Crony Capitalism: The Filipino Experience

The most common indicators of a highly developed country are widespread industrialization, a
thriving economy, and having a high quality of life due to excellent rates in literacy and greater access to
quality healthcare. Philippines is considered to be a developing country with its continuous economic
growth and improving quality of life 1, however, with the rapidly widening gap of economic inequality in
the country2, this ‘developing’ status comes into question. Walden Bello boldly labeled the Philippines
to be in an “Anti-developmental State” in his book3 which argues that the major driving force which
impedes the country to achieve a genuine growth towards development is its excessive state of
inequality in the distribution of wealth and power. On a global perspective, increasing levels of inequality
encourages the concentration of political and decision-making power to a selected few, thus, reducing
both political and economic stability of a country. As the Philippines placed 113th in the 2019 Corruption
Perceptions Index (CPI) issued by Transparency International4, this essay aims to discuss ‘crony
capitalism’ as one of the underlying manifestations of corruption under Philippine experience.
Crony capitalism, by all means, is not a true classification of capitalism, rather, it is a hybrid form
of capitalism which emerged from mixed economic system that provides the business class a significant
advantage in various state-regulated activities through their close relations to key politicians. A term first
seen in the headline of a Time Magazine article by George M. Taber back in 1980, ‘crony capitalism’ was
used by Taber to describe the Philippine’s way of manipulating the capitalist system under the rule of
Ferdinand E. Marcos5. He explicitly said on his recount of the term’s origin that this distortion of the
capitalist system led to the cronies—families and/ or trusted friends of the Marcoses—largely benefitting
from the free market to get wealthier while the poor stayed as they are6. Even though the term was
coined only in 1980 and is often associated with the Marcos-era of favoritism, manifestations of crony
capitalism has been evident in the Philippines ever since its colonial regimes.
Political patronage, on the other hand, is interrelated with clientelism, favoritism, nepotism, and
cronyism. Just like in crony capitalism, a political patronage system allows for an exchange of favors
between political elites and their ‘patrons’ who usually provides them with a certain value of electoral
support7. Political patronage, or as Filipinos call it, the padrino system8, signifies its linkage as the root

1
United Nations Development Programme. “2019 Human Development Index Ranking,” 2019.
http://hdr.undp.org/en/content/2019-human-development-index-ranking.
2
Mayvelin U. Caraballo, “PH Income Inequality Rising – ADB Report,” The Manila Times, March 29, 2017,
https://www.manilatimes.net/2017/03/30/business/ph-income-inequality-rising-adb-report/319981/.
3
Bello, Walden F., Herbert Docena, Marissa de Guzman, and Mary Lou Malig. The Anti-Development State: The Political
Economy of Permanent Crisis in the Philippines. Quezon City: Department of Sociology, College of Social Sciences and
Philosophy, University of the Philippines Diliman, 2004.
4
CNN Philippines Staff, “Corruption in the Philippines Worsens in 2019 Global Index,” CNN Philippines, January 23, 2020,
https://cnnphilippines.com/news/2020/1/23/Philippines-corruption-
worsens.html?fbclid=IwAR3oEreKQjj7onru3FviBhIE3MFkNcsgBkTZHHeeelOnXtGTefQ9pFz0mAI.
5
George M Taber, “The Night I Invented Crony Capitalism,” Knowledge@Wharton, November 3, 2015,
https://knowledge.wharton.upenn.edu/article/the-night-i-invented-crony-capitalism/.
6
Ibid.
7
Juan Escandor, “'Patronage Politics Not an Offshoot of PH Culture, Grew during US Colonial Period',” Inquirer.net, May 19,
2013, https://globalnation.inquirer.net/74991/patronage-politics-not-an-offshoot-of-ph-culture-grew-during-us-colonial-
period.
8
Gripaldo, Rolando M. “Cultural Traditions, the Person, and Contemporary Change: The Filipino Experience.” Cultural
Traditions and Contemporary Challenges in Southeast Asia: Hindu and BuddhistVolume 3 of Cultural heritage and

