Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017

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Why The Filipino Nation Failed (Part I)

           The dismal failure of the Philippine economy during the last quarter of the twentieth century is well recorded.  After the Second World War, the Philippines was second only in Japan in economic development.  Together with Burma, it was considered by some international economists as the most likely to follow the footsteps of the advanced economies in becoming a highly industrialized country during the second half of the twentieth century.    By the end of the last century, however, it was derisively referred to as the "sick man of Asia."

          Attempts to explain its precipitous fall have gone from one theory of development to another.  Some say culture, history, or geography.  Others mention unenlightened policies of inward-looking, protectionist and ultranationalistic industrialization strategy. Others blame the utter neglect of countryside and agricultural development.   Especially during the current dispensation, the explain-it-all is bad governance or corruption.  All these and other factors may explain the proximate causes of poverty and underdevelopment. No theory, however, comes close in comprehensives to that proffered by economist Daron Acemoglu  of M.I.T. and political scientist James A. Robinson of Harvard in their recent bestseller (2012) entitled Why Nations Fail.

          The genius of Why Nations Fail is found in its expert blending of the findings of history, political science, history, cultural anthropology, sociology and philosophy into a multidisciplinary attempt to explain the very complex phenomenon of underdevelopment and economic backwardness.  For example, I myself plead guilty to the oversimplistic explanation I usually give why the Philippines went from one of the most developed countries in Asia after the Second World War to the sick man or economic leper of the region by the end of the last century. I would usually blame the "Latin American formula for economic disaster," i.e. the adoption of an inward-looking industrialization strategy that concentrated resources on capital-intensive, globally uncompetitive industries that never grew from their "infant industry" position.  I usually followed up with the collateral damage of a total neglect of rural and agricultural infrastructures that kept small farmers dirt poor, despite their having been beneficiaries of an agrarian reform program that parceled out huge land holdings into small farms.

          The question still remains, however, why the leaders of the Philippines adopted the Latin American model and not the East Asian export-oriented, labor-intensive strategy that transformed them into "tiger economies" in no time at all.  The multidisciplinary approach of Acemoglu and Robinson would answer this question by saying that the Philippines, because of historical and political circumstances, did not develop political and economic institutions that were inclusive enough.  Philippine institutions were "extractive", i.e. they encouraged rent seeking among the elite.  Let me quote excerpts from Why Nation Fail that highlight the key role played by institutions in integral human development of nations:  "Inclusive economic and political institutions do not emerge by themselves.  They are often the outcome of significant conflict between elites resisting economic growth and political change and those wishing to limit the economic and political power of existing elites. Inclusive institutions emerge during critical junctures, such as during the Glorious Revolution in England or the foundation of the Jamestown colony in North America, when a series of factors weaken the hold of the elites in power, make their opponents stronger, and create incentives for the formation of a pluralistic society.  The outcome of political conflict is never certain, and even if in hindsight we see many historical events as inevitable, the path of history is contingent.  Nevertheless, once in place, inclusive economic and political institutions tend to create a virtuous circle, a process of positive feedback, making it more likely that these institutions will persist and even expand."

          Applied to the Philippine case during the post-independence period, this thesis explains why the Philippines persisted for a long time in implementing the inward-looking, import-substitution and ultra-nationalistic model.  The landed elite during the Spanish period became the industrial elite during the American Commonwealth.  It was to their interest to protect their monopoly of the resources of the country in rent-seeking industries that exported raw materials to the U.S. or sold imported consumer products to the local market.  The labor-intensive exporters and small farmers had absolutely no political clout to lobby for a more labor-intensive, export-oriented strategy, and much less for a greater emphasis on rural and countryside infrastructures.  The "Filipino First" policy that started with President Quezon and is still enshrined in the 1987 Philippine Constitution is a product of one of the most extractive political institutions which advocated "Rich Filipino First Policy" under the guise of "Filipino First Policy." (To be continued).