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Sunday, April 10, 2011

The Post-Kleptocratic Economy

CONSIDER FIRST THE OVERALL ECONOMIC: PICTURE. Officials in both South Korea and the Philippines have pointed out to me that in the mid-1960s, when the idealistic (as he then seemed) Ferdinand Marcos began his first term as President, the two countries were economically even with each other, with similar per capita incomes of a few hundred dollars a year. The officials used this fact to make very different points. The Koreans said it dramatized how utterly poor they used to be ("We were like the Philippines!' said one somber Korean bureaucrat), while to the Filipinos it was a reminder of a golden, hopeful age. It demonstrated, they said, that the economy had been basically robust until the Marcoses launched their kleptocracy. Since the 1960s, of course, the Philippines has moved in the opposite direction from many other East Asian countries. South Korea's per capita annual income is now about $ 2,500--which gives the country a low-wage advantage over Japan or the United States. That same income makes Korea look like a land of plenty relative to the Philippines, where the per capita income is about $ 600. The average income in the Manila area is much higher than that for the country as a whole; in many farming regions the per capita income is about $ 100. The government reports that about two thirds of the people in the country live below the proverty line, as opposed to half in the pre-Marcos era. There are technical arguments about where to draw the poverty line, but it is obvious that most Filipinos lack decent houses, can't afford education, in some areas are short of food, and in general are very, very poor. The official unemployment rate is 12 percent, but if all the cigarette vendors, surplus bar girls, and other underemployed people are taken into account, something like half the human talent in the country must be unused.

Some Filipino economists contend that the country is about to turn the corner, is ready to make a new start economically as it has done politically. Is the world price of sugar stagnant? Plantation owners can flood seaside sugarcane fields and raise shrimp, which bring high prices and for which Japan has an insatiable demand. Are American, Japanese, and European companies shifting their production sites worldwide? Why not build more of the plants in the Philippines, which believes it has a well-educated work force and relatively low wages. Just before the first anniversary of the EDSA revolution I spoke with Jaime Ongpin, an intense, precise businessman in his late forties, who had become the new Finance Minister. For the immediate future, he said, the trends looked good. The government was breaking up some of the cartels run by Marcos's "cronies' and exposing them to competition. Construction and small-business activity were picking up. The price of copra (the country's leading export) was finally rising. And the economy might grow by five or six percent this year--more than the economies of Japan and the U.S. Another economist, Bernardo Villegas, has been predicting an East Asian--style sustained boom for the Philippines.

Many man-on-the-street Filipinos share a version of this view, which is that Marcos was the source of all their problems, so his removal is itself a solution. There is some truth to what they say, especially as it concerns Marcos's last ten years in office, when he had graduated from his earlier, nationalistic, land-reform-and-industrialization phase and formed the "conjugal dictatorship' with his wife.

Still, for all the damage Marcos did, it's not clear that he caused the country's economic problems, as opposed to intensifying them. Most of the things that now seem wrong with the economy--grotesque extremes of wealth and poverty, land-ownership disputes, monopolistic industries in cozy, corrupt cahoots with the government--have been wrong for decades. When reading Philippine novels or history books, I would come across a passage that resembled what I'd seen in the Manila slums or on a farm. Then I would read on and discover that the description was by an American soldier in the 1890s, or a Filipino nationalist in the 1930s, or a foreign economist in the 1950s, or a young politician like Ferdinand Marcos or Benigno Aquino in the 1960s. "Here is a land in which a few are spectacularly rich while the masses remain abjectly poor. . . . Here is a land consecrated to democracy but run by an entrenched plutocracy. Here, too, are a people whose ambitions run high, but whose fulfillment is low and mainly restricted to the self-perpetuating elite.' The precise phrasing belongs to Benigno Aquino, in his early days in politics, but the thought has been expressed by hundreds of others. Koreans and Japanese love to taunt Americans by hauling out old, pompous predictions that obviously have not come true. "Made in Japan' would always mean "shoddy.' Korea would "always' be poor. Hah hah hah! You smug Yankees were so wrong! Leafing back through Filipinology has the opposite effect: it is surprising, and depressing, to see how little has changed.

