IN less than two weeks, the Philippines will be hosting the Apec Economic Leaders’ Meeting. This is the culmination of a series of meetings that the country has hosted, based on the theme “Building Inclusive Economies, Building a Better World.”
This theme was arrived at after a series of consultations with member-governments, senior officials and the private sector, and validated by academe and think tanks in the region. Within this theme of inclusive growth, individual member-countries and the Asia-Pacific Economic Cooperation (Apec) region will embark on developing local employment opportunities, responding to poverty and working together to bridge the gap between developed and developing member-countries to maximize the gains of the improvement in trade.
Related to this, a recent publication of the Asian Development Bank (ADB) provides a good indication of how Asian members of Apec fared in the pursuit of inclusive growth. The book Inequality, Inclusive Growth and Fiscal Policy in Asia surveys the current capacities of Asian economies in dealing with inequality, their approaches in implementing inclusive growth and learnings from developed countries in the Organization for Economic Co-operation and Development (OECD) and in Latin America. Specifically, it highlights that, while Asia has had remarkable progress on poverty reduction, inequality has actually worsened. This requires a more active role for governments in the region to increase intervention in poverty and inequality reduction. These observations are validated by the larger private expenditures (families bear a larger share) compared to public transfers for children and the elderly in the region as compared to Latin America and the OECD. It points out that implementing policies to reduce inequality and making growth inclusive is a tall order, because countries in the region must not compromise the “key strategic priorities of economic growth and fiscal sustainability.” Thus, making this the theme of the Apec, it will provide opportunities for Asian member-countries to work closely with other members that are able to work on sustaining their economic growth but able to reduce inequality while maintaining public finance discipline.
Within the theme, four priority areas are being advanced, these are (1) investing in human capital; (2) fostering small and medium enterprises’ (SMEs) participation in regional and global markets; (3) building sustainable and resilient communities; and (4) enhancing the regional economic integration agenda. These priorities can be matched to the key elements of inclusive growth, which require a long-term, sustained and broad-based growth characterized by significant declines in unemployment and income inequality. Specifically, countries that succeeded in reducing inequality invested in human capital through education and health heavily. This is more consistent to a long-term approach. The Apec priorities, however, recognize that there is also a need to address short-term challenges brought about by structural rigidities, hence the need to bring in SMEs on the inclusiveness agenda. This gives an enhanced role for the private sector at the microlevel in partnering with the government in addressing inequality.
With these perspectives, the Philippines should not just look at the broader outcomes of hosting this event. The country should work beyond the demands of the theme, especially as it continues to grapple with stubborn poverty. Beyond poverty, the long-term challenge is why, despite the economic growth, inequality is perceived to be increasing. Using data from the Family Income and Expenditure Survey (FIES) of 2012, the richest 30 percent of the population owns almost 60 percent of all income in the economy (see chart). Even without comparing to previous time periods, this already implies that inequality needs to be addressed to make growth inclusive. The ADB book warns that “greater inequality may shorten the duration of growth.” The government, through this current administration and previous ones, is aware of this, and has embarked on a massive human-capital investment, known as Conditional Cash Transfer (CCT) Program. It has to market the CCT, as it is a long-term human-capital investment. According to the literature, we are on the right track for the long term. Nonetheless, the CCT is not able to capture other sectors requiring transfers and support, such as the elderly, vulnerable and disadvantaged. There might be a need to expand it at least to cover the health needs of the latter. More important, the CCT is not an immediate antipoverty program. With the current positive fiscal conditions, the government can also work on short term interventions, such targeting spending on transfers with immediate income effect, such as cash for work mechanisms and using public employment on infrastructure. These may not require additional resources, it may simply be a better design, usage, implementation and allocation of the existing programs. The lessons of underspending in the recent years show that there is enough fiscal space for the government to spend on short-term interventions. Let us be the first model of the Apec theme that we are hosting.
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Alvin P. Ang, PhD, is professor of Economics and senior fellow of Eagle Watch, Ateneo de Manila University’s macroeconomic forecasting unit.