Gloria Macapagal-Arroyo

President of the Republic of the Philippines 2001 - 2010

The Case for a "Strong Republic"

The election season found many a Filipino thinking not only who should be the next president, but pondering why the country – a nation of rich natural resources and talented people – can't seem to get its act together, why it's fallen back.

To understand why the country is where it is today, we have to look back more, even beyond our lands. After all, our country's problems were created not just in the past decades, nor had it been isolated from the rest of the world.

For starters, when our nation was born in the 19th century, it was already among the poor nations of the world, compared to European civilization which at that time made up the richest section of humanity.

But the world was bifurcated into the rich and poor sections only in the last 300 of the 8,000 years after the first human civilization emerged. The economic conditions of peoples all over the world since the fall of the Roman Empire were roughly the same, and it was only in the early 18th century when the economies of Western Europe, and its main offshoot, the United States, pulled away from those of the rest of the world

Chart 1 plots this phenomenon, to include the Philippines and several Asian nations' economic status measured by gross domestic product per capita, from 1820 to1940.

Chart 1: The Great Divergence

But how could different groups of the same Homo sapiens species, having the same brain power, have so different levels of well-being? Why did European-civilization economies surge ahead while most of the economies of Asia, Africa, and Latin America stagnated?

"The Great Divergence"

Historians have called this astonishing phenomenon "The Great Divergence" of the 18th century, which created the present structure in which the world is starkly divided, with a few exceptions, into the rich European-civilization nations on the one hand, and, on the other, the rest of the world, where we are.

Explanations for this Great Divergence range from the cultural (the earthly, individualistic "Protestant Ethic" against the other-worldly, communal Catholic ethos); the geographic (e.g., the vast coal deposits near England's major industrial centres provided cheap energy to the first factories); the catastrophic (Europe's wars and plagues reduced populations so much that feudalism collapsed and technologies to increase productivity just had to be invented); the sociological (capitalism which emerged only in Europe invented its growth engine); and the technological (European technology, invented accidentally in most cases, just happened to be superior).

Whatever the most accurate explanation or set of explanations turn out to be, the factors that created European growth operated only within that continent (or transplanted to North America). The Philippines was not only far from Europe on the other side of the planet; it was annexed as a colony first by Spain and then by the US, and its economy yoked to serve these countries.

Colonial history

One powerful explanation for the Great Divergence is colonialism: that much of the growth of Europe was through the forcible extraction of labor (slavery mainly) as well as mineral and agricultural resources from the areas it colonized. Europe's earliest factories were also given a boost by the markets – e.g., English manufactured textiles beating wiping out Indian hand-woven fabrics — artificially created in the colonies.

Colonial economy created structures of underdevelopment that blocked the adoption of capitalism and of modern technology in what would be the poor countries. Archetypical of this is the Philippines' coconut plantations, created mainly by the Dutch-British Unilever and the US Procter and Gamble at the turn of the 18th century to extract coconut oil, the raw material for soap and margarine. The resulting lower costs for these two products helped lower wages in Europe even as these created two of the most powerful multinationals in the world.

For the Philippines though, it created a type of economy that discouraged capital investments and resulted only in long-term productivity declines. The poorest areas in the country today — where both Moro and communist insurgencies have festered — are those in which lands are mostly planted to coconuts.

Even after the Age of Colonialism had ended, its impact has been such that the former USSR and Maoist China transformed it into a propaganda tool to make developing countries hate the US and other Western powers during the Cold War, and as a counter-foil to deep anti-communist thinking. Our local time-warped communists still rank "US imperialism" as the No. 1 reason for the country's poverty, two decades after the term had completely vanished in Soviet and Maoist Chinese propaganda.

Overtaken by our neighbors

But the Great Divergence is only one part of the story of why we are where we are. There are more recent factors.

