PHILIPPINE ECONOMY

A.   Objective

This lesson aims to provide students with a basic understanding of the economic structure of the Philippines throughout history. It also addresses the related issue of how the development of the economy has had detrimental effects on the environment of the country.

B.   Scope

While presenting an overview of Philippine economic structure prior to and during the colonial times, this lesson focuses on the Philippine experiences with the ‘green revolution’ in rice agriculture and the reliance on export agriculture during the post-colonial period. Explanations of various government policies and foreign influences in the Southeast Asian region will clarify these topics. This lesson will likewise discuss the impact of this type of economy on the problem of global deforestation.

A.   Pre-Colonial Times

Politically, the Philippine islands initially were populated by Austronesian-speaking peoples. These peoples arrived by boat, and set up separate communities known as barangay, each of which was led by a chieftain or datu. Initially, the religious beliefs and practices were animistic, as was true throughout Southeast Asia and the Pacific. The first major 'world religion' to penetrate the Philippines was Islam, which spread north from Indonesia to encompass the coastal settlements of many of the central and southern islands. This period was in the 12th-14th centuries. Upon the arrival of Islam, many community datu, or chieftains, became known as sultans. Their leadership status was enhanced by Islam, and their communities expanded in territory, becoming known as sultanates.

Economically, some of these communities were still engaged in hunting and fishing; others, in slash and burn agriculture; and still others developed the intricate rice terraces which are a hydraulic engineering marvel. These communities traded among themselves as well as with the people of neighboring and far-flung countries of what we now call China, Vietnam, Malaysia, Indonesia, India, and the Arab world – to whom the peoples of the Philippines exported, among other things, betel nuts, pearls, tortoise shells and from whom the peoples in the Philippines developed its written scripts and from whom it imported porcelain, silk, bronze gongs, and semi-precious stones.

B.   Spanish Colonialism

Ferdinand Magellan landed in the central Philippines on March 16, 1521 and claimed it for Spain. He was killed by Datu Lapu-Lapu of Mactan island, near Cebu, who became the first recorded patriot in Philippine history. Later on, Miguel Lopez de Legaspi, who started the colonization of the country in 1565, named the country after Philip II of Spain.

For over 300 years, the Philippines was under Spanish rule, during which time most of the country was converted to Roman Catholicism. Only certain regions of the remote highlands and the Muslim southern Philippines staunchly resisted conversion. Along with the Catholic Spanish friars came eventual economic exploitation by the 1800s and the usurpation of peasant lands into the hands of the Church. The Spaniards put in place a rigid class structure based on control of agricultural land, forming a two-class structure composed of landlords (known as hacenderos) on the one hand and peasants (magsasaka) and agricultural workers (sacadas) on the other hand.

Spain's initial interest in the Philippines was as a place to seek out the famed 'spice islands' of eastern Indonesia. This goal was unsuccessful, and so the Philippines became essentially a transshipment region where silver from Spain's colony in Mexico was exchanged for silks, porcelains, and other goods from China. This period of the 'galleon trade', referring to the large Spanish ships that transported goods across the Pacific Ocean from Mexico to Manila, lasted around 150 years.

By 1750 or so, Spain insisted that their Philippine colony become more self-supporting. At this time, Spanish troops focused on developing estate plantations to grow export crops, including hemp and sugar.

C.   The United States in the Philippines

1.  U.S.-Spanish War

The United States fleet led by Commodore George Dewey destroyed the Spanish fleet at the battle of Manila Bay on May 1, 1898. Under the Treaty of Paris, Spain ceded the Philippine Archipelago to the United States.

2.  Philippine-American War

After defeating the Spaniards, the United States moved to secure the Philippines as a colonial holding, resulting in the deaths of (according to a U.S. general in 1901), approximately one-sixth of the country’s population. The U.S. was motivated by the ambitious desire to become a colonial power in Asia, similar to the colonial role of other European countries in the region.

3.  U.S. Colonialism

The hacenderos prospered under U.S. rule. The country was brought inside normal tariff barriers and U.S. manufacturers had free access to the Philippine market.

This unfortunately limited prospects for any domestic industrialization and led the Philippines to a growing dependence on agricultural exports to the United States. This policy also served to strengthen the hold of a small number of powerful agrarian elites, or landowners, in the countryside.

4.  World War II

A few hours after the bombing on Pearl Harbor in Honolulu by the Japanese on December 7, 1941, the Japanese air force attacked the Philippines. Two days later, the Japanese army and navy landed on the main Philippine island of Luzon. The Japanese were interested in creating a larger economic zone throughout Southeast Asia, both for trading purposes and because of their growing population and limited land base.

U.S. General Douglas MacArthur was forced out of the Philippines after three months of fighting, only to return three years later to liberate it from the Japanese. During this period, Philippine political leaders were forced to cooperate with the Japanese. Eventually, many people had to evacuate their villages and had their crops and animals confiscated by the Japanese army during the latter part of the war. Manila and Baguio City were carpet bombed and destroyed when the United States fought to regain control of the Philippines.

