If You Build It, Will They Come? How Institutions Matter in Economic Zones and Development in Southeast Asia

(This piece was written with the intention of simply recording my thoughts on the ABIS 2017. As somewhat more of a reaction paper than a real think piece, the analysis is rather light and not much effort was placed on showing supporting data. Fair warning.)

During the ASEAN Business and Investment Summit (ABIS) 2017 in Manila, the ASEAN Secretariat and the United Nations Conference on Trade and Development jointly launched the “ASEAN Investment Report 2017: Foreign Direct Investment and Economic Zones in ASEAN.” It once again shines the spotlight on the important role economic zones play in attracting investments, facilitating trade and generating employment among ASEAN member-states to spur industrial development. In general, economic zones are demarcated areas where industrial facilities, infrastructure and streamlined regulatory and administrative regimes are made available for the exclusive use of industries within the zone. This definition covers similar terms such as industrial parks, special economic zones, export-processing zones with minor differences in incentives offered according to their specific objectives.

In Southeast Asia, there are more than 1,600 registered economic zones since the first development in Singapore in the 1960s. However, economic zones track record in the region have been mixed. While there are well-known successful cases such as Singapore’s Jurong Island in constructing the foundation of its heavy industrialization push, many economic zones in the region have been disappointing to say the least. Infamous cases of failed developments include those that are practically empty like the Philippine’s Aurora Pacific Economic Zone and Freeport (APECO) and those like the Bataan Export Processing Zone (BEPZ, now Bataan Freeport Area) whose incurred costs (government subsidies, tax breaks, etc.) are larger than its benefits (employment generation, local input purchases, etc.). Given the variation in outcomes, what determines the success or failure of an economic zone?

Different Institutional Capacities, Different Arrangements: The Case of Singapore, South Korea and the Philippines

The first order difference between successful and failed economic zones in the region are mainly in terms of the capacity and the role the institutional authority governing economic zone development and operation play. Some models have the institutional authority serve as both regulator and developer/operator of economic zones such as Singapore’s Jurong Town Corporation (JTC), South Korea’s Korean Industrial Complex Corporation (KICOX) the Philippine’s Aurora Pacific Economic Zone and Freeport Authority (APECO) while others keep the institutional authority in a regulatory role and leave development and operation to the private sector such as the Philippine Economic Zone Authority (PEZA).

Best practice institutional arrangements indicate that government regulators and developer/operators should be separated to reduce government risk, political interference and take advantage of private sector expertise. In the Philippines, PEZA who lacks technical expertise in management is limited to a regulatory function where it decides incentives and approves investments while the private sector develops and operates economic zones. Evidence indicates this model has worked relatively well as PEZA has attracted over 3,000 locators and generated over 1.2 million jobs. In contrast, APECO is both regulator and developer/operator of the freeport zone in Aurora. Because of poor location planning directed by political rather than economic logic, APECO has failed to attract locators and firms to set up shop in the area despite a government investment of PHP2.9 billion.

However, this preferred arrangement assumes that all government institutional authorities are incompetent like APECO. By ignoring variation in government capacities, it effectively foregoes advantages afforded to fused regulator and developer/operator roles that characterizes much of the East Asian experience. In Singapore, JTC, a statutory body under the Ministry of Trade and Industry (MTI), is both regulator and developer/operator of economic zones. It is composed of highly competent professionals in real estate development and management. Its status as a statutory body under the MTI allows for better coordination between economic zone development and national economic priorities. For example, in the 1970s, JTC developed Jurong Island according to Singapore’s economic priority of shifting towards higher value-added heavy industry of petrochemicals. In South Korea, government organisation KICOX re-programmed its national industrial complexes it solely owns using a hub-and-spokes model to achieve dynamics gains in industrial agglomeration, clustering and university-industry innovation linkages after completing its catch-up industrialization strategy.

Institutional authorities with strong capacities in terms of technical and development skills such as in planning and management are best to play both regulator and developer/operator roles of economic zones. This fusion of roles allowed for a more efficient management, configuration and re-configuration of a critical mass of economic zones and industries within them to drive their rapid industrialization and development according to evolving economic conditions and priorities of the last four decades.  

Success and Failure: Beyond Fiscal Incentives and Static Gains

The success of economic zones must not be judged on static benefits alone such as investment attraction and employment generation that are often limited inside these zones. Most critically, dynamic gains such as innovation facilitation, technological transfer, and skills upgrading are what economic zones can contribute to genuine wider domestic economic transformation.

