Why the Philippines Failed? A Developmental Perspective

In his seminal book, The Protestant Ethic and the Spirit of Capitalism (1905), Max Weber, widely known as the father of modern sociology, provided (arguably among the first and most compelling) arguments on the relationship (or correlation) between ‘culture’ and ‘economic productivity’. As an established economic analyst, Weber was interested in understanding why protestant nations of the West — with the United States figuring on the top of his mind — emerged as not only the harbinger of capitalism — the epochal transformation in the means and scale of material production –, but also the forerunners of industrial expansion and growth. The thrift, sheer hard work, communitarian values, and (religiously-grounded) appreciation for material prosperity among Protestants, Weber argued, explained their central role in pushing the boundaries of capitalism towards ever-greater strides in industrial output and financial success. After the Reformation, the Protestant states, beginning in the 1700, clearly overtook their Catholic peers in economic terms, enjoying, on the average, a 40 percent edge in per capita income. Even the colonies of Protestant states, on the whole, outperformed their Catholic counterparts [i].

caretonWeber was not, however, confined to a comparative analysis between protestant and catholic states within the West. In his sequel to The Protest Ethic, Weber, in Confucianism and Taoism (1916), tried to differentiate between China and the West by examining how Confucianism emphasized ‘adjustment’ to the world, as opposed to Western rationality emphasizing ‘mastery’ of the world. Weber’s work inspired a whole literature on the correlation between culture and development — a cottage industry that survives up to this date with much vigor. Nonetheless, as British economic historian, Niall Ferguson, puts it, Weber’s analysis lacked correspondence with important facts and developments on the ground. Aside from (mistakenly) dismissing the Jewish people’s entrepreneurial success and contribution to the expansion of capitalism, Weber, “was also mysteriously blind to the success of Catholic entrepreneurs in France, Belgium and elsewhere…” To the contrary, Ferguson explains, “Much of the first steps towards a spirit of capitalism occurred before the Reformation, in the towns of Lombardy and Flanders; while many leading reformers expressed distinctly anti-capitalist views.”[ii] Ferguson cites at least two empirical studies that show a lack of a strong correlation between “Protestantism” and “economic growth”. [iii] A more nuanced perspective, Ferguson explains, looks at how Lutheran thoughts on ‘individual reading’, self-reliance, and education allowed its followers to take advantage of prior developments, gaining pace during the Renaissance, in technology — all culminating in the scientific revolution, which began in Protestant states, notably Scotland and England.[iv]

In the case of China, we can clearly see how the country — in spite of its Confucian values – has come to not only match the industrial might of the West, but also gradually transform into the world’s leading economy. Before China, the likes of Japan (after the Meiji Restoration) and Newly-Industrializing Countries (NICs) of South Korea and Taiwan, during Post-World War II period, were able to emerge as global economic players, crucially without adopting Western religious values, but instead looking into certain elements within their own (Asian-Sinic) culture, which encouraged entrepreneurial spirit, adoption of Western technological infrastructure, and capitalist development. All these Asian tigers were able to transform from feudal, agricultural societies into hubs of innovation and production. But Asian economic miracles were not limited to Northeast Asia, where North Korea continues to be among the most repressive and backward societies (with a mighty military though), since many Southeast Asian countries, notably Singapore, Malaysia, and Thailand, were also able to climb up in the global chains of production, and lift millions of people out of poverty. More recently, Muslim-majority and ethnically-diverse Indonesia has joined the ranks of tiger (cubs) — which brings us to the topic of the Philippines, its ‘tiger potentials’, and why it has been left behind for so long.

At this point one naturally tends to ask: if not culture, then what? Obviously, the article doesn’t intend to provide a definitive response to this question. That would be unrealistic. (Perhaps a book or an academic journal would do the job more appropriately.) Yet, the first step to a correct investigation into the roots of the Philippines’ developmental debacle — or glaring socio-economic troubles — is to (a) ask the right questions and (b) identify more convincing ‘independent variables’ (or principle cause/s) for the awry state of affairs in the country in the past decades.

James Fallows’s ‘A Damaged Culture’ is definitely a touchy, frustrating, and well-written essay on how a culture of dependence and corruption should be held responsible for the despairing conditions of America’s (former and sole) Asian colony, the Philippines. However, what the essay doesn’t explain is how that supposed ‘Filipino culture’ has continued to persist, or even worsen, in recent history — as if culture is something eternal and static. As Edward Said trenchantly notes in his groundbreaking book Orientalism, the tendency among Western observers (and even modern social sciences) is to view non-Western races as static peoples with ahistorical, defined characteristics or ‘essence’.

IF there is one thing that the experience of NICs — and their Japanese and European inspiration — tells us is this: Culture is malleable, subject to re-configuration and improvement (depending on your interest and goals). The modern state, ranging from those in the capitalist societies, to more ominous ones among dystopian ‘totalitarian’ states, has the ‘integrative mechanisms’ to shape and re-shape society for the fulfillment of systemic objectives, theoretically serving the national interest. After all, most ‘developed’ Asian societies used to be paragons of complacency, stagnation, and feudal destitute before they — or more precisely their states — shook off bad habits, and adopted as well as adapted ‘best practices’ from the industrial West and Japan. Following this analysis, one discovers that the Philippines’ developmental troubles have a lot to do with ‘state-formation’ — or lack of a strong, independent state — in the country.[v] This is precisely what differentiates the Philippines from many of its successful neighbors, which have had strong and enlightened executives, autonomously undertaking crucial (and correct) economic decision without pandering to specific interest groups. As Filipino scholars, notably Joel Migdal[vi], have correctly analyzed, the main problem with the Philippines is that it never had a ‘strong’ state, which normally has at its disposal an enabling combination of sufficient ‘policy autonomy’ and ‘functional capacity’ to craft and implement right decision in the interest of the country. Instead, the Philippine state is basically an instrument of extra-state, parochial interests, which hardly coincide with the broader national interest.

