1 - Rent-Seeking, Market Reforms, and States

Summary

The puzzle of why the Philippines has failed to develop economically has long been of interest to scholars studying the country and the region. As Paul Hutchcroft has put it, why is the Philippines in a “developmental bog?” The Philippines has widely been considered the exception to the rule or a laggard amidst the so-called economic successes of Southeast Asian newly industrialising countries (NICs). Some have attributed the cause of this problem to a weak state captured by a strong oligarchic class, while others have emphasised the historical impact of neo-colonialism and the Philippines’ continued dependence on the United States. Still others emphasise the Philippines’ poor macroeconomic policies and the country's inward-looking, protected economy.

Against the Philippines — an incessant aspirant to development — stands the contrasting example of Malaysia, a seemingly successful case of rapid economic development. Compared with the weak Philippines state, the Malaysian state is considered strong. This is because it has been consistently able to impose a development policy that seeks to eradicate poverty irrespective of race, and to restructure society by removing the identification of race with economic function. Also, Malaysia has kept an open economy and a tight rein over its macroeconomic policies. While the post-colonial political and social systems in both countries are substantially different, patronage and rent-seeking stand out as clear similarities in Malaysia and the Philippines. Yet, the persistence of patronage and rent-seeking has apparently not prevented growth in Malaysia, whereas it is considered a major explanatory variable for the continued economic underdevelopment of the Philippines.

The 1997 financial crisis that hit Southeast Asian countries brought the economic impact of rent-seeking, cronyism, and corruption to the fore. A considerable number of scholars were unanimous in blaming cronyism and rent-seeking as the root causes of the crisis. Before 1997, cronyism was a term largely used by academics and journalists to describe the Philippines and Indonesia. In fact, cronyism was coined to describe the process whereby Ferdinand Marcos distributed largesse to his family members and close friends.