A comparative analysis of the differential economic performance between the philippines and thailand

A COMPARATIVE AALYSIS OF THE DIFFERETIAL
ECOOMIC PERFORMACE BETWEE THE
PHILIPPIES AD THAILAD




FERDIAD P. UKO




ATIOAL UIVERSITY OF SIGAPORE



2006

A COMPARATIVE AALYSIS OF THE DIFFERETIAL ECOOMIC FERDIAD P. UKO 2006
PERFORMACE BETWEE THE PHILIPPIES AD THAILAD

A COMPARATIVE AALYSIS OF THE DIFFERETIAL
ECOOMIC PERFORMACE BETWEE THE
PHILIPPIES AD THAILAD



FERDIAD P. UKO
(Ph.D.), US



A THESIS SUBMITTED FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY

SOUTHEAST ASIA STUDIES PROGRAMME

ATIOAL UIVERSITY OF SIGAPORE

ii

Acknowledgements

This research project would not have been possible without the help of
individuals and institutions. My quest for a postgraduate degree leading to this research
project practically commenced with a Research Scholarship generously awarded by the

National University of Singapore (NUS). In addition, the financial assistance that I
received for fieldwork was helpful in easing the financial burden of conducting a field
study.

I am grateful to my supervisor, Dr. Teofilo Daquila, and the rest of my thesis
committee members, Dr. Michael Montesano and Dr. Jose Tongzon, for their guidance
and direction. I specifically express my sincerest gratitude to Dr. Daquila for his
patience in reviewing my drafts as well as for all the useful comments and suggestions.
In addition, his encouragement and gentle reminder kept me on track and focus in
writing this research project.

The opportunity of pursuing a postgraduate program has been likewise made
possible by my acceptance to the Southeast Asian Studies Program (SEASP) by
Professor Chua Beng Huat who also assisted me re-gain my Research Scholarship
which I briefly lost when I transferred to SEASP. Meanwhile, Dr. Reynaldo Ileto’s
support in extending my scholarship after it expired is also highly appreciated. This
allowed me to continue writing my thesis in Singapore.

I also acknowledge the assistance extended to me by the Philippine Institute for
Development Studies (PIDS) based in Makati, Philippines headed then by Dr. Mario

iii

Lamberte and the Institute of Asian Studies (IAS) at Chulalongkorn University in
Bangkok, Thailand headed by Dr. Supang Chantavanich. Both institutes allowed me to
attach with them and to have access to their vast resources. Special thanks to Dr.
Erlinda Medalla who was assigned as my adviser while with the PIDS as well as to Dr.
Gilberto Llanto, Dr. Melanie Milo, Dr. Aniceto Orbeta, and all those present during my
final presentation at PIDS for their useful comments and suggestions. This resulted to
my research focus being narrowed to sugar interests.

My research work would not have been more convenient if not for the efficient
administrative support by SEASP staff. My sincerest appreciation to Lucy Tan for
making some of my administrative concerns such as the processing of the extension of
my Research Scholarship, filling of request for financial assistance to attend an
international conference, and reimbursement of my fieldwork expenses, less
complicated.

Finally, this effort would not be as meaningful and sweet as it is without the full
support and encouragement of my family. My life partner, best friend, and loving wife
Gina who is always behind my decision to pursue a postgraduate degree which entails
years of family sacrifice, who believes in me when I sometimes doubted my own
capability, and who acted as my proofreader, editor, and fiercest critic; my little
princess and angel Niyah Taharah who is my other source of inspiration and joy (aside
from my wife); and, my dad, mum, brothers and sisters who will always be my most
loyal supporters.

