable to provide effective military defense of the north coast region, and Maguindanaos, Maranaos, Bwayans, Sulus, and Borneans kept raiding the north coast settlements, killing men and carrying off women and children for the slave markets of lower Mindanao, Indonesia, and Malaya (de la Costa 1961, pp. 442-45, 447-50; de la Concepcion 1878, pp. 148-68, 178-88, 297-319). A second very important reason was disease Cholera, smallpox, malaria, and other major killer diseases raged almost unchecked all over the island or in large parts of it on many occasions (e.g., cf. Pasteils 1916, I, pp. 451-54, 470-71; Madigan 1972, pp. 141-48). Some authorities state that malaria was endemic to Cagayan in the first decade of the present century before public health measures were applied. Certainly this was also the previous situation. Levels, Trends, and Differentials Against this background of pillage and disease, and of resultant high death rates, it is easy to see that the birth rate level must also have been very high. Otherwise the north coast population simply would have been wiped out. At the turn of the century in 1900, demographers generally estimate that the birth rate was about 50 births per 1,000 persons. It

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is also widely believed that this rate changed little (with the exception of the World War II years when normal conditions were disturbed) up to about the year 1960. The census data, cited above (Madigan 1972, p. 141), average to 48 births per 1,000 persons for the years 1876-98 for the whole country, although it is not altogether _lear how and to what extent the data were corrected for production of these estimates. (See also Census 1903, III, p. 17; Madigan 1972, pp. 72-75, 80-82, 141-42; U.N. 1960, pp. 2-6.) If one grants that in 1900 the national rate approximated 50 births per 1,000, he will also have to grant that the North Mindanao rate would almost surely be higher, being a backwoods, frontier area of the country at that time. In 1900, no national registration system existed, although fairly soon afterwards one was established. However, average citizens of the Philippines up to 1980 have been inclined to take rather lightly their obligation to register the births and deaths affecting members of their household. At present (1981) the vital registration system is still too incomplete to provide adequate material for a direct computation of birth or death rates (Mortel and Nazaret 1971, p, 245; Praepotente and Adlakha 1979; BCS 1965; Abenoja and Flieger 1979; Jaramilla 1941, p. 3; Madigan 1958, p. 98). Lodmer (1966, p. 235) estimated national fertility at 46 births per 1,000 persons by 1960. He also estimated for the same date that the average number of children born to Filipino women who had reached their fiftieth year of age was 6.8. For about the same date Madigan (1972, pp. 59 and 69) estimated urban Cagayan fertility at 46.8 births per 1,000 persons and also estimated average number of children ever born to women who had completed their fiftieth year at 6.4. Rural Misamis Oriental fertility would have been higher at this time and would have characterized a large majority of the women. If the Misamis Oriental fertility is taken as an indicator of Region X fertility at that time, it seems safe to conclude that any decline in fertility which occurred in the region up to 1960 must have been quite small. The conclusion to be drawn is that fertility in North Mindanao had remained fairly constant between 1900 and 1960, as far as married women's birth rates are concerned. A slight decline may have occurred in the birth rates of all women because of delayed marriage for social, economic, or educational masons. After 1960, however, a decline in fertility became apparent.

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On 1 September 1971, the Research Institute for Mindanao Culture (RIMCU) began to estimate birth and death rates for a large sample of the Cagayan de Oro City Poblacion and for a subsample of rural Misamis Oriental Province. The sampling initially was for every four months and thereafter for every six months up to 30 June 1975. The very precise but more expensive dual system methodology was used. In July 1, 1973, rates were additionally computed by the same methodology for a large probability sample of the whole province. The standardized rate for urban Cagayan for the eight periods of measurement averaged 42.6 births per 1,000 persons and the corresponding rural rate (standardized upon the rural population of the seventh period) averaged 37.9 births per 1,000 persons. The provincial sample averaged 39.2 births per 1,000 from July 1973 to June 1975. A substantial decline in fertility from the 1960 level is clear (Madigan and Herrin 1976, pp. 16, 22, 24, 31). Has fertility since then levelled off, or has the decline continued? If one looks at the record from year to year (1975 to 1976, 1976 to 1977, etc.),, the results may be obscured by annual fluctuations in the birth rate. But if averages for the earlier years, 1971-75, are compared with averages for the years 1976-79, a further decline -becomes evident. One must-take a longer-term viewpoint to detect the change • because we are not dealing at present with a rapid decline, although that may come later; The Research Institute has collected birth data in four large annual surveys of North Mindanao for the years 1976-79. The average crude birth rate for these years was 37.3 births per 1,000 persons. A fairly similar decline in fertility is found for Mindanao and :North Mindanao when the rates for the 1963-67 averages and the 1968-72 averages •of the National Demographic Surveys (de Guzman 1978, Table •103) are compared with the rates of theWorld Fertility Survey-Republic of the Philippines Survey (1979, Table 5.7), and with varioussets of data from the census and the vital statistics offices (Praepotente and Adlakha 1979; Gonzales, Alegre and Cross •1978;. Gonzales, Cross, and Adlakha 1979). Additional data for the years 1960-68are provided for the Philippines by Engracia, Retherford, Smith and Cho (1977). Some substantiation of a recent decline in fertility is found by 'comparing total population figures for the present area of Region X .together with estimates of death and net migration rates for the various census dates Since the turn of the century.

Populationin the North Mindanao Region

Date of census 2Mar. 1903 31 Dec. 1918 1 Jan. 1939 1 Oct.-1948 15 Feb. 1960 6 May 1970 1 May 1975 1 May 1980

Population .enumerated for censu_data 226,530 358,970 706,367 922,167 1,297,345 1,952,735 2,314,205 2,746,480*

371

Estimated Estimated Intercensal Estimated average annualrate rate annual annual of net of birth death ratea in migrationa growthba ratea .025 .0045 .0295 b .0291 c .0500 .020 .0044 .0344 .0338 .0500 .025 .0027 .0277 .0273 .0500 .018 -.0015 .0305 .0300 .0500 .012 .0048 .0408 .0400 .0480 .010 .0056 .0346 .0340 .0390 .010 .0078 .0348 .0343 .0370 ......

a. Betweencensusdate on samefineandnext censusdate. b. Compoundinterest formula,used in computationsof balancingequation. e. Exponentialgrowthfunction,not used in computationof balancingequation. This argument labors under some difficulties because it represents a set of estimates. However, the death and migration rates seem to fit the data reasonably well, and the growth rates are given from the census enumerations. If one can rely upon reasonable accuracy in the census enumerations, let us say no more than 5 per cent error in totals, they should be fairly sound gauges of growth between censuses. The problem then becomes one of decomposition applied to the intercensal growth rate, taking into consideration birth, death, and migration processes. Results of these studies indicate that concurrence exists between several different independent investigators and demographers oh the

existence

of a modest

decline

in fertility

during the period 1960-80. Furthermore, birth rate of Region X in 1900 is taken 1,000 persons, 1960 level.

some

decline

from

in North

Mindanao

if the turn of the century as more than 50 births per

this level is also implied

by the

Thus, over a 20-year period, a slow decline in the birth rate (and in the growth rate of the population as a consequence, since mortality decline has slowed during these two decades) has taken place. The level of fertility had dropped from 50 births per 1,000 persons in 1950-60 to 39 by the years 1971-75 and then to 37 per 1,000 for the years 1976-79. These differences appear to be true differences, and not due to sampling or nonsampling error. This decline has been slow, only one-fourth of a point a year, and it has been modest, only 13 points in 20 years. If the experience of

372

FrancisMadigan,MarilouPalabrica-Costello & Lita Palma

other nations can give a clue to future developments, the decline is likely to continue and to become more rapid if supported by reasonably satisfactory economic conditions. It has been said that a decline of more than 10 per cent, such as the North Mindanao decline, is, practicably speaking, irreversible. Whether this will prove to be the actual case in North Mindanao or not will appear in surveys of the eighties. Two main determinants (causes or important factors) of fertility decline which have been singled out in the Philippines in general are delayed marriages and the use of family planning methods by martied women. Several studies have noted that the use of family planning seems to have started with women at 25 years of age or older who already had had three or more children (Madigan 1977, WFSRPFS 1979). Regional differentials. Research Institute for Mindanao Culture (RIMCU) studies show quite clear-cut differentials in fertility between Region IV (Southern Tagalog Region) and Region X (North Mindanao). Del Fierro (1981, Table 1) comp .ares the data for 1976, 1977, and 1978 of North Mindanao with that for 1978 of the Southern Tagalog population in terms of completed family size. He noted a decline in fertility in North Mindanao; but for both currently married women and women separated by death or other causes from their spouses, the decline starts from a higher point and terminates at a higher point than that of the Southern Tagalog women. These results were:

Age

NorthMindanao Currentlymarried Separated 1976 1977 1978 1976 1977 1978

Southem Tagalog Currentlymarried Separated 1978 1978

45-49 50-54

7.7 7.3

7.1 7.0

7.2 7.1

7.6 7.0

6.9 7.0

7.2 7.1

6.3 5.9

6.3 6.2

Mean

7.5

7.0

7.2

7.3

7.0

7.2

6.1

6.2

The excess fertility of North Mindanao comes to approximately one child (16 per cent) more than the Southern Tagalog fertility. In general, it is to be expected that older, more established, and more urbanized regions like Region IV will have higher fertility than more rural and agricultural regions like Region X. Region X is not characterized by highest Philippine fertility whereas Western Visayas (Region VI) has exhibited higher fertility during the past several years (de Guzman 1978, Table 103), and so too have other regions.

Population in theNorthMindanaoRegion

373

Th_ crude birth rate is another way of measuring fertility. The North Mindanao rates exoeed those of Southern Tagalog again when compared by year. 1976

SouthernTagalog Northern Mindanao34.7

1977

1978

1979

Mean

36.8

35.7 38.1

30.0 39.5

32.8 37.3

Costello (1981) finds ,qimilar differences between Southern Tagalog and Northern Mindanao fertility over four years of current birth rates. These fmdihgs of differences between the North Mindanao and the Southern Tagalog fertility rates are echoed in other studies, if Southern Tagalog is used as an example for more urbanized and more established regions. Fliegvr (Flieger and Smith 1975, pp. 109-19) point to North Mindanao as one of the more fertile regions and to Greater Manila and Southern Luzon (as distinct from the Bicol Region) as regions of low fertility. The World Fertility Study (RPFS 1978, Table 5.7) finds increasing fertility going from Manila to Luzon excluding Manila, thence to the Visayas, and from there to Mindanao. In gvneral, similar regional patterns were found by de Guzman (1978, Table 103), Praepotente and Adiakha (1979), and Gonzales et al. (1979). Socioeconomic differentials. Regional differentials are also found in terms of social and economic categories. Pullum (1975, p. 168), did not fred different levels of fertility for income and educational categories in the 1968 NDS data, but instead discovered that economically more well-off married women had higher (rather than lower) fertility, which he tentatively attributed to better health, better nutrition, and better prenatal care. Fliegvr (1975, pp. 110-11), however, raises some questions about this finding, noting that the regional data (showing Greater Manila to have lowest fertility but highest per capita income and North Mindanao to have quite high fertility and also to rank relatively high as a region in per capita income) neither support nor confirm Puilum's hypothesis. Guzman (1978) and Concepcion (1980) summarize more recent findings from the Area Fertility Studies (AFS) and the World Fertility Survey (WFS-RPFS) and show in fact that higher income groups, higher educational categories, upper, middle occupational categories and upper-middle class affiliations, as well as urban residents generally had lower fertility but that these general f'mdings include

374

FrancisMadigan,MarilouPalabrica-Cost_llo& Lira Palma

much inversion and possible nonlinearities in the detailed tables. Like most things in human life, the specifics tend to be much less regular than the general principles. Madigan (1981, pp. 4-11 and appendix), reporting on married women for Region X in 1978 and 1980 data and for Region IV in 1980 data and using total fertility as the summary statistic, found lower fertility for higher educational achievement in general, but women who never had any schooling were an exception in both years. As Pullum suggests, the lower fertility of the latter may be due to poor health, inadequate nutrition, and inadequate prenatal care. These may have led to more numerous fetal losses which would mean lower birth rates for 1978 and 1980_ Comparing rural and urban residents, Madigan found higher fertility in the rural areas than in urban areas when women aged 15-19 were excluded (married women of these â&#x20AC;˘ages in both places of residence want to have their first birth soon after marriage). Women living in poblacions tended to have lower fertility than women living in barrios but not by a great amount. Urban fertility, however, was lower than municipal poblacion fertility. These differentials were also found, although at a lower level, in Region IV. Only few people of high social standing were found in the Region X sample to compute fertility measures for them, but married women of middle class status had lower fertility than persons of lower social class status. This was generally true in both urban and municipal poblacion areas, although in 1980, rural women of middle class status had higher fertility. This 1980 results, however, was due entirely to the fertility of married women 15-19 years of age. When these women had been excluded from the total fertility computations, the expected result appeared in all places ofâ&#x20AC;˘residence. Occupation did not prove to be a good â&#x20AC;˘indicator of level of ferttility in Region X. The same was true in Region IV. The categories used, rural and farm occupations, blue collar, and white collar seemed promising; but the results were quite mixed. No clear pattern of lower or higher fertility appeared except in the overall rates for 1980 which did show a decline in fertility with passage from rural and farm to blue collar and white collar occupations. However, the 1978 data did not reveal such a pattern. Income was also expected to show a pattern of lower fertility as one went from lower to higher income categories. And in fact, some evidence of such a pattern did appear in the 1978 data for Region X.

Population in theNorthMindanaoRegion

375

But the pattern did not appear in the 1980 data. Once again, however, when women aged 15-19 had been excluded from these married women rates the pattern appeared in the rates for both years although there was one inversion. The Southern Tagalog rates also exhibited this pattern. Some have suggested that the current fertility of women by family planning use should be examined in order to evaluate the effects of the family program. Research has shown, however, that current fertility and number of children ever born are unlikely, for different reasons, to show much difference when looked upon by family planning use unless very careful controls, unlikely to be practical in a large, general purpose survey, axe incorporated. Some differentials were found in the expected pattern in Region IV after women in the 15-19 bracket were excluded, but these were not large. Also Region X never users had higher fertility than both current and previous users, when current fertility of married women was studied. But previous and current users tend to have about the same rates with current users exhibiting slightly lower rates. The reasons seem to be as follows: some are never users because they are sterile or of low fertility. Thus, they are not attracted by family planning. Women of high fecundity may still fail in their practice of family planning precisely because of their higher childbearing capabilities. Thus, populations to be compared need careful selection. Second, previous and current users frequently change back and forth from category to category, depending on whether, in any given year, women using family planning decide to have a planned birth. Careful controis ate needed to screen out such disturbine effects. As for children ever born, wunless careful checks are included, this type of data often includes women who had borne many children before they had begun to practise family planning, whereas women of low fecundity have few children ever born even though they practise no family planning. Again, careful controls axe required. Determinants of Fertility Attempts have been made to isolate socioeconomic factors related to fertility. Some of these have been discussed in the preceding section: education, income, social class status, place of residence, and occupation. Most of these have been found related to fertility but on the level of bivariate analysis. Further study of multivariate nature would be worthwhile in order to see how well these relationships stand up, and their relative importance, when other relevant

376

FrancisMadigan,MarilouPalabrica-Costello & LiraPalma

factors are controlled. Madigan, in a rural electrification study (1981 b, pp. 97-99), found in a large PPS two-stage probability sample of two rural electrification sites in Misamis Oriental Province a significant correlation at .05 between education of wife (indicated by highest grade completed) and fertility, indicated by acceptance of family planning, when 21 other variables had been controlled. In this stepwise multiple regression, the overall multiple correlation was .459 which was very significant at beyond .001, accounting for about 21 per cent of all variation. In a second stepwise multiple regression, he found education of household head significantly correlated with fertility at .05 when eight other variables were controlled. The multiple correlation in this case was .402, again significant beyond .001. Income was included in the first regression but not found significant. However, it was included only in step 21. A stronger relation was fotmd between family planning continuation (probably a better indicator of fertility level than acceptance) and both education of wife and household head (both significant beyond .01). The multiple correlation of the seven independent variables with continuation was .353, again significant beyond .001. A second regression included household cash income in sixth place but did not find a significant relationship (Madigan 1981b, pp. 100Ulack (1979), in studying 774 households of the low-income slum and squatter population of Cagayan de Oro City, found only weak realtionships between education and income in a stepwise multiple regression between six variables and fertility (which he measured by number of living children). Both Encarnacion (1973, 1975), and Canlas and Encarnacion (1977) found a relationship between education and income, on the one hand, and fertility, on the other, when they controlled their data for timing and duration of marriage, age, and place of residence of the respondent woman. This relationship was characterized by a threshold level of education and family income. Below this threshold increments to education and to income increased fertility. When women had reached this threshold, both in education and/or income, further increments were associated with a decreasing level of fertility. This finding was not reproduced in Madigan's data (1981b) for Misamis Oriental just cited. However, the Madigan study was a largescale, broadly-focused survey which did not have the precise controis of the Encarnacion and Encarnacion-Canlas studies. The fact

Populationin theNorthMindanaoRegion

377

that women who had no schooling consistently had lower fertility in the Region X data in the AFS report just cited (Madigan 1981a) may be an indication that the same threshold relationship is found in Region X data. The AFS data for both 1978 and 1980 also appear to show in municipal poblacion and in rural areas a relationship to increments to low income like that proposed by Encarnacion and Canlas. It would be noteworthy to follow up this research lead. Female labor force participation has not been found to affect fertility greatly in the Philippine setting (Concepcion 1973, Feranil and de Guzman 1977, Hertin 1980), if an effect is sought in addition to that of other possible determinants such as duration of marriage. Past female employment, and current or expected fertility also have not been found strongly related. Madigan (1981b) failed to fred a significant relationship in Misamis Oriental data for 1979, although he specifically looked at types of work and distance of workplace from the home. Possibly these data did not show such relationship due to the small numbers of working women in Misamis Oriental in areas outside Cagayan and Gingoog Cities. Harman (1970) suggests a significant positive effect upon fertility, especially among older women, of infant and childhood mortality. He also suggested such a relationship when measured by perception of a community "infant safety factor"'in relation to the risk of losing a child. In this connection, Madigan (1975) points out the difficulties of distinguishing between the biological and social aspects and effects of fertility in relation to infant and child mortality. A somewhat allied relationship has been noted by Fernandez (1979) and Paqueo and Fernandez (1979) in that life expectation appears to have little relationship to fertility in households below a threshold of income but appears inversely associated with fertility in households whose income is above this threshold. Such studies generally use indicators which do not have a very close relationship to the characteristic under investigation (e.g., education and income below a particular level are taken as indicators of the level of health and nutrition), certainly far from a one-to-one relationship to health or nutrition, etc. Cochran (1978) and Davis and Blake (1956)point out some of the difficulties of measuring determinants because of the many channels of indirect effects upon fertility.

