The 3rd World’s Emerging Economic Powerhouses

The built form of Southeast Asian cities–dense, crowded, chaotic–is a symbol of this region’s trajectory. In recent decades, the region has rallied from war and ethnic strife to become a growth hub. This could be said of the larger developing world, creating a contrast with stagnant Western countries. Among the reasons are greater urbanization, openness to trade, and other traits linked to rising market democracies. One case to look at, which I recently visited, is the Philippines.

For most of the 21st century, the Philippines’ annual GDP growth has exceeded 5%. Poverty is dropping and, while incomes remain low, standards of living increase. In 2019, the country entered the bottom end of “high development” ones on the UN’s Human Development Index. 

“Between 1990 and 2018, Philippines’ life expectancy at birth increased by 4.7 years, mean years of schooling increased by 2.8 years and expected years of schooling increased by 1.9 years,” states the report.

It’s shifting from a manufacturing to a service economy, which now accounts for 61% of activity.

This is a similar tale throughout the developing world. Southeast Asian countries have steady 3-5% GDP growth rates. Africa’s continent-wide rate was 3.8% in 2022. India’s economic expansion has propelled it to have the world’s highest growth rate, and it is anticipated to become the world’s third largest economy by the late 2020s. By contrast, the U.S. and E.U. typically see growth in the 1-3% range.

With this growth comes the well-chronicled standard of living increases, helping explain the sharp dip in global poverty rates. I’ve witnessed it firsthand while visiting 34 countries during my Global South trip. Populations that used to live an agrarian existence (or sometimes still do inside city boundaries) nonetheless have cell phones, brand name clothing, dental work, etc.

What causes these areas to advance at so much faster a rate than the West? There are many factors, but the larger one is the ongoing post-Soviet evolution towards market democracies.

In the Philippines, this modern growth era began in the 1970s and accelerated through the 1980s. The government, long prone to protectionism, began capping tariffs at 50%, eliminated nearly all export duties, deregulated banks, and liberalized interest rates to respond to market demand. The changes mirrored what later happened in India, Panama, Chile and much of the Third World.

On a macro level, free trade has proven crucial to this story. Comparative advantage dictates that goods be produced in countries with cheap labor, and consumed in those with high incomes. According to the IMF, developing countries that responded by lowering tariffs grew faster than those that kept them high. Likewise, regional trade partnerships, such as the ASEAN Free Trade Area or Africa’s Continental Free Trade Area, boost prosperity. 

In fact, some argue that trade within the Global South is outpacing that within the Global North. While a matter of contention, the Brookings Institute’s Andrew Mold argues that there has been more “South-South” trade for much of the 21st century. Some of this is thanks to the rise of China, but it plays out elsewhere in the developing world.

The Philippines specific niche in this give-and-take has been with white collar outsourcing; its educated population of English speakers with light accents makes it a great place to hire remote accountants, graphic designers and more. There is also still a heavy manufacturing and warehousing presence for cheap goods to be shipped abroad.

The 1980s also saw Filipinos’ peaceful overthrow of longtime dictator Ferdinand Marcos. It has been a democracy ever since, albeit a wobbly one marked by insurrection. 

Other factors are not economic or political, per se, but rooted in Third World cultural mindsets. Nations like the Philippines have fast population growth because people start big families young. The country’s population has 4x’d since 1960; the U.S.’ has not even doubled over that period.

Urbanization is another factor – as much cultural as economic – with rural peasants wanting to migrate to cities, as opposed to the out-migration we’re used to hearing about in the U.S. 54% of Filipinos live in urban neighborhoods, with metropolitan Manila accounting for around 25% of total population. This shift coincided with the 1980s economic reforms. It has led to the same growing pains, in respect to infrastructure, that inflict other Third World megacities. But the urbanization process is still linked with prosperity: “As in the Global North, cities in the South generally have the highest per capita incomes and wealth levels,” write academics Gregory Randolph and Michael Storper, “because they concentrate the most productive economic activities.”

Just as urbanization increases personal living standards, it transforms how cities get built. Manila is now the densest city on earth. It adds 200-300k people annually–about the same as metro Houston and Dallas combined. It’s rife with new megaprojects, such as Bonifacio Global City, a privately-managed former army base turned luxury zone for corporate offices and nightlife. These “startup city” developments pop up all over Global South cities, often surrounded by favela-style slums, which themselves result from the hyper-growth.

World Bank analysts project continued growth for the Philippines. They attribute it to that secret sauce of economic vibrancy found across the Global South: “increasing urbanization, a growing middle class, and a large and young population.” By the mid-2030s, the Philippines GDP is projected to exceed $1 trillion. 

The caveat is that these countries grow at a fast rate because they start from little. Their fast growth won’t bridge that gap with the West completely, nor solve all their domestic problems. In the Philippines, like similar countries, there is still high poverty, debt and instability. 

But there does seem to be an inherent upward arc to how these countries evolve. The vision that Francis Fukuyama laid out in The End of History–where developing countries advance by embracing free-markets and representative democracy, and casting off old autocratic structures–is coming true in the Philippines and much of the Third World. It will continue as long as there is relative global political peace, and the private sector can continue improving people’s lives.

Graphic Credit: The Market Urbanist.