poverty incidence

The Human Development Report 2011

The latest release by the United Nations of the Human Development Report provides an occasion to review how the Philippines is tracking compared to its Asian neighbors.

Since 1980, the UN has compiled data relating to the human development of nations. The HDI or human development index is a composite of three dimensions of human well-being. The following dynamic chart provides a history of the country’s HDI from 1980 up to 2011 in relation to four other countries in the region, namely Malaysia, Thailand, Indonesia and Vietnam.

Click the “play” button and you will find that as all nations in the region climbed up in the HDI ladder, the Philippines which ranked a close second to Malaysia in 1980 with an HDI score of .55 compared to .56 for the latter was overtaken in 1992 by Thailand. Malaysia has widened its gap with the rest of the pack scoring .76 this year compared with .68 for Thailan and .64 for the Philippines.

Education

Turning to the Education Index, which is based on the mean years of schooling for adults and the expected years of schooling for children, we find that the Philippines was the leader of the pack back in 1980 with a score of .53 compared to Malaysia the first runner up with .42 and Vietnam the second runner up with 0.4.

It took seventeen years for Malaysia to close that gap and overtake us in 1998. It now sits in the lead with a score of .73 compared to us at .68. Thailand ranks third with a score of .6. This is in part because of the expected years of schooling of our children which at 11.9 years is below Indonesia’s which is at 13.2, Malaysia’s at 12.6 and Thailand’s at 12.3, Vietnam is catching up to us with 10.4.

Health

In health, the Philippines began in third position with a health index of .68 in 1980. It has ended at the bottom of the heap in 2011 with a score of .77. It has the lowest life expectancy at birth of 68.7 years compared to Vietnam which ranked first with 75.2, Malaysia at 74.2, Thailand at 74.1 and Indonesia at 69.4.

The Philippines has the second to the lowest level of expenditure on public health at 1.3% of GDP compared to Vietnam which ranked first with 2.8%, Thailand with 2.7%, and Malaysia with 1.9%. Only Indonesia spent proportionately less than us with 1.2%.

The Philippines also has the second to the highest mortality rate for under-five year olds with 33 children out of one thousand live births dying before the age of five, compared to 39 for Indonesia, 24 for Vietnam, 14 for Thailand and 6 for Malaysia.

Income

In terms of income, the Philippines ranked second to Malaysia in 1980 but was overtaken by Thailand in 1982 and then by Indonesia in 1993. Vietnam is quickly gaining on us. In the three decades from 1980 and 2009, average incomes rose by 22% in the Philippines from $2,620 to $3,220 (measured in purchasing power parity terms). Thailand’s average income tripled to $7,260 from $2,200. Malaysia’s grew by 260% to $12,725 from $4,890.

Poverty headcounts measured as a percentage of the population was included in this year’s report. It showed the Philippines with the second lowest poverty incidence of 13.4% compared to Thailand with 1.6%, Vietnam with 17.7% and Indonesia with 20.8%. Malaysia’s poverty headcount was not available.

In terms of the severity of poverty felt by those who are in poverty, however, which is based on multiple dimensions of poverty, not just income, the Philippine poor suffered the highest intensity of poverty.

Gender Gap

The Gender Inequality Index started to be collated in 1995. This is a composite measure which tracks inequality between women and men in three dimensions involving reproductive health, empowerment and the labor market. The lower the score is, the higher the level of development.

The Philippines had an inequality index of about .49 the second highest. This has gone down to .43 with no change in its ranking among the five countries. This is in part to do with the high maternal mortality ratio which in 2008 was still close to one in a thousand live births resulting in death for the mother compared to the leader Malaysia which sees three in ten thousand live births.

Our adolescent fertility rate is the highest in 2000 at 49.1 per one thousand women aged 15-19 years falling pregnant. It has actually gone up to 54.1 per one thousand women falling pregnant in 2010.

On the plus side, our representation of women in secondary education is the highest with 1.03 women to men enrolled, and similarly our ratio of women in parliament is second best at 27%. However in terms of labor force participation, we place a very distant third place with only about a 63 percent ratio of women to men participating compared to nearly ninety percent for Vietnam and about eighty percent for Thailand.

Environment

The Philippines had the second highest average number of people per year affected by natural disaster with 48,370 per million inhabitants affected in 2010. Thailand had the highest number with 58,220 affected. Indonesia had the lowest with 1,364. But in terms of casualties, the country suffered the biggest number of deaths with ten for every million inhabitants dying due to natural disasters.

The Problem of the Rising Middle

Anyone traveling through this country of ours will be struck by the stark contrast between the haves and have-not’s. Squatter colonies sit alongside gleaming high rise condos. Street hawkers peddle their wares on Manila’s major arteries clogged up by expensive cars and SUVs.

It provides fodder for those who believe that the Philippines is an Asian backwater, stagnant and not creating enough opportunity or wealth to be shared equitably. The development question as most economists would pose it is how to reduce the level of poverty that exists in the country.

In actual fact, it is more complex than that. It is how to cope with the burgeoning middle class and the demands they are placing on our resources. I know it might sound silly to some. In the last six years of the Arroyo regime, a narrative had been worn out about how the poverty rate did not go down despite the nearly ten years of sustained growth. So “what burgeoning middle class?” might be the question on their lips.

