Ruel F. Pepa
Post-war Philippine economy has passed through the rough and circuitous roads of development conditioned by certain socio-political and cultural factors which have led to its slow-moving and sluggish pace. Immediately after the country’s liberation from Japanese occupation (courtesy of the US), the Philippines was relatively on top of the Southeast Asian (in fact, Asian) economic ladder fir a short period of time—of course, until Japan finally fully recovered from war devastation through the inflow of massive US war reparation aid and later the institutionalization of industrial and commercial presence to stabilize and make dominant Japan’s economy not only in Asia but even globally. At the point of
The ensuing years saw the initial but painful period of Philippine political evolution that directly affected the economy as well as the socio-cultural apparatus. The period was generally characterized by political manipulations that began to hurt the country’s economic foundation through the exploitative maneuverings of
Roughly, it is a sober admission of practically all reasonable and level-headed viewpoints that US hegemony by way of imperialistic programming has a direct hand in what the Philippines has gone through in its social, political, economic and even cultural journey as a suffering and struggling people.
It is nevertheless of interesting significance at this point to track down and reflect on the most prominent phases, features, characteristics and influences of certain Philippine economic formations through which a clearer and more meaningful assessment could be effected and advanced. In doing so, a battery of theoretical formulations and models are readily on hand, giving special credence and professional assent to the reflection and discussion intended in this paper. Specifically, the present reflection/discussion is limited to the respective parameters of classic theories of development as follows; (1) the linear-stages-of-growth models, (2) theories and patterns of structural change, (3) the international-dependence revolution, and (4) the neoclassical, free-market counterrevolution.[1] Towards the end of Todaro and Smith’s Chapter 4 discussion, the present-day relevance and importance of these models and theories should properly be noted and explicitly recognized, even reconciled in spite of the differences
You may wonder how consensus could emerge from so much disagreement. Although it is not implied here that such a consensus exists today or can indeed ever exist when such sharply conflicting values and ideologies prevail, we do suggest that something of significance can be gleaned from each of the four approaches that we have described. For example, the linear-stages model emphasizes the crucial role that saving and investment plays in promoting sustainable long-run growth. The Lewis two-sector model of structural change underlines the importance of attempting to analyze the many linkages between traditional agriculture and modern industry, and the empirical research of Chenery and his associates attempts to document precisely how economies undergo change while identifying the numeric values of key economic parameters involved in that process. The thoughts of international-dependence theorists alerts us to the importance of the structure and workings of the world economy and the many ways in which decisions made in the developed world can affect the lives of millions of people in the developing world. Whether or not these activities are deliberately designed to maintain developing nations in a state of dependence is often beside the point. The fact of their dependence and their vulnerability to key economic decisions made in the capitals of North America, Western Europe, or Japan (not to mention those made by the IMF and the World Bank) forces us to recognize the validity of many of the propositions of the international-dependence school. The same applies to arguments regarding the dualistic structures and the role of ruling elites in the domestic economies of the developing world.
Although a good deal of conventional neoclassical economic theory needs to be modified to fit the unique social, institutional, and structural circumstances of developing nations, there is no doubt that promoting efficient production and distribution through a proper, functioning price system is an integral part of any successful development process. . . .[2]
- The Linear-Stages-of-Growth Model
The linear-stages-of-growth model is an outgrowth of the Cold War politics of the 1950s and 1960s. It has two successive theories. The first was advanced by the American economic historian Walt W. Rostow, while the second is the Harrod-Domar model which injects to the Rostow model “the mobilization of domestic and foreign savings in order to generate sufficient investment to accelerate economic growth.”[3] Rostow described “the transition from underdevelopment to development . . . in terms of a series of steps or stages through which all countries must proceed.”[4] As cited in Todaro and Smith, Rostow’s opening chapter in The Stages of Economic Growth mentions of the five categories within one of which may be identified societies in the economic dimensions where they specifically belong. These five categories according to Rostow are: (1) the traditional society, (2) the pre-conditions for take-off into self-sustaining growth, (3) the take-off, (4) the drive to maturity, and (5) the age of high mass consumption.[5]
In the light of the Rostow growth model, Philippine economy has not even yet positioned itself on the take-off platform, which is actually the third stage. More reasonably, it could be surmised that Philippine economy at this point in time is still located in the “preconditions” stage. Clearly, we have passed the traditional stage considering that we have all the simulacra of a modern western society in terms of technological and commercial amenities which are factors that make us aware of the pre-conditions that will allow us to take off into self-sustaining growth. However, we as a people in general have not even really experienced yet the actualities of such pre-conditions in concrete ways. What we only experience so far is a distant glimpse of the take off. In other words, through the successive terms of post-war government leaders, we have always said we are almost there time and again. But in no specific historical moment have we ever been quite there. There is so much of the features of a capitalist society amidst us in terms of industry and technology but never can we deny the fact that vestiges of traditional society still linger and forcefully exert an enormous effort to retard social, political and hence economic formations and mobility. A habitus has actually developed in the people’s general culture that at the same time has seemingly created a hopeless domestic situation. Prof. Jose Ma. Sison in this light may therefore be justified to make the initial assessment that Philippine society in reality is semi-feudal and semi-colonial. If we look into the intertextuality of the Rostow model’s categories and Alvin Toffler’s “waves’ profusely discussed in his trilogy.[6] Toffler’s first-wave or agricultural society is in-between Rostow’s traditional society and the “pre-conditions” stage which Toffler identifies as the initial formation of the industrial era. The “take-off” stage of Rostow can hence be figured out in Toffler’s second-wave of industrial society, because a genuinely economic take-off in the context of modern Western society may be realized once all the components of industrialization are in place. The rest of Rostow’s stages are of course the major conditions to bring about what Toffler calls “the third wave” or “post-industrial” society in the age of information.
