What are economic systems?

An economic system is a series of processes and methods by which societies, through a combination of market forces, leadership and governance, organize and distribute available resources, services, and goods across a geographic territory (Economic Systems, n.d.). Ideally, improving the efficiency of economic systems results in better distribution of goods and services across the different social sectors.

Many authors agree that there are four primary types of economic systems.

Traditional economic systems focus on provisions of necessities like food, clothing, and basic tools; barter is the primary means of trade (Amadeo, 2021).

Market economies developed from this system, where the forces of supply and demand are the primary factors of the production of goods and services (Amadeo, 2021). The market economy is considered as one of the cornerstones of capitalist societies.

On the other hand, the concept of command economies has been introduced in a bid for absolute government control of the economy. Because of its nature, command economies are also known as planned economies (Capitalism, 2020).

Lastly, mixed economies maintain elements of both the free market and government regulation (Amadeo, 2021). Many countries in the contemporary world have mixed economies, though in varying levels.

More than just understanding the economic concepts of supply and demand, conceptualizing and implementing economic systems necessarily requires scholars to look at the general context in which these systems are situated. This includes looking at the history, psychology and politics of a given national context.

How have economic systems in the Philippines developed over time?

The Philippines has a rich history of varied economic systems. From a primarily barter system during the pre-colonial era which functioned as a traditional economy, (BSP, 2020) it has developed into a more modern mixed economy, with elements of both market economy and command economy (CFI, 2021).

Government regulations, including economic incentives and taxes, are part and parcel of the prevailing economic system.

Taxes in the country have come a long way, from the cabezas de barangay implementing district taxes under the edict of the Spanish Crown (Plehn, 1901), to the current system imposed by the Bureau of Internal Revenue implementing Republic Act No. 10963, otherwise known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law (BIR, nd.).

The same is true for economic incentives. Incentives for particular agricultural domains like coconut and sugarcane motivates entry into the production and trade of these particular products, thereby creating entire communities and even systems of governance around these industries. More recently, in a bid to be more competitive in the modern world, the Philippine government has issued tax credits and other kinds of incentives for particular lines of business in order to boost these industries. A prime example is business process outsourcing highly related to tech and innovation (InCorp, n.d.).

How do national and international trade interact with Philippine economic systems?

It is unquestionable that cross-boundary trade is linked with the concept of the market as a social organization. Different phases of trade in Philippine history include:

Inter-Barangay Trade (Ongsotto & Ongsotto, 2002)
Pre-Colonial Sea Trade (Orillaneda, 2016)
The Opening of the Trade Routes to Europe (Keller, 2015)
PH Trade under the Spanish Regime (Abueg, 2017)
US-PH Trade Relations (USTR, n.d.)
Free Movement of People, Goods and Services under the Association of Southeast Asian Nations (ASEAN) (DTI, 2022).

The reason for cross-boundary trade is that economic systems do not exist in a vacuum. This means that they interact with other economic systems at multiple points.

In fact, regulations within a society are influenced by external trading factors, including respective levels of demand and supply, along with available resources and technology, among many others. At this level, incentives and taxes are also complemented by other types of government regulations, including import-export quotas, duties and tariffs. All of these affect both national and international economic systems.

Why do we need to understand the evolution of economic systems in the Philippines?

All of the factors discussed above which define government entry into economic systems, shape the forces of supply and demand. These factors range from taxes to trade to economic incentives, and how they change through time. This in turn defines habits, which in the long run translate to tradition and culture (Newell, 2017). Culture, for its part, affects society and governance; both directly and indirectly, it influences the general political and legal landscape of nations. Understanding all of these factors, and how they interplay, can give us insights on how to better improve general economic efficiency.

How do economic systems connect to Filipino culture and society?

Economic systems affect Filipino culture and society to a great extent.

Neoclassical microeconomics portray humans as Homo economicus, highly rational individuals who make decisions based on logic and self-interest (Chen, 2021). However, extensive research in psychology and behavioral sciences have shown that this is not necessarily the case: in many instances, our economic behavior is as much, or even more so, influenced by unconscious cognitive processes than conscious ones (Samson, n.d.).

Because of this, cultural factors, whether unconscious or conscious, influence economic decision-making, from the micro to the macro (Granato et al, 1996; Gifford, 2020; Maridal, 2013; Kearney & Haskins, 2020). At the same time, this is not a one-way street. In the same vein, economic systems also influence shifts in culture (HEC Paris, 2021).

Here is an excellent historical example of this: the lowering of tariffs for American products as part of US-PH bilateral trade agreements has resulted in the flooding of the Philippine market with US goods. Because the goods were cheaper and thus more accessible, Western cultural influences have crept into the Philippine social sphere with much more ease.

Another example is that higher taxes can lessen the demand for particular goods and services. The Philippine Sin Tax Law, for example, seeks to make alcohol and cigarettes more expensive and therefore more inaccessible (DOH, n.d.). This aims to lessen habitual smoking and drinking, which in turn could shape cultural behavior in the long run.

People’s living standards, as an effect of a well-functioning economy, gives rise to higher education attainment and more openness to common values such as universal human rights. On the flip side, many countries with high poverty rates are also highly susceptible to human rights abuses (Our World in Data, 2017). In part due to its unequal distribution of economic and educational opportunities, the concept and value of human rights are highly misunderstood in the Philippines. (Gavilan, 2019; Feldstein, 2021).

