Reducing income inequality: a must

During this past month of November, there were two seemingly unrelated news about the macroeconomic situation in the Philippines. However, these news items have made me even more convinced that the bigger problem in our country is that of income inequality and that our economic experts, as I have said previously, should really stop worshipping at the altar of economic growth.

In a recent Shared Prosperity Summit, the World Bank Country Director for Brunei, Malaysia, Philippines, Ndiamé Diop said that the Philippines has and will continue to have one of the highest economic growth rates in Asia. In fact, there is a strong prospect that by the year 2028, the Philippines will move from its present status as a lower-middle-income economy to an upper-middle-income economy.

The World Bank categorizes economies by its Gross National Income (GNI) per capita as follows:

• Low-income economies – GNI per capita of up to $1,085

• Lower-middle-income economies – GNI per capita of $1,086 to $4, 255

• Upper-middle-income economies – GNI per capita of $4,256 to $13, 205

• High-income economies – GNI per capita of $13,206 or more

As one of the lower-middle-income economy countries, the Philippines presently is in the same economic category as some other Asian countries like India, Myanmar, Nepal, Pakistan, Papua New Guinea, Solomon Islands, Sri Lanka, Laos and Timor.

If we move up to being an upper-middle-income country, we will be in the same category as the following Asian countries: Malaysia, Marshall Islands, Thailand and Fiji.

This, of course, to traditional economists is welcome news.  However, last month, the Social Weather Stations (SWS) in its Sept. 28-Oct. 1, 2023 survey, found that 48 percent of Filipino families rate themselves as “mahirap” or poor and 27 percent as borderline. This means that 75 percent of Filipino families rate themselves as either poor or almost poor.

Even just to compare to SWS’s findings in June 2023, the percentage of poor families rose by 3 percent.

Of the estimated 13.2 million self-rated poor families in September 2023, 1.8 million were Newly Poor, 1.7 million were Usually Poor and 9.7 million were Always Poor.

This to me is a clear indicator that while there has been economic growth in the Philippines, the number of poor families as a percentage of the population has continued to increase.

The most common statistical measure of income inequality in a country is the Gini coefficient, also known as the Gini index or Gini ratio. It is “a measure of statistical dispersion intended to represent the income inequality, the wealth inequality or the consumption inequality within a nation or a social group.”

In introductory remarks by Diop at the launch of the report on “Overcoming Poverty and Inequality in the Philippines” last year, he said: “… inequality is still very high: with an income Gini coefficient of 42.3 percent in 2018, the Philippines ranks 15th most unequal out of 63 countries for which income Gini coefficients are available and is second only to Thailand in East Asia.”

Therefore, even the World Bank accepts that there is a persistence in inequality in the Philippines.

Several of our traditional economists seem to believe that the reason for this inequality is the relatively low economic growth and the failure of wealth to “trickle down.”  However, there is abundant evidence that the “trickle down” theory does not work. Even Pope Francis has reiterated his belief that “trickle down” does not work and has never worked.

The accumulation of wealth has continued to be concentrated in fewer and fewer people. Today, there are shocking figures that say that there are less than 70 people whose combined wealth is higher than the combined wealth of the bottom 50 percent of the world’s population. This means that less than 70 persons have the same combined wealth as the four billion people who comprise the bottom 50 percent.

According to Diop, the persistence of inequality in the Philippines is mainly due to unequal opportunities. He says that income inequality “… is driven by inequality of opportunity. This is the inequality to your parents’ education, your gender or your circumstances at birth, such as being born in a poor area. Inequality of opportunity unfortunately starts early in life and limits the potential for upward mobility.”

The other main cause of inequality is that while schooling is widely accessible through the public school system, its quality and attainment vary by income group. He continued to say: “Children from poorer households are less likely to reach age-appropriate grade levels and to transition to tertiary education, which severely constrains their earning potential and their prospects for upward mobility.”

In view of this, I sincerely hope that Secretary Sara Duterte is conscious of how critical is the scope of the work of the Department of Education in providing the poorer classes in this nation an opportunity to be rid from poverty. The increasing emphasis on skills and technology in the modern economy has increased the premium for college education. The rewards for those who possess the needed skills are high, and those with limited skills are trapped in informal and low productivity jobs.

I think our policy makers and traditional economists should seriously consider the reduction of income inequality as a greater goal than economic growth.

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