Monday, 5 July 2010

Don’t pooh-pooh growth

By BERNARDO M. VILLEGAS
Manila Bulletin
http://www.mb.com.ph/articles/265203/don-t-poohpooh-growth

It is fashionable among critics and skeptics to pooh-pooh the growth of 7.3% in GDP attained during the first quarter of 2010. The usual line is that the high growth is not accompanied by poverty reduction and increase in employment. Too many people are still living in dehumanizing poverty. Too many workers are unemployed or underemployed. These criticisms are useful to the extent that they remind us that the end all of human development is development for each and every person and of the whole person.

It would be tragic, however, if the new Administration is not going to try its best to attain a GDP growth of 7 percent or more annually during the next six years. Economic growth is not a sufficient condition for eradicating poverty. But it is a necessary condition. Countries in Asia that have succeeded in eradicating or at least diminishing poverty in the last 30 years have done so because they have attained growth of 7 percent or more for 10, 20 or more consecutive years. The notable case is China that has liberated 300 or more million of its citizens from abject poverty because its leaders have known how to make the Chinese economy grow at an average of 9 to 10% for two decades. At a less dramatic rate, India and Vietnam are doing the same thing. Soon Indonesia will follow. These emerging markets are following the example set by Singapore, Taiwan, Hong Kong and South Korea in the last century when their economies also grew at rates of 9 to 11 percent annually for two decades.

Economic growth provides an economy with the necessary resources to spend on education, health, housing and the infrastructures that address directly the needs of the poor. In the last 30 years, the Philippines has not attained the necessary growth rate to make a significant impact on mass poverty.

This is very well stated in a most comprehensive report on Poverty in the Philippines published by the Asian Development last year. Written by Filipino economist Dr. Fernando Aldaba, the well documented report contrasts the Philippine experience with those of its peers in the Asia Pacific region: "Poverty and inequality have been recurrent challenges in the Philippines and have again come to the fore in the wake of the current global financial crisis and rising food, fuel, and commodity prices experienced in 2008. The proportions of households living below the official poverty line has declined very slowly and unevenly in the past four decades, and poverty reduction has been much slower than in neighboring countries such as the People's Republic of China (PRC), Indonesia, Thailand and Vietnam. The growth of the economy has been characterized by boom and bust cycles and current episodes of moderate economic expansion have had limited impact on poverty reduction."

I am sure President Noynoy Aquino is fully aware of the fact that the target year of the United Nations Millennium Development Goal (MDG) is 2015, the year before his last as President of the Philippines. His economic advisers must have informed him of the accomplishments so far of MDG goals. As reported in the ADB Report, the following gains have been made under the last Administration: (1) decrease in the proportion of people living in extreme poverty; (2) visible improvements in household and population poverty indicators; (3) maintenance of net enrollment rates by sex at both elementary and primary education levels; (4) reduction in infant deaths per 1,000 live births; (5) prevalence of HIV\AIDS below the national target of 1% of the population; (6) improvements in environmental protection; and (7) active participation in the World Trade Organization.

I have made no secret about my strong disagreement with the United Nations, the Asian Development Bank and other international agencies that have a fixation on population control. As I have written countless of times in these columns, there are enough natural forces that have reduced the fertility rate from a high of 6 babies per fertile woman in the 1970s to 3.1 today. In the next 20 years, the decline will continue so that within another generation, the Philippines will reach the replacement rate of 2.1 babies per fertile woman through increased education of women, especially in the poor regions of Mindanao; increased urbanization; later marriages; and the practice of responsible parenthood by the lower-income families facing extreme poverty, with the help of NGOs and business enterprises. I suggest that the next Administration focus completely on maternal health and forget the very controversial reproductive health programs. I find it more reasonable that mothers should be helped to deliver safely rather than to stop them from being mothers in the first place.

I disagree with one of the conclusions of the ADB report, i.e. that high levels of population growth are direct causes of poverty. As my colleague at the University of Asia and the Pacific, Dr. Roberto de Vera, has pointed out in his research on Philippine demography, large families are poor not because they are large. What distinguishes a large family that is well-to-do from one that is poor is the level of education of the head of the family. This conclusion of Dr. de Vera once again highlights the importance of spending a larger portion of the government budget on education. Where will the government get the funds to spend more on education? From the relentless fight against corruption promised by President Aquino during the campaign. Close to P400 billion can be made available annually for government spending if tax evasion of P200 billion and another P200 billion from misappropriation of public funds are prevented.

To summarize, the fight against poverty will require attaining economic growth of 7 percent or more for the next two decades, starting the next six years under President Noynoy Aquino. To attain this growth rate, the government must continue to invest in critical infrastructures, especially in the countryside.

There must also be an all-out effort to promote private investments in such high-growth sectors as energy, infrastructures, tourism, agribusiness, business process outsourcing, education, health care and medical tourism, and logistics. The role of foreign direct investments will be critical here, as has been shown by the experiences of China, Vietnam and Indonesia. All unreasonable restrictions against FDIs must be removed in the first year of the Aquino II Administration. For comments, my email address is bvillegas@uap.edu.ph.

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