D.    Philippine Independence

On July 4, 1946, shortly after the end of World War II, the United States finally granted the Philippines independence. Close economic ties persisted, however, under agreements providing for preferential tariffs, special treatment for U.S. investors in the Philippines, and a fixed peso/dollar exchange rate. Military ties also persisted: the U.S. retained Clark Air Base, Subic Bay Naval Base, and a number of other smaller bases in the Philippines, and established a permanent Joint U.S. Military Advisory Group (JUSMAG) for the Philippine armed forces.

Questions for Discussion

1.   What goals did countries such as Spain, Japan, and the United States have for colonizing the Philippines?

2.   Why did the United States give preferential tariffs to the Philippines after they were made a colony of the United States?

3.   What reasons might the United States have had for not removing the hacenderos?

III.  The Green Revolution

A.   Rice: The Staple of Life

Rice for the Philippines, and much of the rest of Southeast Asia, is the single most important crop. This is because it is the staple food for most of the population.

B.   The Green Revolution

In the early 1960s, Western countries began to develop and introduce new rice-growing technologies into the region in an effort to boost surplus rice production. This effort was known as ‘the green revolution’.

Scientists around the world gathered at the newly built research centers, such as the International Rice Research Institute in Los Banos in the Philippines, in an effort to breed strains of rice that were high-yielding, very fertilizer-responsive, and used less water. By 1970, half of the Philippines’ rice acreage was planted with new rice varieties. By 1980, 75% of rice farmers were using the new high-yielding varieties.

C.   Positive Effects

The effects of the green revolution were predicted to be as follows:

First, increased rice output would lower the price of rice. The poor would benefit more from this because they spend a larger fraction of their income on rice than the rich do. Second, the new technology would be available for the poor farmers because it would require little investment and would be subsidized in part by the government through international loans. Third, landless workers would benefit from the increased demand for labor.

D.   The Reality

Between 1900 and 1960, the annual output of rice per person rose from 80 to 140 kilograms. During this time, the population tripled and the cultivated rice acreage rose from 600,000 to 3.2 million hectares.

After 1960, rice output rose mostly by yield growth rather than acreage increase. Rice output is at its highest level in years, although fluctuates according to rice pricing policies of the government and the destructive effects of typhoons.

Many small farmers adopted the new high-yielding rice varieties, eager to increase their yields.

E.   Negative Effects

The green revolution has helped increase yield, but it has also had some negative consequences.

One major problem is the dependence on fertilizers. Not long after the farmers became dependent on the new technology, rice prices fell and fertilizer prices rose. This left rice producers with less real income than before the introduction of the new technology. The farmers did not have a choice to switch back to traditional rice varieties because prices of the new rice varieties were low and population pressure demanded that output stay high.

The new rice technology now demanded more resources than some poor farmers could provide. Landlords with enough political clout to obtain government subsidies and access to water resources became the major rice producers, employing many former independent farmers or share tenants as wage laborers. This effect contributed to the disjuncture in landholdings between socio-economic classes that has a long history in the Philippines.

Questions for Discussion

1.   Why did the ‘green revolution’ not originate within Asia but instead from the United States?

2.   What other consequences may the green revolution have had on the environment and the people of the Philippines?

3.   Why were primarily the rich farmers or large landowners able to obtain government farm subsidies?

A.   Export-Oriented Agriculture

Ever since Spain’s colonization, the Philippines has been exporting large amounts of agricultural resources around the world. Up until recently, export agriculture was the most important part of the Philippines’ interaction with the world economy.

B.   Cash Crops

The major export crops include coconut, sugar, bananas, pineapple, and wood. Ideally, international trade has beneficial effects on both trading partners. By specializing in commodities, a country is able to benefit in selling what it is more suited to produce.

C.   Impact of Such Orientation in Agriculture

There are complexities to this basic idea, though. First, foreign markets are neither purely competitive nor stable. Second, the Philippine government has sometimes regulated how much land is used to produce what kind of crops, which helps keep government revenue high, but does not let the producers make decisions that fluctuate with market trends. Third, the degradation of the environment due to careless government regulation risks future income loss in many export sectors

D.   Relations among Government, Hacenderos and Agricultural Workers

Sugar plantation owners, hacenderos, are the most powerful political bloc in the Philippines. The reason is that there are so few of them and they control vast tracts of land. Approximately 500 plantations make up 25% of the total sugar production. The sugarcane they harvest is extremely labor-intensive and the workers are paid below poverty wages in order to keep the prices low enough to maintain competitive pricing on the world market. The hacenderos are able -- through political control -- to manipulate the government enough to avoid harmful regulation, such as land reform and controlled wages.

