Ashyanna Alexine A. Bangcola 11255102

Dependencia: The Philippine Development Problem

This essay will employ the use of the Dependency Theory to

characterize the state of development (or underdevelopment) of

the Philippines, in the period starting from our independence

from our colonizer, the United States of America, in 1946 until

the administration of Marcos and the declaration and end of

Martial law in 1986. This essay will be divided into three parts.

First, the introduction would include the rationale behind the

choice of Dependency Theory as opposed to Modernization or World-

Systems Theory, as well elaborating on the core premises, which

will be used to analyze the economic, and development policies of

each administration. The body would include the analysis of each

administration’s economic and development policies while using

the lens of Dependency, interspersed with the critique of how the

theoretical framework was applied in each case. Finally, the

researcher will end the essay with her own insights on the trend.

Dependency was conceptualized largely as a response to the euro-

centric modernization approach. It was developed in the late

1950s under the guidance of the Director of the United Nations

Economic Commission for Latin America, Raul Prebisch. Prebisch

and his colleagues were troubled by the fact that economic growth

in the advanced industrialized countries did not necessarily lead

to growth in the poorer countries. Indeed, their studies

suggested that economic activity in the richer countries often

led to serious economic problems in the poorer countries. 

This is further elaborated in in one major proposition of

Dependency Theory: “Third World countries do not exist in

isolation. They can only be understood in the context of the

world economic and political system. However, relations between

First and Third World countries are asymmetrical. The flow of

power and control is from the First World (center or core) to the

Third World (periphery). Political and economic events in the

First World have a huge impact on the politics and economics of

Third World countries, but Third World political and economic

events usually have little impact on the First World.”

There is commonality between Dependency and World Systems Theory

and a thin line separating the two. Indeed, some scholars

consider Wallerstein’s World System Theory as just another strand

of the Dependency school. This essay was written on the basic

premise that the relationship of the Philippines’ with the United

States during this period was a form of neo-colonialism, and the

resulting relationship was exploitative in nature with it

affecting the internal development of the country. However, the

researcher opted not to use World Systems Theory, because it aims

to reform the international economic system from a capitalist

environment to a socialist environment, while in the researcher’s

view the common end goal of each administration was development

through industrialization. Conversely, while Modernization and

Dependency both propose industrialization as a means to

development, the researcher can garner from the data gathered

that the Philippines leaned more toward nationalizing

industrialization and Import Substitution Industrialization (ISI)

during this period as a means to achieve development. Whether the

various administrations during this time period were successful

or not in their policies will be discussed further in the body.

The late Claro M. Recto had this to say when he alluded to the

Soviet Union and China, and what he perceived to be the reason

for their progress: “Why have Russia and China progressed so

fantastically in their economic development? Certainly not

because of their resources, because they had those resources

during their long period of economic backwardness. Neither is it

because of communism, since other countries like Britain, the

U.S., Germany, and Japan had progressed fast too, without being

communist. It must be industrialization that can alone offer a

truer explanation. Industrialization is their common denominator.

That industrialization is economic development and vice-versa is

assumed by the UN reports…Every nation today is one or the other.

None can be both; none can be neither. Our only alternative

therefore is to industrialize. A declaration of national policy

to this effect by the policy-making departments of this

government and the necessary planning for its implementation

cannot be delayed further (Recto, 1956).”

Among the core theses of Dependency Theory which will be used in

this essay, the researcher would like to highlight the following

as highly relevant to the Philippine situation during this

particular time period (1946-1986): Firstly, the international

development is analyzed in terms of relations between two kinds

of regions, core (USA) and periphery (Philippines). Secondly, the

development in the center implied underdevelopment in the

periphery. Underdevelopment is not an original state. Development

and underdevelopment are two aspects of a single global process.

Thirdly, it was necessary for the periphery to disassociate

itself from the world market, to break the chains of surplus

extraction and to strive for national self-reliance (through

import-substitution industrialization for example). The

researcher will also discuss how the historical relationship

between the Philippines and the United States led to the

exacerbation of conditions conducive to the emergence of our very

own “lumpenbourgeoisie” (AG Frank, 1972). While various

Presidents have tried to remedy this situation by giving more

power to farmers through land reform policies, the outcome per

administration have had mixed results.

