For the purposes of this essay, the time frame 1946-1986 would be further divided into 3 segments. First would be the time from 1946 to 1949 where the effects of the Belle Trade Act were felt. Second would be from 1949-1961 when the Philippines tried Import Substitution Industrialization (ISI) and also known as the period of control and Third would be from 1962-1986 or the period of decontrol. In order to explain and understand the period from 1946 to 1949 dependency theory would be used to analyze the outcome of the Belle Trade Act.
In understanding the period from 1949-1961, this paper would be using Dependency theory as well and apply the key premises of the said theory. On the other hand, Neo-Liberalism theory would be applied from the period of 1962-1986 in order to further explain the Philippine State of Development. Moreover, for the purpose of this essay, the essay would be dealing much and focus on the Economic dimensions of the Philippine State of Development and a minimal discussions on the Political and Social dimensions.
To begin with let us first know what are the key premises of dependency thinking that are applicable in understanding the period of development from 1946-1949, and the period from 1949-1961. First among the core premises is the belief that the most important obstacles in development are not internal but rather external, belonging to an International Division of Labor (IDoL) structure. Secondly, is that there are two kinds of states, one being the core state and the other being the periphery, and that the transfer of surplus is happening from the core to the periphery.
Third, is that due to the transfer of surplus happening from the core to the periphery, development for the former implied under-development of the latter. Fourth, is that since under-development is associated with the periphery’s attachment with the core, dependency thinking proposes that a delinking from the core is needed in order to develop and to stop the chain of surplus extraction, dependency thinkers also believe that delinking must be done and National Self-Reliance should be strived for.
Applying these premises, the period from 1946 to 1949 has been characterized by the implementation of the Belle Trade Act that gave the Americans equal rights with us Filipinos in exploiting our natural resources and in the ownership and operation of public utilities, the act also gave an eight year unlimited free trade with the Americans. The results were astonishing, the free trade impeded Philippine Industrialization, Philippines entered into a near bankruptcy because people were discouraged in establishing local industries as it could not be able to compete with foreign traders and so people relied heavily on imports and these imports allowed a large outflow of private remittances.
In this case, these were the premises of dependency thinking that applies; First, that we served as the periphery state for the United States in this period and that the transfer of surplus from the United States (which was the core country) to our very own country was really happening. Second applicable premise of the theory in this period was that the United States was developing during these times and as implied by the theory the Philippines as the periphery was under-developed.
Third applicable premise of the theory during these times was the delinking. This would be the solution that the Philippines would take after its near bankruptcy the strived for National-Self Reliance through Import-Substitution Industrialization. Following the period from 1946-1949, the period of 1949-1961 has been characterized as the period of control, in which the Philippines realized the exploitative effects of unlimited free trade without setting any safeguards or protective measures.
In this period, the United States agreed with the establishment of an import and foreign exchange control in the country. The primary role of this is to limit imported goods in the Philippines and to limit the dollars sent abroad as well, in doing so, Philippine peso would preserve its value. The establishment of such import and foreign exchange control is really against from what the United States really wanted because US exports would no longer enter the country freely and US businesses could no longer repatriate their profits in their homeland as freely as before.
But the United States has no choice but to agree because the Communist’s insurgence during these times were alarming, and if the Philippines come to a point where it could no longer support its supposedly government spending, it might turned to a communist state and if it does, American businesses in the Philippines would be gone. As a result, local industries were once again sprouting with the creation of factories all over the county since imports were limited and in some cases were prohibited, these factories served as substitutes.
The industries were not fully Filipino-owned, many of them were either US owned or a joint venture with US firms. The outcomes of limiting exports and having a foreign exchange control had become successful, Filipino and American businesses in the Philippines enjoyed the protection by the government against potential foreign competitors. All of these outcomes were the product of former president Carlos P.
Garcia’s “Filipino First Policy” of 1958 which gives Filipino the preferential treatment in the Philippine Economy. The country was really on a flight during these times its ultimate goal back then was towards heavy industrialization. As the matter of fact a steel mill was already integrated in order for us to rely less on steel imports, as steel was the key element in producing various machineries.
