The path towards “inclusive growth” – some indicators

In his fourth State of the Nation Address before a joint sitting of Congress, President Noynoy Aquino made reference to inclusive growth, inclusive progress or broad-based growth about thrice in his hour-and-a-half-long speech, but he mentioned the words transformation 15 times, change 14 times and reform 11 times. At the midpoint of his term, PNoy sought to bring home the message that change in the culture of “wang-wang” which he coined in his inaugural state of the nation address has taken place under his watch and that as a result of the reforms he instituted, the path for providing opportunity to all has been opened up irrevocably.

Inclusive growth as he declared in his speech was about providing everyone the chance to have a go at life, what the Australians call “a fair go”, which constitutes a social contract that if you work hard at bettering yourself, you can move ahead in life. It is not about guaranteeing the same outcome, however, meaning it is up to the individual whether to take advantage of the opportunities presented, or not. Providing equal opportunity means building human capabilities to pursue “the good life”.

The Asian Development Bank has come up with a Framework for Inclusive Growth which provides a set of indicators for measuring whether governments and societies develop that basic level of capacity in its people. The framework is comprised of three pillars: the first one supports economic growth to expand opportunity, the second one supports social inclusion to provide equal access to economic opportunity, and the third supports social safety nets for those who slip through the cracks. There are a number of indicators for each pillar.

I have sampled a few and collated the results for the Philippines and six other emerging economies from our region to compare the different paths we have taken down the road of inclusive growth and development. Let me start with the most basic one: income or the lack of it. Having a decent level of income is one of the most basic measures of material well-being. Social disadvantage comes from not having income sufficient to live on. The following chart shows the proportion of people living on less than $2 a day for us and our Asian neighbours at the start of the 90s and the end of the noughties.

income

At the start of the 90s, Vietnam had the highest rate of poverty at 85.7%, followed by China and Indonesia which were each at 84.6%, India at 81.7%, the Philippines at 55.4%, Thailand at 37.1% and Malaysia at 11.2%. By the end of the noughties, India had the highest poverty rate at 68.7%, followed by Indonesia at 46.1%, Vietnam at 43.4%, the Philippines at 41.5%, China (29%.8%), Thailand (4.6%) and Malaysia (2.3%). In percentage terms the countries that had the largest decline of poverty was Thailand which saw a drop of 88%, followed by Malaysia (-79%), China (-65%), Vietnam (-49%) and Indonesia (-46%).

The Philippines and India saw the least amount of poverty reduction at -25% and -16% respectively from their initial states. Despite the periods of rapid growth that both these countries experienced during the past two decades, the relative insensitivity of their poverty rates to growth is a bit disconcerting.

The most important predictor of future income is of course the amount of schooling one receives. This is best measured by the years of schooling a person achieves by a certain age. The following chart shows the average total schooling for youth aged 15-24 at the start of the 90s and end of the noughties for the same set of countries.

school

At the start of the 90s, Malaysia and the Philippines recorded the highest totals with 10.2 years and 8.1 years for each of them respectively. China (7.6 years) and Thailand (7.2 years) came next, followed by Indonesia (6.5 years), India (4.6 years) and Vietnam (4.5 years). Two decades later and Malaysia retained the top spot with 12 years on average, but China with 10.9 years overtook Thailand (10.6 years) and the Philippines (9.7 years). Vietnam nearly doubled its number of years to 8.8 overtaking Indonesia (7.7 years) and India (7.1 years). Vietnam succeeded the most in this area lifting the average years of schooling by 4.3 years, followed by Thailand (3.4 years) and China (3.3 years). India lifted its average by 2.5 years, followed by Malaysia (1.8 years), the Philippines (1.6 years) and Indonesia (1.2 years).

The Philippines which started out as first runner up has been relegated to fourth in ranking among these seven countries with Vietnam closing in. The high tech industries of the Philippines and India demand college educated workers. This means that good employment opportunities in these two countries are available only to a few. To be able to perform well at school, children need adequate nutrition.

