Insights into the World Bank’s Insights

Yellow Pad

 

The World Bank has come out with a Philippine poverty assessment report titled Making Growth Work for the Poor (2018).

It works on the assumption, now an adage, that growth is a necessary but insufficient condition to reduce poverty.

The publication has loads of information, drawn mainly from official Philippine statistics, regarding poverty, growth, and inequality. The report presents the contemporary pattern of economic growth.

Despite better growth compared to previous decades and despite the country having exited from the boom-and-bust cycle, the decline in poverty rate from 2006 to 2015 has been slow. The annual average of the rate of decline of the poverty rate from said period is 0.9%. This pales in comparison to the performance of neighboring countries like Vietnam, Indonesia, and China whose poverty rates decreased by more than double the Philippine rate for a similar period. This suggests that improving the quality of growth remains a great challenge for the Philippines.

The publication describes the characteristics of the poor — who they are, where they are, their income and sources of income, the non-income (e.g., health and education) dimensions of the poor, their vulnerability to disasters and conflicts. It also covers labor market performance, the quality of health care and education, and the impact of private and government transfers on poverty.

Where the report is weak is in the area of policy recommendations.

The chapter on “potential policy remedies” is the thinnest part (not including the executive summary). Of course, length is not associated with depth.

But the “policy remedies” that the World Bank assembled are too general, In fact those remedies could have been applicable in yesteryears, even though Philippine development has seen change, no matter how incremental, through time.

Consider these general statements:

• “Facilitate the creation of more well paying-jobs.”

• “Improve the business environment to attract more investment.”

• “Upgrade value chains to support strong and sustainable growth.”

• “Strengthen backward and forward linkages to build on the comparative advantages of skilled labor and create jobs for the unskilled.”

• “Improve productivity in all sectors, especially agriculture.”

• “Increase agriculture productivity”

• “Support agribusiness and broader value chain development.”

• “Ensure that Filipinos acquire the skills they need for the 21st century economy.”

• “Boost learning in basic education overall and increase secondary enrollment and completion among the poor.”

• “Develop socioemotional skills in addition to traditional technical skills and cognitive skills.”

Etcetera.

We expect the World Bank to go beyond motherhood statements. The World Bank’s senior regional officer Leonora Aquino Gonzales clarifies though that the report is “foundational.”

For deeper analyses one has to read other World Bank papers or publications, such as the Philippines Economic Update.

The strength of Making Growth Work for the Poor is the assembly and distillation of rich data derived from official Philippine statistics. The rich information will illuminate policy proposals for debate.

A word of caution though is how to treat correlations that are not explained.

For example, one figure in the report (Figure 2.9) shows poverty rate by educational attainment of the household head. The graph shows that poverty almost does not exist for a household whose head is a college graduate. But it is incorrect to conclude from here that college education is the predictor of poverty eradication. The more plausible direction of the causation is that those who graduate from college are not poor at all. In other words, this is not an argument for free college education.

In the same manner, we have to be wise in interpreting another set of data on the contribution of income sources to poverty reduction for the period 2006-2015.

The main contributor to poverty reduction is nonagriculture wage. A far second constitutes government transfers. Domestic remittance, agricultural wage, nonagricultural enterprise, and foreign remittance follow in that order as sources of reducing poverty. What may seem surprising is that agricultural enterprise even contributes to an increase in poverty incidence. But then, the causation cannot be established because in the first place the overwhelming majority of the poor are in rural areas and are engaged in agriculture production.

Yet, the said figure is most useful in crafting the appropriate policy intervention that has the most impact in reducing poverty. Clearly, wage as a source of household income is the biggest contributor to poverty decline. Supplementary sources are government transfers and private remittances (principally domestic).

The expansion of wage as the main source of income for households is contingent on sustained growth and investments that expand the formal economy. Domestic remittances (from urban workers to rural households) happen when jobs are regular and when jobs provide better pay, enabling a transfer of the income surplus to the workers’ poor families. Cash transfers and augmented provision of essential services are made possible because of the wider fiscal space, thanks to new revenues, that government has.

Indeed, since 2012, we have seen a perceptible, incremental change in the structure of the economy. The increase in the share of manufacturing in national output and the increase in the percentage of workers receiving wage income are characteristics of this positive change. To be sure, much has to be done, especially on the agriculture front.

The trend holds.

The latest survey from the Social Weather Stations (first quarter of 2018) shows a decline both in self-rated poverty and food poverty. The labor force survey for April 2018 shows an increase in the percentage of the labor force receiving wages, an increase in percentage of those in the manufacturing sector, and an increase in the percentage of full-time workers.

Undeniably, good macroeconomic policies contribute to this change. The policy continuity in fiscal policy, especially tax reform, has contributed to the growth momentum.

The Bangko Sentral ng Pilipinas also deserves credit for benign inflation (the current inflation rate is manageable, based on historical standard) and a competitive currency.

We must protect and advance further the macroeconomic reforms.

At the same time, we must fight against massive and brazen corruption, wasteful spending, and the weakening of institutions and the erosion of rule of law that spook investors. These are the basic tasks that have to be fulfilled to quicken the pace of eliminating poverty, reducing inequality, and attaining long-term prosperity.

Beyond publishing reports like Making Growth Work for the Poor, the World Bank can play a more active role in shaping the policy reforms.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

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