A bleeding heart for the middle class

The Social Weather Survey (SWS) announced a “recovery” in October of self-rated poverty to 42% compared to September’s 45% from March’s “awesome” (according to SWS) 38% which was 12 points better than the 50% of December 2018. These are distressing statistics for bleeding hearts. There is no “improvement” in poverty. There is no “less poor” or “more poor” but only “poor.” In a deeply religious and morally demonstrative country like the Philippines, expression of empathy more than just lip-service sympathy is expected for the poor from those who have more in life.

The Brookings Institute, refining traditional estimates of the Gini Ratio by the estimated undeclared wealth of the rich, found the adjusted inequality ratio in the Philippines in 2018 to be as high as 0.6, or 60%, from the estimate of just over 0.4, or 40% in 2017, meaning the gap is six points away from equality of zero to the inequality of 10. The latest statistics on the Asian Development Bank website show that the Philippines is pathetically third among ASEAN nations, with 21.6% of the population below the poverty line, compared to the worst, Myanmar with 32.1%, and the best in control of poverty, Malaysia, with 0.4%. Based on the Commission on Population’s estimate of the country’s population of 107.19 million in 2018, some 23+ million Filipinos live below the poverty line.

How does this stand beside President Rodrigo Duterte’s vow at his assumption of office in 2016, that poverty will be eradicated by 2040? More than halfway into his term, poverty in the country is increasingly prevalent. But according to established private purveyors of social statistics, surveys show that the ever-optimistic and always-forgiving Filipinos believe Duterte’s exaggerated promise is still deliverable. In May, SWS reported that the administration of President Duterte scored a record-high +72 net satisfaction rating in the first quarter of the year. The respondents were most satisfied with the government’s efforts to help the poor. In October, SWS announced that Duterte’s net satisfaction rating remained “very good” in the third quarter despite a three-point decline to +65 during the Sept. 27-30 survey covering 1,800 adults (0.00169%) from a total population of 107 million.

The economist Paul Krugman might call it a “statistical illusion.” In his column, “The conscience of a liberal” in The New York Times on Jan. 20, 2013, Krugman doubts the value of measurements and statistics in which the cumulative effects of extended time may be mistakenly presented as segregated incremental bursts of improvements and declines. He cautions against the distortions from respondents having a good year or a bad year. And he blasts his professional rival, co-Nobel laureate economist Joseph Stiglitz, for the “morality tale” — as Krugman derogatorily brands it — that “inequality is a big factor in (economic) recovery.”

Is it a “morality tale,” this over-concern for the trickle-down and inclusion of the lowest denizens of society in economic progress? It does seem opportunistic in socio-politics to mouth and emote concerns for the poor. In the US, Republicans and Democrats have branded themselves conservatives and liberals respectively, with the former more inclined towards economic growth, today spurred by supply-side policies, government priming, and fiscal incentives to big business, and the latter pitching for the “soft” products of social and economic reforms that will have future benefits for society. Thus, the derogatory name-calling (by those opposed) of politicians and economists who dream and do for the less-privileged in society as “bleeding hearts.”

But in the Philippines, like in most developing countries, the bleeding heart for the poor must throb in cadence with the stressful palpitations for rapid economic growth in the race with global competition. We observe with mixed amazement and worry how our leaders must mouth concern for the poor, the unemployed, the underemployed, as small tax breaks are doled to low-income earners while big businesses rake in lower-taxed double-digit profits. How much of the money of the rich is even saved, or reinvested for the recycling of money that will trickle down to the poor in the long run?

“In the long run, we shall all be dead,” economist John Maynard Keynes famously said in the regrouping and rehabilitation after the world wars of the last century. That was said in the urgency of the times. But that was at least 75 years ago, yet the compromises for recovery with heightened laissez-faire capitalism thrive today in the pernicious competition that favors those who have the capital to compete — the rich. And that is the obvious reason why income inequality is widening in the world today, even in America, probably the most democratic of all economies.

The Huffington Post in January 2013 (at the time of the world financial crisis) analyzed the debate between Krugman and Stiglitz on why income inequality is slowing economic growth. Krugman accused Stiglitz of a faulty “underconsumption” hypothesis, basically that the rich spend too little of their income. Stiglitz disregarded Krugman’s accusation of him as a bleeding heart for the poor against the rich, and focused instead on the middle class, saying that “America’s middle class is too weak to support the kind of consumer spending required for a robust recovery, the middle class is too weak to invest in its future, the weak middle class means a smaller tax base and income inequality causes more intense boom and bust cycles.”

“Theories of economic growth, however, do not typically include models for investigating the implications of changes in the strength of the middle class,” economists Heather Boushey and Adam Hersh posted on in May, 2012. They noted that in between 1979 and 2007, income growth stalled for the middle class while the incomes of those at the top continued to rise dramatically compared to the rest of the working population. Thus consumption, which is mostly from the middle class, declined and so did economic growth.

A 2015 Rappler analysis quoted the Asian Development Bank (ADB) definition of the regular middle class as “those with incomes between four to 10 times the poverty line (which, on average, is P6,312 to P15,779 pesos per person in 2012 prices). For a household of five persons (which is the average family size in the country), the household is thus considered middle class if its total monthly family income ranges around P30,000 to P80,000.” The Philippine Statistics Office estimates that in 2012, the middle class comprised about 3.6 million households, or three out of every 20 households.

There is also the lower middle income class, those with incomes are between twice the poverty line and four times the poverty line; and the upper middle income: those with incomes between 10 to 15 times the poverty line. If we were to aggregate the middle-middle class with the lower middle and upper middle classes, this combined group would be about nine of 20 families (45.1% in 2006, 44.6% in 2009, and 45.8% in 2012). The total share of their incomes of these three groups is about two thirds of the country’s household income (65.1% in 2006, 64.7% in 2009, and 65.6% in 2012), the ADB study said. Though these figures are not current, this is certainly a clear indication of how much the middle class can do to boost consumption and drive economic growth.

A bleeding heart for the middle class is needed. The government must nurture the middle class as a major driver to the achievement of its economic goals by providing an environment of opportunities to this sector, more than “partnering” at dubious costs and accommodations to the already-rich. President Duterte defined his Ambisyon Natin 2040: “By 2040, the Philippines shall be a prosperous, predominantly middle class society where no one is poor; our peoples shall live long and healthy lives, be smart and innovative; and shall live in a high trust society.”

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

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