Family ties
The first article[i] (see October 14 post) in this series on Philippine Development concluded with the statement “…the “rules of the game” …and how these are enforced remain unpredictable. And unpredictability is anathema to strategic development planning and sustained economic growth.”
In that article, we asked “What explains the unpredictability?” The next two (2) books in the course’s reading list provide some useful insights.
McCoy (1994) hints that the root of the problem with the unpredictable rules and its enforcement lies in the character of Filipino kinship. Quoting Jurg Helbling, McCoy explained that bilateral kinship[ii] “produces overlapping egocentric networks,” fostering societies “characterized by vagueness and ambiguity, if not by disorder.”
Hutchcroft (1998), on the other hand, posits that the “patrimonial features” of Philippine society “hinder the development of more advanced forms of capitalist accumulation” and “presents particularly obstinate structural barriers to the creation of a more rational-legal state.”
Why is this importance given to kinship and family[iii] in Philippine society considered a problem?
McCoy argues that it leads to a situation that restricts “freedom of entry” into the market. Market access is restricted through regulation and awarding access to a favoured few. Extreme restriction creates a monopoly and the consequences for the economy, as a whole, based on McCoys analysis, is decidedly negative. The political competition for such monopolies is called “rent-seeking.”
Hutchcroft finds patrimonial polities as highly arbitrary, where the “degree of calculability” is very weak, presenting major obstacles to the development of more advanced forms of capitalist accumulation. Hutchcroft derives his insights from Weber who highlighted the dependence of modern capitalism on an administrative and legal structure able to promote “political and procedural predictability.”
Patrimonial oligarchic state
Hutchcroft describes the Philippine state as a “patrimonial oligarchic state.” This means that it is the powerful business class that extracts privilege from a largely incoherent bureaucracy. Which is different from a “patrimonial administrative state[iv]” that can be found in Indonesia and Thailand, where it is the bureaucratic elite that extracts privilege from a weak business class. Hutchcroft calls the economic system where a patrimonial oligarchic state arises as booty capitalism. In this system, a group with an economic base outside the state is plundering the state for particularistic resources.
Hutchcroft characterises the Philippine economy as a rent-seeking economy, where “ownership of property alone guarantees the access to wealth” in contrast with a profit-seeking economic structure where “assets and income are won and lost on the basis of the ability of the business owner to develop the property.”
In other words and using the metaphor of a basketball game, a player in a patrimonial oligarchic state can win the game simply by being a relative of or friends with the referee and those who determine the rules of the game.
This implies, however, that “games can still be won” so to speak, even if it is won by the same players. In other words, economic growth can still be achieved, even if some players who are relatives and friends of the referees are favoured and are able to monopolise the game. Not so, says McCoy. Quoting the economist James Buchanan, McCoy explains that monopolisation involves “a net destruction of value as the rents secured only reflect a diversion of value from consumers generally to the favoured rent-seeker,” thereby resulting in “a net loss of value in the process.” In our basketball game metaphor, no one appreciates a game that is rigged.
Crony capitalism
Hutchcroft claims that in the 1970s, authoritarianism was seen by some quarters as a necessary prelude to development and regime change was seen as the solution to lacklustre economic performance. When Marcos declared Martial Law, according to Hutchcroft, he pledged reforms that would usher in equality of opportunity and save the country from “an oligarchy that appropriated for itself power and bounty.” But what happened was, a new oligarchy (of Marcos and his relatives and cronies) achieved dominance in many economic sectors.
The above statement clearly shows that even the strongman Marcos succumbed to the temptations generated by adherence to the obligations inherent in maintaining kinship ties. His success as a leader depended on his ability to continuously deliver favours to his relatives, friends and supporters rather than on him wielding vast state powers.
The case of the warlord Durano in Northern Cebu provides further insight to cases similar to that of Marcos that is prevalent in many parts of the country. The case study shows that Durano’s kinship network (composed of patrons, family members, and local supporters) “sustained him and made possible his long tenure as the political kingpin of the North (Cebu).”
Attempts at reform
In the banking sector, technocratic competence was one of the common prescriptions for reform in the early 1970s, during the time of Marcos. But this was hobbled by a] the absence of the technocrats’ own power base, and b] absence of support from an effective bureaucracy below them.
During the time of Ramos in the early 1990s, liberalisation and economic reforms, according to Hutchcroft, were the compelling prescriptions for change. The Ramos reforms began with the liberalisation of foreign exchange in 1992, followed by trade liberalisation in subsequent years, and foreign investment has also been liberalised.
While Hutchcroft’s book was being written in 1998, the freshest initiative at reforms of the Ramos administration then was its concerted attack, led by Jose Almonte, a retired military officer, on cartels and monopolies and the oligarchic privilege that nurtured them. Hutchcroft writes that the first target was the moribund and inefficient telecommunications industry, dominated by PLDT[v]. Within just a few years, PLDT was providing better service and making more money although new competitors saw it as uncooperative in facilitating interconnections of rival systems. At present, we know that other industries (banking, transportation, shipping) have also been deregulated.
