What It Will Probably Take Part II: More on Including the Poor in the Equation

A young schoolgirl in the Philippines


Better than expected takes from the 10 and 25 year international bonds issued by the Philippine government about a month ago suggests some form of worldwide consensus (helped by the Moody’s bond rating of Ba3) that if there’s one thing that the Philippines has going for it, it’s macroeconomic stability.  This means that as far as perceptions go, the country is less prone to external shocks and therefore has better chances to achieve sustainable growth.  Nevertheless, macroeconomic stability is just one of the ingredients in the cocktail prescribed for Philippine growth.  We briefly mentioned an inclusive strategy in the previous post and it would be worthwhile to mention here that the other elements of a genuinely comprehensive plan are: (i) fiscal strength, (ii) readiness for participation in the global economy and (iii) good governance.

Good governance is a topic best reserved for the future while both fiscal strength and the global economy are more or less self explanatory. However, the importance of a strong poverty alleviation plan cannot be overemphasized and so we will go back to it now.

The traditional view holds that slow economic development results in the lack of improvement in the poverty indices in the country (no medals there). However, a  study conducted by the Asian Development Bank (ADB) and published in 2009 (download it here)  suggests a strong correlation between poverty and the factors that prevent the Philippines from making the jump from South East Asian whipping boy to economic sand kicker in the mold of those big, cool BRICs hunks.

One solution involves a tricky juggling act of increasing country competitiveness by (i) tinkering with the wage formula and (ii) increasing the budget for education from the current level of 2 % to a respectable 4 or 5%.  This tactic should generally result in lower labor costs and a more sophisticated workforce.  In turn, the greater overall productivity will generate more business and higher employment.

Theoretically, higher income per capita will offset the effects of either a lower minimum wage or a moratorium on wage increases.     Stated otherwise, a lower legislated minimum wage  would cease to be relevant when a larger part of the workforce is doing higher level jobs and are therefore earning way beyond any floor set by government.

That having been said, there should be no illusions that it’s going to be a cakewalk.

Someone has to pay for the 3% increase in the budgetary allotment for education.  What’s more, the full effect of  this strategy will only kick in when the kids start graduating from the universities or from technical schools (which will be years after the plan starts implementation).  In the meantime, you can expect the union hounds to be braying all night long.

Another, more pervasive (and no less difficult) solution involves legal and structural reforms that would make it easier for the poor to generate capital and therefore escape the so-called “poverty trap.”  But that will be the topic of our Part III.

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