The Foundations of Booty Capitalism in the Philippines

Itchon Masamoc Roxas Tagum Torio Yasa

Philippine State   

Continuity in its basic patterns of interaction with dominant economic interests Often incapable of meeting even the most basic infrastructural needs of the economy Making its comprehensive analysis central to political economy

State Apparatus  

Major avenue for private accumulation Repeatedly choked by an anarchy of particularistic demands from: 1. Particularistic Actors – oligarch and cronies (currently

favored by top officials)

Weak Institutionalization 

Determinant of Business Success  Personal favor and disfavor of those currently in power

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Political Administration  Personal affair

Weak Institutionalization 

Determinant of Business Success  Personal favor and disfavor of those currently in power

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Political Administration  Personal affair – Practically depends on personal

considerations  Objectively defined official duty – is unknown to the office that is based purely upon personal relations of subordination. Instead of bureaucratic impartiality…the opposite principle prevails* *(Weber’s description of Patrimonial State)

Patrimonial Framework 

Helps us to understand two important elements of government-business relations in the Philippines 1.  2.

High degree of favoritism Rent Seeking Gone Wild

The capacity to inflict punishment on their enemies

Patrimonial Features (Postwar Philippine State)

Rarely displayed the capacity to formulate or implement a coherent policy of economic development Highly fractured and ineffective bureaucracy Lacking in autonomy from dominant economic interest Korean and Taiwanese states:

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At certain crucial historical junctures enjoyed considerable autonomy from dominant economic interest

Historical Context in understanding developing states : 

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Bureaucratic capacity of the developing states in East Asia can only be understood as part of a long historical experience (Peter Evans) Development models are not simple packages of policies; they are configurations of political, institutional, and historical events (Haggard and Cheng)

Laissez-faire  Without state involvement in the economy  However the Philippines presents kinds of economic problems resulting from insufficient development of the state apparatus

World Bank  Emphasize a minimalist role of the State:  “governments need to do more in those areas where markets alone cannot be relied upon. Above all, this means investing in education, health, nutrition, family planning, and poverty alleviation; building social, physical, administrative, regulatory, and legal infrastructure of better quality; mobilizing resources to finance public expenditures; and providing a stable macroeconomic foundation, without which little can be achieve.”

Limitations of the Philippine state apparatus: 1. Incapable of replicating the kind of interventionist capacity of its East Asian neighbors 2. Incapable of providing the basic legal and administrative underpinnings necessary fro free-market capitalism   

Providing adequate electricity Infrastructure Basic regulation and administrative services

Patrimonial States  Have proved incapable of pursuing any coherent policy at all (Zaire and Haiti)  Policy and policy-making common to relatively more advanced countries require major modification when applied to states with strong patrimonial features  The essential business of the state minister is not to make policy. It is to modify the application of rules and regulations on a particularistic basis, in return for money and/or loyalty. (Robert Wade talking of India)  In 1960, the transitional societies in Southeast Asia have not fully incorporated the view common to rational-legal systems of authority that the appropriate goal of politics is the production of public policy in the form of laws. Rather, power and prestige are often treated as values to be fully enjoyed fro their own sake and not to rationalized into mere means to achieve policy goals. (Lucian Pye)  1967 in the Philippine policymaking; political competition among the elite did not involve policy, but power and the distribution of spoils. (David Wurfel)

Capitalism in a Patrimonial State  (Weber) Bureaucratic actions are often highly arbitrary, only certain types of politically determined capitalism are able to thrive  

Such from of capitalism often reach a very high level of development Absence of calculability in thee political sphere ultimately inhibits the development of more advanced forms of capitalist accumulation

Typologies of Capitalism:  Rent Capitalism 

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Overarching term to describe a system in which money is invested in arrangements for appropriating wealth which has already been produced rather than in arrangements for actually producing it

Production-oriented Capitalism

Standard Categorization of Capitalism in developing countries:  Philippines Fall somewhere along a continuum between laissez-faire and statist model  Key economy does not exhibit key characteristics of either typology 

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Laissez-faire and statist capitalism dichotomy: 

Highlights the two vital dimensions: 1. 2.