To everyone, thank you very much.

iv


Table of Contents



Acknowledgements ii
Table of Contents iv
Summary ix
List of Tables xi

List of Figures xii

CHAPTER OE
Introduction

A Tale of Non-Identical Twins 4
Explanations to the Puzzle 8
Rethinking Differential Performance in the Context of Rent-Seeking 10

Research Objectives and Hypothesis 12
Methodology 13
Data 14
Theoretical Framework 15
Structure of Study 23
Conclusion 24


v

CHAPTER TWO
A Review of Literature: Perspectives on the Philippine and Thai
Economic Performance and the Link between Interest Groups,
Rent-Seeking and Economic Growth

Economic Performance in Perspective 28
Clientelism 28
The Philippines 30
Elite Democracy 30
Crony Capitalism 31
Patrimonial Oligarchy 33

Thailand 35
Bureaucratic Polity 35
Semi-Democratic Polity (Liberal Corporatism) 39
Insights 41
Interest Groups in the Policy Process 43
Models of Policymaking 43
Definition of Interest Groups 48
Classification of Interest Groups 50
Interest Groups in Historical Perspective 51
Rent, Rent-Seeking and Economic Performance 56
Economic Rent 57
Conventional Perspectives on Rent-Seeking and Social Cost 59
Rent-Seeking in Dynamic Setting 62


vi

Rent-Seeking, Economic Performance and the Conditions for
Creating or Maintaining Value-Enhancing (Reducing) Rents 68
Conclusion 73

CHAPTER THREE
Cultural and Institutional Parameters of Rent-Seeking

Culture, Institution and Rent-Seeking 79
Culture and Institutional Evolution 85
The Philippines 86
Thailand 92
Economic Culture and the Chinese Subculture 99
Political Culture and Process 102

Conclusion 110

CHAPTER FOUR
Explaining Differential Economic Performance

Growth Accounting 114
Sectoral Performance and Contribution to Growth 114
Sources of Growth 119
Capital Accumulation and International Trade 128
Trade and Relevant Policy-Induced Factor Inputs to Economic Performance 133



vii

Trade Policies under Import Substitution
Industrialization, 1950s-1970s 134
Trade Policy Reforms and the Export-Led
Industrialization, 1980s – onwards 140
Favored Sectors/Industries 147
The Policymaking Process 149
Value-Enhancing Trade and Relevant Policy-Induced Factor
Inputs in Context 157
Non-Policy Influences 163
Conclusion 165

CHAPTER FIVE
Explaining the Rent-Seeking Success of Interest Groups

Size, Concentration and Organizational Formation 169

Importance of the Sugar Industry 179
Rent-Seeking Activities to Influence Economic Policies 181
Impact of Rent-Seeking Success of Interest Groups in Trading
Partners on Sugar Policies 184
Conclusion 189






viii

CHAPTER SIX
Summary and Conclusion

Summary 191
Conclusion 196
Context-Determined Value-Enhancing Rents 196
Rent-Seeking Independent Variables 198
Rent-Seeking Success of Sugar Interest Groups 199
Further Research 200

Bibliography

ix

Summary

The economic performance of the Philippines and Thailand is a remarkable

contrast. In the 1950s, the Philippines was among the most advanced economies with the
brightest prospect in the whole of Asia for economic take-off. In contrast, Thailand was
then a backward agricultural economy with a capital, Bangkok, largely described as
ancient oriental city. Three decades later, the economic positions of both countries were
reversed. In the 1980s, Thailand posted an impressive growth while the Philippines
recorded her worse postwar economic performance with a measly one percent average
growth for the entire decade. What made this particularly remarkable aside from the
Philippines’ conspicuous deviation from the average performance of her major Southeast
Asian neighbors including Thailand was the severity of her economic contraction of over
five percent from her previous decade’s performance.

This study examines the differential economic performance between the
Philippines and Thailand using rent-seeking as analytical framework. But unlike the
conventional rent-seeking analysis which is concerned with the determination of rent-
seeking expenditures, this study focuses on the implications of rent-outcomes. It
recognizes rent-seeking as a process and its outcome as either value-enhancing or value-
reducing depending on the context in which rent-seeking takes place. It is argued that the
differential economic performance of both countries is due to Thailand’s ability to
produce more value-enhancing rents than the Philippines. This study also evaluates the
rent-seeking success of sugar millers and planters in both countries.

x

The examination reveals that under bureaucratic polity, Thai economic and trade
policies satisfy certain conditions for creating value-enhancing rents such as state
officials being value maximizers, uniformity of rent-seeking cost across groups, and
weak losers to resist the state. After the old polity, Thailand still creates value-enhancing
rents due to proportionality in the spending and political powers of rent-seekers to their
gains or losses. In contrast, the incoherence of the bureaucracy and personalistic loyalty
to the incumbent largely characterizes the Philippine state. Under this, proportionality in

the spending and political powers of rent-seekers to their gains or losses is supposed to
create value-enhancing rents. But the shorter time horizon for this to balance results in a
less stable rent-seeking environment which creates less value-enhancing rents.
Nonetheless, other variables such as the 1985 Plaza Accord and economic slowdown in
western economies which are independent of domestic rent-seeking have a significant
influence on the performance of both countries as well.

