COVER STORY • 3Interview with Dr. Arsenio Balisacan, Secretary (Minister) of the National Economic andDevelopment Authority (NEDA) of the Philippines

Research on Industrial
Policies Relevant toWelfare in Asia

By Japan SPOTLIGHT
Dr. Arsenio Balisacan, secretary (minister) of the National Economic and Development Authority (NEDA)
and former chairperson of the governmental Philippine Competition Commission, was a member of theEconomic Research Institute for ASEAN and East Asia (ERIA)-JEF evidence-based research collaboration
project to explore sustainable economic growth in Asia in 2022.
What are the implications of industrial policies for developing Asian nations, and how can other policies
like competition policies work in tandem with industrial policies to boost social welfare in the region? Theinterview follows below:(Interviewed on Sept. 18, 2023)

His Research in ERIA-JEF
Project
JS: What do you think about our

ERIA-JEF project? It is examining
the impact of industrial policies
with regards to the economic
performance of SMEs in thePhilippines.

tell, especially in clarifying the view that these
two are contradictory; I don’t find it as such.

Trade Liberalization &Competition
JS: Thank you. How do you assessthe impact of trade policy onindustries? Trade liberalization isexpected to promote competitionand could improve economic
performance in general. Whatabout the consequences of free
trade for developing countries in
Asia?

Balisacan: The project is important andtimely, especially since after the world’s
experience with Covid-19, and indeed during
the pandemic we are seeing a tension
between industrial policies, on the one hand,and competition policy, on the other hand.
Balisacan: In our work, we emphasize theFor many, it would seem that an effective
Dr. Arsenio Balisacanimportance of context and the initial
response to the pandemic and its health andconditions in the economy. The effects of trade policy and economic
economic consequences would involve the government prioritizing
performance depend so much on the economic and politicalthe deployment of strategic industrial policies, including publicstructures of the country. For example, in the case of the Philippines,
private sector coordination, cooperation, and state support toyou see many sectors and markets that are highly concentrated andpromote local industries, even temporarily suspending enforcementquite oligarchic in many cases. Opening up the economy andof competition policy. We maintain the view that there is notallowing more foreign competition can reduce the inefficiencies
necessarily a conflict between the two if both policies are
created by oligarchic structures and the concentration of wealth,mainstreamed in the development agenda. Our work at the Philippine
income, and opportunities to a small segment of society. In thatCompetition Commission and National Economic and Development
sense, international competition and a robust competition policy canAuthority indicates that competition policy improves the performancehelp improve economic performance. That is what we were seeing inof small and medium enterprises (SMEs) in the Philippines. Indeed,
the Philippines when we started opening up the economy and, at thea careful reading of the recent economic history of East Asia showssame time, introducing more competition into the picture by
the interplay of the two policies in promoting industrialization andreducing concentration and opening up sectors like energy,
sustainable economic development. So, I think, in the case of East
telecommunications, and the banking sector to more players. This
Asia, the narrative about complementarity is an important story to20 Japan SPOTLIGHT • November / December 2023

https://www.jef.or.jp/journal/

has resulted in a more vibrant economy.

Need for Industrial Policies
JS: It is certainly true that the government would needsome intervention when market mechanisms do not
function very well. For example, infrastructure could
be an area where market mechanisms do not work. In
that sense, would industrial policies be necessary inthat area or are there other areas where they would
be necessary in the Philippines?

Balisacan: Infrastructure is pivotal to economic development,
getting markets to work efficiently, and achieving societal goals,
including growth with equity. Due to the peculiar characteristics ofinfrastructure, mechanisms other than the market are needed todeliver socially desirable provisions and outcomes. Coordinating theactions of various parties, including the private and public sectors,
across markets is typical in infrastructure development. This is anarea for industrial policy. In the Philippines, to address the tightfiscal space amid post-pandemic recovery, we have been promoting
public-private partnership arrangements in the development,operation, and maintenance of various types of infrastructure,including physical connectivity (expressways, railways, airports),
water, energy, telecommunication, and social infrastructure such as
hospitals and schools. Market concentration in thetelecommunication, energy, and Internet sectors can be relatively
high, providing market power to the incumbent service providers.
However, given the market size, having too many players is notconducive to efficiency. So, there is a need for regulations here.
There are other areas for industrial policy. For instance, given
global supply chain disruptions and climate change, there is someplace for industrial policies regarding agriculture and food security,
which are very high on the economic agenda of countries. Industrial
policies are everywhere now, and you cannot limit them to a few
sectors. Industrial policies may lead to the exercise of market powerby favored groups or “chosen champions”, but if you have a robust
competition policy regime with a clear mandate to check abuses by
economic players, that should be okay. I think that is what we see inour energy sector; we recognize that industrial policies have a role inreaching out to areas that we call “missionary areas”. Our country is
an archipelago with many small islands; in many of those places, you

