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



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Economic Patriotism

           I have always contended that loving the Philippines or seeking the common good of our nation is first and foremost working for the good of every citizen of the country, especially the poorest of the poor.  It is not necessarily ensuring that "the national economy is effectively controlled by Filipinos" as mandated by the 1987 Philippine Constitution.  Ever since the concept of "Filipinization" was introduced to economic policy making in the 1935 Constitution, and reinforced in both the 1972 and 1987 versions of our fundamental law, giving preference to Filipinos in the ownership, control and management of natural resources and strategic industries has just worsened the feudal and monopolistic character of our society.  Unwittingly, well-intentioned "nationalists" and "activists" have handed the control of the national economy to an elite in whose hands the wealth of the country is concentrated. There has been very little evidence that "Fiipinization" has liberated the masses from poverty.  There has been very little evidence that the Filipino nationals who have managed to control the economy have a greater interest in the common good, especially of the underprivileged, than individuals who are not citizens of the Philippines. 

          Why is it then that "Filipinization" continues to be a major concern of our policy makers even in economic sectors that are not covered by constitutional provisions (which I think have to be amended sooner or later).  I maintain that the answer here is that a concept that was legitimate in the first three quarters of the last century has become completely anachronistic and counterproductive given the dramatic changes in both the national and international orders.  Those who framed the 1935 Constitution under the Commonwealth were completely justified to be wary about the continuation of colonial control by the Americans of the economy once political independence would be granted to the Philippines.  With memories of Spanish colonization still fresh in their minds and looking forward to be free of American political control, they were just exercising prudence and foresight when they included in the 1935 Constitution many provisions limiting significantly the foreign ownership of natural resources and strategic industries (like public utilities) in the Philippines.  They could be forgiven for believing in the hyperbole that they "preferred a Philippines run like hell by Filipinos to one run like heaven by Americans." Unfortunately for the masses, however, subsequent events proved that a Philippines run like hell by the Filipino elite did very little damage to the wealthy families (who could always have access to luxurious living both here and abroad) but condemned the poor to literally a hellish existence.

          Once the Philippines obtained political independence from the United States in 1946, our leaders took the cue from the 1935 Constitution and aggressively pursued a "Filipino First" policy.  The "nationalist industrialization" thrust could still be justified under the circumstances--both political and economic--during at least the first twenty years of our independence.  Because of the free trade policy adopted by our U.S. colonial masters during the Commonwealth, manufacturing was practically non-existent in the Philippines because we imported all our manufactured products from the U.S. in exchange for our agricultural exports like abaca, sugar, and coconut and mineral exports like gold and copper.  In order to start an indigenous industrial sector, our policy makers rightly adopted an import-substitution strategy, protecting Filipino industrialists from foreign competitors through a wide range of tariffs, interest rate subsidies and an overvalued currency. Our neighboring countries did the same thing, protecting their "infant industries" from foreign competition.

          The international political circumstances also warranted a cautious attitude towards too much foreign intervention in our national economy.  The cold war between the U.S. and the Soviet Union created an international order in which struggling economies like the Philippines, a number of them devastated by war, could easily be used as pawns by the two competing giants.  In such a situation, it was also prudent for our leaders to moderate the foreign presence in our national economy so that we could really gradually strive for national sovereignty.  At least as long as these political circumstance lasted, it was right for our leaders to be willing to pay the price of a relatively inefficient domestic industry for political independence from the international powers that be.  Needless to say, however, the cold war has long been over.

