IN THE JOURNAL | GLOBAL PERSPECTIVES
A tale of two Philippines
January-March 2017
By: Andrew Phelan

We’re used to the term “developing country.” The term carries an implication that “developed” status is coming, it’s on the way, it is only a matter of time. In the Asia-Pacific, I would argue there are seven countries that have made it: Japan, South Korea, Taiwan, Hong Kong SAR, Singapore, Australia and New Zealand. These countries have a gross domestic product per capita of between $40,000 and $50,000, based on the most current World Bank data.

While China has made great strides since my first visit in the late 1980s, it still has a long way to go to reach par in GDP per capita terms with those countries. Indeed, the BRICS – Brazil, Russia, India, China and South Africa – all hover around $8,000 to $10,000 per capita, far below the aforementioned rich club. Then there are the “in-betweens,” or low- to middle-income countries per capita. Southeast Asia has a bunch of them: Malaysia (around $10,000); Thailand ($6,000); Indonesia ($3,500); Vietnam ($2,500); while the Philippines, with its healthy GDP growth of 5 percent to 7 percent during the last five years, is close to $3,000.

Per capita gross domestic product is, of course, not the be-all and end-all measure of quality of life or success. There are many other indicators. Where a country stands on Transparency International’s index of corruption is a good indicator of equality under the law. Longevity is another. Air quality, public transportation, education, nutrition, the quality of and access to health care, and the distribution of income all matter.

Some years ago, I spoke at a Malaysian “Vision 20/20” summit. Malaysia has set the year 2020 to achieve a GDP per capita of $20,000. In this essay, however, I am going to focus on the Philippines, where I spent three months on assignment during its 2016 election campaign. The Philippines is also a useful comparator nation for Indonesia to measure its own progress.

Apresidential election brings great hope for the future. Rodrigo Duterte, the longtime mayor of the southern city of Davao, best captured that hope among the presidential candidates, and while he did not win a majority of votes, he won enough to secure a six-year term in Malacañang Palace. His campaign was, despite some offensive jokes and occasional foul language, what we have since become used to, and it was brilliantly executed. His campaign slogan, “Let’s fix this country,” succinctly summed up what ordinary, disenfranchised Filipinos felt and hoped for.

He was seen as an outsider and anti-establishment in a similar way as Donald Trump. Duterte’s main opponent, the Wharton-educated Mar Roxas, was seen, perhaps, as a bookish continuation of the same. While the economy was growing in the notoriously inequitable Philippines, economic growth was not trickling down. In Manila’s Bonifacio Global City, there’s a Rolls-Royce dealership that’s walking distance to a slum. Duterte’s predecessor, Benigno Aquino Jr, started to look like a placeholder: out of touch and comfortable. This was best exemplified by Typhoon Haiyan, which devastated the city of Tacloban in 2013. CNN’s Anderson Cooper, live on the ground, was assured by President Aquino that his government had things under control, while around him there was little sign of state leadership. The US Marine Corps ended up doing most of the heavy lifting.

Meanwhile, Duterte, out and about with people wearing his polo shirts, seemed like a breath of fresh air. Compared to Roxas, it was a case of Clark Kent versus Superman. The Filipino people, who had once elected local movie star Joseph Estrada as president, wanted to believe in a new Superman, a new savior. Duterte promised to rid the country of corruption in six months, and the people believed him.

Another candidate, Grace Poe, had American citizenship but was compelled to give it up due to public pressure. She was accused by many of being a foreigner, having spent too much time in the United States. I listened to her on television. She seemed levelheaded. She made sense. There was a humility about her, and she talked of policies like creating a law to stop the country’s long, corrupt history of political dynasties.

It’s often argued that 30 or so families have a dynastic grip on power in their provinces, and that power and wealth are their birthright. Families such as the Marcoses in Ilocos Norte and the Ampatuan clan of Maguindanao are such examples. Indeed, since Duterte became president, his daughter is now mayor of Davao and his son is the vice mayor. Poe also talked of opening the country up to foreign investment, and competition in protected sectors such as telecommunications and energy. I would have thought that time spent in a rich, developed country such as the United States would have been viewed as an asset, but in the nationalistic Philippines it was more of a political liability for Poe.

The Philippines was, at the end of World War II, one of the wealthier countries in the region. In less time, however, South Korea, for example, has gone from the rubble of the Korean War in the 1950s to first-world status. Going from Manila to Seoul is a three-hour flight to the developed world. The infrastructure is world class and South Korea boasts world-class companies and industries.

