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On Globalization, Inequality, and Inclusive Growth

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Romeo L. Bernardo

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.




Global Income Growth

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.

romeo.lopez.bernardo@gmail.com

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