The Steep Economic Cost of Cronyism in the Philippines Post-EDSA Revolution

The EDSA People Power Revolution of 1986 marked a pivotal moment in Philippine history. It signaled the end of over two decades of authoritarian rule under Ferdinand Marcos Sr. and ushered in a new era with promises of democracy, reform, and economic recovery. One of the defining features of the Marcos era, and a major factor contributing to public discontent, was widespread cronyism – a system where political power is used to benefit favored individuals or groups, often through unfair business advantages.

While the EDSA Revolution dismantled the most blatant structures of Marcos-era cronyism, the problem did not vanish overnight. Cronyism, in various forms, continued to pose significant challenges to the Philippine economy and shape its financial landscape in the years that followed. This article delves into the economic cost of cronyism in the Philippines post-EDSA Revolution, examining how this practice persisted, evolved, and hindered the nation’s economic progress and stability during the Fifth Republic. We will explore its impact on different sectors, the financial system, and the overall development trajectory of the country, often looking back at the Marcos era as a point of comparison to understand the legacy and the challenges faced by subsequent administrations.

Understanding this aspect of Philippine history is crucial because cronyism isn’t just about unfairness; it has tangible, negative consequences for the economy. It distorts markets, misallocates resources, increases inequality, and undermines public trust – all of which can slow down growth and make a country less resilient to economic shocks.

Defining Cronyism in the Philippine Context

Before diving into the post-EDSA period, it’s important to have a clear understanding of what we mean by cronyism, especially in the Philippine context. At its core, cronyism involves favoring friends, relatives, or political supporters in granting jobs, positions, or, most relevant to our topic, business opportunities and financial benefits.

In the Philippine context, cronyism has historically manifested in several ways:

Granting Monopolies or Duopolies: Giving exclusive or near-exclusive rights to operate in a specific industry or sector to a favored business or individual, shutting out competition.
Preferential Access to Loans and Credit: Providing easy and large loans from government financial institutions or state-controlled banks to crony-owned businesses, often with lenient terms or without proper collateral.
Awarding Government Contracts: Giving lucrative contracts for infrastructure projects, supplies, or services to favored companies, often without competitive bidding or at inflated prices.
Manipulating Regulations: Changing laws, rules, or policies to benefit specific crony-owned businesses or industries.
Acquiring Assets: Allowing cronies to acquire valuable state assets or private companies (often through foreclosure or coercive means) at below-market prices.
Tax Favors and Subsidies: Granting special tax breaks or subsidies to favored businesses.

The Marcos era is often cited as the prime example of state-sponsored cronyism on a massive scale, profoundly distorting the economy. The post-EDSA period saw a shift, but the tendency and mechanisms did not entirely disappear. While the scale might have changed, and the beneficiaries might have shifted, the underlying principle of using political connections for economic gain persisted, albeit in sometimes less overt ways.

The Martial Law Era: Setting the Stage for Economic Distress

To fully appreciate the economic cost of cronyism post-EDSA, we must first understand the height of its practice during the Marcos Martial Law era (1972-1981) and its lingering effects. Under Martial Law, Marcos consolidated political power, which facilitated the creation of a network of loyalists and associates who were granted control over key sectors of the economy.

This period saw the rise of prominent “cronies” who gained control over industries like coconut, sugar, banking, construction, media, and utilities. For example, the controversial coconut levy fund, collected from coconut farmers, was allegedly misused to benefit favored individuals and projects, rather than the farmers it was meant to help. Similarly, state-owned banks were used to channel funds to crony businesses, leading to massive non-performing loans and weakening the financial system.

The economic consequences of this era were devastating:

Massive Debt Accumulation: Crony projects often relied on large, state-guaranteed foreign loans. When these projects failed or the funds were diverted, the government was left with the debt, ballooning the national burden.
Economic Distortions: Monopolies and preferential treatment stifled competition, leading to inefficiency, higher prices for consumers, and a lack of innovation. Industries controlled by cronies often became unproductive and uncompetitive internationally.
Increased Poverty and Inequality: The benefits of economic activity were concentrated in the hands of a few, widening the gap between the rich and the poor. Farmers, laborers, and small businesses suffered under the weight of monopolies and corruption.
Weakening of Institutions: Regulatory bodies, courts, and financial institutions were compromised, losing their independence and effectiveness due to political interference.