Dependency criticized Modernization for being ahistorical. To

remain faithful to the theory being used, the researcher will

first establish the historical context in which the Philippines

entered the world system as a sovereign nation. This will segue

way into the discussion of the first administration, the Roxas

administration (1946-1947).

The modern Philippine political economy can be traced to the 19th

century process of agricultural commercialization led by British

and American trading houses, Chinese traders, and an increasingly

powerful landed elite consisting predominantly of Filipino-

Chinese mestizos. The commercialization of agriculture in the

Philippines “gave rise to a new class of landowners who were

quite separate from the bureaucracy (Crouch, 1985).” When the

United States began its conquest of the Philippines, American

colonials won over these powerful local forces with intention to

undermine widespread support for independence. The American

colonial government successfully co-opted local caciques (powerful

landowners) into newly formed political institutions, in the

process not only strengthening the caciques’ power base at the

local level, but also extending it upward to the national level

(Hutchcroft, 2000). This fostered the creation of “a solid,

visible, national oligarchy” (Anderson, 1988).

When Manuel Roxas started his term as the first president of the

third republic of the Philippines, the country was ravaged by

war. The reconstruction of destroyed infrastructure cost 126

million pesos. There was an annual deficit of about 200 million

pesos. It was in this condition that the United States granted us

our independence, yet it was especially difficult for the

Philippines to emerge as a truly sovereign nation. The researcher

would like to bring your attention to two agreements entered into

by the Philippines with the United States during the Roxas

Administration: The Bell Trade Act and The Philippine

Rehabilitation Act.

The United States recognized their role in the severe damages

wrought to the country, because of them involving the Philippines

in their war with the Japanese. Then U. S. Senator, Millard E.

Tydings sponsored the Philippine Rehabilitation Act (later named

after him, the “Tydings Rehabilitation Act”), which appropriated

$620 million to be paid to the Filipinos. However, this came with

a condition: the ratification of the Bell Trade Act.

On January 1, 1947 under the Bell Trade Act, the Parity Amendment

was introduced. It gave American citizens and corporations equal

rights to utilize natural resources and operate public utilities.

On March 11, 1947, it was ratified in a national plebiscite.

While we were indeed granted independence, it was not a complete

one. The Bell Trade Agreement ensured continued dependency on the

American market.

Meanwhile, the administration of President Roxas passed

legislation that claimed to guarantee tenant farmers seventy

percent of the rice crop. In practice, however, the law allowed

landlords to take half of the crop.

Throughout the post-war years, oligarchs have needed external

support to sustain an unjust, inefficient, and graft-ridden

political and economic structure; Washington, in turn, received

unrestricted access to two of its military installations through

the Military Bases Agreement. The status of the Philippines as

the periphery to the US core effectively insulated it both from

the need to guard against external threat and (because of a

steady influx of external resources) from the need to develop a

self-sustaining economy. Three years after independence, and

after the death of Roxas, in 1949, the Philippine state nearly

collapsed. Oligarchs plundered rehabilitation assistance to pay

for duty-free imports of consumer durables, and the government

lacked the means to stem the hemorrhage of foreign exchange

(Golay, 1961).

Dependency explains economic development of a state in terms of

the external influences--political, economic, and cultural--on

national development policies. We can see clearly in the above

example how American national interest influenced OUR policies to

benefit THEM.

If the researcher were to critique aspects of the Roxas

Administration, it would not be the lack of foresight, for what

other choice did the government have but to accept aid to

rehabilitate this war-torn country. It would be the lack of

courage of the government to vigorously wipe out corruption.

Roxas’ lukewarm policy of land re-allocation did not serve to

take away the power from corrupt landowners.

Mauel Roxas faced abrupt death on April 15, 1948 and was

succeeded by his vice president, Elpidio Quirino (1948-1953).

