January 25, 2005
By Walden Bello
(Speech at Karangalan 2005, Cultural Center of the Philippines , January 21, 2005)
Walden Bello is a recipient of the Right Livelihood Award for 2003. He is professor of sociology and public administration at the University of the Philippines and executive director of the Bangkok-based Focus on the Global South.
I would like to thank the organizers of this event, particularly my co-awardee of the Right Livelihood Award for 2003, Nicky Perlas, for inviting me to speak at this event. Nicky’s optimism, as many of you know, is infectious, and I do hope all of us will be infected by it today.
I think our previous speakers have already alluded to the mood of dispiritedness that shrouds the country today. Perhaps more than at any other time, self doubt has become a chronic collective neurosis. For some the way out is to emigrate, an option that according to the polls is preferred by one out of five Filipinos. As has often been pointed out, once out of the national milieu, Filipinos do indeed excel, and one can hardly keep track of the numbers of Filipinos who have become prominent as entrepreneurs, professionals, NGO leaders, and intellectuals in their adopted countries. Yet one can never really leave the homeland. Even if one is a success abroad, one never really feels complete knowing about the collective failure at home. Many in my generation that left for the US in the late sixties and became successful in their fields do not relish retiring in California or Florida but are now seeking ways to contribute their skills to the task of collective upliftment of the nation.
Let me address the crisis of spirit in the Philippines by sharing a witty statement about China that I came across recently: ” China has had a few bad centuries, but it’s now back on its feet.” To be a Chinese from the mid-19th century to the mid-20th century was to share in a communal spirit prone to despair and a sense of collective disintegration. To be Chinese at the beginning of the 21st century is to share in a sense of pride in a country that is not only back on its feet but well on the way to becoming an economic superpower.
I say this to underline the importance of having the long view, of putting our current travails, both material and spiritual, in perspective. We can say, similarly, that we Filipinos have had a few bad decades, but, don’t worry, we’ll get back on our feet. Why should we be this confident? Because at various times in the past, we not only pulled together but also became a shining example to the rest of the world.
Take the Revolution of 1896. This was the first modern national liberation movement in the whole of Asia, one that served as an inspiration to so many other peoples. Read the novels of Pramodya Ananta Toer on the making of modern Indonesia, and you will see how Rizal and Aguinaldo and our struggles against the Spanish and the Americans helped spark the nationalistic imagination of Indonesia. Go to Malaysia , and you will come across people, including former Malaysia Deputy Premier Anwar Ibrahim, who regard Rizal as the first giant figure in the making of the modern Malay consciousness.
Yet the Revolution was not our only “finest hour” as a nation. We also had the four years of tremendous collective sacrifice that brought together our country against the Japanese invaders. Then we had the 16 years of struggle against the Marcos dictatorship that climaxed with the first EDSA Revolution, which became an inspiring model of a largely nonviolent struggle based on people power for many other people in the world suffering under the yoke of dictatorships.
The causes of our discontent
Since EDSA I in 1986, the Philippines seems to have traveled steadily downhill. How could we have squandered such a golden opportunity to take a new course after the disaster that was the Marcos period? The answer, to paraphrase Shakespeare slightly, lies not in the stars nor in ourselves, but in our ever short-sighted elite. I think it is important to stress this, that our failures have less to do with our culture or our so-called personality as a nation but with the failure of the institutions and policies established by our national elite post-EDSA I to deliver both genuine democracy and development.
It is fashionable to denounce corruption at the top as the reason for our failures. Of course, we must condemn corruption, but it’s much too easy an explanation since there have been other countries, among them South Korea and China , that have had levels of corruption similar or even worse than the Philippines but have achieved impressive records of economic growth. We must do a more hard-nosed analysis of the structural causes of failure in order to forge a pathway out of it. Allow me to share some possible insights into our national failure over the last 19 years.
Some say that the promise of the post-EDSA I political and economic system was killed early on when President Corazon Aquino made two historic compromises. First, in protecting the family estate Hacienda Luisita, she failed to put her moral authority behind land reform, resulting in a land reform law with a thousand and one loopholes. Second, she chose to make repayment of the foreign debt the national economic priority, thus starving the country of the investment necessary for development. The combination of the lack of structural reform and capital starvation doomed the country to stagnation in the period 1986 to 2004.
President Fidel Ramos tried to take another path, that of triggering growth by liberalizing trade, deregulating the domestic economy, and privatizing state or state-run enterprises in line with neoliberal, free-market doctrine. Social reform was placed on the backseat, behind so-called market reforms. The Ramos saga ended with the financial crisis of 1997, which was brought about by the panicky exit of the speculative capital that Ramos’s technocrats had courted, precisely by eliminating many controls on their volatile movements and liberalizing the financial sector.
