A nation of billionaires, dynasties and yayas

So said one of the firebrands of the Philippine Senate in 1969, during the release of a report on inequality and poverty in the Philippines. Senator Benigno “Ninoy” Aquino, Jr., then 36 years old, went on to describe how 80 percent of Philippine households lived in poverty, of which about a third lived in severe deprivation and misery.

Meanwhile, 1 percent of Filipino families in 1969 lived in affluence, in those days earning more than PhP25,000 per year. And of that group, Senator Aquino pointed out that an even smaller fraction lived in what he called “super affluence”, earning more than PhP100,000 per year.[1] (That’s over PhP6 million today, correcting for inflation.)

Fast forward some 45 years later; and we are face-to-face with much the same stark reality. If we turn to a recent study by government statisticians, only about 22 thousand families belong to the group earning about PhP60,000 or more a month in the Philippines (Figure 1). This is around one-tenth of 1% of the total households in the country.

The vast majority of households – over 18 million accounting for over 90% of the total – belong to the poor and low-income group earning less than PhP5000 per month. While experts still debate the exact figures due to well-known non- or under-reporting of incomes by some survey respondents (notably the very rich), most would agree that the figures above are likely to underestimate the true degree of inequality in the country.

Figure 1. Filipino Families Disaggregated by Income Class

Good and bad inequality

Inequality per se is not bad.

Many societies tolerate (or even celebrate) some degree of inequality in so far as it incentivizes people to work hard, innovate, save, invest in education, and take calculated risks in entrepreneurial activities. This is the “good inequality” that moved JK Rowling to write the next Harry Potter novel, Bill Gates to pursue the next technological innovation, Steve Jobs to design the next Apple product, or Christopher Nolan to produce the next blockbuster movie. They became very rich relative to the rest of us, but nearly every one of us benefited from their contributions to arts, popular culture, and technology.

Moreover, an unequal distribution of income and wealth could emerge despite an egalitarian distribution of opportunities. Variations in effort, skill, and luck, after all, could produce variations in outcomes.

The problem arises when the inequality of outcomes is rooted in an inequality of economic opportunities. This exists amid wide differences in the quality of education, a general dearth of decent jobs, and an uneven economic environment that favors larger firms while driving many smaller firms into informality.

Inequality of this type can lead to a more volatile and less efficient economic system. The concentration of economic opportunities within the hands of a few is essentially the “uneven playing field” that characterizes the Philippine economy today.

Good for billionaires and politicians, but bad for yayas?

Prof Cielito Habito of Ateneo de Manila wrote in 2012 that “growth in the aggregate wealth of our 40 richest families in 2011—which Forbes Asia reported to have risen by $13 billion in 2010-2011—was equivalent (in value) to 76.5 percent of the growth in our total GDP at the time…this ratio was only 33.7 percent in Thailand, 5.6 percent in Malaysia, and 2.8 percent in Japan—suggesting that income inequality in the Philippines is much worse than in several of its neighbors.”

Updating this, the net wealth of the 40 richest families in the Philippines stood at $72.3 billion in 2014. If we limit our focus to the families who were in the top 40 wealthiest in 2010 and in 2014 (about 30), these families’ net wealth increased by well over 200% during this period.

But it’s not just the economic elite that appears to have done very well in recent years. For comparison, we consider the average net wealth of both the upper and lower houses of the 15th Philippine Congress.

The Philippine economy grew by 3.7% in 2011, while the net wealth of senators grew four times faster over this same period. Similarly, in 2012 Philippine GDP grew by 6.7%, while the net wealth of senators expanded by over 30% during this same period. The average Philippine Congressman did not do so bad either, posting about 13% and 7% wealth gains during the same period. (While notions of wealth and economic growth are not exactly the same, these comparisons could still be illustrative.)

Table 1. Philippine Congress and Senate, Average Net Worth, 2010, 2011, and 2012

Assuming of course that all of this wealth has been created legally, there is nothing overtly wrong with the economic and political elite doing very well financially during this time of plenty for the Philippines.

The question is whether the rising tide is lifting all boats. Certainly it is not.

Hunger incidence according to SWS fell only by less than one percentage point in the course of this reference period – from 19.1% of the population in 2010 to 18.3% in 2014. Self-reported poverty also increased from 48% of the population to 54% during this period. Official poverty figures indicate that poverty has been stuck at around one-fourth of the total population in the past decade.

On top of this, inequality across Philippine regions underscrores the significance of being born on the “right” island. Drawing on data reported by the Human Development Network and UNDP, children born in the National Capital Region are more likely to enjoy human development levels in education and health akin to fast growing emerging market economies like Estonia, Brazil and Mexico. On the other hand, children born in Maguindanao, Sulu and Tawi-Tawi will grow up with human development levels comparable to conflict-plagued African countries like the Congo, Niger and Central African Republic.[1]