By the mid-1980s, the Philippine economy was in deep crisis. It experienced negative growth, high inflation, capital flight, and a crippling debt burden. This economic distress, coupled with political repression and human rights abuses, fueled the discontent that culminated in the 1986 EDSA Revolution. The post-EDSA government inherited an economy severely damaged by years of unchecked cronyism and mismanagement.

The EDSA Revolution and the Promise of Reform

The EDSA Revolution in February 1986 brought hope for sweeping changes, including economic reforms aimed at dismantling monopolies, recovering ill-gotten wealth, and establishing a more equitable and competitive economy. The Cory Aquino administration faced the immense task of economic stabilization and structural adjustment while navigating a fragile political landscape.

Key promises and initial actions included:

Restoring Democratic Institutions: Re-establishing Congress, drafting a new Constitution, and holding elections were seen as crucial steps towards accountable governance, which is essential for curbing cronyism.
Asset Recovery: The Presidential Commission on Good Government (PCGG) was created to recover wealth allegedly acquired illegally by Marcos, his family, and cronies. This aimed to claw back stolen assets and send a message against corruption.
Privatization Program: A major initiative was launched to sell off state-owned enterprises (SOEs) and assets, many of which were inefficient or had been taken over from cronies. The goal was to reduce the government’s financial burden and introduce private sector efficiency and competition.
Economic Liberalization: Policies were pursued to open the economy, reduce trade barriers, and encourage foreign investment, intended to break up domestic monopolies and foster competition.

These initiatives were ambitious, but the transition was fraught with challenges. The economy was in shambles, political stability was uncertain (marked by coup attempts), and vested interests that had benefited from the previous system, or sought to establish new ones, remained powerful.

The Post-EDSA Landscape: Initial Challenges and Enduring Tendencies

The period immediately following the EDSA Revolution was marked by both determined reform efforts and significant obstacles. While the blatant, state-sanctioned monopolies of the Marcos era were targeted, the tendency for political connections to influence economic outcomes persisted.

Several factors contributed to the continuation or evolution of cronyism post-EDSA:

Weak Institutions: Despite efforts to strengthen them, institutions like the judiciary, regulatory bodies, and civil service still struggled with independence and capacity, making them vulnerable to political pressure.
Political Funding: The high cost of democratic elections created incentives for politicians to seek funding from wealthy individuals and businesses, potentially leading to quid pro quo arrangements.
Vested Interests: Business groups that had prospered under the old system, or new ones seeking similar advantages, actively lobbied and influenced policymakers.
Implementation Challenges: Reforms like privatization and asset recovery faced legal battles, bureaucratic inertia, and political resistance, slowing their pace and effectiveness.
Defining “Cronyism” in a Democracy: In a democratic system with lobbying and campaign finance, distinguishing legitimate business influence from improper cronyism became more complex, though the economic outcomes of unfair advantage remained detrimental.

The post-EDSA governments, from Cory Aquino to subsequent administrations, grappled with this complex environment. While they pursued policies aimed at liberalization and transparency, instances of politically connected individuals or groups gaining advantages in specific sectors continued to surface, highlighting the deep-seated nature of the issue.

Examining Key Sectors Affected by Post-EDSA Cronyism

Even after the fall of Marcos, certain sectors of the Philippine economy remained susceptible to issues that could be linked, directly or indirectly, to cronyism or the concentration of economic power among politically connected elites.

Banking and Finance

The banking sector was heavily impacted by Marcos-era cronyism through directed lending and the weakening of state banks. Post-EDSA, efforts were made to reform the financial system, including strengthening the central bank (Bangko Sentral ng Pilipinas – BSP) and privatizing some state financial institutions. However, questions sometimes arose regarding:

Influence in Bank Licensing and Regulation: Concerns occasionally emerged about political connections playing a role in the approval of new banks or the regulation of existing ones.
Disposal of Non-Performing Assets: The process of cleaning up the mess left by Marcos-era crony loans and non-performing assets (NPAs) was slow and complex, sometimes involving politically sensitive negotiations and asset sales.
Concentration of Ownership: The banking sector remained relatively concentrated, with large, family-owned conglomerates holding significant stakes, sometimes raising concerns about market competition and access to credit for smaller players.

