When the nail sticks out

rants, raves and randomness

Why is the Philippines poor and Japan rich?

Note : This is a work-in-progress

It seems like the glaring difference between the Philippines and her neighboring countries has never been more prominent, more glaring than now, at the onset of technological innovations, human mobility, and the skyward progress of our fellow Asian neighbors. While the rest of Asia seems to be booming, the Philippines has frequently been dubbed as the laggard.

The data is saddening. According to World Bank, the Poverty headcount ratio at national poverty line (% of population) is at 26.5% in 2009  and that Poverty headcount ratio at $2 a day (PPP) (% of population) is at 41.5%. While global poverty went down, Philippine poverty remains high despite economic growth. There are more saddening data in the NSO website here on poverty. This depressing true-to-life situation has inspired Dan Brown to mention Manila in his most recent book, Inferno, where the heroine, Felicity Sienna Brooks, while soul-searching and contemplating on saving the world, decided to drop by the Philippines where she was eventually overwhelmed by the widespread poverty and almost had herself gang-raped by the locals.(Yes, I read it!)It may be a work of fiction, but “Whichever way one looks at it, poverty cannot be overseen in Manila, a capital where roughly 43 per cent of the city’s 13 million residents live in informal settlements and shantytowns, according to the Asian Development Bank “ as Arno Maierbrugger posted.  If this data is not enough to convince you, then I invite you to go over to the Philippines, walk the streets of Manila and observe. You may also talk to the regular joe commuting to or from work. Also, don’t forget the OFWs  According to Wikipedia, “In 2010, the Commission on Overseas Filipinos estimated that approximately 9.5 million Filipinos worked or resided abroad.This is about ten percent of the population figure of 94.01 estimated by the National Statistics Office. “ (read more ). If life is such a breeze at home, why go elsewhere and risk being exploited abroad? Despite the wealth of evidence available, of course, there are still skeptics, people who prefer to look at the situation through rose-colored lenses. If that is you, then please do yourself the favor of turning away now. Unless you agree that the premise is valid, there is just no point discussing anything more.

Still here?

Good.

Just barely an hour ago, I was listening to DZMM Teleradyo where another government official, a proponent of the controversial RH Bill, has stated that “Overpopulation” is the reason why we remain poor. Others, of course, beg to disagree. And who can forget the 20 things I hate about Philippines (whose video is now deleted?) by an American man residing in Cebu? Or the Brit who was talking about the Maslow’s triangle? Unfortunately, the typical Filipino response to criticism is not healthy. Instead of using this criticism to improve ourselves, we bash the video-makers and accuse racism. Julius Babao wisely defended the American poster, saying something like, (mangled quote) “ Hindi maganda yun pagkasabi kasi nagmumura. Pero kung iisipin mo e ang reklamo nya e reklamo din naman nating mga Pilipino.” (True that!)
My quest has, of course, lead me to read magazines and books not only about the Philippines but my host country, Japan. Japan is by all means not perfect, but they have an economic system that works, being the third largest economy in 2010, after China and US respectively. Considering the size of China and the US compared to Japan, that IS impressive. Numerous books have been written about Japan’s success to turn around and rapidly industrialize despite the terrible blows of atomic bombs and post-war economic sanctions. When I was a kid, I was taught that the Japanese discipline, hard-work and nationalism were the main factors of success. It sounds so abstract. How can you instill in a country discipline when the citizens are starving? The truth was so much farther. Of course, attitudes of the citizens help. But  proponents of the Maslow’s triangle will beg to disagree. When I read more books, I learned that post-war Japan wasn’t a paradise exactly. The Japanese were poor. They were like how Filipinos are now. They needed a visa to get to the US. They stole too, as claimed by restaurant owner and gangster Nick Zapetti who had to fire some of his employees for stealing (Please refer to Tokyo Underground  by Robert Whiting) .But how did they manage to turn around their country from the ashes to glory ? What did they do that the Philippines hasn’t done yet?  What is the secret of becoming a prosperous nation? The formula must be with the economic winners.

Until recently, I have heard people around me claim that one of the following (or a combination of the following) may be the possible reason for our failure to turn around our country :

1) Religion
2) Overpopulation
3) Geography
4) Spanish colonization
5) Weather / Climate
6) Crime
7) Lack of education
8) Lack of jobs
9) Lack of investors
10) Corruption
11) Poverty (we are poor because we are poor?)
12) Attitudes
13) Lack of mass housing

Until I stumbled in the book, Why Nations Fail,  I thought, like many others, that it’s probably the lack of education or a combination of some of these stalling the Philippine progress. But thanks to Professors DARON ACEMOGLU AND JAMES ROBINSON, I now understand that some of these are symptoms of troubled states. It means that they are CONSEQUENCES . They are NOT THE REASONS. Most Filipinos are of course confused with the causes and effects, including yours truly. It’s just that we are too mired up in poverty to see which caused what. It has become an endless cycle. But if there was one Filipino who got it right years ahead, it was Jose Rizal when he wrote the about Cabesang Tales. (Due to its length, an excerpt is found on another page here)

But when they began to harvest their first crop a religious corporation, which owned land in the neighboring town, laid claim to the fields, alleging that they fell within their boundaries, and to prove it they at once started to set up [31]their marks. However, the administrator of the religious order left to them, for humanity’s sake, the usufruct of the land on condition that they pay a small sum annually—a mere bagatelle, twenty or thirty pesos. Tales, as peaceful a man as could be found, was as much opposed to lawsuits as any one and more submissive to the friars than most people; so, in order not to smash a palyok against a kawali (as he said, for to him the friars were iron pots and he a clay jar), he had the weakness to yield to their claim, remembering that he did not know Spanish and had no money to pay lawyers.

Besides, Tandang Selo said to him, “Patience! You would spend more in one year of litigation than in ten years of paying what the white padres demand. And perhaps they’ll pay you back in masses! Pretend that those thirty pesos had been lost in gambling or had fallen into the water and been swallowed by a cayman.”
The harvest was abundant and sold well, so Tales planned to build a wooden house in the barrio of Sagpang, of the town of Tiani, which adjoined San Diego.
Another year passed, bringing another good crop, and for this reason the friars raised the rent to fifty pesos, which Tales paid in order not to quarrel and because he expected to sell his sugar at a good price.
“Patience! Pretend that the cayman has grown some,” old Selo consoled him.
That year he at last saw his dream realized: to live in the barrio of Sagpang in a wooden house. The father and grandfather then thought of providing some education for the two children, especially the daughter Juliana, or Juli, as they called her, for she gave promise of being accomplished and beautiful. A boy who was a friend of the family, Basilio, was studying in Manila, and he was of as lowly origin as they.
But this dream seemed destined not to be realized. The first care the community took when they saw the family prospering was to appoint as cabeza de barangay its most [32]industrious member, which left only Tano, the son, who was only fourteen years old. The father was therefore called Cabesang Tales and had to order a sack coat, buy a felt hat, and prepare to spend his money. In order to avoid any quarrel with the curate or the government, he settled from his own pocket the shortages in the tax-lists, paying for those who had died or moved away, and he lost considerable time in making the collections and on his trips to the capital.
“Patience! Pretend that the cayman’s relatives have joined him,” advised Tandang Selo, smiling placidly.
“Next year you’ll put on a long skirt and go to Manila to study like the young ladies of the town,” Cabesang Tales told his daughter every time he heard her talking of Basilio’s progress.

But that next year did not come, and in its stead there was another increase in the rent. Cabesang Tales became serious and scratched his head. The clay jar was giving up all its rice to the iron pot.When the rent had risen to two hundred pesos, Tales was not content with scratching his head and sighing; he murmured and protested. The friar-administrator then told him that if he could not pay, some one else would be assigned to cultivate that land—many who desired it had offered themselves.

(From the Complete English Version of El Filibusterismo from the Spanish of José Rizal By Charles Derbyshire)
Jose Rizal was truly a genius, way ahead of his time. He couldn’t have read Why Nations Fail, yet he understood very well the problems of his time and ours. What he did was paint a perfect picture of what an extractive institution is. He knew that the type of institution the Spanish built, serving only their own, was harmful and counter to any sort of individual progress an average Filipino was hoping to achieve. In the first place, the Spanish didn’t go abroad to work hard (“In the words of one member of Cortés’s band of conquistadors, the Spanish came to the New World “to serve God, and to get rich as all men want to do.”  The Spanish built this system in many of their other colonies, majority of which, not coincidentally,  remain poor even post-independence.

So what is an extractive institution?

Their (Acemoglu and Robinson’s)explanation in their book is that

if the institutions of power enable the elite to serve its own interest – a structure they term “extractive institutions” – the interests of the elite come to collide with, and prevail over, those of the mass of the population.

