February 7, 2024
MANILA, Philippines — The 1987 Constitution “isn’t perfect,” an economist said, but “it recognized the need for active government intervention to transform the economy’s structures and make it more industrialized, equitable and sustainable.”
According to Sonny Africa, executive director of the think tank Ibon Foundation, the “nationalism” of the present Constitution was “exactly what the economy needed when so-called free market globalization started getting underway in the 1980s.”
“The Charter call[ed] for a self-reliant and independent economy,” he told INQUIRER.net.
Africa explained that this could have been an effective measure to resist the “reckless opening up to foreign trade and investment that is behind manufacturing falling to its smallest share of the economy in 75 years.”
“The Constitution is not the binding constraint to progress,” he stressed.
He pointed out that the Charter “wisely called for industrialization and gave the means for this such as protection of Filipino firms, regulation of foreign investment, agrarian reform and rural development, and more.”
The problem, however, is that “consecutive administrations bought into the globalization hype and went in the other direction,” saying that “they spent more time finding ways to subvert the nationalist economic provisions instead of implementing them.”
“This hollowed out the economy and is the reason for such chronic joblessness, poverty, and underdevelopment,” Africa said as he called on proponents of changing the Constitution to “update their understanding of the country’s experience with globalization.”
FDIs not enough for development
As he explained, the conventional wisdom that investment restrictions and regulations hinder foreign investment and obstruct progress is wrong, saying that the “seemingly common-sensical argument is refuted by empirical evidence.”
“Lowering restrictions may not really even increase foreign investment,” he said, pointing to the Organisation for Economic Co-operation and Development’s FDI Restrictiveness Index plotted against FDI inward inflows in 83 countries.
Africa said based on the data, “restrictions are actually weakly correlated with foreign investment flows” since despite extremely wide variations of restrictiveness, FDI, or Foreign Direct Investment, were more or less evenly spread in the one to five percent of 2019 range.
“The inverse relationship that should be there if supposed restrictiveness is so restricting isn’t there.”
According to Ibon Foundation, “even the 12 countries outside this range – which includes the always peculiarly unique case of Singapore that shouldn’t be compared with anything else – don’t show such a trend.”
Africa said, too, that foreign investment is neither necessary nor sufficient for development.
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Ibon Foundation pointed out that there has been a deluge of foreign investments even with the Constitution’s supposed restrictions, and even before the recent liberalization, which has opened select sectors to 100 percent foreign ownership.
Based on data from the United Nations Conference on Trade and Development, the $2.8 billion in inward FDI stock in 1987 grew to $113 billion in 2022, and as explained by the think tank, measured as a share of GDP, it grew from 7.4 percent to 28 percent.
READ: Keenly watching the Cha-cha train
Africa said that even manufacturing is already 100 percent open to foreign investment and has some $17 billion in it. However, the sector fell to its smallest share of GDP (17.9) in 75 years since 1949, and to its smallest share of employment (7.3 percent).
But while corporate profits and wealth for a slice of the rich have grown, Africa said that most of the population has remained chronically poor and left behind. Why? He was clear: “More foreign investment doesn’t necessarily mean more development.”
According to Ibon Foundation, every foreign firm that comes in hires workers and increases economic activity. “True believers seize on this to fallaciously claim that the economy as a whole is developing.”
However, the economy doesn’t work that way.
“One basic reason is simply that foreign manufacturers have the greatest interest in preventing Filipino firms from emerging. Their profits will be squeezed the more domestic competitors they have for scarce resources, productive labor, and markets,” it said.
“The error of the government lies in its bending over backwards so much for foreign investors just to make them locate in the Philippines, in a race to the bottom with other countries in the region,” Ibon Foundation said.
“This just makes foreign investors get away with making their profits without contributing anything to long-term domestic development,” it stressed, saying that “we have much more foreign investment, but much less development.”
Based on data from the Philippine Statistics Authority, the value of exported manufactured goods in December 2023 was at $4.74 billion, but while this is already higher than the value of exported raw materials, the problem is that most manufacturing is not even Filipino.
According to Ibon Foundation, from 1996 to 2010, total approved investments reached $1.55 trillion, with FDIs having a share of 67.1 percent. Then from 2011 to 2022, the value of total approved investments hit $1.99 trillion, with FDIs having a share of 52 percent.
“When they leave for more profitable locations, as profit-seeking capital is wont to do, they leave nothing behind in terms of a stronger Filipino industrial base that substantially creates jobs, raises incomes, and increases productivity,” Africa said.
Sensitivity to economic status
But for Kier Franco, chairperson of the Department of Public Administration and Governance of the Polytechnic University of the Philippines, “the Filipino First Policy or the Protectionist policy should also be sensitive to our economic status and the horizon of opportunities that we can access in our current time.”
“Besides, if we liberalize the economy by revising the economic provisions, it might, at the end of the day, be the one serving the best interest of the Filipino people,” he told INQUIRER.net.
However, he pointed out that this should be addressed with care, stressing the need for a lot of safeguards that should be kept in place to prevent any possible abuses.
Franco pointed out that in the presidency of the late Benigno Aquino III, there was a proposal to add the phrase “as may be provided by law” to economic provisions. “I agree with this proposal,” he said.
He explained that this will allow Congress to enact more flexible laws (since they may be amended easier and faster than amending the Constitution) to respond to what our economy needs without compromising the interest of the Filipino people.