The myth of ‘inclusive growth’ in the Philippines and why GDP alone does not matter

Why is there no inclusive growth in the Philippines? The critical component and measurement which goes a long way in explaining why no progress is being made, and inclusive growth remains only the ‘in’ slogan/mantra of the year is the Poverty Elasticity of Growth or PEG (the multiplier effect of percent growth to percent poverty reduction). This varies significantly country to country, dependant upon their economic environment/fiscal policies, population growth, etc. Boring to most, but important to economists, and ultimately to your individual prosperity.

Do Filipinos possess the right attitude to succeed in the global race?

Do Filipinos possess the right attitude to succeed in the global race?

Closely allied to poverty elasticity is often the presence of a high level of income inequality (the Philippines has nearly the worst inequality in the world), and when both are present, as in the case of the Philippines, even high levels of growth only have a marginal impact on job generation and poverty reduction, as money generated is concentrated and sucked out of the economy, not reinvested at the necessary rate, or in key areas needing re-generation, and consequently the money cycle becomes a self contained cocoon circulating within a small group of the population, but effecting little ripple or downward benefits.

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In such circumstances the double whammy (PEG and income inequality), ensures inclusive growth almost certainly will not and cannot happen without a raft of economic reforms addressing income inequality, which in turn becomes the engine of inclusive growth and driver of poverty reduction.

A look at the historical growth figures in the Philippines suggests this is precisely why there is deadlock when it comes to poverty alleviation and employment generation, since that has hardly changed despite extended periods of headline GDP growth. Under current policies the Philippines would need to achieve and sustain an impossible 9%+ annual growth year on year to have any real impact, and only then with focussed investment in key industries.

Other countries can generate jobs and achieve some poverty reduction with 2% GDP growth, (that gives a clue that there is a fundamental problem with the current system in the Philippines), so the propaganda surrounding high growth is irrelevant in itself and without being taken in conjunction with other key metrics – unemployment and poverty, which are the real composite measures of country progress and prosperity;

GDP growth x poverty elasticity of growth = reduction in poverty

For example:

Philippines – 7% × 0.1% = 0.7 poverty reduction

UK – 3% × 0.7 = 2.1 poverty reduction

Not surprisingly the Philippines has the worst poverty elasticity of growth (PEG) in Asia, and one of the worst in the world.

Economics is about balancing, often, opposing forces; rather like two weights on either end of a see-saw. The problem is that by continually adding weights to either side it simply creates fluctuations and instability (stop-go), and a web of complexities which become more difficult to manage or even understand.

For Third World countries, the issue is first to put the fulcrum in the right place. Without strong fundamentals the application of First World economics and financial instruments will create a Gordian Knot which even Keynes would be hard-pressed to unravel. The options and solutions are clearly there, but obviously not to President Benigno Simeon ‘BS’ Aquino III and his Cabinet, who continue to support an outdated and inappropriate oligarch-based economy, crony capitalism (the Philippines is the sixth highest in the world), and corresponding protectionist measures.

Expect more ‘sticking plaster’ Conditional Cash Transfer (CCT) in response, slogans and propaganda, but don’t expect structural change, as capital flight increases, the budget deficit widens, the peso declines, and, in 2015 onwards ASEAN integration will only marginalise the Philippines further if it does not fully prepare and embrace a more competitive future, a dynamic spirit, and a self-critical attitude.

Wrong diagnosis, wrong medication, unqualified doctor, result – no improvement in the patient.

Call an ambulance!

22 Replies to “The myth of ‘inclusive growth’ in the Philippines and why GDP alone does not matter”

  1. Enlightening.

    Our current social structure is a feudal society in disguise. Modern lords include the Ayala’s, Sy’s, Gokongwei’s, Cojuanco’s. The fiefs – our 40sqr mtr lots at Ayalaya land, SMDC, Robinsons. The vassals – the BPO people, everyone unfortunately born outside of those surnames, the middleclass who are slowly and unknowingly being forced to sell out their land to these lords because of oppressive economic programs. To complete this feudal picture, the church is there to keep the vassals pacified, oblivious and entertained.

    How far have we really moved on?

    1. With all the capital being legally gobbled up by the few in our supposed free capitalist democracy, what future is there for the 91 million other pinoys? Will they ever wake up in this century? How do they take back the land?

        1. Even a bloody one can’t assure it would bring about a change in thinking, more so the correct one we badly need. Usually it only ushers a new brand of tyrants led by the children of the revolution. But then a revolution drenched crimson perhaps has a better chance to bring a rebirth than the sickening miasma of the yellow farce we had back in ’86.

        2. AHHH, You see the point? Listen, it will not be easy…instituting the change that really needs to happen.But the hard part? That could be accomplished in two days…maybe even less. The restructuring process would be hardest and take a couple of years, and then rebuilding the entire country? A generation.

          The Filipino finds himself in a place in history and time where he/she is most dangerous, a place where he/she has nothing to lose and everything to gain.The military is under-paid as well as the police-force.The NCR PD had the money for their bulletts robbed for crissakes!! What could they possibly do?

