Philippines

Before the Spanish came the inhabitants of the Philippines, who had once lived in hundreds of isolated and self-sufficient settlements, were developing linkages both with each other and with the rest of Asia. By the sixteenth century Chinese merchants had been regularly trading with the islands for several hundred years, and Filipinos were also sailing overseas as far as Melaka (Malaysia). The Philippines exported forest and sea products and imported such manufactures as porcelain and textiles.

The Spanish conquest truncated and distorted this Asian outreach. From 1593 onward, for reasons of grand imperial policy, Spain artificially restricted Philippine trade, limiting it by law to the two huge galleons a year that crossed the Pacific from Acapulco carrying "monks and silver" and the junks that arrived in Manila with silks and other luxury goods from south China (Fujian and Guangdong) for transshipment to Mexico. This entrepôt trade continued until the early nineteenth century. Although in global terms it played an important role in linking Asia and the Americas—the worlds of dear and cheap silver—it had little direct impact on most Filipinos, whose products were not valuable enough to compete for scarce cargo space on the galleons. Only their labor—cutting wood, building and manning the galleons—was in demand. Outside of Manila, the Spanish Philippines consumed virtually no imports and produced no exports. The colonial state depended heavily on profits from the galleon trade, directly and through an official payment from Mexico, which was largely derived from customs collected at Acapulco; without this payment the otherwise unprofitable colony would have been abandoned. Some historians interpret the payment as a simple return to Manila of revenues deriving from Philippine trade, but the Spanish themselves saw it as a subsidy from the viceroyalty of Mexico to the Phillipines.

THE RISE OF A COLONIAL EXPORT ECONOMY

In the late eighteenth century the "Bourbon Reforms" began the transformation of the Philippines into an export economy. The original government initiatives—establishment of a tobacco monopoly, direct trade with Spain (through the Royal Philippine Company), encouragement of "development," and the official opening of Manila to Asian traders—did not achieve much, however. The monopoly was primarily an internal revenue measure, the Philippines produced little that Spain could not obtain cheaper from the Caribbean, and "development" was often directed into such abortive ventures as iron mining and silkworm production. Only sugar and indigo made inroads into the small export trade of Manila, which still featured the sale, mostly to China, of traditional products such as rare woods, edible birds' nests, and sea slugs.

Around 1820, however, the post-Napoleonic industrializing West encountered in the Philippines a colony ripe for exploitation. Taking advantage of loosening restrictions on foreigners, British and American merchant houses brought to the islands a growing global demand for sugar and abaca (Manila hemp), which dominated an export trade that grew from under 2 million pesos in the 1820s to over 36 million by the mid-1890s. The tobacco monopoly, too, began shipping its surplus to Spain.

Most of these commodities were carried by Western ships and sold to Western markets through Western traders. Abaca was made into rigging for clipper ships and binder twine for mechanical grain harvesters; sugar, tobacco, and coffee went to indulge European cravings; indigo gave the Union soldiers in the U.S. Civil War their blue uniforms. The Philippines imported (particularly from Britain) machine-woven textiles and other manufactured goods, including matches, nails, corrugated iron, kerosene lamps, and machinery such as steamships and sugar mills. Whether or not they were aware of it, most Filipinos had been drawn into the economic orbit of the industrial West. By the middle decades of the nineteenth century U.S. economic cycles were reflected in the abaca-growing Bikol provinces of southeast Luzon in such indicators as wages, land prices, cockfight revenues, and even the rate of marriage.

By the end of the century there were 50,000–100,000 Chinese in the Philippines, specializing in retail trade, but also participating in a growing international rice trade. For about two decades after 1855 rice from Pangasinan province (Luzon) had been exported to southern China, but the demand for food in other parts of the Philippines soon reversed the flow of this trade. The Philippines became a net rice importer—mostly from Vietnam—for a hundred years; the majority of the merchants involved in both ends of this trade were Chinese.

The U.S. annexation of the Philippines after 1898 altered only the details of these trade patterns. Coconut products emerged among the leading exports as the growing world demand for lauric oils helped compensate for declining markets for abaca and cigar tobacco. Tariff measures channeled a much higher proportion of Philippine trade, both import and export, to the United States after 1909, reaching by 1931 to 1940 an average of over 75 percent. Preferential access to the protected U.S. market meant that virtually all Philippine sugar was shipped to the United States, which also remained the major market for abaca and copra (dried coconut meat) and displaced Britain as the major supplier of imports.

Thus the Philippine economy was more than ever tied to the West, in particular to the United States. Daniel Doeppers has calculated a 90 percent correlation between the gross national product of the United States and the total value of Philippine exports from 1905 to 1938 (Doeppers 1984). The Philippines also owed various "windfall" benefits to decisions made in Washington, D.C., such as the continued access of Philippine sugar to the U.S. market in the 1930s and the rebate to Manila of coconut excise taxes collected in the United States. Meanwhile, U.S. control over Philippine trade policy prevented the erection of insular tariffs to protect infant industries.

