Survey of Philippine Development Research I by Ronald Yacat

Survey of Philippine Development Research I

P_S

PHILIPPINE INSTITUTESTUDIES FOR DEVELOPMENT

Board of Trustees Chairman Gerardo

P. Sicat

Members Manuel S. Alba Annand FabeUa Jaim_ C. Laya Filologo L. Pante, Jr.

The Philippine institute for Development Studies is a nonstock, nonprofit, government research institution engaged in long-term, policy-oriented research. It was established on September 26, 1977 by virtue of Presidential Decree No. 1201. Through the Institute's activities, it hoped that policy-oriented research on Philippine social and economic development can be expanded in such a manner as to more directly and systematically assist the government in planning and policy-making. PIDS publishes the output of its research program as part of its effort to promote the utilization of research findings and recommendations. The views expressed in published reports, however, do not necessarily reflect those of the Institute.

Printed in the Philippines by NEDA-APOProduction Unit

Survey of Philippine Development Research I

Foreword

One of the very fLrst research activities which PIDS initiated when it began operations in mid-1978 was the conduct of surveys of past research on development issues in the Philippines. The objectives of these surveys were to highlight and integrate the findings and recommendations of development research in the country and to assist in identifying future directions for policy-oriented research. The five papers presented in this volume are the results of the undertaking in the following areas: urbanization and spatial development, income and wealth distribution, poverty, monetary policy, and macroeconometric planning models. They were prepared by researchers who wrote from their own viewpoint. Accordingly, they are fully and solely responsible for their respective contributions. Other surveys which are presently in various stages of work and which are envisioned to be published in another volume are those in population and development, natural resource management, public finance, foreign investments, and labor and employment. We hope that, by publishing these surveys, PIDS can be of service to policy makers, planners and researchers, students of development, and, for that matter, those who have interest in Philippine socioeconomic development.

December 1980

FILOLOGO PAN'rE, JR. President PhilippineInstitute for Development Studies

Contents

Foreword Tables

v xiii

URBANIZATION

AND SPATIAL DEVELOPMENT

PHILIPPINES: A SURVEY Cayetano hi. Paderanga, Jr. I. Introduction

by Ernesto M. Pemia and

II. Overview of Philippine Urbanization and Spatial Development 5 III.

IN THE

Theories of Urban and Spatial Development Central Place Theory 15 Industrial Location Theory 16 Regional Macroeconomics 17 Backwash and Dependency Effects 17 Applications to Developing Economies 18 Theory of Urban Economic Efficiency 18 Skepticism of the Neoclassical Paradigm 21 Growth Centers and Agropolitan Development 22 National Urbanization Policies 25

viii

Contents

IV. Studies on

PhilippineUrbanization

Urban Development and Primacy Rural.to-Urban Migration 28 Urban Problems 31

26 26

National and Regional Urbanization

V. Studies on Philippine Regional Development

Spatial Dimension in Development 35 Government Relocation Schemes 36 Regional Concentration and Growth VI. The Government's Role

Macroeconomic Policies

Regional and Rural Policies Urban Policies 40 Summing Up VII.

Conclusion and Research Agenda Bibliography

THE DISTRIBUTION OF INCOME AND WEALTH: A SURVEY OF PHILIPPINE RESEARCH and Bruno Barros 1. Introduction:

Inequality and Inequity

by MaharMangahas

2. Trends in Income Inequality: Kuznets's Hypothesis 3. Macro Studies of Income Distribution 3.1 Decomposition Analysis 3.2 Income Functions 60 3.3 Simulation Models 63 4. Distributional Data

4.1 The Family Income and Expenditure Surveys 4.2 The National Demographic Surveys 68 4.3 The Population, Resources, Environment and the Philippine Future (PREPF) Surveys 69 4.4 The Philippine Social Science Council (PSSC) National Survey, 1974 72

Contents

4.5 Some Non-NaUonwide/Non-lncome 4.6 Conclusions 76 5. Poverty

Surveys

5.1 Poverty Lines 82 5.2 Poverty: Size and Trend

6. Property Income, Wealth and Inheritance 7. Government Fiscal Activity 7.1 Tax Incidence

7.2 Expenditure Incidence and Net Budget Incidence 7.3 Critique of Fiscal Incidence Research 100 8. Selected Equity.Relevant Policy Areas 8.1 Land Reform

104

8.2 Education

108

8.3 Health, Housing and Social Security

110

8.4 Equity in the 1978-1982 Development Plan 9. Conclusions Bibliography

114

119 124

AN ANALYSIS AND SYNTHESIS OF POVERTY RESEARCH IN THE PHILIPPINES Eduardo L. Roberto

by Florian A. Alburo and

I. Introduction and Context

133

II. Poverty Measures and Analyses

135

Method ofPoverty MeasureandAnalyses Poverty as Effects 145 Some Psychological Dimensions of Poverty Summary 152 III.

Directions Poverty Poverty Poverty Poverty

154

Measures 154 Analyses 155 Policy 156 Perception 156

142 146

Contents

Appendix.SomePovertyPerception Variables and Their Measurement Bibliography

158

164

PHILIPPINE MONETARY POLICY AND ASPECTS OF THE FINANCIAL MARKET: A REVIEW OF THE LITERATURE by Edita A. Tan i.

Central Banking

170

II. Development Finance and Market Segmentation III.

Securities Market

IV. Money Market V.

189 194

Interest Rate

202

The Interest Rate Stmcturc

204

Effect of Interest Rate Regulations on Credit Allocation and Saving Behavior VI. Money Supply Function VII.

Inflation

178

214

218

226

Food Price Changes and Other Causes of Inflationary Spurts 228 Long-Run Price Movement VIII.

231

Savings in the Philippines and in the Rural Sector Estimation of Savings Rate Bibliography

235

248

A REVIEW AND SYNTHESIS OF MACROECONOMETRIC MODELS OF THE PHILIPPINES 1. Introduction

by Virgilio T. Velasco

258

2. Foreign Assistance Models

259

2.1 Chenery-Strout Model 259 2.2 Shibuya-Yamashita Model 262 2.3 Fei-Paauw-Cookson Model 263

Contents

3. The World Bank Model

264

4. Narasimham-Sabater Model 4.1 Output Determination 4.2 Exports 267 4.3 Imports 268 4.4 Sectoral Prices

266 266

268

4.5 Projection Results 268 4.6 Comments on the Narasimham. Sabater Model

269

5. The UNCTADModel

269

5.1 Model Features 270 5.2 Comments on the UNCTAD Model

271

6. The Eneamaci6n Macroeconomic Model 7. The Encamaci6n Projection Model 7.1 The Basic Model 7.2 7.3 7.4 7.5

The The The The

276

278

Monetary Submodel 279 Foreign Trade Submodel 280 Production Submodel 281 Government Submodel 283

7.6 Projection Results 284 7.7 Comments on the Encamaci6n Model 284 8. The Villanueva Model

285

8.1 The Real Sector 285 8.2 The Financial Sector 286 8.3 Comments on the ViUanueva Model 287 9, The Zialcita-Alfiler Model 9.1 Real Sector

289

9.2 Monetary Sector 290 9.3 Comments on the Zialcita. Alffler Model 290 10. The BACHUE Model 11. Summary Remarks

291 295

272

xii

Contents

Appendix I. Revised Minimum Standard Model of the International Bank for Reconstruction and Development 299 Appendix II. The Villanueva Model 301 Appendix III. The Zialcita-Alfiler Model 305 Bibliography

307

Tables

Pemia-Paderanga Paper 1 2 3

Level and Tempo of Urbanization and Total, Urban, and Rural Population: Philippines, 1903-75 ........................ Index of Urban Primacy: Philippines, 1903-75 ............... Level of Urbanization, Urban Population, Percentage of National Urban Population, and Annual Growth Rate: Metropolitan Manila, 1903-75 .........................................

4 5 6

Regional Urbanization Levels and Tempos, 1903-70 ............ Regional Urbanization Levels and Tempos, 1970-75 ........... Labor Force Industrialization Levels (per cent) in 1960 and 1970

and Mean Family incomes (pesos) in 1971, by Region .......... Indicators of Regional Concentration of Manufacturing, 1956 and 1974 ........................................

Gross Regional Domestic Product (GRDP) and Value Added in Manufacturing (VAM) Per Capita, and Share of VAM in GRDP, 1974 ...........................................

6 7

7 8 9 11 12

xiv

Tables

Mangahas.Barros Paper 3.1 Example of an Income Function for Luzon, 1965 ............. 4.1 Mean Income and Income Inequality in Several National Household Surveys, 1961-75 ................................... 4.2 Comparison of the Personal Income and the FIES Income Estimates: 1957, 1961, 1965, 1971, and 1975 ............... 4.3 Comparative Degree of Coverage of Income by Household Surveys in Selected Asian Countries ...................... 4.4 PREPF-Gina Survey: Doubtful Responses and Difficulty in Answering Questionnaire Items on Income and Other Variables, 1975 ................. '.................. 4.5 PREPF Philippine Income Distribution, 1975 ......... ....... 4.6 Distribution of Income, PSSC National Survey, October 1973September 1974 .............................. ..... 4.7 Land Ownership and Land Income, PSSC National Survey, 1974...

5.1 5.2 5.3 6.1 6.2

85 88 89 93

Comparative Poverty Lines for a Family of Six ............... Comparative Poverty Lines in Five Countries ................ Comparative Estimates of Poverty Incidence in the Philippines ..... Results of Three Surveys of the Distributiqn of Wealth, 1975 ..... Distribution of Dividend Income and Acquisition Value of Stockholdings, By Gross Income, from a Sample of Individual Tax Returns, 1964 .................................. 7.1 Tax Incidence Patterns, 1961 and 1971 .................... 8.1 Proportion of Value of Production Spent on Rent or Amortizations, 1971/72 and 1974/75, for Recipients of Certificates of Land Transfer in Seven Municipalities ......................... 8.2 Morbidity Data by Poverty Status (For a Reference Period of Two Weeks), Batangas: September 1974 .... ... : ............... 8.3 Target Rates of Undemutrition in the 1978-1982 Plan ..........

Alburo-Roberto

66 67 67

71 72 73 75

95 98

107 113 117

Paper

Incidence of Poverty by Region: Philippines 1971 and Selected Indicators, 1973 .................................. 2 Philippine Poverty Standards in Pesos per Annum, 1971 ......... A.1 Average Annual Family Income of Farmers and Landless Workers in Two Barrios, 1977 .......................... A.2 Average Farm Size (in hectares) of Four Types of Farmers in Two Barrios, 1977 ................................

139 153 159 159

Tables

Tan Paper 1

Structure of the Financial System, 1974 ...................

183

2 3

Changes in Gross Financial Assets of the Private Sector, 1951.74... Annual Average Nominal and Real Interest Rates for Selected Assets, 1956.74 .................................... Regulated Rates of Interest ................ ............ List of Bonds Issued: Their Maturities and Interest Rates, 1965.70..

187

4 5 6 7 8 9 10 11 12 13 14 15

End of the Month Average Yield on Treasury Bills and Bancom Bills, 1966-70 ..................................... Comparative Money Market Interest Rates .................. Effective Loan Rates Reported by Selected Financial Institutions, 1971 ...........................................

206 207 208 210 211 213

Effective Lending Rates for Secured Loans of Five Financial Institutions, 1972 ..................................

214

FactorsResponsible for Movement in Money of Internal Origin, 1950.69 ............................... ..........

222

Consumer Price Index and Money Supply Index, 1949.78 ........ Decomposing the Consumer Price Inflation ................. Philippines: Factors Affecting Inflation ....... : ............ Comparative Estimates of Savings, 1951-60 ................. Percentage Distribution of Asset Acquisition by Source and by Income Group ..................................

227 230 234 237 241

Survey of Philippine Development Research I

Urbanization and Spatial Development in the Philippines: A Survey

Ernesto

M. Pernia and Cayetano

Hr. P_ga,

Jr.

I. INTRODUCTION In recent

years,

issues

of urbanization

and spatial

concentration

of population and economic activity have quickly gained priority in the agenda of scholars and governments. This is true in both developed and developing countries, but it is in the latter where the concem is more intense. For instance, of the 116 developing countries surveyed by the United Nations, 68 declared the spatial distribution of their population to be "highly unacceptable," 42 admitted that it was "unacceptable to some extent," and only six responded that it was "acceptable. ''1 In all likelihood, spatial and urban issues will consume a good deal of the attention and energy of researchers and policy-makers in LDCs during the remainder of this century. As of 1980, the world urban population was estimated at 1.8 billion, representing an increase of approximately 80 per cent since 1960. In the

twenty

years

it is expected

to grow

again by over 70 per

Associate and Assistant Professors of Economics, respectively, University of the Philippines. The authors wish to acknowledge the research assistance provided by Catalina de Leon and the typing done by Ana R. Aureo. 1. Based on data from the United Nations Economic and Social Council, Population Commission, Twentieth Session, Concise Report on Monitoring of Population Policies, E/CN. 9/338.22 December 1978, pp. 27-28, cited in Preston (1979).

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

cent, reaching a total of around 3.1 billion in the year 2000. (United Nations 1975). These figures indicate that the world was 41 per cent urban in 1980 and will be just about half urban by the year 2000. Of the 1.3 billion additional urban population between now and the year 2000, 80 per cent will be in the less developed regions. This would push the urban population in the less developed regions from just under a billion to roughly 2 billion, or from 30 per cent of total population in 1980 to 41 per cent in the year 2000. Cities with populations of over a million will multiply to 300 in the developing world from only less than 100 at present. The bulk of total urban growth (about two-thirds) in the next twenty years will fall upon Asia, mainly because of the two vast countries, India and China. Urban population in the ASEAN region will expand by 127 per cent (total population by 60 per cent) from about 69 to 157 million although the level of urbanization by the year 2000 will rise to only 35.8 per cent from 25.3 per cent in 1980 (below the developing world average in both years). The scale of urban growth in the coming years is thus phenomenal, its dimensions multiple, many of them still improperly understood. In all probability, a substantial part of this urban growth will continue to be added to the principal city and to one or two secondary cities (at the most) of the developing country. The concentration of population and economic activity would become more pronounced and the problems associated with it could become more serious. It is, therefore, important to identify and understand the real issues so that the proper approach to them can be taken. This paper provides a survey of urbanization and spatial concentration of population and economic activity in the Philippines. The objective is to put spatial and urban issues in perspective so that an understanding of them may cumulate through research. An overview of the trends and patterns of urbanization is first presented. To put these trends and patterns in context, the principal urban and spatial theories are sketched. This is followed by a review of studies on Philippine urbanization and regional development. The government's role in terms of explicit and implicit spatial policies is then discussed. The final section is a conclusion with an agenda for research.

Urbanization andSpatialDevelopment

II. OVERVIEWOF PHILIPPINEURBANIZATIONAND SPATIALDEVELOPMENT Philippine urbanization seems to have proceeded slowly, 2 but, as in most developing countries in Asia, it has been marked nonetheless by increasing primacy. These trends can be readily gleaned from Tables I-3. The sluggishness in urbanization is evident in Table 1. where the tempo (or urban-rural growth difference) had been slackening steadily from 3.4 per cent during the 1918-39 interval to 0.45 per cent during the most recent intercensal period, 1970-75. Over the five-year period 1970-75, the level of national urbanization scarcely rose (or gained merely 1.6 percentage points if the 1970 urban definition is used for both 1970 and 1975; see Table 1, footnote c). Against this background, urban concentration had been increasing unremittingly as reflected in the index of primacy (Table 2), which shows the ratio of Metropolitan Manila's population to the combined populations of the next three largest cities (Cebu, Iloilo, and Bacolod). Urban concentration is likewise illustrated by the metropolitan share of national urban population, which expanded from 26 per cent in 1903 to ,35 per cent in 1975 (Table 3). The regional pattern of urbanization can be seen in Table 4 for the period 1903-70 and in Table 5 for the 1970-75 interval. For analytical convenience, the country's regions are classified into four groups: metropolitan, more urbanized, less urbanized, and rural. This classification roughly reflects the relative positions (past and current) of the regions. The level of urbanization that divides the metropolitan and more urbanized regions, on the one hand, and the less urbanized and rural regions, on the other, is the computed national level in 1960 and 1970 excluding Metropolitan Manila. 3 The data in Tables 4 and 5 lead to some noteworthy observations. First, the metropolitan region, which was in 1903 already at a much higher level of urbanization (77 per cent) than all other regions, urbanized very rapidly and completed the process by 1970. Thus, Manila has been an urban "island" in a predominantly rural "sea," so to speak. Second, the more urbanized regions, comprising Central2. Relative to the historical experience of Western countries as well as the contemporary experience of Southeast and East Asian countries (see Perrtia 1976a for an elaboration). 3. When Metro Manila is included in the computation, the national average becomestoo high andvirtuallyall regionsfall belowthe average,

Table 1. Level and Tempo of Urbanization Urbanization Year

Level (percentage) a

and Total, Urban, and Rural Population: Total population

TempÂ°b

Number (thousands)

Percentage change

Philippines,

Urban population Number (thousands]

Percentage change

1903-75

__ Rural population

Number (thousands)

Percentage change

_o 3

1903 1918

13.1 12.6

n.a. -0.32

7,635.4 10,314.3

n.a. 1.91

1,000.2 1,294.2

n.a. 1.64

6,635.2 9,020.1

n.a. 1.96

t'%

1939 1948 1960 1970 1975 c

21.6 27.0 29.8 32.9 33.4

3_36 3.09 1.28 1.46 0.45

16,000.3 19,234.2 27.087.7 36,684.5 42,070.7

2.22 1.91 3.06 3.01 2.78

3,450.7 5,183.7 8,072.5 12,068.8 14,046.5

5.02 4.25 3.98 4.02 3.08

12,549.6 14,050.5 19,015.2 24,615.7 28.024.2

1.66 1.16 2.70 2.56 2.63

E" o ._ ._ _g_ 0Â˘l

a- Proportion which is urban. b. Url_m-rural growthdifference. c. Uses the 1970 urban def'mition; for all other years the 1963 urban def'mition is used. If the 1970 dei'mition is used for 1970, the level of urbanization would be 31.8 per cent instead of 32.9 per cent. See Annex for deirmitions. n.a. - not applicable. Source: Bureau of the Census and Statistics, census data from various years.

"g"

Urbanization and Spatial Development

Table 2. Index of Urban Primacy: Philippines, 1903-75 Area Small metropolitan Large metropolitan

area area

1903

1939

1960

1970

1975

4.03 a

3.57 a

4.27 4.91

4.26 5.31

4.43 5.76

Note: The small metropolitan area of Manila comprises the four chattered cities of Manta, Caloocan, Pasay, and Que.zon and the four municipalities of Makati, Mandaluyong_ Navotas, and San Juan. The large metropolitan area includes the small metropolitan area as well as nine other municipalities: MaJabon, Matikina, Las P_as, Para_aque, Pateros, Pasig, Taguig, Meycauayan, and Valenzuela_ The total land area of the large metropolitan area is about 610.8 square kilometers: The next three latggst cities used in the computation of the index ate Cebu, Uoilo and Bacolod. a. Much of the large metropolitan areas was still rural at this time.

Table 3. Level of Urbanization, Urban Population, Percentage of National Urban Population, and Annual Growth Rate: Metropolitan Manila, 1903-75

Year

Level (percentage}

1903 1918 1939 1948 1960 1970 1975

76.9 87.1 90.3 97.1 98.1 100.0 100.0

Urban population (thousands] 256.7 371.1 903.3 1,526.1 2,426.5 3,952.6 4,970.0

Percentage of national urban population

Annual rate of growth

25.7 28.7 26.2 29.4 30.0 32.8 35.4

n.a_ 2.36 4.55 5.51 4.17 4.90 4.69

Note: All data in this table refer to the larg_ metropolitan area of Manila (see note to Table 2). n.a. - not applicable. Source: Bureau of the Census and Statistics, census data from various years.

Southern Luzon and Western-Central Visayas, were in 1903 at a level (10 per cent) lower than that of the lessurbanizedgroup but urbanized rapidly, particularly after 1939, reaching 30 per cent in 1970. Third, the less urbanized regions of llocos, Bicol, and Eastern Visayas urbanized at a very slow pace, gaining only eight percentage points (12 to 20 per cent) during the entire period from 1903 to 1970. This group of regions is characterized by consistently severe net outmigration and incomes even lower than those in the rural regions. Fourth, the rural regions of Cagayan and Mindanao were (by deft-

Ernesto M. Pernia & CayetanoW. PaderangaJr. Table 4. RegionalUrbanizationLevelsand Tempos, 1903-70 On per cent) Level

Region

Tempo

1903 1939 1960

1970

1903-39

1939-60

1960-70

Metropolitan Manila

76.9

90.3

98.1 100.0

3.0

8.3

4.9

More urbanized

10.1

17.5

26.7

30.5

1.9

2.6

1.9

11.1 10.1 13.3 5.7

16.5 18.0 21.5 13.7

26.5 26.8 30.5 22.2

31.8 32.8 27.6 28.5

1.3 1.9 1.6 2.8

2.9 2.5 2.2 2.8

2.6 2.9 -1.4 3.3

12.5

16.5

19.8

20.5

0.9

1.0

0.4

13.8 14.3 9.5

15.9 18.0 15.4

17.6 21.9 18.9

20.6 21.8 19.0

0.5 0.7 1.6

0.6 1.1 1.2

1.9 -0.1 0.1

5.8

16.2

18.6

18.3

3.4

0.8

-0.2

3.4 3.8 12.5 1.6

11.5 21.7 15.2 18.1

14.1 16.8 20.2 20.9

14.3 16.2 18.7 21.5

3.8 5.7 0.6 7.8

1.2 -1.6 1.7 0.9

0.1 -0.4 -1.1 0.4

(excluding Metropolitan Manila)

10.2

17.0

22.9

24.8

1.7

1.8

1.0

Philippines

13.1

21.6

29.8

32.9

1.7

2.1

1.5

Central Luzon Southern Luzon Western Visayas Central Visayas Less urbanized Ilocos Bicol Eastern Visayas Rural Cagayan Western Mindanao Northern Mindanao Southern Mindanao Philippines

Note: Basedon the 1963 urbandef'mition.(See Annex.) Source: NationalCensusand StatisticsOffice,Censuson Population,variousyears.

nition) the least urban in 1903 (6 per cent), urbanized most rapidly up to 1939, but diminished in speed thereafter, remaining still the least urban region (18 per cent) in 1970. 4 Fifth, the national trend looks very different when the metropolitan region is excluded, i.e., the levels of urbanization are substantially lower and the tempos slower. Finally, the majority of the regions in the less urbanized and rural categories experienced a fallback in urbanization levels 4. Before 1939 large numbers of people moved to the rural or frontier regions, causing a more rapid pace of urbanization there. Later the population movements slowed down and shifted to the 'metropolitan and more urbanized regions.

Urbanizationand Spatial Development

Table 5. Regional Urbanization Leveb and Tempos, 1970-75 (][al_roeat) Level Region

Metropolitan Manila

1970

1975

Tempo 1970-75

100.0

4,6

29.0

30.5

1.5

30.2 30.6 26.7 27.9

33.9 31.8 26.7 28.9

3.5 1.1 0.0 1.0

19.3

19.5

0.2

19.4 19.2 19.4

21.1 18.4 18.7

2.1 - 1.0 -0.9

18.9

19.4

0.5

Cagayan Western Mindanao Northern Mindanao Southern Mindanao Central Mindanao

14.I 15.8 20.9 26.6 15.6

13.4 14.9 23.2 26.7 15.5

- 1.4 - 1.3 2.8 O.1 -0.2

Philippines (excluding Metropolitan Manila)

23.6

24.5

1.0

Philippines

31.8

33.4

1.5

More urbanized Central Luzon Southern Luzon Western Visayas Central Visayas Less urbanized Ilocos Bicol Eastern Visayas Rural

Note: Based on the 1970 definition (see Annex); thus the differencesfrom the 1970 f_ures of Table4. Source: NationalCensusand StatisticsOffice, 1970 and 1975 censuses.

(or negative urbanization tempos) during 1970-75 while none more urbanized regions had a similar experience (Table 5).

of the

In general, all regions outside Metro Manila evinced decelerating urbanization in the 1960-70 and 1970-75 periods, and this trend was especially pronounced for the less urbanized and rural regions, which practically stagnated. In 1975, these regions were roughly five percentage points below the national average (excluding the metropolitan area) and more than 10 points below the more urbanized level. The divergence between the less urbanized and rural regions on the one hand and the more urbanized regions on the other has be-

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

come very significant indeed. To illustrate, for instance, it took approximately 31 years for the country to transform itself from 19 to 30 per cent urban. The regional pattern of urbanization reflects the differential rates of natural increase among regions and between rural and urban sectors within regions, as well as differences in the volume, composi,tion, and type of migration within and between regions. Underlying these differentials are the disparities in socioeconomic conditions and development across regions, reinforced by both the explicit and implicit spatial policies of the government (Pemia 1976b, Renaud 1979). As expected, interregional disparities in urbanization are associated with differences in industrialization and income. Table 6 shows that in 1960 about two-fifths of the labor force in the more urbanized regions were employed in the industrial sector compared to less than one-third in the less urbanized regions. In 1970, the disparity widened to 24 percentage points as more than one-half (56 per cent) of the labor force was in industry in the more urbanized regions and only one-third in the less urbanized group. On the other hand, there was a 9-point difference between the less urbanized and rural regions in 1960, which narrowed to merely 4 percentage points in 1970. With the singular case of Greater Manila excluded, the correlation coefficient (r) between levels of urbanization and industrialization for the eleven regions was 0.87 for 1960 and 0.93 for 1970. Moreover, a positive, though weak (r = 0.25), relationship is found between tempos of urbanization and industrialization during the interval s A close positive association between regional urbanization and family income levels is also apparent (Table 6). The correlation coefficient is 0.78 with Greater Manila excluded, and goes up to 0.97 with the inclusion of Greater Manila. It is interesting to note that the rural regions generally had higher incomes compared to the less urbanized regions. Although the rural regions were backward in terms of industrialization, they seemed to be better off with respect to income because of their agricultural endowments. For this reason, whereas the less urbanized regions suffered severe out-migration, as

5. Analogous to the urbanization tempo, industrialization tempo is the difference between the growth rates of nonprimary and primary employed labor force.

Urbanizationand SpatialDevelopment

Table 6. Labor Force Industrialization Levels (per ce_t) in 1960 and 1970 and Mean Family Incomes (pesos) in 1971, by Region 1960 Industrializationa

Region

1970 Industri. alizationa

Mean family income

Greater Manilab

98.9

98.6

7,785

More urban ized

40.7

55.8

3_943

41.6 52.5 30.6 33.7

60.2 67.5 41.7 41.5

4,127 4,332 3,206 2,548 c

27.1

32.2

2t754

19.9 31.6 28.6

31.7 36.4 27.9

3,299 2,785 2,548 c

18.2

28.3

3t217

13.6 18.9 22.9 15.4

22.4 24.9 34.5 27.6

2,390 3,062 d 3,062 d 3,577

34.1

45.4

3,736

Central Luzon Southern Luzon Western Visayas Central Visayas Less urbanized Ilocos Bicol Eastern Visayas Rural Cagayan Western Mindanao Northern Mindanao Southern Mindanao Philippines

a. Industrializationof employedworkersaged10 andover,Le.,proportionin nonprimary activities. b. A smallerversion of MetropolitanManilacomprisingthe cities of Manila,Caloocan, Pasay,Quezon,and the municipalitiesof Makati,Mandaluyong,Navotas,and SanJuan. c. CentralandEasternVisuyasweretaken as one regionin collectiongincome data. d. Ditto forWesternandNorthernMindanao. Source: National Census and Statistics Office, Cents on Population; and "Income and Expendituresin the Philippines: 1971," an economic situationreport(Manila:1960, 1970; and1972).

noted above, the and comparatively

rural little

regions experienced out-migration.

significant

in-migration

The link between regional urbanization (or spatial population distribution) and the regional pattern of economic activity is further illustrated by data on manufacturing establishments, employment, and value added in 1956 and 1974 (Table 7). Over this long interval, the relative shares in economic activity remained roughly stable,

Table 7. Indicatorsof Regional Concentrationof Manufacturing,1956 and 1974 Percentage share of manufacturing establishments

Metro Manila and Southern Luzon a

Percentage share of manufacturing employment

1956

1974

1956

70.76

67.53

64.45

1974

67.47

_o Percentage share of manufacturing real value added 1956

64.45

1974

r_q

-7

61.96

8.40

8.82

5.95

8.00

8.86

8.44

Â˘D 3 _"

Visayas

4.47

3.69

10.35

6.56

15.12

14.20

Central Visayas

5.89

6.01

5.38

4.36

4.10

5.28

1.85

1.69

2.04

1.25

0.82

1.09 1.31

2.00 0.39

1.33 0.86

0.63 0.29

0.60 0.54

0.36 0.50

._ -_ e_

0.71 t .80 0.55 1.31 2+51

1.72 2.39 0.98 0.39 3.34

2.77 0.86 1.33 4.27

0.t4 1.89 0.34 0.73 0.99

0.45 2.08 0.39 1.87 3.65

4.20 0.92 0.61 2.31

More urbanized Central Luzon Western

Less urbanized llocos BicoL Eastern

Visayas

Rural Cagayan Northern Mindanao Western Mindanao Eastern Mindanao Southern Mindanao Philippines

(100.0%)

1,833

2,843

150,878

454,200

2,329.6 b

10,040.8

a. Data ate not available separately for Melxopolitan, Manila and Southern LuzorL b. in Million pesos at constant 1972 prices. Source: Moran (1978, Table 2.6b, p. 47) based on: BCS, Annual Survey of Manufactures, 1956; NCSO, Annual Survey of Establishments, and NEDA, Philippine Statistical Yearbook, 1977.

po -i O

._"

1974;

Urbanizationand SpatialDevelopment

with the combined regions of Metro Manila and Southern Luzon claiming the lion's share and the more urbanized group coming a far second. The same pattern is exemplified by Table 8 which exhibits 1974 data on gross regional domestic product (GRDP) and value added in manufacturing (VAM) per capita, as well as the share of VAM in GRDP. For example, Metro Manila's GRDP per capita Â˘P6,500) is easily more than double the highest in the more urbanized group (Western Visayas P2,677) which, in turn, is over twice as much as the lowest GRDP per capita (Bicol with P l, 187). Broadly speaking, the spatial concentration of population and economic activity may be viewed in terms of two major disparities:

Table 8. Gross Regional Domestic Product (GRDP) and Value Added in Manufacturing (VAM) Per Capita, and Share of VAM in GRDP, 1974 GRDPper capita (pesos)

VAMper capita (pesos)

Share of VAM in GRDP (percentage}

Metro Manila

6,600

2,475

37.6

More urbanized Central Luzon Southern Luzon Western Visayas Central Visayas

1,780 2,384 2,677 2,016

509 620 678 366

29.1 25.6 25.4 17.9

Leas urbanized Ilocos Bicol Eastern Visayas

1,431 1,187 1,304

152 165 121

10.6 13.8 9.2

Rural Cagayan Northern Mmdanao Western Mindanao Eastern Mindanao Southern Mindanao

1,325 1,775 1,472 1,426 2,755

78 249 116 196 403

5.9 14.1 7.9 13.5 14.5

Philippines

2,418

492

24.8

Source: Moran(1978, Appendices2-4, pp. 144-46) basedon NEDA,PhilippineStatistical Yearbook, 1977.

ErnestoM. Pernia& CayetanoW.Paderanga Jr.

(a) that between Metro Manila and the rest of the country, and (b) that between the more urbanized regions on the one hand and the less urbanized and rural regions on the other. It may also be pointed out that the less urbanized regions have been persistently the most disadvantaged. In this connection, it should be stressed that the issue is not one of balanced development for its own sake (or symmetry). The central question is: what pattern of urbanization and spatial development is socially desirable and more efficient in reducing, if not eliminating, poverty particularly in certain regions of the economy? From all indications it is apparent that the spatial structure of development in the country has not been conducive to the promotion of equitable social well-being. Spatial and urban imbalances would persist for some time to come and the resultant difficulties could attain serious proportions unless the underlying causal mechanisms are properly understood and appropriate measures are implemented. Furthermore, policies and programs addressed to the so-called "urbanization problem" entail vast amounts of scarce resources. These huge outlays will amount to nothing in the long run unless a sound and systematic national urbanization policy evolves on the basis of an intelligent grasp of spatial and urban issues.