Historical evidence suggests that nations with extractive political and economic institutions are not capable of sustained growth.

But why has the Philippines remained poor despite being freed from Spain?

The Spanish themselves are gone, but the institution they built still remain.  Only this time, the new elites are the locals(Filipino) . From Why Nations Fail

Extractive political institutions that concentrate power in the hands of a few reinforce extractive economic institutions to hold power.

The Persistence of Colonial Institutions in the Modern Political Economy“ also cites parts of the book  as follows:

They point to certain forms of colonialism as a source of persistent political instability. In the work, “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,” the researchers find that prior to colonization, sub-Saharan Africa, Latin America, and Asia were all wealthy and politically stable regions. Ironically, they find that North America, Australia, and New Zealand, which are all relatively wealthy now, used to be poor. (Acemoglu et al. Aug 2001) Through a series of papers, Robinson and his co-authors attempt to explain this phenomenon indetail by examining the evolution of colonial political economies. Their work suggests that where Europeans faced high mortality rates, colonial settlements were not established. For instance, Europeans were not likely to settle in West Africa due to the high risk of falling sick with malaria. (Acemoglu et al. Dec 2001; 1380) They also did not settle in areas of high population density. (Acemoglu et al Aug 2001; 15) Rather, in these areas, Europeans set up extraction institutions, manipulating local labor and resources from afar. This method of economic gain worked especially well to Europeans’ advantage, since a large indigenous population could be exploited for cheap or free labor. Alternatively, in regions including the United States, Australia, Canada, and New Zealand, where conditions were more conducive to European health needs, settlements were established. These regions had a lower population density, less risk of disease, and a climate more similar to that of Europe’s.
Robinson and his colleagues find that development has been slowest in areas where extractive institutions were established for the financial gain of the colonizing country. They attribute this to the development of poor governmental institutions, which presumably persist to the modern day. They argue that in areas of settlement, “when the establishment of European-like institutions did not arise naturally, the settlers were ready to fight for them against the wishes of the home country.” (Acemoglu et al. Dec 2001; 1374) A larger number of settlers therefore increased bargaining power, thereby allowing for the establishment of a fair system of property rights and representative government. However, areas of extraction lacked such interaction between the colonizer and colonized, resulting in uncontested elite monopolies of power and sources of income. Sometimes, especially in cases of indirect rule in which leaders were appointed among locals, locals did form some of the elite class. However, usually it was the settlers who are attributed to have formed the elite.”

In the post-independence era, the legacies of extraction institutions supposedly continue to haunt the developing world. These institutions created a number of difficulties and complications early on, that have been difficult to overcome in the present.

Another example of a present-day extractive institution (Colombia)  (from the Why Nations Fail Website)

“In Mexico, Carlos slim did not make his money by innovation. Initially he excelled in stock market deal and in buying and revamping unprofitable firms. His major coup was the acquisition of Telmex, the Mexican telecommunications monopoly that was privatized by President Carlos Salinas in 1990. The government announced that intention to sell 51% of the voting stock (20.4 percent of total stock) in the company in September 1989 and received bids in November 1990. Even though Slim did not put in the highest bid, a consortium led by his Grupo Corso won the auction. Instead of paying for the shares right away, Slim managed to delay payment, using the dividends of Telmex itself to pay for the stock. What was once a pubic monopoly now became Slim’s monopoly and it was hugely profitable.

The economic institutions that made Carlos Slim who he is are very different from those in the United States. If you’re a Mexican entrepreneur, entry barriers will play a crucial role at every stage of your career. These barriers include expensive licenses you have to obtain, red tape you have to cut through, politicians and incumbents who will stand in your way and the difficulty of getting funding from a financial sector often in cahoots with the incumbents you’re trying to compete against. These barriers can be either insurmountable, keeping you out of lucrative areas, or your greatest friend, keeping your competitors at bay. The difference between two scenarios is of course, whom you know and whom you can influence and yes, whom you can bribe.”

WOW. SOUNDS FAMILIAR? When I read this, I thought for a second they were  talking about the Philippines. While I have no official data for entry barriers that entrepreneurs face in the Philippines, I have friends who were required to pay a heft “fee” without valid receipts or buy “tarpaulins” from government officials in exchange for the permit to open up a food stall. We can then assume how much the higher-ups are earning : those who require you to get supplies from them on a regular basis or a cut of your earnings like a tribute – Spanish era style. But this is not an over-the-top claims. For one, the NSO – no less –  states in their survey : One in Every Ten Families Gives Money, Gift, or Favor to Facilitate Availing of a Service from a Government Office (Results from the 2010 Annual Poverty Indicators Survey) 

Extractive institutions, anyone?

Professors Acemoglu and Robinson also wrote in Why Nations Fail:

“If you were poor with a good idea, it was one thing to take out a patent, which was not so expensive, after all. It was another thing entirely to use that patent and make money.  But the real way to make money from a parent was to start your own business. But to start a business, you need capital and you need banks to lend the capital to you. Inventors in the US were once again fortunate. While in 1818 there were 338 banks in operation in the US with a total assets of 160 million USD, by 1914, there were 27,864 with total assets of 27.3 Billion US. Potential inventors in the US had ready access to capital to start their business. Moreover, the intense competition among banks and financial institutions in the US meant that this capital was available at fairly low interest rates.

The same was no true in Mexico. In fact, in 1910, the year in which the Mexican Revolution started, there were only forty-two banks in Mexico and two of these controlled 60% of the total banking assets. Unlike in the United States, where competition was fierce, there was practically no competition among Mexican banks. This lack of competition meant that the banks were able to charge their customers very high interest rates, and typically confined lending to the privileged and the already wealthy who would then use their access to credit to increase their grip over the various sectors of economy.”

But this is only the tip of the iceberg.  (Continuation)

What is sad is when you go online or listen to the news, there are journalists, writers, politicians, bloggers who blame everything from the Spanish/Japanese/American colonizers to our faulty Filipino culture, our laziness, our religion, our Bahala na attitude or what not. This is saddening and coming from Filipinos too! Some claim we don’t work hard enough. Excuse me, but if hard work is such a guarantee of a country’s success, then how come these countries are rich when they work the least in the world?  To add credence to the site, I once worked for a BPO in the Philippines, handling French accounts. I was surprised to find out that France has a 35-hour work week and that their income tax is actually lower than ours. (more on this later) Besides, if pure hard work is the secret to success, then let’s look at North Korea, a country where people die of hard labor (among other things).  Let me cite another example from the book Why Nations FailIn Russia, Stalin made it a criminal offense to quit a job  (FYI :Under Stalin, Russia also experienced a high GDP.  Sadly, though, the Stalinist economic development came with a price : a death toll of 10 million)

Family ties, Filipino culture, lack of love for the Philippines, Ignorance are not reasons why the Philippines lags behind the rest

I heard Korina Sanchez once say that it’s probably because of Filipinos’ strong family ties that people steal, which makes corruption very rampant in the Philippines – people do it for their families. While this is true, strong family ties aren’t unique to the Filipinos. It is not the sole reason people steal. People steal for all reasons- but it is most encouraging when they are not held accountable. As the famous line goes by John Dalberg-Acton, “Absolute power corrupts absolutely. Great men are almost always bad men.

Does anybody remember (or know) the Lockheed bribery scandal, which spanned several countries, back in the 50s-70s?  People in power all over the world, all throughout history, tended to abuse their position for their own good – the difference is if they can commit gross abuse of power unchecked, or if there is a balance of power that can make them answerable. The fact that the Lockheed scandal happened across many nations mean corruption knows no bounds, no skin color or culture.  Every country has its share of good people, bad people and trouble makers. And this continues as I type. The Filipinos don’t have a monopoly of all the bad traits, but neither are our virtues unique to us. Election rigging has happened to Zimbabwe,  Dummy NGOs were discovered in India, family dynasties occur in China, North Korea, Japan and South Korea and corruption still happens in many parts of Europe. There can be many reasons why corruption happens, but imho, our strong family ties shouldn’t take the blame.

According to Why Nations Fail, a very good example of why culture is discounted as a factor of success or failure (of a nation) can be seen by looking at Nogales, Sonora and Nogales, Arizona; Or we can look at East and West Germany in the not-too-distant past. And last but not the least, something close to home : North and South Korea. They are people of the same country,  same geography and same culture. Heck some are even of the same family. But if you look at how a South Korean man fared versus his north Korean brother , you’d see a striking difference.

