The issue of corruption resonates in developing countries. In the Philippines,
for instance, the slogan of the coalition that is likely to win the 2010
presidential elections is "Without corrupt officials, there are no poor
people."
Not surprisingly, the international financial institutions have weighed in. The
World Bank has made "good governance" a major thrust of its work, asserting
that the "World Bank Group focus on governance and anticorruption (GAC) follows
from its mandate to reduce poverty - a capable and accountable state creates
opportunities for poor people, provides better services, and improves
development outcomes."
Because it erodes trust in government, corruption must certainly be condemned
and corrupt officials resolutely prosecuted. Corruption also weakens the moral
bonds of civil society on which
democratic practices and processes rest. But although research suggests it has
some bearing on the spread of poverty, corruption is not the principal cause of
poverty and economic stagnation, popular opinion notwithstanding.
World Bank and Transparency International data show that the Philippines and
China exhibit the same level of corruption, yet China grew by 10.3% per year
between 1990 and 2000, while the Philippines grew by only 3.3%. Moreover, as a
recent study by Shaomin Lee and Judy Wu shows, "China is not alone; there are
other countries that have relatively high corruption and high growth rates."
Limits of a hegemonic narrative
The "corruption-causes-poverty narrative" has become so hegemonic that it has
often marginalized policy issues from political discourse. This narrative
appeals to the elite and middle class, which dominate the shaping of public
opinion. It's also a safe language of political competition among politicians.
Political leaders can deploy accusations of corruption against one another for
electoral effect without resorting to the destabilizing discourse of class.
Yet this narrative of corruption has increasingly less appeal for the poorer
classes. Despite the corruption that marked his reign as president from 1998 to
2001, Joseph Estrada .is running a respectable third in the presidential
contest in the Philippines, with solid support among many urban poor
communities.
But it is perhaps in Thailand where lower classes have most decisively rejected
the corruption discourse, which the elites and Bangkok-based middle class
deployed to oust Thaksin Shinawatra from the premiership in 2006.
While in power, Thaksin brazenly used his office to enlarge his corporate
empire. But the rural masses and urban lower classes - the base of the "Red
Shirts" - have ignored this corruption and are fighting to restore his
coalition to power. They remember the Thaksin period from 2001 to 2006 as a
golden time. Thailand recovered from the Asian financial crisis after Thaksin
kicked out the International Monetary Fund (IMF), and the Thai leader promoted
expansionary policies with a redistributive dimension, such as cheap universal
healthcare, a 1 million baht (US$31 million) development fund for each town,
and a moratorium on farmers' servicing of their debt. These policies made a
difference in their lives.
Thaksin's red shirts are probably right in their implicit assessment that
pro-people policies are more decisive than corruption when it comes to
addressing poverty. Indeed, in Thailand and elsewhere, clean-cut technocrats
have probably been responsible for greater poverty than the most corrupt
politicians. The corruption-causes-poverty discourse is no doubt popular with
elites and international financial institutions because it serves as a
smokescreen for the structural causes of poverty, and stagnation and wrong
policy choices of the more transparent technocrats.
The Philippine case
The case of the Philippines since 1986 illustrates the greater explanatory
power of the "wrong-policy narrative" than the corruption narrative. According
to an historical narrative, massive corruption suffocated the promise of the
post-Marcos democratic republic. In contrast, the wrong-policy narrative
locates the key causes of Philippine underdevelopment and poverty in historical
events and developments.
The complex of policies that pushed the Philippines into the economic quagmire
over the last 30 years can be summed up by a formidable term: structural
adjustment. Also known as neoliberal restructuring, it involves prioritizing
debt repayment, conservative macroeconomic management, huge cutbacks in
government spending, trade and financial liberalization, privatization and
deregulation, and export-oriented production. Structural adjustment came to the
Philippines courtesy of the World Bank, the IMF, and the World Trade
Organization (WTO), but local technocrats and economists internalized and
disseminated the doctrine.
Corazon Aquino, president from 1986 to 1992, was personally honest - indeed the
epitome of non-corruption - and her contribution to the reestablishment of
democracy was indispensable. But her acceptance of the IMF's demand to
prioritize debt repayment over development brought about a decade of stagnation
and continuing poverty. Interest payments as a percentage of total government
expenditures went from 7% in 1980 to 28% in 1994. Capital expenditures, on the
other hand, plunged from 26% to 16%.
Since government is the biggest investor in the Philippines - indeed in any
economy - the radical stripping away of capital expenditures helps explain the
stagnant 1% average yearly growth in gross domestic product in the 1980s, and
the 2.3% rate in the first half of the 1990s.
In contrast, the Philippines' Southeast Asian neighbors ignored the IMF's
prescriptions. They limited debt servicing while ramping up government capital
expenditures in support of growth. Not surprisingly, they grew by 6 to 10% from
1985 to 1995, attracting massive Japanese investment, while the Philippines
barely grew and gained the reputation of a depressed market that repelled
investors.
