Reclaiming industrial policy for Philippine development

Composite image from INQUIRER files by Ed Lustan/Inquirer.net

(Third of a series)

Having established in Series 1 the historical roots of Philippine underindustrialization and, in Series 2, the unique application of the Dodge Plan within the country’s colonial and Cold War context, the third of the three-part series turns to the challenge of debunking the Dodge Report mindset and charting a forward-looking industrial policy.

Article continues after this advertisement

While the first two parts traced how dependency was entrenched through external prescriptions and the abandonment of nationalism, Series 3 focuses on transforming this legacy by reclaiming industrial policy as a central instrument of national survival. It examines how fiscal stability can be balanced with proactive state-led development, how R&D and science education can be embedded into a cohesive framework, and how competitiveness, sustainability and inclusivity can be aligned with sovereignty.

Three pillars

For the Philippines, there are at least three pillars of a modern industrial policy for the 21st century: competitiveness, sustainability and inclusivity.

Competitiveness is the first and most critical pillar because it determines whether the Philippines can sustain growth, reduce dependency and participate in high-value global supply chains. At present, the country’s manufacturing sector contributes less than 20% to GDP, far below regional peers such as Vietnam, Thailand and Malaysia.

Article continues after this advertisement

To address this gap, the Philippines must deliberately upgrade its manufacturing base, focusing on semiconductors, electronics and ICT. These industries are not only globally strategic but also essential for technological upgrading. South Korea and Taiwan transformed themselves into global leaders by nurturing semiconductor and electronics industries through targeted subsidies, export promotion and state-led investment. The Philippines must adopt similar strategies by creating industrial zones tailored to high-tech industries, incentivizing local firms and investing in R&D to ensure participation in global production networks.

Equally important is strengthening agro-industrial integration, which links agriculture to manufacturing through food processing, logistics and value-added production. The Philippines’ dependence on rice imports, despite its agricultural heritage, underscores the need for modernization. Investments in rice milling, cold storage and farm-to-market infrastructure, along with financial support to stabilize food prices, would reduce import dependence and create more jobs in rural and peri-urban areas.

Agro-industrial integration ensures farmers are not trapped in low-productivity agriculture but are connected to higher-value industries. This integration also enhances food security, a critical issue given the country’s vulnerability to climate shocks and global supply disruptions.

Finally, competitiveness requires export diversification. The Philippines has long relied on a narrow set of exports, making it vulnerable to global market fluctuations. Diversifying into high-value products such as electronics, renewable energy technologies and processed agricultural goods can reduce this vulnerability. Export diversification strengthens resilience by ensuring the economy is not overly dependent on a single sector or market.

Together, these strategies—upgrading manufacturing, integrating agriculture with industry and diversifying exports—form the foundation of a competitive industrial policy that can propel the Philippines into the ranks of globally competitive economies.

Sustainability is the second pillar, and it is not optional for the Philippines—it is a survival imperative. As one of the most climate-vulnerable countries in the world, the Philippines faces frequent typhoons, floods and rising sea levels. Industrial growth must therefore be aligned with environmental protection to ensure long-term resilience.

A key strategy is investment in renewable energy, particularly solar, wind and geothermal power. The Philippines is rich in renewable resources, yet it remains heavily dependent on imported fossil fuels. By channeling industrial policy toward renewable energy development, the country can reduce its exposure to global oil price volatility, enhance energy security and build a green technology base. Solar energy holds distinct advantages in the Philippine context compared with wind, wave, biomass, nuclear and geothermal sources: It is abundant, widely distributed and scalable, and is suited for the archipelago’s dispersed communities and high solar irradiance levels. Unlike geothermal or nuclear, solar avoids location-specific constraints and safety risks, and compared with wind or wave, it is more predictable and deployable across rural and urban areas.

Another critical component is promoting circular economy practices, which emphasize recycling, waste reduction and resource efficiency. Traditional industrial models often generate significant waste and environmental degradation, but circular economy frameworks transform waste into inputs for new production. For example, agricultural byproducts such as coconut husks, banana stems or pineapple leaves can be processed into fibers for textiles, reducing waste while creating new industries. Circular economy practices not only protect the environment but also create opportunities for innovation and job creation.

