WAR is a
racket. It always has been. It is possibly the oldest, easily the most
profitable, surely the most vicious. It is the only one international in scope.
It is the only one in which the profits are reckoned in dollars and the losses
in lives― Smedley Butler, War Is a Racket
In this issue:
The Philippines’ Drift Toward a War Economy
I. Introduction: The Emerging Global War Economy
II. A Post Bellum History of the Return of U.S. Military
Infrastructure
III. Strategic Rents and the Incentives of Power
IV. The Anatomy of a War Economy
V. The Current State of Philippine Military Spending
VI. The Invisible Subsidy
VII. The Proposed Drift: From 1.3% to 4% of GDP
VIII. Pax Silica Initiative and the Strategic Investment
Priority Plan (SIPP)
IX. The SIPP as the Fiscal Engine
X. The Economic Opportunity Cost
XI. The Geopolitical Dimension
XIA. Side Note: BCDA’s Rebuttal
XII. Strategic Integration and Its Trade-offs
XIII. The Unseen
Trade-offs
XIIIA. Sovereignty and Strategic Dependence:
The GCC-Operation Epic Fury Experience
XIIIB. From Economic Infrastructure to
Strategic Targets
XIIIC. Fiscal and Capital Allocation Risks
XIIID. Strategic Rents and Political
Incentives
XIIIE. Technological Concentration and Market
Risk
XIIIF. Energy and Opportunity Costs
XIIIG. Reciprocity Is Never Guaranteed
XIV. Conclusion: The Philippines and the Drift Toward a Security (War-Time) Economy
The Philippines’ Drift Toward a War Economy
How intensifying geopolitical rivalry, strategic rents, and security priorities are reshaping Philippine economic policy
I. Introduction: The Emerging Global War Economy
As of this writing, the world is witnessing the largest concentration of geopolitical tensions since the end of the Cold War.
- Russia and Ukraine remain in their fourth year of open conflict.
- In the Middle East, the United States and Israel, alongside their Gulf Cooperation Council partners, are engaged against the Iran axis.
- Tensions — some already crossing into open conflict, others not yet — stretch across multiple theaters: Russia-Ukraine's grinding war of attrition in Europe; insurgencies from Mali to Somaliland across Africa; and territorial disputes over the South China Sea, Taiwan, the Senkakus, and the Kurils across Asia.
The world has become increasingly defined by strategic rivalry rather than post-Cold War economic integration.
The Philippines is not a bystander to this pattern. Its own claims in the Spratlys and at Scarborough Shoal have produced repeated confrontations with China — water cannons, ramming, and close-quarters clubbing incidents among rival coast guard and militia vessels — that place the country squarely inside the same rising-tension map.
While these incidents fall short of conventional war, they have steadily elevated the country's strategic importance within the broader Indo-Pacific security architecture.
Figure 1
The changing global environment is increasingly reflected in economic data. The International Monetary Fund (IMF) observes that "the number of active conflicts has surged in recent years to levels not seen since the end of the Second World War," prompting many governments to reassess their priorities and increase defense spending. (Figure 1, upper window)
The Stockholm International Peace Research Institute
(SIPRI) likewise reports
that global military expenditure reached a record US$2.887 trillion in 2025,
equivalent to 2.5 percent of world GDP—the highest military burden since
2009—with the United States, China, and Russia accounting for more than half of
global spending. (Figure 1, lower graph)
Figure 2
Of course, these developments did not emerge in a vacuum.
Since the Global Financial Crisis—and accelerating after the pandemic—the global economy has experienced a gradual reversal of decades of economic integration. Trade restrictions have multiplied, industrial policy has returned, supply chains have been reorganized around geopolitical considerations, and governments increasingly view trade, technology, finance, and energy as instruments of national security rather than merely economic exchange. The IMF describes this process as geoeconomic fragmentation—a policy-driven reversal of economic integration, of which international trade is a central component. (Figure 2, upper image)
The observation commonly attributed to the great proto-Austrian French economist Frédéric Bastiat is particularly relevant: "When goods do not cross borders, armies will." The insight captures an enduring relationship between commerce and conflict. As economic integration weakens, strategic rivalry increasingly fills the space once occupied by mutually beneficial exchange.
