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THIRD WORLD RESURGENCE

Filipinos to remain at the mercy of oligarchs

In June this year, the Philippines celebrated the 150th birth anniversary of its national hero, Jose Rizal, who was executed by the Spanish colonialists. Rizal believed that the only justification for national liberation was the restoration of the dignity of the people, saying '... why independence, if the slaves of today will be the tyrants of tomorrow?' In light of this, the following analysis of the country's economy makes uncomfortable reading.

Nick Legaspi

THE Philippines, which claims to be the first democratic government in Asia, is actually ruled by oligarchs.

'The oligarchs still rule the country, and Filipinos will forever be the victims of their profiteering,' says political science professor Benito Lim of the Ateneo de Manila University.

Lim says the oligarchs can be controlled but it will require strong political will. Asked if President Benigno S Aquino III, who continues to enjoy high popularity and trust ratings, can do it, Lim responds: 'Mukhang hindi siya pinakikinggan. Maliit ang boses. [It seems nobody listens to him. Weak.]'

Members of the oligarchy in the Philippines have 'little corners' of their own and hardly get out of their own spheres of industries, apparently realising that if they resort to competition, one of them will fall.

'In general, we see no competition among the oligarchs because the role of the oligarchs is chasing after profits,' Lim notes. 'There is no crossing of swords resulting in big competition except for the PLDT-Globe dispute.'

On the other hand, everybody wants to be on top. 'Right now, Henry Sy is the richest,' Lim relates, 'but others continue to aspire for that position.'

Political analyst Alex Magno says oligarchy is a term in political science which applies to a government controlled by a group. Loosely used, oligarchy can apply to the dominance of the national economy by a few individuals or a group.

Imperfect regulatory structure

'With an imperfect regulatory structure and uneven access to opportunities the tendency is for a few to control the economy,' Magno explains.

He says oligarchs in the Philippines are not so different from those in other countries - 'they are protected and nourished by an imperfect regulatory structure.'

Asiasec Equities, in a recent report, cites the situation in the domestic cement industry.

According to the report, the cement industry has had little investment in new capacity for the past 15 years after the 'Big Three' foreign players consolidated domestic ownership and controlled practically 90% of industry capacity.

'Instead of building, the big three cement players decommissioned several kilns and reduced domestic capacity to 14mn MT against claimed installed capacity of 22mn MT,' Asiasec relates. 'The current price of cement of US$110/MT is the highest among emerging markets in Asia and the average age of the Philippine cement facilities is over 40 years.'

'There is an apparent "controlled supply environment", which is conducive for pricing,' the equities firm avers.

The Russian example

The Merriam-Webster online dictionary defines oligarchy as 1) 'a government by the few', or 2) 'a government in which a small group exercises control especially for corrupt and selfish purposes; also: a group exercising such control'.

Wikipedia says oligarchy is 'a form of power structure in which power effectively rests with a small number of people. These people could be distinguished by royalty, wealth, family ties, corporate, or military control.'

'Aristotle pioneered the use of the term as a synonym for rule by the rich, for which the exact term is plutocracy, but oligarchy is not always a rule by wealth, as oligarchs can simply be a privileged group, and do not have to be connected by bloodlines as in a monarchy,' Wikipedia relates.

As an example of a modern oligarchy, Wikipedia cites what happened after the collapse of the Soviet Union in December 1991, when privately owned Russia-based multinational corporations, including producers of petroleum, natural gas and metal, became oligarchs.

Wikipedia's narration is strikingly similar to what is happening in the Philippines today: 'Privatisation allowed executives to amass phenomenal wealth and power almost overnight. In May 2004, the Russian edition of Forbes identified 36 of these oligarchs as being worth at least $1 billion.'