3"78

FrancisMadigan,MarilouPalabrica-Cost_llo & LiraPalma

NUPTIALITY (by Marilou Palabrica-Costello)

I. INTRODUCTION One of the main reasons for studying nuptiality lies in the importance of this variable in affecting fertility and, ultimately, the growth rate of the population. Defined legally, nuptiality represents the entrance of a nubile person into the state of matrimony. In the Philippines, this can take place in the offices of a religious minister, a justice of the peace, a tribal leader, or through the cohabitation of a man and a woman for a period of one year. Two of the major components of the study of nuptiality relate to the timing of marriage and its frequency. Both components have been shown to have an important influence upon fertility. In the Philippines, for example, the gradual decline in birth rates over the period 1958 to 1972 has been attributed to a trend toward late marriage rather than to a widespread acceptance of family planning (Concepcion and Smith 1977, p. 26). This appears to be the case for Region X. For example, the recent analysis of fertility data for this region, as taken from the 1979 Area Fertility Study, showed overall fertility levels to be declining (especially among younger women) even though birth rates of currently married women have remained unchanged (Costello 1981). Similarly, regression analysis of children ever born data obtained in regional fertility surveys have shown age at marriage to have a significantly inverse relationship with this variable (Herrin 1980; Ulack 1979). Marital status may also affect other development related variables. Movement from rural to urban areas within Region X is greater for single females than for married females (Palabrica43ostello 1980). Also, female participation in _e labor force is greater among married women in "small cities" (such as Cagayan de Oro or Butuan City) whereas the opposite is true in rural communities (Layo 1978, Table 1). To some extent, nuptiality patterns may be influenced by government policies and programs. For example, the suggestion has been frequently made to raise the minimum legal age at marriage for females from 18 to 21. Policies designed to increase educational and

Population in _e NorthMindanaoRegion work opportunities for women may be instituted raise the average age at marriage.

379

which could also

II. AGE AT MARRIAGE Compared to other Southeast Asian nations, women in the Philippines marry at a relatively late age. In fact, data presented by Peter Smith (1978a, Table 2) show Filipinas to be marrying later than women of other Southeast Asian nations except Singapore. Some interesting regional contrasts also exist within the country. In general, women in Northern Mindanao are marrying at earlier ages than are their counterparts in other regions, especially those in the Luzon area (Smith 1978b, Table 115;Palabrica-Costello 1979a). Within Region X it appears that early marriage is much more common in the rural, "frontier" setting. This is shown by the following figures, which represent the percentages of women aged 15-19 in each province who were married, as taken from the 1975 Census: Agusan del Notre Agusandel Sur Bukidnon Carniguin MisamisOccidental MisamisOriental Surigaodel Norte

11.8 18.7 20.9 6.3 11.1 9.1 10.3

The infrequency with which early marriage occurs in Carniguin may be related to the situation of high rural "population pressure" existing on this island. This demonstrates that trends towards development may not always serve to increase age at marriage. At the national level, clear evidence exists of a twentieth century trend towards later age at marriage', with this important social change having its greatest impact in urban areas (Smith 1978b). Various analyses of nuplialiW trends within Region X have show_a that this upward movement in average age at marriage is also true for Northem Mindanao (Talibong 1968, Smith 1978b; Palabrica-Costello 1981). What are the major factors which affect age at marriage? A fair number of studios have dealt with this question, both at the national and regional levels. In general, modernization or development variables such as education, labor force participation, and residence in an urban area appear to play a significant role in delaying marriage.

380

FrancisMadigan,MarilousPalabrica-Costello & Lira Palma

The impact of female educational attainment upon age at marriage has been analyzed by Peter Smith in a variety of studies. For urban areas of the country as a whole, every additional year of education experienced by a woman tends to delay marriage by about one-fifth of a year (Smith and Karim 1980, Table 7). A similar, though weaker, relationship was also found, in rural areas. Attendance at the high school and college levels appears to be particularly conducive towards delayed marriage: Relatively early marriage prevailed among women who had not at least entered high school. Among those who had, marriage occurred a full year later than for all women combined. Those with some or complete college experience married quite late... The fact that marriage delay is observed only for the one fourth or so of the sample which had moved beyond the elementary grades.., suggests that it may in fact be the lifestyle changes which.., are being assessed.Many young girls from the barr/o and more remote residential backgrounds have to move to the pobl_iones ... in order to continue into high school. Perhaps it is this opportunity for new experiences and relative freedom from familial control among high school girls which leads to delayed marriage among them (Smith 1978b, pp. 153-154;see alsoSmith 1975a; Smith 1980). In Region X, higher levels of education have also been linked to a later age at marriage. In this case, though, the relationship is strongest among rural women (Costello 1977, Table 19). A second variable influencing age at marriage is urban/rural residence. As expected, urban women have been found to marry at later ages in the Philippines. This trend has been shown to exist for the nation as a whole (Smith 1980) as well as for the case of Region X (Madigan et al. 1978; Palabrica-Costello 1979b; Palabrica-Costello 1981). However, one multivariate analysis has shown that rural-urban differentials in age at marriage may be insignificant once controls have been made for female educational levels (Smith and Karim 1980). Women who were able to f'md gainful employment before they were married have also been shown to marry at later ages. In fact, data from the 1968 National Demographic Survey show that women who landed jobs married two years later, on the average, than those who had not so worked (Smith 1978b, p. 156). 1 1. The type of occupation talon up by the woman may also influence the timing and probability of her getting married. For example, unmarried domestic helpers in Cagayan de Ore have been shown to be lesslilly to have a boyfriend than single women working in small shops in the city, evenwith ageand educational attainment controlled (Palabrica-Costelioand Costello, forthcoming, Table 46). It was hypothesized that the greater public exposure afforded the latter group could explaintheir greater successin findinga romanticinterest.

Population in theNorthMindanaoRegion

381

A Final development-related variable correlated with delayed marfiago is rural electrification. Madigan (1981, p. 74), in a recent study of the rural electrification program in Misamis Oriental, presented evidence that women in electrified homes were marrying, on the average, later by three years than women in nonelectrified homes. He hypothesized that this large differential could be due to the fact that women in electrified homes were better able to find a regular job or fred better consumer aspirations and expenses associated with electrification, which led women (and their families) to postpone expensive ceremonies, such as a wedding. III. PROPORTIONOF WOMENEVERMARRYING Another way in which nuptiality patterns may affect fertifity is related to the proportion of women remaining celibate throughout their child-bearing yeats. In the Philippines, this is a fairly common phenomenon, as shown by the fact that the country has the second largest proportion of women never marrying by age 45 in Southeast Asia (Smith 1978a, Table 2). Overall, about seven out of every 100 women in the country fail to marry by the end of their childbearing period, a figure which has remained approximately constant throughout the twentieth century (Smith 1978b, Table 113). In Northern Mindanao, however, the comparable statistic is less than 3 per cent (PalabricaCostello 1979a, Table 7). Thus, one important reason why fertility levels have historically been high in Region X is the nuptiality factor - a higher proportion of women in the region eventually marry, and they tend to do so at younger ages than do women in other regions. One factor which has brought about regional differences in the proportion of women every marrying is the "severe sex ratio distortions" (Smith 1978b, p. 146) which can occur as a result of differential migration patterns. Because Mindanao has long been a frontier setting, the number of marriageable males as compared to females has historically been high. For this reason, nearly all women in the region have been able to find a mate, whereas 10 per cent or more of the females in such out-migration areas as the llocos coast or the islands of Cebu and Bohol are fated to never marry (Smith 1978b, p. 146). Women who have been able to f'md satisfying careers are also less likely to marry. For example, over 20 per cent of professional and administrative women in the country who were aged 45 years or over

382

FrancisMadigan,MarilouPalabricaCostello& LitaPalma

in 1970 were still unmarried. Education and residence in an urban area also increase the probability of permanent celibacy (Smith 1980). The relationship between urbanization and celibacy also appears to be true for the North Mindanao region. 2 IV. OTHER NUPTIALITY.RELATEDPHENOMENA Another factor which may influence fertility levels is the extent of cohabitation. Not much information has been collected on this topic due, no doubt, to its sensitive nature, According to one study, more than one-half of rural and urban poor married women admitted to having experienced premarital relations with their eventual husbands (Cabigon 1981, p. 5). Cabigon interprets these figures as reflecting a widespread pattern of elopement as a prelude to marriage. Apparently, premarital sexual relations are more common in rural areas of the country. This is shown by the fact that a smaller proportion (about 40 per cent) of urban middle cla_s women in this study had experienced premarital relations. Illegitimacy rates also seem to be higher in rural areas than in the city, at least as far as Regions IV and X are concerned (Costello 1981). Data from the Area Fertility Surveys show wide regional discrepancies in the proportion of couples who had "cohabited" before being legally married. This practice was found to be quite common in Metro Manila and Central Luzon but to occur seldom in North Mindanao (Palabrica-Costello 1979a, p. 35). A small number of Filipinos appear to have ever been legally separated or divorced. Only 1.8 per cent of women surveyed in the 1977 round of the Area Fertility Surveys were found to be separated from their husbands (Palabrica-Costeno 1979a, Table 14). This figure varied from a high of 2.9 per cent in Metro Manila to a low of 0.7 and 1.0 per cent in Southeastern and Northern Mindanao. Divorce, of course, has not been legalized in the Philippines. According to one study, only about one-fifth of married respondents were willing to state categorically that divorce cannot be jusfit-ted under any circumstances (Cabigon 1981, p. 6). The most frequently cited reasons for divorce given by these respondents were 2. In 1976, fully 99 per cent of the rural women aged 4 5-49in North Mindanao had been marriedat least once, as compared to 95 per cent in semi-urban and urban communities (Madigan et al. 1978, Table 1).

Population in theNorthMindanaoRegion

383

adultery, cruelty, and desertion. Somewhat conflicting evidence on rids question is presented by Bulatao (1978), however. Using data from a national sample survey, this author found that only 21 per cent of females and 25 per cent of males answered "yes" to the question, "Do you think that there should be a law that permits divorce in the Philippines?" Approval of such a law was somewhat greater among younger and better educated respondents, thus "suggesting that approval for divorce is bound to rise" (Bulatao 1978, p. 243). Finally, a few studies have focused on the topic of "mate selection," i.e., upon the factors which affect the way in which a marriage partner is chosen. The major fmdings to emerge from these analyses are twofold. First, most couples claim that they had experienced personal "freedom of choice" in choosing a spouse and had not felt under pressure from parents or peers to select a certain partner (Cabigon 1981, p. 5). Indeed, such freedom may even be excessive nowadays since one study showed that a substantial proportion of marriages among the urban poor takes place without parental knowledge or consent (Decaesstecker 1975). A second finding along these lines is that Philippine marriages are generally "homogamous" (Smith 1975; Cabigon 1981). This means that people with similar backgrounds tend to marry one another. For example, a highly educated woman is much more likely to marry a highly educated male than to be wed to a man with less educational attainment. When exceptions to this pattern occur they usually follow the pattern of a higher status male marrying a lower status woman (Smith 1975). The apparent norm against marriages between high status females _and lower status males may be another reason for the tendency, cited earlier, for many professional and managerial women to remain unmarried throughout their childbearing years. V. FUTURERESEARCHNEEDS As this review has shown, nuptiality patterns appear to play a crucial role in population and development trends in the Philippines. As Peter C. Smith (1980, p. 58) has observed, significantchangesin social or economic structureeventuallygeneratepressures for change in a society's marriageregime;in turn, the marriageinstituticn is pivotal in demographicchange, more so perhapsthan any other component of social organization.There is considerabledemographicinterest in the timing of the marriageevent duringthe life cycle, but aplethora of relatedchangesis also

384

FrancisMadigan,MarilouPalabrica-Costello & Lira Palma

important: in the locus of the marriagedecision; in relationshipsbetween the spouses anc[their respectivekin; in patterns of affect andinfluence between the spouses; in their relative economic contributions;in intergenerationalrelations â&#x20AC;˘.. and so on. To be understoodfully the currenttransformationof Asiannuptiality must be seen as but one element in an ongoing family and reproductive revolution. Given the demographic and developmental importance of nuptiality patterns in the country and the radical social changes which may be occurring in this area it would appear to be worthwhile to further finance regionally-specific research along these lines. One area where further work clearly needs to be done is the impact of specific development programs and policies upon the frequency and timing of marriage. Employment of single women, it would seem, may often work to delay their wedding date. Will specific policies designed to increase employment such as KKK program thus have this effect? Or will nonagricultural employment generation in rural areas serve to dampen female out-migration, thus reducing sex ratio imbalances and increasing marriage probabilities? Question such as these, which focus on specific developmental programs, represent a maior future research need for the region. To some extent, studies directed toward these issues can be combined with fertility analyses, though the need for greater understanding of the attitudes and behavior of unmarried persons may not always make this possible. A second area of concern is the continued prevalence of early marriages in rural settings, such as Bukidnon and Agusan del Sur. Exploratory studies of the determinants of this phenomenon and of possible means to counteract it would be a welcome addition to the sparse regional literature on the topic. A third area where further information is needed is the issue of premarital sexuality. What impact is regional development having upon this variable? For example, increasing numbers of young, unmarried women are migrating to cities in the region (see the chapter on migration in this volume). Does this movement mean that they will be less likely to adhere to the traditional Philippine value of premarital chastity? If so, will this mean a higher incidence of premarital conceptions, with resulting patterns of early (forced) marriage or increased illegitimacy? Studies addressing these questions are needed. Given the fact that the traditional survey approach may not be feasible for collecting data in this area (cf. Feranil n.d., p. 24), such studies should perhaps be based upon more qualitative research

Population in theNorthMindanao Region

385

techniques, such as participant observation. In sum, good reasons exist for further analyses of nuptiality patterns in the region. Given the usual constraint of limited research funds, however, this research should be directed especially towards areas relevant to, first, the question of fmding ways to lower regional fertility and, second, the nuptiality effects of specific development plans and policies. Studies on Contraception (by Francis C. Madigan). Declines in fertility are likely to be due to two main causes: (a) change in marriage patterns, especially the increase in the deferment of marriage among younger persons, and (b) the use of family planning by martied couples to space or limit the children they expect to have in their families. The modest decline in marital fertility mentioned previously suggests family planning as the principal reason. Laing (1979) summed up the data from the NDS and the AFS as well as from the National Acceptor Surveys of 1974 and 1976 and from the Community Outreach Surveys (1978 and 1980). He presented broad trends in the acceptance of family planning and continuance: 16 per cent in 1968, 24 per cent in 1973, 37 per cent in 1978, and 42 per centin 1980. The RPFS indicates increased use of planning by number of children a woman has borne, by her educational attainment, and by urban over rural women. RIMCU studies (Madigan and Pagtolun-an 1981, pp. 6-7) showed family planning acceptance and continued use for the years 197678. (The 1979 data have not reached RIMCU yet from the computer in Manila.) In 1976, 30.6 per cent of all currently married women of Region X had accepted family planning. The same figures were estimated at 49 per cent in 1977, and at 42 per cent in 1978. These estimates make clear a substantial growth in family planning acceptance in the regional population between 1976 and 1978. The difference between the 1977 and the 1978 figures axe for different subsamples and do not necessarily mean a decline in family planning acceptance. While each year the same barangays axe reinterviewed, a new sample of households is selected from each barangay. However, that some decline took place is a tenable hypothesis. Although the 1978 figure is not outside the 95 per cent confidence limits based upon the variance of the area sample design which has a design effect of about 2.6 for this variable, the 1978 figure is near the lower point of the confidence interval. When the data for calen-

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dar year 1979 become available, additional light may be shed upon this point. The data for continued use also show a decline between 1977 and 1978. However, the decline is much smaller, from 30.5 per cent continuing users in 1977 to 28.4 per cent in 1978. This resultis far inside the confidence limits and may well be due to sampling. More had dropped out from use of family planning in 1977 (18.5 per cent) than in 1978 (13.6 per cent). Thus, although few new exponents had accepted family planning, fewer still are the previous family planning acceptors who reported that they had stopped its practice in 1978. As Herrin reports for the national population, the decline in fertility noted in the years since 1970 appears more largely due to declines in the fertility of married women than to further deferment of marriage for Northern Mindanao. Marital fertility is largely determined by the variables: abstinence (voluntary or involuntary), extent of breastfeeding, extent of sterility and of subfecundity, fetal loss (voluntary or involuntary), and of family planning. Studies have not indicated the presence of any large change in these variables consonant with the decline in fertility with the one exception of a large increase in the number accepting and continuing to use family planning. Logic therefore attributes the largest part of any decline in fertility that has taken place among married women to family planning. The 1978 RPFS noted greater use of family planning by women of higher parity, by women with higher educational attainments, and by women who reside in urban places. Some variation was also noted by occupation of husband and by religion, although the differences were less stable. Madigan et al. (1979, pp. 104-9) also found differentials in the use of family planning by education in Region X. Taking as indicator continuing users in ratio to never users, and using a fourfold education set of categories (no education, elementary education, high school education, and education beyond high school), they found that percentagewise (i.e., ratio multiplied by 100) higher levels of education were invariably associated with larger percentages of current users for women residing in Urban, semiurban, and rural residences. Continued use was associated almost as highly with social class status, taking various social indicators as components of overall social status (materials of the house, sala furnishings, etc.) and mak-

