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Philippines still the poorest country in Southeast Asia?

Philippines still the poorest country in Southeast Asia?

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Why are the Philippines still a very poor country despite being under Duterte, and the poorest in Southeast Asia?

Why is the Philippines poor? This is a question of economics not politics.

First off let’s get our numbers so we have a reference point.

GDP per Capita (PPP) – CIA World Factbook 2016

Next let us compare the metric for the Philippines versus its ASEAN neighbors

  • Singapore – $85,700
  • Indonesia – $11,300
  • Malaysia – $26,600
  • Thailand – $16,600
  • Vietnam – $6,100
  • Philippines – $7,500

GDP per capita – Trading Economics website

  • Singapore – $52.600
  • Indonesia – $3,974.10
  • Malaysia – $11,028.20
  • Thailand – $5,901.40
  • Vietnam – $1,770.30
  • Philippines – $2,753.30

Note the huge difference between Singapore and the Philippines.

With Singapore as a reference point, we can then proceed to ask the question – why is Singapore richer despite having a tiny land area and minimal resources compared to the Philippines?

Let’s get our economic fundamentals in order.

  • Any given economy is affected by the economic laws of supply and demand.
  • Taxes and regulations introduce distortions into the economy as they artificially affect supply and demand of goods and services.
  • Taxes are collected from the income of people by way of the coercive power of the state. The more taxes the state collects, the less money people have.
  • Regulations skew the supply by preventing the entry of goods and services or by imposing tariffs or making it difficult for new suppliers to enter the market. In all of these behaviors of the state or government, prices of goods and services are increased beyond the affordability of the people who are the source of the demand.
  • Higher prices means people have less money to spend on a wide array of goods and services.

With these operating principles in mind let’s look at the numbers of how the Philippine economy stacks up against its ASEAN neighbors. Also it is important when benchmarking to compare the Philippines against the best performer in the region. After all, why compare yourself to the bottom barrel?

Since poverty is inherently an economic issue, I view it from the lens of economics.

  • The less distortions there are in the economy, the better the dynamic allocation of goods and services to those who need it.
  • The more distortions there are in the economy, the the dynamic allocation of goods and services to those who need it gets worse.

In other words, the key to understanding poverty in the Philippines is to understand whether the economy is operating with minimal distortions. Which brings us to the matter of economic freedom.

The Index of Economic Freedom is a series of 10 economic measurements created by the Heritage Foundation and Wall Street Journal. Per the Heritage Foundation, the index’s definition is: “Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.”[1]

The index scores nations on 10 broad factors of economic freedom using statistics from organizations like the World Bank, the International Monetary Fund and the Economist Intelligence Unit:

Here’s the 2018 Index of Economic Freedom from the The Heritage Foundation site for the countries being compared to the Philippines.

What do these numbers tell us? A lot!

Out of 186 countries, the Philippines is ranked 61 while Singapore is ranked 2.

The Philippines corporate tax rate of 30% is the highest in the ASEAN-6. Singapore has only a 17.0% corporate tax rate. This means Philippine corporations keep less of their income than corporations in Singapore.

The Philippines income tax rate of 32% is next only to the 35% of Thailand and Vietnam. Singapore has a 22% income tax rate. This means Filipinos keep less of their income than Singaporeans.

The Philippines has a tariff rate of 2.2% while Singapore has 0.0% tariff rate. This means Filipinos have to pay more for goods and services than Singaporeans.

The Philippine government spends more as % of GDP (18.9%) than Singapore (17.7%) – and yet, Singapore has superior infrastructure than the Philippines.

To put it simply, Filipinos are poor because:

  • Government taxes and regulations take away a huge portion of their income.
  • Government taxes and regulations increase the price of goods and therefore reduce affordability.
  • Government taxes and regulations (60/40 provisions in the constitution – limit foreign investments to only 40% equity) prevent the entry of foreign businesses that can increase the supply of goods and services thereby making prices more affordable.

source: quora