As late as 1820, the Philippines, even if it was poor compared to its colonizer Spain, was the most well-off in Asia, its $776 GDP per capita a bit bigger than Japan's $737, and way above South Korea's $604. Those of other Asian countries were all below $650.

However, Japan in the early 20th century, and then South Korea and Taiwan in the 1970s and 1980s, would grow so fast to completely overtake our country, and break out of the structures created by the Great Divergence to become as rich as the Western nations.

Japan during its Meiji Restoration period at the turn of the century swiftly undertook a national movement to adopt Western technology. Waves of Japanese academics, scientists and engineers were sent to the US and Europe to learn Western technology. Japan quickly modernized to the level of European-civilization nations. Even devastated in World War II, it swiftly recovered to become one of the richest nations. It was a feat Taiwan and Korea would replicate.

It is the good news of the 20th century: While Western-civilization countries developed modern social and material technologies, these tools are universal and are not racially- or culturally- bound. Any nation can adopt and use them in a matter of a few generations. Read Sony and Toyota for Japan; Samsung or LG and Kia for Korea; Acer for Taiwan.

For our country though, that was the time when we lost out to our neighbours. Korea and Taiwan overtook us in the 1960s, that by 2000 the average $15,500 GDP per capita of these countries – which before the war was smaller than ours – was six times that of our $2,385.

Worse news: Thailand's GDP per capita outpaced ours in 1976; Indonesia's in 1986, when we were busy in the People Power Revolution . We're now ahead only of the war-torn countries of Vietnam, Laos, and Cambodia.

What happened?

"Perfect storms"

Plot the Philippines' growth rates since 1965 together with the average for Malaysia, Thailand, and Indonesia, and the reason why the Philippines stagnated clearly emerges.

Chart 2: Perfect Storms

The shaded area in chart 2, between the two lines represents the difference in the economic growth rates of the Philippines and the average of the rates of these three Southeast Asian countries.

These areas represent growth the country would have at the very least achieved, but which it didn't for quite unique reasons. The shaded areas symbolize, as it were, the perfect political-economic storms that hit the Philippines mainly in the last two decades of the 20th century, and explain why we lost out to our Asian neighbours.

The economic factor for the first storm of the 1970s was a global event, the oil shock of the 1970s. But it was political turmoil that made things a lot worse. An anti-Marcos student movement emerged, resulting in the unprecedented, violent street confrontations in 1970.

In August 21, 1971, the nearly perfect crime of the Plaza Miranda bombing had the effect its Communist Party perpetrators wanted: the worsening of the split within "the ruling class", each warring faction represented by the Lopez and the Marcos clans.

The attack created an image that factions of the Philippine elite were now at each other's throats, not only in rhetoric but physically, radically changing the decades-old genteel, non-violent rules of competition within the national elite.

With the support of the US since the military bases agreement would expire in 1974, and in order to remain in power since the 1935 constitution barred him from a third term, Ferdinand Marcos imposed his dictatorship September 1972.

Martial law

The economy actually did well under martial law until 1976. It would eventually turn out to be the worst thing that ever happened to the country – because of developments that led to its end, and developments after its end.

Philippine history and its economic condition today would have been totally different if Marcos had turned over power to an elected successor right after the 1976. But then his fear of violent retribution for the Plaza Miranda bombing, universally blamed on him, probably convinced Marcos to hold on to the reins of power.

Benigno Aquino escaped death from the Plaza Miranda attack on August 21, 1971. In 1983, he changed plans while in Taiwan and returned to Manila on another August 21, to be killed most probably even before his feet touched Philippine soil.

The economy actually was already in trouble because of the global financial crisis, triggered by the unprecedented foreign-debt default by the biggest Latin American countries in late 1982. Aquino's assassination unleashed widespread outrage that made up the political ingredient in this second of the country's political-economic storms.

Widespread public opinion that Marcos massively cheated in the snap, presidential elections in 1985 created an explosive political situation that led to the economy's worst recession ever, contracting 7% annually in 1984 and 1985. That paved the way for the unfolding of events towards the 1986 EDSA Revolution.