          Starting the 1970s, our neighboring "tiger" economies such as Singapore, Hong Kong, Taiwan, and South Korea and later the "tiger cubs" such as Thailand, Malaysia and Indonesia phased out their import-substitution policies and aggressively promoted export-oriented industries, taking full advantage of the large markets of the U.S., Europe and Japan.  In contrast, the Philippines--with the political elite completely in control of economic policy making and benefiting from the Filipino First policy--lingered too long in the import-substitution stage and failed to cash in on rich consumer markets of the advanced countries for labor-intensive manufactured exports.  With foreign investments much below the average in the region, the Philippines during the Marcos regime heavily depended on foreign loans to finance the government deficits and private investments, thanks to the abundance of petro dollars being recycled to capital-short countries like the Philippines.  Indeed in the 1970s and part of the 1980s, our leaders were able to implement the so-called "Recto doctrine" which stipulated that it was better to depend on foreign loans rather than on foreign direct investments to protect the national sovereignty of the country that does not have to be  compromised with too many foreigners owning Philippine assets.

          All hell broke loose, however, when the Philippines defaulted on its foreign loans in 1983 as the international financial community realized that our international reserves were less than zero.  The Philippines became an economic leper to its creditors.  Even if we wanted to continue to follow the "Recto doctrine", there was no way we could finance our capital projects with borrowed funds.  To help the country survive and address the serious poverty problem (more than 50 percent of the population lived below the poverty line) we direly needed foreign direct investments.  This was the message I tried to communicate to my fellow commissioners in the Constitutional Commission that former President Cory Aquino convoked to draft the Philippine Constitution in 1986.  I was not very successful in combatting the "Filipinization mentality" that was so encrusted among the intellectual leaders who formed part of the Constitutional Commission.

          Although I was Chairman of the Committee on the National Economy that drafted Article XII of the Constitution on the national economy, my views about liberalizing the provisions contained in both the 1935 an 1972 Constitutions concerning foreign direct investments were generally disregarded.  On both the left and right of the ideological spectrum, the idea of giving to Filipino citizens the control of vital sectors of the economy continued to be the preponderant opinion, especially because the mood prevailing during the deliberations in both the committees and the plenary sessions was an anti-Marcos stance, i.e. anything that Marcos promoted had to be reversed.  Marcos tried to allow more foreign investments in mining and other strategic industries.  Therefore, the new Constitution should make it harder for foreigners to invest in these sectors.  There was also the unfortunate confusion about the "dummy" corporations put up by the dictator.  There was the mistaken notion that most of these "dummies" were foreigners.  The truth of the matter was that practically all of them were the Filipino cronies of the President and his close friends and relatives.

          Given this environment that prevailed in those emotional months after the EDSA  revolution, the Philippine Constitution that was ratified in 1987 was riddled through and through with provisions that make it very difficult for foreigners to freely invest in public utilities and other strategic sectors of the economy which are the most capital intensive and in direst need for long-term  capital which can come only from Foreign Direct Investments.  Our neighboring countries fully realize this economic truth and are competing with one another in making their economies attractive to FDIs.  Over the last ten years, the Philippines has received the lowest FDIs compared to China, India, Indonesia, Vietnam, Thailand, Malaysia and other countries in similar stages of economic development.  That is one reason why these countries have had more success in bringing down their poverty levels.

          The message of this article is that there is no longer any rationale for "economic nationalism" in this day and age.  We should talk about "economic patriotism."  The idea of having Filipinos control the vital sectors of the economy has worked against the majority of the Filipinos who belong to the lower income groups.  We should talk about "economic patriotism", a true love of country  whose main concern is what is called n the Philippine Development Plan, 2012 - 2106 "inclusive growth", i.e. economic growth that liberates the masses from the bondage of poverty, a growth that truly trickles down to the poorest of the poor.  With an honest and efficient Government, the nationality of private investments should not matter.  Governed by a just State, both Filipino citizens and foreigners can equally contribute to the common good of society. Those industries in which national sovereignty can really be at stake, such as products for national defense, strategic natural resources and other politically sensitive economic sectors should be in the hands of the State, not "Filipino citizens."  In all other sectors, there should be no differentiation based on citizenship.   An economic patriot is a Filipino who welcomes every investor, whether Filipino or foreigner, who can contribute most of all to eradicating poverty in the Philippines.  For comments, my email address is bernardo.villegas@uap.asia.