Corruption in the Philippines

[ANALYSIS] Danger signs in an oligarchy: Corruption

Nathan Gilbert Quimpo

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[ANALYSIS] Danger signs in an oligarchy: Corruption

Alejandro Edoria/Rappler

'Over the past year, oligarchic forces have engaged in large-scale corruption by capitalizing on two important tools: rent-seeking...and patronage'

In his recent State of the Nation Address (SONA), President Ferdinand “Bongbong” Marcos Jr. presented a glowing picture of the Philippine economy.

“Our economy posted a 7.6% growth in 2022 – our highest growth rate in 46 years. We are still considered to be among the fastest-growing economies in the Asian region and the world.” 

Not a few have come up with a grain of salt reaction. Rappler’s Lance Spencer Yu writes, that “without context, Marcos’ SONA 2023 figures warp economic reality.” The economy, he points out, is still recovering from the record 9.5% contraction in 2020 and is still not back to its pre-pandemic trajectory. In JC Punongbayan’s view, Marcos did not convey a sense of urgency in addressing inflation, a prime complaint of many Filipinos. Opposition Senator Aquilino “Koko” Pimentel III disparages Marcos‘ claim of 96% employment, saying, “I see unemployment all around.”

Since the fall of the dictatorship of Bongbong’s father, Ferdinand Marcos Sr., in 1986, the Philippines has experienced some growth, even periods of high economic growth, such as the present one. But the country’s post-1986 growth has not really been inclusive, as poverty and inequality data illustrate. Poverty incidence, which fell from 23.5% in 2015 to 16.7% in 2018, rose again, amid the COVID pandemic, to 18.1% in 2021. According to the World Bank, the pace of poverty reduction in the Philippines has been slow compared with those of other East Asian countries. The Philippines has the highest income inequality in the six largest economies of the Association of Southeast Asian Nations (ASEAN) and is in the top third of countries worldwide in terms of inequality. 

Surveys of the Social Weather Stations indicate that the number of Filipino families who rate themselves poor has continued to grow under Marcos’ watch, despite the easing of the COVID crisis: September 2021: 45% (under President Rodrigo Duterte); June 2022: 48%; September 2022: 49% (Marcos); December 2022: 51%; and March 2023: 51%.

“A 7.6% growth rate is nothing to the ordinary citizens of this country,” argues Maugan P. Mosaid, “if it [just represents the] performance of big businesses owned and controlled by 10% of the population.”

In assessing Marcos’ performance, one has to go beyond insipid growth figures, and look deeper into the very core of why the Philippines continues to be mired in poverty and inequality: the oligarchic character of Philippine politics. Marcos’ performance in his first year has to be examined within the context of this oligarchic politics. 

Oligarchy and pathological behaviors

Oligarchy is rule of the wealthy. As Aristotle put it, “Oligarchy is when men of property have the government in their hands.” 

The Philippines’ oligarchic state, as characterized by Paul D. Hutchcroft, is one in which there is weak separation between the public and private spheres, to an extent that “a powerful oligarchic business class extracts privilege from a largely incoherent bureaucracy.” Politicians, especially those belonging to political dynasties, connive with the economic elite, and some politicians become oligarchs too. The country’s wealth and power are concentrated in the hands of this coterie of business oligarchs and political dynasts. 

Jeffrey Winters describes the Philippine oligarchy as having been transformed from a “tamed oligarchy” during the dictatorial rule of Bongbong’s father, into a “wild oligarchy” after his fall.

“The extent to which oligarchs are tamed,” writes Winter, “refers to whether the system of rule is powerful enough to control the behavior of oligarchs by imposing costs on their most pathological social behaviors.” 

For other scholars, however, the post-Marcos I picture is not all that bleak. According to a study made by scholars of the Ateneo School of Government (ASOG) led by Ronaldo U. Mendoza, reformists in government battling the oligarchs have managed to bring about institutional reforms, especially in the economic sphere, under various post-Marcos I administrations, notwithstanding obstruction moves by corrupt politicians and bureaucrats. 

Among the economic reforms are: an independent central bank, stronger checks-and-balances in public procurement and public-private partnership tenders, increased competition introduced to once-monopolized economic sectors, and stronger oversight over government-owned and -controlled corporations.

ASOG scholars note, however, that political reforms have been lagging behind economic reforms. Key political reforms that have long languished in the halls of Congress are political party reform, freedom of information and the ban on political dynasties.

