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After the Galleons: Foreign Trade, Economic Change and Entrepreneurship in the Nineteenth-Century Philippines

Author(s):Legarda, Benito J.
Reviewer(s):Giraldez, Arturo

Published by EH.NET (November 2001)

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Benito J. Legarda, After the Galleons: Foreign Trade, Economic Change and Entrepreneurship in the Nineteenth-Century Philippines. Madison WI: University of Wisconsin Center for Southeast Asian Studies, 1999. x + 401 pp. $22.95 (paperback), ISBN: 1-881261-28-x.

Reviewed for EH.NET by Arturo Giraldez, Department of Modern Languages and Literatures, University of the Pacific.

The title of Benito Legarda’s book is somewhat misleading because the time span covered in the work begins well before the nineteenth century. In fact, After the Galleons is an economic history of the Phillippine Islands from the time of the arrival of Miguel Gomez de Legazpi’s expedition in 1565 to the independence from the metropolis in 1898. Legarda studies the Philippines’ evolution from an archipelago inhabited by almost self-sufficient communities to the era when it became an agricultural export economy dependent on external trade to meet domestic needs. But, as the author remarks: “The nineteenth-century Philippine economy did not start from scratch. The preceding Age of Transshipment dated back to pre-Hispanic times, and, during the centuries when it was in effect, a process of administrative unification and geographic consolidation took place that laid the groundwork for the rise of national consciousness” (p. 5).

These sentences outline the plan of the book. Part 1 studies Philippine trade from before the Spaniards’ arrival until 1815. Part 2 focuses on the domestic exports and economic changes in the Islands. Part 3, “Entrepreneurial Aspects,” studies the establishment of merchant houses, their activities and innovations. Legarda follows Joseph A. Schumpeter’s ideas on entrepreneurial activity, paying detailed attention to the agents responsible for the “creative responses” in the economy. Businessmen and firms are introduced in relation to new technologies, activities and financial institutions.

Fifteenth-century Chinese and Muslim (Persian and Arab) merchants frequented the archipelago’s coastal areas, attracting a population that established settlements dependent on sedentary agriculture and craft production. These communities, called “barangays,” traded among themselves and with the rest of Southeast Asia and China. Slaves, beeswax and gold were exchanged for porcelain, iron, lead, tin, silks, etc. The early connection with China was going to have a crucial role in Philippine history. The presence of the Spaniards dramatically changed the position of the Philippines with respect to the Asian continent and placed the Islands as one of the crucial points in the global economy created by the galleon trade. From 1565 to 1815 the ships came and went from Manila to Acapulco — “it was the longest shipping line in history” (p. 32). American silver and predominantly Chinese silks were the commodities exchanged between Mexico and the Philippines. A Ricardian model explains the trade. The bimetallic ratio of silver and gold in 1560 was 13 to 1 in Mexico, 11 to 1 in Europe and in China was 4 to 1. “China was long the suction pump that absorbed silver from the whole world” (p. 31). Obviously there were periods of convergence of bimetallic ratios, but until the end of the nineteenth century China continued to be the main receiver of the world’s silver. Considering the price differential in silver prices: “The opportunities for arbitrage profits were staggering” (p. 31). And indeed, they were. Net profits oscillated between 100 and 300 percent. The Chinese brought the wares for the galleons but they also provided supplies for shipbuilding, materials to the military garrisons and foodstuffs to Manila’s citizenry. Also the junks brought artisans and tradespeople to the Islands. The Chinese have played a crucial role in the Filipino economy since the sixteenth century up to the present.

The eighteenth century witnessed plans and proposals to change the monopolistic framework of the galleon trade. After the British occupation of 1762-64, war frigates sailed between Cadiz in Spain and Manila carrying European merchandise. The Royal Philippine Company founded in Madrid (1785) was “encouraged to try Asian ventures,” (p. 58) and the port of San Blas on the Pacific coast was established in 1766 to trade with the Philippines, challenging Acapulco’s position as the only Mexican port in the galleon route. The regulation of libre comercio in 1778 allowed several Spanish ports besides Seville and Cadiz to trade with the colonies, which provided Mexico with new sources of merchandise.

Revolutionary changes did not happen in the eighteenth century — Philippine commerce was still a transshipping operation — but they sowed the seeds of future developments: foreign merchants arrived in Manila; local merchants could travel to other Asian ports; export trade of native products was stimulated and local textile manufactures were encouraged. “And the combined effect of the tobacco monopoly and the domestic operations of export producers, including the company, was the start of agricultural specialization in the Philippines” (p. 90). The tobacco monopoly was established by Governor Jose Basco y Vargas by decree in 1781, was implemented in 1783 and was the main source of fiscal revenue for Spain in the Philippines. There was also a “tentative use of bills of exchange in transferring funds through Canton” (p. 89).