While the Spanish colonizers relied on friars and the mestizo class to rule the Philippine archipelago, the Americans — despite their egalitarian policies, democratic rhetoric, and efforts to ‘Filipinize’ the state — relied on Spanish-era elites — intent on preserving the status quo and expanding their base of power in a new period of prosperity — to ‘govern’ the country. The modern Filipino state, largely built and upgraded during the American period, had a simplistic democratic accent: elected legislature. The problem was that the ‘representative’ legislature was dominated by the landed elite, who, in turn, did their best to block any effort at developing an independent and powerful state, executive leadership, and bureaucracy, which could push for egalitarian policies such as land reform.[vii] There was no effort by the colonial masters to truly establish a powerful executive and bureaucracy, capable of prospering on its own. In this sense, one could say that — following Isaac Berlin’s concepts of freedom — the Philippines (under its colonizers) only developed an adulterated understanding of democracy, along libertarian lines, which emphasized ‘negative freedom’ (non-interference/intrusion of the state in individual’s lives and property) at the expense of ‘positive freedom’ (basic social and economic rights for all citizens). As a result, the Philippines has had not only a defective democracy — whereby citizens are formally equally, but in reality an oligarchy is in charge –, but also a weak state struggling to craft an optimal economic calculus.

In Why Nations Fail, economists Acemoglu and Robinson provide a brilliant explanation on how progress and development is largely a function of ‘inclusive’ — as opposed to extractive — governance. Using their dichotomy, the Philippines clearly falls within the extractive category, whereby the core-elite have blocked appropriate policies, which would have made the country a true democracy, anchored by a large middle class, an entrepreneurial sector, and strong institutions spurring growth and innovation. Therefore, in many ways, the developmental failure of the Philippines has something to do with its weak and divided state, which seldom had the right ‘policy space’ to make optimal economic decisions. Throughout the post-War period, the Philippine state has either been at the mercy of entrenched elites, pushing for particularistic interests and blocking policies/legislations aimed at national development, or international financial institutions (IFIs), which have prescribed counterproductive policies, notably ‘Structural Adjustment Programs’ (SAPs), causing tremendous poverty, social dislocation, agricultural decline, and ‘de-industrialization’ across the developing world.[viii] Sometimes, the Philippines was at the mercy of both.

Luckily, the NICs, China, and Japan had relatively strong states, which transcended particularistic interests and rejected simplistic policies by the IFIs. If anything, their economic miracles had nothing to do with Foreign Direct Investment (FDI), nor with mindless dissolution of trade barriers and strategic industrial policies, as prescribed by the IFIs and market-fundamentalists (A.K.A.: Neo-liberals). At the heart of their success lied one thing: a strong developmental state, which (a) judiciously provided subsidies, trade protection, and benefits to identified strategic economic sectors based on a strict performance-based scheme, the so-called ‘reciprocal’ mechanisms, while (b) ensuring ‘technology transfer’ from foreign investors to local producers, and (c) astutely negotiating trading agreement that secured ‘market access’ to major Western markets.[ix]

As a result, initially capital-poor Asian countries – supposedly focusing on low-end manufacturing and labor-intensive production, according to neo-classical economics — were able to transform into major technological hubs — and a global source of capital for consumerist societies. In most cases, we see how a strong, autonomous state changed the national culture, created its own ‘comparative advantage’ within the global economic structures, and sidelined predatory elites for the preservation of national interest. This is where the Philippines should begin.

——————–

[i] Ferguson, N. (2011) Civilization: the West and the Rest. London: Penguin Books, chapter 6.

[ii] Ibid., pp. 331-332

[iii] Ibid.

[iv] Ibid., pp. 331-333

[v] See Quilop, Raymond 2006. “Nation-state formation in the Philippines,” in Philippine Politics and Governance: An Introduction. Eds. Morada N., & Teresa Encarnacion Tadem. Quezon City: University of the Philippines

[vi] See Migdal, J. (1988) Strong Societies and Weak States: State Society Relations and State Capabilities in the Third World. New Jersey: Princeton University Press.

[vii] See Quilop, Raymond 2006. “Nation-state formation in the Philippines,” in Philippine Politics and Governance: An Introduction. Eds. Morada N., & Teresa Encarnacion Tadem. Quezon City: University of the Philippines

[viii] Bello, Walden 2003. Deglobalization: Ideas for a New World Economy. London: Zed Books.

[ix] See Kumar, N. (2005), ‘Performance Requirements as Tools of Development Policy: Lessons from Developed and Developing Countries.’ In Gallagher, K. (ed.), Putting Development First: The Importance of Policy Space in the WTO and International Financial Institutions. London: Zedbooks; and also Lall, S. (2004). Reinventing Industrial Strategy: the Role of Government Policy in Building Industrial Competitiveness. [Available Online] [April, 2004]

[Photo courtesy Mind.Vomit.Explosion.]

