Does the global slowdown worsen poverty?

ANSWERING the question let me cut to the chase, and offer my answer to the question which entitles this piece. As a professional economist who has directed national sample surveys of Philippine poverty dozens of times for over two decades, I think that the current global slowdown is not worsening it, in the same way that global booms in the past did not relieve it.

I do not imply that Philippine poverty is stable or immovable. On the contrary: poverty is volatile. The percentage of Philippine households that are poor has fluctuated over a very wide range – most of the time in the 50s and 60s, occasionally reaching the 70s in terrible times, and the 40s in relatively good times. (I am referring to the SWS surveys on poverty, which are plentiful, rather than official surveys, which are scarce.)

But the fluctuations in poverty have not been related to the contemporaneous or even recent rates of growth in the Gross National Product. For many years the GNP grew steadily at rates faster than the population. Yet the proportion of the poor did not decline steadily, but sometimes rose and sometimes fell, obviously on account of factors more powerful than the GNP.

What is quite clear is that the fluctuations in poverty have been primarily related to the sharp fluctuations in prices of consumer goods in general, and in prices of food and fuel in particular. As soon as prices spike up, poverty and hunger increase immediately, and then take a number of years to simmer down, while consumer prices are relatively benign. Thus the current stability in consumer prices, on account of the global slowdown, is in itself very beneficial to the poor.

I think that a secondary determinant of poverty, less important than price inflation, may be the rate of unemployment. This can eventually be established, one way or the other, when econometricians finally overcome their allergy to including poverty as a variable in their models.

If the global slowdown were to affect unemployment among the near-poor (rather than, say, among the college graduates who man call centers) then it would to some extent also worsen poverty. As a matter of fact, however, Philippine poverty has not yet worsened since the recent slowdown began.

Why the question? My reason for choosing this topic is the Sept. 28-30 conference in Hanoi on “The impact of the global economic slowdown on poverty and sustainable development in Asia and the Pacific,” organized by the Asian Development Bank, the governments of Vietnam and of the People’s Republic of China, and the Asean Secretariat. Typhoon “Ketsana” (known as “Ondoy” in the Philippines) struck central Vietnam but spared Hanoi, in the far north of the country, allowing 350 delegates from 28 countries to proceed unhindered by weather.

In order to answer the question posed by the conference, several speakers mentioned the obvious need for high-frequency poverty data. Last Wednesday, a plenary session of overview presentations on monitoring the impact of the crisis included my paper, “The role of civil society in poverty monitoring: the case of the Philippines,” showing that the SWS surveys of households have enabled the Philippines to have the world’s most rapid system for statistically tracking poverty (now with 86 observations, quarterly since 1992) and hunger (now with 45 observations, quarterly since 1998) over time. This assertion has never been challenged, though made in many meetings with international poverty experts present.

The SWS quarterly national surveys reveal the following episodes in Philippine poverty: downward from mid-1985 to early 1987; upward till early 1994; downward till early 1998; flat till mid-2001; downward till mid-2004; upward till mid-2006; downward till the end of 2007; spiking up in 2008; and settling down to 50 percent in mid-2009. These movements are all statistically significant.

On the other hand, the official surveys, done only eight times from 1985 to 2006, show declines up to 2003, and then one rise between 2003 and 2006. The next official survey is scheduled for 2009; the official reading of poverty based on it might be out in early 2011 yet, since it took up to 2008 to release the figure for 2006. Perhaps, by the time the government has its own data to see what, if anything, the global slowdown did to poverty, the slowdown itself may be over.

What the SWS surveys obtain is, of course, self-rated poverty, which I have discussed here many times. Measuring economic deprivation by the bottom-up approach is conceptually valid. It is what the people mean by poverty, rather than what the technicians tasked to construct official poverty lines think poverty means. The results are as credible as statistics on employment, which after all also depend on self-reporting by those interviewed in surveys.

Self-rated deprivation has all the characteristics established by orthodox poverty research. It is always higher in rural areas than in urban areas. There is always more hunger among the poor than among the non-poor. Families of larger size are more prone to be poor. Families headed by persons with more education tend to be less poor and to suffer less from hunger.

Above all, measuring self-rated deprivation is immensely practical because it requires asking only a few questions, and thus accounts for only a small portion of the cost of a survey. It makes it so easy to see trends in poverty that it gets criticized by those who don’t really want the trends to be known.–Mahar Mangahas, Philippine Daily Inquirer

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