Inclusive growth is finally happening

For the longest time, I was observing how the Philippine economy was experiencing growth that was narrow, shallow and hollow. “Narrow,” because our economic growth had a narrow sectoral and geographical base. Services — most prominently banking and insurance, real estate, business process outsourcing and trade — had been the primary drivers of our economy’s growth for well over two decades. Also, Metro Manila and the surrounding provinces of Calabarzon and Central Luzon accounted for well over half of the country’s production output and incomes. “Shallow” was seen in how our fast-growing sectors had weak linkages to the rest of the domestic economy. For example, electronics, our top export product, has consistently been our top import product as well, reflecting how little of its value comes from our own domestic economy — in the form of assembly labor, and little else. “Hollow” describes the way our economy’s growth failed to bring forth a corresponding growth in jobs. What we saw instead was “jobless growth” and poverty-raising growth. Someone once quipped that instead of propoor, what the Philippines had was “puro poor” growth.

The numbers clearly showed it. In early 2010, the economy grew at a record 7.3 percent year-on-year rate, and yet unemployment went up and the number of our jobless workers swelled beyond 3 million. Through most of the first decade, between 2003 and 2009 in particular, our poverty incidence rose from 24.9 to 26.5 percent, at a time economic growth was actually speeding up! A concerned businessman presented me with disturbing data then, showing that sales of table wine had been zooming, far outpacing sales of items consumed more by the poor, such as instant noodles and basic food items.

But as the old Bob Dylan song goes, the times are a-changin’. There are at least four trends in the economic data that suggest growth is getting more inclusive, and benefiting a wider range of our people, including the poor. First, the unemployment rate has steadily gone down in the past four years. The quarterly Labor Force Survey of the Philippine Statistics Authority reports our fourth-quarter unemployment rate as having successively declined from 6.5 percent in 2013, to 6.0 percent in 2014, 5.6 percent in 2015, and further down to 4.7 percent in 2016. This is actually the first time I have seen our unemployment rate go below 5 percent. The actual number of jobless dropped from 2.6 million in 2013, to 2.04 million in 2016.

Second, growth in deployment of Filipino workers overseas has actually slowed down in recent years, making the decline in
domestic unemployment even more impressive. From the annual deployment growth of 5.9 percent in 2005, this had slowed to 3.3 percent in 2010, and to only 0.7 percent in 2015. With slower exodus of Filipino workers overseas and yet a significant decline in domestic unemployment, we can only conclude that our economy has been much better at generating jobs locally than before.

Third, there is evidence that not only the quantity but also the quality of domestic jobs has been improving. In 2005, only half (50.3 percent) of those employed were wage and salary workers. By 2013, this had grown to 57.4 percent, and was further up to 60.8 percent by 2016. Meanwhile, unpaid family workers made up only 8.6 percent in 2016, down from 10.9 percent in 2013 and 12.7 percent in 2005. More regular wage-paying jobs is good news for our workers, as it means better quality jobs.

Fourth, the economy is now growing on a broader base, both on the supply and demand sides. On the production side, industry (mostly manufacturing) now contributes about 40 percent of the economy’s growth, from less than 10 percent in the 1990s, when services was our dominant growth driver. On the demand side, investment spending now also contributes about 40 percent of the economy’s growth, from less than 10 percent in the 1990s when consumer spending propelled by remittance income gave the lion’s share.

These are indeed clear signs of more inclusive growth. We must have been doing something right in the past several years. Whatever it was, we need to keep doing more of it.

[email protected]