Cronies and Booty Capitalism September 1999

If you're in Manila, even briefly, take the time to read one or more of Manila's freewheeling newspapers -- the Philippine Daily Inquirer and Philippine Star do the most muckraking and have the best columnists. The spectacular political follies that play out on their pages are more fun than a barrel of monkeys, as they say.

The hot topic recently has been the specter of creeping cronyism rearing its ugly head yet again. The administration has been roundly and justifiably bashed for letting the cronies get reestablished. August's anti-administration rally in Makati was attended by an estimated 50,000 folks, many wearing Cory yellow and all unhappy with what's been going down in the palace. This week saw a new series of rallies and 50 Manila dioceses tolling their bells simultaneously to protest "creeping authoritarianism." None of this should be surprising given Marcos' nasty legacy, which featured the looting of the Philippine economy and brutal political repression.

The following observations might help put the current debate into perspective. As usual, you must take the unique historical and cultural experiences of the Filipino people into account if you hope to understand what's really going on in Manila.

Before the European imperialists moved into Southeast Asia, most areas were ruled by warlords and had well-developed bureaucracies (e.g., Burma, Siam, Java). The English, French, Dutch, and Portuguese were all heavily into administration and bureaucracy, and were determined to firmly control their new possessions. How else could they fully exploit them economically and fulfill the white man's burden? Bloated colonial bureaucracies led by aristocratic white men and staffed by rank and file from local elites got the job done. Call it colonialism on the classic model.

The Philippines was, as always, different. Prior to the Spanish era, the Philippines had no particular sense of unity, established military, or centralized bureaucracy. Unlike Mexico, the Spaniard's primary point of reference, there had been no Aztec empire to give the elite classes residual memories of past grandeur or incipient national identity. The people, scattered over 7,000 islands and culturally, linguistically, and politically fragmented, were much easier to subjugate than the Mexicans. The Spanish didn't need to use their military muscle -- all they had to do was flex a little. They sailed in in their majestic ships, built a few fortresses flying the Spanish flag, declared themselves King Honchos, and proceeded to rule for the next three centuries.

The colonial administration consisted of a small Spanish elite in Manila supported by military garrisons and friars in the provinces. The friars soon insinuated themselves throughout the islands: Augustinians, Franciscans, and Dominicans in Luzon, Jesuits and Recollects in the Visayas and Mindanao. The extensive administrative apparati of India or Vietnam were nowhere to be found.

Another big difference was that the Spanish found little in the way of wealth to exploit, much to their disappointment. Magellan, of course, had been looking for spices or at least a little gold. But there was no oro or other immediate source of wealth in the Philippines.

There was, however, one route to getting rich quick: trading with Imperial China. Manila quickly became the transshipment point for the "galleon trade," in which Chinese silks and porcelains were exchanged for Mexican silver. The annual voyages of the Spanish galleons carried those goods across the Pacific to be resold at huge markups; most of the luxury items ended up in the fine salons of Paris, London, and Madrid. A lazy man's business, the galleon trade required little acumen or business sense. Spanish aristocrats with the right political connections and the ability to negotiate with the Chinese traders and artisans who flocked to the Manila entrepot quickly found the galleon trade just the ticket to guarantee a life of leisure and dissipation.

Some Spanish landowners came to the Philippines as part of the encomienda system, also adapted from Mexico. Basically, Spanish immigrants were given land grants that allowed them to tax the areas they settled, on condition they assume responsibility for "their" natives. Highly consistent with the Spanish medieval mentality, the original decree stated that "well-deserving persons should receive and enjoy the tribute of natives assigned to them, with the obligation of providing for their spiritual and temporal welfare, especially in maintaining peace in the locality where they presided." In theory, nothing short of feudal utopia, with masters and vassals harmoniously fulfilling their duties and mutual responsibilities. In practice, a cruel, abusive, and exploitative system.

Most of the orders acquired large estates. They leased the land to managers drawn from the local elites, who in turn enlisted tenants to farm the land on a sharecropping basis. These were institutional plantations rather than family haciendas on the Latin American model -- the friars ran the hacienda and got local girls pregnant, but they couldn't marry the women or pass on their wealth to their illegitimate children. In the long term, however, their descendants would play a key role as elite classes of Philippine society in the twentieth century.

