THE secular trend in the development process is that excess labor (due to limited land) from agriculture will seek employment in the industrial-manufacturing sector as a country’s economy develops. This happened in the early capitalist development process in Britain and also in many developed and developing economies such as Japan, South Korea, Taiwan and, more recently, China and Vietnam.
Unfortunately, this did not happen in the Philippines because our industrial protectionist policy confined the market for our products to us. In contrast, all developed economies cited above targeted the global market. In view of the almost limitless opportunities presented, they were able to rapidly expand their industrial-manufacturing bases. Their industries absorbed all the surplus labor in agriculture, which once exhausted inevitably led to a rise in wages.
Our policy immensely benefited oligarchs as the economy became a preserve for them to extract windfall profits at the expense of Filipino consumers. Accustomed to protection, they were in short supply of the entrepreneurial spirit that would have goaded them to compete globally. All they had to do to continue raking in massive profits was to ensure that the economy remained hostile to foreign capital and imports.
Nationalism was used as a convenient justification to keep themselves in power. This was glaringly demonstrated by a convergence of interests among oligarchs and so-called leftist progressive groups. Filipino entrepreneurs, no matter how exploitative they were, needed to be shielded from “unfair” competition posed by foreign investors and their products — the latter seen by the left as the “Trojan horse” of Western imperialism.
Part I of this column last week noted that the roots of the local oligarchy could be traced to their prior haciendero status. They made the foray to the protected industrial sector using the huge amounts of capital in their possession. Manufacturing industries are capital-intensive and only landed oligarchs could transition because foreign investors were not allowed entry. The vast majority of poor Filipinos were also incapable of venturing into the manufacturing business.
In the agricultural sector, the huge tracts of land owned by oligarchs were gradually distributed to tillers through a series of land reform laws, starting in the 1930s under the Quezon administration and culminating in the passage of the Comprehensive Agrarian Reform Law under the Cory Aquino government. Though exemptions were made that enabled a few oligarchs to retain sizable pieces of land, this no longer mattered as they had already diversified their investments to the industrial and services sectors.
In agriculture, they retained control of key commodities like sugar, livestock, poultry, fishery and food services, and became producers or suppliers of key agricultural inputs. They found common cause with small tillers in maintaining the protective wall against imported agricultural products as this was highly profitable. While small farmers saw protection as a means for their survival, the oligarchs perceived it as necessary to guarantee profits. Unfortunately, this discouraged innovation and adoption of productivity-enhancing measures.
We saw these in the cases of sugar and coconut — two of our leading exports in the past. These generated massive amounts of foreign exchange for the country then. Ironically, we are now importing substantial volumes of sugar and palm oil — a substitute for coconut oil — for cooking. Decades of protection led to the demise of the sugar and coconut subsectors as there were hardly any incentives to become efficient and productive.
We were also relatively efficient producers of rice, corn, fish, livestock and poultry back in the 1970s to the 1980s. Currently, we are importing these commodities as decades of protectionism only resulted in the dominance of highly inefficient backyard raisers and retail farmers.
The transition to a more open agricultural trading regime could have been encouraged by the government to promote greater efficiency. However, sustained advocacy by leftist groups, quietly supported by oligarchs, was too much for politicians to resist, mainly for a couple of reasons: first, it was a popular thing to do because of its nationalist and pro-poor appeal. Second, government functionaries and politicians also benefited.
This is in the form of government dole outs and subsidies presumably needed to keep farmers productive and hopefully competitive. With billions of pesos committed yearly for the procurement of seeds, fertilizers, farm machinery and equipment, fuel and pesticides, etc., government functionaries could easily engage in rent-seeking. Agricultural suppliers were also happy enough to forge deals as long as they could capture a big chunk of the dole outs. It is no wonder that they too support protectionism.
Our politicians are also happy with the dole out arrangement because this is used to gain political support from constituents, particularly when elections near. There is also the opportunity of engaging in rent-seeking in the procurement of agricultural inputs and farm machineries/equipment as funds for these are often coursed through local government units (LGUs). The billions of unliquidated funds from the Department of Agriculture budget are mostly those transferred to LGUs in support of their agricultural programs. Nobody has made them accountable.
Protectionism also gave birth to such “creative” measures such as the issuance of a certificate of necessity to import (CNI) and the regulated issuance of sanitary and phytosanitary measures (SPS) clearances bereft of scientific basis to prevent the entry of agricultural goods. What is insidious is the allocation of quotas from the CNI and the SPS to so-called eligible companies, traders and farmers associations in exchange for their support or monetary consideration.
The better alternative is to auction the allocations so as to lower prices for consumers, but that means that favored traders and companies will not gain windfall profits.
Understanding the political economy makes us realize that the convergence of interests among landed oligarchs, so-called small farmer leaders, leftist groups, government officials and politicians in maintaining protectionism, from which they immensely benefit, is the major reason why we cannot develop our agricultural sector.
Without breaking or destroying this symbiotic linkage, it is inevitable that our agricultural sector will continue its downward trend. Protectionism will only lead to its further demise. The lessons of the sugar and coconut industries are too obvious not to see. Only those who benefit from the nefarious results of protectionism will claim otherwise.
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