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Speeches & Transcripts February 20, 2018

Riding the Wave: Fostering Economic Mobility and Security for All Filipinos

MILF Chairperson Al Hajj Murad Ebrahim;

Chief Presidential Legal Adviser Salvador Panelo;

Senator Antonio Trillanes IV;

Officers and members of the Foreign Correspondents Association of the Philippines;

Distinguished guests;

Ladies and gentlemen;

 

Good morning!

In the last two decades, developing East Asia and Pacific has led the world in showing how rapid and broadly shared growth can lift millions out of poverty. The wave of prosperity that has swept the region has meant that more than sixty percent of East Asia’s citizens are now economically secure.  In most countries of the region, a sizable middle class has emerged and is growing rapidly.

How well has the Philippines ridden this wave of prosperity? What will it take for the Philippines to continue to sustain growth that eliminates poverty and fosters economic security for all its citizens?

My speech today is based on a recent report of the World Bank called Riding the Wave: An East Asian Miracle for the 21st Century which goes beyond the traditional income classifications of poor and nonpoor, instead unpacking the entire income spectrum to help us understand how public policy can be designed to not only lift people out of poverty, but equally importantly, to help them reach economic security.

Biggest poverty reduction machine

The East Asia region has been the biggest poverty reduction machine in recent history. Starting from a very low base, over the last 20 years, 40 percent of the region’s population has been lifted from poverty. In this period, the Philippines has also made steady progress with around 10 percent of the country’s population escaping poverty.

One of the most remarkable aspects of the East Asian story is that now two-thirds of the population in East Asia are living in economic security, meaning they are at low risk of falling back into poverty. In the Philippines, this number is lower, but still, about one-third of the population are economically secure.

What ushered this big wave of prosperity in East Asia? There are two things to highlight. First is export-oriented, labor intensive growth. Second is investing in people – in their education and health and in basic services. 

A rapidly changing world

But this strategy that worked so well in the past might not work going forward. Why?

Growth of global trade is slowing, and new technologies may curb demand for labor.

Inequality is high in the region. Concentration of wealth, has grown faster than in other regions of the world.

Also, there are specific trends that are turning opportunities into challenges – I highlight two in particular.

First, is urbanization. Urbanization promises a better life, better jobs, and better services. But if urbanization is not properly managed, living conditions in cities can be very difficult, especially for the poor and the most vulnerable.

Second, and this is certainly true for the Philippines, a huge number of young people are bursting into the work place and there are not enough good jobs on offer. Many of these young people need better education and skills to work in twenty-first century jobs. 

Regional comparison

In East Asia, a wave of prosperity has brought about an evolution of economic class.

This graph is the heart of this analysis.  It shows all income classes from dark blue at the top – the extreme poor – to dark green at the bottom – the middle class.  The two categories in green are the economically secure and middle class – that is, those who are no longer at risk of slipping back into poverty.

This graph shows how impressive the development results in East Asia have been.  Twenty years ago, 30 percent of the population was extremely poor.  Today this group accounts for less than 3 percent of the region’s population.

The moderate poor, who used to account for one quarter of the East Asian population now account for less than 10 percent.

Today, those who live in economic security in East Asia account for almost 50 percent of the population, and the higher end of the distribution – the middle class – accounts for almost 20 percent.

The Philippines

The waves on the graph for the Philippines are not as pronounced as for the region as a whole.  Nevertheless, significant progress has been made.

Twenty years ago, 13.3 percent of the population was extremely poor, living below the international poverty line. Today this group accounts for less than 7 percent of the population.

In addition, the percentage of economically secure and middle class (the coveted green section of the graph) has grown in the last twenty years with almost 35 percent of the population now economically secure, and a middle class that has grown from 7 percent in 2002 to almost 10 percent today.

But the part of this graph that we really need to focus on is the area just above the poverty line – those who are not yet economically secure and still at risk of slipping back into poverty.  These groups have not changed very much in the Philippines in the last 20 years: the total for the moderate poor and economically vulnerable combined has remained constant at 50 percent of the population.  

The goal for the Philippines, therefore, remains to promote inclusive growth that benefits all – that continues to lift the extreme poor out of poverty, that builds the economic security of those still vulnerable to slipping back into poverty, and that addresses the remaining challenges of the middle class, including their lack of access to services, particularly housing, and their vulnerability to shocks due to a lack of proper risk management tools.

Fostering economic mobility

The various income groups clearly have different needs and aspirations. For the Philippines, the best strategy is to meet those different needs by fostering economic mobility – which in layman’s terms is essentially the ability to improve one’s lot in life – to move from the blue into the green.  At the core of economic mobility are jobs and livelihoods.

Improving the quality of jobs and addressing disparities in education through early childhood development programs will help. Providing opportunities for the poor to access jobs by supporting formal market participation is critical. Also, greater access to financial services can boost livelihoods that people create for themselves.

The country should maintain its social assistance programs for the poor and social insurance should be extended to cover all workers, not only those in the formal sector.  Resilience to shocks, including natural disasters, is also a priority. This requires a broad range of interventions, including resilient infrastructure, social safety nets, and insurance to deal with these shocks.

Not surprisingly, there also needs to be stronger revenue mobilization so that the tax system can raise more resources to support these measures.

To conclude, we believe it is possible for the Philippines to continue to ride the wave of prosperity despite challenges ahead. The key is understanding the needs and aspirations of the different segments of the population and to put in place measures to eliminate poverty and foster economic mobility and security for all.

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