Sustain economic growth and job creation for the poor
IN various studies, it has been shown that economic growth is an important prerequisite for a decrease in poverty incidence. Countries in East Asia, like the People’s Republic of China, Malaysia, Thailand and Vietnam, are concrete examples where large reduction in the number of poor people accompanied economic expansion.
However, the quality of growth, the initial distribution of income and inequality itself, also matter. As many researches have concluded, growth alone is not enough, especially when inequalities are large. Thus, there are types of growth that have less effect on poverty incidence.
At the household levels, an important pathway out of poverty is through quality employment. Only through increased production will there be increasing demand for labor. Sustained production and increasing workers’ productivity eventually increase wages. A requirement for sustained economic growth is good macroeconomic management through fiscal balance, price stability and a conducive investment regime.
The next government needs to push the economy toward an even higher and sustained growth trajectory for poverty to be consistently reduced.
Build asset and capacity of the poor
HOUSEHOLDS will be able to benefit from economic growth and job opportunities if they possess adequate human and physical capital. The appropriate type of education provides the necessary skills for the citizens to be able to obtain jobs available in an expanding economy.
However, the lack of such skills will trap an individual in unemployment or a low-quality job. With a mismatch between demand and supply for labor, unemployment and poverty might also not be reduced.
Health and nutrition also play critical roles in ensuring the productivity of workers and studies have also shown the importance of illness to increased poverty prevalence. Thus, these findings imply that helping poor people access health care, social services and life insurance will be critical.
Therefore, any poverty-reduction strategy should require the buildup of essential assets that include but go beyond expanding incomes. Access to these assets helps reduce vulnerability and prevent people from deprivation.
The Asian Development Bank identifies these five essential assets: human capital (health and education); physical capital (water, housing and infrastructure); natural capital (land, environment); financial capital (access to credit); and social capital (networks).
The next government must focus on asset reforms that will benefit the poor.
Strengthen social protection for the poor
EACH person lives in a milieu where there are risks and shocks that can negatively impact on their livelihoods and endanger their participation in the labor market and the economy in general. Specific examples include the impact of disease or sickness on one’s work and income, the effect of a disaster on one’s physical capital, or the instability produced by an ongoing conflict escalation.
While a person’s stock of assets may be able to cushion such shocks or the occurrence of risks, these may not be sufficient. In addition, many people do not possess such assets, and thus their situation become worse in the event of a negative shock. The next government must focus on building a responsive and adequate system of social protection, safety nets, and insurance to keep people falling below the poverty line and for the poor, to be mired in a poverty trap.
Empower the poor
PEOPLE are not only excluded in society because of their income status but also because they belong to a certain group, sex or tribe. Economic and social discrimination heighten inequality and exclusion for these groups.
Economic opportunities are also shaped by the rules, norms and values that make up the institutional climate; by social structures; and by the possibilities for exercising individual and collective agency. The government will respond positively to the demands of disadvantaged groups if the latter is organized or if the government itself provides venues where citizens can articulate their needs. Without being able to ascertain such needs, the government cannot adequately respond in terms of programs and projects for these marginalized groups.
The next government must continue strengthening communities and people’s organizations of poor and marginalized sectors, and establishing and/or enhancing mechanisms for their participation in the design and implementation of poverty programs and policies.
Making institutions more effective and responsive
HOW state institutions, both national and local, operate in the political and economic environment will greatly affect the prospect of reducing poverty. Oftentimes, the difficulty in attaining a high growth trajectory is due to poor governance and weak institutions, as what the Aquino administration have emphasized.
An administration not supported by the majority is prone to instability. The dominance of political dynasties, especially at the local level, is highly associated with corruption, and thus leakage from poverty programs and projects may increase.
Most of the factors that affect poverty reduction also need effective governance and coordination of national agencies in charge of human capital formation (e.g., the Department of Education, Department of Health, Department of Social Welfare and Development). Aside from direct poverty-reduction programs and projects, the government must be able to efficiently manage the macroeconomy so that it will be suitable for sustained economic growth. This will require effective fiscal management to raise revenues for social services and poverty-reduction programs. Good monetary management to maintain price stability is also key to keep poverty incidence from rising.
Finally, the state must be able to establish the rule of law and secure property rights to attract both domestic and foreign investments.
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Based on a poverty-reduction framework written by the author for the Asian Development Bank 2009 study “Poverty in the Philippines, Causes, Constraints and Opportunities.”
Fernando T. Aldaba is the dean of the School of Social Sciences and a professor of Economics of the Ateneo de Manila University.