Finally, sustainability requires the development of climate-resilient infrastructure. The Philippines faces frequent natural disasters that threaten industrial hubs and supply chains. Industrial policy must therefore prioritize infrastructure that can withstand these shocks, such as flood-resistant roads, storm-proof energy grids and resilient housing for workers. Climate-resilient infrastructure ensures industrial growth is not repeatedly disrupted by environmental shocks. By embedding sustainability into industrial policy, the Philippines can pursue growth that is both environmentally responsible and economically secure, positioning itself as a hub for green industries in the ASEAN region.

Inclusivity is the third pillar and ensures industrial policy does not merely benefit elites or multinational corporations but contributes to broad-based development. For the Philippines, inclusivity begins with empowering farmers through cooperative frameworks. Farmers have historically been marginalized, trapped in low-productivity agriculture and vulnerable to volatile prices below costs of production. Cooperative frameworks allow farmers to pool resources, access credit, invest in processing facilities and capture greater value from their products. By federating local cooperatives into regional and national networks, farmers can strengthen their bargaining power and participate meaningfully in industrial growth.

Inclusivity also requires robust support for small and medium enterprises, which form the backbone of the Philippine economy. SMEs often face barriers such as limited access to credit, inadequate training and lack of technology. Industrial policy must therefore provide targeted support through low-interest loans, technical training programs and access to digital tools. By empowering SMEs, industrial policy ensures innovation and growth are not confined to large corporations but are distributed across the economy.

Finally, inclusivity demands the promotion of regional innovation clusters. Metro Manila has long dominated economic activity, leaving rural regions underserved. By establishing science parks and industrial hubs in Calabarzon, Cebu, Davao and Northern Mindanao, the Philippines can decentralize development and ensure technological progress benefits rural communities. These clusters would serve as collaborative spaces where universities, industries and cooperatives work together to drive innovation. Regional innovation clusters not only reduce inequality but also harness the diverse strengths of different regions, creating a more balanced and resilient economy.

Together, the three pillars—competitiveness, sustainability and inclusivity—form a coherent framework for modern industrial policy. Competitiveness ensures the Philippines can participate in global value chains and reduce dependency on imports. Sustainability aligns growth with environmental protection, safeguarding the country against climate risks. Inclusivity ensures industrial policy empowers marginalized groups and promotes regional equity. By integrating these pillars, the Philippines can break free from historical dependency and chart a path toward structural transformation that is both resilient and equitable.

Science and technology

Strategic sector prioritization is the foundation of integrating science and technology into industrial policy. The Philippines must identify sectors where it has both comparative advantages and urgent developmental needs.

Agro-industrial modernization is critical because agriculture remains the backbone of the economy, yet productivity is low due to outdated practices, fragmented landholdings and limited mechanization. By directing science and education programs toward the needs and requirements of technology-led development in agriculture, the country can modernize the production and processing of crops such as rice, coconut, sugarcane, banana and pineapple, as well as ube and fruit crops such as jackfruit, mangoes, guyabano, lanzones and dragon fruit, and transform them into globally competitive products.

Equally important is renewable energy development, given the Philippines’ abundant solar, wind and geothermal resources. Investing in renewable energy, particularly solar technologies, not only reduces dependence on imported fossil fuels but also positions the country as a hub for green industries. Engineers and physicists can play a pivotal role in designing and deploying renewable energy systems.

Biotechnology and health sciences must also be prioritized, especially in the wake of the COVID-19 pandemic and the Ebola virus. Domestic capacity in pharmaceuticals, vaccines and medical technologies is essential for both public health and food security. Scholars specializing in biology and chemistry can contribute to building a local pharmaceutical industry that reduces reliance on imports.

Finally, digital industries such as ICT, artificial intelligence and semiconductors are indispensable for positioning the Philippines within global value chains. Computer science and engineering scholars should be directed toward these sectors, ensuring the country participates in the Fourth Industrial Revolution. Strategic prioritization ensures human capital development aligns with industrial modernization, creating a coherent framework for national progress.

R&D and modernization

Research and development is the lifeblood of industrial modernization, yet the Philippines currently spends only 0.28% of GDP on R&D, far below its ASEAN peers and global leaders. UNESCO recommends allocating at least 1% of GDP to R&D, which for the Philippines in 2025 translates to approximately P250 billion annually.

