Why the PHL economy still runs on connections, not competition

QUEZON CITY — The Philippines must move away from protectionist economic policies and dismantle rules that shield monopolies and entrenched business interests if it is to address corruption and revive its competitiveness, according to a political economist.

Calixto “Toti” Chikiamco, president and co-founder of the Foundation for Economic Freedom, made the call as keynote speaker of the 25th Jaime V. Ongpin Annual Memorial Lecture on Public Service in Business and Government at Ateneo de Manila University on Thursday, Oct. 29.

In his lecture, titled “The Philippines and the Weight of History: Understanding Our Past, Changing Our Future,” Chikiamco argued that historical policy decisions had shaped an economy marked by oligarchic rent-seeking. He said its institutions allow influential groups to profit through political connections rather than competition.

“Rent-seeking capitalism extracts profit through non-market means. It manipulates rules as to extract profits,” Chikiamco said, contrasting it with a dynamic economy driven by competition and innovation.

‘Original sin’

Using the theory of path dependence, Chikiamco traced the development of the country’s economic system to policies adopted after the Philippines gained independence from the United States in 1946.

He described the Bell Trade Act, which tied the country’s postwar economic arrangements to the United States, as the “original sin.” He said the law limited the Philippines’ ability to adjust its exchange rate independently and gave American citizens preferential rights to exploit natural resources and operate public utilities.

These “parity rights” required an amendment to the 1935 Constitution, which was approved in a 1947 plebiscite. The 1955 Laurel-Langley Agreement later extended them until their expiration in 1974.

The fixed exchange rate, import controls, and allocation of foreign currency, he said, eventually politicized economic decisions and fostered corruption in government institutions.

“Economic decision-making was heavily political,” Chikiamco said, citing historical accounts of how access to foreign exchange and import permits became sources of privilege.

He said the economic system continued to reward monopolies and politically connected businesses. This included the administration of former President Ferdinand Marcos Sr., when the president’s associates benefited from government loans, political favors, and business monopolies.

Chikiamco said the economic model reinforced by the 1987 Constitution had failed to produce a competitive and inclusive economy.

“The 1987 economic model of economic protectionism and nationalism, small-scale agriculture, over-reliance on services, social justice through asset distribution rather than education, and a strong peso is no longer sustainable,” he said.

He pointed to the country’s shrinking manufacturing base, saying the sector’s share of the economy had declined from 22 percent to about 16 percent of gross domestic product.

The Organization for Economic Cooperation and Development’s 2026 Economic Survey of the Philippines also highlighted the country’s reliance on services and relatively weak export performance.

The OECD reported that services accounted for 63 percent of GDP in 2024, while total exports of goods and services amounted to 23 percent of GDP. Goods exports alone accounted for 12 percent of GDP, compared with 85 percent in Vietnam.

Reform agenda

Chikiamco called for opening the economy to greater competition and removing barriers to entry, including protectionist provisions and restrictions favoring Filipino ownership.

He also proposed revisiting the Constitution through a constitutional convention and strengthening the political party system through state financing.

He said reforms should also cover agriculture, labor policy, and monetary policy. These include higher land retention limits, the promotion of agribusiness and agricultural exports, amendments to the Labor Code, and a more competitive exchange rate policy.

He also urged the country to pursue more free trade agreements and to give the Bangko Sentral ng Pilipinas a developmental mandate.

“An outward-looking economy is the antidote to corruption,” Chikiamco said. He argued that greater exposure to trade and investment would encourage competition and more efficient government institutions.

He also called for education to become a central tool for reducing inequality and developing human capital, rather than relying primarily on asset redistribution.

Reactors weigh in

Christopher Nex Bengson Beñas, associate professor at Ateneo de Manila University’s Department of Political Science and one of the lecture’s reactors, agreed that the state needed reforms to prevent powerful business interests from capturing public institutions. However, he cautioned against reducing the government’s role in economic development.

He cited the concept of “embedded autonomy,” describing it as a state with a “merit-based, professional, and coherent internal bureaucracy” capable of resisting manipulation by narrow political and economic interests.

Beñas also warned that opening the economy to foreign capital must be carefully sequenced to protect Filipinos’ ability to own property.

“The dispossession of our people, especially with the entry of capital to buy our land, is real,” Beñas said. “Sequence matters,” he added.

Another reactor, retired Lt. Gen. Jaime de los Santos, said the country needed practical measures to stimulate economic activity, including tourism and industries that generate or conserve foreign exchange.

De los Santos, a former chief of staff and commanding general of the Philippine Army, also said the military should not take over the government, stressing that leading the country was not its role.

The lecture, inaugurated in 2001, aims to raise public awareness of national development issues and encourage citizens to take part in nation-building.

This year’s edition was the first held at the university’s Loyola Heights campus in Quezon City. Previous lectures were held at its Rockwell campus in Makati City.

The event also revisited the legacy of Ongpin, who as president of mining firm Benguet Corp. opposed crony capitalism during the Marcos administration. He later served as finance minister under President Corazon Aquino.

In his closing remarks, Chikiamco urged the country to pursue a more competitive and inclusive economic system in line with Ongpin’s opposition to rent-seeking.

“We need to change our economic system,” he said, calling for “more of a competitive, dynamic capitalism, inclusive capitalism rather than the corruption, favoritism that we associate with rent-seeking capitalism.”