1
of crony capitalism in the country by the continuous emergence of individuals taking advantage of having
extended social relations between business executives and political elites. This padrino system began
during the Spanish period when lower government posts (principalia) can only be occupied by Filipino
natives if they have close relationships with either an influential Spanish or a wealthy padrino who may
be capable to back them up rather than of their own merits9. However, it should be noted that this form
of padrino system eventually evolved culturally and became highly associated with the Filipino’s tradition
of corruption. During the American period, “political patronage became a rule” 10 as the ones who were
granted key political posts were limited to the supporters and elite members of political parties which
strongly represented colonial interests. The traditional form of political patronage was highlighted in a
paper by Guéraiche which identified Manuel Quezon, the president of the Commonwealth, as the patron
of the American-Filipino community in the United States when he became the Resident Commissioner
and the perfect lobbyist for the Philippine cause between 1909 and 191511. Guéraiche even cited sample
cases of these personal requests from the Philippine elites to the influential Quezon who was in a key
political post in granting American University scholarships (also called pensionados) to their sons.
Detailed accounts of Filipino students in the U.S. who became pensionados due to gains from ‘personal
requests’ were included in the “Students in the U.S.“ reports authored by Manuel Quezon and Jorge
Vargas—his secretary from 1918-1942. One instance revealed Rafael Trias, son of General Mariano Trias,
who was granted the scholarship in 1920 due to close relations with Quezon, the Committee on
government pensionados chairman J.P. Laurel, and an influential American politician, F. McIntyre, who
was the head of Bureau of Insular Affairs. Rafael Trias then signed a contract to faithfully perform any
bureaucratic duties assigned to him after his years of study despite his degree coming from the college
of commerce and business which initially suggests that he won’t be able to keep his end of the said
contract.12 The case of Sergio Osmeña Sr. and the Philippine National Bank (PNB) almost going into
bankrupt13, for example, as discussed by Gripaldo is an evidence of an evolving political patronage
getting pervasive during the late American colonial period resulting to the early signs of crony capitalism.
As the president of the Nacionalista Party, Sergio Osmeña Sr. was able to utilize his position and issued
loans with no collateral to their party’s political supporters and padrinos to finance construction of sugar
centrals14. These friends of Osmeña were essentially his group of ‘cronies’ at that time, and this scandal
eventually drove the said bank to a near state of collapse. Cronyism can either be good or bad for the
development of a country, this idea however was only delved in deeper during the rise of crony
capitalism during Marcos era. But during the American period, there was one business elite and Filipino

contemporary change, 2005.

https://www.academia.edu/9649352/Cultural_Traditions_the_Person_and_Contemporary_Change_The_Philippine_
Experience_2005_2014_.
An evolved meaning of 'padrino' describes any influential person who engages into an exchange of favors among their
'compadres'--extended social relations, either of kinship or friendship

9
Ibid.
10
Ibid, 295.
11
William Guéraiche, “Manuel Quezon, Patron of the American-Filipino Community,” Moussons, no. 12 (January 2008): pp.
163-172, https://doi.org/10.4000/moussons.1536.
12
William Guéraiche, “Manuel Quezon, Patron of the American-Filipino Community,” Moussons, no. 12 (January 2008): pp.
163-172, https://doi.org/10.4000/moussons.1536.
13
Gripaldo, Cultural traditions, the person, and the contemporary change, 295-296.
14
Howard J Wiarda, “Comparative Politics: The Politics of Asia,” Comparative Politics: Critical Concepts in Political Science 3
(2005): p. 337.

2
philanthropist, Teodoro Rafael Yangco, who was not only an owner of a transportation firm but also
eventually served as a resident commissioner alongside journalist-turned-politician, Jaime de Veyra.
Having a sterling business credential, Yangco was one of the first business leaders in the country who
had taken interest on the development of our natural resources, who also happen to be largely related
to high-ranked political officials such as Manuel Quezon himself. 15 As the case with Yangco, cronyism
proved to be a case which could either facilitate or thwart economic development, however, the corrupt
ties of Sergio Osmeña is one of the numerous cases of how bad crony capitalism can be in the Philippines.
During the postwar period, a candid report on the government corporations by the Office of
Economic Coordination in 1954 concluded that the high number of cases of unfair political
considerations and the persistence of political patronage in the country was the root cause of heavy
losses and huge waste of public funds and properties16. As mentioned by Cullather in his Illusions of
Influence “American policy helped paved the way for crony capitalism” 17 and this act of state-created
policies paving way for crony capitalism was heavily evident under the greatly unchecked political and
economic decision-making of Ferdinand E. Marcos, during his infamous era to which the term ‘crony
capitalism’ itself was coined from. In a 1983 Airgram18 addressed to the State Department from the
American Embassy in Manila, the report centered on the creeping state capitalism in the country as
manifested by an exposé on crony capitalism by a study of Fr. John Doherty 19. It also covered how the
increasing government influence greatly impacted the private sector, especially the three corporations—
Development Bank of the Philippines (DBP), Philippine National Bank (PNB), and the National
Development Company (NDC)—alongside its other subsidiaries and client companies were severely
limited and controlled to underpin the state’s economic plans.
The persistence of crony capitalism during Marcos years saw the rise and fall of many large
business conglomerates in the country. It only proved that crony capitalism, despite its highly negative
connotations, would completely fail when those who were given special favors weren’t individuals with
qualified business credentials. The prevalence of Marcos ‘cronies’ from their relatives, fraternity
brothers, and a few trusted friends led to its utter failure with more than 100 of these companies forced
to close due to unpaid loans and taken over by the state, it should be taken into account however, that
most of these ‘cronies’ were still able to get out of these business troubles through the protection
guaranteed by the Marcoses20. To name some of the biggest ‘cronies’ of the Marcoses that catapulted
Ferdinand Marcos to have an absolute power over the country’s big businesses and politicians, the list
include: Roberto Benedicto who was a classmate and fraternity brother of Marcos who monopolized the

