Introspective
Business World, 5 February 2013

 

Exhilaration over the unexpectedly high 2012 growth rate (6.6 percent in GDP and 5.8 in GNI) has been dampened by the predictable tsk-tsking among head-shakers that growth, while impressive, has not really been “inclusive”. Particularly stinging has been the rebuke that rapid value-growth has not been accompanied by a rise in mass employment. In response, government economic managers graciously concede that much more needs to be done—but that they are still the people to do it, with results coming soon.

One wonders however if there is not disingenuousness (or naiveté) on both sides: the critics, for conveying the impression that the task at hand is simple but only neglected; the administration itself for reinforcing that impression. (Oh, well, in an election year, what would you expect?) More worrisome is the possibility that neither side has sufficiently taken the full measure of the problem to propose an adequate solution.

A big problem with solutions floated to make growth more inclusive thus far is that they are either long-term or too high-flown and general to make an immediate impact. Consider the conditional cash-transfer (CCT) programme. The CCT provides relief but not deliverance from current poverty. Nor was it meant to: for the CCT programme is ultimately an investment in the future of the children of today’s poor. By incentivising parents to keep children in school and pay attention to their health, the CCT scheme hopes that at least the children of the poor may have a better chance than their parents did of escaping the poverty trap. It is therefore a hopeful solution to poverty across generations but can do little about the poverty of today. The same thing can be said of the government’s plans to expand health insurance, or improve the quality and curriculum of basic education, or even the impossible inconceivable triumph of the Responsible Parenthood Act. All very good. All very necessary. But all about the future and the next generation. The problem, however, is what to do about today’s poverty.

The presumption seems to be that aggregate growth of, say, 6-7 percent in GDP—if it can only be maintained for a decade or so—will be strong enough to pull most of the poor out of the morass. For this, China is often used as the poster-child. But, on the other hand, consider that other BRIC-star India: it has grown annually by almost 7 percent for some two decades now (even helped by a lower population growth rate) yet poverty there remains far worse than in the Philippines. What gives?

The obvious takeaway is that merely promoting growth in general may not go far enough to reach the poor. Yet we continue to assume that if only incentives are right, if only prices distortions are removed, and a sufficient amount of physical infrastructure is provided (e.g., roads, ports, airports, irrigation), then economic-minded people—including the poor—would surely take advantage of opportunities to help themselves, in a kind of decentralised supply response.

This fond hope may be misplaced, however, since it blithely assumes the presence of the one crucial element that the poor themselves particularly lack: a well-developed entrepreneurial response. Standard economics has notoriously ignored J. Schumpeter and F. Knight and failed to comprehend the role of the entrepreneur. Knight described the entrepreneur as the residual claimant of an uncertain profit after fixed rentals to all other factors of production have been paid (wages to labour, interest to capital, rent on land, and patent fees for known technology). Entrepreneurial reward, according to Schumpeter, depends on success at identifying hitherto unexploited markets, untapped sources of supply, or unknown applications of known techniques. (Steve Jobs was the quintessential entrepreneur in this sense: he never invented or made things himself but rather paid others to do so, based on his unerring sense of what the market wanted.)

This points to a major reason that interventions in behalf of the poor have been small in scale and limited in scope: the poor are improperly and indiscriminately shoe-horned into the unrealistic role of entrepreneurs. The mental model of such schemes—perpetuated by agrarian reform schemes since the 1950s—is apparently still that of the yeoman farmer who toils on his own account and ultimately prospers through his own efforts. From this misconception flow the many well-meaning but ultimately feckless small-credit schemes for “livelihood projects”, such as the ineluctable sari-sari stores, jeepney and tricycle purchases, food-stalls, and precarious small-scale subsistence agriculture. No doubt, individual success stories can always be told. But to think that the poor can systematically lift themselves up en masse by such means is a pipe dream.

To see this, consider how likely people might recognise and respond to economic opportunities. This is notoriously difficult to measure, but certainly a minimum of education is necessary for it to exist. Human capital and social capital after all often go hand in hand, and both are needed for entrepreneurship to thrive. On this account, look at agriculture, where the bulk of the poor are to be found. In 1988, only 20 percent of people in agriculture had at least a high school diploma. More than a decade later, in 2010, this number had barely improved to 26 percent—that is, nearly three-fourths of all people employed in agriculture still had not completed even high school. Compare this with 62 percent of the industrial labour force and 70 percent of those in services having completed at least high school in 2010. It should therefore surprise no one why more favourable general business conditions have not equally benefited everyone and have not led automatically to inclusive growth. To borrow from Pasteur, “Le hasard ne favorise que les esprits prepares.”

A leap in productivity and incomes among today’s poor can come only by linking them with those who already possess exceptional access to knowledge and resources. If one speaks of agriculture, for example, this cannot be done without inducing major corporate businesses—those already inserted in national and global value-chains—to enter agriculture in a big way and include the poor in their plans. Only large infusions of capital, technology, and market intelligence from the private sector can transform the conditions of the poor today.

For all this to occur, however, difficult questions must first be answered: What policies and regulations hinder the entry of private capital and technology in agriculture? (Here one must wonder what hinders conglomerates like Metro Pacific, San Miguel, SM, and Ayala from becoming more involved in commercial agriculture rather than in malls, condos, airlines, and toll ways.)  What feasible production and trading arrangements in agriculture can reduce transactions costs and yield scale-economies for major companies? How can massive corporate entry into agriculture be facilitated without undermining the spirit and reversing the gains of a completed agrarian reform? What organisational preparations are needed to build trust between small holders and large corporate ventures? What facilitative role should local and national governments play? None of these questions admits of an easy or quick answer, although each of them is urgent. The answers required are not only intellectual but also political.

It is all very well to talk about the need for “rapid”, “orbit-escaping”, and “accelerated” growth. Both the administration and its critics alike would do well to remember, however, that development is less of a sprint and more of a marathon.