What was really the oligarchy in the Marcos regime, with its economic impact?

Or why 34 years after, we have this sense of déjà vu

Ferdinand Marcos drawn by 14-year-old Shan Bosrick Ignacio

The following is the text of my speech during the relaunch of the book “Some are Smarter than Others” by Ricardo Manapat last August 14, 2020.  This was also initially published in Businessworld on August 23, 2020. The author is making this available to the young readers of The so that they may know the historical politico-economic factors that caused  the Marcos regime and why the Philippines ended up this way.

The topic given me during this seminar on the 29thanniversary of the publication of Some Are Smarter Than Others by Ricardo Manapat is “Oligarchy During the Marcos Regime and its Economic Impact.”

I would like to qualify the term oligarchy, however, with the term “rent-seeking” oligarchy.  Oligarchy being defined as the small subset of people who control the economic and political power in a society is much too generic.  Rent-seeking better describes the Marcos oligarchy since they accumulated wealth without adding any value to society.  Rent-seeking is the non-market extraction of surplus.  In layman’s terms, crony capitalism.  Not capitalism in the truest sense of risk-taking to produce goods or services that add value through the market, but rather primitive accumulation of capital using naked political power or connections.

Let me start by saying that oligarchy during the Marcos regime is historical and geopolitical.

It is historical because it was the product of the Philippines’ historical past.  It is also geopolitical because geopolitics had something to do with how it came about.

The root of Marcos’ rent-seeking oligarchy can be traced to the Bell Trade Act.  The Bell Trade Act defined the trade relations between the US and the Philippines after independence. The Bell Trade Act required parity rights for Americans and removed exchange rate sovereignty from the new Republic. That meant that the Philippine government wasn’t free to set its own exchange rate.

Thus, despite the fact that the Philippines was the most devastated country after World War II, after Poland, the US decreed that the Philippines adopt the same exchange rate of PHP2 for every $1 USD after the war and after independence, the same rate that prevailed before the war as if no war or devastation had taken place.  This was to ensure that Philippine exports could not compete with US agricultural products since the US and Philippines had free trade for eight years after independence.

This original sin—the gross overvaluation of the peso at the birth of the Republic—spawned huge consequences on our economy and our institutions, the effects of which we still feel today.

This gross overvaluation naturally led to foreign exchange crises.  Therefore, even if the Philippines was given about US$800 million in war damage reparations and hosting of the US bases after independence, the country shortly experienced its first foreign exchange crisis in 1949.

Because the country couldn’t use the price system to allocate scarce foreign exchange, it had to resort to the government making the allocations through quotas and import licenses.  This was where rent-seeking came in.   Politics came to dominate economic decision-making. Institutions were distorted toward rent-seeking.

Let us remember that the economist Anne Krueger coined the term “rent-seeking” to describe foreign exchange allocation in India.

It’s not surprising then that we read this paragraph in Ricardo Manapat’s book  (page 69):  “The principal way through which Marcos acquired money as a member of Congress was through the control he exerted over the black market for foreign exchange and the importation of goods into the country in 1963.  Marcos authored a law which placed restrictions over the import of goods to the country.  Those who wanted to import goods had to secure an import license.  Marcos managed to control the granting of those permits, which he later peddled to importers.”

Even before 1963, Marcos was already known as an influence peddler in the Import Control Board in the early ‘50s.

However, because of the economic crisis wrought by the foreign exchange crisis and agrarian unrest, the Hukbalahap became a force and threatened the Quirino government in the early 1950s.  The Huks were already in Bulacan at the outskirts of Manila. In response to the plea of former President Ramon Magsaysay, who succeeded Quirino, the US agreed in 1955  to amend the Bell Trade Act to amend parity and give back the Philippines its exchange rate sovereignty in the Laurel-Langley Agreement.

However, the US extracted concessions in the Laurel-Langley Agreement. The most significant feature of the Laurel-Langley Agreement was to retain parity by giving US citizens the monopoly right relative to other foreigners to own land and establish businesses in the Philippines, principally in public utilities, for 25 years.  US businesses, therefore, as monopoly foreign players in the domestic economy, became beneficiaries of the protectionist economic regime and reinforced the regime of rent-seeking.

It also accounts for why the Philippines went from being the second richest country in Asia in the 1950s to being the “sick man of Asia” in the early 1980s 

If you remember the term “Filipino First,” championed by  former Philippine President Carlos P. Garcia, that nationalistic cry originally referred to the demands of Filipinos to be first in line in the allocation of foreign exchange, because US multinationals, due to their financial strength and size, were being given first dibs in the allocation of vital foreign exchange.

Because of this history of peso overvaluation and loss of exchange rate sovereignty, in the 1950s, we adopted an economic strategy of inward-looking, import-dependent industrialization characterized by import and exchange controls.  Not surprisingly these economic policies led to periodic foreign exchange and balance of payments crises, which we had in 1959 and in 1971, shortly before Marcos declared martial law. It also accounts for why the Philippines went from being the second richest country in Asia in the 1950s to being the “sick man of Asia” in the early 1980s.

