Foreign Aid and Social Reform in Political Development: A Philippine Case Study

David Wurfel, Cornell University
in American Political Science Review, Vol. 53, No. 2 (June 1959), pp. 456-482.

Writers on foreign aid policy today generally agree that technical and capital assistance from the United States government can contribute effectively to economic growth in underdeveloped areas.1 There is much less agreement among them, however, on the ability of the foreign aid program to contribute positively to democratic processes of political and social change.2 There is still disagreement on the proposal that the United States should, wherever necessary and possible, intentionally attempt to stimulate social change within the context of an aid program.3 Nevertheless, some general considerations not heretofore presented in juxtaposition, and a case history to illustrate them, tend to support this proposal.


The most comprehensive statement to date of the objectives of American foreign economic assistance programs is to be found in the Report of the Special Senate Committee to Study the Foreign Aid Program, published in 1957: To encourage the evolution of free political and economic systems in other independent nations by assisting them … in their economic development.”4

This is a simplified summation of the conclusions of several studies made for the Committee on a contract basis. Of these, the most pertinent is the sophisticated analysis entitled Objectives of U.S. Economic Assistance Programs by the MIT Center for International Studies.5 This study asserted that “a program of assistance can promote the evolution of societies that are stable in the sense that they are capable of rapid change without violence, effective in the sense that they can make progress in meeting the aspirations of all their citizens, and democratic in the sense that power is widely shared throughout. the society.?6 The study admits that political and social change inevitably involves some turbulence, temporarily giving opportunities for expansion to non-democratic political movements. It. insists, nevertheless, that since change is already inevitably underway in most underdeveloped countries, and since the United States has at least a limited capability to steer it in constructive directions, the overwhelming American interest is to commit our full potential to the task of guiding change. The study makes no claim for certain success.

It. would seem, however, that the failure awaiting an economic aid program that does not attempt to guide or assist social change is somewhat. more certain. Free political institutions can develop only if emerging social groups can achieve, or have expectations of achieving, power arid status roughly proportional to their rising aspirations. If economic expansion takes place for an extended period without a corresponding adjustment of social and political institutions, this merely prepares the ground for violent upheaval. For example, a program which overemphasizes increasing agricultural production may serve to concentrate material benefits in a small group of landlords while merely widening the gap in economic status between this group and a nascent urban middle class, as well as between landlord and tenant. Add to this emphasis on agricultural production support for a public health service which reduces the death rate without lowering the birth rate, when population increase is already balancing production increase, and one has the necessary ingredients for an explosion. Yet in these categories are to be found some of the choicest showpieces of U.S. foreign aid.

In the last two or three years support for medium industry seems to have gained an increasingly important place in economic assistance programs, The needs of a middle class growing faster than its economic base are thus, in part, being met. But even balanced economic development may not be able to forestall abrupt extra-legal transfers of power if traditional institutions are particularly inflexible. Stable evolution may necessitate outside help in breaking up institutional rigidities. For instance, even if the urban middle class is able to improve its economic status, its political power may not increase as rapidly as its political aspirations. Power cannot peacefully be wrested from the landed elite as long as the vast majority of the population is rural and the traditional hierarchies of rural leadership are maintained. Yet either economic interest or nationalistic fervor, or a subtle combination of both, often creates a middle class appetite for power even though legal channels for achieving it may not exist. The outcome of this or similar circumstances is evident in the coups of Egypt, Iraq and Pakistan. Despite the extraordinary factor of a progressive monarch, this analysis also calls attention to danger signals in Iran.7In order to consolidate their power, leaders of successful coups d’etat of this type usually launch an agrarian reform program. Such a program strikes at. the power base of the landed elite, and establishes lines of leadership between urban middle class politicians and the rural areas which previously did not exist. however, if power can be consolidated through other means, e.g., charismatic leadership encouraging and manipulating xenophobia, then agrarian reform may be forgotten before very much is accomplished. If that reform were encouraged by a foreign aid program, however, the possibilities of a peaceful establishment of a mass base could be revealed to impatient urban leaders. Furthermore, in the process they might have found in the United States an ally in their domestic political competition, thereby reducing the likelihood of anti-Americanism among their number.

American policy must also anticipate the time, not too distant, when peasant and labor groups become independent political forces, not simply pawns in rural-urban elite competition.

Those who recoil from the thought of the United States government “fomenting revolution” need to be reminded of what the real alternatives are. In a large part of the world we may not choose between revolution and status quo, but only between moderate and immoderate revolutions, resulting in governments at best friendly but neutral and at worst implacably hostile. The calf can no longer be led, but with experience we may learn to hang on to the cow’s tail. We must be prepared for an occasional kick. If we are not to shy away from the “revolutionary” role of guiding social change then we must find workable techniques for fulfilling it.


Intentional, directed social change, involving alteration of the structure of economic and political power within a. society before such change is forced by the inevitable pressures resulting from economic development, is, in broad terms, social reform. Thus, for example, mere legislative recognition of existing wage levels by the enactment of a minimum wage law which is at the actual minimum, or legal protection for rights already exercised by tenants in their relations with landlords, is not social reform. Defined more narrowly, and as used here, it is any governmental or governmentally encouraged action which is directed toward making more nearly equal the economic and political and even educational, medical or cultural opportunities for all individuals and groups in society. The desirability of social reform is based on the assumption that various groups have conflicting interests and that it is the proper function of government to set. the hounds within which these conflicts can be mediated, and to mediate them. Guided by the democratic concept of widely shared power, government also needs to strengthen the position of the weaker groups. It is through an approximate balance of these interests that free institutions are created and maintained.

The economic aspect of social reform is here paramount. Some types of non-economic social legislation are luxuries which highly developed economies can afford, but underdeveloped ones cannot. Steps toward equalization of economic opportunity may either be direct, e.g. redistribution of wealth through a high statutory minimum wage or progressive income tax, or indirect, e.g. facilitating a shift in the social power structure through encouraging the creation of labor unions or farmers’ cooperatives, whose activities will have a redistributive effect.

The “indirect” reinforces the “direct” by creating social forces demanding the enforcement of direct social legislation. The “indirect,” moreover, has a more immediate effect on politics than the “direct.” Both are reinforced by the progress of economic development, and in turn reinforce it to some extent.

All social reform measures do not, however, contribute to that wellspring of economic development, capital formation. The break-up of large landholdings, for example, may substantially assist capital formation and mobilization of existing capital, if the size of the actual farm unit is not reduced and if the method of payment is properly arranged. Measures raising wages to artificial heights may, on the other hand, slow capital formation. But the value of some social reform measures comes as much from their psychological impact as from their economic contribution. They can give the tenant or the worker a sense of being a subject of the government’s concern, or of participating more fully in the economic and political life of the nation. The ability of under-privileged or under-represented groups to see a future solution of their problems or growth of their strength may, in certain circumstances, be as important to free political development as quantitative economic ‘benefits.


Four types of objections to United States stimulation of social reform have generally been advanced. The first is one of impropriety and is based partly on the misconception that American social reformers overseas would necessarily proclaim their ultimate goals openly.8 A number of commentators on foreign aid policy display an inordinate fear of the charge of “intervention.” They consider American attempts to assist social reform in conjunction with foreign aid to be improper interference in the internal affairs of a friendly sovereign state, likely to result. in accusations against the United States. But “any aid necessarily affects the internal affairs” of the recipient. country.9 A doctrine of pure non-intervention for our aid policy would mean no aid. To intervene is often simply a question of supporting one of the competing factions within the government or the extra-governmental political structure of the recipient country, and may be “as much desired by the [one] as it. is resisted by the others.”10 To intervene without social reform is merely to strengthen the ruling elite within the existing pattern of inequality.

Nevertheless, it. must be admitted that in some countries the intensity of nationalism may, in fact, make impossible the degree of intervention required to push for social reform. Fortunately, however, in most of those countries where there is greatest sensitivity to intervention, e.g., Burma and India, the ruling elites are already attempting to implement many of the same reforms which U.S. aid officials might consider necessary. This not only obviates the need for U.S. intervention, but contributes to the impotence of any attempted pressure for reform by reducing the conflict of interest, between mass and ruling elite.

