By Perry Diaz
If not for three major mistakes, the Philippines would be strong today – politically, economically, and militarily. We could have taken the place of South Korea as the 11th biggest economic power or even Japan as the third biggest economic power. While Japan and the Philippines were devastated in World War II and South Korea ruined during the Korean War, Japan and South Korea were reborn – like the Phoenix of lore – from the ashes of war. But the Philippines never did. Instead it fell down the economic ladder and became an economic basket case.
In 1966, the Philippines was the second most progressive country in Southeast Asia next to Japan. The ratio of how many times bigger Japan’s GDP per capita is against the Philippines was five then. In 1976, the ratio was 13.
The two events that may have contributed to the Philippines’ economic decline were the martial law in 1971 and the expiration of the Laurel-Langley Agreement in 1974. It was then that the Philippines came to be known as the “Sick Man of Asia” and stagnated in the company of Third World countries while other Asian countries enjoyed the bounty of what came to be known as “tiger economy.”
The Philippines tried to compete with the tiger economies but didn’t have the infusion of capital from foreign investors needed to fuel the economy. Thus, the country was hamstrung by lack of capital to build her manufacturing base and generate exportable products just like what the tiger economies were doing.
So why am I saying all these? What was my point? As I postulated earlier, the Philippines could have been at par or better in economic terms with South Korea or even Japan if not for three major mistakes in her history.
The first mistake was the premature granting of independence to the Philippines. Through the insistence – and lobbying — of nationalist Filipino politicians led by Manuel L. Quezon, the United States enacted the Tydings-McDuffie Act in 1934, officially known as the Philippine Independence Act. This Act established the process for the Philippines, then an American colony, to become an independent country after a ten-year period. That would have been in 1945. Tydings-McDuffie also established the Commonwealth of the Philippines, a transitional government prior to independence. Quezon became the president of the Commonwealth. But nobody predicted that the Japanese would invade and occupy the Philippines during World War II.
When the war ended in 1945, the ten-year transition as provided by Tydings-McDuffie ended; thus, independence would have been granted. However, due to the devastation suffered by the Philippines, independence was postponed for one year to allow the country to recover. And this is where the first mistake occurred. Some political leaders pushed for postponement for five or 10 years to allow for rehabilitation of the country. However, the nationalists insisted on independence right away. They prevailed and independence was granted on July 4, 1946.
The second mistake was the failure of the Philippines to extend the life of the Laurel-Langley Agreement that amended the Bell Trade Act of 1946, known as the Philippines Trade Act. The Act was designed to set conditions on the Philippine economy and link it to the U.S. economy. The Act also had a provision – known as “parity” clause — that granted U.S. citizens equal economic rights with Filipinos.
In 1947, the Philippine Constitution was amended to include these parity rights, which was voted by a 78.89% majority in a national plebiscite. Many Filipino politicians supported the Parity Amendment because of the economic benefits it created while the country was recovering from World War II. However, it was controversial among the nationalistic Filipinos because the Philippine Constitution said that the country’s natural resources should only be for Filipinos.
In 1955, the Laurel-Langley Agreement was signed. The agreement gave full parity rights to American citizens, business corporations, and investors giving them access to 100% ownership in all areas of the economy. It also made parity privileges reciprocal; thus reducing tariffs on Philippine products exported to the U.S. But the nationalists said that it served foreign interests while exacerbating poverty.
The Agreement expired in 1974 during the Marcos dictatorship. With its expiration, it ended the U.S. authority to control the exchange rate of the Philippine Peso, which was tied at a fixed rate to the U.S. dollar. When the Agreement expired, the exchange rate of the Peso increased drastically. Today, it fluctuates around 45 pesos to the dollar.
And the worst part was the country closed its doors to globalization, which is what countries like Japan, South Korea, and the other tiger economies have embraced. In retrospect, the parity rights may have been the precursor to globalized economy, where trade barriers are systematically removed.
The third mistake was the Philippine Senate’s rejection of the retention of U.S. bases in the Philippines. In 1991, the Senate voted by a razor-thin majority — 12-11 — not to renew the bases agreement. The following year, after attempts were made to keep the bases, the U.S. withdrew all her forces.
Two years later, China occupied the Panganiban (Mischief) Reef, which was within the Philippines’ Exclusive Economic Zone (EEZ). Over the protest of the Philippine government, China built structures on stilts, saying they would be used to shelter fishermen. In 1999, China added more structures, which appeared to look like military fortification.
In 2012, China grabbed Scarborough Shoal and prevented Filipinos from fishing in its environs. A year later, she started building artificial islands around seven rocks and reefs in the Spratly Islands, all within the Philippines’ EEZ. Today, satellite photos show runways, harbors, lighthouses, and buildings on these islands. Obviously, China is in the process of militarizing the seven artificial islands.
The question is: If these three historical mistakes did not happen, what would the Philippines be like today?
Had Philippine independence been postponed for 10 years, it would have given the country time and opportunity to recover just like Japan and South Korea did after they were devastated by war. They were smart to put themselves under the military protection of the U.S. and avail of American economic patronage and trade preferences.
Meanwhile, with no warships and warplanes, the Philippines was helplessly at the mercy of foreign invaders. Yet, after losing Scarborough Shoal and the Spratlys to China, you’d think that the Philippine leaders are now keen to realize what could be best for the country? It doesn’t seem like it. The politicians are still fighting their little turfs among themselves and our national leaders are so protective of the country’s sovereignty and national interests from perceived American interference in our internal affairs. But they wouldn’t hesitate to remind America of her treaty obligations to defend the Philippines from foreign invasion.
But the challenge the Philippines is facing now is how to avoid making the fourth mistake, which is how to deal with China vis-à-vis the territorial disputes in the South China Sea. The Permanent Court of Arbitration’s (PCA) ruling that invalidated China’s “nine-dash line” claim and has no historical rights to the South China has placed the Philippines in the driver’s seat in any bilateral negotiations including pursuing legal action in the international court. Let’s not lose that hard-earned victory.
While we cannot turn back the wheel of history, we can chart our future by looking back at our history. As someone once said, “Those who cannot learn from history are doomed to repeat it.”