When people suffer starvation at a young age, it affects their future prospects in life. Malnourished children suffer learning difficulties as their mental development is set back. The prevalence of underweight children under five years becomes a significant predictor of future misery. The following chart depicts this for the same set of countries.

underweight

At the start of the 90s, the highest levels of malnourishment were found in India with 52.8% of children underweight, Vietnam with 36.9%, the Philippines with 29.9% and Indonesia with 29.8%. They were followed by Malaysia (22.1%), Thailand (16.3%) and China (12.6%). At the end of the noughties, India still had the worst result at 43.5% followed by the Philippines (20.7%), Vietnam (20.2%), Indonesia (17.9%), Malaysia (12.9%), Thailand (7%) and China (3.4%).

Both India and the Philippines saw their prevalence drop the least in percentage terms by 18% and 31% respectively, while China and Thailand saw it drop the most by 73% and 57%. The huge disparity of income in India and the Philippines is the main cause of their underperformance.

Finally, how can an individual seek human well-being if he or she does not even survive early childhood. The under-five mortality rate provides an indication of the quality of health care provided to mothers during pregnancy and children at the very start of their lives. The following chart shows the number of deaths per 1,000 live births across the same sample of countries.

child mortality

At the start of the 90s, India had the highest rate of child mortality at 115 deaths per 1,000 live births, followed by Indonesia with 85, the Philippines with 59, Vietnam with 51, China with 48, Thailand with 32 and Malaysia with 18. By the end of the noughties, the mortality rate in India dropped to 63, while in Indonesia it fell to 35, likewise in the Philippines to 29, Vietnam to 23, China to 18, Thailand to 13 and Malaysia to 6. In percentage terms Malaysia saw the largest drop at 67% followed by China at 63%. India saw the slowest reduction at 45% followed by the Philippines at 51%.

Baseline

These figures provide a good baseline for measuring inclusiveness within these countries. There are more indicators provided by the ADB, but these form the core set for anyone interested in studying inclusive growth. The Philippines seems to be in the same situation as India, in that they both experience the slowest reduction of social disadvantage among these countries–social disadvantage which is experienced at the very beginning of life. It is for this reason that the social reforms undertaken by the government are worth noting.

In his SONA, the president announced that he would be increasing the coverage of the conditional cash transfers to four million families and the period of eligibility up until children reach the age of 18. Patterned after successful programs in Brazil and Mexico that have been around for over a decade, the program screens participants based on a multi-dimensional test of social disadvantage. It provides cash straight to them through e-cards given to the mothers to avoid the usual bureaucratic double handling. They continue to receive a monthly cash transfer if they keep their children in school, make them undergo vaccinations and receive reproductive health counselling at health centres.

Their compliance and continuing eligibility is monitored regularly by the Department of Social Welfare and Development. A recent impact evaluation conducted by the World Bank shows that the intended program objectives are being met. School enrollment and attendance and better nutrition has been observed among children of CCT participating communities compared to non-participating ones. Although the poverty rate of the Philippines did not shift significantly between 2009 and 2012, it does not mean that this program was ineffective. The intergenerational nature of this reform implies that the Philippines will begin to reap the benefits of Pantawid Pamilya six to ten years after it was instituted. That means only by 2016 and beyond will this reform’s impact be noticeable through national family income and expenditure surveys when the children of Pantawid reach the working age of 15 years.

It will be PNoy’s successor who will reap the social dividend from the expansion of this program. It is true that this reform can now be considered irreversible in the sense that it will be hard for any successive administration to retract it. The only way to phase it out would be to make it obsolete by reducing the number of poor households. Although the president inherited the program from his predecessor, he can claim credit for rapidly expanding it. The other reforms which the administration instituted, such as closing the classroom gap, the sin tax law, expanding affordable healthcare, offering rent subsidies to informal settlers and the reproductive health act could also reap benefits for successive administrations.

What is disconcerting is how many Filipinos among the educated and upper socio-economic groups still oppose the reforms just mentioned, begrudging the opportunities given to the poor as mere dole outs. It is a sign of just how exclusive and inequality tolerant we have become as a society. Perhaps it isn’t any wonder why our growth has not been very inclusive so far, and why the path towards inclusive growth needs to be pursued even more vigorously by the current administration.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • frankahilario

    Conditional cash transfer is doleout, period. You are giving people the fish, not teaching them how to fish!

