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The economy grew—so what?

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The economy grew—so what?

/ 12:40 AM September 06, 2014

A week ago (8/27/2014), Socioeconomic Planning Secretary Arsenio Balisacan was pleased to report that economic growth had accelerated to 6.4 percent/year, adjusted for inflation, in the second quarter of 2014. He touted the Philippines as the second fastest growing economy among major Asian countries, with its growth rate equaling Malaysia’s and topping Indonesia’s 5.1 percent and Thailand’s 0.3 percent.

Some technicalities. How well does economic growth signify betterment of the people’s economic wellbeing?  The cited number of 6.4 is specifically the growth rate of the Gross Domestic Product (GDP).  It is the aggregate of production and also of income—since value-added in production is also value-earned as income—within Philippine domestic territory, including that of foreign entities based in it.

More meaningful than GDP is Gross National Income (GNI), which refers to the Filipino people, rather than to Philippine territory.  It includes earnings of overseas workers remitted to their families, and excludes (or should exclude) profits of foreign companies remitted to their home bases. The national accounts put the new GNI growth rate at 7.3 percent/year, or above that of GDP. I suspect that the country-comparisons use GDP because not many other countries do separate GNP and GNI accounting.

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Even more pertinent to the people, since their incomes are subject to taxation and other impositions, is Household Final Consumption Expenditure (HFCE). This rose by 5.3 percent/year in the second quarter, according to the national accounts.

Betterment of economic wellbeing requires the pie to grow faster than the number of people it serves. In the past year, the Philippine population grew from 98.0 million to 99.7 million—i.e., by 1.73 percent.  Dividing by the population gives a per capita (pc) figure, or what would be the individual piece of pie of each Filipino, if the pie were sliced equally. The annual growth percentages of these hypothetical equal-slices in the second quarter were: pc GDP, 4.6; pc GNI, 5.5, and pc HFCE, 3.6. These, not 6.4, are better numbers to remember.

Did sharing of the pie improve? The problem with relying on the aggregate accounts is that they lack information on sharing among persons. The GDP data come from surveys of the value of production. The GNI is derived from the GDP, rather than from direct surveys of the employment and earnings of the resources of workers (labor time and wages), managers (work time and salaries), capitalists (capital assets and profits), landowners (land/natural resources and rents), professionals (work units and fees), financiers (money and interest), and so on, who participated in the production.

The data on “household consumption” come from taking the quarterly surveys of production units (firms and farms) and presuming certain items as produced exclusively for household use, instead of coming from surveying households about how much they consume.  There are no details about how the growth was shared among high-end and low-end consumer items.

What’s happening to poverty? The government won’t have its own data to examine the trend in poverty until it does another survey of family income and/or expenditures.  The last such survey was done in the first semester of 2013, and reported on April 29, 2014.  Assuming it was repeated in the first semester of 2014, the first official assessment of poverty after Supertyphoon “Yolanda” will be ready only in April 2015 (see “The will to measure poverty,” Opinion, 5/3/2014.)

In the meantime, professional analysts should know that the SWS self-rated poverty rate was 55 percent of families in the second quarter of 2014, up from 53 percent in the first quarter, and from an average 52 percent for the four quarters of 2013.  SWS hunger, however, was at 16.3 percent of families in the second quarter, down from 17.8 percent in the first quarter and an average 19.5 percent in 2013 (see “The state of deprivation,” Opinion, 8/2/2014; charts and tables are in www.sws.org.ph).

Satisfaction with life had a slight setback recently. Do more people feel satisfied with their lives in times of rapid economic growth?  In the 21 times that SWS has surveyed about satisfaction with life, from 2002 to the present, those satisfied have ranged between a low of 61 percent and a high of 86 percent.  Seeing that the percentage is very much higher during the P-Noy administration (eight surveys so far) than during Gloria Arroyo’s time (13 surveys), I think it is more related to the quality of governance than to economic growth (“New numbers on happiness,” Opinion, 3/8/2014).

The latest SWS national survey, done on June 27-30, 2014, found 76 percent of Filipino adults satisfied with their lives.  This is below previous percentages of 83 in December 2013 and 80 in December 2012, and a return to the 76 in March 2012

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Between December 2013 and June 2014, the life-satisfaction percentage fell significantly in the Balance of Luzon (from 89 to 79), in the Visayas (from 76 to 69), and in Mindanao (from 80 to 72), but rose slightly in the National Capital Region (from 79 to 81). More details about the June 2014 state of satisfaction with life, including its relationship to self-rated poverty and hunger, will be in a new SWS report next week.

I will wait until scientific evidence shows economic growth as benefiting the great majority of the people, before getting too excited about it.

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Contact mahar.mangahas@sws.org.ph.

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TAGS: GDP growth, Gross National Income, Household Final Consumption Expenditure, Philippine economy, Philippines, Poverty
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