Bernardo M. Villegas
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Why Trickle Down Takes Long

           Like Pope Francis, people of good will are justifiably impatient when they see that even growth rates of 7% or more in GDP do not immediately lead to what is known as inclusive growth.  The trickle down process is painfully slow.  More than 25% of the Philippine population continue to go to bed hungry every day.  Too many children drop out of school before they reach Grade 6.  In quantitative terms, more than 20 million Filipinos are earning a per capita income of  less than $1.50 or about P60 a day, grossly insufficient for the basic necessities of food, clothing, health, education and shelter. 

          As I have argued in this same paper, the solution is not to discourage our leaders from pursuing high growth of GDP annually of 7 to 9% in the next ten to  twenty years.  Growth accounts for two thirds of the decline in poverty in countries like China and India that have succeeded in redeeming hundreds of millions of their people from dehumanizing poverty over the last twenty to thirty years.  The other one third has to do with giving equal opportunities to all sectors of society.  The greatest victims of inequality in the Philippines are rural workers and small farmers, especially in the coconut regions.  For decades, they have been utterly neglected by society because of the lack of rural infrastructures such as farm to market roads, irrigation systems, post-harvest facilities and other support services they need to help them make a decent income from their work in the farms.  Although they have always been considered as part of the employed labor force, they are so underemployed that they are looking for more work to supplement their meager incomes.  In desperation, those among them that have attained a minimum of literacy have decided to become migrant workers abroad.  But most of them are so poor and illiterate that they do not even have the option of becoming an OFW.

          Trickle down takes long because rural infrastructures cannot be built overnight.  After decades of neglect, we cannot expect the remote rural areas to suddenly be endowed with good roads like those we see in Southern Luzon or Central Luzon.  That is why we continue to witness massive migration from the poor regions like those in Mindanao, Bicol, Eastern Visayas, and other depressed regions to the urban centers such as the National Capital Region and Metro Cebu.  These migrants constitute the informal dwellers that are the most visible symbols of urban poverty. There is hope, however, in such cases as Aurora province, one of the most depressed regions in the past.  Over the last ten years, thanks to the persevering efforts of the local officials led by Senator Ed Angara, there has been a dramatic improvement in the infrastructures in this province facing the Pacific Ocean.  Together with very concrete initiatives to improve the quality of basic and technical education (Aurora boasts of an agricultural school turning out farmer entrepreneurs), Aurora can be a model for other lagging regions trying to accelerate the trickle down process. Another leading example of quality rural infrastructures is Ilocos Norte, thanks to the leadership of the Marcos family.

          A second key to accelerating the trickle down process is more and higher quality investments in primary and secondary education for the poor.  By definition, intervention in basic education takes time to produce results.  This difficulty does not deter private initiatives like the Synergeia Foundation, led by educator-economist Milvida Gueverra, to involve hundreds of both individual and corporate volunteers in addressing the quality of public school teachers, a very important component in helping the poor benefit from free market forces.  It must repeated time and time again that  free markets, no matter how useful they have been in producing high economic growth, do not benefit the poorest of the poor who are too hungry, too unhealthy, too unschooled and too unskilled to participate in the market.   There must be previous intervention of the State, assisted by civil society, to provide sufficient nutrition (especially for children), health services, education and technical training for the poor. State intervention in directly helping the poorest of the poor is not socialism.  It is the demand of a social market economy.

          We should, therefore, encourage the present Administration to continue its present pro-growth policies, especially focusing on those that can increase the rate of investments from the very low levels of less than 20% of GDP to at least 30% of GDP in the next three years.  Most of those investments should come from the private sector, including a large dosage of Foreign Direct Investments that must reach the level of $7 to $10 billion annually in the next three to five years.  Public investments should be concentrated on rural infrastructures that can help the more than four million small farmers, beneficiaries of the Comprehensive Agrarian Reform Program (CARP), to earn higher incomes from their parcels of land.   This massive investment in rural infrastructures should be the next phase of CARP which should no longer focus on land redistribution.  On the contrary, more public and private agricultural lands should be consolidated for the Philippines to move to higher-value plantation crops, whether they be coconuts, bananas, pineapples, rubber, palm oil, coffee and cacao in which hundreds of thousands of rural workers can make a decent living.

          As anyone will realize, these investments will take time to undertake.  What is clear is that for them to be funded, we need to attain high growth rates of 7 to 9% of GDP for at least the next two decades.  Trickle down takes long.  But trickle down will never happen if there is nothing to trickle down.  We must not let our reasonable impatience with the slow process of trickle down to prejudice us against high growth.  For comments, my email address is bernardo.villegas@uap.asia.