Yes any review of progress involves citing abstract, lifeless, and boring statistics. But, our referencing them is necessary to establish measurements by which we assess progress. Efforts to determine varying success between nations is complex and likely due to some factors that statistical methods will overlook. Nonetheless, we can find helpful answers in comparing both nations economic policies over the previous several decades.
For example, as of January 2012, the unemployment rate in the Philippines is 7.2%. [3] Measured by their own historical average, this rate is low. From 1995-2012, this rate averaged just over 9%. [4]. This sounds modestly encouraging. But, South Korea has generated significantly more progress that, importantly, has benefited more of its citizens.
Two important measurements of income inequality, the Gini Coefficient Index and the Household Income or Consumption Share, both reflect alarming inequality. The Gini Index in the Philippines as of 2006 is 46.6% as of 2006. [5]. Keep in mind the higher the Gini Index number, the higher the rate of income inequality. Many other statistics show a more complete picture of the overall economic conditions. But, the two cited above, unemployment rate and income inequality, offer a good point of reference when comparing economic conditions between nations.
South Korea, by contrast, recorded an unemployment rate in April 2012 of 3.4%. [6]. This rate averaged 3.7% from 1999-2012. Equally important, South Korea's lower unemployment rate is not sustained in part by low-wage jobs dragging down average incomes, offering little hope of upward mobility. The Gini-Index in South Korea as of 2009 was 31.4 %. [7]. These two statistics alone show South Korea has created and sustained more economic opportunities for a larger number of its citizens.
Other important indicators showing the divergent paths of progress is GNI per capita (this is the gross national income divided by the population in a specific country) and life expectancy. Expressed in U.S. dollars GNI in South Korea increased from $11,830 in 1992 to $19,890 in 2010. [8]. Life expectancy increased from age 72 in 1992 to age 81 in 2010. [9]. The Philippines, by contrast, has experienced an increase of GNI from $780 in 1992 to $2,060 in 2010. [10]. This increase is noteworthy, but still far below the level of Korea. And, as cited above Korea's increase in income has been distributed more equally among its citizens. Life expectancy in the Philippines has barely increased from age 66 in 1992 to age 68 in 2010. [11].
Most discussions of Philippines' economic sputtering emphasize the effect of Ferdinand Marcos's corruption. For example, Transparency International ranked Marcos during his regime's tenure as the second most corrupt in the world. [12]. Continued and systemic corruption occurred on Marcos' scale seems a likely explanation for the Philippines lack of progress. But, if that is true simply look at the economic progress of the nation led by the regime reported as most corrupt by the aforementioned Transparency International: Suharto in Indonesia. [13]. Corruption can stifle growth, but progress can and does occur in spite of it. Mohamed Suharto waged a military coup which brought him to power in Indonesia in 1966. Indonesia's per capita income in the early 1960s was only $49 [14]. Suharto enriched himself even more than Marcos did during their respective regimes. But, Indonesia's per capita income increased during Suharto's regime (1966-1997) threefold [15].
In addition, a pillar of conventional wisdom is that democratic systems by virtue of the masses holding those in power accountable creates conditions more favorable to economic prosperity. Marcos' firm grip on power precluded such conditions being more fully created. South Korea's government during much of the latter half of the 20th century showed scant signs of a functioning and responsive democracy.
Syngman Rhee served as South Korea's first president and initially was named president for life. A change in the constitution made provisions for elections beginning in June 1960. Before free elections could enable construction of viable democratic institutions, General Park Chung Hee led an army coup, seizing power in May 1961. Military government continued for two years. Park restored civilian rule in 1963 but remained in power until he was assassinated in 1979. His successor, Choi Kyu stated support for having presidential elections, but General Chun Doo Hwan executed another military coup thereby taking control of the government. Demonstrations against this coup followed, resulting in Chun's government declaring martial law that remained in effect until New Years Day in 1981. The constitution was revised in 1987 allowing for direct presidential elections. Two decades of military coups, intermittent martial law, and suspensions of the constitution failed to slow economic progress.
