Philippine economic history since the 1930s in perspective

Crossroads (Toward Philippine economic and social progress)
Philippine Star, 17 June 2015

In 1946, our flag was raised at the Luneta to announce the formal start of our status as an independent republic. That was 59 years ago, six decades of independence. Our economic history presents a mirror of our growth as a nation.

The timeline of Philippine recent economic history. Though Philippine independence begins in 1946, it is important to move the timeline back to the mid-1930s.

That was when the country achieved victory in its fight for independence through legislative efforts in the US Congress. Finally, Philippine political independence was foreseen with the passage of the Tydings-McDuffie law.

I start with a capsule economic history. In the coming months, I shall complete this story in between my normal commentaries on economic and business affairs in this column. (Every time I deal with economic history, I will mark it as such.)

The period I would call immediate colonial legacy begins with the defining moment when restrictive economic provisions to foreign capital were introduced in the Philippine Constitution. Afterwards, efforts were undertaken to understand the nature of the post-colonial relationships.

This important transition period was interrupted by the Japanese invasion of the nation during World War II. That experience brought large problems of its own: the wartime destruction of output and of industries, social dislocations, and a drastic fall of GDP.

1950s to the 1960s: import substitution and exclusivistic economic nationalism. Even these developments could not forestall balance of payments problems that would lead to import and exchange controls. These controls would introduce and perpetuate incentives for inward-looking development. They would create and strengthen incentives for more protection despite persistent BOP problems being promoted.

The succession of presidencies of Elpidio Quirino (who succeeded the first president, Manuel Roxas), Ramon Magsaysay, Carlos Garcia and Diosdado Macapagal (and even beyond) would administer and embellish this period of inward-looking import substitution. During this time, the growth of import substitution would also see the rise of exclusivistic economic nationalism in which efforts were made to displace or minimize foreign participation in the economy.

1970s to the mid1980s: martial law reforms and crisis. The mid 1960s saw the emergence of Ferdinand Marcos as president. After almost eight years of rule as president, Marcos declared martial law.

This enabled Marcos to continue to rule the country as dictator, during which he oversaw major gains being made in economic and social reforms and redirected the nation’s political construction. At no time in the country’s history was the pre-occupation with infrastructure investments undertaken as a component of the economic development program.

Dissatisfaction with the strong man rule became strong after the assassination of Benigno Aquino Jr., the returning political oppositionist. This would lead to the loss of international support for Marcos’s government especially in financial affairs, plunge the country into a serious double crisis — economic and political – and finally cause his overthrow and exile during the EDSA revolution.

Restoration of political institutions and economic liberalization. Corazon Aquino restored political institutions to pre-martial law framework through the adoption of the 1987 political Constitution. However, her naivete in many aspects of leadership led her to commit major mistakes.

Foremost among these was the neglect of energy and the failure to properly mobilize her political capital to restore public spending with the sustenance of international financial flows. This came about when she mulled radical solutions concerning the country’s debt obligations.

The outcome was political instability with periodic threats of military coups, the running down of the country’s infrastructure investments without maintenance and the setback to long term growth, as energy capacity and infrastructure inadequacy plagued the nation.

Though economic growth had been restored after the economic collapse following the Marcos crisis years, the new government failed to take advantage of the opportunities for the future that the immediate legacy of Marcos in terms of energy and infrastructure construction handed over to the next government.

The Cory Aquino years ran down the infrastructure investments without any future investment and caused a crisis in energy that would set back growth for years.

Nevertheless, Mrs. Aquino continued the reforms in industry and trade that helped to open the country’s economy to the world. Fidel Ramos, her successor to the presidency, advanced further the economic liberalization of the economy and introduced privatization of key government corporations. These economic efforts were advanced through the Estrada and Gloria Macapagal Arroyo presidencies.

It would take a second Aquino presidency, that of Noynoy Aquino, the son, to live up to some of the reforms in governance that the first Aquino presidency tried to bring to the nation. By this time, too, the benefits of the opening to the world economy would support economic progress.

Overall economic performance assessed in comparison with neighbors. Throughout all these periods, the Philippines performed relatively well, but well below that of economies that undertook more rapid economic reforms and which integrated their economies with world trade and with much higher inflows of foreign capital.

Up until the 1980s, the Philippines was in pace with large economies of Southeast Asia that were co-founders of Asean (Association of Southeast Asian Nations): Thailand, Malaysia and Indonesia. During the uncertainties of the 1980s and the economic crisis that hit the country toward the end of the Marcos regime, sustained economic reforms and large foreign direct investments made these economies surge faster.

In East Asia, there have been countries that have done much better. Within four decades, they essentially obliterated poverty and unemployment. They transited the developing country stage into industrial economies.

South Korea and Taiwan have been exemplary in this regard. China, the most recent example, and the biggest country of all, has not only replicated the experience of these two countries, but has done even better in terms of overall economic performance.

Singapore and Hong Kong, both city-states and confined territories, were highly successful because of long held policies of open economic regimes to world trade and a sensible market-based domestic investment in infrastructure and industry.

Philippine development efforts is unique in that it is the only country where the political system tolerates open dissent. In the other countries, strong governments have reduced the level of political opposition.