President Benigno Aquino III on inclusive economies: Viewpoint

In 1986, millions of our people gathered on Epifanio de los Santos Avenue (EDSA) – our capital city’s most prominent avenue – and other cities throughout the nation to overthrow a dictator, who had for too long subjected our country to his tyranny and oppression. People armed only with rosaries, good intentions and belief in their countrymen stood up to tanks, artillery and planes. This was the miracle of EDSA, which made possible that which was impossible, and returned democracy to our country through people power. After 14 years of martial law, our people were successful in lifting my mother into the presidency to lead the rebuilding of our nation.

I recall a very early meeting I had with my cabinet, in which we discussed why the poverty rate had hardly moved over the past decade – or what I sometimes refer to as a “lost decade.” The numbers were alarming. Income growth was low, and inequality was at incredibly high levels. All this, despite relatively consistent economic growth. When one thinks about this, it is quite sad. If 10 years ago, my predecessor had done what we’re doing now, I can only imagine where the Philippines would be.

We resolved that this sort of trickle down economics was not the way forward, and that the only real growth is that which is felt by the many. Thus, inclusive growth became the north star of our national policy – growth that truly helps each and every Filipino lift themselves up from poverty, and play a meaningful role in continuing our country’s growth story. We knew we had to craft and relentlessly pursue a holistic and cohesive national strategy – one that can systematically respond to every debilitating aspect of poverty, with the belief that this good governance is good economics. We plugged leaks throughout the bureaucracy, and we did not shy away from confronting the most complex and crippling problem of our nation, namely, corruption. Over the last five years, we cracked down on all those proven to have engaged in wrongdoing. Now, a former president is under hospital arrest after being charged with plunder. The former chief justice, who had no compunctions about being selective in implementing the law, was removed through impeachment, after it was revealed that he violated our laws by failing to declare over 98% of his assets as mandated by our constitution. Well-known senators have been arrested for their alleged involvement in a scam of massive proportions. We have likewise filed 581 cases against tax evaders and smugglers, who owe the people billions of pesos in taxes. And might I point out that these only cover a fraction of our anti-corruption efforts.

These efforts, among countless others, naturally freed up or helped increase the resources we had at our disposal; the only question was where to allocate it. We invested it in our greatest resource: our people. That is why, from 2010 to 2015, our social welfare and development budget increased seven-fold, our Department of Education’s budget essentially doubled, and our Technical Education and Skills Development Authority’s budget increased by 84%. Might I emphasise that we did all this, and more, without raising any taxes, apart from the sin tax, the proceeds of which went to expanding medical services for our people. But, we didn’t simply throw money at the problem. We followed a thorough strategy to respond to all aspects of poverty, and to give our people a legitimate chance to retake authorship of their own destinies. We invested in upgrading our educational infrastructure. Within our first three and a half years in office, for instance, we ended an inherited backlog of 66,800 classrooms, along with inherited shortages in seats and textbooks. We reformed our basic education cycle to conform to global standards and to give our children ample time to digest their lessons and maximise their learning.

We also knew, however, that even though elementary and high school education are supposed to be free in the Philippines, some of our countrymen didn’t have the wherewithal for transportation or for pocket money that would allow them to capitalise on this free education. Some were in such dire poverty that their bodies could not stand the rigours of schooling. This is why we undertook the large-scale expansion of our conditional cash transfer (CCT) programme. It gives cash grants to poor households, as long as their children go to school and are vaccinated, amongst other conditions. From June 2010, the number of beneficiaries of this program has gone from less than 800,000 households to 4.4m, or roughly equivalent to 22m Filipinos. In 2014, we began including households with high school age children, because our institute of development studies conducted a study that showed that high school graduates earn 40% more than those who only spent some years in elementary level. While this programme was designed with the long-term effects in mind, we have already enjoyed early success. In fact, this year, 333,673 CCT beneficiaries graduated from high school, 13,469 of whom graduated either with honours or other awards.

I cannot overemphasise the impact of this program. The statistics reinforce my point. From 2008 to 2013, the amount of out-of-school youth in our country dropped from 2.9m to just 1.2m, and we expect that these numbers will improve even more. Whereas once some of these graduates would have been subject only to the possibility of menial jobs; now they can move up the value chain and enter more promising careers. Apart from helping our people find long-term employment, we are also enjoying a bonus return on our investment. Think about it. For our Technical Education Programme, the government invests an average of around P7155 ($158) for every scholar. If a graduate, for example, finds employment in the business process outsourcing sector, a conservative estimate would have him making around P234,000 ($5194) annually. Assuming he receives the [maximum] tax deduction, this means his annual income tax will be P7900 ($175). Imagine that. In less than a year, we break even. And these individual workers will not be working for only a year; they will be paying taxes until they retire, and their taxes can help create even more opportunities for other Filipinos.

The good news is that this is not the only sector where our brand of good, common sense governance has sparked a virtuous cycle of growth and inclusivity. There is also our new found capacity to invest in infrastructure. When my term as a member of Congress began, shortly after all our economies were reeling from the Asian Financial Crisis. The situation was so dire that, each time I approached a national government department to ask for assistance for my district, their refrain was consistent, “We have no funds.”

Now, the situation is extremely different. From 1.83% of GDP in 2010, we have increased our infrastructure budget to 4.10% of a GDP that, might I emphasise, has exhibited fast-paced growth. The goal is to have this figure reach 5% of GDP by next year. In fact, now we have to contend with a very different problem compared to what I encountered in Congress. I am told that a lot of times we are nearing the absorptive capacity of the government to implement these infrastructure projects, which means that we need more engineers, more qualified contractors, particularly in far-flung areas. Indeed, our entire growth strategy hinges on the idea of empowerment. Empowered citizens, after all, are empowered consumers, whose income will go to the goods and services produced by companies. We are moving our economic ecosystem into a bigger pond, where everybody can grow and reach their full potential.

This is the most critical element of sustainable growth: inclusivity. If we can include our people in public life and building our economy, it redounds to a stable environment and greater economic prosperity.

Based on a speech given at the Apec 2016 CEO Summit