Although Filipinos were given preferential treatment during these times, it was the national business class which benefited from the Filipino First Policy and the Haciendas remained as it was not been distributed to the tenants, and more had become tenants during this time more than before and they were given significantly low wages. In this regard, the application of the dependency theory core premises tell us that partial delinking of the periphery country from the core country would improve the periphery’s economy especially when it strives for National Self Reliance.
The theory also tells us that by limiting the transfer of surplus from the core to the periphery which we did by the creation of Import and Foreign Exchange control would give birth to the domestic industries of the country as these industries were somehow protected from potential foreign competitors. The assumption of the dependency theory as predicted by the theory itself was successful and really applies in explaining the Philippine State of Development from 1949-1961. The period of control from 1949 to 1961 was followed by the period of decontrol starting from 1962 to 1986.
To further divide the said period let us look into the different regime that contributed to the decontrol of the Philippine economy and of course in this regard we would be using a different lens which is Neo-Liberalism which has several core premises, First is the premise that by having free market this would eventually promote healthy competition among countries, Second is that state owned enterprises must be privatized in order to prevent state monopoly. Third, is that by free trade must be promoted and exports must be expanded. Fourth is that third world countries must welcome investors from developed countries.
And fifth is that any form of regulation coming from the government must be eliminated. Although, neo-liberalism came to be known in the 1980’s, as early as 1962 in the Philippines, the cornerstone and the building blocks of Neo-liberalism Theory was little by little being sketch and drawn upon by International Institutions such as the International Monetary Fund (IMF) and the World Bank to third world countries like the Philippines through the decontrol of the Government with the influence and directive of the United States of America.
Right after the period of control, the US Government and United States’ big businesses together with the Philippine export block and some Chinese Businessmen come 1962 were now requesting for the lifting of the Import and Foreign Exchange control since the threat of communists’ insurgence were not of a big deal anymore. It was also from this time that the International Monetary Fund started pressuring the Philippines that if we would not dismantle the control measures of our government then we would not receive any loans from them. Not being pressured by the efforts made by the IMF.
CIA eventually intervened by toppling the government which advocated for Filipino First Policy and replacing with a pro-foreign, pro-free trade president by means of election funding and support to a much later president Diosdado Macapagal. Upon the assumption of the presidency, Macapagal immediately lifted the Government control over foreign exchange and imports. Not surprisingly, American eventually gave the country hundreds of millions of dollars in loans as an incentive unlike during Garcia’s administration which was being deprived of such loans.
Decontrol brought trouble to Filipino firms, the Filipino firms’ difficulties started from the policies brought about by decontrol; liberalization of imports, devaluation of the peso, tightening of credit and the availment of domestic credit by gigantic foreign firms. Since crediting at these times were tightened, Filipino firms which at that time needed more money to finance and operate at a higher cost were not at most of the time being provided with the financing. Imagine, during these times all protective measures before were gone and domestic industries now have to compete with foreign multinational firms.
The only saving grace that these domestic industries have was the high tariff that president Macapagal still had the sense to impose on imported goods. What happened then was many companies could not cope with the competition against giant Multinational companies and so Multinational companies took over the operation of several domestic companies. Upon the assumption of office by President Ferdinand Marcos in 1966 he promise that he would not devalue the peso again and he criticized the unlimited profit remittance of foreign firms made possible by the lifting of exchange controls.
After all, how come that President Marcos did the exact opposite of what he was promising to the people, because the United States pressured President Marcos through the International Monetary Fund and World Bank by not allowing loans for the Philippines if it insists in activating protective measures once again. Considering that during these times loans were much more needed to finance huge annual deficits of the country, depriving the Philippines such loans would badly hurt our economy.
The bad side of it was that our foreign debt escalated from 600 million dollars as of 1965 to 1. 9 billion dollars by the end of 1969 that is in a span of four years. Basically, the following years would show what were the different reforms that the International Monetary Fund and the World Bank asked the Philippines, for instance even though the devaluation of peso continued president Marcos’ administration passed laws that gave tax incentives and privileges to local investors and foreign investors as well.
