904 Economic Developmentand CulturalChange
James K. Boyce. The Philippines:The Political Economyof Growth
and Impoverishmentin the Marcos Era. Honolulu: University of
Hawaii Press, 1993. Pp. xv +405. $32.95 (cloth); $18.95 (paper).
RichardHooley
Universityof Pittsburgh
This book represents a major contributionto our understandingof
economic policy in the Philippinesduringthe Marcos years. It is im-
portantfor several reasons. First, it includes a clear, concise presenta-
tion of the Green Revolutionand its consequences for rice production
and crop yields, andfor agriculturalproductivityfroma broadperspec-
tive. Second, there is an extensive discussion of the income distribu-
tion effects resultingfrom the introductionof modernvarieties (MVs).
The discussion ranges across welfare levels of the poor and the rural
peasantry in particular.To his credit, James K. Boyce is aware of
analyticaldimensionsbeyond pure economics, as, for example, when
he discusses (in additionto income effects) the shifts in "power posi-
tions" of differentgroupsthat resultfromtechnologicalchange. Boyce
develops his analysis to gain new insights into the impact of the intro-
duction of MVs on income and wealth. Finally, there is a critical,
comprehensivereview of the broad economic policy strategy in the
Marcos years, beginning with agricultureand extending to foreign
debt, capital flight, and the environment,as well as the broaderissue
of the social costs of the strategyand how these costs were distributed
throughoutsociety.
The author's review of the economic and social impact of the
Green Revolution will be of interest to a wide range of readers. He
provides an exceptionallylucid analysis of the impact of MVs on rice
prices, the input-outputmix, price and cost structures, factor shifts,
and labor absorption. On the question of farm income impacts, he
departs from conventional studies by introducinga Schumpeterian
analysis, which leads to the conclusion that althoughboth small and
large farms benefited from the new technology, large farms secured
the lion's share of the increased returns because the latter adopted
MVs much faster. The authorintroducesdata to show that over time
a price-cost squeeze appearsas increasedrice outputforces rice prices
down, while production costs, along with modern input usage, in-
crease. He presents evidence that small farms were laggardadopters,
thus entering the picture well after the profit rate on the MVs had
peaked and gone into decline. Thus the distributionof both farm in-
come and wealth became less equal.
Boyce notes that the cultivatedarea devoted to rice has remained
stagnantin recent years, and concludes that the main reason for this
is the extremelylow income elasticity for rice (pp. 112-14) broughton
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Reviews 905
by the polarizationof demand. That is, if the major share of income
increase is claimedby middle-and upper-classincome receivers, while
peasant incomes essentially stagnate,we may expect shifts in the rice
demand schedule to be marginaland quite possibly negative. This is
an interestingapproach,but there are competingexplanationsas well.
For one thing, farmexpansionin the last half centuryhas been in areas
like the Visayas and Mindanao-that is, areas that are not well suited
to rice productionand where consumer tastes favor corn anyway. In
addition, successive depreciationsof the peso duringthe Marcos era
(due in part to capital flight)provided farmerswith strong incentives
for shifting land to export crops as opposed to domestic food crops
(such as rice). Finally, the programof improvedinfrastructureheavily
financed by the World Bank and pursued during the Marcos years
raised crop yields across a broad spectrum-not just in rice (p. 64).
The upshothere is that untanglingthese variousimpactson crop (espe-
cially rice) productionand measuringtheir impact on the level of rice
demand requires, in my opinion, a more sophisticated quantitative
model to arrive at unequivocal results. Nevertheless, this section is
analytically stimulatingand directs our attention to a major area of
unresolved questions.
In searchingfor the fundamentalreason for the adoptionof MVs,
the author poses the question that if populationpressure was the re-
mote cause for the acceptance of this policy, why did the strategy
come "from above" via adoptionby the Marcos administrationwith
the cooperation of internationalagencies rather than "from below,"
that is, via initiativesby the farmersthemselves?I was privy to discus-
sions among political leaders (includingopponents of the administra-
tion) at the time, and it was widely agreed that Marcos was deeply
concernedabout the potentialpoliticalfalloutfrom the rise in the price
of rice in the early 1970s, and the risk of increased insurrectionary
activity if rice prices continuedto escalate. It was thereforeprimarily
for political reasons that he became convinced of the need to build an
agriculturalinfrastructure.In fact, the situation at this time was in
many ways similar to that in the early 1900s, and the response of
political leaders strikinglysimilar.
Actually, a little economic history throws much light on this pol-
icy. Soon after the Americancolonial governmenttook power at the
beginning of this century, it became clear that the Philippines were
headed toward a rice crisis. To keep rice prices stable, rice imports,
which had been growingfor 2 decades, reached a crisis level of over
20% of total imports in 1910-12. The colonial administrationwas at
that time concerned both with pacificationof the country and with
shoring up its fiscal position as well as stabilizing the country's external
accounts. Then the American administration embarked on an exten-
sive irrigation program, beginning with construction of the San Miguel
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906 EconomicDevelopmentand CulturalChange
Works on the Pampangariver and culminatingin the Angat project in
Cagayan.In a short time food importsdeclined, rice prices stabilized,
the peasantrywas pacified,and the fiscal soundnessof the new admin-
istrationwas secured. In both these cases, the pressurefor change did
come from below, though in a very inarticulateform. Initiative came
from the top, but (at least partly)in response to actual (or perceived)
pressurefrom below.