The second objection appropriately points out that those societies most in need of reform have political elites most opposed to it. Even if American pressure should succeed in pushing though reform legislation, therefore, insofar as the elite retained control over the bureaucracy the legislation would not be enforced. This is an objection of ineffectiveness. However, if “indirect” reforms, which engender less opposition and are to some extent self-executing, were enacted at the same time, they would, as has been pointed out, contribute to the enforcement of direct reforms. Furthermore, any well-conceived economic development plan should include related programs such as settlement of public lands that would generate supporting economic pressures for compliance with ally reform legislation, such as statutory rent reduction.11

The third and most serious argument against support. for social reform within the foreign aid program is that it might actually be harmful to the achievement of the economic objectives of the aid. This criticism rests on the “major premise , that the returns derived by the United States from economic aid depend largely on the economic effects of such aid.”12 If social reform which seriously slowed capital formation were successfully instituted, a development program could indeed be handicapped. However, no conclusive evidence has yet been presented to prove that such a reform has actually been adopted with U.S. backing. The example most often cited, the Philippine minimum wage law, has been caught amidst conflicting arguments. A graver handicap would result if the dominant faction in a recipient government should flatly refuse to undertake reforms deemed essential by our aid administrators; negotiations on economic aid projects might then be delayed, or deliveries of aid goods even halted.

Objections to a policy which could result in such an eventuality fall in a fourth category. They are political as well as economic, and are based on a different premise, i.e. _that the purpose of aid is to strengthen existing friendly governments._+[+13] But it would seem that American interests are best served by a primary concern for the long-term socio-economic progress of the country aided, with much less regard for political or military alliances than is currently given. Long range interests and the maintenance of a continuous flow of aid goods may not always be coincident. Administrative fear of the immediate adverse consequences of withholding aid, based on the “maintaining friendly government” premise, limits the effectiveness of aid as leverage for social reform in some countries. Refusal to withhold aid does indeed tend to prolong the tenure of the. government in power, but it is doubtful whether in the long run we are best advised to bolster up a government resistant to reform. The short-sightedness of emphasis on “maintenance of friendly governments” is readily apparent in Iraq and Cuba. If the United States finds it impossible to assist a particular government in the reform of outmoded social and economic institutions, and a violent upheaval against that government appears inevitable, International Cooperation Administration (ICA) officials might find it most advantageous to withdraw until the change of government had taken place. Americans would then be in a position to return and work more effectively with the new government. United States assistance for social change might involve the sacrifice of a few shaky, but “friendly,” governments; however, it could help to discourage the rise of implacably hostile ones.

Admittedly, many of those involved in deciding upon American foreign grants and loans do not accept this long range goal as paramount. But. if it is accepted, none of these objections appear to outweigh the necessity, in some instances, of attempting to combine intentional, directed social change with economic development planning, both to remove institutional roadblocks from the path of economic progress and to assist more directly the evolution of democratic political systems.


A foreign. aid program may stimulate social reform by several methods. The most. forceful, and most likely to cause adverse political repercussions, is by public written agreement between the donor and recipient governments, setting forth reforms to be adopted by the latter as quid pro quo for aid. This technique has most frequently been used to attach conditions to grants of aid neither relevant to aid administration nor to the success of economic or democratic political development, e.g., restrictions on the foreign trade of the recipient, or military commitments, and thus is unpopular among commentators on foreign aid policy.14 It cannot be used, of course, even for more valid purposes when nationalism and xenophobia are at a high pitch.

A second method is by written agreement on the terms of individual projects, for instance an American-financed road construction project which requires that land adjacent to the new roads be subdivided in small lots to be sold to cultivators, in order to prevent well connected speculators from profiting. Though the United States has the right to stop the allocation of funds to projects on which the terms have been violated, this right is almost never exercised. Nevertheless, the project agreement provides a basis for continued negotiations and a justification for American prodding.

A third method is to provide American technicians to advise in the drafting of social reform legislation, or in the formulation of administrative policy to such an end. The technical assistant is most. effective when he can press for reform within the framework of a general agreement—the first method —and when he has funds at his disposal for bargaining purposes, for instance, to finance temporarily a necessary, but budgetarily unpopular, agency, as was done in the case of the Agricultural Tenancy Commission in the Philippines, he too would find his effectiveness limited by extreme nationalism. With that handicap his success would depend on his ability to stay behind the scenes.

A fourth, and more universally acceptable, method is through planning and financing projects which implicitly and inevitably result in the growth of new social forces and a relative weakening of the existing elite. The explicit objective of such a project, nevertheless, is simply economic development or administrative efficiency. An agricultural credit project which has the effect of breaking up a local moneylender’s monopoly would fall in this category. Another would be the enactment of a tax structure based on ability to pay, and the improvement of collection procedures within such a structure. Such a revenue system, when contributing to a governmental budget that finances economic development and social services, has a redistributive function. In a predominantly agrarian economy assistance to industrial development, either private or public, aids the growth of a currently weak entrepreneurial arid managerial class. This is an indirect stimulation of agrarian reform, besides constituting social reform in its own right.

There are, of course, numerous variations and combinations of these techniques. All have been used to stimulate social reform in the Philippines. In fact, the Philippines is the only Asian country in which American administrators clearly accepted the desirability of attaching the strings of social reform to United States grants. Harlan Cleveland has said of such assistance to the Philippines, “When the stake is the survival of freedom, this kind of institution-building task is the centerpiece of an aid program.?15


The Bell Report. 1950 was a year of crisis for the Philippines, for the United States, and for all Asia. In the Philippines the war-born and Communist-led Hukbalahap, feeding on agrarian unrest and general dissatisfaction with the government, changed its name to “People’s Liberation Army” and urged the overthrow of the government. Increased Huk military strength was manifest in the celebration of its eighth anniversary in March with daring raids on four important towns near Manila. Increased governmental military expenditures had expanded the national budget to such a point that the deficit was estimated as 34 per cent of the total. A shortage of cash in the treasury forced a halt to public works projects, and unemployment spread. Import controls enacted the previous year had slowed the drain on foreign exchange reserves, but had also caused a rise in prices., while wages had not quite recovered to pre-war levels.

In the atmosphere of quickened American interest in the Far East caused by the invasion of South Korea, spurred by the worsening Philippine situation, and in the knowledge that much of the post-war United States rehabilitation aid to the young Republic had been unwisely spent, President Truman sent an Economic Survey Mission to Manila in July after a request for assistance from Quirino. The five-man mission, headed by former Under Secretary of the Treasury Daniel Bell and aided by eighteen specialists, undertook a comprehensive study of Philippine “economic difficulties” and of “development policies.” In its report to Truman on October 12 1950, the Mission recommended a drastic revision of fiscal policy to raise more revenue more equitably and to discourage the drain on foreign exchange reserves, as well as vigorous measures to increase agricultural and industrial production. It proposed that the United States extend grants and loans of $250 million over a five-year period to help carry out an economic development program. In addition to these economic proposals, the Report blazed new trails by recommending agrarian, labor and administrative reforms, by asking that American assistance, including counterpart funds, be subject to “continued supervision and control of [an American] Technical Mission,” and by insisting that United States aid be “strictly conditioned on steps being taken by the Philippine government to carry out the [Report’s] recommendations.” These important proposals were tactfully but strongly worded. Events after the Mission’s return to Washington reinforced their urgency. The Huks staged even more daring raids in late August. By the end of September the Philippine National Bank Find stopped accepting treasury warrants, including those for the salaries of school teachers, which were already some P56 million in arrears.16

Though we may now view those recommendations as having been necessary, they were at the time controversial. In fact, controversy began even before they were released. In response to pre-release speculation by U S. News and World Report that the Report told a story of “bankruptcy, inefficiency, corruption and threatened communism,” a press release from Malacañang Palace—the Philippine White House—called Filipinos “mere pikers” in the matter of graft and corruption “compared to their more accomplished and eminently successful mentors,” the Americans.”[¦ñ7] The Manila press was critical of this blast; Washington was shocked.

