Our wangwang or crony economy

The March 15-21, 2014 issue of The Economist, arguably the world’s best weekly magazine, features “The New Age of Crony Capitalism”.   The issue ranks the Philippines No. 6 in crony capitalism for 2014, under President BS Aquino-- up three rungs from No. 9 in 2007 under President Gloria Macapagal Arroyo (GMA). Cronyism in the Philippines has become worse.

This is ironic.  BS Aquino is supposed to be one of the most honest, if not the most honest, of Philippine presidents;   GMA is supposedly one of the most corrupt, if not the most corrupt, of our presidents. 

Cronyism is one of the worse forms of corruption.  It can bring down a government (as in the case of Ferdinand Marcos’s downfall).  It can bring down entire economies or regions (as in the case of the 1997 Asian Financial Crisis).  It can bring down a nation. 

A revolutionary situation erupts when already the very rich become even richer, thanks to government favoritism and coddling, at the expense of the jobless and the teeming millions who are poor.  The rich employ an army of bodyguards and dispense wherewithal, left and right (ala Napoles), to protect themselves.  

The poor, armed or unarmed, will one day simply march to the Palace and bring down its gates and its occupants.  However, three People Power revolts in 30 years failed to improve governance nor improved the lot of most Filipinos, an indication of how well-entrenched the oligarchs (cronies) are. 

If you believe Forbes rankings, the ten richest Filipinos as of July 2013 had total networth of $45.3 billion, 18 percent of the 2012 GDP (Gross Domestic Product) of $250.3 billion.   Out of 97 million Filipinos, only ten people own a fifth of the Philippine economy.  Each of the ten richest Filipinos has average wealth of $4.53 billion, or 2.15 million times the average wealth of each of the rest of the 97 million, just $2,100.

A fifth of the PH economy is like owning each of these countries: Uzbekistan $52B; Bulgaria $51B; Guatemala $50B; Slovenia $45B;  Tunisia $45B; Costa Rica $45B; Ethiopia $42.5B;  Lithuania $42B; Lebanon $41B; and Kenya $40.7B GDP.

Yet, in terms of crony capitalism, the Philippines was better off during Arroyo’s time (No. 9 in the Economist Crony-Capitalism Index). “I have no cronies,” she used to insist to me. Tpoday the Philippines is sixth.

The same index ranked nations  in terms of institutional strength, meaning the capability of a country’s institutions to resist or control cronyism.  No. 1 is the weakest—that is Argentina.  No. 7 is the Philippines, one of the weakest-- weaker than even Poland (8th), India (9th), Thailand (10th), and Indonesia (11th), Malaysia (18th), and Singapore (23rd).  The Philippines is the weakest country in the Asean in terms of controlling cronyism.

To use BS Aquino’s favorite word – wangwang, cronyism is nothing more than wangwang—where favored tycoons or corporations enjoy an unfair advantage over the others.  Crony capitalism is wangwang economy.  A wangwang economy is nothing more than cronyism.

In a previous column, I said only two people got to control the basic services of millions of Filipinos – electricity, water, telephone and infra, (thanks to cronyism) and their cartels have brought about the among the world’s highest priced electricity, among the world’s highest priced water, and among the world’s highest priced telephone services.

No wonder, The Economist cover story on cronyism portrays cronies as one of the three or all three animals – take your pick, hippopotamus, wolf, and crocodile.  These animals uniformly have enormous mouths and teeth--  the bigger, the better for them to gobble up food bigger than their bodies. 

If I were a hippo, a wolf or a crocodile, I would be insulted as a metaphor for cronies.  These animals gobble up things for survival – the first law of mankind and business -- and are not capable of predatory or prohibitive pricing, greed, and corrupting other living things, unlike cronies.

Wikipedia defines crony capitalism as “an economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, or other forms of state interventionism.”

Adds Wikipedia:  “Crony capitalism is believed to arise when business cronyism and related self-serving behavior by businesses or businesspeople spills over into politics and government, or when self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.”

“The term ‘crony capitalism’ made a significant impact in the public arena as an explanation of the Asian financial crisis. It is also used world wide to describe virtually any governmental decisions favoring ‘cronies’ of governmental officials.”

In many cases, the term is used interchangeably with corporate welfare; … (or) direct government subsidies of major corporations, excluding tax loopholes and all manner of regulatory and trade decisions, which in practice could be much larger than any direct subsidies.”

The Economist defines cronyism as rent-seeking – making fortunes by “grabbing a bigger slice of the pie rather than making the pie bigger”.  The magazine says “common examples of rent-seeking (which may or may not be illegal) include forming cartels and lobbying for rules that benefit a firm at the expense of competitors and customers.”

In designing its crony capitalism index, The Economist included the following “rent-seeking sectors”:  casinos, coal, palm oil and timber; defense, banking, infrastructure and pipelines; oil, gas, chemicals, and other energy; ports and airports; real estate and construction; steel, other metals, mining and commodities; and utilities and telecom services.

Says the magazine: “We have included industries that are vulnerable to monopoly, or that involve licensing or heavy state investment.  These are more prone to graft, according to the bribery rankings produced by Transparency International, an anti-corruption watchdog.  Some are obvious.  Banks benefit from an implicit state guarantee that lowers their cost of borrowing.  When publicly owned coal mines, land and telecoms spectrum are handed to tycoons on favorable terms, the public suffers.”

Under cronyism, “the public suffers”.  Hey, public, stand up and be counted.


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