ECONOMIC ANALYSIS – Anti-poverty fund? (1st of two parts)

by GICO DAYANGHIRANG
Consistent with its promise to make economic growth more inclusive, the P-Noy government has recently announced that it is setting aside P25 billion for a war against rural poverty. The amount is to be used to fund pre-schools, health centers, water supplies, reforestation and flood mitigation projects. This antipoverty fund has been appropriately described as a drinking session.
Indeed, it is expected to be a drinking session where the fun is only until the liquor lasts. I wish this P20B rural pump priming fund is complemented by accelerated implementation of agrarian reform in order to ensure sustainability. But I’m not sure whether government understands this.
The selected projects to be undertaken in the rural areas are expected to provide employment but only temporarily. As soon as the projects are completed and the money earned by those who have worked on them is spent, it’s back to being poor. This type of pump priming works well in the urban areas but not in the rural areas.
In the urban areas, government spending for infrastructure projects provides employment which leads to an increase in personal consumption expenditure by those directly and indirectly employed in the projects. The increase in personal consumption expenditure then leads to an increase in the production of goods and services. As producers increase capacity to accommodate the increase in consumer demand, they employ more people. The cycle repeats itself leading to sustainable growth.
But this cycle of government pump priming, increase in employment and increase in consumption does not lead to more employment in the rural areas. This is because the producers of goods and services are located in the urban areas. There are no factories in the rural areas. As soon as the government projects are completed and those who’ve worked on them have spent the money it’s back to zero and a terrible hangover for the rural folks
Ironically, therefore, the pump priming that the P-Noy government is preparing for the rural areas actually benefits the urban areas more. As income and consumption increase in the rural areas because of government projects being implemented, factories in the urban areas increase production to meet the increase in consumer demand. The increase in production causes more of the unemployed in the urban areas to be employed but not those in the rural areas. Demand for agricultural products also increases but the principal beneficiaries are those who have land. Those who merely work on them receive meager wages barely enough for survival.
So how is government supposed to remedy rural poverty? Government must remind itself of the roots of rural poverty. The principal source of income in the rural areas is agriculture and, to a much lesser extent, fishery. To benefit more fully from agriculture requires owning a piece of land to grow crops and raise livestock. But past colonial expropriation of land has dispossessed many and consolidated land ownership to a few. The majority has been reduced tenancy and, as I’ve pointed above, with meager incomes barely enough for survival.
The 8th Congress of which I’m privileged to have been a member has passed the Comprehensive Agrarian Reform Law (CARL) as remedy. The intention of the law is to enable the greater number of those in the rural areas to own a piece of land on which they can plant crops and raise livestock to supply consumer demand both in the rural and urban areas.
Government pump priming in the rural areas therefore works better when a greater number of people are in control of the principal means of production which is land. But implementation of CARL has been painfully slow. P-Noy has promised to fully implement CARL by the end of his term. But why can’t it be sooner? My guess is that he is yet to fully appreciate the strategic implication of CARL in making the Philippines an economic powerhouse sooner.