The evaluation of the rent-seeking success of sugar millers and planters also
confirms the importance of group size. They have successfully organized and advanced
their preferred policies because their smaller groups enable them to contain free-riding
problem more effectively than larger groups. Free-riding undermines organizational
formation and group action. In addition, their enormous financial resources as well as the
importance of the sugar industry to the economy spawned economic and political powers
which they used to influence the policy process. It is also noted that rent-seeking in their
trading partners have a significant influence in sugar millers’ and planters’ policy
preferences.

xi

List of Tables


Table 1.1 Annual Average GDP Growth Rates of Major Southeast
Asian Economies (% p.a.) 4
Table 1.2 Annual GDP Growth, GDP per capita (exchange rate), and
Purchasing Power Parity (PPP) GDP per capita in the
Philippines and Thailand 7
Table 2.1 Rational and Incremental Model of Policymaking 44
Table 2.2 Relevant Growth and Efficiency Implications of Different Rents 65
Table 2.3 Conditions for the Creation of Value-Enhancing Rents 70

Table 4.1 Average Annual Growth by Economic Sector (%) 115
Table 4.2 Gross Domestic Product and Structure of Production 117
Table 4.3 Contribution of Factor Inputs and Increased Efficiency to
Economic Growth of the Philippines and Thailand and Selected
Developing Countries, 1950-65 121
Table 4.4 Sources of Growth by Sector and Factor Inputs in
Thailand, 1981-1995 (%) 125
Table 4.5 Net Enrollment Ratio in Primary and Secondary
Schools, 1990-2000 (%) 127
Table 4.6 Growth of Capital Stock by Sector in Thailand, 1971-1999 (%) 129
Table 4.7 Structure of Nominal Tariff Protection, 1990-2000 (%) 142
Table 4.8 Foreign Direct Investments in the Philippines and Thailand,
1987-1991 (US$ million) 147
Table 5.1 Number of Plantation Sugar Mills in Thailand, 1952-1959 176

xii


List of Figures


Figure 1.1 Political-Economic Model of Influencing Policymaking 16
Figure 1.2 Profit-Seeking versus Rent-Seeking 23
Figure 2.1 Static Partial Equilibrium Rent-Seeking Model 59
Figure 2.2 The Competitive Market Equilibrium 63
Figure 3.1 Effects of Culture and Institutions on Individual Pursuit of
Economic Preference 81
Figure 3.2 Influence of Culture on Institutions 82
Figure 4.1 Sources of Growth by Sector and Factor Inputs in Thailand,
1961-1995 (%) 124

Figure 4.2 Capital Formation in the Philippines and Thailand, 1980-2000 129
Figure 4.3 Average Annual Growth Rates of Investment, 1970-1980
and 1980-1993 (%) 131
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CHAPTER ONE

Introduction

This study attempts to explain the differential economic performance of the
Philippines and Thailand using rent-seeking as analytical framework. But unlike
conventional rent-seeking analysis which focuses on rent-seeking expenditures, the
focus of analysis here is the rent-seeking outcomes. Hence, it recognizes rent-seeking
as a process. This study also evaluates the conditions which facilitate the rent-seeking
success of certain interest groups and examines how their success reflects differential
economic performance. Specifically, successful group rent-seeking analysis will be
done on sugar millers and planters who are undoubtedly among the most powerful
and influential groups in the Philippines and Thailand.

