Philippine Business History: Why Some Business Cronies
and Business Legends Didn't Last.
Key Learning Points
From The Business Cronies Era:
From The Economist:
- “Rent-seeking” is what economists call a special type of money-making: the sort made possible by political connections. This can range from outright graft to a lack of competition, poor regulation and the transfer of public assets to firms at bargain prices. Well-placed people have made their fortunes this way ever since rulers had enough power to issue profitable licences, permits and contracts to their cronies.
- Dynamic new firms are stifled by better-connected incumbents. And if linked to the financing of politics, rent-heavy capitalism sets a tone at the top that can let petty graft flourish. When ministers are on the take, why shouldn’t underpaid junior officials be?
- Governments need to be more assiduous in regulating monopolies, in promoting competition, in ensuring that public tenders and asset sales are transparent and in prosecuting bribe-takers. The boom that created a new class of tycoon has also created its nemesis, a new, educated, urban, taxpaying middle class that is pushing for change. That is something autocrats and elected leaders ignore at their peril.
The largest, most productive, and technically most advanced manufacturing enterprises were gradually brought under the control of Marcos's cronies. For example, the huge business conglomerate owned by the Lopez family, which included major newspapers, a broadcast network, and the country's largest electric power company, was broken up and distributed to Marcos loyalists including Imelda Marcos's brother, Benjamin "Kokoy" Romualdez, and another loyal crony, Roberto Benedicto. Huge monopolies and semimonopolies were established in manufacturing (Lucio Tan), construction(Rodolfo Cuenca), and financial services. When these giants proved unprofitable, the government subsidized them with allocations amounting to hundreds of millions of pesos. Philippine Airlines, the nation's international and domestic air carrier, was nationalized and turned into what one author has called a "virtual private commuter line" for Imelda Marcos and her friends on shopping excursions to New York and Europe .
Probably the most negative impact of crony capitalism, however, was felt in the traditional cash-crop sector, which employed millions of ordinary Filipinos in the rural areas. (The coconut industry alone brought income to an estimated 15 million to 18 million people.) Under Benedicto and Eduardo Cojuangco, distribution and marketing monopolies for sugar and coconuts were established. Farmers on the local level were obliged to sell only to the monopolies and received less than world prices for their crops; they also were the first to suffer when world commodity prices dropped. Millions of dollars in profits from these monopolies were diverted overseas into Swiss bank accounts, real estate deals, and purchases of art, jewelry, and antiques. On the island of Negros in the Visayas, the region developed by Nicholas Loney for the sugar industry in the nineteenth century, sugar barons continued to live lives of luxury, but the farming community suffered from degrees of malnutrition rare in other parts of Southeast Asia.
“The business crony who engineered the Bataaan Nuclear Power Plant deal for Ferdinand was Herminio Disini. Disini was part of the royal family, married to Inday Escolin, a first cousin of Imelda Marcos who also served as one of her physicians. Like Eduardo Cojuangco, Disini was twenty years Ferdinand’s junior.” Disini built Herdis Group, Inc., a conglomerate of fifty companies with $1 billion in assets. From The Marcos Dynasty, by Sterling Seagrave
Another Marcos business crony was Ricardo Silverio. He owned and/or controlled several giant companies that included automobile company (Delta Motors-Toyota), industrial engine maker Kawasaki, and construction equipment manufacturer Komatsu Philippines.
Why Some Companies Last and Others Don't
- You don’t compete with yourself last year. You compete with your competition today. And so very frequently, organizations have to be more efficient to find ways to cut costs over time simply to stand still with respect to their competition.
- A lot of folks get caught up comparing themselves to themselves in the past, and that really takes you down a blind alley.
- Is it better to keep price down or invest in creating value that commands a higher price?
- Should you focus on talent and developing the abilities of your people or build processes to extend the capabilities of your organisation?
- How about acquiring a sizable competitor to secure economies of scale—or a small start-up to gain access to new technology?
The Business Legends: Soriano, Elizalde and Palanca
Andrés Soriano (February 8, 1898 – 1964), also called Don Andres Soriano, was an influential Filipino-Spanish businessman of the early 20th century. He was well known for expanding the San Miguel Brewery that eventually became as San Miguel Corporation.
In the 1930s, Soriano established ANSCOR (A.Soriano Corporation) as a holding company for his investments. Initially, the Company concentrated on natural resources and basic industries investing in Atlas Consolidated Mining and Development Corporation, Phelps Dodge Phils. and Atlas Fertilizer Corporation.
Andres' management company, A. Soriano y Cia, eventually went into insurance; gold-mining (Antamok Mining which together with the companies of John Hausserman and Jan Hendrik Marsman made the Philippines second only to California as the top gold producer of the world); oil exploration (PODCO); airline (PAL - Philippine Air Lines); copper-mining (Atlas Consolidated); copper wire manufacture (Phelps Dodge of the Philippines); fertilizer from pyrite (Atlas Fertilizer); logging and lumber (Bislig Bay Lumber); paper manufacture (PICOP); fluorescent lamps and incandescent bulbs (PEMCO); jute bags (ITEMCOP); steel drums (Rheem of the Philippines); mass communications (Herald Publishing and Channel 13). Atlas Consolidated grew to be the largest copper mine of its time in the Far East and one of the ten largest copper mines in the world.
At the time of his death, in 1964, his firms were moving into ramie, glass manufacturing, cattle ranching. From Wikipedia
Don Manolo Diaz-Moreu established the first radio station in the Phlippines, KZRH in 1940 which became the Manila Broadcasting Company. He owned steel, hemp, paint and wine factories, along with a media empire of radio, television and newspapers, and a hacienda and sugar central in Negros Occidental. He served as the resident commissioner and Philippine ambassador to the US. From www.geni.com
Elizalde and Company
A once famed Philippine-Spanish business family, whose conglomerate firm, Elizalde & Co., formerly had interests in broadcasting, paints, waxes, ropes, sugar and its derivatives (Tanduay Rhum), and firearms (Elisco).
Today, only the broadcasting unit (MBC) remains. From Wikipedia
Carlos Palanca, Sr. was one of the most prominent Filipino-Chinese or Tsinoy businessmen and philanthropists during the American era. Palanca diversified into textile trading until 1902, when he started a small distillery named La Tondeña. The distillery merged with the Song Fo Company in a partnership until 1913. Due to Palanca's astute business acumen, he was able to propel his company to become one of the top liquor suppliers. For example, he realized early on the value of upgrading and modernizing equipment and switching from nipa palm to molasses as a steady and plentiful supply of alcohol.
La Tondena Inc.
Between 1906 and 1929 his business enterprises prospered on the back of a huge boom in alcohol consumption. For example, the Singaporean scholar Wong Kwok-Chu noted in his landmark study "Chinese in the Philippine Economy" that alcohol revenues surged from 1.3 million pesos to 4.8 million pesos. In 1924 Palanca bought the distillery arm of Ayala y Cia (Destilleria Ayala) and acquired Ginebra San Miguel, Ginebra Ayala, and Colonial Rum. A third distillery company Philippine Motor Alchohol Corporation (PMAC) was devoted to manufacturing alcohol motor fuel, a business well ahead of its time. From WikiPilipinas