Cases like APECO that are also abundant in countries like Vietnam are evidence that static gains, much less dynamic gains, do not automatically follow by simply building economic zones and pouring incentives. Public sector risks are further exacerbated in the absence of a strong periodic impact assessment that lead to opportunities for abuse at the expense of public finances that could have been used for other development programs. For example, the Philippine National Tax Research Office reported in 2013 that PEZA-registered firms received PHP108 billion worth of fiscal incentives while remitting only PHP523.5 million to the National Treasury. Proper planning, robust demand assessment, appropriate infrastructure and one-stop services provision, upgrading programs and capacities of local firms and workforce matter more than tax breaks and incentives for long-term sustainability and competitiveness of economic zones.

Further, by differentiating between static and dynamic gains, the impact of variation of institutional capacities and arrangements become more apparent. While PEZA has been relatively successful in securing static gains of investment attraction and employment generation, it has been less successful in achieving dynamic gains like forward and backward linkages with the domestic economy or driving economic restructuring. This compared to JTC and KICOX that have played critical roles in facilitating new industries and continuous domestic technological upgrading to create the advanced industrial economies of Singapore and South Korea today. Variation in these cases suggest there are significant limits to a private sector-led model of economic zones whose many diverse commercial logics may not necessarily coincide with national economic priorities.  Regulation, development and management by a single highly capable governance institution simply make it easier and more efficient to program and re-program a critical mass of economic zones according to evolving economic conditions and imperatives over time to drive economic restructuring and industrialization.    

	Fusion of Regulator and Developer/Operator Roles	Separation of Regulator and Developer/Operator Roles
Weak Institutional Capacity	Static Gains (PEZA)	Limited Gains (APECO)
Strong Institutional Capacity	Dynamic Gains (JTC, KICOX)

Conclusion

Policymakers in many Southeast Asian countries have a misguided belief that if you build economic zones with abundant incentives, investment and employment will automatically come. The case of APECO and many other similar cases of weak institutional capacity and fused regulator and developer/operator roles often succumb to irrational planning and decision-making incurring massive costs without desired benefits. At the same time, however, policymakers need to take best practice institutional arrangements with a grain of salt. In the context of strong institutional capacities, dynamic gains are better secured by institutional arrangements that fuse regulatory and developer/operator roles in a single institutional authority. While a private sector led economic zone program may be desirable in contexts of weak institutional capacity, Southeast Asian countries ought to aspire more towards the development of high capacity and quality governance institutions to unlock the dynamic potential of economic zones for development.

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The Point of ASEAN

(This article originally appeared in the Diplomat back in 2016. https://thediplomat.com/2016/07/the-point-of-asean/)

Many observers of international politics often dismiss the Association of Southeast Asian Nations (ASEAN) as increasingly unable to manage regional crises. With the grouping marred by inaction and even a failure to simply issue joint statements over issues, such sentiments on ASEAN are now increasingly commonplace. Just a month after the debacle of its retracted Kunming joint statement on the South China Sea (SCS) disputes, ASEAN barely forwarded a watered-down joint statement on the SCS disputes, to the disappointment of many. The 49th ASEAN Foreign Ministers Meeting in Vientiane concluded with a statement that dropped any reference to the Permanent Court of Arbitration’s unfavorable ruling against China. Unsurprisingly, this is not the first time ASEAN has failed to act on or say anything meaningful about prevalent regional issues. In 2006 and 2014, ASEAN maintained a deafening silence as the Thai military staged a coup d’ etat and seized government power.

Given this, as one journalist astutely asked, what is the point of ASEAN?

It is a question I often ask myself as I get more and more invested in the regional intergovernmental organization. To understand ASEAN today requires a working knowledge of its historical purpose. ASEAN was primarily organized in 1967 to manage and contain the increasing external and internal conflicts and threats to the region after World War II and during the Cold War. In the context of a bipolar Cold War world order, ASEAN sought to be a “zone of peace, freedom, and neutrality (ZOPFAN)” to hedge against the United States and the former Soviet Union. Intra-regionally, Southeast Asia was fragmented by intra- and inter-state conflict. As a response, the five founding member-states—Indonesia, Malaysia, Singapore, Thailand, and the Philippines—agreed on a “treaty of amity and cooperation” for the “peaceful settlement of regional disputes” under the principles of non-interference and decision making through consensus, also known as the  “ASEAN Way.” A stable regional atmosphere made it possible for member-states to focus on quelling their respective internal conflicts and put all their resources and efforts into the goal of nation-building and economic development, emphasizing national resilience as the road to regional stability.