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ing use of the same ratio. Only in the very small sample of upper class rural women was an inversion found. Finally, results for 1978 (Madigan and Pagtolun-an 1981, p. 8) by place of residence (urban, municipal poblacion, rural) revealed that percentagewise, more urban women had accepted family planning followed by women in municipal poblacion and rural women in third place in a ratio of 15 to 12 to 10. However, percentages of continuing users out of those women who had accepted were about the same for all three places of residence (respectively, 70, 67, and 68 per cent), and percentages of dropouts out of aeceptors were also about the same. The. immediate determinants of family planning itself include demand-related factors like family size preferences and attitudes toward family planning usage as well as supply-related factors like knowledge of family planning methods as well as access to family planning advice, services, and supplies. Herrin and Ptdlum (1981) have assessed trends in such determinants of family planning in a secondary analysis of available data. They found that where concentrated population program efforts had been focused from 1978 to 1980, less women of any given parity said they wanted more children. The decline was clearly associated with increased use of family planning, especially increased use of anovulant pills, the IUD, and sterilization. They also found that awareness of family planning methods had uniformly increased across social strata and that access to family planning advice, services, and supplies had been improved through the Outreach Program. In progress is a doctoral dissertation (Guitarte 1981) on family size preferences by educational attainments and by religion using Cagayan and Iligan City data which may shed some light on urban Region X findings even though Iligan is not in Region X. POPCOM Region X has also gathered data revealing increased access to family planning services and supplies. Laing (1981) applied multivariate analysis techniques to Philippine data. These indicated that socioeconomic factors account for about 25 per cent of the differences in usage of family planning. Three of Laing's indicators (farm households as a l_rcentage of all households, socioeconomic status, and percentage of household heads with high educational attainment) are believed to be associated with demand-related factors (family size preference and attitude toward family planning) while the fourth variable (distance of farthest household to barangay supply point) is believed associated with

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supply-related factors (consultation, services, and supplies). Variables stressed by the intensive efforts of the Outreach Program contributed 11 per cent of the explained variation in the area prevalence of family planning, reflecting both supply- and demand-related variables. In contrast, variables related to programs other than the Outreach Program accounted for only 2 per cent of the explained variation in the prevalence of family planning. These variables of the non-Outreach programs were number of clinics serving covered areas, frequency of barangay health stations, frequency of midwife's visits to covered areas, etc. Such studies have not been carried out specifically for Region X but could be undertaken along the lines of Laing's methodology to assay the relative role played by socioeconomic factors and by direct program efforts in regional change in family planning prevalence. Studies on the other immediate determinants o[ marital fertility. Laing (1979) reported the analysis of a lactation study using the 1974 National Acceptor Survey (NAS). Findings revealed that family planning acceptors who breastfed their babies were protected for an average four months longer than those who did not breastfeed. The effect of breastfeeding was estimated to be equivalent to 0.15 births averted, which was comparable to the average protection obtained by use of the condom following acceptance of condoms as a method. The RPFS survey found that length of breastfeeding is the factor which exerts greatest influence on the length of the birth interval. It found that 85 per cent of women in the fertile ages breasffeed for an average of 11.2 months. However , older and rural women tend to breastfeed their children for a longer period. Further, the length of the period before the return of menstruation after childbearing is positively related to breastfeeding: women who breastfed their children for two months or less had a mean amenorrheic period of 3.5 months, those who breastfed for a full year had an average amenorrheic period of 8.6 months, and women who breastfed for 30 months had an average amenorrheic period of 12.5 m on ths. Postpartum abstinence can lengthen pregnancy intervals. However, RPFS data suggest that postpartum abstinence is not an important factor in the Philippines in determining pregnancy interval. More than half the women had resumed family relations two months after the end of pregnancy. Abstinence due to separation of spouses can also lengthen pregnancy intervals. The RPFS data indicate that such

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separation was not widespread in 1978 (only 3 per cent reported absences of three months or more); however, this was before the widespread labor migrations to Saudi Arabia and the Middle East. The RPFS data also show that such separations were relatively short on the average in 1978 - 0.3 months. One again wonders if the labor migrations have not greatly increased this parameter. The RPFS data appear to show earlier age at menarche in 1978 than in previous years. Menarche is a biological phenomenon, influenced by the person's general health and state of nutrition. The trend toward deferment of marriage should absorb or minimize the effect of this variable upon fertility level. Several students have considered doing a lactation study in Region X. However, the RIMCU staff has not been able to f'md any completed studies upon this topic. It would seem one worth undertaking. Studies on the value of children. Bulatao (1975, 1978, 1979a, 1979b) found in a 1975 national Filipino sample of 1,691 housewives and of 382 of their husbands that fertility preferences were associated more highly with the practical help that children could give their parents (household chores, caring for other children, and financial help, especially in old age of parents) and with socially and emotionally rewarding interactions of parents with children (mutual manifestations of love and affection, companionship provided by the children, the happines of being with one's children, etc.). Children seem to have been perceived as central to preservation of marital security and closeness, as well as preservation of the family and of the kin but not as useful for the establishment of these values. Compared with other countries, children did not seem valued as much for the psychological appreciation they may express or for making parents cope more easily with social pressures in .the Philippines. Bulatao also considered disvalues of children. He found that in the Philippines worries about childbearing and fmancial costs seemed more important than the restrictions they impose upon parents' time and activities or than concerns about overpopulation. Herrin (1981) interpreted this finding to mean that few respondents see children in the context of opportunity costs, which appears a somewhat debatable conclusion. The financial problems caused or aggravated by children may themselves appear as opportunity costs, it would seem. Bulatao also concluded that valuation of a child in any of the four

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domains he specifies depends on the sex and birth order of the child, and that childbearing intentions are modified as a family grows. He also concluded that Filipinos appear to value children largely for individualistic reasons, and seem less influenced toward childbearing or against childbearing by pressure from relatives, the community, or religious groups. He conceded, however, that such pressures may still operate through the internalization of culture values. Such value of studies on children have not been specifically carried out in Region X. Madigan et al. (1979, p. 111) reported, however, on a somewhat allied study for five regions carried out in 1977 and relating to 1976 (and earlier years). They classified women by adherence to four different primary values: (a) social acceptance, (b) economic security, (c) warmth and emotional closeness in the family, and (d) social mobility. Most Region X women chose economic security as their primary value (34.4 per cent), with those choosing warmth and closeness in second place (25.9 per cent), followed by social mobility (21.9 pe_r cent) and social acceptance (17.9 per cent). The total fertility rates per woman of women most valuing economic security, social mobility, and social acceptance varied little between themselves (8.6, 8.9, and 8.8, respectively) but were quite different (Madigan et al. 1979, p. 113) from women most valuing emotional closeness and warmth in the family (9.4 children per woman). This shows a large and clear-cut difference. Women valuing security, mobility, or acceptance are all oriented toward extrafamilial persons and situations, and as such appear to constitute a distinct group from women who most value the emotional closeness and the warmth of their family life who in this aspect are more oriented toward family members. The first group seems to be more instrumentally oriented, the second group (emotional closeness) more affectively oriented. Almost instinctively, one would expect the second group to have higher fertility than the three categories comprising the first group. In fact, the data show that it does. This is possibly a very important finding and should be followed up in further research. Studies on the consequences of fertility movements and changes. At the macro level, few studies have been done on Filipino data regarding actual consequences of fertility change, as opposed to simulation studies of such consequences. Herrin advanced two reasons for this fact: first, adequate and reliable historical data permitting such analysis are not available, and second, the rhetoric con-

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cerning "population explosion effects" of the 1960's apparently convinced national and international governments and citizens of the adverse effects of rapid population growth and the need to launch programs to reduce the birth rate. After commitment to this goal had been obtained, little need for more detailed studies was felt for the generally held, often simplistic, view that rapid population growth does in fact adversely affect national well-being. Coale and Hoover (19580 hypothesized and simulated (or attempted to simulate) the impact of alternative fertility trends upon the national welfare of developing countries, granted a declining or already low mortality and a situation in which migration would not be sufficient to relieve excessive population growth. After their lead, several simulation studies were carried out in the Philippines or at least upon Philippine data by Lampman (1967.); Ruprecht (1969, 1975, 1976); Encamacion et al. (1975); and Rodgers, Hopkins, and Wery (1978). Lampman assumed a given gross national product, and then caculated per capita GNP under: (a) constant fertility and (b) sharply declining fertility, finding by this simple exercise that per capita income increased when fertility declined much more than when fertility remained constant. Of course, the big question to be asked is: will production remain constant in conditions of declining fertility when demand for many goods slacken? Lampman also predictably found that, with the larger population resulting from constant fertility, larger investments and expenditures of the GNP will be necessary, and thus the amount available for per capita consumption must necessarily be smaller than under a situation of declining fertility. Once again, however, the assumption of constant GNP is unrealistic. The question of whether production will actually expand more rapidly under a constant than under a declining fertility schedule is one that must be considered before such conclusions can be credible. Lampman also concluded that the costs of constant fertility would exceed those of declining fertility at the aggregatire level (more capital, more labor, more technical advance, etc., would be required), and also at the interseetoral and ilatergroup levels (more risk, more loss of preferred or obtained status by some, more change in the patterns of life of all, etc.). A_in, these conclusions all depend upon the initial assumption, which in the present question probably should not only be assumed but explored. Ruprecht developed an econometric model which projects national ineome from two production functions, the agricultural and the

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nonagricultural sectors. Each production function is in itself a function of capital, labor, and autonomous production growth, whereas land is a determinant of the agricultural production function. The elements of these production functions were computed from land, savings, and investment submodels. Savings are disaggregated into three components: government, household, and business. A population submodel was developed to project alternative population trends. Ruprecht attempted to simulate national per capita income after projecting national income, rates of population growth, rates of savings, rates of investment, etc., and concluded from this exercise that a program of immediate fertility control will prove more advantageous to the country than a program of no control or of postponed control. He pointed out that if his conclusions are correct, a program of population control must be initiated early since delay may mean that population momentum at the point of later initiation may have become too heavy to control. Again the problem is Ruprecht's assumptions. If they are granted, the situations he foresees may occur. The question therefore revolves around his assumptions. How likely are rates of saving, of investment, etc., to follow his assumptions? Further, how likely is the implicit assumption he makes about distribution of income among the larger population to follow? Is the larger population likely to have an equal percentage of the national income as before? What will be the effects upon demand for goods if the lower 50 per cent have greater or less shares in the national income? Ruprecht's simulations also suggest that reduced fertility would result in an expansion of the industrial sector, both absolutely and relatively, which in turn would generate more employment and endow the manufacturing sector with greater potential for subsequent growth. In fact, a small dec!ine in fertility seems to have taken place without the bene.ficial results forecast by the Ruprecht model having been substantially realized. A limitation of the Lampman and Ruprecht models is that their constitution makes demographic projections exogenous to the model. The model, therefore, can attempt to assess the effects of alternative population projections upon economic phenomena (such as savings, investment, production, entrepmneurship, employment, expenditures, etc.) but cannot assess the demographic impact of these economic phenomena. The two-way relationships between development and population has to walk upon only one leg as a result!

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The U.P. School of Economics model provides feedback from economic variables in' the limtied sense that it provides for the effects of changes in family income upon fertility. This is a very important relationship. In addition, the model specifies a threshold income level below and above wherein income effects on fertility are qualitatively different. Effects of the family planning program are determined by a submodel which converts continuing family planning users into births averted by assumptions based upon the performance of various family planning methods in the past. Granting the assumptions made in the various elements of the program, it is possible to simulate the effects of various schedules of family planning and of nuptiality on the birth rate, population growth (if assumptions are made about the death rate and net migration), and per capita GNP. Conformity of reality with simulated results is of course as good as the assumptions that have been incorporated in the model. However, this model does permit one to see what the output might be when the best information one can enter into the model has been utilized. The model indicates that family planning effects are immediate and continue to be strong, although diminishing in impact after 15 or 20 years. The effect upon per capita GNP appears to result largely from a reduction in population growth rather than from an increase in GNP. Effects of change in marriage patterns upon the crude birth rate and upon magnitude of the population tend to be much smaller in size and to be felt later, but they eontintte to increase over time. Effects upon per capita GNP are smaller than those due to family planning. This is because changes in nuptiality rather than increased use of family planning have relatively less effect on population size and not because nuptiality changes rather than changes in use of family planning have less effect on total GNP. Paqueo (1977) added a submodel to the UPSE model that relates costs of family planning program to per unit fertility reduction by translating number of family planning acceptors into number of births averted. Rather large assumptions about continuing use and efficacy of methods used must again be made. However, the submodel does relate costs of program to births averted because assuming past relations of cost of acceptors per unit, one can relate costs to fertility reduction, and measure the cost to benefits ratio in terms of fertility reduction. Results of this addition suggest real effects of family planning upon per capita income and real wage rates. Family income effects appear largely unaffected, however, and traditional

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investments effects upon output ratio appear to be small, even minimal. Notable is the result that aggregate output is reduced due to a relatively smaller labor force (than would have existed in the absence of family planning) despite the increase in per capita income. The beneficial results of a family planning program then are due mainly to a decreased number of people dividing up the national product pie than to larger production and savings pies. It is clear, therefore, that increased practice of family planning does not necessarily lead to increase in total production and to greater per capita development. In short, family planning is no substitute for an effective development pro.gram. This point further illuminates the nature of the relationship between the population-development poles of interest. The BACHUE-Philippines model (Rodgers, Hopkins, and Wery 1978) consists of three submodels and Is the most inclusive model yet developed for the Philippines. All the demographic process variables are made endogenous in the model: mortality as a function of per capita income and income distribution; fertility as a function of female labor force participation, agricultural employment, literacy, and expectation of life; migration at both macro and micro levels (the former as a function of relative wage and income distribution between urban and rural sectors and the latter as a function of age, education, and rates of marriage); and finally nuptiality (specified as age at marriage) as a function of the education and employment of women. The simulation studies utilizing the BACHUE model have been limited, unfortunately, considering the wide coverage of the model which allows for studying the impact of educational, migration, and fertility policies; studies of change in labor force participation as these affect fertility and mortality as well as migration, etc. One important conclusion of a simulation exercise carried out by Rodgers, Hopkins, and Wery was that migration policies over the middle term time period have substantially greater impact than fertility policies upon employment, income, and income distribution. The gains from fertility reduction in this regard are limited and long term. Another important conclusion that the Bachue group arrived at on the basis of their model and the assumptions they made was that the demographic effects of economic change were at least as large as the economic effects of demographic change, showing the importance of both sides of the two-way relationship of population and

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development. The basic demographic processes all alter with changes in the distribution of income, with change in income, and with change in employment. Simulation is, of course, not real. Assumptions built into models affect output. No guarantee exists that real life situations will fSllow the same channels. However, given certain assumptions and adequate input data, one can see what these assumptions generate. Undoubtedly, this is helpful in an attempt to foresee the shape of the future. Assessment of the utility to planners of simulation models are available (e.g., Arthur and McNicoll 1975; Rodgers, Wery, and Hopkins 1976; and Encamacion 1979), with the last relating specifically to the Philippines). The writer of this section is unaware of any simulation studies that have been focused specifically on Region X planning with input of North Mindanao data. Possibly, with the gradual emergence of a few computers in the Cagayan area (e.g., at the RIMCU and at two local Philippine Packing Corporation centers as well as at two other tentative sites) some simulation may be possible. Several studies, however, have examined specific sectors affected by population growth or affecting population phenomena. Health, education, food, housing, natural resources, infrastructure, and environment are among the sectors investigated (Calzado et al. 1978, de la Paz 1978, Intengan 1978, Luna 1978, Madigan 1981, etc.). The PREPF studies also indicate that the problems concerned with the demand for basic resources and services and their provision are more complicated than a simple coping with p6pulation increase, although clearly rapid population growth does exert pressure on these resources and services through increased demand. Madigan's study (1981) of the effect of-rural electrification on fertility at the macro level in Western Misamis Oriental goes beyond simple description in an attempt to assess the relationship between rural electrification and fertility. Using a quasi before and after research design, it has assembled rather good evidence for believing that the MORESCO I project, because of installation costs of electrification and of installment purchase of electrical appliances incurred by households, was associated with attempts to increase income, to take on new jobs (available because of the electricity furnished to new business by MORESCO I) for this reason, and with attempts to avoid expenses due to marriage of younger household members by deferring such marriages and due to childbirth by avoid-

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ing childbirth through practice of family planning. Multivariate analysis was used in addition to bivariate methods. Studies at the micro level. Several studies have focused on the effects of demographic factors on economic phenomena or vice versa a[ the household level (Layo 1977; Madigan 1981; Mangahas 1974; Peek 1974; and Power 1971). Further, Battad (1977) and Popkin (1976) related population factors (number of children) to nutrition of Laguna preschool children and to mother's time given to child care, respectively. Peek tentatively concluded that dependency load (but not taking into account contributions to family income, real or monetary, by dependents) was negatively associated with savings which was minimally offset by economies of scale in consumption, and that the life cycle effect upon savings in terms of expected burden of dependency was negative and more than offsets any positive economies of scale and savings. Mangahas found that increased family size led to a larger family labor force and to an increased number of workers in the family. In combination with age of household head and education of wife, and with participation of the wife in the labor force for urban areas, this determined family income. Mangahas's work is therefore something of a corrective to Peek's finding. He also found that family size determines the number of equivalent adult family members. In combination with income, he found that number of equivalent adult family members determines family level of consumption. Layo (1977) found the number of children within the 0-5 bracket and number of household members 45 years or older in age to be more correlated with total morbidity, when education, per capita income, residence (rural or urban), quality of drainage about residence, ventilation, quality of water, and health beliefs and knowledge were controlled. This of course is not surprising because the morbidity (and mortality of persons 0-5 and 45 years of age and over is widely known to be in general highly correlated with larger death and morbidity rates. Of the different variables Layo considered, she found the number of children under six years ef age to be the best predictor of acute illness, again a rather common finding. Battad's study indicated an inverse link between number of children below six years of age and child nutrition in Laguna Province, after he had controlled for per capita income, age and sex of child, mother's education and nutritional status, and incidence of chronic