Looking around the region, the development template is certainly there. Japan was the first and is the best example of modernization and industrialization. South Korea and Taiwan also made it and both have a large aspirational and well-educated middle class. More recently, we have the China model to learn from. There are a few things in common with all these success stories. Their leaders all studied what worked elsewhere in countries such as Germany, the United States and Britain, and selectively targeted what to bring to their countries.

The other common starting point was land reform. Peasant farmers in each case were given a degree of ownership or incentives to produce on their own plots of land. They were given some capital – some skin in the game. From there, they went to manufacturing, a great employer and a chance to rise up the value chain. In all those markets, the financial sector was kept on a relatively short leash, a case of semiconductors before derivatives, perhaps.

The Philippines could and should have done a lot better. A quick look north at China offers guidance. It was Deng Xiaoping who unleashed the potential of the Chinese people by allowing farmers to sell over and above their quotas for their own profit. He openly admitted that China in the mid-1980s was poor, backward and behind – and he did something about it. It didn’t matter if the cat was black or white, he famously said, as long as it caught the mice. It was this sort of pragmatism that led to his catchphrase, “gaige kaifang,” or reform and opening up, starting with the establishment of special economic zones in the 1980s. It’s an example that the Philippines would do well to learn from.

To understand where the Philippines is today, we must reflect on its history. The Philippines is arguably the most Western of the major economies in the Association of Southeast Asian Nations (Asean). It’s mostly Christian by virtue of its Spanish colonial history, and a sizeable portion of the population is fluent in English.

Those nasty foreigners

Across much of Southeast Asia, it’s often fashionable to rail against the invisible enemy across the seas. This usually takes the form of former colonial masters: the generic “West” or various “isms,” mostly imperialism and colonialism. I’ve often found this to be a convenient prop to entrench those in power and wealth, and deflect criticism of their own performance in delivering better outcomes for their own people.

Duterte was in such a defiant mood while in Beijing last October when he announced his “separation” from the United States, the Philippines’ top foreign investor. He also announced he was teaming up with Russia and China “against the world,” although it’s not immediately apparent the benefits that Russia would be able to provide in terms of impacting better living standards and reducing poverty in the Philippines.

The truth is, though, that if anything the United States was an absent and halfhearted colonial master of its one real colony, a colony that only came its way by the spoils of a conflict far away, in a war with Spain regarding Cuba in 1898. Unlike the European colonial masters in Southeast Asia, the United States did not fight at the end of World War II to keep its colony, as the Dutch, British and French did with theirs. Despite losing tens of thousands of servicemen fighting the Japanese, the United States granted the Philippines independence in July 1946. That’s 70 years that the Philippines has been officially in charge of its own destiny. Blaming the United States for its state of affairs is an excuse that ought to have long since passed its use-by date.

The largely absent American rule was high on ideals and low on governance. As with most colonial administrations, the United States had to work with existing elites both in Manila and in the regions. The central government was weak and regional landed potentates from the Spanish hacienda days dominated both Congress and local electorates back then – and still do today. Indeed, the Philippines was largely left to its own devices far earlier than independence. As early as 1916, more than 100 years ago, the United States granted the Philippines control over both houses of Congress, and in that year the Philippine National Bank (PNB) was established.

The British economist Joe Studwell, who has written extensively on comparative development economics in Asia, while referring to Paul D. Hutchcroft’s 1998 book “Booty Capitalism,” an extensive study of the expropriation of the state by the tycoon fraternity, noted: “The PNB became the oligarch’s personal treasury, making loans to families in estate agriculture. The government was required to keep all its deposits at the bank, which would also issue currency. It took just five years for PNB to arrive at its first major crisis, by which time the bank had squandered its entire capital base.”

Guaranteed export quotas and tariff protection for sugar and coconuts also stifled innovation and investment, and further entrenched the hacienda oligarchies that could remain shielded from competition while having guaranteed revenue streams. It was such a cozy situation that the hacienda clans in Congress worked hard to keep the Laurel-Langley Agreement, a trade agreement signed in the 1950s between the Philippines and the United States, until 1974. Their incentive was to look after themselves rather than nation-build, so the things that the country really needed – land reform and increases in taxation – were avoided. Filipino politicians have historically moved around between parties in search of the sweetest deals, so much so that they have become known to the citizenry as balimbing, after the star-shaped fruit that looks the same no matter from what angle you view it. The poor and disenfranchised remain so today. In the countryside, there is little prospect for many beyond serfdom or laboring abroad. To have some skin in the capitalist game, the people need some capital in the form of their own land, and while land reform may have existed in policy, it’s never been enacted in any meaningful way.