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38 Responses to Why the Philippines Failed? A Developmental Perspective

  1. MidwayHaven says:

    Could it be appropriate to say that, in the Philippines, the state has spread itself too thin that it has ceased to function in an optimal way?

    I tend to imagine that the structure of the Philippine government could be compared to “rotating blackouts:” one moment it functions in one area while its presence in another is compromised.

    That’s why I tend to lean more on the creation of (at most) a Balkanized Philippines, or at the very least a federalized government that focuses less on the internal affairs of any proposed region, thereby stimulating the latter’s economic growth.

    • BenK says:

      When the proposed construction of a one kilometer-long flyover on a city road requires the approval of the President of the Republic, I’d say you’re probably onto something.

    • Johnny Saint says:

      A balkanized, or federalized, Philippines doesn’t really address the problem of Filipinos being a disunited, oftentimes fractious people. What it will do is restrict “warlords” to the limit of the area they can dominate. Just reinforcing the insular attitudes that we tend to fall back on. A federal system will still require a group of broad-minded leaders with a more cosmopolitan view of nation building to make it work.

    • Federalizing Philippines is precisely the opposite of the what the country needs: A strong and autonomous central government with a professional and competent bureaucracy, which will prioritize national over particularistic interests.A federalized Philippines means completely giving up on that project in favor of leaving localities to warlords and dynasties.

  2. jcc says:

    Japan became an Asian Tiger early because after the war, the warlords who systematically plundered the countries it had conquered used these wealth to rebuild the country. McArthur had a piece of it. The emperor bought-off McArthur and allowed the latter to continue in power as the “living-god” and sacrificed Yamashita and Homma and other lesser war-criminals for public consumption.

    China benefitted from indirect FDI courtesy of the U.S. through offshore companies using cheap manpower and exporting the finished products to the West.

    • BenK says:

      Aw, did you leave your house and forget to bring your point with you again, jcc?

    • MidwayHaven says:

      Um, nobody in Japan really believe the Emperor is a “living god” anymore.

    • ChinoF says:

      On Japan, I’d say it and the Philippines received massive aid from the US. It’s been oft-repeated that this is why the Philippines had been a leader in Southeast Asia then. But with that aid petered out, and the SEA neighbors making the most out of a good decision on foreign investment, we’re left in the dust.

      • Yup says:

        The Philippines have the early advantage in economic development against its SE Asian neighbors in the early 50s to late 60s. Being at par or second to Japan at that span of time, we should have been instituting broad economic, social, and political reforms too, but the problem of being a “divided and weak state” cause us to lose the lead because of fragmented oligarchic interests and lack of long span vision of our leaders.

      • Not sure about that, since there is a huge literature on how — actually — the U.S. — looking at the bigger cold war chessboard — allowed Japan to skip its supposed war reparations to the Philippines, which BTW was among the most devastated countries during the war, especially Manila.

      • Andrew says:

        But Japan did pay a good deal in reparations, and continues to give aid to the Philippines down to the present day.

        Some of the reparations were in a form that was of little practical benefit to Juan de la Cruz – quite a number of new ships, for example, were given as reparations. Wonder who ended up owning those…

    • Japan’s move towards industrialization and modernization goes back to the 1863 Meiji Restoration, whereby the mid-ranking Samurai of the Tokugawa era started overcoming and sidelining the old traditions in favor of a full-scale embrace of Western technology and soft infrastructure. By 1904, when Japan managed to take on Czarist Russia and defeat it, Japan was already an industrial power.

  3. Libertas says:

    The model of feudalism/neo-colonialism which is prevalent in the philippines has been honed over time to become almost impenetrable, and just like hydra it can rapidly regenerate when attacked, with the primary interdependent heads of the oligarchs and political dynasties acting in using and to mutual benefit.

    The culture of principalia – a ruling elite – is embedded in history and readily accepted by a people subservient by nature.

    Independence and the 1987 constitution changed some of the players as political patronage was rewarded, but the game remained the same, and the new elite/oligarchs ensured that they would not be threatened in the future, by closing the door to foreign ownership, carving up monopoly businesses, and acting as kingmakers and/or puppet masters.

    The very nature of oligarchs/monopolies is to maximise profits and that has been achieved at a cost of high pricing, low investment, no innovation, poor service etc.

    And with the barriers to competition – in both the economic and political spheres – set so high, then rather like a cross between the masons and a ‘gentlemans’ club, any contenders or pretenders can be rapidly excluded or ‘blackballed’ to safely maintain the status quo.

    The president serves not at the pleasure of the people but at the behest of ‘club members’, and is conscious only to attack the weak, but never ‘one of his own’.

    The concentration of power with the president, including the appointment of 11,000 positions, an unaudited slush fund running into billions, the control of PDAF/pork barrel,etc., ensures that both the legislature, and to a large extent, the judiciary are not co-equal in practice, and consequently checks and balances ineffective, and therefore the very principle of democracy is flawed.

    The president acts as the gatekeeper to change, ensuring the foundations of privilege remain intact through a system of reward/punishment, stick/carrot.

    An oligarch controlled media, and the endless surveys, control the information flow and restrict debate/ dialogue to a subterranean and sterile level.

    People have a natural propensity to follow however that has been cultivated and manipulated to the extreme within the philippines, where lemmings would feel at home.

