Monday, December 18, 2023

Why are Filipinos poor even though the country is rich in natural resources?

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Because abundant natural resources have no correlation to a Country’s economic prosperity.

Take Venezuela as a case in point. It has the world’s largest oil reserves - 297 billion barrels - more than Saudi Arabia.

Yet the Country is an economic basket case. It has a GDP per capita of only $3,300 (81st) and 87% of the population live below the poverty line. The inflation rate alone has hit 1.3% million.

A Venezuelan Supermarket and the amount in cash needed (14.6 million bolivars) to buy a 2kg chicken.

It also doesn’t explain why a Country like Russia, with a large population and similarly huge natural resources has an economy smaller than Italy.

Deciding what a Country’s wealth ‘should’ be based on natural resources is a fundamental misunderstanding of where prosperity comes from.

Institutions

The key to success is healthy, inclusive institutions. They create a level playing field for everyone, ensure the rule or law and protect individual and property rights.

The Philippines is not as bad as Venezuela but it does have extractive rather than inclusive political and economic institutions.

That is to say it’s dominated by wealthy dynastic/oligarchic elites who consolidate power and legislate for what’s in their interests and not necessarily the interests of the Country.

It’s the reason you have nonsensical, damaging policies like economic protectionism. Not because Filipino politicians are stupid - but because it benefits them personally but not the Country as a whole.

They never got round to creating strong institutions precisely because it would ‘level the playing field’ and they would lose their monopoly on power.

Of course the consequences of a weak and ineffectual state without the rule of law is rampant corruption. Why? Because you can get away with it without being adequately punished and that trickles down through Government agencies which become systematically corrupt.

So weak institutions = dynastic/oligarchic elites = nonsensical, damaging policies & corruption = poor economic performance and lack of foreign investment

However, the positive takeaway from all this is -

  • The big problem facing all developing Countries is essentially the same.
  • That problem has nothing to do with culture, ethnicity, laziness, weather, average IQ’s, geographic location, etc
  • It’s really not difficult to solve. IF the will power and desire of those in power to do it is there.

 

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