The trend is increasingly reflected in the data. After reaching historic highs, global trade as a share of GDP has retreated as governments increasingly prioritize resilience, strategic autonomy, and security alongside efficiency. (Figure 2, lower chart)
The Trump administration's "Liberation Day" tariffs are one manifestation of this broader shift, demonstrating how trade policy has itself become an instrument of geopolitical competition and hegemonic control.
It is within this broader transformation that the Philippines should be understood. It is not merely a participant in geopolitical tensions; it is whether its institutions, fiscal priorities, industrial policy, and strategic partnerships are gradually adapting to a world in which geopolitical frictions increasingly shape economic decision-making.
To examine that question, we begin with the historical evolution of the American military presence in the Philippines—from the postwar bases, to the Visiting Forces Agreement, to the Enhanced Defense Cooperation Agreement EDCA, and finally to today's emerging security-industrial initiatives.
II. A Post Bellum History of the Return of U.S. Military Infrastructure
The story of the Philippines’ contemporary security orientation begins in the aftermath of the Second World War. The archipelago emerged from the war devastated, but also transformed into one of the most strategically important American outposts in Asia.
Under the 1947 Military Bases Agreement, the United States secured long-term access to major installations, most notably Clark Air Base and Subic Bay Naval Base, which became central nodes in Washington’s Cold War posture in the Pacific.
For decades, these bases were more than military installations. They shaped local economies, generated employment, and embedded large portions of Philippine territory into the logistical and strategic architecture of American power. Yet they also became symbols of constrained sovereignty, unequal alliance relations, and the persistence of a foreign military presence long after formal colonial rule had ended.
Large foreign military installations have historically generated localized economic ecosystems extending well beyond defense activities. Businesses naturally emerge to serve concentrated demand for housing, transport, food, entertainment, and retail services. Informal and illicit markets may also develop, including prostitution, gambling, drug trafficking, and organized crime, alongside recurring jurisdictional disputes involving foreign military personnel. Similar patterns have been documented around major overseas bases in the Philippines, Okinawa, and South Korea. While these social externalities were not the sole reason behind the Philippine Senate's rejection of the Military Bases Agreement in 1991, they formed part of the broader historical experience that shaped public perceptions of long-term foreign military presence.
That postwar arrangement reached a historic turning point in 1991, when the Philippine Senate rejected the renewal of the bases treaty. The decision led to the withdrawal of U.S. forces from Clark and Subic, marking what appeared to be the ‘end of an era.’
Back then, for many Filipinos, the expulsion of the bases represented a reassertion of national sovereignty and a decisive break from the country’s Cold War dependency.
But the withdrawal was not permanent. In 1999, the Visiting Forces Agreement (VFA) restored the legal framework for the rotational presence of American troops in the Philippines. The VFA did not recreate the old permanent bases, but it reopened the door to joint exercises, military cooperation, and the gradual re-entry of U.S. forces into Philippine territory.
The process deepened in 2014 with the Enhanced
Defense Cooperation Agreement (EDCA). EDCA granted the United States access
to selected Philippine military facilities for the prepositioning of equipment,
construction of infrastructure, and rotational deployment of forces.
Figure 3
There are presently 9 EDCA quasi-bases. (Figure 3)
Officially, these are not permanent American bases; they remain Philippine-owned facilities. Yet the distinction has become increasingly paradoxical as some EDCA sites host advanced military assets (examples, Typhon missiles, High Mobility Artillery Rocket Systems (HIMARS), Navy-Marine Expeditionary Ship Interdiction System (NMESIS), Marine Air Defense Integrated System (MADIS) and MQ-9A Reaper Drones) and function as part of a broader U.S.-aligned strategic network in the Indo-Pacific.
This evolution—from postwar bases, to expulsion, to rotational access, to EDCA facilities—forms the historical foundation of the Philippines’ current geopolitical trajectory.
The issue is whether the functional return of military infrastructure, under new legal and
political terminology, is gradually reshaping the country’s economy, fiscal
priorities, and strategic risk profile.
