Industrial policy vs neoliberalism in the time of corruption

The massive anomalies in flood control projects amid the incessant rains, coupled with the shameless display of unexplained wealth by some politicians and contractors, have triggered rage among the people.

Yet again, our communal anger is in full throttle, not unlike what we experienced at EDSA Uno, EDSA Dos, and the Million People March against pork barrel. Yet again, systemic corruption lingers, more widespread and scandalous in scale and impunity.

The government response: the President’s dashboard of flood control contracts and an Independent Commission for Infrastructure, high-profile public hearings at the Senate and the House of Representatives, and intensified deployment of multiple anti-corruption laws and accountability mechanisms.

Even as we hope that today’s anti-corruption drive goes deeper than past episodes, unfortunately it will still be insufficient on its own. Corruption is only one face of Philippine underdevelopment; the other is a failed economic policy framework. The two reinforce each other, and both must be confronted.

Since the 1986 EDSA People Power revolt, successive administrations have broadly adhered to a neoliberal development strategy. It is a model focused on liberalization of trade and investment, deregulation, and privatization. The belief was that liberalized markets would generate efficiency, attract sustained investment, and eventually spur industrial upgrading.

The reality that unfolded was starkly different. The predicted outcome of industrial upgrading and complexity never materialized. Capital flowed into real estate, finance, retail, and public utilities — sectors that offered either quick or safer returns. Workers were afforded little to no choice except to shift to services, mostly informal and low-paying, or to seek jobs abroad as OFWs. Agriculture declined, and the much-promised convergence toward higher-value activities did not take place.

This failure was not merely about corruption or poor execution. It was built into the neoliberal framework itself. Its core assumptions — that markets would naturally channel resources into long-term industrialization, that infrastructure and skills would arise spontaneously through private initiative, that higher expected returns would draw sustained investment — proved false. Markets pursued short-term gains and shunned the risks of transformation, while weak domestic sectors collapsed under liberalized competition.

Industrial policy has thus become imperative. It addresses the tasks that markets fail to perform by reducing risks for long-term investment, coordinating clusters and infrastructure, and ensuring that growth leads to upgrading. Only deliberate state intervention can alter incentives and steer resources toward transformation. By strategically selecting sectors and channeling support, industrial policy fosters domestic value capture, technological upgrading, and long-term productive capacity.

Yet while neoliberalism rests on flawed assumptions, industrial policy carries its own peril. It presumes a state capable of setting priorities, coordinating across sectors, protecting continuity, and resisting capture. In the Philippines, where institutions are fragmented and politically compromised, this assumption cannot be taken for granted.

Thus, any serious alternative must confront both market failure and state failure. A new development strategy must rebuild the state’s capacity to design and sustain industrial policy, while at the same time dismantling systemic corruption.

Is this possible under a political system dominated by intra-elite factions competing for control over the same institutions and resources, often under the guise of reform? Our post-EDSA history teaches otherwise. Shifts in power have not produced structural change. The rules of the game remain the same, and so do the outcomes.

The current flood control scandal follows this pattern. The President himself triggered the issue, earning significant public approval. The controversy has so far visited the doors of rival factions but avoided shame and blame on his allies despite their long participation in the same system. More troubling is the inconsistency. This same administration allowed the controversial transfer of Philippine Health Insurance Corp., better known as PhilHealth, funds to the national treasury, undermining public health financing. This same administration enabled the expansion of pork barrel through congressional insertions, both infrastructure and ayuda (assistance), through the mechanism of bloating the unprogrammed appropriations in the budget.

Such contradictions raise doubts about whether the current leadership is committed to institutional reform, or is merely using selective enforcement for political repositioning.

The cold reality is that expecting transformative change from within the current framework is illusory. What we need is not merely reform from above, but a broader, inclusive, and radical political project that challenges both the prevailing economic orthodoxy and the predatory political elite. In short, the country needs a contemporary revolution that reorders economic priorities and political power.

What that contemporary revolution will look like, and when it will emerge, depends on what Filipinos will demand, fight for, and build.

This column is for those who remain restless, troubled that there are things more deeply wrong than just the corruption in flood control projects.

Nepomuceno Malaluan is a trustee at Action for Economic Reforms and a co-convenor of the Right to Know Right Now Coalition.