Big business and inclusion
Believe it or not, income distribution in the Philippines has improved over the last 10 years, even through the pandemic and the economic contraction that accompanied it. The richest one-fifth (20 percent) of the population had 4.7 times more income than the poorest one-fifth in 2021; the ratio was 6.8 in 2012, 6.0 in 2015, and 5.1 in 2018. Another measure of inequality is the Gini coefficient, where zero denotes perfect equality and 1.0 denotes perfect inequality (i.e., one person gets all the income); it declined to 0.4119 in 2021 from 0.4267 in 2018, 0.4438 in 2015, and 0.4605 in 2012. The Philippine Statistics Authority (PSA) noted that average annual incomes of the bottom half of the population had grown while that of the upper half actually declined, leading to this improvement in income distribution.
The bad news is that the last three years saw a reversal of gains we had already made in poverty reduction. In 2018, the PSA reported that 16.7 percent of Filipinos were poor, having declined from 23.1 percent in 2015. But in 2021, the number had risen again to 18.1 percent. This translated to 2.3 million more Filipinos slipping into poverty between 2018 and 2021, which is cause for concern and should lead us all to help improve the situation. While so much is made of the economy’s growth rate that has defied expectations this year even as economies elsewhere have generally slowed down, escalation of poverty shows that the growth has not benefited our lowest-income groups. This means that the goal of inclusive growth and development has only partially been achieved (through improved income distribution), as a large number of Filipinos have still been pushed back and left behind after the pandemic-induced recession.
Over a year ago, I wrote of the Ateneo Policy Center’s finding that in 2018, the top 15 business conglomerates generated the equivalent of nearly 6 percent of our gross domestic product (GDP), up from 4.7 percent in 2012 (“Big and bad?” 9/21/2021). I have not come across a more recent assessment, but knowing how the pandemic also killed a large number of small businesses, the dominance of big business may have further increased. In the longer term, government must make good on its long-professed policy of promoting and strengthening micro, small, and medium enterprises (MSMEs) to increase the role and GDP contribution of small businesses. I have written in this column of various rules and impediments government and other businesses keep throwing in the way of small businesses, in seeming contravention of stated policy favoring MSMEs.
Even so, big business dominance has not kept us from achieving better inclusion as seen in the improved income distribution discussed earlier. After all, business conglomerates provide millions of jobs directly and sustain millions more indirectly within the wider business ecosystems comprising their value chains. If their leaders choose to act responsibly rather than selfishly, they can deliberately be instruments for more inclusive growth via business models that put them in a symbiotic rather than competitive relationship with MSMEs. This is, in fact, the needed direction to help our long-troubled agricultural sector emerge from a perennial condition where farmers remain poor, trapped in low productivity and incomes.
Improving Philippine agriculture and uplifting farmers’ lives would take an active partnership between government (providing the needed policy environment) and big business (providing investments in agri-based industries). Non-agri-based manufacturing also needs to attract more investments from our big business conglomerates, who National Scientist Dr. Raul Fabella observes to have overly focused on nontradable services like banking, real estate, and power.
A forthcoming book from the Ateneo School of Government examines the role of business conglomerates in inclusive economic growth in the Philippines and much hinges on the mindsets and hearts of their leaders. I interviewed four such tycoons for this book, and what I heard gave me a reason to be hopeful for our economic future. I will share some of their thoughts here in coming columns.
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