POVERTY incidence among Filipinos in the first semester of 2014 was estimated at 25.8 percent based on the 2014 Annual Poverty Indicators Survey (Apis) conducted in July 2014. This is higher than the poverty incidence recorded during the same period in 2013, which was at 24.6 percent. This development ironically comes at the heels of an impressive growth performance by the country, which grew by 6.3 percent in the last quarter of 2013 and 5.6 percent in the first quarter of 2014.
Nevertheless, per-capita income in the first semester of 2014 was higher by 6.4 percent than in 2013. Among the bottom 30 percent of income-earners, per-capita income rose by about 7.3 percent in the same period in the previous year. Secretary Arsenio Balisacan of the National Economic and Development Authority (Neda) attributes this increase to the twin implementation of increased investments and production alongside a massive redistribution program, such as the Conditional-Cash Transfer (CCT) Program.
According to the Neda, the increase in poverty incidence can be traced to the increase in inflation, which virtually totally offset the increase in per-capita income. The country’s inflation rate rose near the higher end of the inflation target in the first half of 2014. The consumer price index for food went up to 6.5 percent and 2.7 percent for the nonfood items in the same period. Hence, the increase in per-capita income did not provide poor households mostly in the agricultural sector enough purchasing power to consume more goods. In real terms, per-capita income was not high enough to move out these households of poverty.
This perspective of increasing poverty has three main implications. First, the increase in food prices is supposed to benefit the farmers who constitute most of the poor. However, apparently their production is insufficient to carry most of them out of poverty since farmers are not only producers but consumers, as well. The government’s grains sector policy, particularly the quantitative restrictions policy on rice imports to achieve the rice self-sufficiency goal failed to take into account that farmers also buy rice in the market. Hence, as the Neda recommends, we need to take advantage of the lower grain prices offered in the international market.
Second, agricultural production needs to be increased, but productivity programs have to be based on comparative advantage. Goods that have comparative advantage are produced from the country’s abundant resource endowments. These are goods that can be produced more cheaply in the domestic economy but, at the same time, command a higher price abroad. More important, products that have comparative advantage in the Philippines should also be those goods that are labor intensive. In which case, the poor whose only resource is labor can produce more of these goods without much government intervention. Rice production has become less competitive here compared to other countries, and the poor does not benefit significantly from its production. If the government follows its comparative advantage, more labor-intensive industries will be produced, thereby allowing the poor to benefit more in development.
Third, inflation is not the only problem. If income per capita increased at a faster rate, inflationary pressures would not have mattered. The key to poverty reduction then is to raise productivity, whether in manufacturing or agriculture, and to move workers toward these more productive sectors. If this had been done, then inflation would also been solved. This, however, is easier said than done. Apart from upgrading skills and expanding productive knowledge, reforms in the country’s labor market institutions, including labor market regulations (such as the minimum wages), are essential in order to make the high-quality jobs more accessible to the poor.
To be fair, the previous administrations, particularly the Arroyo administration, had undertaken similar structural reforms. However, these reforms, involving, for instance, the development of the service sector, such as business-processing outsourcing, prove to be ineffective in addressing the poverty problem. The predicament is that these sectors defied the country’s comparative advantage and failed in making employment easily attainable to many workers. Moreover, such sectors cannot be scaled up in a way that results to a permanent contribution to development.
Countries, like India, where services have a comparative advantage, managed these sectors more effectively and attracted greater foreign investment that resulted in higher wages.
The observed increase in poverty incidence is, thus, not an indictment on the CCT or other forms of social protection programs nor the growth policy of the government. In fact, the poverty situation could have been much worse without such programs. However, structural reforms and transformation would be crucial in finally reducing poverty. More important, unlike previous structural reforms of the country, we need to situate these programs in the context of the country’s poverty. Not only will these help in reducing the number of poor households, these will also be more sustainable since these will necessarily be tied to the country’s comparative advantage.
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Leonardo Lanzona Jr. is professor of Economics at the Ateneo de Manila University and a senior fellow of Eagle Watch, the school’s macroeconomic research and forecasting unit.
1 comment
Sorry. But your structural reforms bru ha ha won’t solve anything as mentioned in your own article. We have a Government and a society who think that poverty and the poor are “so poor” and they only deserve “poor solutions” and “poor services” and “poor salaries” from their employers, which are mainly the Oligarchs who rule the land.