Bernardo M. Villegas
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Amending Economic Provisions of Constitution (Part 1)

          Last March 8, I participated in a Forum held at the Philippine Congress on what I consider the very urgent task of amending the economic provisions of the Philippine Constitution of 1987.  It was dejavu for me because I was brought back to those months in 1986 when I chaired the National Economy and Patrimony committee of the Philippine Commission appointed by then President Corazon Aquino to draft a Constitution that would replace the emergency Freedom Constitution that was hurriedly put in place after the ouster of Ferdinand Marcos who assumed dictatorial powers for fourteen years.  I told the people in the Forum that I fully agreed to proposals to drastically shorten the Philippine Constitution of 1987 because I always felt that the highly emotionally charged environment of those months after the EDSA People Power event resulted in a document that went much beyond the fundamental law of the land.  More than a constitution, it was a long and verbose piece of legislation.

         Consciously or consciously, the members of the Philippine Commission of 1986 were drafting an anti-Marcos Constitution.  In a word, they wanted to make sure that an authoritarian ruler like Ferdinand Marcos would never be allowed to lead the Philippines ever again.  There was also a great distrust of legislators because of the perception that the former members of the Batasan were easily manipulated by the former President.  The result of this mental state that affected most of the Commissioners was a proliferation of provisions in the Constitution that were meant to counter whatever perceived abuses there were during the Marcos regime.  For example, if President Marcos was too friendly to foreign investors, there was the resolve of the majority of the Commissioners to make it more difficult for foreign investors to own what they considered vital or strategic industries, such as mining or public utilities.  Also, the majority of the Commissioners were either left-leaning (part of the rainbow coalition that put Mrs. Aquino into power) or protectionists still very much influenced by the Filipino First policy that characterized post-war economic policy.

         Without presenting myself as the only enlightened person, the records of the deliberations will show that I stood firmly in favor of an open economy as the Chairperson of the National Economy and Patrimony Committee that drafted the economic provisions.  I was, however, constantly outvoted by the nationalists and the leftists.  The result was a Constitution that left very little elbow room for future legislators to open up the economy to more Foreign Direct Investments.  Enough time has elapsed, however, to demonstrate from hard evidence that over the last thirty years or so, the Philippines has been left behind by our peers like Vietnam and Indonesia in the amounts of FDIs that we have received.  I attribute this poor performance to the very restrictive provisions in our Constitution that have discouraged foreign direct investors.  I agree with the Study Group that presented a report to our Forum that “the Philippines is hampered by many economic policies enshrined in the Constitution that serve as binding constraints.  These provisions are restrictive, protectionist, and anti-competitive, thereby hampering inclusive growth and economic development.  The economic provisions need to be amended to provide the needed flexibility that will enable the Philippines to properly compete, adapt and prosper in a changing and dynamic global economy.”

         I give my full support to the major reasons cited by the Study group for their suggested amendments:  1) Ensure free competition and dismantle monopolies and disempower oligarchs at the same time.  In this regard, I have always maintained that the “Filipino First” policy so ingrained in the mentality of many of our policy makers has actually resulted in “Rich Filipinos First and Never Mind the Rest.”  Only the rich could take advantage of the limit of 40% of foreign equity in any public utility.  Only the rich could buy 100% of the equity of a mass media enterprise, since foreigners were not allow to own even 1%.  “Filipino First” actually spawned a good number of oligopolistic industries which have kept prices of domestic goods or services unreasonably high.  That leads us to the second reason for the amendments:  2) Promote market efficiency based on the competency of producers and the enhancement of consumer welfare.  If we have less barriers to entry by foreigners who have the capital into our vital industries, the greater competition that will be faced by the local producers will benefit the Filipino consumers.  Greater competition can also benefit our export-oriented industries:  3) Enhance international competitiveness by meeting trade agreement obligations and increasing foreign investments.

         There are also political reasons for removing the restrictive provisions against foreign direct investments.  Under the current set-up, there is a great probability that the State can be captured by the elite and vested interest groups which thrive under protectionist and inward-looking policies enshrined in the Constitution.  Furthermore, considering the imperfect systems of governance in many government agencies, the existing provisions easily result in corruptive effects and adverse selection problems, where the country effectively allows foreign investors who may not necessarily be the efficient ones, but those whose tolerance for risk is high enough for them to go around the rules with the connivance of state instrumentalities.   This almost inevitably leads to opportunities for rent-seeking behavior, reinforcing the elite capture, and further constraining competition that could otherwise facilitate greater efficiency and increased consumer welfare.   (To be continued}.