15
Albin Kowalewski, ed., “Teodoro R. Yangco 1861-1939,” Asian and Pacific Islander Americans in Congress, 1900-2017 108,
no. 226 of House document Issue 14906 of United States congressional serial set (2018): pp. 172-177.
16
Frank H. Golay, “Entrepreneurship and Economic Development in the Philippines,” Far Eastern Survey 29, no. 6 (1960): p.
83, https://doi.org/10.1525/as.1960.29.6.01p13663.
17
James Biedzynski, “Nick Cullather,” Crossroads: An Interdisciplinary Journal of Southeast Asian Studies, (1995): 128–30,
pp. 128-130, http://www.jstor.com/stable/40860511.
18
A message sent via courier instead of telegram.
19
American Embassy Manila, A 1983 Airgram to the State Department in Manila Dissects "Creeping State Capitalism" and
Refers to "Crony Capitalism" under the Marcos Government., December 1990, National Security Archive's Philippine
Collection Documents, December 1990, https://nsarchive2.gwu.edu//nsa/publications/philippines/phdoc2.html.
20
William Branigin, “'Crony Capitalism' Blamed for Economic Crisis,” The Washington Post (WP Company, August 16, 1984),
https://www.washingtonpost.com/archive/politics/1984/08/16/crony-capitalism-blamed-for-economic-crisis/d99e8760-
087d-4d25-ad66-3d324150dc4d/.

3
Philippine sugar industry and chaired PNB, Antonio Floirendo and his banana empire that enlisted
prisoners as laborers who suffered from abusive labor practices, Danding Cojuangco who dominated
the country’s coconut industry and owner of San Miguel Corporation and Juan Ponce Enrile both greatly
benefited from their corrupt scheme resulting to coco levy21 expansion, Ramon Cojuangco monopolized
the telecom industry by handling the Philippine Long Distance Telephone (PLDT) company , Benjamin
Romualdez who was the brother of Imelda Marcos led MERALCO after the Lopezes gave up its ownership
to Marcos during martial law years, and Rodolfo Cuenca who established the Construction &
Development Corporation of the Philippines (CDCP) which was the leading public highway builder under
Marcos rule22. These individuals, among numerous other Marcos loyalists, were granted the absolute
immunity to the rule of law, received huge amounts of economic privileges with almost infinite credit
capacity and amassed great wealth in taking advantage of the country’s state of unfair competition.
Immediately following the EDSA Power People Revolt, the prevalence of crony capitalism may
have fallen as the campaign against crony-capitalist conglomerates increased under Corazon Aquino’s
presidential term. Contrasting to the previous statement, however, crony capitalism seemed to have
never been completely eradicated, rather it continued its manifestations in the shadows of the new
ruling class. In the cases of Philippine Air Lines (PAL), an airline company acquired by Benigno Toda Jr.
through an exchange of political favor from an earlier Philippine president, was undertaken by Marcos
during Martial Law stemming to both personal (read more on Imelda Marcos’ $3 million unpaid bill for
flight services) and politico-economic interests despite reported past close relations 23, and Lopezes’
MERALCO and media empire who were both victims of the crony-capitalist schemes of the Marcoses24,
for example, were the ones who thrived under Aquino administration. Today, underlying displays of
crony capitalism is still persistent and evident impacting the country’s political economy as it gains once
again an increasing momentum. Most papers would argue that this was a restoration towards a
democratic capitalist system in the country after the kleptocracy of the Marcoses which put our country
in great debts, however, the Lopezes, Toda, and other victims of Marcos’ crony-capitalist scheme backing
the Aquino administration towards the revival of the Philippine economy in exchange of their positions
in their companies being restored and having reformed economic policies that would continue to protect
their economic interests25, weren’t those still manifestations of crony capitalism in the country and
simply an act to transfer power from one group of individuals to another? According to the latest Crony
Capitalism Index (CCI) of The Economist in 2016, Philippines rises to the 3rd place from its earlier 5th
ranking in the 2014 CCI26, which only reinforces the swelling up of the widening economic inequality gap
due to inconspicuous works behind crony-capitalists. In the ever growing crony capitalism in the country,

