The Political Economy of Inclusive Growth

Image from theatlantic.com Just days ago, the Social Weather Stations (SWS) survey found out that the number of unemployed Filipinos increased in the last quarter of 2013 to a dismaying 12.1 million. The unemployment rate rose to 27.5 percent as 2.5 million Filipinos joined the ranks of the unemployed between September and December of last year. Coupled with a poverty rate of 25.2 percent, these dismal statistics does not coincide with the country’s second-highest growth rate of 7.2 percent in Asia, only after economic giant China. Malacanang was quick to respond and reframed the issue as a consequence of the havoc that Typhoon Yolanda wrecked in key regions of the country. The Aquino administration simply cannot spin its way to escape the fact that consistent relatively high growth in the past four years has not been ‘inclusive’ or felt by the majority of Filipinos. It must be noted, however, that the lag in poverty reduction in the Philippines cannot be blamed in the current administration alone; the global political economy has played the most significant role in shaping the structure of the Philippine state and economy today. In the face of high growth and wide-scale poverty and unemployment, an understanding of both the present and the past is crucial if solutions will ever be found. This essay explores the past and present political economy of development in the Philippines, arguing that the resilient continuity of past foreign policy has hampered development in the country today. The first part of the essay will examine the service-led growth of the Philippines and its implications for inclusive growth. The second part will situate the Philippines in the larger political economy of Southeast Asia as shaped by U.S. strategic and economic interest. The goal of this essay is not to propose solutions to achieve the ever-elusive inclusive growth, but to give a better understanding of the present and past factors that continue to hamper inclusive growth and development in the Philippines.

Deconstructing the 7.2 percent growth

            In a press conference announcing the annual performance of the Philippine economy in 2013, National Economic and Development Authority (NEDA) secretary-general Arsenio Balisacan reported that the driver of economic growth from the supply side has been the services sector, contributing 3.6 percentage points to the real Gross Domestic Product (GDP). He adds, “The 6.5 percent expansion of the services sector was driven largely by the strong demand for communications, land and air transportation, and storage and services incidental to transport.” Data shows that from 1980-2009, the services sector has contributed an enormous 66.6 percent to GDP growth while industry contributes only 26.3 percent. In other Southeast Asian countries, there has been more or less equal contributions from both industry and services. Is there something dangerously wrong with the Philippines’ disproportionately service-led growth?

            In a paper published in 2012 entitled Taking the Right Road to Inclusive Growth, the Asian Development Bank provides the answer. Traditionally, industrialisation has been considered as the main driver in economic growth at the early stages of development. In a nutshell, such a development structure provides a high labour engagement and productivity in the economy. A robust and productive manufacturing sector is able to absorb labor from low productive sectors like agriculture. This increases job opportunities available to numerous workers, giving them adequate incomes enough to lift themselves out of poverty.  Successful Asian countries have followed the industrialization growth pattern, giving rise to what is admired all around the world today as the Asian Tigers.

            A service-led growth model is unconventional. The consumption of services is only possible when people reach a certain level of income that is way above the subsistence level. A service-oriented economic structure can thus be achieved in advanced stages of development. The Philippines, as the statistics aforementioned prove, has bypassed manufacturing for services as the main driver of economic growth in the past thirty years. Such a development strategy, however, has impactful implications on inclusive growth.

            The services sector of the Philippines has been primarily steered by the rapidly growing business process outsourcing (BPO). Growing at double-digit rates, the Philippines is now the third largest BPO destination after India and Canada. The continuously increasing export of services has led to 34.5 percent employment in the BPO industry. On the surface, the BPO industry may appear to be highly beneficial. However, a second look will show that it actually only employs about 1.2 percent of the total labour force in the country. This is largely due to the high qualification standards of BPO labour demand. In a country where the poorest labourers received only have primary or secondary education, a minimum qualification of a college degree will simply not match. A service-led growth that is dependent on global demands and standards cannot reduce poverty in a country where the necessary labour skills are not present.

             To exacerbate the situation, the labour productivity growth within the service industry in the Philippines has been underperforming. Inclusive growth requires not only high employment, but mainly productive employment. Further, the services sector has the lowest intersectoral link; it cannot induce higher growth in other sectors. Comparatively, India is also a service structured economy. The service sector contributes to about 61 percent of its GDP growth in the past 30 years, highly similar to the Philippines. What sets India apart from the Philippines is that it coupled its service-led growth with an increase in productivity. However, even in India, slow poverty reduction is still evident. The high-skilled labour demand of the service sector will simply not provide enough job opportunities for a large number of Filipino labourers with little to no skills.