To forestall further misunderstanding on the basis of fragmentary leaks, the full text of the Bell Report was released on October 28; the five-page summary and recommendations were published in all Manila newspapers. President Quirino told the press that he was “gratified to … find that it is a highly constructive statement of conditions prevailing in the Philippines… Whatever criticisms the report contains, I know they were made in the best. faith and with a desire to be helpful to us.” In the first wave of comment on the Report, labor leaders, businessmen, and Congressmen, especially those in the minority Nacionalista Party, generally praised it as “constructive” arid “realistic.” The ruling Liberal Party, however, was critical of the provision for continued “U.S. supervision and control.” Quirino and party president Eugenio Perez were persuaded to accept it only after the arrival of William Foster, E.C.A. administrator, who interpreted the phrase to mean an “equal partnership” between the United States arid the Philippines.18

The Quirino-Foster Agreement. An agreement signed by Foster and President Quirino in Baguio on November 14 not only spelled out the nature of this partnership, but confirmed the intention of President Truman to ask Congress for S250 million in aid in exchange for a Philippine expression of “determination … to bring about social and economic well-being in the Philippines … through total economic mobilization and the bold implementation of measures that will bring about a high degree of social justice.” This “determination” was to be expressed by the Philippine Congress in three ways, On December 4th President Quirino called a special session to allow Congress to do so.

The first step toward compliance was a concurrent resolution of intent “to give preferential consideration” to the recommendations of the Bell Mission, adopted on February 2, 1951.

The second requirement of the Quirino-Foster Agreement was the enactment of new taxes “of an equitable measure” designed to balance the budget. American tax experts worked with the Secretary of Finance to draft the necessary legislation. Bills hiking excise, sales, individual income, estate, gift, residence and corporate income taxes, as well as a bill establishing a new foreign exchange tax, were introduced.19 Congressional opposition was vociferous and bipartisan.

It was some time before Congressmen began to realize that the United States WAS insistent on implementation of the Quirino-Foster Agreement before the granting of further aid. The opinion that “the U.S. would give us help when we need it because her prestige is at stake here”20 was widespread. But persistently blunt American officials reiterated on several occasions that new taxes Were a prerequisite of aid, and President Quirino, the Secretary of Finance, and the Chairman of the House Foreign Affairs Committee, Diosdado Macapagal, in somewhat less direct language, confirmed this. By the end of the special session in mid-January, the two least controversial bills, raising excise taxes on cigarets and liquor, were enacted. But the more important bills continued to be caught in an executive-legislative deadlock until the end of March.

A break in the impasse came only when President Quirino was ready to make n. concession to Congress. The Philippine election law provided that. a voter by writing in the party’s name could vote for all the parity’s candidates at once, a procedure called block voting. Long standing minority demands for the abolition of block voting had by 1951 found powerful supporters in the Liberal Party as well, especially among some Liberal senators. The provision was of primary importance for the Senate race in which eight men are elected at large from the national constituency. It meant that nomination from a party clearly in the majority was tantamount to election, for the ease of writing one word instead of eight or more was, when strongly encouraged by party bosses, an irresistible convenience for the semi-literate rural voter. It also meant that it was utterly futile for anyone to run for national office as an independent, or on a third party ticket. Yet there were some Liberal senators, associated with Nacionalistas in an unstable parliamentary coalition called the Democratic Bloc, who wanted to run for reelection, but did not feel sure of majority party backing. They had introduced a bill to end block voting, simply by requiring voters to write in each candidate’s name separately, but were faced with a loyal Liberal majority in the House and a threat of a presidential veto. Nevertheless, since the Democratic Bloc had a bare majority in the Senate, it could bottle up at administration legislation there, and did.21 Finally President Quirino and House Speaker Perez agreed to support the abolition of block voting, and on March 28 the bill was signed. On the same day the high priority foreign-exchange tax and corporate income tax bills were also passed.22

The same kind of political horse-trading made under persistent American pressure also permitted the adoption of the third prerequisite for aid, a minimum. wage law. This requirement was included in the Quirino-Foster Agreement primarily for its psychological effect. In making it a precondition of aid, the expectation was that mass Filipino support for American aid objectives could be gained. It was chosen as a reform so popular with the masses that the Philippine government could not afford, politically, to reject it. But the fact is that the Congress probably would have refused to pass it. except for the desire to receive United States aid.23

The minimum wage, like the corporate income tax, fell heavily on the vociferous and well-organized sugar bloc, which used numerous, and temporarily effective, tactics to prevent the hill’s passage. Minimum wage legislation, however, differs sufficiently from taxation?which is of direct benefit to no group?so that its opponents took a stance, one of indirect opposition and crippling amendments, very different from that of the opponents to new taxes, desirability of some kind of minimum wage legislation was never assailed.24

A U.S. Department of Labor expert was sent to Manila to help with the drafting, but a draft minimum wage law had already been prepared in the Philippine Labor Department which required little change. The bill quickly passed the Senate almost without amendment. In the House Labor Committee, however, where the chairman was a sugar-bloc spokesman, it was stripped of some of its most important provisions. These were restored on the floor in mid-March, at a time when the bill’s staunchest opponents were absent, but the conference committee report was not adopted until the first week in April. The same day that President Quirino signed the minimum wage law, Washington announced the release of the first $15 million. of American aid.

The persistence of ECA official; and especially of the special representative in Manila, Vincent Checchi, in withholding aid until certain essential prerequisites were met, had produced results. Few would have dared predict six months earlier than the Philippine Congress could pass in such short order two laws, such as the minimum wage and the increased corporate income tax, so burdensome on the major interests represented in that body. In sum, the leverage of preferred foreign aid had produced the legislative authorization for social change probably not possible otherwise. From April 1951 onward further changes desired by ECA had to be brought about through the programming process and the skill and persuasive powers of advisors.

In the period from 1951 through 1953 the United States was fortunate to have as its two top-ranking civil officials in the Philippines men with a keen concern for Philippine social as well as economic progress, and willing to use all the methods of diplomacy to help achieve it. Eisenhower’s first appointment to the Embassy, the former Michigan Senator Homer Ferguson, was, on the other hand, noted neither for his exceptional diplomatic skills nor for his social concern. His counterpart in the Foreign Operations Administration mission, Col. Harry Brenn, was a former state senator from Idaho who got on well with Filipinos, but had a more limited conception of the role of an aid mission than his predecessor. He was cautious lest a program become controversial. Thus, while new projects were initiated and new pieces of legislation were pushed during the first period, there was a decline in innovation during the second. Part of this was explainable, of course, simply in terms of the length of tenure of the aid mission, i.e., there was less scope for innovation in the fourth year than in the first. The difference in tactics might also be understood as an indication that the Magsaysay administration needed less prodding than its predecessor. But the difference in the social outlook of the key figures was also an important determinant.

After the legislative implementation of the Quirino-Foster Agreement had been completed, further legislation was needed in order to carry out other Bell Report recommendations. Assistance was also given to the Philippines for the effective administration of this legislation.

Internal Revenue Administration. No further tax legislation was thought necessary, but improvement in administration, especially income tax collection, was crucial. American assistance to the Bureau of Internal Revenue included the training of personnel in improved administrative techniques and the detail of United States advisors. This technical assistance seemed to have an initial, hut not a permanent, impact on co1leections.25 Income tax revenue increased 7.5 per cent from FY 1952 to FY 1953. But in the same period total revenue, which had increased 47.4 per cent the previous year, dropped 6.9 per cent. From FY 1953 to FY 1956 income tax revenue increased only 10 per cent; it dropped from 18.5 to 16.4 per cent. of total revenue. A comparison of the trend of production with tax revenues in the five-year period after the Bell Report seems to indicate that tax administration was not an area in which American technical assistance had scored any lasting success. While the index of the physical volume of production rose from 72 to 108.6 between 1951 and 1956, internal tax revenue increased less than 4 per cent, Even though import duties were increased sharply in 1956, total government revenue in that year was a smaller percentage of national income than in 1951.26

Labor Reform. Labor legislation and administration was a more successful field of endeavor for our advice and assistance, American aid has tried to help make the minimum wage law administratively effective, From FY 1951 to FY 1956 the Wage Administration Service, recipient of this aid, undertook inspections in over 64,000 establishments having a total of more than 1,600,000 workers; about one-third of the employers were found to be in violation, The Service settled claims for unpaid wages from 56,500 employees in which employers paid out over P3,300,000.27

But enforcement of the Act is far from perfect. Only when workers are organized can they be fairly sure of receiving the minimum wage. Since most agricultural workers are not organized, they are the most likely to be discriminated against. In 1955?since the average daily wage for agricultural workers was reported to be P2.14?more than half were undoubtedly receiving below the legal minimum of P2.50. Nevertheless, this was a 25 per cent increase over 1950, if the figures are to be trusted, compared to an increase in average per capita income of less than 5 per cent.

