No, Reader, I am not writing about the Marcos attempts to revise history, although the above quote certainly applies in that case. I am writing about the attempts to revise/amend the 1987 Constitution by our lawmakers. In all those attempts, the focus is on removing the provisions restricting foreign ownership in some sectors of the economy (media, education, advertising, public utilities, land, and natural resources) . Why? Because these provisions, they claim, have been the stumbling block, a major impediment to foreign direct investment (FDI) in the country. Lift the provisions, the argument goes, and FDI will come flooding in, economic growth is ensured, employment increased, poverty diminished, income inequality lessened.
So, Reader, it would seem that all our socioeconomic woes arose because of the 1987 Constitution in general and its economic provisions in particular. But to be fair to our lawmakers (from as far back as Speaker Jose de Venecia) they didn’t think up these arguments themselves – they got the idea from some economists. In fact a colleague, Gerardo Sicat, called those provisions the “original sin” in our national development policy, “the main drag on our efforts to bring in foreign capital to assist our economic progress and modernization.”
Unfortunately, some of his arguments to “prove” his case are factually inaccurate.
For example, he claims that after the WWII, Americans did not reinvest in the country the compensation they received for their destroyed industries and properties. He blames the 1935 Constitution for this. He seems to have completely forgotten that the Philippines amended the 1935 Constitution in 1946, when it granted Americans parity rights (as required by the Bell Trade Act, which also imposed a P2-P1 fixed exchange rate that could only be changed with the approval of the US President) , i.e., the same rights as Filipinos. In other words, there were absolutely no restrictions on American investments after WWII.So if Americans did not reinvest, it was for reasons other than a restriction on American ownership.
Also, he says that “the industrial policies that followed the import and exchange controls that dominated Philippine economic policy for at least two decades followed these constitutional restrictions.” What is he talking about? Those import and exchange controls had to be imposed because the P2=$1 exchange rate imposed by the Bell Trade Act, were making imports so cheap and our exports so expensive, so that we were having balance of payments problems. The Constitution had nothing to do with it. Thank heavens the 1955 Laurel-Langley Agreement removed that imposition.
Finally, he asserts that the progress of “Tiger Economies” of East Asia – South Korea, Taiwan, Hongkong and Singapore – was “fueled by the heavy participation of foreign capital”. I refer him to the table on Foreign Direct Investment Indicators, 1970-2021 which Sonny Africa of Ibon presented to the Congressional Committee on Constitutional Amendments at the hearing on Thursday, where we were all present. Taken from UNCTAD, the data show that FDI flows into Taiwan and South Korea were on the whole less, both in absolute terms and in percent of GDP, than FDI flows into the Philippines. In other words, there was no “heavy participation of foreign capital” that Gerry Sicat describes, in these two countries. I haven’t had the opportunity to look at HongKong and Singapore, but in any case, these are more like city-states than countries.
In sum, there seems to be no empirical evidence to support the claims that the economic provisions of the 1987 Constitution (and earlier ones) were the source of our economic problems.
The True Determinants of FDI
On the other hand, there is a slew of empirical Philippine studies on foreign direct investment(FDI), specifically on their impact on the Philippine economy, and their determinants. These studies date from the early ‘70s all the way up to 2021. Unfortunately, their findings and recommendations do not seem to carry any weight, or have been completely ignored by our lawmakers and those who think FDI is always a boon and never a bane to the country.
As early as 1981, Lindsay and Valencia concluded that “the argument that foreign investment has made substantial contributions to the economic development of the Philippines is a weak one; significant costs and minor benefits are more the order of things”. Austria (2006) found that although FDI made significant contribution to the country’s development, its impact on technology transfer, productivity, domestic linkages and employment are limited.
With respect to the determinants of FDI, Lamberte (1993) found that “a liberal framework is not enough to attract FDI in the country. It must be complemented by sound macroeconomic policies, particularly in managing economic growth, foreign exchange and wages which were found statistically significant in the regression analysis done in the study”
Austria in 2006 found that the apparent lack of local suppliers and infrastructure have been the major impediments to FDI
Aldaba (2006) noted that the country’s complex investment incentive system combined with poor investment climate explain why the Philippines has performed badly in attracting FDI inflows relative to its neighbors.
It was also recommended that “to improve the country’s investment climate, it is important that the government immediately focus not only on inadequate infrastructure but also on the country’s low institutional quality, corruption and inefficient bureaucracy that continue to constrain doing business in the country”.
Did you notice, Reader? In none of these studies (including those not reported here) is there any mention of the urgent need to remove the economic provisions of the Constitution. Nor, equally telling, has there been any recommendation to do such a thing in any of the Philippine Development Plans of the different administrations – seven in all, including Marcos Junior.
And there’s more.
But now comes a recent (2021) study by Hazel Parcon-Santos, Maria Rica Amador and Marie Romarate, “ASEAN-5 countries: In competition for FDI” who are with the BSP Research Academy or with the BSP itself (I hasten to add that the views expressed in the discussion paper are those of the authors and do not represent the official position of the BSP. BSP Governor Philip Medalla is in too much trouble as it is). Its findings, will put to a stop, once and for all, any claims that lifting the economic provisions of the 1987 Constitution will be a magic wand for the economy. That will be for next time.