III. Strategic Rents and the Incentives of Power
The postwar bases relationship also carried a financial and political-economy dimension. U.S. military and economic assistance to the Philippines was not simply humanitarian or developmental; it was closely tied to the country’s strategic value during the Cold War.
Historical records show that negotiations over base access were accompanied by military assistance agreements, while later U.S. and multilateral support helped sustain the Philippine state during periods of fiscal stress.
The postwar bases relationship did not merely coincide with corruption and cronyism — it helped entrench them.
By linking strategic military access to foreign aid, debt accommodation, and geopolitical backing, the alliance reduced the normal fiscal constraints that would otherwise discipline the Philippine state.
Political elites could draw not only on domestic taxation and productive savings, but on external strategic rents and easier access to foreign credit — conditions that made the dramatic surge in foreign borrowing, the expansion of politically connected projects, and the persistence of patronage networks during the Marcos era considerably more durable than they could have been otherwise.
When governments gain access to large external resources tied to geopolitical utility, they acquire greater capacity to distribute privileges, sustain patronage networks, and postpone the fiscal consequences of imprudence. The bases era demonstrates this dynamic with unusual clarity: aid linked to strategic access, a surge in foreign borrowing during the Marcos period, and an institutional legacy of debt-service prioritization all reflect how geopolitical alignment can expand discretionary power, weaken fiscal discipline, and concentrate economic privileges among politically connected actors — not as an accidental byproduct, but as a structural feature of the arrangement.
As author James Bovard wrote, A 2002 American Economic Review analysis concluded that “increases in [foreign] aid are associated with contemporaneous increases in corruption,” and that “corruption is positively correlated with aid received from the United States.”
IV. The Anatomy of a War Economy
Economic historian Robert Higgs, in his landmark work Crisis and Leviathan (1987), describes a war economy not simply as an economy at war, but as a system in which the state progressively centralizes control over resources, production, credit, and consumption in the name of security or emergency objectives. The defining feature is not the presence of battlefield conflict alone; it is the gradual substitution of decentralized market allocation with politically directed allocation.
In this framework, the relevant characteristics are not limited to military conscription or rationing. They include the expansion of state discretionary power, the redirection of fiscal resources toward security priorities, the use of debt and monetary accommodation to sustain strategic spending, and the integration of private industry and infrastructure into national-security objectives.
To be sure, the Philippines is not a full wartime command
economy yet. But the question is whether the cumulative direction of policy —
military facilities, fiscal priorities, strategic infrastructure, and
industrial incentives — reveals a gradual drift toward a more centralized,
security-oriented political economy: not war by name, but increasingly war by
institutional logic.
V. The Current State of Philippine Military Spending
Figure 4
The most visible evidence of this drift is the rise in declared military expenditure. According to SIPRI, Philippine military spending in constant U.S. dollars grew by 14.68% in 2025, after already rising by 6.59% in 2024. Military expenditure also increased from 4.77% to 5.40% of total government spending between 2024 and 2025, while its share of GDP rose from 1.19% to 1.30%. (Figure 4)
These figures matter because they show that defense is becoming a more prominent fiscal priority. Yet they also reveal a limitation: SIPRI records only the military expenditure that governments officially classify as military spending. It captures the declared surface of the budget, not the full economic footprint of a security architecture.
VI. The Invisible Subsidy
The true cost of strategic alignment extends beyond the official defense budget. It includes private infrastructure, logistics, land, energy, telecommunications, and corporate capital that may be indirectly mobilized to support a broader regional security network.
SIPRI does not measure how much private-sector wealth is committed to roads, ports, airports, warehouses, fuel depots, communications systems, and utility capacity serving EDCA-accessible locations or other security-linked infrastructure. Nor does it capture the opportunity cost of capital that could have financed MSMEs, manufacturing, agriculture, or civilian innovation but is instead drawn into strategic projects.
No public
accounting can fully reveal the magnitude of this indirect subsidy. But the absence of a precise number does
not negate the economic reality: labor, land, energy, and capital are finite.
When they are redirected toward security-linked purposes, they are necessarily
unavailable for alternative civilian uses.
