Introduction

Rent-seeking has become a current explanation for the problems of the Philippine economy. But although the actual channels of influence on the Philippine economy have been hypothesized extensively, positive analysis is at an infant stage.

In discussions among mainstream economists in the Philippines, the policy suggestions toward liberalization (i.e., of imports, the financial sector, and exchange-rate setting) are premised on two things. First, it is implicitly held that these liberalizations will permit domestic prices to be more closely aligned with world prices and thereby promote efficiency. Second, it is assumed that these liberalizations will promote competition by destroying special privileges granted by the government. Yet, empirical evidence suggests that the most successful export-oriented developing countries, except for the twentieth century reincarnations of Venice and Florence in Hong Kong and Singapore, have been the most protectionist and laden with distorted internal prices.

Analytically, it can be argued that if rents represent nothing but pure income transfers, then rent-seeking does not inflict distortions in the economy. Moreover, it has been argued that if indeed economic agents are genuinely profit-maximizing, distortionary rents should provide entrepreneurs with the resources they need to improve their efficiency and expand their output (including the motivation to sell overseas) (Rodrick 1988).

Frustrated developing countries, such as the Philippines, also provide a fertile ground for political economy discussions about the nature of underdevelopment. Currently, there is a debate on whether the Philippine economy can be characterized as “capitalist” or “pre-capitalist”. The importance of the discussion originates from the effort to specify development strategies alternative to the ones that have been implemented thus far in the Philippines.

Those who take the position that the Philippines is a capitalist economy take their inspiration from the dependency school and often describe the economy as “peripheral”, “backward”, or “dependent”. According to this view, the Philippine economy was established through the penetration of a “world capitalist system”. Thus, the suggestion that a “socialist” economy is the solution to Philippine underdevelopment is made. As noted in a document at the Second Congress of the Organization for the Development of Social Thought and Practice,