First of 2 parts

NEOLIBERALISM is a perspective that champions the market as the prime regulator of economic activity and seeks to limit the intervention of the state in economic life to a minimum.  In recent times it has become identified with economics, given its hegemony as a paradigm within the discipline, that is, its excluding other perspectives as legitimate ways of doing economics. 

Since economics is regarded in many quarters as a hard science, much like physics—being, for instance, the only social science for which there is a Nobel Prize—neoliberalism has had a tremendous and pervasive influence not only in academic circles but in policy circles as well.  While the University of Chicago became the font of academic wisdom, in technocratic circles the International Monetary Fund and the World Bank were seen as the key institutions that translated this theory into policy, to a set of practical prescriptions that were applicable to all economies.

It is often surprising to realize how relatively recent neoliberalism has become a hegemonic paradigm.  As late as the latter half of the 1970s, Keynesian economics, which promoted a good dose of state intervention as necessary for stability and steady growth, was the orthodoxy.  In what used to be known as the Third World, developmentalism, which specified Keynesian economics to economies that were still insufficiently penetrated and transformed by capitalism, was the dominant approach. There was a conservative brand of developmentalism and there was a progressive one, but both saw the state, rather than the market, as the central mechanism of development.

In the Philippines, neoliberalism first came in the form of the structural adjustment program imposed by the World Bank in the early 1980s, in the latter’s effort to strengthen the economy’s capacity to service its massive external debt.  Structural adjustment helped trigger the economic crisis of the early 1980s, its contractionary effects being magnified by the onset of the global recession. The crisis was the country’s worst since the Second World War, but the role of neoliberal economics in precipitating it was shrouded by its coinciding with the deep political crisis triggered by the Aquino assassination in August 1983.  To most Filipinos, Marcos was the cause of both crises.

Triumph by default?

It was during the Aquino period that neoliberal economics started its rise to ideological ascendancy. It is worthwhile to examine the reasons for the ease with which it captured the heights of both academia and the technocracy during this period. 

First of all, it was associated with several high-powered activist intellectuals and technocrats close to the Aquino administration who had been greatly influenced by the Reagan and Thatcher free-market experiments in the United States and Britain. These included economist Bernie Villegas and Cory Aquino’s secretary of finance Jesus Estanislao.  Another key center of emergent neoliberalism was the University of the Philippines School of Economics, which had drafted the extremely influential anti-Marcos White Paper on the Philippine economy in 1985.

Second, the analysis forwarded by these intellectuals was in synch with the popular mood.  This located the economic troubles of the country in what had come to be known as “crony capitalism,” or the use of state agencies to advance the private interests of a few close associates of the dictator.  The direct assault on the Keynesian state as the source of inefficiency, which was the most prominent feature of Thatcherism and Reaganism, was a subsdiary element in the case made for market freedom.

Third, there were simply no credible alternatives to neoliberalism.  Keynesian developmentalism, which promoted the role of the state as the strategic factor in the first phase of the ascent to development, was compromised by its personification in the Marcos dictatorship.  As for the left’s vision of “nationalist industrialization” or the “national democratic” economy, this hardly went beyond rhetorical flourishes and had been hardly popularized in the period prior to the Edsa Uprising, perhaps owing to the priority that the Communist Party placed on the anti-fascist struggle, which demanded underplaying the view that national democracy was the antechamber to socialism in order to form as wide a front as possible with anti-dictatorial elements of the elite. Then, after the Edsa Uprising, the articulation of an alternative was derailed by the left’s preoccupation with the consequences of its failure to participate in the final act of the ouster of Marcos. 

In short, the neoliberal perspective triumphed by default, and this absence of credible alternatives domestically was complemented by four developments internationally:  the collapse of centralized socialism in Eastern Europe, which seemed to deliver the coup d’grâce to the socialist alternative; the crisis of the Swedish social democratic model; the seeming success of the Reagan and Thatcher Revolutions in revitalizing the American and British economies; and the rise of the East Asian newly industrializing countries. All four had an impact on the thinking of the middle class and the elites, which are, incidentally, called the “chattering classes” because of their central discursive role in legitimizing social and political perspectives.

How the Asian Miracle was interpreted by the Neoliberals

It is worthwhile to note how the rise of our neighboring economies was interpreted by neoliberals in the Philippines since this shows the ideological and mystifying character of neoliberalism.  In the view of the neoliberals, the key to the success of our neighbors was the hegemony of the market.  As Jesus Estanislao put it, “Government takes very good care of macroeconomic balances, takes care of a number of activities like, for example, infrastructure building, and leaves everything else to the private sector. And that is exactly what Singapore, Malaysia , Indonesia and Thailand have done, and that is what the Philippines is doing, and we are beginning to do it.”

The reality, however, was that while it is true that in Indonesia, Malaysia and Thailand  the state may have played a less aggressive role than in Korea and Taiwan, an activist state posture—manifested in industrial policy, protectionism, mercantilism and intrusive regulation—was central in the drive to industrialize.  For instance, Thailand began to register the 8- to 10-percent growth rates that dazzled the world, when it was moving to a “second stage of import substitution”—the use of trade policy to create the space for the emergence of an intermediate goods sector—during the second half of the 1980s.

In the case of Malaysia, while it is true that some privatization and deregulation favoring private interests took place in the late 1980s, it would be a mistake to overestimate the impact of these policies.  The state oil company, Petronas, consistently rated one of East Asia’s best-run firms, and one of the most innovative and successful enterprises in the whole East Asian region, was a state-directed joint venture between a state-owned firm and a foreign automobile corporation, Mitsubishi, which produced the so-called Malaysian car, the Proton Saga.  The Saga, which came to control two-thirds of the domestic market and turned a profit for its producers, exemplified all the sins of industrial policy that neoclassical economists such as Estanislao had warned against: discriminatory tax treatment of competitors, strategic industrial targeting or a systematic plan to manipulate market incentives to create a local car industry, and forced local sourcing of components to encourage the growth of local supplier industries.