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illness in his regression methodology. Nutritional status was simply the standard measure of the difference between actual weight and average standard weight by age and sex. Probably one factor that was not controlled was duration of lactation. However, other things being equal, Battad concluded that mother and other mother surrogates ideally require more time for child care per each increase in unit child per household. However, for obvious reasons, the negative marginal effect was found greater for children two to three years old than for children four to six years old. By the age of four years, while the child is presumably more able to handle the shift of the mother's attention to younger children, the effect may still lower the older child's nutritional status. In a small Laguna sample, Popkin also noted that addition to children 0-6 years of age increased mother's child care time. He did not fred the nutritional status of children from 0-2 years of age significantly affected by an additional child of preschool age which may be due simply to the small size of his sa:nple, or may mean that additional time for child care required by an additional infant was greater than that required for an older preschool child. Boulier (1976), in a similar small Laguna sample (the same sample?), noted that additional infants appeared to increase required child care time of mothers more than additional older preschool children, and that this growth was in proportion with increase in family size. However, in larger families, older children substituted for mother, with the result that in larger families the increase in mother's time expended was not as large as in small families. This substitution for mother's care by the other children might conceivably detract from the nutritional status of the older preschool children. The Impact of Gooemmen t Policy Madigan (1981), in a sample of nonelectfified and electrified areas in Misamis Oriental of slightly less than 3,500 households selected by two-stage PPS techniques, found that rural electrification had affected fertility and migration. Fertility had been affected indirectly through the stimulating effect of electrification upon businesses which had mushroomed in the electrified areas as a result of the regular and dependable electric service. Both men and women had taken new jobs in these new businesses, and as a result income had risen in the western segment of the province in comparison with income in the nonelectfified northeastern segment. The indirect effect of the income appears to have been to motivate house-

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holds which had installed electricity to reduce fertility by the practice of delayed marriage and family planning. The direct effect of electrification appears to have been quite broadly the incurring of a large debt (for the family) resulting from borrowing the needed capital for the electrification of the home while simultaneously purchasing on credit (with installment payments) one or more electrical appliances or facilities (laundering irons, hot plates, electrical radios, etc.). In order to meet the monthly obligations for servicing these debts, families looked for ways of cutting expenses, and found the practice of family planning one such way, and another to be the encouragement of young members of the household to defer their marriages for another year or two until the debt had been paid off. While this direct effect seems to be one of temporarily "spacing" births, in fact where couples begin to use family planning to meet some such family needs, they often continue to make use of family planning when the crisis has subsided or has been satisfactorily met. Bernard Berelson has stated (on what empirical grounds is not clear) that a decline in fertility which reaches 10 per cent has become irreversible. In fact, the decline in the electrified west was larger, failing from about 46 births per 1,000 to about 32 over a space of about two years. The net migration into the western provincial segment was largely due to the increase in employment opportunities whereas the northeastern area was losing pop, clarion through out-migration at the same time. Rural electrification of course was the stimulant bringing new job opportunities into the west, and thereby attracting inmigrants in search of employment. Herrin (1979) has carried out several small studies looking into the impact of publicly-established infrastructure, but because of small sample size has come to only very tentative conclusions. Hackenberg (1978) has looked at data from larger samples but again has come to quite tentative findings. Paqueo (1978) has looked at the effects of the educational and health programs up'on fertility and has also expressed only tentative findings. A TENTATIVE RESEARCH AGENDA Research on Levels, Trends, and Differentials While national and Region X demographic data on levels, trends, and differentials on fertility are available, these need to be kept up to date. Further, data on provincial and city fertility levels are ide._l

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on a regular, if not annual, basis. Similarly, fertility data by socioeconomic category within the region are desirable on a regular basis, if possible. Such data would show in what areas and with what categories of people the POPCOM programs are having greater success. Some of these data axe available from the census every five years, although the indicators that would have to be used will often be less than 1 to 1 correlates by a considerable margin. Surveys could be the source of other such data. Thus, the research suggested might be a secondary analysis with survey support to corroborate interpretation at selected points. In general, secondary analysis using social indicators based on census and other data has been too little utilized in regional research undertakings. This type of data might be very useful to planners in deciding between projects and project emphases since they would permit comparison of various provinces, municipalities, and cities for levels and trends of fertility, and would probably also indicate where level of living is too low to expect substantial fertility decline until development had increased income returns of inhabitants. These areas might be special targets of development projects insofar as specific development projects might make this feasible. Research on Determinants of Fertility Recent studies on determinants of fertility are few as has been pointed out (Madigan 1981, rural electrification; Herrin 1980, female work participation) as are certain data gathered for other purposes which could be reanalyzed from the point of view of fertility determinants, e.g., the ALISA irrigation project (Madigan, Pagtolun-an, and Palma 1979). Relating socioeconomic characteristics of communities to differentials in fertility can be very illuminating as the Madigan rural electrification study showed. In addition, household socioeconomic characteristics can also be very useful for assessing determinants. The Madigan study for two large samples in northeastern Misamis Oriental (nonelectrified) and in western Misamis Oriental (electrified) related community employment, community income, community occupations, number of business organizations by category (large, small) to household income, to off-farm employment of household members, and to fertility by both bivariate and multivariate analysis techniques. Rural electrification in Western Misamis was definitely found to have influenced the level of fertility. Herrin's 1980 study examined the relationship between employment of females and fertility in a PPS study of ap-

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proximately 11,900 women from Misamis Oriental Province. Findings suggested little substantial direct relationship between these variables. However, potential earnings of husband and wife were found generally related to reduced fertility and to increased intervals between higher order births of high parity women. Relating fertility trends with an analytic study of socioeconomic change in the area and with utilization of knowledge about timing of family planning inputs in terms of their availability and their acceptance and use would seem to be a useful research approach for study on the provincial or larger macro level. At the barangay or municipal level, or even at the sitio level, fertility change should be studied at the community level. Greater potential exists at this level for combining institutional analysis with microlevel statistical analysis of the more usual survey type as became evident in the Madigan study of rural electrification cited above. Dilineation of various patterns of social organization in the community and examination of whether and to what extent such patterns influence individual social, economic, and demographic behavior may prove very rewarding. Household decisions are not, in fact, mere responses to opportunities and restrictions existing and operating at the household level. They also reflect opportunities and restrictions operating at community, areal, provincial, and larger levels to so large an extent that omission of their consideration makes results less realistic and "in context." It is often the community and the local area levels which appear to play largest roles at levels beyond the household. Important issues that might be investigated in research upon determinants using the multilevel approach just suggested are the influence of demographic factors upon community structure and process, social as well as economic, the influence of community structure and process, again social and economic, as well as of government interventions through infrastructural projects ("development" efforts) upon the demographic processes and structure, and in particular upon fertility, the effects upon migration and distribution of high or low fertility and number of living children, and the social and economic roles of children. It is of interest in this connection that in the survey for 1976 for Region X of the Area Fertility Study, women who valued warmth and emotional closeness in the family above social acceptance, social mobility, and economic security had substantially higher fertility (Madigan 1979, pp. 111-14).

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Research on the Consequences of Fertility Trends, Levels, and Differentials on N ondem ograp hie Reality The scarcity of studies at the macro level of the effects of demographic processes like the level of the birth rate, trends over several years, and differentials between areas as well as social categories does not mean that society is unaware of the consequences of high fertility (in combination with reduced mortality) upon various types of socioeconomic_reality. We recognize the broad outlines of the facts in some areas. What is absent is a detailed and precise marshalling of results derived from careful research into particular interrelations. Clearly, high rurM fertility, combined with a lower level of mortality, gives rise to a working-age population too large for traditional agriculture to support. Two responses to this problem have been apparent in recent Philippine rural events. One has been the reorganization of traditional agriculture so that it can better support larger populations. Attempts along this line have included the usage of newer, hybrid types of high-yielding seeds (rice, corn, etc.) which require greater labor-intensive cultivation methodologies (irrigation, more plowing, more weeding, more use of pesticides and fertilizer, more labor per harvest for higher yields of crops, etc.). Another has been the attempt to introduce and encourage agribusiness, which might employ and profitably support larger populations. Yet another has been a shift in numerous Philippine areas from the small, individual farmer-Wpe organization of the land to plantation-Wpe economies such as the one taking place in Bukidnon in sugar and other crops. Clearly, some studies are needed to fred if the results have been beneficial broadly throughout the society or only to the stockholders of the larger corporations as well as the higher.salaried plantation work force. Evaluation studies might help government planners to better direct such attempts to cope with the consequences of high fertility. Another well-known consequence of high rural fertility, low mortality, and little economic opportunity in rural places is the large rural-to-urban migration that has characterized recent years in the Philippines. Particular details and causes, however, are much less known because of the lack of research on the whole question carried out in a systematic manner. One may be aware in a general way of the increase and greater intensity of slum and squatter problems in urban areas, but would be hard put to pinpoint the specific causes and the particular areas more prolific in giving rise to migrations

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to the cities, as well as the specific motivations of migrants, the number of moves they make, and their means of finding immediate and more long-term support in the cities to which they migrate. Studies on these are conspicuous by their scarcity. Herrin (1981, p. 33) feels that perhaps the simulation studies are enough to answer the needs of research in these areas. However, while this ,may be true if all one intends is obtaining support for â&#x20AC;˘ population programs like the POPCOM effort, it leaves unanswered many of the questions which planners must ask. The simulation studies in general do not provide very realistic answers to many questions because of simplified assumptions, or faulty input data, or deficiencies in the model, some of which deficiencies are difficult-to improve upon. Planners will make choices in these areas on the basis of the perceived priorities of the questions they would like answered, the feasibility of research capable of obtaining the desired information, and the expense of such research in competition with other desired research and action projects for scarce resources. Herrin suggests directing consequence studies toward groups more adversely affected by fertility trends, levels, and differentials, and keeping an eye upon the patterns of population distribution which have accompanied such trends and differentials. Fertility policy might thus be directed to groups where greatest common good and regional advantage would be achieved. Such studies might also suggest alternative policies or at least further policies that would compensate, at least in some degree, for less desirable distribution results of current reproductive behavior (International Review Group 1979). Research on the Consequences of Governmental cant Programs on Demographic Realities

and Other Signi[f-

As pointed out previously, this type of study is new, and few have been carried out. Nevertheless, as for the consequences of fertility trends, the general shape of results is grasped in many respects, but again specific and precise information is not known. Research design in this area is still tentative and exploratory. But knowledge is accumulating internationally, and possible guidelines are being developed for the structuring of development strategies and programs aimed at attaining not only traditional development goals but demographic benefits as well. Some suggested lines of progress are directed toward careful evaluation of programs aimed toward providing larger educational opportunities for both sexes, improving health through

Populationin the North Mindanao Region epidemiology and other among high-risk groups),

liaeans, reducing and promoting

403

mortality (particularly greater participation of

women in development efforts and in the labor force. Those programs already tend to absorb percentages of the national budget and are desirable for traditional goals. Knowledge of their likely demographic consequences their developmental

might make effects through

possible various

the maximization of modifications of such

programs while obtaining additional demographic advantages, or while minimizing possibly harmful demographic effects 0ligh mortality, ill.directed rural-to-urban migration streams, etc.).

BIBLIOGRAPHY

FOR SECTION

ON FERTILITY

_benoja, Macrina K., and Flieger, Wilhelm. "Philippine National and Regional Mortality Estimates for the Year 1970." Paper presented at NEDA-NCSOUNFPA Seminar, 14-15 June 1979, PICC. Manila Arthur, W. Brian, and MeNicoll, G. "Large-Scale Simulation Models in Population and Development: What Use to Planners," Population and Development Review 1 (1975): 251-65. Battad, J. Determinants of Nutritional Status: A Case Study of Laguna Preschoolers, 1975. Teeh. Report 1.5. Population, Resources, Environment and the Philippine l_uture: A Final Reporg Vol. IV. I .a. (1977). Bureau of the Census and Statistics. Birth and Death Registration, Special Release No. 13 1965. Boulier, Bryan L. "Children and Household Economic Activity in Laguna, Philippines." IEDR Discussion Paper 76-19, School of Economics, University of the Philippines, 1976. Bulatao, Rodolfo A. The Value of Children: A Cross-National Study, vol. II, Philippines. Honolulu: East-West Population Institute, 1975. _ . "The Value of a Filipino Child." In Population of the Philippines, ESCAP Country Monograph Series No. 5. Bangkok: U.N., 1978. . '_)n the Nature of the Transition in the Value of Children." East. West Population Institute Papers No. 60A. Honolulu: East-West Center, 1979a. .

"Further Evidence of the Transition in the Value of Children." East-WestPopulation Institute Papers No. 60B, 1979b. Calzado, R.R. et al. "Population Growth and Educational Development." In Population of the Philippines, ESCAP Country Monograph Series No. 5. Bangkok: U.N., 1978. Caalas, Dante B.; and Encamacion, Jose Jr. "Income, Education, Fertility and Employment: Philippines 1973," Philippine Reo_w of Business and Economies 14 (1977): 1.28.

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Coale, Ansley J., and Hoover, Edgar M. Population Growth and Economic Development in Low Income Countries. Princeton: Princeton University Press, 1958. Cochran, Susan H. Fertility and Education: What Do We Really Know? Occasional Papers, World Bank, No. 26. Baltimore: Johns Hopkins, 1979. Concepcion, Mercedes B. "Female Employment and Fertility in the Philip. pines," Philippine Economic Journal XII (1973): 524-35. . "Changing Fertility in the Philippines: When, How. Why." In Declining Fertility in Developing Countn'es, edited by W. Parker. Mauldin, forthcoming. Concepcion, Fray Juan de la, O.R.S.A. Historla General de Philipinas, XIII (Also of. Provincia de San Nicolas de Tolentino de Agustinos Descalzos de la Congregacion de Espana c Indias) (Manila: 1879). Costa, Horacio de la, S. J. The Jesuits in the Phil_pines, 1581-1768. Cambridge: Harvard University Press, 1961. Costello, Michael A. '_'_rrent Fertility." AFS Reports No. 4, Series 4. Research Institute for Mindanao Culture, Cagayan de Ore City, 1981. Davis, Kingsley, and Blake, Judith. "Social Structure and Fertility: An Analytical Framework," Economic Development and Cultural Change 4 (1956): 211-35. de la Paz, D. R. "Families, Households, and Housing." In Population of the Philippines. ESCAP Country Monograph No. 5. Bangkok: U.N., 1978. de Guzman, Eliseo A. "Trends and Differentials in Fertility." In Population of the Phil_pines. ESCAP Country Monograph No. 5. Bangkok: U.N., 1978. del Fierro, Alfonso C. Jr. "Differential Fertility in North Mindanao and Southern Tagalog Regions: Number of Children Ever Born." AFS Reports, No. 3, Series 3, Research Institute for Mindanao Culture, Cagayan de Ore City, 1981. Encarnaeion, Jose Jr. "Family Income, Educational Level, Labor Force Participation, and Fertility," Philippine Economic Journal XII (1973):536-49. . "Family Income, Education, Labor Force Participation, and Fertility." In A Demographic Path to Modernity, edited by W. Flieger and P. Smith. Quezon City: University of the Philippines Press, 1975. . "Why Economic.Demographic Models Have Not Been Used in the Philippines," Philippine Review of Economics and Business 16 (1979): 27-32. et al. "An Economic.Demographic Model of the Philippines." In Studies in Philippine Economic.Demographic Relationships, edited by A. Kintanar, Jr. et al. Quezon City: UP Economic Research Associates, Inc. and Institute of Economic Development and Research, 1974. Engraeia, Luisa T. "Fertility Differentials Among Filipino Women." UNFPA. NCSO Population Research Monographs, No. 15. National Census and Statistics Office, 1979.

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et al. "Estimates of Fertility in the Philippines Derived by the OwnChildren Method." UNFPA-NCSO Population Research Monographs, No. 9. National Census and Statistics Office, 1977. Feranil, Imelda, and de Guzanan, Eliseo A. "Female Participation in the Labor Force and Fertility in the Phih'ppines," Philippine Labor Review 2 (1977): 53-70. Fernandez, JosephD. "An Empirical Analysis of theEffectofLifeExpectancy on theFertility ofMarriedWomen inthePhilippines, 1973:The Threshold Hypothesis." Master's Thesis, School of Economics, University of tl_ Philippines, 1979. Flieger,' Wilhelm, and Smith, Peter C. eds. A Demographic Path to Modernity. Quezon City: University of the Philippines Press, 1975. Gonzales, Myma C.; Alegre, M. P.; and Cross, A. R. "Analysis of Cumulative Fertility in the Philippines Using 1975 Census Data." UNC-NCSO Occasional Population Papers No. 2, 1978. ; Cross, A. R. ; and Adiakha, A.L. "Some Indirect Estimates of Fertility in the Philippines." UNC.NCSO Occasional Population Papers, No. 4. NCSO, 1979. Hackenberg, Beverly H. On the Road to Development: Impact of Infrastructure on the Changing Economic Lives of Women in Southeast Mindanao. Davao City: Davao Research and Planning Foundation, 1978. Harman, Alvin J. Fertility and Economic Behavior of Families in the 8ta. Monica, California:Rand Corporation, 1970. Herrin, Alejandro N. "Rural Electrification andFertility Change in the Southern Philippines," Population and Development Reoiew 5 (1979): 61-86. â&#x20AC;˘ "Female WorkParticipation and Fertility in the Philippines: A Test of Alternative Models." Report for Project Development Division, Population Center Foundation, 1980. __. "Population and Development Research in the Phil_pines: A 8uroey. "Makati: Philippine Institute for Development Studies, 1981. Intengan, C. L. "Population Growth, Nutritional Requirements and Food Supplies." In Population of the Philippines. ESCAP Country Monograph No. 5. Bangkok: U.N., 1978. International Review Group. Social Science R_search for Population Policy: Directions for the 1980s. Mexico City: IRG and Colegio de Mexico, 1979. Jaramilla, TJ. Journal of Phih'ppine Statistics 1 (1941). I_aing, John E. "Currently Relevant Findings and Implications from Family Planning Program-Oriented Research at the UP Population Institute." In Papers and Proceedings of the Second National Population Welfare Conference. 26-27 November 1979, PICC,Manila. . "The Effect of the Philippine Family Planning Outreach Project on Contraceptive Prevalence." Community Outreach Survey Report No. 1. UP Population Institute, 1980.

