Phl elite corners new wealth

We all know that the rich are getting richer, getting an ever greater share of the fruits of economic growth here as it is in many countries abroad including the United States. That is why there was this Occupy movement supposedly trying to speak up for the 99 percent of the population being left behind in the US.

Over the weekend, there was some amount of controversy over a statement attributed to former NEDA Chief Ciel Habito even among my economist friends. As it turned out, a wrong impression was given by a report on Ciel’s statement.

The Inquirer reported that “in 2011 the 40 richest families on the Forbes wealth list accounted for 76 percent of the country’s gross domestic product (GDP) growth.” People stopped reading after GDP.

Here is how Dr Habito explained what he actually meant: “I’ve been careful to clarify that having the wealth increase of the top 40 individuals being EQUIVALENT (i.e., in value) to 76 percent of the nominal increment in GDP should not be interpreted to mean that 76 percent of the GDP was captured by these 40 individuals… My purpose in making the comparison was to place the wealth increase in perspective, and the contrast with neighboring Asian countries is quite glaring.  This still points to PH as a rather unusual case of inequality, which is my main point.”

So, whatever the technical nuances, the message is clear. The growth we are showing as measured by our GDP is not trickling down to a larger number of our people. It is being cornered by our elite.

That is why impressed as he was with our GDP performance, P-Noy found out he got no brownie points from the ordinary folks out there. P-Noy can also talk about wanting to have inclusive growth until he is blue in the face but unless he takes risks and turns his back on the interests of his own social class, it won’t happen. The only ones happy about high GDP growth or even an investment grade debt rating are the few in our society already rich beyond common imagination.

As Dr Habito puts it, little progress has been made in changing a structure that for decades has developed one of Asia’s worst rich-poor divides. He told Cecil Morella of the Agence France Presse “I think it’s obvious to everyone that something is structurally wrong. The oligarchy has too much control of the country’s resources.”

Dr Habito presented data at a recent economic development forum showing that in 2011 the 40 richest families on the Forbes wealth list accounted for 76 percent of the growth in the country’s gross domestic product (GDP). This was the highest in Asia, compared with Thailand where the top 40 accounted for 33.7 percent of wealth growth, 5.6 percent for Malaysia and just 2.8 percent for Japan, according to Habito.

“The Philippines is no longer the sick man of East Asia, but the rising tiger,” World Bank country director Motoo Konishi told that same economic forum. But most Filipinos would be oblivious of it.

Konishi also spoke last week before the Foundation for Economic Freedom, a group mostly composed of economists. In his presentation to FEF, Konishi emphasized the need to focus on what he called “the jobs challenge” to achieve inclusive growth.

The World Bank economist provided a good picture of the challenge in terms of the hard numbers: a labor force of 41 million, 3 million unemployed and 7 million underemployed. In addition 1.1 million Filipinos enter the labor force every year.

“There are 500,000 college graduates every year; 240,000 can be absorbed in the formal sector such as business process outsourcing (52,000) and manufacturing (20,000). About 200,000 young people find jobs abroad and around 60,000 will be either unemployed or exit the labor force.

“The remaining 600,000 new entrants, around half have high school degrees and the rest have never finished school. They have no other option but to find or create work in the low skill and low pay informal sector or in agriculture. Many of these people are in the rural areas and urban slums.”

Assuming a high case scenario of sustained GDP growth of seven percent per year and the removal of key binding constraints in fast growing sectors (e.g. the skills constraint, so that the BPO industry can accelerate its annual growth from 20 to 30 per cent), Konishi thinks “the formal sector will be able to provide good jobs for around 2 million people in the next 4 years.”

Konishi points out that “This leaves 12.4 million Filipinos who would be unemployed, underemployed or work in the low-paid informal sector by 2016. This requires meeting a dual challenge: to expand the formal sector employment even faster, while rapidly raising the incomes and productivity of those informally employed and those working in the agricultural sector.”

 This means P-Noy must be ready to introduce reforms and move the bureaucracy to make it easy for the private sector to create jobs. The role of the public sector in job creation, Konishi said, is to invest in human and infrastructure capital.

Konishi calls for a “social contract” with government, business and labor coming together to form a partnership on job creation. It will require short term sacrifices on all sides, Konishi warns, balancing of trade offs, proportional sharing of responsibilities based on the ability to shoulder the reform cost.

Konishi called on government to accelerate infrastructure spending to five percent of GDP and increase investment in social services, in particular health, education and social protection. Government must also commit to an accelerated implementation of plans to simplify business regulations; continue to enhance the efficiency of public service through a combination of internal reforms, public-private partnerships in service delivery.

Private sector, on the other hand, must create more and better jobs specially those that benefit the poor in rural areas. Businesses of all sizes must embrace the principle of a level playing field for all in the interest of accelerating economic growth, Konishi urged.

This means the private sector must support reforms to reduce barriers to entry, streamline taxation and maximize competition, in particular in sector currently dominated by monopolies and oligopolies. Short term priority should be given to sectors which affect jobs either directly or indirectly, through higher food and goods prices. The private sector must be interested in expanding their operations into rural areas, specifically in agriculture and agribusiness.

Labor groups, for their part, must recognize valid forms of flexible work arrangements to facilitate the creation of more jobs, specially in the informal sector. This would allow businesses to adopt better to the changing environment, remain competitive, hire more workers during expansion years and retain qualified workers during slowdowns. Labor must carefully position itself in the Asian market to insure competitiveness of its workers in the Philippines.

I think we are doomed. These are difficult things to do in our political setting. Dr Habito said the path to riches for the few is helped by a political culture that allows personal connections to easily open doors. Why would the elite support reforms that end their dominance?

Having a more inclusive growth will remain an elusive goal for so long as our political and economic leaders are unwilling to think in terms of new strategies and even give up old advantages. We are as a people unwilling to think in terms of fresh approaches to old problems.

Take our land reform concept as an example. We know no farmer can be productive or competitive the way the present program is structured by law. Yet, politicians and church leaders insist on the old discredit approach and claim they are fighting for social justice. There has to be a better way of lifting our farmers out of poverty.

It is the same for our labor leaders. They win concessions for organized labor that only affects a small portion of our labor force. We also have labor laws that make us uncompetitive against our regional peers. The numbers tell the story: a large portion of our population is classified as unemployed and underemployed and only innovative policies can address their needs.

And so it will be for some time to come. The elite will continue to eat up a large share of whatever economic growth we can eke out in the foreseeable future. But how long can we keep up with such uneven sharing of the nation’s wealth and not risk a serious social unrest?

Politicians

Here is one thought that bears repetition.

What this country needs are more unemployed politicians.

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