In Indonesia, the state remained throughout the 1980s and 1990s the key actor in the economy, with state enterprises contributing about 30 percent of total GDP and close to 40 percent of nonagricultural GDP.  Capital expenditures as a percentage of the government budget came to 47 percent in Indonesia, while Thailand hiked the figure from 23 to 33 percent.  In contrast, in the Philippines, Aquino’s technocrats pushed down capital expenditures as a proportion of the national budget from 26 to 16 percent.  Since the government is the biggest investor in any economy, this radical reduction of capital outlays as our neighbors maintained or increased theirs could not but have an impact in economic performance.  While the Philippines languished with 1- to 2-percent annual growth for most of the Aquino period, our neighbors enjoyed 6- to 10-percent growth rates.

In sum, our neoliberal technocrats were dazzled to the point of envy by our neighbors’ performance, but they did not correctly identify the reason for this. They claimed it was the market when in reality it was the state.  While some liberalization was going on in our neighbors’ economies, it was selective liberalization pursued in the context of strategic protectionism driven by the state, the objective of which was to deepen the industrial structure.  This conclusion was readily available at the empirical level, but the paradigm that our technocrats had settled on screened out these data, to put it in Kuhnian terms.

The apogee of Neoliberalism

Ideas, unfortunately, do have consequences, and perhaps no development illustrates this more than the effort to make the Philippines a NIC (“newly industrializing country” by the year 2000, as the slogan went, via globalization: that is, the accelerated integration of the Philippines into the global market and production circuits through radical trade and investment liberalization.  The administration of President Fidel Ramos saw neoliberalism at its most doctrinaire and most influential phase.

What we might call the “neoclassification” of the Philippine technocracy that became so marked under Ramos did not so much exhibit the character of an intellectual coup as that of a gradual takeover of the strategic heights of the technocracy by free market-oriented policymakers coming from academia, government and business, many of whom had done graduate work in the 1970s and 1980s in the United States and Britain, when state-oriented Keynesianism had lost its luster and neoliberalism had come into vogue in the economics departments of US universities.  A number did their postgraduate stint in the staffs of the World Bank and the International Monetary Fund, including Ramos’s Finance Minister Roberto de Ocampo.  As one pivotal figure pointed out to Focus on the Global South analyst Joy Chavez, she and her colleagues who played prominent roles of the country’s free-market turn acted not only out of external pressure from the World Bank and the IMF but also out of belief.  “Imposed, maybe in one way, but on the other hand, the mainstream decision-makers—[the] technocracy and policymakers—also internally believed in that.  So there’s a confluence of policy direction.”  Another figure stressed the emergence of a broader “consensus” among the elite and the middle class around free-market reform: “[No] policy reform becomes credible, workable policies unless the people accepted [them].  Yes, there were researchers and economists pushing for that, yes there were donor communities pushing for that…but ultimately it is a question of whether the public accepts that policy.” 

In any event, the neoliberal revolution had achieved a critical mass by the time Ramos came to power, and its hegemony was consolidated during his administration.  “It’s the dominant sector,” one player put it.  “It’s the president, it’s his chief economic advisers, both formal and informal; the House of Representatives; the Senate—the mainstream.  The mainstream is pushing for liberalization.” That player would herself become president in 2001.

The centerpiece of the neoliberal program during this period was tariff liberalization:  Executive Order 264 committed the Philippines to bringing down tariffs on all but a few sensitive products to 1 to 5 percent by 2004.  The model for Cielito Habito, the secretary of the National Economic Development Authority who was the brains behind this enterprise, was the radical neoliberal tariff reforms conducted in Chile under the dictator August Pinochet, which had brought tariffs to 11 percent or under. If the Chileans could manage to bring down their tariffs to 11 percent, surely the Philippines could bring them to 5 percent or below!  In their eagerness to catch up with our neighbors, what our Filipino technocrats saw was only Chile’s not unimpressive growth rate, not the deindustrialization and enormous social crises induced by its free-market policies.

In addition to radical tariff liberalization, the foreign investment regime was liberalized, banking rules were loosened to allow more foreign banks to set up operations in the country, and the capital account was almost fully liberalized to attract speculative investors by making the peso fully convertible, allowing the full and immediate utilization of profits, and the full utilization of foreign currency accounts.  Indeed, in the administration’s drive to catch up with its neighbors, attracting speculative investment by eliminating barriers to capital entry and exit became the cutting edge of its globalization strategy.

The administration also moved to ensure that liberalization would be hard to reverse by succeeding regimes by multilateralizing it, that is, make the Philippines party to international agreements requiring it to eliminate quotas and keep tariffs low permanently.  Thus, the Philippines joined the Asean Free Trade Area, with its Common Effective Preferential Tariff program.  Under this scheme, by next year, 2010, all tariffs, except those on rice, will be reduced at 0 to 5 percent.  More important, the Philippines joined the World Trade Organization in 1995, a move which required revising a whole slew of laws governing trade, investment and intellectual property rights to make our legal code “WTO-consistent.”  To be concluded on Tuesday

*Walden Bello is a member of the House of Representatives of the Republic of the Philippines.  Formerly professor of sociology at the University of the Philippines at Diliman, he is the author or coauthor of 15 books, the latest being Food Wars (London: Verso, 2009). He is president of the Freedom from Debt Coalition and senior analyst at the Bangkok-based research and advocacy institute Focus on the Global South.  He may be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it original version of this article was presented at the 2009 Convention of the Philippine Sociological Society at the PSSC Building, Quezon City, on October 16, 2009