    One day the peso will drop and more will realise the myth of inclusive growth, the scale of corruption, the absurdity of the whole system, but by then their control will already be complete.

    the greed of the oligarchs – almost as though it is a club competition to be the richest – will not abate and a weak and malleable president suits their agenda.

  4. eachhisown says:

    Just like any other country the Philippines has its own culture, which is shaped by the mindset of the majority of its inhabitants and citizens.

    Whatever failure of the country to acquire economic development per internationally accepted standard could be blamed on all levels of the societies it is comprised of.

    Majority of the citizens refuse to acknowledge the reality of their mindset, much more to make positive adjustments (per “Confucianism emphasis on ‘adjustment’ to the world”). They brazenly refuse to take responsibility of whatever actions they make relative to the interest of the country as a whole. And most of all too proud and calloused to admit whatever improper or inappropriate actions they have made or will be making.

    The most prominent culture which deeply buries the country much more deeply into unstoppable brazen corruption is their incapability and laziness to think things through (very narrow and short-sightedness), and incredible sense of being persistently and presumptuously parasitic.

    To be more practically pragmatic rather than subjective, below are some few examples of what most Filipinos tend to be most happy and excited to do than to think of what would be most beneficial for the majority and the country:

    a. Keep on writing text in their mobile phones even while walking in the busy sidewalk and crossing the congested streets or highways.

    b. Watch for whatever amount of money they can acquire and spend it all or even more for whatever they can think of just for the sake of spending.

    c. Keep on making babies (every year) without any thought on what to feed, clothe or educate them, then blame it to their destiny or to other people and circumstances that they maybe able to have their thoughts grab onto.

    d. Making the “kapit sa patalim” as most heroic and noble concept to justify the inappropriate and misguided decisions they’ve made.

    e. Making their being miserably poor (due to their pathetic mindset) as noble justification to sell their votes, resort to thievery and having despicable conduct and attitude.

    f. Typical and practical example – all cruise ships are stopping over almost all countries in the Far East except in the Philippines. This is due to extreme fear of paying bribes to all government officials and employees that would surely plague their ships, and fear that the passengers’ money and personal belongings would be stolen.

    Whatever psychological or conceptual theories applied that made the Western civilization, Japanese, Chinese, Korean, Arab and other Malayan cultures become economically progressive and culturally disciplined would be extremely difficult to inculcate to the majority of the Filipino mindset.

    The majority’s very short-lived sense of excitement and focus on almost everything, and their incredible refusal to take responsibility of whatever actions they make, and to rectify their mistakes spontaneously takes them deeper into making the Philippines a country of thieves and friendly but wily.

    • Honestly, I am always dazzled by how Filipinos tend to assume that many of their traits and cultural characteristics, especially ‘flaws’m are not — and didn’t use to be — common among many other nations, especially Asian and developing.

  5. johndoenymous@gmail.com says:

    Our society has an alarming resistance to change. One thing I notice when someone tells us to adopt a good western habit or ideology (e.g. IMO, humanism) at the cost for forgoing a bad Filipino habit (e.g. IMO, pakikisama) the possible reactions range from “the western idea is not compatible with our culture” to “the westerners are trying to eliminate our culture”.

    • Libertas says:

      With no political will to achieve top down change and a high resistance to change and lack of passion for bottom up initiatives then that results in being caught between a rock and a hard place.
      In other words up a creek without a paddle, and stuffed.
      A good job other countries are not so insular and more open, and can prop up the philippines economy by giving jobs to foreigners/ofw’s.

    • OnesimusUnbound says:

      Correct me if I’m wrong, but don’t you think pakikisama is part Asian culture of harmonious relation?

      • johndoenymous@gmail.com says:

        I think that some people (or groups) regularly abuse this to coerce or to bully others.

        A person is guilt-tripped into submitting to the wishes of a another person or group and even if s/he’s able to resist, you can expect someone to bring it up in the future and us it against said person.

        The worst part is, more often than not, that person will be emotionally affected and think s/he is a bad person, because we’re wired to think that pakikisama is always a good thing.

      • TaengGorbachev says:

        I now believe that the term “pakikisama” is utterly useless and harmful to the State. Pakikisama, from how I view it, is the cornerstone of the Filipino interpretation of Kant’s notion of duty, aka Confucian notion of Li/Ritual. Pakikisama is thus considered a moral duty, and as such, other moral duties, all of them just as useless for the State, came from Pakikisama.
        Pakikisama damages ideas for the sake of the state, because pakikisama is more or less focused to maintain peace in the expense of ideas. It claims to be anthropocentric, but it eventually shows its ultimate uselessness when war is imminent due to absence of ideas because they were wiped out for the sake of harmony.
        So, indeed, the suggestion is to throw a non-working material away, and Pakikisama is one useless, non-working material. In fact, abandoning the country’s Confucian-Christian culture and replacing it with Mohist-Legalist culture, where ends, results, effectivity are considered, is useful. The Confucian-Christian culture that the Philippines have is just too focused of morality, means, without the results.

      • eachhisown says:

        “Pakikisama” to Filipinos is: cover my behind while I’m screwing others maligning your integrity.

  6. Libertas says:

    The announcement yesterday by BSP that individuals can now send up to 120,000 US dollars abroad without documents ( up from 60,000) gives a striking insight and contrast and underlines the widening wealth gap.
    The growing number of people with that amount of spare cash who send such sums abroad on a regular basis is such that BSP felt it necessary to increase the limit.