would not expect competition to prevail. But at the same time, youwould need a very strategic government policy to get the private
sector to also provide far-flung areas and poor communities withelectricity and the Internet at affordable prices. In such cases, youhave a competition policy enforcing competitive neutrality, where agovernment provides one player with specific incentives, but it has tomake sure that the same incentives are open to any potential players
or competitors. So, while you are pursuing industrial policies, youare maintaining some competition in place.
JS: How about education and social welfare? We allneed human resource development today to raise
productivity. In Japan we are facing an aging society
and so social welfare programs for the elderly arevery important. Industry-wide, there are lots of healthindustries and care-giving industries to deal with theaging society. So we need an industrial policy forthese social welfare sectors. How do you assess
education and social welfare?

Balisacan: Again, education or, broadly, human resource
development is a well-recognized area where market forces alone
would be insufficient to achieve socially desirable outcomes. In
developing countries, such as the Philippines, providing equitable
access to opportunities for education and social protection programs
is crucial for ensuring that economic growth will not leave anyone
behind but is also critical to sustaining social stability andnationhood. In mature and advanced societies like Japan, population
aging adds societal pressure for stronger social welfare programs.
While these programs are usually associated with the level ofeconomic development, evidence shows that it is not income alonethat determines achievements in well-being among the elderly.
Societies with strong programs promoting health and healthcare
industries tend to perform better in social welfare outcomes thanthose without. Usually, the question is what public-private sector
mechanisms best deliver or advance social welfare, especially for theaging population. One key role of governments is to facilitate
coordination among industry players, particularly the private sector,
toward efficiently delivering essential services.

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Achieving the Best Mix to Maximize Welfare
JS: In order to raise the effectiveness of industrial

policies or competition policies, what kind of otherpolicies would be necessary?

Balisacan: I believe it is not one or the other, but both, and eachkind of policy has particular roles and objectives. If they aremainstreamed and not seen working independently, the effect ofeither one would be more robust. That is how I see competition
policy as we started crafting it in the Philippines, where our approach
was to mainstream it as part of the overall development policy
architecture. The prevailing view is an agency mandated to enforce
competition policy should be independent and left on its own. The
problem is that if you are separated, you don’t become as effective
as expected in contributing to the common goal – advancing social
welfare – because the rest of the government may set you aside,making you less effective than being part of the development agenda.
The returns to the activities – the investments of a competition
agency (whether that is enforcement or merger work) – depend on
how the other policies work. For example, suppose you find that
infrastructure is poorly provided because you haven’t addressed theissue of coordination between and among government and theprivate sector. In that case, competition policy is not expected towork well in those sectors that highly depend on infrastructure. Only
when these two work in tandem can you get the maximum outcomesout of the interventions.
JS: That links into the next question. I fully agree thatcompetition policy and industrial policy are notcontradictory to each other but are supporting eachother. However, in cases where some industries arelosing international competitiveness, if industrial
policy tries to protect those declining companies ordeclining sectors, that would be detrimental in termsof competition policy. Would you agree?

Balisacan: The way we resolve this issue is to clearly identify theobjective of development policy, whether it is industrial policy orcompetition policy. For competition policy, the usual aim is toprotect and promote competition in the marketplace to enhance
economic welfare. Suppose the end goal of industrial policy is also
22 Japan SPOTLIGHT • November / December 2023

to improve economic welfare. In that case, there is less conflict, andit becomes easier to achieve coordination in enhancing the efficiencyof markets and industries toward achieving the objective. If you areusing industrial policy to protect a declining industry, that is not its
proper use and becomes quite inconsistent with competition policy.