Quirino continued Roxas’ economic policies. Besides establishing

the PACSA (President’s Action Committee on Social Amelioration)

and the ACCFA (Agriculture Credit Cooperatives Financing

Administration), the Labor Management Advisory Board, and the

Rural Banks of the Philippines, with the purpose of alleviate the

suffering of poor families; he also took the first steps of

disassociating from the core by employing import substitution

policies.

One shortcoming of his administration would be the lack of any

concrete agrarian policy. Furthermore, his administration was

mired in corruption, and he himself was put on trial for

impeachment for allegedly buying a golden orinola using

government funds. He did not fare any better in manifesting

positive economic results. The economic survey mission sent by

the US headed by Daniel W. Bell, at the request of Quirino, found

the government to be bankrupt and deep in debt.

It did not come as a surprise then, that Ramon Magsaysay defeated

him at the polls in 1953. Magsaysay (1953-1957) was a relatively

unknown congressman from Zambales and ex-guerilla fighter who was

appointed Secretary of National Defense by Quirino in response to

the Huks gaining strength in Luzon. His simple way of life and

his success as a Huk fighter made him an idol of the masses.

The transition from Quirino to Magsaysay can still be explained

by a proposition of Dependency Theory: “Politics and economics

are related. They cannot be understood apart from each other.

Economic ties and relationships between core and periphery

countries are particularly important. These are advantageous for

the core, and disadvantageous for the periphery. Core-periphery

trading patterns result in continuous growth of political and

economic power for the core at the expense of the periphery.”

If it is to be believed, to secure their interest, the US

interfered in the 1953 presidential election, through their

intelligence agency, the CIA. Psy-war propaganda methods were

used to promote Magsaysay and military resources available were

also considerable. The American role was critical throughout. A

massive domestic and international publicity campaign pumped up

Magsaysay's image and assured his election. The Americans had a

strong ally in Magsaysay, which was why they had a vested

interest in ensuring his presidency.

Magsaysay was the first president to start to solve problems on

land redistribution. He is remembered to have established the

National Resettlement and rehabilitation Act (NARRA) to give land

to farmers, as well as established the FACOMA (Farmer’s

Cooperative and Marketing Association) to organize the farmers.

While the Magsaysay administration took concrete steps to address

the concerns of the masses, they also negotiated the Laurel-

Langley Agreement (an amended version of the Bell Trade Act) with

the United States. While the reason for its conceptualization was

the unpopularity of the Bell Trade Agreement, the new agreement

only served to further disenfranchise the Filipinos in favor of

U.S. citizens, business corporations, and investors who were

granted access to 100 percent ownership in all areas of the

economy. This served foreign interests while exacerbating poverty

within the Philippines, and it also explains why U.S.

corporations at present control most foreign investments in the

Philippines.

The growth rate of the economy in this period was 7.22%, with

Gross Domestic Product increasing from Php 85, 269 million in

1947 and Php 146, 070 million in 1953 to Php 179, 739 million in

1956. However, after the Laurel-Langley Agreement was signed in

1955, there was a drop in Total Exports from Php 36, 462 million

in 1954 to Php 34, 727 million in 1956.

Magsaysay's term, which was to end on 30 December 1957, was cut

short by a plane crash. His vice-president, Carlos P. Garcia

(1957-1961), succeeded him as president. President García

exercised the Filipino First Policy, for which he was known. This policy

heavily favored Filipino businessmen over foreign investor.

Furthermore he implemented “The Austerity Program” for the

country. Having been heavily influenced by Recto’s

recommendations for a shift from light industrialization to heavy

industrialization, he instituted a comprehensive nationalist

policy. On 3 March 1960, he affirmed the need for complete

economic freedom and added that the government no longer would

tolerate the dominance of foreign interests (especially American)

in the national economy. He promised to shake off "the yoke of

alien domination in business, trade, commerce and industry."