President Marcos in the early 1970's stated his ambition to implement policies designed to replicate South Korea's growth miracle experienced that began in the early to the 1960's. His actual policies, though, betrayed his stated ambitions. Both nations after World War Two had virtually no manufacturing base, which was common in nations upon entering post-colonical status. Japan, which colonized Korea from 1911-1945, prohibited the southern part of Korea from independently developing any manufacturing capacity. The Philippines following World War Two began developing its manufacturing base with a promising start. Soon thereafter it opted for a different course.
Developing nations pursuing industrialization have often imposed import controls to protect its nascent manufacturing base. The Philippines used this method after World War Two until 1962. Consequently, manufacturing output increased 12% annually from 1949-1958. [16]. This momentum showed signs of a nation shedding the vestiges of a subordinate colonial possession in pursuit of first world economic status. But, from 1962 to 1986 manufacturing expressed as a percentage of Gross Domestic Product (GDP) only increased from 18 to 24 percent, while, services and agriculture in the ergo period only declined from 78 to 71 percent. [17]. Hopes of progress vanished abruptly once seen as an impediment blocking Ferdinand Marcos' march to power. The strains of corruption already existed prior to Marcos ascension to the Presidency, but he institutionalized it on a much larger scale.
The momentum of progress quickly slowed, leaving the Philippines behind in an atavistic mist, foregoing the historically unprecedented growth seen in other asian economic "miracles." Why? Marcos secured power in part by making concessions to foreign corporations, primarily from the U.S., that rendered powerless the Philippines' manufacturing base and other major sectors.
One example that illustrates the Philippines' determination to manage its economic growth more on its own terms with minimal interference from foreigners is evidenced in its law that "prohibited persons who are not citizens of the Philippines, as well as corporations or partnerships not wholly owned by Filipino citizens, from engaging directly or indirectly in the retail business." [18]. While this law was in effect, American corporations contested it constantly in court ( 23) cases were filed in court from its passage through the administration of President Diosdado Macapagal. [19]. U.S. President Johnson warned President Macapagal in a letter that "the arbitrary enforcement of the retail trade law might adversely affect mutual interest of both countries" [20]. Macapagal must have inferred a veiled threat from this letter. But, Marcos' actions taken upon succeeding Macapagal had qwelled any discord sown from this disagreement. This was a dispute over the enforcement of one law but it provides an insightful microcosm into the degree to which good relations between both nations depended on the Phillipines' subordination to U.S. interests.
Marcos declared martial law on September 26, 1972. Now as regressive as this move was it should be noted that South Korea was subject to martial as well for over a decade during the 1960's and early 1970's. Thus, their lacking more open and democratic institutions did not impede their making economic progress. However, Marcos' policies differed significantly from South Korea. Once Marcos declared martial law in 1972, he announced the cornerstone of his economic policies to foreign journalists:
1. To permit those holdings, whose titles have been nullified by the Supreme Court, to be disposed of over a long period of time to individual Filipinos or to companies meeting the legal requirements of 60 per cent Filipino ownership.
2. To permit foreigners to act as directors or serve in executive management positions of certain kinds of companies that the Supreme Court [had] said could not employ aliens.
3. To interpret Philippine retail-trade law in a way that would permit the bulk sale of oil to
industrial users.
4. To facilitate foreign exploration for oil in the Philippines by not requiring oil companies to obtain leases but instead allowing them to operate on service contracts with the
government. Through operating contracts, the foreign companies would receive
compensation similar to that obtained from leasing. [21].
Marcos passed subsequent executive orders in 1973 to attract foreign capital. His exceedingly lucrative concessions to foreign corporations enabled their exploiting the Philippines natural resources with providing little benefits to filipino workers. To the contrary, South Korea relied much less on foreign investment and imposed much stricter limits on foreign ownership of its industries.