The current service-led growth model of the Philippines begets an important question—what hampered the country’s industrialization phase?

The Political Economy of Development in the Philippines

             The development pattern in Asia differs largely from that of the west. For one, Asia never saw an independent capitalist class separating itself from the state to lead economic development. The presence of strong colonial powers stunted the rise of the western-like bourgeoisie; for hundreds of years, most of the economic activity of countries in Asia, including the Philippines, remained to be centered on agriculture. Bringing it closer to home, development in the Southeast Asian region only began recently while already in the face of the global economic order that western states were not in context of. Further, development in the region was mainly brought about by United States’ strategic military interests against communism at the height of the Cold War.

            During that time, the U.S. needed to assert its presence in the Asian region because the close proximity threat that communist states China and the Soviet Union posed. If communism will prevail in the entire Asian region, the liberal world order of the U.S. would have been in serious jeopardy. As a solution, the U.S. strategy was to ensure the economic development of Asian states as a counter attack to the pro-poor appeal of communism; the less poor people are, the less the appeal of communism.  The U.S. allied with its then recently-independent former colony of Japan. To raise Japan to a viable superpower ally, it needed to be economically rebuilt. Losing the communist state of China as a trade partner for Japan, the U.S. triangulated trade instead with the Southeast Asian region. Southeast Asian states were made to play the role of a subsistence market; Japan imported raw materials from Southeast Asia and exported manufactured goods back to them for consumption.

           From a purely economic perspective, the injection of Japanese capital or foreign direct investments (FDI) into Southeast Asia provided the necessary boost that pushed most of Southeast Asian countries' industrialisation phase. The Philippines, however, had an overvalued currency at this crucial point in time; thus being unattractive for Japanese capital to be invested in the country. This lag in FDI still continues to be a crucial factor today as to why the Philippines is constantly behind its neighbours. The Philippines is actually being surpassed by communist states like Vietnam five-folds in attracting FDI. Because of such low investment to GDP ratio, industrialisation and manufacturing in the Philippines never really took root and continues to be a lag in inclusive growth today.

From a wider perspective of political economy, of all Southeast Asian states, it was the Philippines that had a strong Spanish-American colonial legacy. During the Spanish colonial period, families who cooperated with the Spanish colonisers in their divide and rule strategy lorded over fellow Filipinos with vast amounts of land or haciendas granted to them. These haciendas were incomparable in terms of size to that of any other Southeast Asian country. American colonial policy further exacerbated this by giving the landed oligarchs institutional access to the state apparatus. Colonial policies are the origins of the Philippines’ unique case of political dynastic rule today. As previously mentioned, an independent capitalist class never emerged in Asia. In Taiwan, South Korea, and Hong Kong, for example, it was a development from above model wherein the state fostered capitalism from above. The communist threats these states were in close proximity to, namely China and North Korea, forced the U.S. to adopt policies that were suitable to economic development—manufacturing-led growth. In contrast to the Philippines, the relatively weak communist threat never induced U.S. policy to push for development in the country. Instead, it was of the American interest to keep the Philippines centered on agriculture to supply the American agricultural needs. Further, given that the agricultural sector is controlled by landed oligarchs who were also politicians and statesmen, it was but logical for them to keep an economic structure where they benefited from; thus, they resisted any form of industrialisation from above that was characteristic of successfully-developed Asian states.

Conclusion

In conclusion, I am convinced that the value of the social sciences is not in its ability to offer practical solutions to problems, but in providing the very explanatory frameworks in which we problematise the world. The practical solutions are already obvious; improve manufacturing, provide better technical education, enact genuine land reform, etc. However, taking a step back to view the problem from a larger political economy perspective will show the key roles of international actors and their policies in hampering growth, more so an inclusive growth, in the Philippines. While practical solutions may be enough at the national level, a stronger form of accountability against the exploitative powers of advanced states must be institutionalised in the global political order. It is the only way that growth, in the global scale, will ever be inclusive.

Bibliography

Abrami, Regina, and Richard F. Doner. 2008. "Southeast Asia and the political economy of development." In Southeast Asia in political science, by Erik Martinez Kuhonta, Dan Slater and Tuong Vu, 227-251. Stanford: Stanford University Press.