III. THEORIESOF URBAN AND SPATIALDEVELOPMENT The literature on urban and regional development stems from four main theoretical sources. The first one is the effort by geographers and such other social scientists as economists to explain the presence of population and industrial agglomeration in the midst of a geographic-economic plain. This literature is identified largely with theories of, among others, the hierarchical systems of cities, the size distribution of cities, and the rank size rule for cities. The second source is the attempt to explain or predict the location of economic activity. A major characteristic of this class of studies is what has now come to be known as the neoclassical approach, which uses the concepts of profit maximization and production functions. The third is the application of the concepts of economic base and its attendant multiplier (be it implicit or explicit). Homer Hoyt, as early as 1939, started working with this concept. While this

Urbanization andSpatialDevelopment

approach has oftentimes been criticized, it remains in use to the present. The fourth source is the critical review of the prevailing literature in economic development. This is primarily an offshoot of the second and third lines of theoretical development. Examples are the backwash and spread effects and polarization and trickling down effects propounded by Myrdal (1957) and Hirschman (1958); and the dependency theories of Prebiseh (1950) and Frank (1972). The concept of growth poles emanated from a combined application of the last three traditions. Under this strategy a deliberate imbalance is effected in the initial stage when the government develops a rival pole to the primate city, perhaps to the detriment of areas that are even more backward. This initial push is expected to stimulate the growth of areas surrounding the pole at later stages. The complete program envisions a balanced development for all areas of the country once the initial stages have been passed. Central Place Theory The first tradition which emanated from Von Thiinen's (1826) analysis is known as central place theory, first substantially developed by Christaller (1933) and then extended by L_Ssch(1944)into a theory of spatial economics. In recent years, research in this direction has been undertaken primarily by economic geographers like Beckmann (1958) and Berry (1961) to articulate hypotheses regarding the hierarchical systems of cities, the primacy of some cities, and the size distribution of cities, among others. Under this theory the city is present primarily to perform essential services for a given area. Thus, the surrounding land supports the urban center, and the size of the area served by the city depends on the minimum volume needed to support an industry producing a particular service. The city in this sense is called a "central place." Because of differences in volume requirements, some central places will serve smaller areas, others larger ones. These market areas may overlap and some cities will be a coincidence of several large and small central places. Larger centers will cater to small towns for some services which require wide areas of coverage. This theory offers an explanation for a hierarchical system of different size cities. Among the many empirical observations with which this theory is consistent, the rank

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

size rule for cities in the developed countries is prominent. 0 This general concept has implications on questions of "optimal" city size. Industrial Location

Theory

The most widely known of the early writings on industrial location is the classic article by Von Thiinen (1826) which hypothesizes a fixed point in space around which land of homogeneous physical characteristics extends. Competitive industries locate on this land by bidding for the available space. A pattern of land use then emerges which strikingly corresponds with the structure of present-day cities. 7 Industrial location theory, which was first formulated in a comprehensive way by Alfred Weber (1929), uses the partial equilibrium least cost theory of industrial location. This essentially microeconomic formulation has been elaborated in recent years primarily by Isard (1956), who shows the conventional neoclassical theory of the firm as a special case where transport costs are zero and all inputs and outputs are perfectly divisible and mobile. Further, Isard treats industrial location and trade (especially international trade) as being complementary. According to him, both are simultaneously determined by the same forces. Classical location theory, as generally understood, is an extension of the profit maximization principle in economics. The most common interpretation for most of the theory's history' is the minimization of transport costs. It is assumed that the sources of matedais, the location, and size of markets, as well as the relevant transport rates, are known. The only factor allowed to vary under these assumptions is transport cost. In a static setting, therefore, the solution is straightforward. The best location for a factory is the one that minimizes the total cost of transport for the firm. Several complications may be introduced. First, all the other factors may not be constant over the duration of the fixed capital of the firm, e.g., the location and size of the market may change. 6. Where, if Pr is the population size of the city with rank r, P1 the population of the largest city, we have:

p, ffiel/rq and q is a constant that can be deduced empirically. See Zipf (1948)for an elaboration. 7. For an analytical explanation, see Muth (_1961).

Urbanization andSpatialDevelopment

What become relevant ate the discounted cash flows of the different cost and revenue components. Second, weight and/or volume gains and losses may be introduced during specific points of manufacturing or distribution. Thus, regional economists classify industries into: (a) materials-oriented, (b) market-oriented, and (c) footloose (Hoover 1971). This taxonomy follows the general approach of minimizing transport costs. Finally, the emphasis may be on other terms in the profit function of the firms and in the utility function of consumers within a single market area. The models of spatial competition (HoteUing 1952) and the approaches of the new (though now conventional) urban economics (Alonso 1964, Muth 1969)are of this general type. The use of the microeconomic theory of the firm and its extension to special cases characterize these approaches to the growth of regions. An appropriate generalization is an important part of the integrated approach to urbanization and regional growth in a developing economy. Regional Macroeco nomics The third type of analysis concentrates on the interrelationships between regions. Geographical factors are only implicit in these models and distance variables do not appear. These factors are brought in by formulating separate macroeconomic systems or regions which interact with each other through imports and exports. The geographic character of the problem is shown by treating these systems as separate points in space. This approach is probably most accurately characterized as regional macroeconomics. As such, the relationships formulated are not too different from those of the word models which link different national macroeconomic models. Economic base models are the most common manifestation of this tradition. The most important growth stimulus are exports to other regions, i.e., a particular region grows and develops as its exports increase. Backwash and Dependency

Effects

Finally, the skeptical view of the conventional literature in economic development has led to a conceptualization of the debilitating effects on the local economy of being close (in distance or trade relations) to a larger market. A counterargument is found in the positive stimuh to growth from trade with richer neighbors. However, concrete functional relationships which would allow for empirical

ErnestoM. Pernia& CayetanoW.Paderanga j r.

estimates have not yet resulted from this research. This literature has served more as a qualifying theme rather than as the main thrust of regional development programs. We will now describe the works of some of the most prominent writers in the literature. Applications

to Developing Economies

The diverse threads of the foregoing urban and regional development theories have recently been applied to developing countries. Three main groups of researchers may be mentioned. The first are the practitioners in the developed countries who have been trying to modify the mainstreams theories (largely characterized as "neoclassical") for application to situations in developing countries. William Alonso (Harvard University, formerly of the University of California at Berkeley) and Harry W. Richardson (University of Southern California) are the principal exponents in this group. Not far behind, two groups have been set up in international organizations to study the spatial character and impact of economic development. The Urban and Regional Economics group of the World Bank and the United Nations Centre for Regional Development have been exerting substantial efforts in examining issues related to urban and regional growth in developing countries. Theory of Urban Economic

Efficiency

Theorists from developed countries start from critiques of either specific points or all of classical theory. These critiques then lead to modified theories to be used for developing countries. Alonso begins in a series of papers (1968, 1970a, 1970b) with a critical review of the literature on optimum city size and proceeds to consolidate the studies on the primacy of the capital city with those on regional economic development. Dissatisfied with the results of the theories of city size which for the most part depend on minimization of the costs of public services, he tries to incorporate in these theories the main threads of location theory. Essentially, he stresses the main thesis of industrial location theorists that firms (and industries) will locate where the profit is maximized. However, the early location theorists incorporated only partially the spatial dimension by introducing the minimization of transport costs. 8 In cases where trans8. Formally, the models minimize total costs (or in some cases maximize total profit). However, except for the transport aspect, these neoclassical approaches are still basically spatially dimensionless in the sense that price and

Urbanization andSpatialDevelopment

portation cost is not crucial, which are quite frequent, mainstream location theory still predicts poorly. More specifically, conclusions reached by conventional theory are reasonable only in developed countries where the assumption of uniform production costs and price per unit is the norm since their conditions more closely approximate those assumed by perfect competition. The theory does not adequately describe actual conditions otherwise. Alonso (1970b) generalizes the location model to account for the situation in developing countries by explicitly recognizing that production cost per unit and output per capita, as well as the costs of public services (as incorporated in the social marginal product and cost curves), are functions of city size. His model of city size is shown in Figure 1. Here labor is excluded from the construction of the cost curve. Beyond a certain population level, production costs net of labor rise. The average product (AP) is shown rising monotonically partly to simplify the argument and partly because this is suggested by most empirical evidence. The general formulation sheds light on the confusion about the optimum city size and the primacy of capital cities in developing countries. The point of minimum per capita cost, Pa, is uninteresting (except in the rare case where the output per capita also reaches a maximum and the difference between output and. cost per person is maximized at that exact point). Yet, this is probably the implicit ideal of those who complain that capital cities are "too big." The socially optimal point occurs far to the fight of minimum cost per person - at Pc where marginal cost is equal to marginal product assuming thatthe social objective is to maximize net social benefit. Of course, this point may or may not exist: marginal product may remain higher than marginal cost. The analysis shows that decentralized decision-making may lead to a suboptimal rather than a supraoptimal point. Individuals left to decide by themselves will prefer a city up to the size Pt, where the difference between the value of output per capita and the cost per person is maximized. Alonso concludes that the question of optimum city size is much more complex than the determination of minimum costs (of either production or public services or both). The extension of this analysis shows that optimum sizes of the capital and subordinate cities are best determined with reference to changes in productivity and cost total cost per unit (except for transport) are identicalacrossspace.Thus,profit maximization and/or cost minimization reduce to the problem of minimizing _anspo_costs.

Ernesto M. Pernia & Cayetano W. Paderanga j r.

Figure 1. Urban Cost and Product

Source:(Alonso1970b, p. 7).

Curves with City Size

Pa Pb Population

Urbanization andSpatialDevelopment

per person as a function of the concentration of population and other resources. That is to say, questions of urban concentration and resource transfers acrossspace should be analyzed in relation to the role of urban and rural sectors, as well as of the different regions, in the process of economic development, as dictated by current conditions of productivity and costs. Extending his analysis further, Alonso focuses on the need to revise the assumptions of "conventional" industrial location theory to suit the conditions-of developing countries. Two of the major differences between developing and developed countries are the utter lack of relationships between different locations, and the presence of uncertainty and dearth of information in the former. The absence of connections among the different regions of the country increases the costs of production by a big factor because of the inability of companies to spread the risks. For example, companies in distant locations are forced to carry replacement parts for their machinery because otherwise a breakdown would take weeks or months to repair. In a city the inventory kept by common suppliers for several similar firms would be a smaller percentage of their combined volume because they would in effect be spreading the risks among themselves. This problem is minimized in developed countries because of a much more efficient network of communications. In cases where the materials are imported, the attraction of the capital city is all the more heightened. Operating in locations distant from the urban center is full of uncertainties in d_eveloping countries. For instance, labor wages may be low but the skills required for operation may be absent. Supervisory and managerial skills may also have to be imported. It is often very difficult to gather information on points of uncertainty in distant locations. On balance, these uncertainties tend to outweigh whatever advantages distant places may offer, so that one observes the persistent trend of locating in the capital city of the country. Skepticism

of the Neoclassical Paradigm

Richardson (1979) is even more critical of classical location theory. He points out two aspects that make conventional theory inadequate for developing countries. The first is its heavy emphasis on the assumption of marginal adjustments for firms. In developing countries locational moves are almost invariably long-distance jumps on account of market segmentations. The combination of locational

ErnestoM. Pernia& CayetanoW.Paderanga jr.

inertia and discontinuities in spatial cost and revenue functions causes decision-makers to behave in a manner inconsistent with the profit-maximizing location model. The second defect of the neoclassical framework, in Richardson's view, is the assumption of determinacy in locational decisions. He suggests that the most striking characteristic of industrial location patterns in developing countries is the overwhelming concentration of firms in the primate city and its metropolitan area. Agglomeration interacts with uncertainty. Specifically, concentration serves to spread the risks that are so rampant and endemic in developing countries. New firms and industries, therefore, tend to flock to the capital city. This process becomes cumulative and serves to draw even more resources from the rest of the economy. The preceding criticism probably explains why the "naive" neoclassical model which posits an inverse relationship between the marginal products of labor and capital, and predicts flows of these factors in opposite directions until factor flows are equilibrated, does not work for developing economies. Richardson proposes using instead , the "cumulative causation" model of Myrdal (1957) as the framework for analysis. Regional models can be made to incorporate space more explicitly. Population and economic activity are distributed, reflecting the net impact of the opposing forces of concentration and dispersion. Agglomeration economies are the main force for concentration. Friction-of-space costs promote dispersion. Variations in regional growth rates over space and time are then explained by changes in the relative strengths of agglomeration and dispersion. The trick in economic and regional development will be to manage these opposing forces for the promotion of national goals. Growth Centers and Agropolitan

Development

Much of the recent literature on regional development comes from the United Nations Centre for Regional Development (UNCRD). Experimenting with regional models used in developed countries, people identified with UNCRD have been discussing the concepts of agropolitan development and growth centers. Friedmann (1973, 1974) leads in the effort to extend the growth pole concept to the dualistic situation of most developing economies. According to him and Douglass (1975, p. 334), "development must be fitted to ecological constraints; priority attention (in agrarian economies) must be given to rural development; and planning for

Urbanization andSpatialDevelopment

rural development must be decentralized, participatory, and deeply immersed in the particulars of local settings." This means the recognition of agriculture as a leading sector of the economy. Operationally, this strategy envisions the conscious development of agropolitan districts - areas of "certain size/density where services and conveniences that are appropriate at this scale and adjusted to prevailing levels of cultural economic development" are present. These districts are to be treated as "'single, integrated and selfgoverning unit(s). '" Each unit is to have sufficient resources and autonomy to carry out its own development. As conceptualized, agropolitan districts would serve as countermagnets to the primate city for the attraction of population and other resources. Lo and Salih (1976, 1978) examine the effects of past history on the urbanization pattern of the country. Dissatisfied with the concept of "growth poles" previously applied and following the general thrust of Friedmann's analysis, they extend the Alonso model of city size and economic efficiency to the formulation of a strategy for agropolitan development and growth centers. Amplifying Alonso's model in Figure 2, they identify the various stages of city size from minimum (Pa) to the maximum (P_). Spontaneous growth of cities takes place from Po to P;. Using this analysis, they single out three policy dimensions of urban and regional planning: (a) (b) (c)

the agropolitan problem: below Po to the threshold the metropolitan problem: beyond Pb, the growth pole problem: intermediate-size cities to

how to induce the growth of towns of self-sustained growth, how to manage the growth of cities how to program the development of prevent the growth of primate cities.

To treat the decentralization problem, Lo and Salih derive the "urban efficiency curve" by subtracting the average cost (AC) curve from the average product (AP) curve in Alonso's model. The primate city, A, may no longer be at the maximum of the return-to-labor-perperson curve. However, if the intermediate cities, B and C, are at a lower point on the efficiency curve, decentralized decision-making will still lead to increasing concentration at the primate city. In order to effect dispersion, the government would have to raise the perceived return to labor to a level corresponding to A*. Lo and Salih highlight the need to coordinate rural, urban, and regional development policies within a unified program. For

Ernesto M. Pernia& Cayetano W. Paderangaj r.

Figure 2. Economics of Urban Size and Comparative Efficiency $

(a)

The AlonsO

model /MC

.¢

j/¢ I/,, MP

,,/i /

, /

jSS

. •0

•,'/ I

,,-

/ ,

1'! i

[

j.i"_f

.-f

i,,AP/

S S_

S J

4--"

S_'SS

'1 Pd

1 Pa

_ Pc

City size (population)

SpontaneOUS growth

I.t

Policy

Growth pole problem

Agropolitan problem

Metropolitan (primacy) problem

Efficiency

e(A)

_ .......

_-__

C B AI

(b)

Comparative

Source: Lo and Salih (1976, p. 221).

• -..city.,..

A urban

efficiency

Z% (population)

Urbanization andSpatialDevelopment

example, in planning rural development there should be no neglect of the urban function and the role of lower-order centers providing production, processing, and marketing services. They emphasize also the need to integrate the growth pole and other approaches in a broader regional policy framework. National Urbanization Policies One of the papers coming out of the Urban and Regional Economics group of the World Bank is that by Renaud (1979) which is an analysis of urbanization trends and policies in developing countries. Rather than being an application or a proposal of a particular model, it is a comprehensive review of the literature on urbanization and spatial development, culminating in a national urbanization strategy for developing countries. Renaud's main thesis is that all countries, especially developing ones, should have a national urbanization strategy as an outcome of careful national debate. In his view, the main determinants of urbanization and population concentration in urban areas are: (a) the development and structure of the agricultural sector; (b) the growth and location pattern of industries, as well as the location decisions affecting the distribution of manufacturing and service activities among cities; and (c) the condition of the transportation network. Further, there are unintended spatial biases of national economic development policies. The biases are usually generated by: (a) trade policies protecting the manufacturing sector, (b) credit allocation, (c) public investment, (d) subsidy or pricing policies towards economic activities in a few cities and regions, and (e) the management practices of the government and its regulation of economic activities. The direct transplant of theories developed in advanced countries, like the growth pole theory, may be both inappropriate and ineffectâ&#x20AC;˘ ive as guides for urbanization policies. Among the conditions implicitly assumed by these theories are: (a) the presence of substantial multiplier effects of initial investments in selected growth poles, (b) the similarity of analytical results for wholesale and retail activities and manufacturing, and (c) the trickling down of economic effects from major urban centers to the smallest town. The first assumption takes for granted a high closure of the economic region around the growth pole, a condition that is far from fulfilled in developing countries. Secondly, empirical research has shown that the behavior of wholesale and retail f'mns may be very different from that of

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

manufacturing establishments. Thirdly, the interrelation between the growth pole city and its hinterland may be relatively weak or totally nonexistent. Yet, urban and regional development policies have frequently been premised on these assumptions. The result has been the persistence of conditions that policymakers have sought to correct and the almost total inability of the government to influence the spatial trends in economic activity. Renaud sees as the major challenge to national governments the rectification of four major types of imbalances: (a) rural-urban imbalance, (b) regional imbalance, (c) imbalances between cities of different sizes, and (d) imbalances between social groups within cities. Consequently, the three major elements of a national urbanization strategy would be: (a) the correction of unintended and unwanted spatial effects of national economic policies, (b) the reduction of sharp regional disparities and the socioeconomic integration of regions, and (c) efficiency in the management of cities.

IV. STUDIESON PHILIPPINEURBANIZATION The history of research on Philippine urganization is still a short one. Its origin can be traced to a local article of Cressey (1958)on the development of Philippine cities which was subsequently published abroad (1960). This article describes the nature and functions of Manila and the secondary cities: Cebu, Iloilo, Bacolod, Zamboanga, and Davao. Another early paper by Spencer (1958) details the political origin of the city in the Philippines. 9 Urban Development

and Primacy

Manila rapidly evolved as a primate city due to the fact that, given its excellent harbor as well as good communications with other parts of the country, it functioned chiefly as the link between the Philippine economy and the United States. As Cressey (1960, p. 402) puts it, "its growth has not been the product primarily of the domestic economy, but of external economic and political forces impinging upon the island." After World War II, Manila's political, economic, intellectual, and cultural importance steadily increased, drawing 9. A more recent paper by Hollnsteiner (1969) offers a historical and an anthropological perspective on the evolution of Manilaand its contemporary problems.

Urbanization andSpatialDevelopment

inexorably an increasing number of people and institutions. For instance, the 1955 Census of Establishments showed that 30 per cent of all establishments in the country employing five or more workers, as well as 42 per cent of all workers in firms of this size, were located in Greater Manila (defined to include Manila City, Quezon City, Pasay, Caloocan, Makati, San Juan, Parafiaque, and Mandaluyong only). Cebu, Iloilo, Bacolod,Zamboanga, and Davao aremedium-sized cities which are also provincial capitals. As seaports, their principal activity consists in assembling raw materials for export and in distributing importedmanufacturedgoods tonearbyplaces. (SeeUllman 1960.)Thesecities, however,arcsmalland primitive incomparison wRh Metro Manila.For example,in 1955 therewere 488 establishments with 50 or more workersin GreaterManilawhilein allof thesefiveothercities therewereonly88 suchfirms. Closetohalfof these88 enterprises werelocatedinCebu,indicating itsposition as the secondurban centerin the country.The restof the so-called charteredcities arerelatively insignificant. Most of them areinfact "overbounded"in thatthey includewithintheirlegallimitslarge segmentsofagricultural land.(SeeSpencer1958.) In short,urbanization in the Philippines hasbeen dominatedby Manila'sdevelopmentas theprimatecity- largely theoutcome of foreigncontactsratherthanof indigenous forces.l째 "Insteadof the nextlargest cities gradually declining insize, asZipffoundtobe true in most European and American nations, thedeclineinthePhilippinesislikethatof a precipice" (Cressey1960,p.404).Thus,one cannot speak of a systematicurban hierarchyin the Philippines. Uliman (I960) identified fivetypesofcenterformingsome kind ofanurbanhierarchy: (a)national center- Manila(witha population of 1,700,000). (b) interregional centers- Cebu, Iloilo, Davao, and (partially) Zamboanga (witha population of 50,000-200,000). (c)major centers- 33 largetradeareas,allbuttwo ofwhich are provincial capitals; most havesoft-drink warehousesand gasoline depots(witha population of I0,000-40,000). (d) secondary centers - 34 in all, similar to major centers but less important (with a population of 5,000-25,000). 10. On a more positive note, Laquian(1966) stressesthe key political and administrativerole played by Manilain the developmentof the nation andin the shift towardsan urbanway of life.

ErnestoM. Pernia& CayetanoW.Paderanga Jr.

(e) minor centers - 126 small retail and social centers (with a population of 1,000-5,000). Below the minor centers are the barrios numbering more than 17,000.

or rural farm settlements

Unman observes that the number of centersin each hierarchical class,not surprisingly, does not follow the theoretical framework of either Christaller or LSsch (k = 3, k--4, or k = 7, which means that the number of equal-size cities in lower size classes increases regularly by 3, 4, or 7 times). In the Philippines, there are a great number of major and secondary centers than the models call for, a fact that may well reflect the insularity of the country and a naturally fragmented set of hinter. lands as well as the changing transportation system and poor measures of size and numbers.... The Philippine distribution most closely approaches k = 4.... The k = 4 arrangement, according to Chfistaller, is the most efficient for transportation, and this may be of some significance. In the final analysis, of course, elements of all three systems, in various parts of the islands, are to be expected, ff underlying conditions permit; a close fit theoretically to any one should not be expected (p. 218). The social complexity of towns and cities was examined by Fujimoto (1968) through scalogram analysis (Guttman scales). In conceiving of a community as an information processing organism, one can expect the first town or city to be more complex or differentiated than the second, the second more than the third, and so on, such that these communities can be ordered cumulatively along the differentiation dimension (Carneiro and Tobias 1963). In other words, a community of a higher rank order will have all the features of lower rank-order communities and, if a certain service is present, certain other services will also be available. This pattern of community differentiation is borne out by Philippine data. 11 Rural-to-Urban

Migration

Apart from studies on the development and primacy of cities, other research efforts have been concerned with rural-to-urban migration. This is an appreciable component of urban population growth, but it is not the principal one, as is commonly assumed. Other important contributors to urban growth are urban natural increase and reclassification of places from rural to urban (Pernia 11. On a related point, it appears that a city's in-migration rate rises as the ciW matures and then declines after a certain saturationpoint is reached (Mariano1975).

Urbanization andSpatialDevelopment

1976c). 12 Total urban growth in the Philippines during the 1960-70 interval, for example, was accounted for in this manner: 54 per cent natural increase, 28 per cent reclassification, and 18 per cent rural-tourban migration. With respect to individual cities, urban in-migration was responsible for well over half of the population growth of the bigger cities, particularly Metro Manila, during the same period, la In general, big cities tended to grow slower than small ones but their growth was largely generated by in-migration. Small cities grew faster than big ones owing more to natural increase than to in-migration. The sheer magnitudes of rural-to-urban and rural-to-metro migration have been considerable, but, on balance, perhaps not as overwhelming as is popularly supposed. As data from the 1973 National Demographic Survey (NDS) indicate, internal migration in the Philippines has been characterized not just by rural-to-urban streams but by other intersectoral flows as well (Pernia 1977, 1979). Prior to 1965 the most sizable flows were rural-to-rural, rural-to-urban and rural-to-metro, in that order, all together accounting for over threefourths of the total volume of internal migration. More recently, the rural-to-urban stream became more significant than the rural-torural flow, but both streams diminished in overall dominance as all the other streams gained some importance. There was lesser movement from rural areas, greater mobility between urban areas, and increasing migration from the urban and metro locales to the rural scene. All this implies that the phenomenon of rural-to-urban migration can be better understood if it is viewed in the overall internal migration context and not simply in relation to the growth of cities. Selectivity of migration or the characteristics of migrants is a subject that has received a lot of attention from researchers. The majority of rural-to-urban migrants have been found to be young adults, females, and of relatively high education status comparable to, if not higher than, that of the native urban residents (Panganiban 1956, Pascual 1966, DeVoretz 1972, Kim 1972, and Hendershot 1976). Further, the selectivity of migration tends to be directly related to the degree of urbanism of the place of destination; e.g., migrants to Metro Manila seem better prepared in terms of education 12. See also Preston(1979) for evidence from dataon other LDCs. 13. Urban in-migration,however, is distinct from rural-to-urbanmigration per se to the extent that it includes migrants from other urban areas,not just rural places.

ErnestoM. Pernia& CayetanoW.Paderanga Jr.

and occupation than migrants to other urban areas (Hendershot 1971, Pemia 1977). This positive selectivity would seem to provide some guarantee that migrants do benefit by their move to the city. Their unemployment rate appears to be no higher than the urban average and their incomes compare favorably with those of long-time urban residents (Pernia 1977). This seemingly advantageous position of urban migrants should, however, be interpreted with caution. It could simply imply that migrants just grab the first job they encounter rather than queue in the labor market, which may be the more rational thing to do from a lifetime earnings perspective. Alternatively, it may mean that positive selection occurs not so much before migration but rather after arrival in the city, sending the unsuccessful ones back to the countryside. These conjectures have not as yet been satisfactorily verified by research. Studies based on interviews with migrants in slum and squatter settlements are nearly unanimous in their discovery that these migrants consider their current situation better than their former condition in rural areas (Laquian 1968, Carifio 1971). They seem to be committed to city life despite their inferior socioeconomic status and the deplorable state of the slums (Lopez and Hollnsteiner 1976). On the basis of theory, micro studies and other census-based research, therefore, it is now strongly felt that rural-to-urban migration is ir_versible. Rather than turning migrants back, what may be needed is a well-designed migration policy that would modify population movements into a pattern that is more socially desirable and efficient (Laquian 1972, Carifio 1976, and Pernia 1976b). Other studies on migration have employed econometric methods (e.g., DeVoretz 1972; Pernia 1978, 1979). DeVoretz finds that even a small wage differential determines a migrant's destination. In addition, such other factors as language and distance are important considerations. Applying logit analysis to data from the 1973 NDS, Pernia (1978) shows that, in general, personal and household characteristics are crucial in the decision to migrate in addition to external factors which have been stressed by other studies. Kinship ties at destination seem to be a decisive factor in the choice to migrate. (See Mincer 1978.) Occupation at destination appears to interact more strongly with migration than does income (lending support to the "job vacancies thesis," i.e., potential migrants may be more responsive to

Urbanization andSpatialDevelopment

occupational rather than to income mobility). Hence, with respect to policy, such factors as education, employment, and kinship present themselves as potential vehicles for migration policy. A more disaggregated approach shows that the factors which influence migration decision tend to vary depending on sector of origin and destination, as well as on whether the decision to be made involves a return to origin or a repeat move to another destination (Pernia 1979). Thus, education, occupation, expected monetary income, marital status, and sex exert different intersectoral and sequential effects on migration choice. An implication is that migration policy may be more realistic and, hence, more effective if it views migration intersectorally and sequentially, besides considering the personal attributes of migrants or potential migrants. While knowledge about the determinants of migration has quickly grown in recent years, understanding of its consequences on origin and destination areas has remained embryonic. 14 There are implicit indications that places of origin have been drained of valuable human resources - such loss (possibly) partly accounting for the perennial stagnation of rural areas (Pacho and Tapales 1972, Pernia 1977). On the other hand, out-migration may have alleviated these areas of some population pressure, is These ideas, nevertheless, have remained largely conjectural. Likewise, the analysis of the role that migration has played in the settlement of Mindanao by Wernstedt (1965) and Simkins and Wernstedt (1971) is indicative at best. To our knowledge, there is no single piece of research that systematically examines the impact of migration on cities, except to insinuate that migrants contribute to city problems and to the strain of urban resources and facilities. Urban Problems A number of papers have been written on urban problems, larly those of the metropolis, such as urban blight, water, sanitation, un- and underemployment, criminality, and (Araneta 1964, Dotson 1964, and Pascual 1972). Hendershot

particuhealth, anomie (1969)

14. See also Greenwood (1975), Todaro (1976) and Simmons et al. (1977) for ageneraldiscussionof this point. 15. This positive effect, however, appearsto be less consequentialbecause certain rural regions (e._, Eastern Visayas and Bicol) have continued to be depresseddespite a long experience of heavy out-migration.It would probably seem morelogical to suppose thatthese regionshaveremainedbackwardat least partlybecauseof the out-migrationof the moreable membersof the population (Zacharlahand Perrda1975).

ErnestoM. Pernia& CayetanoW. Paderanga j r.

discusses two kinds of problems: (a) those arising from a simple increase in the number of people who must be served; and (b) those resulting from a changed relationship among people, environment, and technology. Problems of the first type (e.g., garbage collection) are easier to recognize and plan for. They can be solved by simply expanding the scale of operation without making any basic organizational change. Problems of the second kind (e.g., increasing criminality) entail not just additional resources but new and better forms of organization. Most urban scholars agree that the solution to urban problems is better planning and a coordinated development of regional urban centers (e.g., Laquian 1972, Carifio 1976, and Prantilla 1976). However, Hollnsteiner (1974) argues that urban planning as practised has failed essentially because it has ignored, or even worked against, the welfare of the masses. National and Regional Urbanization Recent concern about dispersed development has turned the attention of scholars from the consideration of Metro Manila or of individual cities to the urbanization of regions or groups of regions. Smith (1970), for example, applying principal-components analysis to municipal-level data, specifies three major factors underlying urbanization and socieoeconomic development in lowland Luzon: socioeconomic status, population growth, and literacy. Abenoja (1975) attempted to delimit urban places in Central and Eastern Visayas and produced urbanization scores for the different municipalities that correlated closely with the proportion which is urban in those places. The same exercise was carried out for Mindanao municipalities by Smith and Bouis (1975) with similar results. A general overview of Philippine urbanization at the national level using data from the 1970 Census was done by Pascual (1972). A more thorough examination of urbanization and urban growth at the national, regional, and provincial levels from 1903 to 1970 was undertaken by Pernia (1976a). A historical analysis reveals a number of points about urbanization in the Philippines. First, religious and political forces during the Spanish regime appear to have generated a relatively high urbanization level by the beginning of this century. Second, the postwar acceleration in total population growth was accompanied by a deceleration in the pace of urbanization because virtually all of the acceleration went to rural growth. Yet, whereas the proportion urban increased only two and a half times (from

Urbanization andSpatialDevelopment

about 13.1 to 32.9 per cent) in approximately 70 years, the urban population multiplied at least twetvefold. _6 Third, the more developed regions urbanized faster than other regions, but, more conspicuously, urban growth was concentrated in the metropolitan area as mirrored in the continuous rise of the primacy index. Thus, apart from the impact of large absolute increments to overall, urban population, the phenomenal expansion of Metropolitan Manila has apparently created the illusion that the country has been urbanizing rapidly. 17 The dizzying growth of Manila has, in fact, been confounding experts on how to properly define the metropolitan area. A comparative analysis shows, first, that the speed of urbanization in Western countries during the nineteenth and early twentieth centuries proved to be generally faster than that in the Philippines during the 1950-60 and 1960-70 decades, although their urban growth rates were slower. Second, other contemporary Southeast and East Asian countries also evinced more rapid urbanization, particularly the fast-developing ones. The slow pace of Philippine urbanization in the 1950's and 1960's appears to be directly associated with the sluggish transformation of the economy compared with neighboring Asian economies which experienced also buoyant urbanization (Pernia 1976b). Within the Philippines itself (excepting Metro Manila), the more urbanized regions (Central and Southern Luzon, Western and Central Visayas) were more advanced than other regions in terms of demographic development (lower fertility and mortality), labor force industrialization, and income levels. Not surprisingly, these regions also evinced rapid urbanization tempos of over four times those experienced by the less urbanized (Ilocos, Bicol, and Eastern Visayas) and rural regions (Cagayan and the Mindanao regions), or nearly twice the national average. As a consequence, the disparity among regions outside Metro Manila widened over time. By 1979, the m_re urbanized regional group was 30 per cent urban while the others stag16. Preston (1979) shows that the pace of urbanization (rate of changein the proportionurban) in LDCsis not exceptionallyrapid by historicalstandards,but that the growth rates of urbanpopulations representan unprecedentedphenomenon. See also Davis(I 975) for a discussionof urban growth in Asia. 17. Manilahas, of course,been the center of attractionand attention of sorts so that Philippine urbanization has been synonymous with its growth. This "metro bias" has fostered an apparentconttadiction, namely, that the country has been urbanizingrapidly and yet is predominantly rural,and will continue to be so for sometimeyet. For a discussionof the Metrobiasin Asianurbanization, see Jones (1972).