Going back to the discussion of the linear-stages-of-growth model, the Harrod-Domar variety zeroes into the concrete operationalization of Rostow’s take-off stage. The Harrod-Domar growth model contends that no take-off may happen unless there is an actual mobilization of domestic and foreign savings via investment.
Every economy must save a certain proportion of its national income, if only to replace worn-out or impaired capital goods (buildings, equipment, and materials) However, in order to grow new investments representing net additions to the capital stock are necessary.[7]
Basically, Philippine government recognizes this very well as evidence by the presence of export processing zone areas (EPZAs) in different parts of the country. The single major problem we find in this state of affairs is the subordinated location of the
The whole situation takes advantage of the country’s cheap labor and available liquid capitalization provided by domestic banks and the savings of existing local businesses “recruited” as partners of these foreign investors. The grave downside of this scenario leads to the downgrading of most of the professional and technical skills readily available among the locals considering the high-level training and education that Filipinos have undergone in a variety of specialized fields of productive endeavors. In relation to portfolio investment, the only investment carried by a foreign investor is her/his successful performances in her/his country of origin and/or other places. No liquid capitalization is brought into the country and the investor relies solely on locally available capitalization. A large percentage of the profit therefore goes to the foreign investor and very little to the domestic coffer.
The “tragic” consequence possible in this situation is when the so-called profit of the investor is not returned to the cycle of the domestic economy but instead brought out of the country for whatever purpose the investor deems it necessary in favor of her/his selfish interest at the expense of the locally-generated capitalization which has only accrued very minimal interest.
Todaro and Smith are not ignorant of these consequences:
The main obstacle to or constraint on development, according to this theory, was the relatively low level of new capital formation in most poor countries. But if a country wanted to grow at, say, a rate of 7% per year and if it could not generate savings and investment at a rate of 21% of national income . . . but could only manage to save 15%, it could seek to fill this “savings gap” of 6% through either foreign aid or private foreign investment.
Thus the “capital constraint” stages approach to growth and development became a rationale and (in terms of cold war politics) an opportunistic tool for justifying massive transfer s of capital and technical assistance from the developed to the less developed nations. It was to be the Marshall Plan all over again, but this time for the underdeveloped nations of the developing world.[8]
Further, Todaro and Smith comment:
The Rostow and Harrod-Domar models implicitly assume the existence of these same attitudes and arrangements in underdeveloped nations. Yet in many cases they are lacking, as are complementary factors such as managerial competence, skilled labor, and the ability to plan and administer a wide assortment of development projects. But at an even more fundamental level, the stages theory failed to take into account the crucial fact that contemporary developing nations are part of a highly integrated and complex international system in which even the best and most intelligent development strategies can be nullified by external forces beyond the countries’ control.[9]
Todaro and Smith Say that “[s]tructural-change theory focuses on the mechanism by which underdeveloped economies transform their domestic economic structures from a heavy emphasis on traditional subsistence agriculture to a more modern, more urbanized and more industrially diverse manufacturing and service economy.”[10] Philippine economy fits well into this model considering the fact that Philippine economy is definitely underdeveloped and in its present experience, there have been efforts in the country to move things up from traditional subsistence agriculture to at least the level of modernization and urbanization. Two theoretical approaches are considered in the structural-change model: the Lewis theory of development and the Chenery “patterns of development” analysis.