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Lampman, Robert J. "Some Interactions Between Economic Growth and Population Change in the Philippines," Philippine Economic Journal XI (1967): 1-48. Layo, Leda. "Morbidity and the Philippine Welfare in the Year 2000." Technical Paper No. 1.3 in Population, Resources, Environment and the Philippine Future (PREPF): A Final Report. Vol. IV-1.A, 1977. Lorimer, Frank W. "Analysis and Projections of the Population of the Philippines." In First Conference on Population, 1965. Quezon City: UP Press for UP Population Institute, 1966. Luna, Telesforo W. "Population and Natural Resources." In Population of the Philippines, ESCAP Monograph No. 5, 1978. . "The Land and Natural Resources of the Philippines." In First Conference on Population, 1965. Ouezon City: UP Press for UP Population Institute, 1966. Madigan, Francis C., S.J. "Hindsight and Foresight: The Census of the Philippines of 1948 and 1960," Philippine Studies 6(1958): 87.104. . Birth and Death in Cagayan de Oro: Population Dynamics in a Medium-sized Philippine City. Quezon City: Ateneo de Manila Press, 1972. . "Final Report, Seminar on Infant Mortality in Relation to the Level of Fertility." In Seminar on Infant Mortality in Relalion to the Level of Fertility. Bangkok, Thailand, May 1975. Paris: CICRED, â&#x20AC;˘1975. . "Recent Patterns of Differential Fertility Observed in the Southern Tagalog and North Midanao Regions, and Their Policy Implications." Area Fertility Studies Report No. 5, Series 4, 1981a. ___. Rural Electrification in the Philippine Context: Income, Employment, and Fertility Aftermaths of MORESCO L A Development Infrastructure. Cagayan de Oro City: Research Institute for Mindanao Culture, 1981b. . and Herrin, Alejandro N. New Approaches to the Measurement of Vital Rates in Developing Countries. I. C. P., Smithsonian Institution, Washington, D.C. Occasional Monograph Series No. 3. (Reprinted July 1977 by Laboratories for Population Studies, Chapel Hill, N.C., as Reprint Series No. 18.). et al. "Area Fertility Studies' Findings on Fertility and Family Planning Prevalence in Selected Philippine Regions." Area Fertility Study Reports, Series 1, Part II, 1978. .__ ; Pagtolun-an, Imelda G.; and Palma, Lita C. "A Report upon the ALISA Irrigation Project of Loguila Barrio, Alubijid Municipality." Research Institute Report No. 1 upon ALISA Project, 1979. et al. Declining Fertility: A 1977 Survey Study of Fertility Levels and of Prevalence in 20,000 Philippine Households. Cagayan de Oro: Research Institute for Mindanao Culture, 1979. __, and Pagtolun-an, Imelda G. "Acceptance and Prevalence of Family

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Planning in the Southern Tagalog and North Mindanao Regions." Area Fertility. Study Reports No. 6, Series 3. Research Institute for Mindanao Culture, 1981. Mangahas, Mahar. "Family Size as a Determinant of Family Expenditure." In Studies in Philippine Economic-Demographic Relationships, edited by Agustin Kintanar, Jr. et al. Quezon City: UP Econondcs Research Associates and Institute of Economic Development and Research, 1974. Mortel, Dolores M., and Nazaret, Francisco V. "A Study of Birth and Death Registration in Baloi, Lanao de1 Norte and Itogon, Benguet," Philippine Sociological Review 19 (1971): 243-54. Paqueo, Vicente B., and Fernandez, Joseph. "An Empirical Analysis of a Dise. quilibrium Model of Fertility Behavior and the Threshold Hypothesis: 1973 Philippines." IEDR Discussion Paper 79-14, School of Ecor_omics, Universi. ty of the Philippines, 1979. Paqueo, Vicente B. "Economic-Demographic Interactions and the Impact of Investments in Population Control." Ph. D. dissertation, School of Economics, University of the Philippines, 1977. . "An Analysis Of the Fertility Effects of Public Programs: The Case of Education and Health," Philippine Economic Journal XVIII (1978): 122-35. Pastel]s, Pablo, S. J. Mision de la Compania de Jesus de Filipinas en el Siglo X/X. Barcelona, 1916. Peek, Peter. "Household Savings and Demographic Change in the Philippines." ILO Working Papers No. 1. Geneva: International Labour Office, 1974. Herrin, Alejandro N., and PuUum, Thomas W. "An Impact Assessment: Population Planning iI," Report presented to Commission on Population and to U.S. Agency for International Development/Manila, 1981. Praepotente, Fe LI., and Adlakha, Arjun L. "Fertility Estimates from the Philippine Civil Registration Data for 1974." UNC.NCSO Population Research Projec_ Occasional Papers No. 3. 1979. Popkin, Barry M. "The Production of Child Welfare in Rural Philippine Households." IEDR Discussion Paper 70-17, School of Economics, University of the Philippines, 1976. Power, Victoria. "Effect of Family Size on Savings: A Cross-Sectional Analysis." Master's thesis, School of Economics, University of the Philippines, 1971. Rodgers, Gerry B.; Wery, Rene; and Hopkins, Michael J. D. "The Myth of the Cave Revisited: Are Large-Scale Behavioral Models Useful?," Population and Development Review 2 (1976):395-410. ; Hopkins, M. J. D. and Wery, R. Population Employment and Inequalily: BoÂŁ1me-Philippines. Saxon House for the ILO, 1978. Republic of the Philippines-World Fertility Survey, 1978. By Tito A. Mijares and Mercedes B. Concepcion, First Country Report. Manila: NCSO, 1979. Rupreeht, Theodore K. "Fertility Control and Per Capita Income in the Philip.

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pines: Some First Approximations," Philippine Economic Journal XI (1967): 21-48. Ulack, Richard, "Migration to Slum and Squatter Communities of Cagayan de Ore City, the Philippines," International Migration Review 10 (1976): 355-76. Ulack, Richard. "The Role of Urban Squatter Settlements," Annals of the Association of American Geographers 18 (1978):535-50. United Nations. Populalion and Manpower in the Phih'ppines. New York: United Nations, 1960. BIBLIOGRAPHY

FOR SECTION

ON NUPTIALITY

Bulatao, Rodolfo A. "Attitudes Toward Divorce in a National Sample Survey," Philippine Sociological Review 26 (1978):239-42. Cabigon, Josefina V. "Husband-Wife Differentials in Key Family Life Variables: Asian Marriage." Paper presented at the 12th Summer Seminar in Population, 28 June-3 July, 1981. Makati. Concepcion, Mercedes B., and Smith, Peter C. "The Demographic Situation in the Philippines: An Assessment in 1977." Papers of the West-West Population Institute, No. 44. Honolulu: The East-West Center, 1977. Costello, Michael Anthony. "Trends and Differentials in Martial Fertility in Misamis Oriental Province, the Philippines." Ph.D. dissertation, University of Chicago, 1977. . Current Fertility. Regular Report Series, Area Fertility Studies, Surveys of 1979, Region IV, Southern Tagalog, and Region X, North Mindanao. Report No. 4. Cagayan de Ore City: Research Institute for Mindanao Culture, 1981. Decaesstecker, Donald Denise. Impoverished Urban Filipino Families. Manila: University of Santo Tomes Press, 1975. Feranil, Imelda Z. Initial Results and Implications of the UPPI Longitudinal Study on Employment in the Bataan Export Processing Zone and Nuptiality/Fertility Effects. Manila: Population Institute, University of the Philippines, n.d. Herrin, Alejandro N. "Female Work Participation and Fertility in a Philippine Setting: A Test of Alternative Models." Cagayan de Ore: Research Institute for Mindanao Culture, 1980. Layo, Leda L. "Determinants of the Labor Force Participation of Filipino Women," PhiliPpine Sociological Review 28 (1978): 159-74. Madigan, Francis C., S,J. et el. Nupttality. Regular Report Series, Area Fertility Studies, Surveys of 1977, Region X, North Mindanao, Mindanao Culture, 1978. .

"Rural Electrification in the Philippine Context: Income, Employ. merit, and Fertility Aftermaths of MORESCO I, a Development Infm-

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structure." Cagayan de Ore City: Research Institute for Mindanao Culture, 1981. Palabrica-Costeilo, Madlou. Nuptiality. Chapter Five in Declining Fertility: A 1977 Survey Study of Fertility Levels and of Prevalence in 20,000 Philippine Households, edited by Francis C. Madigan. Cagayan de Ore City: Research Institute for Mindanao Culture, 1979a. .

Nuptiality. Regular Report Series, Area Fertility Studies, Surveys of 1978, Region X, North Mindanao, Report No. 2. Cagayan de Ore City: Research Institute for Mindanao Culture, 1979b. "Differential Migration in a Philippine City." Ph.D. dissertation, University of Chicago, 1980. . Nuptiality. Regular Report Series, Area Fertility Studies, Surveys of 1979, Region IV, Southern Tagalog, and Region X, North Mindanao, Report No. 2. Cagayan de Ore City: Re_:arch Institute for Mindanao Culture, 1981. _, and Costello, Michael A. "Low.skilled Working Women in Cagayan de Ore: A Comparative Study of Domestic, "Small Scale' and Industrial Employment." Makati: Philippine Institute for Development Studies, forthcoming. Smith, Peter C. "Fertility and Nuptiality: The Local Area-Mosaic." In A Demographic Path to Modernity, edited by Wilhelm Flieger and Peter C. Smith. Quezon City: University of the Philippines Press, 1975a. . "Educational Attainment and Choice of Spouse: An Introductory Note on Assertive Mating," Philippine 8ociolo6_ea] Review 23 (1975b): 106-118. .. "Indexes of Nuptiality: Asia and the Pacific," Asian and Pacific Census Forum 5 (1978a): 1-2, 9-13. ___. "Trends and Differentials in Nuptiality." In Population of the Philippines, Country Monograph Series No. 5, edited by Mercedes B. Concepcion. Bangkok: Economic and Social Commission for Asia and the Pacific, United Nations, 1978b. . "Asian Marriage Pattems in Transition," Journal of Family History 5(1980): 58-96. , and Karim, Mehtab S. "Urbanization, Education, and Marriage Patterns: Four Cases from Asia." Papers of the East-West Population Institute, No. 70. Hawaii: East-West Center, 1980. Talibong, Etta. "Late Marriage," Philippine Sociological Review 16 (1968): 204-5. Ulack, Richard. "The Fertility of a Low-Income Urban Population in Southcast Asia,"As/an Prof//e 7 (1979): 63-74.

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INTERNAL MIGRATION (by Marilou Palabrica-Costello),

I. MIGRATIONPATTERNS IN REGION X: MACRO.LEVELANALYSES Mindanao has long been thought of as the 'qand of promise" for persons living in more densely crowded or economically depressed areas of the country. In-migration to the island as a whole has been heavy in the post-World War II era, a pattern characteristic of several areas within North Mindnaao. Separate estimates of the net levels of in terprovincial migration between 1960 and 1970 have shown heavy rates of net in-migration tO Bulddnon and Agusan del Sur during this period (Kim 1972, Flieger 1976). In fact, the rate of in-migration to Bukidnon was the highest for all provinces in the country, with Agusan del Norte's rate ranking third (Flieger 1976). For provinces along the region's coastline, however, migration trends have not always been as growth-producing. Between 1960 and 1970, Misamis Occidental, Camiguin, and Surigao del Norte appear to have suffered from net out-migration, leading Flieger (1976, Chart IX) to characterize these provinces as having"lacking, under-developed, or exhausted economic potential." The two coastline provinces with major urban centers in Region X Misamis Oriental and Agusan del Norteappear to have made modest gains in population growth during this same period. Estimates for the 1970-75 period show a slowing of in-migration to the region. For this time span, migrants leaving the region were approximately equal in number to those coming in (Costello 1980, Table 1). Camiguin, Misamis Occidental, and Agusan del Norte showed net out-migration, whereas in-migration to Agusan del Sur slowed considerably. Bulddnon and, to a lesser degree, Misamis Oriental showed a continued ability to attract new migrants. Preliminary figures from the 1980 Census of Population and Housing are now available (National Census and Statistics Office, Re#on X, 1980, Tables 28-35). While these are "not to be used for planning purposes," they may give a rough idea of more recent migration trends. According to these figures, all provinces in the region except Camiguin and Misamis Occidental grew at a rate exceeding that found in the nation as a whole, thus indicating an overall pat-

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tern of net in-migration. The most rapidly growing provinces between 1975 and 1980 were Misamis Oriental, Agusan del Sur, and Agusan del Norte, in that order. â&#x20AC;˘Support for the thesis of high levels of in-migration to North Mindanao is provided by data from the 1970 Census, which showed this region to have a high percentage of lifetime interprovincial and interregional migrants (Perez 1978, Table 22). Data from this same census, though, also showed the proportion of intraprovincial migrants to be rather low in comparison to other regions of the country (Perez 1978, Table 25). This finding would seem to indicate a dearth of short distance migration in the region up to 1970 or so. More recent statistics, however, point to a different conclusion. For example, data from a "dual records" study point to a high volume of migration in both Cagayan de Oro city and a nearby rural area. Apparently, much of this migration is short distance in nature (Palabrica-CosteUo 1980, Table 20). Also, it often appears to be the case that the large number of in-migrants to a city or municipality will be balanced by a nearly equal number of out-migrants, thus leading to the conclusion that "migration is not redistributing the population very effectively" (Cabaraban, Abernathy, Lingner and Madigan n.d., p. 25). While cross-regional migration to North Mindanao may have diminishedsomewhat in the past decade, it is worth noting that the major source areas for such migrants are the Visayart islands of Cebu and Bohol. In comparison, migrants to Southern Mindanao (i.e., the Cotabato area) have come largely from Panay (Flieger 1976, Table 7).. As a result, the image of Mindanao as a "melting pot" where people from diverse cultures come to live in close proximity is not entirely correct. In fact, levels of ethnic diversity in Bukidnon, Agusan, and Misamis Oriental have actually declined since 1948 due to the continued influx of Cebuano-speaking migrants to these provinces (Costello 1981, Table 1). Even in the major cities of the region, migration has not had much effect on bringing people from a variety of ethnic backgrounds together (Costello, Magdalena and Sealza 1981). When urban and rural communities within Region X are compared, it appears as though migration flows are increasingly being directed toward the cities. In contrast, many rural areas axe experiencing net out-migration or a virtual balance between in- and outmigrants, thus leading to the conclusion that the "frontier" has

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"closed" or that agricultural lands in Mindanao have become "saturated" (e.g., Ulack 1977; Costello, forthcoming). In contrast, migration towards cities in Mindanao has been vigorous, in particular toward the larger cities (Cagayan de Ore, Butuan, Iligan, Davao) and the "new" cities in the southeastern portion of the island (General Santos, Digos, Tagum, Mat-i, Malaybalay, and Tandag). Moreover, many of these new city dwellers come originally from rural areas in Mindanao: sonsand daughters of migrants toMindanaoareincreasingly movingtothe cities; thus much of the recent urban growth in the Mindanaoregion has been a result of migration from rural areas of MindanaoCOlack1978a, p. 179). Preliminary results from the 1980 Census provided further confirmation of these patterns. These figures show cities in Region X to be growing faster than rural areas (National Census and Statistics Office, Region X, 1980, Tables 31-32). The two fastest growing cities of the region are Cagayan de Ore and Butuan, followed by Gingoog and Surigao. Oroquleta, Tangub, and Ozamis dries all grew at rates below that for the nation as a whole, indicating possible out-migration from these communities (National Census and Statistics Office 1980, Table 33). In general, the studies reviewed point to a flowing down or a cessation of net in-migration to rural areas of Region X. 1 This may be due to increasing pressures on small farmers in the region, such as declining soil fertility and increased population pressure which serve to make rural areas less attractive (Costello, forthcoming). Indeed; evidence exists of a general antipathy among young people against farming and fishing as potential careers (Costello and PalabdcaCostello 1981a, p. 118). In comparison, dries in North Mindanao appear to be the '_new frontier" as far as migrants are concerned, especially the larger and more developed urban centers. 2 II. MIGRATIONPATTERNS IN REGION X: MICRO-LEVELANALYSES A number of survey-type studies of migrants in Region X have been made. For the most part, these have concentrated on the char1. One important exception to this generalization seems to be the case for rural electrified areas in MisamisOriental province(Madigan 1980b), evidence for which will be discussedbelow. 2. For evidence that in-migration levels are higherin the Philippinesfor large and functionally complex cities as compared to smallerurban centers, eLAbenoja (1978) and Costello, Magdalenaand Sealza(1981).