In order to tighten their control, the orders built pueblos (townships) that were dominated by large stone churches named for a favorite saint. The church, almost always the biggest edifice in town, dwarfed the surrounding bamboo and nipa huts. The peasant families living nearby were said to be living debajo de las campanos ("under the bell"). The Filipino people were relatively compliant, and most families were soon attending mass and saying their rosaries. However, traditional belief systems continued to be of fundamental importance, and most of the locals' religious practices synthesized elements of Catholic ritual with indigenous and folk traditions.

The friars consolidated their control in part by learning the local lingo. The Filipino villagers were in awe of the strange white men who spoke their language and whose messages were so compelling and different from anything they had ever experienced. It was not uncommon for a single friar to live alone in a village and rule a thousand people or more with complete and unquestioned control.

Like the Hindus and Chinese who had passed through the archipelago before them, the friars saw no need to teach the Filipinos their language. This policy wasn't so much due to the geographic or linguistic diversity of the islands; rather, it reflected a trivialization of Filipino culture. The peasants weren't seen as being worth the trouble, nor as worthy of learning the Mother Tongue. Even as the Spanish era drew to a close, a mere 5% of the populace spoke Spanish.

By the 1830s, the galleon trade ended and the Spanish regime finally opened Manila up to international trade and allowed the immigration of Westerners other than Spaniards. Key players in the rapidly changing cultural mix of the mid-1800s included Chinese (traders and middlemen), British, German, and French businessmen (providing capital, ocean vessels, and markets), and mestizos (the vehicle through which vast masses of rural inhabitants were mobilized into a coherent labor force).

Under Spanish law, the illegitimate children of the Spanish friars, as well as the children of other Europeans and Chinese immigrants/traders who intermarried, were designated as mestizos. By the late nineteenth century, these offspring had become the first educated Filipino upper class. Known as ilustrados, they were sent off to be educated in the finest universities of the Continent. They drank coffee late into the night, walked the streets of old Madrid, and soon realized that wealth and education weren't enough. As epitomized by J.P. Rizal, they became the vanguard for change and began to voice their demands for political power. Although Rizal himself was executed in the early morning light of a December day in 1896, his compatriots carried the torch and were ready to play a key role in the future of the Philippines by the time Admiral Dewey steamed into Manila Bay.

The coming of the Americans, of course, fundamentally and irrevocably changed the course of Philippine history. Three areas are particularly important for furthering our understanding of cronyism.

First, the Americas expropriated around 400,000 acres of hacienda land that had been owned by the friars and placed it on the auction block Not surprisingly, the land was snapped up by well-off mestizo families. Even more importantly, the Payne-Aldrich Act passed by the American Congress in 1909 set up a tariff wall that guaranteed easy export of certain products and untaxed access to the world's biggest market. Prices for key exported commodities, and especially sugar, were artificially held well above world norms. In practice, this ensured (a) that wealthy mestizo families would get richer while the poor stayed poor, and (b) that the Philippines would remain primarily an exporter of unprocessed commodities with little economic incentive to modernize for decades to come.

Second, the Americans imposed the good old red, white, and blue political system, replete with bicameral legislature, regular elections, and colorful campaign speeches -- the picture perfect system for politically ambitious mestizo families. Their provincial kingdoms were located far away from Manila, protected from national integration by the lack of a national language. The elites already spoke Spanish, and quickly learned English, but politics back home were still carried out in the local language -- Tagalog, Ilocano, Cebuano, Visayan, whatever. This allowed the most powerful families to develop regional power bases, many of which exist to this day (e.g., the Montanos of Cavite, the Duranos of Danao, the Osmeñas of Cebu, the Pardo de Taveras of Manila).

Third, the Americans brought their own unique style of colonial administration with them. That particular era in American political thought and practice was dominated by Woodrow Wilson's beloved "congressional government." America had no professional bureaucracy and no tradition of a professional bureaucratic class. Unlike the European imperial powers, they were more than happy to turn the grunt work of running the colony over to the locals. As a result of this hands-off policy, administrators and bureaucrats emerged out of the same mestizo class that spawned the early Filipino capitalists. Within five years of the Americans taking over, Filipinos held half of civil service positions, rising to 90% in the 1920's and 99% in the 1930's.

