Does The Government Deserve Credit Over Philippine Economic Growth?

Definitely not.

Not the past administration, as well as, not the future administration.

Here is another outlandish example of how politicians quibble to grab credit when none is actually due them.

This also goes to show that politicians are self-interested individuals whose principal interest is to generate 'popularity' that should transform into votes rather than to perform 'public service'.

Yet all these nitpicking over the Philippine economy are founded on the myth that government runs the economy [see previous discussion in The Myths Of Government’s Managing The Economy]

We don't have to go far to look for evidence.

Take a look at the chart above from ADB's Managing Cities.

The chart reveals that the the informal economy or the shadow or the underground economy/sector, e.g. the tricycle driver, balut vendor, sari-sari stores and etc..., comprises 40% of the Philippine economy. These are the groups that don't pay taxes and whose business are not registered with the government.

And why do informal economies exist?

Professor Friedrich Schneider with Dominik Enste at the IMF website explains,

(all bold highlights mine)

Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments, combined with rising restrictions in the official labor market. Wage rates in the official economy also play a role.

Taxes and social security contributions add to the cost of labor in the official economy and hence are key factors driving the growth of the shadow economy. The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. The difference can be very large; in Germany and Austria, for example, the tax and social security payments by firms and their workers amount to the wages that workers effectively earn. Since the difference depends broadly on the social security system and the tax regime, these are key determinants of the shadow economy.

Several studies have found strong evidence that the tax regime influences the shadow economy. In Austria, the burden of direct taxes (including social security payments) has been the biggest influence on the growth of the shadow economy, followed by the number of regulations affecting firms and workers, and the complexity of the tax system. Other studies show similar results for the Scandinavian countries, Germany, and the United States. In the United States, analysis shows that as the marginal federal personal income tax rate increases by one percentage point, other things being equal, the shadow economy grows by 1.4 percentage points. Also in the United States, holding down the top marginal income tax rate may prevent further growth of the shadow economy...

Government regulations can substantially raise the cost of labor to firms in the official economy. Such regulations include license requirements, labor market regulations, trade barriers, and labor restrictions for foreigners. Employers in the official economy who shift most of the associated additional costs on to their employees give them a strong incentive to move into the shadow economy.

In short, the informal or the shadow economy exists as a consequence to government's actions, particularly tax policies, assorted regulations, welfare programs and others.

Bottom line: The huge share by the informal or shadow economy only proves that the Philippine economy manages to grow in spite of the government. Therefore, credit is due NOT to politicians but to local entrepreneurs most especially to the shadow economy for defying all these regulatory and political obstacles.