Poverty amidst signs of plenty

The reaction among politicians to the phenomenal economic growth being experienced by the Philippines appears to be divided between those who see it as a half-filled glass and those who see it as half-empty. One side of the political spectrum claim credit for this achievement and brook no criticism despite certainly valid points being raised on poverty and job creation. The other side includes those, who are in Henry David Thoreau words, “fault-finders who will find faults even in paradise”. But even discounting the fact that this is also the “silly season” – meaning the election campaign period — where politicians are given to hyperboles and impractical solutions, both sides make a valid point. It cannot be denied that this is indeed a remarkable achievement and a validation of President Aquino’s program, in which “Daang Matuwid” is the underpinning. Equally, to deny that poverty incidence remains high and that joblessness continues to be a major challenge would be doing a great disservice to the efforts to make this economic growth sustainable and inclusive.

NEDA’s Balisacan

This is why I think NEDA director-general Arsenio Balisacan, a well-known expert on poverty, should be commended for not couching his report in the language tailored for this “silly season” of political spin. Some say this might not have been a good time to release the report so kudos too for the administration’s countenance of this report. But numbers do not lie though their interpretation can perpetuate a lie. The 2012 poverty report says that the poverty incidence since 2008 is unchanged and as a matter of fact not much changed from the 31-percent poverty incidence during the time of President Ramos. An important point to be made however is that during the same period our population base grew by more than 30 percent. This would have required our GDP to grow at a rate of around seven percent minimum for it to make any significant dent on poverty. This rate is the commonly accepted yardstick based on modeling and on the actual experience of countries like China and Indonesia. In our case, we averaged around four percent during this period. In fact our real GDP per capital rate in 2010 based on purchasing power is lower than the per capita rate in 2000!

Focus on education

Fortunately there are people who have not lost sight of the fact that “every system is perfectly designed to produce the results it gets.” Since our poverty incidence has remained intractable for the past few decades, it must mean that our present system is “perfectly designed” to keep a third of Filipinos in poverty and must therefore be overhauled if we are to solve this problem once and for all. For this issue, I would like to focus on one component of this system – education as it relates to job creation.

Obviously poverty reduction is complex, with multi-stakeholders. Even with the right policies in place, it will take some years before a sharp reduction is experienced. It will take a combination of low population growth and sustained economic growth to achieve this. Even then not everyone will necessarily share the fruits of economic growth – there will always be pockets of poverty geographically and demographically even in the highest growing economies. They include children, single-parent households, indigenous and tribal peoples and those who cannot take advantage of the opportunities offered by economic growth by virtue of their skills and location relative to the employment. Then there are those living in areas that are poorly endowed, far from the sources of growth or are racked by instability and failed governance – the combination of which have made the ARMM as the poorest region in the country. It is therefore important to look at the sources of this high economic growth and its distribution, in particular, its implications for job creation. To take this to the extreme by example, many of the unemployed and underemployed are in the rural areas and not everyone can be a call center agent or a BPO provider – there are not enough openings anyway to accommodate them all. There must be other sources of employment – in agribusiness, manufacturing and services – where the vast majority of our unemployed can qualify – must be created. Job creation and poverty rates are inextricably linked. The challenge is formidable. World Bank country director for the Philippines Motoo Konishi estimates that the Philippines must create 14.6 million jobs between now and 2016 if the political aspirations of inclusive growth are to be fulfilled.

‘Demographic dividend’

Much has been made of the so-called “demographic dividend” which they say the Philippines is poised to enjoy as countries in the region face an aging population. Indeed it is the consumption of this large, relatively young population that is propelling the country’s economic growth. In a paper presented to the 35th Pacific Trade and Development Conference in Vancouver in June 2012 by Emmanuel Jimenez and Elizabeth M. King, the World Bank pointed out the benefits from the “demographic dividend” is not automatic and requires a massive effort to obtain, and even more difficult to sustain.

The authors, Jimenez and King, say that almost a half century ago, the famed Swedish economist Gunnar Myrdal predicted that Burma (Myanmar) and the Philippines were the two Asian countries most likely to achieve rapid growth in the Asian region. This prediction, since proven to be inaccurate, was based partly on the fact that the Philippines and Burma accumulated more human capital than other countries in the region – based on the literacy and educational levels of its population. “In 1960, the secondary school enrolment rate in the Philippines was 26 percent — higher than that of Malaysia and Hong Kong and, in fact, higher than that of Portugal and Spain. At 10 percent, secondary school enrolment rate in the poorer parts of Burma was much lower, but still exceeded the rates of countries that are now significantly richer, such as Indonesia and Thailand.” We know that what happened to Myanmar was largely self-inflicted. The case of the Philippines was a little more complicated – population pressure not matched by income growth – overburdened the school system, lowering its quality and depriving others of educational opportunity. While our participation rate at the secondary level has risen steadily, it has since been exceeded by Indonesia and Thailand.

East asian tigers

In contrast, they point out that the growth of the so-called East Asian Tigers — Hong Kong SAR (China), Singapore, South Korea and Taiwan (China) — was built on “astute investments in schooling and training and enhanced by a demographic dividend made possible through falling fertility rates. The demographic dividend meant that when young people became workers they not only had more schooling but they also had fewer dependents to support.”

‘Tiger cubs’

The authors say that the “tiger cubs” — Indonesia, Malaysia, the Philippines and Thailand — are well placed to emulate the Asian tigers. But they would need “to adjust to dramatic demographic shifts” and ensure that education systems deliver the skills needed to boost productivity and meet the needs of a changing global economy. This will require a “vigorous response” from the education systems. Yet the track record of these systems is mixed – that is to say the quality of education and training in some cases – is not up to par with global standards or are not relevant to current and future demands. Recent surveys have in fact shown that despite the increasing number of educated youth, firms in the region say that finding the right people remains a significant obstacle to their growth.

Our education system must be improved to achieve the objective which the authors outlined and which they themselves say are quite known and accepted, but poses significant challenge in implementing: “matching the skills being acquired today with those that will be needed in tomorrow’s global markets; stimulating demand for human capital formation among excluded groups; providing second-chance learning opportunities; reforming higher education; and facilitating the movement of educated labor to where it can be used most productively.” In other words, quality is just as important as expanding quantity for education opportunities.

The fact that writing about one component of the social and economic system – education – has taken up all the space I have for this column and with more that still need to be said about this alone confirms that poverty reduction is a complex task encompassing a broad array of factors – health, population, capital investment, infrastructure, rural development and many others. What is clear is that the system as it currently stands is inadequate to meet the challenge. It has to be overhauled if it is to produce new results. The simple message is creating jobs is the most effective way of addressing poverty. Obviously this needs the convergence of different stakeholders towards a shared understanding of the intractable issue as well as a coordinated response and collective action. In other countries, they do a national summit and a national compact. I am sure there are people in the Cabinet who can put this together. –Roberto R. Romulo (The Philippine Star)