Non-inclusive economic growth

The government expressed elation last week as the economy grew faster than expected in the third quarter, although public spending accounted for a big part of the expansion as household consumption faltered due to high inflation. Gross domestic product (GDP), or the sum of all goods produced and services rendered in an economy, rose 5.9 percent year-on-year in the July-September period, more robust than the 4.3 percent recorded in the preceding three months, the Philippine Statistics Authority (PSA) reported.

But when this is taken side by side with the latest Social Weather Stations (SWS) survey on poverty, what is evident is that the fruits of such economic growth still failed to trickle down to the marginalized sectors. According to the SWS survey, almost half of Filipino families consider themselves living in poverty. It estimated that the number of self-rated poor families was at 13.2 million as of September this year, an increase of some 700,000 families. What is worse is that according to the SWS, almost two million families considered themselves to be newly poor, which meant they did not see themselves to be poor at least five years ago.

“Poverty is both more widespread and more persistent in the Philippines than in neighboring (Association of Southeast Asian Nations) countries … Some of the blame for the Philippines’ slow progress in reducing the incidence of poverty can be attributed to past economic policies that retarded growth by discriminating against agriculture and discouraging investment in human capital. These policies, in turn, sustained powerful interest groups that blocked or delayed economic reform,” read a briefing paper of the International Monetary Fund (IMF) titled “Poverty and Economic Policy in the Philippines” written by Philip Gerson. While this may describe the country’s present state of economic affairs, the paper was written in 1998, or 25 years ago.

Socioeconomic Planning Secretary Arsenio Balisacan explains why this is so. In a paper titled “Why Does Poverty Persist in the Philippines? Facts, Fancies, and Policies” written for the Southeast Asian Regional Center for Graduate Study and Research in Agriculture, he said: “The persistence of poverty in the Philippines has to do largely with its inability to achieve—and sustain—an income growth substantially higher than its population growth … [T]he Philippines’ unenviable record in poverty reduction in recent years is the outcome not only of its comparatively low per capita GDP growth rate but also of its weakness in transforming any rate of income growth into poverty reduction. The quality of economic growth has to be improved to enhance the benefits of growth to the poor.” This was written in 2007, or 16 years ago, yet it still holds true to this day.

The point is that while poverty alleviation has been the cornerstone of many development plans in past administrations, progress in achieving this has been painstakingly slow. More recent data prove this. The World Bank, in a report titled “Overcoming Poverty and Inequality in the Philippines: Past, Present, and Prospects for the Future” released in November last year, noted that “inequality [in the Philippines] remains high: the top 1 percent of earners together capture 17 percent of national income, with only 14 percent being shared by the bottom 50 percent” in 2018. This made the Philippines one of the countries with the highest rates of income inequality in East Asia.

The Philippine Development Plan 2023-2028 of the Marcos administration again highlights its importance, describing it as “a plan for deep economic and social transformation to reinvigorate job creation and accelerate poverty reduction by steering the economy back on a high-growth path.” Given the country’s dismal performance in the past decades, one wonders what different tack this administration will take to break the status quo.

All the economic theories and even the policy recommendations to achieve poverty alleviation are readily available. The Organization for Economic Cooperation and Development (OECD), citing many country case studies, has time and again emphasized that economic growth is the most powerful instrument in reducing poverty and improving the quality of life in developing countries. It noted that growth can generate virtuous circles of prosperity and opportunity. For instance, it said strong growth and employment opportunities improve incentives for parents to invest in their children’s education. This, in turn, may lead to the emergence of a strong and growing group of entrepreneurs, which should generate pressure for improved governance. Strong economic growth therefore advances human development, it added.

In short, the key phrase is “inclusive growth.” All the answers to alleviating poverty have been available since the 1990s. What is needed is a strong political will to properly implement them.