    So the majority of filipinos are sending people/ofw’s abroad on the basis of getting dollars back, whilst there is a significant number awash with cash who want to move it out of the country. Mmmm

    That shows where the 6.2 gdp growth is concentrated/going and why it has little benefit for the country as a whole and has nothing to do with inclusive growth.

    Clearly any filipino with money doesn’t want to invest here so don’t expect foreigners to.

    • eachhisown says:

      This move of the SC is never surprising.

      The current leadership is just protecting their own personal interests paving a clean and wide road for all (current and future) politicians, government officials and even employees to divert their loots to other countries without any fear or worries of any legal obligations.

      Very typical Filipino mindset.

  7. Andrew says:

    Richard, may I take issue with your penultimate paragraph?

    You write:

    “Luckily, the NICs, China, and Japan had relatively strong states, which transcended particularistic interests and rejected simplistic policies by the IFIs. If anything, their economic miracles had nothing to do with Foreign Direct Investment (FDI), nor with mindless dissolution of trade barriers and strategic industrial policies, as prescribed by the IFIs and market-fundamentalists (A.K.A.: Neo-liberals). At the heart of their success lied one thing: a strong developmental state, which (a) judiciously provided subsidies, trade protection, and benefits to identified strategic economic sectors based on a strict performance-based scheme, the so-called ‘reciprocal’ mechanisms, while (b) ensuring ‘technology transfer’ from foreign investors to local producers, and (c) astutely negotiating trading agreement that secured ‘market access’ to major Western markets.[ix]”

    Hong Kong had a colonial government (certainly a “strong state”) which provided subsidised basic housing, security and defence, but which was utterly committed to free trade, had no “technology transfer” arrangements, no protection of any sector, no benefits to strategic sectors and in fact a strict policy of non-intervention.

    Yet it was at least as sucessful as the other NICs, and JJ Cowperthaite is a hero to the neo-liberals.

  8. Richard heydarian says:

    Dear Andrew,

    Thank you for raising an interesting point. Personally, I have a problem with having HK among the NI”Countries”, since HongKong was either a colonial outpost of Britain (meaning not really an independent state) or part of — and gateway to — to the Chinese mainland. Singapore may be only a city-state, but definitely it was on its own — an independent entity, which even refused to join the Malaysia Federation.

    Among the so-called NICs, Hong Kong is also unique, because after a period of light-manufacturing bonanza, from the 1990s onwards there was a ‘de-industrialization’ in the country, with services really becoming the engine of growth — HK is truly a global financial hub. In many ways, HK owes much of its success to the proper management of the British colony, its strong human capital, its geographical proximity to Chinese growth zones (especially after Deng’s rise), and the subsequent willingness of the CCP to allow HK to retain its economic system.

    Now, obviously different NICs used varying strategies, with South Korea adopting Japanese style focus on large-scale industries (Chaebols), while Taiwan focused on SMEs, and Singapore solidified its position as a region financial, travel, and corporate hub. All had strong land reform, population management, and upward evolution in the chains of production, despite variance in sectoral focus. Yet, when you look at South Korea, Taiwan, Japan and many successful late-industrializing countries, they intelligently opened their markets only when they were in a position to compete and dominate. Also, FDI was not much of an obsession, especially hot money inflow, but more of technology transfer and later-on green-filed investments, something that we also saw in the case of China. My main argument is still with regards to having a strong developmental state having strategic foresight and autonomous decision-making. Now, depending on the domestic and international trading, economic, and developmental circumstances, one can dynamically adopt new strategies and reconfigure old ones. Otherwise, a blind and un-nuanced compliance with ‘ahistorical’ paradigms leads to debacle.

    Harvard economist, Dani Rodrick perfectly captures this point in ONe Economics, Many Recipes. It is adopting heterodox strategies that befit your national interest and reigning order.

    • Andrew says:

      Dear Richard,

      Thanks for replying so thoughtfully.

      I think I am right in saying that Singapore was granted indpendence from Britain in August 1963 as a state within the Federation of Malaysia, along with the Peninsular Malay States, Sabah and Sarawak, but was expelled from the Federation in August 1965, i.e. after two years, almost to the day.

      The issue was the “bumiputra” policy favoured by the Malay States.

      Lee Kuan Yew famously appeared on television in tears, because he doubted if Singapore would be viable on its own.

      (It can be argued that the shock of expulsion galvanised Singapore society to suceed and assisted Lee in modelling Singaporean society in the manner that he did.)

      If I may be forgiven for crying my own wares, you might find this potted history of Hong Kong interesting:

      http://gwulo.com/node/6186

      (Don’t bother with the whole thing; just read the part linked to and the next four or five sections.)

      More later – need to take the children sailing…

      • Richard heydarian says:

        Dear Andrew,

        Obviously you are well-versed in HK’s history, and as you mention the exodus of many business from Shanghai to HK was also an important factor in the former’s boom. So we are talking about many sui generis factors too.

        I have already clarified my position on the NICs, but you are free to make further inquiries. As for you comment on Singapore, you are absolutely correct. Let me rephrase what I said, since what I meant was how Singapore could not remain as part of the nascent Malaysian Federation due to the bumiputra policy favoring Malays, at the expense of the minority, especially the Chinese. We know that up to date bilateral tensions continue, but Singapore is truly a powerhouse, both militarily and economically. Lee Kwan Yu’s strongman efficient rule was combined with his astute foreign policy, whereby he — and his successors — maintained strong ties with both China and the U.S. So Singapore became a combination of brilliant developmental policy and foreign policy.