By the 1930s Japan had become a major investor and a source of imports (especially of textiles) second only to the United States. During World War II its "Greater East Asia Co-Prosperity Sphere" was an effort to alter the orientation of Asian trade. Breaking the Western connection was not hard, but shortages of shipping and wartime demands on Japan's industrial capacity greatly impeded trade between Southeast Asia and its new colonial master. Though Japan requisitioned rice to feed its troops and forced some Filipinos to grow cotton for their uniforms, the principal economic consequence of World War II was not renewed Asian trade but physical destruction and a temporary reversion to subsistence production.

ADJUSTING TO INDEPENDENCE

After "liberation" the Philippines restored prewar levels of living by recreating prewar economic strategies. It imported U.S. manufactures and exported primary products to the protected U.S. market, which in the early 1950s still accounted for 70 percent of all Philippine trade. But political independence (1946) and the gradual phasing-out of preferential U.S. tariffs also brought the fitful beginnings of what might be called a "re-Orientation" of the Philippines toward Asia. By the early 1960s Japan's share of total Philippine trade had risen to around 20 percent, whereas that of the United States had fallen to around 50 percent. A decade later Japan had climbed another 15 percent at the expense of the United States. By the 1970s Japan was in fact the major supplier of Philippine imports, and it soon became the chief exporter of Philippine timber and minerals.

At about the same time, however, the Philippines began falling behind other economies of eastern Asia. In the 1950s it had developed a successful program of import-substitution industrialization (ISI), and as late as 1960 its per capita income was higher than that of either Taiwan or South Korea. But galloping population growth, the downward drift of world commodity prices, a complete dependence on imported oil, and the inherent problems of ISI—a limited domestic market and entrenched inefficiencies—caused the Philippine economy to falter. Corruption and a reckless borrowing spree under martial law eventually created a massive debt crisis and severe economic depression. The overthrow of the Ferdinand Marcos dictatorship in 1986 failed to restore the health of the economy fully.

Although the Philippines continued to export fruit, sugar, coconut products, and a few bulk commodities such as timber and mineral ores, the global terms of trade favored light, high-tech goods such as computer chips. The Philippines, slower to respond than some of its neighbors, found itself competing internationally in labor-intensive manufacturing industries such as garments and electronic components, some made in special "export processing zones." With no profitable colonial connection and no particular advantage in either unusually cheap labor or unusually efficient infrastructure, it struggled to keep pace with its many rivals. Only the export of its labor (construction workers in the Middle East, maids in Hong Kong, nurses in North America, etc.) saved the country from total bankruptcy, as remittances from Filipinos overseas became the largest single source of foreign exchange.

SEE ALSO Board of Trade, Spanish; Bullion (Specie); Canton System; China; Empire, Japanese; Empire, Spanish; EntrepÔt System; Ethnic Groups, Cantonese; Ethnic Groups, Fujianese; Gold and Silver; Guangzhou; International Monetary Fund (IMF); Imperialism; Import Substitution; Indonesia; Japan;Laborers, Coerced;Laborers, Contract;Loney, Nicholas;Magellan, Ferdinand;Mercantilism;Mexico;Peru;Phillip II;Rice;Silk;South China Sea;Sugar, Molasses, and Rum;Textiles;Tobacco;Women Traders of Southeast Asia;Zheng Family.

BIBLIOGRAPHY

Corpuz, O. D. An Economic History of the Philippines. Quezon City: University of the Philippines Press, 1997.

Doeppers, Daniel F. Manila, 1900–1941: Social Change in a Late Colonial Metropolis. New Haven, CT: Yale University Press, 1984.

Flynn, Dennis O., Giráldez, Arturo, and Sobredo, James, eds. European Entry into the Pacific: Spain and the Acapulco-Manila Galleons. Aldershot, U.K.: Ashgate Publishing, 2001.

Golay, Frank H. The Philippines: Public Policy and National Economic Development Ithaca, NY: Cornell University Press, 1961.

Hawes, Gary. The Philippine State and the Marcos Regime: The Politics of Export. Ithaca, NY: Cornell University Press, 1987.

Legarda, Benito J., Jr. After the Galleons: Foreign Trade, Economic Change, and Entrepreneurship in the Nineteenth-Century Philippines. Quezon City: Ateneo de Manila University Press, 1999.

Owen, Norman G. Prosperity without Progress: Manila Hemp and Material Life in the Colonial Philippines. Berkeley: University of California Press, 1984.

Schurz, William Lytle. The Manila Galleon. New York: E. P. Dutton, 1939.

Scott, William Henry. Barangay: Sixteenth-Century Philippine Culture and Society. Quezon City: Ateneo de Manila University Press, 1994.

Wickberg, Edgar. The Chinese in Philippine Life: 1850–1898. New Haven, CT: Yale University Press, 1965.

Norman G. Owen