          Corazon Aquino thought that the Filipino was at heart, a coward. IDK, the jury is out on that one. BUT I do know that if this opportunity that exists right now, is missed….the country will be singing the same sad tune for another 50 years.

  2. See, this is why I don’t agree with the Aquino sympathizers when they say our economy is getting better through the increase in GDP when the Average Juan does not even know what GDP stands for. Unemployment and poverty continues to spread, with little efforts made in maintaining a sustainable economic growth for many years.

    You know your country is screwed when your main source of economic stability is through OCW remittances.

    Add in the obvious monopolization and we have a local market that can’t compete with the rest of the world.

  3. …if there is a 7% growth, which I do not believe. I think this is a fantasy number dreamed up by the government.

    1. it is estimated that 55% of the countries entire GDP is siphoned off in corruption. The rest is mis-spent. I’d say that 7% number could even be higher ( a lot of ‘Hot Money’ flyin in) BUT, with virtually no gov’t. accountability/oversight it is just impossible to know. Many of the GOCC’s, for instance, have not filed tax returns or been audited by there own admission, since,get this 2007-08!.The PI is a total Kleptocracy/Failed state, and it is like that for a reason…and it will stay as such! Until…..

  4. A large part of the problem is that no one seems to care about those below them. Egalitarianism is missing and pacifism can be bought for a flashy gadget which shows I am worth more than you…

  5. Interesting.

    ‘Libertas’s’ first article, musings on some of the less than meritorious aspects of life in the Philippines,

    has, to date, generated some 668 responses. That’s on the average close to 170 responses per day. Not a few were profanity laced rants and vicious personal attacks having nothing to do with the content of the article whatsoever and (disturbingly) a number of accusations of ‘racism.’ That’s aside from several who protested that the article was just flat out wrong and they knew better.

    It has been two days since two other essays have been published by the same author, both attempts to explore solutions to the litany of social dysfunctions expounded on in the very first essay. Total number of responses for the two succeeding articles as of 25 May — thirteen. LESS THAN TWO PERCENT of the responses to the original piece.

    Where are all the blowhards who reacted with the utmost disgust and vitriol, and professing to the certainty that ‘Libertas’ was not only incorrect in his musings but also racist for writing anything that even remotely criticised Filipino culture? Where is their contribution to the discussion of the topic/s they claim to know and understand so much better than ‘Libertas?’

    And by contributing to the discussion, I don’t mean these moronic exhortations to violence propounded by poltroons who have no desire other than to see rioting in the streets and blood spilled. They do not have the interests of the Filipino people at heart.

    1. Johnny Saint, spot on i was thinking the same earlier.
      Sadly to say 99% of your fellow countrymen are not interested in the real issues, that is why you cannot progress.
      Politicians steal billions who cares?
      insult adobo and they all go ballistic.

      It must be very frustrating for yourself and the tiny minority who do actually care.

    2. Solutions are simply too boring for most Pinoys to digest. Most of the solutions to the majority of the Philippines’ most pressing problems are so obvious that Filipinos are probably embarrassed to discuss them.

    3. Thanks
      Very eloquent. My sentiments exactly.

      the tone/style of the first article was maybe a bit much for non grp regulars – it was actually going to be a comment posting to another article, but obviously got too long, so an article seemed better than just binning it, nevertheless there were a fair few ‘spot on’s’ – credit to them – not for agreeing but taking it on the chin and seeing ‘the bigger picture’
      And overall the comments are very enlightening.

      So many examples in the comments of what was said, but sad no real opinions. A ‘follow the leader’ mentality. Oops, negative again. But maybe will analyse.

      Anyway i did not want it just to be left hanging and perceived as a one-off ‘rant’, but see if some could be positive and have relevant opinions. Always some idiots – par for the course, and some worse than others.

      Even when you try to be positive no-one seems to wants to know. Very revealing. Same when i was trying to invest. ( another story)

      If nothing else, it has been an outlet for those with anger management issues!
      Maybe that saved a dog being kicked, ( the bbc did a programme last week about animal welfare in the philippines!), or a wife beaten.

      Cheers. Good that the genuine grp regulars have been supportive. I noticed and appreciate very much. And my competitive spirit means i don’t give up, and also my genuine desire for improvement in everything!

      Or did i just write it to get “page points”!?

  6. We don’t need those formula indicators; to determine a roboust economy of the Philippines. Just go to the Market with 1,000 pesos; see how much your money can buy. It is not even enough for a week supply of food.

    Just see the long lines of people; waiting to leave the country…see how many tons of rice, the country is importing also…

    It is runaway inflation…and GDP indicators from Aquino, is like his False Asia Survey, for his popularity…it is spiked Up…and up…

  7. The problem is the patient is a ‘reluctant patient’. The oligarchs are in control of the patient, and they would rather he continues being sick, as that would ensure their continued existence. When our government announces that the Philippines’ economy has improved, it’s as good as the oligarchs saying, “Hey! We just got even richer! nyahahah.” Ours is a case that will leave even Keynes baffled. More than just economics, it is the political and social structure that needs fixing. . oh, make that an overhaul.

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