While formally a democratic republic wherein all governmental authority emanates from the sovereign people, the Philippines is characterized as an elite or ‘shallow’ democracy that has been unable to adequately respond to the needs of under-classes. In addition, the Philippine state is seen as relatively weak and is susceptible to capture and plunder by strong private social groups and interests including political factions and families, big business groups, among others. The failures of the Philippine state and politics are highlighted by the inability to sustain and realize a promising economic growth potential (as of the 1950s) when the country was supposed to be second in Asia only to Japan in terms of economic development. At the core of this failure is inconsistency and incompatibility of economic policy making with the requirements of sustainable growth since 1946.
The source of policy inconsistency is identified in the literature as reflective of incomplete elite
Peso-dollar exchange rate
differentiation in the country. For example, as the country’s elite groups are involved in almost all lines of business such as external trade (imports and exports), real estate, commercial agriculture, manufacturing, and finance—there has been for a long time no elite consensus on trade and foreign exchange policy. For example, if one was an importer, she may prefer a protectionist trade regime to protect his import monopoly. She may also prefer an over-valued peso so her imports will be cheaper in terms of the local currency. However if she is also an exporter, she may want an under-valued peso so her products will be more competitive in the world markets. If she actually manufactures the exportables, her stance may be more nuanced. For instance, to the extent that the import-content of his export products is quite high, then she may be in favor of an over-valued peso. She may also prefer a more liberal foreign trade regime to make her imported inputs cheaper. However, since she wants her products to be competitive externally, she will prefer an under-valued local currency. In sum, she will not have a straightforward position on foreign exchange and trade policies.
Philippine exports, 2001
In truth, much manufacturing activity up to the recent past had been directed towards an internal market buoyed by protectionist trade policies and population growth. In theory, therefore, industrialists should favor land reform in order to broaden and deepen domestic demand for manufactures. However, their strong links with landed interests stop them from championing land reform in the rural areas. They try remedy the limitations of the internal market by selling to a more-demanding world market. In more recent years, domestic demand had been bolstered by the hefty foreign exchange remittances of overseas contract workers. Thus the recourse to external markets, including international labor markets, relieved domestic pressures for reforms and helped induce growth of consumer goods, real estate and the services sectors.
Within the context of grave inequity and widespread poverty, Philippine politics is clientelistic or patronage-driven. This picture should however be qualified with the importance of political violence and coercion as an additional (to the clientelistic) mode of mediation between political leaders and their constituents. The country’s political institutions are unevenly developed
Manila’s urban poor
and are not fully functional even after sixty years of modern statehood. Following the typology of Rothstein (1996), the rule-making and rule-applying institutions may seem to be over-developed compared to the rule-adjudicating, and more importantly, rule-enforcing institutions. While lack of resources (which is in turn a function of the state’s weak capacity to extract resources from society) plagues all four institutional types, consolidation of these democratic institutions is hampered by first order problems, chief of which are the ‘boundary’ (Rustow 1970) and ‘unity and internal order’ imperatives. Re the boundary question: is the Philippines the state of a single well-defined nation or should putative nations (such as the Bangsa Moro) enjoy the full rights of self-determination (including secession from the Republic)? The unity and internal order problems are largely the product of poverty and inequity as the have-nots try to redress the situation even with violent modes of action. In fact, the Bangsa Moro issue is an intersection of ‘boundary’ and ‘equity’ problems because the Bangsa Moro people perceived themselves to be among the poorest and powerless in Philippine society.
Guerillas, Moro National Liberation Front
The most glaring evidence of dysfunctional institutions is recent instances of or attempts at regime change through extra-constitutional means. These include the reprise of a ‘people power’ uprising against a universally-perceived corrupt President Joseph Estrada in January 2001 that led to his replacement by
Oakwood mutiny, 2003
incumbent President Gloria Macapagal-Arroyo (PGMA) and the various attempts to unseat her since then (the ‘poor people power’ uprising in May 2001, the Oakwood military mutiny in July 2003, and a failed coup attempt in February 2006).
