Why the Philippines needs a modern industrial policy

Composite image by Ed Lustan/Inquirer

(First of a series)

The Philippines stands at a critical juncture in its economic history, facing entrenched structural dependency, underindustrialization and vulnerability to global shocks. Despite decades of reforms, the absence of a coherent industrial policy has left the nation reliant on remittances, services and import-dependent consumption.

This paper synthesizes two complementary strands of analysis: (1) the historical roots of underindustrialization, including colonial trade structures, the Bell Trade Act, the Parity Rights Agreement, the Dodge Plan and neoliberal reforms; and (2) the contemporary imperative of embedding science and technology (S&T) education within a national industrial policy framework.

The Dodge Plan of the 1950s, developed under U.S. Cold War influence, prioritized fiscal austerity and debt repayment over industrial expansion, constraining the Philippine state’s ability to invest in infrastructure and manufacturing. The paper argues that its mindset persists today, discouraging bold interventions even when necessary for resilience.

Equally significant, the paper says, was the sidelining of nationalism as a guiding principle in development planning. As Rene Ofreneo argued, the Philippines’ rapid industrial growth in the 1950s was driven by nationalist industrialists and policies such as the Filipino First campaign, but this momentum was derailed by IMF-World Bank conditionalities and the institutional downgrading of nationalism by agencies such as the Program Implementation Agency (PIA).

Global transformations have reshaped the discourse on industrial policy. The paper cites renewed attention, including in mainstream academic and policy circles, to industrial policy as a tool for transforming developing economies. In the Philippines, it says some advocates now support industrial policy while avoiding the term “economic nationalism,” a phrase treated as taboo during the neoliberal decades of the 1980s through the 2010s.

By rejecting an outdated Dodge Report mindset and restoring nationalism as a developmental ethos, the paper argues a modern industrial policy grounded in competitiveness, sustainability and inclusivity can be pursued. It says the Philippines must draw lessons from East Asia on innovation policy frameworks. A sustainable path toward UNESCO’s recommended allocation of 1% of gross domestic product (GDP) for research and development is presented as an important fiscal requirement.

Industrial policy, the paper argues, is a national survival imperative in the face of climate change, technological disruption and geopolitical fragmentation.

How we got here

The Philippines’ economic trajectory has long been shaped by dependency and structural weakness. From colonial trade patterns to Cold War stabilization strategies, the country has repeatedly failed to build a robust industrial base.

The Dodge Plan of the 1950s epitomized this failure, the paper says, embedding a mindset of fiscal conservatism and debt repayment that sidelined industrial expansion. While this approach may have stabilized macroeconomic indicators in the short term, it entrenched dependency and discouraged autonomous development. The Dodge Report is no longer operational, but its legacy persists in policymaking circles that prioritize austerity over industrial modernization.

The paper also argues that nationalism was sidelined as a guiding principle in development planning. As Ofreneo (2026) underscores, it says, the Philippines’ rapid industrial growth in the 1950s was driven by nationalist industrialists and policies such as the Filipino First campaign.

This nationalist surge produced double-digit industrial growth, leading the World Bank to hail the Philippines as “the most promising for the long run” in East Asia, the paper says. Nationalist policies were later undermined by Cold War geopolitics, IMF-World Bank conditionalities and the institutional downgrading of nationalism by agencies such as the PIA, a precursor to NEDA.

By the 1970s, nationalism had been set aside in favor of export-oriented industrialization and neoliberal reforms, leaving the Philippines vulnerable to external shocks and unable to sustain autonomous industrial growth. The historical neglect of nationalism is described as a structural trap of dependency, where the Philippine economy and industries became overly reliant on foreign capital, imported technologies and remittance-driven consumption.

The paper argues that while other Asian nations embedded nationalism into their industrial strategies—South Korea through chaebol-led manufacturing and Vietnam through state-guided export diversification—the Philippines allowed external institutions to shape its trajectory.

This failure to anchor industrial policy in national sovereignty, it says, helps explain why the country, once hailed as second only to Japan in the 1960s, has since been overtaken by its neighbors in the development race.

The paper calls for transforming policymaking by articulating a cohesive industrial policy for the Philippines. It merges historical analysis with contemporary innovation frameworks, situating science education and R&D within a broader industrial strategy. It frames nationalism not as isolationism but as a developmental template that prioritizes Filipino industries, workers and farmers while embedding innovation and resilience into the nation’s economic future.