Lower class disaffection with conservative social and economic policies resulted in the election of Joseph Estrada. Estrada’s populism, however, transmogrified into a mafia capitalism in which the president became the apex of an engine of capital accumulation that linked the underworld and the state. The more established section of the elite allied itself with the middle class to overthrow Estrada and displace the new rich faction during EDSA 2. The disaffected nouveau riche tried to get back by riding the spontaneous lower-class anger at Estrada’s arrest during the aborted EDSA 3.
Under Gloria Macapagal Arroyo, all social reform initiatives were placed on the back burner, and development policy was reduced to a strategy of getting US aid and investment by allying the Philippines with Washington in the so-called War against Terror. The administration’s overriding preoccupation became that of getting Arroyo elected. After elections in which the opposition candidate Fernando Poe, Jr. was widely perceived as having been cheated of victory, the administration has been overtaken by a fiscal crisis and has had little to offer the country in the way of vision except more and more indebtedness to foreign banks.
It is important to provide this survey because if we talk about the Philippine crisis, we are saying that one of the causes is a failed democratic state, failed in the sense that over the last 18 years, what I have referred in other writings as the “EDSA State” has not lived up to its promise of being a mechanism of achieving more democracy but has been employed by our elite utilized mainly as a mechanism for succeeding one another in office, as an engine for personal and familial capital accumulation, and as a defense mechanism against comprehensive social reform.
The tragedy of market fundamentalism
But the institutional failure of the EDSA system is only one cause of our crisis. The other equally important source of disaster is the neoliberal or market fundamentalist policies that have been followed by EDSA administrations from Aquino to Macapagal. Over the last 19 years, we have had a revolution in the Philippines, in case you did not know it. But this has been a revolution that has come from the right, not the left. The vanguard of this revolution, which reached its apogee during the Ramos period, have been economists and technocrats who captured the highest reaches of the government, academe, and business, who were united in the belief that if you engaged in free trade, lowered tariffs, enacted more liberal conditions to attract foreign capital, and reduced governmental regulation of the economy, the result would be growth, prosperity, and the end of inequality. Let the market rule – this was the battle cry of the neoliberal revolution that reached its climactic point during the presidency of Fidel Ramos.
So confident were our technocrats that they not only pushed us to join the WTO but also adopted a radical tariff reform program that would bring down tariffs over 10 years to 1%-5%.
The result of this revolutionary policy of liberalization is now clear for all to see: nothing less than an unmitigated disaster. We have been converted into a net food importing country. Employment in agriculture has dropped precipitously. Whole sectors of our agriculture, such as corn, are in the throes of crisis owing to imports being dumped on us. As one of our trade negotiators told his counterparts in Geneva before the Cancun ministerial of the WTO in 2003, “Our agricultural sectors that are strategic to food and livelihood security and rural employment have already been destabilized as our small producers are being slaughtered by the gross unfairness of the international trading environment. Even as I speak, our small producers are being slaughtered in our own markets, and even the more resilient and efficient are in distress.”
The results have been equally stark in industry. Doctrinaire liberalization resulted in multiple bankruptcies and job losses. The list of industrial casualties is awesome. It includes paper products, textiles, ceramics, rubber products, furnitures and fixtures, petrochemicals, beverage, wood, shoes, petroleum oils, clothing accessories, and leather goods. Our textile industry, for instance, has shrank from 200 firms in the 1970’s to fewer than 10 today.
The undermining of our industry and agriculture, however, has not been the only negative effect of doctrinaire liberalization. By reducing our tariffs so radically, we also drastically reduced government revenues, thus contributing to the fiscal crisis. Probably, the best estimates of foregone revenue are provided by economist Clarence Pascual of LEARN, who finds that total foregone revenue rises from P58 billion in 1998 to P108 billion in 2003, averaging 2.4% of GDP for the period. These are magnitudes that are, he notes, simply “mind-boggling.” These are the magnitudes that led former Finance secretary Jose Isidro Camacho to admit the obvious: “The severe deterioration of fiscal performance from the mid-1990’s could be attributed to aggressive tariff reduction.”