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Today, it is the same consensus-based decision making and non-interference course of action that once ensured regional security and development that cripples any meaningful action and compromises regional stability. No wonder even its own member-states often place ASEAN on the sidelines as a last-resort option to pursue foreign policy initiatives (see, for example, the Philippines favoring a legal strategy on the SCS dispute over ASEAN mechanisms).

Having studied other forms of regionalism elsewhere, however, I believe that regional intergovernmental organizations matter. They play important roles in both regional and domestic affairs.

In Africa, for example, the African Union automatically suspends any member-state that experiences unconstitutional changes in power from regional activities and gives it six months to restore constitutional rule. The chairperson and the secretary general are not only given the responsibility to condemn coup d’ etats, but also the power to impose a wide range of sanctions, as in Mauritania in 2008. In South America, the Organization of American States (OAS) often plays an active mediating role between the opposition and the government in the event of constitutional crises in its member-states, as in Venezuela in 2002. Such interfering actions and meddling statements are unthinkable for ASEAN, which in 2008 found it almost impossible to convince the military junta in Myanmar to open up to international relief operations in the wake of Cyclone Nargis given the regime’s fears about political change.

What makes the difference? A comparative analysis of regional IGOs shows that engagement from regional civil society and think tank networks, supported by an institutionally-strong secretariat and democratic governments, make regional IGOs more proactive and less fettered by the competing interests of individual member states. In Africa, it took the efforts of an active civil society, a network of indigenous lawyers, and an aggressive secretary general to form its progressive legal document on democracy and human rights. In South America, a watchful network of think tanks and civil society, supported by democratic middle power regimes, created among the earliest regional democratic charters. It is important to note that AU member-states are a mix of authoritarian and democratic regimes, yet the group is widely considered to be more progressive than the OAS, which is comprised of democratic member-states. Apparently, democratic member-state regimes are not necessary for a democratic regional IGO.

This is not to say that the relationship between these regional IGOs and civil society is all positive. In Africa, the exclusivity of AU engagement mechanisms shrinks the space for non-conforming civil society organizations. In South America, civil society engagement with the OAS is often limited to non-controversial issues. However, civil society in these regions wields influence because of the unique constellation of actors who created progressive democratic charters that provide for institutional mechanisms for engagement. Civil society participation is guaranteed and protected by specific charter provisions in both the AU and OAS.

ASEAN, on the contrary, represents a textbook negative case. It is characterized by a handicapped secretariat, a regional civil society network skeptical of its value for engagement, and unwilling democratic governments. The running joke in the region is that the ASEAN Secretariat performs more like a secretary than a general. Staffed only by over 300 personnel with limited funding, the secretariat can barely perform its secretary function, much less a more general-like one.

Further, civil society in Southeast Asia is too frustrated at the slow pace of ASEAN action, if there is any at all, to even think of engagement. Some also maintain a domestic strategy of engagement while others fail to raise their issues and advocacies into the higher regional agenda. Severe repression by ASEAN and its member-states, ranging from tactics of sabotaging people’s forums to choking international funding to outright intimidation, also do not help the progressive causes of civil society. Institutional mechanisms for civil society participation are still virtually non-existent. The region’s more democratic regimes in Indonesia and the Philippines are also reluctant to take the reins of de facto ASEAN leadership. Indonesia, the region’s largest country with the most political clout, is slowly moving beyond an ASEAN-centered foreign policy. According to Rizal Sukma, while ASEAN was once the cornerstone of Indonesia foreign policy, it is now only treated as a cornerstone. Without this complex multilateralism of different actors, ASEAN will remain beholden to individual member-state’s interests and limited in its actions in the foreseeable future.

The way forward for ASEAN is to stay true to its mantra of a “people-centered” community. However, to expect this from ASEAN while leaving its hybrid authoritarian member-states in the driver seat of regionalism is a misguided aspiration. Their fears of political change will hinder any move toward intervention and non-consensus decision making. To achieve this elusive community, the Southeast Asian people must take the reins. This means developing more innovative engagement strategies, making alliances with democratic governments and international actors, and strengthening regional coordination and capacities.