The decades from 1820 to 1870 were crucial in the economic history of the world and produced significant changes in the economy of the country. An increase in trade and navigation in Asia accompanied the opening of the Suez Canal. Goods like sugar, fibers, coffee, etc. became the main export commodities. The Spanish government granted shipping subsidies. As a result of all of this, in the Philippines there was “a saltatory rise in the level of foreign trade” (p. 179). These events and trends were common to the Southeast Asian transformations from subsistence to export economies. However, the trajectory followed by the Islands was different from the Southeast Asian path. The economies of the region’s colonial powers tried to increase agricultural output pressuring the peasants to produce more goods for export and to develop plantation agriculture. According to Legarda in the period between 1820 and 1870: “Neither pressure on the peasantry nor the development of large-scale plantation agriculture was primarily responsible for transforming the Philippines from a subsistence to an export economy” (p. 186). Such a role was played by foreign businesses — “they formed the main nexus between the Philippine economy and the currents of world trade” (p. 211). The foreign merchants introduced agricultural machinery, advanced money on crops which stimulated the opening of new agricultural areas and consequently exports grew. There was an increasing commodity concentration of exports (sugar, abaca, tobacco and coffee) to the United Kingdom, China, British East Indies, United States and Spain [Tables 1 to 5]. Textiles dominated imports accompanied by a decline of local manufacturing and in 1870 rice became an import commodity. “Both trends had significant social and demographic repercussions” (p. 178) [Tables 6 to 13].

British and Americans were predominant in the foreign trade. The Chinese occupied the position of intermediaries between foreign western merchants and the domestic market. In spite of the dominant presence of foreigners in the Philippine economy “a native middle class was rising” (p. 213).

In order to raise funds the merchant houses issued notes taking deposits in local currencies from people of different economic backgrounds. This capital was given as an advance to finance agricultural operations. “Liquid wealth” reached Filipinos in the countryside, at the same time the merchants’ exercised control over the supply of export commodities (p. 256).

The Philippines’ economic landscape was different from Southeast Asia, i.e. Malaya and Indonesia. Western foreigners, public entities, and the Chinese joined rising domestic entrepreneurs. The Spanish government participated financially in the origination of utility companies (steam navigation, telegraphy); western investors entered some joint ventures with local capital (rice, sugar mills, textile industry, railroads and electricity), and domestic businessmen invested in the tranways and created the brewing industry. “But the crucial dichotomy between economic initiative and political authority stamped the Philippine case as being more in the East Asian tradition than the Southeast Asian mold” (p. 289).

This processes of economic integration in the world market had its drawbacks. Income disparities between regions and occupations became more marked. The domestic textile industry could not compete with foreign imports. During the 1880s, ‘the decade of death,’ the lower income groups became more susceptible to diseases due to an imbalance between commercial and subsistence agriculture and due to the arrival of epidemics (p. 335). The upside of these transformations was improvement in communications (telegraphy, mail, cable, steamship lines, electricity, railroads), in finance (foreign banks arrived to Manila), and in infrastructure. The funds of the Obras Pias, a church institution employed in the past to finance the galleon trade, were used to establish the Banco Espanol-Filipino in 1851 and the Monte de Piedad (a savings bank and a pawn shop) in 1882. In the same year with Obras Pias monies coming from the cargo of the galleon Filipino, a municipal water system was built in Manila (pp. 337-38).

Benito Legarda quotes Victor Clark who wrote: “A period of industrial development and expansion immediately preceded the insurrection that marked the beginning of the end of Spanish rule in the Philippines” (p. 339). The United States’ occupation of the country after the war produced increases in exports, innovations in technology, and much higher standards of living. The Philippines’ economy now would resemble more closely the Southeast Asian model. “The price of twentieth-century progress would be economic dependence” (p. 340).

Historians of the Philippines have produced excellent work. Benito Legarda’s economic history of the archipelago is an important addition to this body of literature. For historians of Asia and of the Spanish Empire After the Galleons is essential, but Legarda’s care in placing the Philippines in the context of with global economic trends makes the book an excellent addition to the field of “World History.” For economic historians and development experts, Legarda has written an important book. With clarity, rigor and avoiding unnecessary jargon, After the Galleons addresses questions and processes that are still affecting our times. Scholars, graduate students and advanced undergraduates in economics, history and other social sciences should read Legarda’s work. It is an indispensable book.

Arturo Giraldez, along with his colleague Dennis O. Flynn, is the editor of The Pacific World: Lands, Peoples and History of the Pacific, 1500-1900 an 18-volume series published by Ashgate/Variorum. With Dennis O. Flynn and James Sobredo, he has edited in 2001 European Entry into the Pacific, the fourth volume of the series.

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Asia
Time Period(s):19th Century