The Philippines is a remarkable contrast to its neighbors especially Thailand.
Its economic performance is an aberration in Southeast Asia and one of the world’s
development puzzles. While the major economies in the region posted impressive
growth in the 1980s despite the turbulent global economy
1
, the Philippines recorded
its worst postwar economic performance with only one percent average growth for the
entire decade. What makes this particularly remarkable aside from the conspicuous
deviation from the general performance of its neighbors is the severity of its economic
contraction. The country’s growth plunged by over five percent from its record in the

preceding decade.
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1
Except for Malaysia which grew by 5.3%, Indonesia, Singapore and Thailand grew by an average of
over 6%. Although all economies, except Thailand, contracted in the 1980s as a result of the twin oil
price shocks which triggered the debt crisis, their economic performance was still impressive (see
Table 1.1: p. 4)
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
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The economic performance of the Philippines vis-à-vis its neighbors, becomes
even more paradoxical when its economic development in the early postwar period is
taken into account. During this period the country was thought to have the brightest
prospect in the whole of Asia for economic take-off. However, it soon became
apparent that such optimism was hollow as the Philippine economy slowed down
thereafter until it succumbed to a vicious boom-bust development cycle characterized
by occasional growth spurt followed by a long economic stagnation. The fervor of
economic “nationalism,” which galvanized the country’s protectionist tendency,
sealed its economic fate. In addition, the global economic and domestic political
uncertainties in the early 1980s created an environment conducive for bad economic
policies to be adopted and institutionalized. As a result, it weakened further the state
officials’ capacity to institute reforms necessary to bring back the economy to
sustainable growth path.

In contrast, its neighbors have been consistently performing well. In fact, it is
so well that they attained the status of newly industrializing countries (NICs)
2
in
relatively brief period compared to the time it took the advanced western countries to
shift from backward agricultural to modern industrial economies. Their rapid

sustained growth for over a decade in the 1980s-1990s is remembered as the “miracle
decade.” As a group, they have about similar pace and level of growth which the
Philippines diverged from markedly particularly since the 1980s. If performance is
measured in per capita terms, the divergence is even wider as the Philippines has
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significantly higher population growth rate.
3
Runaway population exerts heavy
pressure on the economy and if not check it becomes an impediment to growth.
However, as a predominantly Catholic society and for fear of the Catholic Church
which strongly resist artificial population control methods, Philippine policymakers
find their options constrained to address this problem. With no coherent policy in
place, rapid population growth continues to undermine the country’s prospect for
sustainable recovery and long-term economic growth.

The performance of Thailand stands out in comparison with its fast growing
Southeast Asian neighbors. It has the second highest and the highest average growth
of Gross Domestic Product (GDP) in 1960-1970 and 1980-1990, respectively. Its
growth of slightly above seven percent in 1970-1980 is comparable to those of
Malaysia and Indonesia (see Table 1.1). What makes its performance even more
remarkable is that the initial condition on which the rapid growth is founded does not
really indicate that indeed rapid and sustained economic growth is expected in some

future time. Unlike its neighbors, Thailand avoided western colonization so that when
colonial era ended it did not have a foreign trade partner (with whom it had strong
historical ties such as a former colonial master) to kick start its economy. For example,
Malaysia and Singapore had the British, Indonesia had the Dutch, and the Philippines
had the Americans. It was the strong economic and political ties with the US that the
Philippines was thought to have the head start to take-off in the 1950s.

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3
In 1980-1990, Philippine population grew by an average of 2.4%, Thailand by 1.8%, and ASEAN by
2.1%. In 1990-1995, Philippine population grew by an average of 2.3%, Thailand by 1.2%, and
ASEAN by 1.8%. In 1995-2000, Philippine population grew by an average of 2.2%, Thailand by 1%,
and ASEAN by 1.6%. As of 2004, the Philippines has an estimated population of 82.7 million,
Thailand has 64.5 million, and ASEAN has 550.2 million (ASEAN Statistical Yearbook 2004).
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
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Table 1.1 Annual Average GDP Growth Rates of Major Southeast Asian Economies (% p.a.)
Country 1950-60 1960-70 1970-80 1980-90 1990-2000

Indonesia
Malaysia
Philippines
Singapore
Thailand

4.0
3.6
6.5
n.a.

