Can the elite share the growth?

WHAT USED to be only talked about in hushed tones and academic circles is now generally acknowledged: most of the country’s impressive economic gains have been going to the elite. Former NEDA chief Cielito Habito was reported as having said: “… something is structurally wrong. The oligarchy has too much control of the country’s resources.” Habito estimated that 75% of wealth gains have been going to only 40 families.

Interestingly, the current US inequality situation is just as troubling. The US Census reported that poverty has been increasing since 2008 and, for the first time in half a century, this generation of Americans is economically worse off than the previous one. The Economist magazine observed that in the developed world, the US has the highest income inequality.

Writing in The Price of Inequality: How Today’s Divided Society Endangers our Future, Nobel-winning economist Joseph Stiglitz explains the US situation: “If economic power in a country becomes too unevenly distributed, political consequences will follow. … those with wealth will use their political power to shape the rule of law to provide a framework within which they can exploit others. They will use their political power, too, to ensure the preservation of inequalities rather than the attainment of a more egalitarian and more just economy and society.”

How much the Stiglitz analysis applies in the Philippine case is a matter for closer study. What is clear is that the goal of a more egalitarian society will need to be tackled by government and elite business working together. Government needs to take the lead because the Constitution mandates “the duty of the State to promote distributive justice and to intervene when the common good so demands.” It can start by passing the long-awaited Anti-Trust Bill, which will limit the ability of big businesses to reduce competition through acquisitions and trade practices — thus limiting the ability of family-controlled business groups to get the lion’s share of business incomes.

And speaking of sharing incomes, government should also look into passing the Profit Sharing Bill, which calls on businesses to share their profits with employees. Our current President repeatedly filed this bill during his terms in the House of Representatives and in the Senate. It would be a great legacy if he could get that bill enacted once and for all.

For their part, elite-controlled businesses need to innovate to create more productive and economically rewarding jobs for Filipinos in their various supply chains. Clayton Christensen of Harvard Business School argues for a balance between what he calls “efficiency innovations” and “empowering innovations.” Efficiency innovation involves finding ways to produce products and services more quickly and cheaply. Examples are Internet banking, fast-food chains, and malls. While important and clearly beneficial to customers,these lead to the cheapening or outright elimination of jobs. Is it possible that big businesses have favored efficiency innovations for too long, worsening the growth-sharing gap between workers and the elite?

For a healthy and egalitarian economy, efficiency innovations have to be balanced with what Christensen calls empowering innovations, which “transform complicated and costly products available to a few into simpler, cheaper products available to the many.” Empowering innovations create jobs because they require more people to work on and support such products. The spread of affordable mobile phone service in the country is a good example of empowering innovation. It has created many jobs and has spawned new value chains in various sectors while providing a valuable consumer service.

To spread wealth, the capital freed by efficiency innovations should be invested in empowering innovations — not on even more efficiency innovations. But if big business has a short-time horizon, the temptation to make easier money in efficiency innovations may be too strong to resist. To make matters worse, the overheating financial market has made it even easier to make money for big businesses awash with cash. Why would they wait for long-term returns from job-creating empowering innovations when the equity market is giving more than 5% a month?

Put simply, efficiency innovations and the stock market boom are not sustainable unless they are supported by a growing middle class. The elite have the win-win opportunity to invest their earnings in business strategies that will create more long-term value for the country as a whole and for its people. Will it take this heroic leadership step? That would be truly elite.

Dr. Teehankee is the Cuisia associate professor of Business Ethics and chairman of the Management and Organization Department of the Ramon V. Del Rosario College of Business of De La Salle University. E-mail may be sent to benito.teehankee@dlsu.edu.ph. The views expressed above are the author’s and do not necessarily reflect the official position of the De La Salle University, its faculty, and its administrators. –Benito L. Teehankee, Businessworld