Page last updated at 03:14 Asia/Manila, Thursday, 03 April 2014 PH
The economic provisions of the Philippine Constitution have to be amended if we are going to attain inclusive growth in the next decade or so. There is no way we can attain the 7 to 9% GDP growth necessary in the next ten to twenty years to significantly reduce poverty and unemployment without the massive entry of foreign direct investments (FDI) that could replicate the Chinese experience over the last thirty years or so. If we examine the way some 400 to 500 million Chinese were liberated from poverty since the market revolution of 1978 under Deng Xiao Peng, the critical role of FDIs (that reached as much as $100 billion annually) is without doubt. The other factor, of course, was the massive investments of the Chinese State in infrastructure that reached as much as 10 per cent of GDP.
Critics of the present Administration are pointing out that the more than 7% growth that we have been attaining over the last two years or so is meaningless because the poor remain poor and unemployment has even increased. What do we expect? After twenty years or more of mediocre growth of about 4% annually, the country has accumulated tens of millions of poor and/or unemployed people, especially in the countryside that was very inadequately provided with the necessary infrastructures to improve the lot of the farmers. It will take at least ten years of 7% or more growth for there to be any sign of inclusive growth. In the meantime, we have to sustain this high growth and even accelerate it to close to 10% if we are ever going to eradicate massive poverty. We cannot avoid the Chinese formula of pouring a lot of money on infrastructure and getting foreign funds into the industrial sector. With the exception of land ownership, China has been much more open to foreign equity investments than the Philippines. Foreign ownership of land was not a major consideration of foreign investors in China because they were mesmerized by the outstanding ability of the Chinese State to improve public infrastructure to the level of a First World country. The Philippines has to open land ownership (of residence, factory and commercial establishment) to foreigners to compensate for the terrible state of infrastructure from which we are still suffering. It may take another five to ten years before we can bring our public infrastructure spending to the desired level of 5% of GDP. In the meantime, we have to depend on long-term equity capital to improve such infrastructures as toll roads, airports, trains, power plants, water facilities, etc. Investment in these sectors is still problematic for foreigners because of the many restrictions we have in our Constitution, which prohibits even 1% foreign equity investment in education and media and severely restricts foreign investments in such sectors as telecom, energy, mining, and public utilities.
Some local employers are wary about the method being proposed by the Philippine Congress to amend the economic provisions of the Constitution, i.e. adding the phrase "unless otherwise provided by law." They say that provisions found in the fundamental law of the land are being brought down to the level of legislation. These critics have hit the nail on the head. As one of those who framed the 1987 Philippine Constitution, I must declare what I told many of my fellow commissioners in my role as Chairman of the Committee on the National Economy. I told them that, because of their nationalist, leftist, anti-market or other sentiments, their including so many restrictions against foreign investments in the fundamental law was tantamount to transforming the Constitution into one huge piece of legislation. Any research on constitutions all over the world will show that quantitative restrictions on foreign participation in the local economy are never found in the fundamental law. They are always the subject of continuously changing legislation that adapts to changing circumstances in the global, regional and local economies. What Speaker Belmonte and the other legislators are trying to accomplish is precisely to reduce the Constitution into a really fundamental law and to remove provisions that straightjacket future generations with obsolete percentages and other provisions that should change with time.
For example, some of our local business leaders are misinformed when they say that opening land ownership to foreigners will enable some rich countries to buy all the islands of the Philippines. This is hyperbole. Once the amendment of this constitutional provision is passed, then Congress will pass a law that will clearly establish the conditions for foreign ownership of land. There are enough level-headed members of both houses in Congress who will realize that foreign ownership of land should be limited to the land on which the foreigner builds his residence, his factory, his office building and other commercial establishment. Why should the foreigner be prohibited from also benefiting from the appreciation of the land on which he has invested some amount of money?
In other words, there will be a limitation to foreigners buying unlimited space in the Philippines. The same process will be applied to the other reasonable restrictions that enlightened legislation may stipulate. For example, instead of a zero level of foreign investment in any educational institution. my opinion is to limit the foreign equity in a local school to 49% so that Filipinos can still determine the values that will be the foundation of the educational programs offered in the institution. The same reasoning can be applied to the foreign ownership of media. These two sectors are so sensitive to values so that total foreign control may lead to undesirable moral principles (such as the culture of death) creeping into our media world.
Any historical analysis of FDIs in the Asian region will show that average inflows of foreign direct investments among our ASEAN neighbors (not to mention China) would show that the Philippines has had the smallest share of FDIs, with our peers like Vietnam and Indonesia attracting foreign investments four to six times our yearly average. Although the admirable efforts of the Department of Trade and Industry have led to significant increases in the last two years, especially vis-a-vis Japanese and Korean investments, the figures are still puny compared to what our neighbors are getting.
As I said at the beginning of this column, much bigger FDIs must complement the larger infrastructure spending of our Government if we are going to attain inclusive growth over the next ten or more years. Those who are opposed to amending the economic provisions of the Constitution are unwittingly condemning the Philippine poor to perpetual penury. For comments, my email address is email@example.com.