Anyare? Economic decline since Marcos

May 5, 2016

by Sonny Africa

The Marcos dictatorship started the Philippines on a path of economic decline that remains until today. This has already had the worst consequences for tens of millions of Filipinos across two generations. Unless corrected, it will burden generations to come.

The Philippine economy’s decline since the 1980s is commonly attributed to the Marcos regime’s corruption and cronyism. For instance the bloating of the country’s foreign debt is often used to dramatically illustrate this: Marcos took out loans to enrich himself and his cronies. These loans became unpayable because they were pocketed or used by inefficient enterprises. The resulting financial burden drove the protected crony-dominated economy into the ground.

This narrative highlights the evils of dictatorship and abuse of power. But it falters in explaining why, over three decades after the end of the Marcos regime, the economy still remains so backward in the things that matter – job creation, poverty reduction, agricultural and industrial development, and policy sovereignty.

Bureaucrat capitalism under Marcos was undoubtedly world class and certainly added to the country’s economic problems. But the real cause of economic failure lies somewhere else – in the neoliberal “free market” policies forced on the Filipino people using the vast powers of the dictatorship.

Economic collapse

The Philippine economy was by no means strong, self-reliant or independent at the start of the Marcos regime in 1965. Unlike so many countries in Asia, Latin America and Africa whose post-World War Two post-colonial governments were bold enough to implement nationalist and even Socialist policies, post-1946 Philippines remained a political and economic neocolony of United States (US) imperialism.

Like the rest of the world in the 1950s and 1960s, the Philippines had at least some degree of protectionist policies. But unlike most other countries, the Philippines let foreigners benefit from these same protections. Specifically, when the Philippines was granted “independence” in 1946 the US colonizers made sure that treaties were in place giving American capitalists the same economic rights (i.e. parity) as Filipinos until the early 1970s.

The rule of Nacionalista Party’s Ferdinand E. Marcos which began in 1965 was strong on nationalist and patriotic rhetoric. Yet Pres. Marcos was by no means a nationalist if ‘nation’ is understood as the majority of Filipinos and ‘nationalism’ as upholding their interests and asserting Filipino sovereignty over foreign powers.

The trajectory of the economy under Marcos was straightforward. The long period 1966-1980 saw a steady increase in gross domestic product (GDP) per capita which merely continued a trend since 1948. Any claims of the Marcos time being “golden years” probably refers to this period which also included the debt-driven infrastructure spree starting around 1975.

However, GDP per capita is an aggregate measure that assumes economic gains are equally distributed across the population. It muddles the gross inequity in the economy. In any case, GDP per capita levelled off in 1981-1983 and its dramatic collapse in 1984 ushered in 15 years of volatility. There were recessions and stagnation in 1983-1985, 1991-1993, and 1998-1999. GDP per capita only started to increase steadily again after 2000.

The decade 1975-1986 was actually a time of intense social crisis and economic difficulty for most Filipinos. The unemployment rate was falling in the early years of the Marcos regime – from 7.1% in 1966 to 3.9% in 1975. But this reversed in the mid-1970s to rapidly rise back to 7.9% in 1980. The prices of goods and services also soared with the 6.8% inflation rate in 1975 almost doubling to 12.1% in 1980.

The situation was worst in the 1981-1985 period: unemployment averaged nearly 11% including a high of 12.6% in 1985; inflation averaged nearly 20% including, also in 1985, a high of nearly 30 percent. By 1985, anywhere from two-thirds to three-fourths of some 54 million Filipinos were poor; at least 27 million Filipinos or up to half (49%) of the population were in extreme poverty (i.e. those deemed “poor” according to the low official poverty line). These conditions fuelled the storm of protest and opposition to the dictatorship and precipitated its overthrow through a people’s uprising in February 1986.

Neoliberal disaster

Blaming all these on the Marcos regime’s corruption and cronyism is convenient especially with the Marcos family and their cronies visibly behaving so villainously. Yet there were other Asian countries in the 1970s and 1980s that also suffered corruption and cronyism – some even dictatorial rule – but that did not experience as severe crisis. Korea and China come to mind and, closer to home, of course Indonesia, Thailand and Malaysia.

The biggest difference is that the Philippines under Marcos started implementing neoliberal “free market” policies. More than anything else this is what prevented the Philippines from becoming any sort of East Asian success story.

Most anti-nationalist president. The “nationalist” Marcos was the most anti-nationalist president the country had ever seen. Martial Law was declared not just for personal political survival but to use the coercive powers of the state to open up and restructure the Philippine economy according to the needs of foreign monopoly capital, especially the US whose post-colonial treaties were coming to an end. No less was needed to confront certain resistance from the resurgent nationalist and armed revolutionary movements – resulting in monumental human rights violations.