While the post-EDSA BSP gained a reputation for independence and sound monetary policy, the structural legacy of concentrated wealth and potential for influence remained a factor in the financial landscape.

Public Utilities and Infrastructure

Utilities (like power, water, telecommunications) and infrastructure development are areas historically prone to cronyism due to their monopolistic or oligopolistic nature and reliance on government concessions and contracts.

Privatization Challenges: The privatization of major utilities, while intended to increase efficiency, sometimes resulted in the transfer of state monopolies to private oligopolies or groups with strong political ties, leading to concerns about pricing, service quality, and continued lack of genuine competition. For example, the privatization of parts of the power sector was complex and led to new structures that, while different from the Marcos era, still involved powerful private players with significant government interaction.
Infrastructure Contracts: Large government infrastructure projects (roads, bridges, airports, power plants) remained a source of potential concern. Bidding processes could be influenced, and contracts might be awarded to favored firms, potentially leading to inflated costs, delays, and substandard quality, representing a direct economic cost to the public treasury and hindering development.

Specific Industries

Certain industries, particularly those reliant on government policy, licenses, or state resources, continued to show patterns suggestive of cronyism or undue political influence.

Natural Resources: Sectors like mining, logging, and fisheries, where government permits and regulations are paramount, were susceptible to the granting of licenses and concessions based on political connections rather than merit or environmental sustainability. This led to environmental damage, resource depletion, and wealth concentration.
Emerging Sectors: Even in newer sectors, the awarding of pioneering status, tax incentives, or licenses could be influenced by political considerations, potentially hindering fair competition and innovation.

While not as pervasive or centrally controlled as during the Marcos era, the continuation of these practices in various sectors chipped away at economic efficiency and fairness in the post-EDSA period.

Mechanisms of Post-EDSA Influence and Cost

The methods by which political connections translated into economic advantage in the post-EDSA era evolved, but several core mechanisms continued to impose costs on the economy.

Privatization Processes

As mentioned, privatization was a key post-EDSA reform. However, the manner in which assets were privatized sometimes drew criticism. Concerns included:

Lack of Transparency: Insufficient transparency in the bidding and valuation processes could lead to assets being acquired by favored groups at below-market prices.
Exclusion of Competitors: Terms of privatization could be structured in ways that effectively limited the pool of potential bidders, favoring specific local conglomerates or foreign partners.
Creation of Private Oligopolies: Instead of creating competitive markets, privatization sometimes merely replaced state monopolies with private ones or duopolies, allowing these firms to charge higher prices and earn excess profits at the expense of consumers and the broader economy.

The economic cost here is multifold: potentially billions lost in undervalued asset sales, reduced efficiency compared to truly competitive markets, and higher costs for essential services borne by the public.

Regulatory Capture

Regulatory bodies are created to oversee industries, protect consumers, and ensure fair play. However, they can become susceptible to “capture” by the industries they are supposed to regulate. This happens when powerful regulated entities, often through lobbying, political appointments, or revolving door practices, gain undue influence over the regulators.

In the post-EDSA Philippines, this could manifest as:

Regulations being written or enforced in ways that favor incumbents or politically connected firms.
Lack of action against anti-competitive practices.
Delays or obstruction of entry for new competitors.

Regulatory capture leads to an inefficient allocation of resources, stifled innovation, and consumer harm through lack of choice or unfair pricing. It’s a subtle but significant economic cost of weak governance and undue influence.

Influence over State-Owned Enterprises (SOEs)

Despite privatization efforts, several SOEs remained under government control. These entities could still be vulnerable to political interference in their management, procurement, and investment decisions. SOEs operating inefficiently due to political appointments or directives drain public resources through subsidies or poor financial performance, adding to the national debt or diverting funds from essential services.

Undue Influence in Policy Making

Politically connected business groups can exert pressure on legislators and executive officials to craft policies that favor their interests – whether through tax laws, trade policies, land use regulations, or specific industry incentives. This can result in a fragmented and inconsistent policy environment that benefits a few while potentially harming overall economic competitiveness and fairness.

These mechanisms, often less dramatic than the outright asset grabs of the Martial Law era, nonetheless represented a continuous drag on the Philippine economy post-EDSA.

