It was undoubtedly a difficult time for any intelligence service. As related previously, Dalley was faced with a serious problem in focusing his attention on the intrusion of PKI elements and supporting left-wing Indonesian political parties into Malaya with the intention of subverting the MNP, Kaum Muda, and other leftwing Malay political parties to rise up against British colonial rule in Malaya, just as the Indonesians had done against the Dutch in Indonesia after the Japanese surrender in August 1945.

Firstly, there was the proximity of Indonesia to Malaya, which was only a stone's throw away across the narrow Straits of Melaka. Medan in Sumatra is only an hour's flight from Penang in Malaya, and even in so-called “normal” times there had always been a considerable amount of illegal traffic, in junks and other small craft engaged in smuggling goods — as well as illegal immigrants — into Malaya from Indonesia, which was difficult to intercept.

In those immediate post war days, immigration control on the west coast of Malaya facing Indonesia became increasingly difficult to impose.1 Many senior British immigration officers had been killed during the Japanese war or were medically boarded out after the war, and they had been replaced by less experienced Malay immigration officers who were not always adverse to their Muslim brothers being allowed to enter Malaya, especially as they spoke more or less the same language, followed the same religion, and looked the same, and not very much attention was given to whether they had valid immigration documents or not. It was probably not considered, anyway, they would create a problem by joining the large numbers of Indonesians who had already been living in Malaya for years.

There was perhaps another more radical school of thought that Malaya should have declared independence from the British on 17 August 1945, just as the Indonesian nationalist leader Sukarno had done in proclaiming Indonesian independence from Dutch colonial rule at the time of the Japanese surrender, as it does not seem likely that the Japanese would have prevented them from doing so as they did not appear averse to leaving behind after their departure political problems for the returning Western colonial powers to settle.

The final details of the transfer of MSS officers and staff were decided at meetings held by the Commissioner of Police, Singapore, and the Colonial Secretary, Singapore, on 20 August 19481 and a meeting at the Singapore Special Branch on 25 August attended by A.J. Kellar, Head of SIFE; I.S. Wylie, Assistant Commissioner, Special Branch, Federation of Malaya; and N.G. Morris, Assistant Commissioner, Special Branch, Singapore, with E. Leighton, DSO (Defence Security Officer), Singapore and Federation of Malaya, in attendance.

It was agreed that the finances of the two Special Branches should be operated separately from 1 October 1948, and on that date the balance of the MSS funds would become available to the Singapore and Federation of Malaya Governments, respectively.

It was proposed that Woolnough, then based in Johor, should head the Malay and Indonesian Section, as shown above. The Assistant Commissioner would be made in charge of administration and be responsible for the collection and collation of all political information affecting the security of Singapore. He would also be expected to maintain close contact with other intelligence organizations in Malaya and neighbouring countries.

The Superintendent would be employed mainly on Communist organizations and would coordinate and direct the activities of all sub-branches. In connection with Communist activities, he was required to pay frequent visits to the Federation of Malaya and contact officers there whom he might wish to consult.

The General, Foreign and E & O Section would be employed on general enquiries, including affairs of Europeans, Eurasians, Siamese and foreign nationals not mentioned above, counterespionage, security of information in Singapore and surveillance.

Interrogations connected with the “Emergency Regulations” (which were introduced after the outbreak of the Malayan Emergency) would be carried out by F.G. Minns, ASP, “but as he is already on the Singapore CID staff, there is no extra expense involved in this post”.

In addition to J.E. Fairbairn, who held the rank of Local Security Officer, MSS, but was not a member of the Police Force, there was, too, J.H. Ellen, who was a direct appointment to the MSS and was not a member of the Police Force.

Appendix

When Dalley was confident that the serious threat posed by the MCP to overthrow British rule in Malaya, which he had long persisted in reporting, had at last been officially recognized and was being dealt with by the government, he turned his attention to another security problem that was beginning to emerge in the Malayan Peninsula. Indonesian left-wing elements were making determined efforts to induce Malay nationalist and left-wing political parties — many of them having maintained contact over time either directly or through the considerable number of Indonesians who had settled in Malaya — to rise up against British rule and resist the return of the British to Malaya, as the Indonesians had done to the Dutch in Indonesia.

In fact, as Dalley well appreciated, if they had succeeded, it was quite possible the Malay nationalist and left-wing parties would join forces with the MCP to present a united Malay-Chinese front to fight against British colonial rule in Malaya, which would have placed the British in a much more difficult situation than they faced in fighting the MCP alone when the Malayan Emergency was declared in June 1948.