      • Andrew says:

        Dear Richard,

        I think you will agree that Singapore benefits immensely from its position – it is the ultimateb entrepot port and financially it is the Switzerland of East Asia.

        Some of Lee’s methods deserve to be emulated – the CPF for example is an admirable system which both assures the citizens a comfortable old age and by mandating savings which are then invested through Temasek, etc, acts as a means of capital formation.

        Whether anywhere with a less meritocratic elite could replicate this may be open to doubt.

        I note in passing that China also operates with a highly meritocratic elite. We can say that China is run BY people with degrees in engineering from Xinhua and it is run FOR the grandchildren of those who were on the Long March with Mao.

        Hong Kong is also intensely meritocratic.

        Taiwan is a more complex case because under Chiang Kaishek the children of KMT members enjoyed an absolute preference in education and in employment in the government and the SOEs.

        This had an interesting effect – the native born Han Taiwanese, blocked from the Government, went into business see Formosa Plastics, Evergreen and pretty well the whole of the IT business on Taiwan! (This resembles the UK industrial revolution which was started by Protestant dissenters who could not attend university or take Government posts…)

        Under Chiang Ching-Kuo, who deserves a lot more credit than he gets the KMT one party state was dismantled peacefully because as he said “given that the USA now recognises the PRC we must seize the moral high ground” – the transition to a true democracy, the only one in the Chinese speaking world, is truly impressive.

        As regards FDI, let us be sure to distinguish real FDI from transient capital flows.

        Whilst Singapore and Taiwan have relied on domestic capital formation, as indeed have Japan and Korea, in all cases this domestic capital formation has been, as you observe, well directed by a meritocracy.

        The need for FDI arises because an LDC cannot form capital fast enough to match its potential growth rate. The larger and poorer the population, the more pressing the need for high rates of investment to soak up slack in the system becomes.

        Deng and his advisors recognised this and decided to promote long term FDI in China – this policy was of course highly sucessful and has been emulated in Thailand and Indonesia.

        The other benefit of long term FDI is that a weak and corrupt regulatory system is very likely to mis-allocate domestic savings – FDI is relatively unlikely to be mis-allocated in that way!

        Consequently, in the case of the Philippines, plagued with a sucession of chronically weak and corrupt governments, FDI offers a better route to creating the physical capital required.

        And of course the 1987 constitution bars it…

        I think its horses for courses – the Philippines has a weak educational system and an entrenched elite, and experience tells us that whilst some members of that elite can funtion effectively as meriticratic and disinterested bureaucrats, (see Blas Ople, for example) we cannot safely assume that everyone will do so!

        Consequently my prescription for the Philippines would start with opening up to FDI, cutting tariffs (Hong Kong has got along fine with none at all!) and emphasising education – in other words, the Chinese model – rather than the “protected “national champions” behind a tariff wall” approach which is not only out dated but which lends itself to abuse.

  9. Richard heydarian says:

    Dear Andrew,

    Obviously what I meant by FDI was not ‘hot money inflow’ but more of ‘green-field’ investments — ensuring technology transfer also. Moreover, as economists such as Richard Baldwin have aptly analyzed, the new game in town is really “trade in chains of production”, which allows countries (or late late-developing nations) to industrialize in a very short span of time (as in Thailand and China) as opposed to earlier NICs, which tried to recreate chains of productions akin to the West almost from scratch.

    In the Philippines, more than the superficial patriotic barriers with respect to equity shares, the big problem is the “privatized” electricity sector, which produces Asia’s most expensive electricity rates. Under AFTA-CEPT the Philippines is already lowering its tariff rates, and I am frankly not sure if what applies to the NICs (and likes of China) — who opened up when they had strong manufacturing base, after decades of protections, or/and implicit production subsidies — is really the correct prescription for the Philippines. However, I would push for monopoly-busting measures as well as corollary efforts to reduce restrictions to ‘green field’ investments with efforts at ensuring upward mobility in and attraction of (higher levels of) production chains.

    As for Taiwan, one must also note how they benefited from relatively solid infrastructure from the Japanese era — and of course how they later optimized the opening up of China, becoming the biggest source of FDI. Their problem — as likes of Ruchir Sharma correctly put it — is that it didn’t follow Korea and Japan in developing BRANDS and large-scale industries, which are reaping big-time benefits today, given the royalties that come from patent and the advantages of (think of the fat profit-margins) having national brands present in all major markets.

    • Andrew says:

      FWIW, I very much agree with what is said in this interview:

      http://m.philstar.com/366247/show/4488dc31174ff0ebf8cf698fbb185ee2/

    • Andrew says:

      Dear Richard,

      I agree with your point on the infrastructure that Japan bequeathed to Taiwan. On the “brand” point, Evergreen and Formosa Plastics are definitely well known brands in their sectors; however it is difficult to promote a brand based in a place that in general is not recognised as a nation state. I think Taiwan is doing pretty well none the less.

      One of the problems with the Philippines electrity sector (and this certainly isn’t an original observation!) is that the uncertain regulatory climate inhibits long term large scale investment. We don’t see “proper” utility investments because the payback has to be faster than that – no investor will risk a long term large scale investment. But I also agree that the chosen regulatory mechanism, based on, of all things, California, is not exactly ideal.