The Lewis model assumes that two sectors constitute the underdeveloped economy: “. . . a traditional, overpopulated rural subsistence sector characterized by zero marginal labor productivity—a situation that permits Lewis to classify this as surplus labor in the sense that it can be withdrawn from the agricultural sector without any loss of output—and a high-productivity modern urban industrial sector into which labor from the subsistence sector is gradually transferred.”[11] The Lewis model is therefore after the full realization of high productivity in the sector of modern urban industry which the model assumes to be the concrete goal of genuine economic progress in a country. The modern urban industrial sector may actually expand its productivity via the transfer into it of labor coming from the rural subsistence agricultural sector. And since the modern industrial sector offers wages 30% higher than average rural income, the situation becomes very inviting for traditional agricultural sector workers to leave their rural origin and migrate to the urban setting.
In the Philippine experience, the Lewis model did not yield a more rosy promise of economic progress as it disempowered the agricultural sector in particular and hence Philippine economy in general. The urban magnet of “the good life” precluded the empowerment and stabilization of agricultural productivity which if genuinely pursued could have provided the foundation for agro-industrialization. Hence, it would in turn have become the foundation of national industrialization. The Lewis model creates a lopsided situation in an underdeveloped economy by way of a polarization of sectors that leaves the agricultural sector a wasteland and the industrial sector at the mercy of foreign investments, at least in the context of Philippine experience.
The Lewis model truly enhances capitalist industries in a country which in the final analysis amounts to the rise of the GNP. But in a capitalist situation, it is only the capitalists who benefit by way of enormous profits. Hence, the wealth of the nation as reflected in the GNP does not actually prove “the good life” of individual families, much less of individual persons in the country because, as it happens in the
In this connection, the late Harvard economist Hollis Chenery came up with a theory that expresses the realization that “increased savings and investment are perceived . . . as necessary but not sufficient conditions for economic growth.”[12] This theory is operationalized in the structural-change model which stresses both domestic and international development constraints. “The domestic ones include economic constraints such as a country’s resource endowment and its physical and population size as well as institutional constraints such as government policies and objectives. International constraints on development include access to external capital, technology, and international trade. Differences in development level among developing countries are largely ascribed to these domestic and international constraints. . . . [T]he structural-change model recognizes the fact that developing countries are part of a highly integrated international system that can promote (as well as hinder) their development.”[13]
This so-called “highly integrated international system” affirms and provides a solid foundation of economic analysis and evaluation for the advancement of another economic development theory expressed in at least three models.
- The International-Dependence Theory
Todaro and Smith score the point that “[d]uring the 1970s, international-dependence models gained increasing support especially among developing-country intellectuals, as a result of growing disenchantment with both the stages and structural-change models. While this theory to a large degree went out of favor during the 1980s and into the 1990s, versions of it have enjoyed a resurgence in the early years of the twenty-first century, as some of its views have been adopted, albeit in modified form, by theorists and leaders of the anti-globalization movement.”[14]
The theory has seen expressions in three models: (1) the neoclassical dependence model, (2) the false-paradigm model, and (3) the dualistic-development thesis.
The neocolonial dependence model is basically Marxist in its assumptions. “It attributes the existence and continuance of underdevelopment primarily to the historical evolution of a highly unequal international capitalist system of rich country-poor country relationships.”[15]
In the case of the
The defeat of the Philippine revolution resulted in the direct colonial rule of modern imperialism or monopoly capitalism, the highest stage of capitalism, over the
Monopolies had become dominant in the American economy. Bank capital, traditionally merchant, had merged with industrial capital.
Todaro and Smith concur thus:
. . . [T]he neo-Marxist, neocolonial view of underdevelopment attributes a large part of the developing world’s continuing and worsening poverty to the existence and policies of the industrial capitalist countries of the Northern Hemisphere and their extensions in the form of small but powerful elite or comprador groups in the less developed countries. . . . Revolutionary struggles or at least major structuring of the world capitalist system are therefore required to free dependent developing nations from the direct and indirect economic control of their developed-world and domestic oppressors.[17]
Again, in the case of the
Under conditions of much-worsened economic crisis, the political crisis of the ruling system also worsens to the point of armed conflict among factions of the ruling classes. The lessening of economic loot for the factions intensifies their political struggle.