Evidence-Based Approach
JS: Here, evidence-based policy analysis would

definitely be needed. Data would justify government
intervention and if the data shows that a competition
policy is needed then it should be implemented; but if
the data shows that protection would have more
benefits for the national economy, then you can opt
for an industrial policy.

Balisacan: That is exactly my view as well. A government
intervention can achieve its objective better if it is informed byevidence. And context is important. What works well in one country,area, or period may produce unexpected or contrary results inanother country, place, or time, perhaps because of economic andlegal structures, institutions, or culture differences.
JS: Data collection is very important and in Japan wefeel the limitation of data because statistics are
sometimes published after some economicdevelopments. However, new technology such as big
data seems to be shortening the time gap between
available statistics and reality. What do you think
about the current data situation? Is data goodenough for making quick and correct decisions inpolicy making?

Balisacan: The emergence of big data and artificial intelligence (AI)is making us rethink our data collection systems and how responsive
we are regarding policy design and policy prescription vis-à-vis data.
With big data, the algorithms employed by different companies are
evolving faster than we researchers can figure out. When I was at thePhilippine Competition Commission, we had an experience where
Grab and Uber merged – two ride-hailing service providers withrespective platforms. The problem was coming up with the data thatwould allow us to restructure the regulations and monitoring that

come with the Commission’s decisions. Their practices evolved
rapidly, and we were always catching up with them. Moving forward,
we must rethink the designs, practices, and investment in datacollection and statistical systems.
JS: I think that sometimes statisticians are not awareof the needs of economists. How can an environment
be nurtured where the two can better work together?

Balisacan: We need to work together, but the tension, at least in thePhilippines, is not so much between statisticians and economists but
somewhat between economists and statisticians, on the one hand,
and the politicians, on the other. In our system of government,
Congress has the power of the purse. It responds to influencepeddling lobbies and voting blocks. Statisticians and economists arepolitically weak interest groups relative to highly concentrated
interest groups such as industrialists or farmer lobbies. It is
common in developing countries to see underspending in investment
for good data or R&D in general.

Geopolitics & Industrial Policy for
Sustainable Growth
JS: Today, without geopolitical knowledge we cannot

find a solution for many issues. Is it worth trying tocreate new quantitative analysis reflecting
geopolitical risks?

Balisacan: The risk that the global economy will further deteriorate
is on the upside. Geopolitical tensions are high. Partnership at theglobal level is more crucial now than ever before. But leadershipappears wanting. The G7 leaders would need to work harder to stave
off the crisis. What is required is coordination in policy response to
the global decline in trade, investment, and technology flows.
Unfortunately, even within our region, that is far-fetched: partly
because of these geopolitical tensions, countries do not find spacefor coordination, making it more challenging. For small countries likethe Philippines, we should not side with one country or the other butshould diversify and reduce the risks these big players face. Ofcourse, we are all caught up in the geopolitical struggle, but we haveto find our place within that geopolitical struggle so that we cancontinue to prosper.
JS: To be specific, China and the United States are not

adopting a free trade policy, but do you think theyshould?

Balisacan: Ideally, the world would be better if there was more open
trade between them. Still, the US decision to tighten its industrial
policy to protect its industries may work as it is a big country, but it
may be at the expense of many smaller countries. In the long run, it
may not work for the US even, because the policy will force othercountries to aggressively invest in their own high-tech industries, sothe gains are likely to be short-lived, even for the US.Balisacan: Geopolitical considerations are an essential part of theequation in addressing domestic economic issues facing nations,large or small. Economists must expand our paradigms andanalytical tools, allowing insights from other disciplines. For
example, we can only be as responsive to evolving policy issues witha good understanding of how AI works and how many of thesealgorithms influence how we think about the world. So our tools
must also expand and evolve.
JS: The global economy is facing a geopolitical crisisand there is a high risk of decline. What would benecessary to stave off this decline and how should
G7 countries cope?

Written with the cooperation of Joel Challender who is a translator, interpreter,
researcher and writer specializing in Japanese disaster preparedness.

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