The intensity of political contests in the Philippines is a function of the fact that the government disposes a significant chunk of resources, and exercises discretion over a wide sphere. The premiere political plum is that of the Presidency. The implicit goal of elite struggles is to control the state’s machinery and resources and skew their deployment to favor specific interests. Powerful incentives then work to persuade incumbents at various levels to retain power indefinitely in order to protect such interests. Conversely, turnovers—whether electoral contests or more fundamental challenges to legitimacy, such as attempted coups—may be viewed as chances to attain or to retain political power. The economic costs occasioned by such regimes can be seen to be large a priori. First are the obvious losses from competitive rent seeking, as factions seek to build their capacities to compete for dominance. The larger the gains are (which could turn on the scope of the government’s influence over resource allocation) and the more evenly-matched the factions are, the greater is the likely dissipation of resources in terms of lobbying, maintaining retinues of followers, and so on. These losses from classical rent seeking result from the diversion of resources towards unproductive uses, where these could have been invested or allocated more efficiently.
Further losses apart from those occasioned by rent seeking may arise as investment is discouraged by political uncertainty. In this respect, two potential effects of democratic, decentralized regimes in raising investment uncertainty may be distinguished. One effect owes to greater challenges to authority even in periods between regime turnovers—in short, internal uncertainty to investors brought on by the diffusion of power (through the system of checks and balances) even without a regime change. For instance, a government contract approved by the executive can be challenged at the legislature or at the Supreme Court. The Supreme Court’s decision in
Seal of the Supreme Court of the Philippines
the mid-90s to nullify the sale of the historic Manila Hotel to a group of Malaysian investors (in favor of a group of Filipino-Chinese businessmen) on the grounds of “protecting the national patrimony” is a case in point. While this risk may be inherent in any separation-of-powers system, its effects appear to be stronger in the Philippines where ‘losers’ in a particular institutional arena do not readily concede defeat but will try to win in others. Of late, there has been a strong tendency to call on the courts to rule on the constitutionality of approved laws or to issue restraining orders on government contracts. While the intervention of the judiciary may be necessary in principle, excessive judicial activism will surely raise the transaction costs of policy making and could adversely affect the investment climate. An example would the constitutional challenge to the reformed value added tax (VAT) law of 2005 (Republic Act No. 9337). Losers in the legislative arena sought to reverse their defeat through a Supreme Court temporary restraining order (TRO) based on the law’s alleged violation of the Constitution. Eventually, the Court ruled in favor of the law’s constitutionality and unimpaired implementation. Nonetheless, the uncertainties generated by the court suit did their damage.
A second source of uncertainty is regime turnovers. This uncertainty results from possibly large changes in policies, ranging from reversals of broad policy initiatives to alteration of contracts. The threat of victory by hostile factions may be viewed as leading to unsettling changes in policies that further raise the cost and the risk of investing. Potential political challengers may threaten to reverse the results of transactions accomplished under the incumbent administration once they come to power. These dangers became more important in the post-authoritarian period which saw disorderly or unconventional presidential successions.
President Corazon Aquino, 1986-92
The shift in the winning alliances also made a difference. The Aquino (1986-92) and Ramos (1992-98) presidencies had a similar preference for liberalizing economic reform as they were supported by modernizing elite fractions and their middle class allies.
President Fidel Ramos, 1992-98
President Joseph Estrada, 1998-2011
The Estrada presidency, which drew support from a different elite constituency as well as a populist mass base, preferred a personalist (as opposed to an impersonal market-oriented) stance in economic policy and actively dispensed policy favors to key supporters and campaign financiers. For instance, his administration reversed the ‘open skies’ policy of his predecessors to suit the preferences of Lucio Tan’s Philippine Air Lines (PAL) and built the NAIA (Ninoy Aquino International Airport) Terminal 2 exclusively for PAL’s use. The other less favored airlines had to make do with the cramped NAIA Terminal 1.
