Political Engagement, Social Change and the Political Economy of Financial Modernization: Experimental Evidence from the Philippines

Abstract

This project applies a field experiment in Manila, Philippines to assess the influence of access to modern finance on political engagement. Recent development in formalizing banking through microfinance programs stands to disrupt the interdependence of political-economic relationships within local communities. The paper investigates how such substantial changes in individuals economic wellbeing also result in changes in the political sphere. The project ex- amines an economic development experiment involving 1900 low-income entrepreneurs who have no prior formal banking experience. The treatment group received a business loan and signed a formal contract with a metropolitan bank. The control group was left to continue informal, often politically embedded financial practices. Evidence from the oral survey project, analysis of international statistics and field work contradict the conception that improving economic status leads to greater political efficacy and participation. Rather, the paper offers robust statistical evidence that providing entrepreneurs with apolitical support resulted in political disengagement. The statistics are corroborated by extensive qualitative interviews of local politicians, money lenders, as well as original experiment participants. The work indicates that conventional thinking about political engagement does not apply in the context of developing democracies, wherein markets are mediated by clientelism. When people become less dependent and involved in clientelistic relationships, as a result of their access to modern financial services, they lose their motivation for political engagement. The findings suggest that the relationship between economic and political development are not entirely harmonious and furthers our understanding of the social changes occasioned by financial progress.