As a result of the economic reforms during the time or Ramos annual GNP growth returned to respectable levels (5.1% in 1994, 5.7% in 1995 and nearly 7% for 1996).
What now?
Despite these achievements, Hutchcroft warns that there are still political and institutional obstacles (or deficiencies?) to sustained economic growth and development. Hutchcroft makes the following observations:
1. those who resisted reforms can sometimes still prevail
2. there is yet little evidence of the creation of a broad social coalition able to sustain reform pressures in future years[vi]
3. there is still a need for reforms in the political process still dominated by traditional politicians or trapos.
4. and lastly, Philippine state institutions are showing themselves to be incapable of providing the necessary political and institutional foundations required even by the laissez-faire mode of development.
Overall, Hutchcroft echoes the conclusion in the first article (see October 14 post) in this series along the lines that “it is difficult to instil long-term investor confidence when a high degree of arbitrariness reigns in the political and legal spheres.” He quotes Almonte who said that the hardest reforms – those requiring sustained administrative capacity – are yet to come.
As Almonte declares, as quoted by Hutchcroft, “rich and powerful families could still prove stronger than the forces of reform.”
References
McCoy, Alfred (ed.) (1994). An anarchy of families: state in the Philippines. Quezon City: Ateneo de Manila University Press
Hutchcroft, Paul D. (1998). Booty capitalism: the politics of banking in the Philippines. Quezon City: Ateneo de Manila University Press
Endnotes
[i] The key questions for this third article are: 1] What is the impact of continuing clan and dynastic politics on Philippine development?, and 2] What political deficiencies continue to obstruct capitalist development in the Philippines?
[ii] In bilateral kinship, ancestry is traced through both the mother’s and the father’s line. Effective kinship ties are maintained with relatives of both parents.
[iii] McCoy explained, that in political terms in the Philippines, the word family does simply mean household; it has a broader connotation that includes a wider working coalition drawn from a larger group related by blood, marriage, and ritual. He called this coalition kinship network.
[iv] Hutchcroft calls the capitalism system where “patrimonial administrative state” arises as “bureaucratic” capitalism.
[v] Philippine Long Distance Company.
[vi] Hutchcroft sees the task for creating this broad coalition more difficult by the historical absence of any thorough programme of land distribution.
In that article, we asked “What explains the unpredictability?” The next two (2) books in the course’s reading list provide some useful insights.
McCoy (1994) hints that the root of the problem with the unpredictable rules and its enforcement lies in the character of Filipino kinship. Quoting Jurg Helbling, McCoy explained that bilateral kinship[ii] “produces overlapping egocentric networks,” fostering societies “characterized by vagueness and ambiguity, if not by disorder.”
Hutchcroft (1998), on the other hand, posits that the “patrimonial features” of Philippine society “hinder the development of more advanced forms of capitalist accumulation” and “presents particularly obstinate structural barriers to the creation of a more rational-legal state.”
Why is this importance given to kinship and family[iii] in Philippine society considered a problem?
McCoy argues that it leads to a situation that restricts “freedom of entry” into the market. Market access is restricted through regulation and awarding access to a favoured few. Extreme restriction creates a monopoly and the consequences for the economy, as a whole, based on McCoys analysis, is decidedly negative. The political competition for such monopolies is called “rent-seeking.”
Hutchcroft finds patrimonial polities as highly arbitrary, where the “degree of calculability” is very weak, presenting major obstacles to the development of more advanced forms of capitalist accumulation. Hutchcroft derives his insights from Weber who highlighted the dependence of modern capitalism on an administrative and legal structure able to promote “political and procedural predictability.”
Patrimonial oligarchic state
Hutchcroft describes the Philippine state as a “patrimonial oligarchic state.” This means that it is the powerful business class that extracts privilege from a largely incoherent bureaucracy. Which is different from a “patrimonial administrative state[iv]” that can be found in Indonesia and Thailand, where it is the bureaucratic elite that extracts privilege from a weak business class. Hutchcroft calls the economic system where a patrimonial oligarchic state arises as booty capitalism. In this system, a group with an economic base outside the state is plundering the state for particularistic resources.
Hutchcroft characterises the Philippine economy as a rent-seeking economy, where “ownership of property alone guarantees the access to wealth” in contrast with a profit-seeking economic structure where “assets and income are won and lost on the basis of the ability of the business owner to develop the property.”
In other words and using the metaphor of a basketball game, a player in a patrimonial oligarchic state can win the game simply by being a relative of or friends with the referee and those who determine the rules of the game.