Despite continuing widespread employer opposition, the minimum wage law has only been amended once, to exclude embroidery homeworkers from its coverage. In 1954 and 1955 the sugar bloc made a full-scale drive to reduce the statutory minimum by means of the establishment of provincial wage boards. Several bills were filed in Congress to this effect and the movement had the support of Secretary of Agriculture Araneta. A strong counter-attack in the press and within the cabinet by Secretary of Labor Adevoso prevented the move from getting beyond the talking stage. A temporary setback was, nevertheless, sustained when Congress adopted a rider to the annual public works appropriation bill allowing the hiring of public works laborers at the minimum agricultural rate of P2.50 per day. It became abundantly clear that all of Adevoso’s horses and men could not initially have pushed the minimum wage law through Congress unaided, fresh evidence that the law probably exists today only because of an American demand in 1951.

Labor relations legislation, given second priority to the minimum wage by the Quirino-Foster Agreement, was passed in 1953 with the use of very little American leverage. This was possible partly because it benefited an existing organized interest group, the labor unions. Many labor unions before 1953 were chafing under the powers which the Secretary of Labor held over them. Labor leaders who aspired to independence from Labor Department controls and to security against employers’ threats looked longingly on a draft law patterned after our Wagner Act. Employers, on the other hand, many of whom were adept at manipulating labor unions to their own ends, considered a draft which also included some provisions from the Taft-Hartley Act as a less direct. threat to them than the minimum wage, with its immediate financial burdens.

The “Magna Carta of Labor,” as the Industrial Peace Act is popularly known, was enacted into law on June 17, 1953. The Bell Report. had recommended that “trade unions should be encouraged that would be free from Communist influence, domination by the government, interference by management, and racketeering by labor leaders.”28 A bill to implement this recommendation, drafted by lawyers in the Department of Labor with the assistance of American advisors, was introduced into the Senate in May 1952 and passed the same month. The House had earlier passed a bill of the same name, but of a very different character. The conference report agreed upon was close to the Senate version. In fact, it was so close, effectively promoting intra-union democracy, freeing unions from government control, and strengthening their bargaining position with management, that the report was bottled up in the House Labor Committee for a whole year. The Chairman of the committee, Representative Pascual Espinosa, aside from being a sugar-bloc spokesman, was himself connected with a “union” which was actually a profitable labor contracting business.29 His union was a member of the federation backed by Secretary of Labor Figueras. Espinosa. felt that enactment of the bill would mean the beginning of the end for such unions; his premonition proved correct. In the meantime, several independent labor leaders made repeated calls on senators and representatives, and on the Secretary of Labor, who did not want to see his existing power over unions reduced by new legislation. The persuasive powers of both Americans and Filipinos finally convinced Secretary Figueras in March that. it would be to his political advantage?he was running for the Senate?to support this bill, which was obviously very popular among free union leaders. (Whatever support be received from labor was not sufficient, however, to elect him.) Figueras’s switch moved Espinosa. After a new compromise conference report was drawn up, it was approved by both houses hi May, 1953.

In the next three years the number of labor unions grew from 838 to approximately 2000. The numbers of strikes and of collective bargaining agreements filled with the Department of Labor grew also. Thanks to the liberating effect of the new law and vigorous espousal of free unionism by Magsaysay’s Secretary of Labor, Eleuterio Adevoso, labor was started on the road to becoming an independent political and economic force.

To train union leaders in techniques of responsible, democratic trade unionism, the United States aid mission also supported the Labor Education Center of the University of the Philippines. This was the first American government-sponsored trade union leadership training program in Asia since the occupation of Japan.

Agrarian Reform.30 Agrarian reform proposals in the Bell Report were tackled much more slowly than those on labor, mainly because landlords are both more numerous and more politically powerful than industrial employers in the Philippines. Furthermore, tenants, though outnumbering urban workers and possessing their own organizations, were for the most part. excluded from peaceful political processes until 1954 because their most. important means of organized expression, the Communist-led National Peasants Union, had been outlawed in 1948. Even in 1954 and after, when many new non-Communist tenant organizations began to be formed, they were relatively weak. Fear of Huk expansion, which was clearly based on agrarian unrest, had created some disposition toward agrarian reform among segments of the landed elite while the Huks were still powerful. After their military powers sharply diminished in 1953 and landlords’ authority over their land was re-established, however, the willingness of large owners to accept basic change declined.

Curiously, the trend of official American thinking on agrarian reform followed roughly the same course, for different reasons. In 1951 and 1952 “land reform” was a major emphasis in United States foreign policy; special conferences were called, proposals were made in the United Nations, and top American officials in Manila considered it an urgent necessity. By 1955 this emphasis had been lost. The orientation of Philippine administrative leadership, as distinguished from that of the landed elite as a whole, changed in the opposite direction, however, with a strong drive for agrarian reform appearing only in the Magsaysay administration.31

Given the attitude of the Philippine government at the time, the American aid mission began work in that aspect of agrarian reform least likely to arouse opposition, extension of credit to small farmers, one type of indirect reform.32 A report on rural credit problems was published in late 1951 by the mission’s rural credit advisor, John Cooper, proposing credit distribution both through cooperatives and through an administrative agency. A draft bill to this effect was included. Though it received the backing of the Chairman of the Philippine Council on U.S. Aid (PHILCUSA), Jose Yulo, it brought opposition from the Central Bank winch was in the process of proposing its own credit scheme, and thus was not given official PHILCUSA support.

At the same time, however, a progressive Filipino business man, member of a prominent land-owning family, proposed another bill on credit cooperatives, arid was able to get it introduced in Congress with bipartisan sponsorship. When he came to the Mutual Security Agency seeking its financial support for his proposal, which was offered, he was persuaded to incorporate many provisions of the Cooper draft into his bill. The cooperatives bill was passed by Congress in its 1952 session, but vetoed by President Quirino on the ground that it duplicated the Rural Banks Act, which the President had just signed, and that the appropriation of P10 million was an impossible strain on government finances.

Though the rural banks loaned nearly P2 million for agricultural purposes—69 per cent of their total loans?in the first year of operations, 63.5 per cent of the value of these loans was secured by real estate mortgages or chattel mortgages on buildings and equipment. Such loans might help small landowners but were of little assistance to the tenant, the man most in need of credit.33 Despite the establishment of rural banks, therefore, a cooperative credit system geared to the tenant’s situation was still a great need. Quirino was persuaded to certify to the 1952 special session of Congress a slightly revised version of the cooperative credit bill he had vetoed. Instead of a direct appropriation there was an authorization for a P100 million revolving fund, which would get its resources from the floating of government bonds, Congressional appropriations, and MSA counterpart fund releases. In that form the bill was passed.34

In practice the Agricultural Credit and Cooperative Financing Administration which the act established has also received large loans from the Central Bank.35 In the five-year period FY 1951-56 the United States aid mission gave it, in addition, $2.4 million in capital equipment and technical assistance, more than that received by any other Philippine government agency undertaking social reform. By the end of that period ACCFA had fostered the organization of 376 farmers’ co-ops with 225,000 members and had loaned to them over P90 million.36

The U.S. also spent over a million dollars in FY 1951-56 on public land classification and subdivision and on land settlement projects, an important aspect of a total agrarian reform program in a country which still has over 12 per cent of its area in arable but uncultivated public land. There was no appreciable Filipino opposition to this program, and results began to be shown even before the end of the Quirino administration. Intensified activity in the Bureau of Lands under Magsaysay gave a further spurt to issuance of titles to public land applicants. Between 1950 and 1956 the annual rate of issuing public land patents rose nearly twelve times.

An improved law on tenancy relations, drafted with the assistance of American advisors, was passed in 1954, though considerably weakened in Congress. Since on its face it did not increase the tenants legal share of the crop, the main advantage to the tenant came in its effective enforcement, a new departure in tenancy law administration in the Philippines.37 This was possible because of energetic administrators?some of the best in the Magsaysay administration?and because of increasing pressures from burgeoning tenant organizations.