To ask whether there is a point to ASEAN is counterproductive. It reduces interest among ASEAN stakeholders and breeds negative attitudes toward engagement. The point of ASEAN does not hinge on what it is now but on what we, the Southeast Asian peoples, can make it to be. It has vast potential to do a great many things–balance superpowers, strengthen negotiation positions, build confidence among mutually suspicious states, cooperate against transnational human security issues, foster people-to-people connections, and even promote democracy and human rights. But to realize these potentials, as a comparative analysis of regionalism shows, requires the people to take ASEAN away from stubborn member-states and make it their own.

In 2017, the Philippines will be the chair of ASEAN in its 50th year. It is at the helm of setting ASEAN’s direction for its next 50 years. Being one of the more democratic states and having one of the most vibrant civil societies in the region, it is incumbent on the Philippines to lead ASEAN toward a new democratic agenda. After all, ASEAN aspires for a “people-centered” community. Such is the point of ASEAN—for it to be made the institutional mirror of its collective peoples’ aspirations.

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Revisiting Non-Interference in ASEAN: Some Thoughts to Move Forward

Article Two of the Treaty of Amity and Cooperation (TAC), which is the fundamental agreement that governs the relations of member-states within ASEAN, mentions of many principles yet are essentially rooted in one—the principle of non-intervention. Borne out of the high level of insecurity among newly decolonized countries in the region, it was but logical for ASEAN to be extremely cautious of any form of external intervention. For the earlier years of its existence, non-intervention worked. The mutual assurance of member-states to keep to their own affairs them to focus on quelling their respective internal conflicts and put all their resources and efforts onto the goal of nation-building and economic development; emphasizing national resilience as the road to regional stability. As a result of this Westphalian view of state sovereignty, ASEAN experienced zero open conflict and war coupled with high levels of economic growth and development.

            Yet, today, it is the same principle of non-intervention that turns a blind eye to human rights violations, breaches of the rule of law, and sheer abuse of state power within member-states; provided that they afford the same privilege to each other. It is the same principle of non-intervention that incapacitates ASEAN to respond to new non-traditional security threats such as human trafficking, transnational crime, and natural disasters. It is the same principle of non-intervention that keeps repressive regimes intact while endangering the lives Southeast Asian peoples.  Amidst the rise of these new threats and problems, all ASEAN appears to be capable of is to issue joint statements expressing deep regret.

            For intervention to work in a highly insecure region of soft-authoritarian states and weak democracies, two changes must occur—the leadership of the region’s more democratic states and the strict adherence to ASEAN centrality in matters of intervention.

            First, democracies are more likely to support intervention in the name of liberal values such as freedom and human rights. In a region with diverse regimes that range from authoritarian hybrids to clear military rule, it is necessary that democracies unambiguously support and lead in opening the agenda for intervention. Yet, the region’s two democracies in Indonesia and the Philippines have foreign policies that look beyond ASEAN. The Philippines blindly remains faithful to its hard alliance with the United States. Indonesia more recently just shifted ASEAN as the cornerstone of their foreign policy to become a cornerstone. Civil society and more regional oriented parliamentarians in both countries can and must do more to pressure their governments to look within the region rather than outside.

Second, much of the distrust for intervention comes from the threat of unilateral action taken by major powers. Indeed, the series of US-led interventions throughout history have destroyed much of the legitimacy of interventions. Evidence suggests that interventions initiated and carried out by regional intergovernmental organizations are more accepted because of its multilateral nature. It thus becomes an imperative that ASEAN ensures that all interventions are initiated, led and carried out by the organization itself. Confidence building measures must also be intensified to create a stronger sense of mutual trust. ASEAN needs to reimagine its role beyond mere supporters of initiatives led by western powers and the UN. It must position itself as the central body leading interventions in the region. Ultimately, however, it is the strengthening of the bureaucratic structure of the organization that would create space for regional intervention mechanisms amidst sovereignty-obsessed states. 

Intervention is not a complex issue whether in ASEAN or anywhere else in the world. When it involves the security of human beings, whether militarily, politically or economically, intervention is not an issue to be debated upon but a responsibility to be immediately taken up. ASEAN remains steadfast to the principle of non-interference only because of the longevity and familiarity of such a code of conduct. If ASEAN remains to be held hostage by its principle of non-interference amidst new and rising threats, it risks becoming among the many dead regional intergovernmental organizations in history

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Making a Southeast Asian Democracy in Their Image: Some Strategies for Democracy Activists in the Region

Southeast Asia is in a democratic regression—both at the domestic and regional level.  Domestically over the last decade, Thailand has regressed severely from a democracy to be ruled by a military junta. Malaysia and its dominant Barisan Nasional continues to viciously crack down on the opposition and any other form of dissent. Singapore remains steadfast to the concentration of power in a one-party system. Cambodia and Myanmar are persistently unapologetic on its human rights abuses. Even the region’s democratic beacons in the Philippines and Indonesia have stalled on its consolidation with the persistence of personalistic and anti-democratic practices amid formal democratic institutions. Once the global model of third wave or late democratization, Southeast Asia shamefully leads the trend of a global democratic rollback.