As a result of the “Filipino First Policy”, the Filipinos became

the prime movers of the total investments of the country. During

the period from 1949 to 1961, Filipinos invested a total of P1. 4

billion in new enterprises; the Chinese P 435 million; the

Americans, despite the effect of parity, accounted for P31

million and the other nationalities for P28 million. This figure

points to the fact that Philippine economic growth for a decade

after independence was largely the result of a policy of

protection (Rodriguez, 1967).

In 1959, the administration of Garcia approved of a resolution

calling for the establishment of an integrated steel industry in

which the government would hold a controlling interest of 51%.

The decision led to the formation of the Iligan Integrated Steel

Mills (IISMI), a joint venture between the government and the

Jacinto Steel, Inc. The significance of the decision to put up an

integrated steel market could only be understood by understanding

the significance of steel as not only the foundation of British

export trade, but also as the foundation of the dynamism behind

the export trade of Asia’s tiger economies. Steel was the

foundation of industrialization itself.

Unfortunately this progress was derailed by the decontrol program

of the succeeding administration. In 1962, a new administration

took power. Diosdado Macapagal (1961-1965) became the ninth

President of the Philippines, and decreed out of existence the

entire foreign exchange control system that had been in force

since 1950. It devalued the peso from its official rate of P2: $1

to P3.90: $1.

Just as in the case of Magsaysay, American support would go to

Vice-president Diosdado Macapagal because they believed that he

could become an ally. During the election campaign, the shift to

decontrol was already the theme of Macapagal’s platform of

government. The era of Import Substitution Industrialization

(ISI) whose golden years was from 1957 to 1961, finally came to

its demise and was replaced with the so-called outward-looking

economic policy or the Export-Oriented Industrialization (EOI)

(Snow, 1983). The researcher argues that the program was

influenced by the interests of foreigners and was designed to

benefit foreign investors; all the while the Filipino elite

continue to become puppets of the neo-colonizers. The economy

was flooded with imports even as prices soared, and it set back

the process of industrialization started in the 1950s.

The results of the program were disastrous. At the end of 1963,

the World Bank issued its country report on the Philippines. In

that report, the World Bank admitted that the economy, under

decontrol, was performing unsatisfactorily compared to what it

described as the “rapid economic strides of the 1950s”. In three

years time (by 1965), the nation was in economic crisis. It was a

crisis that would factor into Marcos ascent into presidency

through the 1965 presidential elections. Decontrol also paved

the way for the country entering into debt crisis. Before the

Decontrol program, the foreign debt stood at $150 million. By

1965, the debt had quadrupled to $600 million.

Ferdinand Marcos is popularly remembered as a dictator having had

a twenty-one year administration (1965-1986). His first term was

promising, with him pushing for economic development and economic

reform. He was re-elected for a second term (the first Filipino

president to win a second term), having used $56 million from the

Philippine treasury to fund his campaign. The Filipino people

would feel the negative repercussions of this decision down the

road.

A general rise in world raw material prices in the early 1970s

helped boost the performance of the economy; real GNP grew at an

average of almost 7 percent per year in the five years after the

declaration of martial law, as compared with approximately 5

percent annually in the five preceding years. Agriculture

performed better that it did in the 1960s. New rice technologies

introduced in the late 1960s were widely adopted. Manufacturing

was able to maintain the 6 percent growth rate it achieved in the

late 1960s, a rate, however, that was below that of the economy

as a whole. Manufactured exports, on the other hand, did quite

well, growing at a rate twice that of the country's traditional

agricultural exports. The public sector played a much larger role

in the 1970s, with the extent of government expenditures in GNP

rising by 40 percent in the decade after 1972. However, to

finance the boom, the government extensively resorted to

international debt, hence the characterization of the economy of

the Marcos era as "debt driven."

In September 1972, Marcos declared martial law, claiming that the

country was faced with revolutions. He gathered around him a

group of businessmen, used presidential decrees and letters of

instruction to provide them with monopoly positions within the

economy, and began channeling resources to himself and his

associates, instituting what came to be called "crony

capitalism."

