Inequality, Philanthropy and Social Entrepreneurship
by Ernesto M. Pernia
Originally posted on the Inquirer (2 April 2013)
Reposted here with permission from the author
Our
country is among the most unequal in wealth and income distribution in Asia such
that it is often associated with its more distant cousins in Latin America. World
Bank data on Gini index – which goes from 0 (perfect equality) to 100 (perfect
inequality) – indicate that the Philippines’ index is 43, compared with
Thailand’s 40 (as of 2009), Indonesia’s 34 (2005), and Vietnam’s 36 (2008).
Comes now the front-page news
(Inquirer, 3/4/13) reporting Cielito Habito’s observation that the rise in
aggregate wealth of the country’s 40 richest families in 2010-2011 was equivalent
to 76.5 percent of the increase in the economy’s GDP during the same period.
The corresponding figures were 33.7 percent in Thailand, 5.6 percent in
Malaysia, and 2.8 percent in Japan. This does not mean that more than
three-quarters of the Philippines’ GDP goes to the 40 families as wealth is a stock while annual GDP is a flow. The ratios merely poignantly highlight
how serious social inequality is in our country.
An earlier ADB study we conducted on
the links between economic growth and poverty reduction reveals that the growth
elasticity of poverty is just above 0.5 for the Philippines compared with 0.7
for Indonesia, and closer to 1.0 for Vietnam. These elasticities imply that,
say, a 10 percent increase in overall per capita GDP raises the per capita
income or expenditure of the poorest by just about 5.0 percent in the
Philippines, 7.0 percent in Indonesia, and close to 10 percent in Vietnam. This
suggests that the higher the inequality in a country the more muted is the
effect of economic growth in terms of poverty reduction. This partly explains
why the relatively high GDP growth rates in the Philippines in some years have
hardly moved poverty incidence. Moreover, other studies show that high
inequality, to begin with, tempers economic growth itself. In short, inequality
is bad for both economic growth and poverty reduction.
The recent Forbes magazine article on
the richest Filipinos against the backdrop of egregious inequality was
provocative. Among others, it stimulated thinking about what philanthropy could
or might do to help address the country’s age-old social problems. Philanthropy
per se is nothing new and is in fact already being practiced to some degree by
the more affluent individuals through their donations to worthwhile causes, as
well as by businesses through their foundations for corporate social
responsibility.
What might be a more innovative philanthropy
is for the richest Filipinos to commit a bulk of their wealth to make a quantum
and durable impact on the country’s chronic inequality and poverty. Such
philanthropy would in effect serve to make up for the government’s failure and
budgetary constraints. For instance, our annual budgets for education and
health have been on the order of 2.0-2.5 percent of GDP – well short of
UNESCO’s and WHO’s 5.0 percent norms, to which our older ASEAN neighbors hew
much closer. Moreover, the budget for science and technology has been a mere
0.15 percent of GDP, compared with our neighbors’ average of 0.5 percent. These
shortfalls are a non-trivial reason why our economic development has lagged behind
so badly.
Philanthropy for health, education,
and science and technology would be an investment in public goods, often also
referred to as “merit goods” in that they create positive externalities for
society and therefore tend to be privately under-consumed and under-supplied (i.e.,
the public benefit is greater than the private benefit). But it may still be in
the self-interest of the more affluent people to address the “merit goods”
deficits towards a better and more productive citizenry resulting in a more
stable and safer living environment for all.
Philanthropy is not lacking of
worthy exemplars. Andrew Carnegie, John D. Rockefeller, William D. Ford, and
the Vanderbilt family contributed to the building of the U.S. cultural
infrastructure. More recently, “Warren Buffett and Bill and Melinda Gates
established The Giving Pledge in June 2010: a public commitment by some of the
world’s richest people to give away at least half of their wealth, which in
turn is meant to inspire more giving. To date, 81 billionaires have signed on,
with Buffet alone pledging $37 billion” (Marina Primorac, “Good Works,” Finance and Development, December 2012,
p. 9).
For philanthropists in the more
mature countries, the philosophy it seems is to not bequeath a large
inheritance to their children as it could lead to complacency and a
disincentive for hard work. However, such a philosophy appears still relatively
uncommon among rich Filipino parents who tend to pamper their children. Businessmen
are wont to hand over their business empires to their children that not infrequently
cause inter-sibling fights. Whether or not such a tradition is a good Filipino
value to keep may require serious thought and reflection.
Philanthropy can be made more
effective with social entrepreneurship. “Social entrepreneurs drive social innovation
and transformation in various fields including education, health, environment
and enterprise development. They pursue poverty alleviation goals with zeal,
business methods, and the courage to innovate and overcome traditional
practices” (Schwab Foundation for Social Entrepreneurship). A good example in
the Philippines is Antonio Meloto and his co-workers running the now famous Gawad Kalinga project.
Our country needs bigger
philanthropy supported by social entrepreneurship to help address its formidable
social challenges.
Ernesto M. Pernia is
with the UP School of Economics, Fellow of the Institute for Development and
Econometric Analysis, and former Lead Economist of the ADB.
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