Emerging Markets: The Problem of Inclusivity in the Philippines

As a business student and a native of the Philippines, my end goal has always been to go back home after learning as much as I can in the United States. I have made it my goal to maximize my stay in Berkeley by being involved in organizations that I am passionate about and enrolling into courses and attending extracurricular events that enhance my knowledge of the world both in business and in general.

Lila Shahani and Denice Sy
Lila Shahani and Denice Sy

The lecture is not sponsored by Haas, however I believe the subject of the talk is very relevant to business students interested in emerging markets. It was interesting to me especially because of its focus on conveying the business, political, and economic climate in my home country.

Assistant Secretary Shahani is Head of Communications of the Human Development and Poverty Reduction Cabinet Cluster, which comprises twenty-six government agencies dealing with poverty and development. She was formerly Assistant Secretary of the National Anti-Poverty Commission and faculty at both the Asian Institute of Management and the University of the Philippines.

Shahani’s talk taught me a lot about my homeland’s economic landscape. Oftentimes, citizens blame the nation’s alarmingly large poverty rate solely on the government. Whereas there are multiple factors involved in addressing the issue that may or may not be under the government’s control.

Lila Shahani's talk is about the persistence of poverty despite the Philippines' economic growth
Shahani’s talk is about the persistence of poverty despite the Philippines’ economic growth

The lecturer first described the need for inclusive growth and what its implications are for the Philippines. Inclusivity involves a non-discriminatory and equitable redistribution of wealth, as well as the expansion of capabilities. Unfortunately, while this is already generally difficult to achieve, this is even more challenging and almost impossible in the Philippines, where 27.9% of the population fall below the poverty line. Over 13 basic sectors are at the threshold, such as farmers, fisher folk, and victims of calamity, among several others.

The “poor” are defined by a family of four earning less than P7,000 or $159/month.

In fact, the income inequality is so problematic that the Philippines’ GINI coefficient of family income stood at 44.8 in 2009. The bottom 20% of the country population (double the birth rate of of 98 million people) shared only 6.4% of the nation’s total income. Whereas the top 20% enjoyed more than 50% of the country’s overall income.

Shahani also discussed the Philippines’ growth over the past few years and how its GDP has performed much better than its Southeast Asian neighbors. While many view this as a positive sign for the country, the economic growth, sadly, has primarily benefited corporations and well-off households, leaving the most marginalized sectors of society even poorer and more powerless. The growth elasticity of poverty remains very low in the Philippines, where for every 1% growth, incidence only falls by 0.6%. The drop is significantly greater in Vietnam, China, and India.

Lila Shahani with some of the Filipino student leaders on campus
UCB Filipino student leaders Tishianna Mann and Dominique Martinez pose with Shahani

One of the main problems Shahani identified as the cause of the Philippines’ distorted economic condition is the reality that the nation’s wealthiest tycoons do not invest in the country’s infrastructure. The private sector consists of 86% of the entire economy, which has focused mainly on luxury real estate and elite consumption.

The speaker compared the Philippines to India. Both are emerging markets: however, there is more evident innovation in India, while overseas Indian workers tend to be more committed to contributing to the development of their home country. On the other hand, Filipinos abroad, after achieving a comfortable level of disposable income, more often than not, tend to send less money back to the Philippines in the form of remittances and dedicate a higher percentage of their earnings instead to elite consumption.

Ultimately, Shahani sees a need for Philippine businesses to start shifting their focus to the important calling of giving back and assisting in the nation’s equitable development efforts. An example she mentioned was investing in the nation’s manufacturing sector since the services sector has been the main driver of the country’s growth for much too long.

Listening to Shahani speak, I was deeply saddened, though not surprised, by the huge economic disparity between society’s elite, middle, and low-income classes. However, it also reminded me about how all of us, in general, have to understand the importance of going beyond for a cause that we feel passionate about. As I finish my last year at Haas, I aspire to eventually becoming successful enough to apply the core values I learned from this prestigious business institution, to hopefully be able to help resolve some of my home country’s most deeply-entrenched socio-economic problems.

Denice Sy
Class of 2014

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