Now, to make the growth inclusive…

The Aquino administration has every right to crow about the country’s economic performance for the first quarter of this year. A 7.8-percent growth rate in real GDP is not to be sneezed at, particularly since we outpaced our Asean neighbors and China for the period.  Moreover, as the National Statistical Coordination Board points out, this is the third quarter in a row that the country’s growth rate was at least 7 percent (7.3 percent in the third quarter of 2012, 7.1 percent in the fourth quarter).  Which means that P-Noy is assured of a high grade for his third year in office (July 2012 to June 2013) insofar as the economy is concerned—definitely much higher than the scores he received for each of his previous two years. I will not begrudge him his bragging in his coming State of the Nation Address, and neither should anyone else.

The President and his economic managers now face two equally important challenges over the remaining three and one-fourth years of his term: how to sustain those growth rates, and how to ensure that the growth will benefit the poor, i.e., it is “inclusive.”

I sincerely hope they don’t become overconfident, and expect that a three-in-a-row winning streak will be a portent of things to come. They don’t even have to look very far in the past as far as our macroeconomic performance is concerned to realize how foolish that expectation would be: Just three years ago, in 2010, the GDP growth rates for the first, second and third quarters were 8.4 percent, 8.9 percent, and 7.3 percent, respectively—much higher than what we have just experienced. But in the last quarter of the year, the growth rate slowed down to 6.3 percent, and in 2011, the growth rates were mediocre, averaging less than 4 percent.

What P-Noy has going for him is that he is personally not corrupt, and that there is a determined effort on the part of his administration to increase bureaucratic efficiency and the country’s competitiveness. Moreover, his Cabinet officials, with unfortunately some very notable exceptions, not only have clean hands but are competent as well. What he has going against him are the vestiges of “trapo” or traditional politics in his makeup and his  cacique  mentality—which result in going to bed (figuratively) with some politicians whose corruption is legendary, the continuation of the pork barrel (withheld from political opponents, of course), and the effective institutionalization of confidential/intelligence funds in practically all government agencies, in complete disregard of their original purpose.

It is to be hoped that he strengthens what is going for him and gets rid of what is going against him.

Can the growth that the country has been experiencing be considered “inclusive”? It is to be noted, per the NSCB calculations, that industry contributed 3.5 percentage points of the 7.8-percent GDP growth rate, services contributed 3.9 percentage points, and agriculture contributed the remaining 0.4 percentage points. Within the industry sector, the manufacturing and construction subsectors were the biggest contributors to growth. And within services, the financial intermediation subsector, followed by trade, and then real estate, were the primary contributors.

So those working in manufacturing, construction, financial intermediation, trade and real estate would,  ceteris  paribus, be the most benefited by the growth in the first round. How much of the employed labor force do they represent? According to the latest labor force survey data, manufacturing accounts for 8.3 percent of the employed labor force, construction accounts for 6 percent, financial intermediation for 1.1 percent, trade for 18.9 percent, and real estate for 0.6 percent—accounting in total for roughly a little over a third of the employed labor force. These are the ones who have benefited the most.

Agriculture, on the other hand, which contributed only 0.4 percentage points of the 7.8-percent growth rate, accounts for almost a third of the labor force. Obviously, they aren’t going to be benefiting very much from the growth. And it is from the agricultural/rural sector that most of our poor emanate.

Thus, it doesn’t look like the country’s growth has been inclusive. But at least we know what has to be done to make it so: Concentrate on increasing the productivity of those in the agricultural sector, particularly the small farmers and fisherfolk. National Economic and Development Authority Director General Arsenio Balisacan is the poverty expert. He should know. And by the way, it should be repeated over and over again that the correlation between the presence of political dynasties and poverty in all its dimensions has been found statistically significant.

But where will the funds necessary for agricultural development come from? Well, for starters, how about removing the unnecessary incentives that are given to industry, including mining (which, by the way, had a negative contribution to GDP growth), and using these for agriculture instead?  My colleague in the UP School of Economics, Renato Reside Jr., estimates that the unnecessary incentives amount to at least 1 percent of GDP, or the equivalent of roughly P100 billion.

Senior Associate Justice Antonio Carpio also has an excellent suggestion: If the government just gets its fair share of the minerals that are being extracted, both inland and offshore, instead of getting a mere pittance (as in 2 percent of the value of the minerals at the source), then there will be enough to acquire and maintain a “minimum credible self-defense force” that will protect us from foreign encroachers (read: China) on our exclusive economic zone, as well as to use for the benefit of the Filipino people.