Bello, Walden. 2009. The Anti-Development State. Pasig City: Anvil Publishing, Inc.

McCoy, Alfred W. 2009. An Anarchy of Families: State and Family in the Philippines. Madison City: University of Wisconsin Press.

Usui, Norio. 2012. Taking the right road to inclusive growth: industrial upgrading and diversification in the Philippines. Ortigas City: Asian Development Bank.

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Deconstructing Duterte

The DDS and Duterte Violence: An Effect of Institutions

          The new institutional perspective is aptly used in analyzing political leadership at the local government level. It deviates from traditional institutionalism in considering not only formal rules (as expressed in laws), organizations and structures of government; but more influentially powerful, informal rules (as expressed in norms and collective identities) and broader institutional constraints (Lowndes, 2010). In summary, institutions are framed through rules that are, in effect, lived out by the actors.

Formal Rules

In light of the formal rules, the Human Rights Watch asserts that “Duterte’s rise as a prominent political figure coincided with a significant change in the dynamics between local officials and the police in the Philippines” (2009). Republic Act 6975, known as the “Department of Interior and Local Government Act of 1990”, as amended by Republic Act 8551, provides that the National Police Commission (NAPOLCOM) shall exercise administrative control and operational supervision over the Philippine National Police. Moreover, the Local Government code of 1991, under section 455 (b)(2)(v), provides that the city mayor shall:

“Act as the deputized representative of the National Police Commission, formulate the peace and order plan of the city and upon its approval, implement the same; and as such exercise general and operational control and supervision over the local police forces in the city, in accordance with R.A. No. 6975.”

According to insiders, there are no risks in the operations of the DDS because these are coordinated with the police, who intentionally leave or come late to the area of the planned assassination. Further, the police are underperforming or not performing at all in the investigation of these killings. Some policemen are also hit men themselves. It is alleged that mayor Duterte, as vocal as he is in support of the DDS, is the mastermind behind the operations. Given his socialized and socially constructed violent self, as even more strengthened through the Local Government Code of 1991 by giving the power to exercise operational control over the local police, it is a highly substantial allegation.

However, not all hit men are police officers. More often, they are hired shooters. They are also provided with .45 caliber pistols and other necessities for the operations. The funding of the DDS now comes to inquiry. According to insiders, it is alleged that the funding comes from the city government’s Peace and Order fund, which is allocated by the president to spend in their discretion for counter-insurgency and anti-crime programs (Human Rights Watch, 2009). In Davao’s proposed 2009 budget, it accounts for 450 million pesos of the 3.2 billion pesos budget (Philippine News Agency, 2008). Being matters of security, the Peace and Order fund is not accounted for or subjected to audit.

These formal rules, to an extent, define the parameters of Duterte’s behaviour. It can be said particularly of the R.A. 6975, the Local Government Code of 1991 and the Peace and Order fund are rules that provide a wide range of autonomy and discretion for the mayor. Coupled with the primary argument of the socially constructed violent self of Duterte, these loose formal rules allow and encourage the further development and proliferation of such behaviour.

Informal Rules

          Informal rules are largely based on the norms and traditions that results from the interaction of actors. In this case, there are two interactions of actors that contribute to the creation of such informal rules in Davao—the weak state vis-à-vis Duterte and that of Duterte vis-à-vis his constituents.

As argued by Migdal and Abinales, the Philippines has not been successfully transformed by the wave of modernization. Societies are unaffected by attempts at rationalizing its structures; it remains to be largely built kinship, traditions and customs. This is largely due to the peculiar and long colonial history of the Philippines, which alienated Filipinos from a subjugating foreign government that left them to fend for themselves and rely on their kins. The superimposition of the nation-state on these primordial societies resulted into a constant struggle between the state and the local strongman. Being incapacitated by the power of the local strongman, the weak state therefore resorts to compromise and accommodation for stability, consolidation, and access to the local population.

Such power relations between the weak state and the strong society have created certain informal rules and norms. As Huntington (1968) asserted, the issue is not modernization but that of governance. Weak states govern through compromise and accommodation, not of imposition or hegemony. This creates an informal rule that for the state to effectively govern and ensure stability, it must not limit the powers and disrespect the authority of the local strongman in his domain to an extent not of his liking. As proved by the Marcos' move to centralization during Martial Law, doing so would result to political turmoil and instability.