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

nated at betwen 18 and 20 per cent, which is a temporal gap of about 31 years in terms of the country's historical experience. Provincial-level analysis shows that development variables are the main determinants of urbanization. (See Renaud 1979.)These variables arc: industrialization and commercialization, farm mechanization, better communication or higher literacy, urban in-migration from other provinces, and proximity to the metropolitan area. Demographic factors (fertility and farm density) that denote the rural pressure to migrate seem insignificant. Is And, rather than induce permanent migration, :better road networks appear to improve ruralurban interchange or integration. On the â&#x20AC;˘whole, the issue that needs to be confronted in the Philippines (and most likely in other developing Asian countries as well) is not rapid urbanization but unbalanced urbanization. The phenomenon of primacy -â&#x20AC;˘whereby urbanization is concentrated in the metropolis - must be understood as the cumulative consequence of historical, demographic, and economic trends, reinforced by the long tradition of interest in the premier city and neglect elsewhere. More important perhaps, as will be discussed later, concentrated urbanization and development may have resulted from the indirect or implicit biases of macroeconomic and growth policies in favor of Metro Manila and against the other regions. This kind of concentrated development is vividly described by Castillo, a rural sociologist, as follows: by all indicators, Manilaand its appended environs is different from the rest of the country. It has more of the 'good things in life' than any other region and promises to be even more so. This Metropolis is our image to the world, our 'crown jewel', and the dreamland of many a rural youth, but it is not the Philip. pine_ We are a nation of villagesand villagers,Manila'sskyline notwithstanding (1979, p. 251). V. STUDIESON PHILIPPINEREGIONAL DEVELOPMENT Research on regional development in the Philippines is even thinner than that on u.rbanization) 9 It can be identified with only a few 18. Severalother studies indicate that the "push" factors are less important than the "pull" or development factors in migration and urbanization. See, e.g., Kumar (1973), Simkinsand Wernstedt (1971), and Zachariahand Pernia(1975). 19. A practical, though very artificial, distinction between the two is that urbanizationresearchhas pxSmarilyfocused on population distribution whereas regional development research has been largely concerned with industrialloeat.ion or industrialization_

Urbanization andSpatialDevelopment

names and research projects. Probably preoccupied with the macroeconomic problems of development, economists and other social scientists have left the spatial context of development largely neglected. Spatial Dimension in Development Sicat (1968) is probably one of the earliest Filipino scholars to expressly recognize the importance of the spatial dimension in development. In a series of articles in the late 1960's and early 1970's he attempted to measure growth differentials among the various regions of the country and conjectured about the government's role in unbalanced spatial development. Using local government revenue and expenditure as proxies for gross regional product, he showed how fast the 10 regions of the Philippines had grown relative to each other during the period 1948-66. This long period is divided into two stages. During 1948-61, the four main cities of Greater Manila (Manila, Quezon, Caloocan, and Pasay) and the province of Rizal grew fastest. This was the phase of exchange controls when the overvalued peso favored import-substituting industries, which had located themselves around the capital city and principal port of the country. In 1961, the government devalued the peso and decontrolled the currency. From 1961 to 1966, the fastest growing regions were Mindanao, Cagayan, and Western Visayas. The latter two regions produce goods for export, tobacco and sugar, respectively. Mindanao at this time was opened up for settlers from the north. The rapidly expanding log industry was likewise located primarily in this region. Sicat (1970b) also recognized that the macroeconomic policies being used to spur industrialization in the economic development effort had implications on the growth of the regions. According to him, "innocent looking policies of the past carry with them excessive biases in favor of industrial concentration that place the biggest single stumbling block to the speed of regional growth." (See Sicat 1972, p. 2.) Among the macroeconomic policies mentioned are: (a) exchange rate policy, (b) tariff rates as well as policies on domestic taxes and production subsidies, (c) tax incentives given to specific industries in the industrialization effort, and (d) monetary policy. These policies were used in the import-substitution strategy to achieve industrialization. Microeconomic policies were likewise adopted to push the industrialization drive. In the late 1960's the Investment Incentives Act was passed which set up the Board of Investments (BOI) with broad

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

powers to extend tax and financial incentives to individual firms in selected industries. The government signified its awakening awareness of the spatial dimension of development by including regional dispersal as a consideration in choosing firms for favored treatment. However, as Sicat (1972) notes, the regional aspect was drowned by other factors that had also to be considered. In the end, the regional factor made negligible difference in the divisions made by the BOI. Government Relocation Schemes From 1950 to 1970 various population relocation schemes were carried out by the government (Ocampo 1972, Laquian 1972). These ranged from the EDCOR and NARRA 2째 programs to help families migrate from areas of dissidence in Central Luzon and Western Visayas in the 1950's to programs for squatter relocation from Tondo to various parts of Cavite in the late 1960's and early 1970's. Carried out for various purposes, however, these relocation programs were not integrated within a national urbanization policy, Laquian points out. While the analysis is quite indicative of the general trends, the primary result of the effort is a description of national government policies with probable effects on population distribution as well as on regional and urban development. No effort is made to trace the causes and consequences of the differential growth rates of various areas of the country. These papers may, therefore, be characterized as a description of the "state of the art" of the national government's population distribution policies rather than a research effort to test specific hypotheses, or a program proposal to influence urban and regional development one way or the other. The studies, nonetheless, represent a useful starting point in giving some clues for research and policy analysis. Regional Concentration

and Growth

The middle of the 1970's saw the start of an earnest attempt to document the relationships involved in regional concentration and development. Picking up from where Sicat had left off, Miranda (1977) and Moran (1978) made noteworthy efforts to explain in quantitative terms the determinants of urban and regional growth. Miranda examines the relationships among regional concentration level, regional capital per worker, and regional profit level for selected industries. He also considers the correlation between size of 20. Economic Development Corporation and National Resettlement and Rehabilitation Administration, respectively.

Urbanization andSpatialDevelopment

firms and concentration level but does not test it directly. Using data from the NCSO's economic census of 1972 and from the survey of the top 1,000 corporations by Business Day, Miranda obtains the positive relationships that he hypothesizes. Miranda employs simple regression analysis between pairs of different variables to test the relationships and, therefore, does not include control variables that may be relevant for each functional relation. For example, he does not explicitly test whether the regional concentration level is a function of the regional profit level and/or of the size of the market in each region. Neither does he attempt to find out which among the three variables - the regional profit level, the size of firm, and profit differentials - leads to regional concentration. The answer to this issue could very well be an important piece of information in the formulation of a regional development strategy. Limited as the results may be, the research attempt by Miranda is nevertheless valuable in indicating the direction of the influences on industrial location. The paucity of data led him to perform less rigorous tests than one might look for. What remains to be done for subsequent research is to gather more information, or to modify the hypotheses so that they may be amenable to more thorough analyses using alternative data. A combination of these two approaches may also be worthwhile. The work of Moran (1978a) was part of a bigger project to investigate the effects of industrial promotion policies in the Philippines. (See Bautista and Power 1979.) Her portion of the study looks into the regional impact of these policies. The research has two main sections: (a) a historical review of comparative regional growth of the manufacturing sector from 1948 to 1974, and (b) a survey of 31 firms established after 1970. An additional section tries to examine government policies affecting the regional dispersal of industries. Moran's review of regional growth in the Philippines is a continuation of Sicat's study in 1968. The data used for the study come from the Censuses of Establishments of 1948, 1961, 1967 and 1972 and the Annual Survey of Manufacturing of 1956 to 1974, all done by the NCSO. In general, the results support Sicat's finding as regards the predominance in growth of the four cities of Metropolitan Manila and its immediate environs during the period of controls, 1948-61, and their relative deceleration thereafter as compared with the other regions. At the end of the period under

ErnestoM. Pernia& CayetanoW.Paderanga jr.

study, however, Metropolitan Manila was still the preeminent region of the country, suggesting either of two possible conclusions regarding the government's effort towards regional dispersal in the 1970's: (a) "that the government policies are so recent that their effectiveness cannot yet be determined," or (b) "that these policies are not really effective in encouraging the dispersal of manufacturing activity to regions outside Metro Manila and Southern Tagalog" (Moran 1978, p. 51). The second portion of Moran's study is an analysis of survey data on manufacturing firms that had started business in 1970 when the government embarked on explicit policies geared toward regional dispersal. Data were obtained through interviews personally conducted by the author. Several questions were asked (e.g., which factor was the most important consideration in the locational decision?). 21 A major trading was that government policies for regional dispersal of industries have â&#x20AC;˘ â&#x20AC;˘been rather ineffective in influencing plant location. VI. THE GOVERNMENT'SROLE The role of the government in urbanization and regional development has recently become a major theme of research on the spatial aspects of growth in developing countries. Scholars working on the locational impact of government policies are almost unanimous in stressing the strong actual and potential influence of â&#x20AC;˘ the government (frequently the national government) ()n the growth of the different regions of the country, The magnitude of the implicit side effects of macroeconomic policies designed to achieve economic growth or industrialization stands in stark contrast with the meager influence of government policies explicitly meant for regional dispersal or balanced spatial development. Macroeconomic

Policies

By far the most frequent reference to the government's role in the space economy has to do with the unintended side effects of macroeconomic policies that have been used by developing countries 21. Survey results from questions on attitudinal factors must be qualified because choices are not always presented clearly in actualsituations. However, this is largely correctedfor by the fact that the answersare ex post explanations of decisions already made. The finding was also broad enough to be useful even if only as an indicationof the directionof the effect.

Urbanization andSpatialDevelopment

over the past three decades. In order to accelerate industrialization and economic growth, governments deliberately promoted specific kinds of industries. Unconsciously, they simultaneously favored certain localities either by expanding the markets for these industries or by promoting related industries that tend to cluster around strategic points. These points are reviewed for developing countries by Renaud (1979) and discussed by Sicat (1968, 1970a, 1970b)in the Philippine context. Sicat considers the exchange rate policies of the 1950's, the tariff and domestic tax/subsidy programs, and the monetary policies of the postwar period to have been orchestrated as part of a grand strategy of import substitution. The plan was to spark a full-scale industrialization following the birth of industries that were to take over the domestic market for manufactured products to replace imports. A complication arose because these industries were dependent on imported raw materials and semiprocessed products for their operations. They, therefore, tended to cluster around the national capital where import licenses were being rationed out, and near the principal port where the imports were allowed entry into the country. As in many other developing countries, in the Philippines the principal port is found in the national capital itself; likewise, the biggest market for manufactured products is the national capital region. Sicat and later Moran (1978b) provide indicative evidence of this phenomenon in their analyses of the different periods of Philippine industrialization. Metropolitan Manila grew faster than the rest of the country particularly' during the period of exchange controls. Regional and Rural Policies There is a contrast, relative to the implicit spatial policies, in the performance of explicit policies to disperse industries or development in general to other regions of the country. These policies, inter alia, inelude: (a) incentives for firms located outside Metro Manila under the Export Incentives Act of 1970, (b) the development of the Bataan Export Processing Zone and other industrial estates, (c) the Board of Investment's incentives for firms to locate outside the Metro Manila region, 22 and (d) various rural and agricultural de22. The prohibition of new firms to locate within a 50-kilometer radiusof Manila's center is not included in the list under the assumptionthat the area not too far beyondstill belongsto the MetroManilaregion.

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

velopment programs and projects. Indications given by a descriptive analysis of Philippine manufacturing and the direct, if partial, test by Moran (1978b) show that these policies for dispersal have had, at best, a negligible effect on the pattern of urbanization and regional development. â&#x20AC;˘Urban Policies Urban policies and programs have not been very helpful either. As in the case of macroeconomic policies, they appear to have worked at cross purposes with policies explicitly intended to decentralize development. These urban policies principally include: (a) infrastructure investments and other public capital expenditures, (b) private investments particularly those with government participation, (c) urban social services, and (d) policies on multinationals and foreign investments. From all indications it is evident that Manila is practically the only city in the country benefiting from these policies and programs. Accordingly, whatever development projects are introduced in the regions are overshadowed and effectively offset by gigantic programs, both public and private, in the metropolis. In short, what the government gives to the regions with the right hand seems to be taken back with the left, so to speak. Summing

On balance, public policies in the Philippines may be regarded as a strong factor for spatial concentration. This may be largely an unintended result, as shown by the later efforts to promote regional dispersal of industries. It is still unclear, however, whether the government should push for regional dispersal of industries, and, if it should, to what extent. The answer requires a consideration of whether (1) there is an optimal size of the primate city, Metro Manila, as well as optimal sizes of the other urban centers in the country; (2) optimal city sizes are uniform for specific types of industries; and (3) there is a minimum city size for the efficient operation of industries. An important,part of the answer is an assessment of exactly how strong are the biases for agglomeration introduced by government macro policies. A resolution of these issues will be essential in the formatiomof a national urbanization policy that will be useful for the long-term development of the country.

Urbanization andSpatialDevelopment

VII. CONCLUSIONAND RESEARCHAGENDA It is evident from the survey that research on urbanization and spatial development in the Philippines has been useful but largely fragmentary. Studies on the subject may be classified into the following categories: (a) development of cities, with the spotlight frequently on Manila as the primate city; (b) rural-to-urban migration, with "urban" usually referring to the metropolis; (c) urban problems - largely an impressionistic description of such matters as water, health, sanitation, congestion, un- and underemployment, criminality, and anomie; (d) urbanization of regions and of the country as a whole; (e) comparative economic performance of the different regions, with emphasis on Metro Manila, in relation to changing strategies of industrialization; (f) comparative concentration of economic activity by region for each industry, and the relationship between regional profit levels, size of firms, and regional concentration of industries; (g) factors important in the decision of selected new firms to locate. On the whole, these studies have been diffuse, having been undertaken by different scholars, largely isolated from each other and with different purposes in mind. As a result, the current state of the art on urbanization and spatial development lacks overall consistency and coherence. Studies have not been undertaken as a cumulative process in a way that would systematically enrich over time our understanding of urban and spatial issues. Stock-ofknowledge accretion via systematic and coordinated research may be more useful for development policy and planning. There is a need, first of all, to view urbanization and spatial development within a unified framework. That is to say, they should not be regarded as solely a population distribution problem, on the one hand, and solely an industrial concentration problem, on the other. This has been the general approach of research in the past. It has become clear, however, that these two aspects of development are closely intertwined. The trend and pattern of urbanization and spatial development have been the consequence of historical inertia and a constellation of economic, social and demographic forces. Bat they are also

ErnestoM. Pernia& CayetanoW. Paderanga Jr.

determined in no small measure by macroeconomic policies that are purportedly neutral but have in fact exerted potent spatial biases, not to mention urban policies designed to directly benefit the principal city. Given this whole confluence of forces in favor of concentrated urbanization and spatial development, it is not surprising perhaps that recent regional and rural programs for dispersal seem to be puny. Research should, therefore, adopt an approach that takes into account all these important considerations. Such a schema for research may be sketched as in Figure 3. It shows the different government policies as probably the more proximate determinants of urbanization and spatial development. Macroeconomic policies are positioned at the top since they are hypothesized to be the most potent of the policies. Urban policies are also indicated because, if they benefit principally the primate city, they tend to offset regional and rural policies intended to disperse development. In addition, of course, historical, economic, social, and demographic forces interplay with urbanization and spatial development, as well as with the various public policies. This simple schema readily suggests that a research agenda should include the following: 1. Historical, economic, social, and demographic forces that have shaped the country's urbanization and spatial development. 2. Macroeconomic and growth policies that have introduced unintended effects or biases toward the concentration of economic resources, activities, and population in certain areas of the country (in short, implicit spatial policies). 3. Recent regional and rural policies and programs explicitly designed to counteract the forces of concentration and to disperse population and economic activities. 4. Various urban policies and projects intended to solve current urban problems, as well as schemes to manage the "big city." On the basis of such investigation, it should be possible to identify alternative urbanization scenarios under the following regimes: (a) one where there is no change in current policies, or a perpetuation of the current trend; (b) one where there is a set of "ideal" conditions for urban and industrial growth; (c) one where there are feasible policies Considering historical antecedents and the current trend. Finally,

order

come

grips

with

the

"urbanization

l_gure 3. A Simple Research Schema lllustmting the Key Causal Links to Urbanization and Spatial Development

_r Historical

-t _"

Forces

Macroeconomic

_째 0 _

Policies

Economic

Forces

_._"

Reglonal/RuralPolicies

URBANIZATION AND SPATIAL

SocialForces

Urban

Demographic

Forces

Policies

DEVELOPMENT

__. o ::1

Ernesto M. Pernia& Cayetano W. PaderangaJr.

problem" a national

in the 1980's and perhaps further ahead, urbanization strategy should be proposed.

the elements

Annex 1963 URBAN DEFINITION Urban places include: 1. In their entirety, all municipal jurisdictions which, whether designated as chartered cities, provincial capitals or not have a population density of at least 1,000 persons per square kilometer (the whole of Quezon, Baguio, and Cebu cities, notwithstanding the minimum density rule, are to be included). 2. For all other cities and municipalities with a population density of at least 500 persons per square kilometer, only the poblacion (regardless of population size) plus any barrio having at least 2,500 inhabitants and any barrio contiguous to the poblaeion with at least 1,000 inhabitants (for cities where the poblacion is not specified, the central district or the city proper, e.g., for Davao.Bucana (a), Davao Proper (b), and Molabe (c), shall be regarded as the poblacion for purposes of this definition). 3. For all other cities and municipalities with a population of at least 20,000 persons, only the poblacion (regardless of population size) and all barrios having at least 2,500 inhabitants, contiguous to the poblacion. 4. All other poblaciones having a population of at least 2,500 persons. 1970 URBAN

DEFINITION

Urban places include: 1. In their entirety, all cities and municipalities which have a population density of at least 1,000 persons per square kilometer. 2. Poblaciones or central districts of municipalities and cities which have a population density of at least 500 persons per square kilometer. 3. Poblaciones or central districts (not included in 1 and 2) regardless of population size which have the following: (a) Street pattern, i.e., network of strees either in parallel or right angle orientation; (b) At least six establishments (commercial, manufacturing, recreational and/or personal services); and (c) At least three of the following: (i) A town hall, church, or chapel with religious service at least once a month; (ii) A public plaza, park, or cemetery;

Urbanizationand Spatial Development

(iii) A market place or building where trading activities are carried on at least once a week; and (iv) A public building like a school, hospital, puericulture and health center, or library. 4. Barrios having at least 1,000 inhabitants which meet the conditions set forth in 3 above, and in which the occupation of the inhabitants is pred_)minantly nonfarming/fishing.

BIBLIOGRAPHY

Abenoja, Macrina. "Urbanization in the Central and Eastern Visayas." Master's thesis, Population Institute, University of the Phifippines, 1975. Alonso, William. Location and Land Use. Cambridge, Massachusetts: Harvard University Press, 1964. _. "Industrial Location and Regional Policy in Economic Development." Working Paper No. 74, Institute of Urban and Regional Development, University of California at Berkeley, February 1968. . "The Question of City Size and National Policy." Working Paper No. 125, Institute of Urban and Regional Development, University of Califor. nia at Berkeley, June 1970a. . "The Economics of Urban Size." Working Paper No. 138, Institute of Urban and Regional Development, University of California at Berkeley, November 1970b. Araneta, Luis Ma. "The Blight of Urbanization," Comment 21 (1964): 76-82. Bautista, Romeo M., and Power, John H. Industrial Promotion Policies in the Philippines. Manila: Philippine Institute for Development Studies, 1979. Beckmann, Martin. "City Hierarchies and the Distribution of City Size," Economic Development and Cultural Change I (1958). Berry, Brian J.L. "City Size Distributions and the Distributions of City Size," Economic Development and L'_ltural Change IX (1961). Catifio, Benjamin"V. "Hope or Despair: A Comparative Study of Slum and Squatter Communities in Five Philippine Cities," Philippine Planning Journal 3 (1971): 8.14. â&#x20AC;˘ "Managing Migration Streams and Population Redistribution: Alter. native Strategies and Research Needs." In Philippine Population Research, edited by R. A. Bulatao, pp. 251.70. Makati: Population Center Foundation, 1976. Carneito, Robert C., and Tobias, Stephen. "Scale Analysis as an Instrument for the Study of Cultural Evolution," Transactions of the New York Academy of Sciences (1963).

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Castillo, Gelia T. Beyond Manila: Philippine Rural Problems in Perspective. Ottawa: International Development Research Center, 1979. Christaller, W. D/e Zentralen Orte in Suddentschland. Jena: G. Fischer Press, 1933. Cressey, Paul F. "The Development of Philippine Cities," Silliman Journal V (1958): 349-61. "Urbanization in the Phflippines," Sociology and Social Research XLIV (1960): 402-9. Davis, Kingsley. "Asia's Cities: Problems and Options," Population and Develop. mentReview I (1975). DeVoretz, Don J. "Migration in a Labor Surplus Economy," Philippine Economic Journal XI (1972): 58.80. Dotson, Arch T. "Metropolitan Problems in Asia and Some Solutions," Philip. pine Journal of Public Administration III( 1964): 227-33. Frank, Andr_ Gunder. Capitalism and Underdevelopment in Latin America. New York: Monthly Review Press, 1969. --• "The Development of Underdevelopment." In Dependence and Under_ development in Latin American Political Economy, edited by James D. Cockxoft, Andr6 Gunder Frank, and Dale L. Johnson. New York: Doubleday Anchor Books, 1972. Ftiedmann, John. Urbanization, Planning and National Development. Beverly Hills: California Sage Publications, 1973. .. A Spatial Framework for Rural Development: Problems of Organization and Implementation. Los Angeles: UCLA School of Architecture and Urban Planning, 1974. , and Douglass, M. "Agropolitan Development: Towards a New Strategy for Regional Planning in Asia." Paper presented at the U2q. Center for Regional Development Seminar, Nagoya, Japan, 4-13 November 1975. Fujimoto, Isao. "The Social Complexity of Philippine Towns and Cities," Solidmqty III (1968): 76-90• Greenwood, Michael J. "Research on Internal Migration in the United States: A Survey," Journal of Economic Literature XHI (1975): 397.433. Hendershot, Gerry E• "The Challenge to Urbanization in the Seventies." In Philippine Population in the Seventies, edited by M. B• Concepcion. Manila: Community Publishers, 1969. • "Cityward Migration and Urban Fertility in the Philippines," Philippine Socioiogical Review XIX (1971): 183-92. --, "Social Class, Migration and Fertility in the Philippines." In The Dynamics of Migration: Internal Migration and Migration and Fertility. Occasional Monograph Series, vol. I, no. 5, Interdisciplinary Communications Program. Washington, D.C.: Smithsonian Institution, 1976. Hirschman, Albert O. The Strategy of Economic Development. New Haven: Yale University Press, 1958. Hollnsteiner, Mary R. "The Urbanization of Metropolitan Manila." In Moder-

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n_ation: Its Impact in the Ph_pines/V, edited by Walden F. Bello and Alfonso de Guzman. Quezon City: Ateneo de Manila Unive_ty Press, 1969.

"UrbanPhnaing:A Curbslde View;"/_/_p_ine_-m/n_ Jowm/

V (1974): 65-72. Hoover, Edgar M. An Introduction to Regional Economic& New York: Knopf Press, 1975. Hotelling, H. "Stability in Competition/' In Remd_gs in Pr/ce Theory, selected by a committee of the Amerkan Economic Association. Chioago: Irwin Press, 1952. Hoyt, Homer. "The Structure and Growth of Residential Neighborhood in American Cities. Washington: U_• Government Printing Office, 1939. Isard, Walter. Location and Space Economy. Cambrldse, Massachusetts: M.I.T. Press, 1956. Jones, Gavin W. "Implications of Prospective Urbanization for Development Planning in Southeast Asia." Paper presented at the SEADAG Population Panel Seminar on the Urban Focus, Pattaya, Thailand, 11.14 June 1972. K/m, Yun. "Net Internal Migration in the Phifippines, 1960-1970,, Yourna/of Philippine Statistics XXIII (1972): 9-29• Kurnar, Joginder. Potmlatfon and Land in World Agr_lture: Recent Trends and Relationships. Berkeley: institute of International Studies, University of California, 1973. Laquian, Apmdlcio A. Sh_ms are for the People. Quezon City: Bnatamante press, 1968. The Ci_ in Nation-Bu_ing. Manila: College of Public Adminbtration, Unive_ty of the Philippines, 1966. • '_rhe Need for National Urban Strategy in the Phifippines." Paper presented at the Seminar on Planning for Urbanization within National Development Planning in Southeast Asia, Local Government Center, Univenity of the Philippines, 4-7 January 1972. Lo, Fu-chan, and Salih, Kamal. "Growth Poles and Regional Policy in Open Dualistic Economies: Western Theory and As_ItnReality." In Growth Pole Strategy and Regional Development Planning in "Asia,United Nations Centre for Regional Development, Nagoya, Japan, 1976. --, and Doughs, Mike. "Uneven Development, Rural-Urban Transformation, and Regional Development Alternatives in Asia." UNCRD Working Paper No. 78-02, Nagoya, Japan, 1978. Lopez, Maria F.lena, and Hollasteiner, Mary R. "People on the Move: Migrant Adaptations to Manila Residence." In Philippine Population Research, edited by R. A. Bulatao, pp. 227-50. Makati: Population Center Foundation, 1976. L6w_, August. The Economics of Location. Translated by W. Woglom and W. Stolpe. New Haven, Conn.: Yale University Press, 1954. Mariano, Vicente D. "Urbanization and Internal Migration in 45 Philippine

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Cities During the 1960's." Master's thesis, Population Institute, University of the Philippines, 1975• Mills, Edwin S., and Byung Nak Song. "Korea's Urbanization and Urban Problems 1945_1975." Working Paper 7701, Korea Modernization Study Series 1 (Final Draft), Korean Development Institute, May 1978• Mincer, Jacob. "Family MigrationDecisions," Journal of Political Economy 86 (1978). Miranda, Casimito V•, Jr. "The Regional Pattern of Industrial Location: A Study of the Philippine Space Economy." Ph.D. dissertation, Wayne State University, 1977. • "The Spatial Pattern of Philippine Manufacturing," of Business and Economics XV (1978): 57-88.

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Moran, Presentacion B. "A Policy Evaluation of Regional Dispersal of Manufacturing in the Philippines." Master's thesis, School of Economics, University of the Philippines, 1978a. "Regional Structure of Philippine Manufacturing," Philippine Review of Business and Economics XV (1978b): 117-42. Muth, Richard F. "Economic Change and Rural-Urban Land Conversions," Eeonomerrica XXIX (1961): 1-23. • _ties andHousing• Chicago: University of Chicago Press, 1969. Myrdal, Gunnar. Economic Theory and Underdeveloped Region_ London: Duckworth Press, 1957. Ocampo, Romeo B. "Governmental and Non-Governmental Programs in In. fluencing Migration in the Philippines." Report A.3, University of the Philippines Intermet Project, 1972. Pacho, Arturo G., and Tapales, P. D. "Conditions in an Area Contributing to Rural Urban Migration." Report submitted to the UP. Intermet Project as part of a study on rural-urban migrants and metropolitan development, 1972• Panganiban, Antonia. "School Performance as a Factor in Philippine RuralUrban Migration," Philippine Sociological Review IV (1956): 2-15. Pascual, Elvira M. "Population Redistribution in the Philippines." Population Institute, University of the Philippines, 1966. --.'"Urbanization in the Philippines•" Paper presented at the SEADAG Population Panel Seminar on the Urban Focus, Pattaya, Thailand, 11.14 June 1972• Pernia, Ernesto M. Urbanization in the Philippines: Historical and Comparative Perspectives. Papers of the East-West Population Institute, no. 40. Honolulu: East-West Center, 1976a• • "Urbanization and Economic Development in the Philippines: Some Implications for Regional Policy,"Philippine Economic Journal XV (1976b). . A Method of Decomposing Urban Population Growth and an Application to Philippine Data. Papers of the East-West Population Institute, no. 41. Honolulu: East-West Center, 1976c.

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--•

'°rhe Impact of Migration on Rural Areas in the Philippines," Ph//ippine Economic Journa/XVI (1977). _. "An Empirical Model of Individual and Household Migration Choice: Philippines, 1965-1973," Philippine Economic Journal XVII (1978). • "An Intersectoral and Sequential Analysis of Migration Decision: Philippines," Philippine Review of Business and Economics XVI (1979). Perroux, F. "Notes on the Concept of Growth Poles," Economic Applique (1955). Prantill a, Ed B. "Regional Development and Planning: The PhJlippineExperience." In Growth Pole Strategy and Regional Development Planning in Asia, pp. 83-106. Nagoya: United Nations Centre for Regional Development, 1976.

Prebisch, Raul• The Economic Development of Latin America and Its Principal Problems• Economic Commission for Latin America, United Nations, Labor Success, 1950. • "The Theory of the Peripheral Economy." In The U.N. Conference on Trade and Development of 1964 at the Center of International Political Discussions, edited by A. S. Friedebelg. Rotterdam: Rotterdam Univemtty Press, 1969. Preston, Samuel• "Urban Growth in Developing Countries: A Demographic Reappraisal," Population and Development Revicw II (1979): 195 -216. Renaud, Bertrand. "National Urbanization Policies in Developing Countries." Staff Working Paper No. 347, July 1979. Development Economics Department, World Bank, Washington D.C., 1979. Richardson, Harry W. "The Relevance and Applicability of Regional Economics to Developing Countries•" Paper presented at the UNCRD Consultative Meeting, Nagoya, Japan, 5-7 November 1979. Sicat, Gerardo P. "Regional Economic Growth in the Philippines 1948-1966." IEDR Discus_on Paper No. 68.1, School of Economics, University of the Ph_ppines, 1968. _. _.

"Policy Problems of a Vigorous Industrialization." IEDR Discussion Paper No. 70-1, School of Economics, UniversiW of the Philippines, 1970a. "Economics of Regional Development: Interaction of National and Regional Policies." IEDR Discussion Paper No. 70-5, School of Economics, UniversiW of the Philippines, 1970b. "Provincial Development Assistance, Regional Progress, and Local Leadership." Remarks delivered before the Conference on Accelerating Provincial Development conducted jointly by the UY. Local Government Center and the NEC-AID Provincial Development Assistance Project, Cebu City, 9 September 1970• "Regional Dispersal." Reconstruction of the Extemporaneous Speech delivered before the 6th Annual Convention of the Association of Government Mechanical and Electrical Engineers of the Philippines, Manila, 11 May 1972.

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. "Regional Planning for Human Settlements." Speech delivered before the First Philippine Environmental Planning Congress, Quezon City, 31 March 1973. Simkins, Paul D., and Wernstedt, Frederick L. Philippine Migration: The Settlement of the Digos-Padada Valley, Davao Province. Monograph Series, no. 16. New Haven: Yale University Southeast Asia Studies, 1971. Simmons, Alan, et al. Social Change and Internal Migration, A Review of research findings from Africa, Asia, and Latin America. Ottawa: International Development Research Centre, 1977. Smith, Peter C. "Areal Differentiation and the Urbanization Process in Lowland Luzon." PhD. dissertation, University of Chicago, 1970. _, and Bouis, Howarth. "An Approach to Delimiting Social and Economic Concentration Through Scalograms: Mindanao, 1972." Research Note No. 41, Population Institute, University of the Philippines, 1975. Spencer, J. E. "The Cities of the Philippines," Journal of Geography 57 (1958). Todaro, Michael P. Internal Migration m Developing Countries. Geneva: International Labor Organization, 1976. United Nations. "Trends and Prospects in Urban and Rural Population, 19502000, as Assessed in 1973-1974." Prepared by the Population Divi_on, Department of Economics and Social Affairs, 1975. Ullman, Edward L. "Trade Centers and Tributary Areas of the Philippines," GeographicalReview I (1960): 32.56. Von Thtinen, J. H. Dev Isolieste Staat in Beziehung anf Landivertschaft and Nationalokonomie. Hamburg: 1 Ft. Pertues, 1826. Weber, Alfred. Uber der Standoff derlndustie_ Tubingen: J. C. B. Mohr, 1909. Translated and edited by C. J. Friedrich as Theory of the Location of Industrie& Chicago: University of Chicago Press, 1929. Wemstedt, Frederick L., and Sinudns, Paul D. "Migrations and the Settlement of Mindanao," Journal of Asian Studies XXV (1965): 83-103. Zachariah, K. C., and Pemia, E. M. "Migration in the Philippines with Particular Reference to Less Developed Regions of the Country." Report to the World Bank, September 1975. Zipf, George K. Human Behavior and the Principle of Least Effort. Cambridge, Massachusetts: Addison Wesby Press, 1948.