Tan, considered the country’s richest man, is the same Marcos crony targeted by the previous Ramos administration for massive tax evasion. Estrada rehabilitated Tan by extolling him as one of the country’s top and most consistent taxpayers. In the process, the court suits filed by Ramos’ tax officials were summarily dismissed supposedly because of the loss of truckloads of evidence against Tan.
The possible shift in policy consequent to turnover represents additional uncertainty and a discouragement to investment. An additional element of uncertainty is offered by the fluidity of the country’s political factions, manifested by the weakness of political parties and the relative lack of party discipline. Given the heterogeneity of elite groups’ economic interests and the attendant lack of clear-cut policy preferences, changing compositions of political factions may yield differing policy preferences or could simply lead to contract alteration simply because the new ‘ins’ will want to have their ‘cut’ on big uncompleted projects. This seems to be the case with the NAIA Terminal 3 project. Contracts for these projects were awarded during the Ramos presidency and the new terminal’s construction was almost completed during Estrada’s aborted term. However, the Arroyo administration saw substantial legal infirmities in the Terminal 3 contracts. This finding was subsequently affirmed by the Supreme Court. The project had to overcome these difficulties so the terminal could be used. Kudos to GMA and Mike Defensor.
Since the mid-1990s, it is possible to discern a clear-cut division between modernizing and outward-looking elite fractions and the more-traditional rent-seeking elite groups. After decades of protectionism and oligopolies, the modernizers were bolstered by here-to-fore protectionists who were convinced of the greater returns to economic openness and freer markets. These interests provided the political base for the reformist efforts of the Fidel Ramos presidency. However, the Estrada presidency represented a setback for market reforms and a resurgence of personalistic politics as well as the corruption of state and private institutions (including the stock exchanges and the commercial banking system) for presidential aggrandizement. Critical state bureaucracies served as the protective cover for many criminal syndicates involved in a wide range of activities from smuggling to gambling. The Estrada presidency championed the cause of more traditional and inward elite groups who are unmindful of ratings from Standard & Poor or the lack of an IMF ‘seal of good housekeeping’ since they can still earn fabulous incomes from informal and criminal economic activity. The failure to achieve thoroughgoing reform (especially in the political and social fronts) had however forced the modernizing elites to live with and compromise with rent-seekers. The drag of unreformed politics increases the costs of doing business in the country and lowers its economic potential. On the other hand, the strength gained by modernizers as a result of the Ramos reforms has allowed the economy to discount political ‘noise’ and even turmoil in recent years to come up with middling economic growth rates relative to the country’s Southeast Asian neighbors. The question remains whether growth can be sustained for a longer period (to make significant dents on the country’s poverty rate) while political institutions remain unchanged.
We now turn our attention to the military establishment in the country and its role in policy making. Path dependence is a key factor here. The important role that the military played in the overthrow of the Marcos dictatorship in February 1986 had allowed it to escape its own responsibilities and culpabilities as one of the dictatorship’s main props. Despite a return to democracy in 1986, the continued existence of a communist insurgency had guaranteed an inordinately heavy influence of the military establishment on the nation’s security policy. In fact, dissatisfaction with what was perceived as ‘radical’ policies of President Corazon Aquino (such as freeing of communist and other leftist detainees, conducting peace talks with the communist insurgents, and keeping an open mind on the extension of the military bases agreement with the United States) fueled many coup attempts against her government. All these putsches were defeated by a military establishment commanded by soon-to-be President Fidel Ramos in his capacity first as armed forces chief of staff and subsequently as national defense secretary.