Regionally, the Association of Southeast Asian Nations (ASEAN) remains to be an exclusive club of intergovernmental elites who are largely unchecked and unbalanced by any countervailing force. Decisions that have real consequences on the lives of peoples at the grassroots are made based on elite negotiation with little to no popular consultation. Free trade agreements are made, migration policies are discussed and integration mechanisms are set while the larger population most affected are not given a seat on the negotiation table. Instead, civil society organizations’ (CSOs) meetings are sabotaged, people’s representatives to regional forums are blacklisted and urgent human rights issues are silenced. The democratic deficit at home is spreading to become a regional contagion.

Ironically, the power of civil society and the people is no stranger to Southeast Asia. Iconic social movements such as the EDSA Revolution in the Philippines, the democracy movement in Myanmar, and the more recent Bersih protests in Malaysia have all initiated, sustained, and won political change in their home countries. Regionally, transnational activist networks like the Solidarity for Asian People’s Advocacy (SAPA) have been at the forefront of placing the people at the center of the regional agenda. Most state and regional structures are closed and repressive of any form of civil society engagement and contestation to ensure the survival of domestic authoritarian or soft-authoritarian regimes. To find a solution to the democratic deficit therefore needs to shift the focus away from the state or ASEAN towards the strategies CSOs employ to open up political space.

Domestically, CSOs can pressure closed states to open up through internal formalization or international support. The first strategy requires that CSOs formalize and professionalize their internal structure to make them more credible and appealing to governments. This strategy will be most effective during times of stability and when the state already provides a little engagement space. On the other hand, the second strategy recognizes the power asymmetry that favours states over CSOs in terms of sheer resources, machinery, and influence. To address this, domestic CSOs may internationalize domestic issues like democracy and garner the support of the wider international community to reconfigure the balance of power to their favour. This strategy will be most effective during times of crisis and when the state is not only closed but severely repressive of CSOs participation.

Regionally, CSOs can employ two strategies to further the degree of their engagement with ASEAN; namely, through direct regional coordination or through the state channel. The first strategy entails domestic CSOs to build regional partnerships to increase the force of their influence. In this strategy, much relies on the creativity of CSOs to be able to regionalize domestic issues. Partnerships could be built through regional confidence-building measures such as forums and exchanges. Also, CSOs may also create a regional coordinating body to intensify and structure their regionalization. However, this strategy places much faith on the good will of ASEAN as well to actually recognize these CSOs. The second strategy recognizes this limitation by acknowledging that ASEAN remains an intergovernmental organization; thus the best way to influence it is through influence particular member-states to be their voice in regional decision-making. In this strategy, CSOs are most likely to find powerful member-state allies from the regions more democratic states like the Philippines and Indonesia.

In a region where states themselves are threats to the security of their people, democracy is not only a political ideal but more crucially a security necessity. Democracy, being a system that embodies contestation, participation, accountability and protection of basic rights, is the only substantial and sustainable security measure that can protect people from the threat of their own states. To achieve and sustain democracy both at home and in the region cannot be relied on governments—only when people organize around democracy’s ideals and struggle for it strategically can democracy ever be fully realized in Southeast Asia.

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The Challenge of China and How NOT to Respond

