Philippine Independence from the Economic Standpoint

The question of Philippine Independence has been discussed pro and con for the past twenty years viewed from a sentimental standpoint without much consideration given to the economic facts underlying the situation. In place of economic reasoning a few general statements have been made that the Filipino people will have to face economic hardships to obtain independence. These statements have been met by fervent replies from Filipinos that they are willing to undergo economic hardships to obtain the blessings of complete independence from the United States. What these hardships amount to or what far-reaching effects independence will have on their economic status and the structure of their present government has been little understood. Even so well informed a person as Miguel Unson, former Secretary of Finance for the Philippine government, spoke before an independence meeting in Manila in 1929 and estimated that independence would mean an approximate reduction of only $4,500,000, or about 16 per cent in the government revenues.

Just what is the situation and what will independence mean from the economic standpoint? What is the financial ability of the Philippines to support and carry on a government of the type that the Americans and Filipinos have developed working together at Manila in the past thirty years? These are the questions that need discussion in order to base a decision on reason rather than sentiment.

The Philippines are an agricultural country and the nature of the country and its resources is such that from all present indications they will remain so for a long period of time. An agricultural community depends upon its exportable surplus to provide itself with those things that have to be imported to raise itself or maintain itself above a rough primitive culture. The present Philippine culture is based on its exportable surplus. To examine an independent Philippines, the base on which the culture rests, its exportable surplus, must be studied. The points examined should be: amount and location of its markets, effect of independence on closing these markets, possibilities of new markets for present products, possibilities of replacing those products unfavorably affected with new products, and the advantages under the present system.

In 1932 the Philippines exported $95,388,080 worth of products and imported $79,395,085 worth of goods, giving the islands a favorable balance of trade of $15,942,995. Of these amounts $82,647,865, or 87 per cent, were exported to the United States and $51,297,749 worth of goods, or 65 per cent, of imports imported from the United States. This illustrates the fact that the favorable balance of trade of the Philippines was at the expense of the United States. With other nations of the world, the balance of trade was against the Philippines over 100 per cent more than their exports to other countries, exports to foreign countries being only $12,690,240, while imports from foreign countries were $28,097,335. Thus the present favorable economic position of the Philippines is based on its present exports to the United States and its favorable balance of trade with the United States.

In 1899 the total exports of the Philippines were $14,846,582; in 1932, $95,338,080. Of these exports 97 per cent were confined to the following tabulated products:

Table I

The listed percentages and value of total exports are shown in columns I and III. In column II is the percentage of each export that went to the United States. In column IV is shown the value of the export to the United States. In column V is shown the amount of duty that would have been assessed had these goods paid duty entering the United States. In column VI is shown the remaining value of the product left if duty had been assessed. In column VII is shown the value of exports that would have been exported to the United States had duty been assessed after eliminating those products whose cost of production would have been so far above the return value after duty was paid as to make their export prohibitive.

The exports of the Philippines are goods that have world sources and world markets. Thus the price of these goods is set only in small part by the production in the Philippines. Therefore, the assessing of United States tariffs on these goods would not raise the price of these goods and thus pass the increased cost of duty on to the American consumer. It would mean that the price would remain about the same and the amount of duty would be taken from the Philippine producer. He would take the amount of the duty less for his products. Column V shows this to be $66,820,218 out of goods selling for $81,253,175 leaving for the Philippine producer only $14,432,957 for his goods. The assessment of this duty would neither raise nor lower the present price that the American consumer would pay for these products as the price is set in the world markets and his cost is already fixed by the duty. It would mean that this $66,820,218 would either go into the United States Treasury as custom receipts and thus lighten the tax burden on the American or else the United States domestic producer would get the business in the increased local market.

The $8,057,128 remaining export trade to the United States plus the $12,690,214 export trade to other foreign nations or a total of $20,747,330 would represent the remaining export trade of the Philippines.

The total imports from nations other than the United States in 1932 was $28,097,335. This is the amount of imports in this year on which Philippine duty could be assessed because of free trade with the United States. With the export reduced to $20,747,330 as computed above the balance of trade would be $8,000,000 against the Philippines and such an unfavorable balance could not be maintained. The Philippines do not have large amounts of intangible returns from foreign investments, foreign insurance returns, tourist trade, remittances from immigrants (at present a considerable sum comes from Filipinos in the United States, but with independence and probable immigration restriction these remittances will be greatly reduced).

The value of imports will soon have to be reduced below the value of exports and cannot for long be above $20,000,000, when this amount represents their exportable goods. This is a reduction of 29 per cent in dutiable imports and will so represent a reduction of 29 per cent in the amount of import duties collected in 1932 even when all imports become dutiable. In 1932 the Philippine government collected import duties of $8,247,979; this amount, reduced in the same proportion as dutiable imports, would be lowered by $2,391,913.

In 1899, 95 per cent of the Philippine exports were under four heads: hemp 54 per cent, sugar 23 per cent, tobacco 13 per cent, copra 5 per cent, a total value of $14,846,582. After thirty years’ development, 92 per cent of the exports of the Philippines as shown in the first table fall under these four heads or manufactures of these products. Such a record demonstrates the inability of the Philippines to easily shift to other products that have a broader and more favorable market.