Honasan, the rebel soldier
As president, Ramos quelled military restiveness with a general amnesty for coup plotters and participants. The most charismatic and dangerous coup leader, former Colonel Gregorio Honasan was incorporated into the political system as an elected member of the Philippine Senate in 1995. While there was persistent gossip that Ramos and his henchmen (particularly Jose T. Almonte, his shadowy National Security Adviser) ‘doctored’ election returns to ensure Honasan’s electoral victory, many Filipinos accepted that as a small price to pay for political peace. Ramos soon embarked on an ambitious modernization and professionalization program that will focus the military on an external defense mission while the police forces will take care of internal order (including the insurgencies). The Asian financial crisis deprived the country of the funds to finance the military’s modernization. The police forces proved to be inadequate for the anti-insurgency campaign and the military forces were once more embroiled in the country’s internal wars. The financial constraint was a major reason why President Joseph Estrada opted to enter into the Visiting Forces Agreement (VFA) with the US even as he earlier voted against the extension of the US-RP military bases as a senator in 1991. The agreement allowed the US to train Filipino military personnel and provide military assistance (by way of war materiel and equipage) in the context of annual joint military exercises.
Senator Gringo Honasan
The reprise of the ‘people power’ uprising in 2001 had unfortunately ‘institutionalized’ the military’s role in extra-ordinary and non-institutional regime change in the country. The July 2003 Oakwood military mutiny and the failed coup in February 2006 meanwhile revealed the re-emergence of factions within the armed forces. Political incumbents and regime challengers since then have consistently wooed military support and contributed to renewed factionalism and divisiveness within the ranks. Many analysts are also convinced that the GMA government is dependent upon the military brass for its continued political survival and is captive to the military’s security policy preferences. What is quite disturbing was the government’s use of the security forces for clearly partisan purposes during the May 2007 elections especially against leftist party list groups. Thus, what we have is a military establishment that is not modernized and professionalized, still embroiled in internal wars, plagued once more with factions and restiveness, and vulnerable to political pressures and influences. On the other hand, it had gained substantial leverage vis-à-vis civilian political leaders especially since 2001. In short, the Philippines does not have a professional or ‘militarized’ military.
Our final note concerns local politics and its link to national-level politics. Notwithstanding charges of too much concentration of governmental power and functions at the national levels, it is quite clear that local political elites are powerful in their own right. The literature attributes the emergence and flourishing of local elite power to the incorporation of the archipelago into the world economy in the late 19th centuryunder the auspices of a weakening colonial power via many localities (including Cebu, Iloilo, Legaspi, Zamboanga, etc.) and not only through the capital city of Manila. It did not only inhibit the creation of a centralized state bureaucracy but also stimulated the growth of many local elite groups with sources of wealth and power independent of the state. The immediate enfranchisement of these local elites by the American colonial forces through municipal elections and their elevation to national status through the formation of the 1907 Philippine Assembly consolidated these local elites to the extent that the first Philippine president under American
Manuel Luis Quezon
auspices (Manuel L. Quezon) came from their ranks and not from Manila-based politicians. Elected Filipino local officials enjoyed enormous discretion over the emerging state apparatus, including control over pork barrel funds and appointments of local bureaucrats. At the national level, legislators likewise exerted influence over the awarding of contracts, concessions and franchises, appointments to national government agencies, and allocation of state loans.
Following independence in 1946, the continued subordination of the national state apparatus to this multi-tiered hierarchy of elected officials and the expanding economic role of the state in import-substitution industrialization led to entrenchment of political bosses in numerous localities and at various levels of state power. In some localities, a concentration of land or other forms of proprietary wealth facilitated the entrenchment of political dynasties over successive generations. At the congressional district and provincial levels, long-time congressmen and governors have relied on state office to control ‘nodal’ economic choke points and key natural resources. The key to local political control has lain in the accumulation and retention of a preponderant share of resources for electoral success: a retinue of loyal personal followers, money for buying votes and bribing election officials; and coercive resources to reinforce personal and pecuniary objectives. A modus-vivendi between local politicians and those who aspired for the presidency was established. Local politicians delivered vote banks under their control to the presidential candidate of their choice in exchange for pork barrel allocations and other patronage resources. The increased availability of foreign funds, including military monies from the United States, allowed Ferdinand Marcos to get himself re-elected in 1969 without relying so much on local politicians. He declared martial law in 1972, abolished Congress, and ruled henceforth by decree. He centralized a national police under the armed forces (wresting control over the police from local politicians), established quasi-governmental monopolies for major commodity exports, and parceled out regulatory and proprietary control over strategic sectors of the national economy within a close circle of family members, cronies, and front-men. Nonetheless, Marcos still counted among a number of local strongmen for political support.
