Is our economic system inclusive, equitable?

By: Fernando Fajardo May 17,2018 - 09:04 PM

Our economy is a mixed economic system. Here, both government and the private sector participate in the provision of what we need or want. When there is profit, business go in the production of goods and services that people need or want. Short of profit, they don’t produce those things even if the people need or want them badly. Hence, the need for government presence in the economy, especially in helping the poor survive and improve their well-being.

Our economy grew fast in the early years after the last war. This came with the massive reconstruction activities together with our first attempt at industrialization via import substitution. However, failing to go beyond import substitution that targeted only our small domestic market into export industrialization where the market is much larger, our economy grew only by around 4 percent annually in the second half of the last century while our neighbors who went into export industrialization were growing at much faster rate. Less our rapid population growth, which average more than 2 percent annually from 1950 to 2010, we were left only with very little to grow our per capita income.

We grew our economy at close to five percent annually from 2000 to 2010 but again this was not enough to catch up with our neighbors which were still growing fast before the global financial crisis struck in 1998.

Because of our slower economic growth, we were left behind by our neighbors in many indicators of development. Our poverty incidence, for example, remained high at 26.3 percent in 2009. In the same year, the uppermost 30 percent of our total number of families had 64 percent of our total family income while the bottom 30 percent had only 9 percent, a ratio of 7 to 1. Our economy until then was exclusive. Only for the rich!

Up to 2010, our economic growth was led by services on the supply side and by consumption on the demand side. Our experience after 2010 shows that faster economic growth can be achieved if we allow our industry on the supply side and investments on the demand side to accelerate, instead of relying mainly on services and consumption growth.

Another thing we see after 2010 is that faster economic growth makes it easier for us to make our system more equitable or inclusive. We find, for example, that as a result of faster economic growth, the bottom 30 percent of our total number of families had increased their income share to 12 percent in 2015 from 9 percent in 2009 while that of the upper 30 percent had gone down to 57 percent from 64 percent, thus helping to bring down our poverty incidence to 21.6 percent in 2015 from 26.3 percent in 2009.

Indeed we have cut down our level of poverty and inequity by some measure. But more still need to be done. This is why our present government wants to cut further our poverty incidence down to 14 percent when its time ends in 2022. Can we do it?

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