5.7

3.9
6.5
5.1
8.8
8.4

7.6
7.8
6.3
8.5
7.2

6.1
5.3
1.0
6.6
7.6

4.2
7.0
3.2
7.8
4.2
Source: Balisacan and Hill (2003: 7)

A Tale of on-identical Twins

The Philippines and Thailand are often compared because of their many

similarities. In the 1950s, both have similar population size, land area, resource base,
economic structure, and movements of terms of trade, yet their economic performance
over the years sets them apart. This makes them non-identical twins. While both
countries are similar in many respects, there is no doubt that the Philippines was
economically more advanced than Thailand in the 1950s. A range of data supports
this observation. In 1952, for example, the Philippines produced 660 million kilowatt
hours of electricity compared to Thailand’s 128 million; it had 50,000 passenger cars
and 55,300 commercial vehicles while Thailand had 16,000 and 18,800, respectively;
it had 34,117 telephones installed while Thailand had 7,181; it had 500,000 total
circulation of daily newspapers which was about 18 times more than Thailand’s (this
translates into 75 copies per 1,000 of population in the Philippines against 4 copies in
Thailand); and, in 1954, it had 217,000 radio receivers which was about twice as
many as Thailand’s 108,000 (Yoshihara 1994: 1-2). Harry Oshima (1987: 220)
summed up the Philippines’ advanced position over Thailand as follows:

“The Philippines led the growth of the ASEAN countries in the 1950s, when its
physical infrastructure, literacy, life expectancy, and bureaucracy were among
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
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the most advanced. In contrast, Bangkok in 1961 still had all the earmarks of an
ancient Oriental city, full of large buildings made of wood, hardly any concrete
structures, narrow streets, and many canals running through the city.”

Another important economic indicator that points to the Philippines’ advanced
position relative to Thailand is GDP per capita. In fact, the Philippines’ better GDP
per capita in the 1950s explains why it was ahead of Thailand in the data presented
above. GDP per capita is determined by GDP and population size so that significant
changes in any of these variables are automatically reflected in it. With the
Philippines’ high population growth and weak economy, it is not surprising that the

country’s GDP per capita declined steadily over the years. In contrast, Thailand’s well
managed population growth and strong economy resulted in its better GDP per capita
position. It must be borne in mind that this indicator does not tell how national
incomes of both countries’ are distributed which is an important development issue. It
is also worth mentioning that the pace and pattern of GDP growth in the Philippines
and Thailand reflects the pace and pattern of the growth of their GDP per capita.

In the 1950s, the Philippines had a real GDP per capita—based on foreign
exchange rate conversion—of almost five times larger than Thailand. This gap would
be dramatically closed down in the subsequent decades. However, it is not correct to
conclude that by the early 1980s Thailand had already caught up with the Philippines
much more the reversal of their economic positions have been completed. The
problem with GDP per capita comparison calculated by converting national currencies
based on prevailing exchange rates with US dollar is that the price of services which
are often non-tradable in world market is not reflected in the exchange rate. It should
be pointed out that the price of services is an important component of the cost of
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
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living and it is usually cheaper in developing countries like the Philippines and
Thailand. This is because labor in these countries is abundant. As a result, national
incomes measured using exchange rate which makes industrial countries’ cost of
living as benchmark underestimates the incomes of developing countries or the
income gap between industrial and developing countries is exaggerated. In the same
way, it exaggerates the income differences between the Philippines and Thailand.

This problem is overcome by using the purchasing power parity (PPP) to
calculate national incomes. The calculation of PPP involves, first, the determination
of a basket of goods and services to attain certain living standard. Then the cost of this
basket is calculated in different countries. The PPP is derived by calculating the ratio

of a country’s currency to one US dollar by dividing the cost of the basket of goods
and services in the country by the cost in the US. Based on PPP GDP per capita,
Thailand would have caught up with the Philippines around 1988. As shown in Table
1.2, Thailand had a PPP GDP per capita of US$3,219 which was slightly higher than
the US$3,030 in the Philippines. In fact, this period marked the switch in the
economic positions of the two countries. From this period on, Thai economic growth
accelerated so that by 2000 its PPP GDP per capita was about twice as much as that of
the Philippines.