Given how entrenched Marcos Jr. is in the oligarchy, will his administration provide enough leeway for reformists in government to eke out some significant economic and political reforms? Will or can Bongbong tame the Philippines’ wild oligarchy and constrain it from pathological excesses? 

In just a year of the Marcos Jr. presidency, danger signs are already emerging that the foul behaviors of oligarchs and dynasts are becoming unconstrainable and could reach pathological levels in the coming years. Three areas of concern bear close watching: corruption, political violence and intrigues. This article focuses on the first – corruption. 

Corruption

Corruption in the Philippines, Michael Johnston most fittingly writes, is of the “oligarch and clan” type, which he explains as follows: 

A relatively small number of individuals use wealth, political power, and often violence to contend over major stakes, and to reward their followers, in a setting where institutional checks and legal guarantees may mean little. Their power is neither clearly public nor private – often, it is both – but it is definitely personal.… The state can lose much of its autonomy, becoming just another source of protection and of corrupt incentives. Contending clans can extend across business, state agencies and political parties, law enforcement, the communications media, and organized crime, at various times conflicting with each other, colluding, or deepening their domination of economic and political bailiwicks. Such a situation is hardly promising for either democratic or economic development.

Over the past year, oligarchic forces have engaged in large-scale corruption by capitalizing on two important tools: rent-seeking, which is one the principal means of business oligarchs in controlling wealth, and patronage, which is one of the principal means of trapos, especially political dynasts, in maintaining power.

Rent-seeking and corruption

Calixto V. Chikiamco defines rent-seeking as the pursuit of profit – unearned profit – generated not through the market, but from state-granted licenses, monopolies, subsidies, concessions, quotas, or tariff protection. According to him, the rent-seeking system that has become fortified in the Philippines “manipulates public policy to increase profits for the few, [and not] for the economy as a whole.”  

The sugar and onion fiascoes that have hit the Marcos administration in its first year reek of rent-seeking and corruption. According to Fermin D. Adriano, import restrictions, quotas and clearances by the Department of Agriculture (DA) promoted rent-seeking and corruption, as import allocations were often distributed to “friends,” thus resulting in the formation of “state-sponsored cartels.” Opposition Senator Risa Hontiveros railed against high-ranking DA officials behind “government-sponsored smuggling” of sugar, and charged that three corporations constituting a “sugar cartel” had amassed billions of pesos of profit. 

No less than the president’s own sister, Senator Imee Marcos, has laid bare: “Importation has been part of a cycle of price manipulation by traders in cahoots with corrupt officials in the DA and the Bureau of Customs,” She explains the modus operandi: “Local crops are hoarded to cause an artificial shortage, then sold when consumer demand pushes up market prices. High prices then back up a call for importation that pushes down farmgate prices. Traders then buy from local farmers at depressed prices and hoard the crop once again, while smugglers profit on misdeclared and undervalued imports.” 

The DA is headed by Marcos himself, and he has still refused to appoint a full-time DA secretary even up to now despite the sugar and onion fiascoes. In investigations in Congress into the sugar and onion scandals, some groups and individuals with high connections and relations were implicated. Journalist Ramon Tulfo even tagged Martin Araneta, the brother of the first lady, Liza Araneta-Marcos, in onion smuggling. Yet, as of this writing, no one has been charged of malfeasance and no heads have rolled at the DA and Customs. 

Patronage and corruption 

According to Michael and Susan Tolchin, patronage consists of discretionary favors of government that politicians dispense in exchange for political support. The favors may range from jobs or appointments, to contracts, credit, licenses, social services, etc. 

Pork barrel is a form of patronage in which legislators utilize government funds for projects designed to please their constituents and win votes. Introduced in the Philippines way back in 1922 during the American colonial period, pork barrel has been given positive-sounding names over the decades to hide its true nature.  

In 2013, a political scandal erupted when dozens of senators and congressmen were implicated in the funneling of over P6 billion of funds – from the “Philippine Development Assistant Fund” (PDAF), as the pork barrel was called – for ghost projects. The systematic embezzlement, orchestrated by businesswoman Janet Napoles, had gone on for over decade. In the aftermath of the PDAF scam, the Supreme Court declared all congressional pork barrel laws as unconstitutional.