The Philippines spends far less on R&D than its peers—0.28% of GDP in 2025, compared with 2% to 3% in Singapore and Europe, 3.4% in Japan, 5% in South Korea and more than 6% in Israel (StatRanker, 2025; Eurostat, 2026). This gap underscores why incremental R&D budgeting is critical if the country hopes to catch up in innovation and industrial competitiveness.

Comparative GERD (% of GDP, 2025) of different countries:

Infographic by Ed Lustan/INQUIRER.net

The Philippines’ gross expenditure on R&D (GERD) is low compared with both ASEAN neighbors and advanced economies. At 0.28% of GDP, it lags behind Vietnam (0.55%) and trails Singapore (2.9%) and South Korea (5%). This disparity reflects structural weaknesses: limited state investment, weak university-industry linkages and persistent brain drain.

By contrast, Israel’s 6.3% GERD demonstrates how a small country can achieve global leadership in innovation by embedding R&D into national survival strategies. Similarly, South Korea’s 5% GERD is driven by chaebol-led manufacturing and ICT clusters, supported by aggressive government subsidies and export promotion. Japan’s 3.4% GERD reflects decades of coordinated industrial policy through MITI, while the United States (3.5%) leverages agencies like NSF and DARPA to fund high-risk, high-reward research that feeds into commercialization.

Within ASEAN, Singapore’s 2.9% GERD shows how deliberate investment in semiconductors, ICT and biotechnology transformed a small service-oriented economy into a global innovation hub. Malaysia and Thailand, with GERD more than 1%, have made more progress than the Philippines by supporting electronics and agro-industrial R&D, though they still trail East Asian leaders.

The European Union average of 2.5% to 3% reflects a diversified innovation ecosystem, with Germany, Sweden and Finland exceeding 3%, while southern economies like Spain and Italy remain closer to 1.5%. This highlights the importance of regional policy coordination and sustained investment in innovation clusters.

Funds must be earmarked for university-industry research consortia, technology incubation hubs and farm-to-market R&D. Incremental budgeting ensures investments are sustainable while gradually building the country’s innovation ecosystem. By embedding SEI’s scholarship and training programs within this framework, the Philippines can transform its human capital into industrial competitiveness.

Why GERD matters

The Philippines faces a persistent innovation deficit rooted in low GERD, weak scientific manpower and systemic governance failures. GERD remains at approximately 0.28% of GDP, far below ASEAN peers such as Malaysia (1.01%) and Singapore (2.46%). This underinvestment constrains technological competitiveness, leaving the country primarily as a technology user rather than a developer.

The imbalance between scientific and legal professional output—fewer than 100 PhDs annually in biological and physical sciences versus more than 5,000 new lawyers a year—highlights structural misalignment (Mendoza, 2026. GERD and Scientific Capacity in the Philippines, Breaking the Cycle of Dependence Increasing Climate Resilience, not yet published).

As discussed above, the Philippines spends far less on R&D than its peers—0.28% of GDP in 2025, compared with 2% to 3% in Singapore and Europe, 3.4% in Japan, 5% in South Korea and more than 6% in Israel (StatRanker, 2025; Eurostat, 2026). This gap underscores why incremental R&D budgeting is critical if the country hopes to catch up in innovation and industrial competitiveness.

The following must be addressed: incremental R&D budgeting; agro-industrial modernization; stopping brain drain; the need for coherent innovation policy; and governance reforms.

Incremental R&D budgeting is essential if the Philippines is to break free from its low-investment trap. It would ensure fiscal sustainability while building the innovation ecosystem. This phased increase allows the government to strengthen teacher training, expand STEM scholarships and invest in agro-industrial R&D in the early years, before scaling up to renewable energy, biotechnology and ICT hubs. By embedding this framework, the Philippines can transform human capital into industrial competitiveness, ensuring education investments yield tangible innovation outcomes.