The economic game, therefore, consisted primarily of rent-seeking with an economy chockful of licenses, protectionist legislation, monopoly barriers, statist rules and regulations.  Over this economic game lorded an elite-dominated political system, characterized by an unwritten rule of political factions, represented by the Liberal and Nacionalista parties, to alternate in power to extract rents.  No president was able to get re-elected until Marcos broke that unwritten rule by using “guns, goons, and gold”  to be the first Philippine president to win re-election in 1969.  However, his wanton overspending to win reelection led to the severe balance of payments and foreign exchange economic crisis in 1971, which fueled further student unrest.

The political and economic crisis in 1971, however, led to an intense struggle among the elite factions and resulted in the declaration of martial law by Marcos in 1972 and the monopolization of political power and rent-seeking privileges by the Marcos faction.  One can say that in rent-seeking, where politics is paramount, the logical outcome is for rent-seekers to seek a monopoly of political power.  As I wrote in my article on The Political Economy of Martial Law, “martial law didn’t just fall from the skies. It represented the logical development of the historical forces that had birthed and shaped the country’s rent-seeking system.”

Now that I have briefly described the history, let me discuss the geopolitics.  The geopolitics during that era was the Cold War, the struggle between the Soviet Union and its allies on one hand and the US and so-called “Free World” on the other.   In the context of the Cold War, the US promoted rent-seeking in the Philippines through the Sugar Quota.  The US was able to cultivate Philippine pro-American politicians, such as Benedicto, Yulo, Lopez, Cojuangco, etc. through the Sugar Quota, but it also fostered a rent-seeking elite.  As a result of the Laurel-Langley Agreement in 1955 and also after the fall of Cuba to Castro in 1957, the US kept increasing the Sugar Quota.  My point is that the Philippine economic system was loaded with incentives for rent-seeking, with the US a major contributor to those incentives.

The crony capitalists were just exploiting their monopoly positions in the domestic economy unlike, say, in South Korea, where the chaebols were disciplined by selling to the global market

However, it was the geopolitical event of the Yom Kippur War in 1973, shortly after the declaration of martial law that enabled Marcos and his cronies to stay in power and steal billions.  The quadrupling of oil prices led to the recycling of oil money, with the US money center banks recycling the oil money as loans  to oil-dependent developing countries like the Philippines. These foreign loans gave the Marcos regime the financial foundation to maintain martial law.   Oil money recycled as foreign loans to the Philippines enabled the era of “debt-driven” growth in the ‘70s under Marcos.

However, despite his claims of a New Society and “revolution from the center,” Marcos didn’t change the import-dependent, inward-looking protectionist nature of the  Philippine economy.  The system bred inefficiency.  Marcos crony capitalists were just exploiting their monopoly positions in the domestic economy unlike, say, in South Korea, where the chaebols were disciplined by selling to the global market.  Foreign loans plus the export of people as OFWs were for a while financing the recurring trade and payments deficits until the huge loan repayments themselves became the problem.

Another geopolitical event— the fall of the Shah of Iran in 1979, which dramatically increased oil prices once again—exposed the rottenness of the economic system under Marcos and ultimately led to another more severe economic crisis in 1983 and finally led to the People Power Revolt in 1986.

At the end of the book, Manapat asks why the Aquino administration failed to recover the Marcos’ stolen loot and why corruption has persisted after Marcos.

We can also ask why is it that 34 years after Marcos fell, we have this sense of déjà vu?  We have another authoritarian with fascist tendencies as a leader and who like Marcos before him, had ABS-CBN shutdown.

The answer is because the rent-seeking system persists. We still have an inward-looking economy. Our Constitution is protectionist, as was our previous Constitutions dating back to 1935. Our percentage of exports to GDP is the lowest in ASEAN.  Our oligarchy is mainly in regulated service industries, such as power, telecommunications, shipping, ports and in other non-tradables where their interest is in regulatory capture and weak government institutions.

Furthermore, monopolies dominate the economy. We have the most concentrated economy in Asia, according to the World Bank.  Nothing much has changed in agriculture, despite land reform. Rural poverty and agricultural stagnation persist. In the political sphere, we only have formal democracy, but political institutions are controlled by political dynasties.

At the end of the book, apparently despondent that nothing much was being done about corruption, even by so-called reformists, Manapat poses the question whether corruption is inherent in human nature.

I will answer Manapat, if he were alive today, that no, the fault lies not in ourselves, but in our history.  We are just path dependent.  We are the creatures of our past.

About author


Calixto "Toti" V. Chikiamco is a columnist on political economy of  Businessworld, a  BPO-entrepreneur, board director of the Institute of Development and Econometric Analysis (IDEA), and co-founder and president of the Foundation for Economic Freedom.  He's the author of the book, The Way Forward: The Path to Inclusive Growth, and is co-author with National Scientist Raul Fabella, Dr. Emmanuel de Dios, Romeo Bernardo, and the late Cayetano Paderanga Jr. of the book, Momentum: Economic Reforms for Sustaining Growth.  

Sign up for our Newsletter

Sign up for’s Weekly Digest and get the best of, tailored for you.

Leave a Reply

Your email address will not be published. Required fields are marked *