Measuring the Cost: Economic Indicators and Consequences

Quantifying the exact economic cost of cronyism is challenging because its effects are often indirect and interwoven with other economic factors. However, economists and analysts have attempted to link governance issues, including cronyism, to observable economic outcomes in the Philippines.

Stunted Economic Growth: Studies suggest that countries with higher levels of corruption and cronyism tend to experience lower rates of long-term economic growth. Cronyism diverts investment from productive uses to politically favored ones, reduces incentives for genuine innovation and efficiency, and increases uncertainty for legitimate businesses (both local and foreign). While the Philippines has seen periods of growth post-EDSA, the question remains how much faster it could have grown without the drag of cronyism.
Increased Inequality: As wealth and opportunities are directed towards a connected few, income and wealth inequality tend to worsen. The Philippines has historically struggled with high inequality, a problem exacerbated by systems that favor political connections over merit or fair competition.
Lower Investment: Domestic and foreign investors are often hesitant to invest in economies where the rules of the game are not clear, contracts are not secure, and competition is not fair due to cronyism. This lack of investment limits job creation, technology transfer, and overall economic expansion.
Fiscal Drain: Corrupt government contracts, inefficient SOEs, and tax evasion by favored entities drain the government’s resources. This reduces the funds available for essential public services like education, healthcare, and infrastructure, further hindering long-term development.
Higher Cost of Goods and Services: In sectors dominated by politically connected oligopolies, consumers often face higher prices due to lack of competition. This acts as a regressive tax, disproportionately affecting lower-income households.

Here is a simplified table illustrating potential economic impacts associated with cronyism:

Area of Impact	Mechanism of Cronyism	Economic Consequence
Economic Growth	Resource misallocation, investment disincentives	Slower GDP growth, reduced productivity
Inequality	Concentration of wealth & opportunities	Wider gap between rich and poor, social instability
Investment (FDI/DDI)	Uncertainty, unfair competition	Reduced capital inflow, fewer jobs created
Fiscal Health	Corrupt contracts, inefficient SOEs, tax evasion	Budget deficits, increased national debt, less public spending
Consumer Welfare	Monopolies/Oligopolies, regulatory capture	Higher prices, lower quality, reduced choice
Institutional Strength	Political interference, weakened rule of law	Lack of trust, difficulty enforcing contracts, instability

This table highlights how various forms of cronyism translate into tangible economic costs that affect the entire nation, not just those directly involved.

Specific Case Studies (Post-EDSA Era)

While a detailed, forensic account of every alleged instance of post-EDSA cronyism is beyond the scope of this article, looking at general patterns and frequently discussed areas helps illustrate the mechanisms and costs.

Privatization Outcomes: As noted earlier, some privatization deals of large assets (like power or water concessions) generated debate. While proponents argued for efficiency gains, critics pointed to the transfer of assets to groups with political ties and the subsequent market structures that emerged, which were often oligopolistic rather than truly competitive. Concerns over pricing and service standards in these sectors were sometimes linked back to the dynamics established during the privatization process.
Infrastructure Spending: Reports and analyses by watchdogs and international organizations often flagged infrastructure projects as areas vulnerable to corruption and undue influence. Issues such as non-transparent bidding, cost overruns, and substandard work point to potential cronyistic elements that inflate the cost to the government and delay or undermine the beneficial impact of the infrastructure itself.
Regulatory Decisions: Specific decisions by regulatory bodies in sectors like telecommunications, energy, or transportation sometimes faced scrutiny, with allegations that rulings or non-rulings disproportionately benefited incumbent players or groups with strong political connections, hindering competition and consumer welfare.

These examples, discussed widely in media and academic circles, illustrate how, even in the post-EDSA democratic environment, the interplay between political power and economic interests continued to manifest, albeit under different rules and often facing greater public scrutiny than during Martial Law.

Attempts at Reform and Their Limitations

Subsequent administrations post-EDSA were aware of the legacy of cronyism and the need for reforms. Efforts included:

Strengthening Anti-Corruption Agencies: Initiatives to empower the Ombudsman, the Sandiganbayan (anti-graft court), and the Civil Service Commission.
Improving Procurement Laws: Introducing laws like the Government Procurement Reform Act to promote transparency and competitiveness in government bidding.
Enhancing Transparency: Promoting freedom of information initiatives and making government data more accessible.
Continued Privatization and Liberalization: Pushing forward with the sale of remaining SOEs and opening up more sectors to competition, though with varying degrees of success and facing the challenges mentioned earlier.