Population in theNorthMindanaoRegion

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acteristics of migrants coming to (or leaving) Cagayan de Oro. Some information is also available on migration patterns in nearby Ihgan City. One study has been made of migration in a rural setting. Resuits from these studies are reported in this section. Special emphasis will be-given to determining, first, the characteristics of migrants in the region, second, the reasons given by migrants for their move, and third, possible changes over time in these patterns. Most _investigations of differential migration conducted in the Philippines have found migrants to be composed predominantly of young adults and females (e.g., Pascual 1966; Kim 1972). Studies carried out on in-migrants to urban areas of Region X (Ulack, 1975; Cabaraban, Abernathy, Lingner and Madigan, n.d.; Apellado 1978; Palabrica-CosteUo 1980) are in agreement with these findings. The predominance of female in-migrants is especially marked among migrants aged 15-24; after age 25 a slight excess of males appears to be the pattern (Palabrica-Costello 1980, p. 46). As a result of these trends, age-sex pyramids in cities such as Cagayan de Oro show a noticeable bulge in the young adult age group and an excess of females over males (ef. Madigan et al. n.d., Figure 2). Further investigations into these patterns have shown that differential selectivity in favor of females and young adults is especially marked among migrants coming from nearby areas, with males and middle-aged persons predominating in streams from Luzon (Ulack 1974; Palabrica-Costello 1980). In general, migrants to Cagayan de Oro are more likely to be unmarried than persons already living in the city with this tendency being especially marked for females (Cabaraban, Abernathy, Lingner, and Madigan n.d.; Apellado 1978). However, this finding may be due largely to the young age profile of in-migrants as a group. When age was controlled, one study found relatively little difference in marital status composition between migrants and nonmigrants (Palabrica-Costdlo 1980). Much interest has been generated in the topic of the educational qualifications of migrants. On the one hand, the charge is sometimes made that urban areas are being "flooded" by unskilled migrants. Other observers, though, see the migration process as exerting a "brain drain" ove_ rural communities. Actually, these two apparently contradictory hypotheses can be reconciled since it is possible that rural-to-urban migrants are better educated than the persons left behind in the area of origin but less well educated than residents

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of the receiving community. Evidence for such a pattern has been found by one study of in-migrants to Cagayan deo Oro city (Palabrica-Costello 1980, pp. 57 and 97). The analysis of educational selectivity between migrants and nonmigran_ is Del Fierro's (1968) focus in his study of labor mobility in Cagayan de Oro. This study found migrants to be slightly better educated than natives of the city, especially at college and postgraduate levels. A subsequent study by this same author (Del Fierro 1974), however, found migrants to be less well educated than persons already residing in Cagayan. Confirming evidence for this latter finding was subsequently noted by Ulack (1976), Apellado (1978), and Palabrica-Costello (1980). Negative selectivity by educational status appears to be more pronounced among females and short distance migrants (Palabrica-Costello 1980). Data on occupational status parallel the above fmdings. While early studies reported migrants to have found higher status jobs than non-migrants (Del Fierro 1968, Madigan 1972), later analyses have shown a reversal of this trend, particularly among females (Del Fierro 1974; Palabrica-CosteUo 1980). In-migrating women appear to be concentrated very heavily in such low status jobs as servants, waitresses and tinderas (Palabrica-CosteUo 1980; Palabrica-Costello and Costello, forthcoming). 3 The fact that recent studies have shown an excess of less -skilled migrants to the city of Cagayan de Oro leads to the implication that slum and squatter neighborhoods in this setting probably have been growing quite rapidly_ This is no doubt true, but two mitigating factors should be taken into account. In the first place, the previously-noted tendency for the number of out-migrants to come close to equalling in-migrants holds also for specific educational and occupational subcategories. That is, lower skilled persons also predominate among out-migrants from the city (Palabrica-Costello 1980). For this reason, the net impact of the migration process upon the skills composition of the city may be rather small. 4 Second, it should not be assumed that low-skilled migrants will settle overwhelmingly 3. of relevance hereis Perni_s (1978), p. 281) finding - asbased on nationallevel data- of an" apparent occupational bias against female migrants in cities." 4. This generalization also holds for the Variablesof age, sex and marital status (Cabataban, Abernathy, Lingner and Madigann.d.).

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in lower-class neighborhoods. Rather such persons have been found to be evenly scattered throughout the city, i.e. to be found in equal proportions in both slum and nonslum areas (Costello and PalabricaCostello 1981 c). The large numbers of low-skilled migrants who first come to the city as domestic servants or as extended relatives of a middle class household head accounts for this somewhat surprising t'mding. Data on migration pattems in a rural area of Misamis Oriental have been reported by Cabaraban, Abemathy, Lingner and Madigan (n.d.). This study obtained the usual finding of an excess of young adults (aged 15-24) among in-migrants to this setting. However, the predominance of females and nonmarried persons which was noted in cityward streams was not noted in these data. Among out-migrants, young adults, males and single pers_as predominated. One other study conducted in rural areas of the region was carried out among high school seniors in all municipalities of Camiguin and Misamis Oriental (Costello and Palabrica-Costello 1981a). This study found females to be more likely than males to plan on moving to another community. Students from higher status (wealthier) homes were more likely to plan on leaving than poorer students, but no association was found between score in the National College Entrance Exam and migration plans. This latter finding casts some doubt on the "brain drain" thesis, at least among respondents with comparable levels of educational attainment. In some cases migrants moving to an area may decide to move back home to their community of origin. This phenomenon, known as "return migration," appears to occur with some frequency in Southeast Asia and, for this reason, has received increasing attention from demographers specializing in this area (of. Goldstein 1978). A few studies of this phenomenon have been made within Region X, again with reference to the case of Cagayan de Oro (Palabrica.Costello 1979; Palabrica-Costello and Costello, forthcoming). In general, these analyses showed return migrants to be disproportionately composed of females, adolescents and young adults, and nonmarried persons. Among females, return migrants had lower levels of educational and occupational status than either urban natives or in-rnigrants who stayed. Again, the high volume of return migration found for domestic servants influenced these findings considerably. Returning males, on the other hand, appeared to be better educated than in-migrant males as a whole but to have achieved somewhat

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lower status jobs than this group. It was hypothesized that this group has been motivated to return home because of a feeling of "relative deprivation" which stems from their inability to find a high-status job, as would be commensurate with their relatively high level of educational attainment. A second focal point of interest among microlevel migration studies conducted in Region X concerns reasons given by migrants for moving to their new home. To date, most analyses have shown a not unexpected predominence of economic motives among persons moving to cities in the region (e.g., Ulack 1974; Ulack 1976; Cabaraban, Abernathy, Lingner and Madigan n.d.; Apellado 1978). Other frequent responses include "to accompany the household head," for purposes of marriage or education, and because of unsettled peace and order conditions in the community of origin. In general, males appear to be somewhat more likely to give economic-related reasons than females, many of whom are moving only in order to accompany the head of the household. Short distance migrants are least likely to explain their move in terms of their jobs. As might be expected, less educated migrants are more likely to come seeking work than as a response to a definite job offer, especially among males (Palabriea-Costello 1980, pp. 164459). Finally, as Ulaek (1976) has argued, the presence of relatives already living in the city appears to be a facilitating factor in the decision to migrate. While perhaps not always the most important reason, this variable helps to determine the timing and direction of the migration decision. In this sense, it is best to think in terms of plurality of reasons for moving, rather than to view migrants as changing their residences for a single, predominant motive: Thus, although a person may have moved to Cagayan deOro because of a job opportunity there, he may also have left the origin because there was nojob availablethere. And with regards [sic] to selectingCagayan de Oro as the ._peeifie destination (as opposed to a number of other alternatives within an individual's 'action space') . . . very often family or friends already based in the city play an additional and important role (Ulack, 1976, p. 366). A third topic deals with changes over time in migrant selectivity. Knowledge of any such changes can help in forecasting future patterns of differential migration. One theoretical perspective which can help to guide this type of analysis is provided by Browning and Feindt's (1969) description of the "pioneer" and "mass" migration stages. According to these authors, migrants moving during earlier

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periods (i.e., "pioneers") have more problems to contend with in making their move. Networks of transportation and communication are likely to be poorly developed. Also, the lack of earlier in-migration to the receiving area will mean that the new migrant can expect to fred new friends or relatives who are already living there. Thus, his adjustment problems may be greater. In contrast, persons moving during the stage of "mass" migration are likely to f'md their transition to the new environment much less problematic. For these reasons, Browning and Feindt speculate that migrants who come during the ,pioneer" stage should be more "qualified" (in terms of education and occupation) than those moving at later dates. A study by Palabrica-Costello (1980, pp. 70-76) found partial conf'n-mation for the theory of Browning and Feindt. This author found that migrants moving to Cagayan de Ore during the early 1970's had lower levels of education and occupational status than nonmigrants already living in the city. This f'mding was in contrast to the higher status levels found among in-migrants by Madigan (1972), as based upon data from a 1963 survey. On the other hand, migrants in the 1970's were better educated than those interviewed a decade earlier. That is, migrant qualifications had improved absolutely during the period, but had declined relative to residents of the city. Somewhat similar results are also reported by Ulack (1977, pp. 140-41) in his analysis of in-migration to the Mindanao region as a whole. This author also notes a trend over time towards an increasing influx of females to Iligan City (Ulack 1974) a finding which is compatible with other analyses of this topic (Eviota and Smith 1981). In sum, a fairly large number of micro level studies of migration patterns in Region X have been undertaken. For the most part, these analyses have concerned themselves with describing the characteristics of migrants as compared to nonmigrants and with examining the reasons given by migrants for their chan_ of residence. Most of these studies have been concerned exclusively with in-migrants to Cagayan de Ore, thus showing the need for similar analyses in other types of communities. The fact that most of the studies reviewed have been based exclusively upon quantitative statistics, as derived from survey data, also underscores the need for additional analyses which will take a more qualitative approach to the problem.

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What are the implications - for the individual migrant, as well as for his communities of destination and of origin - of the act of migrating? While few studies carried out in Region X have focused directly upon this question, data gathered so far are of some use for assessing the social and individual consequences of migration. To a great extent, these studies are limited to patterns of rural-to-urban migration, thus limiting our ability to generalize about the many cases of urban-to-urban, rural-to-rural, or urban-to-rural movements. For the most part, studies conducted in Region X have taken a positive view of the impact of migration patterns upon the urban community. For example, the disproportionate number of young adults coming to citiessuch as Cagayan de Oro implies that the city's dependency burden will be alleviated, thus aiding capital formation (Palabrica-Costeno 1980, p. 181). The fact that rural-to-urban migrants appear to be better educated than persons remaining behind is also indicative of their potential for exercising a productive contribution upon the city economy. And, even though migrants may be slightly less well educated than natives, at least one observer has seen their influx in a positive light: The f_mdingshave . . . shown that migrants into Cagayan de Oro from the rural areas are comparativelylower in education and occupation than the city dwellers. From the general economic standpoint, entrance of these types of persons into Cagayan'slabor market may not be entirely a bad situation for some years to come. In cities with developing economies as Cagayan, where capital supply is relatively low and more expensive than other productive resources, the utilization of manpower provided by these migrants offers an alternative factor to economic production (Del Fierro 1974, p. 106). For example, the heavy in-migration of domestic helpers to the city can help to free housewives for more productive employment as well as to avoid the need for expensive consumer goods such as washing machines and vacuum cleaners. Of course, the obvious problems of rapid urban growth, such as the continued provision of urban services and amenities, increased traffic and pollution, overcrowding, etc., should not be ignored. One observer who has taken a less sanguine view of the heavy influx of rural-born migrants to the cities of Region X is Richard Ulack. Citing the apparent decline in migrant "quality," with the everincreasing size of this group in the urban setting, this author sug-

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gests that "'aform of urban involution" may be occurring in Mindanao's urban centers (Ulack 1977, p. 144). That is, as more persons seek to exploit the possibilities for individual improvement found in urban areas, a pattern of "diminishing returns" may set in. For example, while occupants of long-settled squatter communities may be surprisingly wel_-off in economic _rms, those residing in more recently formed squatter neighborhoods are subject to high rates of unemployment and poverty. This pattern is-brought about by the fact that the older squatter settlements are located near good job opportunities (e.g., the port area in Cagayan) while the more recent ones are not (Ulack 1978b). Moreover, this author argues that it may be some time before reports about the abject poverty experienced by more recent migrants filter back to potential sending communities; hence, cityward flows cannot be checked immediately. Unfortunately,once the migrationresponseto industrialemployment became established,and information widely disseminated,the volume was not so easily 'shut oW even though employmentopportunitieshavebeen saturated... Initial migrationto a city is at first slow andsearching,but once informationlinks and migration streamsbecome established the volume of migration increasesveW sharply(Ulack 1979. p. 250). Somewhat less attention has been devoted to the impact of net out-migration patterns upon sending communities. The fact that such places are losing their better educated young people has been viewed negatively by some,butatleastone observer hasnotedsome possible good pointsaboutthispattern: Itseemsclear thatCagayan... isexerting a'brain drain' over its hinterlands. ...Thisisnotnecessarily a badsituation, since these regions aresupplying the talents andskills tobetter direct theeconomyofthewholeCagayan areaofinfluence. Since hinterlandsof Bukidnon and MisamisOrientaldepend upon the Cagayaneconomy, and decline or pr6gresswith it, it is most desirablethat the better talent in the region be made availableto guide and direct this economy. As the productivity, quality, and efficiency of the economy increase or decrease,the whole region prospersor declines(Madigan1972, p. 208). Other compositional changes brought about by heavy out-migration from a sendingcommunity can be noted.The lowereddependency burden experiencedby receiving areashere findsitsmirror imaseasareasofnet out-migration oftenhavean excessofveryold or very young inhabitants. The fact that young women are particularly likely to leave may make it hard for nonmigrating males to find a suitable marriage parmer (cf. Hart 1971), The point has occasionally been made that out-migrants may send

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important f'mancial contributions out of the wages they have earned in the city to relatives who stay behind (Hart 1971). While this is no doubt true, the importance of this factor should not be exaggerated. For one thing, contributions (e.g., rice) may often flow from the family in the rural areas to the newly arrived city dweller (cf. Trager 1981). For another, the value of remittances from rural-to-urban migrants is heavily dependent upon salary levels earned in the city (cf. Palabrica-Costello and Costello, forthcoming, Table 33). Since migrants are heavily concentrated in such low-paying jobs as domestic helpers and shop girls (tinderas), this means that they will often have little cash to spare for their family back home. Finally, the felt need to make financial contributions to the family of origin is probably weakened somewhat once the migrant has married (Hart 1971). Turning now to the impact of migration upon the individual involved, it would appear as though a majority of citybound migrants fare reasonably well after their arrival in their new homeâ&#x20AC;˘ For example, an early study of in-migration to Cagayan de Oro found in-migrating males to be earning higher incomes than men who had been born in the city (Madigan 1972, pp. 197-98). Similarly, Ulack's (1976) study of in-migration to slum and squatter areas in Cagayan found migrants to be earning higher incomes than (slum-dwelling)natives even though their level of educational attainment was lower on the average. Comparisons may also be made with the situation at origin. In their study of low-skilled working women in Cagayan de Oro, for example, Palabrica-CosteUo and Costello (forthcoming, Chapter IV) found a majority of their in-migrating respondents to have experienced gains in housing quality, diet and income since moving to the city. Similarly, Ulack (1976, p. 365) reports that fully three out of four in-migrants residing in slum areas of Cagayan de Oro had made up their minds not to return home - "even though conditions in Cagayan de Oro's slum and squatter communities were in most cases . . . deplorable the residents responded affirmatively to the question as to whether or not they wanted to remain in the city â&#x20AC;˘ .. " Finally, an M.A. thesis study of Arleen Macaraeg (forthcoming) which seeks to compare the living conditions of migrants to Cagayan de Oro with a comparable sample of nomigrants in a few selected communities of origin is now in the process of being carried out. Preliminary results from this study suggest that migrants are indeed

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better off economically than the matched sample of persons choosing not to move. One finding which points to a possibly unsettling effect of migration upon the individual has been reported in the literature. In their analysis of low-skilled working women in Cagayan de Oro, PalabticaCostello and Costello (forthcoming, Table 69) found that recent arrivals to the city were more likely to report themselves as personally unhappy than women who had been living there for a longer period of time. This was particularly true among women working as domestic helpers or employees in locally-owned "small-scale" establishments, though it did not hold for factory employees. This suggests that the transition from the rural to the urban setting may be somewhat easier for migrants who are able to obtain relatively wellpaying and higher status job than for those who fred themselves working in less rewarding positions. IV. RURALDEVELOPMENT PROGRAMS ANDMIGRATION While the nation as a whole does not seem to have any firm policies or guidelines regarding internal migration (Abad 1981, p. 129) there does seem to be an apparent desire to slow down the movement of people from rural communities to urban areas. For example, one objective of the current Five-Year Philippine Development Plan is the "creation of employment opportunities in rural areas to prevent excessive rural-to-urban migration" (National Economic and Development Authority 1979, p. 10). In line with this, the Ministry of Human Settlements has devised various rural development schemes intended to "check" the "movement of people from rural to urban areas" (Catolico 1981, p."12). In keeping with this volume's concern for a closer integration of population variables in the process of planning for regional development, it would seem to be worthwhile to review the likely impact of rural development programs upon migration. In thinking about the impact of rural development policies upon levels of living and patterns of out-migration it will be useful to distinguish among a variety of specific approaches to rural development, each of which may have very different social economic and demographic implications. This discussion will focus on four such strategies for rural development which have been manifested during the past decade of Philippine history. These arc programs designed to increase adoption of the so-called "Green Revolution" techno-

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logics, programs which seek to provide infrastructure and basic human services to rural areas, agrarian (i.e., land) reform programs and policies which encourage the spread of large-scale corporate farms, especially those which specialize in export crops such as copra, sugar and bananas. Evidence for the existence of such policies has already been reviewed in an earlier paper (Palabrica-Costello 1981) and will not be discussed here. A number of studies dealing with the impact of the Green Revolut.ion upon rural areas have already been made in the Philippine setting. CastiUo (1979, Chapter 3) has provided a useful review of these analyses. Some major findings, as taken from her discussion of the topic, are as follows: 1. Philippine farmers have not been slow to adopt the new production techniques, so that "in less than ten years, 62 per cent of the total rice area in the country is planted to the new semidwarf rice varieties... "(Castillo 1979, p. 46). 2. Increases in rice yields, however, have not always been equally rapid due to "a high incidence of incorrect use of inputs" (Castillo 1979, pp. 46-47). 3. While greater farmer-technician contact could help to increase productivity, visits between such persons are still infrequent and, even then, devoted largely to filling out forms needed for an agricultural loan. 4. A large proportion of farmers have not been able to repay loans granted to them under the Masagana 99 program. 5. The Green Revolution program has generally been associated with an increase in overall labor absorption. As a result, the demand for hired agricultural labor has increased (Castillo 1979, pp. 87-88), while rural nonl'arrn employment also appears to have been stimulated (Hackenberg 1980). 6. The adoption of mechanized farming practices has not been clearly shown to exercise a labor displacing effect, due in part to the fact that farmers employing agricultural machineries may now be able to cultivate more land (Castillo 1979, pp. 41-42). Furthermore, farm mechanization may make agriculture a more atfxactive career by reducing the burden of hard manual labor usually associated with farming. 7. To date, the Green Revolution

program

has had its greatest

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successes in irrigated areas of the country. Production levels in rain-fed areas appear not to have gone up so quickly. The overall implication of these findings would appear to be that the Green Revolution program is creating new employment opportunities in rural areas, thus reducing the need for rural out-migration. However, the fact that production levels have not increased greatly may temper this observation somewhat. It is also possible that outmigration from hilly areas which lack access to irrigation facilities could continue unabated or even increase somewhat during the period of implementation of the Green Revolution approach. The provision of physical infrastructure and human services in the Philippines has dearly lagged jn rural as opposed to urban areas. For example, in 1973, over 70 per cent of the total electrical energy consumption of the Philippines was concentrated in Metropolitan Manila (Castillo 1979, p. 11). Medical and educational services are also clearly superior in cities as compared to the countryside. In recent years, some attempts have been made to alleviate these disparities, apparently with some success. For example, rural electrification in western Misamis Oriental has helped to raise agricultural incomes as farmers are now better able to irrigate their fields (Herrin 1979). Off-farm employment has also risen, at least for males (Madigan 1980a). Similarly, irrigation programs have helped to generate higher incomes for farmers (CastiUo 1979, p. 43); Madigan, Pagtolun-an and Palma 1979). Whether these changes will work to decrease the flow of migrants from rural to urban areas is not immediately clear. For example, the f'mding that it is rural youths from wealthier homes who are most likely to plan on moving to the city (Castillo and Palabrica4_ostello 1981a) would seem to imply that increases in living standards will not have this effect. Also, at least one author (Ofrenio 1980) has charged that the latent function of government infrastructure programs is to encourage "capitalist development" in Philippine agriculture, with the resulting effect of "eliminating the small and marginal farmers in the long run." A more optimistic note is sounded in a recent paper by Madigan (1980). This author examined population changes in the electrified portion of rural Misamis Oriental with those found in nonelectrified municipalities. The study concluded that the nonelectrified portion of the province continued to suffer from net out-migration between 1970 and 1978, while the electrified areas remained demogra-