In the latter half of the 1970s, heavy borrowing from

transnational commercial banks, multilateral organizations, and

the United States and other countries masked problems that had

begun to appear on the economic horizon with the slowdown of the

world economy. By 1976 the Philippines was among the top 100

recipients of loans from the World Bank and was considered a

"country of concentration." Its balance of payments problem was

solved and growth facilitated, at least temporarily, but at the

cost of having to service an external debt that rose from US$2.3

billion in 1970 to more than US$17.2 billion in 1980.

In 1980 there was an abrupt change in economic policy, related to

the changing world economy and deteriorating internal conditions,

with the Philippine government agreeing to reduce the average

level and dispersion of tariff rates and to eliminate most

quantitative restrictions on trade, in exchange for a US$200

million structural adjustment loan from the World Bank. Whatever

the merits of the policy shift, the timing was miserable. Exports

did not increase substantially, while imports increased

dramatically. The result was growing debt-service payments;

emergency loans were forthcoming, but the hemorrhaging did not

cease.

It was in this environment in August 1983 that President Marcos's

foremost critic, former Senator Benigno Aquino, returned from

exile and was assassinated. The country was thrown into an

economic and political crisis that resulted eventually, in

February 1986, in the ending of Marcos's twenty-one-year rule and

his flight from the Philippines. In the meantime, debt repayment

had ceased. Real GNP fell more than 11 percent before turning

back up in 1986, and real GNP per capita fell 17 percent from its

high point in 1981. In 1990 per capita real GNP was still 7

percent below the 1981 level.

Despite the deposition of the dictator through EDSA revolution,

the damage had already been dealt. Marcos’ cronies firmly

entrenched themselves in the fabric of Philippine society. Graft

and corruption was widespread. The Philippines was firmly in debt

and had to subject itself to the mercy of the IMF and the World

Bank for structural adjustment loans. Once again, we were left

helpless with outsiders controlling our economic policies.

The researcher gives her final insights to end this essay. She

has observed that the Philippine development policy during the

given time period had no stable character. While each

administration implemented specific economic policies, there was

no follow-through in the case of the succeeding administration.

Because of the disruption, economic policies that could have

provided long-term benefits were not able to mature, such as the

case of Garcia’s long-term plans for heavy industrialization

being halted because of the transition to Macapagal’s

administration.

Saddening as it may be, the researcher has also observed another

key proposition of Dependency Theory at play, during the time

period, and even until now. The worldwide system of relationships

is duplicated within individual Third World countries. There is a

core area (usually the capital) which dominates and exploits the

periphery (interior) of the country. The nation's centers of

economic, political, cultural, and military power are found in

the national core, and the core's power and wealth grows more

rapidly than that of the interior as a result of contacts and

interactions between the two areas. The urban sector becomes

increasingly powerful, while the rural sector becomes

increasingly weaker. Resources flow from the periphery to the

center. The core profits at the expense of the periphery as a

result of the movement of products and resources. The passage of

time does not bring a growing equality within the country, but

rather brings about an increasing gap between life in the capital

and that in the countryside. In a sense, national leaders in the

capital exploit the people for their own personal benefit and

power. Consequently, these "national" leaders could really be

conceptualized as agents of the international system. Their

national power and prominence derive from their international

contacts. It is they (the military, government officials, and

commercial and financial leaders) who act as links between the

Third World country and the world political and economic system.

They direct the country's contacts with the world, and they

direct those contacts in such a way that the world core benefits

more than their own country, although they themselves clearly

benefit at a personal level. These national leaders may actually

have more in common with their counterparts in the US than they

do with interior citizens of their own country.

This was certainly true during the Marcos era. This is certainly

true for farmers who continue to be exploited by landowners,

despite attempts by different administrations to institute

agrarian reform policies. If we take the Philippines as a

microcosm of the existing world core, then Luzon would be the

national core, with Visayas and Mindanao being peripheries. Just

as the Philippines as the periphery to the US was stuck in a

state of underdevelopment; the Philippines as a whole will not be

able to develop so long as marginalization of our rural areas

continues to occur. It is the researcher’s belief that the key to

future development is the harmonization of economic and

development policies to be inclusive of all, regardless of

geographical location or social strata.

Word Count: 3,933

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