Thailand’s remarkable economic achievements starting in the late 1980s
included a double-digit annual average growth in 1988 (13.3 percent), 1989 (12.2
percent), and 1990 (11.2 percent). In contrast, although it started with a relatively
higher average annual real GDP growth rate of 6.5 percent in 1950-60, the Philippine
economy cooled off thereafter growing by only 2.3 percent in 1981-2000.
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
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Paradoxically, the world was witnessing during this period an economic miracle
unfolding in East and Southeast Asia where Thailand was a part of a group of miracle
countries. Moreover, even the Asian financial crisis did not deter Thailand to quickly
bounce back two years after. It posted a modest 4.4 percent GDP growth in 1999—
compared to 3.4 percent of mildly affected Philippine economy—recovering from its
sharpest contraction ever at -10.5 percent in the previous year. The country’s
macroeconomic conservatism which kept inflation low while the economy was
rapidly expanding was largely credited for its phenomenal economic performance.

A significant event that was taking place along with Thailand’s rapid
economic growth was the structural transformation of its economy. From a largely
agricultural economy, it shifted to industry and services since the 1960s as the share
of agriculture in GDP and national exports fell sharply (Doner and Hawes 1995). The

World Bank (1997: 237) observed a dramatic decline in agriculture’s share of value-
added in GDP from 23 percent to 11 percent between 1980 and 1995. A rise in the
industry’s share of value-added in GDP from 29 percent to 40 percent in the same
period was also noted.


Table 1.2 Annual GDP Growth, GDP per capita (exchange rate), and Purchasing Power Parity (PPP)
GDP per capita in the Philippines and Thailand
Philippines Thailand


Year
Growth
rate of
real
GDP(%)
Exchange
Rate Real
GDP per
capita
(US$)

PPP GDP per
capita (US$)
Growth
rate of
real
GDP(%)
Exchange
Rate Real

GDP per
capita
(US$)

PPP GDP per
capita (US$)

1950-1960
1960-1970
1970-1981*
1982
1983
1984
1985
1986

6.5
5.1
6.2
3.6
1.9
-7.3
-7.3
3.4

495
371
238
na
na

na
na
na



(2,320; 2,476)
2,563
2,531
2,441
2,311
2,468

5.7
8.4
7.2
5.4
5.6
5.8
4.6
5.5

103
255
246
752
808
830
761
830

(1,476; 1,631)
1,711
1,740
1,907
2,073
2,303
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
ç
Philippines Thailand

Year
Growth
rate of
real
GDP(%)
Exchange
Rate Real
GDP per
capita
(US$)

PPP GDP per
capita (US$)
Growth
rate of
real

GDP(%)
Exchange
Rate Real
GDP per
capita
(US$)

PPP GDP per
capita (US$)
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Ave. 1982-
2000
4.3
6.8
6.2
3.0
-0.6

0.3
2.1
4.4
4.8
5.8
5.2
-0.6
3.4
4.4
2.3
na
na
670
677
680
778
780
900
1,017
1,112
1,081
838
958
922

2,745
3,030
3,108
3,127
3,081

3,097
3,145
3,242
3,419
3,530
3,636
3,444
3,553
3,700
9.5
13.3
12.2
11.2
8.6
8.1
8.3
9.0
9.2
5.9
-1.4
-10.5
4.4
4.6
6.3
957
1,149
1,323
1,535
1,764
1,978

2,194
2,505
2,885
3,092
2,538
1,862
2,002
2,002

2,711
3,219
3,489
3,836
4,270
4,768
5,185
5,665
6,330
6,741
6,580
5,817
6,094
6,350
otes: 1950-1981 real GDP converted from local currency to US Dollar based on World Bank 1983
World Tables

1950-1981 data based on 1972 constant prices
1982-2000 data based on 1996 constant prices
1982-1989 real GDP growth rates are based on EIU estimates
PPP GDP per capita in parentheses correspond to years 1980 and 1981, respectively

*note of the slight difference in growth rates with Table 1.1 which is due to additional year
covered by the above table.
na – not available
Sources: 1950-1981 data from World Bank 1983 World Tables
1982-2000 data from Economist Intelligence Unit (various years)