The Japanese had virtually “given” independence to Indonesia in the confused period shortly before they surrendered, when Sukarno and Hatta declared independence on 17 August 1945, leading to the establishment of the Indonesian Republic under Sukarno as President. As rumours of the Japanese surrender filtered through to the people of Singapore/Malaya, Malay nationalists also intended to declare independence at the same time, and it is said that the Malay nationalist leader Mustapha Hussain wept bitterly as the Japanese surrender forestalled the declaration of independence for Malaya by just forty-eight hours, thus destroying the dream of a greater Malay nation.

However, in Indonesia the political situation was soon overshadowed by the fighting that took place between the Indonesian Republican forces, who were impatient and determined to wrest independence for Indonesia from the returning Dutch colonial power by force rather than negotiation. Matters were further complicated by the arrival of a brigade of the 23rd British Indian Infantry Division, sent by the British from Singapore to assist in the evacuation of Dutch civilians who had been interned by the Japanese during the war.

Who was Lieutenant Colonel John Douglas Dalley, Director of the Malayan Security Service (MSS), and what was the MSS?

Dalley was a senior pre-war officer of the Malayan Police who became Commander of Dalforce (named after him), an irregular guerrilla force that fought bravely against the Japanese when they invaded Malaya/Singapore in 1941, and later became Director MSS. An account of Dalforce will be given later in this study.

Dalley joined the Federated Malay States Police as a Cadet Assistant Superintendent of Police in November 1920 when he was twenty. That was the average age for Malayan/Singapore police gazetted officers to join the Malayan Police at that rank. After passing in due course the required Malayan Government examinations for gazetted police officers in police law, colonial regulations, Malayan Government regulations, weapon training and Malay language, Dalley was confirmed as an Assistant Superintendent of Police (ASP) in 1924.

How did the Malayan Security Service come into existence? The pre-war Inspector General of the Straits Settlements Police, A.H. Dickinson, provided an official account of the genesis of the early MSS and how it was founded when he included it in a list of British pre-war intelligence organizations that he prepared after WWII for Lieutenant General Arthur Earnest Percival, the ill-fated commander of the Allied forces in Malaya and Singapore who surrendered Singapore to the Japanese on 15 February 1942. Percival was then writing his dispatches at the War Office on the Malayan Campaign.2 Dickinson reported that the MSS was created in September 1939 at the suggestion of MI5, the UK domestic intelligence agency, which then included British overseas colonies within its remit, with the support of the colonial Singapore and Malayan Governments, when it seemed likely that the separate Special Branches in Singapore and Kuala Lumpur would need restructuring and refining to prepare for the possibility of war with Japan. It was established on a pan- Malayan basis as a coordinating and reporting body for political and security intelligence. Its headquarters were at Robinson Road, Singapore, and it had a Malayan branch in Kuala Lumpur, with an MSS officer based in nearly all of the Malayan States and territories. As such, it formed part of what was referred to as the “Singapore Fortress Defence Scheme”, which had both military and civil sections.

Before Dalley returned to Singapore from the UK in February 1947, considerable consternation was caused in Singapore by the receipt of a rather extraordinary telegram dated 2 September 1946 from the Colonial Office addressed to Malcolm MacDonald, then Governor-General for Southeast Asia, with copies to the local Singapore and Kuala Lumpur Governors. Seemingly without any further introduction, it forwarded a proposal by Sir Percy Sillitoe, Head of MI5, the UK domestic intelligence organization, whose remit extended to British colonies, to establish a branch to be known as “Security Intelligence Far East (SIFE)” in Singapore.

Colonial Office Telegram to Malcolm MacDonald

It arrived literally out of the blue, as there had not been any prior notice of Sillitoe's proposal and, indeed, there is nothing in the records to indicate that the matter had been under consideration, although clearly it must have been discussed in the Colonial Office. It included an attachment dated 6 August 1946, some weeks before the date of the actual telegram, which was headed “Memorandum of Instruction”, covering the appointment of Lieutenant Colonel C.E. Dixon as Head of SIFE, as well as a “Charter” for SIFE indicating its proposed functions.

As the telegram explained:

This certainly seemed to be, to say the least, a rather unusual method on the part of the Colonial Office to issue “instructions” to Singapore/Malaya, especially as Dalley had been available for consultation in the UK and the MSS in Singapore would be affected. As could be expected, the telegram caused some consternation in Singapore and the matter was considered at some length at several high-level meetings.