The Distribution

of Income and Wealth:

A Survey of Philippine Research

Mahar Mangahas and Bruno Barros

1. INTRODUCTION: INEQUALITY AND INEQUITY The proposition more controversial mathematical term Defenders

that "more equal" means "better" is obviously than "more" means "better." Inequality is a with more or less neutral ethical connotations.

of inequality

often

call attention

to its vital role in the

functioning of the economic market through factor-price and product-price signals. Work, saving, investment, invention, innovation, and organization all count heavily on material incentives. 1 The argument is not that material incentives need to be unequal for different people, but that they need to be flexible to changing market conditions. Efficient resource allocation requires a responsiveness to economic opportunities which are bound to develop in a differential manner within sectors of the economy, even when not deliberately discriminatory. Furthermore, the government has certain social reasons for wanting to influence resource allocation, which would be difficult to do if deprived of using material incentives among its instruments. Professor of Economics and Lecturer of the School of Economics, respectively, University of the Philippines. The authors wish to acknowledge Teresa Tortes for her able research assistance and Rosalinda Verceluz for typing the drafts. 1. This view is not totally unchallenged by Filipino economists: see Bernardo (1977) on moral vs. material incentives in China.

MaharM_ingahas & BrunoBarros

The most urgent concern for limitations to economic inequality is due not to disagreement with the above argument but to the obvious social dissatisfactions which have become manifest in sociopolitical conflict, including armed conflict. It seems impossible to deny that the foundations of the Muslim rebellion and the leftist insurgencies are connected to economic inequities. These uprisings are solidly in the Filipino historical tradition. The historians of the colonial periods have not been averse to reciting sources of inequity between colonists and colonized, and among native Filipinos as well - one learns how landed wealth was dispensed by the State to a favored few; how dubious money-lending practices exploited the ignorant; how out-and-out landgrabbing made some wealthy on the basis of armed might. 2 The main reason why economic inequalities should be studied is that, the larger the inequalities, the greater the likelihood that they include inequities, or unjust inequalities, and the greater the danger of inducing or escalating civil conflicts, with well-known disruptive consequences, both economic and political. Inequities can be horizontal or vertical. Horizontal inequities arise when equals are not treated equally, and vertical ones occur when unequals are not treated in an appropriately compensatory fashion, i.e., one which is more liberal towards those initially worse off. Familiar examples would be sex discrimination in employment (horizontal) and controlled prices, equally applicable to rich and poor, for basic commodities (vertical). The present land reform policy, while attempting to reduce concentration in land ownership (vertical inequity), has also given rise to other inequities: (a) horizontal: tenants on landowners' retained areas of 7 hectares and below are ineligible for land transfer; (b) vertical: the buying price per unit of land is the same for both large and small landowners (this led to the offer of a few "sweeteners," such as a slightly higher cash : bonds ratio, to the small landowners); (c) horizontal: rich rice and corn landlords can be compelled to sell their properties to the Land Bank, but not rich owners of other property, rural or urban. Economic inequities come in various forms and degrees, leading in turn to social stresses of various degrees, some more dangerous than 2. In the economists' histories, on the other hand (concentrating mainly on the republic), hardly anything nasty seems to happen. One would get the impression that the conditions of rich and poor are rather "natural," determined by (socially acceptable) differentials in natural talents, industry, thrift, and the random fortunes of the market. Could the relative candidness of the traditional historians be due to the many generations of distance between them and their subject matter?

IncomeandWealthDistribution

others. Thus it would be advisable for economic research to focus on inequities, especially the more disruptive ones, since the fax broader subject matter of economic inequalities is bound to include many which do not raise serious social problems. Complete egalitarianism is not a social necessity. Unfortunately, however, most studies have been concerned with inequalities in general instead of inequities in particular, as this survey of the literature will show. Those dealing with inequities axe few. The politically turbulent period of the late sixties, leading up to the declaration of Martial Law in 1972, saw some effort to "feel the pulse" of social unrest through survey interview techniques developed in social psychology (de Jesus and Benitez 1970), and through correlation analysis between economic well-being (or its opposite, economic hardship) and incidence of antigovemment activity (Averch et al. 1970). Another approach is to accept that individuals have their personal values, whatever the ideological basis, as to which inequalities axe acceptable and which are disturbing, and that the majority view (unanimity not required), as determined through an attitudinal survey, represents the social view. Thus, to Filipinos, differences in rank (in the work hierarchy), educational attainment, job seniority, occupation and ability appear to be socially acceptable grounds for income differentials. Nevertheless, inequality of opportunity for higher education and for better occupations is also regarded as socially unacceptable, and hence income inequality attributable to educational or occupational differences is partially inequitable. Age and family size are also felt to be acceptable, but on the basis not of merit but of need. Incomes can also be affected by random events; here, the Filipino attitude, in general, is not to be resentful of others' good fortune, and, at the same time, to be sympathetic to others' misfortunes, a It seems clear enough, therefore, that there are many economic inequalities which are socially tolerable. But these do not constitute aii, and probably not even the majority (in the statistical sense), of the aggregate inequality. Later sections of this survey will show that the data system has concentrated on the relatively "tolerable" in3. The attitudes listed here axe drawn from surveysof the equity research project of the PREPF program(Population, Resources, Environmentand the PhilippineFuture); see Mangahas(1977b). Thisproject avoidedtestingproperty income as to social acceptabilityon the ground that the Constitution makes it subjectto reformand alreadyimpliesthat it is relativelyunacceptable.

Mahar iVlangahas& Bruno Barros

come-corre!ates,

and that

these

variables

explain

only a small part of

income inequality. It is safe to assume that within the gap "between rich and poor" are portions which are perceived as due to accident of birth, unfair exploitation of economic advantage, even illegal) access to physical •capital, human

and unfair (perhaps capital, and natural

resources, and so forth. The ground for such an presence of actual • hostilities, violent for some, among our people. The inequities have not been and researched; it may even be argued that the lack

assumption is the latent for others, well documented of research is one

of the many factors which• help to maintain the status quo. In the meantime, one may hope that, if research on economic inequalities helps eventually to reduce them, it may succeed as well in reducing the inequities imbedded jn the inequalities. 2. THETREND IN INCOME INEQUALITY: KUZNETS'S HYPOTHESIS The view that income inequality typically gets worse before it gets better, enunciated by Simon Kuznets (1955) a generation ago, has been a most durable one. There has been no lack of theories as to how the process, particularly the worsening component, operates: 1. The most straightforward explanation is that economic growth, whether fuelled by technological change or resource growth, cannot occur evenly in all economic activities. Kuznets himself has recently emphasized that he derived the inverted-U hypothesis from broad historical and analytical considerations, not from time series data. He describes modern economic growth as "a kind of controlled revolution" in which (1) interest positions and group interests shift rapidly, (2) poverty can increase, and (3) wealth and power Can become c_ncentrated in the hands of a few. 4 4. See Kuznets' Introduction to CAMS-JERC (1975). Sicat has expressed a similar view, but in a more neutral manner (1972, pp. 284-85): Economic growth, in essence, is characterized by a disruption Of the relative positions of all income-earning sectors, by an uneven expansion of economic sectors, and by displacement of some activities by other activities. Consequently, in the case of income earners beginning initially at the same level, those who are related to fast-growing sectors will have much higher levels of income earnings after some time. And in the case of sectors with initially unequal incomes, there will come a time when fast growing sectors with low incomes will exceed the •income position of low-growing or stagnating sectors with better income positions before. A growth of income inequality in this case is evident.

IncomeandWealthDistribution

2. Another explanation is related to the structure of demand for products. By Engel's Law, the share of the agricultural sector (expressed in terms of proportion of value-added or proportion of employment) will fall as per capita income rises. However, this sector not only has a lower average income level, but also is internally more equal than the nonagricultural sector. Thus Engel's Law tends to worsen overall inequality both by giving increased relative importance to the more unequal sector and by raising the differential in average income between the sectors. 3. An additional consideration is the pattern of urban-rural development. As stated by Sic.at (1972, p. 298): Considering that further economic development will involve a more intense degree of urbanization in the Metropolitan Manila and other relatively less 'urbanized' regions.... the phenomenon of greater income inequality as a consequence of the economic growth process will continue to be observed in the future.(his italics) 4. A more complex explanation, bringing in the occupational structure, government subsidies, and the eventual tightening of the labor market, has been offered by Mizoguchi: s In the early stages, rural inequality widens as the agricultural sector grows more and more commercialized, and urban inequality also widens, though gradually; he sets the Philippines, Thailand and Malaysia in this category. The next stage is one of rapid industrialization, with a widening of income differentials across occupations and across industries (Korea and Hong Kong). Typically, there are subsidies granted to the agricultural sector, in order to help narrow the gap between rural and urban incomes. However, these subsidies, he asserts, tend to be overproportionately enjoyed by the better-off farmers, thus widening further the rural inequality in incomes (Japan, Korea, Taiwan, and the Philippines). The turning point is finally reached when the labor market shifts from surplus to scarcity. There is a regional dispersal of industries and of income opportunities such that (i) regional differences in average income contract and (ii) rural households shift to becoming part-time farming households, raising the proportion of their income derived from nonagricultural sources, with rural income inequality thus narrowing (Japan, Taiwan, and Singapore). 5. See his introduction to Oshima and Mizoguchi(1978).'This stems from Hitotsubashi University's ongoing Income and Assets Distribution Research Project, which began in 1975, and covers several East and Southeast Asian countries.

MaharMangahas & BrunoBarros

5. An eclectic approach, espoused by Adelman (1976), relying on statistical rather than deductive techniques, has listed eight processes typical of the manner by which economic development worsens inequality. These are derived from cross-national data, and it is striking how similar the Philippine case is to the "average" LDC. The processes are: (i) a high rate of population growth; (ii) an immiserizing inflation, acting more strongly on wage-goods than on other goods; (iii) geographically imbalanced growth; (iv) overly capital-intensive technology, with the share of property in total income increasing, and a severe unemployment problem; (v) a lack of social mobility; (vi) import-substitution policies, which raise prices of wage-goods; (vii) "soft" world market prices for export crops; and (viii) a gradual destruction of handicraft industries. 6 The empirical evidence for the Kuznets hypothesis is somewhat mixed, mainly because time series data on income inequality are extremely limited. Cline (1975) contends that only half of the few available cases with time series show growth accompanied by worsening inequality. The Kuznets hypothesis stands up most clearly in intercountry comparisons, e.g., Paukert's (1973) cross-section, circa 1965, of 56 countries, which clearly displays an inverted-U of inequality graphed against per capita GNP, with inequality peaking at about U.S.$250-350 per capita GNP (1965 values). The statistical fit is quite rough, and, given the per capita GNP level, deviations of the Gini ratio by -+ 15 points from the inverted-U can be observed. It so happens, however, that the Philippine point is one of those very close to the curve, appearing just before the peak. Thus, projecting the Philippine path along the Kuznets curve, at the (then) NEDA target growth rate of 7 per cent per year for GNP, Barlis (1975) estimated that the Philippine Gini ratio would rise from .50 in 1971 to .52-.53 in the 1980's, return to .50 in the 1990's, and fall to .46-.47 by the year 2000. 7 Alternatively, Sicat's judgment (1972) that the inequality peak would only come with a per capita GNP of 6. General Philippine studies such as those by Power and Sicat (1971) and the Ranis Report (ILO, 1974) indicate the relevanceof these conditions. On the rising trend of the share of property, see Sta. Romana (1975); on the lessening of social mobility, see Lauby (1976); and on the decline of the Philippine handicraft sector, see Resnick (1970). 7. NEDA technicians reached similar results using a cross-country-based, Kuznets-type equation of Chenery and Syrkin(1975); these results were used in an early draft of the present 1978-82 Plan, but deleted later (see Mangahas 1979b).

IncomeandWealthDistribution

U.S.$500-800 (1972 prices) would imply, given current rates of growth, that the peak would not be reached until close to the year 2000. Granting that the Kuznets hypothesis may apply in the Philippine case, historically speaking, the next questions are, first, are explanations (a)-(d) the valid ones? Secondly, do they imply that the dismal prognosis is inevitable, or can development managers find a means to avoid it? To both these questions, it would seem that, as of now, one can only answer both yes and no. The empirical studies of inequality, discussed in the next section, have not succeeded in explaining even half of the overall inequality. They do not invalidate the development theory presented above; but neither do they prove what the crux of the matter is. Moreover, the fewer the proven determinants of inequality, the less the policy options which may be derived from the research. The main obstacle to the research is shown to be the inadequacy of the data base; the state of the distributional data is discussed in a separate section.

3. MACRO-STUDIESOF INCOMEDISTRIBUTION It is interesting to recall the two general approaches which economic growth studies, popular in the 1950's and 1960's used. s One approach lies in attributing the expansion in output to the growth of inputs and is often referred to as the growth-accounting method. The other employs a deterministic model of income or output generation which may stress some key factors such as the savings rate, population growth, etc. 9 With time series data from national income accounts, both methods were able to explain a large amount, say 80 per cent, of output growth, and the residual of only 20 per cent was significant enough to provoke more research into technological change. Analogous to the growth-accounting method is decomposition analysis of income inequality. This usually entails dividing the population of income recipients into various sets, limited, of course, by 8. Besides the papers reviewed in this section, see also Tan (1976), and Barros (1976), Terasaki and Sta. Romana (1978), Mangahas Mangahas (I 975a, 1975b), and the International Labour Office (I 974). 9. The first approach is associated with, for instance, Nelson, and the second with the work of Robert Solow.

Oshima (1973),

the work by Richard

MaharMangahas & BrunoBarros

the available data. x0 A summary statistic measuring the inequality in the size distribution of income is then arithmetically decomposed into the portions which are attributable to between-set and withinset differences in income. An alternative to decomposition by sets of recipients is decomposition by type of income received. For instance, total income may be divided into its factor components (rents, wages, profits) and the contribution of each component to overall inequality is then computed. The second approach by which income inequality has been examined is by considering the distribution of attributes that are thought to determine income. It is common to find regression analyses of the relationship between income and some set of human capital and demographic or labor force characteristics. Unfortunately, distribution research has not been quite as successful, statistically speaking, as growth research. The proportion of income inequality which has been explained has been more of the order of 20 per cent, and the area of ignorance has been about 80 per cent - distinctly opposite to the successful experience of the growth researchers. This has not discouraged model-builders from incorporating income distribution in their simulations, a third approach discussed below, though it has prevented them from modelling inequality as a fully-flexible and policy-responsive variable. 3.1 Decomposition

Analysis

Mangahas (1975b) developed a decomposition of the Gini ratio according to income recipients and applied it to data on recipientsets from the published 1961, 1965 and 1971 Family Income and Expenditures Surveys. This allowed decompositions according to area or urbanization, region, and main source of income. In all three cases he found that inequalities between areas, regions and income sources explained only a small amount (about 5-7 per cent) of the national Gini ratio of about 50 points, while unexplained inequalities within the cells of these three sets accounted for the remainder.11 10. Some of the more common sets that one encounters are: rural vs. urban location; regional location; occupation; age, sex and schooling attainment of the household head. 11. This conclusion holds up regardless of which inequality measure is decomposed. For instance, Holazo (1974) decomposed the Theft index of 1971 regionally and found that the (unexplained) inequality within regions amounted to 84 per cent of the total.

IncomeandWealthDistribution

Income appeared to be more concentrated at higher levels of urbanization, and did not remain static within each region over time. However there was no visible relationship, across the regions, between degree of income inequality and average family income. Not unexpectedly, income from property was most noticeably concentrated. However, the data did not include the size distribution of property. These results imply that manipulation of the population according to area (migration policy or rural development policy) or region (policy on differential regional development) can be expected to have only a small effect on reducing overall income inequality. While it is true that rural people, as well as people in certain identifiable regions (Eastern Visayas, Cagayan Valley, and Iiocos), are poorer on the average, it is more important to keep in mind that within each and every area and region there is a high degree of income concentration, and that each place has both its rich and its poor. The inner degrees of concentration, which have thus far evaded empirical examination, brook the largest share in the overall inequality. The prime missing explanatory variable from the data sets would appear to be income-earning assets, both natural (land) and reproducible (capital goods), since schooling data are already available to a good extent. Thus the top research priority is for data development. without which increased sophistication in analytical techniques would hardly be promising. A second general type of decomposition considers sets of income rather than sets of income-recipients. Fei and Ranis (1974) developed this decomposition of the Gini ratio in particular, and Mangahas and Gamboa (1976) applied it to 1971 FIES data. This approach studies inequalities within and between, say, wages and rents, rather than within and between workers and rentiers. Again, for this approach to yield explanatory value, it is crucial that the available classifications distinguish very strongly between the groups, as would be the case if, for instance, it was found that the incidence of wage income was very high among the 10w income classes and that the incidence of rental income was very high among the upper income classes. Unfortunately, this was not found to hold in the 1971 FIES data set, where the classifications were wages, entrepreneurial income, rents, and other income. Instead, it was found that the level of every type of income is highly correlated with the level of income from all sources combined, and that inequality within each type of

MaharMangahas & BrunoBarros

income (which is therefore not explainable by type of income) is uniformly high. There would appear to be at least two data problems here. First, entrepreneurial income, which represents combined labor and properry income where it is difficult to separate the two, does not distinguish between farmers, the self-employed and small proprietors on the one hand and the agricultural absentee landlords and medium _nd large businessmen-capitalists on the other. Secondly, the rentals are probably much understated, to the extent that the data may reflect rental values of owner-occupied dwellings more than actual rental receipts. Thus, the second type of decomposition has not been too fruitful either, not for lack of analytical sophistication but for lack of detail in the basic data. The policy implications are again nonpositive: for instance, it cannot be said that there is a real gain to be had from converting people from dependence on one type of income to dependence on another type (such as promoting wage-employment), since each type -at least insofar as the types are presently classified in the data - possesses a high degree of internal inequality. 3.2 Income Functions Studies which have taken the deterministic approach include Encamaci6n (1975, 1978), dealing with household head's income; Mangahas and Jayme-Ho (1976), dealing with female earners; and Quizon (1977), dealing with both individual income and overall family income. All made use of the 1968 National Demographic Survey; and Quizon, in addition, used the 1975 PREPF national survey. The procedure was to regress income, often in natural log 12 units, on a set of variables including various attributes of the indi12. The justification of the semi-logarithmic form goes back to Mincer (1970), who theorized that, under competitive equilibrium and interest rate r, the annual earning Es of an individualwith s years of schooling would be related to the annual earningsEo of one with no schooling by approximately Es = Eoers or loges = logEo + rs. (The empirical results always find schooling to be the most significant determinant, among the available variables; nonscho01ing variables can be brought in by assuming that log Eo is a linear function of them.) Lognormality of the income distribution need not be a consideration in the selection of functional form; the semi-logarithmic form is neither a necessary nor a sufficient condition for lognOrmality.

IncomeandWealthDistribution

vidual, attributes of the individual's family, and characteristics of the labor market (e.g., the regional unemployment rate) in which the individual works. In general, these regressions result in R2's of only .20-.30. Quizon, with the 1975 PREPF data, succeeded in getting R 2's of .40 using an "experience" variable (approximate number of years since leaving school) and of .50 using family income from nonwork sources as a proxy for family wealth. It is worth noting that none of these studies had size of assets or wealth in the available data set. In the equity context, R 2, or the proportion of total income variance which is explainable by the determinants, is a rough index of the equalizing potential of policies manipulating the determinants. if only 20 per cent of income inequality were understood, then no known policy interventions could go far enough to reduce the inequality by 40 per cent (picture the Gini ratio failing from .50 to .30). Furthermore, since the income-determinants are obviously not fully equalizable - not everyone can have college education, b_ a manager, work in Manila, etc. - the explanatory power of the determinants, in terms of R 2, has to be a good deal larger than the socially desirable relative reduction in income inequality. Upon simulating changes within plausible limits, in the sectoral composition of labor, the proportion unemployed, and the distribution of the population by age, sex, occupation, hours worked, and education, Quizon found that the Gini ratio in his data set fluctuated by only -+1 point. In alternative experiments, in which he arbitrarily lowered by about 10 per cent the income coefficients related to differentials according to sex, occupation and sectoral employment, the Gini ratio responded a bit more, by about 3 points. Of course, R 2 does not have to be large before a variable can be declared "statistically significant," or for its observable income-effect to be of meaningful size. In the various income-function trials, education invariably emerged as the most significant factor. This can be seen in the income function example in Table 3.1. Thus, Enearnaci6n (1978) cites raising the general level of education as a long-run means of reducing inequality. In the short run, however, he considers "hours of work" as a policy variable, and suggests that the government be an employer of last resort, guaranteeing productive work to anyone who cannot find sufficient worktime. The example also shows that, after schooling and hours worked,

Mahar Mangahas& Bruno Barros

Table 3.1 Example of an Income Function for Luzon, 1965 Base of comparison: Male;age: 15-24; no schooling;self-employed;nonmigzant; occupation: farmer (nonowner); sector: agriculture;location: urban; hours worked during survey week: 1-19. Intercept: -1.2785 or P278. R 2 = .28. Sourceof example:Encarnaci6n1978, Table 15.

Log-difference from base x I00"" Schooling Grades 1-4 Grades 5-7 1-3 years of high school High School graduate 1-3 years college College graduate

Log-difference from basex I00" Sector

48 59 71 75 110 153

Age

Manufacturing and mining Construction Transport, etc. Commerce Services

27 17 25 41 18

Occupation 25-34 35-44 45-54 55-64 65 and over

18 26 29 24 31

Female Employee Migrant Rural

Farmer-owner Nonfarm service and unskilled Skilled workers, etc. Clerical and sales Professionals, etc.

- 5 5 21 21 39

Hours worked 11 9 -14

20-39 40-49 50 and over

28 31 49

*Roughlysimilarto percentage differencefrom the base income.

sex is the next variable in terms of coefficient size. in their study of income and labor force participation rates of women, Mangahas and Jayme-Ho (1976) felt that the female income disadvantage was due not so much to outright discrimination (lower pay for the same work as a man) but to social biases generally low-paying, as suitable upper-strata, supervisory-oriented,

which "type" certain occupations, for women, and which reserve the positions of many occupations for

IncomeandWealthDistribution

men. _3 They point out that discrimination against women leadsnot merely to inefficient resource allocation but also to relative inequity to those families having a high proportion of females, most of all those headed by females (which is the case for about 10 per cent of Filipino families). 3.3 Simulation

Models.

Simulation techniques with macro-models have been used in two studies funded by the International Labour Office (ILO). Paukert et al. (1975) have constructed air input-outputmodel to examine the effects of hypothetical changes in income distribution on Philippine growth and employment. This pivots on the relation-. ship between the distribution pattern and the Structure of consumption, since the latter determines output mix and employment within the model. The assumption of differential consumption choices for the poor versus the rich is, of course, mandatory. Beginning with the actual 1971 situation as a baseline condition, 22 alternative income distributions were simulated. The most interesting conclusion is that there seems to be hardly any trade-off between growth and equality, i.e., the growth rate was virtually unaffected by the distributional simulations. The employment effects of redistribution are strong due to a shift towards consumption of the output of more labor-intensive industries. Production shifts are labor-intensive-biased. The effect on the trade balance is negative but not strong. Decreases in savings (operating through the estimated consumption/saving functions) cause a mild negative effect on growth and employment. The other ILO model, named BACHUE, is extensively disaggregated. It is a general model that was estimated first for the Philippines (Rodgers et al. 1978), but which has since then been applied also in Kenya, Brazil, and Yugoslavia (Moreland 1978). Its main features are that it is composed of three subsystems and focuses on the intermediate and the long run (Adelman et al. 1976, 13. They also draw attention to the bias in much female labor force theory itself, which treats female income only as "supplementary" and the female labor-force participation decision as sequentially dependent on the male's income and employment. Whereas,under the increasingly accepted theory of family decision-making, income must be treated under the "full" concept (including home production) and market-work and home-work allocations .among all family members are made jointly,

not sequentially.

MaharMangahas & BrunoBarros

Rodgers et al. 1978). The economic subsystem is demand-based and multisectoral. It is also linked to population and to employment/ income distribution through final demand and output. In the wage and income subsystem, the distribution picture is drawn by estimating payments to persons, generated by the labor market condition, and mapping these onto households. The demographic subsystem determines such factors as marriage rates, fertility, migration, education, and mortality. Alternative futures for the Philippines are projected (usually up to the year 2000) by varying policies and conditions in: education, population, labor force participation, public works, technology, sectoral development strategy, growth, and others. Among the main findings of BACHUE are the following: (a) The distribution of income is exceedingly stable. (It should be pointed out, however, that the policy options considered are the conventional growth-oriental options, e.g., import-substitution versus export-substitution policy; in particular, land reform and other asset redistribution policies were not tested.) (b) Population growth limitation has relatively little effect on poverty reduction. (c) Rural-urban interactions are important and varied. Sectoral terms of trade can considerably change the relative incidence of urban and rural poverty. Raising the agricultural terms of trade can be an effective means of alleviating rural poverty where the bulk of the problem is found, but this may also injure the urban poor if a radical restructuring of capital ownership does not take place. (d) Balanced growth policies are needed for effective antipoverty programs. (e) Rural works programs can reduce both urban and rural poverty (f) Technology on its own does not affect distribution. Moreover, development of small-scale industries has little distributional effect. (g) Overall rural development programs are helpful until selfsufficiency in food is reached. Thereafter, either price supports, increased demand, or limited productivity (in order to keep agricultural prices high) is necessary. In general, the results of such experiments should be treated with great caution. Computer simulations only give tentative results, and,

IncomeandWealthDistribution

where certain policies are identified as promising, the next step is to test them in the field. On the other hand, if many of the simulations are fruitless (see conclusion (a) above), it would also be erroneous to conclude that the problem is insoluble.14 4. DISTRIBUTIONALDATA There have been at least nine attempts on a nationwide sample survey basis: 1s

at collecting income data

- The Family Income and Expenditures Surveys (FIES) in 1956, 1961, 1965, 1971, and 1975 conducted by the National Census and Statistics Office (formerly the Bureau of the Census and Statistics). - The National Demographic Surveys (NDS) of 1968 and 1973 conducted by the University of the Philippines Population Institute. -The Population, Resources, Environment and the Philippine Future National socioeconomic survey (PREPF-GINA) of 1975, a joint undertaking of the U.P. School of Economics, U.P. Population Institute, and the Development Academy of the Philippines. - The Philippine Social Science Council (PSSC) Survey on Filipino Family Households Distribution of Income and Consumption Expenditure Patterns, 1974, results of which are reported in Parel and Caldito (1976). Table 4.1 presents mean income levels and Gini concentration ratios obtained fromthese surveys since 1961. There is no clear.trend to be seen. One could simply infer that the Gini ratio has been roughly at.50 or more during the-past two decades. Before further conclusions may be drawn, each type of survey is discussed in more detail below. 4.1 The Family Income and Expenditures

Surveys

The most widely used source of data is probably the FIES. Sample sizes are rather large; they rose from about 5,000-6,000 households 14. One hopes that a laboratory-provencure for cancer will be replicatedin actualpractice;and laboratoryfailuresonly mean that newertreatmentsmustbe foundandtested, not that cancercannot be cured. 15. Important references for this section are Lira (1978) and Terasakiand Sta.Romana(1978).

Mahar Mangahas& Bruno Barros

Table 4.1 Mean Income and Income Inequality in Several National Household Surveys, 1961-75

1961 1965 1968 1971 1974 1975 1975

Survey

Mean income per household (currentprices)

FIE$ FIES ND$ FIES PSSC PREPF-GINA FIES

1,804 2,541 not available 3,736 8,901 5,731 5,840

Gins coefficient

.50 .50 .64 .48 .62 .51 .44

in 1961 and 1965 to 12,000 in 1971. For twenty years or so they were conducted fairly regularly at approximately five-year intervals. Cross-tabulations are possible between income and a number of other variables.16 Since the FIES is the only source of repeated surveys, there have been many attempts to draw trend-conclusions from it. However, such attempts meet some serious problems. In the first place, the definiton of urban has been growing wider over the years; this is a minor criticism. A more serious issue is the consistency of the FIES with the National Income Accounts (the latter, obviously, has been regularly recording per capita income growth every year). Table 4.2 contains comparisons made by Lim (1978) showing that the FIES of 1957-71 managed to capture nearly two-thirds of Personal Income; however, there was a tremendous undercoverage in 1975 when less than half of Personal Income was captured. Barros (1978) has shown in Table 4.3 that the FIES of 1971 and earlier are somewhat worse in coverage than comparable surveys in neighboring countries. In light of this, the 1975 survey would obviously fare poorly in comparison. Tile undercoverage problem has been worsening. The Ranis Employment Mission of 1973, commenting on the FIES available at the time, stated that "there is good reason to suspect that under16. Researchers have been limited to published tabulations only, and have not been given access to data tapes. One odd exception to the rule of NCSO's policy of closely guarding its raw data was the provision of the 1965 tapes to the University of Wisconsin (see Meyer 1976). Later the U.P. School of Economies was able to acquire a copy of the 1965 data tape from Meyer,

Income and Wealth Distribution

Table 4.2 Comparison of the Personal Income and the FIES Income Estimates: 1957, 1961, 1965, 1971,and 1975 FIES aggregated household income (million pesos) (1)

Year

1957 1961 1965 1971 1975

Aggregate pets onal income (million pesos) (2)

5,824 7,982 13,024 23,714 40,059 a

(I) + (2) (per cent)

9,057 b 13,053 19,869 36,196 b 88,955

64.3 61.2 65.6 65.5 44.0

a. Estimate based on preliminary hand tally. b. Adjusted to have similar reference period as FIES estimates by using monthly averages. Source: Lira (1978 Table VIII, p. 90).

Table 4.3 Comparative Degree of Coverage of Income Surveys in Selected Asian Countries a

by Household

Survey income relat_e to national accounts

income

(per cent)

Philippines (1971 ) Malaysia (1967-68) Thailand (1968-69) South Korea (1966) Japan (1968)

58 b 60 69 73 73

a. Estimates of the household surveys and the National Accounts do not necessarily have the same reference periods. Differences vary for each country. b. Unadjusted for the referenve period. Source: Baxros (1978, Table 3.3).

reporting

was

10 per cent third in real ble." PREPF

higher

of urban income

(International research

1971

than

before.

For

instance,

for

the

top

families, the data imply a fall of almost onefrom 1965 to 1971, which surely is implausiLabour

project

had

Office to reject

1974, the

9).

1975

Later, FIES,

in 1977, on the

the

ground

MaharMangahas & BrunoBarros

that it would have real per capita income declining over 1971-75, contradictory to the "facts" given by the National Accounts (Mangahas, Quizon and Lira 1977). It suggested that the reason for the undercoverage could be the failure to draw a meaningful number of survey respondents from the residential enclaves of the rich. 4.2 The National Demographic

Surveys

In the 1968 NDS, the annual income (in cash and in kind) of each family member was surveyed; it included salaries, wages, profits, value of production, income_ from property, and other nonwork income. The 1973 NDS survey questions on income included only two: the respondent's estimation of (1) cash income and (2) noncash income. The 1968 NDS had the advantage of matching individual characteristics (such as employment status, educational level, occupation, etc.) with income but is generally considered to have underestimated income in kind, especially in the rural area (Encarnacibn et al. 1974). Income unde_eporting in the 1973 NDS may have been due to the lack of detail and emphasis on earnings in the survey questionnaires (Lim 1978). Both the 1968 NDS and the 1973 NDS drew a rather large number of households nationwide, 7,237 in 1968 and 8,434 in 1973. However, they concentrated on demographic rather than economic variables and appear to be even more overrepresentative of the lower income groups than the Family Income and Expenditure Surveys at that time. In Manila, for example, the mean household head's income was 1_3,235 in the 1968 NDS, while the mean family income was t"6,590 in the 1965 FIES and P7,785 in the 1971 FIES. The NDS level seems lower, even after allowing for multiple earners in the family. Nevertheless, the income inequality displayed in the NDS is still substantial, with the standard deviation of the natural log of income ranging from .74 in Manila to 1.03 in Mindanao, roughly the equivalent of a Gini ratio range of .40 to .53) 7 17. Underexact lognormaUtyof distribution of income, the Gini ratio L may be computed from the log standard deviation s by L = .4018 + 0.4675 (S - 0.75). This is a highly accurate approximation for S rangingfrom .40 to .60; see the appendix in Mangahas,Quizon and Lim (1977).

