As long as the Spanish empire on the eastern rim of the Pacific remained intact and the galleons sailed to and from Acapulco, there was little incentive on the part of colonial authorities to promote the development of the Philippines, despite the initiatives of José Basco y Vargas during his career as governor in Manila. After his departure, the Economic Society was allowed to fall on hard times, and the Royal Company showed decreasing profits. The independence of Spain’s Latin American colonies, particularly Mexico in 1821, forced a fundamental reorientation of policy. Cut off from the Mexican subsidies and protected Latin American markets, the islands had to pay for themselves. As a result, in the late eighteenth century commercial isolation became less feasible.
Growing numbers of foreign merchants in Manila spurred the integration of the Philippines into an international commercial system linking industrialized Europe and North America with sources of raw materials and markets in the Americas and Asia. In principle, non-Spanish Europeans were not allowed to reside in Manila or elsewhere in the islands, but in fact British, American, French, and other foreign merchants circumvented this prohibition by flying the flags of Asian states or conniving with local officials. In 1834 the crown abolished the Royal Company of the Philippines and formally recognized free trade, opening the port of Manila to unrestricted foreign commerce.
By 1856 there were thirteen foreign trading firms in Manila, of which seven were British and two American; between 1855 and 1873 the Spanish opened new ports to foreign trade, including Iloilo on Panay, Zamboanga in the western portion of Mindanao, Cebu on Cebu, and Legaspi in the Bicol area of southern Luzon. The growing prominence of steam over sail navigation and the opening of the Suez Canal in 1869 contributed to spectacular increases in the volume of trade. In 1851 exports and imports totaled some US$8.2 million; ten years later, they had risen to US$18.9 million and by 1870 were US$53.3 million. Exports alone grew by US$20 million between 1861 and 1870. British and United States merchants dominated Philippine commerce, the former in an especially favored position because of their bases in Singapore, Hong Kong, and the island of Borneo.
By the late nineteenth century, three crops–tobacco, abaca, and sugar–dominated Philippine exports. The government monopoly on tobacco had been abolished in 1880, but Philippine cigars maintained their high reputation, popular throughout Victorian parlors in Britain, the European continent, and North America. Because of the growth of worldwide shipping, Philippine abaca, which was considered the best material for ropes and cordage, grew in importance and after 1850 alternated with sugar as the islands’ most important export. Americans dominated the abaca trade; raw material was made into rope, first at plants in New England and then in the Philippines. Principal regions for the growing of abaca were the Bicol areas of southeastern Luzon and the eastern portions of the Visayan Islands.
Sugarcane had been produced and refined using crude methods at least as early as the beginning of the eighteenth century. The opening of the port of Iloilo on Panay in 1855 and the encouragement of the British vice consul in that town, Nicholas Loney (described by a modern writer as “a one-man whirlwind of entrepreneurial and technical innovation”), led to the development of the previously unsettled island of Negros as the center of the Philippine sugar industry, exporting its product to Britain and Australia. Loney arranged liberal credit terms for local landlords to invest in the new crop, encouraged the migration of labor from the neighboring and overpopulated island of Panay, and introduced stream-driven sugar refineries that replaced the traditional method of producing low-grade sugar in loaves. The population of Negros tripled. Local “sugar barons”— the owners of the sugar plantations–became a potent political and economic force by the end of the nineteenth century.