E.   Mass Poverty

The United States Agency for International Development (USAID) summarizes the result: "Export expansion favors plantation agriculture and ties up substantial land assets in the hands of the few to the detriment of the landless agricultural workers, who receive a small share of the returns while suffering prolonged unemployment during periods of over-supply and periodically depressed prices."

Originally, in the 1850s when land was first being cleared for large plantations, workers were offered cash advances and then were bonded to plantations by means of high interest debts, which were then passed from one generation to the next. Today, many sugar plantation laborers are bound by poverty and landlessness in much the same way.

Questions for Discussion

1.   Why does the United States support preferred trading status with the Philippines when it is aware of the country’s economic problems?

2.   What obligations does the United States have to the people of the Philippines, a former colony?

3.   What can be done to correct the problems of a country with vastly different income divisions in its population?

A.   Logging Concessions

During the last 30 years, earnings from forestry have at times surpassed the Philippines’ two leading crops: coconut and sugarcane. Ninety percent of the country’s forests are considered publicly held domain controlled by the government. The government then issues logging licenses to timber companies, based on a system of political patronage. These companies then strip the land of trees and sell the wood for export. It is a quick and easy way to make money.

It does, however, have dramatic present and future social costs. The forests are being cut down much faster than they can rejuvenate without extensive planting. This will end any future income opportunities in the forestry sector. The environment is suffering due to soil erosion and biological diversity is lost. It is estimated that only 1 percent of the primary forest that existed in the Philippines in 1900 remains.

B.   Imperative of Sustainable Growth

Using proper forestry management, old-growth trees can be harvested from tropical forests every 30 to 50 years, creating a stable renewable resource. It is also possible to replant timbered areas in order to preserve the soil content. These measures have some cost associated with them and therefore reduce immediate profits to timber companies. Hence, they are rarely followed.

Land is intensively logged and then burned, making it available to settlers to farm. The land is only usable for slash and burn farming for around four years before the rains have leached away the nutrients. After that, the land is only suitable for grazing cattle unless it is left alone for 10-15 years to regrow its natural forest cover. The Philippines has already felt the effects of squandering a national resource. In 1970, exports fell from 4 billion board feet to 1 billion board feet in 1985. The current, remaining forest cover simply cannot support large-scale logging efforts anymore.

A second, scarcely recognized type of resource is also being lost as the forest dwindles. The Philippines is a region of megadiversity in biological fauna. It is home to a wide range of unique fauna (especially unique primates such as the tarsier, unique bats, rats, and other small mammals such as the mouse deer and cloud rat) found nowhere else in the world. All of these animals are threatened and extremely endangered as their forest habitat diminishes. The loss of such biological diversity is hard to measure in cost/benefit terms, but most scientists would argue that a narrowing of faunal and floral diversity is harmful and risky in the long run for any sustainable ecosystem.

C.   Negative Impact on Philippine Hydrology

The loss of the forest topsoil has a large effect on the hydrological systems of the Philippines. During the rainy season, the topsoil acts as a sponge absorbing water and then releasing it slowly into streams during the dry season. This helps to regulate the timing of water discharge and enhances the water’s quality.

Without the forests to hold the topsoil in place when the rains come, the topsoil is washed downstream in a flood. This not only makes the area unable to be planted, but also dams, reservoirs, and irrigation systems are ruined by the silt. Coastal fishing areas near river deltas also suffer, as the silt settles on coral reefs, thus killing them. Similarly, the fishing industry is forced to move farther from shore to catch fish, or fishers are compelled to engage in destructive marine fishing practices to sustain a livelihood.

Questions for Discussion

1.   Who is to blame for the deforestation in the Philippines?

2.   What would you expect of economic situations in other countries with deforestation problems?

3.   What is valuable about biological diversity?

VI. The Technological Revolution in the Export Industry

The Shift in Exports Over the Last Decade

After a dismal economic period throughout the 1980s, during which time economic growth was low to negative, the Philippines in 1988 was equally dependent on a mixture of electronics, agricultural, and garment exports. Ten years later, the country's comparative regional advantage in having a skilled, educated, and English-speaking labor force that is relatively cheap has transformed the export products. Today, most of the country's exports are computer chips and electronic goods, many of them computer peripherals. Such a shift has helped the country weather Asia's recent financial crisis and improved the prospects for strong economic growth in the future.

Source: http://www.niu.edu/cseas/outreach/philecon.htm

Source: Far Eastern Economic Review, July 15, 1999.

References:

Berlow, Alan. Dead Seasons: A Story of Murder and Revenge. New York: Vintage Books, 1996.Boyce, James K. The Philippines: The Political Economy of Growth and Impoverishment in the Marcos Era. Hawaii: University of Hawaii Press, 1993.Castillo, Andres V. Philippine Economics. Manila:[s.n.], 1957."Official Web Site of the Department of Trade and Industry". <www.dti.gov.ph>.

Zafra, Urbano A. The Philippine Economic Handbook. Washington, D.C.: Westland Printing Company, 1960.

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