Addressing income inequality

As we look forward to 2023, the question in my mind is still: How do we improve our nation’s developmental prospects?

In 1960, Taiwan and South Korea were dismally poor. In fact, at that time, they were poorer than most of Africa. The Philippines was then the second most prosperous country in Asia, next only to Japan. While the world has seen a decline in poverty over the last few decades, the fact remains that close to 80 percent of the world’s population still live in poor countries. These nations have an average income per person of less than one fourth that of the rich countries. While most of the world’s people remain poor, the concentration of wealth in the hands of a few has worsened. Less than 70 persons own as much wealth as the poorest 50 percent of the world’s population. This means that less than 70 persons have as much wealth as the poorest four billion people in the world. Most of the world’s people are therefore poor.

The continued poverty of much of the world’s population, including the Philippines, leads us to ask: Why do so many countries remain poor while a few countries have developed successfully? There is no question that compared to other countries even in Southeast Asia, the Philippines has not only stagnated but has gone backwards, economically.

Practically most countries in the ASEAN region have surpassed the Philippines in terms of economic progress. I am referring to countries like Vietnam, Thailand, Malaysia and even Indonesia.

The usual analysis for the Philippines remaining stagnant is that it began with the presidency of the first Marcos. During the term of the late president Noynoy Aquino, the Philippines was considered a rising tiger by almost all international economists. However, since the end of his term, the Philippines has again not only stagnated but has fallen behind most other ASEAN economies. It therefore behooves us to understand and attempt to explain the patterns of development for countries that remain poor.

Within these developing nations, there are vested interests and institutions that can speed or impede economic growth. It is crucial to recognize that government policies have a powerful impact on a country’s economic growth, either encouraging or slowing it. More important is the implementation of government policies.

Take, for example, the issue of land reform. I had the chance more than three decades ago to join in forums composed of economists and government officials from around East Asia. I remember distinctly that the representatives of Taiwan, South Korea and Japan stated that the start of their economic growth was a comprehensive land reform program. This allowed the rural areas to become more prosperous and to lead to a modernization of agriculture. We have tried land reform in the Philippines but our efforts have not yielded the same results. The basic reason is there has been a lack of government support for the agriculture sector and assistance to small farmers. It seems that the vested interests of landlords and real estate developers have prevented any serious effort to implement and manage a successful land reform program.

The funds that were supposed to be used for the education and the technological assistance for small farmers have disappeared and have gone somewhere else, like into the pockets of pork barrel and intelligence funds. At the same time, there have been unbridled conversion of farmlands to commercial and real estate development.

Economic infrastructure, especially physical infrastructure, is one of the keys to economic development. This includes roads, railroads, airports, utilities, ports and the like which allow trade and exchange of goods. Another requirement for development are economic institutions such as financial and monetary systems which permit people to make payments and participate in other banking services. The social infrastructure is necessary to encourage growth and development. This includes public health and sanitation, education, urban planning and land use regulation. This can encourage growth and development by allowing citizens to focus their efforts on economic activities in a productive way.

If the government, for example, does not build and maintain roads and schools, impedes and discourages normal banking operations, allows prices to spiral out of control, tolerates unfettered importation and even smuggling and fails to control disease and social problems, it is hard to imagine how a poor economy can develop. In many societies in poor countries, vested groups have interests that run counter to broad-based economic development. For example, the Bank Secrecy Law has become sacrosanct in this country. The rich are allowed to invest in foreign countries money that is earned in the Philippines. It is a tragic anomaly that the Philippine economy is desperately in need of investments and yet, billions of pesos are allowed to go out of the country to be spent and invested abroad.

These self-serving groups whose goals conflict with the rest of the society continue to impede economic growth in order to protect their own selfish interests. In the Philippines, despite GDP growth, the gap between the rich and the poor is getting wider. This income inequality has led to a rise in populism. The attack on the elite has become a common theme for many politicians. Real economic development has been held back for decades and even generations by these vested political and economic interests. Unless there is a strong and serious effort to reduce if not eradicate the power of these vested interests, the effort to reduce the enormous disparity between the ultra rich minority and the predominantly poor majority will not end.

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