This implies, however, that “games can still be won” so to speak, even if it is won by the same players. In other words, economic growth can still be achieved, even if some players who are relatives and friends of the referees are favoured and are able to monopolise the game. Not so, says McCoy. Quoting the economist James Buchanan, McCoy explains that monopolisation involves “a net destruction of value as the rents secured only reflect a diversion of value from consumers generally to the favoured rent-seeker,” thereby resulting in “a net loss of value in the process.” In our basketball game metaphor, no one appreciates a game that is rigged.
Crony capitalism
Hutchcroft claims that in the 1970s, authoritarianism was seen by some quarters as a necessary prelude to development and regime change was seen as the solution to lacklustre economic performance. When Marcos declared Martial Law, according to Hutchcroft, he pledged reforms that would usher in equality of opportunity and save the country from “an oligarchy that appropriated for itself power and bounty.” But what happened was, a new oligarchy (of Marcos and his relatives and cronies) achieved dominance in many economic sectors.
The above statement clearly shows that even the strongman Marcos succumbed to the temptations generated by adherence to the obligations inherent in maintaining kinship ties. His success as a leader depended on his ability to continuously deliver favours to his relatives, friends and supporters rather than on him wielding vast state powers.
The case of the warlord Durano in Northern Cebu provides further insight to cases similar to that of Marcos that is prevalent in many parts of the country. The case study shows that Durano’s kinship network (composed of patrons, family members, and local supporters) “sustained him and made possible his long tenure as the political kingpin of the North (Cebu).”
Attempts at reform
In the banking sector, technocratic competence was one of the common prescriptions for reform in the early 1970s, during the time of Marcos. But this was hobbled by a] the absence of the technocrats’ own power base, and b] absence of support from an effective bureaucracy below them.
During the time of Ramos in the early 1990s, liberalisation and economic reforms, according to Hutchcroft, were the compelling prescriptions for change. The Ramos reforms began with the liberalisation of foreign exchange in 1992, followed by trade liberalisation in subsequent years, and foreign investment has also been liberalised.
While Hutchcroft’s book was being written in 1998, the freshest initiative at reforms of the Ramos administration then was its concerted attack, led by Jose Almonte, a retired military officer, on cartels and monopolies and the oligarchic privilege that nurtured them. Hutchcroft writes that the first target was the moribund and inefficient telecommunications industry, dominated by PLDT[v]. Within just a few years, PLDT was providing better service and making more money although new competitors saw it as uncooperative in facilitating interconnections of rival systems. At present, we know that other industries (banking, transportation, shipping) have also been deregulated.
As a result of the economic reforms during the time or Ramos annual GNP growth returned to respectable levels (5.1% in 1994, 5.7% in 1995 and nearly 7% for 1996).
What now?
Despite these achievements, Hutchcroft warns that there are still political and institutional obstacles (or deficiencies?) to sustained economic growth and development. Hutchcroft makes the following observations:
1. those who resisted reforms can sometimes still prevail
2. there is yet little evidence of the creation of a broad social coalition able to sustain reform pressures in future years[vi]
3. there is still a need for reforms in the political process still dominated by traditional politicians or trapos.
4. and lastly, Philippine state institutions are showing themselves to be incapable of providing the necessary political and institutional foundations required even by the laissez-faire mode of development.
Overall, Hutchcroft echoes the conclusion in the first article (see October 14 post) in this series along the lines that “it is difficult to instil long-term investor confidence when a high degree of arbitrariness reigns in the political and legal spheres.” He quotes Almonte who said that the hardest reforms – those requiring sustained administrative capacity – are yet to come.
As Almonte declares, as quoted by Hutchcroft, “rich and powerful families could still prove stronger than the forces of reform.”
References
McCoy, Alfred (ed.) (1994). An anarchy of families: state in the Philippines. Quezon City: Ateneo de Manila University Press
Hutchcroft, Paul D. (1998). Booty capitalism: the politics of banking in the Philippines. Quezon City: Ateneo de Manila University Press
Endnotes
[i] The key questions for this third article are: 1] What is the impact of continuing clan and dynastic politics on Philippine development?, and 2] What political deficiencies continue to obstruct capitalist development in the Philippines?
[ii] In bilateral kinship, ancestry is traced through both the mother’s and the father’s line. Effective kinship ties are maintained with relatives of both parents.
[iii] McCoy explained, that in political terms in the Philippines, the word family does simply mean household; it has a broader connotation that includes a wider working coalition drawn from a larger group related by blood, marriage, and ritual. He called this coalition kinship network.
[iv] Hutchcroft calls the capitalism system where “patrimonial administrative state” arises as “bureaucratic” capitalism.
[v] Philippine Long Distance Company.
[vi] Hutchcroft sees the task for creating this broad coalition more difficult by the historical absence of any thorough programme of land distribution.
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