A phased approach to ensure fiscal sustainability is necessary. In Years 1-3, R&D spending should be raised to 0.6% of GDP (about P150 billion), focusing on teacher training, STEM scholarships and agro-industrial R&D. In Years 4-6, spending should increase to 0.8% (about P200 billion), with emphasis on renewable energy, ICT hubs and biotechnology laboratories. By Years 7-10, the country should reach the 1% benchmark (about P250 billion), enabling full-scale industrial clusters, commercialization and global partnerships.

Agro-industrial modernization is a priority. Strategic prioritization of sectors is critical to maximize the impact of increased R&D spending. The Philippines must focus on areas where it has urgent developmental needs. Agro-industrial modernization is a priority, given the country’s agricultural heritage and chronic dependence on imports. Investments in biotechnology, mechanization and cooperative frameworks, and linking farmers to higher-value industries, are necessary.

Renewable energy is another strategic sector, as the Philippines possesses abundant solar, wind and geothermal resources yet remains dependent on imported fossil fuels. Biotechnology and health sciences must also be prioritized to build domestic capacity in pharmaceuticals and medical technologies, reducing reliance on imports. Finally, ICT and digital industries are indispensable for positioning the Philippines within global value chains. By directing SEI scholars into these sectors, the country can align human capital development with industrial modernization.

Stopping brain drain is also critical. Talent retention must accompany increased R&D funding. The Philippines has long suffered from brain drain, with many of its best-trained scientists and engineers migrating abroad due to better opportunities and pay. Without mechanisms to retain talent, increased R&D spending will subsidize the innovation systems of other countries.

Service requirements for scholarship recipients to serve in local industries or universities for three to five years can help ensure public investments yield domestic benefits. At the same time, competitive salaries and grants are essential to reduce incentives to migrate. Scholars should be offered opportunities to lead research projects, publish internationally and access cutting-edge facilities.

Equally important are clear career pathways that link education to industry. Opportunities in science parks, research centers and industrial clusters can provide meaningful career trajectories for STEM graduates. By retaining talent, the Philippines can ensure investments in education translate into domestic innovation and industrial modernization.

The need for coherent innovation policy is the missing link. The Philippines has long demonstrated grassroots creativity, producing inventions that capture both local ingenuity and global potential. Examples such as Daniel Dingel’s water-powered engine in the late 1980s and Francisco Motors’ hydrogen-powered jeepney prototypes in recent years highlight the capacity of Filipino innovators to imagine transformative technologies. Yet these breakthroughs have remained prototypes, celebrated briefly but never scaled into mainstream industrial production.

The absence of a coherent innovation policy explains this persistent failure. While science education and R&D programs exist, they are not embedded in a framework that bridges invention with commercialization. Innovation policy is therefore the missing link in the Philippines’ industrial modernization, ensuring creativity translates into competitiveness.

Innovation must be decentralized to avoid overconcentration in Metro Manila. A national industrial policy should promote regional innovation clusters that harness the strengths of different regions. For example, Calabarzon can focus on agro-industrial modernization and biotechnology, Cebu on ICT and digital industries, Davao on renewable energy and agribusiness, and Northern Mindanao on natural fibers and cooperative frameworks.

Science parks in these regions can serve as hubs where SEI-trained teachers, researchers and scholars collaborate with local industries. These clusters would provide incubation, testing and scaling facilities, ensuring technological progress benefits rural communities. Regional innovation clusters not only reduce inequality but also harness diverse regional strengths, creating a more balanced and resilient economy.

Integrating science and technology into industrial policy requires a coherent framework that combines strategic sector prioritization, incremental R&D budgeting, talent retention, governance reforms and regional innovation clusters. By embedding SEI’s scholarship pipeline within this framework, the Philippines can transform its human capital into industrial competitiveness. This integration ensures education does not remain isolated from industry but becomes a driver of modernization, innovation and resilience.

Finally, governance reforms are indispensable to ensure increased R&D spending delivers results. Corruption and inefficiency have undermined public investments, eroding trust and wasting resources. Transparent allocation of R&D funds, open data systems and strong university-industry consortia are critical.

A National Science and Technology Council should be established to coordinate SEI, DOST, DepEd, CHED and industry stakeholders, setting national priorities and monitoring outputs. Open data systems can track allocations and outcomes, ensuring accountability and preventing leakage. University-industry consortia can bridge the gap between research and commercialization, ensuring innovations move beyond prototypes into industrial production.

