Poverty trap

By BENJAMIN DIOKNO

‘After 27 years, there has been little progress in the fight against poverty!’

THE Social Weather Stations survey results on self-rated poverty came at the worst possible time. Euphoric as a result of the successful hosting of the Asian Development Bank’s 45th annual meeting in Manila, the Aquino III administration, survey results remind the administration of the difficult tasks ahead.

The incidence of self-rated poverty has soared to a new height to date for the Aquino III administration: 55 percent of respondents, equivalent to some 1.1 million families, claimed to be poor, 10 points higher than December’s 45 percent or 9.1 million families.

Some 2 million families were added to the army of poor families within 3 months. The historic high for self-rated poverty, of course, was 74 percent, which was registered in July 1985 (after two consecutive years of 7.3 percent decline in GDP during the waning years of the Marcos regime). After 27 years, there has been little progress in the fight against poverty!

The official statistics show that there has been little change (in fact, the poverty incidence dipped a little bit) in poverty situation in the Philippines during the last 10 years. In 2009, poverty incidence was 26.5 percent. It was 26.4 percent in 2006 and was 24.9 percent in 2003.

This record is unacceptable since the Philippine government is expected to reduce poverty incidence by 2 percentage points every year in order to meet its Millennium Development Goal (MDG) of reducing poverty by half in 2015. But instead of moving forward, it moved back.

The next nationwide survey on poverty which is done every three years, will be done this year. And if the SWS March survey results were any indication of things to come, poverty incidence would at best remain unchanged, and at worst, slightly up.

A comparison with our Asean-5 neighbors show how miserably the Philippines has performed during the last ten years. Will 2012 be any different? Thailand has long licked poverty, from 27 percent in 1990 to 9.8 percent in 2002 (ten years ago). Vietnam has shown the most impressive progress in the war against poverty, from 58.1 percent in 1990, it was cut to 14.5 percent in 2008, a 75 percent reduction. Poverty incidence in Malaysia is now 3.8 percent.

Is the Philippines caught in some kind of a poverty trap? With population growing at close to 2 percent annually, poor households expanding faster than rich households, and with the economy growing, but inequitably, at an average rate of slightly above 4 percent, the Philippine economy seems to be stuck at the same state of affairs as the year before, year after year after year. This reminds us of Sisyphus, the King condemned by the gods to ceaselessly roll a rock to the top of a mountain, where the stone would roll back on its own weight.

I would put the blame on the Philippines lack of progress in its war on poverty on the stubbornly high unemployment rate. The latest Labor Force survey (January 2012) results show an unemployment rate of 7.2 percent and underemployment rate of 18.8 percent. That’s much higher than our Asean-5 neighbors. The Asean country with the second highest unemployment rate is Indonesia at 6.7 percent (Q32011). This is followed by Vietnam at 4.4 percent(2010), then Malaysia at 3.0 percent (Q42011). Thailand has near full employment at 0.6 percent (Q32011).

But it is not only the lack of jobs that haunts the Philippine economy. According to the International Labor Office, equally horrible is the quality of employment which has prevented poor Filipinos from escaping poverty. Many of those employed may be characterized as “vulnerable workers”, those who work in low paid jobs what do not provide social security, health insurance and other employee benefits. Vulnerable workers include the pedicab drivers, street hawkers, and unpaid family workers.

The second most important determinant of poverty is the high population growth rate. Poor families tend to have more children than rich families. Unwanted pregnancies is quite high among poor mothers because of lack of access to modern methods of population control. Because of the large size of families among the poor, many of the poor children do not perform well in school; many drop out before Grade Six. This situation would then result in low productivity and poor employment opportunities and hence the full cycle of poverty.

At this point, it is fitting to ask: What happened to the Reproduction Health Bill?

A good college education is the best way out of poverty. But even that avenue is closing. The number of college graduates are dwindling. Even worse, the educational system is not producing the right type of college graduates. The annual number of graduates of education science and teacher training dropped sharply from 71,349 in 2000-2001 to 56,209 in 2009-2010. The National Statistics Coordination Board asks: “Who will teach our children?” “Who will build our future?”.

What has the increasing number, and budgets, of state universities and colleges done to increase access to, and to improve the quality of, college education in this country?

What has the conditional cash transfer program (P29.2 billion in 2011 and P39.4 billion in 2012)done to reduce drop out rate in elementary schools and reduce poverty? “One should not expect an overnight change as a result of this direct policy intervention,” we are told. But at least some results should be apparent by now. Is the present social protection program woefully inadequate or poorly implemented or both?

Greatest good for the greatest number -- this should be the mantra of a caring President. Malacañang should stop pointing to the soaring PSE indices (mainly due to ‘hot’ money) and peso appreciation (due to ‘hot’ money, steady supply of OFW remittances partly because of the strengthening of the peso, and low imports owing to a weak economy) as barometers of progress. This thinking, hardly a departure from the economic reasoning of the previous administration, only heightens the level of frustration of the ordinary man on the street.

For the nth time, the appreciation of the peso favors the few (importers, the elite who love to travel and shop abroad, and the Hermes-Prada-Gucci-Ferragamo crowd) and hurts the many (families of OFWs, exporters, and workers in the export sector and import-substituting industries).

Here’s what the government of the day should do. Focus on creating more decent jobs; attract foreign direct investments (FDIs) by reducing the costs of doing business in the country and by making public policies credible and predictable; invest in better airports, seaports, mass transit systems, roads and bridges, power plants; and increase social protection for the poor.

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Benjamin Diokno is professor of Economics at the School of Economics, University of the Philippines(Diliman). He was formerly secretary of budget and management in the Estrada Cabinet and undersecretary for budget operations in the Aquino 1 administration.