    • Emmanuel Doy Santos

      You are giving them the fish, but in return, you are keeping their kids in school so that they can learn to fish.

      • frankahilario

        No Sir, the kids in school are learning how to receive more fish – when they graduate, they will look for jobs, not create jobs for themselves.

        • Emmanuel Doy Santos

          So your contention is they should all be self-employed? Most of the poor are.

          • frankahilario

            Aren’t there a million or more unemployed? Let’s encourage maybe only 10% to go on to college while the 90% of junior high school age should be assisted towards self-employment.

          • Emmanuel Doy Santos

            If you bothered to actually consult the stats you’d realise that your argument has no leg to stand on.

          • frankahilario

            Okay, bother me with those stats!

          • Emmanuel Doy Santos

            Yes, unfortunately the FACTS are getting in the way of your argument. Sorry to inconvenience you with them. Several points to be made here. The statistics I cite here all come from the Bureau of Labor and Employment Statistics (part of DOLE).

            Firstly, as of July 2013 there were 3 million unemployed out of a total labour force of 41 million, and there are 38.1 million employed, 37.8 million at work. About 13 million worked less than 40 hours a week or part time, the balance worked 40 hours or more.

            Second, if you break this down by industry 12.8 million work in agriculture, hunting, forestry and fishing, 5.6 million in industry and 20 million in services. Of those that work in services, the largest share belongs to those who work in wholesale, retail, motor repair and household goods (about 7.7 M). The third biggest share belongs to those who work in private households (2 M).

            Third, if you look at the average daily wage of those who work in agriculture (P169 as at Oct 2013), it is 48% of the mean (P345) for all industries. For wholesale, retail, motor repair, it is 16% less than the mean, for those who work in private households it is 36% less.

            Fourth, these sectors are where the poor households of the Philippines work. If you look at the educational status of the employed out of 37 million at work, about 11 million have an elementary education (half completed, the other half did not complete).

            The households with low income-not enough to support a family- have no other option but to pull out their kids from school and make them work in the fields with them or serve as help in private households or become street vendors. This locks the next generation into a cycle of poverty.

            The poor are already working as self-employed farmers, vendors, drivers, gardeners, etc. Their problem is that they are locked in to low paid, low productive labor due to their lack of education and skills.

            What CCT does is it provides these households extra income so that they can at least keep their children in school, which allows them to attain skills necessary to escape the cycle of low productive labor and poverty.

            I hope that proves my point. So the next time you make an argument, please make sure they are backed by facts and not conjecture.

          • frankahilario

            Your answer is too long. I’ll simplify to show it’s not lack of education that’s the problem. Farmers (millions) are mostly non-college graduates; even the college graduates are treated the same way – the abusive merchants (most of them, they must be educated) dictate the price of rice (or corn) – low price of course – and the farmers are forced to accept the offer. Such traders become richer and the poor farmers become poorer. Tell me what price education?

          • Emmanuel Doy Santos

            Again, where is the evidence to back up your statement? I have taken the trouble because you asked me to provide you with some stats. I think it is incumbent upon you to do the same.

          • frankahilario

            I said, “Trouble me with your stats!” And now I have
            to trouble myself coming up with my own stats? If you won’t accept at face value
            when I say that abusive traders become richer and the abused farmers become
            poorer, I will leave you with your stats.

          • Emmanuel Doy Santos

            All I ask is for you to cite the basis of your claims. So that we can keep the discussion fact-based. I cited BLES. You might have anecdotal evidence. At least we know what you are basing it on.

  • Thank you for this article, Doy. I have been pondering this “giveaway” program and admit not to have considered the benefits of encouraging education, rather just money in the pocket. I also believe there is a “money circulation” advantage that you understand better than me. 2,000 pesos to a poor family gets spent locally. 2 billion pesos to a Korean construction firm gets spent outside the community.

    My community in the provinces (Naval, Biliran) is noticeably better off today than three years ago. More cars, more business start-ups, harder to get domestic help. The lines at the Landbank ATM on money day are huge. I believe there is a connection.