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Booty Capitalism by Paul Hutchcroft

Politics Report for Socio 11

Amanda Palileo

on 29 September 2012

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Transcript of Booty Capitalism by Paul Hutchcroft

Business-Government Relations
in the Philippines Booty Capitalism: - Overview of Government-Business Relations
- Historical Origins: State and Oligarchy
- Patrimonial States and Rent Capitalism
- Transforming the Philippine Political Economy Report Outline Introduction of the topic
Definitions and Key Concepts
Overview: Government-Business Relations
Historical Perspective: State & Oligarchy PART ONE An Overview of
Government-Business Relations
in the Philippines State & Oligarchy:
A Historical Perspective Patrimonial Administrative State
Patrimonial Oligarchic State
Conclusion PART TWO Patrimonial Administrative State Patrimonial Oligarchic State Paul Hutchcroft Introductions Definitions "The Philippines, which... was generally thought to have the brightest prospects for rapid economic growth... has instead become the laggard of capitalist Southeast Asia."
-Hutchcroft "This... explores the underlying factors that explain the stagnation of the Philippine economy." "... the explanation can be traced in large part to:

a) long-standing patterns of government-business relations
b) persistence of a particular form of capitalism" Government and State Patrimonialism Oligarchy Bureaucracy Political Economy Governments are the particular groups of people, the administrative bureaucracies, that control the state apparatus at a given time.
(i.e. the means through which state power is employed)

States are served by a continuous succession of different governments. A bureaucracy is a group of non-elected officials of a government or organization that implements the rules, laws, ideas, and functions of their institution. Wilson, Woodrow (1887) Bealey, Frank, ed. (1999)
Sartwell (2008)
Flint & Taylor (2007) Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth.

Today, [it] may refer to very different things, including Marxian analysis, applied public-choice approaches emanating from the Chicago school and the Virginia school, or simply the advice given by economists to the government or public on general economic policy or on specific proposals. Groenwegen, 2008. A form of political domination described by Max Weber (Economy and Society, 1922), in which authority rests on the personal and bureaucratic power exercised by a royal household, where that power is formally arbitrary and under the direct control of the ruler. Marshall, 1998 Political government is conducted by a few persons or families. Debased form of aristocracy, that is, to government by the few or by a faction.

The term “oligarchy” was also used to refer to the small group of persons who enjoyed a monopoly of political control in oligarchic governments; the term usually had the added sense that the oligarchy ruled in its own rather than in the public interest. Jenkin, 1968 Areas of expertise:
Government And Politics Of Asia And The Pacific

Research interests:
Comparative politics and Southeast Asian politics
State formation and territorial politics
Politics of patronage, political reform and democratic quality
State-society relations
Structures of governance
Corruption. Biography:
Paul's interests in Southeast Asian politics can be traced to the 1980s, when he first lived in the Philippines and witnessed mounting opposition to the rule of Ferdinand Marcos.

This eventually led him into Southeast Asian studies at Yale University, where he completed an M.A. in International Relations and a Ph.D. in Political Science.

He finished his dissertation while at the Harvard Academy for International and Area Studies, and proceeded to fifteen years of service on the faculty of the University of Wisconsin-Madison. He joined the ANU in August 2008. Central
Ideas Rent Capitalism &
Booty Capitalism The Philippine
Oligarchy McHale, 1959 Business is born, not so much in the market place as in the halls of the legislature or in the administrative offices of the government." ...the personal favor and disfavor of those currently in power is a critical determinant of business success. Max Weber Access to the state apparatus remains the major avenue to private accumulation, and the quest for rent-seeking opportunities continues to bring a stampede of favored elites and would-be favored elites to the gates of the presidential palace.

The state apparatus is choked continually by an anarchy of particularistic demands from, and particularistic actions on behalf of, those oligarchs and cronies who are currently most favored by its top officials... The State Apparatus State Apparatus A term developed by the Marxist theorist Louis Althusser to denote institutions such as education, the churches, family, media, trade unions, and law, which were formally outside state control but which served to transmit the values of the state, to interpellate those individuals affected by them, and to maintain order in a society, above all to reproduce capitalist relations of production. In contemporary capitalist societies education has replaced the Church as the principal ideological state apparatus. Marshall, 1998 Among Marxists, the term is contrasted with the so-called ‘repressive state apparatus’ of the armed forces and police, and is allotted a major role in securing compliance within developed capitalist societies. One can find many parallels between the Philippine polity and Max Weber's patrimonial states: 'Practically everything depends explicitly upon personal considerations: upon the attitude toward the concrete applicant and his concrete request and upon purely personal connections, favors, promises, and privileges. It is clear that there is a particularly large gap between the Philippine state and the archetypal bureaucratic state... where there is one objective law for all and administration is conducted without respect for persons." "Capitalism in its modern stages of development requires the bureaucracy; above all, advanced forms of capitalism require an administrative and legal structure able to promote 'political and procedural predictability.'" Rent-seeking: ownership of property alone guarantees access to wealth

[as opposed to]

Profit-seeking: assets and income are won and lost on the basis of the ability of the business owner to develop the property. -Montes, 1988 Where rents are most commonly grabbed by a bureaucratic elite inside the state (as in Thailand and Indonesia), we can speak of 'bureaucratic capitalism'.

