People are what matter most

I’ve been arguing for a long time now, without much success I must admit, that the traditional methods of measuring an economy miss the most important factor: People. And with Christmas just past and a new year starting, now is a good time to think of people.

(By the way, I hope you people had a great Christmas and New Year. We certainly did.)

I don’t deny that the study of economics has done a great job of vastly improving the information available to decision-makers. But given how politicians and most people in power are, they don’t have time to study the detail and niceties of data. They want the bottom line. What they want to know, or more correctly, what they should want to know is: “Will what I’m considering improve the lot of the people, or won’t it?”

We need to re-focus economic analysis to concentrate on people, not percentages. I’d give far more importance to the GINI factor than GDP in a third-world economy. Is it being reduced, and at what rate? This matters far more than whether the GDP is improving, and at what rate.

For those of you (sadly, far too many, because of exactly this lack of concentration on what really matters) who don’t know what GINI is, it measures the degree of income inequality in a society. If there’s an equal distribution of income the GINI coefficient would be zero. Mind you, this is an impossible figure to achieve, but it is worth striving for.

The closer to 1 the factor is, the worse. The Philippines’ GINI coefficient is 0.45. Only 39 countries are worse, 84 countries are better. Other Southeast Asian neighbors have better GINI figures—Cambodia’s 0.42, Laos’ 0.35 and Vietnam’s 0.34. Also, GINI three years ago was 0.46, so there’s no measurable improvement.

Some 30 percent of the country’s well-off families take over 60 percent (actually 65 percent) of the total wealth. The poorest 50 percent receive less than 20 percent of that wealth. GDP has grown, on average, 4.7 percent in the past eight years; the poor have gotten no benefit from it. They are worse off, there are more of them—some 27.6 million based on government’s flawed statistics, 48 million on the Social Weather Stations’ more believable ones.

And a huge number more using Wallace’s definition of not being poor—a job, three nourishing meals daily for all the family, full schooling for the kids, a small house to live in, clothing, money when you get sick, and occasional entertainment. Not the absurd US$2 the World Bank uses (that’s less than two Jollibee burgers with no Coke or French fries) and the $0.82 the government adopts (but doesn’t adopt in their own salaries). That’s just enough to buy 1 ½ kg of rice for a family of six (the average household size of the 20 poorest municipalities) and NOTHING ELSE. You can’t live like that. How can the government so cruelly adopt such an absurd figure?

Poverty has been re-defined by varying the basket of goods and services needed to be considered non-poor in each of the country’s regions, resulting in lower peso values of poverty thresholds outside of Metro Manila. Consequently, the redefinition reduced the official poverty incidence by a huge seven percentage points—27.5 percent in 2000 from 34.2 percent. No figures using the old definition were released for 2003 (official poverty data are reported every three years). Despite the “point shaving,” the trend worsened with poverty incidence rising to 26.9 percent in 2006 from 24.4 percent in 2003. In the far more important absolute numbers, there were 4.7 million poor families in 2006, swelling the ranks of the poor by 700,000 from 4 million in 2003.

The SWS’ self-rated poverty survey probably reflects the situation better, with half of all households in the country today or 9.3 million considering themselves poor. In 2000, poverty incidence was higher at 57 percent so you could say, as government does, what a good job it’s done. It’s reduced poverty. But it hasn’t, it’s done a lousy job because that 57 percent in 2000 was 9 million households. Eight years later, a lower 50 percent means 9.3 million households. The number of poor families has actually increased during the past eight years.

Unrestrained population growth has stripped away any economic gains. Not that there were many anyway. (We’ll write a paper on that later).

You can’t make decisions on how to fix a problem (in this case, poverty) if you don’t know what it truly is.

I make no pretense to be a fully-trained economist (my studies were far short of the experts in this country I so admire) but I do think I have a serious point to investigate. Let’s put more focus on people and the impact on them in our analysis of what’s really happening to the economy.

The government also brags that the rate of unemployment has significantly declined. In 2004, unemployment was at 11.8 percent. In 2005, it suddenly dropped to just 7.8 percent not because of some marvelous thing government had done, but because it changed the definition of unemployment! They excluded two groups in the labor force —1) students wanting to work but not able to and 2) people looking for work but have given up. The redefinition, as previously discussed in this column, is fine for a first world country but in the Philippines, the reality is that if you’ve stopped searching for work it’s usually because you’ve given up in despair knowing there’s not going to be a job for you, not because you don’t want one.

The latest Labor Force Survey of the NSO puts unemployment at 7.1 percent or 2.7 million Filipinos. But if the old definition is maintained, the number of jobless Filipinos balloons to about 4.2 million from 3.5 million in 2000, or 700,000 million more without a job today. A more believable SWS survey revealed about 30 percent of the country’s labor force were without jobs. That’s 12 million versus 3.4 million from the SWS survey in 2000. Whichever number you look at, there were more people without jobs in 2008 than in 2000. Forget what the percentages say. We’re talking about people—living, breathing human beings who need a job. And we haven’t even included the 8.5 million Filipinos who had to leave their families to find jobs abroad because there were none here.

Let me give you another specific example I recently caught of the wrong focus when studying numbers. The government “boasted” (yes, boasted) foreign investment was up. The message: what a great job we’re doing. Well, it was the lowest level among major economies in Asia. Yes, that’s right, the lowest level. But, here’s my point: much of the investments actually came from the acquisition of existing businesses. That does nothing for the economy. No new jobs or products or services are generated. It boosted international reserves, nothing else.

And, anyway, the US$12.1 billion they boast of, and how it’s better than Ramos’ $9.5 billion makes an unfair comparison. If you pro-rata Arroyo’s to six years, it becomes $9.1 billion. Converting it all to 1992 dollars, FVR attracted $6.7 billion, Arroyo $3.4 billion pro-rated. Obviously, she’s been less successful than he was.

In Ramos’ term, the economy was driven by investments and exports (combined share to GDP peaked at 74 percent in 1997), today it is consumption (accounting for almost 80 percent of the economy). That is not a healthy society doing well, it’s one spending its future. Not investing in it. –Peter Wallace, Manila Standard Today