Shouldn’t it be called a “dwindling” middle class as official statistics point to a meager decline in the poverty rate from 27.5 per cent in 2000 to 26.9 per cent in 2006 of the number of families living beneath the poverty line, a measly 0.6 percentage point reduction? The sad thing is that due to population growth, the number of families deemed poor increased by over half a million from 4.1 to 4.7 million.

This is where the old rhetorical line about the rich getting richer and the poor getting poorer often enters the conversation. But what often gets overlooked by the commentators and pundits is the fact that while population growth drives up the number of poor families, it also drives up the number of households belonging to the middle class as well.

Using reported statistics of the government, the total number of households in the Philippines grew from 15 to 17.3 million or an increase of 2.3 million households. The growth of the number of poor households was 530 thousand which implies that the number of middle class households grew by 1.8 million!

If we assume an average of six individuals per poor household and five for middle income ones (since the poor tend to have larger families), it means that out of the 12 million people added to the population between 2000 and 2007, 3.2 million were poor while 8.9 million were middle income. That is roughly equivalent to two cities the size of Singapore or the whole of Manhattan being added to the middle class in our country during this time.

Although not as dramatic as developments in Vietnam or China where new cities are literally rising out of rice paddies, this growth is quite remarkable nonetheless. It helps us understand why congestion in our cities has worsened and why generating enough power and water is becoming a challenge for us and why the government struggles to keep up with the demand for schools, hospitals and roads. It is in other words a classic case of emerging markets.

It explains why hot money is being poured into our stock market which has doubled in value already from a few years ago. Investors are fleeing the mature and ageing markets of the West in search of bright spots in which demographics is working in their favor. The challenge therefore is how to manage this growth given the demands it puts on our natural resources.

With the effects of typhoon Ondoy still ringing in our collective memories, we need to think of managing the urban sprawl and the transportation system of our urban centers. The restoration of once pristine places like Baguio and Tagaytay need attention.

Many development theorists believe that Third World countries must sacrifice ecological sustainability in their quest towards lifting millions out of poverty. The idealistic Jeffrey Sachs wants to end poverty in our lifetime. I look at the United States which has a child poverty rate of 20 per cent, not far removed from ours.

There is no doubt that programs that help alleviate poverty such as the conditional cash transfers program need to be promoted. But in our march towards development, we also need to pay close attention to how we are affecting our natural habitat. The challenge of the rising middle class is the biggest one facing this nation in 2011 and beyond.

A double edged sword

A news bulletin was released earlier this week with very little fanfare on the latest round of results for the Family Income and Expenditure Survey (or FIES). It showed that between 2006 and 2009, there was an improvement in the overall incomes, savings and expenditures of families on average and a reduction of income disparities between the wealthiest and poorest of households.

Prof Winnie Monsod of the UP School of Economics attributes this to a sustained period of economic growth peaking at 7% in 2007, the longest and highest rate over the past 30 years. Augusto Santos of NEDA on the other hand credits the conditional cash transfers program initiated by the previous government in 2008 as one of the policy interventions that could have led to this outcome.

All this would have served the Arroyo regime well had it been reported prior to or during the last presidential election, when it was seeking a mandate for its anointed successor. Its economic credentials were tarnished by reports of poverty incidence worsening between 2003 and 2006 contrary to what you would expect following a period of sustained economic expansion under her stewardship.

Of course one could argue that the increase in the VAT rate in 2005 from 10-12% which while regressive was also deemed necessary to avert a fiscal crisis caused all the grief. Government planners then quickly realized that the fiscal space they created had to be used to counter the harsh impact of higher taxes on the most vulnerable. This is what led to many of the socially targeted interventions including the Conditional Cash Transfers program (or CCT) and the infrastructure plan that followed. It now appears that they got it right although hardly anyone will trumpet these successes now.

All this points to the problems associated with time lags in measuring and reporting social and economic indicators for the purpose of crafting public policy. Data gathering always comes at a cost, but without frequent and timely reporting, policymakers are practically flying blind not knowing what impact if any their programs are having on the ground. It may not suit PNoy’s government to acknowledge the policy successes of its predecessor and arch-nemesis in the house, but it can also serve its purpose given that it is pushing for the expansion of the CCT and infrastructure through the PPPs.

According to Prof Monsod, the Gini coefficient for 2009 which reflects income inequality is “the lowest it’s ever been as far as I can remember.” If that is the case then it could account for improvements in the mood of the people as reported by some public surveys (the science of happiness suggests there is a causal link between income equality and happiness). It would also point to the importance of maintaining the momentum for growth through investments in public infrastructure as well as social policies that reduce income disparity like the CCT.

Agrarian reform which has a spotty record globally was an attempt to correct poverty and social inequality through asset distribution. That has proved difficult to implement in the Philippines. Now the CCT and other social programs like improving education and health are attempting to do it through income and human capital distribution.

If the policy settings of the previous government were effective in bringing about an improvement in economic and social well-being, then it would be a sign of maturity for all parties to come together now and work towards expanding them in a responsible manner. Enough with the bickering: it is time for a development consensus to be formed about the way forward.