Phl in The Economist top ten list

- Boo Chanco - The Philippine Star

How is that for a headline? P-Noy is always urging columnists to be positive about the country. At long last we landed among the top 10 in a list prepared by the prestigious magazine, The Economist. And we are ahead of Thailand and Indonesia too.

But being in this list is more like being on the list for having the lousiest airports. This particular list is about countries where crony capitalism reigns supreme.

We are talking of The Economist’s crony capitalism index published last week by the magazine. The Philippines ranks No. 6, well ahead of Thailand (No. 16), Indonesia (No. 10), China (No. 19), India (No. 9), the United States (No. 17) and Germany (No. 23).

It should console us that Hong Kong (No. 1) and Singapore (No. 5) ranked higher. According to The Economist, most countries in Southeast Asia, including Indonesia, Thailand and the Philippines, saw their scores get worse between 2007 and 2014, as tycoons active in real estate and natural resources got richer.

I am sure P-Noy and his defenders will be surprised to hear that crony capitalism is alive and well under his watch. Crony capitalism may have been shameless and scandalous during the Marcos martial law years but it has not been eradicated by Daang Matuwid.

Indeed, as The Economist pointed out, “many of today’s tycoons are accused of making fortunes by ‘rent-seeking’: grabbing a bigger slice of the pie rather than making the pie bigger.” Describes many people we know, some of them long due for attention from Kim Henares.

Common examples of rent-seeking (which may or may not be illegal), The Economist explains, “include forming cartels and lobbying for rules that benefit a firm at the expense of competitors and customers.” Or it could be as simple as a luxury car dealer with the right connections (helps to come from the same US Ivy League MBA school) able to avoid paying the right taxes with impunity.

From a worldwide perspective, The Economist reports that “billionaires in crony sectors have had a great century... In the emerging world their wealth doubled relative to the size of the economy, and is equivalent to over four percent of GDP, compared with two percent in 2000. Developing countries contribute 42 percent of world output, but 65 percent of crony wealth.”

The Economist also concludes, based on their data, that “countries that do well on the crony index generally have better bureaucracies and institutions, as judged by the World Economic Forum. But efficient government is no guarantee of a good score: Hong Kong and Singapore are packed with billionaires in crony industries.”

However, rent-seeking is not the exclusive domain of the super rich billionaires.

“Plenty of rent-seeking may enrich the very wealthy who fall short of that cut-off. America’s subprime boom saw hordes of bankers earn cumulative bonuses in the millions of dollars, not billions. Crooked Chinese officials may have Range Rovers and secret boltholes in Singapore—but not enough wealth to join a list of billionaires. So our index is only a rough guide to the concentration of wealth in opaque industries compared with more competitive ones.”

Here in the Philippines, rent-seeking cronies are everywhere. It is at the heart of our pork barrel scandal. In earlier years, the Marcos cronies sucked the economy dry and eventually led to the destruction of the Marcos regime itself.

The Marcos cronies built and eventually lost fortunes on government sponsored commodity monopolies from coconut to tobacco, commissions on government projects like the nuclear plant and GSIS reinsurance policies and on anything where a buck could be made because of the Marcos connection. Filipino cronies and the social elite in general have no love of country… they are only interested in lining their pockets.

Crony capitalists didn’t disappear after EDSA. With their control of many industries, they succeeded in crafting a Constitution that protects their interests by using nationalism as a plausible cover… Filipino First kuno. The current opposition to amending the economic restrictions to the Constitution as well as the passage of an anti trust law, shows that the power of the local economic elite remains formidable.

Indeed, a good example of simple rent-seeking is when local dummies earn oodles of money from foreign clients to allow them to own more of a business than the Constitution allows. We see how cronies use political clout to make money out of pieces of paper from government concessions and franchises.

If Singapore and Hong Kong can be prosperous despite being at the top of the list in crony capitalism, why should we worry? Well… Singapore’s crony capitalists have more patriotism. Still, both Singapore and Hong Kong have serious wealth disparity problems that could be socially destabilizing. It isn’t just a question of high GDPs, but inclusive growth.

Rent-seeking cronies constitute obstacles to more equitable growth… to an economic development that is sustainable. The Economist’s list is our wake up call.

It isn’t all bad. The Economist noted that in some cases as in America’s gilded past, the rent seeking industrialists managed to build an industrial base that America grew on. Same in South Korea where the government protected chaebols jump-started the country’s industrialization. 

That isn’t the case for us, unfortunately. Here, only the cronies get rich. Worse, they keep their wealth in private accounts in Switzerland, Singapore and elsewhere.

Now take a look at the Filipinos in the list of Forbes top billionaires. I am not sure if any of them are in industries that will sustain a balanced economic growth for the country. Almost all merely exploit the consumer market created by our hard working OFWs. 

Some are in industries dependent on government concessions from gambling to port handling and the electricity grid. And none of them have a social conscience to spur them to spend their wealth as Bill Gates does to improve the human condition.

But there is a silver lining according to The Economist: “Despite the boom in crony wealth, there are grounds for optimism. Some countries are tightening anti trust rules. Mexico has many lucrative near-monopolies, from telecoms to food, but its government is at last aiming to improve regulation and boost competition. India’s legal system is trying to jail a minister accused of handing telecoms licenses to his chums.”

In our case, we cannot even say we can look forward to anything positive. Our regulatory agencies are captured. A token office to handle anti-trust cases at the DOJ has not brought up a single big case to court. 

I imagine ourselves going up the ranks in that list of countries where crony capitalism thrives. And unlike Hong Kong or Singapore, our tragedy is that our crony capitalists always end up oppressing the rest of us even more. It isn’t a list we should want to be in.


Reader reaction

A reader who prefers to remain unidentified sent these comments to issues raised in this column.


Hi Boo,

I couldn’t help but smile reading your column re RSA and RVO.  I kinda sensed that you were trying to avoid stepping on two volatile nuclear reactors.

Anyway, just to remind you what you wrote many moons ago: you said that RSA is an acquired taste.

I think RVO is an equally acquired taste with a God-given talent for making enemies of friends.

Their tasting sessions at the board were most likely unpalatable affairs.

Re all this brouhaha about rice smuggling, rice shortages… from where I sit as consumer, I do not understand all the fuss about the evils of rice smuggling when the problem staring at us in the face is simple: we do not produce enough rice to cover our own needs.

Anyone smart enough to understand the gap between supply and demand, will realize that an opportunity exists to make a fast buck. 

Maybe we should instead focus on producing more rice to a point that smuggling rice doesn’t make business sense anymore.

Along the way, perhaps it’s time to a take a second look at the land reform law.  Farmers who till a max of five hectares will never be able to pull themselves out of the poverty rut. five hectares can only generate a finite level of income.

Considering the political sensitivity of rice, I shudder to think of what could happen should Thailand or Vietnam have a crop failure.

All the best and have a great weekend.


Dear for dinner

Lawyer Sonny Pulgar sent this one.

A man kills a deer and takes it home to cook for dinner. Both he and his wife decide that they won’t tell the kids what kind of meat it is, but will give them a clue and let them guess.

The dad said, “Well it’s what Mommy calls me sometimes.”

The little girl screamed to her brother, “Don’t eat it. It’s an asshole!

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco

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