[OPINION] Upper-middle income Philippines can learn a thing or two from these countries

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Will Philippine institutions remain focused on preserving today’s arrangements, or will they create space for new entrants, industries, technologies, and ideas?

The Philippines has finally crossed into the World Bank’s upper-middle-income category. It is an important milestone and a reflection of decades of economic progress. Yet history suggests that this is precisely the point at which countries face their greatest test. Many nations reach middle-income status; far fewer become truly high-income economies.

One comparison illustrates the scale of the challenge. Gyeonggi province in South Korea has roughly 14 million people — barely one-eighth of the Philippines’ population of more than 115 million. Yet in 2024, Gyeonggi generated roughly US$450 billion in economic output, broadly comparable to the Philippine economy of around US$460 billion.

A nation of more than 115 million people today produces roughly the same economic output as one Korean province roughly the size of Mindoro. The difference is not explained by geography or natural resources. It is explained by productivity. And productivity, over the long run, is determined less by talent than by institutions.

Every institution has two jobs: to preserve what works and to replace what no longer does. Nations stagnate when they become exceptionally good at the first and forget the second.

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Look at Portugal

History offers an unexpected lesson in Portugal.

Five hundred years ago, Portugal stood at the center of the world. Its explorers opened sea routes to Africa, India, Brazil, and East Asia. Lisbon became one of Europe’s richest ports, and the Portuguese Empire generated extraordinary wealth. Yet success gradually reduced the urgency to change. Wealth flowed from overseas possessions rather than domestic innovation. Political and economic influence remained concentrated among the monarchy, aristocracy, colonial merchants, and the Church. Institutions increasingly evolved to preserve those already inside the system rather than create opportunities for those outside it.

While Britain, Germany, Belgium, and other European nations embraced industrialization, Portugal modernized more slowly. Existing industries were protected. Competition remained limited. Stability increasingly took precedence over renewal. By the middle of the 20th century, a nation that had once led the world had become one of Western Europe’s poorer economies.

The consequences extended far beyond economics. Portugal also became a nation of emigrants. Throughout much of the 20th century, it had one of Western Europe’s highest emigration rates. Millions of Portuguese left for France, Germany, Luxembourg, Switzerland, Brazil, Canada, and the United States because opportunities abroad increasingly exceeded those at home. Even today, more than 30,000 Portuguese emigrate permanently each year.

Portugal’s story is ultimately an optimistic one. After decades of relative decline, it renewed its institutions, opened its economy, and steadily narrowed the gap with the rest of Europe. Its experience suggests that institutional renewal is neither quick nor easy — but it is possible. Nations rarely stagnate because they run out of talented people. They stagnate because their institutions gradually become better at protecting incumbents than creating opportunities for new entrants.

Does this sound familiar?

Bureaucracy: Honest but resistant to change

The Philippines has become one of the world’s great exporters of human capital. According to the Philippine Statistics Authority, there were approximately 2.2 million overseas Filipino workers during the 2024 survey period — roughly two percent of the country’s population at any given time. That figure does not include the much larger permanent Filipino diaspora built over generations. Their remittances contribute tens of billions of dollars annually and remain one of the country’s greatest economic strengths.

But remittances also tell another story.

When institutions cease producing enough opportunity, people themselves become a nation’s most successful export. Portugal exported workers. The Philippines exports workers and professionals. Different histories, but perhaps a similar institutional question.

The country’s greatest challenge therefore goes beyond corruption alone. Corruption matters, but even an honest bureaucracy can become slow, risk-averse, and resistant to change. The larger challenge is institutional stagnation.

Narrow path for new players

Its symptoms are familiar. Entrepreneurs spend months navigating permits. Innovative technologies encounter regulations written for older industries. Small firms struggle with compliance costs that larger firms absorb more easily. Government procurement remains difficult for younger companies. Individually, each barrier appears manageable. Collectively, they create an environment where the greatest advantage belongs not to the most innovative participant, but to the one already inside the system.

That is how incumbents become protected without anyone explicitly deciding to protect them.

When approvals take longer, incumbents benefit because they already possess approvals. When compliance becomes more expensive, incumbents benefit because they already have legal departments and consultants. As barriers accumulate, the path for new entrants becomes steadily narrower.

The irony is that this ultimately weakens incumbents as well. Competition forces adaptation. New entrants develop technologies that established firms later adopt, acquire, or compete against. Productivity rises because ideas compete as fiercely as businesses do. A country that protects today’s winners too effectively eventually discovers there are too few winners tomorrow.

South Korea, Singapore, Thailand’s path

South Korea, Singapore, and even Thailand followed a different path. None dismantled their largest companies. Instead, they deliberately created room for new entrants through research, startup ecosystems, venture capital, technology commercialization, regulatory sandboxes, and targeted industrial policy. They understood that protecting successful firms should never come at the expense of creating tomorrow’s challengers.

The Philippines often argues that it lacks the financial resources of Singapore or South Korea. That is partly true. Better infrastructure, stronger universities, and larger research budgets all require money. But many institutional reforms require leadership more than budgets: coordinating regulators, reducing approval times, expanding regulatory sandboxes, opening procurement to innovative firms, and rewarding public institutions for solving problems rather than simply following procedures.

The danger of reaching upper-middle-income status is that countries begin celebrating growth while overlooking productivity. The World Bank’s reclassification should not be viewed as the finish line. Many countries reach this stage. Far fewer become high-income economies because institutional renewal slows even as growth continues. Economists call this the middle-income trap. Behind it often lies something deeper: institutional complacency.

The Philippines now faces a clear choice: will its institutions remain focused on preserving today’s arrangements, or will they create space for new entrants, industries, technologies, and ideas?

History favors the societies that keep rebuilding for tomorrow. – Rappler.com

Dr. Jaemin Park is an adjunct professor at the University of the Philippines College of Public Health and works across Southeast Asia on healthcare financing, medical innovation, and public sector reform.

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