These laws were the Investment Incentive Act of 1967 and the Export Incentives Act of 1970. The foreign elites of these times were the one benefiting the most with these laws being enacted. The period of decontrol also allowed those products which were non-essentials and could not easily enter the country before and now these products have dominated our own market. The effect of big businesses had caused all sorts of trouble for the Philippines they didn’t just exploited us but also used our very own money by borrowing huge amounts of local funds for their exploitation.
To understand what happens when a currency devaluates, people would have to pay more money for the same volume of goods, it is costlier to import products and locally produced products which imports materials coming abroad would now have to pay more and more in peso terms as the peso devaluates. Another problem that arose from decontrol was the domination of luxurious and unnecessary items in our market, now people tend to buy things that they were not even buying before and needed at all.
In 1972, the declaration of the Martial Law was initially made to have a “New Society” or the Bagong Lipunan which emphasized not only on the economic development but also with the political and sociological development of the country through the alteration of the political culture in the country and the remaking of the society itself. Although, the idea was good, it actually preserved the status quo and defended the local and foreign elites of the country.
The International and World Bank once again requested to President Marcos to give incentives to foreign investors in the country by means of lessening their taxes. In the following years, President Marcos issued a series of presidential decrees and acts allowing foreign investors to exploit in the following aspects which are agriculture, geological/geothermal/mineral resources, oil, monetary and credit system, off-shore banking, housing and fishing industry.
Moreover, the World Bank requested the Philippines to have Export Processing Zones which of course would benefit foreign investors once again because they pay low rates of rent to these export processing zone that could not even suffice the need for its maintenance and secondly export processing zone is an avenue for foreign investors to give low rates of wages than with that of Manila.
Remember the last saving grace that the Macapagal administration made which is the high tariff imposed on imports, International Monetary Fund and the World Bank requested the Philippines to reduce its tariffs for imported goods, in so doing, imported goods would be as cheap as local or goods of even cheaper for that matter. At first President Marcos hesitated in the implementation of tariff reduction because local, especially those small companies without the protection from high tariffs would not be able to compete with imported goods.
Secondly, most of the owners of these local companies are Filipino businessmen which support and back his administration. But later on, President Marcos would agree because he has no choice, if he does not agree with the International Monetary Fund and the World Bank’s request his administration would not have any future loans from the IMF and World Bank and from private commercial banks which were under the cue of the World Bank.
From then on, we have shifted from an Import-Substitution Industrialization to an Export-Oriented Industrialization which was designed not to supply for the domestic needs but rather to the needs of foreign markets. It is amazing to know, that during the time when the United States pushed the Philippines for an export oriented economy it was also the same time that Industrial Countries are starting to build protectionist measures.
Moreover, developed countries are really good in finding a way of exploiting the under-developed whether they are export oriented industrialization or import-substitution industrialization. Now that we are export oriented developed countries’ industries off-shored and exploited our cheaper labor and included us in the international division of labor. The following years until the end of the Marcos regime would indicate more and more decontrol measures made by our government with the pressure coming from the IMF and WB.
Unibanking was introduced and common people were taxed more than the foreign investors which were given incentives rather than taxes with the sole reason of compensating with the government losses. In this regard, the core premises of the neo-liberalism in achieving economic growth did not proved that with lesser intervention coming from the government it would promote healthy and equal competition because as the matter of fact perfect competition did not just simply exist because like what happened in the Philippines, foreign Multinational Companies killed local and small corporations.
The Neo-liberalism theory was tried in the Philippines but did not work successfully from what the theory predicted. The critique of the theory much likely applied, that the perfect competition was to idealistic and that elites were more lifted and poor people are pulled down, people lack the information also which made then buy these unnecessary luxurious products and lastly that Multinational Corporations are so big that it could manipulate and control prices as what it did in killing our local industries.
