The origins of oligarchs

Resentment towards oligarchs is on the rise following President Duterte’s accusation that the Ayalas and Manny Pangilinan have taken advantage of onerous provisions in their water contracts for 23 years. Old wounds were opened and feelings of trepidation are festering anew against old family conglomerates.

The stratospheric approval ratings of the President suggests that the public approves of the crack down on oligarchs and will support future onslaughts.

As I wrote in this corner last December 18, we must make a distinction between good and bad oligarchs.

Bad oligarchs are those who enrich themselves through illegal means or through political favor. They are the elite whose businesses thrive on the premise of excluding, usurping, repressing and/or victimizing the masses. Examples of bad oligarchs are cronies awarded juicy contracts without due process, monopolies protected by government and those who benefit from onerous mining or logging concessions, among others.

Oligarchs exists in every economy, including seemingly ideal societies like Japan and Canada. But in these societies, good oligarchs outnumber the bad ones. The situation is quite the opposite in countries like Mexico, Argentina, Colombia and Venezuela. In these economies, bad oligarchs rule.

The oligarchical situation in the Philippines is not as grave as those in Latin America as many of our family conglomerates tread the grey area between good and bad. While many have enriched themselves by way of political favor, they have also spun off to industries that serve the country such as infrastructure, telecommunication and healthcare.

This piece is not about exonerating or condemning certain oligarchs. Rather, It is to explain why bad oligarchs thrive in Latin American and the Philippines.

As you may have guessed, the root of it all is our common colonial heritage under Spain.

See, in the 1500’s, Spain sought colonies with a trifecta of objectives. The first two were noble – to spread Christianity and to perpetuate the Spanish way of life. The third was more insidious – to usurp the colonies of their national resources.

The Spanish method of colonization was perfected by Hernán Cortés in Mexico. It involved subduing the indigenous leader, claiming his wealth, expropriating the land and coercing the indigenous people to work for Spanish interest. This was followed by establishing the Spanish people as the new elite and taking control of taxation and overall governance.

Before the arrival of the Spaniards, most indigenous people of Latin America and the Philippines were organized as tribal kingdoms. This system was obliterated by the colonist and replaced by a system called “encomiendas”. Encomiendas was a grant of vast tracks of land and the indigenous people therein (called “vassals”) given by the Spanish Crown to the early Spanish colonists.  The colonists were known as “encomenderos” and the indigenous people were obliged to render hard labor to them in exchange for being converted to Christianity.

The encomendero would provide for their needs of the vassals on a subsistence level. A few were paid a wage. In exchange, vassals were made to till the land and mine for precious metals for the encomendero’s enrichment.

The principle of “reducciones” was a tool used by the Spanish colonist to consolidate the labor force. Reducciones involved the forced resettlement of indigenous people scattered throughout the landscapes into the encomiendas, thereby multiplying the workers in the field.

With an army of laborers, the encomendero imposed a tax system called “mita”. Mita called for the workers to render longer hours of labor in exchange for food security and famine relief.

As the Encomiendas grew in size, they became societies on their own. To further extract value from its labor force, the encomenderos imposed another scheme called “repatrimiento de mercancias”. The scheme forced vassal to purchase goods (like clothing and medicines) at usurious prices as determined by the encomenderos.

The combination of encomienda, mita, and repartamiento de mercancias were designed to drive down the living standards of the indigenous people to a subsistence level and extract all incomes in excess for the encomenderos. While the scheme generated scandalous profits, it turned Latin America and the Philippines into the most unequal countries on the planet.

But lest we think that everything of Spanish heritage is bad – we should also consider their vast contributions to society. The Spaniards organized our islands into a unified nation, adopted Roman Law across the land, established western education and gave us our first roads, highways and bridges, among others.

The laws and institutions of Latin America and the Philippines evolved with the encomienda as its roots. Our constitutions were written based on the labor practices and tax structure of the encomiendas. This is why even today, our respective constitutions bestow special privileges to a narrow elite whilst repressing the masses.

As a result, industries failed to develop for lack of competition and income disparities between the rich and poor grew wider.  And when newcomers broke through to become elites, the newcomers themselves took advantage of the immense privileges of the system. They worked to preserve the status quo rather than reform it. This is why Latin America and the Philippines are prone to developing bad oligarchs.

The constitutions of Japan and Canada are the opposite as it perpetuates equal opportunity for all through the devolution of power and maintaining a level playing field in the economy. Hence, the masses are able to apply their talents, skills and entrepreneurial spirit to improve their lives and contribute to national development.

The only way to change nations prone to developing bad oligarchs, like the Philippines, is for the ruling elite to rise above itself and strip the privileges off the ruling class. After this, it must democratize power and level the playing field across the economy.

Nullifying the onerous privileges enjoyed by certain oligarchs, as the President is doing with the Ayalas and Manny Pangilinan, is only the first step. To make a real difference, government must break down monopolies and oligopolies and liberalize the economy to all, including foreign investors; crack-down on corruption and political horse trading; take down political dynasties and give others an equal opportunity to participate in the political exercise; reform of the justice system; and empower the masses with better education and the wherewithal to thrive.

To take down certain oligarchs without doing everything else to democratize power will only result in the development of new oligarchs. As history shows, they too will find the system too good to give up and will work preserve the status quo.

President Duterte has a chance to break the vicious cycle. Let’s hope he goes all the way to change the hangovers of the encomiendas system.