But the core of a basic agrarian reform program, land redistribution, was never effectively implemented in the first five years of the United States aid mission in the Philippines, and its present prospects are not bright. The first, and last, major step toward an American-stimulated land redistribution in the Philippines was Philippine Land Tenure Reform, released in 1952 and known as the Hardie Report. Robert. S. Hardie, its author, had been in large part responsible for the success of the Japanese land reform under SCAP. He came to the Philippines with the same crusading spirit that had motivated his work in Japan, but with an inadequate understanding, perhaps, of the very different roles played by an aid mission to a sovereign state and by the “Supreme Command” of an occupying power in a defeated land. He set to work at once preparing a comprehensive description of the Philippine land tenure situation and a detailed, arid strongly worded, recommendation for radical reform. A strong recommendation could have been, as in fact it has been on other occasions, a catalyst for action. But unnecessarily offensive language and a lack of respect for proper channels prevented serious consideration of the substance of this report.

Hardie proposed the abolition in so far as possible of the institution of tenancy in the Philippines,” i.e., government purchase for resale to tenant cultivators of all farm land owned by absentee landlords and all land over four hectares owned by non-cultivating resident landlords. That portion of his blunt language which later appeared to have most offended Philippine officialdom was the paragraph:

Continuation of the [land tenure] system fosters the growth of communism and harms the U.S. position. Unless corrected, it is easy to conceive of the situation worsening to a point where the U.S. would be forced to take direct, expensive, and arbitrary steps to insure against loss of the Philippines to the Communist block in Asia?and would still be faced with finding a solution to the underlying problem.

Long before its release the Hardie Report became a subject of heated debate within the aid mission. But Hardie would not agree to compromises in either language or substance proposed to him by both American and Filipino friends, many of whom were strongly in favor of land reform themselves. Moreover, he had the support of Ambassador, and retired Admiral, Raymond Spruance, who believed in the value of a strongly worded report to provide a “shock treatment” to Philippine officials. While the intra-American debate still raged, Ambassador Spruance “leaked” the report to the press late in December 1952, more than three months after a copy marked “not. for release” had been delivered in Malacañang.

Officialdom was indeed shocked, Speaker Perez called the report “Communist inspired,” and asked for an official protest to be made to the American government. The House Committee on Un-Filipino Activities issued a long statement explaining how the report achieved the aims of Communist propaganda. On January 7 President Quirino called Ambassador Spruance, MSA Chief Roland Renne, Hardie and several other U.S. officials to Malacañang and “read them the riot act.” He complained bitterly that the reference to “intervention” was a violation of Philippine sovereignty. Quirino’s language was so strong that some of those present feared that. the Philippines would cut itself off from further American aid; Speaker Perez reported later that such a step was considered at the time. But 1953 was an election year. Since their benefits were rather widely felt, and since the Liberal Party had already claimed credit for them, the stopping of the many MSA projects might have meant political disaster.

The opposition Nacionalistas made capital out of the Hardie Report. In fact, Quirino admitted that he was not so disturbed about the substance of the report itself as he was about the use of material and language in it for political attacks on government policy. Nacionalista solons, who just a month before had been criticizing the MSA in a Congressional investigation of the slow implementation of the aid program, now in January mapped plans for an information campaign to keep alive the issues raised by the Report.38

Though many Liberal Congressmen supported Speaker Perez, some also saw pos6ible political advantage in a hold land reform proposal in all election year. For example, Representative Alias, chairman of the House Ways and Means Committee, and member of PHILCUSA, proposed to the latter body the allocation of P30 million in counterpart funds to finance the implementation of the Hardie Report, which he called “one of the vital tasks of Congress in the current session.”39 But this motion met vigorous objections from Chairman Yulo, who said the Council could only implement reports which it had approved. The Hardie Report had never received PHILCUSA endorsement, or even official recognition. This revealed a damaging tactical error: in fact, Hardie made no serious attempt to obtain Yulo’s endorsement..

By the time Magsaysay was inaugurated in 1954, top US officials in Manila had changed too. Hardie was gone, and the chief of the Agricultural Division of ICA was soon to say: “Land transfer is not a necessary part of an agrarian reform program.” There was no attempt in the aid mission to use Hardie’s more extreme proposals as a bargaining position to effect a modified, but still radical, land reform program. When the Magsaysay administration itself introduced a land reform bill into Congress, it. faced stiff opposition. The bill was finally passed only after being so watered down as to be little improvement over existing legislation. FOA, then ICA, officials passed up several opportunities either to encourage proponents or to exert pressure on opponents to bring about the passage of a strong bill.

Strengthening the Middle Class. The three aspects of social reform so far discussed have the effect, when successful, of narrowing the range of inequality in Philippine society. Progressive taxes fall most heavily on large incomes, while labor and agrarian reform improve the economic status of the poorest groups. A balanced reform effort, must also strengthen the middle class. From this group the next. generation of political leaders is likely to come. It is important that they be able to meet their aspirations.

The United States aid program in the Philippines has taken some steps toward providing greater opportunity for small and medium-sized entrepreneurs, With ICA assistance an Industrial Development Center was established in Manila in February 1955. In its first year of operation it extended grants in dollars and loans in pesos totaling nearly $32 million. Ninety manufacturers received an average of $335,000 each.40 In addition to financial assistance the Center provides a unique management and engineering consultant service. The Philippine IDC has been sufficiently effective so that. it is now being duplicated in Vietnam. Increasing opportunities for manufacturers producing for local consumption will have important long-term repercussions in a political arena dominated by export producers.

Effective public administration is also necessary to implement any reform program. Nearly 5% of the total U.S. economic assistance expenditures in the Philippines from 1951 to 1956 was spent on public administration projects, almost all on improving the organizational structure of administration and the skills of administrators. Significant progress was made in several fields.

But there was less immediate success in creating greater economic security for the civil servant, an important segment of the middle class. The cost of living in 1956 was about n times what it was in 1940. Though the minimum wage law in 1951 fixed P1440 as a minimum yearly salary, thus raising the income of the most poorly paid, many salaries in the middle and upper brackets had not been changed since before the war. Louis K. Kroeger and Associates, working under an MSA contract and in cooperation with the Wage and Position Classification Office of the Budget Bureau, drafted, after careful study, an entirely new classification system which raised salaries in some brackets and provided a rational framework for further increases. Though presented to Congress by the President in 1956, funds to implement this new classification system were not made available until FY 1958. Even then they were inadequate, Middle and top bracket. civil servants are still denied the degree of financial security their position of responsibility demands,

Despite some measurable progress, an aid program which set out to “strengthen democratic institutions in the Philippines still has much unfinished business. The Mission has failed to create an honest and efficient system of tax administration, to undertake basic land reform, or to establish a secure and economically independent civil service. None of this can be accomplished by Americans; these are jobs for Filipinos. However, they may not be done by Filipinos in the near future without strong and persistent American encouragement to those Filipinos who want to do these things and financial assistance to well-designed plans for accomplishing them.


Though unfinished business remains, Philippine democratic institutions were nevertheless visibly strengthened during the first five years of Bell Report implementation. The American aid program was, of course, only one of several factors affecting political progress. Some writers contend that. economic factors are of overwhelming importance.41 The economic condition most conducive to the growth of free political institutions is generally thought to be a steadily rising level of living. But it. is not enough that it should rise; there should also be indications that it will continue to rise, and at a rate sufficiently rapid to make expectations roughly commensurate with aspirations.42

Filipino aspirations are high compared with those of their Asian neighbors, Large per capita expenditures on educational operations, a high level of literacy, and extensive contact by the populace with more advanced levels of living through the mass media serve to make them so. In fact, the elite has nearly American tastes. Actually, however, the Philippine level of living is more nearly comparable with that of the rest of Southeast Asia than with the American.

World War II wrought havoc on the Philippine economy even more destructive than elsewhere in the area. Though the years 1945 to 1949 witnessed much reconstruction, by 1950 the Philippines had not regained prewar levels in many spheres of economic activity, Thus rapid economic growth in the. first three years after the Bell Report might be considered as only the end of the period of rehabilitation. Beginning in 1954 most economic indices having a direct political impact noted a slowing in the rate of growth,43 even though the economically significant production index rose more rapidly. This is shown in Table 1.