Despite these efforts, the fight against cronyism and its economic costs proved to be a continuous uphill battle. Limitations included:

Political Will: The degree of political will to aggressively pursue anti-cronyism measures varied across administrations and was often challenged by powerful vested interests.
Institutional Capacity: Even with reforms, government institutions often lacked the capacity, resources, or independence needed to fully implement laws and regulations, investigate complex cases, and resist political pressure.
Legal Challenges: Asset recovery and prosecution of individuals involved in cronyism faced lengthy legal battles, often resulting in slow progress and limited convictions.
Evolving Forms of Influence: Cronyism adapted, moving from overt monopolies to more subtle forms like regulatory capture, policy influence, and leveraging political access for financial gain within the legal framework.

The Lingering Legacy of Cronyism on the Financial System

The financial system is particularly sensitive to the effects of cronyism because it relies heavily on trust, transparency, and the fair application of rules. The legacy of Marcos-era cronyism, particularly the use of banks for preferential lending and the accumulation of massive non-performing loans, severely weakened the banking sector.

Post-EDSA, reforms aimed at strengthening the BSP and improving prudential regulation were implemented. However, the financial system continued to face challenges potentially linked to the broader issues of governance and concentrated economic power:

Access to Credit: Small and medium enterprises (SMEs), which are crucial for job creation and inclusive growth, often struggled to access affordable credit compared to large conglomerates, some of which had historical ties to political power.
Market Integrity: Concerns about insider trading, market manipulation, and the influence of large players with potential political connections could undermine the integrity and fairness of the capital markets, discouraging broader participation.
Financial Stability Risks: While the BSP improved supervision, the concentration of lending exposure to large, interconnected conglomerates (some with politically connected owners) could still pose systemic risks to financial stability if one of these large groups faced distress.

These issues underscore how the historical prevalence and continued potential for cronyism or undue influence continued to shape the development and resilience of the Philippine financial landscape post-EDSA.

Comparing Pre- and Post-EDSA Cronyism Impacts

It is important to distinguish between the cronyism of the Martial Law era and the challenges faced post-EDSA.

Scale and Centralization: Marcos-era cronyism was arguably more centralized and involved the state actively creating monopolies and directing state resources on an unprecedented scale to a relatively small group of loyalists. Post-EDSA, while influence-peddling and unfair advantages persisted, they were often more fragmented, operating within a more democratic framework with checks and balances, though imperfect ones.
Mechanisms: Overt state-backed monopolies and direct appropriation were hallmarks of the Marcos era. Post-EDSA, mechanisms became more nuanced, involving lobbying, regulatory influence, strategic use of privatization, and leveraging connections within a multi-party political system.
Public Scrutiny: The post-EDSA democratic space allowed for greater media freedom and civil society activism, leading to increased public scrutiny and exposure of questionable deals or practices, making outright, blatant cronyism riskier than before.

Despite the differences, the post-EDSA period did not become entirely immune to the practice. The core issue remained: the use of political power or connections to secure unfair economic advantage, which carried significant economic costs for the nation’s development, fairness, and institutional strength. The challenge for post-EDSA administrations was how to build a truly competitive and equitable economy on foundations still marked by the legacy of concentrated power and the persistence of rent-seeking behavior.

Future Outlook and Recommendations

Addressing the economic costs of cronyism in the Philippines remains an ongoing challenge. Moving forward requires sustained commitment to good governance and institutional reform.

Key areas for focus include:

Strengthening Rule of Law and Anti-Corruption Bodies: Ensuring independent and effective anti-corruption agencies and a judiciary capable of impartially handling cases involving powerful individuals.
Enhancing Transparency and Accountability: Implementing robust freedom of information laws and mechanisms for public oversight of government contracts, regulatory decisions, and political finance.
Promoting Fair Competition: Actively enforcing anti-trust laws and regulations to prevent the formation of harmful monopolies and cartels, regardless of the political connections of the players involved.
Reforming Campaign Finance: Addressing the influence of money in politics to reduce the reliance of politicians on wealthy donors who may seek favors in return.
Improving Bureaucratic Capacity: Professionalizing the civil service and strengthening regulatory agencies to resist political pressure and make decisions based on technical merit and public interest.