Marcos's concessions included allowing foreign corporations to repatriate profits to their country of origin and at minimal taxes. This revenue windfall to foreign corporations caused shortages in the Philippines coffers, resulting, in contrast to South Korea, in their resorting to massive foreign borrowing. The total external debt (expressed in 1986 dollars) rose from $1.1 billion in 1962 to $28.3 billion in 1986, which was then the largest debt burden in East and Southeast Asia. [22]. This foreign borrowing eventually triggered panic among foreign investors to such a degree that capital flight occurred. South Korea, however, opted initially during the 1960s to export commodities such as tungsten ore, fish, seaweed, textiles, garments, and wigs, allowing their to accumulate foreign currencies in order to buy and develop necessary technology to industrialize. [23]. Moreover, South Korea enforced tight controls on the operations of foreign investors during its rise from a nation less technologically advanced than North Korea to a leading industrial power. As Cambridge economist Ha-Joon Chang states:
"They-South Korea-restricted the areas where foreign companies could enter and put ceilings on their ownership shares. They also screened the technologies brought in by Transnational Corporations (TNCs) and imposed export requirements. Local content requirements were strictly imposed. As a result, South Korea was one of the least FDI (meaning foreign direct investment)dependent countries in the world." [24]. This approach allowed South Korea to avoid being too dependent on foreign capital which, at their discretion, could begin an economically crippling bout of capital flight, which, as noted above, further weakened the Philippines economy.
South Korea possessed no greater natural resources that could be exported than the Philippines, underscoring that the Philippines began in the post-world war two era on at least an equally promising foundation from which they could industrialize. Although many other factors help explain the differing outcomes of both nations economic performance, South Korea's approach taken during its phase of rapid growth and industrialization from the 1960s through the mid 1990s clearly differed from that which the Philippines adopted by conceding to U.S. pressure.
South Korea's economic progress is more impressive given that during 1997-1998 Asia faced a severe crisis when global demand for its exports sharply declined. During this contraction 100 firms in South Korea went bankrupt daily. [25]. Foreign capital flowed out of South Korea, resulting in the International Monetary Fund (IMF) requiring it to restrict its budget deficits to .8% of its Gross Domestic Product (GDP). [26]. The IMF attempted to use this crisis as a pretext for restructuring South Korea's economy. This subordinate position resulted in South Korea opening its capital markets to increased loans and investment from foreigners, which was a drastic change from the more restrictive policies followed during 1970's and 1980s.
Our assessment of South Korea's shift beginning in 1997 from strict controls of foreign ownership of its capital assets to a capitalist economy more integrated into the global economy is incomplete. Increased foreign ownership of its assets may not be a panacea leading South Korea into another phase of rapid development. The long term consequences of this restructuring are inconclusive. But, South Korea has thus far recovered and has adopted some measures that will help offset the spread of negative consequences from future downturns. The ten years beginning in 1999 South Korea's economy grew at an annual rate of 5.5%. [27]. Also, South Korea's foreign currency reserves increased from $20.4 billion in 1997 to $206 billion in 2006 which is the 5th largest supply in the world. [28]. Is this performance sustainable for the long term? Who knows? But, this recovery and restructuring will at least reduce risks experienced from their increased integration into the global economy, helping them maintain their independent sovereignty should capital flight occur.
South Korea's economic performance was tested in 2008 when a global recession occurred. The world still struggles to overcome the imbalances and debts weighing down most nations' balance sheets. In the midst of this global struggle beginning in late 2007, South Korea's growth has both underperformed and exceeded previous forecasts. The IMF in its 2009 World Economic Outlook had forecasted that South Korea would experience economic growth of 3.0% in 2009 and 2.1% in 2010. [29]. The IMF revised its annual growth figures in 2012 reporting that South Korea's GDP grew by 0.3% in 2009 and 6.3% in 2010. [30]. South Korea forges ahead as just one of several industrialized nations caught in episodes of boom and bust whose policies are vindicated as enablers of economic "miracles,"and abruptly seen thereafter as relics retarding progress. For now, though, South Korea has shown discipline and flexibility needed to industrialize and adopt structural changes when faced with shocks endangering their system. Their progress deserves continued analysis and praise.
Philippine policymakers should have made a stronger effort to make Marcos' rhetoric a reality by modeling its own economic policies on the example set forth by South Korea. The Philippines should have taken advice from the U.S. But, rather than heeding the U.S. demands made since 1945, such advice should have been inferred from the example it set from 1875-1913 when the U.S. was both in pursuit of becoming the world's largest economy and, ironically, the nation imposing the highest tariffs of the industrialized economies. [31]. The Philippines should have defied the conventional wisdom, which upon closer review, was mostly a rhetorical cover over which an empire could mask its blatant agenda to enrich itself.