Democratic restoration

The restoration of democracy turned out though to be a brief, clear and cheerful day before the country's third perfect political and economic storm broke out, the result of the most unfortunate confluence of several factors and events.

First, the electricity crisis erupted in 1987, due to the junking of the 620-megawatt nuclear plant project and the suspension of other power projects. This further debilitated the economy and discouraged investments. Second, military mutineers launched seven coup attempts against Corazon Aquino's government while the New People's Army went on a rampage of assassinating high-profile personalities. These created the image of a country in anarchy.

Dormant for 450 years, Mt. Pinatubo erupted in June 1991 – the second biggest volcanic eruption in the world in the 20th century. Who would invest in a country with a big mushroom cloud looming near its capital, which forced even the mighty US military to abandon its biggest airbase in Asia?

And then, of all times, Mitsui executive Naboyuki Wakaoji was kidnapped by the NPA in November 1986. With Japanese TV showing him crying with his finger cut off, the Philippines became a place few Japanese would dare go. But that was when Japanese capital embarked on its great migration abroad – which was one of the most important factors that spurred the economic surge of Malaysia, Thailand, and Indonesia. By the 1990s, most Toshiba and Sony laptops would have the tag 'Made in Malaysia', or in Thailand.

There are many theories why our country remains poor; google the topic and there are more than a thousand entries — a popular topic in Filipino internet chattering. Corruption, our weak sense of nationhood, 'bad' cultural traits (e.g, 'crab mentality', the bahala na attitude, katamaran) are favourite explanations. Population is a factor that stares us in the face, and in the streets, but fear of the Catholic Church has muted debate on it. With their dogma of the zero-sum game of class-struggle, Filipino communists have succeeded in turning much of the national discourse into an exploited-versus-the-exploiter, people-versus-the-government mentality – an ethos of internecine hate.

But we are products of historical events. We are a young nation, born only in the 19th century – and in the first place, born poor. And just when several other poor nations worked their way to get richer in the 70s and 80s, we were derailed partly by communist and separatist insurgencies, but more importantly, by unique confluences of events leading to and after 1986.

The Philippines' People Power Revolution was a boon for humanity: it inspired democratization movements against all forms of dictatorships all over the globe. However, we paid dearly for it.

Turning the corner

An unlucky country ours has been, but it is turning the corner. Look at Chart 2 again: the dark clouds were vanishing in the 1990s. We are well on the way toward the clear skies of political stability and therefore economic growth.

There have even been two years, in 1997 and then in 2007, when the Philippine growth rate outpaced our neighbors'. The country's 7.2-percent growth rate in 2007 was its highest in the last three decades, faster than the 5.5 percent of Malaysia, Thailand and Indonesia.

Look at the big picture, look at the cold facts, and our country is far, far from being, as one columnist wrote, "sickly dying." It is progressing not as much as we like to, and need to, but at least, there is progress, as political stability and our other democratic institutions are strengthened.

As shown in the table above, except for the downward blip during the administration of former president Joseph Estrada, the average economic growth rates since the Marcos era have been increasing; inflation and interest rates decreasing; and the peso's international value stabilizing.

The case for a Strong Republic

The past teaches us two lessons:

First, as Japan, South Korea and Taiwan had dramatically demonstrated, not only European civilization's material technology but its social technology – i.e. its institutions – can be adopted rapidly to create economic prosperity.

Second, the basic requirement for economic growth is political stability. And representative democracy with its mechanisms is still the best system for such stability –yes, that's how important the elections in 2010 are.

People power in 1986 was an awe-inspiring event that should strengthen our cohesion as a nation. But ochlocracy – the rule of a shouting, frenzied mob, which the ancient Greeks, who invented democracy, already criticized 2,500 years ago – is a depraved, mistaken interpretation of the Edsa revolution.