When Aquino's successor, Fidel Ramos, came to power in 1992, the main agenda of
his technocrats was to bring down all tariffs to 0-5% and bring the Philippines
into the WTO and the Association of Southeast Asian Nations Free Trade Area
(AFTA), moves intended to make trade liberalization irreversible. A pick-up in
the growth rate in the early years of Ramos sparked hope, but the green shoots
were short-lived. Another neoliberal policy, financial liberalization, crushed
this early promise.
The elimination of foreign-exchange controls and speculative investment
restrictions attracted billions of dollars from 1993-1997. But this also meant
that when panic hit Asian foreign investors in summer 1997, the same lack of
capital controls facilitated the stampede of billions of dollars from the
country in a few short weeks. This capital flight pushed the economy into
recession and stagnation in the next few years.
The administration of the next president, Estrada, did not reverse course, and
under the presidency of Gloria Macapagal Arroyo, neoliberal policies continued
to reign. Over the next few years, the Philippine government instituted new
liberalization measures on the trade front, entering into free-trade agreements
with Japan and China despite clear evidence that trade liberalization was
destroying the two pillars of the economy: industry and agriculture.
Radical unilateral trade liberalization severely destabilized the Philippine
manufacturing sector. The number of textile and garments firms, for instance,
drastically fell from 200 in 1970 to 10 in recent years. As one of Arroyo's
finance secretaries admitted, "There's an uneven implementation of trade
liberalization, which was to our disadvantage." While he speculated that
consumers might have benefited from the tariff liberalization, he acknowledged
that "it has killed so many local industries".
As for agriculture, the liberalization of the country's agricultural trade
after the country joined the WTO in 1995 transformed the Philippines from a net
food-exporting country into a net food-importing country after the mid-1990s.
This year, the China-ASEAN Trade Agreement (CAFTA), negotiated by the Arroyo
administration, goes into effect, and the prospect of cheap Chinese produce
flooding the Philippines has made Filipino vegetable farmers fatalistic about
their survival.
During the long Arroyo reign, the debt-repayment-oriented macroeconomic
management policy that came with structural adjustment stifled the economy.
With 20-25% of the national budget reserved for debt service payments because
of the draconian Automatic Appropriations Law, government finances were in a
state of permanent and widening deficit, which the administration tried to
solve by contracting more loans. Indeed, the Arroyo administration contracted
more loans than the previous three administrations combined.
When the deficit reached gargantuan proportions, the government refused to
declare a debt moratorium or at least renegotiate debt repayment terms to make
them less punitive. At the same time, the administration did not have the
political will to force the rich to take the brunt of bridging the deficit, by
increasing taxes on their income and improving revenue collection. Under
pressure from the IMF, the government levied this burden on the poor and the
middle class by adopting an expanded value added tax (EVAT) of 12% on
purchases.
Commercial establishments passed on this tax to poor and middle-class
consumers, forcing them to cut back on consumption. This then boomeranged back
on small merchants and entrepreneurs in the form of reduced profits, forcing
many out of business.
The straitjacket of conservative macroeconomic management, trade and financial
liberalization, as well as a subservient debt policy, kept the economy from
expanding significantly. As a result, the percentage of the population living
in poverty increased from 30% to 33% between 2003 and 2006, according to World
Bank figures. By 2006, there were more poor people in the Philippines than at
any other time in the country's history.
Policy and poverty in the Third World
The Philippine story is paradigmatic. Many countries in Latin America, Africa,
and Asia saw the same story unfold. Taking advantage of the Third World debt
crisis, the IMF and the World Bank imposed structural adjustment in over 70
developing countries in the course of the 1980s. Trade liberalization followed
adjustment in the 1990s as the WTO, and later rich countries, dragooned
developing countries into free-trade agreements.
Because of this trade liberalization, gains in economic growth and poverty
reduction posted by developing countries in the 1960s and 1970s had disappeared
by the 1980s and 1990s. In practically all structurally adjusted countries,
trade liberalization wiped out huge swathes of industry, and countries enjoying
a surplus in agricultural trade became deficit countries.
By the beginning of the millennium, the number of people living in extreme
poverty had increased globally by 28 million from the decade before. The number
of poor increased in Latin America and the Caribbean, Central and Eastern
Europe, the Arab states, and sub-Saharan Africa. The reduction in the number of
the world's poor mainly occurred in China and countries in East Asia, which
spurned structural readjustment policies and trade liberalization multilateral
institutions and local neoliberal technocrats imposed other developing
economies.
China and the rapidly growing newly industrializing countries of East and
Southeast Asia, where most of the global reduction in poverty took place, were
marked by high degrees of corruption. The decisive difference between their
performance and that of countries subjected to structural adjustment was not
corruption but economic policy.
Despite its malign effect on democracy and civil society, corruption is not the
main cause of poverty. The "anti poverty, anti-corruption" crusades that so
enamor the middle classes and the World Bank will not meet the challenge of
poverty. Bad economic policies create and entrench poverty. Unless and until we
reverse the policies of structural adjustment, trade liberalization, and
conservative macroeconomic management, we will not escape the poverty trap.
FPIF columnist Walden Bello is a representative of the party-list Akbayan
in the Philippine House of Representatives.
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