The Philippine Development Puzzle

Abstract

Introduction The Philippines is one of the world's major development puzzles. In the immediate aftermath of the Pacific War, and despite extensive wartime destruction, it had one of the highest per capita incomes in East Asia: above South Korea and Taiwan; significantly higher than Thailand, Indonesia, and China; and below only Japan, the then Malaya, and the city states of Hong Kong and Singapore. Among newly independent countries, its initial conditions were favourable. American rule from 1898 had been comparatively benign by colonial standards. The transition to formal independence was relatively painless, compared with some of its neighbours. Also unlike some of its neighbours, it had no really serious communal or ethnic divides. Its education standards were amongst the highest in the developing world. By dint of its colonial experience, it had privileged access to the market of the world's largest economy, a facility that continued until the expiration of the Laurel-Langley Agreement in 1974. The country's civil institutions were comparatively well developed, too. It possessed a reasonably democratic political system, albeit of the winner-takes-all variety. Its judiciary and legal system were quite well developed and somewhat independent. Its press was open and vigorous. Finally, while not especially resource-rich, the country possessed ample agricultural land to sustain a generation and more of rapid agricultural growth. Yet its development outcomes have been disappointing by any yardstick. In 2000, its real per capita gross domestic product (GDP) was about the same as that of 1980 (see Figure 1). Its per capita income was overtaken by South Korea and Taiwan in the 1950s, Thailand in the 1970s, Indonesia in the 1980s, and China in the 1990s (see Figure 2). It missed out almost completely on the Asian boom from the late 1970s until the mid-1990s (see Table 1). In particular, the restructuring from the mid-1980s, which witnessed the large-scale migration of labour-intensive industries to China and the lower-wage ASEAN economies, largely bypassed the Philippines. By the 1980s and early 1990s, the Philippines became an increasingly marginal player in the region's trade and investment