Income inequality

Some Filipinos are wondering why on earth that the news outlets (both international and domestic) are harping about our country being among the fastest-growing and leading economies in Southeast Asia. That it will remain so in the ensuing year made most of our countrymen felt deceived as they don’t fell such and are still languishing below poverty line.

That our economy is expanding is absolutely true.  The harder truth, however, is that this growth isn’t distributed evenly. For obvious reason, a jobless person does not benefit from it.  Simply put, those who chose not to work and those who wished but never had the opportunity will never benefit from it.  Or, they may have worked or engaged in little businesses but are earning insufficiently.  We call this income inequality.

In addressing it, economists and a few decent politicians are vigorously pushing for “inclusive growth.”  Though more often interchangeably used with other terms such as “pro-poor growth,” it distinctively focuses on the pace and pattern of growth.   While it also concerns about poverty alleviation, the difference between pro-poor and inclusive growth is that the “pro-poor approach is mainly interested in the welfare of the poor while inclusive growth is concerned with opportunities for the majority of the labor force, poor and middle-class alike”.

Generally, there are two ways of attaining inclusive growth.  These are productive employment and income redistribution.  Though a long-term approach, productive employment can be addressed by encouraging new investments, both foreign and domestic.   On the other hand, income redistribution can be done through social spending programs like cash transfers (4Ps) or AKAP (Ayuda sa Kapos ang Kita Program).  Unlike other measures, inclusive growth takes the long-term approach by focusing on the productive employment.

Obviously therefore, in addressing this concern, this government should enjoin investors to invest in agriculture, tourism (preferably, countryside tourism), manufacturing and infrastructure sectors.  These types of undertaking will surely address the acute need for jobs among the poorest of the poor who aren’t well educated.

Truly, what we need to do right now is create more jobs.  How?  Through expansion of existing companies or establishment of new ones.  This mode, however, assumes that domestic investors have enough capital for expansion or for new undertakings.  Realistically though, local investments could hardly put a dent on our unemployment woes.  Their (locals) capitals have already been placed and possibly exhausted.  Thus, there is an apparent need for foreign direct investments or FDIs.

Recently though, congress just passed HB no. 10755 allowing a “flexible and dynamic policy on the granting of long-term lease on private lands to foreign investors for the establishment of industrial estates, factories, assembly or processing plants, agro-industrial enterprises, land development for industrial or commercial use, tourism, agriculture, agroforestry, ecological conservation, and other similarly productive endeavors.”  Is this a gamechanger?

Truth be told, there is a need for change, well, for the better.  Remember, the size of our economy is one of this region’s tiniest.  So that, it follows that our base figure, year after year, is too small.  Therefore, increases in percentage points maybe high but the absolute amounts are just too little.   Hence, when weighed against that of other ASEAN countries, ours will surely pale in comparison.  Going deeper, it will clearly show that we are undercapitalized and are technologically inept.  The root of the problem is the apparent lack of incentives for foreign investments.  Despite these realities, however, our government has remained adamant in giving additional incentives to prospective foreign investors.

This recently approved bill could be it. The way it looks, this could be a good step tin the right direction.  However, lest we must forget, we have the tendency to change laws inappropriately too.  Remember the chaos when incentives on PEZA registered companies were threatened?  Then, in unison, the existing companies enjoying some incentives cried foul.  The common question is, why is this government changing the rules at the middle of the game?  Worse, most of these companies then insinuated that they will be transferring their operations to another country.

Indeed, in the past, we never changed those that ought to be changed.  Worse, we were trying to change those that do not need to be changed.  Consequently, the dreamed “inclusive growth” remained as such, a dream.  Hopefully, moving forward, this recently approved bill will change the narrative.