IncomeandWealthDistribution 4.3 The Population, Resources, Future (PREPF) Surveys

Environment

69 and the Philippine

To collect household data on a host of economic variables, including income (cash and noncash) and wealth, the PREPF project launched three surveys in 1975. Its national socioeconomic survey, code-named GINA, carried out 2,920 household interviews in 60 provinces. As in the FIES, respondents were aided in recalling income receipts by grouping them into several categories: receipts from household production activity (e.g., farming, cottage industry, etc.), wages/salaries, rents from various sources, and other nonwork income including inheritances. Imputation of rent from owner occupied houses and of home consumed production was done by respondents. In order to obtain information specifically on upper income receivers, PREPF did two additional surveys, using self-accomplished questionnaires. One set of respondents consisted of the parents of students in Metro Manila's exclusive schools, Is while another included members of special elite groups, including those in government, the U.P. Alumni Council, Rotarians, and top income taxpayers. 19 Of the nearly 4,000 questionnaires mailed to the first group, 2,296 were completed and returned. In the second group, 470 sent back answers. Response rates for Rotarians and top taxpayers were 30 per cent and 23 per cent, respectively. The PREPF surveys are especially interesting for two other reasons. Firstly, they were conducted in the same year, 1975, as was the NCSO-FIES, so their results can be compared. Secondly, special efforts were made to identify both sampling and nonsampling errors that are probably not particular to PREPF and are, in all likelihood, experienced in similar attempts at collecting distributional data. In the course of the GINA survey, enumerators were required to make a daily report on how they adjudged the credibility of each 18. This survey of parents was carried out with the cooperation of the elementaryand high school departmentsof De La $alle, St. Theresa's,Lottrdes, â&#x20AC;˘ San Beds, Ateneo de Manila, San Agustin, Jo_ Rizal College, Philippine ChristianCollege, St. Joseph's, Maryknoll, St. Paul's,and the University of the Philippines.The credit for this idea goes to the late Frank Lynch, S.J., Ateneo de ManilaUniversity. 19. Those surveyed were participantsin the DAP Career Executive Service Development Program, Se_ions VII, VIII, IX; U.P. Alumni Homecoming participants, April 1976; and taxpayers drawn at random from the Bureauof InternalRevenue'slist of 1,000 top individualincome taxpayers.

MaharMangahas & BrunoBarros

respondent on the basis of doubtfulness of responses and the difficulty with which questions were answered. Table 4.4 shows the resuits of these reports. On the whole, about one-fourth of those interviewed yielded doubtful or difficult-to-obtain responses on one or more of the questionnaire items. It is true that these proportions seem to be on the high side. However, their magnitudes depend very much on area, and vary widely from place to place. This could indicate that reliability depends, to a large extent, on such things as the quality of the interviewer, local and political conditions, etc., and not on the questionnaire itself. It is also interesting to note that respondents may be hesitant to speak about their income, but relatively open with respect to their attitudes and perceptions. This suggests promise for further surveys that are carefully designed to submit perception-type indicators (such as poverty). Another important outcome of the PREPF documentation of sampling errors is that the present procedure of simple random techniques, with political subdivisions such as barangays as preliminary sampling units, inevitably results in too few upper income families being reached. For instance, it was discovered (too late unfortunately) that within PREPF's sampling framework Sikatuna Village emerged as the "upper strata" neighborhood of Metro Manila. Other surveys exhibit similarities: the PSSC survey (discussed below) had Cubao as its high income area of Metro Manila while the 1975 NCSOFIES also failed to capture a sufficient-number of households in "better off" vicinities or did not acquire usable questionnaires when these were sampled. 2째 A casual stroll through the "exclusive" residential villages of Makati is enough to demonstrate that these surveys have completely ignored the obvious high-income enclaves. This apparent failure to draw a representative number of upper income families into the sample was certainly one of the reasons why the 1975 NCSO-FIES average annual household income estimate of _P6,000 fell far below the National Accounts estimate of Personal income divided by the number of households (1_13,000). The PREPF-GINA (national) survey also resulted in an exceedingly low figure for average income. Fortunately, the GINA results could be spliced with those of its survey covering parents of students 20. Private conversations with NCSO staff members bore this out. See also Mangahas,Quizon and Lim (1977).

Table 4.4 PREPF-Gina Survey: Doubtful Responses and Difficulty in Answering Questionnaire Items on Income and Other Variables (1975) Survey location

Total

Total sample A.

Percentage

of respondents

Nuera Vizcaya

297

298

with doubtful

responses,

Sorsogon

E. Sarape

Leyte

Cebu

Agu_n det Norte

Davao del Sur

Â˘_ 0

296

294

292

291

271

288

293

300

2.4 13.4 10.3

3.8 3.8 12.0

10.7 17.3 27.7

22.9 20.1 33.3

4.4 16.7 3.8

60.0 60.7. 65.0

_--

by questionnaire

28.0

9.8

77.2

9.1

3.7

9.9

9.6

23.6

16.7

6.5

62.3

16.9

8.4

69.1

2.4

7.5

3.4

8.5

II.8

5.8

49.0

76.2 .3

6.4 .3

2.7 .......

8.2

8.9

20.7

16.0

4.8

64.0

6.5 15.0 5.1

57.7 60.3 61.3

Percentage

of respondents

1. Education 2. Desired education 3. Income 4. Equity attitudes (Part I) 5. Inheritance 6. Equity attitudes (Part lI) 7. Others

experiencing

difficulty

7.1 9.1 12.8

item

4. Equity attitudes (PartI)

10.8 -

76:5 75.5 74.2

Laguna

20.0 23.4 28.0

22.1 .0

6.1 13.1 19.5

Pampanga

1. Education 2. Desired education 3. Income

5. Inheritance 6. Equity attitudes (Part II) 7. Others E.

2,920

Metro Manila

in responding,

3.4 2.0 20.1

by questionnaire

item

22.2 28.2 28.1

10.1 18.5 17.5

76.5 75.8 73.2

17.9 23.0 21.3

6.1 8.5 14.3

6.2 21.9 13.7

5.2 8.9 I 1.7

13.3 23.2 33.9

20.5 24.3 27.8

28.8 17.1

13.5 6.4

76.2 69.1

35.1 4.4

12.9 1.4

19.5 5.1

11.3 4.5

31.4 12.5

14.9 11.8

9.9 5.8

62.0 48.3

25.3 .1

13.5 -

76.8 .3

32.4 .3

13.9 .3

17.1 ......

11.3

29.5

15.6

7.8

61.7

Source: Ochoa (1977, Appendix II, Table 1).

-_, "_. (3" e_. "_

Mahar Mangahas& Bruno Barros

in exclusive schools in Metro average income figure more Income Accounts.

Manila. The adjustment resulted in an consistent with that of the National

After applying so many rough, niques, PREPF researchers deemed

yet necessary, adjustment techit specious to offer any distribu-

tion with many, finely delineated income classes. Limiting just five income classes, the PREPF adjusted distribution, yields a Gini coefficient of 0.56, as shown in Table 4.5. PREPF improved

itself to which

analysis has shown that interview procedures have to be in. order to minimize the problem of understatement

among those in the sample. The revisions will have to go much further than mere redefinition of terms. For example, present definitional differences between the NCSO-FIES and the National Income Accounts

cannot

account

for the large discrepancy

between

the two.

Neither is there a problem of insufficient sample size per se; it is possible that the sample size could even be reduced, provided that improvements are made in the accuracy of both respondent selection and the responses themselves.

Table 4.5 PREPF Philippine Income Distribution, 1975" Income per household

Percent of households

The poor Lower class

Less than P 10,000 P 10,000 - 19,000

61 21

Middle

P20,000

- 49,000

t'50,000

and above

Upper

class class

The rich

P 100,000

and above

*Obtained from splicing the PREPF national survey (GINA) of parents of students in exclusive sehools in Metro Manila.

4.4 The Philippine 1974

Social

Science

Council

within upper class survey

(PSSC)

National

Survey,

The Philippine Social Science Council National Survey in 1974 of Parel and Caldito (n.d.) was a medium-sized undertaking of 1970 households apparently intended to be as nationally representative as the PSSC resources and sample areas were limited

institutional network would permit. The to those in the vicinity of PSSC-affiliated

Incomeand Wealth Distribution

research centers, 21 thus covering most, though not all, regions. For the reference period of October 1973-September 1974, the PSSC survey found a mean household annual income of P8,901, which is the largest among all the income surveys thus far. Nevertheless, this mean income is still on the low side since (a) the same PSSC survey's mean household expenditure was P10,185, giving an implausible aggregate deficit of over 14 per cent, and (b) the Personal Income per household implicit from the National Accounts was well over "P12,000 at that time. Table 4.6 contains the PSSC 1974 income distribution. The implicit Gini concentration ratio is .62, which is the highest among all Philippine studies, including the PREPF reference distribution's .56. Table 4.6 Distribution of Income, PSSC National Survey, October 1973-September 1974 Percentageof households

Annual income

Below it"1,000 P1,000 - 4,999 5,000 - 9,999 10,000 - 19,999 20,000 - 29,999 30,000 - 39,999 40,000 - 49,999 50,000 - 59,999 60,000 - 69,999 70,000 - 79,999 80,000 - 89,999 90,000 - 99,999 100,000 and above No response Total

National

Rural

Urban

10.67 41.23 23.61 11.44 4.04 1.04 .75 .68 .27 .19 .20 .12 .99 4.77

14.10 43.20 23.45 9.99 3.58 .79 .45 .60 .02 .22 .24 .19 .93 2.24

4.80 37.86 23.88 13.92 4.83 1.46 1.26 .81 .70 .14 .13 1.10 9.09

100.00

Source: Pareland Caldito(n.d., Table 48, p. 68).

21. The centers were: in Luzon: Greater Manila, Ilagan (Isabela), Naga City, Tuguegarao (Cagayan), San Jose (Mindoro Occidental), Legaspi City, and Baguio City; in the Visayas: Bacolod City, Cebu City, Tacloban City, lloilo City, and Dumaguete City; and in Mindanao: Davao City, Jolo (Sulu), Cotabato City, Zamboanga City, Ozamiz City, and Puerto Princesa City.

MaharMangahas & BrunoBarros

The coverage of income items in the questionnaire was fairly comprehensive, including, for example, the value of home-consumed crops and livestock, and income from hunting and fishing, though excluding tips, bonuses, commissions, transfers, and home-produced and consumed manufactures. Like the PREPF-GINA survey, the PSSC survey is valuable from the research standpoint in that many sampling and nonsampling problems are documented for scrutiny. Again, one may surmise that the official surveys may have faced similar problems, e.g., the inability of fieldworkers to include peace-and-order problem areas, such as rural Sulu, in the sample. The no-response rate on the income variable was 9.1 per cent of the urban sample and 2.2 per cent of the rural sample (Parel and Caldito n.d., p. 73). For income from land, in particular, the NR rate was 20 per cent of agricultural landowners and a huge 70 per cent of nonagricultural landowners. The PSSC survey is notable in having included separate items on land ownership, land values, and net income from land; some summary data are found in Table 4.7. 4.5 Some Non-Nationwide/Non-Income

Surveys

The National Food and Agricultural Council (NFAC) has been conducting a quarterly Income and Food Consumption Survey since 1970. its sample size is small (no more than 1,000 households); and, in view of the survey's prime objective (nutrition information), questions on income are asked only as a reference. Since income is finally tabulated in only 4 or 6 classes, the survey is, in general, not extremely useful. Ideally, tax records should provide invaluable information on earnings. This is especially true of the upper income groups. Unfortunately, the Bureau of Internal Revenue has been traditionally reluctant to allow researchers access to records of tax returns. 22 However, in 1960 the Joint Legislative-Executive Tax Commission did conduct a special household survey to assess the tax burden. 23 Although detailed analysis is precluded by the scarcity of possible cross-tabulations of the results, they do permit some estimation of an income distribution profile as the sample size is 6,956 families. 22. An exception appears to be Samson (1967) who managed to use these records in her paper which is discussedbelow. 23. The report on tax burden is discussedin a later section.

Incomeand Wealth Distribution

Table 4.7 Land Ownership and Land Income PSSC National Survey, 1974 National

Rural

UrBan

499 below 5

328 below 5

545 below 5

10,224 7,930

below 5,000 7,174

15,940 9,400

Medianlandareaowneda Nonagricultural (m2) Agricultural (ha.) Median assessed value of land area owned a (_) Nonagricultural Agricultural Median net income from land b (1Pper year) Nonagricultural Agricultural

1,727 1,327

2,078 1,069

1,354 1,894

Manila net income from land b (P per year)

2,608

2,415

3,124

Mean net income from buildings b (P per year)

1,874

642

2,549

a. Includingonly thoseowning someland. b. Includingonly those earningsome income. Source: PareiandCaldlto(n.d., pp. 57, S8, 59, and 62).

The Wage Commission Annual Report of 1973 contains survey results covering 2,062 respondent firms with an employment size of 276,557 persons and representing 62 industry groups. Daily and monthly wage and salary rates are given for 16 rate classes. Consumer Pulse, Inc., a private firm engaged primarily in market studies, has been gathering on an annual basis since 1972 income data for urban areas. The data which appear in their Factbook, are cross tabulated against such characteristics as occupation and educational attainment of family members, household ownership, and appearance. A large number of sizable for the rural/agricultural/farm

and small surveys have been conducted sector. One that is particularly inter-_

MaharMangahas & BrunoBarros

esting, especially with respect to the methodology used, is the Farm Record Keeping Project of the Bureau of Agricultural Economics (BAEcon). One of the main objectives of the project was to teach farmers to keep detailed accounts of activities which would yield reliable farming and household data. Programmed to last three years and started in January 1976, four types of accounts were left for the farmer to keep: (a) an inventory of farm produce and consumption, tools, and work animals; (b) a daily farm and household record including farm and nonfarm income and labor utilization; (c) a farm parcel (topographical) map; and (d) cropping patterns and farm practices record. Only households with at least one family member completing third year high school were selected as cooperators. Some economic activities such as the gathering of firewood and nipa were excluded, as was the imputed value of home consumed production. These shortcomings may have resulted in the omission of lower income units and the underestimation of income. All in all, however, the 550 respondents, whose records are intact and fairly reliable, have provided a storehouse of valuable data. There are also a number of other reports which contain primary income data generated from surveys. Some cover sizable areas, include a fair number of the population, and date rather far back. (See, for example, Rivera and MacMillan 1954.)Others enumerate fewer households but appear at regular, if not frequent, intervals. 24 They may conceivably be used, to a limited extent, as cross-checks against larger studies. However, such sources are too numerous to mention here and, for the most part, too narrow in scope to be used in the type of studies reviewed below. 4.6 Conclusions The distributional data system may be appraised in terms of four attributes: coverage, accuracy, frequency, and promptness. In the preceding section, lack of coverage in the data was seen as a serious constraint to macro research. In particular, the consistent exclusion of information orl ownership of land, physical capital, and other sources of income streams (with the notable exception of schooling) has hindered forward-looking research into aspects of land reform 24. See, for example, studies of the Agricultural Tenancy Commission'.

IncomeandWealthDistribution

and other "wealth-democratization" policies. Ideally, research should precede the formulation of public policy, as well as restrain premature, possibly counter-productive action in situations only superficially understood. But this does not always happen. In the case of land reform, for instance, it was Presidential Decree No. 27 (the Tenant Emancipation Decree) of October 1972 which became a jump-off point for the gathering of such basic data as the number of landlords, the distribution of landed estates by size, the distribution of tenants by size of landed estates to which they belonged, the configuration of landlords by occupation (to see how many were in the government service, particularly in the military), etc. One will recall that a succession of orders was then issued, in late 1972 and in 1973, calling for compulsory registration of landlords, surveys of estate sizes in "pilot provinces," and surveys of landlords' occupations. These data-gathering missions were crucial to the resolution of theory issues such as the land-retention cut-off point (that is, for a given cut-off, there is the question of how many tenants and landlords would be excluded from compulsory land transfer). 2s The traditional agricultural data system was ill-prepared for such obviously equity-pertinent questions. Being purely productivityoriented, the agricultural censuses and surveys emphasized farm size, never hacienda size; they estimated the number of farmers and farm workers, but not the number of landlords. The indicators of agrarian inequity were to be found in the rural peace-and-order statistics; and a search in agricultural ecohomics statistics for quantitative materials on land-ownership concentration would be in vain. The basic problem has still not been solved. The ad hoc efforts did provide guidance in the rice and corn case, but they have not been integrated into the regular statistical system, for proper monitoring of the rice and corn policy and for a fuller appraisal and understanding of land concentration in other sectors. Where data gatherers confined themselves to topics which are completely nonpolitical, they ran the risk of becoming socially irrelevant. For instance, assuming that the relative well-being of Muslims and non-Muslims in Mindanao is an important issue, it follows that data should be gathered (classified as to Muslim and non-Muslim) on in25. For a fuller description of the hurried efforts to gather data for the administrationof Operation Land Transfer,see the paperon land reformin the RanisReport (ILO 1974).

MaharMangahas & BrunoBarros

come, employment, land ownership, access to government services, and so forth. Another issue is the "gap between rich and poor." The assertion that "the rich get richer while the poor get poorer" may or may not be factually true. 26 What seems clear, at any rate, is that the assertion has much potential for social agitation; that is, many people do care whether the statement is true or not. But it is seldom realized that the answer requires longitudinal data, which are not provided by a series of ordinary income surveys. These surveys cannot tell to what extent today's poor are the same families as the poor of, say, 5 or 10 years ago. A society in which families of different economic classes can "exchange places," so to speak, can be regarded as more desirable than one with a rigid class structure. Research on class mobility is rather limited. Traditionally, it has been of less interest to economists than to sociologists, such as Lauby (1976), who found that intergenerational mobility across broad occupational groups (farm, nonfarm manual, nonmanual) existed to a moderate degree about 30 years ago, but seems to have lessened since. It is fairly easy, in an interview, to get data on both the respondent's occupation and his parents' occupation(s). But it is difficult enough to accurately survey last year's income, much more so to find out a respondent's income of, say, 5 years earlier. One approach would be to form a panel of respondents for repeated surveying over time; this would require a long-term commitment of the research institution involved. Another approach would be to use variables other than income which are less sensitive to memory bias, e.g., ownership of consumer durables, access to certain home amenities, and self-ratings as to poverty and other socioeconomic classmembership conditions. It is worth noting that the Philippine Statistical Development Program for 1978-82 promises remedies to the inadequacies of the equity-data system in some areas (Philippine Development): (a)

Agriculture. In the line-up are surveys of income and expenditure of farming operations, farm size, farm labor, and farmers' assets and liabilities. (One would hope (i) that these could in-

26. it has been claimed, for instance, that in the Philippines the rich are getting richer and the poor are not getting worse but simply maintaining their old position (Sicat 1972, p. 284).

IncomeandWealthDistribution

(b) (c)

(d) (e)

(f)

(g)

elude farmland owners or landlords and not merely farm operators or tenants and (ii) that the data will be classified according to vertical groups such as income or wealth classes.) Finance. It is stated only that "the tax system is continuously being assessed and reassessed to make taxation more equitable." National accounts. Among the projects promised for 1978-82 are (i) estimation of a social accounting matrix for 1975, as an improvement over the matrix for 1972; (ii) construction of a system of social and demographic statistics, or SSDS, including information on social class, stratification and mobility, leading to the measurement of Net Beneficial Product; and (iii) construction of national wealth and balance sheet statements. Prices. There is a plan to compute separate commodity price indexes appropriate to various income groups. Labor, employment and income. Items of interest in the statistics program include (i) a survey of labor mobility; (ii) a survey of hours of work, and their effects on output, prices, wages, profits, and employment; (iii) a study of labor utilization, to improve measurement of the labor force and of underemployment; (iv) a study of labor absorption of graduates; (v) an area survey of skills; (vi) a study of employee benefits; (vii) a survey of rural workers in selected industries; (viii) a study of incomegenerating skills for women; and (ix) a study of expenditure patterns of wage-and-salary-earning households. Social services. The equity-oriented elements in the statistics program include (i) a study on the distribution of facilities and of recipients of services; (ii) studies to determine least-cost, nutritionally adequate and socially acceptable diets; and (iii) establishment of a data system on housing conditions by location and according to socioeconomic groups. Standards and classificatior_ There is a plan to develop standard definitions for (i) income levels and classes, and (ii) types of underemployment.

The second major consideration regarding the data is accuracy. Obviously, people may be reluctant to disclose how much they earn, what they own, and what their debts may be. The willingness of respondents is not the only problem. Surveys must be carefully designed in order to minimize errors of memory of the respondents. Procedures must be constructed for imputing income from govern-

MaharMangahas & BrunoBarros

ment-financed services, dwelhngs, home production, etc. In his detailed assessment of various sources of distributional data, Lim (1978) concluded that an income survey requires many detailed questions on income and production in order to hold underreporting down to a minimum. This makes interviews a taxing experience, particularly if the survey has purposes aside from measuring income and its correlates. Accuracy depends also on the sampling procedure and on the sample size. The latter is a straightforward matter, related to the size of the fieldwork and the data-editing budget. An estimate of the Gini ratio accurate to the second digit (i.e., an expected error of less than plus or minus one-half percentage point) requires a sample size of about 15,000; if an error of one point in the second digit is allowable, then the sample size can be reduced to about 3,000 (see Appendix to Mangahas, Quizon and Lim 1977). Thus, in general, income surveys in the Philippines have been of adequate size. Sampling procedures, however, still seem to be deficient. If the data are to be valid for intergroup comparisons, then obviously group representativeness is vital. This suggests that sampling stratifications should be group-related, e.g., poor/lower class/middle class/upper class/rich, Muslim/non-Muslim, tenant/landlord. The usual procedure of stratification according to geographical area can be relied upon to capture respondents from among the poor and the lower classes, since these are large groups; but it is bound to miss the top economic brackets, unless their residential enclaves are preidentified and incorporated into the stratification system at the start. This seems to be one reason why the aggregate of incomes measured in household surveys is so much less than that obtained from the production side in the National Income Accounts. The point here is not that the household surveys are expected to arrive at the same average income reached by the National Income Accounts. Income underreporting is, after all, found all over the world. Nevertheless, efforts should be made to improve on or at least maintain the proportion of income captured in the household survey; the 1975 FIES saw a tremendous slump here. Secondly, it is advisable to make an upward correction in the household survey data, as was done by PREPF, for consistency with the personal income. Failure to do this will lead to incongruous results in analyses which require accuracy not only of relative inequality but also of absolute â&#x20AC;˘ levels of income. For instance, poverty incidence results will appear

IncomeandWealthDistribution

unusually large if the 1975 FIES is used (see next section). Tax and expenditure incidence studies will also be affected; and tax burdens and expenditure benefits will both be greatly overstated if a severely underestimated income base such as the 1975 FIES is used (see section below). Finally, we come to the issues of frequency and promptness. Since the NDS, PREPF and PSSC surveys were ad hoc, the burden of continuity in the income distribution data clearly lies in the FIES, which is conducted at 4- or 5-year intervals. The time lag between reference period and time of availability of the basic data summaries is typically 2 years (this holds not only for the FIES but also for other surveys). The general experience is that delays occur in the data-editing stage rather than in the field-work stage. 27 This combination of infrequency and tardiness in reporting severely diminishes the usefulness of the distributional data for the up-to-date guidance of all sectors. Frequency and promptness are key elements by which a reporting system maximizes its impact on the social, economic, and political consciousness. Given the natural lags between recognition of a problem, policy formulation, implementation and impact, a monitoring cycle of 2-Â˝ years (to enable a mid-term review within a 5-year planning term) requires that the measurement frequency be annual and the reporting lag be only 6 months, i.e., nearly comparable to the schedule of the National Income Accounts (Mangahas" 1979b). 2a 5. POVERTY The recent annotated bibliography on poverty studies in the seventies by Abad, Villanueva and Picazo (1978) suggests that recent empirical research can be divided into two broad categories One category of studies, mainly by noneconomists, characteristically analyzes a specific segment of the poor population, such as squatters, agricultural workers, slum dwellers, and so on. Income figures are not neces27. Contrary to the popular view, "computerization" of input data makes for very long waiting periods. When survey summariesare needed on a rush basis, the data-gathering institutions turn to "manual" procedures. 28. The view that the income distribution need not be measured so often because "it hardly seems to change" is unwarranted because (1) it reflects an attitude of disinterest which is liable to lead to a neglect of distributional policy, and (2) there do exist dangers, especially in years of hyperinflation (1974 and possibly 1979), that inequality can worsen very rapidly.

MaharMangahas & BrunoBarros

sarily provided in those case studies, which judge from the outset that the subjects of study are impoverished. The second group of studies, dealing with macro: poverty issues, has been much concerned with the definition of a poverty line (usually_ in terms of income) and the measurement of the number of persons or families falling below it. The emphasis in the review that follows will be on the macro studies. Recently, the United States Agency for International Development has sponsored case studies of target or pote.ntial target areas for projects. Social Research Associates (1977) has reviewed past work to identify the poor via characteristics of age, region, occupation, and source of income. The emerging picture is that poverty incidence is (1) high for both young and old, (2) associated with having wages and salaries or farming as a source of income, (3) higher in rural areas, and (4) more prevalent in Eastern Visayas, Cagayan Valley, Bicol and Northern Mindanao. (A follow-up study by Alburo et al. (1978) is still preliminary and not to be quoted). A survey (N = 513) by the Association of Colleges of Agriculture (1978) of Leyte, Cotabato, Cagayan de Oro, and Bohol led to a socioeconomic profile of the poor. Eighty-nine per cent of those surveyed fell below an arbitrary threshold income of i_6,000 per year; they were mainly characterized by low educational attainment and low wages/salaries. It discerned some correlation between resource endowment and income. Hickey and Flammang (1977) have examined 35 individual case studies from 14 localities and recommended that target groups be assisted in the areas in which they themselves perceive their needs and attribute their poverty. 5.1 Poverty Lines We turn now to the research on poverty lines. The conception of a critical minimum level of purchasing power; expressed in money terms, has been accepted for quite some time. The first such line, â&#x20AC;˘very likely, was that of the 1948 Rice-Wage Formula developed by the Bureau of the Census and Statistics and the Department of Social Welfare. It was figured that for a family of five to be able to feed, clothe, shelter and educate itself "with decency and health," it would need the pruchasing power equivalent of 145 gantas of rice per month (22 gantas to eat and 123 gantas to consume in other ways). It was thought that relative commodity prices were constant, and that the rice-wage could be easily updated when multiplied by

IncomeandWealthDistribution

the current price of rice. However, the formula has been in disuse for many years, and the Philippine government has no official poverty line, though it does have special-purpose lines. For instance, the DSW, for a time, used 1_100 per month as the welfare line defining the "needy population" which the agency was obliged to serve. Another case is the Wage Commission, which has set "minimum earning requirements" for employees "to maintain their health and efficiency"; in 1975 these were set at P542 per month for urban areas and t_508 per month for rural areas. In recent years, researchers have developed a fairly broad variety of critical-minimum lines, ranging from the very stingy to the very generous. Although all such lines are necessarily normative, it is not the same as saying that they are "subjective" or personalistic or based on the researchers' peculiar value-judgments. The important consideration is that the normative assumptions behind any particular poverty line are consistent 29 with the norms which society wishes to apply to the issue at hand. There may be different societal norms for different issues. All the critical-minimum lines are heavily food-oriented. At the very bottom is the Center for Research and Communications's "starvation line," which imagines a purely rice-and-salt diet for the total caloric requirement. 3째 The standard practice is to define the minimum in real terms for a reference family size of six. The sex-age structure may also be specified. Then the real food requirements are convetted to money values on the basis of market prices; and since prices vary over time and space, so will poverty lines. Even for a given family size of, say, 6 members, caloric requirements can vary significantly from family to family due to differences in age and sex structure and in the occupation of the household head. Many of the occupations open to the poor have high physical 29. As judged by the citizenry, or by the social and political leaders and policy-makers who make decisionson their behalf. 30. See Philippine Chamber of Commerce and CRC (n.d.). The value of the "starvation line" is not given. Since there are close to 3700 calories - about what a laborer needs per day - in a kilo of rice, the implicit starvationline would be close to the current retail price of a kilo or rice, or tP'2.10per day. The CRC is also the source of the highest suggestednorm, the "decent living income" which makes specific provisions for such middle-class needs as household help, recreation, and dental care. "Decent income" for a family of five in Metro Manila in 1973 was set at about ff763 per month, or obviously far abovethe poverty boundary line.

Mahar Mangahas& Bruno Barros

energy requirements. Caloric needs are generally lower for females than for males due to the body weight factor. Among the age groups, it is teenagers who require the most calories, followed by adults, young

children,

and infants

in that

order.

Using data from a small (N = 365) survey of Rizal province, Valenzona (1976) estimated the caloric requirements for a family of 6 to range from 7,380 cal/day to 12,790 cal/day (using the mean Âą2 standard deviation). Valenzona had a caloric requirement range for each family size. She then translated such ranges into money values, using data from a price survey of Rizal province, and suggested that the upper end of the range would be preferable to the lower end as a poverty line, given the family size, since it guarantees a sufficient food budget even under unfavorable sex-age-occupation circumstances. (Strangely, however, her required food budget is incredibly low, due apparently to flaws in her price data.) 31 In general, poverty lines generated by linear-programming (LP) models turn out to be extremely low (Tan and Tecson 1974, Tan and Holazo 1978). For instance, Tan and Holazo have recently used LP to solve for the basket of foods which minimizes the cost of acquiring at least the recommended daily allowance (RDA) of nutrients, as set by the Food and Nutrition Research Center (FNRC). As indicated in Table 5.1, the cost of this basket in Metro Manila, for example, is found to bet_2,460 per year at 1975 prices, which works out to _6. 74 per day, for a family of sixP 2 Such LP solutions Characteristically show peculiar diets, in particular, eschewing rice in favor of noodles or corn, which is a cheaper substitute on a peso-percalorie basis. If nutritionally sound, the obvious policy implication would be to try to change Filipino dietary habits away from rice; yet the LP studies are silent on this.

31. For a family of six, her maximum daily food budget, at 1976 prices, is only P8.65, which she compares to the P6.85 in 1973 prices of Tan and Tecson (1974) and the P14.00 of the FNRI, also in 1973 prices, which Abrera (1976) used in the DAP Social Indicators Project. The Tan and Tecson estimates are based on a linear programming model, and are understandably low. A close look at Valenzona's prices reveals a cereal price of only P0.87 per kg., at a time when the rice price was _2.00 or more, and a meat-fish-poultry price of art incredible P3.36 per kilo (Valenzona 1976, Table 5, in which the prices are per 100 grams, not per gram, an obvious typographical error). 32. A typical family of six is made up of the following members with their corresponding ages - father, 40-42; mother, 37:40; a son, 16-19; a daughter, 13-15; a son, 7-9; and a daughter, 1-3.

Income and Wealth Distribution

Table 5.1 Comparative Poverty Lines for a Family of Six

(Pesosperyear) 1965

1971

1975

Metro Manila Food Social Indicators Project (SIP) Linear Programming Model (LP)

2,476 636

4,284 1,094

7,123 2,460

4,497 1,615

7,203 2,634

11,872 4,984

Food and other needs Social Indicators Project Linear programming Model

Range outside Metro Manila Food Social Indicators Project Linear Programming Model

1,732-1,981 582-720

3,000-3,428 1,000-1,308

3,148-3,597 1,166-1,631

5,000-5,762 1,865-2,349

5,201-5,943 2,059-2,817

Food and other needs Social indicators Project Linear Programming Model

8,668-9,905 3,680-4,337

Sources: (a) S/P: For 1965 and 1971, Mangahas(1976, pp. 265-66); for 1975,Mangahas (1977a, p. 26n). (b) LP Model: Tsn-Holazo(1978, Table 9a).

The approach of the Social Indicators Project (SIP) of the Development Academy of the Philippines was more straightforward. The FNRC had already designed, not only the RDA, but also a recommended simple menu, 33 and had estimated its cost of preparation for the reference family of 6 to be 1=14per day in December 1973 in Metro Manila. The SIP simply accepted the FNRC budget, and ad33. The menu, which presumably incorporates the sum total of FNRC judgments regarding relative food prices, total costs of preparing food, Filipino eating habits, etc., is as follows (Abrera 1976, p. 238). Breakfast: Lunch: Snack: Dinner:

Rice/boiled dills/tomato-egg salad/coffee with milk/milk for the children Fish pinangat/munggo guisado/rice/papaya Boiled eamote with margarine/milk for the children Fish sinigang with tomato, fish, sitaw, kangkong, tamarind, talong/rice/glazed eamote.