And even they agree  in Anthony Faiola’s article in Washington Post:

“Like them or not, North Koreans are our brothers, and one day we will unify the way East and West Germany did,” said Lee, a robust retired high school teacher. “Just like the West Germans, we will bear a financial burden, but the economic differences between North and South are now too great. They are very poor, but if we help them to modernize, we can reduce our unification burden down the line. We need to try to balance out the differences between us before we become one.”

But most of all, it’s  frustrating for me when people use words such as love or loyalty to determine a country’s success or failure. Why? It’s difficult to use abstract concepts to implement a very concrete, tangible change  because the results one measures are tangible. It’s like asking a baker to add more love/loyalty/patience to his cake so it becomes sweeter. And this is harder to prove.  (No amount of love will make a cake sweeter – in the tangible world, you need to add sugar)

This goes for the  letter circulating in the internet allegedly from the South Korean President to the Philippines, saying our problem is that we don’t love our country enough. What?! With all due respect to you Madame, but I beg to differ. People haven’t only cried for our country, some people have died fighting for our country (Military officer Killed in Zamboanga by Frances Mangosing, Inquirer).

Lastly, ignorance also doesn’t play a factor :

From Why Nations Fail :

Neither Ghana’s disappointing performance after independence nor the countless other cases of apparent economic mismanagement can simply be blamed on ignorance. After all, if ignorance were the problem, well-meaning  leaders would quickly learn what types of policies increased their citizens incomes and welfare and would gravitate toward those policies.

It wasn’t the differences in knowledge or intentions between John Smith and Cortes that laid the seeds of divergence during the colonial period, and it wasn’t the differences in knowledge between later US presidents such as Teddy Roosevelt or Woodrow Wilson, and Profirio Diaz that made Mexico choose economic institutions that enriched the elites at the expense of the rest of the society at the end of the nineteenth and beginning of the twentieth centuries while Roosevelt and Wilson did the opposite. Rather it was the institutional constraints the countries’ presidents and elites were facing. Similarly, leaders of African nations that have languished over the last half of the century under insecure property rights and economic institutions, impoverishing much of their populations, did not allow this to happen because they thought it was good economics; they did so because they could get away with it and enrich themselves at the expense of the rest, or because they thought it was good politics, a way of keeping themselves in power by buying the support of the crucial groups or elites.

Shintaro Ishihara, the ex-governor of Tokyo, wrote a book I happened to read  last year, entitled Japan that can Say No. I don’t agree (or remotely like Mr Ishihara for his racist remarks in my other post, Japan is a racist country) with many of Mr Ishihara’s opinions, but I think he got it right when he wrote :

I had an argument with an American correspondent recently. I asked him to look at those developing nations which were under American auspices. The Philippines and those in Africa, Central and South America are all in hopeless situations. Americans once called the Philippines “a showcase for democracy.” I said that Americans are mistaken.

While the Philippines may have felt more comfortable under American administration than under Spanish colonial rule, and while they still listen to America, the US never really imparted to them an understanding of genuine democracy. The chairman of the House Subcommittee on Southeast Asia once suggested to me that the US and Japan should split the cost of financial aid to the Philippines. I responded “You’re kidding!” I said that money alone cannot improve the situation in the Philippines because of the internal  situation. The US does not even know where its aid money actually ends up. And most fundamentally, social conflict in a nation cannot be solved with an outsider’s cash. The most crucial task in the Philippines if to face the cause of social turmoil there.

The cause is the role of the landowners; Philippine landowners have accumulated incredible power and wealth, syphoning everything from the ordinary people. These landowners will get no sympathy from me. The Philippines must act to redistribute the land and wealth in much the same manner as took place in Japan after the war. Landowners cannot remain landowners unless the country is stabilized. Should a military junta take power, and decide upon a socialist economic policy, these landowners would be wiped out. Usurpers must be removed, otherwise there is no way the seeds of democracy can be planted. This so-called “showcase of democracy” is empty. And pouring additional aid money into the hands of the landowners in the form of compensation for losing their land is not only a utter waste of funds, but also ruins any basis for self-help and self-motivation.

So how did they turn their countries around? 

If you strip the arrogance in the typical Ishihara-style of writing(and talking), what he is saying is that the Philippines needs to press the reset button. This is a way to level the playing field for everyone, to allow each and everyone a fresh start. One way to do this is through land reforms. Japan did their own version of post-war land reforms and succeeded.

Why Nations Fail used Napoleon as an example, who did the following, among other things:

 There were three main parts to the reforms imposed by the government.  The most sweeping of these was the Edict of Emancipation in 1807, which ended serfdom, feudal privileges, and all class distinctions.  Even Jews were given full civil rights by this document, a rarity in Europe at that time.  Along with this came a land reform in 1811 that gave the peasants two-thirds of the land they had worked for the nobles while leaving those nobles the other third of land in compensation for their loss.  Finally, there were major military reforms, such as promotion by merit and banning foreign recruits, which hopefully would instill some of the same high morale and efficiency into the Prussian army that had made the French army so effective in recent years.

There are other ways to do this of course.  According to Why Nations Fail, some countries had a shift accidentally through say, plagues or disaster, like the Bubonic Plague, which, unbelievably as it may sound, had its good impact on (Western)European economy and society:  the scarce labor gave European peasants more bargaining power.  Economic Impact of Black Death states that :

The greatest single shock was the Black Death or bubonic plague of 1348-49, which may have killed a third of England’s population. It is difficult to measure the psychological component of this catastrophe, But economically, the plague, following on the earlier decline changed the whole shape of society.

The prosperity of the earlier period had been based on constant expansion. The upper classes in particular had benefited from their monopoly of scarce resources and the cheapness of labor. In the second half of the 14th century, labor became the scarcest resource, while everything else dropped in price. Food and other agricultural commodities became cheaper because the market for them was smaller. Rents were lower, because the return on land was less and there were fewer people competing for it.

The new economic climate spelled opportunity for the peasant survivors of the plague.

In the long term, of course, legislation could not reverse the economic trend. The landlords themselves undermined the statute in bidding against each other for labor. But the statute and the attitude behind it did make adjustments a difficult matter. Peasants and other workers wanted to take maximum advantage of the new situation. They wanted the freedom to sell their labor for the highest price.

Workers increasingly resented the lords. They were not desperate for land or work as their ancestors had been in past decades — they knew they could make it on their own. Out of such perceived injustice come revolutionary ideas. The late fourteenth century saw a phenomenon that had been rare before — the refusal of peasants to render lords the services that were demanded. In other words, strikes.

I am not saying that the book recommends a plague or disaster to start all over again. It is also not saying that Europe shifted immediately from extractive to inclusive. If you look at their history, the shift was very slow.  One small change took place as a result of (though sometimes not directly)  a disaster or war. It may be as a reaction to or against something that was being implemented (ie taxes or tributes). Throughout time, the power of the elite lessened, and the common man enjoyed more rights. Other things came to be : the metric system, for one, was implemented in Revolutionary France.  (The metric system doesn’t discriminate- whoever was buying would get a standard amount of milk, for example). The result we see now is an accumulation of these changes.  This is why, now,  we  can see a man in power actually concede defeat in the House of Commons which was unthinkable for the people 150 years ago. But while changes didn’t happen overnight,  it can be relatively fast, especially if one has to make a decision between a third bomb or surrender.  From Milestones : 1945-1952

The first phase, roughly from the end of the war in 1945 through 1947, involved the most fundamental changes for the Japanese Government and society. The Allies punished Japan for its past militarism and expansion by convening war crimes trials in Tokyo. At the same time, SCAP dismantled the Japanese army and banned former military officers from taking roles of political leadership in the new government. In the economic field, SCAP introduced land reform, designed to benefit the majority tenant farmers and reduce the power of rich landowners, many of whom had advocated for war and supported Japanese expansionism in the 1930s. MacArthur also tried to break up the large Japanese business conglomerates, or zaibatsu, as part of the effort to transform the economy into a free market capitalist system. In 1947, Allied advisors essentially dictated a new constitution to Japan’s leaders. Some of the most profound changes in the document included downgrading the emperor’s status to that of a figurehead without political control and placing more power in the parliamentary system, promoting greater rights and privileges for women, and renouncing the right to wage war, which involved eliminating all non-defensive armed forces.

(Side note :  the zaibatsu was never completely dissolved.  ) (Also of possible interest, read the Potsdam Declaration)

But there is no natural path to an inclusive institution, as the book, Why Nations Fail, claims. For one the plague worsened the fate of the Russian peasants.  So what worked for one (Western Europe), failed for the other (Russia). But the good news is, the problems we are facing are man-made. We are not trapped in a deep, dark hole from which there is no escape. It’s not in our genes, not in our culture, not in our geography, not in our religion. We don’t have to change who we are. It’s in our system. Once you change the system, everything follows. And, being a rule abiding, tax-paying resident of Japan, I do agree. Many Filipinos who live abroad are fairly disciplined. We manage to turn our lives around , but not at the cost of changing who we are.

