Dilawan: Rise and Fall of the EDSA Regime - Uno, Dos Tres

"I am the Market and thou shalt have no other models before me."

That is the first commandment of neoliberalism, an ideology that took root in the Philippines after the February 1986 people power revolt at EDSA.

In this series on the Rise and Fall of the EDSA Regime, we’ve been looking at the origins of the yellow movement and its impact on Philippine society. 

Last time we saw the original vision articulated by Ninoy Aquino, the founder of this movement, for a kind of reconciliatory politics, where freedom to debate would lead to a clash of ideas that would ultimately lead to higher order solutions around perennial problems.

We also saw how this vision was disregarded and corrupted after his death by his followers who emphasised his ultimate sacrifice, rather than his philosophy, and adopted a binary or dualistic worldview that separated the nation into two camps, based on a morality of good vs evil, light and dark. This ultimately led to a politics of resentment and vindictiveness.

This coincided with their adoption of the neoliberal worldview which treated contracts as sacrosanct and led to the prioritisation of the bond market over the needs of citizens. This was again different from Ninoy's original vision of Christian socialism, a human centred path to development. An agapic approach to human potential embodied in his progressive views towards education.

Self-editing by the EDSA regime and internalisation of the tenets of neoliberalism, led Mrs Aquino to issue a blanket commitment to honour all debts in Washington, even those tainted with corruption.

This deepened and prolonged the pain and suffering of the Filipino people and limited her government’s ability to provide social services and invest in infrastructure.

In this episode, we’re going to delve deeper into the economic philosophy of neoliberalism. How did it become part of this movement’s operating system?

Our use of biblical language as a metaphor for ideology is apt because the economic views of neoliberalism in the country would take on theological dimensions under the Yellow Regime. So put on your thinking caps, as we launch into the program.

The Source

The rise of conservative ideology in the United States with the election of Pres. Ronald Reagan in 1980 returned faith in the magic of the markets as a way of dealing with the economic and spiritual malaise of the 1970s.

The market replaced race as the central frame for a narrative towards some utopic future, as it did under Nazism or class under Communism. It also replaced paternalism of la buena familia under feudalism, which is how life operated in the Philippines.

The WB and IMF promoted these ideas in facilitating structural adjustment within debtor nations like the Philippines which faced liquidity problems after years of adopting a debt driven growth strategy and state-led industrial development under Marcos and previous governments, seeking to pattern themselves after the East Asian economies.

Marcos had tried to engineer the emergence of a developmental state in two ways: 1) through the shift to a semi-parliamentary form of government, where parties were populated by technocrats, who traversed both legislative and executive branches of government, 2) was with the adoption of state-led economic development to diversify and change the structure of the economy from a primarily agricultural one, to an industrial and ultimately service-driven one.

Since the 1950s, we were pursuing a policy of import substitution. The Bell Trade Act after the war gave American companies free access to Philippine markets in exchange for the US government providing aid to our reconstruction efforts. Pres. Manuel Roxas who hailed from the sugar producing region of Western Visayas was able to pass this through Congress after barring members of the left and opposition from taking their seats. This led to a chronic BOP crisis, which forced us to impose import restrictions. 

Quantitative restrictions through issuance of import licenses were designed to encourage the purchase machinery and equipment from abroad to produce manufactured goods to replace imported consumer items. There was some evidence that it worked, but then this system was corrupted, as these import licenses were sold quite lucratively to firms that imported consumer goods. 

ISI was inward-looking. It only sought to generate industry to cater to domestic demand, unlike in East Asia where it was used to cater to international markets. Foreign currency was kept artificially high to be able to import machinery, unlike in East Asia where the currency was suppressed to encourage exports. What was lacking was a strong state that would bring all this irrational mode of consuming at the expense of national development to heel.

Schizophrenic policy

Agro-industrialists. Exporters of agricultural products also owned import substituting industrial firms. They didn’t want to restrict trade, as the export of sugar to US markets was a major source of income. This led to a schizophrenic policy where ISI and export promotion sat side-by-side.

Marcos began the steps towards export orientation with the setup of the first industrial park in Bataan in the 1970s. But he was also busy setting up state-owned enterprises in banking, telco, airline, hotels, and setting up monopolies over top exporting crops.

According to Adrian Cristobal, his chief ideologue, FM sought to set-up keiretsus, a Japanese term for large conglomerates, but he chose the wrong samurais, a strange mix of metaphors.

