The coronavirus pandemic and our response to it are worsening economic inequality
(First of two parts)
The ongoing coronavirus pandemic is both a public health crisis and an economic catastrophe of historic proportions. Its immediate and near-term impact on the national economy is staggering, and will be even much more devastating should the crisis continue on its present course over the coming months.
Even more distressing, the COVID-19 pandemic is exacting its heaviest toll on the poorest segments of our society, those who are least able to put up with it, while leaving relatively unscathed the most economically endowed.
Existing survey data shows that nearly four out of every five households earning monthly incomes of under P9,500 have lost jobs due to the imposition of the Enhanced Community Quarantine (ECQ). By some estimate, this gruesome figure translates to anywhere between 4 and 5 million unemployed. A good number of these have no visible sources of income whatsoever and have to rely on dole outs for their day-to-day existence.
By contrast, only one-third of households earning between P9,500 and P190,000 suffered a similar fate, many of whom are able to adapt either by working from home or by availing themselves of alternative employment opportunities.
We surmise that the most affluent in our society, the so-called 0.1 percent, have remained relatively safe and untouched by the pandemic. Compare this with the dismal situation faced by the 10 percent at the opposite end of the economic spectrum, those who are living in abject poverty and suffering under untold conditions of extreme uncertainty and insecurity in regard to their material, physical and psychological well-being.
The response of the government to the crisis has been prompt and by most indications effective, at least for the time being, in cushioning the impact of the pandemic.
The centerpiece of the government’s immediate response to the crisis is the Social Amelioration Program which provides for emergency cash payments to 18 million families whose lives have been adversely affected by the ECQ.
While the cash subsidy provides temporary relief to tide over those who lost their sources of livelihood due to the lockdowns, it is at best a stop-gap measure and does not serve as an effective economic stimulus. Moreover, its implementation has been marred by anomalies in the distribution of cash among qualified recipients and by bureaucratic bungling in its implementation.
On June 4, the House of Representatives passed a P1.3-trillion stimulus package designed to help the economy recover from the COVID-19 pandemic over the next four years. Known as the Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE Philippines), the proposed fiscal measure seeks to assist micro, small and medium enterprises (MSMEs) as well as big businesses in all industrial sectors, and at the same time restore consumer and investor confidence.
Backed by 44 of the country’s biggest business groups, this stimulus package is expected to generate over 1.5 million jobs over the four-year period 2020-2024. Among other things, the P1.3-trillion incentive package will be used to fund wage subsidies and cash-for-work programs, provide low-interest loans for companies big and small, and assure loan guarantees to banks.
The avowed aim of the law to assist MSMEs along with big business is commendable because MSMEs constitute a major component of the Philippine economy. They comprise 99.6 percent of all business firms in the Philippines, contribute more than 60 percent of jobs in the country and account for 36 percent of Philippine Gross Domestic Product (GDP).
The larger portion of MSMEs falls part of the informal sector, a segment that comprises 38 per cent of the country’s working population and contributes one-third of its GDP. This sector consists of small-scale and independent producers of goods and services, distributors, and self-employed individuals, all of whom fall beyond the ambit of government economic and regulatory agencies. It is hard to expect that these isolated producers will receive any form of assistance from government whatsoever.
Bigger businesses within the MSME sector, those that are classified as SMEs, are not much better off either. Compared with large conglomerates and corporate entities, small and medium-sized business enterprises, defined as those that employ anywhere between 10 and 199 employees and valued at P100 million or less, are poorly positioned to survive the onslaught of the economic storm caused by the pandemic. Most business fatalities thus far consist of SMEs.
There are a number of reasons for the advantages enjoyed by Big Business:
• Large companies are better capitalized and more financially viable than SMEs.
• Large businesses are more heavily invested in digital technology and employ more current managerial practices and are therefore better equipped to weather the storm.
• Big businesses have both the scale and the production and organizational flexibility that enable them to adapt more effectively to the newly emerging business landscape.
Their meager resources and their lack of “absorptive capacity” make small businesses less likely to survive the coronavirus crisis on their own, much less thrive in it. The government should therefore go the extra mile to give them a helping hand.
On the whole, the ultimate outcome of the government’s lame and slapdash stimulus strategy is little economic recovery, insignificant employment generation overall, and greater economic and social inequality.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is a Retired Professor of Economics and Management, and currently Professorial Lecturer at the University of the Philippines Diliman.
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