VII. The Proposed Drift: From 1.3% to 4% of GDP
The current military burden becomes far more consequential when viewed against Defense Secretary Gilberto Teodoro Jr.’s call to raise defense spending to 4% of GDP. Using SIPRI’s 2025 estimate of 1.3% of GDP as the baseline, such a proposal would imply a dramatic expansion of the military share of the Philippine economy.
A move from 1.3% to 4% of GDP would not be an incremental modernization program. It would represent a structural reallocation of national resources toward security priorities, requiring either higher taxation, greater public borrowing, reduced civilian spending, inflation pressures, misallocations or some combination of all these.
The issue is
whether a tripling of the defense burden can occur without intensifying
fiscal deficits, debt service, inflationary pressures, and the depletion of
savings and capital available to MSMEs and other civilian sectors.
VIII. Pax Silica Initiative and the Strategic Investment Priority Plan (SIPP)
The drift toward a security-oriented, or wartime, political economy becomes most visible not only in the defense budget but also in the architecture of industrial policy. Pax Silica and the Strategic Investment Priority Plan (SIPP) suggest that the Philippine state is moving beyond merely encouraging private investment; it is increasingly involved in constructing the physical and fiscal platform upon which strategically important industries will operate.
Pax Silica, according to the U.S. State Department and the U.S. Mission to ASEAN, is a U.S.-led strategic initiative aimed at building a secure and resilient silicon supply chain, spanning critical minerals, energy inputs, advanced manufacturing, semiconductors, artificial intelligence infrastructure, and logistics networks.
Pax Silica is presented as a high-technology development initiative centered on artificial intelligence, semiconductors, data infrastructure, and advanced manufacturing. Yet its broader significance lies in its structure: the state is expected to help assemble the land, power capacity, logistics corridors, fuel infrastructure, communications systems, and investment incentives required before private investors occupy these strategic platforms.
This represents a significant departure from a conventional market process. Under a market-driven model, private investors typically bear the primary responsibility for assembling capital, infrastructure, and project risk. Under the Pax Silica model, the state assumes a larger role by pre-building enabling infrastructure, socializing a significant portion of upfront costs and risks, and directing private capital toward a strategically selected industrial platform.
For this reason, Pax Silica cannot be analyzed simply as an industrial-park project. It represents a form of state-directed capital allocation in which public resources are concentrated toward sectors considered strategically necessary.
The benefits of this arrangement may accrue disproportionately to a concentrated group of politically connected strategic stakeholders, creating opportunities for the formation of new strategic rents among firms and actors positioned to benefit from state-directed allocation.
The underlying objective is not primarily the maximization of economic returns. Rather, economic activity is being organized around a security objective: reducing dependence on China and building an alternative high-technology and defense-industrial supply chain amid intensifying strategic competition between the two powers. Commercial benefits may emerge from this process, but they are subordinate to the geopolitical purpose of strengthening strategic security supply chain.
This is the defining feature of a security-oriented political economy: scarce resources are increasingly allocated not solely according to market profitability, but according to their perceived strategic value.
IX. The SIPP as the Fiscal Engine
The Strategic Investment Priority Plan (SIPP) provides the fiscal and regulatory mechanism that enables this process. Through tax incentives, duty exemptions, accelerated depreciation, and other investment privileges, the SIPP channels state support toward sectors identified as strategically important by the administration.
Its Tier II and Tier III categories appear particularly aligned with the requirements of Pax Silica, accommodating the capital-intensive sectors and infrastructure needs associated with advanced manufacturing, semiconductors, artificial intelligence, data centers, critical mineral processing, and related strategic industries.
When combined with Pax Silica, the result is a powerful concentration mechanism: public land, public infrastructure, public energy capacity, and fiscal incentives are assembled in advance and aligned with private investment in sectors considered essential to strategic supply-chain development.
This represents more than a conventional investment-promotion framework. The state is not merely reducing barriers for private capital; it is actively shaping the conditions under which capital is directed toward strategically selected sectors. In doing so, scarce national resources are increasingly organized around geopolitical priorities, particularly the effort to build alternative high-technology and defense-industrial supply chains amid intensifying strategic competition with China.
The significance of this arrangement lies not only in the industries being promoted, but in the institutional process through which they are prioritized. When access to infrastructure, fiscal incentives, and state-supported platforms is concentrated among politically connected strategic stakeholders, including selected investors, technology firms, and geopolitical partners, new forms of strategic rent emerge.
