Phl economy at the crossroads of political independence, circa 1934

The Tydings-McDuffie Law or the Philippine independence act became a US law applicable to the Philippines when it was signed by then US President Franklin D. Roosevelt on March 24, 1934.

The economic cost of independence. The independence act that was legislated for the Philippines had explicit costs or conditions to be followed, which the nation had to accept in exchange for independence.

In winning the ultimate prize of political independence, Philippine leaders eventually accepted that the cost would be the revision of the rules of trade relations with the American economy.

This meant that the trade arrangement that had created great economic progress for the Philippines under a regime of almost free access to the American market would come to an end after some period of adjustment.

Economic history under American colonial rule. What was the nature and prospects of the Philippine economy at the time, at the crossroads toward political independence?

This is the question that will be explored beginning with today’s essay. In succeeding issues of this column, when I digress into non-current issues of the economy, I will devote more specific examination of the pre-independence Philippine economy. The objective is to have a well-rounded treatment of economic history of the period.

Export-driven growth was encouraged by free trade with the American market. During the years immediately surrounding that banner year of 1934, the Philippine economy was on a prosperous course under American colonial rule for 35 years.

The colony’s economic prospects became export-driven by virtue of a series of policies that removed trade barriers into the huge American market. This trade policy moved in steps. At first, the new territory was treated like a foreign country for its goods to enter as exports. Slowly, more and more goods were allowed preferential access until it was granted eventual free trade for most exports, as in the case of states of the American union.

In 1902, some products were given a 25 percent preferential discount on its normal US tariffs, and eventually the same preference over the years was granted to most Philippine exports.

By 1909, Philippine exports were given costless access to the US market, except for absolute quantity quotas that affected major Philippine exports which competed with American domestic products.

By 1923, further liberalization of trade took place. All Philippine exports were given free access (that is, zero tariff) to the US market.

Since the beginning of the special trade relationship, the colonial master called the shots. All US goods could enter the Philippine market free of tariff so that the trade relationship was not totally reciprocal.

Yet the demand for American goods by Filipinos could only increase as the size of their purchasing power or income improved. Mutual trade between the Philippines and the US grew over time, accelerated by these policies.

In the early years, 1899 to 1901, the average yearly Philippine exports to the US was only $3.8 million, while exports to all other countries amounted to $20.7 million. Thus, US accounted only for 18 percent of export trade.

By 1934, total Philippine exports amounted to $110.4 million, of which 83 percent or $91.8 million were destined to the US.

Throughout much of this period of long relationship between colonial power and ward, however, Philippine imports of US goods were always below the level of Philippine exports to the US. For instance, in 1934, the Philippine export surplus over imports from the US was $26.7 million. In fact, from 1928 to 1937, this export surplus was consistent although it varied. On a bilateral basis, Philippine exports to the US were always more substantial than imports of US goods.

During this long period, the agricultural industries grew and slowly moved on toward processing industries, creating more opportunities for employment within the economy. Only the creation of barriers to this development would hamper such growth (as will be seen later).

Traditional industries like sugar and tobacco that were fostered long before the American colonial period became even more important to the economy. This was the case for products from the growing of sugar, coconut, abaca, and other agricultural crops.

The exploitation of natural resources began to widen from mining to timber and other forest and marine products.

Labor-intensive industries gradually grew in importance, employing workers in households. This was the case of embroideries and hat-making from plant fibers.

Tangible benefits. The growth of export-driven industries naturally employed many active economic agents: workers and managers who earned their wages and salaries, the owners of land who earned land rents and investors who earned profits.

These incomes spilled over into chain of spending on necessities (consumption maintenance) and on other needs. Some into new savings, and still others into more investments. Expansion over time meant more expenditures on the income chain.

The government also benefited. The base for taxation increased with the expansion of production and commerce.

The last American governor-general of the Philippines, Frank Murphy, on Nov. 14, 1935, made some of these points in attempting to summarize benefits that were gained from the prosperity in the course of 35 years of American colonial rule:

“Higher standards of diet, clothing, and housing have lifted the Filipino laborer far above the level on which he formerly lived….

“State pay rolls make possible the highest average salary for government employees and the largest number per capita to be found in the Orient or Tropics….

“Less tangible, but equally important are the acquirement of better health, wider education, and higher scientific and artistic culture, and all the chain of advancing social standards which come with an expanding and diffused economy.”

There are no direct estimates of GDP and national income similar to the statistical metrics that economists use today on country economic performance. So, these claims of benefits do not translate directly into such measurements.

Although filled with self-congratulatory enthusiasm for an era that was closing, these assessments might compare with the contemporary economic conditions colonial territories in East Asian and Southeast Asian of that era.

The Philippines then fared very well with these neighboring regional territories, in fact, very much better in terms of economy, social conditions, and future prospects.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/