Crossroads (Toward Philippine economic and social progress)
Philippine Star, 2 September 2015

 

My topic today deals with the economics of living far beyond one’s economically productive years .

Two exceptional mothers. My starting point is the thread of life from the histories of two mothers whose lives have affected my own in extraordinary ways.

My comments are occasioned by the passing away of my mother-in-law last Saturday, at the age of 102 years and eight months. My own mother, who passed away a few years back, had lived up to the ripe age of 96 years.

What amazingly long lives these are! In our country , those born today can be expected to live 71 years. Statistics of life expectancy are measured in relation to the year of birth of the subjects.

Both mothers were born in the decade of the 1910s when life expectancy at birth was likely well below 60 years. Then, antibiotics and public health standards were very low and incomes and facilities also much worse.

My mother-in-law survived her husband by almost a quarter century. My mother, in turn survived my father who died young (at the age of 51 years) , for almost half a century.

Long lives. Barring the occurrence of accidents, catastrophes, wars and other life-shortening natural events , the economic and social milieus in which we live, in addition to one’s genes, have much to do on how long one eventually lives.

The improvement of incomes (through economic development and growth) help to lengthen lives, for this affords the individual better nutrition, infrastructure (social, physical and economic), and improved leisure and comfort.

At the other end, developments in the medical sciences and the advancement of public sanitation have life-extending influences on everyone.

The economics of life. Economists have advanced the proposition that in general, people balance the incomes they earn against their total expenditures in their lifetime. However, during specific stages of their lives, the patterns of income and expenditure differ.

The “life cycle income hypothesis” says that in the early stage of life, we are fed, cared for, educated, but earn nothing.

In our middle and productive working years, we earn income far beyond our needs for expenses, so that we are able to accumulate savings.

In the last stage of life, that income earning capacity declines and eventually stops. As one lives beyond those productive years, the net earnings beyond the expenses of the past (which are savings) represent the sustenance that tide us over to the end of life.

Development and the improvement of social networks. The network of support for old age in traditional societies is often the family or the clan. As productive life ends and infirmities develop, the family becomes the principal support for their old folks.

With economic development, society through government, finds ways of extending social support networks to supplement the role of the family. In very advanced industrial societies, social legislation has led to the creation of institutions that provide those networks.

The most important feature of such social support networks are social security and universal medical insurance. Social security is paid for by heavy taxation, otherwise, it becomes unsustainable for a society to bear.

Universal medical insurance is often undertaken through the insurance principle of actuarial equivalence. In this setup, the premiums collected are calculated to match the benefits received.

The pooling of insurance premiums makes it possible to reduce insurance cost, hence of premiums charged. In addition, some governments put in a tax-financed subsidy to further reduce the cost of medical care.

Government-sponsored social support networks affect the life cycle income. They help to augment the capacity to generate savings for the individual. For instance, social security contributions can raise the saving process. As a result, they enlarge the stream of pension incomes in the post-retirement stage.

In the Philippines, the social security system is still relatively weak as a support institution. The reason is that contributions are based on rates that apply on relatively low incomes of workers and salary earners. As a result, the social security fund thus generated can only provide a stream low pension payments.

The average pensioner in the Philippines receives less pension incomes compared to the “miracle” economies in East Asia because the latter have succeeded, over time and in an earlier period, to raise wages and salaries for workers.

When she married her young lawyer husband, my (future) mother-in-law decided to play second-fiddle to him. Though with a pharmacy degree from UP, she chose to become a full-time housewife and help to provide direct protection and care to their six children.

The husband was hardworking, competent and brilliant. He would become the chief magistrate of the land. He had also taught law for years to supplement his government pay. After the husband died, she continued to receive his social security pension (earned from teaching) and government, which were meagre. This was supplemented from income from property investments.

Two decades later, as if by an act of God, legislation granting pensions for survivors of members of the judiciary. For my mother-in-law, this changed the situation very much. The cost of senior sustenance was more than adequately covered. However, when her final illnesses worsened and her medical condition became serious, that pension and previous savings from it were easily and totally consumed.

My mother’s case was uniquely different from my mother-in-law’s. From the beginning, she was the traditional housewife. Her life’s income was integrated with that of my father who was a small proprietorial businessman.

When my father died, about half of us children were finished with our education and were beginning to make our own living. My mother continued the business. But she had no no social security pension like most small businessmen. She survived on what little remained.

For a while she ran the business, but she was so unlike my father who was the better businessman. Eventually, the business died, but that was when the children were already independently able to work and find their destiny.

During the 1970s, my mother migrated to the US where she joined my sisters who had migrated right after John F. Kennedy’s immigration liberalization.

In the US, my mother was very useful although she did not secure formal employment. She simply helped to raise the children of her children, who in turn were earning their own living.

As an elderly person, she received some welfare benefits from the State where she lived enabling her to sustain her own upkeep in old age even as she lived with her children.