State of Fragmentation: The Philippines in Transition

We're pleased to announce the release of State of Fragmentation: The Philippines in Transition. The book is jointly published by Focus on the Global South and Friedrich Ebert Siftung and authored by: Walden Bello, Kenneth Cardenas, Jerome Patrick Cruz, Alinaya Fabros, Mary Ann Manahan, Clarissa Militante, Joseph Purugganan, and Jenina Joy Chavez.

A book launch was held in Manila on October 17, and photos are on our Facebook page.

You can read the book's introduction below, which presents an overview of the political economy of the Philippines and key issues like the financial crisis and economic growth, neoliberal restructuring, debt service, agriculture, industry and de-industrialization, government services, exports, labor, capital, and development. Inquiries about copies can be directed to our Philippines office by phone: +632 433 1676.


State of Fragmentation: The Philippines in Transition

Published in 2014 by Focus on the Global South and Friedrich Ebert Siftung

ISBN 978-971-9488484



The Philippines: Failed State, Failed Economy?

For many Filipinos, the last 40 years is a period best forgotten. In the earlier half of said period, the Philippines was saddled with a dictatorship for 14 years; then it fell from the status of having the second most developed economy in Asia after Japan to that of “sick man” of East Asia, plagued by low economic growth and burgeoning poverty.

During the first three years of the presidency of President Benigno Simeon Aquino III, the national mood seemed to have changed. At the end of 2012, the Philippines appeared to have fared well in terms of its economic performance. It registered 7.4 percent growth rate in the last quarter—said to be the best in Southeast Asia during that time—while the GDP growth rate came to an average of 6.6 percent for the whole year. Like the rest of East Asia, the country was able to avoid the worst effects of the global economic crisis occasioned by financial implosion that had kept Europe and the US in a state of stagnation for the fifth year in a row.

Evading the global financial crisis

What saved the Philippines and other countries of East Asia from the first phase of the global financial crisis was most likely their having experienced the Asian financial crisis of 1998, when the region was wracked by a chain reaction of massive inflows of speculative capital, overinvestment, collapse in real estate prices, capital flight, and speculative attacks on regional currencies. Burned by the crisis, the Philippine state built up billions in dollar reserves to defend against future speculative attacks, while Philippine banks became cautious about their exposure to the complex financial instruments being devised by US banks called derivatives. True, when the financial crisis brought down the real economies in the North in 2008 and 2009, the East Asian economies, which have been greatly dependent on northern export markets, felt the impact. However, by 2010, owing partly to stimulus programs in the Philippines and its neighboring economies, like China, the worst appeared to be over, and growth resumed, even as the crisis deepened in Europe and the US.

In 2012, trouble appeared to recur, as China’s growth slowed down, as did Korea’s, a sign that these East Asian economies were not permanently immune to the deep stagnation in US, Europe, and Japan. Southeast Asia was also dependent on these markets, but allegedly owing to a shift to domestic demand as engine of growth, the OECD predicted that the Philippines and the rest of the region would continue to register “robust” growth in the midst of what was then seen as a prolonged global crisis.1

Fragile growth

Growth statistics were not the only cause for optimism in the Philippines in the first years of the Aquino administration. The country’s political leadership was widely seen to be taking the anti-corruption campaign seriously, with former President Gloria Macapagal-Arroyo under hospital arrest and awaiting prosecution, and her appointee, former Chief Justice Renato Corona, ousted in 2012. Moreover, Congress passed the extremely contentious Responsible Parenthood and Reproductive Health Bill, which was seen as necessary to bring down the country’s high fertility rate that most development analysts saw as spoiling the best laid development plans.

In explaining the growth statistics, government officials like Finance Secretary Cesar Purisima stressed how this was a result of the administration’s focus on “good governance.” Certainly, there was no disputing the fact that new confidence among both domestic and foreign quarters was triggered by the administration’s anti-corruption campaign, and there was little doubt that the Aquino government was also serious about containing poverty, as seen in the inclusion of over three million families in its Conditional Cash Transfer Program. The Asian Development Bank toasted the CCT as the country’s most successful anti-poverty program ever, one which was a model for other countries.2 However, these were factors that could affect the growth rate only in the medium or long-term.

A central factor in explaining the positive growth rate would be the combination of accelerated public works spending throughout the country and the higher inflow of remittances from overseas Filipino workers. In 2012, remittances were expected to rise by seven percent over the U$20.1 billion that came in 2011.3 Equal to some 10 percent of the country’s gross domestic product, remittances fuelled the domestic spending that made up for the weakness of the country’s key export markets in the US, Europe, and Japan.

Annus horribilis

That the Aquino administration, despite its good governance aura, had been skating on thin ice became evident after the elections of May 2013, which the ruling coalition handily won. Positive news on conventional growth statistics and foreign investors’ assessments continued to mark the next seven months following the elections. The over seven percent GDP growth rate and the administration’s reputation for good governance obtained for the Philippines the prized “investment grade” status from the key rating agencies, Standard and Poor’s, Fitch, and Moody’s.

But what should have been a moment of triumph was banished by a series of reversals. The most serious was an exposé, shortly after the May 2013 elections, of how a number of senators and members of Congress had been receiving massive kickbacks from their pork barrels (or “priority development assistance funds”) by channeling funds meant for infrastructure or schools to fake projects and fake non-governmental organizations. While the president and his key aides were not implicated in the scandal, they initially defended PDAF. But when they changed course and called for the abolition of the congressional pork barrel, this was seen as an opportunistic move to ride the wave of popular sentiment against pork barrel as a patronage mechanism.

Next happened super typhoon Yolanda, aka Haiyan, in November 2013, which not only flattened Tacloban City and left a trail of destruction through the Visayas region but also exposed how ill-prepared the administration was in efficiently managing disaster relief operations.

Then there was Meralco’s ‘Christmas gift’ to its 5.3 million customers in Luzon—a 4.5 pesos per kilowatt hour increase in its rates. The increase was triggered when eight of its power suppliers went offline on unscheduled outages, at the same time that the Malampaya natural gas pipeline was shut down for maintenance, forcing Meralco to obtain power at a much more expensive price than usual from the Wholesale Electricity Spot Market. As popular anger built up against Meralco’s rate increase and the strong evidence that its power suppliers had colluded to raise electricity rates at the spot market, the president remained aloof from the crisis, bringing on charges that he’s insensitive to consumer needs and even of being beholden to the big families that run the power sector, like the Lopezes.4

Though less dramatic, trends related to the economic prospects of the country would have equally ominous significance. In the middle of 2013, the National Statistics Coordination Board released figures that showed that 27.9 percent of the population lived below the poverty line, a figure that had been practically unchanged since the first half of 2009 (28.6 percent) and first semester of 2006 (28.8). These figures are all the more disturbing because globally, the poverty situation has actually improved since 2005. According to the World Bank, the proportion of people living in extreme poverty—on less than $1.25 a day—has dropped in every developing region from 2005 to 2008.

While the Aquino administration could pin most of the blame on previous administrations, it was not possible to escape some blame. Obviously, despite the CCT coverage of over three million families that constituted the poorest of the poor, the government’s flagship anti-poverty program was making little headway in reducing poverty.

The CCT was not the only program in trouble. During the briefings on the 2014 budget, the Agrarian Reform secretary was forced to admit that agrarian reform, one of the leading programs to address poverty and inequality, would not be completed by the end of June 2014. Secretary Gil de los Reyes said that the backlog in undistributed land stood at almost 700,000 hectares; 450,000 of which were private lands—some of the most undistributed lands in the country—subject to compulsory acquisition. According to him, it would take up to the end of June 2016 to complete the distribution process, two years past the deadline set by law.5

A faltering land reform program paralleled the paucity of initiatives aimed at altering the structure of the economy to place it on a sustainable developmental path. Indeed, one could not say that there was a macroeconomic strategy for development, though one of the key preconditions of a strategy, effective family planning, might be said to have been put in place by the passage of the Reproductive Health Bill. The 2010 Medium Term Development Plan talked about “inclusive growth,” but that was a mantra imported from the latest World Bank and United Nations thinking, not a strategy for how to manage and deploy scarce resources in the most effective manner to achieve development.6More broadly, one can say that the administration would still have to decisively break from the old path of neoliberal restructuring and globalization.

No break with the past

Begun with the “structural adjustment” imposed on the country by the World Bank and the International Monetary Fund in the 1980s, neoliberal restructuring reached its apogee during the presidency of Fidel Ramos (1992-1998). Though it began to run into problems, neoliberal restructuring continued to serve as the default economic policy during the years spanning the presidencies of Joseph Estrada (1998-2001) and Gloria Macapagal-Arroyo (2001-2010).

The neoliberal path, followed in varying degrees by the five administrations prior to the current one, had four key features: prioritization of debt repayment, export-orientation in both agriculture and industry, and neoliberal reform, the key thrusts of which were deregulation, privatization of production and services and trade liberalization, and massive labor export to address local unemployment and underemployment as well as increase national income through remittances.

This path did not lead to sustained development. Instead, it resulted in the emasculation of government as an economic actor; eroded agriculture and industrial base by uncontrolled importation; and made the Philippines vulnerable to external economic and political developments. A key indicator of the failure of this economic path has been the anemic growth rate; this has averaged four percent over the decade, 2000-2010, much below the seven to eight percent needed to launch sustained growth, raise per capita incomes, and roll back poverty. Even more worrisome, the national economy, driven mainly by globalization, has lost its coherence; industry, agriculture, education, and employment also lost theirs with one other. The state’s role as passive bystander exacerbated this trend, as it has been unable to exercise its planning function owing to the anti-state bias of neoliberalism.

The state of poverty and inequality was probably a better index than growth statistics on the health of the economy. The indicators in this area were mixed. In 2012, there were statistical improvements in hunger rate. The proportion of Filipino families experiencing involuntary hunger fell to 16.3 percent in the fourth quarter of 2012, from 21 percent in the third quarter. The expansion of the CCT program probably has had the effect of reducing the level of hunger. As for the poverty rate, with 27.9 families living below poverty line, it remained virtually unchanged in 2012 from the figure six years earlier. The figure was, as one commentary noted, “the highest among emerging Asian economies.” As for inequality, it was likely that the Philippines’ gini coefficient, the most reliable index of inequality, was still largely the same as in 2009, when it stood at 44, the highest in Southeast Asia.7

Debt-service economics

One cannot understand the Philippines’ development predicament without going back to a momentous decision made in the late `80s, under pressure from its foreign creditors, to prioritize debt repayment. The so-called “model debtor strategy” adopted under the administration of Corazon Aquino, the current president’s mother, was cast in iron by Executive Order 292, which provided for the automatic appropriation of the full amount needed to service the foreign debt. It is worthwhile to note that it is only the Philippines that has such a provision in its legal code.

This resulted in investment, which was, along with consumption, the key engine of growth, becoming sorely constrained since government was the biggest investor in the economy. Government resources instead flowed out of the country in the form of debt service payments. In the critical period 1986-93, some eight to ten percent of GDP left the country yearly in the form of debt service payments, with the total amounting to nearly $30 billion.8 Even with this massive outflow, the Philippine debt was not reduced and in fact rose from $21.5 billion in 1986, when Aquino assumed power after the overthrow of Marcos, to $29 billion in 19939 because of the onerous terms of repaying debt, such as variable interest rates and the practice of incurring new debt to pay off the old.

This translated into radical increase in interest payments as percentage of total government expenditures, from seven percent in 1980 to 28 percent in 1984. Capital expenditures, on the other hand, plunged to 16 percent from 26 percent. Debt servicing, in short, became, alongside wages and salaries, the number one priority of the national budget, with capital expenditures being deprived of outlays. The radical stripping away of capital expenditures represented by these figures would explain the stagnant one percent average yearly GDP growth in the `80s and the 2.3 percent rate in the first half of the `90s.10

The savage reduction of government capital expenditures translated into a steep reduction in the ratio of investment to GDP. From nearly 30 percent in the early ‘80s, under the Marcos regime, it dropped to 17 percent in the mid- `80s and never really recovered, staying at an average 20-22 percent in the 2000 decade.11 Contrary to neoliberal theorists who saw no need to worry about the pullback in government investment, the private sector did not step into the gap.

This trend of continuing outflow of government resources in the form of payments to creditors and the shrinking of capital expenditures continued in the first years of the new century. In 2005, according to the World Bank, 29 percent of government expenditures went to interest payments to both foreign and domestic creditors and 12 percent to capital expenditures.12 This configuration of government spending prompted the University of the Philippines School of Economics to complain that the budget left “little room for infrastructure spending and other development needs…”13 With government capital expenditures remaining low, total fixed investment remained anemic during the reign of Gloria Macapagal-Arroyo, running at only 14 percent of GDP, which the World Bank noted was “substantially lower than during the deep recession in the first half of the `80s and in most other larger East Countries.”14

The pattern was unchanged during the first three years of the Aquino administration; 20-22 percent of the budget was allocated to debt service. Infrastructure spending remained constrained, as the administration reviewed public works contracts the previous regime had entered into to weed out corrupt agreements.

The Philippine experience was a painful lesson in the economics of debt. It was also a grim reminder of the fallacy of neoliberal theory. Government spending does not crowd out private investment. In fact, the opposite has been true: it “crowds in” private investment.

The priority placed by government on living up to the terms of foreign debt was a central factor in the behavior of foreign investment towards the Philippines. Along with structural adjustment and trade liberalization, the debt economy contributed to the country’s failure to take off at a time when the massive transfer of manufacturing facilities to Southeast Asia was taking place, resulting in a regional boom everywhere, except in the Philippines.

With poverty engulfing close to a third of the population, the Philippines was a depressed market as far as Japanese investors were concerned, and they were not about to sink much money into it. Between 1987 and 1991, for instance, a paltry $797 million in Japanese investments entered the Philippines, while Thailand received $12 billion.15 When one included Korean and Taiwanese investments, which usually tracked the Japanese, the gap would be even greater. Thailand received $24 billion in investments during the same period, or 15 times the amount invested in the Philippines, which came to $1.6 billion.16 “This difference in the flow of investment from the three countries,” Kunio Yoshihara rightly observed, “produced a significant disparity in growth performance of the two countries [the Philippines and Thailand] during the period.”17

The Philippines continued to lag behind its dynamic neighbors in foreign investment inflows well into the recent Aquino period, despite positive commentary in the foreign press about the president’s anti-corruption reforms. At $1 billion, foreign direct investment in 2012 was half its level in 2007 and was well below the $1.5 billion in remitances that flowed in every month.18

Globalization: disintegration and integration

It cannot be said that debt service economics was solely responsible for the Philippines’ failure to launch. The globalization of the Philippine economy via neoliberal restructuring was perhaps an even bigger factor. To say that the economy was globalized meant it underwent a process of “disarticulation” and “re-articulation.” The traditional sectors of the economy—agriculture, industry, and services—were disarticulated from one another or “disintegrated” at the national level and selected dimensions of the economy were re-articulated or “integrated” at the global level.

In the succeeding sections, the disarticulation of agriculture, industry, and services will be examined closely, followed by the articulation of the economy at the global level with the rise to prominence of the electronics sector, the “business processes outsourcing” sector, and the labor export economy.

Agriculture’s decline

The decline of agriculture was one of the most distressing trends in the economy over the last three decades. Contributing to this were several factors: decline of government support for agriculture owing to structural adjustment, liberalization of agricultural trade, a protracted agrarian reform program, and the impact of climate change.

For a long time, the sector was starved of government support owing to the draconian structural adjustment forced on the country following the `80s debt crisis. From 5.5 percent of the total budget during the Marcos regime, funding dwindled in succeeding administrations, coming to 3.6 percent during the nine-year reign of Gloria Macapagal Arroyo.19 By the end of the Arroyo administration, the area under irrigation, at 1.3 million out of 4.7 million hectares of cultivated cropland, was practically the same as that under Marcos a quarter of a century earlier. Crop yields sagged across the board; the average of 2.8 metric tons of rice per hectare was way below yields in China and Vietnam.20 Good roads are key to agricultural production but by the end of the `90s, only 17 percent of the Philippines’ road network was paved, compared with 82 per cent in Thailand and 75 per cent in Malaysia.21

At the same time that structural adjustment was reducing state support for agriculture, trade liberalization undertaken under the World Trade Organization’s Agreement on Agriculture, which the Philippines signed in 1995, mandated the elimination of quotas for agricultural commodities, resulting in a massive inflow of foreign imports. The victims of liberalization included the corn, vegetable, and poultry sectors. Perhaps the most cogent indicator of the ruinous impact of trade liberalization was the fact that from being traditionally a net food exporting country, the Philippines became a net food importing country from the mid-`90s on.

A third factor hampering agricultural production and productivity was the very slow pace of agrarian reform. One of the most promising initiatives of the administration of Corazon Aquino was the Comprehensive Agrarian Reform Program in 1988. Yet, the progress in land distribution was uneven, with landlords taking advantage of loopholes in the law to slow down the reform. The uncertainties, confusion, and conflicts triggered by the protracted process thwarted production and productivity. Land reform in Taiwan, Korea, and Japan succeeded in terms of social justice and productivity because the reform measures had solid backing from government, gave definitive legal ownership to tenant farmers, had more than adequate financing, and provided effective support services. CARP had none of these, resulting in only 17 percent of the 1.5 million hectares of private land targeted for reform getting redistributed by 2008, or 20 years after the program had began.

In June 2009, feeling the pressure from agrarian reform advocates, Congress passed the Comprehensive Agrarian Reform Extension with Reforms Act, which extended the land reform program to 2014 and provided PhP150 billion for land redistribution and support services. Despite CARPER, however, land redistribution continued with its slow pace, and by the middle of 2013, some 700,000 hectares of prime agricultural land, as noted earlier, remained undistributed. This was a task that the administration admitted would not be completed by the end of June 2014, the deadline for land acquisition and distribution set by law.22

Providing a counterpoint to this record of underperformance was a Supreme Court decision mandating the distribution to tenants of Hacienda Luisita’s 10,000 hectares belonging to the president’s relatives. Implementation of the Supreme Court decision, however, has also been slow and fraught with obstacles posed by the Hacienda Luisita management.

The sluggish pace of agrarian reform implementation has not been simply a case of bureaucratic inefficiency or due to resistance by landed interests. The dominant view in governing circles in recent years is that agricultural development is principally a productivity issue and not a social justice concern, that what is important is making the investments in physical infrastructure, marketing, and credit that will unleash the potential of agricultural entrepreneurs. To agrarian reform advocates, the problem with this perspective is that production cannot be separated from justice. The main element that would unleash the productive potential of our millions of farmers is security of tenure over their land. Moreover, poverty-stricken tenant farmers and rural workers who have long been chained in feudal relations need assistance from government to be transformed into vibrant small farmers responding to market incentives.

Farmer entrepreneurs are not created overnight. This is why land reform advocates lobbied hard for the inclusion of Section 13 of CARPER, which provided that at least 40 percent of all appropriations for agrarian reform during the five-year extension period would be set aside and made available for support services. If there is one thing that can be learned from the experiences of successful agrarian reform in Taiwan, Korea, and Japan, pro-reform advocates contended, it is that land redistribution, secure property rights, and production assistance or subsidies for support services make up the formula for a dynamic agricultural sector. The absence of one of these factors was what torpedoed many other land reform efforts in the Philippines and elsewhere.

But the problem goes beyond some administration technocrats’ narrow focus on productivity. Much development thinking in the country today is centered on improving the atmosphere for business activities in the city, promoting the dynamism of the real estate industry, supporting the growth of financial services, and attracting more investment in Business Process Outsourcing activities. Development is anchored on servicing the needs of a growing globalized middle class. In this mindset, agriculture is an afterthought, and food security is one that can be met with increased imports. In this paradigm, the over 50 percent of the population that live in the countryside are not regarded as a dynamic source of development, the main engine of which is seen to lie in urban economic activities fuelled by foreign investment and OFW remittances. From this perspective, the bulk of the population that remains in agriculture is “excess baggage” constituting a drag on economic takeoff.

But the neglect of agriculture is not simply a development paradigm problem. The truth of the matter is that the most dynamic sectors of the economic elite appear to have lost interest in agriculture as source of wealth. As sociologist Kenneth Cardenas argues later in this volume, Filipino capitalists are going back to land as source of wealth, but instead of using it as base for a rural, cash-crop-oriented economy, it is being used for urban development. The highest rate of returns on investment comes from shopping malls, office buildings, and middle and upper class housing. Yet even as the most energetic sectors of the upper class have moved into urban real estate development, seeking to capture demand for housing fueled by the billions of dollars in OFW remittances, their less enterprising brethren cling on to rural land, less and less for production and more and more for speculation or security.

Increasingly, it is mainly small producers and rural workers that have an interest in making a living from farming, and even then, large numbers of them have been abandoning the countryside for what they see as the lack of opportunities resulting from persisting inequalities and the absence of incentives. Their logic is compelling: better to take your chances in Saudi Arabia than scratch a living from land from which you can get evicted any time.

Finally, a key factor negatively affecting agriculture is climate change. This became especially obvious in 2011-2013, when extreme weather events not only took thousands of lives but caused tremendous destruction of crops. Some of the country’s worst floods, resulting from non-stop rains in the middle of 2012, destroyed a staggering $57 million worth of crops.23 Then in December of that year, Typhoon Pablo, aka Bopha, struck a part of the Philippines, the lower half of Eastern Mindanao, which had not been hit by a typhoon in recent decades, causing $5 billion worth of damage to 101,356 hectares of coconut plantations and taking a thousand lives.24 Even more ferocious was Typhoon Yolanda, aka Haiyan, which was estimated to have inflicted some $6 billion worth of damage to the economy and taken close to 10,000 lives.25


The combination of trade liberalization, structural adjustment, and absence of planning proved fatal to Philippine manufacturing. With liberalization under structural adjustment, the effective rate of protection for manufacturing fell from 44 to 20 percent.26 And even this was eroded when, in a radical move, the Ramos administration brought down tariffs across the board to the zero to five percent range. The list of industrial casualties included paper products, textiles, ceramics, rubber products, furniture and fixtures, petrochemicals, beverages, wood, shoes, petroleum oils, clothing accessories, and leather goods. The textile industry shrank from 200 firms in the late `70s to less than 10 today. 27 The shoe industry centered in Marikina is struggling for its life due to the surge in Chinese-made shoes from trade liberalization and smuggling.28

Not surprisingly, the contribution of Philippine industry to the Philippines’ Gross Domestic Product has declined in the past three decades, from 39 percent in 1980 to 32 per cent in 2009. A major factor was the decrease in the share of manufacturing in industrial GDP, which fell by more than four percentage points from its 1980 levels.29 Perhaps the best summation of what transpired came from a proponent of liberalization who said that Philippine industry was “unable to adjust to a less protected environment, resulting in the curious phenomenon of ‘de-industrialization’ at a low level of economic development.”30 More direct was judgment of a former head of the Department of Finance: “There’s an uneven implementation of trade liberalization, which was to our disadvantage.”31 While consumers may have benefited from tariff cuts, “it has killed so many local industries…”32

Privatizing government services

Privatization of key services provided by the government was a key thrust of the neoliberal restructuring of the Philippines, especially under the Ramos administration.

Water service delivery. During that period one of the showcases of privatization was that of the 119-year-old Manila Waterworks and Sewerage System in 1997, which was at that time the biggest water-sector privatization in the world. Two of the biggest local conglomerates were involved, along with their foreign partners: the Lopez and Ayala groups.

The terms of the deal were that the Maynilad, belonging to the Lopez Group, would take charge of water provision in the East Zone of Metro Manila while Manila Water of the Ayala Group would take over the West Zone. The terms were that, using government-owned infrastructure, the two concessionaires would operate the system, draw profits from this, and then turn the assets and management of the system back to the government after 25 years. By 2000, however, the privatization was in trouble. Maynilad wanted to walk out of the deal, citing force majeure owing to its borrowing in dollars that became onerous to service after the peso collapsed during the Asian financial crisis. However, other critics pointed out that the reason for Maynilad’s bad situation was its unrealistic very low bids in order to get the concession, also a practice of Manila Water.33

The low original bids and other miscalculations led the concessionaires to petition changes in the original agreement, which were granted by the government. From the consuming public’s point of view, the most damaging of these concessions was the continual readjustment of prices. Price increases became a feature of the water privatization experience in Metro Manila. In five year’s time, from a pre-privatization amount of 8.78 pesos, prices were readjusted six times and increased more than 500 percent for Manila Water and 10 times, or more than 100 percent, for Maynilad, making Manila consumers the victims of some of the highest costs of piped water in the Asian region, outranking costs in Singapore and other developed countries.34

Energy generation. The fiasco that attended the privatization of water delivery likewise plagued the power sector privatization.

On June 8, 2001, President Gloria Macapagal-Arroyo signed RA 9136, the Electric Power Industry Reform Act. The measure set the stage for the breakup of the National Power Corporation and the privatization of all stages of the power industry, from generation to transmission to distribution. The aim was to bring down what were then seen as skyrocketing power rates.

Over 12 years later, however, surveys showed that power rates in the Philippines were either the highest or second highest in Asia and ranked among the highest in the world. Brownouts lasting several hours a day plagued Mindanao and the Department of Energy warned of disruptions and shortages in the near future in Luzon. Privatization did not deliver in terms of lower prices and greater efficiency in many ventures, including the corporate takeover of Manila’s water supply, but EPIRA turned out to be the most spectacular failure in privatization.

A key aim of EPIRA was to bring about a free market in the power market. Instead, it resulted in shifting energy generation from the original monopoly structure to an oligopoly structure. For instance, generating capacity in the Luzon grid is now highly concentrated among three major groups: San Miguel, 30 percent; Aboitiz, 17 percent; and Lopez, 15 percent.35 It is estimated that these groups control 52 per cent of energy generating capacity in the whole country.36 Moreover, the cross-ownership provision of EPIRA allowed for vertical integration of generation and distribution, resulting in an even more monopolized structure of energy provision in this country.

EPIRA was supposed to bring about massive investment into electric generation capacity, yet there was only a 2,223 MW net increase in installed generating capacity, and this was mostly committed before EPIRA had taken effect.37 Given the fact that the country may need a total additional capacity of 14,400 MW in the next few years, many say this speaks badly of the private sector’s ability to meet the country’s needs under the framework of EPIRA.

After nearly 12 years, EPIRA has not brought about the efficiency in power distribution and lower electricity rates that its sponsors promised. Like most other neoliberal schemes that had sought to expand the reach of the private sector and dismantle the state sector in the belief that this would allow the market to “work its magic,” it brought about the worst of all possible worlds: skyrocketing power prices and a powerful oligopoly that didn’t care about gouging the consumer.

The failures of EPIRA have not slowed down the privatization process. In the biggest single privatization of hydropower generation in the last few years, the Magat Dam was handed over to a partnership between SN Power of Norway and the Aboitiz group, a deal that was facilitated by a $100 million loan from the World Bank’s International Finance Corporation. SN Power also acquired control of two other hydropower dams, Binga and Ambuklao.38 In another controversial development, the Supreme Court, in October 2012, approved the sale of the 218-megawatt hydroelectric power plant of the Angat Dam in Bulacan to Korea Water Resources Development Corporation (K-Water), a company owned and controlled by the Korean government.39

Ten years after the process of privatization began, the Department of Energy’s 19th Status Report on EPIRA Implementation asserted, “The government may need to involve itself once again in power generation to avoid power shortages in the future and keep hold of the current momentum being enjoyed as an investment attractive economy.“40 If this assessment of the failure of the private sector is correct, then the country faces a major problem. Needless to say, getting government involved again in energy generation is going to be a real challenge since only some 10 percent of the NPC’s former assets remain in its hands.

Globalizing the economy

As noted earlier, globalization is a process that disarticulates the national economy and re-integrates parts of it at the global level in accordance with the dynamics of global capital. Matching the disarticulation of its agriculture and industry, the Philippines assumed three key roles in the global division of labor: as an assembler of electronic chips for export; a site for the transfer of Business Processing Activities from the developed countries; and as an exporter of skilled, semi-skilled, and unskilled labor.

The emergence of the Philippines as a major electronic chip exporter had its origins in the Marcos period, when the World Bank promoted an export-oriented development strategy that relied on having the transnational corporations to situate the labor-intensive assembly activities in Philippine export processing zones where they could access cheap labor. Since 1997, electronics has consistently accounted for more than half of all commodity exports, amounting to $31 billion in 2010. In that same period, electronics and semi-conductor exports, however, remained essentially flat for over a decade, even as the Philippines became the worst hit among Asian producers by the global financial crisis that began in 2008, owing to a major downturn in demand in major developed country markets. Analysts said, however, that the stagnant state of the industry was not due simply to cyclical trends but to “structural weaknesses,” meaning low investment and innovation.41 Since the electronic and semi-conductor industry was dominated by foreign corporations, this meant that the Philippines was losing its advantage as a location for cheap-labor assembly operations.

A much-ballyhooed new trend was the location to the Philippines of call centers and other business process outsourcing operations of US-based transnational corporations. According to one report, “The Philippines’ share in global Off-shoring and Outsourcing grew to 15 percent in 2008, the third largest around the world. In the same year, the industry contributed 3.6 percent to the country’s GDP and 12.36 percent to exports, in particular, to the export of services.”42 However, those employed in the sector came to only 12,000, contributing only 0.74 of total employment in 2006. While it was widely reported that the Philippines had outstripped India as a BPO hub, other reports put it at a more modest place.43

Moreover, the BPO sector, like the export electronics industry, was dominated by low-value-added activities, notably call centers. The participation by domestic business was generally limited to developing and renting out space to TNCs, with foreign equity representing 92 percent of total equity in 2009.44

Labor export

For all intents and purposes, the most dynamic sector of the economy was labor export. While government authorities were loath to acknowledge this, and there was only perfunctory acknowledgment of its role in the economy in the medium-term development plans, the reality was that it was labor export, with the billions of dollars it was bringing in to support the consumption of families of overseas workers, that was keeping the economy afloat.

This country is now one of the great labor exporters of the world. Some 11 percent of its total population and 22 percent its working age population are now migrant workers in other countries.45 With remittances totaling some $20 billion a year, the Philippines ranks fourth as recipient of remittances, after China, India, and Mexico.46

The country’s role as labor exporter cannot be divorced from the dynamics of neoliberal capitalism. The labor export program began in the mid-`70s as a temporary program under the Marcos dictatorship, with a relatively small number of workers involved—some 50,000. The program eventually ballooned to encompass some nine million workers as a result of the devastation of the economy and jobs by the structural adjustment policies imposed by the World Bank and the International Monetary Fund beginning in 1980, trade liberalization under the World Trade Organization, and the prioritization of debt repayment by the post-Marcos governments in national economic policy since 1986.

Structural adjustment resulted in de-industrialization and the loss of so many manufacturing jobs; trade liberalization pushed so many peasants out of agriculture, a great number directly toward overseas employment; and prioritization of debt repayments, 20 to 40 percent of the annual budget, robbed government of resources for capital expenditures that could have had acted as an engine of economic growth. In the role that structural adjustment and trade liberalization played in creating pressures for labor migration, the experience of the Philippines paralleled that of Mexico, another key labor-exporting country.47

The dynamics of the labor export phenomenon, however, cannot be understood solely in terms of the impact of neoliberal structural adjustment. It is intimately related to the accelerated process of globalization, or the integration of production and markets, since the `80s.

The freer flow of commodities and capital has been one of the features of the contemporary process of globalization. Unlike in the earlier phase of globalization in the 19th century, however, the freer flow of commodities and capital has not been accompanied by a freer movement of labor globally in the current phase of globalization. After all, the centers of the global economy— both the old sites of accumulation like Europe and the United States and the dynamic new sites like the Gulf States—have imposed ever-tighter restrictions on migration from the poorer countries. Yet the demand for cheap labor in the richer parts of the world continues to grow, even as more and more people in developing countries seek to escape conditions of economic stagnation and poverty, often the result of the same dynamics of a system of global capitalism that have created prosperity in the developed world.

The number of migrants worldwide grew from 36 million in 1991 to around 191 million in 2005.48 The aggregate numbers do not, however, begin to tell the critical role that migrant labor plays in the prosperous economies. For instance, the booming economies in the Persian Gulf and Saudi peninsula are relatively lightly populated in terms of their local Arab population, but they host a substantial number of foreign migrant workers, many of whom come from South Asia and Southeast Asia. Indeed, foreign migrant workers are a disproportionate part of the populations of the Persian Gulf states—ranging from 25 percent in Saudi Arabia to 66 percent in Kuwait, to over 90 percent in the United Arab Emirates and Qatar.49

This gap between increasing demand and restricted supply has created an explosive situation, one that has been filled by a global system of trafficking in human beings that can, in many respects, be compared to the slave trade of the 16th century.

Labor export is big business, having spawned a host of parasitic institutions that now have a vested interest in maintaining and expanding it. The transnational labor export network includes labor recruiters, government agencies and officials, labor smugglers, and big corporate service providers like the US multinational service provider Aramark. What is actually happening is the expansion of a system of labor trafficking that is just as big and as profitable as sex trafficking and the drug trade. The spread of free wage labor has often been associated with the expansion of capitalism. But what is currently occurring is the expansion and institutionalization of a system of unfree labor under contemporary neoliberal capitalism, a process not unlike the expansion of slave and repressed labor in the early phase of global capitalist expansion in the 16thcentury that was pointed out in the work of sociologists like Immanuel Wallerstein.50

This expansive system that creates, maintains, and expands unfree labor is best illustrated in the case of the Middle East, now the main destination of OFWs. As Atiya Ahmad writes, “With the booming of the Gulf states’ petrodollar-driven economies from the early 1970s onwards, a vast and consolidated assemblage of government policies, social and political institutions, and public discourse developed to manage and police the region’s foreign resident population. Anchored by the kefala or sponsorship and guarantorship system, this assemblage both constructs and disciplines foreign residents into ‘temporary labor migrants.’”51 This elite-promoted construction of migrant identity supports internalization of the migrants’ role as social subordinates and at the same time emasculation of their status as political agents. They are expected to remain and so far have largely behaved as non-participants in the politics of their so-called host societies, even if these societies are swept by the winds of political change.

In 2009, some 64 per cent of the more than one million Filipino workers that went abroad went to the Middle East.52 Most of these workers were women and the biggest occupational category was household service workers or maids.53

In its effort to curb this free market in virtual slavery or to prevent workers from going into countries where their physical security would be in great danger like Afghanistan or Iraq, the Philippine government requires government-issued permits for workers to be able to leave or in other cases it has imposed deployment bans to some countries. However, labor recruiters, who are often in cahoots not only with Middle East employers but also with the US Defense Department and US private contractors, have found ways of getting around these regulations.

