Booty Capitalism: The Politics of Banking in the Philippines

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Cornell University Press, 1998 - Business & Economics - 278 pages
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In the early postwar years, the Philippines seemed poised for long-term economic success; within the region, only Japan had a higher standard of living. By the early 1990s, however, the country was dismissed as a perennial aspirant to the ranks of newly industrializing economies, unable to convert its substantial developmental assets into developmental success. Major reforms of the mid-1990s bring new hope, explains Paul D. Hutchcroft, but accompanying economic gains remain relatively modest and short-lived.

What has gone wrong? The Philippines should have all the ingredients for developmental success: tremendous entrepreneurial talents; a well-educated and anglophone workforce; a rich endowment of natural resources; a vibrant community of economists and development specialists; and abundant overseas assistance. Hutchcroft attributes the laggard economic performance to long-standing deficiencies in the Philippine political sphere. The country's experience, he asserts, illuminates the relationship between political and economic development in the modern Third World. Through careful examination of interactions between the state and the major families of the oligarchy in the banking sector since 1960, Hutchcroft shows the political obstacles to Philippine development.

"Booty capitalism," he explains, emerged from relations between a patrimonial state and a predatory oligarchy. Hutchcroft concludes by examining the capacity of recent reform efforts to encourage transformation toward a political, economic order more responsive to the developmental needs of the Philippine nation as a whole.

  

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Political Deficiencies that Continue to Obstruct Capitalist Development in the Philippines
According to Hutchcroft (1998) the weaknesses of political development are a major obstacle to the country
’s long frustrated hopes of successful economic development. He said that patrimonial features hinder the development of more advanced forms of capitalist accumulation. He commented that patrimonialism found in the Philippines presents particularly obstinate structural barriers to the creation of a more rational-legal state (and hence to the development of more advanced forms of capitalism).
Philippine economy is characterized by rent capitalism. Hutchcroft (1998) used the term rent capitalism to describe systems in which “money is invested in arrangements for appropriating wealth which has already been produced rather than in arrangements for actually producing it.” He offers two corresponding categories of rent capitalism. First, patrimonial administrative state wherein the dominant social force is a bureaucratic elite, or political aristocracy, and countervailing social forces are strikingly weak. Because the major beneficiaries of rent extraction are members of bureaucratic elite – based within the state apparatus – He also labeled its corresponding economic system bureaucratic capitalism. Second, patrimonial oligarchic state wherein the dominant social force – an oligarchy – has an economic base quite independent of the state apparatus, but access to the state is nonetheless the major avenue to private accumulation. Hutchcroft (1998) explains that in this kind of rent capitalism extra bureaucratic forces over shadow the bureaucracy. The type of rent capitalism that corresponds with the patrimonial oligarchic state is booty Capitalism. In booty capitalism, a powerful oligarchic business class extracts privilege from a largely incoherent bureaucracy and less likely to foster new social forces able to encourage change from within. Hutchcroft (1998) explains that patrimonial oligarchic state and its booty capitalism are a “developmental bog” in which the postwar Philippine economy - its enormous resources and talents notwithstanding – has repeatedly become mired.
Booty capitalism can be described using Philippine National Bank as an example. There was an instance in the history of Philippine National Bank when families in agricultural export industries raided the resources of the newly established and publicly supported PNB to such a degree that it not only threatened the existence of the bank, but drained the treasury and left the currency in a shambles. As families enjoying most favorable access to the political machinery pursued the booty of state, developmental goals were trampled underfoot.
Hutchcroft described how the state being prostituted by the oligarchy by saying that the state apparatus has repeatedly been chocked by an anarchy of particularistic demands from, and particularistic actions on behalf of those oligarchs and cronies who are currently most favored by its top officials: one will obtain a highly coveted loan or import license, another will enjoy a stake in a cartelized industry protected by highly discretionary state regulations.
In the postwar era, oligarchic families began to diversify into new industry ventures as new sources of booty became available after the 1949 imposition of import and exchange controls. The new source of booty that became available through the ownership of private domestic commercial banks. Ownership of a bank became among the surest means to securing credit for the other components of the family conglomerate, and most major families flocked to the industry.
Martial law did little either to promote effective state regulation or to harness the energies of the banking sector for developmental goals. One can argue that cronyism alone would have dragged down even the best-formulated set of reforms – which this reform package clearly was not.
Minister Lee Kuan Yew said that “the exuberance of democracy,” he declared, “leads to undisciplined
 

Contents

Introduction
1
The Political Foundations of Booty Capitalism in the Philippines
13
Bringing Political
31
The Philippines
45
The Historical Development
65
The Emergence of Private Domestic Commercial
81
The Martial Law Regime Deals
110
Technocrats Cronies and Crises
143
The Fernandez Years 19841990
170
The Philippine Banking Sector
206
The Philippine Political Economy at the Crossroads
232
Total Assets Philippine Commercial Banking System
257
Author Index
275
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About the author (1998)

Hutchcroft is Assistant Professor Of Political Science at the University of Wisconsin.

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