The Philippine crisis is not unique
Let me now put our travails in a global context. The crisis of the Philippines brought about by the combination of failed democratic politics and neoliberal economic policies is not exceptional. It simply replicates the experience of so many developing countries over the last two decades under the hegemony of corporate-driven globalization. The successes are few and far between, and if some countries succeeded in growing in the last 25 years, as was the case with our neighbors in East and Southeast Asia, this was because they adopted anti-neoliberal policies that protected and subsidized their industries instead of throwing them open to the massively subsidized commodities produced by transnational corporations like we did. In this regard, let me share with you an insight of one Chinese economist on the difference between technocrats in the Philippines and those in Malaysia and Thailand and China . He said the Filipinos preach the free market and practice what they preach while the others preach the free market but proceed to adopt exactly the opposite policies.
So let me recapitulate my main points so far.
– Our national failure is largely a failure at the elite level.
– Corruption is certainly a factor, but far more important in accounting for our stagnation is a failed democratic state and a disastrous policy of market fundamentalism.
– The crisis of the Philippines is not unique. It is the typical crisis of a developing country in the period of corporate-driven globalization, which has been marked by the rise in the absolute numbers of the poor globally, more inequality both between and within countries, and economic stagnation.
– The countries that escaped stagnation did so because, on almost every point, they followed policies that were protectionist, restricted the market, and put development ahead of the free market.
If this analysis is correct, then the way to climb out of the whole we’re in is to adopt an approach with three key prongs: making the political system more democratic, adopting radical social reform measures aimed at making income and asset distribution more egalitarian, and making a 360-degree turn in economic policy to counter the negative thrusts of corporate-driven globalization.
Other awardees will speak about the first and second dimensions of this comprehensive program. Let me limit myself to addressing the third, that is proposing an alternative set of economic policies that could create the basis for the resurgence of our country.
Elements of a program of economic resurgence
High up on the list is adopting the dictum that what we need for development is not less state but more. The Philippine state must be given a greater relative autonomy vis-a-vis the elite. It must be able to discipline the private interests that have constantly hijacked it for particularistic ends. In this regard, the problem with protectionism as it has been practiced in the Philippines is not protectionism per se but that it has been opportunistic – one simply oriented to promoting narrow vested interests and without reference to a strategic plan to deepen the economy.
Yet this prescription must be taken in the light of the experience of the newly industrializing countries with a strong state. In Korea and Taiwan, development was accompanied by authoritarianism, by regimes whose lack of democratic accountability resulted not only in human rights abuses but in the adoption of strategies that resulted in the degradation of the environment and the sacrifice of agriculture. In any future arrangement, both the private sector and the state must be checked by the participation of civil society in both political and economic decision making. Owing to its recent history, in particular, the struggle against dictatorship, a not insignificant organized civil society has developed in the Philippines. It is now time to institutionalize its participation in any future political arrangement. Democracy does not contradict the development of an effective state. Indeed, democracy promotes an effective state by endowing it with legitimacy.
A second element of a post-EDSA development strategy is focusing on the internal market as the driver of development. Export-oriented growth of the kind that was pursued by NICs is no longer possible in an era of tremendous manufacturing overcapacity and the resulting protectionism in developed country markets that this has spawned. And even if developed country protectionism were not a problem, export-oriented manufacturing would not be an advantageous strategy today, given the tremendous advantage that China has in labor costs. Given the renewed centrality of the internal market, the imperative for massive income distribution to create consumers with purchasing power becomes very critical. Concretely, this means renewing the drive for effective land reform. It would also mean effective programs of taxation of the richer parts of the population, in order both to increase mass purchasing capacity through transfer payments, as well as to accumulate the capital necessary for strategic investments.
Creating a viable internal market is one priority. Protecting it from artificially cheap imports that stem from subsidization or overexploitation is another. However, protectionism can longer remain opportunistic, an incoherent policy that is simply dictated by vested interests. Protectionism must be strategic, one that is linked to deepening the country’s industrial and manufacturing structure through selective tariffication or selective liberalization. Building up capital intensive industries such as steel, transportation equipment, and computers will necessitate a flexible tariff policy, coupled, of course, with investment incentives and state-sponsored technological development.
A fourth important dimension of a post-EDSA economic strategy is sustainable development. The pillage of our natural resources has proceeded to the point where the economic future of future generations of Filipinos has been severely threatened. The high 6%-8% growth of the NIC model simply is not possible to replicate without inviting more environmental dislocations. The key lies in opting for a strategy of lower, sustainable growth rates, which is only possible if there is much more equitable sharing of the fruits of a sustainable economy (meaning, you can’t have sustainable development without radical social reform), a reinvigoration of agriculture along the lines of smallholder systems producing mainly for local and national markets with environmentally friendly agro-technology, and the greening of manufacturing technology. It will also mean reinvigorating local manufacturing and agricultural industries through flexible application of the principle of subsidiarity, meaning whatever can be produced at least cost at the local level should be undertaken at that level. Strong central leadership of the strategic planning process must be coupled to decentralized, sustainable production in key areas like agriculture. This is the challenge of development in a Philippine context in the 21st century.
