Introspective
Since
Thomas Piketty came out with his book, Capital in the Twentieth Century
(2013), it has become fashionable to blame globalization, open trade regimes,
privatization, and other elements of “neo-liberalism” for inequality and many
of the recent troubling political developments such as the rise of populist
regimes like Donald Trump, even violent extremism.
Earlier
this year, widely followed columnist Efren S. Cruz wrote “that the eight
richest individuals own more wealth than the poorest 50% of the world’s
population. Globalization and modern technology have increased global wealth
which has been exploited by the rich to become richer; but the rest of the
world has not benefitted from these two phenomena.”
Locally,
calculations on the rise in net worth of the ten richest men/families
(estimated by Forbes) against the country’s GDP growth — led to the glaringly
wrong conclusion that the ten richest families own three quarter of the
country’s wealth, i.e. inequality leads to poverty. And the culprit?
Globalization and liberal economic policies.
Two
weeks ago, UN Rapporteur Calamard blamed neo-liberalism and private sector
(“Neoliberalism kills, says UN rapporteur,” PDI, Oct. 20) — “the
restructuring of economies and the liberal vision for development is trickling
down to every community and is a killer in many ways… creating much instability
and much conflict.”
Writings
of National Scientist and Economics Professor Raul Fabella (also my fellow Introspective
columnist) and author Edward Luce help provide proper perspective on this
issue.
Edward
Luce (The Retreat of Western Liberalism, 2017) drew a pachyderm, an
elephant, on a chart to emphasize his point.
Plotting
the global income growth in the last generation by percentile, poorest to
richest, we find that most of the world have benefitted from the wave of
liberal economic policies established post WW II under the Bretton Woods
institutions (IMF, World Bank, GATT/WTO).
With
income growth of 45% to 80% for those in the tenth to seventieth percentiles,
the big losers in this global picture are relatively rich in the 75-85
percentile — with incomes now being 10% lower than a generation ago.
The
dramatic improvements in the lives of most of the people globally is evident in
every statistic on lower rates of absolute poverty, longer life expectancy,
higher literacy, access to water and other basic services, eradication of major
diseases, etc. in World Bank development statistics and the Human Development
Report. The most considerable upliftment in lives has been in Asia. Especially
China after Deng introduced liberal market reforms. (see Raul Fabella,
“Inclusion and Delusion in TRAIN,” Oct. 23. To read this piece, please visit
this link http://bit.ly/trainde or use a smartphone
to scan the QR code.)
With
this generally favorable picture, why the strident rhetoric vs. inequality and
liberal economic polices? Especially coming from the leadership of USA that
championed this after WW II?
Well,
75-85% percentile losers are basically the Trump and Brexit constituencies.
Their discontent and political activism are driven by resentment over the top
1% and the loss of jobs, erroneously blamed on the countries whose peoples are
in the lower end of the global income spectrum.
In
truth most of the job losses were due to technological advances, and failure to
adjust to these. This deepening anger is fueled by polarizing social media and
populists nativist leaders like Trump.
We
and other developing countries have no common cause with the narrow band of
rich country losers complaining of inequality and globalization.
The
rest of humanity (10-75 percentile) have clearly benefitted from globalization
— liberal trade and investment regimes, freer movement of technology and
people. Including the Philippines whose two main drivers, BPO and OFW
remittances, are enabled by it. Globalization has put us recently among the
highest growing countries and with the best prospects, even in our high
performance neighborhood.
Admittedly,
here in the Philippines, historical progress in addressing the poorest
(dropping only to 25% currently from 34% in 1990) has not been as substantial
as with the rest of Asia. (e.g. in ASEAN, Indonesia and Vietnam have halved
their poverty rates.)
But
let us not blame globalization and liberal economic policies for this.
As
Dr. Fabella underlines, “there are two flavors of inclusion: one is reduced
income inequality; the other is reduced poverty incidence. They are not the
same; nor does one necessarily follow the other. So they require different
policy responses.”
Past
policies in the Philippines have not favored investments and job creation that
would have allowed us to participate with our neighbors in an export led growth
and addressed the problem of joblessness and poverty. Unfavorable policies
include national law that deters foreign investment, underinvestment in essential
infrastructure.
Likewise,
agricultural productivity has suffered from an inward looking bias — a failed
land reform program that favored inclusive poverty over efficiency needed for
modern agriculture. An anti-poor food security policy defined as self-sufficiency
in rice at exorbitant cost, rather than affordability of food, and focus on
crops where we can have global competitiveness. A high population growth rate
is an additional factor.
With
poor and recently deteriorating scores in ease of doing business in the
Philippines, government’s efforts need to focus on making us globally
competitive — more globalization, not less. A market friendly investment
environment — e.g. investments in infra, liberalizing rules for FDI’s — will
foster more jobs for the unemployed. Coupled with more expenditure for social
programs in health, primary education and conditional cash transfers, these
policies will help the poorest.
This
is well recognized in the ten point agenda of this administration, and
elaborated in the latest NEDA Philippine Development Plan. TRAIN is essential
for this. Our Foundation for Economic Freedom urges Congress to approve the DoF
sponsored bill with the minimum of dilution. (See FEF statement “FEF Appeals
to Senate to Preserve the Revenue Goals for TRAIN.” To read the statement,
please visit the link http://bit.ly/FEFTrain or use a smartphone
to scan the QR code.)
Let
us persevere in achieving the goals of these economic programs under a democratic
setting. And pay no heed to calls for quick fixes under a revolutionary
government. Such siren songs are at best, distracting.
Romeo
L. Bernardo is a Trustee of the Institute for Development and Econometric
Analysis and Vice Chair of the Foundation for Economic Freedom. He was Finance
Undersecretary during the Corazon Aquino and Fidel Ramos administrations.
http://bworldonline.com/globalization-inequality-inclusive-growth/