Where they are generally grabbed by groups with an economic base outside the state, (as in the Phils.), we can speak of booty capitalism. "Booty capitalism": a group with an economic base outside the state is plundering the state for particularistic reasons. ...endures because of the "combination of poorly developed state apparatus, powerful oligarchy, and ready support from external military power (i.e. US). [The Philippine bureaucracy] has long been penetrated by particularistic oligarchic interests, which have a firm independent economic base outside the bureaucracy, yet rely heavily upon their access to the political machinery in order to promote private accumulation. Faced with the myriad particularistic demands of powerful elite interests, the Philippine state is unable to formulate or implement a coherent policy of economic development. "Every administration in this country has spawned its own millionaires." -Adrian Crisotbal, 1989 There is... a certain social mobility at the helm of Philippine society. This steady creation of nouveaux riches makes it impossible to reduce Philippine oligarchy to a ceratin number of old families. We find in the Philippines not a fixed aristocracy, but rather a social group that is based on welath and that changes over time. The economic system of the Philippines 'rewards people who do not produce at the expense of those who do... [and] enables persons with political influence to extract wealth without effort from the economy. Fidel Ramos, 1992 American Colonial Rule Very localized political units
Absence of state-building in Philippine history except for the Muslim south Pre-colonial Philipppines Arrival of the Spanish Created a central state which ended up understaffed.
Relied heavily upon ecclesiastical personnel Spanish colonial administration in Manila was upstaged by:
British and American trading houses
Chinese traders
Chinese mestizos (landed elite in the provinces)

Manila was no longer a single entrepot; rather, regional economies had each their own separate ties with the world market.

The commercialization of agriculture gave rise to a new class of landowners who were quite separate from the bureaucracy. Their economic base was outside the state. American colonial rule reinforced the decentralized nature of the Philippines

The oligarchy took advantage of its independent base of power and came to exercise control over elements of the state apparatus through a spoils system. Important Points:

Civil servants frequently owed their employment to legislator patrons.

The oligarchy swamped the legislature [but] showed little interest in directly assuming bureaucratic posts.

The old oligarchy showed little interest in moving into bureaucratic ventures. There was little need: the oligarchy already had a firm economic base outside the bureaucracy, absolute control of representative institutions, and thorough penetration of the administrative departments of government. The legacy of US colonialism was considerable 'oligarchy-building', but very little the way of state-building.

When independence came in 1946, it was accompanied by provisions that were clearly advantageous to the oligarchy:

1) Bilateral free trde agreement ensured continuing dependence on the American market.

2) New source of riches came in the form of $620 million in US rehabilitation assistance for war damage... ... plundered by the oligarchs to pay for duty-free imports of consumer durables... the government lacked the means to stem the hemorrhage of foreign exchange. Throughout the postwar years, oligarchs have needed external support to sustain an unjust, inefficient and graft-ridden political and economic structure. Washington, in turn, received unrestricted access to two of its most important overseas military installations.” The state apparatus reamined underdeveloped, easy prey for a powerful oligarchic class... The perpetuation of the state was ultimately assured by ready support from the former colonial power. While the state is plundered internally, it is repeatedly rescued externally. “The stagnation of the Philippine political economy stands in marked contrast to the rapid changes that are weeping the rest of Capitalist Southeast Asia.” “The Philippines provides only one example of a state with strong patrimonial features and only one example of how capitalism can be ‘politically determined,’ or dominated by rent-seeking behavior.” Patrimonial administrative state
(which Riggs called the “bureaucratic polity”)


Patrimonial oligarchic state Two types of
patrimonial polities “..a bureaucratic elite is the major beneficiary of patrimonial largesse and exercises power over a weak business class.”

“The type of rent capitalism commonly engendered by the patrimonial administrative state reflects the relative strengths of the state apparatus and business interests.” “..Riggs explains that government service provided ‘the greatest opportunities for combining high income with security, prestige, and power’, and those unable to gain admission to the bureaucracy had to settle for entrepreneurship.”

