Must PH economic growth also widen income inequality?

MANILA, Philippines - Malaysia’s elections last weekend revealed a divided nation. The elections brought to the fore a deep inequality between the rich and the poor in an economy that has sustained robust growth over the past decades.

During the campaign period, the rhetoric had turned ugly, with some analysts expressing fears of a class war that could be ignited by the widespread disappointment with the present income gap that the election results would not satisfy.

How the ruling coalition of reelected Prime Minister Najib Razak would turn last weekend’s narrow victory into reforms towards more inclusive economic growth will be closely watched not just by concerned Malaysians but the rest of Southeast Asia where inequality seems to be persistent as well.

Closer to home, one wonders what the elections in the Philippines on Monday will reveal. Not inequality, for sure. We all know how serious the problem is. The past two generations of Filipinos have witnessed how economic prosperity—until the early 1970s the Philippines ranked second only to Japan in terms of economic progress—turned into economic stagnation that drove millions of families into poverty.

While its neighbors in Southeast Asia enjoyed high economic growth rates that succeeded in reducing poverty during the past three decades, the Philippines performed poorly. During the Arroyo government that ended in 2010, economic growth accelerated but poverty incidence even expanded—indicating a widening of the inequality in a country of talented people and rich natural resources.

In more recent years, the Philippine economy showed significant growth that defied a global financial crisis. However, the poverty rate was reduced only marginally, according to recently announced government data.

That slight drop in poverty—from 28.6 percent in the first half of 2009 to 27.9 percent in the first half of 2012—could not have made a significant impact on the magnitude of income inequality in the country. There is a lot more that needs to be done and next Monday’s elections may prove crucial to that agenda.

To be sure, inequality is not unique to the Philippines. Or Malaysia. In the Asia-Pacific region, a deepening divide between rich and poor is threatening future prosperity, according to a report in the Asian Development Bank’s Development Asia magazine released last week in time for the ADB’s annual meeting.

Even in 2012, ADB already acknowledged the puzzling phenomenon. In its Asian Development Outlook 2012, the regional development financing institution noted that “rising inequality in developing Asia is closely associated with very rapid increases in the very top income groups—that is, the rich are getting richer much faster.”

The rich, it was further noted, are also getting better education for their children, cleaner water, more reliable electricity, better access to imunizations, and access to health care at quality facilities to keep themselves and their families healthy.

The ADB magazine’s new special report defined inequality in the region as “unequal access to income and consequently to good quality education, health care, sanitation, and other building blocks of a successful life.”

Increasingly across Asia, the report added, “access to a decent wage and the social benefits it can bring depends on your skills, location, and gender.” These disparities, it added, can occur between countries, but are particularly troublesome for governments when they occur in the same region, or between different regions of the same country, as they “can foster social and political instability.”

Quite significantly, the causes of this rising inequality in Asia appear to be the same forces propelling the region’s economic growth, the report said.

“Globalization has opened up economies to global trade, introduced new and more efficient technologies, and enabled greater capital flows,” said the report. “It has generated tremendous wealth creation opportunities, but these are not often shared equally.”

“Profits from increased market access skew to factory owners than factory workers; skilled workers get paid more than the unskilled who may even lose their jobs to new technology; cities with decent infrastructure prosper while remote ones lag.”

ADB’s “Framework of Inclusive Growth Indicators 2012” showed that the ratio of rural poverty to urban poverty worsened in 18 of the region’s economies between 1990 and 2010. The imbalance, according to the data, was especially pronounced in the region’s fastest-growing economies.
This kind of rising inequality shows that the economic growth process has not been sufficiently inclusive. “Growth is necessary, but growth alone is not enough,” the report quoted ADB deputy chief economist Juzhong Zhuang as saying.

The report concluded that apart from enhancing access to education, health care, income opportunities and even the courts, there may still be need for policy interventions.

With less than a week to the May 13 elections, the Filipino people are still waiting for credible plans on how to significantly narrow, or even close, the gaping inequality. Are there any new, effective programs or policy interventions they intend to pursue if they get elected?

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