A casual observer arriving in Bonifacio Global City, a kind of new Makati, could be forgiven for admiring how far the economy has progressed. Cranes dot the skyline. The high street pedestrian mall is a joy to walk down. But scratch the surface and look a little deeper. This is no Singapore or Santa Monica. Parking is strictly monitored and jeepneys are forbidden. Every intersection has large “Give way to pedestrians” signs and state-of-the-art traffic signals. These are summarily ignored – and you take your life in your hands putting faith in the green light when a car is turning. Even when traffic police are on hand, these basic rules are ignored. Over time, patterns become apparent. The fancier the car, the more intimidated and cowed the traffic police are, especially when the car has tinted windows or Philippine National Police license plates that are frequently attached above regular license plates on civilian cars. Another plate above a plate I saw read “Supreme Court Prosecutor.” Imagine seeing that in an advanced country? It really shouts, “I’m important, I’m powerful, I am the law and above the law.”

Speaking of which, the Land Transportation Office was unable to issue new car license plates last year. In all my travels, that’s a first. Car dealers fixed temporary ones to cars, while 300,000 pairs of plates languished at the Manila International Container Port for a year pending the payment of duties. PhilPost, the national postal service, is notorious for sitting on parcels until frustrated customers come to the post office and pay to have their hostage parcel released, even if they’ve already paid postage. Want to trace your US parcel online? No problem, until it arrives in the Philippines, that is.

And one of the best scams going was at Manila’s Ninoy Aquino International Airport: the “bullet scam.” Once clearing passport control and grabbing their bags, unsuspecting visitors would be called to baggage inspection by customs and upon opening their luggage would discover, lo and behold, a bullet. The conversation would then be moved to a private office where threats would be made and money extorted. Fortunately, the new president put a quick stop to that little scam.

Armored vehicles and guards with sawed-off shotguns are everywhere in Philippine cities. While armored vehicles still exist in the West, they’re quite rare in comparison as most money is moved electronically these days. The Philippines, though, is one of the money laundering centers of Southeast Asia, as the laundering of $81 million in stolen Bangladesh central bank funds through various casinos in Manila in early 2016 demonstrated.

In summary, the basics of modern governance seem absent in the Philippines, or at least in the capital, Manila. The price of self-serving government is poor infrastructure such as roads and public transportation, a degraded navy and air force, and little investment in health care and education. Last November the Supreme Court decided that the late Ferdinand Marcos, the dictator who is estimated to have stolen around $10 billion from his people, will be, with Duterte’s blessing, given a hero’s burial. His widow, Imelda, famous for her shoe collection and diamonds business, is, at almost 90 years old, still a congresswoman, as is her daughter Imee.

Their son Ferdinand “Bongbong” Marcos Jr just missed out on becoming Duterte’s vice president during the election last year and is challenging the result. On the trip to Beijing, accompanied by both the Marcos offspring, Duterte introduced Bongbong as his “possible” vice president.

Duterte has made a controversial drug war his top priority as president. The death toll from these extrajudicial killings as of the first week of November was approaching 5,000, according to the website rappler.com and police statistics. More than 1,800 of these deaths were attributed to the police and 3,000, or 62 percent, were vigilante-style killings. These are usually carried out in drive-by style by shooters on the back of motor scooters who are rewarded with payments of up to $500, which is a considerable sum for residents of Philippine slums. A cardboard sign with the name of the drug pusher or user hastily written on it is placed on the corpse, which has earned the practice the name “cardboard justice.” Children as young as 4 and 5 have been caught in the cross-fire. China has pledged to support this war on drugs.

There is no question about the damage caused by methamphetamine, or “shabu,” as it’s locally known. One has to ask, however, does a poor, uneducated user in a slum, sold drugs by an unscrupulous dealer, deserve to be shot in cold blood because he has become addicted to a drug that offers temporary solace from a life that, due to a history of lousy governance, offers little hope or opportunity? Surely, it would make more sense to target the problem at its source: the ports, where the precursor chemicals from China arrive. Duterte has openly acknowledged that both the chemicals and ringleaders are from China and Taiwan. In 2005, however, the The Philippine Star reported that Duterte, then the mayor of Davao, had facilitated the release of eight Chinese nationals who were among 10 Chinese arrested during a raid on a methamphetamine laboratory there that yielded the seizure of 220 pounds of the drug. Said Duterte at the time: “It is in the spirit of the Chinese New Year and for humanitarian reasons that I am seeking their release.”

