Inclusive Institutions, Extractive Institutions, and Anti-Development States

Francheska Domninguez                                 Seatwork                    Submitted: January 26, 2016

Krizia Roselo                                                                                       Dr. Sherwin Ona

Ramon Enrique Tulfo

GOVESEM – A-52

Inclusive Institutions, Extractive Institutions, and Anti-Development States

According to Acemoglu and Robinson (2012) the definition of inclusive institutions are separated into two frameworks the first one being the inclusive economic institutions which refer to bringing economic growth through law order, security property rights, upholding contracts, and many more functions while allowing access for a hefty portion of the population of a particular country. On the other hand the political spectrum which is directed to inclusive political institutions involves pluralism and the rule of law when to decisions and affairs in the government. Consequently, the concept of inclusive institutions is not evident in the Philippines because of a critical conjuncture which took place during the year 1935 in which the constitution of the country veered towards an extractive nature in its economic institutions (Sicat, 2012).  Moreover, the shift paved way for businessmen to take advantage of the economy with the use of corrupted activities with support from the politicians hence affecting Filipino consumers. Although, the inclusive institutions can still be found in the Philippines in the form of implementing contracts and rule of law when it comes to businesses and in the political context the citizens can still decide on who they want to place in the government.

Therefore, an extractive institutional direction came to be for the Philippines which lead to a fluctuation for the country’s status in terms of the economy and government. Since having extractive institutions in one’s territory opens an opportunity for self-destruction whereas the inclusive institutions can only do so much.

Moreover, Daron Acemoglu, who is considered to be one of the most sought after economists of his generation, defined the so called “Extractive Institutions” as institutions that are grounded upon preservation of power and rent extraction (A. Fernandez, 2012). Moreover according to our previous discussions in class, it has also to do with institutions wherein it isn’t the interest of all that is taken into account but one superior power. Hence, there is a huge probability of neglecting the public’s needs and finally, no one is held liable for any possible failures that may arise. In an article from The Philippine Star, it stated that it was the year 1935 where a constitutional event took place that sparked the beginning of extractive institutions (G. Sicat, 2012). Due to the occurrence of an “economic nationalism”, this paved the way for a number of industries to benefit from a number of incentives such as an exemption from high tariff and certain controls with regards to imports and exports. Therefore, this allowed the upsurge of business tycoons which in effect became problematic for the Philippine consumers because of the high cost of living. It’s not a surprise that corruption in the business sector began as corporations now appoint friends or family members without having to take into account whether or not these people are even qualified for the job. Clearly it is a self- interested society as there was also the presence of those people having political power and taking advantage of that “privilege” to impose specific projects for their personal gain. Up to this day and time, we experience these institutions most especially in the public sector. For instance, one may think that granting discounts in the fares of the LRT is a manifestation of the government subsidizing the actual cost of a train ride. Although in actual fact, the public cannot feel how these subsidies are truly maximized.