(Continuation)

So if it’s not us, not our DNA….

What is exactly wrong with the Philippines? 

Think of it this way , a country with an inclusive set of institution is like a game with fixed rules that apply to everyone. Everybody tries to play the game – not one person (or group) can change the rules of game on a whim. This is a stable environment for, say, starting up a business.

But an extractive one allows one person or group to change the rules of a game on a whim. Just when a common person is winning (as in the case of Jose Rizal’s Cabesang Tales) the government can say, introduce a new tax (again, like what was happening with  Cabesang Tales)   or change currencies as what happened in North Korea (example from  Why Nations Fail):

North Korean leader Kim Jong Il and his cohorts labeled this week’s sudden change in the country’s currency, which has left chaos in its wake, economic “reform.” On Monday the North Korean regime decided to lop off two zeroes from the existing paper currency, the won, and gave North Koreans less than a week to exchange all their old notes for new ones.

Imagine that you are making 10,000 Pesos a month. Now, your government decides to do “economic” reform and change the value of your money – your hard cash of 10,000 Pesos is now worth 100 Pesos. And not only that, a set deadline and a limit on how much you can change to new notes. Will hard work even change your life?

Some governments also expropriate investors(among other things). Say, for example, Argentina 

Cristina Kirchner’s Argentina illustrates an alarming trend. Her government has expropriated major foreign investors, falsified statistics, destroyed central bank independence , used  the nation’s currency reserves for political payoffs, and faces default. Yet she was easily reelected, just as her neighbor Hugo Chavez, whose gross mismanagement of Venezuela‘s economy may be unmatched in Latin America.

This of course, affects businesses and people.  No one will get attracted to a place where a leader can say, “Wow, your business looks lucrative. I’d like it for myself.”  Imagine sovereign defaults   like what the Philippines’ namesake, King Philip II of Spain did to the German banking houses (Example from According to Why Nations Fail )

This debt caused Phillip II to default on loans in 1557, 1560, 1575, and 1596. This happened because the lenders had no power of the king and could not force him to repay his loans.

Simply put, extractive institutions allow leaders to get away with it – from changing currencies, to  expropriating major foreign investors, to defaulting on banks, and yes, to misusing their funds. Why? Because there is no one to check on them. The system they have in place don’t allow the people to do so. There are many reasons why the system fails.  It can be because the system legally allows the leaders to, say , withhold receipts  or appoint their friends/family (instead of by merit, as what Napoleon did) who will not counter-check them  or lawfully bypass anybody’s decision if they want to.  A good modern example of democracy ins action is UK PM David Cameron, who was a supporter of the attack on Syria. Nevertheless, the system they have in place actually allowed others to win and him to lose. He says :

David Cameron: “It is clear to me that the British parliament… does not want to see British military action”

Look at the situation at home. Amid calls for the President BS Aquino to give up his own pork barrel, he can actually say “No, I don’t want to,” and go against the wishes of his people. BS Aquino is not a bad man per se – anybody in his place would probably do the same – it’s just that there is no systematic, definite way to decide on this to (or so it seems). The best people can do is march the streets, go to the media, publish blogs etc. etc – do we have to do this ALL the time? What are we voting people for? Why aren’t they representing us? Or is the system flawed such that we, the people, are under-represented? Or is because our system doesn’t have anything else in place? I don’t know, please tell me.

The recent march indeed produced good results – Aquino did abolish the PDAF to save some pogi points – but as  of writing this, I found articles saying Aquino has not abolished his own PDAF (please update me if I am wrong?).  If a real system is in place, like the UK’s House of Commons (and notice the name House of Commons and not House of Lords), then there would have been a systematic, democratic procedure on how to deal with issues. Correct me if I’m wrong, but do we have an efficient system in the Philippines to do this, or is it one Senator giving interviews against another? Is it people marching the streets all the time? If we do have a system in place, then why do decisions take SUCH a long time in the Philippines? If we had a system in place, decisions wouldn’t be swayed by any religious leader. (Question to ponder on : are our own ‘House of Commons’, that is, the Lower House, really representative of the people? Or are people still allowed to ‘abuse’ it? Is there, as the Wikipedia claims, under representation? )

And when people feel frustrated with the decisions their government makes, how do they voice it out (which is how a democratic country works – leaders answerable to people)? In Argentina, when people start asking questions,  they  get threatened. I’m not going to post links in the Philippines about people getting abducted/killed for raising questions. After all, our country is alleged to be one of the most dangerous countries for journalists.  How in the world will investors get attracted to such countries? But more importantly, how does this encourage Filipinos to stay? How does it encourage Filipinos to invest in the Philippines?

Imagine how  the  common player (the Argentines, the North Koreans, the Filipinos) can ever hope to win in  this game where rules change constantly? Where there is no level playing field? Where entry barriers appear for entrepreneurs?  Where bid rigging is systematic?Where bloodline and not merit is the name of the game? Where monopolies reign? And where, as Jose Rizal wrote, new taxes are being introduced every time to the Cabesang Taleses? It’s not, as I like to say, what the people signed up for when we first started playing the game. This is not how it’s supposed to work.

Not long ago, Mohamed Bouazizi, a Tunisian street vendor, set himself on fire. He was “in protest of the confiscation of his wares and the harassment and humiliation that he reported was inflicted on him by a municipal official and her aides.” Bouazizi, (like Cabesang Tales) was frustrated with the government. There he was, trying to make a living in a lawful way (instead of robbing people), but the government, instead of helping him or at least enabling him, was the agent of his misfortunes.  Bouazizi’s self-immolation is important – it eventually triggered the Arab Spring that forced rulers of Tunisia,Egypt, Libya and Yemen (to name a few) from power. According to the book, extractive institutions were and still are unstable. When people get frustrated, uprisings, revolutions, riots happen – which is what happened and continues to happen in the Arab world, which may also happen in North Korea soon.

Think about it, common players. You, me, North Koreans, Argentines, Venezuelans, Tunisians, Egyptians – we’re all in the losing end. We’re all the modern day Cabesang Taleses. And it’s not our religion. Not our skin color. Not our geography. Not our DNA.

Implosions

Over the course of history, the book has shown that extractive institutions – may they be absolute monarchy, communism, dictatorship – tend to implode in the long run. Why? Because they are not sustainable. When majority of the people are starving, unable to make ends meet because the rules of the game are always changing against their favor, people will finally get fed up and fight. Some say that Saudi Arabia, along with North Korea, is ripe for implosion. Whether or not these countries can shift to a more open, inclusive system is a question. As the book claims, there is no natural path to inclusive states. Just because you had a revolution does not mean the next path you take is the path to an inclusive state.

Russia was racked by revolutions a hundred years ago. They fought against the Tsar because the common people were fed up of being oppressed (Remember the  musical animation, Anastasia?). Eventually, though they shifted to another form of government which was, actually, no better than the previous one – USSR. Unfortunately, though, the new government was also very extractive . It was a single party state that gave the license to powerful people to do as they like – unchecked, very much like what the previous Tsarist autocracy was doing, pretty much what the King Philip II of Spain was doing centuries before.  USSR, as we all know, eventually  collapsed, though it took half a century to do so. Yes, a country can actually hold out for a very long time. Remember, we were under Spain, who created a very extractive institution,  for 333 years.

Will the Philippines eventually “implode”? I think we’ve had our “implosions” (EDSA). But like Russia, we didn’t really shift to a more inclusive political system. We changed the faces of the major players, but the system is still the same. Filipinos are patient, stoic people, and we’d like to hold out until we can (But then again, so where many people of the world). I was talking to a good friend of mine who  was suggesting that I relocate back to the Philippines with my husband. I answered, “Ayoko na kasing magbayad ng taxes diyan, if I can help it. Taas taas ng tax (32%)wala namang nangyayari.” My friend replied, “Eh ganyan naman talaga dati pa.” Ganyan naman talaga dati pa -if we can still afford to say it,  it means we’re still not going to “implode” any time soon.

“Democracy” in the Philippines

What is interesting when we travel is that we get to see and observe how things are done in another country. We talk to people and learn what happened in their lives. Japan, for example, during devastating earthquakes, provided temporary housing to people whose houses were destroyed (according to one student of mine). Public schools are free up to junior high. Being a wife of a Japanese, I get a monthly (albeit small) allowance for the government. If someday I have kids, there’s also government subsidy to cover for child birth expenses. Aside from that, when we get sick, we pay only 30% of the cost of the medicine and the fees ( Medicines in the Philippnes turn out to be more expensive). When I fell from a bicycle, a fire truck,an ambulance and cops all came within ten minutes. The ambulance coordinated with an available hospital (hospitals don’t run 24/7) and brought me to the hospital- all for free (the hospital itself wasn’t free though.. but it was subsidized).