Governance reforms are not simply administrative. They are the foundation for building trust among stakeholders and ensuring industrial policy delivers tangible results. Increased R&D spending will fail to transform the economy without such reforms, and the Philippines risks remaining trapped in a low-R&D equilibrium, dependent on remittances and services while neighbors surge ahead in industrial competitiveness.

Transparency mechanisms such as open data systems can track allocations and outputs, ensuring accountability and preventing leakage. Historically, corruption and inefficiency have undermined public investments, so governance reforms are critical to maximize the impact of R&D spending. By institutionalizing accountability, the Philippines can build trust among stakeholders and ensure industrial policy delivers tangible results.

Lessons from abroad

The experiences of advanced economies demonstrate how innovation policy and supportive governance with a nationalistic ethos serve as the connecting link between education, research, industry and economic advancement.

In the United States, the National Science Foundation and the Defense Advanced Research Projects Agency fund high-risk, high-reward research. These institutions have produced transformative technologies such as the internet, GPS and biotechnology breakthroughs. The U.S. government supports commercialization through venture capital incentives, strong intellectual property protections and procurement policies that absorb innovations into defense, health and infrastructure. This ecosystem ensures inventions move from laboratories into industries, creating global leadership in sectors such as artificial intelligence and biotechnology.

In Japan, the Ministry of Economy, Trade, and Industry integrates innovation policy with industrial strategy. By supporting robotics, automotive and electronics industries, Japan ensures domestic innovations are scaled globally. Government procurement and industry consortia play a central role in absorbing innovations into mainstream production. Japan’s leadership in robotics stems from decades of coordinated investment in research, industry collaboration and government support.

South Korea offers another model. Its innovation policy is tightly linked to the chaebol conglomerates, which absorb university research outputs into industrial production. The government funds R&D at universities, while chaebols integrate these innovations into sectors such as semiconductors, shipbuilding and consumer electronics. This synergy has propelled South Korea into global leadership, demonstrating the power of linking education, research and industry through innovation policy.

The European Union’s Horizon Europe program exemplifies innovation policy at scale. It funds collaborative research across member states, emphasizes sustainability and supports commercialization through innovation hubs. The EU also prioritizes intellectual property harmonization, ensuring innovators can scale across borders. Horizon Europe demonstrates how innovation policy can be designed to foster collaboration, sustainability and competitiveness simultaneously.

Innovation gaps

In contrast, the Philippines has lacked a coherent innovation policy. Innovators such as Dingel and Francisco Motors faced skepticism, limited funding and regulatory hurdles. Their inventions were not absorbed into industrial clusters or supported by government procurement. This reflects several systemic gaps.

First, commercialization pathways are weak. Innovations rarely move beyond prototypes because there are no mechanisms to scale them into industries. Second, intellectual property protection is limited. Patent processes are slow, underfunded and inaccessible to grassroots innovators. Third, the venture capital ecosystem is absent, leaving innovators without financing to scale their inventions. Finally, government support is fragmented, with agencies operating in silos and failing to coordinate innovation efforts. These gaps explain why Filipino creativity remains underutilized, celebrated in isolation but never integrated into national development.

To address these gaps, the Philippines must embed innovation policy into its national industrial framework. Several key features are essential.

First, establishing a National Innovation Fund is a starting point. This fund should support prototypes, pilot projects and commercialization, prioritizing grassroots innovations in energy, transport and agriculture. By providing grants and seed funding, the government can ensure inventions move beyond the prototype stage.

Second, government procurement policies must be adopted to absorb local innovations into public infrastructure. For example, hydrogen-powered jeepneys could be procured for public transport fleets, creating demand for local innovations and demonstrating their viability. Procurement policies are tools for scaling innovations, as they provide guaranteed markets and reduce risks for innovators.

Third, regional innovation clusters should be created to provide incubation, testing and scaling facilities. These clusters would bring together universities, industries and cooperatives, fostering collaboration and innovation. By decentralizing innovation, clusters in Calabarzon, Cebu, Davao and Northern Mindanao can harness regional strengths and ensure technological progress benefits rural communities.

Fourth, intellectual property reform is essential. Patent processes must be streamlined, legal support provided and IP filings subsidized for grassroots innovators. Strong IP protection ensures innovators can reap the rewards of their creativity and attract investment.

