WB on how to lick poverty

The visit of Pope Francis had us talking and hearing a lot about poverty. He has denounced our economic system as exploitative of the poor that also violates the teachings of the Gospel.

Shortly after he became Pope, he wrote his first Apostolic exhortation on the Joy of the Gospel. He trashed trickle down economics and called for systemic reforms to make it possible for the poor to enjoy a greater share in the gains of the economy.

We have been talking about the need for inclusive economic growth since our economy started showing strength in recent years. But like the US economy, our poor hardly felt any positive change in the quality of their lives even as the country’s GDP rose and our country’s financial fundamentals vastly improved. The rich scooped most of our economy’s gains.

Making our economy more inclusive remained just talk. The poor have yet to feel the benefits of a fast growing economy. Indeed, our economy’s ability to generate jobs is still dismal, making it necessary for many to go abroad for jobs.

The World Bank thinks the Philippines can eradicate poverty within a generation. Just days before Pope Francis arrived, the World Bank released a report on how to make growth work for the poor. But it mentioned a lot of “ifs”.

The first big “if” is sustaining an economic growth rate of about six percent in the next few years despite a weak global economy. “Sustaining this level of high growth and making it inclusive over the long term will enable the country to eradicate poverty and boost shared prosperity within a generation.”

World Bank country director Motoo Konishi said we have “what it takes to sustain this high level of growth for many years. The country is benefiting from low and stable inflation, its finances are healthy, and debt levels are declining. It has a dynamic private sector that is seizing global opportunities.”

So Mr. Konishi thinks “now is the time to move the economy decisively onto a path that reduces poverty and creates more and better jobs.”

Hmmm… easier said than done. That would take a truly enlightened and determined political leadership, not beholden to controlling elites, ready to make tough decisions. We don’t have that. We are also about to have an election and we know from experience nothing good happens in the heat of a presidential campaign.

World Bank lead economist Rogier van den Brink shares the view of Konishi. “If growth is sustained at six percent per year and the current rate at which growth reduces poverty is maintained, poverty could be eradicated within a single generation.”

Respected economist Dr. Mahar Mangahas is not impressed. He suggests that the method used by the World Bank to project poverty is superficial, not reflective of reality on the ground.

“When Pope Francis says that economic growth has not helped the poor, he is empirically correct. Thus it is naive to project poverty by means of crude elasticities to economic growth.”

Dr. Mangahas was talking of a straightforward method to project poverty incidence used by the World Bank by estimating the growth elasticity of poverty.

“The growth elasticity of poverty refers to the percent change in poverty incidence for every percent change in GDP per capita… it is oblivious to the lengthy SWS data on poverty, which was semestral in 1986-91, and quarterly in 1992-2014.

“The WB staff members are well-trained, and aware of the content and quality of the SWS poverty surveys. Their failure to consider such plentiful data leads me to believe that the WB is prejudiced against subjective indicators — in effect, against listening to the poor — as a matter of institutional policy.”

Anyway, even if we accept the WB assumptions for the moment, eliminating poverty will still require speeding up structural reforms. The World Bank report lists the following:

• Increase investments in infrastructure, health, and education;

• Enhance competition to level the playing field;

• Make regulations simpler to promote job creation, especially for micro and small enterprises; and,

• Protect property rights.

The World Bank also clarified that putting more money in infrastructure as well as in people’s education and health will require tax reforms to generate adequate resources. The report highly recommends adjusting tax rates and valuations to keep pace with inflation so that the tax system becomes more equitable.

Nice objectives but we know getting Congress to pass them would be worse than pulling teeth. Recall how difficult it was to pass that revenue reform affecting cigarette taxes. We are talking of just one interest group and the difficulty increases when more interest groups feel threatened. But Karl Kendrick Chua, World Bank senior country economist, said tax reforms are needed to finance the decades-old investment deficit in infrastructure, health and education.

World Bank economists also want to lower the top marginal income tax rate to 25 percent, reducing the gap between regular and special corporate income tax rates, and simplifying the tax system for micro and small enterprises.

Chua also said improving transparency and accountability of government spending are essential because the Filipino people must “see a better link between taxes and services and convince them that the taxes they are paying are being spent wisely.”

Governance practices must be improved to attract investments. Unless we are able to tell the world we are running a clean shop, we will not have the credibility we need to drive our economy.

That’s why the World Bank also wants reforms to enhance competition, including enacting a clear competition policy; liberalizing key sectors of the economy that directly impact poor Filipinos; further opening up the economy to more foreign competition; and strengthening regulatory capacity.

We need to amend some provisions of our Constitution to allow some of those reforms to happen. This is something even P-Noy needs to understand.

Key to fighting poverty is creating jobs. Key to creating jobs is investor confidence that among others, there is a level playing field, a fair judicial system and a competent bureaucracy that is corruption free. We may be making some gains in those areas but still not fast enough to make a real difference.

Eradicating poverty also requires a commitment to increase investments in key infrastructure. Can DOTC speed up implementation of their projects? Can the government bureaucracy be trusted to spend on big ticket infra projects with minimal budgetary leaks due to corruption?

We need to invest a lot more in health and education. To its credit, P-Noy’s administration had been doing this in a big way compared to the past. Whatever the political problems the former Health Secretary suffered, he succeeded in significantly increasing the share of health in the budget and expanded the reach of health services to the previously underserved.

Education investment had also been significant. But given the enormity of the task, a lot more is needed not just in building classrooms but in training teachers.

The World Bank is telling us that we have a good shot at eliminating poverty within a generation but we have to stop playing our usual games. Our political leaders will have to shake off regulatory capture of government by the vested interests.

I doubt if our political leaders will behave without constant political pressure. Citizens must hound them, made easier by social media. Only through citizen activism can we stop politicians from doing business as usual.

Pope Francis has excommunicated members of the Mafia for their anti-social activities. Since the Pope made pretty strong remarks during his visit about the evils of corruption in the public service, he shouldn’t be averse to excommunicating obviously corrupt politicians and officials. This could have a positive impact in this Catholic country.

Frankly, I doubt we will be able to eliminate poverty in a generation because we will not be able to clean up government fast enough. Maybe I have grown too cynical over the years. But I watched the Senate hearings on the corruption charges against the Vice President and I wonder how much of that resonates enough to decide the outcome in 2016.

Pope Francis called us to action when he said: “I hope that this prophetic summons will challenge everyone, at all levels of society, to reject every form of corruption which diverts resources from the poor… It is now, more than ever, necessary that political leaders be outstanding for honesty, integrity and commitment to the common good.”

Pope Francis couldn’t have made it any clearer: It is grace vs sin. Given the enormity of the challenge our next President must be in a state of grace and it is our religious duty to make sure no unrepentant sinner wins. Unless that happens, poverty will remain to haunt our lives day in and day out. -Boo Chanco (The Philippine Star)

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco