Corruption and Neoliberalism in the Philippines
Despite this year’s onslaught of devastating earthquakes, factional rebel sieges, and most recently, record breaking typhoons, the Philippines is doing surprisingly well for itself. In fact, The Economist Intelligence Unit reports that though the wreckage caused by last weeks Supertyphoon Haiyan will likely slow GDP somewhat, economic damage will not be significant, the Eastern Visayas region accounting for only two per cent of the countrys GDP.
Economically, at least, the Philippines has had good year: the first half of 2013 saw GDP growth at 7. 3 percent, the highest growth rate in Asia; it saw seen record foreign direct investment levels; moved itself from low-income to middle-income country in the World Bank country database; and for the first time, became a creditor rather than debtor to the International Monetary Fund (IMF) (Desierto, The Economist). Nevertheless, the poverty rate remains at 27. percent with little movement in the past five years, unemployment is at seven percent, and underemployment continues to hover around twenty percent (The Economist Intelligence Unit). Despite record growth levels in the Philippines, large numbers of Filipinos still struggle to find employment and meet their basic needs. Foreign Policy and Fund for Peace have named the Philippines as one of their top 60 failed states in the 2013 Failed States Report. Ranking 59 out of 178 countries, the Philippines scored a slightly improved but critical 82. 8 (“Failed States”).
Five of its worst scores occurred in: security apparatus, including issues like riots and fatalities from rebel activity; factionalized elites, including power struggles and flawed elections; group grievance, including iolence between groups; state legitimacy, including corruption, level of government effectiveness, and illicit economies; and demographic pressures, including population growth, natural disasters, and disease (“The Indicators”). The aftermath of recent disasters and rebel conflict are likely to raise these rates for the coming report, bringing the Philippines closer to the brink of failure.
Why, in the midst of unprecedented economic growth, is the country faring so poorly in terms of development indicators like poverty and political stability? Mainstream development discourse assures that rapid economic growth leads to evelopment and poverty reduction, but this has yet to be the case for Filipinos. In a previous paper I discuss the issue of the accuracy, reliability, and focus of poverty measurements and the development discourse itself, but there are larger factors at play as well.
In this paper, I discuss how the history of corruption and neoliberalism, two contested but highly influential issues, have negatively impacted development as a whole in the Philippines and perpetuated the poverty of its population. According to a recent poll by the online periodical The Philippine Star, an verwhelming majority of the Filipino online public viewed corruption as the single largest cause of poverty in the Philippines. Revisiting Transparency International’s statistics in the Corruption Perceptions Index, Filipinos scored their country a 34 on a scale of 0-100, with O being highly corrupt and 100 being very clean (2012).
Personal experience recalls an overt general mistrust in government officials having the people’s interests at heart, and a series of news reports detailing impeachments and scandals related to graft and corruption within both government and ongovernmental organizations from 2010 to 2012. Despite being an independent democracy since the late 1940s (the Marcos regime’s dictatorial break notwithstanding), the Philippines has suffered corrupt government officials in almost every presidency, most notably those of Marcos, Estrada and Arroyo (The Economist Intelligence Unit).
According to Dr. Diane Desierto in an op-ed calling out to current President Benigno Aquino, corruption has strained the Philippine economy for decades, and the unrecoverable public funds lost to corruption at the cost of national investment is a national outrage. Most recently in the news is the Pork Barrel Scandal, where President Aquino and the ombudsmen have charged 3 senators, 2 former lawmakers, and a businesswoman for misusing over $200 million in state funds (Hookway).
Pork Barrel is a state allocation of funds set aside for senators to use on development projects of their choice, of which the president says the accused used for fabricated project proposals to take personal kickbacks. Public protests against the scandal have been massive, and the people are calling for not only the eradication of the Pork Barrel fund itself, but of the president’s own spending fund as well. President Aquino faces the dilemma of upholding his strict anticorruption agenda, appealing to the public, and maintaining support of powerful lawmakers and congressmen (Hookway).
James Hookway argues that Aquinds decision on the scandal will heavily determine foreign investor confidence in the Philippines, influencing the path of the countrys development. Indeed most development professionals agree that corruption and bad governance are inversely related to the development of a country. The worst indicators in the Philippine Failed States Report outwardly suggest governance issues re a threat to the state and a major cause of internal violence and conflict.
Good governance has been the recent focus of many World Bank projects, the group stating that, “a capable and accountable state creates opportunities for poor people, provides better services, and improves development outcomes” (qtd. in Bello, “Is Corruption the Cause? “). Jeffrey Sachs names governance failures as a top factor in a countrys economic stagnation and decline; and William Easterly argues that bad governments, not a poverty trap, are sole culprits in the economic decline of a country (Sachs 57; Easterly 43).
Easterlys stance on corruption is tough: continuing to provide aid to countries with corrupt governments is inefficient, as most countries with bad governments fare significantly worse even with aid than do countries with good governments (42). In the Philippines, all signs in mainstream discourse point to corruption as the major reason for continuing poverty despite high economic growth. Yet there is a small but growing number of people arguing otherwise. According to activists like Walden Bello, while corruption is detrimental to the trust and moral bonds of a democracy, it is not the principal cause of poverty.
Between 1990 and 000, he argues, the Philippines and China reported the same levels of corruption; yet China grew by 10. 3 percent, while the Philippines grew by only 3. 3 percent (“Is Corruption the Cause? “). It is not corruption, he says, but the negative effects of neoliberal adjustment policies that have maintained poverty levels at the rate they are today (Bello). As Peet and Hartwick explain, neoliberalism was the economic response to Keynesian economics and the failures of Import Substitution Industrialization (IS’) that took hold of development discourse in the 1970s with the rise of the Reagan and Thatcher administrations.
Influenced by Hayek’s theories, neoliberalism favored free markets and minimal government involvement outside of controlling interest rates and money supply (Peet 78-83). In response to the economic crises brought on by ISI in the 70s and 80s, developed nations and international organizations (10s) came up with the Washington Consensus, a list of policy reforms and conditions for debtor countries to the IMF to follow in order to receive loans.
Reforms included fiscal discipline, decreased public expenditures, tax reform, low interest rates, trade liberalization and deregulation, privatization of public goods, and an increase in oreign direct investment (FDI) (Peet 84). According to Walden Bello, neoliberalism has become a hegemony of economic paradigm, especially in the Philippines. After the forced exile of Ferdinand Marcos and Corazon Aquinds rise to power, Bello says the country was more than primed for neoliberal structural adjustment policies when it turned to the World Bank during an economic crisis in the 80s (“Neoliberalism”).
A number of factors led the Philippines to strongly adhere to neoliberal policies. One, technocrats close to former President Aquino were highly influenced by Reagan, Thatcher, and the free-market economic paradigm. Two, the University of the Philippines School of Economics published its anti-Marcos White Paper on the Philippine Economy, capturing the popular mood of the time that Marcos was proof that the state had become subject to ‘crony capitalism’ and was an inefficient source of development progress. Three, international events like the collapse of European socialism, the successful revitalization of U.
S. and British economies, and the rise of newly industrialized Asian countries (though Bello argues these countries’ successes bore more from protectionism than neoliberalism) inspired the Philippine elites and middle class, who had the most influence over olicy discourse (“Neoliberalism”). With ISI and Keynesian economics shrouded by bad memories of the Marcos regime, and the Communist partys preoccupation with the anti-fascist struggle, Bello states there were no credible alternatives for the country but neoliberalism.
In the 90s the Ramos administration kicked structural adjustment into high gear, being one of the few administrations in the region to fully adhere to IMF conditions. Focal to Philippine adjustment was massive tariff liberalization and deregulation to increase FDI and speculative investment, as well as a furious signing of multilateral ariff agreements with the WTO, ASEAN, the IMF, and the United Nations (Bello). The economy grew 4 percent during Ramos’ presidency, until the Asian Crisis hit the Philippines in 1997.
Suddenly, $4 6 billion in speculative investments tlew out ot the country, triggering a downward slide into economic recession and stagnation. With the WTO Agreement in Agriculture, the Philippines went from a food net exporter to a net importer (particularly in rice, a main staple of the local agriculture sector), sparking a crisis of food insecurity and a loss of Job security in the agricultural industry. The Philippines also saw its local textile and manufacturing industries fail: “by the early years of this decade, the countrys textile industry had shrunk from 200 to less than 10 firms” (Bello, “Neoliberalism”).
Loss of local industry was supposed to be bolstered by consumer welfare and increased spending as foreign investment brought diverse and stable employment; but this has not been the case for the Philippines; rather unemployment and underemployment rates have remained at a consistent high. Despite this and recent protests against globalization in the country, neoliberalism emains the central focus of economic policy in the Philippines (Bello).
Ligaya Lindio McGovern also feels neoliberal policies and unequal globalization have been detrimental to the welfare of the Philippines, not only from a macroeconomic standpoint, but from a micropolitical level as well. According to McGovern, neoliberal policies implemented in the Philippines have only proven to benefit foreign actors and investors, perpetuating poverty in the country and detrimentally affecting the welfare of women and youth in particular (2).
Food insecurity due to restricted agricultural access in world markets and an increased ependency on imports (coupled with fixed high prices to maximize profits) hurts women as they are mainly responsible for the nutritional welfare of the family. Privatization of water and social services puts foreign control over formerly local businesses, limiting the poor’s access to health care and clean water.
Foreign influence over industry has led to the contractualization of labor, meaning short- term, low pay work that puts workers in a weak bargaining position. This has led to a massive loss of Jobs, setting preconditions for migration as Filipinos (mostly female domestic workers) go abroad to find work. This has subsequently led to an increased vulnerability in Filipino women for exploitation, downward mobility, and loneliness, and has been a root cause of the rise of human trafficking that has plagued the Philippines in recent years (McGovern 5-14).
Ligaya argues that it is neoliberalism and the one-sided distribution of globalization-not corruption-that has led to a rise in militant groups such as GABRIELA, Migrante International, and the New People’s Army, all of whom fght against foreign and American imperialism through economic policy (McGovern 21). In recent years, the ideas of Bello and McGovern have taken hold, particularly hrough development economists like Easterly.
While lamenting bad governments as a source of gross inefficiency in foreign aid appropriation, Easterly also speaks strongly against the macroeconomic, universally applicable solutions to poverty offered up by neoliberal policies. He argues such policies are too big and too utopian; with too much distance between principals at the top and implementers at the bottom to provide proper feedback and accountability, too much collective responsibility to create incentive, and too many large, nonspecific tasks bogging down change agents on the field to be effective (14-18).
What, then, in light of both arguments as either corruption or neoliberalism as the major source ot poverty and inequali i the Philippines to do to resolve its gap between economic and social development? For Bello, the administration must rid itself of the neoliberal hegemonic stronghold and adopt alternative economic policies that focus on local empowerment of the people and permanent national employment. “Getting over neoliberalism,” he says, involves “… getting beyond the worship of numbers that often acts as a shroud to the real, beyond the scientism that masks itself as a science” (Bello, “Neoliberalism”).
McGovern advocates a similar, though more drastic route: a new Philippine state altogether that creates national alternatives to the neoliberal agenda (21). Like Stiglitz argues in his book, McGovern feels that true globalization has never been experienced, as powerful, industrialized countries controlling the flow of goods maintain protectionist policies in their own states while pushing for liberalization that benefits them in poorer countries (3; Stiglitz 62-101).
In order for globalization to function, protectionist policies must also be advocated in industrializing countries, if not to the extent that ISI brought them in other regions. Proponents of free trade and economic development, on the other hand, argue that the Philippines must maintain its rapid GDP growth, continue to improve speculative investment climate, implement a broader tax base, and increase foreign ownership of its economic sectors (Elkan). In other words, institutions like the IMF continue to push neoliberal policy as an effective means for development.
Increasing speculative investment and foreign direct investment means combatting corruption and bad governance for most proponents of the dominant discourse; the corruption scandals that have haunted the Philippines for decades have been a indrance to a thriving economy and led to increased political violence, and must be dealt with in order to see a reduction of poverty in the country. Ultimately, though, it is difficult to see how focusing on either one factor will lead to any real improvement in social welfare without also addressing the other; the two are both too entrenched in Philippine government.
These are not dichotomous factors, rather they are deeply intertwined and coexistent in influencing poverty and social instability. Personal experience lends insight into instances where both corruption and neoliberal effects on society were clear. With a stipend affording me middle-class status in my neighborhood, I still could not afford to buy rice from the local farmers, and could barely afford the only slightly cheaper imported rice. During election time, the Congresswoman led a mass campaign to expand the main highway, only to abandon the project post-elections, leaving the road broken and difficult to traverse.
Viewing development as a multifaceted and interconnected process comprising both macro and micropolitical elements, resolutions to development issues must also be viewed as such (Sen). Poverty reduction and development in the Philippines must nvolve both the eradication of rampant corruption and alternative options for neoliberal policies, which have largely failed the country outside of real GDP. Additionally, the government must focus its efforts on the needs of its people, rather than its own personal agenda, according to Desierto.
In light of the recent typhoon and previous natural disasters, she says, “not a single administration has ever committed to making an integrated natural disaster prevention, remediation, and reconstruction system our countrys highest national security priority’ (“Corruption, Climate, and Congress”). Every administration nas promised he eradication ot corruption, though. Thus, it seems that the administration has allowed foreign institutions and its own political agenda to distract itself from the true needs of its people, which lie at the core of development.
The key to poverty reduction then, in the context of the Philippines, is the increased and direct participation of Filipinos in decision-making for future economic and social policies.