1950-53 1953-56
% total increase for period
1. Real wages of unskilled workers in Manila
23 5 *
2. Real wages of skilled workers in Manila
1 3
3. Peso wages of agricultural workers
21.7 3.8 +
4. Per capita cereals production
7 0
% average annual rate of growth
5. Employment index in manufacturing
3.7 2.7
6. Employment index in government
4.4 6.4
7. Employment index, all non-agricultural industries
2.7 3.2
8. Index of physical volume of production
9 11
(millions of pesos)
9. Paid-in capital of newly registered firms
P183.6 P143.8
  • This is an economic indication of the partial success of social reform; the minimum wage law had a major impact in the first two years after its enactment. However, this index is compiled from firms in the Manila metropolitan area. The impact of the law on national wage rates was much less; outside Manila enforcement was more lax, especially the earlier period.

+ Prices were fairly stable.

Sources: #1 and #2?Central Bank of the Philippines, Statistical Bulletin, December 1956, p. 237; #3?Central Bank, Annual Report, 1956, pp. 71-72; #4?ECAFE, Economic Survey of Asia and the Far East, 1954, p, 184; 1956, p. 179; #5, #6, #7?Central Bank, Statistical Bulletin, December 1956, p. 229; #8?Ibid., p. 167; #9?Ibid., p, 80.

One might have expected from indices 1, 3, 4, 5 and 9, denoting a rapidly rising level of living, that optimism and progress would have been the keynote of the 1950-53 period, raising expectations if not also aspirations. From these indices one might also have expected a decline in expectations and increasing unrest from 1953 to 1956. (A more rapid rise in the production index?at a rate 3 1/2 times that of population growth?than the increase in wages in the second period could mean an accentuation of a top-heavy distribution of wealth.) But if the political climate of the two periods can be characterized at all, it was just the reverse of what those economic indicators might have led one to expect. However, it should be remembered that the political effects of changes in economic conditions are frequently delayed, especially in the comparatively unorganized economies of Asia. Furthermore, indices 2, 6 and 7, showed a slight upturn in the second period.

One more economic criterion with great political significance also helps to explain the trend of economic indices 6 and 7, i.e. government expenditures. From 1953 to 1956, while tax revenues grew 19 per cent, governmental capital and operating expenditures increased about 21 per cent, whereas in the 1950-53 Period tax collections had grown faster than government outlays. The kind, of government expenditure which is most obvious to the citizen, and thus has the 1110.8t favorable impact on their expectation of future goods and services is public works?schools, hospitals, roads, bridges and irrigation systems. During the entire Quirino administration only about P300 million was released for public works construction, while in the first two years of the Magsaysay administration nearly P550 million was appropriated, most of it from bond issues. Though slightly less than half of this had actually been spent by the end of FY 1956, politically speaking it was a most rewarding outlay. It brought favorable consequences for the Nacionalista Party as early as 1955 when, for the first. and only time since the war the party in power won a majority?and a substantial one, at that?in a free election. Strengthening the incumbent is, of course, not always synonymous with strengthening democratic institutions; in this case there may have been some correlation, however,

Public works, though important, were obviously not the only reason for the election victory of 1955. Magsaysay as a person had provided more dramatic leadership and the Magsaysay administration had provided more effective and responsible government than the Filipinos had had since the war. He had won an election without public works in 1953. In fact, the personality of Magsaysay

so significant in explaining Philippine political developments that it clearly reveals the inappropriateness of an attempt to find a purely- economic rationale. He handsomely fulfilled traditional Filipino expectations of the fatherly leader concerned for the welfare of his people. Fortunately for the aims of the aid program, the traditional paternalism of his leadership was tempered by a re-spent for democratic processes, and rights of free association. His “fatherly concern” was expressed, in part, through espousal of social reform and support for its effective administration. Yet the very magnetism of his personality was enough to cause a partial breakdown in the traditional hierarchy of rural leadership and thus, from the middle class standpoint, to reduce the urgency of land redistribution.

The evident “strengthening of democratic institutions” in the Philippines from 1950 to 1956 was, therefore, not. determined solely by economic factors, or by the nature of political leadership, or by American-assisted social reform. But in some situations the last mentioned factor may have been decisive. The suppression of the Communist-ed agrarian rebellion is a case in point.

Governments put down armed rebellions by force, and the Huks’ defeat is due largely to the reorganization and reinvigoration of the morale of the Philippine Army and Constabulary undertaken after Ramon Magsaysay became Secretary of National Defense, lie was helped by gifts of equipment and by a. training mission from the United States. However, a rebellion with mass support in the countryside can only be permanently defeated by the removal of the causes of mass unrest. In the Philippines one of these was agrarian injustice. Magsaysay saw this, and even before he became President in 1954, the Department of National Defense had established its own resettlement project for surrendered Huks on public land in Mindanao. This project received more than a half-million pesos of United States aid in 1953. Though the major fighting had ended by 1953, the Huks’ hold on mass sympathies was broken only after the rapid expansion of cooperative credit and marketing, public land resettlement, and the tenure security program by the Magsaysay administration with American aid and advice. In this way Magsaysay built popular faith in the government and raised expectations for the future. The task of actually establishing a just pattern of agrarian relations had only begun, however. The marked lag in the tempo of reform since Magsaysay’s death has dangerous implications, threatening future Philippine agrarian unrest.

In fact, it is not only the Garcia administration’s failure to push through agrarian reform programs which now provides cause for serious concern. The vigorous efforts under Magsaysay to reduce graft and corruption, which had such a favorable impact on national morale, have now been replaced by a crescendo of “anomalies” which, with some justification, have been called worse than those under Quirino, With good reason, Garcia’s situation is more difficult than Quirino’s. Denied by public opinion and new administrative safeguards the use of violence which helped return the Liberal Party to power in 1949, and without Magsaysay’s personal attractions, Garcia felt forced to wage the most expensive election campaign in Philippine history, He is now paying for it in jobs and “deals.” Though much of the corruption is not within his ken, he is in no position to discipline errant cohorts. His strength is based on the provincial party leaders who delivered the vote arid are now collecting their debts. Tho economic consequence of two years of this irresponsibility is that some of the new consumer goods industries which were started under a fairly effective exchange control system are now having to close. Tax revenue and foreign exchange earnings are down; unemployment is up. Cash shortages in the treasury, as in 1950, are making it impossible to pay government employees promptly. The way in which power is achieved largely determines the way in which it is exercised.

This period of retrogression need not be looked upon as a failure of the American assistance program, however. In the first place, any judgment on the program’s accomplishments at this point would he premature. Secondly, unrelated phenomena may be decisive, and finally it is possible to see factors that may contribute to a favorable resolution of the present crisis?some of which are partly the result of United States assistance?and that were not present in 1950.

Because all but two of the top leaders of the Philippine Communist Party have either been killed or captured and the Huks’ armed strength nearly broken there is less urgency to the present crisis. (Insofar as this causes political leadership to be. less willing to undertake basic reform, it is, of course, no advantage.) Even with a complete breakdown of national morale it would take the Huks two or three years to recover significant strength; given the shift in Communist tactics in Southeast Asia in the last few years it is doubtful whether a Huk resurgence would be armed. A military coup is also unlikely, partly because Nacionalista Party leaders are vigilantly aware of the danger and skilled at counteracting suspicious tendencies.

There is, therefore, time for Philippine political parties to work out a solution via the electoral process. The opposition is stronger today than it was in 1950, having polled a combined majority in 1957. Middle class elements, which formed the backbone of Magsaysay’s support, have been strengthened in the last decade. That segment of the middle class engaged in manufacturing for local consumption is more than ever aware of the need for an honest and efficient Bureau of Customs and exchange control system, aware also of the discriminatory advantage for exporters when illegal foreign trade transactions ran he arranged with impunity. Furthermore, as evidenced in the strong Progressive Party vote in Central Luzon in 1957, disgruntled farmers are both more willing and more able to file their protests at the polls than in 1949.

Perhaps the most important of all the new factors, however, is the imprint of Magsaysay on the Filipino political mentality. The election and administration of Magsaysay taught the Philippine electorate that it was possible to defeat an incumbent President in an honest election, and that government could be concerned for the people’s needs. The Magsaysay era did not simply raise expectations, it gave many thousands a sense of participation in the governmental process that they had not known before. It provided political experience which should serve to make future mass organizations more effective,

Another new factor in 1959 politics may or may not prove to be helpful in the resolution of crisis; this is nationalism. Unless present outstanding disputes are allowed to linger, then fester, it will probably not be strong enough to affect the character of party alignments, or to prevent the manipulation of American assistance from again playing a constructive, i.e., reforming, role.


