The Multinational Monitor


T H E   P H I L I P P I N E S

Building on martial law

In the eight years since Marcos declared martial law, the Philippines has become a haven for multinationals. Bolstered by World Bank support, the corporations have prospered-but not the Filipinos.

by Walden Bello

Immediately after the declaration of martial law on September 21, 1972, Philippine president Ferdinand Marcos received the following telegram from the American Chamber of Commerce:

The American Chamber of Commerce wishes you every success in your endeavor to restore peace and order, business confidence, economic growth, and the well-being of the Filipino people and nation. We assure you of our confidence and cooperation in achieving these objectives. We are communicating the feelings of our associates and affiliates in the United States.
The U.S. multinational corporations had reason to breathe a sigh of relief. With one blow, Marcos drove a burgeoning nationalist mass movement underground.

In early 1972, demonstrations, strikes, and marches throughout the country had shaken a normally conservative Supreme Court into issuing a number of landmark decisions against foreign investors, including a decree that all lands appropriated by U.S. corporations since 1945 were acquired illegally and had to be transferred back to Filipino hands.

The Philippines had become such a bad investment risk that U.S. investment was reduced to a trickle, U.S. $16.3 million, in the two years preceding the imposition of martial rule.

One of the key reasons for martial law was the desire to make the country safe for foreign investment. This is something the "technocrats" of the Marcos regime have been quite candid about. Former Board of Investments Chairman Vicente Paterno, for instance, asserted: "The logic of foreign investment to participate in the generation of exports of labor-intensive manufactures seems clear and incontrovertible, but the *country needed martial law to attract such investment."

By all indications, Paterno and his associates have been quite successful. In the two years after the imposition of martial law, multinational investment rose to $362 million. In 1980, it was 500 percent higher than the annual average for the preceding decade. A confidential World Bank assessment notes that under martial law, "multinational corporations have become more important; and the investment promotion efforts of the administration are attracting more investment from such companies as Ford, Shell, and American Can Company. .."

Already dominant prior to martial law, multinationals have tightened their grip on the Philippine economy. In 1978, 324 foreign enterprises accounted for 53 percent of the total sales and 67 percent of total investment. With an estimated $3 billion of American capital, the Philippines is the prime investment area for U.S. firms in Southeast Asia and accounts for more than 50 percent of total U.S. investment in the region.

Multinational Penetration and the World Bank

The free flow of foreign capital is the principal element of the World Bank's program to overhaul the Philippine economy. Using its billion-dollar loans as leverage, the World Bank has inserted itself at the forefront of Filipino life. A confidential 1976 World Bank memorandum noted this influence, stating that the Bank "proposes a broad framework which the Government has accepted as a basis for future economic plans."

Vital in implementing the Bank's prescriptions was a set of Ivy League-educated technocrats like Paterno, finance minister Cesar Virata, and National Economic Development Authority chief Gerardo Sicat. Their U.S. education has provided them with the same mindset as Bank operatives. This advantage the Bank recognized in a 1976 memo. "The Bank can play a major role because the Government is receptive to Bank staff advice. An active Bank presence also has the effect of strengthening the position of the highly trained technical leadership in the government and helping them to achieve policy objectives, which we endorse."

In return for programmatic decision-making power, the Bank designated the Philippines a "country of concentration" to which the flow of aid would be "higher than average for countries of similar size and income." Between 1973 and 1980, more than $2 billion was funnelled into 47 projects, and by early 1980, another $3 billion was on the drawing boards for the period 1981-86.

Export-led Industrialization

Export-led industrialization was the Bank's program for economic growth, or production geared toward external markets. The strategy was meant to replace the program of "import substitution industrialization" of the 1950's and 1960's which had given rise to a local entrepreneurial class but had also run up against the limits of the internal market. This strategy was merely the elaboration of the Philippines' traditional position in the world economy - an agro-export base for Western industrialized countries.

The barrier to further growth was the Phillipines' income distribution - the worst in Southeast Asia. By focusing on external markets export-led growth offered a way to grow without having to redistribute income. This plan was merely the elaboration of the Philippines' traditional position in the world economy - an agro-export base for Western industrialized countries. ,

Following the still attractive examples of South Korea, Brazil, and Taiwan, the alliance of Marcos technocrats, multilateral banks and multinational capital attempted in the mid-70's to restructure the Philippine economy along the following lines:

  • the unrestricted flow of foreign investment and profits for labor-intensive manufacturing;
  • dismantling of the protective tariff structure and system of local subsidies that remain the only means of survival for many Filipino firms;
  • and, most important, the provision of cheap, unorganized labor assembled in tax havens known as "export processing zones."

The export-processing zone in Mariveles, Bataan - where commodities ranging from electronic calculators to Barbie dolls run off the well-oiled assembly lines of Japanese, American, and European firms - is the pride of the new political economy. It is also its shame.

With a largely single and female labor force housed in crowded barracks and paid at the rate of less than a dollar a day, working conditions in the zone are straight out of the late 18th century. As Le An Thu from the American Friends Service Committee noted, "Life here is reminiscent of the first days of the Industrial Revolution in England."

