Philippines worsens to 3rd place in crony capitalism

From 5th in the economist index in 2014

MANILA, Philippines – The Philippines saw more businessmen become wealthy and continue to seek more wealth to the detriment of others, but if last week’s elections are of any indication, ordinary people might have just had it.

According to the latest Crony Capitalism Index of The Economist, the country ranked third from fifth in 2014 among 22 economies where the so-called “crony” sectors accounted for bulk of their economic output.

Data showed 11.3 percent of the country’s gross domestic product (GDP) came from the “crony” sectors such as casinos, infrastructure, utilities and telecommunications and real estate.

In economics, crony capitalism suggests “rent-seeking” or the use of one’s power or connection to gain wealth without actually “making” wealth. Acts connected to this include corruption, bribery and extortion.

“Industries that have a lot of interaction with the state are vulnerable to crony capitalism. These activities are often legal, but often unfair,” The Economist said.

Sought for comment, Richard Javad Heydarian, political science professor at De La Salle University, said the index helps explain the rise to power of Rodrigo Duterte to the presidency.

Ahead by about six million votes in partial and unofficial tally, the presumptive 16th president rose from being Davao City’s mayor despite his public profanity.

“The Philippines suffers from an acutely concentrated type of growth, with few major conglomerates swallowing up the GDP and newly-created wealth,” Heydarian said in a text message.

“Duterte is gaining benefit of the doubt by signaling pragmatism and assembling a seasoned, technocratic and inclusive Cabinet,” he added.

The ranking put the country just below Malaysia and Russia, the former currently suffering from a controversy involving alleged stolen funds from a state corporation by Prime Minister Najiv Razak.

Singapore, Ukraine and Mexico were immediately below the Philippines, while Germany is seen as the least crony capitalist nation.

The Economist said the index was primarily constructed using the billionaire list of Forbes. Data was aggregated per billionaire, per country and then converted as percentage of GDP.

But while Duterte is ahead of the presidential race, the son of former dictator Ferdinand Marcos Sr., who benefited from his cronies, is also neck-and-neck with Camarines Sur Rep. Leni Robredo in the vice-presidential race.

Heydarian said this reflects a “protest vote” against democracy that allegedly saw more wealthy people take power.

“This is against three decades of perceived incompetence and oligarchy that replace the Marcos dictatorship... There was also Bong Bong (Marcos)’s strongman rhetoric and sleek historically revisionist campaign,” he said.

For think tank Foundation for Economic Freedom, the incoming Duterte administration should put inclusive growth on top of its agenda to help the poor benefit from the fastest economic expansion since the 1970s.

“We support (Duterte’s) program to make growth inclusive by focusing on education, rural development and delivery of basic services to the poor,” the organization said in a statement.

Heydarian agreed, but added it remains to be seen if Duterte would deliver.

“We need radical structural reforms to create inclusive development,” he said.

“We are entering the honeymoon period for now, but a year down the road, it’s anyone’s guess what awaits the country,” he added.