Controversy follows Duterte. During the election campaign, he joked about the rape and murder of an Australian missionary in Davao. When the Australian and American ambassadors to Manila at that time rebuked the mayor, he angrily responded that they weren’t Filipino and should shut their mouths. I wonder what he would say if he had the opportunity to meet the slain woman’s parents? I wonder how he would feel if the same thing had happened to his daughter and someone had made the same “joke.”

During last year’s election campaign, he was often seen fraternizing and joking with sex workers, and made comments to the effect that the industry was OK, perhaps even providing some kind of social service, as if criminal syndicates drew a clean line between prostitution and drug trafficking. As president, he has continued his pattern of foul language and comments, notably calling US President Barack Obama “a son of a bitch.”

It seems there are two Philippines. One if you are a member of a ruling family and another if you are a member of the masa ¬– the masses. Even to the casual observer, there is an obvious laundry list of urgent things that need to get done.

At the top of the list is opening up the economy, especially to sectors such as telecommunications, where cellphone and Internet coverage are among the worst in Asia, and where calls frequently disconnect. Then there are other sectors such as energy. Electricity bills in the Philippines are among the most expensive in the region. Neither of these sectors is mentioned in Duterte’s 10-point economic agenda. Neither is land reform, which is crucial to the advancement of the people, specifically. Instead, there are vague platitudes such as to “continue and maintain current macroeconomic policies” and “invest in human capital development.” To be fair, Duterte has articulated many things the country is in dire need of, such as reducing bureaucracy, increasing infrastructure spend, implementing the reproductive health law and so on.

His visit to Beijing made sense due to China’s proximity and expertise, and its capacity in delivering desperately needed infrastructure. But why, at the same time, alienate the United States? Just because of some personal experience and bias? Surely as president he holds the interests of 100 million before his personal prejudice. The United States is the biggest investor in the country and a huge employer, and the cultural and people-to-people ties run deep. The United States is also a power in education, technology and medicine in ways that China cannot match. Indeed, China’s own health care system is broken and could benefit from American assistance. So why pick sides? Close relations with China, Japan, the European Union and the United States would better benefit the Philippines.

During an extended work trip in the Philippines last year, I was helping a radiology software start-up. The company, founded by a brilliant Harvard-trained American radiologist, was employing a dozen or so local Filipino radiologists. The software is designed to teach and coach at the point of diagnosis, and over time has the potential to vastly improve the lifesaving diagnostic competence of radiologists in the developing world. The founder told me he’s seen locals get to Harvard-level clinical standards after only three to four years of using the product. So much for breaking away from America.

In conclusion, the Philippines is a country with a young demographic and tremendous upside under the right leadership. It’s in urgent need of structural reform, and there are plenty of templates to study in Asia, including Japan, South Korea and China. The foundation of real progress, however, must come from land reform.

Only when rural Filipinos own their own land and can sell what they grow, beyond a local refiner who sets prices, will we see increases in incomes and living standards.

Grace Poe talked about enacting an anti-dynasty law during her unsuccessful presidential campaign. It’s desperately needed. Blaming the United States, as I have shown, is an excuse that is not only way past its use-by date, but was never really valid to begin with. In the Philippines, today’s reality is the outcome of self-serving government during the past 100 years or longer. While it’s convenient to blame the United States or the Spanish, the truth is that the Philippines’ destiny is in its own hands, and it needs all the help and investment it can get.

I wish President Duterte every success in his ambitions to reduce red tape and corruption. He put a curious time limit on ridding the country of corruption: six months. That is, of course, not going to happen. Based on experience elsewhere in the region, I would say that with the best leadership, economic opening and reform, it would take a generation, say 25 to 30 years, to effect real change and for the country to join the ranks of middle-income nations. Of course, it’s never too late to start.

Rather than something that is culturally Filipino, as some have suggested, we have seen from Britain’s “Brexit” vote and the election of Donald Trump that there is disaffection with the aloofness of the political establishment elsewhere as well. The onus is now on those who came with big promises to deliver, and on their people to hold them to account. I fear, though, that unless an anti-dynasty law is enacted, the economy opened to international investment and competition, and major structural reform including land reform delivered, the Philippines will move along in fits and starts.

The sky is the limit for Duterte and the Philippines, but until all are treated equally under the law and with the dignity and respect that every human being deserves, one has to wonder, what kind of country will it be?


Andrew Phelan, an Australia-based med-tech entrepreneur, lived in Singapore for the past 12 years and in Greater China in the 1990s. He is an observer and writer on Asia-Pacific geopolitics and economics, and welcomes comments at @ajphelo.

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