Cheap but poor

Two reports, released one after the other by financial and economic think tanks that have found Manila nearly the cheapest city worldwide when it comes to cost of living, come with a downside: they also disclose that Manila has low wage and purchasing power levels. They indicate that while Manila may be a boon to investors and expatriates, it’s a bane to its own native residents. They show the dilemma of development: how to get the country out of poverty by attracting businesses through low wage rates and cheap costs of doing business in the country, but without driving further the population down the trap. How to keep things cheap but without being, as they say in street slang, “cheap.”

According to the UBS Prices and Earnings Report released last week, Manila retained its ranking as the second cheapest city on a list of 73 countries. With New York City as base city with the index set at 100 points, Manila scored 45.3 points, based on a weighted basket of 122 goods and services. Mumbai is the cheapest city to live in, with 40.2 points. After Manila, the cheapest cities are Delhi (49 points), Nairobi (50.4), and Cairo (50.5). The report follows the findings of the Economist Intelligence Unit’s Worldwide Cost of Living 2011, which included Manila among 10 cities with the lowest cost of living.

But perhaps even more revealing is the fact that Manila is the second city after Mumbai with the lowest wage rates; it is followed in the league by Nairobi, Jakarta and Delhi. Moreover, in terms of purchasing power, Manila is third lowest, after Jakarta and Nairobi. Just above Manila are Mexico City and Mumbai.

In explaining the country’s ranking, Socio-economic Planning Secretary Cayetano Paderanga cited “controlled inflation”: inflation has been kept within the 3 percent to 5 percent range targeted by the Bangko Sentral ng Pilipinas. Without meaning to, he explained why the Philippines also has nearly the lowest wage rates and purchasing power. Because of controlled inflation, wage hikes have to be controlled as well, which of course not only stems inflation, but reduces purchasing power as well. Inflationary checks have largely benefited business, not the general populace.

But of course, the UBS and Economist reports are studies to guide businessmen and investors. With a little tweak of the indices and a more comprehensive approach, similar reports by business research units have shown that Manila is not at all that cheap. For example, the global consultancy firm Mercer in its World Cost of Living report in 2008 (the last year the report was released to the media as far as our archives are concerned) showed Manila ranking 110 out of 143 cities surveyed across six continents. The world’s most expensive cities were Moscow, Tokyo and London; Asuncion in Paraguay was the cheapest, the sixth year in a row it made that rank.

Surely Manila is not at all that cheap. Its low wages may keep inflation down, but they also affect purchasing power and the ability of ordinary citizens to buy basic commodities to keep body and soul together. But wage policies have always been anti-inflationary and therefore, against providing the ordinary citizenry with greater purchasing power. “Manila has low wages because our wage-setting process takes some time,” said National Competitiveness Council co-chairman Guillermo M. Luz. The recent increases in the prices of food and oil have affected the purchasing power of Filipinos, he added. But the problem of joblessness continues to rankle and it will certainly affect any move to increase wages. Economist Cid L. Terosa of the University of Asia and the Pacific said Manila suffers from “low participation in the economy,” a euphemism for joblessness. “There are too many unproductive and underemployed people.”

In the UBS and Economist reports, Northern European cities, particularly in Switzerland and Scandinavia, emerged as the most expensive cities: Oslo, Zurich, Geneva, Copenhagen and Stockholm. Their ranking owes as much to the slip of the American dollar against European currencies as to their history of social welfarism. History should at least tell us that whatever policies are fostered to enhance business and investment, their social costs should be checked.

Manila may be the world’s most inexpensive city, but who’s bearing the burden of keeping the cost of living here low? It’s the lowly poor. A policy of business for business’ sake is suicidal. Social costs should translate to social benefits.