A fifth critical element is coordinating our national development strategy with those of our neighbors. The reality of international economics in the 21st century is the existence of large economic blocs, the most important of which are the European Union, the United States, and China . It is difficult to see small and medium nation states being able to effectively develop or participate in the international economy without becoming part of a larger formation, whether this is based on common interests as developing countries – for instance, the Group of 20 – or being part of a regional bloc such as a reformed ASEAN that is marked by comprehensive economic cooperation.
Let me explain briefly. The problem with ASEAN, however, is that its most important economic project, the ASEAN Free Trade Area, or AFTA, is one that is strategically directionless. The aim of AFTA is to reduce and eliminate tariff barriers among participating economies, but whether this is for the purpose of serving as a step towards global free trade or as one towards a regional market protected by tariffs and quotas to serve as base for regionally coordinated import substitution has not been decided. This indeterminacy has left the regional formation unable to effectively undertake planning, technology sharing, and institutionalizing a division of labor at a regional level. Without such a program, the different national economic actors will see tariff reductions as leading to a zero-sum game in which the more advanced industrial elites will end up dominating the regional market.
An even greater concern is the democratic deficit in ASEAN. This regional formation was a creation of government elites that was done with no consultation of peoples in the region. Not surprisingly, being part of an entity called ASEAN is not in the consciousness of the peoples of ASEAN. This means that projects that technocrats agree to in the name of ASEAN unity such as AFTA enjoy little legitimacy and binding power. Democratizing ASEAN is essential if it is to become an effective participant in a world marked by the dynamics of big economic blocks.
Participating in a reformed ASEAN regional bloc should just be one of several cooperative initiatives the Philippines must engage in. The Philippines is already part of the Group of 20, a larger formation that also includes India, China, Brazil, and South Africa. The potential of this group in terms of coordinating the policies of its members beyond the immediate issue that brought them together in Cancun – opposition to agricultural subsidies maintained by the developed economies – is great and can extend to technology sharing, transborder industrial policy, shared investment policies, and common environmental strategies. The organizational framework for what has been called, in the language of development economics, “South-South development cooperation,” is present in the G20. A forward-looking Philippine government can make an invaluable contribution in translating this potential into reality.
Finally, national, regional, and South-South initiatives must be coupled with Philippine leadership in restructuring the system of global economic governance, which is today dominated by the powerful developed economies. The key institutions that have institutionalized the hegemony of the North are the International Monetary Fund, the World Bank, and the World Trade Organization. Reform of these institutions has proven to be extremely difficult, while dismantling them seems to be a political impossibility. A coalition of developing countries can, however, aim at reducing the power of these institutions and work to gradually supplant the current system of global governance with a more pluralistic system of institutions and organizations interacting with one another, guided by broad and flexible agreements and understandings. In other words, this strategy would aim at turning the current multilateral giants into just another set of actors coexisting with and being checked by other international organizations, agreements, and regional groupings. It would include strengthening diverse actors and institutions as UNCTAD, multilateral environmental agreements, the International Labor Organization, and regional economic blocs.
The aim of such a strategy is to create space in the global economy for developing countries like the Philippines to put together unique strategies for development that respond to their values and rhythms as societies, something that is not now possible owing to the one-size-fits-all neoliberal model promoted by the IMF-World Bank-WTO complex.
There is an alternative
In sum, there is an alternative to the political economy of anti-development that currently reigns in the Philippines. A hard, unromantic analysis is the key to a viable program for change. We will not get anywhere unless we accept the fact that the interests of our elite and the Filipino people diverge, and it is time we put the interests of the people ahead of that of our elite, which is distinguished by the fact that it is one of the most unenlightened in Asia. We will not get anywhere unless we accept the fact that corporate-driven globalization is part of the problem, indeed a major part of the problem, not the solution. We will not get anywhere unless we adopt a policy framework that consistently puts national development in command instead of free trade and the free flow of corporate capital. We will not get anywhere if we continue to be seduced by false doctrines such as that of market fundamentalism peddled by such institutions as the UP School of Economics . (Incidentally, contrary to popular perception, I come not from the UP School of Economics but from the UP College of Social Sciences and Philosophy. The difference, friends, is night and day.)
Let me end by telling those who call us the sick man of Asia , those who talk about our “damaged culture,” those who say that our best chance is by adjusting ourselves to the demands of corporate-driven globalization: the best years of this country are still ahead of us.
The project called the Philippines is not over. It’s barely begun.