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.
FOO Law and Economics 
Im just as confused myself as why we are still poor while our neighbors are gradually overtaking us like Malaysia, Thailand, now Vietnam and soon Myanmar, Laos and Cambodia. It has something to do with our backwards culture. For example, our majority catholics are against family planning. when we see our population grow out of proportion while we cannot feed and provide basic services yet to this booming population. Another is our culture of of pwede na iyan. We need to aim for higher standards and not just be content as pwede na iyan wihich is below the standards of everything. It seems like our centralize government too is the problem, we may need to convert to federalism where in regions and cities have some form of autonomy and based on their performance and efficiency will accumulate more wealth while regions who are backwards and laid back will be poor and can learn from the prosperous regions. Lastly, with all the obstacles and our negativities of our culture and government, I look at the Chinese Filipinos, regardless of the odds they are successful and wealthy, shouldn’t we learn from them? Most of the millionaires in the country are Chinese Filipinos. They must be doing something right that we need to follow if we can.
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I once heard a theory that the Asian tiger phenomenon was really a Chinese thing. The Chinese disapora picked up on western technology, and brought it back to the Asian tiger economies. You have a point there!
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so what are we going to do about it. I expected dramatic changes in our economy and infrastructures after the people power revolts and still nothing much had changed. It seems it is the Pilipino people that need to change or we need a strong dictator that will make the country move forward. this democracy does not work for everyone you know. I love freedom too but can we eat freedom? or maybe a limited dictatorship, we need some form of control. Going back to dictatorship though will be a very difficult one Im sure there will be stiff resistance up to maybe a violent revolution. so the best alternative is Parliamentary Federalism. Let the regions govern themselves and I think this will be better for the country and culture.
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but i doubt if a dictator, no matter how benevolent, can dictate high productivity because, in the first place, productivity is a mysterious thing. that’s schumpeter zen economics thing.
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Hahahahaha! You Filipinos are no match for the awesome might of China! We will make you even poorer by making your precious Spratly Island ours and your country’s natural resources as well! Good job Henry Sy for respresenting us well! Hey I bet you a billion that if we reach 2050, they’ll be in the same shit!
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