Under Bongbong Marcos’ administration, pork barrel is back – or it may never have really gone away. In a much publicized exposé, Baguio City Mayor Benjamin Magalong has revealed, speaking from his own experience as a local public official, that legislators still get their pork in allocations coursed through various government departments

The pork barrel that Magalong has exposed appears to show elements of outright corruption (just as in the PDAF scam), perhaps more than patronage. According to him, politicians and bureaucrats take so much kickback from government projects (especially infrastructure projects) that 45-58% of the project allocation is lost to corruption, and the projects end up being substandard. 

Magalong’s exposé gives much foreboding, especially since many of the legislators tagged by Napoles in the PDAF scam – including Marcos himself – are still in public office.  

The Maharlika Fund

Bongbong Marcos signed earlier this month the Maharlika Investment Fund into law, thus creating a state-owned investment fund that seeks to earn both commercial returns from financial investments and economic returns from developmental projects. He went ahead despite strong opposition from business groups, economists, academics, civil society, and some legislators.

Among those who campaigned against the Maharlika bill was a large group of faculty members of the UP School of Economics who raised a host of criticisms against the MIF: the lack of clarity in its focus and in expected financial and economic returns; possible encroachment upon the budget process; huge risks to strained public coffers and vulnerability to moral hazard; a poorly designed governance structure that opens the floodgates for political interference, mismanagement, and corruption; risk of not being able to draw private investment; and diversion of attention from more vital national agenda. They charged that MIF “violates fundamental principles of economics and finance and poses serious risks to the economy and the public sector – notwithstanding its proponents’ good intentions.”

I basically agree with the academics’ critique, but not with their diplomatese on the “proponents’ good intentions.” In a country controlled by business oligarchs and political dynasties, a multi-billion-peso state-owned investment fund does not just come into existence out of altruism and compassion for the poor. The MIF is intended to be a tool for rent-seeking, patronage, and corruption in a much bigger way than onion and sugar cartels and the current mutation of pork barrel. As Dean de la Paz bluntly and rightly put it, the MIF is “a plunder fund.”

Rent-seekers will come in droves to wallow in MIF licenses, monopolies, subsidies, concessions, quotas, and tariff protections. Since all the members of the Maharlika Investment Corporation board will be presidential appointees, the MIF will involve double patronage, as in much of the pork barrel in the past: the president serves as patron to legislators, and the legislators, to their constituents. Much of the rent-seeking and patronage will engender corruption and plunder.  

The MIF could well end up like Malaysia’s sovereign wealth fund called 1MDB, from which $4.5 billion was siphoned off to offshore bank accounts and shell companies – $1 billion to those of then Prime Minister Najib Razak alone – precisely because of a built-in weak governance structure and lack of oversight.

William Pesek aptly concludes: “The fact that Marcos is the son of the dictator who destroyed an economy earlier destined to be a Southeast Asian success story only heightens fears that the fund is a very bad idea.” – Rappler.com

Nathan Gilbert Quimpo is an adjunct professor (semi-retired) at the University of Tsukuba in Japan. He is the author of “Contested Democracy and the Left in the Philippines after Marcos” and co-author of “Subversive Lives: A Family Memoir of the Marcos Years.”

1 comment

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  1. ET

    Thanks to Nathan G. Quimpo for pointing out the
    relation between Oligarchy and Corruption. Indeed,
    Corruption and Patronage are very well related as
    shown in this article (note: Political Dynasties are slightly
    mentioned though it should be given due explanation).
    Secondly, it is interesting to note
    what William Pesek said: “The fact that Marcos is
    the son of the dictator who destroyed an economy
    earlier destined to be a Southeast Asian success story ….”
    It may be added that Marcos Jr. may REPEAT what his father
    had done and perhaps with more devastating results.
    Thirdly, Jeffrey Winters describes that the
    Oligarchy under Marcos Sr. was a “tamed
    oligarchy” (Marcos Oligarchy 1.0) and that
    under Marcos Jr. is a “wild oligarchy” (Marcos Oligarchy 2.0).
    Well, what can you expect from a Mr. Party Man?;
    but a “Wild Oligarchy” full of “wild parties, travels, and
    luxurious perks.” When the time comes that a President with
    “utak pulbura” will take over, it will all be back to the
    “tamed oligarchy.” This time with a major difference: although
    the first tamed oligarchy had suck the People’s blood, the next
    oligarchy will now devour the People’s bodies as a whole. Lastly,
    this “tamed oligarchy” may just be a Third version, because
    there was once a Second version with the same features as the Third one.

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