Adam Smith warned the American colonies in 1776 that its well being depends on its subordination to the British empire in his seminal economic treatise:
"Were the Americans, either by combination, or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard, instead of accelerating, the further increase in the value of their annual produce, and would obstruct, instead of promoting, the progress of their country towards real wealth and greatness." [32].
The American colonies as stated above neglected to heed Adam Smith's erudite caution, resulting in these colonies replacing Great Britain as the most powerful empire within the next 150 years. The Philippines should heed a valuable lesson from the American precedent whereby a group of colonies becomes an empire defying its mother nation. South Korea's more autonomous path to development produced impressive results. The first step that the Philippines should take to embark on a more progressive and prosperous course involves identifying an empire's hiding its imperial ambitions within a contrived conventional wisdom. Developing nations are better served remembering that "benevolent empire" is just an oxymoron.
[1]. Chang, Ha-Joon. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. New York: Bloomsbury, Kindle edition. loc. 3920.
[2.] Ibid. 3912.
[3]. Trading Economics. "Philippines Unemployment Rate. www.tradingeconomics.com/philippines/unemployment-rate. May 25, 2012.
[4]. Ibid.
[5]. Philippines Distribution of Family Income-Gini Index. index mundi. www.indexmundi.com/philippines/distribution_of_family_income_gini_index.html. May 25, 2012.
[6]. Trading Economics. "South Korea Unemployment Rate. http://www.tradingeconomics.com/south-korea/unemployment-rate. May 25, 2012.
[7]. South Korea Distribution of Family Income-Gini-Index. index mundi. http://www.indexmundi.com/south_korea/distribution_of_family_income_gini_index.html. May 25, 2012.
[8]. Data found at the The World Bank. World Development Indicators. http://data.worldbank.org/country/korea-republic.
[9]. ibid.
[10]. ibid. http://data.worldbank.org/country/philippines.
[11]. ibid.
[12]. Denny, Charlotte. "Suharto, Marcos and Mobutu head corruption table with $50bn scams." The Guardian. Mar 26, 2004. http://www.guardian.co.uk/world/2004/mar/26/indonesia.philippines. accessed May 30, 2012.
[13]. Ibid.
[14]. Chang. loc. 2914.
[15]. ibid. loc. 2923.
[16]. Boyce, James K. The Political Economy of Growth and Impoverishment in the Marcos Era. Manila: Ateneo De Manila U Press, Print. 7.
[17]. Ibid. 16.
[18]. Celoza, Albert. F. Ferdinand Marcos and the Philippines. The Political Economy of Authoritarianism. Westport, CT: Praeger, 1997. Print. 113.
[19]. Ibid.
[20]. Ibid.
[21]. Ibid. 116.
[22]. Boyce. 10 and 4.
[23]. Chang. loc. 1503-1504.
[24]. Ibid. loc. 1755.
[25]. Ibid. loc. 2846.
[26]. Ibid. loc. 2880.
[27]. Roach, Stephen S. "Asia's Take on Austerity." Feb 28, 2012. Project Syndicate: A World of Ideas. http://www.project-syndicate.org/commentary/asia-s-take-on-austerity. Accessed May 29, 2012.
[28]. HEO, Uk. Houngcheul JEON, Hayam KIM and Okjin KIM. "The Political Economy of South Korea: Economic Growth, Democritzation, and Financial Crisis."Contemporary Asian Studies Series. 20.
[29]. Pascha, Werner. "South Korea's economic policy response to the global economic crisis-a comparative perspective." Freiburg-Ngoya Joint Seminar: The Aftermath of the Global Financial and Economic Crisis-Lessons for Asia and Europe. Freiburg, 20-22 September 2010. This source was extracted from the author's study for the Bertelsmann project "Managing the Crisis. A Comparative Analysis of Economic Governance in 14 Countries."
[30]. International Monetary Fund. "World Economic Outlook 2012: Growth Resuming, Dangers Remain." http://www.imf.org/external/pubs/ft/weo/2012/01/pdf/text.pdf.
[31]. Bairoch, Paul and Richard Kozul-Wright. "Globalization Myths: Some Historical Reflections on Integration, Industrialization and Growth in the World Economy." UNCTAD/OSG/DP No. 113 March 1996.
[32]. Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Kindle edition (etext produced by Colin Muir) loc. 5491.
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