Since the fall of Marcos in 1986 and the restoration of regular competitive elections at the local and national levels, local political power had likewise been restored and strengthened by a new local government code. Given the rich spoils of these offices, elections have been fiercely contested through machine mobilization, vote buying, fraud, and violence. Political dynasties have likewise been encouraged to contest for national and local posts. For one, the flexibility to run for either a national or a local post affords politicians the possibility of remaining in office when term limitations kick in. Thus, a member of the House of Representatives may seek the office of provincial governor or city mayor after serving three terms as legislator. In the meantime, he may field his wife, brother, child, or any other relative to contest his House post. The diversification of political post portfolios may help explain the longevity of political dynasties. Membership in the House affords access to pork barrel funds and other forms of largesse that helps consolidate political control of a political bailiwick. On the other hand, control of a local government post ensures closer and more extensive relations with voters, which in turn helps ensure prospects for re-election of incumbents. To the extent that political parties remained weak, politicians seeking national elective offices (such as President, Vice President, and Senator) had to similarly court the support of local notables for so-called machine or command votes in exchange for patronage.
A subtle change in the linkage between business and politics is currently underway in the country. In many provinces where suburban industrial and commercial growth is most pronounced, local politicians have abandoned local empire-building efforts in favor of brokerage services for Manila-based or foreign capital, winning lucrative construction and real-estate deals but skimming percentages (for permits, zoning ordinances, and union-busting services) on new industrial and commercial estates, residential subdivisions, and gold courses. Some major illegal rackets (e.g. narcotics) are similarly centralized and internationalized, leaving local bosses to serve merely as franchise dealers or recruiters for urban-based and foreign syndicates (Sidel 1996).
What then are the key characteristics of the policy outputs of this peculiarly Philippine institutional setup? We have already alluded to the system’s general unresponsiveness to the needs of the country’s under-classes as well as the predominantly private-regarding character of policy. Some examples can be cited in support of this finding. The 13th Congress of the Philippines (July 2004-June 2007) succeeded in enacting an extremely liberal tax amnesty law before the electoral campaign recess. However, it failed to pass the cheap-medicines bill before its adjournment. This means that the measure, designed to lower costs of medicine through parallel importation of patented drugs, had to return to ‘square one’ in the 14th Congress (July 2007-June 2010).
A review of the property rights regime in the country is instructive in pointing to other key features of Philippine policies (Mendoza 2008). The study reveals that significant advances in the legal recognition of the property rights of the poor had been achieved since the restoration of democracy in February 1986. Notwithstanding these advances, the relevant policies have been plagued with problems of poor coherence and coordination, spotty quality of implementation and enforcement, and inefficiency. At times when policies needed to be flexible and adaptable, they were rather stable as old and archaic laws coexisted uneasily with newer ones despite decades of policy reform.