Leftist activists gave justified attention to US-directed International Monetary Fund (IMF) and World Bank (WB) intervention in Philippine economic policymaking and their collusion with the Marcos regime. Two-thirds or 16 of the 24 IMF programs the country has ever had were during the Marcos regime, six of which were during his first term before declaring Martial Law in 1972. It also accounted for nearly a hundred World Bank projects, with loans worth some US$5.2 billion, out of 250 such projects to date.

In 1980, the Marcos regime actually made the Philippines the first country in Asia and the second country in the world, after Turkey, to be at the receiving end of a World Bank structural adjustment loan (SAL). The conditionalities of the US$200 million loan included among others tariff cuts, removal of import licenses and quantitative restrictions, lowering protections, and export-promotion – all in line with the market-oriented restructuring of the economy. This first SAL and another US$302 million one in 1984 were the historic spearheads of subsequent decades of trade and investment liberalization in the country.

Cheap labor export, foreign plunder of PH resources. Pres. Marcos’ neoliberal measures are familiar today but were novel for their time. He institutionalized cheap labor export, starting with various measures to get Filipino seamen employed and workers hired in the Middle East. The Marcos regime devised the service contract scheme that creatively bypassed Constitutional restrictions on foreign exploitation of Filipino petroleum and gas resources, resulting in the virtually complete turnover of Malampaya resources to foreign oil and gas giants.

The regime worked hard to give foreign capital profitable opportunities. It enacted laws on investment and export incentives for foreign investors and created the country’s first special economic zones, then called export processing zones. Martial law and trade union repression also let the regime cut real wages virtually in half between 1970 and 1975 where they remained for over a decade until after 1986.

The sum of all these neoliberal measures interacted with crony corruption and self-centered monopolization to cause the economy to weaken in the 1970s and then, upon the debt crisis in the early 1980s, to completely collapse. The financial stranglehold of foreign monopoly capital on the Philippine economy was by that time complete where all public and private flows became contingent on the IMF’s so-called seal of “good housekeeping”.

Fiscal austerity. The IMF enforced fiscal austerity so that foreign debt would continue to be paid, choked liquidity to stem capital outflows, and devalued the currency which only drove prices ever higher. The debt problem was certainly severe and increased fifty-fold from US$599 million in 1965 when Pres. Marcos entered Malacañang as president to US$28.3 billion when he left it as a deposed dictator. But there are no debtors without creditors and banks and governments lent freely to what it knew was a dictatorial regime.

The economy in the final years of the Marcos regime was in neoliberal-induced ruin. Unemployment and poverty were at historic highs. The rural economy remained poor and backward from the lack of real agrarian reform and support for the peasantry. The neoliberal structural adjustment and stabilization measures however caused firms to close and greatly accelerated Philippine deindustrialization. The manufacturing sector remained steady at an average of more or less 28% of GDP in the decade 1971-1980, albeit with a growing share of foreign rather than domestic firms, but then rapidly fell to less than 25% in 1986.

Never again

In hindsight the arc of neoliberal globalization of the Philippine economy is clear. The Martial Law regime started the market-oriented restructuring of the Philippine economy and its debilitating effects were immediately felt. After Marcos, cronyism was craftily used to justify even greater liberalization, privatization and deregulation as early as the Corazon Aquino administration but especially during the Ramos administration in the 1990s. This continued through the Estrada, Arroyo and the current outgoing Aquino administration to explain the stubborn poverty and chronic backwardness of domestic production.

What then to make of the Marcos era? The Marcos regime implemented the neoliberal economic policies demanded by the US-dominated IMF and WB in exchange for a share in the foreign loans and comprador business opportunities. Marcos and his cronies were allowed to directly control and profit from large portions of the national economy – sugar, coconut, bananas, tobacco, logging, mining, telecommunications, banking, construction, vehicle assembly, energy, shipping, pharmaceuticals, medical supplies, gambling, and others.

There was no contradiction between neoliberalism and crony capitalism. Even with the oligarchs, foreign monopoly capital still benefited from the cheap labor, raw materials, and domestic market of the Philippines. At the same time the country remained a bulwark of US imperialist aggression in the region including from hosting the largest American overseas military bases at the time.

This experience under the Marcos dictatorship is relevant as the country elects its leaders on May 9. The Marcos years were an unmitigated tragedy and having its unrepentant vestiges in the political scene is not “moving on” but an affirmation of how much still needs to be done to overturn elite and undemocratic rule in the country. But the grip of neoliberalism on the country which started under Marcos also needs to be underscored as its real economic legacy for the Filipino people.