Winning the war on inequality

Social inequality is the burning issue of our time. There can be no equivocation about this. The disparities in living conditions between the richest of the rich and the poorest of the poor are now so extreme that no person can look upon this reality and not see it as injustice of the worst kind.

The Philippines is one of the most unequal countries in the world. The country’s Palma ratio, which is the ratio of the share of gross national income (GNI) of the richest 10 percent of the population divided by the share of the bottom 40 percent, is at 2.2—second only to Malaysia (2.6) as the most unequal in the Asean region. Thailand (1.7), Vietnam (1.6) and Indonesia (1.8) all have significantly more equal income distributions than the Philippines.

It is easy to blame simple human avarice for our current state of affairs. After all, the sight of politicos and CEOs living large even as millions of other Filipinos face poverty, unemployment and other economic hardships scandalizes us no end. The decimation of the regulatory environment in the midst of the neoliberal revolution of the 1980s has been posited as the proximate cause of this extreme level of income inequality.

But this is only the partial truth. Even if we enact policies shackling the salary growth of the top 1 percent in our economy, we will be able to correct our worrisome levels of income inequality only to a certain degree. In reality, the situation is much more complicated, and requires a broader understanding of the evolution of the economy in recent years.

In a series of articles published in Slate, economist Robert Frank attributed income inequality observed across a wide array of occupations to two factors: 1) developments in technology that steepen increments in performance, and 2) a more competitive market for the services of top performers.

Frank calls this situation a winner-takes-all market, where the first-grade practitioners in any given profession have large incomes relative to those of the second grade and lower. An example Frank cites is the classical music market, where technology gives musicians exposure to a larger audience. Since the costs to produce CDs of the best singer and other less able singers are more or less the same, most consumers would opt to buy the material of the best singer, increasing the income of the best singer relative to her other peers.

The factors themselves are not harmful, and might even be considered desirable traits in a growing economy, but they lead to unintended consequences by amplifying income inequality. The question now becomes: How can we mitigate inequalities without harming opportunities for further prosperity?

The Philippines currently operates one of the most extensive cash transfer programs in the world, the Pantawid Pamilyang Pilipino Program (4Ps). This conditional cash transfer program targets the poorest by providing families cash for accomplishing tasks related to the health and education of their children. The program gives a leg up to destitute Filipinos by providing them with supplemental income, and making sure that these families make the necessary investments in order to break away from poverty.

The 4Ps is a successful way of leveling the playing field by making sure everyone gets the same resources for social mobility. The program has so far helped reduce the poverty rate among beneficiaries by 6.5 percent. The 4Ps also boost productivity by ensuring a healthy and well-educated labor force. One study in 2016 even suggests that the 4Ps may play a part in weakening clientelism by political bosses.

We must do well to protect such gains from the 4Ps. There has yet to be a law institutionalizing the landmark social protection program, although there have been several bills filed in Congress. By institutionalizing the program, the country can continue to provide equality of opportunity to all without fear of disruption. If we are to see the Philippines free of hunger and poverty, and an end to the exorbitant divergence in living standards among Filipinos, we must start at this critical juncture.

Liam Lu, 21, is recent graduate of the Ateneo de Manila
University (AB Economics), and an incoming freshman at the UP College of Law.