Nationalism and industrial policy in East Asia

The paper contrasts the Philippine experience of abandoning nationalism as a developmental guide with trajectories in East Asia.

South Korea, it says, embedded nationalism into industrial policy by nurturing chaebol conglomerates through state-led investment, export promotion and protectionist measures. This nationalist orientation is presented as strategic, enabling domestic firms to scale globally while retaining national control over industrial capacity.

Vietnam followed a similar path, the paper says, combining socialist planning with pragmatic export diversification. By maintaining state guidance over strategic industries, Vietnam is described as transforming itself from a war-torn agrarian economy into one of the fastest-growing manufacturing hubs in Asia.

China’s trajectory, the paper argues, further underscores the power of nationalist industrial policy. Through the Beijing Consensus, China pursued “socialism with Chinese characteristics,” embedding industrial modernization within a framework emphasizing self-reliance, technological upgrading and strategic control over key sectors. This approach allowed China to absorb foreign capital and technology while ensuring that industrial gains were domestically anchored, it says.

By contrast, the paper argues, the Philippines allowed external institutions such as the IMF and World Bank to dictate its industrial trajectory through a “debt for development paradigm,” sidelining nationalist frameworks and leaving the country vulnerable to external shocks. The result, it says, was a hollowed-out industrial base dependent on remittances and import-driven consumption.

Singapore offers another model, the paper says. Despite its size, it pursued a vision of survival through industrial upgrading, investing heavily in education, R&D and state-owned enterprises. Its Economic Development Board coordinated industrial policy, ensuring that foreign investment was harnessed to strengthen domestic capacity rather than undermine it.

The comparative lesson, the paper argues, is that nationalism—when embedded in industrial policy—functions as a strategic compass that aligns competitiveness, sustainability and inclusivity with national sovereignty. For the Philippines, it says, reclaiming nationalism as a developmental ethos is a survival imperative amid climate change, technological disruption and geopolitical fragmentation.

Roots of underindustrialization

The Bell Trade Act and parity rights

The trajectory of Philippine industrial development was shaped by colonial legacies that entrenched dependency and constrained domestic capital formation, the paper argues.

It cites the Bell Trade Act of 1946, enacted after independence, as institutionalizing a neocolonial economic order by granting parity rights to American citizens and corporations. This allowed U.S. investors equal access to Philippine natural resources and markets, effectively subordinating local entrepreneurs to foreign capital.

The act entrenched a trade pattern where raw materials such as sugar, coconut and minerals were exported while manufactured goods were imported from the United States, the paper says. This arrangement discouraged domestic industrialization, as local firms could not compete with American corporations that enjoyed privileged access and economies of scale (Bello, 2004).

The Parity Rights Agreement further undermined Philippine sovereignty, the paper argues, by embedding structural dependency into the nation’s economic framework. Rather than fostering domestic capital accumulation, it entrenched reliance on foreign investment, creating a dual economy: a small enclave of export-oriented industries tied to U.S. markets and a large domestic sector dependent on imports for manufactured goods.

This colonial trade structure weakened the state’s capacity to nurture local industries, the paper says, and created a mindset of dependency that persisted long after formal independence.

The Dodge Plan

The “Dodge Plan” was named after Joseph Morrell Dodge, an American banker and economic adviser appointed by the U.S. government during the post-World War II reconstruction of Japan and its former colonies, including the Philippines.

Dodge was tasked with implementing a stabilization policy that prioritized fiscal austerity, balanced budgets and export-oriented growth—a framework that became a blueprint for U.S. economic influence in Asia.

While the Dodge Line is most closely associated with Japan, the paper says its principles were extended to the Philippines through U.S.-backed technocrats and institutions such as the World Bank and IMF.

It argues these policies discouraged state-led industrialization and promoted import liberalization, dependence on foreign investment and debt-financed development, a model that served U.S. geopolitical and corporate interests while undermining the Philippines’ capacity to build a sovereign industrial base.

The paper adds that the plan’s legacy in the Philippines was compounded by elite capture and authoritarian governance beginning with the Marcos Sr. dictatorship. The result, it says, was a hollowed-out economy, mass labor export and chronic underdevelopment.

The Dodge Plan of the 1950s represented a turning point in Philippine economic history, the paper argues, reinforcing dependency by prioritizing fiscal austerity and monetary stability over industrial expansion.

