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No Free Lunch

Mindanao’s underground economy

/ 08:16 PM January 21, 2013

The underground economy, a.k.a. the informal economy, makes up an estimated 40 percent of our reported gross domestic product (GDP) nationwide, and about the same percentage of total employment. These cover economic activities that have been variously described as hidden, parallel, clandestine, black, gray, alternative, shadow, illicit, illegal, subsistence, unregulated, nonmonetized, criminal, and so on. The International Labor Organization suggests the following as distinguishing attributes of the informal economy: mostly unregistered and unrecorded in official data; have little or no link to organized markets and credit institutions; not recognized, supported or regulated by government; and often operating outside the framework of law.

In Mindanao’s conflict-affected areas, the underground economy is likely to be even more prevalent and significant than it is nationally. With violent conflict long having been a deterrent to formal investment, much of the local populace has been pushed into various economic activities that provide for the peculiar range of needs and wants in its internal and external markets, whether explicit or hidden, legal or illegal. Among the notable ones are the illicit trade in guns and prohibited drugs, kidnap for ransom, informal land markets, illicit cross-border trade, pyramid scams, human trafficking and informal credit. Most of these can be extremely lucrative for those who engage or work in them, hence tend to be associated with conflict and violence spawned by the very activities themselves. For some, like the illicit gun trade, it’s the other way around: prior conflict and violence in the area due to political rebellion and clan feuds may have provided the impetus for its active market.

With large sums of money changing hands in the course of these underground economic activities, a thorough understanding of the peace and development challenges in Mindanao cannot be complete without understanding this real economy at play on that island. And yet, most of the scholarly analyses on the Mindanao problem have largely overlooked this informal economy and its relationship to violent conflict. A new book published by International Alert edited by Francisco Lara Jr. and Steven Schoofs seeks to fill this gap. “Out of the Shadows: Violent Conflict and the Real Economy of Mindanao” represents the first formal attempt to document this underground economy that has long operated in Mindanao’s conflict areas, and yet has seemingly been ignored like the proverbial elephant in the room—for understandable reasons.


Indeed, it took courage on the part of the various case study authors, all Mindanao scholars, to take on the task of examining such activities where they happen, and interacting with shadowy figures involved in enterprises where knowing the truth can be hazardous. Their observations and analyses range from enlightening to startling.

For example, Eddie Quitoriano’s examination of the illicit gun trade came up with the finding that wider gun ownership, albeit illegal, can actually lead to lower incidence of gun-related violence—something the National Rifle Association in the United States, and opponents of gun control in general, would be delighted to play up. Talayan, a town in Maguindanao that hosts three armed groups with a cache of at least 500 rifles each, and about 5,000 households that possess at least one gun each, has seen few gun-related crimes over the years. This is in contrast to many other parts of the country where gun ownership is far more restricted and mostly licensed. Quitoriano asks: “Is this a case of bad governance (i.e., of gun ownership in this case) leading to good results (i.e., in terms of relative peace)?” (Not quite, he notes, as Talayan has failed miserably in most other measures of governance outcomes, including local taxation, poverty reduction and service delivery.)

Rufa Guiam saw the fragility of the subnational state in Muslim Mindanao as the key determinant of the region’s thriving drug economy, which she observed to be relatively peaceful, devoid of open war among drug groups, or between them and the state. She attributes this to the protection offered by colluding public officials and politicians. That the so-called Lucky 7 Club (of mayors) in Lanao del Sur operates with impunity “shows how criminal entrepreneurs derive their power and protection from capturing public offices across Muslim Mindanao.” She ruefully notes: “Somewhat paradoxically, enforcing the law may lead to an increase in violence, whereas an accommodation between the state and criminals can pacify the illicit drug market.”

The kidnap for ransom industry in Mindanao is found by Eric Gutierrez to be segmented into three types of kidnap groups, best described as bandits, villains and bosses, who use kidnapping as a political weapon or to raise money, or both. Judy Gulane examines how informal land markets have thrived where the government has failed to create the conditions for formal systems of land administration and registration. Starjoan Villanueva notes that the unofficial and unrecorded shadow trading economies of Sulu and Tawi-tawi, built on commerce, with nearby Malaysia, have expanded to a point that they can grow well beyond the official regional economy. Jamail Kamlian examines how the  pagsanda  informal credit system in Tausug society has persisted and proliferated in the void left by the largely absent formal financial system, and how it is intricately intertwined with conflict and violence in the area.

The book makes interesting reading for anyone interested in how “shadow economies” operate. Grab a copy before they run out.

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TAGS: Cielito F. Habito, column, Mindanao, underground economy
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