The continuing existence of political dynasties and the ongoing scandalous rift between the Marcos and Duterte clans seem to indicate that the Philippines will take a long time to rid itself of extractive political institutions, to use the terms of Acemoglu, Robinson and Simon—the 2024 Nobel laureate in economics.  Many Filipinos believe that these blatant imperfections of the political system in our country, although different from the authoritarian regime of China, make it very difficult for us to have the inclusive institutions that make for economic success as postulated by the “Why Nations Fail” hypothesis.  These realities of Philippine politics prevent our political leaders to truly seek the common good of Philippine society and thus often lead to dysfunctional economic regimes in which patronage and corruption can be widespread.

            The last chapter of the book Why Nations Fail, entitled “Understanding Prosperity and Poverty” may, however, give us some reason for optimism.  In rebutting the argument that in recent times China may present an alternative path to sustained economic growth, one under authoritarianism rather than inclusive economic and political institutions, they made an important distinction between political and economic institutions.   To quote them:  “We have already seen the important salient roots of Chinese success:  a radical change in economic institutions away from rigidly communist one and towards institutions that provide incentives to increase productivity and to trade.  Looked at from this perspective, there is nothing fundamentally different about China’s experience relative to that of countries that have managed to take steps away from extractive and toward inclusive economic institutions, even when this takes place under extractive political institutions, as in the Chinese case. “

            What they wrote next reminds me of what I have said time and time again in public speeches when I despair of our very imperfect political institutions run by corrupt politicians and empty-headed actors and other celebrities.  In exasperation, I would advise people in the private sector, i.e. business men and women, academics and NGO officials, “Let’s make our politicians irrelevant to our economic progress.”  In making an important distinction between  political and economic institutions, the authors wrote:  “China has thus achieved economic growth not thanks to its extractive political institutions, but despite them:   its successful growth experience over the last three decades is due to a radical shift away from extractive economic institutions and toward more inclusive economic institutions, which was made more difficult, not easier, by the presence of highly authoritarian, extractive political institutions.”

            Although all Filipinos of good will must do our best to make our political institutions as inclusive as possible, we know that this is a painfully slow process.  Our problem is not that of China, i.e. authoritarian leadership by the Communist party.  Our struggle is against the culture of corruption which was recently  described in great detail by management expert, Ben Punongbayan, in an article in a business daily.  People get away with corruption because of extractive political institutions.  Punongbayan cites the latest Corruption Perception Index in which the Philippines is ranked 115 among 180 countries as being perceived to have a higher prevalence of corruption. Using an estimate of an officer of our Department of Justice, which put Philippine corruption at 20 % of the annual budget, he arrived at the figure of P 1.6 trillion of corruption at the national level based on the 2024 national budget. This amount is 6% of GDP in 2024, not an insignificant amount.   Because of extractive political institutions at both the national and local levels, corruption is perpetrated through overpricing of infrastructures and other public construction projects; unrestricted appropriated funds commonly known as pork barrel, intelligence funds and other intentionally mislabeled funds appropriated in both the national and local government budget; and bribery at both the national and local government levels. I know for a fact that despite our having been blessed with some very honest and competent Secretaries of the Department of Public Works and Highways, attempts to root out corruption at the regional and local levels of the DPWH organization have mostly failed.  This problem seems to be also plaguing the present Administration.

            With such horrendous losses of public funds, how was it possible for the Philippine GDP to grow at an average of 6 to 7 % (one of the highest in the Indo-Pacific region) for the last ten years or so (except during the pandemic)?  The reason is that over the last thirty years or so, people from the private sector—with some help from the competent and honest economic managers in the Government appointed by even the worst politicians—have been patiently building inclusive economic institutions. Obviously, if the amounts lost through corruption (at 6 % of GDP) had been spent on productive infrastructure projects, for example, GDP would have grown at more than 6 % annually, say at 8% or more.  Thanks to the economic reforms of the past thirty years (especially during the presidency of Fidel Ramos that privatized, deregulated and liberalized vital economic sectors), there are enough inclusive economic institutions that can be the bases of long-term economic growth, despite continuing imperfections of the political institutions which remain predominantly extractive.  A singular accomplishment of the public sector is the existence of a truly independent Central Bank that has been very efficient in fighting inflationary pressures and regulating the banking sector.  Our Bangko Sentral Ng Pilipinas has been frequently cited as one of the best central banks in Southeast Asia and the Central Bank Governor as the Best in the world. The BSP is a perfect example of an inclusive economic institution.

            We cannot allow the extractive political institutions to hold our economic institutions hostage.  For example, we should not allow the tantrums being thrown by our Vice President and the circus that is going on in the Philippine Congress to distract us from the immediate needs of human resource development today.  Yes, we have to address the serious problem of the poor quality of public education (not private) at the K to 12 level.   The most obvious solution is to increase what we spend on public education to close to the 6 % of GDP spent by our ASEAN neighbors (compared to our 3 %).   This may take time to achieve.  What can be done immediately is for the private sector (industry chambers, the academe, and the NGO sector) to get together and immediately formulate and implement short-term training programs (called micro credentials) to upskill, reskill and retool the existing labor force so that they can in record time acquire the knowledge and skills actually demanded by today’s employers.  I am glad to see the Philippine Chamber of Commerce and Industry as well as the Employers Confederation taking the bull by the horns and addressing this urgent task.  In fact, this is top priority in the program that will be launched by Elon Musk under the Administration of newly elected U.S. President Donald Trump:  the skilling of out-of-school youth in the U.S.

            The last words of the book Why Nations Fail are very relevant to the Philippine situation today.  Media has a very critical role in helping to make economic institutions more inclusive (even if political institutions are very difficult to reform). Free media and new communications technologies can help at the margins, by providing information and coordinating the demands and actions of those vying for more inclusive institutions.  Their help will translate into meaningful change only when a broad segment of society mobilizes and organizes in order to effect political change, and does so not for sectarian reasons or to take control of extractive institutions, but to transform extractive institutions into more inclusive ones.  Because of their greater impact on the less privileged of Philippine society, those of us in media in one way or another should take advantage of the present opportunity under the BBM Administration to help the Department of Agriculture, the Department of Education, the Department of the Environment and National Resources, and the Department of Labor and Employment to become as inclusive as possible.  The ones heading these departments today are among the best choices of the President.  To be continued.