21
Tax which essentially charge Filipino coconut farmers with $0.08 per 100 kilos of copra.
22
“It Takes a Village to Loot a Nation: Cronyism and Corruption,” Martial Law Museum (Mag-aral Digital Library), accessed
June 24, 2020, https://martiallawmuseum.ph/magaral/the-philippines-during-the-martial-law/.
23
Jay Mathews and Bernard Wideman, “Marcos Seizes Airline That Billed Wife,” The Washington Post (WP Company, April
23, 1978), https://www.washingtonpost.com/archive/politics/1978/04/23/marcos-seizes-airline-that-billed-wife/b7ff03de-
69cb-40fb-b53c-cb754cfa89ad/.
24
The Manila Times, “Crony Capitalism Thrives under Pnoy,” manilatimes.net, March 21, 2014,
https://www.manilatimes.net/2014/03/22/opinion/editorial/crony-capitalism-thrives-under-pnoy/84364/.
25
John Burgess, “Victims of 'Crony Capitalism' Back Aquino,” The Washington Post (WP Company, February 5, 1986),
https://www.washingtonpost.com/archive/politics/1986/02/05/victims-of-crony-capitalism-back-aquino/6611e4ed-2238-
4669-b1a7-413a5c684264/.
26
Prinz Magtulis, “Philippines Worsens to 3rd Place in Crony Capitalism,” philstar.com (The Philippine Star, May 17, 2016),
https://www.philstar.com/business/2016/05/14/1583167/philippines-worsens-3rd-place-crony-capitalism.

4
various key politicians showed a display of acts behind crony-capitalists such as Estrada’s alleged
“midnight cabinet” of cronies in stark contrast of one of his political agendas—his war on the 3Cs which
plagues the third world countries (crime, cronyism, and corruption)27, Gloria Macapagal Arroyo
practicing traditional clientelism paved the way for a more systematic approach of plunder on
government resources 28, and Rodrigo Duterte’s crony-capitalist approach of replacing the current ruling
crony-capitalists with his own choice of oligarchs. This is just as the case with Dennis Uy29, one of
Duterte’s top contributors during his presidential campaign in 2016 and an old friend from Davao del
Norte, when a joint venture between Dito Telecommunity (one of Uy’s company) and China Telecom
(Chinese government backed telecommunications company) passed for a third license placing quite an
impact on the concentrated powers of Philippine Telecommunication by Globe Telecom of the Zobel de
Ayala family and Smart Communications of Manuel V. Pangilinan30.
Crony capitalism—as one of the many indicators of corruption—throughout the history of the
Philippines has been persistent in the Filipino experience between the early colonial rule and the period
of democratic governance we know of today. It can be concluded from this essay that despite the
‘developing’ state of the country, cronyism hinders a genuine economic growth in the Philippines as it
plays in the shadows of a discreet creeping state capitalist system. Greedy business conglomerates and
political elites are essentially the root cause of this crony capitalistic system, and the only alternative to
this may be through a complete reformation of the entire political economy in the country focusing to
achieve a wider spread of distribution in the country’s wealth and power. As manifested historically,
crony capitalism as one of the driving forces of the stagnant, if not worsening, state of economic
development in the country, enhancing our political development should also come into place. Electing
the most transparent political candidates into key positions in the government and urging them to
reform existing political economic policies which favors the Philippine elites, and allow the passing of
new political economic policies which would either completely widen, if not totally closed off, the
separation between politicians and business executives, may be one of the most apparent alternatives
to the pervasion of crony capitalism in the Philippines.

27
Ricardo Saludo and Antonio Lopez, “Reinventing Estrada He Works Longer Hours, Aims to Focus on Priorities, and Pledges
Never to Play Favorites. Is It for Real or Just for PR?,” Asiaweek.com, February 18, 2000,
http://edition.cnn.com/ASIANOW/asiaweek/magazine/2000/0218/nat.phil.main.html.
28
Nathan Gilbert Quimpo, “The Philippines: Predatory Regime, Growing Authoritarian Features,” The Pacific Review 22, no.
3 (June 2009): pp. 335-353, https://doi.org/10.1080/09512740903068388.
29
Dennis Uy was already part of the Conglomerate club which consisted of the Philippine’s wealthiest elites and their vast
holdings benefitting from close government ties stretching historically for decades, but he amassed greater wealth through
his business acquisition spree since Duterte’s rule.
30
Aurora Almendral, “Crony Capital: How Duterte Embraced the Oligarchs,” Nikkei Asian Review, December 4, 2019,
https://asia.nikkei.com/Spotlight/The-Big-Story/Crony-capital-How-Duterte-embraced-the-oligarchs.