my Trade Tripper column in this 18-19 June 20 2016 issue of BusinessWorld:
The cause célèbre obviously is poverty. Or to be more specific: income inequality. Unfortunately, the solution célèbre is always to redistribute income. Done by way of ever increasing taxes, then spread through welfare entitlement programs, it has nevertheless proven to be consistently ineffective one wonders at the sanity of it.
Consider: last year “marked the 50th anniversary of Lyndon Johnson’s ‘War on Poverty’, which has been the centerpiece of liberal anti-poverty policies for the past half-century. In boasting of these policies, liberals often talk about the public funds that have been spent. And there’s no question that money has been spent.”
Since it began, the US government spent “$22 trillion (measured in 2012 dollars) to Johnson’s War on Poverty. After adjustments for inflation, this represents about three times more than what was spent on all military wars since the American Revolution. Inflation-adjusted government transfers for social welfare programs soared more than tenfold between 1964 and 2013. And yet, despite all this spending, the present poverty rate is about the same as it was in 1967. The poverty rate is the highest in a generation, and deep poverty is near record highs.” All clearly illustrating “the ineffectiveness of the current federal programs.” (Patrick Garry, “The ‘Right Deal’: the Conservative Anti-Poverty Approach,” January 2015)
In the Philippines, the same scenario: the Conditional Cash Transfer program already spent around P300 billion before the further P64 billion allotted in the current national budget, and the World Bank recently approving a $450-million loan to be applied from 2016-2019. The foregoing continuing to bloat our budget from its present P3 trillion, which naturally has to be supported from taxes collected from employed Filipinos.
And yet: poverty remains above 25% (with 51% of Filipinos rating themselves “poor”). Meanwhile, the Ibon Foundation declares the Philippines as having “the worst unemployment in Asia,” those out of work up 6.1% (April 2016), underemployment at 18.4%, with around 1 million young Filipinos jobless (a rate double that of national unemployment).
The outgoing administration unfortunately has got it in the reverse: underspending on things that should be spent on (i.e., infrastructure, education, the military), while throwing money around welfare-wise.
It’s a disincentive for people to job hunt or better themselves. It induces taking the easy way out whenever a problem occurs.
Many welfare programs are also unjust: rewarding those exerting minimal intelligent effort, while ignoring those that decently strove to have a high school or college education or started their own business.
Even at the international level, to give aid without demanding commensurate effort is now recognized as dodgy.
As The Economist (“Misplaced charity,” 11 June 2016) reported: “By almost all of these measures, foreign aid is failing. It is as co-ordinated as a demolition derby. Much goes neither to poor people nor to well-run countries, and on some measures the targeting is getting worse. Donors try to reward decent regimes and punish bad ones, but their efforts are undermined by other countries and by their own impatience. It is extraordinary that so many clever, well-intentioned people have made such a mess.”
No. As The Economist rightly concluded: “aid is best spent in poor, well-governed countries.” The same goes for people.
This column recommends a shift in the way we approach poverty, emphasizing democracy, freedom, and -- most importantly -- personal accountability.
Accordingly, any poverty program implemented must have correct, objective, practical measures, and objectives.
It simply won’t do to provide assistance to those pleading poverty, claiming scarcity of work and savings, and yet possessing a flat-screen TV and indulging in videoke and selfied weekly drinking sessions.
Our anti-poverty program must demand eventual work (particularly those of employable age), cash dole-outs must have clearly defined and short cut-off periods, tax structures must not penalize married couples for having children (but at the same time not rewarding irresponsible child-bearing), parental liability for truants, greater credit facilities and tax benefits for those with a reliable work history (or business, particularly SME’s), and more tax incentives for private charitable organizations.
No across the board tax exemption should be given to any social class. Simply because no one respects anything they have no actual stake in. Reasonable tax rates, with highly simplified collection procedures (and periods) must be applied for those in the bottom rung of society.
The foregoing must be coupled with the stoppage of the inflow of illegal aliens, more effective property protection, and harsher sanctions for repeat criminal offenders.
Finally, federalism or not, the welfare program must be made the responsibility of local government units.
A corresponding proportional contribution may be made by the national government but only with the up-front budgetary layout primarily taken from the local government unit’s earnings. This would place greater emphasis for local government units to generate revenue, while encouraging fiscal restraint. Clearly, this will also mean that the bulk of the income they earn should remain in their hands.
Bottom line: our anti-poverty programs should focus on equalizing opportunities, not entitlement.