“Because businesspeople lacked political access, Riggs calls them ‘pariah entrepreneurs.’” “As the major beneficiaries of rent extraction were based in the administrative apparatus of the state, this form of rent capitalism can be characterized as ‘bureaucratic’ capitalism.”

“Riggs asserted that pariah entrepreneurs would be incapable of altering an environment that threatened the security of long-term investments, or fostering the emergence of economic institutions more conducive to private enterprise and a free market system.” “He anticipated that governmental careers would remain the major avenues to prestige, power, and economic opportunity..”

The authority of the bureaucratic elite would perpetuate itself Riggs has been proven wrong in recent history
“..within ‘bureaucratic capitalism may reside the seeds of its own destruction.”

“..the bureaucratic polity may be a container for fundamental transformation.” “Over time, although many powerful military and bureaucratic officials will resist giving up their special privileges, one can expect a fitful process in which business enterprises required (and demand) greater regularisation and bureaucratisation “Piecemeal reforms, instituted from above”
“Far more sweeping reforms, forced by the emergence of new social forces that challenge the prevailing order” Two major sources of regularisation The leaders of a patrimonial administrative state may support selective measures of economic reform in order to try to satisfy the political imperatives of regime preservation First type of reform “More extensive, and results from the emergence of new social forces able to effectively challenge (patrimonially based) power of the bureaucratic elites” Second type of reform “There is substantial economic growth, fuelled in part by foreign capital and foreign aid”

“In the process of economic growth, a more assertive business class emerges”

“This business class demands the regularisation of relations between the government and business interests”

“The gradual and fitful creation of a political environment that provides a more congenial foundation for the development of advanced forms of capitalist accumulation Second type of reform:
Dynamics of Change “..bureaucratic elites may become ever less reliant on the milking of office-based privileges, as they (and even more importantly, their children) have begun ‘taking a serious and active role in business.’

“Rent-seeking behavior becomes less important relative to entrepreneurship based on productive activity.” “In this polity, access to the state remains the major avenue to private accumulation, but the dominant social force has an economic base largely independent of the state apparatus.”
“..the influence of extra-bureaucratic forces swamps the influence of the bureaucracy, and the major power resides not in a class of officeholders but rather in the ‘private sector.’” Patrimonial oligarchic state “..the principal direction of rent extraction is reversed: a powerful oligarchic business class extracts privileges from a largely incoherent bureaucracy.”

“Unlike in Thailand or Indonesia, bureaucratic officials have never constituted a bureaucratic elite and have never become a powerful force in their own right.” Patrimonial oligarchic state “Because the primary loyalty of government employees often remains with the patrons who got them the job in the first place, agency heads have little ability to command the obedience of their subordinates.” Patrimonial oligarchic state “The patrimonial oligarchic state is more resistant to reform than the patrimonial administrative state in two aspects.” Patrimonial oligarchic state “Piecemeal reforms (those which are merely intended to meet the political imperatives of regime preservation) are often inhibited by both the lack of bureaucratic coherence and the tremendous power of particularistic oligarchic interests.” Two aspects “..because it is unlikely to generate the emergence of new social forces able to challenge the patrimonial basis of power, booty capitalism is much more resistant to fundamental transformation than is ‘bureaucratic’ capitalism” “..no countervailing social force emerges to challenge either the patrimonial features of the political economy or the longstanding dominance of the oligarchy”

“Non-oligarchic social forces never seem to achieve the ‘critical mass’ necessary to force major overhaul of the system.” “..the patrimonial oligarchic state and the booty capitalism that it engenders are a ‘developmental bog’ into which the Philippine nation has—despite its enormous resources and talents—sadly become mired.”

“Even if the economy were to begin another growth spurt, there would likely be little change in the essential imbalance of forces within society.” Conclusion: Prospects for Fundamental Transformation of the Philippine Political Economy “Without fundamental change in the nature of the state, the country will be unable to move coherently along either two major paths of economic development.”

“The Philippine state is incapable of providing even the basic legal and administrative underpinnings necessary for the laissez-faire model…”

“Throughout the country’s long colonial past there was far more oligarchy-building than state-building, and the state that emerged in the postcolonial era has depended upon external sources for its basic sustenance.” “..external resources have been an obstacle– not a catalyst– for social change in the prevailing social imbalance.”

“Within the oligarchy itself, loyalty to family generally continues to overshadow loyalty to nation.”

“..the emergence of modern, rational capitalism is likely to depend on the prolonged, turbulent process of dismantling the oligarchy’s control over the state and building a state that is able to provide some greater measure of calculable adjudication and administration.
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