Bernardo M. Villegas
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How to Attain Inclusive Growth (Part 1)

          The World Bank recently published an assessment of poverty for the Philippines in a document entitled “Making Growth Work for the Poor.” The authors started by acknowledging that robust growth in the Philippines over the past decade has helped to reduce the national poverty rate. The national poverty rate fell to 21.6 percent in 2015, declining by an average of 1.2 percent points annually over 2012 to 2015 compared with 0.6 percentage points annually over 2006 to 2015.  This accomplishment, however, was unremarkable compared to what some of our East Asian neighbors were able to register during the comparable period.  Between 2006 and 2015, the Philippines poverty rate, as measured by the international poverty line (US$1.90 per day), declined only 0.9 percentage points annually compared to 2 to 2.5 percentage points in China, Indonesia and Vietnam, and as measured by the lower-middle-income-class poverty line (US$3.20 per day), it declined only 1.3 percentage points annually, compared with 3 to 5 percentage points for the same three countries.  Even at higher income levels—the majority of the 106 million population—the share of the population with per capita income above the global middle-income line of $15 per day was only 9.2 percent in 2015, suffering from comparison with Malaysia (65.7 percent), Thailand (35.4 percent) and China (19.4 percent).

         The Philippines has to do much more in the next decade or so to match if not surpass the accomplishments of its peers in East Asia, particularly to reduce the poverty incidence to the targeted 14 percent or less by 2022.  The World Bank study enumerated the drivers of poverty reduction in the Philippines from 2006 to 2015.  They were:   a) An increase in wage income and movement of employment out of agriculture; b) Government transfers; and c) Remittances from domestic and foreign sources.  The first driver accounted for about two-thirds of the poverty decline.  Higher non-agricultural wages were the main contributor, accounting for over 50 percent of reduction in poverty.  The gradual movement of employment out of primary production agriculture and accompanying increase in agricultural wages and for skilled labor in recent years were key drivers of poverty reduction.

         It has to be pointed out, though, that the movement of employment out of agriculture has been a necessary evil.  It was making the most out of an inherently bad situation.  Why do farmers have low productivity and therefore low incomes in the agricultural sector, which still account for 40 percent of our population?  The reason is the decades-long neglect of countryside and agricultural development by consecutive governments.  The Comprehensive Agrarian Reform Program was launched in the past for justifiable reasons of social justice.  For political and social reasons, the concentration of land in the hands of a few elite was unconscionable.  The latifundia system had to go.  Unfortunately, once large estates had been fragmented into small farms of one to two hectares each, the farmers beneficiaries of agrarian reform were subsequently abandoned by the Government.  They were not provided with the farm-to-market roads, irrigation systems, post-harvest facilities and other farm support services they needed to eke out a decent living.

          We should not celebrate the movement of workers from agriculture to the industrial or service sectors.  We have to redress the long-time neglect of rural infrastructures by concentrating most of the funds from the Build Buil Build Program of the Duterte and future Administrations on countryside infrastructures.  Here, let me recount an experience I had in visiting Vietnam, that is outdoing us in poverty reduction and in agricultural development.  Five years ago, I accompanied some Filipino business people in a road show to Ho Chi Minh.  For most of the participants in the road show, it was their first visit to Vietnam.  When we arrived in Ho Chi Minh, I heard some of the Filipino industrialists comment condescendingly “This looks like Manila twenty years ago.”    They were looking for equivalents of Fort Bonifacio, Makati or Ortigas in Ho Chi Minh which were nowhere to be found.  They concluded that Vietnam was lagging behind the Philippines in economic progress.  They had to modify their views when we started traveling to the countryside, such as to Da Nang.

           The Vietnamese Government had the right priorities:  they were putting most of their infrastructure investments outside the urban centers and into the rural areas where most of the population stay, especially the small farmers.  No wonder, in record time—thanks to the appropriate public investments in rural infrastructures—Vietnam has become the number one exporter of coffee in the world, surpassing Brazil, not to mention their outstanding record in exporting rice and aquaculture products to the rest of Asia.  I can say the same thing about Malaysia, Indonesia and Sri Lanka, whose poverty incidences are much lower than ours because of their having prioritized rural infrastructures.  As a positive note, I am glad to note that the largest share of the budget of the Duterte Government allotted for infrastructures is being spent by the Department of Public Works and Highways (DPWH) in the countryside.  Urban infrastructures such as elevated trains, skyways, airports and toll roads are being financed by the private sector through Public Private Partnership (PPP) schemes or Official Development Assistance (ODA) mostly from our Northeast Asian neighbors, such as Japan, South Korea, Taiwan and China.

         Given better infrastructures in the rural areas, we can arrest the migration of farmers to the cities, especially since the biggest challenge to the world in the next decades will be food security.  We have to make farming more lucrative to the small farmers, either working individually or in cooperatives or corporatives (following the model of the banana and pineapple plantations in Mindanao).  Given a modification of our agrarian reform practices through which we can allow the small farmers to work closely with large corporations, following the nucleus estate model of the Malaysians (who have brought poverty incidence to zero or close to zero), we can introduce more high-value crops, especially in Mindanao and Palawan, such as coffee, cacao, palm oil, mangoes and all sorts of fruit trees.  This would be an effective way of improving the incomes of workers in the rural areas who can benefit both from higher wages and the rental incomes they will receive from the nucleus farms.

         I am sure it was not the intention of the World Bank experts to suggest that moving from agriculture to other forms of employment is necessarily a healthy trend.  They were just describing a fact:  that because of the criminal (criminal because this was partly due to the siphoning off of billions of pesos to the pockets of corrupt politicians) neglect of agricultural and countryside development by the Government, the only way the farming population could increase their incomes was to leave their farms to migrate to the cities.  By endowing the countryside with better infrastructures, we should be able to reverse this trend and get more people in the cities, especially the so-called informal settlers, to go back to the farms and to contribute to the development of the agribusiness sector which includes the whole value chain from farming to post-harvest to processing and finally to retailing.  Especially since countries like Japan, South Korea, Taiwan, Thailand and even China are suffering from a shortage of farmers as a consequence of their demographic crises, we should find ways of retaining people in the rural areas and to make a living as farmers or farm workers.  (To be continued).