Social Capacity for Economic Development

The author is visiting scholar, Waseda University and associate professor, De La Salle University, on sabbatical leave. This piece was published in the Yellow Pad column of Business World, 21 June 2004 edition.

There is a tendency to believe that the roots of Philippine economic
decline started from the early 1980s onwards. However, economic
historians tend to use a longer time frame. Consider the following
passage from Horacio de la Costa, S.J.:

” Our experience of the past 20 years has produced, or is beginning to
produce, a painful awareness that economic development is part and
parcel of a much broader process of social transformation; that this
process is of necessity long, slow and laborious; that development
requires persistent effort towards well defined goals; that foreign aid
can help, but cannot do the job; that growth can only spring from
savings invested in production; that savings require abstinence; and,
in short, that development has a price which must be paid by those who
want it.”

The reference was not from the 1980s onward although it certainly
applies to the contemporary period as well. The words were written in
1967 in a chapter of de la Costa’s book, Asia and the Philippines
(Manila: Solidaridad Publishing House). They remind us that our
economic troubles began not from the 1980s but farther back.

Fr. De la Costa’s brief account of our postwar history reveals a dismal
record of the institutions that governed the development of the
economic factors of labor, capital, and technology. He noted that
Filipinos have not yet achieved the moral and social discipline
necessary to achieve progress. Institutions and economic projects have
been abused, resources wasted.

De la Costa’s view agrees with those who see economic progress as a
social product. Economic development embodies our collective
aspirations and the framework by which those aspirations could be
achieved. The achievement of moral and social discipline reflects the
efficacy of our institutions and decisions. To the question how
Filipinos can achieve economic development, De la Costa preaches:

“… We must bend every effort to produce more, for unless we do, unless
we produce a great deal more, redistribution of the product, no matter
how equitable, cannot substantially raise levels of living across the
board. Admittedly a difficult problem, for increased productivity
demands capital accumulation, and to the owners and managers of capital
it will always be a great temptation to sacrifice quality to
productivity. Yet the temptation must be resisted, if not on grounds of
moral obligation, then at least on grounds of economic and political
wisdom. For even with suitable capital formation, increased
productivity will not result unless there is also a labor force with
sufficiently strong incentives to collaborate in the process, and with
the education necessary to do so intelligently, efficiently and
honestly. The people then, and all the people, must contribute to
development.”

For de la Costa then, increased productivity was the economic
imperative long neglected and inhibited. In the formation and dynamics
of industries, structural obstructions were evident, which limited
economic incentives and capacity. They marked the failure of
institutions to resolve lingering issues.

Institutions educate us. They guide our behavior and inform us of the incentives for certain types of behavior.

Yet institutions are also the products of our ways of thinking, of our
preferences and choices, and of our power. Since childhood, our minds
are shaped by what family, schools, and society inform us. We become
aware of the real rules of society from what we read, hear, see, and
experience.

We learn about the way rules and regulations are enforced and justice
is served. We learn how business transactions are conducted, how
resources are generated and allocated, what kinds of investments are
preferred, what kinds of technology are adopted, and what kinds of
people are recruited and rewarded. We learn from what the schools, the
media, and centers of religious instruction feed us.

From such encounters, we come to certain conclusions about Philippine
society, culture, and history. Many of us accept and follow the
prevailing institutional practices as givens of Philippine life. In
this sense, institutions are products of our politics, reproduced for
generations. Among them, the institutions and social practices that
contribute to continuing decline.

Increased productivity was also hindered by the deterioration in the
quality of the educational system. Resources were misallocated and
effective quality controls were not observed. Owing to mismanagement,
the quality of public education limited the economy’s capacity for
sustained high performance.

Since the time De la Costa’s book was published, the Philippines
witnessed authoritarian and democratic governments. Except for brief
shining moments, the economy proceeded along its long term pattern of
decline. Did our politics address the imperatives of economic progress
and our social capacity to achieve it? How have our institutions
cooperated to address structural obstructions to productivity?

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