The sections on agriculturalexports (includingforestry) present
materialthat is known to most students of the modernPhilippines.In
particular,the establishmentof sugarand coconut purchasingmonopo-
lies under Benedicto and Couangco, respectively, was part of a strat-
egy to squeeze the largerand smallergrowers in both these important
industries.But Marcoswas not doing anythingvery new here; colonial
administratorshad their marketingboards much earlier. However,
Marcospushed aheadin a blatantand sometimescrudemanner,giving
his administrationa look of "raggedcolonialism" or "creeping state
capitalism," dependingon one's perspective.
There is an extended discussionof the buildupof foreign debt and
capitalflight.In the Philippines,as in a numberof other LDCs, foreign
borrowingwas used as a vehicle for capital export by the elite. The
noteworthycharacteristicof the Philippinecase, accordingto the au-
thor, is the size of the outflow.A model of capitaloutflowsis presented
in which capital flight is the dependentvariable, while debt disburse-
ments, the level of foreign exchange reserves, the disparitybetween
the U.S. Treasurybill rate and the Philippinedeposit rate, and the
budget surplusrepresentthe independentvariables. Boyce gets good
fits by econometric standards, with debt disbursements, the budget
surplus, and interest disparitiesdemonstratingsignificantimpacts on
capital flight. In particular,the strong showing of debt disbursements
as a determinantof capital flight corroboratesinternal World Bank
memos indicatingthat for a handfulof LDCs and the Philippines, a
very substantial part of the bank's loans was accompanied by in-
creased capital outflows.
A noteworthy characteristicof the Philippinecase, according to
Boyce, is the size of the outflow as well as its centralized control.
After reviewing several alternativeestimates, he settles on a (total)
amountof approximately$13-$14 billionnet overflowduringthe Mar-
cos years. Unfortunately, Boyce does not relate this figure to any
nationalwealth aggregatesso its macroeconomicsignificanceremains
unclear.If, for example, we use my estimatesfor the stock of manufac-
turingcapital, the total value at replacementcost in 1980was 29 billion
pesos. At the 1980exchangerate, this amountsto only about $4 billion,
and if purchasingpower paritieswere used the (dollar)amountwould
be much smaller.Thus this estimate of capital flight, if correct, repre-
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Reviews 907
sents a trulyenormousloss of potentialcapital-that is, at least several
times the aggregatestock of manufacturingnet capital-quantitatively
similarto the scale of capital stock destructionthat occurs as a result
of a majorwar.
Of course, one can always arguethat the capitalflightmight have
represented potential consumption rather than investment. But this
begs the question. If the capital outflow had a really dysfunctional
effect on the country's long-termcapital accumulationcapability, we
ought to look for some evidence of that in the economy's performance
duringthe later years of the Marcos administrationand in the period
following his departure.In fact, there is ample evidence that damage
to the Philippinebankingsystem was trulyextensive duringthe Marcos
era. The damage was systemic, leaving the entire financialstructure
terriblyundercapitalized,and unequivocallyobservable. This under-
capitalizationhas forced the banks to make up the capital deficiency
by maintainingan immense spreadbetween deposit and lendingrates.
Obviously, a bankingsystem that can do no better than lend at 18%
while offeringhouseholds 3%on deposits (while the CPI is advancing
at 10%annually)is not likely to be muchof a help in mobilizingsavings
for development. The hard evidence can be seen in the fact that the
gross nationalsavingrate, which was nearly25%in the 1970s,declined
to roughly 15%by the mid-1980sand continues at roughly that level
currently. The household net saving rate dropped even more: from
around8%in the late 1970sto barely 1%or 2%by the mid-1980s.The
country's saving rate still remainsonly half that of most of its South-
east Asian neighbors, and far below the minimumrequirementfor
sustainedgrowth at an acceptablerate.
The author's discussion on capital flight is detailed and informa-
tive, but I thinkhe became too focused on capitalflightas a short-term
phenomenon.The long-termdamagesto the country'sfinancialsystem
are proving to be even more burdensome.
Thereis little on industrialpolicy duringthis periodin this volume,
nor is there much on deteriorationof the bureaucracy.Both of these
topics are relevant to a comprehensive assessment of performance.
But they are not absolutely essential, since, at least with respect to
industrialization,there are a numberof good studies alreadyavailable.
In this volume Boyce has given us an accomplishedblend of the-
ory, applications,and empiricalevidence. The book will serve as an
admirableand concise introductionto economic policy, especially ag-
riculturalpolicy, duringthe Marcos era in the Philippines. For those
with some knowledge of the subject, it provides a succinct summary
and a refreshingperspective on most of the major issues. For those
interested primarilyin the developmentimpact of the Green Revolu-
tion, it offers penetratinginsights into a complex field.
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