Keiretsus in Japan were privately owned, but kept at an arms’ length by the government. The ones that directed capital and other resources to them were the bureaucrats who managed trade and investment, and came from the top law school in Japan, and were trained in political economy. If these firms failed to meet export targets, these bureaucrats had the power to withdraw and redirect resources away from them. The term used for them khan meant representative of the Emperor, which meant they were treated with deference, unlike in the West where public servants are seen as poorer cousins of the business community.

Marcos tried to professionalise the bureaucracy by setting up the Development Academy of the Philippines, but this institution only had limited success. While Marcos was able to rely on technocrats to determine policy within his cabinet and in the Batasan Pambansa, just as he was able to rely on the generals he had promoted to take care of security, he needed to find industrialists to promote growth in the economy. 

Rather than turn to a professional managerial class, he turned to a number of cronies. This is where his project of national development failed. By relying on la buena familia in seeking to scale up state-owned enterprises, he returned to the tyranny of cousins. Family friends and cronies were relied on to act as dummies for him in running the economy.

This led to extractive activities, as state enterprises weren’t run efficiently or effectively, and were used to drain the resources of the nation, rather than develop them. Technocrats could not discipline them, as they did in Japan or Korea, because they were not at arms’ length. And as they were financed through a debt bubble, the puncturing of that bubble in the mid-80s led to a severe collapse in our foreign currency reserves, which led to a full-blown economic crisis.

After 1986, the old IS industries were so debilitated due to the recession, and state coffers could no longer sustain them that country could not put up a fight when WB and IMF imposed austerity measures as conditions for lending to us, especially after Cory agreed to honor all debts.

This forced the government to undertake fiscal reforms. Under her revolutionary government from 1986-1987, Cory through her finance and budget ministries was able to rationalise taxes. Ben Diokno was then an undersecretary in her government and talks about this process in several scholarly articles. This led to a gradual balancing of the fiscal position by the time of Ramos.

Market as Savior

To get us out of our economic rut, the Market was used as the way to frame many perennial problems. Under Cory, a number of liberalisation programs were undertaken. We began the process of tariffication, or converting many of the QRs on imported products to tariffs. 

From a positive list of areas that could be open to foreign investment, the BOI adopted a negative list, limiting the restrictions to foreign investment to an ever dwindling group. That is before the Constitutional Commission of 1987 set some of these restrictions in stone.

The decentralisation of wage setting occurred with the adoption of regional wage boards, which afforded greater flexibility in labor markets. The process of sequestering many crony enterprises in favor of the state would ultimately lead to their privatisation.

Many of these policies were continued under Pres. Ramos with the acceleration of trade liberalisation. Tariffication lent itself to acceding to AFTA and GATT/WTO which meant lowering of our tariffs on imports. But just as in the time of Cory where self-editing by our officials led to pre-emptive acquiescence to the neoliberal order, under Ramos, the rate of tariff reduction exceeded what was prescribed by these free trade treaties. 

This led to premature deindustrialisation, as our manufacturing base was eaten up by cheap imports. Ramos used the Asset Privatisation Trust to sell-off government assets to balance the budget and get the state out of many industries, as revenues from customs due to trade liberalisation dwindled.

The revamping of the CB with the establishment of the BSP led to greater monetary independence. These policies did lead to growth, but then the problem was the lack of a sensible energy policy with the mothballing of the BNPP and the lack of public intervention led to the power crisis that overlapped Mrs Aquino’s and Mr Ramos’ administrations. 

Poverty fell, but ever so slowly – population, transport and energy policies of FM were discontinued which led to a slower decline in the fertility rate, an energy shortage, and transport bottlenecks. Market-centrism meant, we had to let families decide on how big they wanted to be. We should let private players invest in power plants and other important pieces of infrastructure, rather than the state. The Build Operate Transfer law was first introduced under Cory’s government and would be the main vehicle for undertaking the procurement for large projects.

This led to the first backlash in the wake of the Asian financial crisis and the rice shortages of 1997. These events were clear manifestations of the failure of markets to foresee and address all things. Market failure was compounded by public failure. Ramos’ emergency powers to intervene in energy markets also led to unintended consequences when demand for power failed to grow as a result of the economic disruption wrought by the Asian contagion. This led to a populist backlash led by Erap Estrada.

The Rise of Economic Populism 

He was a populist from the left promising pro-poor growth. Erap took full advantage of the impersonal, ivory tower of Ramos.