There is no doubting the status of China as a global economic superpower. Through the wide expansion of its manufacturing sector, with combined elements of statism and neoliberalism, it created historical record double digit growth rates for 30 straight years. By virtue of its massive size, China is both large and dynamic enough to significantly affect the world economy and contribute to global growth. Through its strategic open engagement of trade and capital flows, China is deeply integrated into the world economy. China, by definition, is a superpower. More crucially for the world, however, it is increasingly acting like one. Rising under conditions defiant of international norms, China poses this century’s major challenge to the existing United States-led global economic order. On the front of trade policy, China is disruptive to the norm of multilateral arrangements and liberalizing obligations. In 2008, it rejected the multilateral initiative of the Doha Round, marking the first failure of a major multilateral negotiation in the postwar period. Consequently, the World Trade Organization-led trade regime is in jeopardy. Instead of multilateralism, it seeks to lead politically-motivated bilateral trade in the Asian region to pit against, not cooperate with, the established trans-Atlantic bloc. With regards to the international monetary system, China continues to frustrate the US by rejecting the rule of a flexible exchange rate policy through its intervention in making the renminbi competitively undervalued. When criticized by the International Monetary Fund, China brazenly questions the existence of the IMF and threatens to create its own Asian counterpart. Indeed, China-led Asian Infrastructure Investment Bank is the boldest concrete rejection of a US-dominated global economic governance. On the area of production, China remains to be the world’s manufacturing powerhouse while maintaining its relative independence from foreign capital. The three areas of trade, financial and production are the critical pillars from which the global economic order stand; and China has managed to aggravate every one of them.

China is flexing its muscles; yet the world, primarily the US, still engages it as if it were a status quo superpower. Responses continue to be dominated by cooptive approaches, forcing China to get on board the status quo norms and existing global institutional architecture. These cannot be any more mistaken. The battle for global supremacy begins with a clear understanding of the enemy. China is a revisionist power; it seeks to upend a global economic order that it absolutely had no part building. In this case, efforts to forcibly integrate it to existing norms and institutions are not only misguided but also counterproductive. An effective response necessitates a recognition of the patterns of China’s calculated moves. Yes, a revisionist power ultimately wants to change the status quo. However, it understands that the decks are stacked against it for it throw an immediate huge blow. Critical observation reveals China’s strategy—frustrate the status quo, gauge the response, calculate whether to push forward or step back. Case in point: The Doha Round. After effectively blocking the multilateral trade initiative, it can be argued that China calculated the moves to be made thereafter. Without a strong response from proponents of multilateralism, China pushed to frustrate the global order even further by leading an Asian trading bloc. The same calculations can be observed in China’s approach on the issue of the West Philippine Sea. Initially frustrating international norms by claiming on the basis of its historical nine-dash line, it pushed even further to land reclamation activities in the absence of an effective response from the vocal opposition in the Philippines and Vietnam. The legal approach of the Philippines is another example of engaging China for what it is not; it does not and will not back down on the basis of status quo legalities. A revisionist power will not respond to status quo forces. The world needs to beat China at its own revisionist game.

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Constructivist Reflections on the Philippine Political Economy

(This piece was written primarily as a reaction to my International Political Economy professor's, Prof. Amado Mendoza, opinion piece on his Interaksyon opinion column, entitled "How did the PH economy grow despite the messy political situation? Since then, I have realized it is not a reaction piece, but a reflection. I found that I could not disagree with the critical mind of my Professor... at least regarding this article.)

Photo adopted from the article

Organized around the title question of the opinion piece, the author, Professor Amado Mendoza, makes two thesis statements—first, the policy lag in time from the first point of implementation to the point of the policy fully taking effect makes the results of past economic reforms impervious to the present’s political instability.

Second, the perception of good governance effectively hides and trumps the material reality of incompetence of the current administration. Both hypotheses are with merit. Indeed, macroeconomic policy is as much as getting the correct policy as implementing it at the right time.

Economists and policymakers recognize the difficulty of timing in pursuing certain policies because of lags. The complexity of both the legislative and administrative process creates a temporal disjunction between problems and solutions; the problem and its situational context may change while the solution is still being legislated or implemented.

Macroeconomic policies, therefore, may see its impact only beyond the tenure of the administration that proposed it. The author recognizes this and gives credit to the Ramos administration, three administrations before the current Aquino one, for today’s economic growth. The policy lag effect is common knowledge and already reaches the awareness of Filipinos as part of the mainstream discourse.

The author’s more innovative analysis lies in his argument of “perceptions become material force.” Owing much to the constructivist school, the author recognizes the disconnection between ideational perceptions and material reality. Constructivism, founded on an ontology of subjectivity, argues that reality is not an exogenous and natural fact of life; rather it is constructed by the beliefs, values and norms of society.

In other words, what is real is what is in the heads of the people. President Aquino owes much to his campaign managers who concocted the idea of running under the image of good governance and anti-corruption.

The image is a powerful and resilient one simply because it is consistent with the larger Asian norm structure. Experiences with corrupt authoritarian AND democratic leaders created a strong desire in the Philippines for good governance and anti-corruption.