Does the Philippine experience hold any lessons of general applicability for United States foreign aid administration? Among those students of foreign aid who have admitted that American-assisted social reform has contributed to the Philippines’ democratic growth, the Philippine experience has frequently dismissed as unique, as incapable of being repeated elsewhere in Asia.44 In many ways it is; for instance, in the long history of close and cordial relations between the two countries. The peaceful transfer of sovereignty by the United States has helped the Philippines to avoid the most virulent forms of nationalism, allowing Filipinos who appreciate some of the constructive goals of U.S. aid to acquiesce in considerable American intervention. So the nature of the rapport between the officials of the respective governments sets specific disagreements against a background of mutual trust and understanding, in most cases.

The almost total lack of a linguistic barrier to communications between Filipino and American officials cannot be duplicated in the Far East, Its absence has allowed Americans to make wider official and unofficial contacts with local residents than in other Asian countries, thus permitting a clearer understanding of the variety of political groups competing for power and giving ICA personnel greater flexibility in dealing with controversial questions. The sharing of certain elements of the same political and administrative tradition by Filipinos and Americans is also unique. However, Philippine and American cultural affinities should not be overestimated. Nor does the linguistic barrier in other countries have to be an insurmountable one. A revision of personnel rotation and training policies could reduce that barrier substantially.

Despite these unique elements, an analysis of Philippine developments can be helpful in understanding some of the principles involved in aid administration and their significance for programs in other underdeveloped countries, particularly in Asia, where social reform is urgently needed. In fact, some of the characteristics of the Philippine political and economic situation are also to be found in other Asian countries, e.g,, Vietnam and Korea. American policy makers may, indeed, have greater opportunity to “intervene” in order to direct social change than they have sometimes recognized.

First, the felt need for United States aid indicates that the Philippines is not unique in all respects. The intensity of need helps determine the degree of leverage that foreign aid may exert in the domestic politics of the recipient country. This need is generally created by at least three factors, first. of which is the economic situation, and its immediate political consequences at the time aid is originally proffered. Rapid economic and political deterioration were certainly the prospects for the Philippines in 1950 without United States aid, But this was even more strikingly true for South Vietnam on the inception of the post-Geneva. Agreement aid program there, or in Korea at an earlier date.

After an aid program has been initiated, its size relative to the domestic economy, and especially to domestic revenues, largely determines the recipients’ feeling of need. In the Philippines in FY 1952, the peak year, American aid amounted to slightly less than 11 per cent of all government revenue, and this percentage has declined since to less than seven. By contrast, in FY 1956 in South Korea, and in South Vietnam in 1955, our aid, not including military hardware, was. more than double the total government revenue from all other sources.45 Thus, in purely economic terms United States aid in these countries provides a far greater leverage for institutional change than it has ever had in the Philippines.

Furthermore, in these countries the opportunity for getting foreign aid from other sources is practically nil. This is the third determinant of felt need. Aid from the Soviet bloc is out of the question for political reasons, and in the case of Korea, Japanese aid?even Japanese trade?has been refused as well. In the Philippines, however, if the reparations agreement is fully implemented, it will play a much greater role in the Philippine economy during the next few years than American assistance, if the latter stays at current levels. In 1956 there was also serious talk of a trade agreement with West Germany which would have included substantial long-term credits.

Admittedly, however, the Philippines did not and does not now have one bargaining instrument against the leverage of American aid which South Korea and Taiwan possess, namely, the capability of threatening or undertaking independent military action, with all the uncertainties and risks that might entail. But this danger may be overrated, since it now appears that the location of our armed forces and our control over the flow of crucial supply items make its execution at least improbable, if not impossible. Nevertheless, the very contemplation of such a move disregards economic considerations and is, from the American point of view, irrational. It is thus extremely difficult to cope with.

In the second place, in assessing the practicality of attempting to foster social reform as part of a foreign aid program, Philippine experience has shown that we must consider the strength of the political and social forces to be aided by reform measures and, likewise, the strength of those to be hurt. The pattern of these strengths in the Philippines substantially influenced the outcome of reform efforts. The greater ease with which effective labor reforms could be enacted, compared to the difficulty with land reform, gives some indication of the importance of these considerations. Another illustration was the American-assisted land reform in Taiwan, possible only because refugees from the mainland, not Taiwanese landlords, dominated the political elite.

There are large labor and farmers’ organizations in Korea, Taiwan, and Vietnam, which enjoy varying degrees of independence of governmental control, and which would probably welcome discreet American “intervention” on their behalf. Where it government itself is pushing social reform, as in Burma or India, it is difficult to imagine such groups modifying their nationalist oricnta6m sufficiently to accept American aid. or advice. But when labor and agrarian leadership see a clear-cut conflict between the interests of their respective groups and those of the dominant political elite, it is an empirical question Whether the latter’s manipulation of nationalist symbols will be able to counteract the former’s desire for foreign assistance.

The Philippine experience also calls attention to the fact that helping to build ostensibly economic institutions and support for particular social policies can have rapid and far-reaching political consequences, which tend to facilitate future reform. The democratic organization of agricultural credit and marketing cooperatives has begun to disrupt the traditional pattern of political leadership in many communities. Veteran politicians took this into account in 1957, 1VIWil the Liberal Party included among its senatorial candidates the politically inexperienced Osmundo Mondonedo, former administrator of the Agricultural Credit and Cooperative Financing Administration. The growth of unionism was also recognized in 1957 by the first nomination of a full-time labor leader to a Senate seat. Neither of these candidates was elected, however.

The political arrangement, involving the end of “block voting,” which made possible the passage of new tax legislation, has been of even greater long-term significance. Leverage from outside the Filipino political elite speeded a change in the Philippine constitution?taken in its broad sense?more important. than any other since the war. The abolition of block voting was a key factor in making possible the direct expression of farmer and labor interests through a third national political party, the Progressives, in 1957. This was a political by-product of the Bell Report implementation which had not been planned. Nevertheless, a broader lesson can be drawn from this incident. The split within the elite which was resolved by trading fiscal reform for an election law revision did not presuppose a two-party system. The Nacionalista Party was very weak at that time; controversy among Liberals created deadlock and forced a compromise. Even though the new taxes enacted did not constitute very significant reform, the character of the incident would seem to support the proposition that in the context of controversy within a conservative elite the pressures exerted by a. foreign aid program can be a catalyst for social progress.

Partly because of the strategic situation and partly because of the welfare orientation of Magsaysay himself, the Philippine aid program did not suffer from the disadvantages of attaching inordinate importance to military assistance. A heavy emphasis on short-term military build-up can make it very difficult, if not impossible, for aid administrators in some countries to give proper attention to strengthening reform forces. In Taiwan and Korea, for instance, even if “military assistance“is defined as to include only direct forces support and military hardware, it accounts for a majority of U.S. aid, This budgetary allotment does more than deprive some social and economic programs of funds. With such an emphasis determined in Washington it is hard for the field administrator to assert that an objective of economic aid is to guide social change, or to encourage it, even if he wants to. This is especially true if pressure for reform seems to necessitate a threat, explicit or implicit, of a suspension of aid.

Between FY 1951 and FY 1957 military assistance, including defense support, grew from 38 per cent to 84 per cent of U.S. foreign aid appropriations. Though it. has dropped again in FY 1959, military assistance is still about two-thirds of the total. Nine well-informed members of the Senate Foreign Relations Committee complained to the President last September about the “overemphasis on military assistance.”46 Such overemphasis, they wrote, “has tended unavoidably to involve the United States in situations in which our aid may have contributed to the maintenance in power of regimes which have lacked broad support within the countries we have assisted.”