His was a bifurcated approach. On the one hand he stood for liberalizing capital markets when he attended the first ASEAN summit, in contrast to Malaysia’s capital controls under PM Mahathir. He also moved to revise the economic provisions of our constitution to open all areas of economic activity to foreign investment.

On the other hand, his pro-poor stance led him to increase health spending as a share of GDP. But Erap’s administration was also infused with a sense of nostalgia for his former patron Imelda Marcos. Erap ordered the renovation of Malacanang Palace, and restored the family-oriented, personalistic mode of dealing that Marcos had promoted through crony capitalism. Erap was accused of insider trading and stock manipulation by SEC Chair Perfecto Yasay. And of course, more notoriously for seeking to monopolize the jueteng gambling industry with his bosom buddies, Charlie Atong Ang and Chavit Singson.

All was not right within the EDSA regime with its first taste of defeat. It was vulnerable to an attack from its left flank, from economic populists. Erap’s Para sa Mahirap slogan just showed how all the progress that the yellow forces had built over 12 years under Aquino-Ramos could all go tumbling down in an instant. Its fragility was exposed.

Had its over-reliance on market forces caused it to be blind-sided? How could it best address this? By the 1990s, a consensus had formed around Washington to stabilize, liberalize and privatize. This was known as the Washington Consensus, and its cornerstone was the Market. By the 2000s, this doctrine needed some updating.

The New Covenant - Good Governance as Mediator

The answer came in the form of a new covenant under the Gospel of Good Governance to augment the old covenant with the Market. Around the early-2000s, the WB and IMF began to promote this new testament.

It turns out, according to them, that nations need the intercession of good institutions to make the magic of the Market work. The impersonal market, after all, does not exist in a vacuum and relies on other institutions to operate.

Good governance is the way for the institution of the Market to become incarnate. The transformation that comes from the market is mediated by good governance and its institutions. And what are these institutions?

According to Kraay and Kaufman, both senior economists at the WB, these are “voice and accountability”, “political stability and absence of violence”, “effectiveness of the state”, “regulatory quality”, “rule of law”, and “control of corruption”. 

These formed the WB’s Good Governance Indicators, and K&K demonstrated in the IMF’s Finance and Development Journal how they operated, where they proclaimed,

In our research, we found a large causal effect running from improved governance to better development outcomes.

After arguing for years that the state had to be diminished, to let Markets work their magic, the augmented Washington Consensus now prescribed that states needed to be strengthened once again for markets to function.

The yellow forces took these as gospel truth, and renewed their faith in the orthodoxy of neoliberalism at EDSA Dos by installing an economist, VP Gloria Arroyo to replace the disgraced Erap Estrada, after a sham impeachment trial ended with a vote to keep the envelope that contained damning evidence against him sealed.

With the blessing of Mrs Aquino and Jaime Cardinal Sin, and with members of the military, business community, activists and media cheering on, the same coalition that came together in 1986, Mrs Arroyo pledged to uphold the moral, political and economic tenets of the EDSA regime at EDSA Dos in January of 2001. After a brief interregnum of close to three years, they were back in power, just in time for the 15th anniversary of the EDSA people power revolt.

But this revival of fortune for the yellow forces would not last long. Within four months people from the lower rungs of society would be massing at EDSA and Mendiola seeking the release of their leader Erap Estrada whose arrest became a huge public spectacle. Mrs Arroyo called in the Marines to clear the streets. Her indebtedness to the military led to a rigodon of AFP Chiefs of Staff with the pabaon system, golden parachutes that allowed each of them to retire in style.

To her credit, Mrs Arroyo did attempt to improve governance in her first term of office. There was the push to improve tax collection with the RATE program (Run After Tax Evaders). Capacity building programs in the judiciary and anti-corruption agencies led to the biggest victory in recovering ill-gotten wealth from the Marcoses worth $680 million. A world class government procurement reform law was enacted.

But these victories would soon be overshadowed by scandals. Her Ombudsman Simeon Marcelo who also served as prosecutor at Erap’s impeachment and Solicitor General would resign due to health reasons, some have said it was a nervous breakdown.

The FG got embroiled in scandals involving some large procurement deals involving police hardware. The folly of la buena familia began to rear its ugly head, with two of Mrs Arroyo’s sons entering politics. Then the total apostasy of GMA took place with the release of the Hello Garci tapes and her televised mea culpa admitting to making a call to an election commissioner seeming to influence the results of the presidential election of 2004.