These are just some of the many potential examples of how economic systems and government regulations can shape culture and related values.

How have these phenomena changed throughout history?

How economic systems have been structured isn’t just reflected on a nation’s cultural development and collective psychology. As mentioned above, it can be the catalyst of political and legal changes in a nation, resulting in social change, and sometimes even revolutions.

An excellent example comes from the Philippine revolution against Spanish rule. The increasing taxes imposed on the people by the Spanish government, both monetary and through forced labor, fomented discontent among the populace, which helped sparked the 1896 Revolution (Fradera, 2004).

The same is true for the uprising against the Marcos dictatorship. Poor economic performance of the country and crippling national debt, among other abuses led by the declining authoritarian leadership, led to People Power I and the deposing of the strongman (The Fall of the Dictatorship, n.d.).

The 1997 global financial crisis is said to also be a factor in the rise of neo-populism in the Philippines, which led to the former actor Joseph Estrada to assume the presidency in 1998, only to later lose his seat in 2001.
In a relatively recent period, Benigno Aquino III’s focus on economic development, while seemingly callous to the concerns of the common folk, has led to the rise of a leader like Rodrigo Duterte (Thompson, 2021: De Castro, 2007). Due to the influence of the emerging populist leader, the lack of solutions to corruption, mishandling of disaster relief, uncontrolled damage to police operations, and the unaddressed structural disputes from the past administration came into light (Thompson, 2021). With the previous administration accentuated as elites protecting their reformist agenda (alluding to land reform and oligarchic control) that are unable to combat crime efficiently, Rodrigo Duterte’s strongman persona became appealing to the common folk (Thompson, 2021) due to his promises to swiftly eradicate the country’s drug crisis.

How did these economic developments affect the political period of the time?

There are many reasons for the change in markets and society, which a combination of economics, psychology, history and political science can attempt to answer.

Poverty-driven communities are more prone to insufficient critical education, and are likely to be swayed by propaganda (Flore et al, 2019). This in turn entrenches corrupt political powers which retain the oppressive system to keep more people in maleducation and relative poverty.

At the same time, this enables the rise of patronage politics, a system wherein electoral support translates to rewards and benefits at the expense of the state (Kenny, 2015). Whom voters perceive to be the source of tangible benefits are the ones who they will support, at the expense of intangible benefits which will otherwise accumulate more value in the long term. This system incentivizes cunning politicians to focus on token distributions to the population to ensure that they are continuously being voted into power at the expense of general economic and social development.

Unfortunately, this is a vicious cycle, and for the Philippines to break free, both economic and social reforms must be implemented not only to educate the people, but also grant them economic freedom to make wise decisions regarding their political support.

What are current critical social issues related to the development of Philippine economic systems?

One of the most enduring questions in economic development is inclusivity. In fact, during the Aquino III term, from 2010 to 2016, the gross domestic product (GDP) grew (Rivas, 2021). The same is true for the Duterte administration, which boasted of a 7.1% GDP growth as of Q3 2021 (Morales & Lema, 2021). However, if it were true that the country was getting richer, why are people still discontented?

One of the root causes of dissatisfaction is income inequality and non-inclusive development (Sabillo, 2015). As the adage goes, the rich are getting richer, while the poor are getting poorer. The COVID-19 pandemic is a testament to this. The World Bank reported that as of Q3 2021, the Philippines is the institution’s top borrower to address the pandemic (PDI, 2021). However, in a Nikkei survey, the country ranks dead last, out of 121 countries, when it comes to the efficiency of its pandemic response (Sarao, 2021). Again, corruption is touted to be a primary factor, causing tremendous misallocation of resources (Al Jazeera, 2021; Magsambol, 2021).

As a illustration, low-income families, many of whom have lost their livelihoods, have to be contented with government dole-outs during the pandemic, facing the prospect of hunger on a daily basis; on the flip side, Filipino billionaires saw their wealth surge by 30% during the time period (PHL tycoons’ wealth surges by 30% amid pandemic, 2021).

Poverty is not only an economic issue: it is a national and international security issue as well. Terrorist and extremist ideologies are more likely to develop in poverty-stricken communities, after all (USAID, n.d.).

How do we solve poverty and inequality then? It is not a question of sufficiency of resources: the Philippines, after all, remains rich in both natural resources and human capital. The only question is how efficient the allocation is for every individual. This efficiency is counteracted upon by corruption in favor of the political and economic elite.

From all of these points, what can we then identify as the primary solutions in order to address these critical questions?

First, from the lens of political history: while politics is hard to predict, economic modeling can help us understand resulting potential political scenarios and prepare for them beforehand. In other words, understanding historical events in the Philippines and their economic root causes can help us prevent similar crises from happening again.

Second, from the lens of social psychology and behavioral economics: a culture of honesty and transparency in governance. Implementing this can address corruption, which in turn increases economic efficiency.
Lastly, from the amalgam of all four disciplines: a focus on inclusive development, which necessitates looking at the economy not only as a money-making machine but also and more importantly, as a social organization which should aim to cater to the needs and aspirations of its every member.