The economy of a federal Philippines is characterized by genuine fiscal decentralization and regional specialization. Fiscal decentralization is the distribution of financial functions from the national government to the regions; and specialization happens where federal states, their cities and provinces, devote their resources to separate industries.

Fiscal decentralization was begun with the Local Government Code of 1991, where expenditures, agency services and operations are transferred from Manila to the provinces, cities and municipalities. Did this work, though?

If local governments are to carry out decentralized functions effectively, they must have an adequate level of income, as well as the authority to decide on their  expenditures — both problematic in the Philippines.
  1. Are you familiar with SARO? NCA? GAA? Complicated stuff. But here's what it all means: The local government cannot spend without Manila's thumbs up — no allocation, no allotment, no release. And that means no incentive for the local government to save and manage their expenditures, because budget is fixed, there's no discretion for them to change it, and if they do get some savings, they'd just get less allotment the next year.
  2. Local governments have failed to raise enough revenues to cover expanded costs, leading to dependence to the national government for additional funds, which means a weakening local fiscal autonomy. How the local government can raise more funds? This leads us to our second economic concept.
It's not only Metro Manila that is the potential commercial powerhouse of the Philippines. There's Cebu and Davao. Then you add Batangas, Iloilo, Cagayan de Oro, Dagupan, Tacloban, Dadiangas (General Santos), Laoag, Albay (Legazpi), Cotabato. ... You have over 20 potentially strong commercial centers in Asia. And there are over 20 kinds of industries in the world. Why are these cities not doing well enough?

Answer's easy: Because we have a unitary government, all energy is focused on Manila, that's why Manila is congested beyond its physical capacity, and the other cities are left in the lurch. Federalism, that's what we need. And when we do become federal, that's when we answer the real question: How can the cities outside Metro Manila raise more revenues?

They specialize, of course. They don't have to be in the same industry as the others. They can pursue separate industry and be good and powerful in it.

And there happens to be a huge vacuum of industries in the country. We merely export electronic parts to other countries; why not make whole appliances in Iligan? We don't produce computers; why not develop some in Iloilo? We import our fabric from India; why not host a cotton industry in Antique, whose natives have to migrate to Iloilo to make decent living? We get our milk from New Zealand; gosh, Masbate's an entire ranch of an island. Then maybe we can finally decongest Metro Manila by extracting the industrial center and putting it in Davao, and perhaps get a more meaningful cultural center right at the heart of the archipelago, in Cebu, where it is accessible to all Philippine peoples. But these cities can hardly shine, because they are not empowered.

When the different cities do specialize, the fiscal decentralization should match this, too. If the ancient producer of balangay, Butuan, pulls off the country's biggest shipbuilding industry, the Maritime Industry Authority (MARINA) should be based there. If Samar-Leyte develops a sustainable pulp-and-paper industry, government should place a forestry agency there, one that bolsters the agriculture and not another fruitless bureau of environmental protection. Palawan is the Philippine's last ecological frontier, it would be symbolical and strategic for it to hold the central office of the Department of Environment.

It's crucial that a city with great potential be given ample opportunity. This was the economic consideration when this blog came up with 22 federal states, ensuring that a lone potentially great city, so long as their is one ethnic group to care for it, belongs to a separate state. As an example, while practically ethnic twins, Lanao and Maguindanao are two separate states; because Lanao has Iligan, and Maguindanao has Cotabato. Each can concentrate on their own city, so each can bring out its own best.