      I lived in China for five years; the only term that I or to be honest any of my Chinese friends can find for any of the products of pre- Deng reform China is, please excuse the expression, cXXp. When I lived in Beijing I ran a Changjiang 750 motorcycle sidecar combination, to the amazement of my friends who could not see why I did not have a modern (multinational built) car. I replied that it was a perfect speciment of Communist engineering, with which they had to agree.

      Almost none of the pre-Deng industrial structure remains, because it was all useless. For an example from aviation, Google the Xian Y-7. HAECO took seven tons of valve radios and similar junk out of it, after which it could manage a payload, but basically it was cXXp, after 18 years in development.

      What excellent industrial products have been developed behind the wall of tariffs currently protecting Filipino industry. The jeepney?

      We have millions of Filipinos working abroad, generally homesick and miserable, remitting only a part of their earnings, because they need to live, and with precisely none of the value added by their labour contributing to the Philippines GNP or tax base. This is not a good situation.

      Open the country up to unlimited FDI, with low taxation and no restrictions on technology transfer and no tariffs whatsoever, and see what will happen.

      In essence this was exactly what Hong Kong did, from 1950 to 1980, when it was swamped with refugees who were at least as poor as poor Filipinos. By the end of those thirty years, Hong Kong as we know it today had been built – in due course Hong Kong labour became too expensive and manufacturing moved over the border but that was after Hong Kong had pulled itself out of a mess at least as bad as the Philippines is in.

      • Richard heydarian says:

        Andrew,

        Practically all countries with major car brands today were able to flourish under a protectionist environment whereby the government identified the auto-sector as strategic national champions. Just look at Yergin’s work on “Commanding Heights” and how post-World War II Europe (and Japan) was able to rebuild itself and flourish under a protectionist blanket, whereby the STATE was at the center of economic decision-making and planning. What followed was a 3-decade long ‘economic miracle’, the golden age of capitalism. Until regulators abused the system, paving the way for neo-liberal.s But the record of the former is clearly superior by many statistical studies. History is key to economic analysis.

        I find it both historically inaccurate and frankly hypocritical when the so-called developed countries try to impose “free” market principles that only benefit them — since they already have competitive sectors that can survive the pressure of international markets — at the expense of the very same policies, which benefited the former in their initial take-off.

        As the article mentions, and I cite two scholarly works, what differentiates Filipino protectionism is the lack of ‘reciprocal mechanisms’. So there are enlightened protectionism that worked BIG TIME as opposed to STUPID ones.

        As for Taiwan, yes given the ‘nationa-state’ issues the country has done well, but they could have gone for Korea/Japan style of ‘national champions’ before losing their seat to China — which gradually diminished the former’s international standing. Btw, Taiwan has cultural and economic offices abroad, they can quite well attend to patent issues and trade agreements.

      • Andrew says:

        Dear Richard,

        I see that we are going to differ; I draw a line around 1985 or so – before that time, possibly, the idea of home grown “national champions” made some sort of sense, although many Koreans will say that Park Chung Hae’s support of the chaebols cost them very dear.

        After that date, and indeed from well before that date in the case of Hong Kong, the idea of national champions behind a tariff wall makes no sense at all in the globalising world economy.

        I see JJ Cowperthwaite’s Hong Kong, not as an Asian outlier, but as the forerunner of Chinese development – both Taiwan and China proper followed the Hong Kong model, with low tariffs, encouragement of FDI and no concern with “national champions”.

        The evidence that free trade benefits the developing nation, rather than the developed, is right before your eyes – look first at Hong Kong, and then at China.

  10. Libertas says:

    P-noy and his incompetents are out of touch, out of excuses, and out of ideas.

    The multi headed hydra of the communications group is looking increasingly sad, desperate, and pathetic as it tries to avoid issues, be selective with information, and trip themselves up with their increasingly blatant lies.
    If they were to make Tarzan and Juan of the jungle, then anyone of them could be cast as cheetah (cheater) the monkey.

    Whilst p-noy and his KKK dine on taxpayers money, put campaigning before their jobs, and spend endless time and money on junkets abroad, 30% + of the philippines go hungry, and the only thing p-noy has in common with the masses is that, like most of them, he is not working.

    “Give us more time” they cry.
    The political dynasties have had 40 + years to lie, cheat, murder, and steal. The lack of results are self evident, the facts incontrovertable. The straight path only leads directly to their newly built mansions and off-shore bank accounts.

    The potential strategic solutions to poverty are well known/documented and implemented in other countries, but clearly there is not the political will in the philippines, for obvious reasons, and the problem is actually being made worse by the road blocks p-noy is placing in the way of progress and greater prosperity for all, whilst trumpeting gains which only benefit the few ( i.e. 2 – 3%), as though everyone has never had it so good. They have never had it! – and ‘hot money’ inflows and stock exchange increases in a bull market are not of great significance or permanence.

    About time people found their voice and their balls and replied “enough is enough”

    There is no more single overarching and all encompassing measurement which summarises the state of a country – politically, socially, and economically than poverty levels.
    The virtually unchanged level of 30% for the past 6 years ( which actually translates into an increase in terms of real numbers/families), makes a mockery of the propaganda eminating from malacanan and also any PR talk/spin of “inclusive growth”; the figures are also put into perspective, and made even worse when compared to our, once poorer, neighbours.
    Vietnam have reduced poverty levels from 50% to 18%
    Cambodia from 60% to 30%, and continuing to fall.

