‘Trickle down’ does not work

by Elfren S. Cruz – The Philippine Star, 12 Dec 2021

For those who truly love the Philippines and the Filipino people, it is such a frustrating experience to read the history of this country and see how backward we are. For some people there is an image of wealth because there are a very select people whose wealth rivals those of international millionaires and even billionaires.

The fact that some Filipinos own luxury homes in exclusive enclaves of wealth – some even in the United States, Australia, the United Kingdom or other wealthy countries – cannot hide the fact that there are millions of Filipinos who are cramped in small huts in squatter areas.

Economists talk of economic growth as some kind of magic formula. But there have been periods in our history when we have had high GDP growth. There have been times when the Philippines has even been called a rising tiger. Some corporations became very big, and some people became very wealthy, even by world standards.

Through all of this, the quality of life of the poor has remained basically the same – trying to survive on a daily basis. I am not exaggerating. Even tricycle drivers try to earn enough so that their family has enough to eat for one more day.

And yet economists insist that the poor must be patient because once the economy grows, some of the wealth will find its way to the poor. This is the “trickle down” concept and my readers know that I find this concept totally unacceptable. Even Pope Francis, several times in his writings and speeches, have said that “trickle down” has never worked and will not work.

Even during this pandemic, as millions of Filipinos suffered, a select group of rich Filipinos increased their wealth. One can almost say that if this was a movie plot it would be considered impossible.

In spite of all this there are, unbelievably, businessmen and economists who block any attempt to increase the minimum wage and increase workers’ benefits.

So why do some countries progress and some remain stagnant in their poverty? One reason is the perception which economic principle is more critical. Most economists still look to economic growth. But a growing number are seeing that bridging the terrible wealth gap or income inequality is really the overriding concern of economics and society as a whole.

It has been said often but I will repeat it. The increase in income inequality is the political reason for rise of populists and dictators. One can see evidence in the Marcos Jr. campaign. There are marching songs and a lot of talk that during the Marcos days food and fuel prices were low and affordable by the masses. This is a lot of nonsense. During the Marcos years I remember rice shortages and cars lining up for gasoline that was rationed. But the propaganda machinery is well funded and massive; there is a new, false image of the Marcos years unfolding.

What causes nations to collapse? It is not wars or pandemics or similar catastrophes. After the Second World War, the victor – the United States – emerged as the strongest economy in the world. However, two countries who were losers also emerged with very strong economies. In fact, their economies are still two of the strongest and most vibrant.

The Philippines was one of the victorious countries. Then it received reparations payment from Japan. But the Philippines has remained basically a Third World country.

The world has seen serious pandemics before like the Spanish flu. But countries have recovered and retained their economic strength.

Again others have said that it is the kind of people which make up a nation. There are peoples who are educated and hardworking.

But look at Korea, whose people are homogenous and with a common culture. The North is a backward country, except for its military. It is ruled by a dictator. On the other hand, the South is a vibrant democracy; and its economy is one of the most resilient and technologically advanced economies.

Why do nations fail?

In their very popular book Why Nations Fail, the authors Daron Acemoglu and James Robinson say the answer lies in the man-made institutions in the country. Countries that do not do well are those with extractive institutions. These are the ones that permit the elite to rule over and exploit others, extracting wealth from those who are not in the elite.

For me, a good example is agriculture. The farmer, who is the actual producer of the food products, earns very little from the agribusiness process. At the end, a very small number of companies derive most of the profits from the industry. One only needs to contrast the life of farmers here and the life of farmers in prosperous countries. Even in countries like Taiwan and South Korea, land reform made the life of the ordinary farmer a life of human dignity.

It is the institutions in a country that make the laws, interpret the laws and enforce the laws. If they favor the political elite, there will never be inclusive growth.

The next president of the Philippines must not only advocate reform but launch a program that will radically alter our institutions to make their policies geared towards inclusive growth.