Economies of the Philippines and Russia share a common denominator

With the Kremlin’s aggressive actions in addressing their grievances regarding Ukraine, numerous countries slapped sanctions against Russia. These economic sanctions imposed on Moscow are complex, where portions of the Russian economy in the sectors of agriculture, manufacturing, and services are being castigated. In addition, the aforementioned sanctions don’t only come from other foreign governments, but also from various multinational companies that do business in and out of Russia. Popular brands like Volkswagen, Panasonic, Amazon, Hermes, and Google applied sanctions due to Kremlin’s bellicose actions. Even McDonalds had closed their restaurants, further isolating Russia from the modern, globalized world.

However, one of the things that must be examined meticulously are the sanctions targeting these Russian oligarchs. These billionaires are known to possess deep pockets and have secure bank accounts in several countries. Their families usually live frivolous lifestyles and before the Ukrainian crisis started to unfold, resided in fancy condominiums located in the Mediterranean, the Middle East, and in the British Isles. It’s no wonder the term “Londongrad” had been a buzzword for the past few years — a portmanteau defining super-rich Russian families transferring and utilizing their financial wealth in the United Kingdom.

These Russian oligarchs can be classified into two groups: the Yeltsin-era oligarchs and the Putin-era oligarchs. Even though these wealthy Russians amassed fortunes vis-à-vis their relationship with the Kremlin, they completely differ in how they obtained such an absurd amount of wealth. Yeltsin-era oligarchs became rich when President Boris Yeltsin decided to liquidate then-Soviet assets anc were being sold in the market. Fearing that non-Russians would actively participate in the acquisition of these assets, they were awarded instead to these Russian nationals in a questionable manner. On the other hand, Putin-era oligarchs raked in profits through government-issued projects and contracts, which would include business dealings related with the importation and exportation of various commodities. The stark differences of these two kinds of oligarchs can also be better understood when looking through Russian economic history.

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The economic history of Russia can be summarized as a cycle composed of four distinct parts; are implosion, rebirth, progress, stagnation, and a return to implosion as it completes the whole cycle. The last years of the Romanovs saw the decline of the Russian empire’s political economy, where the civil war pitted the Bolsheviks against the White Russians, with the former emerging victorious. This internal implosion that wreaked Slavic societies led to the creation of the Union of Soviet Socialist Republics (USSR), where Moscow held a virtual monopoly over political power and utilized such powers for a planned, centralized economy. With Josef Stalin’s five-year plans, the Soviet Union aimed to industrialize the country with increased productivity and were able to achieve most of those objectives. Soviet industrial might coupled with its massive manpower were able to thwart Nazi Germany’s militaristic ambitions, and this upward trajectory continued until the Khrushchev years. During the 1960’s, numerical estimates project that the Soviets would overtake the United States and its allies by the 1980’s. However, inefficiency, corruption, and bureaucracy created a stagnating environment in the Soviet Union, which later led to the disintegration of the immensely powerful communist state. This dissolution was later followed by the restructuring of the Russian political economy, specially with the birth of Yeltsin-era oligarchs. With massive hydrocarbon reserves and an increasing demand for natural gas, the economy of Russia grew tremendously in the new millennium, which in turn created these Putin-era oligarchs.

These generations of Russian political and economic elites enriched themselves primarily through resource extraction. Aside from fossil fuels, logging and mining industries in Russia have also generated profits as the global market was always hungry for these limited resources. To protect themselves from competition, these oligarchs prey on other potential business players, further implanting themselves in a dominant position in terms of market share. These extractive economic institutions observed in Russia definitely bear an uncanny resemblance in the context of Philippine colonial history.

During the colonial period, the Spaniards administered their overseas territories through an “encomienda” system, which were also used extensively in Latin America. With the Spanish unfamiliar with the geography and population of their constituents, delegating these tasks to the more collusive locals was a more cost-effective approach. As long as the colony had access to labor and money through tributes, permanent Spanish settlements have their assurances. Systems including the “polo y servicios” were methods of extracting human and monetary resources from the country. These Spanish period approaches in abusing Filipinos created generations of landed elites in the country, possessing hundreds or thousands of hectares of agricultural plantations called as “haciendas“. These landed elites later colluded with the Americans to administer the Philippine archipelago, perpetuating themselves with the lands that they have never toiled upon.

Looking at these non-inclusive economic institutions, it becomes clear why Russia and the Philippines ranked in the top five with significant percentages of wealth generated through crony capitalism, according to the Economist. Also known as clique mercantilism, this select group amassed unfathomable amounts of capital and can make or break a politician’s political career. Prior to the Pacific War, both Japan and the United States faced bitter confrontations against the Japanese “zaibatsu” and American robber barons. The likes of Sumitomo, Mitsui, and Mitsubishi dominated Imperial Japan, while John Rockefeller, J. P. Morgan, Cornelius Vanderbilt, and many more became the faces of American capitalism. Even though these “zaibatsu” and robber barons helped in industrializing their respective countries and created a degree of liquidity in their economies, their attempts to hinder creative destruction and competition were noticeable whenever the opportunity presents itself. However, the Second World War was the critical juncture that also greatly affected these oligarchic institutions.

Philippine oligarchs and the landed gentry continue to benefit greatly in crony capitalism. While they are hiding behind these diversified companies that engage in various sectors of the economy, they have been cushioned from foreign competition due to the 1987 Constitution’s protectionist stance. This results to a dismal quality of services provided to the consumers, due to the sheer absence of competing companies trying to carve up their respective market shares. The state of Philippine telecommunications serve as its best or probably, worst example.

Leftists groups denounce such realities, but provide responses that includes massively taxing the wealthy and socializing the means of production. However, all these methods enlarge the powers of the government and leads a nation-state vulnerable to tyranny, which is exactly similar to the cycles of what Imperial Russia, the Soviet Union, and the Russian Federation had experienced. Such responses would only exacerbate social discontent and fuel civil disobedience.

Renowned economists Daron Acemoglu and James Robinson in their books, Why Nations Fail and The Narrow Corridor, point out that enfranchising participants in the free market economy through various incentives is the way to prosperity. A government should prudently exercise its powers by enforcing fair competition, respecting property rights, and maintaining the rule of law. Creating and preserving inclusive political and economic institutions, coupled with a correct balance between the powers of the state and the society is the ideal approach to escaping oligarchy. However, it still seems that the Philippines is still pretty distant from achieving such a milestone.

3 Replies to “Economies of the Philippines and Russia share a common denominator”

  1. Lol at the idea of the Philippines with a small government.

    I am in favor of smaller government, but that is not happening in the present situation. Shrinking a HUGE government is not easy… especially when the government employs so many people and many families rely on the government for work or benefits.

    The present situation is many people don’t follow government laws, and when you do try to follow the laws… the laws are so confusing/complicated/annoying that people just give up or they just break the law.

  2. Sanctions won’t work because Russia has all the cards tbh. Russia’s only removing the bad stuff in Ukraine that may affect not just Ukraine and Russia but the whole world. They are doing us a favor.

    The best thing Philippines can do is not elect a comedian in their politics because the Philippines will become another Ukraine if they do.

    Philippines can do with a small government but thing is, it seems to be getting bloated and more bloated each year which defies the case. This has to be solved first. As for the other, laws need to be simplified, some laws need to be abolished.

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