Clandestine networks that smuggle workers from the Southern Philippines to destinations in the Middle East have been organized. Based on interviews with these workers, this is the clandestine route of such networks: people told of being smuggled out in the Southern Philippine city of Zamboanga by small boat to the Malaysian state of Sabah. From there, they were transported in the hold of a bigger boat going to Singapore, where they were then offloaded and brought by land transport to a site near Kuala Lumpur. In Kuala Lumpur they were forced to work for their subsistence for six weeks. It was only after two months that they were finally transported by plane from Kuala Lumpur to Dubai, then to Damascus, where they found themselves in the midst of a civil war!54

With such illegal transnational human smuggling networks in operation, it is not surprising that of the 9,000 domestic workers in Syria, the Embassy estimated that 90 percent were there illegally; that they had no valid exit papers from the Philippines.55 Among other things, this has made locating them and contacting them very difficult after Manila had issued orders to the Embassy in January 2014 to evacuate all Filipino workers in Syria.

The situation is similar in Afghanistan and Iraq. For much the same reason, there is no accurate figure of how many Filipinos have been illegally recruited to be service workers in the US bases by the Pentagon and US military contractors, but 10,000 is probably a conservative number. In the case of Afghanistan, the collusion between illegal labor traffickers, the US government, and US private contractors poses a gargantuan challenge to the weak Philippine state.

The predominance of women among the workers being trafficked to the Middle East has created a situation rife with sexual abuse, and a system whereby labor trafficking and sexual trafficking are increasingly intersecting. Here is an excerpt from a report of the House Committee on Overseas Workers following the visit of some members to Saudi Arabia in January 2011:

“Rape is the ever-present specter that haunts Filipino domestic workers in Saudi Arabia. …Rape and sexual abuse is more frequent than the raw Embassy statistics reveal, probably coming to 15 to 20 per cent of cases reported for domestics in distress. If one takes these indicators as roughly representative of unreported cases of abuse of domestic workers throughout the kingdom, then one cannot but come to the conclusion that rape and sexual abuse is common.”56

One can go further and say that there is a strong element of sex trafficking in the trafficking of Filipino women in the Middle East given the expectation, especially in many Gulf households, that providing sex to the master of the household is seen as part of the domestic worker’s tasks.

In sum, the creation of the labor-export economy in countries like the Philippines stemmed greatly from the impact of structural adjustment, trade liberalization, and the prioritization of debt repayment, policies that led to de-industrialization, the erosion of local agriculture, and the gutting of state investment, disabling it as an engine of growth. Moreover, the dynamics of neoliberal capitalism have led to the creation of a global system of labor trafficking, reinforcing the insight of Immanuel Wallerstein that the development of capitalist relations of production does not, in many cases, displace but reinforce or promote the spread of unfree labor. This includes not only new centers of capital accumulation like the Middle East but also old centers like the United States.

Local capital adjusts to globalization

Pressures for agrarian reform and the liberalization of the economy pushed by global capital and local technocrats led to transformations in the bases of wealth and capital accumulation of the propertied classes in the country.

The displacement and destabilization of landed wealth already began in the Marcos period with the expiry of the Laurel-Langley Agreement in 1974, which ended the privileged access of Philippine sugar in the United States. Sugar had been the basis of the wealth of the so-called sugar barons, the dominant faction of the Philippine landed class, to which the current president’s relatives belong. Agrarian reform and trade liberalization pushed by the World Trade Organization intensified the insecurity of landed wealth in the `80s and `90s. The Philippines, as noted earlier, was transformed from a net food exporting country to a net food importing country since the mid-`90s, with agricultural exports dwindling to less than one percent of its total exports. In comparative terms, the value of Philippine agricultural exports from 1974 to 2010 grew by 16 percent, while that of Indonesia, Malaysia, and Thailand grew by 744, 184, and 2,652 percent respectively.57

The virtual destruction of key segments of Manila’s import-substituting manufacturing sector, which was built up in the `40s to the `70s, by import liberalization paralleled the negative trends in agriculture. Car assemblers like Delta Motors Yutivo Motors disappeared, as did the textile and garments industry that had been the bulwark of the Chinese-Filipino capitalist class, along with some 100,000 jobs.58 When they did not disappear owing to liberalization, they sold out to foreign capital, like the local cement industry, which passed to the hands of the multinationals Pemex, Holcim, and LaFarge.

In the `90s, analysts were already speaking about the disappearance of the Philippine bourgeoisie. In fact, in the words of Kenneth Cardenas, the Philippine was simply undergoing “creative destruction” in Schumpeterian fashion. Much wealth was rechanneled away from traditional agricultural and manufacturing enterprises to taking hold of public utilities that were being privatized like the Metro Manila water supply system and the National Power Corporation and to urban real estate.

Privatization provided the opportunity for the Lopez and Zobel groups to move into water provision in the Metro-Manila area and led to the transformation of the power industry from a government monopoly to one where 52 per cent of energy generation was controlled by San Miguel, Aboitiz Group, and Lopez Group.

Urban real estate, however, became the investment area of choice. Central to this development were three drivers of demand: remittances from OFWs, which fuelled home construction and condominium sales; office space leasing by the Business Processes Outsourcing industry; and retail space rentals in malls, driven by spending by OFWs and the new globalized middle classes. Among the 20 richest Filipinos in 2012, 13 have significant holdings in diverse forms of real estate investment. While the Zobel Group (Ayala) has remained probably the most prominent real estate developer, it is joined by the Gotianuns (Filinvest), the Villars (Vista Land and Lifescapes), and the Antonios (Century Properties), as well as the formidable Chinese-Filipino taipans that have had few investments in property until fairly recently. These included Henry Sy’s SM Development Corporation, Andrew Tan’s Megaworld Corporation, and John Gokongwei’s JG Summit.

The story of Filipino capital in the last 30 years has been their move from un-protected agriculture and manufacturing to areas of the economy that continued to be reserved for Filipinos, such as real estate, telecommunications, water, energy, and mining. Local elites did not crumble in the face of globalization; they adjusted to it by relocating the sources of accumulation even as they were broadly subordinated to the dynamics of transnational global capital.

The Philippine state: still anti-developmental?

