Introspective
Business World, 11 May 2014

 

Public attention last week was riveted on the non-release of the Napoles list and its murky contents. By contrast, a release that was actually prompt and clearly significant was ignored—the release of poverty statistics for the first semester of 2013.

The data release was important because it showed clear breaks in old patterns. First, this was the first time any official statistics on poverty were collected and released with such a short turnaround time—one year! This means we can look forward to getting a full-year picture for 2013 by the end of this year, as well as annual figures from then on. Compare this to the sorry situation when poverty statistics were made available only every three years, i.e., 2006, 2009, 2012—the next data point would not have come until a survey in 2015, with results being released only in late 2016 or early 2017. Certainly too late by then to take leaders to task in the elections. Hence, I say, kudos to national statistics, and two cheers for NEDA’s Arsi Balisacan and newly-minted National Statistician Lisa Bersales—give them three cheers if they keep the stats coming until 2016.

But the second break in pattern is found in the results themselves. The headcount poverty incidence (i.e., here, the percentage of all families, regarded as poor) fell from 22 percent in 2012 to 19 percent within a year (Row 1 in the table). This three percentage-point difference will seem small. But that is no mean feat when it happens in a single year. By contrast, poverty incidence over the previous seven years was essentially unchanged, the needle barely moving from 23 percent to 22 percent of families between 2006 and 2012. (Nor does it hurt the optics that the country seems to have finally broken through the 20-percent barrier.)

poverty

But the figures tell us more. While the familiar poverty headcount is convenient and easy to understand, it ignores how poor the poor really are. The headcount fails to distinguish between a family that is, say, ₱50 short or ₱300 short of the poverty line (which in 2013 was set at ₱8,022 a month for a family of five).

Luckily, there’s an app for that. An index that measures the depth of poverty is the “income gap”, which shows how far below the poverty threshold poor families are, on average. The answer is 27.4 percent for 2013 (Row 2 in the table). That is, poor families on average could only afford to spend 27 percent less than the poverty threshold. In 2012, this spending shortfall was 29 percent, and in 2006 it was 30 percent—once more 2013 saw a marked but small improvement compared to the past.

Finally, just to complete the picture for insistent wonks: if you multiply the headcount measure with the income gap, you obtain what’s known as the “poverty gap”, a kind of summary measure of both the incidence and the depth of poverty (Row 3 in the table). Taking 2013, for example, with a headcount of 19.1 and an income gap of 27.4 percent, one obtains a poverty gap of 0.052 (= 0.191 × 0.274) or 5.2 percent.

In the last column of the table, I’ve indicated the percentage changes in these indices relative to their levels in 2006 (always remembering that negative changes are good).

It then becomes clear that the poverty picture has improved more from a reduction of the number of poor people than from an alleviation of the depth of poverty among those who do remain poor: incidence improved by 18 percent relative to 2006, but the income gap fell by only 9 percent. The fact that there was an improvement in both, of course, makes the improvement in the poverty gap better than either. (Wonkish: this is because the improvement in the poverty gap is approximately the sum of improvements in the headcount and the depth.)

But how to explain this pattern, and why was there not a greater catch-up in incomes? More research is obviously needed, but here we hazard a reconstruction. What most likely happened is that the growth story simply kicked in, as my colleague Raul Fabella already suggested in last week’s column. Two years’ worth of GDP growth of  6.8-7.0 percent finally made an impact. People who were below but somewhat close to the poverty threshold got pulled up by the growth into the ranks of the nonpoor. This is what the good performance in the headcount shows.

But those who were very poor—those who lacked the human and social capital to benefit from growth to begin with—remained poor, and the depth of their poverty did not change by very much. Which explains the smaller improvement in the income gap.

But what about the government’s conditional cash transfer (CCT) program? Did that not help the very poor and the destitute? Not exactly. An article by Melba Tutor forthcoming in the June issue of the Philippine Review of Economics suggests that while the CCT has achieved its main goal of changing health and schooling behavior, the program did not generally raise consumption spending among beneficiaries. Even among the poorest deciles, consumption spending increased only by some ₱258-456 per month per family. That’s 3-5 percent of the poverty threshold—something, but not a lot. To be fair to the CCT, of course, direct alleviation of present poverty was never its main goal; its aim instead is to resolve future poverty by ensuring investment in children. These same children will then be better equipped than their parents to seize opportunities from growth when their turn comes.

The lessons from the improved poverty picture can be summarized as follows: First, despite the brickbats thrown at it, economic growth does seem to work to relieve poverty significantly. Therefore we should keep at it. As Fabella suggests, the real test is whether rapid growth can be sustained for at least a decade. Second, people are differently able to take advantage of growth opportunities. Even among the poor, some will be better at it than others. Inclusive growth must therefore mean pulling everyone up to that point where they can benefit from growth, and then providing the social insurance needed to keep them from falling back into the ranks of the poor. Finally, this discussion suggests a distinct approach is needed to address the problem of extreme poverty or destitution; either the CCT’s cash component must be increased or a separate program must be instituted for direct humanitarian assistance.

All this information is to be gotten from just the three lines of a table. That’s my “list”. I hope Napoles’s is just as interesting.