Poor governance is a drag on national income growth

Persistent inequality and deeply rooted political structures have been preventing the Philippines from moving upward from its present status as a lower-middle income country.

As of July 2, the World Bank reported that, in 2024, the country’s per-capita gross national income (GNI) increased by 5.67 percent from $4,230 in 2023 to $4,470 in 2024.

Despite that increase, the Philippines did not budge from the lower-middle income bracket, set by the World Bank at between $1,136 and $4,495. We fell short by only $25.

Explaining the shortfall, in an interview with the Business Mirror, Ateneo economist Leonardo Lanzona candidly pointed out an indication of class bias:

“Since the political elites and dynasties are only after their own interests, the types of laws and reforms designed or implemented are limited to those that ensure their loyalty and preserve the survival of these leaders.”

He was referring to how we are governed ensures the persistence of poverty among the many.

Inclusive reforms that prioritize broad public access to essential services and economic opportunities ought to be addressed, Lanzona emphasized, adding:

“The policies and reforms that determine our public goods should be developed broadly to reach the majority, especially the most vulnerable.”

Progressive leaders have long been calling for agrarian reform, better social housing, reforms in education, lowering the cost of health care, at the top of a list of urgent major concerns.

Moreover, the distribution of growth remains a concern, according to economist Ella Oplas of De La Salle University, because development of the country continues to favor urban centers, specifically Metro Manila. That focus has left behind the development of the rural areas.

“Wealth is still concentrated in Metro Manila,” Oplas pointed out, and because similar development is not happening across all regions, she added, this results in income inequality. Based on academic estimates, she noted, the top one percent of Filipinos accounts for 17 percent of the nation’s income.

Indeed, while the country surpassed its target for the 2023 Gross Domestic Income, we must ask whether the benefits of this apparent advance have benefited all Filipinos.

Referring to the self-congratulatory mood of our economic czars, Oplas conceded that “we’re happy we didn’t miss our targets.” She quickly added, however: “But the more important question is: does the general public feel it?”

Sought for his views on the issue, former Socioeconomic Planning secretary Dante Canlas referred to the underlying economic fundamentals that hold back income growth. He cited, as limiting factors, the sluggish growth of real gross domestic product (GDP) and “low total factor productivity.”

The government in fact has been missing its targets, Canlas asserted when interviewed by the Business Mirror.

“To boost our GNI,” he said, “we need to raise Total Factor Productivity, or the efficiency in the use of all factors of production, namely, all forms of labor and capital.” One could probably say that the root of this could be traced back to bad governance.

As earlier pointed out, the country was just $25 short of the upper-middle income threshold status, which under the World Bank 2026 fiscal classification starts at $4,496. What can the Philippines do to catch up?

It’s not going to be so easy.

Another Ateneo economist, Luis Dumlao, pointed out that the World Bank moves the threshold upwards every year. “If the threshold does not increase – which, as we see, it does – we are likely to become an upper-middle income country in seven years or in the latter half of the next administration,” he told the Business Mirror.

Under the Marcos Jr. administration’s Philippine Development Plan 2023-2028, the target per capita GNI for 2024 was set between $4,454 and $4,592. The expectation then was that, by the end of the plan – and the end as well of his six-year presidency – the Philippines would have attained the upper-middle income status.

Why is the Marcos Jr. administration obsessed by the target of achieving a higher income classification within its term?

Among the benefits expected of such achievement, the Business Mirror report mentioned enhanced investor confidence in the Philippine economy, as well as improved credit ratings among international rating groups.

But what about the confidence that ordinary people desperately lack as they struggle to put food on the table and scrape together the tuition fees for their children’s schooling? Should it be the foreign investors and the international banks that matter most?

If our poor economic performance can be traced back to issues of poor governance – including misdirected planning and age-old corruption – then the increase of political dynasties all over the country, in every province and every district, is an alarming development.

At least 18 clans demonstrated dominance in their respective turfs by getting five or more members elected into positions during the last elections. Is it surprising that this is taking place in areas where people remain poor and dependent on ayuda?

This is why it’s of the utmost importance that our lawmakers seriously study the passage of the bill, now again being urged upon them by the Makabayan bloc of legislators, banning political dynasties. Because there is a connection between these dynasties and our underdevelopment.

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