What about the Philippines, which took 30% of my taxes when I was working there? What did the Philippines do in return? They made people like Janet Napoles rich. When I drive around Makati, I still have to watch over potholes. When I use the airport, I have to pay airport fee plus Php2600+ for being a resident abroad (and not an OFW). The public transportation is in a sorry state.  This is frustrating. The state takes and takes and takes and takes (I wonder if that’s why it’s called “extractive” – extracting from people all the time) and I get nothing in return. This is unsustainable and a fodder for discontent. But, just because I feel frustrated and mad doesn’t mean I dont “love” my country back. My country doesn’t love me back, and I am not a martyr to stay. Why? Because things can get better.  My less-traveled friend doesn’t seem to know that it doesn’t have to be the same way all the time. As Barack Obama says, we are the change we’ve been waiting for. Being complacent and accepting things as they are is unacceptable. I don’t want things to be the same way!

Another problem is when we pine our hopes on the person and not the system.

Ayyitey got it right when he said in his article After Revolutions, Beware of Crocodiles ,

It is analogous to a defective vehicle with a bad driver. After sacking the driver, the vehicle itself must be fixed or the new driver will quickly land in a ditch.

This happens when a “crocodile liberator,” like Charles Taylor of Liberia, turns out to be far worse than the dictator he claims to have overthrown. It can also occur when quack revolutionaries flaunting fake democratic credentials hijack revolutions to stay in power and pursue their own megalomaniacal agendas.

Many African leaders, for instance, came to power after some sort of revolution (against colonialism or self-rule) where they were seen as heroes. Initially, Africans seemed to  believe that they were good men – and there were no reasons to believe they weren’t.  Zimbabwe’s Robert Mugabe is one such man  :

At the end of the war in 1979, Mugabe emerged as a hero in the minds of many Africans. He won the general elections of 1980, the first in which black African majority participated through universal franchise.

Teodoro Obiang Nguema Mbasogo ousted his uncle dictator, whose reign was noted for having a  third of the population flee to other countries. According to Wikipedia,

Obiang declared that the new government would make a fresh start from Macías’ brutal and repressive regime. He granted amnesty to political prisoners and ended the previous regime’s system of forced labor.

Yet, Forbes rates him as one of the The Five Worst Leaders in Africa,

Equatorial Guinea is one of the continent’s largest producers of oil and has one of the highest per capita incomes in the world, but this doesn’t necessarily translate into prosperity for its people.

Does this paint a familiar picture? EDSA I, EDSA II, anyone? What did we get but a bunch of crocodiles, worse off than the last?

Our habits of pining on our hopes to someone of spotless character has lead us nowhere. Why ? Because people are people. People make mistakes. People are fickle. Like “love for country”, a person’s character is hard to measure. Do we vote for vegetarians, non-smokers, God-fearing or devout (insert religion) leaders?   John Adams was a drunk, Hitler was (in the latter part of his life) a vegetarian, Obama is a smoker, Estrada is a well-known womanizer, Bill Clinton was involved in a string of sexual misconduct.

in Hagakure, a guide for warriors, written more than two hundred years ago, an excerpt goes :

At the time when there was a council concerning the promotion of a certain man, the council members were at the point of deciding that promotion was useless because of the fact that the man had previously been involved in a drunken brawl. But someone said, “If we were to cast aside every man who had made a mistake once, useful men could probably not be come by. A man who makes a mistake once will be considerably more prudent and useful because of his repentance. I feet that he should be promoted.”
Someone else then asked, “Will you guarantee him?” The man replied, “Of course I will.” The others asked, “By what will you guarantee him?” And he replied, “I can guarantee him by the fact that he is a man who has erred once. A man who has never once erred is dangerous.” This said, the man was promoted.

It’s wrong to pine our hopes on people to save us. History has proven to us, time and again, that this just doesn’t work. People change.  While we won’t be electing serial killers and rapists to public office, look across the globe and see what great and bad leaders are made of. Most of all, look at the context that what made them great or bad.  Will the system bring out the best or the worst of our leaders? Let’s face it, you and I , if put into an unchecked power, will tend to corrupt.  As John Dalton-Acton said, “Great men are always bad men.” I agree with Ayyitey : we don’t need new drivers. We need to fix the car.

Efforts to be Inclusive

Can we believe BS Aquino, for example,  when he says, “No capitalists under my watch and “vowed to continue his determined efforts to create a level playing field by encouraging competition”? Or is our President in cohorts with the our own local, robber barons ? Is he, indeed, wearing a mask? Does the Aquino family, indeed, represent the monopolistic ruling class?

We often blame bad governance for this social malady, but we can also point out to the way the elite have manipulated social policies that cater mostly to the rich and take away from the poor their rights and ultimately, their dignity. You cannot expect someone from the ruling class to save the common man. Should there be someone who would open doors for our poor children, it must be someone who is not born with a silver spoon. It must be someone who is one among us.

How true. Since when did a ruling leader ever stand up for the common man? (Ok, there was Seretse Khama – but get real. He’s like 1 in  7 billion). The truth of the matter is that “absolute power corrupts absolutely and that great men are almost always bad men.”  If we make this the premise of our system – instead of a premise of finding a saintly leader to save us all – we make our lives easier. We don’t need to march every time we feel angry.

The most common debate I find online is the Aquino vs Marcos. We’ve tried them both. I’m surprised that people still think that the salvation of one country rests on one family name.

“Surely, if not Aquino, then it must be Marcos” is the common argument.  Would Marcos (indeed) have been better at bringing the Philippines back on its feet? Could the Philippines be like Singapore now, as Bong-bong Marcos claims? The The Philippines : Aquino vs Marcos states

“He[Ferdinand Marcos] was a shrewd politician who ruled like a monarch in the trappings of democracy,” recalls Shultz in his bookTurmoil and Triumph. “He ended martial law in 1981 but retained most of the powers that it had provided him. He had established himself as staunchly pro-American and anti-Communist.” (T&T, p. 608-609)

The essence of Shultz’s concerns stemmed from his belief that Marcos would not easily take to institutional reforms: “While Marcos, his family, and his political intimates prospered, his economic policies and political dominance had a debilitating effect on the people of the Philippines. He seemed to have lost the distinction between public and private: between what belonged to the government and what belonged to him.” (T&T, p. 610)  (read more )

Or are they all the same, both feudal lords, running the country unchecked, for personal gains?

  Why does a Marcos have to run all the time? “It’s the whole Filipino system – they really count on you, they have all these expectations,” she [Imee Marcos] tells me. “Your family is taking care of their family, which is taking care of your family and it just goes on and on and on. It’s pretty feudal in the Philippines still, even though we like to fool ourselves.”
When asked directly whether the return of the Marcoses is merely perpetuating the oligarchic politics that plagues the country, Manila-based Bongbong, whose demeanour hovers between playful schoolboy and displeased patrician, replies with mirth: “I always find the ‘return to politics’ a misnomer: we never left, we never left!” Or, as Imee remarks drolly about Filipino politics, “It is nepotism plus plus, a dynasty on steroids.”

What, wait did you say again, Imee? Nepotism plus a dynasty on steroids? Feudal?

The writer explains :

It is normal in the former US and Spanish colony for families to control provinces for generations – the Laurel clan run Batangas, the Osmeñas control Cebu, the López family manages Iloilo. The Aquinos – arch foes of the Marcoses – have run Tarlac for five generations and are currently the most powerful clan, with Benigno “Noynoy” Aquino III now president, a job held by his mother Corazon (or “Cory”), who succeeded Ferdinand Marcos in 1986. .

But isn’t the rule of clan a challenge to progress in the Middle East, North Africa? (and heck, our country too, in that case!)

Our experience, respectively, as a senior adviser to the Special Envoy for Middle East Regional Security and a scholar of legal anthropology and author of the forthcoming “The Rule of the Clan,” tells us that as the region’s reformers begin the mundane process of building the rule of law, they will encounter push-back from the rule of the clan. The United States should be ready to assist them.

Clans pose a challenge to state development in ways that are often difficult for Westerners to appreciate. Part of the challenge is cultural. Members of clans are united by powerful feelings of solidarity that impede or erode the overarching national identity essential for democratic citizenship.

