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No Free Lunch

Why poverty has declined

/ 04:06 AM December 10, 2019

The latest, most positive news on the economic scene has been the dramatic drop in poverty incidence in 2018 by an impressive 6.7 percentage points, from 23.3 to 16.6 percent. If you don’t believe it, you’re probably not alone, but I’ll explain why you should.

This is actually the steepest drop I can remember our poverty rate has seen in a 3-year period (the Family Income and Expenditures Survey that tracks it is done only every three years). Back in 2015, I was already impressed at the 3.6 percentage point drop reported then, to 21.6 percent from 25.2 percent in 2012. But the 2015 figure was revised upward to 23.3 percent in the latest data from the Philippine Statistics Authority. The drop from 21.6 percent would have still been a record 5 percentage points without such revision.

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To put that in perspective, it’s worth recalling that our poverty rate was reported at 26.6 and 26.3 percent of the population in 2006 and 2009, respectively. But it was actually already lower at 24.9 percent in 2003, which means that poverty actually worsened in the country after 2003, and it was still higher than the 2003 level all the way to 2012. That was a period when our accelerating GDP growth was actually accompanied by rising poverty, so unlike the experience in Asian economies then. An Asian Development Bank study found that a one-percent rise in GDP was, on average, associated with a 2-percent decline in poverty incidence across Asian countries — except in the Philippines. Ours moved in the wrong direction, clearly showing that the benefits of the economy’s growth had not trickled down to the bottom of our society. But happily, things changed after 2012 (since 2010, in fact) and the nearly 8.6 percentage point drop in the proportion of poor Filipinos six years after that was truly remarkable.

I’m sure there are skeptics out there who doubt the veracity of these data, especially among those who are not too enamored with the current leadership. But politics aside, I see no reason to doubt the professionalism of our government statistical bodies and the statisticians therein. They were, after all, under my administrative supervision once upon a time, being attached agencies to the National Economic and Development Authority, which I led for eight years. As firsthand witness then to the professionalism and integrity of the men and women who churn out the numbers on which we assess our economy’s performance, this reported big drop in poverty incidence cannot be fake news.

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The fact is, the impressive drop in poverty finds ready explanation in the other economic data we’ve been seeing over recent years. Foremost is the relatively rapid growth since 2010 in our manufacturing sector, the source of the best quality wage and salary jobs in our economy, especially for lower-skilled workers. This manufacturing surge came about since Asean import tariffs went down to zero in 2010, and the rise of regional cross-border value chains spurred greater manufacturing activity in electronics, chemicals and other export manufactures. The unemployment rate is now under 5 percent, while the 13-percent underemployment is also way below the 18-20 percent we persistently had for many years. Wage and salary jobs now make up two thirds of the jobs in the economy, while unpaid family workers and those who are individually self-employed (like vendors, pedicabs drivers, etc.) have been accounting for falling shares of total jobs.

These trends are further supported by consistent double-digit growth rates since 2010 in overall investment in the economy, especially private domestic investments that create more jobs and livelihoods for Filipinos. Conditional cash transfers, while long term in intended benefit through their effect on the education of children in poor families, have also made a significant dent on poverty even in the short to medium term, especially now after 10 years of implementation.

For sure, many boats have not been lifted by the rising tide of the Philippine economy. But signs are clear that many more have been lifted in recent years than in the past.

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