Note: I provide an update to this post in March 2010.
The conventional view of informed policy makers (Josef Yap and Jenny D. Balboa, at PIDS in October 2008) seems to be: The Philippines is poor because we are poor (we do not have enough resources for infrastructure and for basic social services; and as an undeveloped country, we don’t know how to collect taxes and to spend wisely because of corruption) and because we are not “smart” — we have high transactions costs and we do not know how to industrialize.
In addition, the authors claim that we have a Freudian desire to remain poor. They state:
“The constraints on economic development are not purely economic. There are other ‘deep parameters’ that affect economic performance. Lack of social cohesion, spotty entrepreneurship, and the inability to establish a credible and selfless political leadership are among the challenges that the Philippines faces today. There is a degree of inconsistency between how religion affects society and capitalist development in the Philippines. Meanwhile, long-held social values, such as ningas cogon (an old Filipino expression, which literally means ‘grass flash-fire’, referring to cogon dry grass which blazes furiously when set alight, but only for a few minutes before turning to cold ashes), have adversely affected economic growth in less tangible ways.”
Somehow, I cannot believe this analysis. It seems too defeatist, even if superficially correct. It plays into the arguments of the aid institutions (ADB, WB) and macro “guardians” (IMF staff) that the Filipino people or their leaders are too dumb or unwilling to know how to take care of themselves.
On the economic merits, the analysis of the authors does not take into account the failure of markets (in some areas) and of institutions (in other areas). Although this critique seems a variant of “we’re not smart,” it at least points to where we can do something about why we are poor. We can promote markets and free entry to break up entrenched quasi-monopolies or quasi-cartels, we can fix the institutional failures in the land and labor markets, and we can harness the deep motivations that cause Filipinos to go “OFW.” (Why, for example, do OFWs earn well abroad, but not in the country?)
I submit that the reason we can’t seem to see through our noses stems from the blinders of very simple neoclassical economics that do not take into account the institutional failures that stunt economic growth. In addition, we have taken advice from the international financial institutions at face value or with lip service, without actively questioning the bases for such advice. For example, if you’ve been inside the World Bank as long as Bill Easterly, you will know that much of advice from Washington simply serves to perpetuate aid and loan dependency, and does little to promote economic development. If we engaged in constructive dialogue with these institutions, we may well realize that, given their entrenched and often ignorant ways (one-size fits all models, for example), we are better off designing home-grown solutions based on a deeper understanding of how economics affects institutions and how the latter affect economic performance.