Thus we face a dilemma. Chester Bowles has described it well: “Often … our assistance is used, not to speed reform, but to postpone the need for it, and thus to protect the power and prestige of the anti-democratic right-wing groups which are clinging … to the past … Assistance grants designed to slop Communism by such a narrow means must ultimately fai1.”47

In seeking a way out of that dilemma, much rests in the discretion of the makers of American foreign aid policy. Aid administrators in the Philippines during the earlier years were dedicated to the proposition that. the stimulation of social reform was a necessary and proper function of the mission?so important a function, in fact, that they were willing to risk a temporary rupture in good relations between the two governments for the sake of what they considered long-range American and Philippine interests. Other attitudes have produced aid programs of a very different character. One might conclude that, in practice, the way in which American officials define the character of our short and long-term interests, as well as their evaluation of the social, political and economic situation in a particular country, is more important in determining foreign aid policy than any one objective factor which they might be compelled to recognize.


fn*. Field research for this article was made possible by a grant from the Ford Foundation. However, the Foundation is in no way responsible for the opinions expressed here, or for any errors of fact or interpretation.

1 Two doctrinaire liberal dissents from this view may be found in the Yale Review: Milton Friedman, “Foreign Economic Aid: Means and Objectives,” Vol. 47 (June 1958), pp. 500-516, and Irving Kristol, ?The Ideology of Economic Aid,” Vol. 46 (June 1957), pp, 407-510,

2 The most carefully argued dissent from this proposition is to be found in Zbigniew Brzezinski, ?The Politics of Underdevelopment,” World Politics, Vol. 9 (October 1956), pp. 55-75. He contends that. economic development requires totalitarian regimes.

3 This has been proposed, however by William O. Douglas in Strange Lands and Friendly People (New York, 1951); and by Max Millikan in “How Much Trade—How Little Aid?,” Foreign Policy Association Headline Series, No. 121 (January-February 1957). Millikan says, We can advise and help [underdeveloped countries to] reorganize their own social and economic institutions to make more productive economic activity possible,” Hans Morgenthau in “The Frustrations of Foreign Aid,” New Republic, Vol. 134 (March 26, 1956), pp. 13-15, says ?it is quite possible that foreign aid, in order to lie effective, requires a political change either in the composition of the government or in the over-all political structure. There must be a policy then on how to interfere with the political processes of the foreign country. Peggy and Pierre Streit in “Close-up of Foreign Aid Dilemma,” New York Times Magazine, April 13, 1958, p, 103, have said, “A foreign aid program that recognizes the need for social and political development as well as economic development, that seeks to promote both hand in hand, is one of the few instruments the U.S. has to cope with some of the fundamental problems of … Middle Eastern countries.” A similar view, phrased in more academic language, is to be found in Lucian W. Pye, The Policy Implications of Social Change in Non-Western Societies, Center for International Studies; M.I.T. (Cambridge., 1957), p, 69 ff.

4 U.S. Se_nate, Foreign Aid, Report of the Special Committee to study the Foreign Aid Program, 8_5th Cong., 1st. Sess., S. Rept.. No, 300, May 13, 1957.

5 Prepared at the. request of the Special Committee to Study the Foreign Aid Program, Senate, 85th Cong., 1st Sess., Committee Print.

6 Ibid., p. 20.

7 See Streit and Streit, op. cit.

8 As we shall see, however, in certain situations this might be good tactics.

9 Research Center in Economic Development and Cultural Change, University of Chicago, The Role of Foreign Aid in the Development of Other Countries, prepared at the request of the Special Committee to Study the Foreign Aid Program (1957), p, 76.

10 Thomas Schelling, “American Foreign Assistance,” World Politics, Vol. 7 (July 1955), p. 623,

11 See Charles Wolf, Jr., “Economic Development and Reform in South and Southeast Asia,” Far Eastern Quarterly, Vol. 12 (November 1952), p, 40. Dr. Wolf has called such related programs “competing incentives.”

12 See Charles Wolf, Jr., “Soviet Economic Aid in Southeast Asia,” World Politics, Vol. 10 (October 1957), pp. 91-101. See also Willard L. Thorp, “Strings on Economic Aid,” Yale Review, Vol. 44 (Winter 1955), p. 207.

13 Despite Secretary Dulles’ testimony to the contrary before a Congressional committee, New York Times, August 11, 1957.

14 See Thorp, loc. cit.

15 “Foreign Aid and the ‘Spirit we are of’”, Reporter, June 28, 1956.

16 Shirley Jenkins, American Economic Policy Towards the Philippines (Stanford, 1954); p. 137.

17 Manila Chronicle, October 26, IMO. Authorship of the release was traced to the Prc.sident’s private secretary, but Quirino disclaimed any responsibility.

18 Manila Chronicle, November 9, 1950.

19 Manila Chronicle, December 3, 1950.

20 Congress of the Philippines, Congressional Record, House, Dec. 21, 1950, p. 843.

21 See James Dalton, “Ins and Outs in the Philippines,” Far Eastern Survey, Vol. 21 (July 30, 1952), pp. 117-123.

22 Increased personal income, estate, gift and residence taxes were still not passed, but the other new taxes were deemed sufficient by the administration to balance the budget.

23 See Rep, Ramon Durum in Congressional Record, House, March 16, 1951, p. 791.

24 See Emiliano Morabe, The Minimum Wage Law (Manila, 1954), ch. I, “Legislative History.?

25 In July 1952, for example, it was discovered that from 1945-50 over P51 million of delinquent income tax assessments had accumulated, or nearly 20 per cent of the total tax revenues for 1950. See Ray Davis, Special Report on Income Tax collection of the Bureau of Internal Revenue (Manila, 1953), p. 19. Over P10 million of this was collected in the first six months of screening records.

26 Central Bank of the Philippines, Ninth Annual Report, 1957.

27 Wage Administration Service, Annual Report for Calendar Year, 1955, and Report, FY 1956.

28 Economic Survey Mission to the Philippines, Report, p. 90.

29 See Leon O. Ty., “Solution to the Guam Labor Mystery,” Philippines Free Press, March 6, 1954, pp. 4, 53; “More Serious Than We Thought,” PFP, March 13, 1954, pp. 4, 61; “An P18,000,000 Question,” P_FP,_ March 20, 1954, pp, 5, 65; “The President Takes a Hand,” PFP,, March 27, 1954, pp, 4, 65.

30 ‘Agrarian reform’ refers here broadly to a transformation of the political and economic power structure in rural society. ‘Land reform,’ unless in full quotes, refers only to direct attempts to change the pattern of land ownership.

31 See the author’s “Philippine Agrarian Reform under Magsaysay,” Far Eastern Survey Vol. 27 (Jan.-Feb., 1958).

32 Economic Survey Mission to the Philippines, Report, pp. 57, 59.

33 Rural Banks Administration, First Annual Report, 1953, pp. 20-23.

34 Republic Act 821.

35 During the first two fiscal years of operation, ACCFA received nearly P4 million from counterpart funds, more than from Philippine government sources. See United States Operations Mission, The Philippine FOA Agricultural Program, 1954, p. N2.

36 ACCFA, Progress Report on Cooperation, tabulated as of July 31, 1956, Also, Co-Operative Farmer, Vol. 4 (Sept. 1956), p. 9.

37 Over one-third of the first year’s budget of the enforcing agency, the Agricultural Tenancy Commission, came from FOA counterpart funding. Since then it has received regular budget support.

38 Manila Times, January 10, 1953.

39 Manila Times, February 15, 1953,

40 See IDC, First Semi-Annual Report to the President, October, 1955; Second Semi-annual Report, May 1956. The average is very deceiving. In apparent violation of the purpose of the project, nearly 20 percent of the total grants and loans went to one enterprise.

41 See above, p. 460.

42 The most comprehensive analysis of the economic indices of aspirations and expectations and the meaningfulness of their relationship for political developments is being done by Charles Wolf, Jr. See his Economic Development and Mutual Security: Some Problems of U.S. Foreign. Assistance Programs in Southeast Asia, RAND Corp., Research Memo 1778-RC (August 1956), esp. pp. 19-53.

43 Benjamin Higgins, “Development, Problems in the Philippines: A Comparison with Indonesia,” Far Eastern Survey, Vol. 26 (November 1957), p. 165.

44 Note, for instance, the implication in John Kerry King, Southeast Asia in Perspective (New York, 1956), p. 235.

45 ECFE, Economic Survey of Asia and the Far East, 1957, p, 33; and The Mutual Security Program, FY 1956, Washington, 1955).

46 New York Times, September 10, 1958.

47 “A New Approach to Foreign Aid,” Bulletin of the Atomic Scientists (February 1957), pp. 42-47,

Categories Philippines, General politics