As train of growth chugs forward, is everyone getting pulled along?

The Aquino III administration is supposedly committed to the lofty goal of strong, sustainable, inclusive growth. But does it really know the meaning of inclusiveness? What do the evidence show about the state of economic, social and environmental inclusiveness of the Philippine economy? What should government authorities do to make growth inclusive?

A recent 2015 study sponsored by the Economic and Social Commission for Asia and the Pacific (ESCAP) shows that over a period of 23 years, from 1990 to 2013, the Philippines had the worst record among its ASEAN-5 peers in terms of economic, social and environmental inclusiveness.

This should be a wake-up call for policy makers who boast that the Philippines is the best performing country among its ASEAN-5 peers. The harsh reality is that more meaningful and deeper reforms need to be done by government authorities before the Philippines can catch up with its ASEAN-5 neighbors.

Inclusiveness is a multi-dimensional concept, said Oliver Paddison, the author of the ESCAP study. It should not be equated with strong growth, though it might be a strong anchor for it. Stated differently, strong growth is a necessary but not sufficient condition for inclusive growth.

Inclusiveness is “typically measured using income-related indicators.” How does the Philippines compare with its ASEAN-4? (Here, we omit Singapore. There’s no point comparing ASEAN-4 economies with Singapore, which is a first-world city-state.)

Real per capita income increased the least in the Philippines (58%) over the same period (see Table 1), and improved the most in Malaysia (122%). Not surprisingly, poverty was reduced the least in the Philippines (-40%) while it was cut the most (-100%) in Malaysia.

The Gini coefficient, a measure of income inequality (values range from 0 to 1, 0 if totally equal, 1 if totally unequal) improved the most in Indonesia, with a 9.0 percentage point change. ˆ Absolute poverty was reduced by 70.1% and growth in per capita income increased by 115% over a 23-year period. By contrast, there has been a slight worsening of income equality in the Philippines, with the Gini coefficient falling at -0.8.

Inclusiveness should capture the economic, social and environmental dimensions of development. Methodologically, the study chose five relevant indicators per index, using only outcome indicators.

Economic inclusiveness was measured by: (1) rate of poverty at $1.25 per day in 2005 purchasing-power parity; (2) income inequality coefficient; (3) ratio of income of the highest quintile to the incomes of the lowest quintile; (4) unemployment rate; and (5) ratio of the female-to-male labor force participation rate.

Table 2 shows the composite scores for economic inclusiveness.

The Philippines ranked the poorest among ASEAN-4 economies in terms of economic inclusiveness. Together with Indonesia and Thailand, it lost one rank from 1990-1999 to 2000-2012. By contrast, Malaysia improved by two ranks during the same period.

The other dimension is social inclusiveness, which is measured by the following outcome indicators: (1) gender parity at the secondary school level; (2) gross secondary school enrolment; (3) average years of schooling; (4) percentage of live births attended by skilled health staff; and (5) mortality rate of children under age 5.

Table 3 shows the scores for social inclusiveness. Among ASEAN-4 economies, the Philippines lost four ranks in terms of social inclusiveness -- in the 1990s to 14 from 2000-2012. Indonesia improved by one rank; Malaysia’s rank was unchanged; while Thailand lost by one rank.

The other dimension of inclusiveness is environmental inclusiveness. It is measured by: (1) access to improved sanitation; (2) access to water sources; (3) annual change in total greenhouse gas emissions; (4) annual change in forest area; and (5) annual change in the share of fossil-fuel energy consumption to total consumption of energy.

Table 4 shows the scores for environmental inclusiveness. None of the ASEAN-4 economies suffered deterioration in rank in environmental inclusiveness during the period of study. Both Malaysia (+6) and Thailand (+5) improved significantly in terms of environmental inclusiveness. The Philippines moved up two ranks.

LESSONS TO BE LEARNED

First, the empirical results suggest that much more needs to be done by the present and future Philippine governments in order for it to catch up with its ASEAN competitors.

Second, it is not possible to achieve inclusivity by neglecting agriculture and the rural sector. The first recommendation of the study is for the authorities to address the neglect of the rural sector. The study proposes “to increase agricultural productivity by focusing on quality and standards, investment in R&D” and to “develop non-farm sector through rural industrialization.”

For the Philippines, these recommendations are right on target because one-third of its work force comes from agriculture and one-half of the country’s poor live in rural communities.

The ESCAP study should open the eyes of policy makers to the real meaning of inclusivity. The body of evidence shows that the present administration’s talk about inclusive growth is superficial since its attention to agriculture and the rural sector is, at best, perfunctory.


Benjamin E. Diokno is a former secretary of Budget and Management

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This article was originally published on Business World Online and is shared here with permission from the author.

Benjamin E. Diokno
Author: Benjamin E. Diokno
Professor Diokno is a professor of Economics at the University of the Philippines School of Economics. He served the Government of the Philippines in various capacities including as secretary of budget and management, fiscal adviser to the Philippine Senate, chairman and CEO of the Philippine National Oil Company and chairman of Local Water Utilities Administration. He provides policy advice and conducts research in the following areas of public economics: structure and scope of government; tax policies and tax reform; government expenditure analysis; national budget and public debt; fiscal decentralization; public expenditure management, and public policy analysis.