Changing configuration of Philippine  capitalism

November 22, 2018

AER-Industrial Policy Team

By Rene Ofreneo – November 22, 2018

The above is the title  of a paper on the changing nature  of  capitalism in the  Philippines written by  Dr. Antoinette Raquiza of the  UP Asian Center (Philippine  Political Science  Journal, 2014).  It  is an inquiry on where  the  10  richest Filipinos, all named  in  the  Forbes’ billionaire  list, are  making  money and how they are  shaping  the  directions of  Philippine  capitalism in the 21st century.

In the process,  Dr. Raquiza’s  research is  able  to document the  answers  to two puzzling developments  in Philippine  economic development: 1) high growth being posted  by the country in recent years,  and  2) sustained growth despite stagnant industrialization  and collapsing agricultural sector.

Past studies on the  economic elite were  overwhelmingly focused  on the following: the  feudalistic landed  elite, who built their wealth  out of the  labor of the  landless  sacada’s and  casama’s  who toiled in the elite’s  haciendas and  plantations;  the  post-war industrial  elite, who were labeled  by  the  neo-liberals as  “rent-seekers” for they were  able  to prosper behind high protectionist walls; and  the political dynastic elite, who  use  their positions in government to enrich their  families and  cronies.  The last types are derisively called  by the street  activists  as  “bureaucrat capitalists”; and by other researchers, as  “booty capitalists”.

As the economic data show, the Philippines has become a service-led economy without going through an industrial revolution/transformation and  agricultural  modernization. This is the  common experience  of  the  developed  countries such as  the  United States, Japan and those in Western Europe.  This is the path of  development that  is  being followed by a  surging China.

The answers to the  two puzzles  above were amply answered  by Dr.  Raquiza’s research.  The  dramatic increase in  OFW remittances, from  the  turn of the  millennium to the present, has enabled  the  economy to keep growing despite  the inability of  the  real sectors of the economy – industry and  agriculture –  to develop and expand.   The economy has  become  “consumption-led”.  In the 1970s, the number of OFWs, called  then  as  “overseas contract workers”, numbered  less than a hundred thousand.  Today, the total is estimated at 10 million to 11 million, or roughly 10 percent of the  106 million Philippine  population  and  about one-fourth of the  43 million labor force  reported  by the  Philippine  Statistics  Authority.

According to Dr. Raquiza,  the  total  foreign  direct investments is equivalent to the  monthly  total remitted by the  OFWs.  These remittances, now  estimated  by the Central Bank  at around  $30 billion  a year, are  supplemented  by the earnings  generated  by the call center/BPO sector, which has become  the  second  leg of  the economy.

Now, where  do the  new elite make  money?  The answer is on  the  service  industries  catering to the  consumption  needs of  OFWs and  their families.  Foremost among these is the  banking  industry.  Thus, Henry Sy has BDO,  while  Lucio Tan, PNB, and  the  Ayalas,  BPI. They even have  remittance  business shops set up in  countries with  large  concentration  of  OFWs.  Then  there are  the malls and supermarkets that  are  built one  after the  other by  the  Sys,  Gokongweis, Gaisanos, Cos and  so on.

Of course, one cannot fail  to see  the  booming real estate, condominium business and  property development in major cities.  One of  the  original visionaries who realized  that huge  profits  could  be made out of homes  purchased  by the OFWs is  Camella  Home  magnate Manny Villar.

Other  service industries include aviation, telecom, tourism, logistics, leisure and entertainment, education, car distribution, hospital operation, etc. All the  above-named  taipans — together  with  Ramon Ang,   Manny Pangilinan, Enrique Razon, George  Ty, Andrew Tan, David Consunji and the  Aboitiz family —  are somehow involved  in these varied businesses.   This is the  reason why most  of these taipans have  formed  their respective  holding companies, for  better coordination of different business  outfits, which  have  their own respective  management teams.

On top of  their investments  in  service  industries  that  are  fueled by OFW  remittances,  the taipans are competing with  one another  in  bidding for the various  big-ticket infrastructure projects  lined  up by the government in its Build-Build-Build program.  Earlier, under the BOT/EPIRA law and  the  PPP program, the  government allowed the big business  conglomerates to participate in  power generation  and  distribution, water distribution  business, MRT/LRT operation and  building of schools  and  other  infrastructures.

Based  on the foregoing, it is  abundantly clear that Philippine  capitalist development has indeed deviated  from the pattern of industrial transformation  and agricultural modernization first before an economy, after  reaching a  certain  level of  growth, becomes a services-led  one. This happened because of  the  OFW phenomenon.

The  strange  thing is that the above  development pattern was not  the one  envisioned  by those who formulated  the “structural adjustment  program” (SAP) in the  1980s.  And  yet, the SAP  program is doggedly and  continuously being pursued  by the economic  technocrats, from Corazon Aquino  to  Rodrigo Duterte, without any major  deviations.  SAP  is based  on  the  triad  programs  of  trade/investment liberalization, economic  deregulation  and  privatization.

The trouble is that  the  SAP, in its failure  to  deliver  industrial and agricultural dynamism and  job-creating structural  adjustment in  the  economy, has not been able  to reduce or  even  alleviate the unemployment and poverty affecting many Filipino families, especially those  families  with no  OFW  lifesavers.  On the  other  hand, the  emergence of a service  sector dominated  by a dozen or  so Filipino conglomerates has also not been able to ease these twin problems  of mass unemployment and  mass  poverty. Unchanged, the above pattern of  economic  development can lead  to chronic or persistent social and  economic inequality in the country.

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