Successfully implementing these reforms is crucial for unlocking the Philippine economy’s full potential, fostering inclusive growth, and ensuring that the benefits of economic activity are shared more broadly among the population, rather than concentrated in the hands of a connected few. The economic cost of cronyism is not just a historical footnote from the Marcos era; it is a contemporary challenge that continues to impact the financial landscape and the lives of Filipinos today.

Key Takeaways:

Cronyism, defined as using political power for private economic gain, has been a persistent problem in the Philippines, with significant economic costs.
The Marcos Martial Law era saw widespread, state-sponsored cronyism that severely damaged the economy through debt, distortions, and inequality.
The post-EDSA Revolution brought hopes for reform and efforts were made to recover assets, privatize state assets, and liberalize the economy.
Despite reforms, cronyism or undue political influence continued in the post-EDSA era through mechanisms like flawed privatization, regulatory capture, and influence over policy-making and government contracts.
These practices imposed economic costs by potentially slowing growth, increasing inequality, deterring investment, draining public finances, and raising costs for consumers.
While different in scale and method from the Marcos era, post-EDSA cronyism continued to shape the financial landscape, affecting banking, utilities, infrastructure, and other key sectors.
Addressing cronyism requires strengthening institutions, enhancing transparency, promoting fair competition, and reforming political finance.
The fight against cronyism is essential for achieving sustainable and inclusive economic development in the Philippines.

Frequently Asked Questions (FAQ):

Q: What is the main difference between Marcos-era cronyism and post-EDSA cronyism? A: Marcos-era cronyism was often characterized by overt state creation of monopolies and direct control/diversion of state resources for favored individuals. Post-EDSA, while less centralized and operating within a democratic structure, cronyism evolved into more subtle forms like influencing privatization outcomes, regulatory decisions, and government contracts through political connections.

Q: How does cronyism hurt the average Filipino? A: Cronyism hurts average Filipinos by leading to higher prices for goods and services (due to lack of competition), fewer job opportunities (due to less investment and stunted growth), reduced quality of public services (due to misused government funds), and increased inequality, making it harder for ordinary citizens to improve their lives through merit.

Q: Were all post-EDSA privatization programs failures due to cronyism? A: No, privatization programs had mixed results. Some led to improved efficiency and reduced government burden. However, concerns about transparency and the potential for these programs to create private oligopolies or benefit politically connected groups meant that the desired competitive outcomes were not always fully achieved, highlighting the risks when not implemented with strong oversight and transparency.

Q: Can cronyism be completely eliminated in a democracy? A: Completely eliminating the influence of political connections on economic outcomes is extremely difficult in any system. However, a strong democracy with robust institutions, transparency laws, independent regulators, and an active civil society can significantly reduce the scale and impact of cronyism, limiting its most damaging economic costs.

Q: What role does the financial system play in cronyism? A: The financial system can be both a victim and a tool of cronyism. In the Marcos era, state banks were used to fund cronies, weakening the system. In the post-EDSA era, the structure of the financial system, with concentrated ownership and potential for undue influence, meant it remained a sensitive area where cronyistic practices could potentially manifest, for example, through preferential access to credit or influence on financial regulations.

Conclusion

The economic cost of cronyism in the Philippines post-EDSA Revolution has been substantial and enduring. While the most egregious forms of state-backed monopolies from the Marcos era were dismantled, the underlying challenge of preventing political power from translating into unfair economic advantage persisted. Through mechanisms like questionable privatization outcomes, regulatory capture, and undue influence over government spending and policy, cronyism continued to distort markets, impede fair competition, and contribute to inequality.

The democratic space opened up by EDSA allowed for greater scrutiny and efforts towards reform, including strengthening anti-corruption laws and promoting transparency. However, the fight against cronyism is a continuous process, requiring vigilant institutions, committed leadership, and an engaged citizenry. The legacy of concentrated wealth and political influence remains a significant factor shaping the Philippine financial landscape and economy. Addressing this requires not just prosecuting past wrongdoings but also building stronger, more transparent, and more accountable institutions that uphold the principles of fair competition and equal opportunity, ensuring that the nation’s economic growth benefits the many, not just the connected few.

Category: Post-Independence / Republic Era, Fifth Republic