EVERY time gross domestic product growth data come out, one hears numerous comments saying this growth is not “inclusive,” meaning “excluding some sections of society”.
Is there something inherently wrong with our economic growth? Perhaps this is best illustrated in the social-media comment “Why our lives are not improving when there is economic growth?”
In reality, Filipinos’ “lives” have improved. In 2000 for example, the mean years of schooling was 7.6, and in 2017 it was 9.3 years. The gross national income—by 2011 purchasing power parity—was $4,972 and is now $9,154. The PHL Human Development Index has risen from 0.624 to 0.699.
Nonetheless, we understand the frustration because we strongly believe that if one child goes to bed hungry tonight or cannot attend school tomorrow, that is totally unacceptable.
However, there is also the myth that there is an economic growth rope hanging from economic paradise that pulls people up. The bigger the rope, the more people that can hang on and be brought to prosperity heaven. Implied also is that the economic growth does not benefit everyone equally. That is absolutely true, but not for the reasons we are told.
The reason that some—if not many—people are not seeing their lives improve as the country’s economy improves is that they are not part of the economy. In order to be included in the economic growth, you must first be included in the economy.
You saved enough money to own and operate a siomai kiosk. You hire three people to run it. After a year or so, you have retained enough profit to own and operate another kiosk, hiring three more employees. Running the business well, at the end of five years you have 25 kiosks and 80 employees. You continue to reinvest profits and expand so that at year 10 you have 50 kiosks and 175 employees, including supervisors and managers above the supervisors.
After 20 years, your business has expanded to 300 stores with 1,200 employees. One day you are visiting your first kiosk in a small out-of-the-way mall and are approached by a security guard. He says he was there on your first day, and even though you now have 300 individual businesses, he is relatively not making any more money than he was on Day One.
You tell him he is not included in you company’s “economic growth” because he is not part of nor did he contribute to that growth. There was no “economic rope” that pulled the security guard up. The first three employees of your business started the growth that led to more employees participating that led to more growth and more employees.
There are tens of millions of able-bodied Filipinos who do not contribute to the nation’s economic growth and therefore do not reap the rewards of that growth. They are not included. You created your siomai “empire,” and now 1,200 Filipinos grow the economy daily and benefit. And it all started with your capital investment and an unbroken chain of more and more investment.
The business-process outsourcing business started with a few Filipinos investing in “mosquito call centers.” Then bigger capital investment came in over two decades and reinvested more and more over time to now employ over 1 million.
One reason was because of the income tax holiday, which made more capital available for expansion, which was more than offset by the taxes paid by these new employees. You want “inclusive economic growth?” Then make it more financially attractive to put money in a business than in a bank deposit.