In the Philippines, Forbes magazine listed 11 Filipino billionaires for 2011, up from five for 2010. The new billionaires are: San Miguel Chairman and CEO Eduardo Cojuangco Jr. ($1.4 billion), David Consunji ($1.98 billion) of DMCI Holdings Corp., Enrique Razon ($1.68 billion) of the International Container Terminal Services Inc., Metrobank's George S.K. Ty ($1.1 billion), former Trade and Industry Minister Roberto Ongpin ($1.3 billion) and Jollibee Chairman Tony Tan Caktiong ($1 billion).

Retailing and banking king Henry Sy remains the richest with a net worth estimated at $7.28 billion, followed by Lucio Tan ($2.88 billion), John Gokongwei Jr. ($2.48 billion), Andrew Tan ($2 billion) and Jaime Zobel de Ayala ($1.78 billion).

Oligarchs won't allow charter change

Senator Manny Villar says oligarchy is the reason why attempts to amend the economic provisions of the Constitution have failed - three presidents (Fidel Ramos, Joseph Estrada and Gloria Macapagal Arroyo) tried to amend the Constitution in the past 15 years, to no avail.

'We're still an oligarchy run by a few families,' Villar says. 'They're happy with the present setup now and they will not allow the Constitution to be tampered with.'

'The media, from what I've seen, is also controlled by groups that do not want to change the Constitution,' the former Senate president adds. 'And that is why any proposal [to amend the Constitution] will be killed right away.'

Villar notes the difficulties encountered by small entrepreneurs in growing their business.

'We always look at foreign investments but we don't look at the local, the small entrepreneurs, who are unable to borrow, unable to access credit because our banking system is controlled by five or six families and they are happy investing in ROPs [government debt papers] or lending to big industries,' the senator relates. 'Right now that is our banking system - it's a cartel and it's getting fewer and bigger through consolidation.'

Villar did not identify the families that control the banking system.

The biggest bank in terms of resources, Banco de Oro, is owned by Henry Sy, who also owns China Bank. George Ty owns the second largest bank, Metropolitan Bank & Trust Corp.

The Ayalas own Bank of the Philippine Islands, the third largest and the most profitable, while Lucio Tan owns the Philippine National Bank and Allied Banking Corp.

Taipan Alfonso Yuchengco owns Rizal Commercial Banking Corp. while the Cebu-based Aboitiz family owns Union Bank.

Then Socioeconomic Secretary Romulo Neri, during a forum organised by the University of the Philippines in 2004, indicated that the oligarchs were the first and foremost to oppose tax measures being proposed by government such as those for sin products, medicine, telecommunications, and power.

In its newsletter, the UP Third World Studies Center and Department of Political Science recalled that 'in 1997, with the passage of the Comprehensive Tax Reform Package, the country's tax effort declined. In one of its provisions, corporations enjoyed a cut in their tax rates along with other numerous tax incentives.'

Oligarchy breeds political dynasties

Philippine Star columnist Carmen N Pedrosa believes that oligarchy has become a culture in the Philippines. 'Our culture is so deeply imbibed with the ambition for wealth and power,' she said in her column 'From a Distance' published by the Philippine Star on 10 July 2010. 'So when we blame oligarchs for the sorry state of our country, we must also look into ourselves and say yeh, but we also want to be oligarchs or be friends with an oligarch because that is the system.'

According to Pedrosa, political dynasties are among the effects of oligarchic culture. 'So it should not surprise anyone that in the last two governments we have had children of past presidents, one of them from a very wealthy family,' she said.

President Gloria Macapagal Arroyo is the daughter of President Diosdado Macapagal, while President Benigno Aquino is the son of President Cory Aquino.

'The trouble is that all this is done under cover of democracy,'  Pedrosa said. 'We delude ourselves that we are democratic and we have elections to prove that. There will be few who will accept that if we were to think it through, elections merely vote in or vote out leaders from the same small pool of oligarchs or would-be oligarchs.'

'We need to break out of this vicious oligarchic circle,' she stressed. 'Unfortunately, we can only do that by changing our Constitution or launching a revolution, hopefully not a violent one.'

