Decongestion still a key to national growth

DWhen ‘decongestion’ is managed from the top down as a matter of active government policy, it looks at the problem backwards: populations do not follow businesses; businesses go where the people are.

URING The Manila Times’ first business forum of the year on Thursday, which was coincidentally the same day the rather encouraging 7.7-percent gross domestic product (GDP) growth for the fourth quarter of last year was announced by the government, the discussion centered around the rapid growth and promising outlook for the logistics industry. The sector has not only withstood the stresses of the Covid-19 pandemic, but has thrived as few other businesses have as much consumer and other business activity has been shifted online.

Yet for all the good news, there was an interestingly cautionary subtext to the overall story.

Sheila Lobien, the CEO of Lobien Realty Group and an expert in the commercial property market — including the warehouses that serve as anchors of the logistics industry — summed up the problem simply. The best opportunities for businesses in the sector in terms of cost-effectiveness and comfort lie outside Metro Manila, where there is more property available at attractive prices and room to expand. However, the largest part of most businesses’ customer base is inside the confines of Metro Manila, thus potential locators — for instance, a distribution warehouse for an online shopping service — are faced with a dilemma. Whatever advantages there are to moving outside the city might be eroded by the extra costs of being farther away from customers.

First, distance equals time.

The longer it takes to reach a customer, the fewer customers are served in a given amount of time, and the length of time to reach a customer is only increased if the infrastructure is inadequate. Infrastructure has improved over the past few years, but it still has a long way to go before it could really be described as “efficient.”

Longer distances also mean higher fuel costs. Lobien also pointed out that another cost consideration is the fact that almost every suitable road route between Metro Manila and outlying areas is a toll road. That might not seem like a significant cost to the average motorist paying a toll once or twice a day for a car, but for a business that needs an entire fleet of commercial vehicles to carry out its work, the expense can be enormous.

Thus, while locations for logistics businesses might be far more attractive in every other respect, what lies between them and most of their customers is not. As a result, the metro area is still the preferred location, with an ever-increasing number of businesses competing for an ever-shrinking amount of usable space. That’s fantastic news for the property sector, as Lobien cheerfully acknowledged, but perhaps not so great for the rest of us, consumers and other businesses alike, who are on the receiving end of long supply chains and face steadily increasing prices as a result of our problematic concentration in one highly congested area.

Decongesting the metro and spreading out the population, economic activity, and the corresponding benefits to other parts of the country was a policy theme long before it was given even more prominence by President Rodrigo Duterte, but actual accomplishments along those lines have been modest at best. Some of the problems highlighted in our forum on Thursday explain why. When “decongestion” is managed from the top down as a matter of active government policy, it looks at the problem backwards: populations do not follow businesses; businesses go where the people are. The government can offer incentives for businesses to set up shop in the uncrowded provinces, but can never offer enough to compensate for the longer-term opportunity cost of being detached from one’s market; even if it could, doing so would simply be economically unsound.

As it has been a popular policy topic in years past, “decongestion” is sure to come up again as we approach another change in administration; if not during the campaign, then as a part of the new administration’s planning. Any plan, in order for it to be at all productive, must consider it from the correct perspective, and focus on making decongestion attractive to people first. If it does so, the business and the corresponding economic benefits will follow on their own.