The economic crisis results in widespread social unrest and in the rise of an armed revolutionary movement. . . [18]
Getting to the second model—the false-paradigm model—of the international-dependence theory brings us face-to-face with “a less radical international-dependence approach to development which . . . attributes underdevelopment to faulty and inappropriate advice provided by well-meaning but often uninformed biased and ethnocentric international ‘expert’ advisers from developed-country assistance agencies and multinational donor organizations. These experts offer sophisticated concepts, elegant theoretical structures, and complex econometric models of development that often lead to inappropriate or incorrect policies.[19]
Post-war
The truth of the matter is none of these international organizations have genuinely lifted the
Out of this reality came the dualistic development thesis of the international-dependence theory. Todaro and Smith advance the notion that “[i]mplicit in structural-change theories and explicit in international-dependence theories is the notion of a world of dual societies or rich nations and poor nations and, in the developing countries pockets of wealth within broad areas of poverty. Dualism is a concept widely discussed in development economics. It represents the existence and persistence of increasing divergence between rich and poor nations and rich and poor peoples on various levels.”[20]
Though the models that represent the international-dependence development theory legitimize the theory itself by way of a reality check, Todaro and Smith cannot afford to end their discussion of the theory without a very important caveat:
If we are to take dependency theory at its face value, we would conclude that the best course for developing countries is to become entangled as little as possible with the developed countries and instead pursue a policy of autarky, or inwardly directed development, or at most trade only with other developing countries. . . . [T]he key to successful development performance is achieving a careful balance among what government can successfully accomplish, what the private market system can do, and what both can best do together.[21]
- The Neoclassical Counterrevolution: Market Fundamentalism
The neoclassical counterrevolution theory which purveys market fundamentalism challenges not only the international-dependence theory but more so the exorbitant government interference with economic activities whose major locus is the market. The theory is carried out through free markets, public choice and market-friendly approaches. Todaro and Smith observe that
In developed nations, this counterrevolution favored supply-side macroeconomic policies, rational expectations theories, and the privatization of public corporations. In developing countries it called for freer markets and the dismantling of public ownership, statist planning, and government regulation of economic activities[22]
Further, Todaro and Smith comment that “it is this very state intervention in economic activity that slows the pace of economic growth. The neoliberals argue that by permitting competitive free markets to flourish, privatizing state-owned enterprises, promoting free trade and export expansion, welcoming investors from developed countries, and eliminating the plethora of government regulations and price distortion in factor, product and financial markets, both economic efficiency and economic growth will be stimulated.”[23]
As the neoclassical counterrevolution theory comes out, developing countries like the Philippines are now in a more definitive position to realize the fact that the enemy which is exploitative monopoly capitalism is concretely found in the free markets which are not really free at all but controlled and regulated not by national government but by the minions and the local agents of monopoly capitalism. In this light, the call of neoclassical counterrevolution for freer markets and the dissolution of public ownership, centralized planning and regulated economic activities by government is nothing but a myth meant to deceive in the context of developing countries where monopoly capitalism can never actually operate unless there is a conspiratorial agreement between foreign investors and the local comprador big bourgeois who are enormously, extensively and excessively supported, represented and promoted by and in the government machineries, both national and local, of a developing country. Hence, all the theses and approaches that constitute the neoclassical counterrevolution theory are nothing but bubbles in the air in the circumstances of developing countries. In fact, it could even be inferred at this point that this theory has been advanced as an ultimate saving act to extend the life of monopoly capitalism in its dying moments.
In a developing economy like that of the
As a parting shot, let this reflection, though “impressionistic” in tone and temper be a re-affirmation of the international-dependence revolution theory as the only genuine expression of a realistic analysis and evaluation of the present conditions and future realizations of developing economies including that of the
rfp/tua/gs/020507
[1] Michael P. Todaro and Stephen C. Smith, Economic Development (8th Edition), (
[2] Ibid., pp. 132-133.
[3] Ibid., p. 113.
[4] Ibid., p. 112.
[5] Loc. Cit. From Walt W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (London: Cambridge University Press, 1960), pp. 1, 3, 4, and 12.
[6] Cf. Alvin Toffler’s Future Shock (1971), The Third Wave (1981), and Powershift (1990). All have been published by Bantam Books,
[7] Todaro and Smith, p. 113.
[8] Ibid., p.115.
[9] Ibid., p.116.
[10] Ibid., p.114.
[11] Ibid., pp. 116-117.
[12] Ibid., p. 121.
[13] Ibid., p. 122.
[14] Ibid., p. 123.
[15] Ibid., p.124.
[16] Ruel Pepa and Dennis Paul Guevarra, A Compendium of
[17] Todaro and Smith, p.124.
[18] Pepa and Guevarra, p. 146.
[19] Todaro and Smith, p. 125.
[20] Ibid., p. 126.
[21] Ibid., p. 127.
[22] Ibid., p. 128.
[23] Loc. Cit.
[24] Pepa and Guevarra, p. 139.
[25] Ibid., p. 140.
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