EDITORIAL- Crony capitalism

This is a list the country would not want to figure prominently in, since the problem was supposed to have ended with the 1986 people power revolt. The prestigious British magazine The Economist, however, has ranked the Philippines sixth in the world for crony-held economic sectors. That’s three notches worse than the country’s place in 2007.

In its latest Crony Capitalism Index, The Economist ranked the Philippines worse than countries including India, Indonesia, Thailand, China and the United States. The Philippines may find some comfort in the fact that Hong Kong, which competes with Singapore for the top ranking in terms of transparency, competitiveness and good governance, received the worst rating in crony-controlled sectors. Below Hong Kong were Russia, Malaysia, Ukraine and Singapore.

The index does not delve into compensating factors that allow inclusive growth with little corruption even if economic sectors are controlled by rent-seeking cronies of those in power. In the case of the Philippines, however, cronyism does not have those compensating factors, and even paves the way for corruption. Cronyism also weakens institutions and tends to encourage inefficiency and mediocrity.

Cronies typically use their connections to enjoy monopolies or oligopolies. The practice survived the collapse of the Marcos dictatorship. Philippine crony capitalists did not learn from South Korea. In the wake of the Asian financial crisis, the Koreans dismantled several of their chaebols or industrial conglomerates and punished industrial titans and their political patrons for large-scale corruption in the wake of the Asian financial crisis. Rent seekers, according to the magazine, grab a bigger slice of the pie rather than make the pie bigger.

The Economist proposes several measures to address the problem. These include better regulation, tighter anti-trust laws, and an active effort to foster competition in rent-heavy enterprises. Investors have made similar proposals in the past, and the magazine’s Crony Capitalism Index indicates the progress of those proposals. If the government wants to foster inclusive growth, it should tackle cronyism with greater resolve.