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The risk of a face-to-face economy

The risk of a face-to-face economy

The call for the speedy reopening of the economy is gaining ground as the Philippines sinks into the worst recession in three decades. As early as July, in fact, the Philippine Chamber of Commerce and Industry had urged government to allow businesses to operate at maximum capacity, arguing that to do otherwise would lead to more closures and job losses. The hope is that an economic bounce will come with the lifting of the lockdown.

The argument, however, misses an important point: The economy’s vulnerability lies in the interaction between the nature of the virus and the structure of the Philippine economy.

The asymptomatic transmission of the potentially fatal coronavirus makes close contact at the jobsite an “occupational hazard,” per a paper in the Brookings Institute blog. The study notes that the coronavirus has made face-to-face industries like retail trade and personal services riskier and more likely to suffer losses than those that can shift to home-based operations, usually on digital platforms.

The pandemic thus presents distinct challenges for developing countries where most economic activities involve face-to-face transactions. Specifically for the Philippines, 99 percent of businesses in the formal sector are micro and small enterprises, mostly in sales, vehicle repairs, and personal services. Close social interactions also characterize the informal economy where 21 million Filipinos (more than 56 percent of the workforce) make a living in the streets or fields. The country’s vaunted migrant labor and tourism industries are similarly vulnerable.

The fate of the migrant labor industry, mainly due to host countries’ flailing economies and safety protocols, is instructive. The anticipated 20-percent drop in remittances, which totaled a staggering $35 billion in 2019, has far-reaching consequences. According to an input-output study, the industry is a consumer of at least 40 other industries, including commercial banks managing remittances as well as education, health, real estate, and other retail services patronized by remittances-receiving households.

Simply put, the Philippine development pattern makes lives and jobs highly vulnerable. Immediately, this suggests the redoubling of preventive and treatment measures to contain the pandemic as restrictions on mobility ease.

Different working conditions across industries also suggest a granular approach to business’ and workers’ mobilization—that is, distinguishing between industries whose operations could be home-based, and those that require close interaction with consumers; and, within industries, among workers who are most vulnerable to the virus (e.g., with preexisting conditions) and could be assigned home-based work, and workers needed at the jobsite and to be provided with protective gear and a safe work environment.

That most Philippine businesses and jobs may be considered high-risk also requires government to do some heavy lifting to prevent once thriving businesses and productive citizens from going under. Studies note that the pandemic is creating inequalities between those with the skills and opportunity to work at home, and the millions with no choice but to risk their lives or lose their livelihood. Yet, the latter—estimated at 16 million low-income and lower middle-income households (or 71.7 million Filipinos)—are an emergency away from losing everything.

To prevent the further drop in consumption that fueled recent growth, or the loss of precious human and physical capital, government and other stakeholders must hold the line against the pandemic’s spread and deepening poverty and inequality.

Today, the country has an opportunity to rethink its development toward building a resilient economy: Supply chain disruptions and depressed global demand stress the importance of strengthening domestic agriculture and manufacturing as well as local economies. Equally important, we should note that countries that have stayed ahead of the curve had the state capacity for quick and complex action, and the public health and welfare systems adequate to the challenge. Building these capabilities in the Philippines should be a top priority.