'The oligarchic stranglehold on the Philippine political economy can be loosened by strengthening the bureaucracy, reforming the political party system and amending the Philippine Constitution,' said Romulo Neri. 'Without these reforms, the oligarchic dominance over the state will never be broken.'

The statement of Ateneo's Benito Lim is grim: 'There is harmony among the oligarchs. Filipinos will continue to be at the mercy of the oligarchs.'

7 groups dominate economy

Asiasec's report identifies seven conglomerates that dominate the Philippine economy, without labelling them as oligarchs. These are: San Miguel Corp. (SMC), Ayala Corp., First Pacific, SM Investments Corp., JG Summit, DM Consunji and Aboitiz.

Asiasec says that, among the conglomerates, SMC has a very tight grip - its control and ownership remain substantial in its key business units - compared with the other groups that have neither a super majority interest nor a consolidating stake of 51% in their key businesses.

SMC has 100% interest in its power generation business, 90% in Petron (fuel and oil), 100% in telecom, 99% in food, 78% in Ginebra, 99% in property (San Miguel Properties Inc.), 70% in Bank of Commerce, 100% in mining (coal) and 100% in airport (Caticlan).

SMC enjoys majority interest in San Miguel Brewery (51%), Metro Rail Transit 7 (51%) and toll roads (51%).

In addition, SMC has a significant minority in other businesses: 37% in the Manila Electric Co., 40% in Liberty Telecom and 35% in Manila North Harbor.

Ayala Corp. has 68% interest in Integrated Micro-electronics Inc., 54% in Ayala Land Inc., 31% in Globe Telecom, 34% in Bank of the Philippine Islands and 43% in Manila Water Co.

Asiasec notes that Ayala Corp's ownership in key businesses it controls such as telecom and banking has not even reached a majority (51%) ownership, in contrast with SMC's controlling and super majority position in most of its businesses.

'The power generation ambition of Ayala Corp., which was welcomed by the market, is in contrast a very small wind-farm (less than 50 MW) vis-a-vis San Miguel's diverse power portfolio (3,145 MW),' Asiasec says.

Hong Kong-based First Pacific, represented by PLDT Chairman Manuel V. Pangilinan, has a controlling interest (100%) in TV5, majority interest in Metro Pacific Investments Corp. (55%) and controlling but not majority interest in Philippine Long Distance Telephone Co. (27%), Philex Mining Corp. (46%) and Manila Electric Co. (41%).

Henry Sy's SM Investments Corp. (SMIC) has controlling interest in its department store business (90%) and supermarket (100%), majority interest in SM Prime Holdings (51%), controlling but not majority interest in Banco de Oro (41%) and SM Development Corp. (44%), and significant minority interest in China Bank (20%), Highlands Prime (31%) and Belle Corp. (35%).

'For the SM group, it is worth highlighting that their retail assets (department store and supermarket) are all consolidated under SMIC and remain super majority,' Asiasec says. 'They have a majority controlling interest in SM Prime, albeit the ownership has been opened to the public, and controlling interest in both SMDC and BDO.'

John Gokongwei's JG Summit has controlling interest in petrochem (80%), majority interest in Universal Robina Corp. (60%), Robinsons Land Corp. (60%), Digital Telecoms (50%) and Cebu Air (65%), and a significant minority in UIC (32%).

The Aboitiz group controls Pilmico (100%) and Aboitiz Power (76%) and has controlling but not majority stake in Accuria, its transportation business, at 49.5%.

DMCI has a 100% stake in DMCI Homes, 56% in Semirara Mining Corp. and 33% in Maynilad Water Services Inc.                           

Nick Legaspi is Managing Editor of the Philippine weekly business newsmagazine BizNews Asia, from which this article is reproduced (July 18-25, 2011 issue).

*Third World Resurgence No. 251/252, July/August 2011, pp 3-5


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