Today's Philippine political and business system evolved out of this fluid and dynamic environment. The pre-World War II years saw a proliferation of political offices and administrative positions, controlled largely by mestizo politicians. Everything revolved around using the pork barrel and patronage as mechanisms of control. Senior posts went to brothers, cousins, and uncles, lower level positions to sons and nephews. In most cases, the elite families' networks extended octopus-like into government, business, education, and other key sectors.

The oligarchic families truly came into their own after Philippine independence in 1946. The Old Money families diversified from their haciendas into real estate, hotels, utilities, airlines, banking, insurance, and the media. Cory Aquino's father (Don José Cojuangco) increased the size of the Hacienda Luisita in Tarlac to over 10,000 hectares. Under Marcos, elite families who curried favor and avoided prison or exile became dominant, largely through uncontrolled plundering of state and private resources. The exemplar was Eduardo "Danding" Cojuangco, perhaps Marco's closest confidante, an astute businessman and political operative known as "Mr. Pacman" for his propensity to gobble up whatever company might catch his fancy.

After the EDSA Revolution and the election of Cory Aquino, the cronies were swept out along with Marcos, Imelda, and her shoes. Cojuangco and his family fled to Hawaii with the ex-royal family. The new constitution, heavily laden with clauses specifically written to control cronyism, reflected the widely felt revulsion against anything and everything to do with Marcos. Throughout the Aquino and Ramos administrations, there was strong and almost knee jerk rejection of anything reeking of "cronyism" -- the term itself simply had too many associations with Marcos, martial law, and the many terrible things that had happened to Filipinos. Cronies were not welcome in the government or in corporate boardrooms, although most self-respecting cronies managed to hang on to the bulk of their fortunes by hook or by crook, mostly the latter.

Thus, when Estrada entered office, there was a great deal of fear and trembling related to developments like:

• Cojuangco's triumphant return to the San Miguel Corporation board room within weeks of Erap's inauguration

• The dropping of tax evasion charges against Lucio Tan after the Ramos administration's aggressive and lengthy pursuit of the tycoon.

• The regular social visits of Tonyboy Cojuangco to Malacanañg.

• The election of Imelda's brother Alfredo "Bejo" Romauldez as mayor of Tacloban City and her nephew as congressman.

• Marcos' grand-nephew is now a hot young Manila television host, and not too long ago Estrada named a close associate of another Romauldez brother as head of Petron. No wonder people are worried.

However, at this point, it's getting harder and harder to be sympathetic. Even as I was writing that column, troubling things were happening. Estrada successfully pressured media moguls to withdraw their ads from the Inquirer, while the Manila Times shut its doors amid outcries of censorship and repression. The Malacanañg rumor mill had it that Erap would wait for extradition papers to be drawn up, then issue a last-minute executive order to rescue Mark Jiminez (even though his crimes and misdeameanors were clearly extradictable under present treaties).

At any rate, Erap is Erap, and he's already managed to get the people marching in the streets after little more than a year in office -- it took Marcos a lot longer than that. Perhaps the experiences of the Marcos' years will prove to be the saving grace. The Philippine people and the media are so hypersensitive to anything that reminds them of the bad old days that they simply will not allow history to repeat itself. Many leading columnists in town spent time in jail cells under Marcos, and know from traumatic personal experience just where it can all lead. With luck, their ongoing vigilance and a belated sensitivity to the weight of the issue on Erap's part may lead to a retreat from the brink.

Let's hope, anyway...

Note: Among the scholars whose work contributed to this piece were Paul Hutchcroft (from whom I borrowed the phrase "booty capitalism"), Alfred W. McCoy, Benedict O'Gorman Anderson, Filomeno V. Aguilar, Jr., Michael Cullinane, and Stanley Karnow. More detail on the sources I sometimes rely on can be found in the Sources for Orient Seas, or feel free to contact me directly if you'd like direction on further reading.

Clarence Henderson

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