Thus the MSS was wound up and separate Special Branches were once again established in Singapore and Kuala Lumpur reporting to their respective Commissioners of Police. However, to complete this account of Singapore and Malaya's domestic intelligence services, when Singapore merged a few years later with the Federation of Malaya on 16 September 1963 to become part of “Greater Malaysia” with Tunku Abdul Rahman as Prime Minister, the Singapore Special Branch soon realized that it now had to serve more than one master. It not only reported to its own Director and the Singapore Commissioner of Police but it was required to report as well to the Director, Special Branch, Kuala Lumpur, and the Inspector-General of the Royal Malaysian Police as part of Greater Malaysia.

Who can ever forget Singapore's Prime Minister Lee Kuan Yew shedding tears on TV when he announced what amounted to Singapore's expulsion on 9 August 1965 from Greater Malaysia by Tunku Abdul Rahman, as Malaysia began to look less favourably on the effect that would be felt by absorbing the large predominantly Chinese population of Singapore on the overall ethnic balance of the new Greater Malaysia.

But the Singapore Special Branch of what had by then become the independent Republic of Singapore, soon consolidated its position and looking ahead to 17 February 1966 the Singapore Government converted the Special Branch into the Internal Security Department (ISD) which assumed responsibility for the country's domestic political and security intelligence. It was separate from the Singapore Police Force although working closely with it whenever required. This has remained the case until today, although the title “Special Branch” has been retained in Malaysia, where it is still a division of the police.

At the same time, the foundations of Singapore's external intelligence service were formed and the Security and Intelligence Division (SID) came into existence.

In fact, many Singapore Special Branch officers in those early days hardly noticed the change and continued to think of themselves as “Special Branch”, but during the intervening years the ISD has established itself and become the formidable, impressive and much admired intelligence organization it is today.

To revert to Dalley and the MSS, after he retired, Dalley's services were recognized on 8 July 1949 by the award of the King's Police Medal, which is undoubtedly a highly prestigious police decoration.

Introduction

The Philippine economy grew by 6.8 per cent in 2016, which is high by regional standards. The strong performance departs from its average growth of only 4.2 per cent since the 1960s. However, a quarter of the population remains poor, repeating its record in 2000, when it had as many poor despite a rate of growth of 6 per cent. Unlike its East Asian neighbours, the country has been weak in translating growth to lowering poverty (Balisacan and Fuwa 2004).

This chapter looks at the factors shaping growth and poverty in the Philippines. Studies have attributed significant gains in poverty eradication in East Asia to sustained robust growth (e.g., Dollar and Kraay 2002; World Bank 2006). The next section takes up the factors contributing to growth performance and examines how the current robust growth can be sustained. The third section focuses on the problem of the country's weak capacity of translating growth to poverty reduction. Apparently, high growth with less inequality reduces poverty faster (Bourguignon 2003; Fosu 2010). The chapter then tracks using an economy-wide model of the Philippines the per capita GDP and poverty trajectories of the country into the next twenty-five years under two growth and two income distribution scenarios. The last section states the study's key findings.

Factors Shaping Growth Performance

The Philippine economic growth in recent years has been robust by regional standards (Table 2.1): 6.8 per cent in 2016 and an average rate of 6.3 per cent from 2010 to 2016 (Figure 2.1). The performance departs significantly from its average of 4 per cent from 1961 to 2009. Since 2000 the average growth increased to 5.21 per cent per year, and could have been faster were it not for the global economic crisis in 2008.

Compared with selected East Asian countries (Table 2.1), the growth performance of the Philippines was markedly behind those of its neighbours in the 1980s and 1990s. In the 2000s, however, the country caught up with its Southeast Asian neighbours, and exceeded their growth in the last five years. The growth of the People's Republic of China (PRC), however, has remained the fastest since the 1980s.

According to one set of official projections, if the Philippine economy were to grow at 7 per cent per annum, close to the rate achieved in recent years, then by 2040 the country's per capita income would be P316, 173 ($6,873) at constant 2000 prices — a sharp increase from the 2015 level of P74, 453 ($1,618). This is an optimistic forecast, given that annual per capita income growth over the past twenty-five years averaged only about 2 per cent. The impressive growth attained during the period 2011–16 was mainly driven by private and government consumption, which was, in turn, partly fuelled by overseas Filipinos’ remittances (BSP 2015).

The sustainability of the recent growth remains tenuous. One constraint is the perennially high cost of power, as well as an inadequate power supply that cannot support the country's potential growth. The challenge lies in both the sourcing and timing of additional power supply to meet the growing demand and avert a recurrence of the power crisis that took place in the early 1990s, while also reducing the cost of power. Energy supply and cost are central to an improved investment climate that in turn generates a higher productivity growth.

