By Jaime Frias
WE often conflate competition and competitiveness, the terms frequently invoked in economic policy discussions, yet subtly distinct. The former, competition, describes the dynamic struggle among firms for customers and resources. Competition compels businesses to innovate and improve. The latter, competitiveness, refers to the capacity of firms, industries, or entire economies, like the Philippines, to outperform others in contestable markets. This capacity to outperform others, crucially, stems from the systematic development of productive capabilities.
The two are inextricably linked. Intense competition fosters an environment where merit-based outcomes prevail, channeling resources — talent, capital, and market share — to those who generate greater value. In essence, robust competition fuels national competitiveness.
The Philippines offers an interesting case study to examine the concepts of competition and competitiveness. The World Bank’s recent “Growth and Jobs” report, “Running Uphill: Growth Jobs, and the Quest for Productivity,” sheds light on how policy leaders can harness the power of competition to drive long term competitiveness of the Philippine economy.
For instance, Philippine firms engaged in export activities are significantly more productive than their non-exporting counterparts — around 20% more, on average. This suggests that firms exposed to the pressures of global competition strive to become and remain competitive.
The evidence suggests that exporters in the Philippines are more productive for two reasons: selection and learning. Selection implies that firms that are more productive in the first place are the ones that become successful exporters. Learning implies that by becoming systematic exporters, firms become even more productive through being exposed to different and often superior technologies or management practices. According to the World Bank report’s findings, this gain in productivity often continues long after they start exporting. This is not just about efficiency; it translates to better jobs.
Data shows that more productive firms in the Philippines are hiring a greater share of workers, indicating efficient resource allocation.
Moreover, the most productive Philippine firms demonstrably offer higher wages; the median wage at top-performing firms is roughly double that of mid-tier ones.
These trends confirm that the principles of competition and competitiveness are at play and have driven progress in the Philippine economy.
Yet, despite these advances, the evidence also suggests that the system is not functioning as efficiently as it could. The market’s capacity to allocate resources effectively has diminished in some areas, particularly in recent years. Several indicators suggest that the Philippines needs to refocus on fostering a more competitive environment.
The Philippine’s inward shift has created missed opportunities for jobs and wealth creation. The export-to-GDP ratio has fallen, and the number of systematic merchandise exporters declined by 23% between 2011 and 2022. This inward focus risks hindering future productivity, as exporters and foreign-owned firms consistently outperform those serving only the domestic market.
Recent years have not seen talent move predominantly to the most productive firms. Between 2012 and 2021, mid-productivity firms accounted for most employment growth. Typically, high-productivity and expanding firms employ more labor, with firm growth playing a role in expansion, sustainability, and job creation.
Finally, the Philippine economy is showing signs of slowing growth, with rising sector concentration and reduced business turnover. New firm entry rates have dropped since 2015, remaining low compared to regional peers. Less new entrants mean less competitive pressure for incumbents. Family-owned conglomerates often dominate, investing in protected sectors like utilities and real estate — reflecting structural incentives and regulatory protections that favor established players over innovation.
So, what can Philippine policymakers do to reverse these trends and reinvigorate competition?
Insights from the recent World Bank Growth and Jobs Report point out clear, actionable measures.
First, the government could facilitate new investment by simplifying permitting and licensing processes. This means embracing automation for business entry and site permitting and strengthening electronic signature systems.
Second, robust implementation and enforcement of recent laws is crucial, particularly in non-tradeable and network service sectors such as telecommunications, transport, logistics, as well as in energy, and professional services. This involves empowering sector regulators, separating development and regulatory roles where conflicts of interest arise, and establishing a Beneficiary Ownership Registry for greater transparency.
Third, lowering the costs of international trade and foreign investment is paramount. Accelerating the implementation of free trade agreements (e.g., between the Philippines and the European Union, Korea, and Canada), simplifying non-tariff measures, utilizing trade attaches, and modernizing customs systems for efficient clearance are all vital. Improving VAT refund processes will also significantly reduce operational costs for exporters. Finally, enacting the Public Service Act amendment is expected to cut the cost of essential service inputs, encouraging further investment.
The Philippines’ long-term prosperity hinges on its ability to foster genuine competition, ensuring that the most productive firms can thrive and allocate resources efficiently. The signs are clear; the path forward requires determined action.
Jaime Frias is a senior economist leading engagement for the World Bank in innovation and competitiveness. He has over 25 years of experience in private sector development, Trade and Investment policy. His expertise includes project operations, strategy, and analytics, gained through work in more than a dozen countries across Central and South America, Africa, Eastern Europe, and East Asia.