Philippines As Counterexample
April 9, 2025
by William P. Meyers

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Today we have a tariff war. The New York Times published an article on a nation that believes it will benefit: Philippines. [See Trump's Tariffs Will Pummel Asia. But One Country Sees Opportunity.]

Quoting from the article: "Still, everyone was optimistic. The Philippines is like China was 15 years ago, said Kevin Lee, a sales director at HYS Enterprise, which owns the factory in Batangas. Cheaper labor helped. It costs about $820 a month to employ someone in China; in the Philippines that same worker costs $274, Mr. Lee said."

Context: the two nations are next door neighbors. China was a global economic superpower in 1800, while Philippines was a sleepy colonial outpost of Spain. China declined decade after decade until World War II, then had a civil war, which the Communists and their allies won. Emerging as one of the world's poorer nations.

The Philippine peoples had thrown Spain out, except for a small garrison in Manila, by 1898. Then the U.S. started a war with Spain and used its victory in that war to grab the Philippines. The people of the islands then fought a long war with the United States, in which America used genocidal tactics. The Philippines remained a U.S. possession until World War II. The Japanese defeated General MacArthur and granted the islands independence. After the Japanese were ultimately defeated, including by more war in the Philippines and establishing its colonial rule again, the U.S. was embarrassed, and granted the island state independence in 1946, as long as it allowed U.S. military bases to remain, and followed U.S. guidance.

With regards to the Trump tariffs and ridiculously low wages in the Philippines, all the history amounts to this: the Philippines has had a capitalist economy, even during its colonial period, and has has been in the capitalist camp, with independence, since World War II. China, has been communist since a few years after World War II. Both nations had poor, mainly agricultural economies in the first decades after World War II.

Isn't capitalism supposed to work out better than socialism or communism? Are we (in the U.S.) not constantly told that capitalism leads to growth, and that even ordinary workers (the proletariat) are better off in the long run under free markets?

So why are wages in China for factory workers so much higher?

Of course, there are counter examples. We are reminded of them regularly. The failure of the U.S.S.R. to compete, leading to its collapse. The sad economy of Cuba. The failure of socialism in quite a few nations around the world.

I would say this is critical: despite Marxist posturing, human nature does not simply go away when an economy becomes socialist, or switches back to capitalism (failures after switching back to capitalism also abound). Or when a nation is forced to learn English and exposed to Protestant Christianity by its free market American tutors. Initial conditions matter, including how endowed a nation is with natural resources. But the big distinguishing characteristic in the equation is:

Smart socialism or dumb socialism. Smart capitalism or dumb capitalism.

Will those who govern a nation be led by ideology or by pragmatism? Pragmatism means being able to mix things up a bit, as President Roosevelt did in the 1930s when he introduced some socialist components into the essentially capitalist American system. As Deng Xiaoping did in China in the 1980s when he allowed for capitalist and free market reforms within the communist system.

The historical record is clear: you can build up a nation, or tear it down, in a variety of ways. Capital (though not capitalism) is essential to building a nation. Capital includes culture and education as well as factories and office buildings. When the workers themselves accumulate capital (like owning a home, or a share of the company they work at), that is just as much capital accumulation as when a 10x billionaire adds another billion to his/her pockets.

I can be very critical of the Chinese government, but I will not deny the Chinese have done a great job developing their nation since 1980.

And if you put an idiot in charge, even a great economy like that of my United States of America can be brought low, and surprisingly quickly.