Crony capitalism

Competitive investment incentives and even the passage of the Amended Public Service Act that liberalizes foreign ownership in some industries may not be enough to attract more foreign investments into the country.

More than anything else, investors are looking for a level playing field. Our country’s playing field is anything but level. Crony capitalism reigns.

With BBM leading the presidential surveys, local and foreign investors are wondering if the crippling Marcos era crony capitalism will once again be front and center. Our young people should know that crony capitalism thrived during the Marcos years, one reason why the economy eventually skidded.

Definition of terms: Crony capitalism, sometimes called Cronyism, is an economic system in which businesses thrive through collusion between business interests and the ruling politicians.

The Economist defined it this way: 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.

Crony capitalism lingered beyond the Marcos era. It was scandalous during the short Estrada watch. Arroyo and Duterte were not shy about who their favorites were.

Duterte has not yet warmed his seat when he focused on humiliating Roberto V. Ongpin whom he described as an oligarch.

Extreme pressure was put on Ongpin so that by Duterte’s second month in office, Ongpin gave up  PhilWeb, an online gaming company, his cherished cash cow he nurtured for years.

“He knew his game was up,” Apa Ongpin, Roberto’s nephew and former executive at PhilWeb, told Nikkei Asian Review.

Nikkei described the impact of that move as sending shockwaves of fear through the country’s business elite.

“Three years on, what Duterte framed as a systemic transformation has come to look more like a personal vendetta.” Later on, ABS-CBN’s fate followed the same vindictive pattern.

Ongpin was forced to sell his PhilWeb shares to Gregorio Araneta III, the son-in-law of Ferdinand Marcos.

“Far from taking down the oligarchy, Duterte’s attack on Ongpin merely transferred some of his wealth to a more powerful family with whom Duterte maintained a strong alliance,” Nikkei observed.

Imagine how much more powerful the son-in-law will be in an administration headed by his brother-in-law!

The other big instance of crony capitalism under Duterte is the shameful way his energy department handled the Shell Malampaya deal. Duterte’s minions ignored the request of Shell for an extension of the contract. Tired of waiting, Shell was forced to sell to a Duterte crony.

The Senate energy committee also investigated the earlier sale of Chevron in Malampaya to the same crony and recommended filing charges against senior energy officials. But Duterte himself insisted the deal is legal.

Screwing a major multinational like Shell to favor an administration crony is brazen. Potential investors will see there is no protection from a crony.

The return of crony capitalism is all but certain if BBM makes it to Malacanang. That’s the system he is familiar with. That’s what he learned from his father.

Crony capitalism during the Marcos era involved big companies like the Cojuangco-controlled PLDT before First Pacific, the sugar trading monopoly, the government insurance brokerage monopoly, the coconut industry monopoly, Philcomsat monopoly and a number of industrial companies.

Supposedly, Marcos entrusted his shares in many of these companies to cronies with the understanding that the shares will be returned to the family when asked. But some of those cronies refused, denying Marcos had shares in their companies.

Will a President BBM force those double crossing cronies to now deliver those shares to them or else?

There is an interesting story on PhilStar business way back on July 28, 2007 about how Imee Marcos lodged a complaint before the Securities and Exchange Commission (SEC), claiming ownership over the shares of a television network supposedly entrusted by Ferdinand Marcos to a Malacanang official.

It gets more interesting.

According to Sen. Nene Pimentel, in a press release dated July 31, 2007, which I retrieved from the Senate website via Google, both Ilocos Norte Congressman Ferdinand “Bongbong” Marcos, Jr. and former Congresswoman Imee Marcos claim they are in possession of documents that will prove their family’s ownership of some of the country’s largest conglomerates.

The joke was that the Marcoses were deeply involved in the mining industry. When they see a list of businesses,  they start declaring… this is mine, this is mine, this is mine.

The Washington Post reports that when Imelda Marcos was asked by an interviewer in 1979 how it was that many of their relatives and friends had become so rich, she replied: “Well, some are smarter than others.”

But Imelda was wrong. Their friends were not smart, only greedy.

The Post reports that “more than 100 companies owned by friends of the Marcos family have failed… and many of these firms were taken over by the state when they were unable to repay loans guaranteed by the government.

The failures proved expensive for the taxpayers. The Treasury had to bail out then government-owned PNB and DBP because of soured behest loans granted to Marcos cronies. GSIS had to dispose of non-performing assets. UCPB, a crony-owned bank, also had to be rescued.

“The most damaging impact of crony capitalism,” The Post quotes Dr. Bernardo Villegas, was that it “emasculated the free enterprise system and discouraged a lot of would-be investors by restricting their access to credit and confronting them with unfair competition.”

The failures, banker Vicente Jayme pointed out to The Post, resulted in “large amounts of funds made available to people who were not capable of running their enterprises… they wasted resources badly needed by the system.”

The current money problems of a Duterte crony who had to abort an P8 billion stock rights offering sounds like  a Marcos crony failure.

Marcos-style crony capitalism is threatening the country’s economy again.

Expect investors to hold on tight to their money until they know if the new administration, whoever leads it, will guarantee a level playing field and reverse past decisions that favored  cronies.

Boo Chanco’s email address is [email protected]. Follow him on Twitter @boochanco.