But more important, throughout history, from medieval Iceland and Scotland to modern-day Libya and Yemen, where clans function as basic units of social organization, they claim to have the legitimate authority to administer justice for their members by using their own force.

Own force? In Philippines, clans and guns still rule

Like many political families elsewhere in the Philippines, the clan has preserved its dominance through a combination of patronage, intimidation and links to the presidential palace. Officials say that the Ampatuans kept a 2,000-strong private army, which included the over 100 men who are now facing murder charges for last year’s massacre.

The dominance of families demonstrates the dysfunctions of Philippine democracy. Yet, lively debate on democracy and a high level of engagement in electoral politics exist in many places, especially the big cities and mass media. Voter turnout has traditionally been at 80 to 85 percent, higher than in more mature democracies.

There you have it. Look at what we have now : dynasties. nepotism. clans and guns. elites. feudal. monopolies. Our democracy is dysfunctional, to say the least. No one could have said it better than Imee when she spelled it for the rest of us :”It’s pretty feudal in the Philippines still, even though we like to fool ourselves.

The truth of the matter is that the  Philippines is still pretty feudal..with some elements of “democracy” thrown in here and there..

But isn’t feudalism very extractive?

Feudalism is (in general) a social order rooted in a particular kind of rural extractive exploitation — often based on aristocratic/landlord control of land and the forcible taking of surpluses from peasant harvests.

How do we hope to solve our problems when we elect the very people (albeit a smart woman like Imee) who perpetuates the extractive cycle and undermine  real democracy? And the fact that she knows it means she is not ignorant – surely our leaders’ ignorance isn’t the problem! But don’t worry, Filipinos, this has happened  in Argentina with Cristina Fernández de Kirchner, in Venezuela with Hugo Chávez and in many other countries in the world (North Koreans don’t even get to decide on this – but they don’t pretend to be democratic). Again, I reiterate : Filipinos are not unique in this aspect, we are not alone!

What is an inclusive country really  like?

In the rich countries of the world, they don’t have super rich elites who have their own private army. Leaders report to their people.  To quote The Swiss vote more than any other country :

Swiss citizens have more chances to express their opinions at the ballot box than anyone else in the world, thanks to their extensive system of direct democracy.

Presidents try to curb monopolies as what Teddy Roosevelt did.

He believed that these so-called robber barons (or captains of industry, depending on one’s view), had helped America advance and become a major influence internationally, but he also wanted to tame them so they could not to harm the average citizen.

Like in the UK, where the PM, no less, acquiesces to the wishes of majority, many countries in the world actually get to decide on things that affect their lives. Barrack Obama states :

Ordinary people can do extraordinary things when they are given the opportunity in the major decisions that affect their lives.

But not only on big things like joining the war in Syria or electing leaders. Again, in Switzerland,  as an extreme example of democracy in action, the people voted against the construction of new minarets, among other things. While not all democratic countries can poll its citizen to decide on car pools and buildings, there is, to some extent, transparency  and accountability of the decisions the leaders make.

 How democratic are we really?

Gerry Ortega was gunned down (allegedly) for his anti-mining advocacy. The Maguindanao Massaccre , one of the most shocking events in Philippine electoral history, was (allegedly) an attempt to thwart one important process of democracy – that is a person’s right to run for office.  The real essence of democracy is violated when a family is -lawfully- allowed to keep seats for long periods of time, or when family members are -lawfully- allowed to hold office simultaneously, and yes, when leaders can -lawfully- appoint their intimates to position. Let us not point fingers : all Philippine presidents who come to power did this. Corazon Aquino who (allegedly) replaced every locally elected official with officers-in-charge, appointed  Ampatuan Sr  as officer-in-charge when she came into power.  According to this article, Arroyo supposedly appointed 169 people to positions in Government-Owned and -Controlled Corporations (GOCCs) in 10 government agencies, including those under the Office of the President (OP). When BS Aquino came to power, he wasted no time reshuffling and appointing people – pretty much like his predecessors. Why ? Because they could do so lawfully and he can too.   An excerpt from this website :

In fact, local potentates often reserve powers to themselves that the national government is not even aware of. The national government consists of three branches: the executive, headed by the president; two houses of Congress, the Senate and the House of Representatives; and the Supreme Court, which heads an independent judiciary. A bill of rights guarantees political freedoms, and the constitution provides for regular elections.

The performance of these institutions was, of course, conditioned by Philippine history and culture, and by poverty. For example, the twenty-four members of the Senate, elected by nationwide ballot, in the 1980s were drawn almost entirely from old, prominent families. Senators staked out liberal, nationalist positions on symbolic issues, such as military base rights for the United States, but were exceedingly cautious about any structural changes, such as land reform, that could jeopardize their families’ economic positions

Next time you go out to vote, be careful of candidates using highfalutin words, talking about democracy but coming from a family  of politicians. The thing that history has shown  to us is, if a leader (or a family) can get away with it (like dynasties), then they will, more likely than not, do whatever they can to hold on to power.  We need something in place to stop that. We need to change the systems so they cannot do that anymore, so that they will be forced to look out after us and do what is best for the majority.

An open, inclusive system

When Jay Z sings in his song with Alicia Keys, empire state of mind :

and since I made it here
I can make it anywhere

I wonder if he would have “made it” anywhere indeed, if he was born in North Korea, Tunisia, Zimbabwe or Equatorial Guinea ? While I can’t eliminate his chances to 0, I think it would be safe to say, it would have been much much lower than in the US. There is a reason why people like Steve Jobs (whose birth father was Syrian, so, yes, I reiterate, genes don’t count)and Jay Z “made it” in America . The same person probably wouldn’t have made it elsewhere, or at least very difficult to do so. In extractive countries, conditions aren’t very conducive. When leaders like Cristina Fernández de Kirchner expropriate companies because they can, potential investors are discouraged. If people were subjected to unfair conditions like Cabesang Tales, the incentive of working hard and innovating diminishes.  Why would you work hard if it doesn’t pay off? If there is no level playing field? If a government can lop off two zeroes off the currency anytime they wish?

In rich countries of the world, however, because the powers are constrained, they have managed to level the playing field. You don’t have to be born to the right family like Paris Hilton or Imee Macos. You don’t have to have a lot of connections

In Japan it has been believed, at least in the past, that anybody can become a senior bureaucrat. That is that one need not be rich, one need not be from a good family in an urban part of the country, that a poor farm boy, if he worked hard and passed the exam to the University of Tokyo and went on and passed the civil service exam, could rise to be the vice-minister of the Ministry of Finance, and perhaps then enter the Diet and become prime minister of the country. (from The Government of Modern Japan)

Not only that, anybody can be rich too   : Japan at number 3 in the list of Countries with most millionaires, 2013.  It is not coincidence that innovators and inventors come from inclusive countries. It’s also not a coincidence that inclusive countries are more prone to have advanced technologies and services. It’s not in their “genes”, but in the environment they are in that fosters healthy competition. The inclusive system helps bring out the best in people. Our future Steve Jobs and Bill Gates are probably rummaging in the trash looking for food instead of going to school and developing their skills.

America, of course, is no different. It is, by no means perfect, but  it is a country with an open system,  where  any poor  boy with sharp wit and will gets a reward for hard work. From Why Nations Fail :

As institutions influence behavior and incentives in real life, they forge the success or failure of nations. Individual talent matters at every level of society, but even that needs an institutional framework to transform it into a positive force. Bill Gates, like other legendary figures in the information technology industry (Paul Allen, Steve Jobs, Larry Page etc.) , had immense talent and ambition. But ultimately, he responded to incentives. The schooling system in the United States enabled Bill Gates and others like him to acquire a unique set of skills to complement their talents. The economic institutions in the United States enabled these men to start companies with ease, without facing insurmountable barriers. Those institutions also made the financing of their project feasible. The US labor markets enabled them to hire qualified personnel, and the relatively competitive market environment enabled them to expand their companies and market their products. These entrepreneurs were confident from the beginning that their dream projects could be implemented ; they trusted the institutions and the rule of law that these generated and they did not worry about the security of property rights. Finally, the political institutions ensured stability and continuity. For one thing, they made sure that there was no risk of a dictator taking power and changing the rules of the game, expropriating their wealth, imprisoning them or threatening their lives and livelihoods. They also made sure that no particular interest in society could warp the government in an economically disastrous direction, because political power was both limited and distributed sufficiently broadly that a set of economic institutions that created the incentives for prosperity could emerge.