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phically stable or even experienced net in-migration. Further studies along these lines, as carried out for such programs as rural irrigation or farm-to-market roads, are clearly needed. Even less is known about the impact, if any, of rural human service programs upon rural-to-urban migration patterns. Regarding education, for example, the fact that migration tends to be selective of more educated young people would show that it should not be assumed that the expansion of rural educational programs will necessarily have the effect of decreasing the rural outflow. The resulting policy implication would seem to be one of reducing the "dominant urban bias in education content" (Pemia 1978, p. 281) by encouraging "a policy of fully articulating the educational system to the development needs and potentials of the region" (Carino and Carino 1976, p. 15). The agrarian reform program initiated under President Marcos has been dubbed "Operation Lang Transfer" ("OLT"). Under this program, rice and corn farms larger than seven hectares in size are subject to transfer from owner to tenant. While this program represents an improvement over earlier land reform policies, some criticisms have been raised. For one thing, landless laborers do not benefit from the program, nor do tenants on lands planted to crops other than rice or corn. Also, studies designed to evaluate the program have generally concluded that amortizing owners have not experienced increases in rice production or improvements in their standard of living (Castillo 1979, p. 48; Sodusta 1979). Further, the amount of land so far transferred to tenants appears to be low (Tadem 1980a, p. 3). The above f'mdings suggest that the current land reform program may have relatively little ability to decelerate the outflow of migrants from rural areas of the country. Further, evidence for this speculation is provided by Costello and Palabrica-Costello's (1981b) analysis of the relationship between farm tenure and plans to outmigrate among samples of rural youths in Misamis Oriental and Camiguin. Contrary to expectations, these authors found children of farmer-owners to be more likely to plan on leaving their homes than sons and daughters of farmer tenants. This relationship persisted, even when sex and parental wealth were controlled, leading these authors to conclude that "ensuring security of tenure status for the older generation is not likely to reduce the outflow of young men and women from rural areas."

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The consensus of opinion among observers of rural areas of the country is that there has been a marked trend in recent years towards commercialized farming, as exemplified by modem corporation farms and plantations. For example, Rafael S. Espidtu (1980, p. 5), the Executive Director of the Rural Worker's Office in the Ministry of Labor and Employment, has noted that "wage labor.., is expected to get more widespread in the coming years as commercialization of agriculture spreads." These trends appear to exist with particular strength in Mindanao, where the greater availability of land has attracted investment in plantation agriculture devoted to pineapples, bananas, sugar and coffee (Costello, forthcoming; Tadem 1980a). In general, government policy seems to have worked subtly to encourage trends, as exemplified by lending policies which favor sugar growers (Castillo 1979, p. 254) and the corporate farming policy initiated by Government Order 47. It appears as though not a single study has empirically assessed the impact of these policies upon rural-to-urban migration patterns. By implication, some authors have suggested that the growth of corporate farming should serve to accelerate rural out-migration. This could be the case either because of the low living standards associated with plantation crops such as sugar (Yengoyan 1974, Ledesma 1979) or because of the hypothesized tendency lbr corporate farms to "dislocate" small farmholders (Tadem 1980b, p. 4). Hackenberg (1980, p. 405), however, has concluded that, while the '_industrialization of agriculture" may indeed displace persons belonging to the tenant farmer class, this type of agriculture also has a high potential for creating off-farm employment in rural "service centers." Government employees (e.g., school teachers), small-scale entrepreneurs, mechanics, and the like, are all hypothesized by this author as being attracted to small towns located near farming areas devoted to large-scale, and financially viable, corporate farms. However, the fact that this same author found that low-skilled laborers on banana plantations in Davao del Norte were earning "only enough to survive" (Hackenberg 1977, p. 104), with resulting high levels of labor turnover, detracts somewhat from his rosy picture of the impact of corporate farms upon the rural economy. At any rate, further research is needed on this important topic. In sum, this section has been concerned with describing some possible impacts of rural development programs upon prevailing patterns of rural out-migration. Such research as exists to date

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would seem to imply that rural development per se will not always result in decreasing rural outflows. Further studies focused upon the migration consequences of specific development policies would help considerably in verifying, and adding greater detail to, this conclusion. V. FUTURERESEARCHNEEDS In a comprehensive review of national-level migration research in the Philippines, Herrin (1980, pp. 77-79) has described a "research agenda" for future studies in this area. This agenda stresses the need for more information on: (I) the impact of public policies and programs (both direct and indirect) upon internal migration; (2) the determinants of migration, including "the factors that influence various population subgroups to migrate or not.., and.., where they migrate"; (3) the consequences of internal migration; and (4) a "contiriual monitoring of migration patterns" in the country. Such a four-pronged approach to future migration analyses is also to be recommended for Region X, perhaps with a few mofications. As the preceding review has demonstrated, studies devoted to the ftrst and last points listed by Herrin appear to be in particularlyshort supply as far as North Mindanao is concerned. This situation is unfortunate since these topics are probably of greatest interest to popular.ion and development planners in the region. What information we have about regional population movements is largely taken from national level studies. Thus, disaggregated information at the provincial or municipal levels is generally lacking. Studies directed specifically towards summarizing the trend of population movements in the region as well as towards identifying some social and economic correlates of these movements should be given high priority. Projection of future growth/migration patterns would also be of help. Similarly, there is a great need for evaluative-type studies on the migratory implications of specific development policies, especially those which are relevant to regional level planning. Regarding the determinants and consequences of migration patterns in the region, some additional studies along these lines would also be called for. However, it would seem best if such studies were formulated with the explicit intention of improving policy formation and evaluation. To date, most micro level studies of "differential migration" in the regiona have been conten.t merely to examine the differences between migrants and nonmigrants on a number of var-

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iables (age, sex, marital status, etc.) without paying muchattention to the question of whether or not such information will be of benefit to government planners. A greater concern with policy questions could help redirect this type of research into new areas. For example, are young people who have received their college education in rural areas of the region as likely to move to cities as those who studied in urban areas?Does some form of occupational discrimination against women migrants to the cities exist, so that this group encounters particular difficulties in obtaining well-paying jobs? Are migrants in some particular subgroups more likely to encounter adjustment problems in their new setting than those in other groups? Another need which seems evident from the foregoing review conceres the heavy concentration of research efforts in the region on migration patterns in Cagayan de Ore city. Given the interest in keeping people in rural areas or diverting potential out-migrants to smaller towns and cities, future studies should pay particular attention to in-migration and out-migration from such settings. Further analyses of the Cagayan de Ore situation could still be fruitful, of course, but the best approach here might be_to fund reanalyses of data collected in earlier surveys. Besides being more economical, t.his approach could serve to encourage researchers to employ somewhat more sophisticated statistical techniques asadditional variables are taken into account. BIBUOGRAPHY Abad, Ricardo G. "International Migration in the Philippines: A Review of ResearchFindings,"Philippine Studies 29 (1981): 129-43. Abenoja, MacrinaK. "The EcologicalOrganizationof MunicipalCentersin the Visayas During the 1960's," Philippine Quarterly of Culture wad 8oeiety 6 (1978):239-64. Apellado, Jesus G. "In-migrantsin Cagayan de Ore City, 1975-1978." Report of a researchproject for the ProfessionalLevelTrainingCoursefor Statistical Workersunderthe StatisticalManpowerDevelopmentProject.Cagayan de Ore: NationalCensusand Statistics Office, Region4, 1978. Browning,Harley L., and Feindt, Waltrout."SeleCtivityof Migrantsto a Metro. polis in a Developing Country: A Mexican Case Study," Demography 6 (1969):347-56. Cabaraban,M.C.; Abemathy, J. R.; Lingner, J. W.; and Madigan,F.C., SJ. "Migration in MisamisOrientalProvince in 1972: A Report of Methodolog3, and SubstantiveResults." Research Report No. 18. Cagayande Ore:

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Mindanao Center for Population Studies, Xavier University, n.d. Carifio, Benjamin V., and Carifio, Ledivina. "Principal Reasons for Migration: A Tool for Decision Making." Paper prepared for the Seminar-Workshop on Migration, Nutrition Center of the Philippines, 19 November 1976, Makati. Castillo, Gelia T. Beyond Manila: Philippine Rural Problems in Perspective. Ottawa: International Development Research Centre, 1979. Catolico, Ma. Lourdes A. "Government Programs and Policies Regarding Migration (Micro-level)." Paper presented at the 12th Summer Seminar in Population. 28 June - 3 July 1981, Makati. Costello, Michael A. "Social Change in Mindanao: A Review of the Research of a Decade." The Impact of Martial Law on the Philippines. edited by Robert Lawless and Marie Zamora, forthcoming. ; Magdalena, Federico V.; and Sealza, Isaias. "Community Modernization, In-migration and Ethnic Diversification in the Philippines, 19701975." Unpublished paper. Cagayan de Ore City: Research Institute for Mindanao Culture, 1981. __, and Palabrica-Costello, Marilou. ''Career Plans of High School Seniors in the Southern Philippines: An Empirical Analysis." Final report to the Council for Asian Manpower Studies. Cagayan de Ore City: Research Institute for Mindanao Culture, 1981a. __, Palabrica-Costello, Marilou. "Tenure Status, Level of Living and Adolescent Out-migration: Findings from a Rural Philippine Sample." Unpublished paper. Cagayan de Ore City: Research Institute for Mindanao Culture, 1981b. __, and Palabrica-CosteUo, Marilou. "Slums and Squatter Areas as Entrepo_ for Rural-Urban Migrants: Findings from a Medium-sized Philippine City." Paper presented at the 1981 General Conference of the International Union for the Scientific Study of Population, 9-16 December 1981a, Manila ])el Fierro, Alfonso C. Jr. "Economic Impact of Labor Mobility on the City of Cagayan de Ore," Philippine 8etiological Review 16 (1968): 184-89. . . "Rural-Urban Migration and Differential Fertility in the Philippines." Ph.D. dissertation, University of Kentucky, 1974. Espiritu, Rafael S. "Situation of Rural Workers in the Philippines." Paper presented at the 1980 National Convention of the Philippine Sociological Society, 27.28 November 1980, Quezon City. Eviota, Elizabeth, and Smith, Peter C. "The Migration of Women in the Philippines." Working Papers of the East-West Institute, No. 13. Honolulu: EastWest Center, 1981. Flieger, Wilhelm, SVD. "Internal Migration in the Philippines During the 1960's." Paper presented at the Seminar-Workshop on Migration of the Population Center Foundation, 19 November 1976, Makati, Goldstein, Sidney. "Circulation in the Context of Total Mobility in Southeast

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Asia." Papers of t_e East.West Population Institute, No. 53. Honolulu: East-West Center, 1978. Hackenberg, Robert A. "The Economic Impact of the Banana Industry on the Economy of Davao Del Norte." Report to the Banana Export Industry Foundation. Davao City: Davao Research and Planning Foundation, 1977. . "New Patterns of Urbanization in Southeast Asia: An Assessment," Population and Development Review 6 (1980): 391-420. Hart, Donn V. "Philippine Rural-Urban Migration: A View from Caticugan, a Visayan Village" Beh_oioral Science Notes 6 (1971): 103-37. Herrin, Alejandro N. "Rural Electrification and Fertility Change in the Southem Philippines," Population and Development Review 5 (1979): 61-86. . "Population and Development Research in the Philippines: A Summary." Working Paper 80-03. Makati: Philippine Insitute for Development Studies, 1980. Kirn, Yun. "Net Internal Migration in the Plfftippin_.s, 1960-1970." Technical Paper No. 2. Manila: Bureau of the Census and Statistics, 1972. Ledesma, Antonio J., S. J. "Socioeconomic Aspects of Filipino Sugar Farm Workers: Three Views from the Case Fields,"Phih'ppine Studies 27 (1979): 231-46. Macaraeg, Arlene. "Socioeconomic Implications of Migration to Cagayan de Ore City." Master's thesis, Xavier University, forthcoming. Madigan, Francis C. Birth and Death in C.a_yan de Ore: Population Dynamics in a Meclium_sized Philippine City. Quezon City: Ateneo University Press, 1972. .

"The Systems of the Dual Records Project During the First Operational Period and Substantive Results for the Period, September 1 to Decernber 31, 1971." Research Report No. 6. Cagayan de Ore: Mindanao Center for Population Studies, Xavier University. ..... '_l_e Socioeconomic Aspects of Developmental Infrastructure: Two Aspects from a Project in the Southern Philippines." Paper presented at the 1980 National Convention of the Philippine Sociological Society, 27-28 November, 1980a, Quezon City. . "Influence of Developmental Infrastructure upon Population and Household Characteristics: The Case of Two Segments of Misamis Oriental Province." Paper prcHnted at the Second National Convention on Statistics, 2-3 December, 1980b, Manila. __; Pagtolun-an, Imelda G.; and Palma, Lira C. "Household Income and Expenditure Changes: The ALISA Association, 1969-1978." USAID Report No. 492-I 1-22-248. Cagayan de Ore City: Research Institute for Mindanao Culture, 1979. National Economic and Development Authority. Five-Year Philippine Develop. ment Plan, 1978-1982. Manila: National Economic and Development Authority, 1978.

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National Census and Statistics Office, Region X. "Population in Region X During the 1980 Census of Population," Statiscope 10 (1980):52-67. Ofreneo, Rene E. "Monopoly Expansion in Philippine Agriculture." Paper presented at the 1980 National Convention of the Philippine Sociological Soceity, 27-28 November 1980, Quezon City. Palabrica-CosteUo, Marilou. "Return Migration from Cagay_ de Oro: Some Ecological and Individual Correlates," Philippine Quarterly of Culture and Society 7 (1979): 3, 6-34• . "Differential Migration in a Philippine CiW." Ph.D. dissertation, University of Chicago, 1980. • "Rural Development Policies in the Philippines and their lmplica. tions for Rural-Urban Migration." Mimeographed. Cagayan de Oro City: Research Insitute for Mindanao Culture, 1981• __, and Costello, Michael A. "L0w-skilled Working Women in Cagayan de Oro: A Comparative Study of Domestic, 'Small Scale' and Industrial Employment." Makati: Phth'ppine Institute for Development Studies, forthcoming. Pascual, Elvira M. "Internal Migration in the Philippines." In First Conference on Population, edited by Mercedes B. Concepcion. Bangkok: Economic and Social Commission for Asia and the Pacific: United Nations, 1978. Pernia, Emesto M. "An Empirical Model of Individual and Household Migration Decision: Philippines, 1965-73," Philippine Economic Journal XVII (1978): 259-84. Sodusta, Jesucita L.G. "Evaluation of Operation Land Transfer," Philippine Sociological Review 27 (1979): 25-34• Tadern, Eduardo C. "A Critique of Development Patterns in Mindanao." Third World Studies Discussion Paer No. 19. Quezon City: Third World Studies Center, University of the Philippines, 1980a. . "Philippine Rural Development: Corporate Fanning or Land Reform?" Paper presented at the 1980 National Convention of the Philippine Sociological Society, 27-28 N0vembe_ 1980b, Quezon City• Trager, Lillian. "Urban Migrants and their Links with Home: A Case Study from Dagupan City," Philippine Studies 29 (1981): 217-29• Ulack, Richard. "Urbanization and Migration in a Medium-sized Industrializing City: The Case of Iligan City, The Philippines," Southeast Asia 4 (1974): 1009.35. _.

"The Impact of Industrialization Upon the Population Characteristics of a Medium-sized City in the Developing World," Journal of Developing Areas 9(1975):203-19. . "Migration-to the Slum and Squatter Communities of Cagayan de Oro City, Philippines," International Migration Review 10: (I 976): 355-76. __."Migration to Mindanao: Population Growth in the Final Stages of a Pioneer Frontier," Tildschrift voor Economische en Sociale C-eografica 0Netherlands) 68 (1977): 133-42.

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"Urban Growth in Mindanao, 1960-1970," Plu'fippln_Geographical Journal22 (1978a): 173-79. . "The Role of UrbanSquatterSettlements,"Annals of the Association of Araeriean Geographers68 (1978b): 535-50. â&#x20AC;˘ "The Philippines:Th.eImpactof Migrationon IliganCity,Mindanao." In Migrationand Developmentin Southeast Asia: A DemographicrPerspec. tire, edited by Robin.J. Pryor. KualaI.xtrnpur:Oxford UniversityPress, 1979. Yengoyan, Aram A. "Demographicand Economic Aspects of Poverty in the Rural Philippines." Reprints of the East-WestPopulation Institute, No. 45. Honolulu:East-WestCenter,1974.