Indeed, the genius of this presidency, if there is any at all, is the campaign slogan that sticks.

The author relates this to the resilience of economic growth in the face of political instability by describing the nature of today’s economy. Indeed, the economy today is characterized by activities that largely care about perception. The speculative nature of the stock market and other short-term investments like real estate are the current drivers of the Philippine economy, with the Philippine Stock Exchange reaching all-time highs and the real estate market expanding to unforeseen levels.

Noticeably absent are long-term investments in the manufacturing sector that are particularly sensitive to material realities and fundamentals. Considering this fact, it is scary to imagine what will happen to the Philippine economy when perceptions finally catch up with reality.

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The Post-Washington Consensus, Development Models and the Game of Leverage

The world is made up of two actors; there are the ‘rule-makers’ and there are the ‘rule-takers.’ On one hand, the rule-makers have a high degree of both normative and coercive power at their disposal to illicit the obedience of rule-takers. On the other hand, rule-takers, in the absence of sheer coercive power, rely on a counter-normative strategy to resist the imposition of rules. In every aspect of social and power relations, the dynamics between the rule-makers and the rule-takers are focal. In no other are these dynamics more consistently located than in the area of the global political economy, more specifically in the aspect of development. The rule-makers are the United States and the Washington institutions that are the World Bank and the International Monetary Fund. The rule-takers are developing countries like those in Latin America and Asia. The rule being promoted is the Washington Consensus, a set of policy recommendations by Washington institutions that are essentially neoliberal in character. The game is essentially played by leverage. Prior to the heyday of neoliberalism, developing states engaged in inward-looking models for development. In Latin America, industries were nationalized, protectionist tariffs were instituted and capitalization was found internally. In Asia, the state was more pro-private capital and sponsored domestic businesses through large amounts of technological recapitalization and favourable industrial policies. These models were at the opposite spectrum of US interest; it restricted their access to raw markets of the region. The models, nevertheless, led to incredible strides in economic growth and development in the regions. The leverage was clearly with the developing countries. However, the 1982 debt crisis in Latin America and the 1997 Asian Financial Crisis, coupled with a post-Washington Consensus emphasizing democracy, delegitimized the national development models of largely authoritarian regimes in both regions. Latin America adjusted to neoliberal policies conditioned by the IMF for its financial assistance, Northeast Asia saw foreign competition challenge the dominance of state-sponsored domestic businesses, and Southeast Asia became heavily reliant on foreign direct investment and export-oriented industrialization. While there are some minor resistance and indigenization of the adjustment, the post-Washington Consensus of a neoliberal economic order remains intact.

Photo from carmillaonline.com

The political economy of development is a game of leverage. At the surface, it appears that leverage only comes with luck. The crises that discredited the national developmental models of Latin America and Asia were exogenous in nature and thus, outside the control and fault of national economies. But a more critical examination reveals the powerful irony of neoliberal policy. The exogenous crises were results of increasing liberalization of trade, finance and production. The liberalization of the oil market eventually led to an energy price hike that choked Latin American countries to debt. In Asia, the opening up of financial markets led to hot money short term investments and eventually bursting to the Asian Financial Crises. Neoliberal policy, it appears, has a natural mechanism of correcting divergent developmental models by naturally inducing exogenous crisis; making it, in effect, a self-fulfilling prophecy. Leverage is not a matter of luck or natural economic consequences; but, in fact, manipulated and rigged towards neoliberal interests. Such is the genius of the Washington Consensus and institutions. It presents the economy as an organic, objective and apolitical arena where neoliberal policies are the only ‘correct’ path to development. Through the infiltration of ideas in popular and policy spaces through agents of media and the educational system of so-called ‘experts,’ neoliberalism is raised to Gramscian hegemony status. The epitome of the sheer cunningness of neoliberal agents is their ability to adapt and change. When the Washington Consensus was discredited by critiques of socioeconomic inequality, proponents re-legitimised it neoliberalism through the Post-Washington Consensus where little concessions were made to poverty reduction and the discourse of market compatibility with democracy was introduced. It was no longer an issue of neoliberalism causing poverty; but authoritarianism as the bane of these societies and only market-friendly policies can ensure the democracy answer. It was a masterful reframing of critiques. Counter-hegemonic agents against neoliberalism must strike back just as creatively if there is any hope in undermining this neoliberal global order.

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