Explanations to the Puzzle

The variation in economic performance in recent times of developing
economies in and outside of Asia and between the Philippines and Thailand in
particular has been the subject of scholarly research that attracted a range of analysts
of diverse persuasions. As a result, a body of literature enriched by multidisciplinary
perspectives has been generated (see Sicat 2002; Hewison 2001; Doner and Ramsay
2000; Hutchcroft 1998; Yoshihara 1994; Warr 1993). One notable strand of this
literature draws from political science and sociological theories with the nature of the
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state as either strong or weak/soft as its enduring theme. It is often referred to as the
statist model of economic development originally applied in East Asian context. Such
state classification is an important determinant of economic success. Strong states
such as Japan, South Korea, Singapore and Taiwan are observed to have insulated
bureaucracies that allowed technocrats to institute policies and make hard decisions
with relative freedom from pressure of powerful interest groups. On the other hand,
weak/soft states are often captured by interest groups advancing their narrow, selfish
interests at the expense of the general welfare. In the process, policies and decisions
made are inefficient and often used as instruments of resource transfer from weaker to
powerful groups rather than for productive purposes. In addition, the institutional
foundation of a weak/soft state’s property rights is generally weak and is easily
subverted by dominant groups to suit their interests.

The other prominent strand is conspicuous for its parsimony and elegance and
has its origin in neoclassical economic orthodoxy. It argues that pragmatism and
conservatism in the choice of economic policies have brought forth the economic
prosperity enjoyed by rapidly growing economies in the East and Southeast Asia
(Muscat 1994; World Bank 1993). Free market has been the magic mantra of this
literature and points to the limited state intervention in markets and sound
macroeconomic management together with right investment decisions in
infrastructure, public health and education as important factors that brought about
rapid economic growth to market-friendly economies of Asia. Conversely, proponents
are quick to blame incessant state interference in markets as the culprit of poor
economic performance. Such interference resulted in the distortion of factor and
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product prices, which in turn sends mixed (if not outright wrong) signals to economic
agents leading to misallocation of scarce resources and increasing inefficiency.

Rethinking Differential Performance in the Context of Rent-Seeking

Despite the differences in explaining economic growth, proponents of the two
strands of literature discussed above agree on the negative impact of corruption,
bribery, and other forms of rent-seeking activities. A variety of empirical studies have
been carried out showing how rent-seeking impedes economic growth by
undermining socially optimal economic decisions or stifling the efficient functioning
of markets. For example, proponents of statist model has been explicitly denouncing
rent-seeking (corruption and bribery being two prominent activities) as the cause of
poor economic performance of developing countries. Similarly, neoclassical
economists have been consistent in their position that rent-seeking squanders scarce
resources that do not produce anything of value.

The sweeping criticism of rent-seeking, however, raises some serious
questions especially in the light of the Philippines’ and Thailand’s experience. Both
countries definitely do not fit the strong state model with corruption, patron-client ties,
bribery, and almost all forms of rent-seeking imaginable are pervasive. Nonetheless,
Thailand has grown faster than other developing economies in the world except Brazil,
Malaysia, Taiwan and South Korea (Rock 2000). This achievement would not also
support the prediction of soft state model as applied to Thailand. In the case of the
Philippines, it is no doubt the epitome of a soft state. However, if the pervasiveness of
rent-seeking is taken into account to be as similar as in Thai society, it is surprising
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why only the latter performed better. As regards neo-classical model, it suffers from
similar problem. It is clear that neither country could be the embodiment of free
market economy. In fact, the pervasiveness of rent-seeking reflects the interventionist
character of the state and, hence, the protectionist nature of the economy.

Thailand’s rapid growth and better economic performance than the Philippines
poses a challenge to re-think and re-examine the link between rent-seeking and
economic performance. This study responds to this challenge through a comparative
analysis of the political economy of trade policy formation in both countries. This
study recognizes that while policy is important, it does not determine economic
performance alone. Economic growth ultimately depends on the input and efficient
use of productive resources (Maddison 1970: 35). The input and their use are in turn
affected by market forces and government policy. Although both are distinctly
different, market and state policy influence each other. If market is defined by
geographical location then the Philippines and Thailand are situated within the same
market by virtue of their proximity. This means that, more or less, both countries are
facing similar market conditions so that their respective response (i.e., policies chosen
and their implementation) to them spelled the difference in their economic
performance. Studies have shown that the rapid growth of Southeast and East Asian

miracle economies has been largely due to capital accumulation encouraged by less
restrictive economic and trade policies (Lim 1996; WB 1993). It is in this area that the
Philippines and Thailand are often differentiated where the latter is seen to have
relatively more liberal, open economic policies than the former.