The SIPP therefore functions not simply as an investment
incentive program, but as the fiscal
engine through which domestic economic capacity is increasingly aligned with
broader security objectives. Economic activity remains present, but its
organization is increasingly shaped by strategic considerations beyond
immediate market allocation.
X. The Economic Opportunity Cost
Every peso devoted to pre-building strategic infrastructure is a peso that cannot simultaneously finance other productive uses. The opportunity cost among many includes:
- Energy capacity that could support households, MSMEs, and regional industries.
- Public infrastructure funds that could be directed to agriculture, manufacturing, transportation, or local enterprise.
- Fiscal incentives that reduce potential government revenue available for health, education, and civilian development.
- Credit and savings that may be crowded toward large strategic projects rather than dispersed entrepreneurial activity.
A centralized hub such as Pax Silica may generate
impressive headline investment figures, but headline investment is not the same as broad-based capital formation.
If the project primarily channels public resources into a concentrated
strategic platform, it may deepen the
very centralization that weakens MSMEs and depletes the savings-based
capital foundation of the civilian economy.
XI. The Geopolitical Dimension
Pax Silica also carries a geopolitical dimension that is absent from ordinary industrial policy. AI infrastructure, semiconductor production, data centers, fuel pipelines, logistics corridors, and communications networks are not merely civilian assets; they are dual-use assets with potential strategic and military relevance.
As these assets become integrated into a broader U.S.-aligned technological and security architecture, they may alter the Philippines’ risk profile. The country is no longer simply hosting military facilities; it may also be embedding critical economic infrastructure into a regional strategic network.
The danger is
therefore twofold: economically, Pax Silica may accelerate the centralization of capital allocation
and crowd out civilian enterprise; geopolitically, it may increase the visibility and vulnerability of Philippine infrastructure
in any future regional escalation of conflicts.
XIA. Side Note: BCDA’s Rebuttal
BCDA has defended Pax Silica primarily through the lens of environmental compliance, water availability, and local safeguards. Those concerns are important, but they do not address the deeper economic and geopolitical question raised here: whether the pre-allocation of massive power capacity, fuel pipelines, free-rent incentives, and strategic infrastructure represents a form of state-directed capital allocation that can strain domestic grids, deepen economic fragility, and increase geopolitical exposure.
The issue, therefore, is not merely whether Pax Silica is environmentally compliant. It is whether the project marks another stage in the Philippines’ integration into a U.S.-aligned strategic and technological architecture, with consequences that extend far beyond the environmental debate.
XII. Strategic Integration and Its Trade-offs
Every public investment project promises rewards. Pax Silica and the broader Strategic Investment Priority Plan (SIPP) are no exception. Government officials present them as catalysts for artificial intelligence, semiconductor manufacturing, digital infrastructure, high-value employment, foreign direct investment, and the transformation of the Philippines into a regional technology hub. Together with expanding defense cooperation, they are expected to strengthen national security, improve technological capabilities, and position the Philippines as an indispensable partner in the Indo-Pacific.
These advertised objectives form the central justification for the strategy. Investments that raise productivity, create employment, and expand technological capabilities may generate economic benefits. The visible gains attract immediate attention, while the less visible trade-offs emerge through changes in capital and resource allocation, fiscal commitments, and geopolitical exposure.
XIII. The Unseen
Trade-offs
XIIIA. Sovereignty and Strategic Dependence: The GCC-Operation Epic Fury Experience
One of the least discussed consequences of deeper strategic integration is the gradual erosion of policy autonomy.
Sovereignty is rarely surrendered in a single treaty or executive agreement. More often, it diminishes incrementally as military facilities, logistics, intelligence, industrial policy, infrastructure, and critical technologies become increasingly integrated into the strategic architecture of a more powerful ally.
This is not unique to the Philippines. It reflects the institutional logic of asymmetric alliances. As integration deepens, the larger power naturally makes decisions according to its own strategic priorities, while the smaller partner must increasingly adjust to choices over which it exercises comparatively less influence. The relationship therefore changes not only the distribution of military capabilities, but also the distribution of decision-making power and strategic risk.