Her falling out with Mrs Aquino, over corruption and election meddling led to a spat over the disposition of the Cojuangco owned estate, Hacienda Luisita, under agrarian reform. This was an internal schism within the EDSA regime that threatened to tear it apart. The Hyatt 10, a collection of Arroyo’s cabinet members openly called for her resignation.

A strange thing happened at this time, the EDSA forces coalesced with the populist forces of Erap and his deceased bosom buddy FPJ who challenged GMA at the 2004 election. Mrs Aquino protested in the streets with his widow, Susan Roces and expressed regret for helping to depose Mr Estrada. These forces jointly fought the fiscal reforms that Mrs Arroyo enacted to deal with chronic, unsustainable deficits.

These deficits were the product of Ramos’ accelerated tariff reduction scheme, and his lowering of income tax rates, as part of the neoliberal tradition of denying the Leviathan state its fiscal oxygen. The one saving grace in the Ramos era’s tinkering with Mrs Aquino’s tax regime was his introduction of a consumption tax, that was easier to collect and administer.

Mrs Arroyo demonstrated remarkable resolve, by expanding the consumption tax and raising the rate from 10% to 12%, which shored up the public coffers, strengthening confidence in the peso, allowing her government to pursue a broad infrastructure program and contemplate a social safety net program in the form of conditional cash transfers to the poor, something that was promised by Ramos under the trade liberalisation program, to address economic dislocation, but not delivered due to limited fiscal space.

GMA may have fallen out of favor with the political wing of the EDSA forces, but she maintained the allegiance of the clergy and the military. Some cynically attribute this to her transactional arrangements with them such as the pabaon system to the generals and her donations of 4WDs to senior Catholic priests using the proceeds of the government’s gambling operations. 

But her strict adherence to the Church’s teachings on family planning and divorce, by publicly funding faith-based institutions to promote them, and her strong anti-drug campaign is perhaps what stemmed the tide of defections, especially after the rival church Iglesia ni Kristo backed supported Erap’s mob at EDSA Tres.

She may have been a technocrat by training, but her devoutness to her faith by way of her upbringing meant progress on the social front would not be forthcoming. Some activist priests would break from the senior clerics, but GMA had found a way to drive a wedge between them. Her use of realpolitik was demonstrated when she famously allied herself with a known jueteng operator in Pampanga who had been embroiled in Erap’s gambling deals to defeat one of these renegade priests turned politician in her home province.

GMA had pursued the economic liberalisation agenda of the EDSA regime, maintained its conservatism on social issues, but practiced Marcos’ realpolitik unapologetically. But one thing Marcos never did was banish his wife Imelda. This was not beyond GMA who sent the FG away for a time, until the firestorm surrounding him died down.

Oddly enough, it seemed to work. The economy kept chugging along, in spite of the global financial crisis. As it grew, so did the fiscal space afforded by her tax reforms. With this fiscal headroom, the government had the ability to provide taxpayer relief to vulnerable sectors and improve the delivery of public service, which further spurred the economy.

For all her troubles, Mrs Arroyo reaped the lowest approval ratings since polling began. With the election season around the corner, necropolitics reemerged with the passing of Mrs Aquino in August 2009. As Senator Manny Villar and Erap Estrada crowded in the populist lane, it gave Noynoy Aquino the opportunity to claim the reformist one.

The election of Noynoy was the EDSA Regime’s last gasp. The public would allow them one last bite at the cherry before disavowing them in 2016. In 2010, the path seemed clear for the EDSA forces to remain in power indefinitely. They had regained control of Malacanang, but more importantly the narrative: Light vs Dark, Good v Evil, once again.

They could now establish their normative order around the gospel of good governance, and do it right this time with no more compromises, as in the case of GMA. They could prove once and for all the validity of their claim that good governance was good economics, a nomological order. The final chapter could be written in the EDSA story about the escape of the chosen people from economic bondage into the nirvana of the promised land. The utopian vision could finally be achieved.

In the next episode, we will cover the decade of the 2010s that saw the EDSA regime reach its anti-climactic demise with the failure of Noynoy Aquino’s policies to attain this dream, and seek to explain the reasons behind this.

References:

Ben Diokno 2005, Reforming the Philippine Tax System: Lessons from Two Tax Reform Programs, Discussion Paper 0502, UP School of Economics.

https://www.econ.upd.edu.ph/dp/index.php/dp/article/view/122/120