In the book Crony Capitalism, David Kang described how political payoffs allow business influence over policy decisions. Compared to South Korea, “In the Philippines, no balance existed between economics and political elites – no mutual hostages existed.  The pattern of influence reflects significant band wagoning, as political and economic elites surged toward power like iron fillings toward a magnet… Under martial law, the balance of power shifted to a coherent state elite led by Ferdinand Marcos… The more autonomous and centralized Marcos regime did not have the incentives and constraints in Korea and turned to plundering society… The story of the Philippine political economy approximates more closely the standard rent seeking models.”

            The book summarized how money politics has been extensive and consequential, in both South Korea and the Philippines. But it also asked the question: why was there growth in Korea but not in the Philippines? The study showed that “we cannot assure benevolence on the part of the state.”

            The exchange of money for political influence is prevalent in Philippine society. As Kang wrote, political – not economic – considerations dominated policy making in both Korea and Philippines. The country has been ruled by a set of elites. Politicians switch parties depending on who is at the helm. Ideology and programmatic difference are not visible, even during elections. Political success depends on personalities, popularity, political manipulation, pork-barrel politics and the buying of the electorate.

In  Governance of the Philippines as a Republic, Dr. Jesus Estanislao alludes to rent selling when he wrote, “rational and effective as they are, economic norms are often disregarded, at least for some time, because of vested interest that benefit from the status quo.” He described the Philippines brand of capitalism of the 1970’s. “It involved the state… In many instances, easy profits were generated for the benefit of market project proponents, who were cronies, or close friends and political allies of this who held unchecked political power.”

There were several reforms especially after the EDSA revolution. However, the fiscal reality of the Philippine government has been one of perennial financial tightness, inability to reform tax measures, incentives captured by big business, nominal funds set aside for sensible investments in infrastructure, and this little set aside diminished by graft and corruption. There is “relative disregard for the discipline of cost-benefit analysis for investments and of due consideration for economic rationale, as decided by long-term economic growth.”

A 2022 working paper by Mendoza, Bulaong and Mendoza entitled Cronyism, Oligarchy and Governance in the Philippines: 1970s vs. 2020s notes that “while Marcos displaced long standing oligarchs and systematically established his own set of crony capitalists, we would argue that post-Martial Law administrations allowed a systemic entrenchment of capitalist interest, with the economic world view that diminishes the political sphere”.

Finally, the recent 2021 ranking of The Economist of crony-capitalism index placed the Philippines as number 4 when it measured the percentage of billionaire wealth as 10 % of GDP from the crony sector. The crony sectors, per The Economist, include a host of industries vulnerable to rent-seeking because of their proximity to the state, such as banking, casinos, defense, extractive industries and construction.

             “Rent seeking entrepreneurs tend to use their relationships with the state to maximize profits. Technically speaking, an economic rent is the surplus remaining once capital and labor have been paid a market price. With perfect competition that surplus would not exist. But rents can be artificially elevated if firms win contracts at beneficial prices, form cartels to stitch up consumers or lobby government for favorable rules. Most rent seeking businesses are operating perfectly legally.”

            All of these are well studied and documented, but we have not learned our lessons. Anecdotal evidence in relation to the election campaign shows how money is again flowing. The election season represents another business opportunity. Thepractice of using local leaders to commit and deliver votes (and people for rallies) for the frontrunner is a long-standing practice. Allegedly, there are paid trolls populating social media. An invisible force is using the tried tactic to divide and conquer. We see published photos of established tycoons in the country breaking bread with key political king makers.

Mendoza, et.al. notes that “the Philippines has not had a genuine statesman or stateswoman in the classical Greek sense, a politician who, among other characteristics, governs for the public good. Returning to the powerful elite during the Marcos years – notably the Marcoses themselves – would seem an odd choice to look for this statesperson.”

            Not all is lost though, but our people must wake-up and make a clear decision. Coming from our Easter break, I pray we can discern who among our potential leaders have the characteristics to govern not for self, not for own family, not for vested interests, not for rent-seekers, but for the public good. Say no to the crab mentality afflicting pseudo-oppositionists. If we cannot put the best person in place, the path out of money politics will even become longer and arduous.

(Benel Dela Paz Lagua was previously Executive Vice President and Chief Development Officer at the Development Bank of the Philippines.  He is an active FINEX member and an advocate of risk-based lending for SMEs.  The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as FINEX.)

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