BECAUSE PREVIOUS CHANGES OF GOVERNMENT HAVE meant so little to the Philippines, it is hard to believe that replacing Marcos with Aquino, desirable as it doubtless is, will do much besides stanching the flow of crony profits out of the country. In a sociological sense the elevation of Corazon Aquino through the EDSA revolution should probably be seen not as a revolution but as the restoration of the old order. Marcos's rise represented the triumph of the nouveau riche. He was, of course, an Ilocano, from the tough, frugal Ilocos region, in the northwest corner of Luzon. Many of those whom he enriched were also outsiders to the old-money, old-family elite that had long dominated the country's politics. These elite groups, often referred to in shorthand as Makati (the name of the wealthy district and business center of Manila), regarded Marcos the way high-toned Americans regarded Richard Nixon: clever and ambitious, but so uncouth.

Corazon Aquino's family, the Cojuangcos, is part of this landowning elite. (Their name illustrates its Hispanic pretensions. Her great-grandfather came from China and was reportedly named Ko Hwan Ko, which was gentrified into Cojuangco. Most educated Filipinos speak fluent English, but in the stuffiest reaches of the upper class, I was told, the residual Spanish influence is so strong that it is a sign of greater refinement to speak perfect Castilian Spanish.) Her husband, Benigno Aquino, was also from a famous family. Her running mate in the 1986 elections, Salvador "Doy' Laurel, is the son of Jose Laurel, who was the Quisling-like President under the Japanese. Many of her first Cabinet appointees and sponsored candidates for the Senate bear old, familiar names. And so when Corazon Aquino replaced Marcos, it was as if Katharine Graham, having driven Richard Nixon from office through her newspaper, succeeded him as President--or Jacqueline Kennedy Onassis, or Mrs. C. Douglas Dillon III. The traditional upper class was back in its traditional place. Carmen Navarro Pedrosa, a writer some of whose work was banned under Marcos, recently published a debunking biography of Imelda Marcos. Its killing blow, in its final chapters, was its assertion that while Imelda always pretended to be an aristocrat, Corazon Aquino really was one: "Her jewels were truly heirlooms, not recent purchases from Van Cleef and Arpels. She was a true blue stocking, educated in the United States, and fluent in French. She represented all that Imelda had ever aspired to.'

Especially on my second trip to the Philippines, in the summer, many Filipinos told me that Aquino had become strangely passive in office, acting as if her only task had been to get rid of Marcos and ride out the periodic coups, rumored and real. As long as she did those jobs--that is, stayed in office--she did not feel driven to do much else. Perhaps she will do something to prove that judgment unfair; the August mutiny and preceding social unrest may force her not only to control the army more tightly but also to take economic problems more seriously. But even with the best will in the world, she will have trouble dramatically improving the country's prospects.

One morning this summer, as I stared out the window at the monsoon rain, I listened to two foreign economists describe the economic trap in which the Philippines is caught. The men had worked in the Philippines for years and had absorbed the ethic of delicadeza. They did not want their names, or the name of the bank they worked for, revealed. This reluctance might suggest that their views were unusually critical, which was not the case: they were remarkable only for how concisely they summarized what I'd heard in other banks, in embassies, in business offices, and from a few Philippine government officials. The men ticked off the list of possibilities for Philippine development and explained the problems in each case.

Manufacturing? "There were not many viable sectors to begin with, and most of them were taken over by cronies. The industrial sector is used to guarantee monopoly and high-tariff protection. It's inward-looking, believes it cannot compete. People are used to paying a lot for goods that are okay-to-shoddy in quality. Labor costs are actually quite high for a country at this stage of development. They should be like Sri Lanka's but they're like Korea's, because union organizing has run far ahead of productivity. It's a poor country--but an expensive place in which to produce. American and Japanese firms have set up some electronics assembly plants, but they're only buying labor, not building subsidiary industries or anything that adds real value.'