Intra-capitalist variation – relative strengths of the state apparatuses and business interest Variation among state apparatuses – like patrimonial feature

Matrix of Elements of Capitalism State apparatus relatively stronger Vis-à-vis business interest Relatively more rationallegal state

Relatively more patrimonial state

State apparatus relatively weaker Vis-à-vis business interest

Statist Capitalism

Laissez-faire Capitalism

(developmental state)

(regulatory state)

Bureaucratic Capitalism (Patrimonial administrative state)

Booty Capitalism (patrimonial oligarchic state)

Explanation of the Matrix  Upper Portion  

Form of production-oriented capitalism differentiated according to the relative strength of state apparatuses and business interest

Lower Portion

Distinguishing between types of rent capitalism both having foundations of a relatively patrimonial state  Bureaucratic Capitalism 

 Bureaucratic elite extracts privilege from weak business class  Built on the foundation of a Patrimonial administrative state

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Booty Capitalism

 Powerful business class extracts privilege from incoherent bureaucracy  Arises out from a political foundation of Patrimonial oligarchic state  Thus aiming to achieve a more accurate characterization of Philippine

capitalism

Philippine Economy (Montes)  Rent Seeking Economy 

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Society ownership of property alone guarantee the access to wealth… and the operations of the state determine the assignment of and the continued enjoyment of economic advantages

In contrast to Profit Seeking Economy Productivity improving economic activities  Assets and income are won and lost on the basis of the ability of the business owner to develop the property…operations must be organized to produce a surplus and surpluses earned in the operation must be correctly reinvested 

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Oligarchic collectors of booty in the Philippines well organized at a level of the family conglomerate  Poorly organized at any broader level of aggregation  Little separation between enterprise and household 

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Social Mobility As new families appear out of nowhere and some of the old families fall by the wayside.  Highlights the appropriateness of the term oligarchy for analysis of the Philippine political economy  Philippine not a fixed aristocracy but rather a social group that is based on wealth and that changes over time  As Aristotle puts it, oligarchy is rule for the benefit of the men of means not rule for the common good 

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State role 

External economic relations  It disburses aid and loans received from abroad and its sets

policies on foreign exchange, trade, and investment  Policy making  External forces play key role in maintaining both the physical and economic viability of the state  Country’s role as host of the US military bases  Countries geopolitical importance entailed foreign aid missions and multilateral agencies

 Thus the combination of poorly developed state apparatus, a

powerful oligarchy, and ready support from an external military power has left the Philippines with a booty capitalism

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Implications of a booty capitalistic structure 

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A kind of private sector imitative overwhelms an externally stocked but nonetheless weak state in the quest for particularistic resources Not self-sustaining Ultimately depends on the international dole However withdrawal would bring an increase of pressure to begin to orient the system towards more internationally competitive modes of operation

Reasons of why the power of the oligarchy so clearly overwhelms the power of the state.  16th and 17th century    

Spanish colonizers encountered a very localized political unit Unlike much of the Latin America which was clearly a organic statist colony the Philippines was neither organic nor statist Spaniards were attracted to galleon trade making few developed strong ties to agricultural or other ventures based in the local economy

19th century   

Strengthening of the agricultural commercialization Manila was no longer the single entrepot it had been during the years of the galleon trade Making regional economies each had their own separate ties with the world market  Strong centrifugal forces that weakened the emerging nation (Alfred McCoy)

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Unlike Thailand and Indonesia bureaucratic-aristocracy elites which had descended from pre-colonial kingdoms were strengthened by the commercialization of agriculture (Harold Crouch) This gave rise to a new class – landowners who were quite separate from the bureaucracy – economic base was firmly outside central state

Reasons of why the power of the oligarchy so clearly overwhelms the power of the state.  19th century      

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1899 – these landowners formed the primary social base for the first Republic of the Philippines Americans successfully co-opted local caciques into newly formed political institutions, they never effectively undercut their base of power at the local level The American superimposed a weak central state over a polity of quite autonomous local centers of power Reinforcing the decentralized nature of the Philippines by concentrating on the introduction of representative institutional bureaucracy Representative institutions enabled local caciques to consolidate their hold on the national state and fostered the creation of a solid, visible national oligarchy The oligarchs have remained highly dependent upon US aid, investment, and counterinsurgency support 3 years after the independence the Philippine state nearly collapse Rehabilitation assistance was plundered by the oligarchs to pay for duty-free imports of consumers durables There was mounting evidence that the body politic was incapable of action in the interest of all Filipinos (Frank Golay)

Reasons of why the power of the oligarchy so clearly overwhelms the power of the state.  Postwar years  

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By that time US was rising as a superpower making it difficult for the Philippines to emerge as a truly sovereign nation Oligarchs have needed external support to sustain unjust, inefficient, and graftridden political and economic structure – making Washington receive an unrestricted access to two of its military installations

After Independence 

Seemingly strengthening of patrimonial features

Central bureaucracy – personal contacts became even more important for entrance to the bureaucracy, and the role of competitive examination became relatively marginal

1.