Why Nations Fail states that :

The reason that Nogales, Arizona is much richer than Nogales, Sonora, is simple.it is because of the very different institutions on the two sides of the border, which create very different incentives for the inhabitants of Nogales, Arizona, versus Nogales, Sonora. The United States is also far richer today than either Mexico or Peru because of the way its institutions, both economic and politics, shape the incentives of the businesses, individuals, and politicians. Each society functions with a set of economic and political rules created and enforced by the state and the citizens collectively. Economic institutions shape economic incentives: the incentives to become educated, to save and invest, to innovate and adopt new technologies , and so on. It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works. For example, it is the political institutions that of a nation that determine the ability of citizens to control politicians and influence how they behave. This in turn determines whether the politicians are agents of the citizens, albeit imperfect, or are able to abuse the power entrusted to them, or that they have usurped, to amass their own fortunes and to pursue their own agendas, ones detrimental to those of the citizens. Political institutions include but are not limited to written constitutions and to whether the society is a democracy. They include the power and capacity of the state to regulate and govern society.  It is also necessary to consider more broadly the factors that determine how political power is distributed in society, particularly the ability of different groups to act collectively to pursue their objectives or to stop other people from pursuing others.

(To be continued)

Disclaimers!

Image taken from Joseph on perspective

This a work-in-progress. It’s constantly changing.

Please note that the bulk of this article ( excluding the part about the Philippines) is from Why Nations Fail. Many of the examples are also from the book/ website. Support them and buy the book now!

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34 comments on “Why is the Philippines poor and Japan rich?

  1. rambotan
    September 20, 2013

    Please continue…

    • ikalwewe
      September 23, 2013

      Hi Rambotan, thanks for reading. 🙂

  2. Pingback: Why is the Philippines poor and Japan rich? | Japan and all that Jazz

  3. brianitus
    September 25, 2013

    Your excerpt on Marcos and how he’s described there reflects how politicians here act in their areas of coverage. It’s almost like they are kings and queens. If I could splice their DNA with a strong gene for ethics, I would do so.

    • ikalwewe
      September 25, 2013

      hi, thanks for reading (or attempting to read) the extremely long post .

      Anyway feudal di ba? They act as if it’s their birth right. We should change the way things go , so they have a truly constrained, limited power. At kung makahawak sa power, grooming their kids to take the position, parang monarchy! Dapat bawal na yun. As Gloc 9 sang –
      Kayo po na naka upo,
      Subukan nyo namang tumayo
      At baka matanaw, at baka matanaw na nyo
      Ang tunay na kalagayan ko

      • brianitus
        September 25, 2013

        Commercial break muna: nanlalaglag si Jinggoy in the senate ngayon.

      • brianitus
        September 25, 2013

        You can also look at how strengthen the party system in the Philippines. There’s really no distinction between politicians. We have a mish mash of personalities.

  4. ikalwewe
    September 26, 2013

    uy, masyado naw nag character assassination si jinggoy. parang reality show, everybody throwing each other off the boat!

  5. penpowersong
    October 2, 2013

    Wow! great exposition! Very educational. I like your style. Keep them coming. I am following you. Thanks pala for liking my post. You might want to check my fb and send a friend request para mas dumami pa ang followers mo na nakakabit sa akin. I am using my full name, Apolinario Villalobos for my facebook. You can also check my poems by searching using goggle or yahoo, by using: poems by Apolinario Villalobos. God bless!

    • ikalwewe
      October 4, 2013

      Lengthy, right. Thank you for your comments btw. Will add you soon. Have a great weekend! Yes!!!!! Finally

  6. joeromero
    October 12, 2013

    i agree with all the symptoms of the weak/failed states like ours but the root cause as suggested is still people which comes before institutions – not the public but individuals – Gandhi,Mandela,AdenaueLincoln,Washington,St.Louis.Blessed John Paul,Rizal etc ..they were gamechangers brought freedom/emancipation ,honesty/integrity in office,the virtous cycle that breeds development,,these were children of pious families that instilled in them values..fhe..problem with us is that parents are often examples of materialism/consumerism that has made this country a people of Western taste and eastern productivity,,you overhaul our value system and the virtues cycle of development follows ..this is the responsibility of families,schools and the church working together……

    • ikalwewe
      October 12, 2013

      Hi. Thanks for your comment.

      P1 People’s attitudes/culture/values determine the success of that particular culture’s country
      P2 Some countries have faulty cultures
      P3 Some counries have the same cultures
      —————————————
      C1 Some countries are failed states

      This is a valid argument but not sound : the P1 has been debunked by citing numberous examples with the same people, same values, same culture : East/ West Germany, North/South Korea, Sonora/Nograles Arizona etc.
      As I said of course, you cannot insist that Philippines is just different and does not fall in the same line with everybody else. If we are not subject to the same things as our neighbors and insist on our being “special”, then there is no point trying to study history or other cultures and hope that same things do not befall on us. Why then, are there many Japanese murders orchestrated by Japanese people in the Philippines but Japan falls very low in the world ranking of murder per 100,000 people? Those who behave here don’t behave there. Filipinos who don’t behave there suddenly become tax-paying, law-abiding citizens here. Why do Filipinos succeed abroad but not there? Which is out of the equation? And don’t tell me the values have changed : we’re still every inch as Filipino as when we were there.

  7. opinyon2010
    October 17, 2013

    @ikalwewe: Hi from OpinYon! We publish an opinion print magazine in the Philippines. Would it be alright to feature this post in our next issue? Really love the extensive research and analysis. Please do email us at opinyon.takeastand@gmail.com. Thanks!

    • ikalwewe
      October 18, 2013

      Hi, sure. I sent you an e-mail. Pls keep me posted. Have a great day

  8. gerilewis001
    October 27, 2013

    Having traveled extensively in both countries ( Japan and the US) as well as studied the cultures, I recently pondered the very same question. As Japan is such a mineral depleted society and the Philippines mineral rich, why is the P.I not an economic powerhouse? I think the answer lies not in the academic research but rather the hearts of the Filipino, mainly the unbridled graft, corruption and dishonesty of the political process & participants and the inability of the common citizen to break the bonds corruption has imprisoned the P.I with .Case in point the recent pork barrel scandal, the P.I Senate rewarded themselves with a Million pesos each after convicting Corona.

    • ikalwewe
      October 27, 2013

      Hi. Thank you for your comment. In my (very lengthy) post, I said that while it’s good to have good, honest people to lead us, other nations’ history as well as our own have proven that unchecked power corrupts. Just relying on someone’s character, honesty, good intentions etc- these are hard to measure and not sustainable. People change, people corrupt, people die. “Absolute power corrupts absolutely”. If we change our system to make sure that there is, say transparency or make dynasty unlawful (after all, family members will look after each other) or make sure that guilty people are punished- anything to make politicians’ power less “absolute” as they are now- then, people will think twice about doing something bad. As Ayyitey said of Liberia and all the other nations that relied on the “driver”.

      It is analogous to a defective vehicle with a bad driver. After sacking the driver, the vehicle itself must be fixed or the new driver will quickly land in a ditch.

      “Absolute power corrupts absolutely. Great men are almost always bad men.” – John Dalberg-Acton
      Have a great day.

      • gerilewis001
        October 28, 2013

        I know what you wrote, I read it. No need to reiterate. You might want to stop projecting yourself as some stuffy academic. As I “aint” down with cliches which say virtually nothing, as well as the tons of analytical hyperbole. You see I am a former soldier turned activist/minister. Anyone who has spent any time in the Philippines knows the government(s) has been and continue to be one of the most corrupt in the world. This is why the Philippines will not prosper as a nations such as Japan, the level of corruption.I wrote the answer lies in the hearts of the people. By the way, no great men are not almost always bad men, Jesus Christ, Kenzaburō Ōe, Mahatma Gandhi, and Dalai Lama, come immediately to mind.

      • ikalwewe
        October 28, 2013

        Wow you actually take time to respond to make personal remarks. Bravo.

        The descent into a personal attack is uncalled for. I will not even dignify your argument with an answer.

        I wish you the best in your endeavors.

  9. Bryan Dexter Abaya
    February 20, 2014

    Hi! I actually read your ENTIRE article! I have been searching the net and by far this is the best and most logical one I have stumbled upon.

    Ako rin kakalipat ko lang dito sa America. May mga nakilala akong mga Pinoy who remind me of the same people in the Philippines. To be politically correct, they are not really represent the best of one’s country/people. Pero dito, dahil sa sistema, they are a productive member of the society.

    Di ko pa nababasa yun libro na kino-quote mo sa article. Although I agree na it all boils down to the system, MINSAN a great leader will come and not just change the system, but also stir the people to do the right thing.