It should come as no surprise, then, that according to Asian Development Bank statistics, the Philippines exhibited the lowest rate of increase in the share of industry in the national, output between 1970 and 1978 among the non-communist developing countries of East Asia.

The Crisis of Export-led Industrialization

The Philippines is now saddled with a model of economic development that was rendered obsolete by international developments shortly after it was proclaimed by World Bank President Robert McNamara in 1973 as the "wave of the future" for the Third World.

Goaded to produce commodities for export to the advanced countries, Third World nations like the Philippines now. confront a situation where the advanced countries are raising tariff barriers against their goods in a climate of fear of a deep international recession. 32 major restrictions have been slapped on key Philippine exports in 10 advanced countries in the last few years. Both traditional agricultural exports and "innovative" light manufactures have suffered in this economic crisis.

Textile exports, considered by Bank and government planners as the "locomotive" of the Philippine export effort, have been especially hard hit, forcing; the IMF to admit in a recent report that ",export promotion has become more difficult in the present climate of uncertainty of the international economy as well as the trade restrictions faced by Philippine exporters."

"Export or die," Western specialists in development told Filipino technocrats a decade ago. "As we enter the 80's," one Filipino complained bitterly, "we shall leave as the epitaph for a decade of delusion the words 'export or die.' "

Two hundred years after the birth of unionism, the basic right to-strike goes unrecognized in the Philippines. For those who defy what the Ministry of Public Information calls "rational methods of resolving labor-capital disputes," retribution is terrible and swift - as workers in the Ford Motor Company Body-Stamping Plant discovered when they dared to launch the first strike in the history of the zone in March 1979. Strike leaders were immediately hauled off to jail by the military, and laborers were forced to return to work at gunpoint.

The export-processing zone is a microcosm of social andeconomic relations in martial law Philippines. As multinationals repatriate massive profits, Filipino workers, the main victims of export-led growth, have seen their real income decline by over 40 percent since 1972. As the World Bank notes, Philippine wages are now one-third to one-half the level of wages in South Korea and Hong Kong - two "export platforms" with which the country is in hot competition.

In a confidential World Bank survey of January, 1980, the human consequences of the martial law economy are summed up in the finding that purchasing power in the 1970's dropped "in both urban and rural areas, in all regions, and practically all occupations." According to the Third World Studies Center at the University of the Philippines, as many as 68 percent of Filipino households now fall below the officially defined poverty line, compared to 55 percent in 1971.

All this has led Frances Moore Lappe, co-author of Food First, to the following judgement: "The Philippine is a clear example of a hunger-generating system. The country has the lowest per capita calorie intake in all of Asia - the worst-fed people in Asia in a country so rich in food potential."

Multinationals and Philippine Development: The Real Issues

Many specialists are willing to shut their eyes to what they consider "short-term" human dislocations created by foreign capital in the belief that the latter brings 'long-term benefits." The 'long-term benefits" should, however, be seriously questioned - at least in the Philippine case.

For one, contrary to the argument that multinationals bring in much-needed capital, research by the Technology Resource Center revealed that in the period 1971-76, 74 percent of the total assets of 31 foreign corporations studied came from local borrowings or reinvestment of profits.

Economists often justify belt-tightening in the early phases of development as "necessary" for the accumulation of capital for building up an industrial economy. However, this stern professorial logic has been ripped apart by the multinational firm.

The bulk of profits created by Filipino labor has, in fact, been repatriated by the multinationals to their home economies or to other parts of the Third World. According to a study by the University of the Philippines Law Center, for every dollar directly invested by American corporations from 1946 to 1976, the net profit came to $3.58. Of this amount, $2.00 was repatriated to the United States.

Finally, the type of industrial structure that has emerged from the World Bank strategy of multinational-based "export-led industrialization" flies in the face of economic rationality. No indigenous, dynamically-linked industrial sector has taken hold. Rather, the Philippines has been a resting place for fly-by-night assembly plants that locate - temporarily - for one and only one reason: for the moment, the Philippines offers the cheapest labor in Southeast Asia and some of the best tax breaks.

The creation of basic industries like steel and machine tools - necessary for a self-sustaining economy - has been discouraged by IMF and World Bank operatives still wedded to the antiquated Ricardian notion of "comparative advantage."

Just recently, for instance, the World Bank rudely shot down the plan - offered by some Marcos technocrats worried about the virtual absence of a heavy industrial infrastructure - to create eleven capital-intensive projects ranging from a petrochemical complex to a copper-smelter. The reason, according to the Bank, is that most do not "harmonize" with the policy of concentrating production on labor-intensive light manufactures for export.

As exports, the lifeblood of the economy, lag behind ever mounting imports, a negative trade balance has steadily opened up, to the point where it is projected to hit $2.5 billion in 1981. In a desperate effort to close the widening deficit, the Marcos regime has, over the last few years, piled up a debt of over $12.2 billion to international banks and official lending institutions - a figure that is expected to reach an astounding $19.3 billion in 1984.