The possibilities of finding new markets for the standard Philippine products is more remote now than in 1899. In 1899, the Philippines had almost a monopoly on Manila hemp (abacca) which came principally from the Bicol regions of southern Luzon. By 1932 an excellent grade of Manila hemp was being produced in the Dutch Islands of Sumatra and Java at lower costs. Abacca production in the Philippines had run down in the Bicol region owing to poor agricultural methods, but had been highly developed in the island of Mindanao around the Davao Gulf. The best grades of Manila hemp produced in the Philippines now come from this region. This region has been developed principally by the Japanese as Japanese plantations. The Japanese control the product from this region. The whole area has taken on the complexion of Japanese culture, with Japanese schools, stores, hospitals, and plantations. In 1932 the greater amount of abacca which came to the United States from the Philippines came from the Davao regions.

Since 1899, the sugar beet industry has been developed so that practically all European sugar consuming countries have become self-sufficient in regard to sugar. During this period most countries have developed local vegetable oils which compete with coconut oil. Likewise, there are many regions that have lower production costs for copra and coconut oil than the Philippines. Thus, there is little future for the development of additional markets for this product.

The tobacco markets of the Philippines are 90 per cent in the United States and Spain. When duty is imposed on Philippine tobacco entering the United States, the United States market which takes 50 per cent of the exports has been shown in the data table to be eliminated, leaving the Spanish market. There is little prospect of being able to greatly expand the Spanish market beyond its present consumption. Other markets if they can be developed at all will be slow to expand as evidenced by the records of the past thirty years where they are taking less than 10 per cent of the tobacco exports and this amounting to only about $500,000 a year.

An examination of these facts demonstrates the impossibility of developing a market in any short span of years to replace the present American market. It demonstrates the lack of success over a period of thirty years in developing other exportable goods and, lastly, it demonstrates the fact that with independence and the closing of the free access of the Philippines to the American market, there will be a practically total drying up of the flow of Philippine products to the American market.

The proposed budget of the Philippine insular government for 1934 is $27,020,297. It is proposed to expend these funds in the following manner:

P. I. Senate............................ $     301,023

House of Representatives...... 562,688

National Library...................... 75,380

Resident Com. in U. S............ 5,100

Supreme Court......................... 171,333

Bureaus under the executive.... 631,700

Department of Finance.......... 1,724,582

Department of Public Instruction...      8,812,858

Department of Justice........... 1,712,433

Department of Agriculture—Commerce 2,235,844

Department of Public Works...... 2,050,633

Department of Interior—Labor. . . . 2,616,888

University of the P. 1................. 500,000

Service of the Public Debt...... 4,471,625

Extraordinary charges............... 120,000

Retirement gratuities............. 350,000

Investments............................. 341,960

Public Works Funds................... 336,250

Total......................................... $27,020,297

In 1931, the latest record available, the total value of agricultural products produced in the Philippines was reported in the Secretary of Agriculture’s annual report as $182,466,265. Of these, those products that were exported which will lose their market when free trade with the United States is abolished have been shown to be $61,791,165 or 34 per cent of the islands’ total production. Such a reduction in the amount of goods marketed will be reflected in a minimum proportionate reduction in government revenues. Therefore the government revenues will be reduced by $9,194,314, leaving an expected operating balance to carry on an independent government of $16,847,786. A lengthy analysis of each individual item from which the government derives its revenue will show that the actual decrease will exceed this figure.

The debt service of the government is $4,471,625 annually. This charge is inflexible as far as reduction is concerned. The present school system costs the insular government $8,812,858 a year. The funds for this service have been gradually reduced during the depression due to reduced government income so that there is little room for any more reduction if the present type and extent of school system is to be maintained.

On the other side there are the increased expenses that an independent Philippine government must incur. At present all foreign affairs and external trade relations are handled by and paid for by the United States. These, while an expense to a new government, will, however, be no staggering burden. Internal order is maintained by a local constabulary of 6,500 officers and men controlled and paid for by the present Philippine government. This force is backed up by 6,500 Philippine Scouts, an integral part of the regular United States Army recruited for limited duty in the Philippines. The Scouts are composed entirely of Filipinos for enlisted personnel and officered principally by regular U. S. Army officers detailed for that duty. The Philippine Scouts are entirely supported by United States appropriations and cost in 1932 approximately $5,000,000. These forces will be necessary for the maintenance of internal order under an independent government. If any program of national defense is to be carried on, a great deal more funds will have to be allotted for this purpose. There are a great many other services that the United States government supports in part which will either have to be abandoned or the increased expense provided for by the new independent government. Among these are the Quarantine Service and the Coast and Geodetic Survey.

A summary of the economic conditions faced by an independent Philippines shows (1) the present market for Philippine products to the United States, which takes 85 per cent of the total Philippine exports, will be reduced 90 per cent, (2) the Philippines are unable to develop new markets to absorb these products, (3) the Philippines cannot at the present time in any measurable span of years develop new products to replace these products, (4) the government revenues will be reduced by a minimum of 34 per cent under an independent Philippines, (5) there are no new sources to which the government can turn to raise additional revenue, (6) the government will have to assume greatly increased expenses under independence.

These facts lead to the conclusion that the economics of the situation will not permit the Philippines under independence to maintain a government organized along the present lines nor can the present standard of culture be maintained unless the Philippines are granted free trade with the United States after independence. The trend under an independent government will be to lower the standard of living and level off the standard in the Philippines to that existing in the adjacent purely agricultural countries of this portion of the world.

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Absolute, unfailing security is an impossibility. The most perfectly devised system may be overborne by an accumulation of superior strength, exceeding all reasonable expectation. One can only provide for the known and probable danger. The system must be reasonably adequate to meet that danger. The possibility that it may prove to be insufficient for some reason which could not be foreseen is no condemnation of it.—Spaight, Pseudo-Security.