Conceived under the influence of U.S. advisers, the paper frames the plan as more than a technocratic blueprint for economic management. It describes it as a Cold War instrument designed to keep developing nations reliant on Western capital rather than fostering autonomous development.

By emphasizing balanced budgets, currency stabilization and debt repayment, the plan constrained the Philippine state’s ability to invest in industrial infrastructure, it says. Industrialization was sidelined in favor of macroeconomic stability, ensuring the Philippines remained a reliable partner in the U.S.-led global order.

The paper situates the plan within the broader postwar context, describing a country devastated by conflict and facing reconstruction. It argues that instead of pursuing a nationalist industrialization strategy, the Philippines was steered into dependency through external financial institutions and advisers.

The Dodge Plan offered stabilization loans and financial assistance, the paper says, under strict conditionalities prioritizing debt repayment and fiscal conservatism over industrial investment.

The plan’s emphasis on austerity aligned with U.S. Cold War strategies, it argues. Fiscal discipline was framed as a safeguard against communism, with the logic that economic instability could fuel radical movements.

The consequences were profound, the paper says. While the plan may have stabilized macroeconomic indicators in the short term, it entrenched dependency and discouraged autonomous development. The state was constrained from investing in heavy industries, integrated manufacturing and large-scale infrastructure projects that could have laid a foundation for resilience.

Instead, the economy remained reliant on agricultural exports, light processing and imported manufactured goods. This structural weakness left the Philippines vulnerable to external shocks and, in later decades, increasingly dependent on remittances and services, the paper argues.

Even though the Dodge Report is no longer operational, the paper says the mindset it nurtured persists. The emphasis on fiscal conservatism and debt repayment continues to discourage large-scale industrial projects, infrastructure modernization and R&D investments, even when such investments are presented as necessary for long-term resilience.

Policymakers often cite balanced budgets and debt discipline as reasons to avoid large-scale industrial spending, it says. The paper argues fiscal stability should not preclude strategic investment in industrial modernization and that overemphasis on austerity entrenches dependency while neglecting industrial expansion undermines national sovereignty.

It points to continued reliance on external financing and vulnerability to global shocks. Each time the peso depreciates or oil prices rise, the paper argues fiscal rigidity shaped by debt-servicing obligations leaves limited room for industrial investment or social spending.

By contrast, it cites South Korea and Taiwan as pursuing aggressive industrial strategies during the same period and building globally competitive industries.

Dodge Plan vs. nationalist strategies

The paper references a comparative table contrasting the Dodge Plan with nationalist industrial strategies in South Korea and Japan and then outlines the broader contrast in policy orientation.

While the Philippines is described as having been locked into a cycle of dependency through fiscal conservatism and debt repayment, South Korea and Japan pursued bold industrial interventions rooted in nationalism.

South Korea’s chaebol system, supported by state-led investment and export promotion, created globally competitive firms that transformed the economy within a generation, the paper argues. Japan’s Ministry of International Trade and Industry (MITI) coordinated industrial policy, ensuring reconstruction translated into long-term competitiveness in the automotive and electronics industries.

The Philippines, by contrast, is described as missing the opportunity to invest in heavy industries, integrated manufacturing and R&D. The paper argues this left the economy reliant on agricultural exports and imported goods, vulnerable to external shocks and unable to sustain autonomous growth.

What comes next

The paper argues that a modern industrial policy must reject the outdated paradigm associated with the Dodge Plan.

Fiscal responsibility remains important, it says, but must be balanced with proactive state-led development. Strategic investments in infrastructure, manufacturing and R&D are presented not as luxuries but as necessities for national survival amid climate change, technological disruption and geopolitical fragmentation.

The paper concludes that the Dodge Plan, implemented when the Philippines was rebuilding after wartime destruction, locked the country into a cycle of dependency by privileging debt repayment and fiscal conservatism over development. Its legacy, it says, continues to shape policymaking today, discouraging bold interventions and reinforcing structural weakness.

To move forward, the paper argues, the Philippines must learn from this history: austerity without industrial expansion leads to stagnation, while a balanced approach combining fiscal responsibility with proactive investment is key to resilience and sovereignty. /dm

[Dr. Teodoro “Ted” Mendoza is a retired professor and UP Scientist at the Institute of Crop Sciences at the University of the Philippines Los Baños.]