A harsh reality

Michael Alan Hamlin

Posted on March 17, 2010

In 1999, the Philippines had a poverty rate of about 30%, compared to close to 70% in Vietnam and nearly 60% in Indonesia. China had a poverty rate of about 45%. Thailand had already managed to reduce the incidence of poverty to less than 10% of its population, and in Malaysia, the incidence of poverty was less than five percent. Consider the case today. The incidence of poverty in the Philippines is still about 30%. But its rivals have fared far better in their efforts to reduce poverty.

Vietnam and Indonesia have at least halved the incidence of poverty in a little more than a decade, and the incidence of poverty in China has dropped below 20%. Poverty in Thailand and Malaysia-defined as the proportion of the population with a per capita income of less than $1.25 a day-is so low it appears to be almost negligible when illustrated in chart form in comparison to the Philippines.

The sources for these statistics are the World Bank and independent researchers, according to University of the Philippines’ professors Arsenio M. Balisacan and Dennis Mapa. Dr. Balisacan, a professor of economics, and Dr. Mapa, a statistics professor and director of research, spoke earlier this week to members of the League of Corporate Foundations on constraints to poverty reduction, and their implications for the next administration.

They said that poverty and hunger in the Philippines is not only widespread, but that in recent years it has started expanding, threatening the social fabric of society. Despite this imminent threat, they argue, little has changed in the way the Philippines addresses poverty and hunger as a result of low economic growth and weak governance in the form of highly politicized, poorly coordinated, and highly fragmented development programs.

Before I go further, it should be understood that if we were to ask people in the Philippines and these countries if they feel poor, the perception of poverty would likely be much higher. Thirty percent of Filipinos are so poor that they somehow survive despite severe hardship. And as I pointed out recently, about 90% of Filipinos belong to the D and E socio-economic classes, a harsh reality taken into account in political surveys.

While economic growth in the Philippines has picked up in recent years compared to its neighbors, when we examine the last 50 years the Philippines has consistently trailed other developing Asian nations in generating economic opportunity. This was particularly true in the two decades from 1981 to 2000, when Philippine growth in per capita GDP was almost imperceptible according to data from the World Bank. In contrast, China’s per capita GDP grew almost 10% during this period. Vietnam expanded per capita GDP six percent. Indonesia, Thailand, and Malaysia grew per capita GDP between two and four percent.

To turn the Philippines’ situation around, the professors argue that three things have to happen. First, the investment climate must be improved. The Philippines trails its neighbors in both savings and domestic investment. There is little capital, compared to other developing Asian economies, to create jobs. This is despite significant remittances from overseas workers amounting to about $18 billion annually, which appears to benefit the real estate and construction sectors, but little else. The Philippines also perennially trails its neighbors in foreign direct investment.

Second, the Philippines should improve access to basic social services, the UP professors argue, especially education, health, and family planning services. The caveat is that the Philippines’ tax base is small in significant part because of poor collection efficiencies, with the result that principled taxpayers are regularly asked to shoulder more of the tax burden, further undermining the investment climate. Both leading presidential candidates have expressed willingness to increase taxes.

Health services are hamstrung by corruption and weak governance, with the result that the Philippines has a young population that is not only poorly educated but in poor health, and the price is productivity and the capacity for value creation. In its latest survey, the Hong Kong-based Political and Economic Risk Consultancy said the Philippines was perceived as the fourth most-corrupt country in Asia, “up” from sixth place.

Third, the Philippines needs to get its population growth under control. Although it is one of the poorest populations in Asia, the Philippines also has the fastest growing population. Professors Balisacan and Mapa note that even if the Philippines had done nothing to correct its institutional shortcomings but managed growth in population to keep it at par with that of Thailand, per capita income would have increased from $1,500 to more than $4,000 in the period 1975-1999.

Many will disagree with that assessment. But that’s the harsh reality.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on Twitter, Facebook and LinkedIn.).

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