From the period 1973-5 alone, the Philippines will have to shell out $9.6 billion in debt service payments. "It is no longer a question of development," a disillusioned World Bank technocrat confessed, "but of keeping the patient alive."

International banks really have no choice but to maintain the financial lifeline to the dictatorship. Refusing the regime more loans could result in a Philippine default on external debt - a development, that, the bankers fear, might spark a chain reaction among similarly debt-ridden countries, and lead to the fall of Marcos and the emergence of a new government that would repudiate the country's debts.

With the Philippines accounting for about 10 percent of all loans outstanding to U.S. banks from developing countries, this scenario is a recurrent nightmare to American financiers. Marcos and his external backers, in short, are locked into an upward spiral of debt - the "debt trap" - from which neither side can extricate itself.

If the current account deficit cannot be fully bridged by the already overcommitted U.S. banks, then, short of defaulting,

Marcos would have to confront the necessity of devaluing the peso, on the IMF-World Bank theory that this would cheapen the prices of Philippine exports and make them more competitive, thus earning more foreign exchange.

It appears that the Bank and the IMF now tend to see devaluation as the short-term solution to Marcos' desperate position. As the latest World Bank Country Program Paper asserts: "If there should be a shortfall in external resource availability... the foreign exchange accounts could be balanced by a moderate devaluation. This, rather than a default of debt serVice obligations, would be the probable consequence of a liquidity problem should it arise.

The problem is: will Marcos' financial backers prefer to see a very temporary alleviation of the country's external position and risk the very real internal economic dislocations and increased political instability that devaluation would bring?

The Crisis of the Dictatorship

The crisis of export-led growth cannot be divorced from the very serious crisis of political legitimacy now racking the Marcos regime. Militant nationalism and democratization are currently the two themes which unite the ever-broadening opposition to the regime.

This popular turn to the left places the United States in a dilemma. The longer Marcos stays in power, the more ground the. "moderate opposition" will lose to the more radical, mass-based National Democratic Front, a formation including the Communist Party and the New People's Army that offers a program of land reform and economic nationalization.

In these volatile times, there is the possibility that to ease the political situation a bit and to buy time, the U.S. might choose to throw its weight behind some members of the now-disenfranchised sector of the elite - popular politicians who lead the upper-class opposition.

But while possibly entertaining the notion that the figures at the summit can be changed, it will be extremely difficult for the United States to dispense with the structure of authoritarian rule forged by Marcos - if it is to maintain its strong military and economic presence in the Philippines.

Whomever may be cast in the role of Shapur Bakhtiar is likely to find that recourse to repression is the only way to "maintain stability" in a nation where the political situation has been so pressurized by eight years of martial law and multinational domination. The time has passed when Congressman Tony Hall's advice - that the U.S. should "encourage moderate forces in order to prevent the emergence of a radical liberation front as in Nicaragua" - provides a workable option.

Despite the lesson of Nicaragua and Iran, however, the U.S. most probably will support Marcos - warts and all. But Marcos will have an increasingly difficult time governing. His cosmetic liberalization efforts like the 'lifting" of martial law fit into the pattern described by U.S. Ambassador William Sullivan during the last few hours of the Shah's rule. "When a dictator liberalizes, he falls."

Walden Bello is director of Congress Task Force of the Philippine Solidarity Network and Anti-Martial Law Coalition. He teaches rural development at the University of California at Berkeley.

The Philippines at a Glance

Population: 47 million

Land area: 7,100 islands totaling 115,880 square miles (the size of Wisconsin and Illinois combined)

GNP: U.S. 23,308,000

Output by sector:

  • Agriculture - 27.2%
  • Industry - 34.8%
  • Services (including tourism) - 38.0%


  • Manufactures (clothing, electrical equipment and components, handicrafts, chemicals, cement, food products and beverages) - 25.2%
  • Coconut products - 24.2%
  • Mineral products - 16.2%
  • Sugar products - 13.2%
  • Forest products - 9.4%
  • Fruits and vegetables - 5.2%

Current account deficit: $1.6 billion (1979)

External debt - 1981 (projected): 11.7 billion

Inflation rate annually: 17-24%

U.S. investments: approximately $2.5 billion - more than half of total foreign investment in the Philippines

Philippine imports from U.S.: 23% of total imports

Income distribution: more than 50% of the national income goes to less than 20% of the population; 5% of the national income goes to the lowest 20% of the population. Income distribution has worsened over the past 5 years. Source: World Bank (figures are for 1978 unless stated otherwise)

Marcos, who has been in office since 1963, suspended habeas corpus in 1971 and declared martial law in September 1972. Marcos' rule was shaken last summer and fall by a series of bombings in Manila, including one at the International Convention Center in October, on the opening day of a tourism convention. These bombings, widely assumed to be carried out by members of the local business class upset at Marcos' economic policies, testify to his growing unpopularity.

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