In the search for the causes of underdevelopment in the Philippines, much analysis has focused on the nature and structure of the Philippine state. One of the most influential of these approaches has been that of Paul Hutchcroft, who called the post-World War II Philippine state a “patrimonial oligarchy,” where a powerful economic elite extracted resources from and manipulated a weak and disorganized state bureaucracy, a configuration of power that was inherited from the American colonial period.59 Superficially, the Marcos dictatorship (1972-86) might have seemed to be a strong state, but actually it was a system that “facilitated the capture of the state by new—and more centralized— regime interests.”60 What financial resources were generated by the economic system were siphoned via state mechanisms to the Marcos family, relatives, and cronies instead of being recycled into productive investment in a market-driven economy. The overthrow of Marcos in 1986 may have changed the form of the state—from a dictatorship to an elite democracy—but the relationship between the state bureaucracy and the economic elite has remained the same, that is, the state serves as a pliant instrument for wealth extraction by the upper classes, though in contrast to the Marcos period, class power is now less concentrated.

The implications of such a regime for development was spelled out by Robin Broad: “That state finds itself without relative autonomy to pursue policies that do not reflect the short-term interests of the exploiters; parts of the state are not just politicized but are ‘captured.’ Such a state is not what has been called a ‘strong state’ or a ‘developmental state’—that is, one able to formulate and implement policies independently of powerful groups.”61

What Hutchcroft failed to see but Broad did take into account was that this weak state was manipulated as well by powerful external forces, meaning the US, International Monetary Fund, and World Bank. Indeed, the local elite and international actors have often worked in tandem, though perhaps not consciously, to create a weak, “anti-developmental state.” This was particularly the case in the `80s, when the local elites successfully emasculated state-led land reform, a key element in the economic take-off of Korea and Taiwan, while the IMF and World Bank significantly altered the country’s trade structure via structural adjustment and the imposition of debt servicing as the national economic priority.

But were there trends that were loosening the elite’s grip on the state? Some analysts purported to see a transition from “elite democracy” to a “contested democracy,” where development could be pursued more autonomously by the state. To these analysts, one of the most significant steps in the latter direction was the Party-List Law, which provided for filling 20 percent of the seats in Congress with the nationwide election of representatives representing “marginalized groups.” From the time it came into effect in 1998, the party list law allowed the election of candidates that were not tied to traditional local elites, who then began to sponsor—and pass—measures that did not serve elite interests but were pro-people and pro-development. Indeed, the number of laws that were spearheaded by progressive party-list organizations was impressive. These included the Cheaper Medicines Act, Anti-Death Penalty Act, Renewable Energy Act, Magna Carta on Women, Anti-Torture Act, Comprehensive Agrarian Reform Extension Act, Right to Self-Organize Law, National Land Use Act, Overseas Absentee Voting Act, Balanced Housing Act, and the Responsible Parenthood and Reproductive Health Act.

That such pieces of progressive legislation could be passed stemmed from a more fluid political landscape, where elite power continued to be hegemonic but non-elite forces were actively, and in some cases successfully, disputing elite hegemony. Yet the failures of the reform groups in both civil society and in government have shown the limits of their ability to challenge the system. They have failed to repeal the automatic appropriations of government funds to pay off the debt. They have not been able to stop the privatization of water provision or energy generation. They have also failed to formulate a non-neoliberal developmental strategy centered on an activist state. They have not halted contractualization of the labor force. Moreover, what had served as the entry point for progressive forces into legislative arena, the party list system, has gradually been distorted by traditional elites as another way of entering the House of Representatives, in addition to the route of district representation.

In short, the achievements of non-elite political and social forces in terms of creating contested spaces in the political system could not be denied, but whether these have added up to creating a momentum for the emergence of a developmental state remained to be seen.


In the first years of the second decade of this century, the economic prospects of the Philippines appeared to be improving, with many in the business press toasting it as one of Asia’s most promising economies. But while important reforms targeting corruption and poverty were in progress, there were no visible initiatives that represented a break with the failed neoliberal legacy.

One of the most damaging of these neoliberal policies was the prioritization of debt repayment, which led to massive curtailment of state capital expenditures. The sharp reduction in state investment was not made up by the private sector, contributing greatly to the stagnation of the economy in the `80s and its low rate of growth in the last two decades.

Debt service economics, however, was not the only cause of stagnation. The globalization of the Philippine economy via neoliberal restructuring was a central factor. Globalization of the Philippine economy has had two aspects. On the one hand, it involved the disarticulation or disintegration of the national economy, leading to a crisis in agriculture, industry, and services. On the other hand, it articulated or integrated key dimensions of the economy at the global level. So even as the traditional mainstays of the national economy suffered and stagnated, new sectors emerged, though their dynamism could not hide their intrinsic fragility. These sectors were electronics, business process outsourcing, and labor export. Though remittances, by 2011, surpassed $20 billion, labor export could not substitute for an economy producing jobs for its labor force rather than forcing them to migrate for lack of opportunities.

Even as the Philippine lower classes have adapted to becoming a labor force for the world, the Philippine economic elites have transformed their sources of capital accumulation. From the traditional sectors like agriculture and manufacturing, the elite have channeled its investments into urban real estate, a sector made very profitable by demand coming from foreign investment, but especially by demand for housing fuelled by the massive remittances to the families of migrant workers. While being broadly subordinated to the dynamics of transnational capital, local capital did not capitulate but adapted to globalization largely via “creative destruction,“ to use Schumpeter’s terms, that is by shifting the sources of wealth extraction from manufacturing and agriculture to urban real estate.

A key problem in Philippine development has been the state, which has traditionally not functioned as a development agent but as a mechanism used by the economic elite to almost exclusively extract wealth from society. Over the last few decades, however, sectors of civil society have been empowered, and this has translated into some influence over the political process and political institutions such as Congress. While progressive legislation has been produced and “contested” political spaces have emerged, the upper classes remain hegemonic and the Philippine state still has to make the transition to becoming a developmental state.





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