Mahar Mangahas& Bruno Barros

justed for price differences across space and time, with the best available price indexes. In Metro Manila, the SIP "food threshold" for 1975 became P7,123 per year (Table 5.1), or _19.52 per day. The latest available update of the SIP food threshold is: 1978 Family size of six Food threshold per day a4 Metro Manila I_23.75 Urban areas outside Manila 20.60 Rural areas 18.83 Obviously, a family with a daily food budget of P19.52 (SIP) is not as badly off as one with only P6.74, i.e., there can be degrees of poverty. But where is the boundary between ooverty and nonpoverty? Is it closer to PT.00 than to P20.00? And who is to be the judge? The social Indicators Project argued that, in the final analysis, the social consensus is the arbiter of the validity of desktop calculations, it made pioneering experiments in determining public perceptions regarding poverty through survey techniques. Its pilot survey in Batangas (N = 1000) in mid-1974 had the following (average) replies: 3s Poverty border level

Rural

Urban

Income per month Food budget per day Rent per month Clothing budget per year Medical care budget per year

P465 10.06 41 356 230

tP613 12.10 68 466 296

it may be noted that the urban Batangas poverty border food budget of 1974 is nearly double the LP budget for Manila in 1975. In general, these results support the view that Filipinos conceive of the boundary of poverty at a level substantially higher than mere subsistence. The perceived minimum clothing, rent and medical care 34. "Towards Equitable Sharing of Income in the Year 2000," Chapter 7 of a forthcoming PREPF publication. 35. In perception indicators, the form of the interview question is critical. A sample: Sa palagay ninyo, magkano ang gagastusin sa pagkain ng pamilya araw-araw, na kung bababa pa rito ay ipalalagay ninyong kayo ay mahirap? (How much would you spend for food daily for your family such that, without this amount, you would consider yourself poor? )

Income and Wealth Distribution

budgets were in close agreement with the SIP assumption that the food threshold should be 60 per cent of the total threshold. (The survey results showed figures of 59 and 65 per cent for urban and rural, respectively.) The perception

experiments

also included:

(a)

Self-rating as to poverty. About half of the respondents rated themselves as poor, and one-third rated themselves, without prompting, as on the poverty border line, thus further suggestting the relevance of at least two degrees of poverty.

(b) (c)

Self-rating as to adequacy of food and housing. Perceptions of home amenities required to lift one above the poverty level, i.e., self-assessment of "basic needs." The survey found that about half required piped water, an enclosed bath" room, and covered drainage;only one-fourth required an automatic flush toilet; two-thirds required home electricity. Perceptions of minimum clothing needs. Results were very tightly clustered: six sets of clothing ("tops," "bottoms," underwear) and one pair of shoes, a6

(d)

A number of international organizations have favored the SIP estimates in drawing their own operational poverty lines, a7 The case for thresholds higher than bare subsistence has been carried by the Economic and Social Council for Asia and the Pacific (ESCAP 1976): firstly, the poorer classes are typically engaged in heavier. physical work and hence require greater caloric intake than other classes; and secondly, one requires more than a minimum amount of nutrients for a considerable tained insufficiency in diet.

period

in order

to recover

from a sus-

36. Perception-type indicators, in general, are very promising means of monitoring economic conditions at the household level on a rapid feedback basis, since they are quite economical in terms of both interview time and data processing. They are only a bit more sophisticated than opinion polls, and can produce results in a few months' time without difficulty. In contrast, interviewing for and processing of income information usually takes 1-2 years. Perception variables are more difficult to standardize and to scale than objective-type variables. They do not seem to be any more susceptible, compared to objective-type variables, to deliberate deception by respondents. 37. See for example World Bank (1978), Asian Development Bank (1977), and Hickey and Flammang (1977). The last study recommends the SIP procedure for U.S, AID evaluative studies.

Mahar Mangahas & Bruno Barros

Table Social

5.2

poverty

line

per year. Indonesia (about

shows

Indicators

that

Project

of Malaysia,

World (less

Bank than

U.S.$105),

the

Philippine

and

PREPF

in the

poverty are

lines

comparable

neighborhood

done to the

of U.S.$240

the

official

per capita

studies have assigned the lowest poverty line to U.S.$90), one that is a bit higher for Thailand

and

for Korea

(about

U.S.$145).

Table 5.2 Comparative Poverty Lines in Five Countries (Values per capita per year)

Country

Philippines

Year

Poverty line in local currency

Exchange rate to US$

Poverty line in US$

Metro Manila Other urban Rural

1974 1974 1974

P1,842 1,474 1,290

7.3 7.3 7.3

252 202 177

National

1975

1,724

7.3

236

Indonesia

National

1976

415

Thailand

Rural Urban

B1,800 B2,400

20 20

90 120

Korea

Rural Urban

1974 1974

W55,824 W61,000

400 400

140 152

Malaysia (official)

National

1977

2.4

241

1975/76 1965/76

RP36,000

M $ 579

Sources: Philippines: for 1974, Abrera (1976); for 1975, Mangahas (1977a). Indonesia: World Bank, Employment and Income Distribution in Indonesia, Studies in Employment and Rural Development No. 51, Development Policy Staff, Washington, D.C., October 1978. Thailand: World Bank, Toward a Development Strategy of Full Participation, Report No. 2059-TH, East Asia and Pacific Regional Office, September 1, 1978. Korea: S. Gupta, Alternative Development Strategies of Korea (1976-1990) in an Input-Output Dynamic Simulation Model. World Bank Staff Working Paper No. 250, March 1977. Malaysia: Socioeconomic Research and General Planning Unit (Malaysia), Malaysian Social Indicators: Report of the 1977/78 SERGPU/UNICEP Social Indicators Project, Prime Minister's Depaxtment, Kuala LumpuL October 1978. (The food component of the Malaysian poverty line is based on the diet given in government hospitals: not bate subsistence but adequate for the normal average adult and enough for normal growth and maintenance of good nutritional health in children (Anand 1977).)

5.2 Poverty: Size and Trend Table 5.3 compares recent estimates of the incidence of poverty in the Philippines in 1965, 1971 and 1975, using both the SIP thresholds and the LP lines of Tan and Holazo (1978).

Table5.3 ComparativeEstimatesof PovertyIncidencein the Philippines (Percent of households)

Type of poverty line; base data

Food threshold

1965

Philippines 1971

Metro Manila 1971

1975

1965

24 17

1975

Range outside Metro Manila 1965 1971 1975

8 3 o

41-49 27-39

only

(1) SIP - using FIES income data (2) SIP - using FIES expenditure data

48 34

57 41

34 25

39-64 25-48

58-62

Food and other needs (3) PREPF using PREPF income estimates (4) SIP - using FIES income data (5) SIP - using FIES expenditure data (6) Tan-Holazo - using FIES income data (7) Tan-Halozo - using FIES expenditure data

__. O"

76 70

78 70

61 80-90

" o 49 47

59 52

70-80

69-81 61-76

64-83 52-76

80-90

32-68

31-66

38-66

15-71

12-51

8ources: (a) SilÂ°. For 1965 and 1971, Mangahes, (1976, pp. 245-46); for 1975, Mangahss, Quizon and Lira (1977, Table 12). Co)PREPF. Mangahss (1977,p. 26). (Â˘) Tan.Hollo (1978, Tables 10 and 14).

Oo _D

MaharMangahas & BrunoBarros

All estimates use the FIES income-expenditure series, and show that poverty has been worsening, as The poverty incidence rate or the proportion of households who are below the threshold has been growing. Since the total number of households is constantly growing, due to population growth, the absolute number of poor households is growing all the more. The poverty incidence estimate is lower when the FIES expenditure data, rather than income data, are used, because the FIES figures indicate an unrealistically large degree of dissaving, especially among the lower income classes, viz., the income figures appear to be grossly understated. Even when the expenditure distribution is used, the size of the incidence rate is large: for 1971 about 70 per cent of all households were below the Total Threshold, and about 40 per cent were below the Food Threshold. When the 19"15 FIES summary material became available, in early 1977, the SIP procedure was again applied by the PREPF project, with the result that poverty seemed to have worsened drastically. Using the Food Threshold alone, the table shows that Philippine poverty rose from 57 per cent in 1971 to 68 per cent in 1975; in Metro Manila, in particular, the growth was from 34 per cent in 1971 to 58 per cent in 1975. This is simply incredible. If one were to apply the Total Threshold, then, obviously, the computed incidence rates were unrealistically huge. The problem was obviously due to the FIES data. In the first place, after adjusting for inflation, the FIES data of 1971 and 1975 would assert that average real incomes of households had fallen, contrary to the growth trend in the National Income Accounts. Secondly, the FIES average income per household in 1975 is less than P6,000; but aggregate Personal Income (from the National Ac_ counts) divided by the number of households yields an average of over P13,000 for the same year._a9 Faced with this situation, the PREPF Project decided to use a new baseline distribution formed by splicing together income data from the PREPF national survey, and a PREPF Metro Manila upper-income-classes-oriented survey, adjusted so as to meet the required income average of P13,100 per household. (The reference year for these surveys was also 1975.) The PREPF total poverty line, meant to allow for all basic needs, was set at the round figure of'P10,000 as 38. This was first publicized in DAP (1975). 39. See Section 4.1 above.

IncomeandWealthDistribution

an overall Philippine average. Together with the baseline distribution, it implied a more plausible poverty incidence level of 61 per cent. The more recent LP estimates also show an increasing incidence of poverty, simply because they use the FIES distributional data. Since the method differs only in the construction of the poverty line, it is not an independent confh-mation of the poverty trend; the FIES series would display the same trend for almost any poverty line. Since the LP subsistence-line is very low, the derived poverty incidence rates are likewise very low; in fact, they are less than twofifths of the SIP incidence rates. A poverty line is similar to the red warning line on a thermometer: it is not of much use being precise about the position of the red line if there is a basic malfunction, e.g., if the mercury has leaked out. All poverty lines need to be applied to some reliable baseline distribution of purchasing power. Unfortunately, the FIES surveys of the NCSO have grown less and less reliable, and the last one in particular (1975) can no longer be used for computations of poverty incidence. 6. PROPERTY INCOME,WEALTHAND INHERITANCE There have been very few studies on the higher income groups. In the first place, the wealthy are much more reluctant than the poor to reveal their economic condition. Secondly, this reticence is reinforced by public institutions. The earlier section on distributional data called attention to the failure of household surveys to penetrate the residential enclaves of the rich. Certain offices, such as the tax collecting agencies, are repositories of presumably reliable information, but, by tradition as well as by legal necessity, they have kept their records confidential and have rarely made them available to researchers. 4째 Sta. Romana's (1975) inquiry into property and entrepreneurial incomes in the Philippines was an exhaustive study of available secondary data sources. Strictly speaking, entrepreneurial income represents returns to labor rather than to land, equipment, and other assets. It often accrues to such self-employed individuals as farmers, who are ordinarily quite far from the upper income strata. However, official statistics did not permit a separation of property income 40. One exception to this rule is the "provisionof tax records to Samson (1967); see below.

MaharMangahas & BrunoBarros

from self-employed earnings. Forced to lump both sources into one, Sta. Romana concentrated on trends in the share of wages and salaries in total income as compared to the share of nonwage income. His findings were: (a)

(b)

(c)

(d)

(e)

Household survey data from the Bureau of the Census and Statistics indicate a roughly constant wage share for the entire period 1956-7 I. Survey data from the Central Bank/Board of Investments on firms in the modern sector show two trends: a wage share rising during 1955-60 but declining over 1960-70. The Annual Survey of Manufactures shows that in the manufacturing sector the nonwage share of income in value-added has steadily increased over time. Over the period 1967-70 returns on investors' equity appear to have risen among 300 client firms of the Sycip-Gorres-Velayo accounting company; however, the opposite trend is found for Business Day's top 1,000 firms. (Sta. Romana felt that allegedly low returns on equity capital may be the result of underreporting and/or extravagant expenditures for upper management, especially in family-owned firms where large salaries are allocated to relatives.) There is a trend of rising interest rates, which is another indication of rising returns to capital.

In another paper, Sta. Romana (1976) also shows that there has been a long-term decline in real wages of skilled and unskilled workers, from a peak in the mid-1950's, which is consistent with a rising share of nonwage income, Hence, the weight of the evidence indicates that the income share of the propertied class has been increasing. 41 Sta. Romana concludes that the growth pattern has been redistributing income away from labor and towards capital and that the Philippine development pattern exhibits the desired increase in output without the accompanying goal of greater equality. The first effort at measuring the overall distribution of personal wealth in the Philippines was that of Gamboa (1977) (see Table 6.1 ), 41. This is in marked contrast to the long-term decline in developed countries in the income share from assets, which now rangesfrom 16 to 25 per cent in Germany, France, U.K., the Netherlands, and the U.S., leading Tinbergen (1977) to argue that reduction incomes of the labor elites is the bigger social issue in such countries.

Income and Wealth Distribution

Table 6.1 Results of Three Surveys of the Distribution of Wealth, 1975 Number of Re_7ondents National Survey of Socioeconomic parentsof survey students in exclusiveMetro Manilaschools

Net worth

Nfl

2,492

Less than _'20,000 P20,00025,000 P25,000- 50,000 _'50,000 and over

806

374 24 16 14

}

382 278 668

Mail survey of Rotarians, top taxpayersand other exclusivegroups

Net worth

Nil Less than F100,000 lbl01,000- 200,000 _201,000- 400,000 I"401,000600,000 F601,000-1,000,000 Over _'1,000,000

46 248 103 67 39 40 54

Source:Gamboa (1977)

who utilized

data

from the three PREPF

surveys

(section

4.3 above),

which included questions on the amount of wealth (including durables) owned jointly by the household head and spouse. Although a substantial portion of respondents failed to report their net worth (i.e., assets less liabilities), Gamboa attempted to draw conclusions about the nonrespondents on the basis of information given by those who did answer the surveys' questions on wealth. "Wealth correlates," including education, status-rating of the house, furnishings, residential neighborhood, and incidence of ownership of property and durables were used to make estimates of the wealth of nonrespondents. Gamboa felt that a significant line could worth level of P20,000. For the nation as a whole, per cent)

fall below

this line.

In contrast,

families

be drawn at a net most families (94 with children

MaharMangahas & BrunoBarros

elite Metro Manila schools were discovered to have a mean annual income of i_51,000 and a mean net worth of 9328,000. Palanca (1977) also used the exclusive schools survey to look into wealth and into inheritances as an important means of intergenerational transfer of wealth. About 40 per cent of such elite families had received some inheritance, compared to only 25 per cent among Filipino households as a whole. The average transfer among those who received any inheritance was 1_137,000; but the range of the size of inheritances received was very wide, with the bulk being highly concentrated among the wealthiest. Net worth and income were highly correlated with inheritance. The relative importance of property income rose with the absolute size of wealth, especially inherited wealth (for the very wealthy, it often made up one-third of total income). Those who had received inheritances were socially immobile within the elite group; the self-made wealthy were relatively rare. Furthermore, a very high correlation existed between a husband's inheritance and that of his wife. Assortative mating was common, with the rich typically married to the rich, and the poor also married among themselves. Inheritances came almost entirely from parents, without generation-skipping, i.e., without direct transfer from grandparents to grandchildren. Whereas in the past most inherited property was obtained after the donor's death, there appears to be a new tendency for elite families to distribute their wealth as gifts to their children inter vivos, suggesting that the rate of turnover of wealth may not slow down, despite increases in the life expectancy of Filipinos. Finally, Samson's (1967) unpublished study of stock ownership, though somewhat dated by now, is a landmark in primary-data-based research on the wealthy. She succeeded in obtaining the cooperation of (a) the Bureau of Internal Revenue for a random sampling of 8,000 individual income tax returns in 1964 which declared dividend income (543 such returns were analyzed); 42 and (b) the Securities and Exchange Commission and the Manila Stock Exchange for a random sampling of 49 corporations (half of which were trading firms) to obtain lists of shareholders in 1965. The SEC data were 42. Since the first-round samplingfraction varied as to regionalorigin of tax return, the estimated proportion of all returns containing dividend income is not 543/8000 = 6.8%, but 8.8 per cent (an averageresulting from proper regional weighting).

Income and Wealth Distribution

used to estimate the total number of resident corporate shareholders43 in 1965 at between 39 and 52 thousand individuals, or about 1 in 300 adults (compared to 1 in 8 adults in the U.S. in 1960). The BIR data, which are indeed rare,revealed that dividend recipients are a wealthy class, with averagegross income (1964 values) of'P42,000, average dividend income of P16,000, and averageacquisition value of stockholdings of P241,600. The Manila group had an average gross income of P96,700, or the equivalent of P360,800 at today's prices. 44 The data-gathering procedure discovered three gross-income-millionaires and eighteeen asset-millionaires (1964 values) and no skilled or semiskilled workers at all. Gross income, dividend income, stockholdings, and total assets were, of course, very highly correlated. Among the dividend recipients, both dividend incomes and stockholdings were highly concentrated, with the Gini ratio at roughly .65 for the former and .75 for the latter. But many of those with "low" incomes or assets were young, single females with hardly any outside income, who obviously came by their stocks merely through gifts or inheritances. Additional details are reproduced in Table 6.2. Table 6.2 Distributionof DividendIncomeand AcquisitionValueof Stockholdings,By GrossIncome,froma Sampleof IndividualTax Returns,1964 ........

Gross annual income

Sample Number

Average dividend income

Sample Numb_

Below P 5,000 P5,000-10,000 "Pl0,000-15,000 P15,000-20,000 P20,000-40,000 P40,(g)0-100,000 IP100,000-200,000 1'200,000-500,000 PS00,000-1,000,000 Over P1,000,000

27 50 62 46 115 136 64 31 9 3

5.0 9.2 11.4 8.5 21.2 25.0 11.8 5.7 1.7 0.6

P1,200 1,600 2,200 2,000 6,500 13,800 20,000 75,400 343,700 150,000

4 10 14 8 25 30 15 12 3 3

Total

543

100.0

16,050

124

3.2 8.1 11.3 6.5 20.2 24.2 12.1 9.7 2.4 2.4 100.0

A t_g e value of stockholdings P21,600 13,500 12,600 24,100 25,700 146,100 283,000 876,000 1,716,400 2,621,000 241,600

Note: Only 124 of the 543 xetums in the sample had accompanying halanee shzzt data on stockhotdinss. The inflation factoz between 1964 and Jmmaw 1979, _ the Manila Consume_ Price Index, was 3.7. (See Samson 1967, pp. 48 and 52.) 43. The estimate covered some 17,000 small flrms with about 5 stockholders each, 124 large untraded firms with about 13 stockholders each, and 136 large

Mahar Mangahas& Bruno Barros 7. GOVERNMENT FISCAL ACTIVITY

The study of government tax, expenditure, can be regarded as one extension of the contrasted to the deterministic approach, of bution of income. The starting point is a come distribution, to which distributions

and budget incidence accounting approach, as understanding the distriso-called "prefiscal" inof taxes (losses) and of

expenditures (gains) are to be applied, resulting in a so-called "postfiscal" income distribution. Pre- and postfiscal distributions can then be compared. However, it would be a serious error to suppose that the prefiscal distribution came to be the way it...is without the assistance that,

(or through no fault) of the government. 4s It merely happens as yet, there are no studies which measure the influence of

government â&#x20AC;˘ tribution. incidence 7.1

policies, This needs research.

deterministicaUy to be borne

speaking, in mind

on the prefiscal when

reviewing

disfiscal

Tax Incidence The studies

of tax incidence

in the Philippines

(Joint

Legislative-

Executive Tax Commission (JLETC)1964; National Tax Research Center (NTRC) 1974a; Tan 1975) have concentrated on the quantitative allocation of taxes to various income classes, using judgmental assumptions of incidence shifting. Although these assumptions have not been tested, they have remained roughly fixed over time. For instance, two-thirds of the corporate income tax is supposed to be borne by those with incomes of l_l 0,000 and up (the assumed class of corporate stockholders), and one-third is supposed to be shifted forward. Excise and business taxes are assumed to be shifted forward,

on the ground

that

pertinent

demand

curves

are inelastic,

ex-

traded firms with over 500 stockholders each, on the average. The number of individual shareholder s_is estimated after allowing for multiPle-holdings. 44. To convert from 1964 to January 1979 values, one might use a factor of 3.7, from the Manila Consumer Price Index, as the majority of the dividend recipients live in Manila. 45. In his survey article on fiscal incidence studies in developing countries, de Wulf (1975, p. 97) made the following emphasis: "The basic assumption is thus that the existing income distribution is the same as that which would exist under an alternative tax/expenditure system or in the absence of a revenue or expenditure system. In the light of the many studies of individual taxes that have amply illustrated that no tax is really neutral and that each tax/ expenditure system affeets resource allocation in various ways, this fundamental assumption is invalid."

IncomeandWealthDistribution

cept for a small proportion falling on the business owners, who are invariably assumed to come from the top income brackets. Since the indirect, or forward-shifted, taxes constitute about two-thirds of tax revenue (1971), they dominate the incidence pattern, making it regressive (effective tax rates falling as income rises) for the lower 95 per cent of families. (The NTRC study suggests that tax incidence which was slightly progressive in 1961, turned regressive in 1971 ; see Table 7.1 .) At the same time, however, the clustering of assumptions of nonshifting of at least a portion of certain taxes onto the top few income classes causes the end of the effective tax rate curve to curl upwards, indicating progressivity (effective tax rates rising with income) only among the uppermost 5 per cent of families. Thus, the implied tax incidence pattern is basically regressive, since the slight curl for this 5 per cent does not quite warrant the description of "U-shaped.'46 Although the tax incidence studies pertain to only two reference years (1961 and 1971), there can be little doubt that the same pattern may be found for all other years, as long as the same incidenceshifting assumptions are maintained, and the tax mix, which is annually recorded, stays roughly the same. In particular, no conceivable changes in the mix of consumption expenditures, and its distribution according to income classes, could significantly change the result. It is a bit incongruous, therefore, that tax incidence studies should have to "wait" for the availability of a household expenditure survey, since it is the tax structure itself, as well as the economic environment in which it operates, that makes for possible changes in the incidence pattern, rather than the pattern of consumer expenditures. In other words, the more interesting subjects for tax incidence research are the incidence-shifting assumptions themselves, which were first set down nearly two decades ago. For example, how did the rent control decree of 1972 affect the incidence of the real property tax; and what is the expected effect of the rent control amendment 46. In his survey of 44 studies covering 22 developingcountries other than India, de Wulf (1975) finds that only in two countries, namely the Philippines and Greece, could taxes be characterized as regressive.Morethan half of the other studies found some progressivity, and one-frith found a rough proportionality; the rest were inconclusive. Nevertheless, the conventional wisdom that developingcountries' tax structures are regressiveis accuratein the Philippinecase. It also holds true in Thailand,according to Krongkaew(1979). In Malaysia,the tax-incidence pattern is allegedly U-shaped,viz., as income increases,it is first regressiveand later progressive(Ishak1979).

Mahar Mangahas& Bruno Barros

Table 7.1 Tax Incidence Patterns, 1961 and 1971 Cumulativepercentage ofincome Cumulaffvepercentage of households

Before all taxes 1961

Lower Lower Lower Upper

20 50 90 10

4.2 17.3 57.8 42.2

After all taxes

1971 4.2 17.8 63.1 36.9

1961 4.6 179 59.7 40.3

After taxes

on property and income

on production and sales ,

1971

1961

1971

1961

1971

3.2 17.1 64.8 35.2

4.9 18.2 60.2 39.8

4.1 18.7 65.8 34.2

3.9 16.7 75.2 42.8

3.1 16.3 61.7 38.3

Source: JLETC(1964) andNTRC(1974a).

of 1979?

of 1973

HOW did the tax amnesties

tax incidence 7.2 Expenditure

patterns

and 1974

affect

the

in those years?

Incidence

and Net Budget

Incidence

As in the case of tax incidence, studies on government incidence make extensive use of allocation formulae

expenditure drawn from

judgment as to how various income classes are probably affected. Jayme (1974) used twelve categories of expenditures. 47 For the years covered by her study, namely, 1961, 1965 and 1971 (FIES years), she concluded that government expenditures were redistributive: Gini Concentration Ratio

1961 1965 1971

Before government expenditures .504 .505 .486

After government expenditures ..471 .472 .451

Public elementary school and welfare expenditures were by far the most effective in redistributing income. Agriculture, health, highways, and agrarian reform expenditures also contributed to narrowing income differentials, while labor, veterans, debt service, trade, and tourism and natural resources expenditures worked against a redistribution favorable to the lower income groups. It bears stressing, how47. The categories are, namely, education, agriculture, agrarian reform, health, highways, labor, welfare, debt service, veterans, general economic development, general social development, and general services and administration.

IncomeandWealthDistribution

ever, that these conclusions only reflect the relative sizes of the expenditure categories. The issue of whether or not a category was redistributive was not resolved empirically. The National Tax Research Center (1974b), on the other hand, used five alternative sets of assumptions in its study of the incidence of government expenditures: (a) (b) (c)

(d)

(e)

All government expenditures were treated as shared equally by all families. Half of all expenditures were distributed on equal per capita basis and the other half in proportion to income. Government expenditures were first classified into personal services, rents, interest, loan repayments, etc. Then survey data were utilized to determine the proportion of family income derived from government; 4s other expenditures such as rent, interest, and others were allocated on a priori grounds. Specific types of expenditures were assumed to accrue to specific occupational classes. Agricultural expenditures were treated as going to farmers, farm laborers, fishermen, hunters, loggers, and related workers in proportion to their income. Similarly, transport and commnication expenditures were allocated to workers in that sector. Social development expenditures (education, health, labor, and welfare) were distributed in proportion to income; while general expenditures (except for the public debt) was allocated on a per capita basis. Same as (d) except that general expenditures were allocated oh an income-proportionate basis.

Almost all these assumptions lead to estimates of expenditureincidence which are relatively favorable to the lower income groups. The NTRC assumptions are more generous than Jayme's in assigning government outlays to the lower income groups, and thus result in smaller estimates of postexpenditure inequality. Tan (1975), using a special household survey conducted between April and September 1974, also attempted to allocate government expenditures across income classes. Her survey had information on household access to some government services, including certain education, health, and social services. In most of the other cases, particu48. Personal services amounted to about 50 per cent of total government expendituresin 1971.

100

MaharMangahas & BrunoBarros

larly the collective goods (highways, defense, etc.), she used Jayme's assumptions. She concludes that "the rate of progressiveness of government services practically offsets the rate of regressiveness of the taxes" established by the 1971 NTRC study on tax incidence, and that the overall effects of public finance (tax and expenditures) have "not improved the very unequal distribution of income in the Philippines." (See pages 256-57.) Tan draws attention specifically to areas in which expenditures are meant to be progressive but are not, e.g., usage of educational and medical facilities often requires significant out-of-pocket expenses making them relatively less accessible to lower income groups. The ineffectiveness of the fiscal system as an implicit income redistributor is not unusual in our region. The situation is much the same in Thailand (KrongKaew 1979) and in Malaysia (Ishak 1979). A notable exception is Singapore, where the substantial reliance on income taxation 49 plus the enormous scale of the public housing program (now reportedly coveting four-fifths of the population) has resulted in a postfiscal downward adjustment of G_ni ratio from about .46 to about .42 (Rao and Ramakrishna 1976). 7.3 Critique of Fiscal Incidence Research 1. In the first place, one should take note of deficiencies in the basic income data which cannot be compensated for by sophistication in the incidence analysis: (a)

(b)

Effective rates of taxes and benefits cannot be expressed in per capita terms unless the joint distribution of household size and household income (or at least the average size of household per income class) is tabulated, s째 If the aggregate income captured in the household income survey is understated, then both the effective tax rates and the effective benefit rates will be overstated. For instance, Tan (1975, p. 244) gives the average effective rate from all taxes as 22.3 per cent of income; but since the survey income average in 1971 is roughly only two-thirds of the "true" average income

49. In Singapore, the proportion of total government receipts coming from taxes on personal and corporate_income, plus death and gift duties, rose swiftly from 22 per cent in 1971 to 41 per cent in 1977 (United Nations Statistical Yearbook 1977). 50. The last survey for which these data were available in the published Family Income and Expenditure series was in 1957.

IncomeandWealthDistribution

(c)

101

(Lim 1978), then the average effective tax rate should be adjusted to only .66 (.223) = 14.7 per cent. If and when a tax incidence analysis is done using the 1975 FIES, which has an average income less than half of the "true" level given by the national income accounts, the calculated effective tax rates will be more than double their "true" values. If the the open-ended top income class, as used in the published statistics, has a relatively low lower boundary (e.g., P20,000 and over per annum) as in the 1975 FIES, then it will include a more heterogeneous group, mixing up middle-level managers and professionals with the rich and very rich. Yet, for lack of more finely presented data, incidence analysts will be compelled to impute a large number of taxes ("luxury consumption," real estate brokers' tax, etc.) to this broadly defined group.

2. The typical expenditure incidence study excludes the coverage of the substantial public subsidies which are effected through government financial institutions but are not reflected in the regular government budget. From the standpoint of scale, a most serious omission would be the government's agricultural credit program (Masagana 99, Masaganang Maisan, etc.). In 1976, nearly P15 billion in net loanable funds were available for agricultural credit, of which two-thirds came from government financial institutions, which are funded mainly by the Central Bank. The credit program's main problem is nonrepayment, running at 25 per cent for the Philippine National Bank and the commercial banks and at 20 per cent for the rural banks, st For such a multibillion peso program, the nonrepayment phenomenon makes for an implicit subsidy of enormous proportions, the incidence of which deserves to be studied. 3. Another serious omission is the incidence of implicit subsidies found in fiscal incentives for industrialization, i.e., tax exemptions, tax deductions, and tax credits in the Investment Incentives Act and the Export Incentives Act. These are also substantial; Norma Tan (1979) reports that in 1974 a total of only 30 BOI-registered firms shared subsidies amounting to P378 million, and that each firm's subsidy, on the average, was 15 per cent of the value of its output. 51. Averagefor 1971-75. These institutions accounted for 92 per cent of agricultural credit in 1976. See Presidential Committee on Agricultural Credit, Financing Agricultural Development: The Action Program, 1978, whichaims for a reduction of the shareof the government institutions to 50 per cent by 1982.

102

MaharMangahas & BrunoBarros

Offhand, one would guess that the fiscal gain from these subsidies goes only to the top decile, which is the class owning the beneficiaryfirms. Most researchers, however, have limited their focus to the effects of such legislation on factor intensities, factor prices, employment, investment, capacity utilization, and so forth. In oth_er words, the interest is mainly on resource allocation and growth. This is a peculiar instance in which legislation with clear budgetary effects has been studied mainly for its nonbudgetary effects, in contrast to the typical incidence research in which the focus is solely on the budgetary side. 4. The distributional implications of an imbalanced government budget have not been analyzed. If the incidence of the public deficit is not considered, then estimates of the effective rates of taxesminus-benefits are biased downwards, in absolute size. But which income classes bear the burden of government deficits? Can it be assumed that it is those which purchase government bonds and certificates of indebtedness? Deficits can have inflationary consequences, even when fully derived from the public borrowings; this is more pronounced when facilitated by the monetary authority. The effects of inflation, in turn, on the various income groups have hardly been studied except for a recent study by the National Tax Research Center (1978) which shows that the effect of inflation has been to make the income tax structure relatively more burdensome for the lower income groups. Sicat (1972) argued that government efforts to control consumer prices have made product price inflation relatively tougher on the upper classes. However, product price inflation is always accompanied by factor price inflation, in the aggregate, merely as a matter of accounting, and it appears that many in the lower classes are dependent on wages, salaries, and other factor prices which are relatively less flexible than rents and profits in response to product price inflation, s2 5. Finally, a much neglected issue in government-expenditure incidence research is the appropriate treatment of public overhead expenditures, mainly outlays for general administration and for defense, which typically constitute one-third or more of all government 52. This recalls Legarda's (1962) analysis of the effects of export price windfalls on income flows, which was clearly concerned with shifts in relative fortunes among the upper classes. He warned that foreign exchange decontrol would cause a shift in incomes from the modern entrepreneurial class to the traditional primary exporters.

