Focus on sharing the growth

The big news this week was the Jan. 31 report by the National Statistical Coordination Board that the real Gross Domestic Product (GDP) for the full year 2012 was 6.6 percent above the GDP for the full year 2011.

This growth number is in “real” terms, also called “constant prices,” meaning adjusted for inflation in prices from some base year (2000, in this case), though actually observed in terms of “current prices.”  It is for a full year, meaning based on the sum of separate estimates for each of the four quarters of the year.

What impresses me personally, more than the economic growth itself, is the ability of the NSCB, under its new secretary general, Jose “Toots” Albert, to deliver the fourth-quarter report only one month after quarter’s end.  Its third-quarter report for 2012, according to the NSCB website, was posted only the day before, on Jan. 30, 2013.   So it seems that two quarters of data were released in rapid succession.  I hope this means that the next report, for 2013Q1, will similarly be ready by the end of April 2013!

The real reason to be interested in the aggregate value of production is that it also tells us the aggregate value of income, and income is what enables people to purchase goods and services. The Gross National Income (GNI) is GDP, the production/income earned domestically, i.e. within Philippine territory, plus Net Primary Income from the rest of the world (NPI).  NPI is very significant for a country like the Philippines with many nationals working overseas.

The NSCB reports that GNI in 2012 was 5.8 percent above that in 2011, and that GNI in 2011 was 3.2 percent above that in 2010.  Thus, growth of GNI accelerated last year.

Dividing GNI by the population gives GNI per capita, or GNIpc for short. This is what each person could enjoy in purchasing capacity, if GNI were shared equally; it is potential income per person. In fact, GNI is very unequally shared, and so there is great inequality in what people actually enjoy. The NSCB says that GNIpc of 2012 was 4.0 percent above that of 2011, and that GNIpc of 2011 was 1.5 percent above that of 2010.

Thus, growth of GNIpc accelerated last year.  But due to the inequality in sharing of GNI, its growth is not equally shared either.  Some people’s incomes may be growing at 10 percent, while others’ incomes are growing at only 1 percent, or are even  static, or even falling rather than rising.  All in all, the average growth in potential income per person in 2012 was 4.0 percent. (This is different from averaging the growth in actual income per person.) What was your real income in 2012 versus 2011, dear reader? Would you say it grew by 4.0 percent?

The rule of 69. If something steadily grows at a compound rate of r percent per year, the number of years it will take to double is approximately equal to 69 divided by r. For example, a population growing at 3 percent per year, every year, will double in 23 years, since 69/3 = 23.

This rule of 69 is plain mathematics. Some are too prim to use the number 69, and prefer calling it a “rule of 70,” but the number 69 is more accurate, aside from being sexier. It is easily derivable by algebra with natural logarithms (ln).  The natural logarithm of 2, ln 2, is 0.693. The trick is to know that the annual growth rate r, in the typical range of .01 to .09, is roughly equal to ln (1 + r).

Now, if every person’s income grows steadily by 4 percent per year, it will double in 69/4, or just over 17 years. But income growth is unevenly shared.  To double their incomes, people with incomes growing by 10 percent per year will have to wait less than seven years, while people with incomes growing by only 1 percent will need 69 years, or a whole lifetime.

The task of learning how to make economic growth inclusive requires statistics on how the growth is being shared among the people.

Right now, however, the National Accounts are constructed by sectors of production, rather than by categories of the people earning from the production.  The NSCB’s GDP numbers are subdivided into: agriculture and forestry; fishing; mining and quarrying; manufacturing; construction; electricity, gas and water supply; transport, storage and communication; trade and repair of motor vehicles, motorcycles, personal and household goods; financial intermediation; real estate, renting and business activities; public administration and defense, and compulsory social security; and other services.  (To avoid double-counting products of one sector that are inputs for other sectors, a sector’s production is evaluated in terms of its value-added.)

For each of the above sectors, I recommend that data be collected on the sharing of the value-added among laborers, capitalists, and landowners—to use the classical terms for owners of human resources, reproducible capital goods, and natural resources.  Each type of resource has important subcategories. For instance, data are needed about the respective shares of unskilled workers, skilled workers, professionals and management in the growth of the earnings of their sectors.

If our leaders truly want economic growth to be shared, they should support the generating of statistics with details about how poor, middle-class, and rich people participate in it. The Philippines cannot afford another lost decade, with poverty flat despite years of growth in GDP.

Statistical ignorance prolongs the status quo.

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Contact SWS: or mahar.mangahas@sws.org.ph.