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Map showing colonies in the 18th century from [1].

Map showing colonies in the 18th century from [1].

It is generally believed that widespread corruption, inadequate protection of property rights and lack of effective constraints on the elite in the Philippines started in the Spanish colonial regime.  These are characteristics of institutions whose nature is extractive. 

“Extractive economic institutions do not create the incentives needed for people to save, invest, and innovate. Extractive political institutions support these economic institutions by cementing the power of those who benefit from the extraction [2].”

Acemoglu et al in their seminal paper, posit that the nature of institution that the European colonizers have built depends on the mortality rates (of the colonizers) [3].  They said, “In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present.” (There are however, contrary beliefs. See for example [4].)

In his recent paper, P.C. Cruz from the UP´s School of Economics says this is the same reason why the Spanish colonizers established such extractive institutions in the Philippines [5].  This is to “minimize the uncertainty brought by high mortality (of the colonizers in the Philippines) and the relatively low wealth generated in the country.”  

Cruz noted that during the Spanish period, the mortality rate on European settlers was 30 deaths in 1000. This was based on the estimate of Sinibaldo de Mas, a Spanish diplomat in the 19th century. Because of the high mortality rate, the colonizers…

“…demanded extractive institution that would allow them to accumulate as much physical wealth possible in the shortest possible time to transfer back home.  The few that settled in Filipinas, mostly clergy, ensured that they lived better conditions than in Mexico or Spain. This was achieved through the creation of institutions that favour the extraction of resources from the people and the state [5].”

It also didn’t help that there were less than 1 percent colonizers in the country and the few can negotiate easily among themselves for their own benefit.

These extractive natured institutions were established during the encomienda system. The extraction became more intense when the encomienda was deemed unprofitable. By the time the Spaniards left, these institutions were very much ingrained in the system and hence, these institutions persisted.

One of the consequences of extractive-natured institutions is insecure land rights. It is no wonder that we are still having problems with agrarian reform until now.

Reference:

[1] http://www.public.iastate.edu/~cfford/342WorldHistoryModern.html

[2]  Acemoglu, D., & Robinson, J., “Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” Crown Business, 2012 as quoted in Odugbemi, S, “‘Why Nations Fail’: The Constitutionalists Were Right All Along,”  blogs.worldbank.org.

[3] Acemoglu, D., Johnson, S., & Robinson, J. (2001). The Colonial Origins of Comparative Development: An Empirical Investigation American Economic Review, 91 (5), 1369-1401 DOI: 10.1257/aer.91.5.1369

[4] Albouy, D. (2012). The Colonial Origins of Comparative Development: An Empirical Investigation: Comment American Economic Review, 102 (6), 3059-3076 DOI: 10.1257/aer.102.6.3059

[5] Cruz, P. (2014). The Spanish Origins of Extractive Institutions in the Philippines Australian Economic History Review, 54 (1), 62-82 DOI: 10.1111/aehr.12035

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