    There is not, and never will be a significant reduction in poverty until there is fundamental change in economic policies, which in turn will only happen when the political protectors of the oligarchs ( i.e. the dynasties) are removed from power, and conviction politicians replace self-interested narcissists, who have clearly been abject failures, but cling to position, social privilege, maintaining the status quo, and pork barrel, for all its worth. Not a scintilla of empathy, simply misguided arrogance and a code of conduct more akin to triads/mafia, and not political parties but vehicles for self-enrichment operating in masonic like secrecy

    With little intellect, no integrity, and no shame it is also no surprise that blame is the only game in town, empty slogans their only retort, and false promises their only answer.
    Appropriate that president p-noy and his oedipus complex can also only issue motherhood statements in the place of a vision, strategy and programmes.

    The Cojuangco-aquinos more than any other dynasty have shown a continual pattern of opportunism and treachery across the generations, with no priorities other than illegally retaining hacienda luisita ( illegally obtained in the first place) irrespective of the cost in blood and human misery, and consolidating the grip of the oligarchs on the monopoloy businesses, and the dynasties on political power to such an extent it can never be overturned, and which even the United Nations calls “a flawed democracy”, and in practice becoming a cross between feudalism and authoritarianism.

    The millenium development goals (2015) will be missed and future aid threatened, and in true insular/protectionist fashion the philippines is a non contributor to the trans pacific partnership (TPP), and a wary participant in the ‘single market’ initiative asean 2015 which is in itself running out of steam, so trade will be compromised. fdi has already plummeted to an all time low
    Island mentality. The country employs a take but not give chinese mentality so it is not surprising that the philippines attracts titles such as ‘charity case’ , ‘begging bowl’, ‘basket case’ and ‘the world capital of NGO’s’ with 60,000, many of which are scams.

    Whilst there is an anti-dynasty platform in the mid term elections it is sad that their voice has not been stronger, their approach more co-ordinated, and their message more creative in its delivery.

    An increase in elected dynasty politicians in 2013 will not only close the door for many years to come, but i suspect the next 3 years will be used in various ways to close any other means as well.

    The result will be increases in profits for the monopolies/oligarchs, an increase in the wealth gap ( philippines has highest inequality in asia and one of the highest in the world), and no decrease in poverty – although i wouldn’t rule out pressure from malacanan to change the measurement criteria before 2016 to make comparisons at the next election more meaningless.

    Poverty figures are the administration’s achilles heel.
    ‘Less dynasties, less poverty’ is a valid statement, and should be a clarion call from all who want a better life for their children and from all who believe in decency and humanity.

    And no-one should regard the philippines as a poor country – even rolls royce are going to open a dealership this year due to demand! It is rich in resources – coveted by the americans – and a populatiin with potential if developed in the right way and not exploited either through low wages, poor access to higher education, or simply to be send abroad and remit dollars back.

    Mckinseys estimate 97 Billion dollars are hidden in offshore accounts.
    It is simply that it is an extractive economy where money is sucked out of it and repatriated/hidden abroad rather than reinvested nationally. A luxury in a monopoly model where prices can be raised at will, capital spending kept low, and innovation unnecessary.

    Do enough people care or have they been beaten into submission and destined to live on a diet of rice, wowowee, and karaoke.

  11. Richard heydarian says:

    Dear Andrew,

    By no means can one credibly compare China with HK and say both are cases of “Free Trade”. Kindly just look at multiple indices on economic freedom, i.e. Heritage Foundation, and you will clearly see how China is hardly a paragon of free trade. HK is a sui generis case, assuming that a radical free trade policy can really explain its growth, that hardly supports your case. With all due respect, the BWS of the 1950-1970s under the GAAT was a relatively pro-protectionist era whereby most NICs were able to emerge out of poverty and destruction. Once the neo-liberal order came in, many of them already had strong foundations to compete, while others with weak foundations, who opened up, were tremendously displaced. China entered WTO in the Clinton era, but it’s boom started in the 1980s, and even under the WTO, China has been consistently accused for currency manipulation, dumping, and implicit subsidies. So, frankly I really don’t see the how the evidence on the ground — a careful examination of — really supports an argument to the contrary.

  12. Richard heydarian says:

    Dear Andrew,

    I encourage you to read this piece by a renowned Cambridge Development Economist http://www.fpif.org/reports/kicking_away_the_ladder_the_real_history_of_free_trade on why the “Free Trade” argument is both flimsy and historically-speaking deceitful on the part of developed countries.

    He has a book with the same title actually.

    I am not here to convince everyone who comes to argue with me. I am just here to share cutting-edge research that is evidence-based and empirically-verifiable.

    Believe me, we got a lot of Free Trade Laissez Faire training back in college. For some reason, they hardly explain developing world dynamics.

    Feel free to check harvard economist Dani Rodrik book One Economics Many Recipes too.

    The world of development economics has in many ways moved ahead of the discredited laissez faire ideology.

    Cheers,

    • eachhisown says:

      It would be much easier to educate a moron than an idiot.

      What would awaken the majority of Filipinos from being mesmerized and hypnotized that they are the most intelligent, innovative and full of initiative people in the world?

      Most of them won’t even admit that they are without discipline and even despise it the most, they are slobs like pigs, walk the streets and sidewalks in disorganized manner like scared rats, and squander their energy bragging about whatever primitive and irrelevant accomplishments they’ve just made.

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