Philippines Free Press: Institutionalizing state interventionism, May, 1996

Institutionalizing state interventionism

By Manuel L. Quezon III

WHEN it was inaugurated on November 15, 1935, the Commonwealth of the Philippines found itself facing a daunting task accomplish the readjustments of the Philippine economy from that of a colony to that of an independent state. As Teodoro Agoncillo put it, “The Commonwealth was conceived as an experiment in self-government, an interim period of adjustment in the political, social and economic, spheres.”

The Philippines, during the American colonial period, operated as most other colonies did. It provided a range of raw materials with goods for its own consumption and that of the colony, not to mention the world. And so while American accomplishments in infrastructure and business were quite extensive, they were found to be wanting from the perspective of nation which aimed to be modern and industrialized.

Two trivial items help to illustrate the state of the Philippines at the time. Five days after the inauguration of the Commonwealth, the commercial transpacific flight from California, inaugurating a regular service which would continue until the outbreak of the war. And yet it would only be under the new government that the railroad line—which had existed since Spanish times—leading to the provinces, was extended to Legaspi in the Bicol region and San Jose, Nueva Ecija. And this, despite such herculenean feats as the construction, thirty years before, of the road leading to Baguio. The reason for this, of course, was the United States was eager to develop a market for American automobiles, but did not particularly care about giving a market to the British, who specialized in locomotives.

The second item of trivia is a letter sent shortly before the outbreak of the war by Gen. Vicente Lim, telling his children about great new developments in the Philippines, which included the commercial production of canned adobo (a venture, incidentally, which he considered a failure; he noted that Ninoy Aquino’s father wanted to send some samples to a son but decided to try it first, and found the contents inedible).

Operating under these handicaps, a summary of the economic undertakings of the Commonwealth government show how much had to be done, and yet how much the hands of the government were tied by preexisting economic conditions.

Operating under the disadvantage under the colonial set up, would need the assistance of government, the Commonwealth established government-controlled corporations to pave the way for industrialization. Some of these companies exist to this day: the National Development Company, originally established in 1919, and which together with the Philippine National Bank (established 1916) had been the cause for the celebrated fights with American Governors-General over the role of the Philippine Government in business affairs.These companies seemed to have had an effect in reducing foreign (then, as now, the substantial Chinese influence in business was viewed as “foreign”) control; Filipino participation in the economy, which stood at between 15 to 20 percent in 1935, grew to 37 percent in 1939. The perceived threat of an influx of Japanese businesses and entrepreneurs in Mindanao also spurred the “colonization” of Mindanao at the behest of the government, as well as the passage of the Immigration Act of 1940 (which remains in force), attacked by the Japanese as a means of unfairly limiting their ability to engage in business.

This was just a facet of what would be called “state interventionism,” and would constitute the Commonwealth’s enduring legacy in the economic sphere, coloring the actions of nearly all subsequent governments. In fact, as has been pointed out by Amando Doronila in his book The State, Economic Transformation and Political Change, 1946-1972, State Interventionism was stressed by the 1935 Constitution drafted by the very people who now occupied high positions in the Commonwealth. Saddled with dependence on foreign markets and yet unable to attract substantial foreign investment (as some American industries viewed Philippine goods as a threat to their own markets), perhaps it was inevitable for the government to view itself as a major investor and developer of industries. The government would even enunciate protectionism as an ideal through Presidential Proclamation 76, establishing a “Made in the Philippines product week,” Organizations such as NEPA received tacit government support.

The greater part of the government’s energies in the economic sphere, however, were directed toward settling economic relations between the Philippines and the United States after independence. Partial free trade had been established in 1909, and this had been extended to absolute free trade in 1913, leading to absolute dependence of Filipino agricultural exporters on the American market. The Tydings-McDuffie independence act had, originally, received substantial support from the American Sugar lobby which wanted to restrict Philippine sugar in favor of Cuban sugar. As a result, the provisions of the law were to be less than advantageous to Filipinos.

To settle this issue, the Joint Preparatory Committee on Philippine Affairs was created in 1937. Its recommendations—independence in 1946, as scheduled, and the extension of preferential trade relations up to 1960, instead of a gradual reduction as originally planned—were adopted by both governments.

The economic policies of the Commonwealth would be altered by the conditions faced by its successor government, which would adopt the Parity Amendment. But its underlying philosophy would endure and be resurrected later, during the Garcia administration under the slogan “Filipino First.” This philosophy continues to be attractive to some businessmen today, as is evident in the opposition to the globalization of world trade and the liberalization of the economy being carried out to present

Manuel L. Quezon III.

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