Inclusive growth and the zombie "trickle-down" idea
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Much has been said about the Philippines' surprisingly strong growth in
the first quarter of the year. The domestic economy's 7.8-percent
expansion edged out China's 7.7-percent clip, making it the
fastest-growing among major Asian economies.
Photo by Jonathan L. Cellona
Despite the stellar economic performance, however, many economic
observers and institutions believe that the country is still a long way
from achieving its desired "inclusive growth." In a sense, the benefits
of the economic upsurge have yet to be felt or, in economic parlance,
have yet to "trickle-down" to the poor and marginalized sectors of the
economy.
Playing on the popularity of zombies in mainstream media in recent years
as epitomized by the TV series "The Walking Dead" and the earlier
computer game "Plants vs. Zombies," the book Zombie Economics: How Dead
Ideas Still Walk Among Us tackles the undying idea of "trickle-down"
economics. Authored by Australian economist John Quiggin, the
controversial book was released in 2010 or two years after the global
financial crisis that was precipitated by the downfall of the United
States' subprime mortgage market.
According to Quiggin, there are some obviously "wrong and dangerous"
ideas that are very hard to kill. Even after the evidence seems to have
obliterated them for good, these ideas keep on coming back from the
grave, but are "neither alive nor dead", hence, the appellation "zombie
ideas". In economics, he lists the Great Moderation, Efficient Markets
Hypothesis, Dynamic Stochastic General Equilibrium, Trickle-down
Economics, and Privatization as zombie ideas that contributed to the
financial crisis.
The University of Queensland Federation Fellow in Economics and
Political Science sternly believes that "trickle-down economics" is
already irrelevant in the day-to-day functioning of the economy -- and
so are the four other zombie ideas he presented in his book. If we are
to follow Quiggin's line of reasoning regarding the "trickle-down"
effect, waiting for the gains of economic growth to trickle down to the
poor is nothing short of futile, especially with runaway income
inequality and poverty.
Instead of letting the rich get richer and then wait for the benefits to
spread to the rest of the economy, he asserts that a government should
have a proactive stance in redistributing income and implementing
progressive taxation. Quiggin insists that without these two government
initiatives, the existing trend in market liberalism where "the rich get
richer and the poor go nowhere" will continue to worsen.
Although some may find some of his ideas quite radical, the evidence
that Quiggin offers in his book does seem to be relevant to the
Philippine experience.
For one, it seems as though only those at the top of the social strata
are the ones who considerably benefit from the country's continued
economic growth. The 2012 edition of the Forbes list of world's
billionaires saw the collective riches of the country's 40 wealthiest
individuals soar by 37.8 percent, an increase amounting to $13 billion.
According to former Socio-economic Planning Secretary Cielito Habito,
such an increase in the wealth of the 40 richest Filipinos account for
76.5 percent of the Philippines' overall rise in income in 2011.
Meanwhile, poverty figures continue to paint a bleak picture. Official
statistics show poverty incidence statistically unchanged in the first
semester of 2012 from the comparable period in 2009. Self-rated poverty
data from the Social Weather Stations show much higher numbers of people
who consider themselves poor.
Second, with little or no access to affordable credit, the poor cannot
take advantage of the robust performance of the domestic economy. For
instance, they cannot borrow money to put into economically-productive
investments, e.g. more advanced tools and equipment for farming or
livelihood, or in financial instruments like stocks and investment
funds. The rich, on the other side, find it easy to cash in on the
growth story by pouring more money into their investments (whether in
the financial system or the real economy), thereby cashing in on the
economy's growth story.
Lastly, and probably the most astounding of Quiggin's counter-argument
against trickle-down economics that is also applicable to the
Philippines, is the existence of a colossal human capital gap between
children born out of rich parents and children from poor families. As
inequality swells alongside economic growth, the dispersion of human
capital accumulation --in terms of health and education-- also widens
significantly.
Let's focus more on education. Across cultures and societies, it is
traditionally viewed as the best road towards upward social mobility. As
inequality rose, however, affluent parents have sought, and were
comfortably able, to give their children the best possible educational
outcomes by enrolling them in private schools, among other means.
Meanwhile, economically-disadvantaged parents with their meager income
are not able to do the same and can't even rely on public educational
institutions struggling with quality and capacity constraints. This
relates to the "intergenerational" nature of poverty and inequality that
plagues our country, regardless of the remarkable feats in economic
growth that we have shown thus far.
Perhaps, it may be too radical to assert that trickle-down economics is
already a myth. But it is also foolish for us to rely solely on it, as
we don't know when the benefits of an economic uptick will get to the
poor or even whether the gains will ever actually reach them. Rather
than wait for the gains of economic boom to trickle down, measures such
as well-thought out and aptly-implemented income redistribution schemes
and targeted social interventions should be put in place and improved
upon, such that our economic growth would be of the kind that helps
arrest poverty and social inequality. Economic growth that perpetuates
the status quo of the rich getting richer and the poor getting poorer
can never be equated with real progress.
The Institute for Development and Econometric Analysis (IDEA), Inc. is a
non-stock, non-partisan institution dedicated to high-quality economic
research, instruction, and communication. The views and opinions
expressed herein are those of the author and do not necessarily reflect
those of the organization. For questions and inquiries, please contact
Remrick Patagan via ideainc.mail@gmail.com or telefax no. 920-6872.
- See more at:
http://www.bworldonline.com/content.php?section=Beyond&title=Inclusive-growth-and-the-zombie-%E2%80%9Ctrickle-down%E2%80%9D-idea&id=71432#sthash.DQUmpTmt.dpuf
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