In that sense, it is an informal rule, as much as it is a formal one enshrined in the Local Government Code of 1991, and an imperative that national government must not meddle with the affairs of Duterte in Davao. This would explain why administration after administration, Duterte remains unsanctioned despite the years of alleged human rights violations. Also, from the new institutional perspective, this informal rule further proliferates the violent character of Duterte.

For six terms as mayor, Duterte and his constituents in Davao have had a long period of constant interaction. In the beginning of Duterte’s political career as an appointed OIC vice mayor, the call of Dabawenyos was that of peace and order, having been threatened by insurgency attacks. Duterte delivered on the call for peace and order, which made him highly popular amongst Dabawenyos. In each term for the next six, Duterte ran on his perennial platform of bringing and maintaining peace and order in Davao. The electorate have swept him to power every time despite, or even because of, their belief of his involvement in the extra judicial killings; thus, Duterte considers this as his mandate. The existence of such a culture and collective identity can be proved by the dissatisfaction of Dabawenyos of Benjamin Guzman, who served as mayor due to Duterte's term limit, because of his failure to embody a tough persona and inability to maintain peace and order. Moreover, it is more evident in the overwhelming support of the people for Duterte every election time. The continuous and stable interaction between Duterte, who embodied the tough guy every criminal is afraid of, and his constituents, whose call and mandate for any mayor has always been based on peace and order, has created a collective identity and political culture founded on the values of toughness, action and peace and order.

Informal rules are also expressed, and possibly none more binding, in the collective identity and political culture of a people in a given place. Unlike public opinion which is simply people's reaction to specific policies and problems, these are long term values that are entrenched in institutions and lived out its actors (Heywood, 2007). From an institutional perspective, the collective identity and political culture of Davao plays a big, if not the biggest, role in defining and maintaining the tough and violent character of Duterte.

Duterte Dynamics

            The Marxist tradition asserts a different view on political culture. Rather than rising from the grassroots, it is a top-down induced phenomenon. Political culture is actually nothing more but elite ideology (Heywood, 2007). It becomes a non-coercive power, called hegemony, by which the people are dominated by the ruling class through the dissemination of what Engel’s calls “false consciousness.”

            How Duterte is able to dictate the dynamics within Davao and circumscribe efforts of political opponents and other groups of civil society groups can be framed through the Marxist lens. As mentioned before, Duterte is both a created by and creator of the political culture in Davao. Beginning with success in responding to calls for peace amidst NPA-dominance, Duterte sustained the popularity through continuous peace and order efforts. Through years of continuous interaction with his constituents, such a political culture and identity has been created and reinforced.

            Duterte has used the political culture he created in Davao to defeat political opponents and instill fear among those in civil society. To do this, Duterte allegedly employs a dissemination of false consciousness based on fabricated incidents of crime. This was evident most especially during the 2010 local elections, when Representative and former House Speaker Propsero “Boy” Nograles challenged Duterte’s daughter, Sarah Duterte, for the seat of Mayor. When reports of the increased popularity of Nograles through surveys came out, isolated cases of crimes suddenly threatened the city. It was alleged that Duterte was behind these petty crimes to stimulate the culture of peace and order in the city that only the Dutertes successfully embodied and ensured. This strategy lead to a victory margin of more than 220, 000 votes for the younger Duterte. 

In consideration of the presence of such dynamics and the identified institutionalised rules, strengthening transparency and accountability measures, both horizontal and vertical, will be able regulate Duterte’s behaviour without radically altering his powers to maintain stability in the local level. For one, the Peace and Order fund must be audited and accounted for by an independent special committee sworn to confidentiality rather than being loose discretionary funds. If the use of funds is found suspicious, it must be investigated upon and made transparent to the people. Further, the police force will remain under the control of the mayor but orders and activities must be recorded, investigated if found suspicious and made transparent if proven. These mechanisms would provide evidence, which has been lacking to back up allegations against Duterte. With evidence, the state will be able to sanction Duterte accordingly. Also, such mechanisms will be able to affect, if not totally reverse, the political culture and collective identity of Davao. Transparency and accountability measures will provide the state with evidence to sanction Duterte, and the people of Davao with information that could question his legitimacy. Local strongmen are most concerned with looking legitimate, which the state can provide. With such mechanisms in place demystifying his behaviour, Duterte must think twice before he employs violence.

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