In quest of pro-poor growth

Many reacted to my observation last week that the wealth increase of the richest 40 Filipinos is equivalent to 76 percent of the country’s overall increase in income (gross domestic product) in 2011. I must clarify that my choice of words—in saying “is equivalent to…”—was careful and deliberate. It is not the same as saying that the top 40 received the bulk of all additional income earned in the country as a whole in 2011. As pointed out by a couple of readers, the increased wealth of the top 40 reported by Forbes Asia was largely (though not necessarily mostly) due to the effect of booming stock markets, thus higher stock prices, on their equity portfolios. On the other hand, GDP measures income associated with production of goods and services. “Valuation income” as would result from market appreciation of one’s fixed stock holdings is not directly reflected there.

In making the comparison with the increase in GDP, I merely meant to put the growth in wealth of the richest 40 into some perspective, and have a basis for comparing our wealth concentration with neighboring countries. The inescapable fact is that wealth and incomes are much more skewed in the Philippines than in most of Asia. While it’s a fact that the whole region has been experiencing widening income inequalities, the challenge of inequality has been particularly more severe in the Philippines.

I was in Beijing last week to speak in a conference that focused on this issue of widening inequalities and the need for pro-poor growth. At the outset, it was pointed out that while the terms “broad-based growth,” “inclusive growth” and “pro-poor growth” tended to be used interchangeably, they do not exactly mean the same thing. In my earlier incarnation as the country’s chief development planner, I used to explain broad-based growth as having three dimensions. One is broadness in the sectoral sense, such that all sectors of the economy and society are participants and beneficiaries in our economic growth. Growth must be broad in the geographic sense as well, involving and benefiting all regions of the country, and both rural and urban areas. Third, growth must be broad in the temporal sense, such that the ability of future generations to meet their needs will not be impaired as we meet our own needs today—aka sustainable development, focus of the recent Rio+20 summit in Brazil.

The idea of inclusive growth, now the widely used term among development institutions, similarly came about in reaction to the perceived narrowness or exclusiveness of the benefits of growth seen in most of the world. The Asian Development Bank’s operational definition of it is simply “growth with equal opportunities.” It is about ensuring that all are equipped with or have ready access to needed human, natural, physical, social and financial capital to be able to pursue opportunities to uplift their lives. Under this notion, there are bad inequalities and good inequalities. Those arising from lopsided opportunities are bad inequalities that society must collectively address. But inequalities that arise from differences in human attitude, effort and initiative where opportunities are otherwise equitable are deemed to be “good” (or acceptable) inequalities.

One might argue that people who lack initiative should not reap the same rewards as those who work hard and are able to maximize use of their talents and capabilities. Indeed I have heard it said many times, often by poor people themselves, that many who are poor are such because they are “lazy” and have low aspirations in life. Some refer to it as “a culture of poverty.” Inclusive growth is better pursued, then, by providing equitable opportunities, not by redistributing wealth. This is done by improving access to quality education and health services for the poor; correcting historically or politically lopsided access to land and natural resources; ensuring equitable access to credit by small and large borrowers; a justice system that is blind to people’s social and economic status; and a competition policy that levels the playing field for both big and small enterprises.

What about pro-poor growth? In last week’s Beijing conference, it was clarified that beyond being broad-based or inclusive, growth is pro-poor when economic activities that involve and benefit the poor can grow faster than the overall economy does. It entails facilitating economic activities known to provide much employment, especially to lower-skilled or unskilled workers. Agriculture and agribusiness, construction, and services such as retail trade, repair and tourism are prominent examples of industries that are good drivers for pro-poor growth.

Pro-poor growth also happens when there is much economic activity being driven by smaller enterprises, rather than dominated by large enterprises and conglomerates. This means that microenterprises and small and medium enterprises are able to thrive on equal footing—and ideally in a synergistic relationship—with the large players. This is the case, for example, in Japan and Korea, where the zaibatsus and chaebols do not only coexist with, but also crucially depend, on SMEs as suppliers of raw materials and intermediate products such as parts and components.

Our own conglomerates—those owned by our top billionaires in the Forbes Asia list—would do well to consciously and deliberately foster such a synergy with small producers, and as many of them as possible, rather than be tempted toward vertical integration to assume control over the entire value chain. That way, we can assert that pro-poor growth need not be anti-rich growth.

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