Clarence Henderson
Henderson Consulting International
Manila, Philippines

This Month's Focus: Philippine economy, e-commerce, the economics or poverty and inequality, the socio-historical context, land control policies, the stagnant agricultural sector, the export sector, impoverished public sector and accumulation of debt. Part Two to be published in the next column.

Right around the corner from our place in Makati sits a new gourmet coffee shop, a franchise of a fancy San Francisco outfit, featuring freshly roasted beans (ah, the aroma!), a full menu of cappuccinos, espressos, and lattés, and a carefully studied ambiance of urban sophistication. The crowd is a mixture of ex-pats and Filipino professionals and office workers. The sound track features laid back and dated jazz, the sweet sounds of Ella, Billie, and Miles wafting softly through the air - tasteful, unobtrusive, cool. The place is definitely a hit, as evidenced by the queue at 7 a.m. patiently waiting for that boffo caffeine jolt to get the day off to a running start, the lunch crowd enjoying a repast of croissant sandwiches and fresh asparagus soup, and the after-work cohort engaged in smug camaraderie and grooving on the status of being seen at what is clearly a happening place.

The coffee shop is strategically located in between two ex-pat villages, within walking distance of both, and within a few hundred meters of a number of truly tragic squatter settlements and slums. The population density of Metro Manila as a whole is something like 21,000 persons per square kilometer, but if you've ever walked through Manila slums you know it's a lot higher in such localities. You might also guess (correctly) that the cost of one double lowfat latté represents half a day's wages for most residents of the nearby shantytowns.

In cities like Bangkok and Jakarta, the rich and poor often live amongst one another. In Jakarta, one might see naked slum children playing football in the mud within a hundred meters of mansions (although the other major Southeast Asian cities are now moving towards the Manila model). In Manila, however, the elites have always lived in enclaves like Forbes Park and San Lorenzo Village, the high walls topped with barbed wire and guards armed with sawed off shotguns symbolizing just how polarized this society is.

When the oligarchs left their haciendas and moved to Manila (see Cronies and Booty Capitalism), they settled in palatial residential complexes on the outskirts of Manila. Forbes Park was the first and the grandest, a golden ghetto with carefully manicured lawns, peaceful streets, and heavily armed private security. The teenaged children of the rich are ferried around town in bullet proof town cars with tinted glass, waltzing from a Black Tie affair at the Shangri La to an invitation-only reception at the exclusive and trendy Giraffe to a middle of the night concert by a certain well-known MTV VJ in from Hong Kong for a night's partying. The children of the shantytowns, however, walk around in tattered t-shirts and torn rubber slippers and are lucky to have a bowl of rice gruel before sleeping on roach-infested dirt floors.

Roughly 4.7 million Filipino families, comprising about 41% of the population, currently have annual incomes below the poverty line. That cutpoint is set at something around a dollar per person per day. That's not very much money anywhere in the world. There is tremendous geographic variation, ranging from 8% of the population in Metro Manila to 60% in some of the Muslim areas of Mindanao, from 11.6% in the province of Cavite to 79.5% in the province of Romblon.

We're not just talking about absolute poverty here, we're talking about relative poverty - and structural inequality. The bottom 40% of families account for only 13.7% of total family income, while the top 10% account for 35.5%. In economic lingo, the country has a Gini coefficient of 0.4507, which represents a high level of inequality indeed.

When discussing poverty in developing countries, it is essential to avoid the many pervasive stereotypes - the poor are lazy, the poor don't take advantage of opportunities, they just don't care, and on and on. Consider the case of Boboy, a 45-year old father struggling mightily to raise his family in Manila. Like most of the so-called "poor," Boboy works hard. Most of his friends hustle for a living, scrambling from part-time job to part-time job (always poorly paying), trying their damnedest to make a living. The reality is that they are chronically underemployed and the economic opportunities just aren't there.

For five years, Boboy worked full time as the family driver for an ex-pat family and drove 24-hour shifts in between in a rented taxi. Scrimping and saving, he was finally able to buy first a motorized tricycle and then eventually a jeepney. He now drives his jeepney 60 hours or more a week, bringing home about P 2000 weekly for his efforts (US $50). Just enough to feed his family of 12 and keep his children in school.

Knowing how difficult his own life has been with no education, Boboy is determined to put his kids through school. But the burden of household expenses is so heavy that his children are often held out of classes when he is late on tuition. In addition to his wife and four children, he also supports his parents, a brother, two nieces, and one nephew. They are, after all, part of the family, and Boboy accepts it as his fate to provide them food and shelter without question. After all, if roles were reversed, they would do the same for him.

Boboy and his family were hit hard by the Asian Economic Crisis. Household income went down considerably, and it was all Boboy could do to keep food on the table. Their small savings was decimated when one of their children had an accident, and the burial expenses of a brother took care of the rest. Things are a little better now, but recent increases in gas prices and school tuition are making things tough.

Boboy's situation is practically affluent compared to the rural poor out in the provinces. In Negros Occidental, for example, over 85% of the people live below the poverty line. Most available land is devoted to sugar cane, which is not competitive on the global market and is often sold at below cost on the glutted world market. Wage rates are abysmal and sharecropping arrangements are brutally exploitative. Large hacendero families continue to own most of the land, land reform has not been implemented to any significant extent, and - not to put too fine a point on it - children are starving to death.

The Socio-Historical Context

The incredible polarization between rich and poor in the Philippines is nothing new. For that matter, globalization has also been around for centuries. The Portuguese explorer Magellan, under the sponsorship of the Spanish crown, landed on the shores of Mactan with basically two objectives: to colonize the country with an eye toward easy wealth and to evangelize the heathen natives into the only true faith of the Catholic Church (see An Oversimplified History Lesson for more historical context).

