Of wealth creation and distribution

IN HIS keynote speech during the APEC CEO summit in Vietnam last Thursday, Digong pointed out that globalization should lead not just to wealth creation, but also to wealth distribution.

If how I understand it is what he was meaning to say, then I totally agree with Digong on this. But if I were to be technical about it, there should be an adjective that will qualify the degree for which wealth will be distributed.

Personally, I would have preferred to hear that there should be GREATER wealth (or income) distribution or redistribution. Globalization may be compared to a double-edged sword. There are a lot of possible benefits that may be derived from it, as there would be for its disadvantages as well.

Globalization has become a by word already, almost even considered as a household term. However, what is globalization really with the present context where it is being discussed on?

Globalization is basically referring to economic transactions, essentially involving the forces of supply and demand, entailing that economies are working interdependently, ideally mutually benefitting from these transactions. The borderless economy is what is called the “global market”.

These transactions include international trade, currency exchange, foreign direct and portfolio investments, rapid development of technology, etc. Most of these transactions generally aim towards wealth creation.

No matter how we deny it, the reality is that the parties to these transactions are rational economic agents who are simply looking out for their own best self-interest. Somehow, the perspective of the society-at-large toward these economic agents who are looking out for their best self-interest, they would seem to be voraciously benefitting from these transactions.

But if we look at it more closely, they are only reaping the fruits of what they have actually sown in the first place, assuming ethics is in place. As business enterprises, the multinational corporations, when they invest in developing countries, which is what I think Digong was trying to say, they have opportunities to help the population and the economy.

When FDIs come into the country, they can provide employment to the community, and could create more opportunities for having a source of livelihood for the household. These multinationals can help develop the area where they established their factories or offices.

And finally, the Balance of Payments of the country would be better. Although it cannot be felt by ordinary citizens and would be considered as an abstract idea, it can create positive results to the economy. Other than that, it is not this sector’s responsibility for wealth distribution.

The thing is, these parties are just playing the role that the economy have assigned to them, to produce or to consume, and in the process, attempt to satisfy themselves by gaining profit and using the goods and services.

So, whose role is it to distribute (or actually, redistribute) the wealth? The distribution (or redistribution) of income/wealth is the role of the government

. It is actually one of the macroeconomic goals that governments are aiming to achieve.

Digong’s pronouncement that the rich are becoming richer, while the poor is becoming poorer, is very true.

And the reality is, there will always be people who are rich, and there will always be people who are poor. It is very ambitious, even impossible, to make all people equal, because there will always be a gap between the rich and poor.

What the government can only do is to make the gap between the rich and the poor more narrow, and founded on the concept of equity.

There are several ways that have been set-up to help achieve this macroeconomic goal. One is taxation. Progressive taxation, which is used by most countries, is basically taxing more those who earn more income, and taxing less to none those who earn less income.

Another way is what economists term as Transfer Payments. These are payments made or incomes received in which no goods or services are being paid for, such as a benefit payment or subsidy.

These are essentially given by the government to the poorest of the poor as a way to redistribute wealth. The Pantawid sa Pamilyang Pilipino Program (4Ps) or what some call, conditional cash transfers (CCTs) is a type of transfer payments.

The previous administration implemented this program, which aims to support extremely poor families to meet their most immediate needs, and to break the intergenerational poverty cycle by investing in the health and education of poor children.

That is why poor households receive health grants of P500 per month and education grant of P300 per child per month. The 4Ps program is still in effect and have even expanded by this administration.

There are many criticisms and limitations of this program, but I believe that the benefits would still far outweigh them. We may not have achieved the results that we are expecting, but I am hopeful that if this is continuously and properly implemented, millions of household will be taken out of extreme poverty.

The most common way to redistribute wealth is the provision of public goods (and services). These include public education, government hospitals, clinics and health centers, and public infrastructure.

This is the reason why public schools and services in government hospitals are generally free for the poor people. These are ways that the government can distribute/ redistribute wealth.

The appeal of Digong may be valid, but he is barking at the wrong tree. As the president of the nation, it is his role to do this. He should make sure that all programs are aligned to, not against this role. When Digong spoke before business leaders weeks before he was sworn into office, I clearly remember that he admitted he doesn’t know anything about economics. He said that he will leave the economics stuff to those who know and understand it more, but as I observe, it is not what is happening right now.

If it is not addressed immediately, the economy may suffer further, and the poor, those he described as the poor who are becoming poorer, will be affected the most. Come to think of it, it may again just be lip service, for pogi points only, which is the worst, but very possible.

Most of Digong’s pronouncements and promises have not yet been implemented and fulfilled. The police and the soldiers have not yet received their raises. The SSS pensioners have not yet had any increase in their pensions.

Corruption is still very widespread in many government agencies. Indeed, there were many changes that already happened during Digong’s administration, unfortunately, most of them are for the worse.

The real, solid change that he promised during the campaigns, the change that he and his cohorts and followers keep on shoving our throats, and the change we are all yearning for, is yet to be seen, felt and heard.

Maybe hoping that when we keep on repeating it, and saying it aloud, all 16M of us who voted for him, the universe will make our dreams come true (or not).