Figure 5
The recent U.S. operation against Iran illustrates this institutional dynamic. In its assessment of the episode, the Jewish Institute for National Security of America (JINSA) observed that the Gulf Cooperation Council's security framework had long rested on the expectation that the United States would consult its regional partners before undertaking military actions that could expose them to retaliation. Yet according to the study, Operation Epic Fury was not preceded by broad consultation across Gulf governments, despite exposing the region to heightened strategic risks. (Figure 5)
Whether coordination occurred through limited elite channels is secondary. The episode demonstrates how, in asymmetric security relationships, the dominant power's strategic priorities may ultimately prevail over the preferences of its partners.
As the Philippines becomes more deeply integrated into the U.S. security architecture through EDCA facilities and related strategic infrastructure, the practical question becomes one of sovereignty. To what extent would future operations launched from Philippine territory ultimately reflect Philippine strategic priorities, and to what extent would they reflect those of Washington? The answer will depend not simply on treaty language or diplomatic assurances, but on where effective strategic discretion resides when interests diverge.
Recent U.S. actions toward both allies (Greenland, Canada, Nato plus tariffs) and rivals demonstrate that American policy is ultimately guided by American national interests. That is neither unusual nor unique; it is how great powers behave.
The implication for the Philippines is straightforward: deeper strategic integration also means greater exposure to the consequences of decisions shaped by U.S. priorities.
The historical progression from the postwar U.S. bases, to the Visiting Forces Agreement (VFA), to the Enhanced Defense Cooperation Agreement (EDCA), and now toward Pax Silica and the Strategic Investment Priority Plan (SIPP), reflects an expanding architecture of strategic integration. What began primarily as military access increasingly encompasses infrastructure, logistics, technology, energy systems, industrial policy, legal institutions, and bilateral political relationships. As these become progressively integrated with U.S. strategic objectives, the institutional centre of gravity likewise shifts. Strategic priorities increasingly influence the allocation of capital, public resources, infrastructure, and government policy—in favor of the US.
Yet, strategic
dependence is cumulative. Every
additional layer of integration—whether military facilities, logistics,
technology, energy systems, industrial policy, or legal institutions—increases
the cost of policy independence while strengthening U.S. strategic leverage. As dependence deepens, so too does the
likelihood that American strategic priorities will prevail whenever they
diverge from Philippine preferences. Sovereignty is therefore not
diminished by any single agreement, but by the cumulative institutional
dependence created over time.
Figure 6
The implications extend beyond political autonomy. They also reshape the country's risk profile. Modern military strategy increasingly targets not only armed forces, but also the logistics, communications, energy systems, and technological infrastructure that sustain military operations. The recent conflict with Iran demonstrated that U.S. bases and associated strategic infrastructure can themselves become objects of retaliation. Analyses from both the Jewish Institute for National Security of America (JINSA) and the Council on Foreign Relations (CFR), despite approaching the issue from different perspectives, underscore two complementary realities: asymmetric alliances often leave smaller partners with limited influence over operational decisions, while the physical infrastructure supporting those alliances may itself become a strategic target—Iran has repeatedly targeted US bases in the region. (Figure 6)
At the onset of the conflict, the New York Times mapped strikes on several US bases in the Middle East, documenting the extent of the damage.
For the Philippines, this raises a broader political-economy question. As EDCA facilities expand and complementary projects such as Pax Silica, strategic logistics, fuel infrastructure, and energy-intensive developments become increasingly integrated into the regional security architecture, they may generate economic opportunities while simultaneously increasing the country's geopolitical and kinetic risk profile.
The current administration's reported rejection of requests for separate legal jurisdiction and diplomatic immunity for the Pax Silica project deserves recognition. Such decisions, however, reflect current political preferences rather than permanent institutional constraints. Future administrations may reach different conclusions as strategic investments deepen, dependence increases, and geopolitical circumstances change. Institutional change is often incremental: each additional accommodation reduces the political and institutional cost of the next.
XIIIB. From Economic Infrastructure to Strategic Targets
As noted above, modern conflict increasingly encompasses economic infrastructure alongside conventional military installations. Fuel depots, logistics corridors, communications networks, AI infrastructure, semiconductor facilities, ports, and power systems may all become strategically significant because they support military operations even while serving civilian purposes.