But let's not dwell on the colonial era, even though many of the seeds of today's situation were sewn then. Instead, let's fast forward three centuries and take a quick (and admittedly oversimplified) look at the post-war economic history of the Philippines.

Land control policies: When Admiral Dewey steamed into Manila Bay a bit over a century ago, about 80% of land in the Philippines was in the public domain. This remained true after independence following World War II. Successive generations of Filipino politicians determined how land was to be exploited and by whom. Those with the right connections got the timber and mining rights. The Philippine State has traditionally encouraged the extraction of natural resources through leasing large areas for exploitation at nominal fees and ensuring zero export taxes. Such concessions were generally given in exchange for free access and/or quotas into the American market.

For example, one of the first things the Ramos administration did was to liberalize the mining industry by dismantling restrictions on foreign investments and offering a veritable bonanza of incentives. Investors were given a 10-year tax holiday, capital tax exemptions, 100% repatriation of profits, and capital and other incentives.

The consequences of these land use policies have not been pretty. You could start by mentioning the ongoing marginalization of indigenous peoples, tremendous concentration of land ownership, and environmental degradation. The net result: perpetuation of the semi-feudal, semi-capitalist, and neocolonial character of the Philippine economy and mass displacement of indigenous communities and upland farmers. Many of those uprooted folks end up in squatter settlements like the one near my favorite upscale Manila coffee shop.

Stagnant Agricultural Sector: Although it has always accounted for a large proportion of the Philippine economy, the agricultural sector has been anything but productive. In addition to highly concentrated land ownership, the agricultural sector has been characterized by monoculture and low productivity. Technological changes that have occurred since the 1960s, and in particular the development of high yielding rice strains and mechanized agriculture, have contributed further to rural underdevelopment and fueled the ongoing stream of migration to urban areas.

Export sector: Philippine development has been characterized by a limited composition of exports (mostly primary commodities), tremendous dependence on imports, and chronic trade deficits. Until the early 1970s, Philippine exports remained heavily concentrated in commodities and processed agricultural products (i.e., the classic "plantation" economy). Industrial growth based on import substitution did nothing to reduce the economy's dependence on crucial imports.

Although some diversification of export structure began in the 1990s, the economy remains highly vulnerable to trade deficits. Even foreign investment in assembly plants in the eco-zones is not all it seems: in most cases, the various components are shipped here from other countries for assembly, then the final product is shipped out. In other words, not that much value added and not that great an impact in terms of improving the skills of the work force. And people living in poverty outside the gates of the eco-zones are not affected at all, other than breathing even more fumes than usual thanks to the large trucks ferrying the goods back and forth.

Impoverished public sector and the accumulation of debt: The Philippines is famous for its high rates of tax evasion, especially by the rich. The country has long financed its fiscal deficits through borrowing and printing money. Indeed, it's easy to forget that it was only just over 15 years ago (1983-1985) that the Philippines experienced a tremendous debt crisis as local and foreign investors high-tailed it out of the country in the wake of the Marcos' years, virtually crippling the Aquino administration. Macroeconomic growth has traditionally been promoted through deficit spending, money creation, and external borrowing. Such policies have contributed, naturally enough, to inflationary pressures which recur from time to time.

All of which is not to say that the Philippines is a basket case. It is not. Beginning with the early days of the Ramos administration almost a decade ago, the economy has slowly but surely gotten back on its feet after the devastation left behind by Marcos. General Ramos had been observing the rather amazing Asian Tiger economic expansion of the 1980s and early 1990s, and he liked what he saw. His key policies of privatization, liberalization, and opening up the economy to foreign investment fundamentally changed the situation, most would argue in a positive way. At least the economy started growing again (however haltingly). The country weathered the Asian crisis in better shape than many of its neighbors, thanks largely to sound fiscal policies and limited speculative exposure in real estate (as compared, certainly, to Thailand).

The more things change, however, the more they stay the same. The neoliberal policies of Ramos, largely continued under the current administration, generally ignore the need for social safety nets and human development. The few efforts towards structural reform have been ineffective at best. Land reform and marketing cooperatives have failed miserably due to the deeply entrenched élites digging in their feet. In short, the benefits of economic development have not been "trickling down" like certain experts say they should be.

Right now there is a tremendous buzz in Manila, as elsewhere around the world, about the wonders of the information superhighway and e-commerce. And in the heart of Makati, things don't look so bad. There's a certain urban hustle and bustle and incipient pride about the Philippines' growing reputation as an IT hub, including both hardware (the manufacturing or at least assembly of microchips and electronics components in the eco-zones) and software (the wholesale relocation of back office customer service and applications programming operations to Manila).

And yet . . . the bottom line is that the rich are getting richer and the poor are getting poorer. Current neo-liberal policies will continue to attract foreign investment and create jobs. However, no matter how many multinationals invest in assembly plants or how many multinationals like AOL outsource their customer service to the Philippines, the issue of equity is still not being addressed. State-class relationships go through complex perambulations indeed, and solutions are few and far between. At the risk of getting bashed for sticking my amateur, pseudo-erudite nose into esoteric areas which should best be left to the so-called experts, the next "Pearl" will broaden this discussion a bit. We'll try to analyze the situation from a regional and global perspective, and maybe see if there are any answers for developing countries like the Philippines faced with the onslaught of globalization.

Clarence Henderson

Comments, questions?... Post a note to the APMF discussion board (See left hand sidebar) or email Clarence direct