For example, key policies with respect to land administration persisted since the beginning of the 20th century despite the shocks of global war, internal insurrections, authoritarianism, coup attempts, and irregular regime change. Land administration refers to the processes of recording and disseminating information about the ownership, value, and use of land. These processes include mapping and survey, identification of alienable and disposable lands, original land titling, transfer of title, land information and records, taxation, and land valuation (LAMP 2: n.d.). The land administration system in the Philippines, with its colonial origins, is considered one of the most complex systems in Asia and is consequently plagued with institutional defects, inconsistencies, corruption, and unworkable practices. These defects include: multiple land administration agencies, multiple land administration laws, multiple land titling processes, multiple standards for surveying and mapping, multiple forms of certificate of title, multiple steps for land transfer, multiple standards for land valuation, multiple agencies undertaking valuation, and multiple taxes on land ownership and transfers. These pathologies often lead to several problems including long and expensive delays to secure land titles and the proliferation of fake titles. Consequently, there is a little confidence in the system and a relatively low level of registration of subsequent title transactions (LAMP 2; Roberts and Burns 2003). Separate estimates (De Soto 2000; Roberts and Burns 2003) indicate that more than half of all landed property in the country (more than 8.4 million parcels with a combined value of US$133 billion) lacked clear title.
The institutional setting for land administration and management is characterized by large, central agencies that are quite resistant to change. There are about fifteen (15) agencies involved and the two principal agencies are the Department of Environment and Natural Resources (DENR) and the Land Registration Authority (LRA) of the Department of Justice. There are two legal processes in gaining title to land—administrative and judicial. Administrative processes leading to titles are handled by three agencies. Titles obtained through the judicial process are senior to titles obtained administratively since the former decrees absolute ownership while latter confers rights with conditions and limitations. Under the judicial process, occupants of land are required to apply to the courts to confirm existing rights to title based on evidence of ownership and occupation. The inevitable result of having so many departments and agencies involved in land management and administration, each supported by enabling laws, is confusion, overlapping functions, and long bureaucratic processes and delays which lead to litigation and corruption. Thus, one piece of land can be owned by two or more entities since two titles—one administrative and one judicial—were issued. It could also happen that the same asset can be covered by two administrative titles—for example, an ancestral domain claim (CADC or CADT) and a certificate of land ownership award (CLOA) under the agrarian reform program. These overlapping claims generate conflict among the poor themselves—i.e., between indigenous peoples and agrarian reform beneficiaries. Or the same piece of land may be valued differently due to different valuation standards used by different agencies. Furthermore, the existence of a hierarchy of rights over private land complicates the tenure system because many of the rights are for specific and temporary use, so the need for updating or conversion to a superior right, adds to the bureaucratic chain (Roberts and Burns 2003). For example, separate rights for ownership, cultivation, building, use and management can apply to land. When added to an already complicated regulatory system and a high degree of centralization, this creates a concentration of power in numerous points of the process and increases the potential for bribes, discourages participation and engenders distrust of the formal tenure system. The complexity, delays, and costs of registering titles lead to a relatively low level of registration of subsequent title transactions. Another consequence is a thriving grey market for land and land titles.
 Rule-making institutions are needed to make collectively-binding decisions about how to regulate the common interests. These roughly correspond to the legislatures at various levels—from the national down to the barangay. Rule-applying institutions are needed for implementing these same decisions. These correspond to the chief executives at various levels from the president of the republic down to the barangays chairmen. Rule-adjudicating institutions are needed to take care of individual disputes about how to interpret the general rules (laid down by legislatures) in particular cases. They include the courts at various levels from the Supreme Court down to the municipal trial courts, quasi-judicial bodies, and other dispute settlement and arbitration mechanisms. Rule-enforcing institutions are necessary to take care of and punish rule-breakers, whether insiders or outsiders. These institutions include the courts, security or uniformed services (police and armed forces), and the prison/penal system.
 A fuller story on Lucio Tan’s travails and triumphs during the Ramos and Estrada presidencies is supplied by Mendoza (2004) and Lim and Pascual (2000).
 A militarized military is an armed force deployed only for military missions—particularly for the defense of a sovereign state against external threats. Under this concept, anti-insurgency campaigns are a police function and should be undertaken by internal security or police forces. In a democracy, a militarized military is non-partisan, under civilian control, and does not get involved in domestic politics, electoral or otherwise. It will be an important institutional player in the formulation and implementation of the country’s foreign policy.
 It can take up to three years to secure or transfer a land title and have it registered (LAMP 2).