Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Ultranationalistic Mentality

          President Benigno Aquino III does not agree with Senate President Juan Ponce Enrile and Speaker Feliciano Belmonte that amending the overly restrictive economic provisions in the Philippine Constitution should be a priority in order to improve the very notorious investment climate of the Philippines.  We have so many black marks against us:  one of the worst airports in the world; the least globally competitive in East Asia, with the exception of Cambodia; the second highest electricity rates in Asia; the lowest ranking in the ease of doing business index of the World Bank.  The President has been advised by his Cabinet Secretaries, however, that these restrictive provisions in the Constitution do not matter because, according to them, there are already laws on foreign investments that have opened the Philippines to ninety percent of possible foreign investments.  It is not worth introducing acrimonious debates on the Constitution that may just destabilize the economic environment in an already uncertain global climate. 

          I disagree with the economic advisers of the President.  Removing the provisions of the Constitution that restrict foreign ownership of strategic industries in the Philippines will address the very root of the frustrations that foreign investors experience when they want to invest in the Philippines.  There is a pervasive mentality among government bureaucrats that foreigners are presumed to have bad intentions when they come to invest in the country until proven otherwise.  There is the unwarranted assumption that if the control of strategic industries is given to Filipinos, these Philippine owners and managers will always work for the common good of the country better than any foreigner.  This is a result of the "Filipino First" policy that got imbedded into the subconscious of our government officials during the long history of inward-looking, import-substitution, and ultranationalistic policies.  Such "Filipino First" mentality could have been justified as an instinctive reaction to the traumatic colonial experience before our independence.  Today when former communist countries like China, Russia, Vietnam and even Cambodia are doing their best to attract tens of billions of dollars of FDIs, dwarfing the measly $1 to $2 billion that we get annually, the Filipino First policy has turned into a paranoia that can be very damaging to the interest of the poor and the unemployed.  Unfortunately, Filipino First is enshrined in the Philippine Constitution.  It has to be removed.

          A professor of political economy at the University of Asia and the Pacific, Ms. May Salao, made a comparative study of the constitutions of Indonesia, Vietnam, Thailand, India and the Philippines.  Curiously enough, there is no provision in any of the constitutions of the four foreign countries--our closest competitors for foreign direct investments--that make any reference to nationals having preference to the ownership of business enterprises over foreigners.  In all four countries there are very strict provisions about the State having an overriding role in the ownership and control of strategic industries and resources.  For example, in Indonesia, Chapter XIV (National Economy and Social Welfare) of the Constitution states that "Sectors of production which are important for the country and affect the life of the people shall be under the powers of the State."   In Vietnam, Chapter II (The Economic System) of the Constitution includes an article (22) which states that "Production and business establishments in the various sectors have to fulfill all obligations before the State, and are equal before the law; their legal capital and property shall be protected by the State. Enterprises in the various sectors may enter joint ventures with individuals or economic organisations inside or outside the country as provided for by law."

          In fact, in the Vietnamese Constitution (Section II, Article 25) it is clearly stated that "The State encourages foreign organizations and individuals to invest capital and technology in Vietnam in accordance with Vietnamese law and with international law and practice:  ensures the legal ownership of capital and assets as well as other interests of foreign organizations and individuals.  Enterprises with foreign invested capital shall not be nationalized.  The State encourages and creates favorable conditions for the Vietnamese who live abroad to invest in their homeland."  There is absolutely no mention of Vietnamese living in Vietnam having a priority claim to the ownership of certain industries.  It is the State that has priority claim to owning strategic industries but not Vietnamese nationals.

          The Thai Constitution also clearly states the leading role of the State in guiding and regulating private business but does not give any preference to nationals over foreigners in the ownership and management of business.  Chapter V of the Constitution has part 7 on directive principles of economic policies.  Article 84 of Part 7 mandates the State to "promote a free and equitable economy through market forces and sustainable development of the economy by repealing and refraining from enacting business control laws and regulations which do not correspond with the economic necessity and shall not encourage business activities in competition with the private sector unless it is necessary in maintaining the security of the state, public interest or the provision of public facilities." Furthermore, the State is mandated "to supervise the conduct of business to ensure free and fair competition in business to prevent direct and indirect monopolies and to protect consumers." All the other provisions refer to the role of the State in regulating, guiding, supporting, and promoting the initiatives of private business.  There is no single provision about Thai nationals having a prior claim to owning local business over foreigners.

          Part IV of the Indian Constitution refers to directive principles of state policy, which includes Section 39 on redistributive policy.  Part XII is on finance, property, contracts and suits; Part XIII on trade, commerce and intercourse.  There is the usual provision about the State having complete control of all natural resources:  "All lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest in the Union and be held for the purposes of the Union."  The right of private property is also clearly affirmed:  "No person shall be deprived of his property save by authority of law."  There is also a constitutional provision ensuring a more equitable distribution of wealth:  "The State shall, in particular direct its policy toward securing that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment."  But, as in all the other three countries, there is no mention in the Constitution about giving nationals preference to foreigners in the ownership and management of any business, strategic or otherwise.

          From the comparative study of Ms. Salao, I can conclude that our competitors for FDIs are more realistic in acknowledging the fact that there is no reason to assume that giving their nationals priority to the ownership or management of strategic businesses can promote the common good of their society better than allowing foreigners majority control.  Their definition of "nationalism" assumes that the nation, represented by the State (not by nationals), can better work for the good of all, especially the underprivileged.  That is why at least in two of them, India and Vietnam, state enterprises still play a very important role in the economy.  I contend that we should also define nationalism in that sense:  as we succeed in rooting out corruption in the public sector, we should assign a greater role to state enterprises in some of the strategic industries of the economy. After all, Singapore has reached First World status despite the primordial role of state enterprises in economic development. But we should stop equating nationalism with insisting that Filipino nationals should be in control of strategic sectors.  From our sad experiences, that was a sure formula to preserve the feudalistic structure of our society:  the Filipino elite captured and monopolized the entire Philippine economy. There were too many of them who were just rent seeking. For comments, my email address is bernardo.villegas@uap.asia.