Bernardo M. Villegas
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The Roots of Philippine Poverty (Part 2)

             Philippine political leaders were lulled into committing the serious policy error of an inward-looking, import-substitution and protectionist industrialization strategy by the very rich natural resources we had upon gaining political independence.  This is what is called the “curse of abundant natural resources.”  By cutting down our forests and exporting lumber and other raw materials like copra and abaca as well as gold and other mineral resources, we were able to finance the first burst of industrialization in the 1950s and 1960s.  In fact, there was a period when our GDP was growing as high as 8 % annually because of these resource-based exports.  In contrast, our East Asian neighbors had no alternative but to make most productive use of their only resources, human labor.  That explains their making the right decision to follow an export-oriented, labor-intensive manufacturing strategy.  Unfortunately for the Philippine, exporting raw materials from natural resources could go only so far. Our forests were sooner or later denuded. The global demand for abaca declined precipitously when rope could be made from synthetic materials.  Palm oil replaced coconut oil as the main raw material for the production of many consumer products. Many mines got depleted.  In the absence of manufactured exports, the Philippine economy was consistently running out of dollar reserves.  In fact, the biggest financial scandal that was discovered when the Marcos family fled to Hawaii was that our dollar reserves were negative!

            The flawed industrialization strategy, however, was not the worst policy error our leaders committed during the first few decades of our independence.  Again, not because of corruption but because of a mistaken theory of economic development which Communist leader Mao Zedung also held, our early leaders despised agriculture as the source of economic backwardness.  They believed that we could leapfrog to an industrialized society without first going through a green revolution that addressed the twin objectives of food security and the reduction of mass poverty which in a country like the Philippines and China is mainly a countryside or rural phenomenon.  They ignored the fact that the first industrial revolution that happened in England during the end of the 18th century would not have been possible without a significant increase in food production that was the result of simple technologies like the draining of swamps, the consolidation of land, the discovery of root crops and nitrogen fixing legumes, etc. 

During the first two to three decades after independence, there was little interest in providing the millions of small farmers with farm-to-market roads, irrigation systems, post-harvest facilities, agricultural extension services, etc. which are essential for improving agricultural productivity and consequently the incomes of the poor farmers.  Most of the resources poured into the capital-intensive industrialization efforts did little to reduce poverty.  It is notable that the only region in which there was a massive road building program during the martial law years was Ilocos Norte for obvious political reasons.  It is not a surprise that this province which is a prime example of dynastic politics has one of the lowest poverty incidences at 2.5 % in 2019 as compared to the national average of 18.1% in the same year.   At this point, let me surprise those who crafted the video trying to explain Philippine poverty with the information that two other provinces which have single-digit poverty rates are also prime examples of political dynasties, i.e. Bataan (3 %) and La Union (9.3 %).  The script of the video was especially emphatic about the case of La Union by affirming that this Northern Luzon province has been under dynastic rule for over a century.  A little research would have revealed that the LGU of that province, dominated for a long time by the Ortega clan, has received awards for good governance from the Institute of Corporate Directors and Institute for Solidarity Asia, strong advocates for good governance in both the public and private sectors of the Philippines.  Moral of the lesson:  one cannot generalize that political dynasties always lead to economic backwardness.  In fact, the much heralded (deservedly) model of good governance in Asia—Singapore—has been under political dynasty until this year when the oldest son of the founder of modern Singapore, Lee Hsien Loong, is stepping down as Prime Minister to give way to a non-family member,,  Lawrence Wong, after twenty years.

The almost criminal neglect of countryside and agricultural development for ideological reasons (not necessarily linked to corrupt intentions) was compounded by another grave policy error: the Comprehensive Agrarian Reform Program (CARP) which was passed during the Administration of the most honest political leader we ever had.    Clearly this policy was motivated by the noble intention of achieving social justice by distributing the ownership of land more equitably especially among the tenants who were under the mercy of the landlords.  Here is where we can quote the adage that the road to hell is paved with good intentions.  The problem here was not the fragmentation of land into small plots of one to three hectares each among millions of farmers.  After all, our East Asian neighbors with abundant farm lands also implemented one form of agrarian reform or another.  The big difference was that those who succeeded in improving agricultural productivity after redistributing the land into small plots (e.g. Taiwan, Thailand,  Malaysia, and Vietnam) were able to follow through with all the necessary assistance (farm-to-market roads, irrigation systems, post-harvest facilities, farm credit, irrigation systems, etc.) to help the farmer beneficiaries to increase their incomes.  The Filipino farmers were less fortunate.  They were left only with their raw lands and nothing else.  They even lost whatever little help they used to receive from their former landlords, i.e. credit, farm inputs, etc. That is why, especially in the coconut sector which accounts for 3.5 million hectares of land, agricultural production and productivity have suffered long-term declines.  These policy errors affecting the agricultural sector of the Philippines, which accounts for some 10 % of GDP and about 18 to 20 %  of the labor force, explain a great part of Philippine poverty.

The first East Asian tiger economies overtook and surpassed the Philippines in economic development (in terms of GDP per capita and poverty incidence) because of the different approaches to industrialization (export- oriented and labor-intensive vs. import-substitution and capital-intensive). The second set of ASEAN tigers (Malaysia, Thailand, Indonesia and Vietnam) achieved a similar sobrepaso because they gave the highest priority to countryside and agricultural development in their earlier efforts to rise from poverty.  Thailand was doubly fortunate for having had a King who inspired the focus on countryside development because the same farm-to-market roads with which the Thai countryside was richly endowed also facilitated both domestic and foreign tourism as evidenced by the fact that today Thailand has thrice the number of foreign tourists than the Philippines.  This priority given to countryside development was also one of the reasons why Vietnam exceeded us in GDP per capita by 2020.

An anecdote can illustrate one difference between the Philippine and Vietnamese models of development.  Some twenty years ago, I was part of a business delegation from the Philippines to Ho Chi Minh and other parts of Vietnam.   When we landed in Ho Chi Minh, the Filipino business delegates immediately observed with an air of superiority that the former Saigon was not as highly urbanized as Manila.  They observed that there was nothing in the business center of Vietnam to compare with our Makati district and not to mention today’s Global City.  As the business delegation were brought by their hosts to the countryside, however, the Filipinos were highly impressed with the very modern superhighways, bridges, railways and other infrastructures that the Vietnamese Government had prioritized.  This explains why Vietnam, like Thailand, can export every year  close to $40 billion worth of agricultural products compared to the measly $ 8 billion of the Philippines.  A specially dramatic phenomenon was the way a more enlightened Vietnamese Government gave their coffee farmers all the necessary support (infrastructures, credit, agricultural extension services) so that in a little over a decade Vietnam has become the second largest exporter of coffee in the world, overtaking Colombia, and second only to Brazil.  In fact, the Vietnamese coffee brands are now highly appreciated all over the world. Again, without being overly repetitive, this difference in economic policy between Vietnam and the Philippines, has little to do with corruption and political dynasties. Just consider the recent cases of humongous amounts of billions of dollars of corruption that recently made news involving numerous Vietnamese government officials. To be continued.