IncomeandWealthDistribution

103

expenditures. The studies of the NTRC (1974b), Jayme (1974), and Tan (I 975) all impute these expenditures as effective supplementary income of households. The NTRC tries two alternative procedures: (a) it allocates general government and defense outlays equally per capita, i.e., an income class containing x per cent of the population is assumed to receive, in effect, x per cent of such outlays; and (b) it allocates them in proportion to income. Thus, assumption (a) is one of progressivity (the poor benefiting proportionately more, relative to income, than the rich), while assumption (b) is one of neutrality. The optimistic assumption (a) resulted in a Gini ratio 2.5 points smaller than that resulting from assumption (b). Jayme's procedure, which Tan later adopted also, was to apply both NTRC assumptions (a) and (b), and then use the mean of the two results; thus, we might term their procedure as semioptimistic. All these studies, however, fail to consider the question of whether such expenditures should be imputed as supplements to private income at all. s3 Since they form public overhead expenditures (NTRC's term is "general benefit expenditures" and Tan's term is "collective goods expenditures"), it can be argued that these are only instrumental expenditures which make it possible for the economy to function peacefully and systematically in the first place. The values of all the other goods and services, at market prices, already incorporate such public overhead, and inclusion of the latter in the GNP is double-counting. This is the approach of Nordhaus and Tobin (1972), which was applied in the Philippines by Sta. Romana (1976), whose term "Net Beneficial Product" is defined as the total of consumption expenditures, both private and public, less public overhead expenditures. These overhead expenditures can better be regarded as instrumental in bringing about, rather than as supplementary to, the distribution of income, and it would be advisable to exclude them 53. In the "behavioral approach," incidenceanalysts are challengedto verify the extent to which the perceptionof families (coming from differentincome groups) of the benefits from government spendhlg matches researchers' assumptionsconcerningthe distributionof the benefits. In the case of education or health services, for which private alternatives exist, families can clearly recognize that usageof the governmentfacilities frees some of their income for general spending, which they otherwise would have had to spend on private schools or health clinics. In the case of collective goods, however,opinionpolls in the U.S. show a great diversityof views, with many respondentsperceiving that they are being hurt instead of helped; see the surveyapproachof Weisbrod (1978).

104

Mahar Mangahas& Bruno Barros

from fiscal incidence analysis, s4 In Sta. Romana's calculations, the only national government expenditures still included as pertaining to final, beneficial goods and services are those in education, public health, labor, and welfare. This would result in a more conservative picture, with the than the present

income distribution modified optimistic or semioptimistic

less progressively procedures imply.

8. SELECTED EQUITY-RELEVANT POLICY AREAS 8.1 Land Reform The long history of agrarian unrest has led to a widely-held sensus that land reform is a necessary public policy. Reforms

concan

range from the mild to the radical; nevertheless, they always embody some restrictions placed on private property, such that landowners' welfare is diminished and tenants' welfare is increased, relative to what would hold in an unregulated market. The competing parties are clearly identified, and the threat, or at least restraint, to the system of private property is equally obvious. Incongruously enough, however, the government research establishment have shown greater interest

and much of the in the producti-

vity, as contrasted to the equity, aspect of land reform, ss Higher agricultural productivity would definitely benefit the urban poor, as well as the rural nonfood-producing poor, but the benefits to the farmers themselves are less obvious, due to the resultant worsening of their terms of trade (prices received relative to prices paid). Yet, the current Development Plan (pp. xxxvii, 9) emphasizes productivity growth as an objective of land reform, and avoids even mentioning equity. 54. This has been done, for example, in Malaysia (Meerman 1977). 55. Some time ago, Ruttan (1964) recalled that the land reforms in the U.S. and Western Europe in the eighteenth and nineteenth centuries, and in Latin America and East Asia in the twentietfi century, had political and equity objectives uppermost, carried out as they were during eras of revolution and peasant discontent. It was much later that the productivity objective emerged in U.S_ agrarian legislation. Noting that the Philippine Agricultural Land Reform Code of 1963 (R.A. 3844) recognizes the productivity objective as part of "modern land reform," he maintained that, under modern conditions, productivity is a prerequisite to the attainment of political and equity objectives. However, in spite of the green revolution of the late 1960's, subsequent events the social unrest at the start of the 1970's, Martial Law, and P.D. 27 - would indicate a continued relevance of the broad historical requirement for equity before productivity.

Incomeand WealthDistribution

105

The rationale behind the official preference for leasehold (and, a fortiori, amortizing ownership) over share tenancy is the theory that proportional crop-sharing gives a tenant less incentives to apply yieldincreasing inputs such as fertilizer. But the empirical validity of this view is most questionable. In cross-sections it is not uncommon to find that share tenants have equal or greater productivity than other tenure groups (Estanislao 1965; Sandoval and Gaon 1971; Ruttan 1966). Mangahas, Miralao, and de los Reyes (1976), using Institute of Philippine Culture surveys of Nueva Ecija in 1972 and 1973, found that, for any given tenure group, productivity and input usage varied greatly among farmers; however, there were great overlaps in the patterns of the different tenure groups, and no statistically significant difference in average productivity could be found according to tenure. They argue that the economic benefit to the tenant from land reform comes mainly from rental reduction or elimination, and that mere change in tenancy contract has little to add. s6 In time-series analysis, on the other hand, there is a lack of rigorous testing of the hypothesis that land reform leads to faster productivity growth. The Bureau of Agricultural Economics (BAEcon 1975) did a survey of 525 tenant-recipients of Certificates of Land Transfer in seven of the 17 pilot municipalities in which Operation Land Transfer was implemented, with the intention of determining the effect of agrarian reform on farm productivity and income by comparing crop year 1974/75 with 1971/72. This study obtained some interesting data on the progress of CLT-recipients, but, unfortunately, failed to include a control group of nonrecipients. Thus, one cannot infer that the improvements in productivity are attributable to the possession of a CLT. The BAEcon shows yield increases in most of the Surveyed municipalities (6 of 7 in the wet season, 5 of 7 in the dry), but results are statistically significant s7 in a minority of cases (2 of 6 in the wet season, 3 of 5 in the dry). These are due to increases in multiplecropping, and to the use of high-yielding varieties, fertilizer, and chemicals. The data also show large increases in borrowings, no doubt associated with the Masagana 99 program, which is officially regarded as part of the agrarian s8 reform program. This brings out 56. This is consistent with f'mdings that many share tenants are reluctant to convert to leasehold (de los Reyes and Lynch 1972). 57. The significance level is at a generous 20 per cent. 58. In official parlance, land reform refers only to the rental reduction or

106

MaharMangahas & BrunoBarros

another methodological problem, since Masagana 99 is not limited to CLT-recipients; the appropriate control group would then have to be non-Masagana 99, non-CLT recipient, and nonrecipient of any other benefits that are officially regarded as part of agrarian reform. The improvements in productivity do not seem unusually large, in the light of the green revolution experience. The more interesting part of the BAEcon survey, from the equity standpoint, are the data on rents/amortizations s9 (Table 8.1); the emphasis is on the west season (since that is when the bulk of the tenant's income is made). The proportion of production spent on rent/amortization fell in most locations, most remarkably in Nueva Ecija; but there was a slight increase in Isabela and a doubling in Camarines Sur (which deserves investigation). In Bulacan and Tarlac, the absolute cavan-rental or amortization stayed roughly constant, i.e., the proportional decline was due entirely to productivity growth. The growth in yields accounted for most of the growth in farm income; nevertheless, the change in relative land-payment figured only slightly. This confirms that the terms of Operation Land Transfer are such that the bulk of the financial benefit to the tenant would come only when the amortizations shall have been completed (15 years). 6Â° All these studies, however, seem to miss the heart of the matter, namely, the social injustices which land reform is intended to ameliorate. Are such injustices simply to be represented by the income/ wealth gap between landlords and tenants? 61 Conceivably, under

land transfer component of agrarianreform, which is a broadconcept counting all productivity-oriented policies. But, obviously, it is the land policy which justifies the t_rm "reform" in agrarian reform. 59. Some of the 1974/75 payments in thiÂ§ category are probably still rents, since the great majority of CLT-holdersin 1975 had not yet started amortization payments (Mangahas 1975c). 60. See Mangahas, Miralao and de los Reyes (1976) and ILO (1974). The latter study estimates that the potential effect of Operation Land Transfer is to reduce the riational Gini ratio by about 2 percentage points; ff the retention limit on rice and corn lands were reduced and if land transfer were extended to other crops, then the estimated reduction would be by 4-5 points. 61. In the survey of 794 landlords and farm operators in Central Luzon by Flores and Clemente (1975), the landlords (with an average estate size of 9.6 has.) had an average annual income of _21,160, owner-operators _11,5$0, amortizing owners P6,910, share tenants I_,280, and lea_eholderst_5,960. Flores and Clemente insist, however, that the difference between owner-operatorsand tenants is more important than that between landlords and tenants.

Income and Wealth Distribution

107

Table 8.1, Proportion of Value of Production Spent on Rent or Amortizations, 1971/72 and 1974/75, for Recipients of Cert_cates of Land Transfer in Seven Municipalities

Location (Samplesize)

July.December(Wet]. 1974 1971 For rent or For rent amortization

January-June(Dr_) . 19 75 1972 For rent or For rent amortization

Per cent of value of production Concepcion, Taxlac (60) San Mateo, Isabela (95) Minalin, Pampanga (30) Calumpit, Bulacan (25) Tigaon, Camarines Sur (40) Guimba, Nueva Ecija (210) Pototan, Uoflo (65)

18.8 11.6 33.2 n.a. 14.8 18.7 30.7

15.2 16.1 24.3 n.a. 29.6 6.6 19.6

15.2 14.8 25.9 14.4 18.1 12.6 26.6

14.6 13.4 27.3 10.6 17.4 10.1 22.6

Source: Computed from BAEeon (1975, pp. 47-53).

conditions of concentration of wealth and power, abuses can go unchecked and become endemic. There seems to be a presumption that smaller landlords are less likely to be abusive. Is there a relationship between land estate size and incidence or degree of involuntary servitude, insecurity o{ tenure, debt peonage, etc., which can indicate how small enough an estate should be to ensure that the tenants will not be, in their reckoning, unjustly treated? A deeper question has to do with the equity of the process of land acquisition in the first place. The government concern for the small agricu!tural landowner, stereotyped menting his meager pension from life's savings, indicates that certain socially acceptable. On the other Spanish represent

land grants, though socially disturbing

as a retired rentals from

civil servant suppleland bought out of

circumstances of acquisition are hand," haciendas derived from

perfectly legal in a long bygone era, land concentration. There are indica-

tions that, even at present, the natural of the state, with many openings for inadvertently preparing the ground for generation. A study by Inoferio (1978) lands in Palawan attests to this.

resource distribution policies land concentration, may be agrarian unrest in the next on the distribution of public

108

MaharMangahas & BrunoBarros

8.2 Education Education is one area in which there appears to have been definite progress towards equalization over the last generation. Alonzo (1976) has recounted the increases in the average and minimum levels of schooling attainment (since there are natural limits to the maximum level of attainment, this implies that the distribution of schooling has become relatively more equal), and the narrowing of the gaps in schooling between males and females and between urban and rural youth. The number of years Qf schooling is clearly a significant variable in determining earnings (Encarnaci6n 1974 ; Tan and Orbos 1977) and the likelihood of being over the poverty line (Tan 1976); but, as pointed out earlier, it does not account for the major portion of differentials in income. ,On the basis of the traditional indicator, the number of years spent by a person in school, the Philippines has indeed acquired a reputation as having the broadest-based educational system in Southeast Asia. The relatively unresearched issue, as Alonzo has pointed out, is educational quality: at primary, secondary and tertiary levels, schools vary widely as to quality, and the distribution of access to formal productive training, properly adjusted for quality, is probably very unequal. The public and private sectors play very different roles in this regard. At the primary level, which is 90 per cent public and tuition-free, and to which there is near-universal access, the private schools provide clearly superior schooling. At the secondary level, in which public and private sectors have equal shares, public school training is still generally inferior, except in a few special state schools. At the tertiary level, however, in which the private sector has 90 per cent of the students, the roles are reversed. The classification of tertiary institutions as private proprietary, foundation, sectarian, and state, in that order, is often used as a proxy for increasing schooling quality_ and has been shown to be a significant determinant of both earnings and the ease of obtaining employment after graduation (Alonzo 1977). The factors affecting access to education include family 6_ income (in relation to family size), family wealth, and educational attainment of parents (Tan and Uy 1977, Palanca 1977). Educational institutions of higher quality do attract pupils from better-off families (Montiel and Fernandez n.d., Lynch n.d., Fund for Assistance to 62.

Family of orientation.

IncomeandWealthDistribution

109

Private Education 1979) that come mainly from the more developed regions (Leonor 1977). Furthermore, students from low-income backgrounds are in a weaker position to derive benefit from schooling_ compared to their more privileged classmates; the former tend to have poorer school attendance rates and lower scores in scholastic achievement tests (Tan and Uy 1977). Using mail surveys conducted in 1964 and 1968 by the Higher Education Research Council (1972), the ILO (1974) found a strong indication that families of college students are much richer than the average family in the country. One obvious reason for this is the costs associated with higher education. The poor do make sacrifices to send their children to college; but even the cheapest education in the late sixties required that the student's annual family income be at least equal to the mean income in Manila. As a result, only 20 per cent of the students had parents who were farmers, and only 4-5 per cent had parents who never went to school. The evidence also showed unmistakably that children from low-income families tend to enter lower-cost courses such as education, commerce, and business, while the children of high-income families take up the sciences, engineering, and medicine. The ILO report concluded that in short, Philippine higher education appears to be more open to entry for the children of workers and farmers than, say, higher education in most European countries, and it is not much less open to entry from less privilegedfamilies than American higher education. Or to express it differently, education in the Philip. pines does indeed ensure a certain degree of intergenerational mobility, and this despite the fact that it is largely financed privately. But it is only fair to say that, as a method of equalizing incomes, educational expansion works so slowly that even two or three decades would hardly suffice to make a dramatic difference to aggregatedata on income distribution. (9.330) The January 1979 report on equity in educational opportunities by the Fund for Assistance to Private Education (FAPE) is the most recent statement on access to institutions of higher learning. It makes use of tabulations of student performance in the National College Entrance Exam (NCEE) and special school surveys. Although only 12.8 per cent of the schools surveyed gave particular attention to socioeconomic status of students in their admissions policy, the NCEE proved to be an incidental filter that served to exclude lower income students from college. The general trend was that better-off urban examinees enjoyed, on the whole, a greater chance of passing. From enrolment figures for the period 1962-67 it was computed

110

MaharMangahas & BrunoBarros

that, of every 100 students entering Grade 1, only 15 survived the educational system to finish college. These appeared to be composed mainly of students from richer families and children whose parents were better educated. Poorer students who were fortunate enough to be in the privileged 15 per cent generally took lower-cost (and probably lower-remuneration) courses than their wealthier counterparts. These disparities were also evident at the University of the Philippines (Uichangco and Villongco 1976, and University of the Philippines n.d.), despite its minimal fees, apparently because the vicious cycle of causation between income and education left students belonging to lower income groups inadequately prepared to tackle college work at the state university. Thus, the unequal pattern of distribution of school quality at the primary and secondary levels, where the public schools are dominant, has serious consequences for access to high quality schoOling at the tertiary level, where the public sector has only a few places to offer. The FAPE report favors the design of special financial aid programs for families unable to afford college education for their children. 63 At present, the financial assistance awards which offer full coverage of tuition fees and subsistence living costs are almost nil. Twenty-three per cent of such awards offer scholarships covering all fees. At the collegiate level, the indirect costs of schooling to a student are more than seven times as large as the direct costs charged by the schools (Alonzo 1976); two-thirds of these indirect costs are foregone earnings, which represent sacrifices more serious for the lower than for the upper income groups. FAPE has also found that the use of a uniform passing mark in the NCEE leads to discrimination in favor of examinees from Metro Manila and from upper income groups. 64 Thus, it also recommends the use of differential cut-off points for NCEE examinees according to region. 8.3 Health, Housing and Social Security One of the most direct attempts to answer the question "who benefits from the health system? " was made by Adorna (1977). By 63. It also favors a socialized school fee system and a voucher system that would allow a choice of school to the student. 64. See "Income Distribution of Qualified and Disqualified Examinees in the 1973 NCEE," FAPE R and D Report, No. 5, September 1974, cited in Alonzo (1977).

IncomeandWealthDistribution

111

using health manpower and hospital bed distribution as proxies for disparities in the delivery of health services, Adorna shows a highly unequal access to medical care among geographical regions. The existence of rural clinics offsets regional biases only to a limited extent. A more poignant instance of the maldistribution is the finding that Metro Manila alone claims about one-half of all hospital beds. In the absence of any appreciable amount of income data, the locational approach, which employs the "catchment" concept, is useful in analyzing access to health care with respect to income. If, indeed, it is valid to substitute roughly "rich" and "poor" for health service delivery in "urban" and "rural" catchment areas, respectively, then Adorna's findings do indicate an upper-income bias in health care. His report on a survey of 527 patients from different health and nutrition institutions in 1975 supports this conclusion as it suggests that access to these institutions was greater for higher income clients. Moreover, Adorna finds that the catchment areas of individual Philippine health institutions are rather small. For instance, 82 per cent of patients who availed themselves of services at the Philippine General Hospital (PGH) lived within a ten kilometer radius of the hospital. Tan (1975) has further confirmed the apparent upper income bias in access to health care. A special survey on the distribution of benefits from government expenditures found that benefits per family from health expenditures in 1975 were: P18 for those with an income of PO-1,000, ff39 for those in the P4,000-6,000 income class, and PI 12 for those receiving P10,000 or more. The poor are discriminated against not only with regard to the quantity of health facilities but also with regard to its quality. It is often conceded that the PGH suffers from a lack of equipment, overcrowding of patients, and a scarcity of technical manpower. These factors prevent it from providing the same degree of quality medical care as its other government counterparts, such as the Government Service Insurance System Hospital (GSISH), despite the high caliber of the PGH staff. Dequina (1975) sampled 100 respondent users of these two health facilities (PGH and GSISH), and found that far higher proportions of PGH patients were poorer. The correlation of poverty with morbidity (incidence of illness) is most vividly demonstrated in Paqueo (1976). His data are from a survey of 1,000 respondents in Batangas in 1973, done in connection with the Development Academy of the Philippines' Social Indicators Project. The respondents were asked whether they experienced ill-

112

MaharMangahas & BrunoBarros

ness during a two-week reference period and, if so, to what fraction (either 1/4, 1/2, 3/4, or total) of their normal activities they felt restricted. At the sam6 time, the respondents gave their perceptions of their poverty status. Table 8.2 clearly shows that the rate of morbidity is higher for the poor, whether they feel they are on the border line of poverty or below it. In addition, the degree of morbidity, as measured by incapacitation, is far worse for the poor than the nonpoor: falling sick is twice as likely and disability (100 per cent or 75 per cent) is three to four times higher. The evidence on the distribution of housing is more scarce than that of health. Quinones (1975) shows that housing finance institutions cater to the upper middle economic classes. Other studies have focused on the housing situation in gross supply and demand terms, and on slum dwellers and squatters, particularly in the metropolitan areas. In 1968, the Office of the President reported a total of 183,759 families that were either slum dwellers or squatters in Metro Manila. Although not all squatters necessarily belong to the lower income classes, the subjects of the report generally appear to belong to this group. Most were rural migrants, and about half had earnings of less than P150 per month. Average monthly receipts were between t_100 and i_150; many did not have an assured regular income. The Economic Development Foundation (1974) reported that the squatter and slum problems mushroomed to encompass 3.4 million people by 1973. 6s Rosenberg (1970) attempted to examine the redistributive effects of the operations of the Social Security System (SSS) in 1967 by imputing SSS contributions and benefits to the wage/salary income classes to which SSS members belong. He was able to secure a sizable sample (6,000) from the 1965 BCS FIES, and constructed a crossclassification of wage and salary recipients by income classes. The imputation of contributions was done on the assumption that employee contributions were not shifted forward, while employer contributions were shifted either (a) completely to employees, (b) half to employees and half to consumers (allocated to the latter in pro65. More data are available from surveys and studies of the Philippine Institute of EnvironmentalPlanning,the U.P. Institute of Small Scale Industries, the Central Institute for Training and Rehabilitation of Squatters, the Institute of Philippine Culture, the Development Academy of the Philippines, the Presidential Assistant on Housing and Resettlement Agency, the National Housing Authority, arid the Tondo Foreshore Development Authority.

8 Table 8.2 Morbidity Data by Poverty Status (For a Reference Batangas: September 1974

Period of Two Weeks),

o3 £3.

Per cent of respondent reporting illness Self-rating as to poverty

Prevalence rate of morbidity *

Restricted to 1/4 of normal activiHes

Restricted to 1/2 to normal activities

¢D

Restricted to 3/4 of normal activities

_Completely disabled o" ¢-

Nonpoor On the borderline of poverty

10.1

3.2

12.8

1.1

2.0

1.8

6.3

Poor

20.0

1.6

2.6

3.5

10.1

*Includes those who seported illness but were not disabled.

2.5

2.6

9" =

114

MaharMangahas & BrunoBarros

portion to their consumption expenditures), or (c) one-third to employees and one-third to consumers. Various types of benefits were also examined: retirement, sickness, death, and the discounted value of interest savings on loans. Under all assumptions, SSS contributions were found to be progressively distributed, that is, contributions as a proportion of income rose with income. The distribution of benefits, on the other hand, was somewhat ambiguous. Retirement, sickness, and death benefits were quite progressive but loan services were highly regressive. Since the latter amounted to 50 per cent of all benefits, the overall trend was one of progressivity between low and middle income groups but regressivity between low and middle on the one hand and high on the other. The reserve finance system of the SSS rendered contributions more than double so the net effect (benefits and contributions) was slightly progressive - the "before SSS" Gini concentration ratio being 1.2 per cent higher than the "after SSS" ratio. Net transfers were negative for all income brackets, i.e., the net effect' was similar to that of a tax. 66 Some reasons for the limited effects of the system are evident. Many poorer quarters - nonwage earners - are excluded from the SSS scheme. Since finance is obtained by payroll deductions, landowners and other individuals who derived income from assets are also excluded. Membership in the system covers a small proportion of the population due, in part, to noncompliance with legal requirements for membership. 8.4 Equity in the 1978-1982 Development

Plan

There has been a clear trend in Philippine development planning towards equity as a social objective (Mangahas 1976a). In the 1978-82 Development Plan, social justice is cited as an "overriding thrust." President Marcos refers to the Plan as "an Instrument for the Democratization of Development," and describes it as an attack on mass poverty and says that development is not reflected in the GNP but in the welfare of the urban and rural poor, the unemployed, the underemployed, the homeless, the out-of-school youth, the landless 66. Rosenbergrecommends that reserve financing(which permits a great deal of latitude to loan operations) be replaced by a "pay as you go" system that would increase benefits to contribution levels.

Incomeand WealthDistribution

115

workers, the sacadas, and the sustenance fishermen. In his section entitled "Philippine Development for Social Justice," he says that the measures to be taken include not only those which directly alter the distribution of income and wealth, but also those which expand opportunities for employment advancement and the capacity to participate and share in development." (p. xxxi; our italics) In general, it would appear that the policies whereby these ideals are to be pursued do not seem to differ significantly from those given in the 1974-77 Plan. The only measure identifiable as capable of "directly altering" the distribution of income and wealth is the land transfer policy for rice and corn tenanted lands, on estates of a given minimum size, set into motion by P.D. No. 27 of October 1972 and its subsequent implementing regulations. The main policy still seems to be the pursuit of greater productivity, preferably in areas outside Metro Manila, preferably rural, in small- or medium-scale industries, in labor-intensive processes, in export-oriented products, etc. In the 1978-82 Plan, the specific areas in which one may find numerical targets6Spertinent to equity are the following: (a) Open unemployment. The Plan cites the proportion of the labor force completely without work at 4.1 per cent for 1977. (Thus, the 1974-77 Plan target that it should fall from 7 per cent in 1972 to 3 per cent or less by 1977 was substantially achieved.) The target unemployment rate for 1978-82, which is a constant 4.0 per cent, is a weaker one than in the 1973-77 Plan. It appears that NEDA's present view is that this rate is akeady tolerable and that, in any case, it will not be feasible to lower the unemployment rate further. (b) Visible underemployment. Visible underemployment is defined as the proportion of persons employed less than 40 hours per week and seeking work to the total number of persons employed less 67. This is consistent with the President's views expressed in Notes on the New Society 11:TheRebellion of the Poor (1976): I, for one, do not subscribe to distribuffon from growth alone, although growthis necessary to democratization.(p. 7;the President'sitalics). Thus, the rebellion of the poor, as the ideological base of the New Society, is translated by the crisis government as the process of equalization. (p. 12) 68. In the 1978-82 Plan, the technical emphasis is overly heavy on the growth-targets compared to the equity-targets. For instance, the thirty-one-page Chapter 2, entitled "National Development Targets," devotes its first 23 pages to discussing past performance and future targets of growth, and the succeeding 8 pages to discussing"sharing the benefits of growth."

116

Mahar Mangahas& Bruno Barros

than 40 hours per week. This rate is targeted to from 5.3 per cent in 1977 to 3.6 per cent in 1982 per cent in 1987. However, there is no mention of for the invisibly underemployed, who constitute problem. 69 (c) Undernutrition. Undernutrition is one area

drop substantially and further to 2.5 a numerical target a more serious in which

the Plan

shows a serious technical interest in equity. The Plan reveals that a very large national survey of preschoolers in March 1977 indicated that (1) over 30 per cent protein-energy-malnutrition

were suffering from moderate or severe (PEM), (2) the PEM rate has not been on

the downtrend, and (3) the PEM may even have been worsening among "disadvantaged groups" (p. 188). Table 8.3 reproduces the Plan's estimates of the base rates of PEM among children in 1976, and the highly aggressive set of targets for reduced PEM over the planning period. For example, it is declared that second-degree dernutrition among children 6 years and under will be reduced about 25 per cent in 1976 to roughly 16 per cent in 1982. 70

unfrom

(d) Health: life expectancy and infant mortality. Life expectancy and infant mortality are target variables that can also proxy for equity, though probably to a lesser extent than the PEM rate. The targets

are of significant

magnitude.

The average

life expectancy

69. The total underemployedisgivenby thosealready employed,regardless of thenumber of hours,but seeking more work.The rationale fortheuseofa time-criterion, 40 hours per week in this case,is to separatethose underemployedwho actually haveno more timein which to work,i.e., their expression of need for more work shouldbc interpreted as a need fora higher-paying job ratherthan merely more hoursworked.This isinvisible underemployment. However,theaverageFilipino's work-weekismuch closer to 48 hoursthan to 40 hoursperweek. Sincethisisonlythe average, a good number work more than48 hours. Thus thetechnical choiceofonly40 hoursas the boundarylineforthevisibly underemployedresults in an overoptimistic presentation, since there are definitely many workers presently with five-day-a-week jobs who are willing, able, and seeking six-day-a-week jobs. 70. The nutritional section of the Plan mentions forthcoming "intervention programs," such as direct,feeding, which suggest that government may be willing to accept some form, albeit limited, of direct redistribution of consumption. The standard declarations of higher food productivity targets and of better nutritional education are of much less consequence because (a) the present sad state of PEM, in spite of more than a decade of the Green Revolution, clearly shows that higher productivity of itself has been ineffective, and (b) recent research has confirmed long-held, commonsensical suspicions that nutritional know-how of itself is not substitutable for basic, real-valued purchasing power. (See papers of the PREPF Health and Nutrition Project, U.P. School of Economics, 1977.)

Income and Wealth Distribution

117

Table 8.3 Tagget Rates of Undernutrition in the 1978-1982 Plan Percent of children aged0.6 Second degree Base year targets

1976 1978 1979 1980 1981 1982 1987

24.8 21.4 19.8 18.4 17.1 15.8 11.0

Per cent of children aged 7-12

Third degree

Seconddegree

5.8 4.6 3.7 3.0 2.3 1.8 0.9

13.3 8.2 6.5 5.1 4.0 3.1 1.2

Third degree 0.7 0.4 0.3 0.3 0.2 0.2 0.1

Source: NEDA,Five-YearPhilippineDevelopmentPlan,1978-1982, p. 184.

birth is targeted to rise from 60 years in 1976 to 62.4 years in 1982 and 64.4 years in 1987. The average infant mortality rate per thousand (or IMR) is targeted to fall from 74 in 1976 to 65 in 1982 and 56 in 1987. This, more than life expectancy, is likely to be linked to poverty simply because the IMR among upper income groups is already quite low. (e) Education: literacy and schooling participation. The literacy rate is targeted to grow from 83.4 per cent in 1970 to 90 per cent in 1982 and 92 per cent in 1987. The targets for increases in schooling participation are somewhat low, school than on college education: Age

Group

7-13 (primary) 13-17 (secondary) 17-22 (tertiary)

with

a bit more

emphasis

on high

Per cent in school 1982 1987 98 60 19

98 63 21

The Plan remarks that the tertiary participation rate is, quantitatively, akeady one of the highest in the world, and that the problem is not quantity but quality. There also are certain other equityoriented statements of intent, such as the widening of opportunities for nonformal education, the "democratization" of access to college and the provision of loans to "poor but deserving" students; however, there are no numerical targets accompanying these statements. (f) Housing and other servicez The targets in housing and other

115

MaharMangahas & Bruno Barros

services are somewhat loose. The Plan states that the government will achieve a "54 per cent success" in meeting housing needs in urban areas and a "25 per cent success" in meeting needs in the rural areas (p. 218). There seems to be an intention to provide such housing with subsidies from the general budget (p. 221). The conjunction between numerical targets given in the text and in tables is rather difficult to find, however. It is also stated that "welfare services," presently serving only the poorest 10-15 per cent, will be expanded to serve the poorest 30 per cent. There are no further numerical elaborations. The chief criticism which may be made of the 1978-82 Plan with respect to the equity objective is the failure to make specific targets in regard to reduction in poverty and in the concentration of income and wealth, as well as with regard to increases in real wages. In general, the lack of such broad targets, which presumably are meant to be the ultimate goals of the various programs on education, nutrition, etc., suggests a basic lack of integration in the equity policies and programs of government. There is no official poverty line. 71 The only statement garding poverty is that

made re-

their [the lowest thirty per cent's] average real earnings from 1978 to 1987 are targeted to increase faster than the annual averagegrowth of real GNP per family of 4.9 per cent. (p. 45) "How much faster" is not stated; neither is there a monitoring system to regularly ascertain the movements in the real earnings of the poor. With respect to wages, the Plan declares that "manpower will be employed under just terms and conditions (p. 107)" and that "a high rate of labor absorption will minimize underemployment and assure a steady and upward movement of real wages (p. 11)." The Plan states that "sustained increases in labor productivity underlie the employment targets (p. 42)":

71. The Plan makes references to a targeted decline in the number of so-called "disadvantaged individuals" from 2.6 million in 1976 to 1.5 million in 1982 (text, p. 45 and tables on p. 47 and p. 243). The meaning of this term is not clear from the Plan, except that it refers in some way to the number of clients of the Ministry of Social Services and Development; NEDA sources state that it is not a NEDA staff product and that it is not a concept of the magnitude of poverty.

IncomeandWealthDistribution

119

Sector

Target annual _'o wth o.flabor productivity

Agriculture Industry Services

3.6% 5.1 2.6

These axe obvious starting points for establishing targets for real wages. The money wage targets could then be derived by adding the rate of inflation.

9. CONCLUSIONS The rapid growth of the economy over the past generation (at an average of 6-1/4 per cent per year) has not been accompanied by a satisfactory improvement in social stability. The turmoil leading up to the declaration of Martial Law in 1972 and the continued subversive and secessionist movements attest to this. The presence of serious socioeconomic inequity is presumably one of the important factors contributing to the problem. This suggests that economic research aimed at reducing inequalities, relative to research aimed at reducing allocative inefficiencies, is of higher social priority now than before. In the first place, a more just distribution of material well-being is a valid social objective in itself. In the second place, the bulk of the evidence suggests that the lessening of economic inequalities would be favorable to growth: some military expenditures, were it not for civil disorder, could have been used for investment; and direct assistance to the underfed and the undertrained would raise human productivity. Simulation models indicate that the alleged problem of inadequate savings, and hence lessened growth, given a more equally distributed income, is minor. At the same time, this is not inconsistent with the tendency for modern economic growth, without equity-oriented reforms, to widen inequalities (the Kuznets hypothesis), and there is substantial evidence that such processes are at work in the Philippines. But inequalities per se are not necessarily socially harmful, and, indeed, are bound to arise to some degree in a system where market incentives operate.

