Revolutions bring about dramatic changes to a nation’s history. They are fueled by the people’s desire for change. A revolution is caused by the will of the people to overthrow a dictator, establish a democracy and a stable economy. These changes, however, do not immediately cause the consequences that the people wish. The manifestation of the people’s hopes often takes years to be realized.
Crony-based economics is a perversion of a capitalistic economic system where businesses and the government collude to provide certain benefits to certain companies or group of individuals. While laws in certain countries seem to promote equal opportunities for all, in practice, this is far from reality. While on paper a country may seem to have “fair” business practices, it is oft found that some people are given unfair advantages. This discourages investments from those who are not in the “elite” circle.
Crony capitalism encourages large, but inefficient operations with poor productivity, resulting in the depletion of resources without benefiting the people’s economic and social stature.
Economists consider it the antithesis of meritocracy and competition. In a monopolistic market, the lack of the need to operate as best as can be will doom these enterprises to become dado of global performance. Crony capitalism is a problem that can be found in many countries, and is one of the root causes of widespread dissatisfaction and demonstrations against capitalism. There were countries that resorted to cronyism especially when their economies turned bad, according to Gideon Lichfield of the Economist. This was the case under President Ramos.
The Philippines under Marcos
During the Martial Law period (1973 to 1986), many Presidential decrees allowed the distribution of privileges to individuals associated with Marcos. They were given monopolies on certain sectors while simultaneously gaining share in other sectors. This allowed Marcos the opportunity to dip into various sectors through the use of fronts.
These unscrupulous practices and a surplus of money spent on public projects led to the decline of the Philippine economy. Debt rose from $2.1 billion in 1970 to $12.7 billion in 1980. The debt grew too large in 1983 and the country could no longer borrow money. This was compounded by the government bailout of failing companies, mostly of cronies. These bailouts were a primary factor in the decrease of the country’s per capita GDP from $2,376 in 1980 to $1,981 in 1985.
Beginning of reforms
In 1986, the Philippines showed the world the power that unarmed civilians could have; they overthrew the corrupt president and returned the country to a state of democracy under President Corazon Aquino.
Despite the leap forward through the People Power revolution, the country still had to undergo many reforms to become globally competitive, increase employment and reduce poverty.
To become economically viable, the country would have to adopt a strategy for growth without the corrupt practices of cronyism. Several economic reforms were put in place after Marcos. The short-term goal of the new government was to restore the people’s confidence in the economic system, while keeping its commitment to honor all foreign loans. Goals were set in place to reform government corporations and stop cronyism, along with structural reforms of the agriculture, trade, industry and finance sectors. The Presidential Commission on Good Government (PCGG) was established to recover the ill-gotten wealth of the Marcoses, investigate graft and corruption cases and adopt anti-corruption safeguards.
The initial changes resulted in some immediate gains for the Philippines. GDP growth accelerated from 3.4 percent to 6 percent from 1986 to 1989. However, these gains were offset by the continuing political instability due to rebellions, natural disasters and the inefficiency of the PCGG. Confidence in the economy was eroded and by 1991, GDP growth fell to 1 percent.
A framework for future growth was later established, resulting in a more stable political system. In 1992, a peaceful presidential election was held.
Economic reforms continued under then newly elected President Fidel Ramos via the empowerment of the Filipinos and by continuing the policies started by the Aquino administration. It was Ramos’ hope that sustainable economic growth would take effect with the climate of increased market competitiveness and enhanced infrastructure support through private-public sector initiatives.
On the world stage, a policy of “trade, not aid” was being promoted with the adage that the “Philippines was open for business.” These worked. Foreign investments rose and national debt fell from 94 percent to 66 percent of GDP from 1986 to 1992.
Ramos also attempted to curb corruption through his plan Philippines 2000, in which he called for a “streamlined bureaucracy” and dealt with bad state assets through privatization. He dealt with the problem of widespread power outages through the distribution of contracts to numerous energy firms. This also limited the intervention of the government in power generation, reducing corruption.
However, the lack of competitive energy is still one of the factors that hold back the Philippines from becoming an industrialized agriculture nation.
The Philippine society stood the test of the Asian financial crisis. While it did lose some of its earlier gains, the crisis was contained and there was a quick economic rebound, unlike many of its Asian neighbors. For this and other reasons, the Philippines was named a “Tiger Cub Economy in Asia,” an honor which meant that the Philippines was one of the regions’ best developing economies.
Despite all the progress that President Ramos managed to create, the Philippines slowly reverted to unsavory practices. 1998 saw the election of President Joseph Estrada who ran on the populist platform of “Erap is for the poor.” Under his term, the Philippines slipped back from a meritocracy into a crony-based economy and subsequently suffered economic losses. The Estrada presidency was characterized by a new set of cronyism rearing its ugly head as seen in his intervention for a friend who was caught manipulating the stock market (Mga Atraso ni Erap 182). Those hurt the economy greatly. Fiscal deficit doubled from P49 billion to P100 billion in 1998. Due to corruption, foreign investors no longer trusted the Philippines and debt started to increase again (Philippine Economy by Theodora.com).
Although the Philippines was in economic trouble, it seemed like the situation would be solved with the occurrence of the second “People Power” revolution in 2001 to depose Erap. The following president, Gloria Macapagal-Arroyo, a Georgetown-trained economist, was touted as being able to solve the country’s economic situation. Indeed, macroeconomic parameters improved during her term as evidenced by a GDP growth averaging 7 percent, and the peso becoming the strongest Asian currency in 2007, averaging a 20-percent growth (“Philippines Economy”). However, GDP growth did not translate into a better life for the majority. Instead, the number of poor Filipinos increased by 3.8 million and the hunger level reached 24 percent (Social Weather Station). This discrepancy between the “success” in the economy and the degradation of the average Filipino can be attributed to the lack of focus on essential strategic issues and prevalence of cronyism and corruption scandals, which tainted the presidency (Conde; “Scandals”).
The World Bank assessed that one of the major obstacles that the Philippines faced toward economic success was corruption. Arroyo is now under house arrest awaiting trial for electoral fraud, while also being probed for corruption.
The present leader, President Aquino, son of Corazon Aquino, won with his campaign promise to clean up corruption. He appears sincere in his desire to reform the government and business practices; however, only time will tell whether he can implement genuine reform.
(The author is chairman of CIBI Information Inc. and MAP National Competitiveness Committee. He served as trade secretary under the Ramos administration.)