Why inclusive growth still eludes our nation


    Our economy has been growing continuously since 2002. In 2010, GDP expanded by 7.3 percent, beating every one of our neighbor economies except China.

    But 25.2 percent of Filipinos still lived below the poverty line in 2012—only slightly better than the 26.3 percent in 2009. Among our rural families, the poor make up fully 40 percent; and they have known no improvement in their material life since 1997.

    Why does Philippine poverty stay flat? Why do our poor persist in their number and their life difficulties?

    We still have a dual economy
    The short answer—in this layman’s view—is that we still have a “dual economy” divided principally between a rural subsistence sector and an urban export sector. And far too many of our people still live outside this modern sector that’s growing so splendidly.

    Plantations and mines, state-of-the-art industries, great banks and financial houses, condominiums and malls still co-exist with subsistence farming and fishing, handicrafts and sidewalk vending.

    Between these two sectors, there is little interaction and even less technology transfer.

    Inclusive growth during these past 45 years has unified most of East Asia’s dual economies, though Singapore’s globalized economy, too, has dual characteristics.
    Suharto’s Indonesia had a good record in balancing inter-regional development between Java and the “Outer Islands.”

    But because we Filipinos have been slow to ease mass poverty, we still are divided—like Disraeli’s England of the 1840s—into “two nations” of the rich and the poor, “between whom there is no intercourse and no sympathy.”

    Successive government’s efforts to spread the benefits of growth have typically been too little and too late.

    Last February, the Aquino Administration conceded we would not meet our target—under the UN Millennium Development Goals—of reducing poverty to 16.6 percent by 2015—and reset its target to a range of 20-23 percent by then.

    No lasting effects from export booms
    We’ve known historical episodes of  “prosperity without progress,” as Norman G. Owen of the Australian National University terms the abaca industry’s rise and fall in Kabikolan from 1850 to 1930.

    Like the sugar industry in Pampanga and Negros island during 1800-1900, abaca flourished and faded without positive effects on the regional culture.

    The growing and stripping of the fiber for cordage was dominated by small landholders, wage workers and foreign compradors.

    Bicol experienced no consolidation of capital that might have generated enduring growth. It has since then receded into one of our poorest regions.

    Similarly, few of Sugarlandia’s fortunes went into industrial investment—though some were fabulous enough to give the Capampangans and Negrenses their reputations for ostentatious lifestyles.

    One La Carlota planter of the 1920-30s “created and maintained at his own expense, and for the personal delight of his palatial household, the best and largest orchestra; and in his immense dining room he maintained a perpetual banquet for guests who came regardless of the day of the week.”

    Our key industries are enclave sectors
    Until now, our key industries—the assembly of garments and electronic components, overseas contract work, and business process outsourcing (BPO)—are “enclave” sectors.

    Their products and markets—their very character—differ from those of the domestic economy, with whom they’re connected only tenuously.

    And it’s these enclaves that are growing briskly, while the traditional sectors are stagnating.

    Agriculture still employs over a third of all our workers; generates 15 percent of GDP, and supports nearly 70 percent of all our poor people. But it contributes less than a tenth of our economy’s yearly growth.

    In 2004, the average farm household tilled only 1.8 hectares that produced, in yearly income, only a fifth of what the family needs to keep its head above water.

    The NCR produces the bulk of output
    Metro Manila, Central Luzon and Southern Tagalog between them produce 65-70 percent of all our output and income. But while the NCR may be generating spread effects in its satellite regions, it is producing backwash in regions farther away—sucking away their stores of capital and their most entrepreneurial people.

    Our biggest problem is how to employ our undereducated and largely rural young people unable to fill the jobs the modern economy offers.

    The bulk of new jobs are in the service sector; last year, agriculture generated only 173,000 and industry only 62,000. The new call centers hire only a fraction of the job-seekers they interview.

    Semi-conductors make up over 50 percent of all we sell abroad. We import their components and re-export them as intermediate or finished products—the value we add averaging 16-17 percent.

    Meanwhile our 10 million migrants and OFWs add value to economies not their own. Already their remittances make up 8 percent of GDP. Currently, BPO earnings total some 5 percent.

    Over these next five years, BPO is projected to grow by double digits, since it is expanding beyond call centers to “knowledge process outsourcing”—accounting, animation and software development, as well as legal and medical services.

    We must work to unify the economy
    We cannot depend on “trickle down” to ease the ill-effects of dualism, where there are so few linkages between the two halves of our national economy.

    As the World Bank points out, our “high degree of income inequality renders poverty less responsive to increases in economic growth.” There is no substitute for a direct attack on the root causes of Philippine poverty.

    We need to focus our efforts on the poorest among our people. All too often, the non-poor usurps social welfare policies such as Philhealth.

    The CCTs program we must deepen to encompass high school—as in the Mexican model—since it is all the schooling four-fifths of all our young people receive.

    In the macro-economy, we must keep raising our global competitiveness—particularly in manufacturing, which has the broadest spread effects. We must somehow also mitigate the ferocity of globalization’s effect on national society; and I doubt whether we can ultimately escape a measure of income redistribution.


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    1. Every politician claims that his or her program will help the poor, so what am I missing here? Reality check: These guys are not much different from those greedy hacienderos mentioned, giving lip service to public service whilew enriching themselves and laying the groundwork for their descendants to follow in their muddy footsteps. Then there is the know-nothing politician who has no clue what he’s doing, so he has to hang on like grim death to advisers – who also happen to be his friends – to tell him what to do.

    2. Anima A. Agrava on

      Thank you, Mr. Gatbonton. Now my challenge is to Mr. Tiglao, Mr. Makabenta, Mr. Efren Danao, Mr. Ric Ramos, Atty. Dulay, former senator Herrera, Mr. Ronquillo and the other famous columnists of The Manila Times.
      Please teach your thousands of fans to pay attention to the statesmanlike analyses made by Mr. Gatbonton in The Manila Times so that instead of just being angry over the corruption, ignorance and stupidity of the Aquino Administration they also develop a sense of what kind of country, society, nation we should make the Philippines.

    3. Ruben V. Calip on

      Let’s make this article By Juan Gatbonton viral. This kind of clear and balanced analysis might move the majority of the middle class Filipinos out of their apathy.

    4. Eddie de Leon on

      This article shuld be made requiored reading for all government officials and employees, managers of companies, schoolteachers and principals, parish priests–every Filipino.

    5. I think all our government current programs concerning uplifting the poor are only palliative solutions. Why can’t our government copy some of the good programs other rich countries have been doing a long long time ago, like Japan for example, a mayor before in a small town called Komatsu spearheaded a local industry to manufacture heavy equipment just to give its constituents employment in the first place, in Belgium, their local government units also put up cooperatives in most of its localities just so to give its populace opportunities to get jobs and livelihoods, etc. I think our leaders are copying the bad programs of those poor countries in South America. Its is stupidity in its highest level!

    6. A very clear analysis. One facet often ignored (for obvious reasons), is that the middle and upper classes benefit greatly from the army of poorly paid labourers. The very low cost of labour, whether in agriculture, construction, service sectors enables those with money to have a high standard of living very cheaply. Thus it is not in their interests to remove poverty and low wages, at least not in the short to medium term. The downside is having to live in gated communities and employ armed guards to protect their lifestyle!

    7. Why inclusive growth still eludes our nation?


      To paraphrase PNOY, no corruption, no poverty!