Finally, the Philippines must incentivize venture capital ecosystems. Tax breaks, matching grants and public-private partnerships can encourage private investment in innovation. A venture capital ecosystem ensures innovators have access to financing, enabling them to scale their inventions into industries.

Conclusion

This three-part series has traced the Philippines’ industrial trajectory from its colonial legacies and the Bell Trade Act (Series 1), through the Cold War stabilization policies and the uniquely imposed Dodge Plan (Series 2), to the task of debunking the Dodge mindset and reclaiming industrial policy as a national survival imperative (Series 3). Together, these analyses reveal a consistent pattern: Dependency was entrenched not by accident but by design, reinforced by external prescriptions and the abandonment of nationalism as a guiding principle.

Comparative lessons from East Asia demonstrate that nationalism, when embedded in industrial policy, can serve as a strategic compass for competitiveness, sustainability and inclusivity. South Korea, Japan, Vietnam, China and Singapore operationalized nationalist frameworks to transform their economies, while the Philippines remained trapped in austerity and externally driven reforms.

The way forward is clear. The Philippines must reclaim nationalism, not as isolationism but as a developmental ethos, while embedding science education, R&D and innovation policy into a cohesive industrial framework. Fiscal stability must be balanced with proactive state-led investment, governance reforms and talent retention. Only by rejecting the outdated Dodge paradigm and embracing a nationalist-driven industrial policy can the Philippines break free from dependency, secure sovereignty and achieve structural transformation in the 21st century.

The Philippines’ failure to industrialize is rooted in historical dependency, Cold War stabilization strategies and neoliberal reforms that dismantled protective measures for local industries. Global transformations, technological disruption, climate change and geopolitical fragmentation create new opportunities for renewal. By embedding science education, R&D and innovation policy within a cohesive industrial framework, the Philippines can break free from dependency and build a competitive, sustainable and inclusive economy.

Industrial policy is not merely an economic strategy but a national survival imperative. The Dodge Report mindset, which prioritized fiscal conservatism and debt repayment over industrial expansion, must be debunked and replaced with a proactive vision that balances fiscal stability with modernization. The abandonment of nationalism as a guiding principle in development planning was a critical error.

The Philippines once registered double-digit industrial growth in the 1950s under nationalist industrialists and policies such as the Filipino First campaign, but this momentum was derailed by Cold War geopolitics, IMF-World Bank conditionalities and the institutional downgrading of nationalism by agencies like the Program Implementation Agency. From the 1970s onward, export-oriented industrialization and neoliberal reforms sidelined nationalism, leaving the Philippines vulnerable to external shocks and unable to sustain autonomous growth.

Today, there is a rethinking in the neoliberal academic world and within IMF-World Bank corridors on the central importance of industrial policy as a powerful instrument for transforming developing economies. Many Filipino neoliberal advocates now posture as champions of industrial policy. Yet, as Ofreneo notes, no mea culpa has been offered for decades of neglect. They continue to avoid the phrase “economic nationalism,” a term treated as taboo during the neoliberal decades of the 1980s-2010s, precisely the decades when the Philippines was left behind by its Asian neighbors in the development race.

Reclaiming nationalism as a developmental ethos is therefore essential, not as isolationism but as a framework that prioritizes Filipino industries, workers and farmers while embedding innovation and resilience into the nation’s economic future.

With sustained investment, governance reforms and innovation support, the Philippines can raise its technology index from 3% to 15% to 20% within a decade, securing its economic future. The lesson is clear: Without nationalism as a compass and industrial policy as an instrument, the Philippines risks remaining trapped in dependency. But with a cohesive, nationalist-driven industrial policy, the country can achieve structural transformation, ensuring competitiveness, sustainability and inclusivity in the 21st century. /dm

Your subscription could not be saved. Please try again.

Your subscription has been successful.

FIRST OF A SERIES: Why the Philippines needs a modern industrial policy

SECOND OF A SERES: How the Dodge mindset still shapes industrial policy

[Dr. Teodoro “Ted” Mendoza is a retired professor and UP Scientist at the Institute of Crop Sciences at the University of the Philippines Los Baños.]