Recent conflicts illustrate that retaliatory strikes have extended beyond traditional bases to include logistics networks, energy infrastructure, and AI-related facilities that underpin military capability.
The Iran conflict offers a pointed example: strikes on AI and data infrastructure were justified precisely because, as the Responsible Statecraft noted, U.S. strategic doctrine had made civilian AI infrastructure inseparable from military operations over time. The civilian origin of the asset offered no protection once it became operationally load-bearing for the military.
The issue is whether deeper integration into a regional security architecture gradually changes the strategic risk profile of infrastructure that would otherwise remain predominantly civilian.
XIIIC. Fiscal and Capital Allocation Risks
Every strategic commitment requires resources.
Defense modernization, strategic infrastructure, dedicated power generation, transport links, fiscal incentives, tax concessions, and publicly supported industrial hubs all compete for the same pool of national savings, public finance, skilled labor, land, and energy.
When these initiatives rely increasingly on deficit spending, public borrowing, or preferential fiscal treatment, the opportunity costs extend beyond government accounts. Capital that could otherwise support MSMEs, agriculture, manufacturing, and decentralized entrepreneurship becomes increasingly concentrated in politically prioritized sectors.
The issue is therefore not simply higher government expenditure. It is the gradual centralization of capital allocation through state-directed strategic priorities.
Over time, this concentration weakens the savings and productive capacity required to sustain broad-based investment and productivity growth. As capital becomes increasingly directed toward strategic sectors while household purchasing power faces pressure, the economy may become more vulnerable to stagflation—slower real economic growth accompanied by persistent cost pressures.
The burden of such a transition falls disproportionately on households and smaller enterprises through weaker wage growth, diminished purchasing power, and reduced access to credit, while the principal beneficiaries are sectors receiving strategic preference, fiscal incentives, and privileged access to state-directed resources.
In the end, politically directed allocation risks magnifying existing asymmetric benefits—concentrating gains among strategically connected actors while dispersing costs across the wider economy: inequality.
XIIID. Strategic Rents and Political Incentives
History demonstrates that geopolitical importance can create strategic rents.
When governments obtain external financing, infrastructure assistance, or diplomatic backing because of their strategic value rather than their productive capacity, fiscal constraints become less binding. Greater access to external resources expands the state's ability to allocate privileges, negotiate incentives, and postpone the consequences of fiscal imbalance through borrowing and external support.
The Philippine experience during the Cold War illustrates how strategic importance
coincided with debt accommodation, preferential financing, and expanded
political discretion—conditions that contributed to the vulnerabilities exposed
during the 1983 debt crisis. Similar incentive structures may emerge under
contemporary institutional arrangements. The circumstances are different, but
the underlying mechanism remains familiar: strategic rents can reduce fiscal
discipline, expand discretionary power, and encourage the concentration of
economic privileges among politically connected actors.
XIIIE. Technological Concentration and Market Risk
Pax Silica also represents an entrepreneurial wager on the future trajectory of artificial intelligence and semiconductor investment. Governments can assemble land, infrastructure, energy capacity, and fiscal incentives; they cannot guarantee sustained private-sector demand or the profitability of the industries they seek to attract.
Should the current AI investment cycle weaken, or should global technology markets experience a significant correction or even a broader bubble collapse, publicly supported infrastructure could face underutilization, lower occupancy, and disappointing returns—leaving taxpayers to absorb costs that private investors would ordinarily bear.
XIIIF. Energy and Opportunity Costs
The proposed allocation of up to 5,000 megawatts of electricity highlights another unseen trade-off.
Electricity, like capital, is scarce. Every megawatt committed to one strategic project is unavailable for alternative productive uses. During periods of constrained supply, preferential allocation toward one investment platform necessarily affects the availability and cost of energy for households, manufacturers, agriculture, and smaller enterprises.
The debate therefore extends beyond environmental sustainability. It concerns the political economy of allocating scarce national resources toward strategically selected industries.