Agriculture? "It's been heavily skewed for fifty years to plantation crops. All those traditional exports are down, sugar most of all. Copra is okay for the moment, but it's never going to expand very much. Prawns are the only alternative anybody can think of now.' Agriculture is also nearly paralyzed by arguments over land ownership. Since the Spanish days land has been concentrated in a few giant haciendas, including the 17,000-acre Hacienda Luisita of the Cojuangco family, and no government has done much to change the pattern. "You could argue that real land reform would lead to more productivity, but it's an entirely hypothetical argument,' an Australian economist told me. "This government simply is not going to cause a revolution in the social structure.' Just before the new Congress convened, as her near-dictatorial powers were about to elapse, Aquino signed a generalized land-reform-should-happen decree. Most observers took this as an indication that land reform would not happen, since the decree left all the decisions about the when, where, and how of land reform to the landowner-heavy Congress.

Services and other industries? "They're very much influenced by the political climate. I think this has tremendous potential as a tourist country--it's so beautiful. But they don't have many other ways to sell their labor, except the obvious one.' The obvious one is the sex business, visible in every part of the country--and indeed throughout Asia, where Filipino "entertainers' are common. In Davao, on the southern island of Mindanao, I watched TV one night and saw an ad repeated over and over. Women wanted for opportunities overseas. Qualifications: taller than five feet two inches, younger than twenty-one. When I took cabs in Manila, the drivers routinely inquired if I wanted a woman. When my wife returned our children's rented inner tubes to a beach vendor at Argao, the vendor, a toothless old woman, asked if she was lonely in her room and needed a hired companion.

Resources? "Exploiting natural resources has always been the base here,' one of the economists said. "But they've taken every tree they can easily get. It's not like Brazil or Borneo, with another fifty years to rip out the heart of the earth.' Every single day Japanese diners take hundreds of millions of pairs of chopsticks out of paper wrappers, use them for fifteen minutes, and throw them away. Most of the chopsticks started out as trees in the Philippines, though more and more of them now come from American forests. The Philippines has more naturally spectacular mountains and vistas than Malaysia or Indonesia, but you can travel for miles in the countryside and mainly see eroding hillsides stripped bare of trees. Like Americans who speak of "conquering' the frontier, Filipinos sometimes take a more romantic view of what "taking every tree' can mean. F. Sionil Jose, a prominent novelist in his early sixties, who grew up in Ilocos, has written a famous five-volume saga--the Rozales novels--about the migration from the harsh Ilocos region to the fertile plains of central Luzon. The Ilocano migrants made a new life for themselves, he observes, and they did it by cutting down the jungle and planting rice. "There is some hope with minerals and gold,' one of the economists said. Indeed, a Forty-ninerstyle gold rush is now under way in Mindanao. I was told that communist rebels, Moslem separatists, and former Philippine Army soldiers now work side by side in the gold mines, proving that economic development can be the answer to political problems.

The economists went on: "Geographically, the country is fractured beyond belief. The most controllable area is right around Manila, but beyond that the government's writ has never run very far.' For instance, the newspapers that blanket Manila have virtually no circulation in the rest of the country: among a population of 55 million, the combined readership of all twenty-plus daily papers is about five million. "The education system has run down terribly.' The Philippines spends about one eighth as much money per student as Malaysia does. Free education runs only through the lower grades, and after that the annual fee of $ 10 a student keeps enrollment down to 50 percent. "The fifteen-to-twenty billion dollars that Marcos creamed off has had a big effect. There's a kind of corruption that just recycles the money, but all this was taken out.

"And then you have population growth, which is closer to three percent than two-point-five, even though the government says two-point-two. The population could go over a hundred million in fifteen years. Since the economy doesn't grow that fast, the per capita income keeps going down.' Most people I met in the Philippines asked me how many children I had. When I told them, the normal response was, "Only two!' By the end of my stay I was experimenting, raising the number to test the response. "Only six!' a priest said on my last day.

The economist concluded, "All in all, you'd have to say it's a worrisome situation.'

Excerpt from
"A Damaged Culture: A New Philippines?" by James Fallows

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