    Ang problema sa atin sa Pilipinas, whenever we have such political upheavals (EDSA 1-infinity), may mga taong lumilitaw sa eksena na nakaka-antig sa mga damdamin nating mga emosyonal na Pilipino, not knowing that deeply rooted in feudalism sila. I wouldn’t name names pero how do we think a member of a prominent, well landed family really serve the people, when he/she cannot even distribute land accorded to others by virtue of Land Reform? Twice pa nating ginawa! Why? Because someone died and we were full of emotions.

    I still have fate that one day, ang pinakamamahal nating Pilipinas ay magigising sa katotohanan, gagawin talaga ang dapat at tama, patuloy na mamumuhay ang magtratrabaho ng marangal at magiging maunlad na bansa. My only wish is that will be in my own lifetime.

    PS: your lengthy blog deserve a lengthy reply. LOL

    • ikalwewe
      February 26, 2014

      Hi Bryan. Thank you for reading my super lengthy post. This was printed last year at a local magazine, the whole article cut to three parts and appeared in three editions. So yes, I appreciate your reading the whole thing before commenting. And yes, thanks for your comment din and I am so sorry for this delayed reply.

      I strongly recommend you to read the book Why nations fail. It’s insightful , profound and explains many things about our system now. eg Why it’s not working.

      Ang problema sa atin sa Pilipinas, whenever we have such political upheavals (EDSA 1-infinity), may mga taong lumilitaw sa eksena na nakaka-antig sa mga damdamin nating mga emosyonal na Pilipino,

      I know what you mean. When the person or group who hijacks revolutions turns out to be no different from what they replaced. Or even worse. I think the best way is to put a system in place that is hijack-proof. Remember, may mga gustong i-exempt si Pacquiao from paying taxes. He’s done great, but it’s unfair . It will set a precedence if one person, on a basis of some ad-hoc and rather unclear guidelines, gets a free pass while the poor folks are forever tax-bound. At saka ang problema ko sa mga revolutions e it’s centered lagi sa Manila – it’s not so difficult to shake Manila up, with a very weak central govt. Saka 60% of the population of the Philippines are not in NCR. Imagine, majority didn’t participate in the “revolutions”.

      I hear from peers that there are more and more positive changes going on. That , in ten years time, we may have new laws set in place na mas onti ang loopholes at mas madaling i-implement, mas mahirap paglaruan ng mga politiko. People are getting smarter. Mas nagiging mahirap na for the politicians gumalaw ng basta basta, you don’t know who’s secretly taking your video. And the exposure to other countries’ cultures and ways enlighten our people. Ngayon, mas nagdedemand na ang mga tao. Sana may magandang mangyari na talaga.

  10. Bryan Dexter Abaya
    February 20, 2014

    More PS: sana walang grammar-nazis out there! 😉

  11. Passerby
    April 1, 2014

    Hello. I am not from Philippines. I was just trying to get some research materials for my project and I chanced upon your blog. I must say u are really well-learnt. I must say your analysis are pretty sensible – fierce but very strong and right. I majored in history btw. I have been to Japan, Hongkong, China, Singapore and all the way to Cambodia but I have never been to Philippines. I don’t have any friends from Philippines. But in my country there are a number of OFWs. If only, they can be as half as well-learnt as you do. Forgive me for being blunt but I really don’t have good impressions for filipinos. The filipinos in my country – majority are quite proud, boastful and ill-mannered, very uncivilised. They lack respect and courteousy. I find filipinos pretty ungrateful and seem to have a lot of grievances and dissatisfactions. Perhaps, u will be a really stable voice to aid your country. U have brains and u should really improve Philippines and improve the images of filipinos. Really!

    • ikalwewe
      April 2, 2014

      Hi! Thanks for your comment.
      Unfortunately, the argument is not mine – it is based on a book called ” Why Nations Fail” by Professors Acemoglu and Robinson. I only used their argument and applied it to the Philippines.

      And thank you for your honesty. I appreciate it. You are not the first person to tell me about the Filipinos’ (not so stellar) standing abroad vis-a-vis the locals. It’s a great perspective, knowing how our host countries’ citizens perceive us. I shared your comment with my friends, i hope it enlightens us. Have a great day! cheers

  12. KeithD
    July 9, 2014

    Thank you for the work and effort that you have put into this post. I note that it is a “work in progress” and I very much hope that you continue to flesh out this issue. FYI, from this blog I also went to Amazon.com and looked up “Why Nations Fail” there and, in addition to the time I spent reading this (your) most excellent post, I also put in some time reading the Amazon posts. I encourage you to review them as well as it is a source of some potentially good discussion on the topic.

    I am American and of course we are facing many of the issues that Acemoglu & Robinson illustrate. I doubt that we will be any luckier than other nations in similar circumstances, but who knows, we have been resourceful in the past.
    Again, thank you for this post.
    Bless your work.
    Keith

    (Segue: As an aside, In my country Filipinos have an excellent reputation and image. I can assure you that a great many of us wish that travel to America was easier for Filipinos than it is.)

    • ikalwewe
      July 11, 2014

      Hi Keith thank you for your comment. If you are interested in issues like this, I strongly recommend reading this book. It offers grounded explanations on why nations succeed and fail – a theory that seems to be applicable anywhere in the world regardless of race, religion or geography (where other theories fail) and even proven by events in history.

      I am glad to hear that Filipinos have a good image in the US. Actually, I read somewhere that among the “minorities”, the number of Filipinos living below the poverty line (in the US) is the lowest. This means that given a fair chance, a good environment where hard work pays off (no matter how Americans complain, America is still more meritocratic than other countries I know, including Japan), we can turn our lives around. It’s too bad because I see a lot of potential in my people back home, potential that is stunted by a mix of man-made terrible things that could have been avoided had we learned to “look after ourselves” (as one political analyst put it) Anyway have a great day and thank you for reading my extremely long post. Cheers!
      Trish

  13. Mark in Adelaide
    September 25, 2014

    Extremely well reasoned and written, are you an economist. I’ve advocated this for a long time while in the ADB and use this In teaching a course now about Australian prosperity. Unfortunately I can’t bring this up at home having married into one of these landowner families.

    • ikalwewe
      September 25, 2014

      If you can’t beat ’em, join ’em!
      Thank you for your comment, Mark. No I am not an economist. It’s all thanks to the books I read, and the experience of living abroad. One gets a different perspective. You see how things are done here (or there, in your case) and back home, and you can’t help wonder bakit hindi gawin din sa atin yung mga ginagawa dito. It’s too bad because the ph has a lot of potential.

  14. Addison Cruz
    November 7, 2014

    Our country went from big potential competitive to almost zero. I will keep sharing the information I found, instead of opinions. Start here my fellow country men and women: http://www.larouchepub.com/eirtoc/2004/eirtoc_3150.html and read this after http://bitterrealities.wordpress.com/2012/05/30/inside-workings-of-imf-and-world-bank/

    The articles are the following:
    Shultz and the ‘Hit Men’ Destroyed the Philippines
    INSIDE WORKINGS OF IMF AND WORLD BANK

    What I like about the above is they are a digest of Philippine’s story to downfall but it also maybe >50% of the whole story.

  15. Addison Cruz
    November 7, 2014

    Sorry, link correction: Please delete this: “http://www.larouchepub.com/eirtoc/2004/eirtoc_3150.html”

    This is the right link:
    Shultz and the ‘Hit Men’ Destroyed the Philippines
    http://www.larouchepub.com/other/2004/site_packages/econ_hitmen/3150philipp_coup.html

    • ikalwewe
      November 10, 2014

      thanks for your comment addison cruz. will try to read your links when i have the time. have a great day

  16. Mubarak
    November 9, 2014

    Hi
    I made your article as bookmark and read the whole of it in 3 days
    I have to say you got it right , I’m not from Philippine i’m from Saudi Arabia and we are very rich country but very poor economic
    the oil money is concentrated in the Royal family banks accounts and come down for relative family
    if you are no body will still and remain no body , The education system sucks beside the health care system , hope that will change soon
    thank you

    • ikalwewe
      November 10, 2014

      Hello Mubarak,
      Thank you for your comment . What I mentioned here especially about Middle eastern countries came from the book of two Harvard professors, so it wasn’t really my theory. But thank you for reading my article. Have a great day!

  17. G. K. Michael
    January 23, 2015

    So true. Kaya lang wala namang mangahas ngayon na kalabanin ang simbahan dahil if you are a Catholic pwede kang i-excommunicate.

    • ikalwewe
      January 29, 2015

      Thanks for your comment, Michael. Sa palagay ko humihina na ang Katolisismo sa bansa. Matagal na proseso, pero sa tingin ko e ang generation naten ngayon ang huling hardcore na Catholics. Salamat sa teknolohiya at salamat sa internet, madali na maging stay informed ang mga tao. Sa palagay mo?

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