Philippine power costs are high by regional standards; within the Association of Southeast Asian Nations (ASEAN), it ranks second to Singapore. Thus, the country struggles to attract mobile capital, a reason why manufacturing growth has lagged in recent decades. We have elsewhere labelled the slower manufacturing growth compared to services as “development progeria” (Daway and Fabella 2015), where services forge ahead to developed-country levels in low-income countries. This translates into slow growth and slow poverty reduction.

Republic Act (RA) 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA) of 2001, has the well-intentioned objective of opening up access to, and fostering competition in, the retailing of electricity so as to lower the price for consumers. However, electricity prices in the Philippines remain among the highest in Southeast Asia. Figure 7.1 shows the trends in electricity tariffs for residential and industrial customers in selected Asian economies. In 2013, for example, the Philippines’ residential rate was $0.14/kWh, much higher than the rate in Singapore ($0.12/kWh), Thailand ($0.08/kWh), Indonesia ($0.04/kWh), and Malaysia ($0.06/kWh). While the Philippines’ industrial rate ($0.10/kWh) was a close second to the highest rate in Singapore ($0.11/kWh).

Poor governance and weak public institutions can undermine even the most well-crafted policies to promote inclusive development. Corruption, poor public service delivery, misallocation of resources, political instability, uncoordinated government agencies and deeply embedded patron–client relationships are among the challenges of governance and institutions that slow down or defeat any socio-economic reform agenda. In particular, corruption is a sizable problem in the Philippines, affecting all sectors and levels of government.

In this chapter we refer to governance as the manner in which public officials and institutions acquire and exercise the authority to facilitate collective action, craft public policy and provide public goods and services. On the other hand, institutions refers to the formal and informal rules that shape human interaction and their related enforcement mechanisms. Institutions therefore determine the possibilities for effective governance and collective action (see Figure 9.1). Both the government and market need institutions to function well. Otherwise, government and market failures are likely to litter the landscape instead of properly provided public goods and services. When government and markets work, then collective action outcomes — public goods and services — are more likely to succeed.

It is widely acknowledged in the literature that poor governance and weak institutions are among the critical (Rodrik 2000, 2004, 2007; Nye 2011) constraints to investment and growth in the Philippines (see, for instance, ADB 2007; World Bank 2013; Aldaba 2014). Problems with governance, particularly corruption and political instability, weaken investor confidence and discourage the creation of much-needed jobs that can, in turn, potentially lift many Filipinos out of poverty. Weak institutions constrain the delivery of public goods and services that aim to enhance the supply and demand of labour, both of which are necessary to make economic growth more inclusive. As such, maintaining an environment stocked with adequate and well-functioning institutions is critical.

Poverty amidst weak public goods and services could also debilitate efforts to continue building stronger institutions. As well elaborated in the political science and economic development literature, reformists often struggle against traditional economic and political relationships that are deeply engrained due to a long history of poverty, dependence and patron–client relationships.

Introduction

The Philippines has long been viewed as the “East Asian exception”. Although suffering massive wartime destruction, in the 1950s and 1960s its economic prospects were considered to be favourable. While very poor, its per capita income was somewhat higher than most of its neighbours. In the post-colonial era it neither closed off from the global economy — as China, Indonesia and Myanmar did — nor was it overwhelmed by the conflict that engulfed Indochina. Its civil society and polity appeared to be among the most robust in developing East Asia. And it retained close commercial and political ties with the undisputed global super power of that era, the United States. As a vote of confidence, Manila was selected to be the headquarters of the Asia Pacific's premier development finance institution, the Asian Development Bank, in 1966.

However, these early high expectations were not realized. From the late 1960s the Philippines increasingly parted company with its neighbours, as first the four Asian NIEs, then the ASEAN four (i.e., Indonesia, Malaysia, Thailand, together with Singapore) and, most important of all, China began to register exceptionally high rates of economic growth. By contrast, Philippine economic growth began to falter, especially from the late 1970s, and particularly during the country's deep economic and political crisis in the mid-1980s. The collapse of the two-decade Marcos rule in early 1986 was accompanied by the sharpest economic contraction in the country's economic history as an independent nation state. The economy was in free fall, with GDP declining by about 15 per cent in the years 1984'86 and poverty incidence rising sharply. Thereafter, a fragile political system was gradually constructed, punctuated by periodic political instability and extended debt negotiations. This was the country's lost decade, as most of East Asia boomed, fuelled by a newly dynamic China and the relocation of labour-intensive manufacturing from Northeast to Southeast Asia. At the turn of the century, Philippine per capita income (PCI) had not progressed beyond that achieved in 1980.

Comparative surveys of Asian economic development have highlighted, and puzzled over, the country's divergent economic path. A leading contributor to the literature on growth empirics speculated that the country was “a democratic dud” (Pritchett 2003).