With the current fragility of the Philippine energy system, the additional demand created by Pax Silica may introduce not only the risks of shortages and outages, but also a shift in the hierarchy of energy allocation toward geopolitical rather than domestic objectives.
As energy infrastructure becomes integrated into the broader security architecture, energy policy may increasingly prioritize geopolitical considerations, particularly during periods of constraint or emergency or conflict.
BCDA has responded primarily to environmental concerns surrounding Pax Silica. Those issues are important, but they do not address the broader economic and geopolitical questions surrounding concentrated state investment, strategic infrastructure, energy allocation, and the country's evolving role within a regional security architecture.
The central issue is whether the commitment of scarce energy capacity to strategically prioritized infrastructure represents another stage in the reallocation of domestic resources toward geopolitical objectives.
XIIIG. Reciprocity Is Never Guaranteed
Finally, strategic cooperation should not be confused with guaranteed economic reciprocity. Alliances, treaties, and strategic partnerships are often perceived as mutual relationships, but they do not create permanent obligations across all areas of policy.
In a geopolitical
system defined by power asymmetry, stronger states ultimately retain greater
ability to shape the terms of the relationship according to their own national
interests.
Figure 7
Recent U.S. tariff measures affecting Philippine exports serve as a reminder that security partnerships and economic policy are governed by different political incentives.
Close military cooperation does not necessarily translate into favorable trade treatment. The experiences of U.S. relations with NATO partners, Canada, and other allies demonstrate that even longstanding security relationships remain subject to changing domestic priorities and strategic calculations.
Political economy ultimately reflects changing human choices rather than permanent diplomatic commitments. Strategic alignment may strengthen one dimension of bilateral relations while providing limited protection against shifts in economic policy or even geopolitical interests.
International relationships are not fixed arrangements; they evolve as interests, leaders, and geopolitical circumstances change—as the GCC framework showed.
XIV. Conclusion: The Philippines and the Drift Toward a Security (War-Time) Economy
The rising intensity of global conflicts and the fragmentation of the post-Cold War economic order are reshaping how states organize economic policy. Across the world, governments are increasingly treating trade, technology, energy, infrastructure, and industrial capacity as instruments of national security rather than merely engines of economic efficiency.
That transformation is now increasingly visible in the Philippines.
The return of U.S. military infrastructure through EDCA, the expansion of defense commitments, the alignment of industrial policy through Pax Silica and the Strategic Investment Priority Plan (SIPP), and the growing integration of critical infrastructure into a regional security architecture represent a broader reorientation of the Philippine economy toward the requirements of geopolitical competition.
A war economy is not created only when tanks move, soldiers mobilize, or battlefields emerge. Those are the visible symptoms. The underlying process begins earlier: when the state increasingly directs capital, energy, technology, infrastructure, and production toward strategic priorities, often at the expense of decentralized private-sector allocation and alternative civilian uses. The Philippines has already moved in this direction through political choices that embed the country more deeply into the hegemonic competition between great powers.
Economic decisions are increasingly evaluated not only according to productivity and market returns, but according to their contribution to strategic objectives.
History demonstrates that geopolitical importance creates powerful incentives. External support, strategic financing, and security partnerships can strengthen states, but they also weaken fiscal discipline, expand political discretion, and concentrate economic privileges among actors positioned to benefit from state-directed allocation.
The resulting risks are therefore twofold.
Domestically, the increasing centralization of capital, energy, and industrial policy weakens the decentralized entrepreneurial foundations necessary for broad-based economic growth.
Externally, deeper integration into a great-power security architecture increases exposure to conflicts shaped by interests beyond Philippine control. The experience of Ukraine and Iran demonstrates how smaller states positioned on the fault lines of geopolitical rivalry can become arenas where larger strategic contests are played out.
In short, rather than simply delivering economic gains, Pax Silica and the SIPP deepen existing economic and financial fragility by concentrating capital allocation, increasing strategic dependence, and exposing the Philippine economy to greater external shocks.
The danger is not only that the Philippines becomes involved in great-power competition. The greater danger is that the emerging era of multipolar rivalry—most importantly the Thucydides Trap dynamic between the United States and China—becomes the organizing principle of the Philippine economy: centralizing economic decision-making at home while increasing vulnerability to conflicts abroad.