 Bureaucracy expanded rapidly especially during elections  1959 – 50-50 agreement between the Palace and the Congress

Patron-client relations were undergoing significant changes

2.

 Patron found expanded opportunities in obtaining external and office-based resources  Increased the role of state resources within longstanding patron-client relationships

3.  

Particularistic control over the elements of the state apparatus through a spoil system Civilian machinery of state remained weak and divided Despite the growth of the bureaucracy the bureaucratic elite never emerged

Reasons of why the power of the oligarchy so clearly overwhelms the power of the state.  Historical development in the Philippine bureaucracy created opportunity for social mobility that resulted I the formation of an indigenous bureaucratic middle class

Reasons of why the power of the oligarchy so clearly overwhelms the power of the state. 

Comparative of Thailand and Philippine Bureaucratic Culture Entrance in the bureaucracy

Philippines

Thailand

access to public education and the examination system ensured that the civil service did not swiftly become a self-perpetuating class

entrance in government post was greatly restricted by the bureaucratic elite

bureaucracy long Elite traditionally subordinated to based in particularistic elite interest bureaucracy Many opportunities outside the bureaucracy in Manila than in Bangkok, (prewar era) in which many middle-class Filipinos actually left the bureaucracy for jobs in the business

Old oligarchy showed little interest into moving to bureaucratic ventures for they already had a firm economic base outside the bureaucracy

Reasons of why the power of the oligarchy so clearly overwhelms the power of the state.  US colonization was considerably oligarchy building, but very little in the way of state building  Countless opportunities for enrichment that the American regime have brought unto to consolidated oligarchy 

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As source of largesse cam in the form of preferential access for Philippine agricultural products in American markets  Payne-Aldrich tariff act of 1909 – establishing free trade between the United States and the Philippines  US tariff and commercial policy was the most important factor in stimulating the expansion of the Philippine coconut industry which enjoyed a tremendous advantage over the other producers (Gary Hawes) As source of largesse came from effective manipulation of the growing colonial state apparatus  1913-1921 - Under democratic governor-general Francis Burton Harrison Filipino elites began to control both houses of Congress, and considerable influence within the executive branch through the Council of State (Governor-general, Speaker of the House, Senate President, and Members of the Cabinet)  Bureaucracy was substantially Filipinized  Expansion of the oligarchy control of the state  Philippine National Bank – the richest new source of booty for emerging national oligarchy

Reasons of why the power of the oligarchy so clearly overwhelms the power of the state.  Eve of Pacific War

Oligarchs enjoyed the arrangements provided by the American colonial regime that they were loath to make transition to independence  However independence was the last thing they desired, precisely because it threatened the source of their huge wealth: access to the American market (Anderson)  1946 – when the independence did come, it was accompanied by provisions that was clearly advantageous to the landed oligarchy that controlled the state  Bilateral free trade act - ensured dependence on the American market  $620 million in US rehabilitation assistance for war damages 

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Oligarchs in effect, both responded to and created new sources of booty that could be tapped through access to the state machinery, and their economic interest became much more diversified (agriculture, commerce, manufacturing, and finance) Developments in the central bureaucracy and local patron-client relations, as well as the expansion of governmental economic responsibilities highlight the seeming strengthening of patrimonial features within the postcolonial Philippine State. Neopatrimonial – helps to capture the historical sequence Thus the combination of historical factors bequeathed to the postcolonial Philippine provided fertile ground for booty capitalism

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Civilian state apparatus remained weak and divided in the face of the powerful oligarchic interest and most of all underdeveloped Despite changes in the regime basic patterns persisted throughout the first forty-five years of postwar era: while the state was plundered internally, it was repeatedly rescued externally Lastly, with a positive note, the withdrawal of the US military bases in 1992 seems to have provided a n important stimulus for initiating a program intended to transform many basic aspects of the operation of the Philippine political economy