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In general, the research on income inequalities has been only slightly productive, in two senses: (a) the empirical models typically explain only about one-fifth of aggregate inequality; and (b) the determinants which have been examined are, by and large, those which are socially acceptable, or unlikely to create the resentments which foster social instability. Such factors as education, occupation, hours of work, sector of employment, urbanization, age, sex, civil status, family size, and region of residence can be shown to have some statistical significance in determining income; but, since they account for only a minor portion of income differentials, indicate a limited redistributional potential of the corresponding policy handles. Furthermore, attitudinal surveys strongly confirm the casual impression that Filipino society is rather tolerant of such differentiating factors. This calls into question the equity impact of the corresponding government policies, except for the issues of sex discrimination, access to education, and occupational mobility; and even the latter issues would not appear to have strong destabilizing effects. The solutions to the research problems are likely to be found in actions to remove certain serious deficiencies in the distributional data. 1. The data system should take a comprehensive approach in the selection of variables to measure. In principle, income, apart from transfers, is determined by (1) access to productive assets, (2) the rate of employment or use of these assets, and (3) the rate of return to the assets. Assets include physical capital, human capital (training), and natural resources; access to them implies the claim to income produced by the assets, and is not limited to legal ownership. The present data system, in general, is overly concentrated on the human assets (education and demographic attributes), and very skimpy on the nonhuman assets, or property. The issue of access to or ownership of property has an obvious relevance to equity. For the various types of property, there is a need to measure, study, and regularly monitor the size distribution, the rate of utilization in productive activities, and the rate of earnings (profits, interest, and rentals). 2. The distributional data system should be oriented towards comparisons of social groups. Inequity and inequality are concepts definable only in terms of a comparison between individuals or between groups. They obviously cannot refer to one party alone.

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Their social importance is directly related to the seriousness of the conflict, whether visible or latent, of economic interests of the various parties. There is a need to study disaffected groups. 72 An equity problem exists because among the economic differentials are some which are felt to be due to unjust advantage, unfair to such a degree that individuals may opt for collective social, economic, and political action, inclusive of violence, in order to revise the system of access to economic benefits. The solution to the problem must involve the understanding of what, from the viewpoint of the disgruntled, constitutes the injustice, and in the adaptation of social institutions, preferably through peaceful reforms, to remove such sources of injustice. This brings up the need for intergroup analysis, such as tenant vs. landlord, labor vs. capital, or Muslim vs. Christian. Intergroup analysis is essential to research on inequity and inequality, and does not presuppose adherence to a theory of class conflict. Obviously, such analysis will require group-comparative data such as: the size of the landed estate to which a tenant farm belongs, the rate of profit in the industry which pays a certain real wage, or the disposition of public land to Christian migrants in traditionally Muslim territories. That such data may tend to be on the sensitive side is simply an indication of their social relevance. 3. The distributional data system should include a limited set of variables for frequent and prompt monitoring. The success or failure of equity-oriented policies should no longer be indicated simply by the absence or presence of dramatic civil disturbances, but by a reliable, scientific system of continuously detecting small changes, positive or negative, in conditions of equity, thus allowing early-warning signals of policies growing antiproductive and dangerous or of being nonproductive and wasteful, as well as of early signals of improvements which deserve to be more vigorously 72. One would guess that many of the key people in these groups are not poor, yet view the poor as their allies. The latent resentmentsof the poor presumably tend to make them receptive to agitation by others. The equity problem is not merely one of absolute poverty, for if everyone were equally poor there could scarcely be interpersonalresentment. Theproblemwouldthen be how to find sources of growth rather than systems of distribution or redistribution.

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pursued. 73 Assuming that equity is at least on par with productivity as a national objective, it would be advisable to have annual estimates of poverty and of various conditions of inequality, to be publicized as vigorously as the estimates of the GNP. This would be the key to maintaining the status of the war on inequity high in the social consciousness, impelling politicians, technocrats, civic leaders, scientists, and the general public to constantly assess the development policies and programs, conceive of improvements, and cooperate in new undertakings. 74 â&#x20AC;˘ The range of possible policies for improving equity is wide; 7s within each area, reforms can also range from the mild to the radical. In this study, we have commented on such areas as land reform, regional development, fiscal incidence, etc. While the various goverment efforts are, of course, to be commended, we are forced to conclude,

the

basis

overall

results,

that

the

policies

and

73. In Kuznets' words: [A] major goal of the study of the distribution of income and employment is to observe the limits of tolerance for widening inequality, even if such inequality may seem efficient in the shorter run and in the purely economic sense .... Tl_s means that we have to be prepared for a double set of uses of distributions of income and employment, even if they are short-term. If one finds some disturbing factor.., the danger is obvious - and it does not help that, in the longer-run, the problem will be resolved, as it usually is, by some technological or social innovations. Meanwhile, the social pressures may result in a shift in political structure that will have long-term consequences, not necessarily favorable for a satisfactory pattern of economic growth. (See CAMS-JERC 1975, pp. 3-4.) 74. See the Ranis Report (ILO 1974), which in its concluding chapter sees "social consensus as a basis for a strategy of sharing in development." 75. In principle, it includes the following policies: (1) Those which change the allocation of and market rates of return to land, labor, and capital, and hence affect these productive factors' shares in the total product. (2) Those which change the distribution of acquired schooling and other sources, including informal ones, of human productive skills. (3) Those which encourage economic growth of localities and activities in which the poor are involved. (4) Those which indirectly alter lower incomes, including the provision of water, electricity, sewage disposal, and other social services. (5) Those which redistribute land and other forms of nonhuman productive assets. (6) Those which directly alter upper incomes, including progressive taxation of income and wealth. (7) Those which directly alter lower incomes, including not only direct transfers of money or food but also regressive commodity taxation.

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programs have not been wide enough in scope and/or not intense enough in degree. One reason may be that the many equity-relevant policies (price controls, wage fixing, land reform, education and social services, natural resource access, social insurance, and taxation) have not been formulated and evolved on an integrated basis. The annual per capita GNP report, for instance, provides an integrating factor for the complex set of sectoral production and employment programs, the population program, the investment program, the foreign trade policy, etc. But there seems to be no equivalent actually in operation in the case of income distribution. It is not merely a technical matter of selecting suitable indexes of overall poverty or inequality; we lack an integrated view, or socioeconomic model, of equity which would enable us to gauge, for instance, that a reduction in the index by x points could be accomplished either by an expenditure of y million pesos in some activity, by a limitation of land access to z hectares in some sector, or by an intervention in product or factor prices by w per cent. 76 From the program implementation standpoint, there should be, ideally, some central agency or body addressing itself to such issues, and hence providing the impetus for the needed technical research. The first order of business might be an integrated analysis and appraisal of past equity-relevant policies, some of which (e.g., natural resource access) may not even have been conceived in terms of equity effects. This would in turn become the basis for recommendations for a revised, integrated program for the deliberate attainment of a distribution of income and wealth characterized by a reasonable, socially stabilizing degree of equity. To sum up, we have three main recommendations: 1. The focus should be on equity. No one is asking for complete equality. 2. The key to a scientific solution of the equity problem is in producing more data: more frequent, more prompt, and, if it is to be socially relevant, more "'sensitive." 3. Researchers should turn from analysis of determinants of economic differentials to evaluation of past equity-pertinent policies and to design of new equity-oriented policies and programs. 76. This is not necessarily a call for so_ahistieatedeconometric modelling. Analytical manipulations are tightly constrained by the quantity and quality of available data, and much has already been said about the priority need to loosen this constraint.

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An Analysisand SynthesisofPoverty ResearchinthePhilippines

Florian A. Alburo and Eduardo L. Roberto

I. INTRODUCTIONAND CONTEXT In less than a decade, studies on poverty in the Philippines have in a real sense exploded. The efforts from the different disciplines in bringing to bear intellectual resources on the problem are growing, judging from the works that have become available in the field as well as the numerous unpublished materials that abound in academic libraries. While there may not be a uniform quality that can be attributed to the poverty-studies explosion, the outputs nevertheless give a broad knowledge of the poverty issue. As development resources become more limited and as poverty worsens (partly due to more attention being paid to it), it becomes more imperative for development institutions (national and external) to seek better ways to handle and respond to the problem. Studies on poverty indicate a wide range of issues that can be looked into. The latest annotated bibliography on Philippine poverty studies (Abad, Villanueva and Picazo 1978) contains 234 entries only for the period of the seventies. Our search adds to the list more than 70 studies for the decade of the sixties. The listings, of course, run Associate Professor of Economics, School of Economics, University of the Philippines, and Benguet Consolidated Professor of Management, AsianInstitute of Management, respectively.Weacknowledgethe financial support given by the Philippine Institute for Development Studies (PIDS) and the research assistance of Emmanuel de la Paz.

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through the whole gamut of poverty, and thus we can expect a large universe to fall in this context. The significant salvo on poverty research must naturally be attributed to the Social Indicators Project of the Development Academy of the Philippines (DAP) as the more systematic effort to call attention to the poverty problem via traditional and experimental indicators. First, an aggregate number of the poor is arrived at through the use of the food and total thresholds concept. Second, poverty is pictured not only according to traditional indicators but also through other measures deemed to capture it. Third, the use of new measures is tested for reliability (not necessarily for validity) through a special survey. Unfortunately, whether poverty in the Philippines has worsened or not is now more openly debatable. Sharpened by the amount of research on poverty, we have gained more maturity in our measurement process so that, in general, we can inquire about the comparability of figures over time. We have also arrived at alternative and equally legitimate ways of measuring the poor. But, because of the scale of research work, we may have overdetermined ways of identifying the poor as target clientele. There is therefore a need not only to assemble the diverse thoughts that have gone into poverty research along some classification but, more importantly, to discern what further work can be done. We need to determine also whether we have the appropriate information requirements for descriptive and policy purposes. The general purpose of this paper is to review poverty research in the Philippines and to suggest some research directions (if any) which would be useful to follow and which would yield further knowledge. A research synthesis is needed in looking at the economic and noneconomic descriptions of poverty, the measures used, and the identification of causes or consequences of poverty. On the economic aspects, we need to understand the economic measures with which the poor are counted, the processes of the measures, the determinants of poverty, and the analytical schemes followed. While we are also interested in the noneconomic aspects of poverty, what would be more useful perhaps is to compare determinants. Likewise some synthesis is required in the link between aggregate poverty and pockets of poverty. Both types of research imply program or policy actions. For example, a sociological perspective considers poverty as either pathological, resulting from attitudes and

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values; a reflection of "social disorganization" as a result of industrialization; or a reflection and consequence of power conflicts. But clearly this consideration needs to be supplemented with micro studies linking this macro classification to empirical data. For example, participant-observation research of scavengers will prove useful in this kind of synthesis. In this paper we attempt to provide a way of assessing past research on poverty under a general theme of seeking the directions it may take in the future. We deliberately avoided the fine and detailed results of the studies since they can easily be appreciated in the original works. Furthermore, later poverty studies give sufficient reviews of past efforts in the area iocluding quantitative analyses (e.g., Social Research Associates 1977). The second part of-this paper is the main section of the report. It culls most of the past poverty research along the lines of current measures and descriptions, analytical methods and measurement process, policy prescriptions and program impact, and social psychological dimensions. The third and last section is aimed at elucidating some research directions that follow from the reviews.

II. POVERTYMEASURESAND ANALYSES In this section, we shall attempt to provide a broad yet comprehensive summary of various poverty measures used to describe or isolate poverty in the Philippines. The plan is as follows: first, we distinguish existing poverty measures and descriptions from those which we see as part of a large existing knowledge base. These measures include aggregate indices and sectoral indicatorsloeational or by population groups. In order to appreciate and understand the process of these measures, we next examine in some detail the methods of analyses followed in the derivation of variou_ poverty measures. Third, we review the operational uses of poverty descriptions as bases for program design or for understanding program influence or impact. Fourth, we shall explain basic concepts and provide a framework for social and psychological dimensions of poverty. Finally, an attempt at a summary of poverty measures will be made, pointing out the philosophic nature of poverty studies, the lacunae they imply, and the directions they might take.

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Some Poverty Measures Income, employment, income distribution, and a host of economic variables (e.g., productivity, consumption) usually dominate existing poverty measures. The poor in the Philippines are described in the context of receiving an income below a poverty line or in the same breadth as spending on goods and services an aggregate amount below such a line. The poor are also measured in a relative sense, i.e., within the context of the share of different (income) classes in the aggregate level of economic activity. The pioneering and pathbreaking work in the Philippines of the Social Indicators Project (SIP) 1 provides an important base for later poverty measures. When the project components are viewed as a totality they show an aggregate picture of social and economic conditions, factors which presumably enter into some social welfare function. The SIP papers also contain a range of suggested indicators reflecting various areas of concern including the broad poverty phenomenon. Beginning with Abrera (1976), and later Tan (1976), the Social Research Associates (1977), and Valenzona (1976), calculations were made to determine a poverty line which is either a total threshold or a food threshold-both as measures of absolute poverty. Both start from the basic notion that a minimum expenditure is required (at given prices) to obtain caloric standards for a set diet, the former allowing for nonfood expenditures by assuming the minimum to be 60 per cent of the total and the latter being considered an absolute minimum. Applied to 1971 prices, the lines are defined to be averaging P3,500 per year for a reference household of 6 members.2 When the poor are counted, the proportion of the population (or families) below the line is known and we then get an idea of the extent of poverty. For example, on the aggregate the poor constitute more than 70 per cent of Filipino families in terms ot total thresholds and about 60 per cent in terms of absolute thresholds. Looking at the problem by its rural and urban breakdown, the 1971 figures indicate a 45 per cent poverty incidence in urban versus a 75 per cent incidence in the rural areas. 1. The papersthat came out of this project axe found in Mangahas(1976). 2. The calculated annual food thresholds are P'3,428 (urban) and P'3,000 (rural) for 1971 while the annual total thresholds axeP5,762 (urban) and P5,000 (rural) also for 1971.

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Two ramifications have been added to our threshold numbers. The first involves the approach itself. Instead of putting price tags to a recommended diet satisfying a minimum caloric standard, one calculates via a linear programming solution the minimum cost of food combination that satisfies the standard. From here a "bare" minimum was measured. This in effect became the food threshold equivalent to the Abrera (1976) measurement. Again it became a simple matter of counting families (or individuals) whose incomes or expenditures fall below this amount, and this gave the extent of poverty. Such remeasurement (Tan 1976) yields a poverty incidence slightly lower than the two threshold measures elaborated previously, a The second extends the determination of poverty lines to different socioeconomic and geographic classes. This allows one to have (a) a firmer and more microscopic view of poverty and (b) a relative notion of the composition and aggregate number of the poor (in a given classification). By virtue of the fact that Philippine surveys of family income and expenditures provide several types of classifications (e.g., rural/urban, source of income, size of family, region, etc.) it becomes fairly easy to apply either of the poverty measures in order to arrive at alternative ways to measure the poor. Several calculations have been done to arrive at disaggregated measures of poverty by urban and rural locations, occupation, or level of education of household heads (NEDA n.d.; Tan 1976, 1978; Social Research Associates 1977). A further step can even be made in this regard. It is to discern if the attention given to the poor is high-prioritied either in terms of incidence or composition. The Social Research Associates report (1977) clearly attached importance to the poverty incidence measure as a reflection of relative deprivation such that population classes where the incidence is over 50 per cent were given a higher priority for action. 4 By this process of geographic or sectoral classification of an aggregate measure of poverty, some apparent relationships can be seen. In education, there exists an inverse relationship between poverty incidence among households and the number of years of education of household heads though the threshold education seems 3. Compared with the figures presented in footnote 2, the total threshold was computed at _3,867 (Philippineaverage) or some 29 per cent lower than Abrera'sestimates. 4. The purpose behind this judgment is to look at poverty from the subjective relative deprivationviewpoint with the notion that, where relative povertyis h_her, feelingsof povertyare moresevere.

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a completed elementary schooling (Tan 1976, Social Research Associates 1977). As reported, nearly 80 per cent of the poor households either have not completed any grade or have had only elementary education. The numbers of the poor (in terms of households) sharply drop as soon as the education of household heads reaches first year of high school; nonetheless the incidence remains high (72.3 per cent). It is only when the education of the household head reaches second year of college that the incidence drops below 50 per cent. The regional breakdown of poverty incidence likewise serves to support an association between incidence and economic variables. Looked at in terms of gross regional domestic product (GRDP), an inverse relationship appears to exist between the two. If we now take our regional poverty incidences as reference for understanding ranges of associations, we can see more dimensions with correlations on them. This holds true with health indicators such as extent of disease (World Bank 1976), hospital physicianpopulation ratio (Social Research Associates 1977), and nutrition (Paqueo 1976). When placed in the context of household possessions, environmental characteristics, or social facilities (which indicate access), a similar pattern emerges. Table 1 presents the regional breakdown of poverty incidence in 1971 along with 1973 figures for the per capita gross.regional domestic product and several household characteristics. Notice that there is a close association (positive or negative) between poverty incidence and other poverty characteristics except in some cases where distortions are apparent due possibly to the aggregation of the data where provinces with well-developed urban characteristics are lumped, together with predominantly rural provinces (e.g., Eastern Visayas on households with toilets and Northern Mindana0 on households with houses made of blocks or wood). Given a close fit between selected socioeconomic variables and poverty incidence, a case can perhaps be made that the threshold measure of poverty is a sufficient indicator. Indeed, thresholds have an advantage in that they reflect opportunities available to individual households for purchases satisfying some standard (e.g., caloric). Thresholds are also sensitive to distinctions between rural and urban areas. Beyond this aggregate concept, other measures are employed to describe the poor. Income distribution and the disparities of incomes

Table 1. Incidence of Poverty by Region: Philippines and Selected Indicators (1973)

Region

Poverty incidence [per cent)

1971

Per capita gross domestic product (1973 pesos)

Households HousehoMs with with water pump electricity or artesian well (per cent) (per cent)

Households Households with using wood toilets (flush or charcoal or antipolo) for cooking (per cent) [per cent)

Households with houses made of blocks or wood (per cent)

"u O

::y-

I. II. IlL IV. V. VI. VII. VIII. IX. X.

Manila and Suburbs Uocos-Mt. Province Cagayan Valley-Batanes Central Luzon S. Luzon and Islands Bicol W. Visayas E. Visayas N. Mindanao S. Mindanao

35.6 75.1 85.8 61.2 63.3 80.2 76.3 81.9 76.8 70.1

Philippines Urban Rural

3,988 961 934 1,129 1,507 800 1,712 1,023 1,045 1,312

95.8 11.5 8.I 37.6 40.5 16.6 11.0 15.3 14.1 16.4

97.8 60.t 59.4 82.4 81.1 56.0 43.7 60.7 43.8 39.5

86.7 44.4 28.8 39.0 44.6 32.4 22.2 61.3 32.1 38.1

5.4 82.1 89.2 63.8 59.5 83.9 84.1 86.5 91.0 89.8

99.1 57.1 47.2 66.1 68.7 56.9 32.0 58.4 76.6 59.9

69.9

28.3

63.8

44.3

72.6

62.9

48.5 79.1

71.7 9.6

85.8 54.7

70.1 33.2

37.0 87.9

88.8 51.8

Sources.. Social Research Associates (1977), NEDA (1977), BCS (1971).

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between classes show evidence of relative deprivation (Sembrano et al. 1977, Illo and Lynch 1975, Salazar and Lynch 1974, Hackenberg 1975). Measures of poverty for micro sites or investigations of socioeconomic conditions on subsamples, while not wanting, are fairly limited in rigorous measurement. One definition has been advanced segregating poverty into its primary, secondary, and cyclical components. The first defines a condition rooted in having limited access to resources. The secondary poverty state is that rooted in misallocation of resources. The cyclical component is intergenerational exposure to socioeconomic deprivation (Decaesstecker 1974). While this scheme of measurement may appear intuitively attractive, its operationalization and consistent application are open to ambiguity, s Based on primarily economic conditions, poverty measures based on resources (income and expenditure) are part of a broader income distribution framework. Whether by income shares (of particular quintiles, for example), Gini concentration ratios, or Lorenz curves, the intention is to assess the behavior of such a measure over time, geographically or by social groups. The meaning of this distribution measure is that some judgment can be discerned on what different groups receive from the aggregate output of economic activities relative to some notion of. equity, perhaps short of equality. In short, judgments relative to an acceptable level of equity can be objectively arrived at (Mangahas 1975a, 1975b, 1977). 6 In employing distribution measures to Philippine data, one can make several observations. First, it is apparent that the shares in aggregate income of the lowest 20 per cent and the next 20 per cent have increased between 1961 and 1975. Whether the "improvements" are acceptable or leave something to be desired is open to debate but through this measure r one gets an impression of the distribution state over time. Of course there are other issues that surround the process of the measures (more on this below) and their use. Second, 5. For example, there is no quantitativedistinction amongthese components so that they may be differentiallyapplied in a somewhatarbitrarymanner. 6. Some of these acceptable inequities include those caused by education, age,or experience. 7. Although one distribution measure is used, there are some questions about its comparability between two time periods due to changes in definitions adopted and other methodological issues.

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beyond shares of families there is also the geographical distribution of income in terms of understanding the concentration of (the fruits of) economic activities. Manila's share has been fairly constant between 1961 and 1975 at 20 per cent while its share of families has risen from 2.2 per cent (of the total) in 1961 to 11.2 per cent in 1975. 8 Third, the Gini ratio in a sense captures a relationship between the distribution of perfect equality and actual distribution such that the extreme numerical values of 0 and 1.0 indicate equality and inequality, respectively. If brought to bear on a large number of families (or populations) the measure is indicative of the distance of a given distribution from either end of the scale. In the case of Philippine data, the overall ratio declined between 1961 and 1975 by .05 points from .50 to .45. Applied across the different regions, one also gets to understand income distribution. For example, Manila experienced greater inequality during the same period with an increase in the ratio from .48 to .51 (Social Research Associates 1977, Mangahas 1974, NEDA 1977). Finally, distribution measures can also show relative positions among populations in particular occupational classes. While there has been little systematic work along this line, the few studies that were made illustrate the use of these distribution measures. Common candidates are the so-called second and third generation problems arising from the green revolution (Palmer 1975). Beyond these poverty measures in the form of poverty lines and income distribution are more related measures couched in terms reflecting poverty. The notion of access, for instance, has led to the construction of composite access indices emanating from several access indicators (Alvarez and Layo 1978). By ranking provinces according to the indices, a gauge can be used to guide policy-makers in directing resources where access is more difficult. For one, it is to be noted that health access seems to be a very important access indicator. The desire to derive fewer factors to describe poverty has yielded few studies on the Philippines (Social Research Associates 1978). Again, if only to highlight what appears to be different results, the Social Research Associates report (1978) contends that the poor can be described in terms more of household characteristics (size, caloric 8. This would really mean in relative terms that Manila's conditions have worsenedbetween two time periods - from.45 to .51 in the Gini ratio.

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intake, number of children) than of economic occupation, primary occupation). 9

factors (secondary

Whether in the rural or urban areas, self-employed or employed, in the services or in the production sectors, the poor alternatively or in combination (with thresholds) are described and measured in terms of housing (Hollnsteiner 1975, Lopez-Nervez et al. 1976, Keyes and Roldan-Burcroff 1976), nutrition (Samson and Lynch 1974), employment (I11o 1974), or some socioeconomic or sociopsychological indices. The studies on rural "low-income" households paint a poverty picture that includes tenure status (Ramos 1972, Torres 1969, Castillo 1969), and production relations (Tapay 1976, Rivera 1976, Takahashi 1969, Torres 1977). On the other hand, measures and descriptions of poverty in urban situations include cultural binds (e.g., the poor as part of first generation migrants), exclusion from the economic system (e.g., scavenging as an "industry"), and a host of sociopsychological factors (more on this below) (Keyes 1974, Silverio 1975, Lopez 1975, Paat 1976, Montiel 1977, Sembrano et al. 1977, Guerrero and Jurado 1972, Decaesstecker 1974). Whatever the form and unit of measure used, they ultimately become the basis for attributing causes of poverty or pointing to consequences that it brings to society. Method of Poverty Measure and Analyses Threshold measures (food and total) are derived from recommended nutritional diets, 1o and price tags are attached to them and their totals summed for a given time period to arrive at some cost estimate of a basket. By classifying purchases in terms of urban or rural price indices, one arrives at threshold figures for the rural or urban poverty lines. In addition to the measures' simplicity as a device for counting the poor, they, have other advantages. They can easily be adjusted to account for price changes over time and can be adjusted for household size. The poverty lines measure the minimum opportunities that should be available to households as a poverty cut-off. 9. Their quantitative analyses show that the percentage of the variation explained by those factors is high (58 to 72 per cent). 10. These recommendations are made by the Food and Nutrition Research Council's "nutritionally adequate minimum cost diet."

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The apparent deficiencies of the threshold measure are well-known. It is not really a cost minimization measure. Different numbers are arrived at for different household sizes, age compositions, and locations (Alburo 1978). It has been pointed out that a threshold derived from a recommended diet may not come close to a cost-minimum basket that the poor consumes such that an alternative estimate may have to be fixed using a linear programming method (Tan and Tecson 1974, Tan 1976, Tan and Holazo 1978). Indeed, the numbers of the poor diverge using one or the other method. _ It would appear that the threshold or cost-minimum measure ignores the practical problem of choice-inefficiency. Even if one can criticize the cost-minimum approach as assuming away differential tastes (Valenzona 1976) and even if it were possible to argue on the reasonableness of the standards set by the thresholds (Mangahas 1979), these measures were arrived at from an a priori notion rather than derived from actual consumption behavior. The alternative process implied by this measure's deficiency is to determine actual expenditures satisfying a given standard and then specifying that total amount as the threshold (Webb 1976). Moreover, the positive relation to be found between knowledge (education) and nutrition practices, access to services or adoption of recommended practice (Wongmahardlek 1966) which are obvious characteristics of poverty, suggest that using food or total thresholds in the manner of putting price tags to them is to attribute more efficiency and optimality of behavior of the poor than is warranted by the facts. Of course, one can argue that the threshold measures capture the consumption opportunity concept and that choices are left for households to decide. But the measure can become less meaningful since, in effect, a household may have expenditures exceeding thresholds but, by virtue of purchases different from a standard, still be considered poor (at least in a nutrition sense). The real test, therefore, of the validity of this disadvantage is to assess the lines that different methods come up with. We are not aware, however, of attempts to arrive at poverty lines via actual household consumption expenditures. The composite index construction, as a way of analyzing or describing poverty, has also received little attention in the literature. An ethical objection is raised to formulating a grand Philippine 11. Poverty incidence via this method comes to about 70 per cent in 1971 whereasAbrera's method givesan 84 per cent incidence. See footnote 3.

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welfare index (Mangahas 1976). By factor analysis, however, factors have been drawn from a list of several variables to describe variations among poverty indicators (Social Research Associates 1978). Part of the reason lies inthe question of whether it is legitimate to have a composite poverty index, and if one can justify the items that go into it and the weights attached to the items. Without some poverty theory or without knowing a social preference system (in order to arrive at the weights), composite index construction may be difficult to defend. But if only to understand clusters of variables (economic, social, cultural or political), an empirically-based composite index construction would be helpful, as in the use of factor analysis. Research looking into the causes and consequences of poverty has invariably used poverty measures either as dependent or independent variables. More generally, the various researches have confined their focus according to the particular discipline of the research itself. Thus, research using income as a poverty measure has tended to look at economic factors as an explanation for poverty (Association of Colleges of Agriculture in the Philippines 1978). On the other hand, research using noneconomic variables as poverty measures views a particular social system among the poor as being responsible for the poverty phenomenon. Research that has tried combining several factors together may have ranked few factors as describing poverty but has not avoided the problem of including in the dependent variables those which are part of the independent set (or vice versa). The factor anaIysis results have singled out household variables as important descriptors followed by education, employment, and access to social/medical services (Social Research Associates 1978). At a general level, whether income or thresholds are used to indicate the poor, it seems there is convergence on some of the important variables associated with it: education, employment, household size, and medical or health status. The "harder" economic studies of low-income households point to such conditions as productivity, technology, and assets as determining poverty. Although there have been attempts to draw a cultural syndrome related to poverty (Baradas 1976; Guerrero 1973; Hollnsteiner 1977; Jocano 1973, 1978) along the lines of Lewis and others (Lewis 1969; Duncan 1969; Gans 1969), these have either been micro studies of small cases or wanting in concrete quantitative evidence. Nevertheless, the concerted research attempts on poverty in the Philippines display a wide range of poverty pictures and analyses as to

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causes and determinants of the phenomenon. Despite numerous but fragmented research on social poverty, the results do not give us enough base for a consistent measure of deprivation - as compared with our research efforts toward understanding material deprivation or economic poverty. By this we mean that studies which use economic measures of poverty (e.g., threshold, income) have yielded more structured, systematic, and quantitative results than studies using social measures of poverty (e.g., access, health status). This does not necessarily mean, however, that economic poverty captures real poverty more than noneconomic conditions. But this indicates gaps in our knowledge. Poverty as Effects In the previous sections, we explained our understanding of poverty measures, their interrelations with social and economic variables, and their determinants. Assuming that the causal connections apparent from the analyses are close representations of the underlying empirical problem, programs can be geared towards alleviating poverty. Another way to ascertain poverty is to look at the problem from the other side of the spectrum. This is by assessing various development programs in the context of their contribution towards reducing poverty. This can be done by bringing to bear the quantitative results of projects on poverty measures. Our knowledge of the assessment of development programs relative to their social and economic impact is fairly limited and faced with some substantive problems. For one, there is seldom if any, treatment of project effects on a singular poverty scale._2 Too often, project effects are seen more in terms of the project's basic objective (e.g., training) rather than in its broader contribution to wider areas of concern (e.g., income distribution, nutrition, employment, etc.). For another, there is a dearth of research on a program's positive and negative, intended and unintended, and short- and long-term effects on the same areas of concern. To ascertain whether program impact affects poverty or not, some model to translate output figures into a poverty measure is required. But to the extent that poverty measures do not completely (or 12. Thisis so eventhoughall developmentprojectsseem to arguethatthey arerespondingto thepovertyproblem.

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closely) capture deprivation, such a translation will also fail to be full of meaning. On the other hand, where program effects are measured in accordance with their relationship to social and economic goals, one may be able to say something about their poverty impact - for as long as there is again a translation process from the various social and economic measures to a poverty measure. This may be more tractable. The problem as an effect may be more serious than at first glance• For instance, development projects intended to redress poverty may in fact even worsen the material conditions of a group and its perception of its relative position. Examples of these are rural roads (which open channels for the advantaged to immediately capture gains) and agricultural technology (which disturbs ecological balance). Various reviews of past work on impact assessment (in a research project entitled "Economic and Social Impact of Development Projects/Women in Development") reveal several points for observation. First, where projects are singly and narrowly pursued, their potential effects may be smaller than when combined with other projects mutually reinforcive of one another. Second, the inadequacy of measuring negative effects denies the capacity of projects to institute mechanisms to minimize unintended impacts. Finally, little has been done to measure project impact beyond its close and immediate objectives. We do not really know at this stage the quantitative relationships of projects to poverty, nor do we know their dimensions• But if operational questions directed at knowing how to attack poverty are to be answered, this element of our knowledge must be increased and expanded in addition to just the simple measures we have reviewed. •Social Psychological Dimensions

of Poverty

Apart from the objectivity attached to traditional poverty measures (e.g., thresholds, employment, productivity, income), they possess the advantage of being adjustable in an equally objective manner to suit a different situation. For example, if regional price indices were to be brought to bear on threshold or income measures, such measures could be adjusted according to location. Whatever their virtues, however, they do not suffice in describing or measuring poverty• In addition to being able to classify the poor

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by some objective criteria, we should have some way of measuring the perceptions or subjective conditions of the poor who are classified in an objective sense. The efforts that have been done along this line either in isolation or combined with objective measures have been spotty and scanty relative to economic measures. The research has been mostly on measures of subjective feelings of satisfaction, happiness or aspirations (Salazar and Lynch 1974, Guerrero 1973, Lauby 1976). Abrera's (1976) combination of subjective and objective measures actually relates respondents' perceived minimum income (so as not to be considered poor) to objective indicators of household size, education, and age of parents. An evaluation of the use of perCeption studies for social indicators pointing out the importance of the two approaches has likewise been made (Mangahas 1977). There are at least two critical issues to raise with regard to these efforts at measuring poverty perception. One has to do with the question of what that measurement is for and the other concerns the question of how reliable and valid is the measurement. The importance and implications of raising the question of "what for" is illustrated in the significant work of Mangahas (1977)on the Batangas Pilot Survey of 1974. In this survey, respondents were asked, among other things, about their perceived poverty threshold levels for income, food, rent, clothing, and medical care, and to accomplish a self-rating of their poverty or nonpoverty conditions in general and with respect to food quantity and quality, housing, and home utilities in particular. Mangahas focused his analysis of the poverty threshold perception data on how they compared with objective threshold measures and concluded that the results generally "do not seem unreasonable." What was somewhat more problematic for Mangahas were the poverty self-rating data. Here, his attempt at reconciling, for example, the distribution of respondents below and above the subjective poverty line with that below and above the conventional poverty border led him to conclude that the former cut-off line "is not such a fine line" in contrast to the latter, and that there seems to be two kinds of poor people: "the very poor or destitute and those merely on the margin of poverty" (Mangahas 1977, pp. 368-70). Mangahas sought the explanation for the divergence between the results of poverty self-ratings and those of objective threshold lines