INTERNATIONAL

MIGRATION (by Marilou Palabrica-CosteUo) '

1. INTRODUCTION Relatively little research has been done in the Philippines on the question of international migration. This research has focused almost exclusively upon the out-migration of Filipinos to other countries, rather than on the opposite question of the in-migration of foreigners. For this reason, this brief chapter will concentrate exclusively on Filipino emigration. The fLrst major experience of Filipino out-migration came during the American colonial period. Employers in Hawaii and California who were looking for cheap laborers recruited many young Filipino males (mostly llocanos) during the 1920's. This was partly a response to the Immigration Law of 1924 which severely limited non-European immigrants to the U.S. The Philippines, as a protectorate of the U.S., was exempt from this law. The 1960's saw the rise of another wave of Filipino out-migrants, again in response to an American law. With the passage of the U.S. Immigration Act of 1965, national or racial quotas were swept aside, and legal immigrants were now selected on the basis of oeeupa-

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tional skills or whether or not they were a close relative of a U.S. resident. The result was a dramatic rise in Filipino-U.S. immigration, with the number of Filipinos legally entering the United States jumping from 3,006 in 1964 to 32,857 in 1974 (Concepcion and Smith 1977, Table 12). About 60 to 70 per cent of these immigrants fall into the "professional, technical, and managerial" category (Concepcion and Smith 1977, Table 12), thus leading to increased concern over the "brain drain" problem. More recently, many Filipinos have travelled abroad to work as temporary laborers in the Middle East or Europe. According to Abella (1977), about 170,000 Filipino workers entered the overseas temporary labor market between 1972 and 1976. These workers are largely skilled or semi-skilled laborers, such as seamen, electricians and carpenters. Finally, out-migration of Muslims from Mindanao (especially Sulu) to Sabah appears to have been heavy during the 1970's. According to Gowing (1979, p. 79) over 100,000 persons have made such a move, a figure which accords well with recent census estimates of out-migration from Muslim-dominated provinces in Mindanao and Sulu (Costello, forthcoming, Table 1). Gowing attributes this movement to political reasons, i.e., the Muslim-Christian conflict. Another important factor may also be the depressed economic conditions of Western Mindanao, coupled with more favorable opportunities in mineral-rich Sabah (Hasaan 1978). II. DETERMINANTSOF FILIPINO EMIGRATION Why do Filipinos leave their native land? Studies which seek to describe the characteristics of recent Filipino out-migrants as well as to assess their motives for emigration can be of some help in answering this question. Characteristics of Filipinos migrating abroad may be expected to differ according to the specific circumstances surrounding the move. As noted above, recent migrants to the United States and Canada include a high proportion of white collar workers, especially professionals. Ouflow has been greatest among physicians and surgeons, dieticians and nutritionists, pharmacists, dentists, nurses, and engineers (Gupta 1973). A high proportion of these migrants axe young, unmarried females (Cortez 1973). On the other hand, outmigrants to Sabah tend to be young males who are poor and/or unemployed at the time of their move (Hasaan 1978).

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A number of studies have dealt with perceived motivations for moving abroad. One important, and not unexpected, reason is the higher pay scales offered in more developed countries (Aspedlla 1975, Abad 1975, Parel 1975). Just as important, however, is the question of professional growth and advancement. Thus, many Filipino doctors moved to the U.S. in order to acquire professional skills (Abad 1975), while nurses argued in terms of the opportunities for professional and personal growth found abroad (AsperJlla 1975). Similar concerns were expressed by a sample of 100 Philippine sdentists who were considering the option of emigrating to the U.S. or Canada (McCarthy 1970). Many Filipino professionals first enter the United States to continue their studies, supposcdiy to become better equipped to help future national development. Once there, however, many never return - about 40 per cent according to one study (Belle, Lynch and Makil 1969). Furthermore, many who do come back do so with admitted reluctance, mainly because their visas had run out and they were forced to leave (Paml 1975; Asperilla 1975). According to Pemia (1970), the root of the Filipino out-migration problem lies in the inability of the economy to absorb recent professional graduates. The frequently beard assertion that the nation is suffering from a shortage of trained medical manpower would seem to challenge this conclusion. Nevertheless, the conclusion that some important "push" factors are inherent in the "brain drain" pattern is no doubt correct. Perhaps the question is one of a lack of high-pay, high-prestige opportunities, as medical personnel continue to flock to the cities in search of middle class clients, while rural areas suffer from a lack of good health care. One solution to this problem could be a greater emphasis on recruiting and training paramedical perscs]he1 to serve the barrios. III. CONSEQUENCES OF FILIPINOEMIGRATION As Herrin (1980) has pointed out, virtually nothing is known about the consequences of recent Filipino out-migration patterns. This makes it very difficult to frame a national set of policies to deal with this issue. In particular, more information is needed about the economic consequences of ernigralion. The "brain drain" trend could possibly be functional for the country as a whole if such migrants were sending a substantial amount of their earnings back home. Apparently,

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nothing is known about this issue, though. Dysfunctional consequences of Philippine out-migration should also be assessed. For example, what has been the impact upon the health services sector - at both the national and regional levels â&#x20AC;˘ of the outflow of highly trained physicians and medical personnel? Similarly, has the heavy employment of engineers and construction workers in the Middle East been an important constraint on the expansion of the construction industry? More information about these questions is needed. IV. FUTURE RESEARCHNEEDS Most â&#x20AC;˘policies affecting international migration are likely to be set at the national, not the regional, level. For this reason, the topic of Philippine emigration patterns is likely to be accorded lower priority on the regional research agenda than such issues as fertility, mortality, or internal migration patterns. One possible area of concern could deal with the question of efforts by local government agencies to recruit temporary contract workers for the Middle East or Europe. Abella's (1977) study of this phenomena would seem to indicate that such recruitment is a beneficial policy, since it can help significantly to absorb new entrants into the labor force. Some further analysis of this question may be helpful, however. For example, are cash flows from contract workers to their families in the region really very substantial or not? Were most such workers satisfied with their experience abroad, or did they have less favorable impressions? Further research on these questions could help to determine whether regional-level recruitment patterns should be expanded or downgraded. Secondly, some surveys of migration plans among highly smiled professionals in the region, such as doctors, medical technicians and engineers, might be considered. These surveys could help assess the factors bringing about the "double brain drain" (to foreign countries and to Metropolitan Manila) from North Mindanao. Hopefully, such a study could pinpoint some ways in which the talents of these persons could be kept within the region. A final possible research area is linked to the fact that the Area Research Training Center in North Mindanao is intended to serve as a training institute for the whole of the Mindanao region. To the extent that planners from provinces or regions with large Muslim populations may undergo training in Cagayan de Ore, they should be

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encouraged to develop research projects on so-called "back door" migration from these areas to Sabah. Large numbers of Muslim Filipinos appear to be taking this route out of the country and more research is deafly needed on this phenomenon.

BIBLIOGRAPHY Abad, Ricardo G. "Migration Expectations of Filipino Medical Graduates: An Overview." In proceedings of Conference on International Migration from the Philippines, East-West Center, Honolulu, 1975. AbeUa, Manolo I. "Current Trends in External Migration," Philippine LaborRe. view 2 (1977): 95-104. Asperilla, P.F. "The Mobility of Filipino Nurses." In Proceedings of Conference on International Migration from the Philippines, East-West Center, Honolulu, 1975. Belle, Walden F.; Lynch, Frank; and Makil, Pefla. "Brain Drain in the Philippines." In Modernization: Its Impact in the Philippines, edited by Walden F. Belle and Alfonso de Guzman II. [PC Papers No. 7. Quezon City:. Institute of Philippine Culture, 1969. Concepcion, Mercedes B., and Smith, Peter C. "The Demographic Situation in the Philippines: An Assessment in 1977." Papers of the East-West Population Institute, No. 44. East-West Center, Honolulu, 1977. Cortes, Josefma R. "Brain Drain and Counter Brain Drain in the Philippines," Phih'ppine Economic Journal XII (1973):627-49. Costello, Michael A. "Social Change in Mindnaao: A Review of the Research of a Decade." In The Impact of Martial Law on the Phih'ppines, edited by Robert Lawless and Marie Zamora. Forthcoming, Gowing, Peter G. We are Constantly Asked .... Dense/an Quar_dy 1: 76-80. Gupta, M.L. "Outflow of High-Level Manpower from the Philippines," In,rnational Labour Review 107 (1973): 167-91. Haman, Abduljim. "Characteristics of Backdoor Migrants to Sabsh, Mzdaysia from the Philippines: The Case of Two Island Communities of Tawi-Tawi." Department of Sociology, Mindanao State University, 1975. Herrin, Alejendro N. "Population and Development Research in the Phili_s: A Survey." Working Paper 80-03. Makati: Philippine Institute for Development Studies, 1980. McCarthy, Florence E. "The Local Environment of Filipino Scientists," Ph///p pine Sociological Review 18 (1970): 169-74. ....

stina P. "A Survey of Foreign-Trained Professionals in the Philip' In Proceedings of Conference on International Migration from the _ines.East-West Center, Honolulu, 1975.

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Pernia, Ernesto M. "The Question of the Brain Drain from the Philippines," International Migration Review 10 (1976): 63-72.

CONCLUSION AND RESEARCH AGENDA FROM A PLANNER'S VIEWPOINT (by Francis C. Madigan)

Referrring back to Figures 1 and 2 on pages 000 and 000, the data presented in the body of this report must now be viewed from the position of the planner and the policy-maker. The reader will recall that the framework presented by Herrin (1981, p. 59) shows movement through Figure 1 as generally circular and one-way in nature. In this framework, as Herrin notes (p. 58), public sector policies and programs determine demographic processes: (a) directly through narrowly focused_single purpose programs, and (b) indirectly through effects which they produce on areas of developmental concern other than demographic (although of course narrowly focused demographic policies and programs may also produce effects within the demographic sector as a specific mortality program may have fertility and migration effects). The processes of fertility, mortality, and migration for any particular period of time affect the size, growth, and distribution of the population. These changes can influence the attainment or nonattainment of development objectives (income growth, income distribution, etc.) in nondemographic areas as determinants of demographic trends. As a result, public policies and programs are affected as planners under pressure from the public and/or their director and administrators attempt to take account of these population changes by determining the level of input to be made from government sources at the time of the next planning period. The effects of demographic trends on areas of developmental concern can generate policies and programs that directly attempt to modify the demographic processes themselves in order to restrict greatly or eliminate adverse influences upon developmental goals. An example might be taken from the irrigation projects in Bukidnon which have led to the spread of schistosomiasis, and thus to increased incidence of Sickness and of mortality. As a result of such unexpected trends in morbidity and mortality, strong pressure arose to provide remedies. Planners thus designed a narrowly-focused schistosomiasis program to meet

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this adverse influence upon development. This program was not meant substantially to affect the nondemographic areas of concern but to minimize the bad effects of the mails brought in with the irrigationexpansion. On the other hand, public intervention tlxrough public policy and programs may aim at direct influences upon nondemographic areas of concern. An upland, high-yielding corn programmight be launched to increase production and income in the highland farm sector, for example. These policies and programs may be influenced, if not strongly motivated, by the large rural-to-urbanmigration, especially to Manila, which has produced a squatter problem, as it appears to many middle class urban residents. Such a program conceivably might increase income through enhanced production and make continued residence in the farm areas more attractive to ruralresidents. But unexpected demographic effects of such public interventions might also follow. It might be harder to fill certain urban types of labor force positions (population composition) because of the new rural situation. For example, domestic servants might be harder to obtain if farm production rises through a more productive and intensive corn agriculture which employs at good wages much more female labor that was formerly surplus. Hence, public interventions pursued with nondemographic objectives in mind can have important demographic consequences in addition to those intended. Figure 2 attempted to show more explicitly how the policy. maker or planner makes his entry into the sphere of the demographic-developmental relationships. The planner begins at the decision-making sphere. He has fimited time aid funds to expend upon a possibly large and probably expensive set of policies and/or programs which have been suggested and pocdbly even elaborated to cope with the felt needs and concerns of the region. Choioe is probably required in order to implement a rational and coherent program. A selection must be made of a limited number of programs or projects from all those suggested and singly possible if others are to be excluded. The question then resolves itself into what items go into the planner's package for calendaryear X. These items cover a much broader field of reality than the chiefly demographic concerns and often include economic and/or social programs or projects with high political and popular urgency. The planner selects policies and programsdealing with the realities of his regional context and his national integration. He has to balance

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and weigh many factors m arriving at a decision. Only one set of these factors is the population-development relationship. Nevertheless, planners will be greatly assisted in their ability to view all realities of the situation by a synthesis of research knowledge on population-development relationships. Such knowledge might strengthen his inclination to choose one of two rather equally beneficial agricultural projects, for example, if this synthesis provides reasons for belief that the first project will have more beneficial indirect effects upon population areas (if a development project) or upon development concerns (if a population project) than the second project. We presume that both projects are equally consonant with national and/or regional goals and objectives. Figure 2 then sets forth the steps his reasoning follows in numerical order. It emphasizes the inappropriateness of considering programs or projects in terms only of one or other aspect of the development-population relationship such as the characteristics and qualities they might have which are internal, for example, only to the agricultural, but not to the populational, sphere of concern. Figure 2 tries to promote reflection upon both the population and development effects of the program or project, and especially of indirect effects likely to eventuate; feedback of changes in development and in population structure and processes is brought explicitly to the attention of the planner also insofar as he should consider how they may affect policy formulation and concrete programs and projects over the short and longer time frame. Putting this visually before the planner should help him to consider these influences and foresee them to the â&#x20AC;˘ extent practicable for him. In addition, Figure 2 places before the planner concerns arising both from population and developmental spheres. It makes him more aware of how changes in population processes (if he thinks them through) will affect population structure (size, composition, distribution, and growth). It is changes in population structure that generate concern both among the people and administrators for their influences upon developmental, social, and economic life. In the preceding pages of the present review of researeMtmd study of Region X, linkages between population and development were focused upon and displayed, and limitations of these findings were also pointed out. The first information set required by policy-makers and planners is clearly the levels and trends of the demographic variables. Our study has shown that we know a lot about levels of

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fertility, less about levels of migration, and least about levels of mortality. We know more about trends at the regional level than at the provincial or category level. By category level is meant here trends by such social groups as the high income, middle income, and lower income groups, each taken separately. Our knowledge of the consequences of demographic growth is limited. Most studies have looked at such consequences in terms of rapid population growth through the balance of deaths and births supplemented by migration, and they have looked especially at urban and metropolitan areas. Such studies list the bad effects of rapid population growth in terms of per capita product, employment, the provision of basic services like health and education, and housing. Few of these studies, however, studied the actual consequences of demographic trends. Rather they inferred these from the comments of foreign experts and from simulation exercises based upon economic and demographic models. Microlevelstudies (mostly on the national level) have emphasized increased family size effects upon savings, morbidity, and nutrition of children. Migration consequences at the micro level have been viewed both positively and negatively in terms of the selection of migrants by age, sex, and educational status. Very little has been noted about the consequences of nutrition, low income, and low educational status upon morbidity and, by consequence, upon mortality. Nor has much been noted about the consequences of mortality either in general or by subgroups and categories upon development, and in particular upon aspirations, motivations, ambitions, and goals of survivors. Knowledge of the consequences of demographic trends is needed to discover who are most adversely affected by demographic trends, where they are located spatially o_ s_daily, and what are their salient characteristics. Information on such consequences would help planners to aim their programs and projects to benefit these population groups both directly and indirectly. Our knowledge of the determinants of demographic trends is spotty. The researches carried out indicate that strong influences may exist between the demographic variables. Migration can greatly affect girls' chances of marrying, and therefore their fertility. Mortality and fertility appear to be less closely related. The rural electrification study and other research suggests that developmental conditions may have substantial effect upon demographic processes and

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even set trends in motion. Educational and health changes influence fertility. Female employment may influence age at marriage, and thus influence fertility. Opportunity for employment was found to attract in-migrants to western Misamis Oriental. Opporttinities for better education in the cities probably influence urban migrations. Improved nutritional services, private or public, and better sanitation presumably decrease mortality. Programs and projects focused upon these areas could noticeably influence the operation of the demographic variables. However, precise knowledge is absent of the degree and mechanisms through which programs and projects affect the demographic processes. Nor do we know how changes in the demographic processes affect the development relationship, nor the degree to which they affect them. Programs and policies framed without such knowledge lack some of the ingredients essential to optimal design characteristics, if both aspects of the population-development relationship are kept in mind. Can social research add to existing knowledge of the decisionmaking process itself?. (Herrin 1981_ p. 62) raises this interesting question at the very end of his valuable synthesis. What does science know about how policy-makers formulate policies? Much research and reflection has been paid to this question by students of business administration problems and some principles have been laid down. These appear to outsiders at least to be somewhat more the result of apparent insights than of focused research. What bases in information do planners characteristically utilize in Region X, or in the Philippines, or for that matter, any place in the world? What kinds of information in addition to that which they have or can have available at present do Region X planners perceive they need to do a better planning job? The answer to this question is probably critical to the priority of research in Region X, if one further specifies the particular area of concern that is the subject of planning. No studies of this type have been carried out as yet in Region X. If a dialogue is initiated and continued between social science researchers and planners, perhaps the latter can themselves specify the answers to such a question. In Conclusion, it may be pointed out that any research which provides the information that will make planning more effective is successful research. It must not, however, be merely timely research; it must be research which is on time for the planner to use at the

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point where he is making his decision. Research which arrives after the planner has made his selection and specified his course of action is not only late research, it is unsuccessful research from the planner's point of view. While it may have great intrinsic merits, it was not there when it was needed. This point may be of great importance to keep in mind at the design stage of research project plannin_ It is better to come to a decision by a less adequate method of sampling and of statistical decision than to come to a too expensive and late result. It is better to combine subjective probability along the lines of Bayesian statistics than to leave the planner with a bending reed to depend upon - a conclusion so fraught with qualifications as to practically eviscerate it of directiveness. One must fit the research design to be undertaken to assistthe planner to cope with the usually slim budget of the planner for research activities and his usually tight time budget for getting the data.