Back to basics

“The ‘self-rated’ poverty findings of survey entities that exist in super-abundance are subjective perception data that have limited usefulness for understanding factual conditions in the real world.”

This is just one of many provocative lines in a study paper newly released by Dr. Gonzalo Jurado of Kalayaan College, my former economics professor in UP and my collaborator in editing Beat the Odds, the first (though probably not the last) economic memoir of the Arroyo presidency.

Titled “Redefining the National Problem”, the paper makes the deceptively simple case that policymakers ought to worry, not about issues like poverty and hunger—which are merely symptoms of the underlying problem—but about more basic questions that address the roots of the problem: What causes poverty? What can be done to fix it?

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It used to be that poverty was measured very simply—and objectively—by the distance of one’s household income below some minimum threshold level required to purchase some minimum basket of goods deemed necessary for survival.

Since my years in graduate school, though, poverty has come to be redefined, not as a shortage of commodities or access to them, but as a shortage of “capability to function”. To paraphrase Nobel prize winner Amartya Sen, what really counts is “what a person is, or can be, and does, or can do”.

So redefined, poverty becomes susceptible to the kind of subjective judgments—“I think I can (cannot) function at a given level”—that Jurado dismisses above. The state of being poor becomes no different from the state of being sick, about which anybody can obviously express subjective judgments. The problem is that asking someone how sick he is brings you no closer to the questions that truly count: Why are you sick? What should be done to make you well?

This trivialized definition of poverty, Jurado believes, has spawned two disturbing trends. One, advocates against poverty become disposed towards mere populism, a willingness to settle for the wrong solutions—often little else than government handouts–provided they please the greater majority, or the loudest ones. And two, the poor become dependent on those handouts, because they are not being challenged enough to improve their own lot.

Tackling poverty therefore starts with redefining it in an objective and actionable way. In economies that use money, poverty may be defined simply as lack of income, or its insufficiency. This means the necessary solution is to increase people’s income—not substitute it with handouts, or ignore it in favor of peripheral concerns like “sustainability” or “quality of life”.

This is something the poor themselves know best. In survey after survey, the major concerns of the poor boil down to only two: jobs and prices. Jobs give them income, prices determine what that income can buy for them.

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“Defining the national problem in a simple and straightforward way, i.e., as one of low per capita income—instead of in a diffused populist way—i.e., as one of poverty—will go a long way in making possible the formulation and implementation of solutions that are effective and unifying.”

In the formulation of those solutions, Jurado offers some back-to-basics reminders:

• Beyond the limits of his unaided physical abilities, a person can increase his income—produce more—only in the presence of tools and other forms of physical capital. This makes capital investment an essential condition for increasing income. But if an economy is not saving enough (like ours, with a savings rate less than 20%), then the investment has to come from abroad. This means foreign investment, i.e. other countries’ savings.

• Since per capita income has population as its denominator, one school of thought would insist on reducing that denominator, i.e. controlling population growth. The opposite school of thought, however, would claim that no cause-and-effect relationship runs from slower (higher) population growth to higher (slower) economic growth. Whichever side you come down on—and Jurado makes it clear that he favors population growth control—the bottom line is that population, as an issue, matters.

• The national agenda thus ought to focus on “decisively assisting the poor to reach higher levels of income…above the poverty threshold”. It’s a familiar agenda: promoting investment, generating employment opportunities (not handouts) with more labor-intensive and export enterprises, stabilizing prices, resolving the population issue.

It means redistributing—not income per se—but the assets and resources needed to improve income opportunities, e.g. land to the landless, education for our children, progressive taxation and regressive government spending.

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A final note: it was the guru of national income accounting, Simon Kuznets, who demonstrated that income inequality (presumably also poverty) increases in the early stages of economic development before it starts to come down in the later stages.

What then are we to make of the table below, which shows the incidence of poverty (as measured by government statisticians the old-fashioned way, by income levels) under Mrs Arroyo (a notoriously growth-oriented president) staying at an essentially flat 20-21 percent throughout her term?

Two reasonable conclusions come to mind. One, all that talk about increasing poverty under her (the “self-rated” kind) may be just a lot of baloney. And two: Although she managed to achieve nearly 40 consecutive quarters of unbroken growth, she also managed to keep the poverty incidence from rising in the process, Kuznets notwithstanding.

But there is still room to break her record. The famed economist’s prediction remains to be fulfilled: With growth rates high enough (7-8 percent annually by some estimates) and consistent enough, year in and year out, we will get past the inflection point, poverty incidence will start to come down, and we will finally see the beginning of the end of poverty.

This would be an achievement worthy of a strong-willed, well-intentioned president like Mr. Aquino—to do better than his diminutive predecessor, not jail her. But is he up to a challenge like that? Abangan! –Gary Olivar, Manila Standard Today