Commentary

Why we need economic
Charter Change now

Or why PH—the 2nd richest country after Japan in post-WWII
—has lagged behind Asia

We need Charter Change to remove the foreign ownership restrictions in the Constitution now!

Yes, now and not after the 2022 elections as some business groups and politicians are saying.

These are lame excuses to kick the can further down the road.  These excuses have been there since 1935, when these provisions were in the 1935 Constitution and carried over to the 1973 and 1987 Constitutions.

This is also the reason the Philippines, so full of potential after World War II, and the second richest country after Japan then, has fallen behind its Asian neighbors and continues to fall behind.

The pandemic has just exposed the weakness of its past and present economic and governance model, resulting in the fact that the Philippines is rated the worst in the world in recovering from the pandemic.  Even if the pandemic were to be contained this year, as those opposed to Charter Change say must happen first, it will take another four to five years before the Philippines returns to its pre-pandemic GDP per capita.

As it is, unemployment is at record levels and poverty is worsening.  According to the Social Weather Station, only 15% of Filipino families say they aren’t poor. The rest describe themselves as poor or near poor. We badly need investments to create jobs, but all Charter Change oppositors can say is “wait again,” perhaps not conscious of the pain, hopelessness, hunger and despair that poor Filipinos are experiencing today.

We badly need to change our economic model from consumption-led growth to investment-led growth.  Consumption spending, which has contracted 8.2 percent in 2020, will continue to be anemic because the fears about the corona virus will linger, vaccine or no vaccine.  Furthermore, the balance sheets of many companies and workers have been shredded by the lockdown, and it will take awhile for them to recover and start spending again.

There are those who say that investors still won’t come because of various problems—lack of the rule of law, poor infrastructure, lack of respect for the sanctity of contracts, etc.  However, removing the foreign ownership restrictions is a necessary, maybe not sufficient, condition for attracting foreign investments.  In other words, the Philippines won’t even be in the game if it continues to have restrictions in the Constitution.

The fact of the matter is that the Philippines has probably the most restrictive Constitution in the world,  with its restrictions on foreign ownership in so many industries—public utilities, mass media, advertising, educational institutions, natural resources, and land.  In other countries, restrictions are codified in law and can be changed by their respective legislatures.  Not so in this country, where the hurdle for Charter Change is high and the protectionists continue to muddle the issues.

What can we lose if we dare to remove those economic restrictions now?  There is nothing to lose and much to gain if we remove this yoke that has been keeping the economy from reaching its full potential.  The opposition is coming from local monopolists and duopolists who don’t want any competition from foreign investors.  But it is competition that the economy needs to lower prices, improve quality of services, and usher in much-needed innovation.

The restriction on mass media is obsolete and prevents the country from accessing capital that will enable it to export culture the way South Korea does

The restriction on public utilities has resulted in our poor telecom and transport services.  The restriction on the exploitation of natural resources has shut out foreign mining companies, which adhere to international standards of environmental compliance, from developing the country’s rich mineral resources.  The restriction on mass media is technologically obsolete and prevents the country from accessing capital that will enable it to export culture the way South Korea does.  (The music agency behind the South Korea sensation BTS had foreign capital backers.) It has also given the politicians excuses to shut down ABS-CBN because allegedly it had foreign investors in violation of the Constitution and a dual citizen, Gabby Lopez, its former chairman.

The restriction on educational institutions is also technologically obsolete.  Online courses are proliferating in the Internet.  Globally excellent educational institutions, such as the University of Chicago or Stanford, are prevented from setting up branches here.  If this restriction weren’t there, the Philippines could be a regional hub for higher education the way Singapore is.

It’s not only the public who will benefit, but business as well. Businesses are consumers too—of materials and services which go into their respective products.  Local businesses will become more competitive when the services and materials they consume get cheaper and better with more competition.

Without removing the foreign ownership restrictions in the Constitution, there’s little chance that local monopolies and duopolies will be broken up.  We will continue to suffer from “rent capitalism” i.e. not real capitalism but rogue kind of capitalism that extracts without adding any value.  Profits are derived, not from innovation or adding value to the consumer, but from monopoly privileges, government protection, and political favors and licenses.  The rent capitalists have been sitting pretty because those provisions protecting their monopoly positions are embedded in the Constitution.

Rent capitalism has been the scourge of the Philippine economy since 1935 when those restrictions were put in the 1935 Constitution.  Subsequent “revolutions”—the New Society Revolution of former President Marcos and the Yellow Revolution of 1986—have been fake ones because  these so-called revolutions didn’t touch those restrictive economic provisions.  They maintained the same old economic order. Rent capitalism has pervaded much of Philippine history and accounts for the bad governance we are experiencing—after all, rent capitalists can just exploit their monopoly and protected positions to earn abnormal profits rather than demanding, for example, that public mass transit be efficient, or that the rule of law prevail.  Bribery is common to grease special favors and protectionist barriers to competition.

Without investments that keep those jobs at home, a number of our people have no choice but to keep going abroad and work as OFWs at great social cost 

Without investments that keep those jobs at home, a number of our people have no choice but to keep going abroad and work as OFWs at great social cost.

If the country does nothing and still keeps these restrictive economic provisions in the Constitution, as the apologists for rent capitalism want, the economic recession will be long and deep. Meanwhile, our people will suffer a humanitarian crisis with high unemployment levels, massive hunger, despair and hopelessness.  While our leaders twiddle their thumbs, our neighbors Vietnam and Indonesia are aggressively liberalizing their foreign investment laws and courting foreign direct investment.

It’s time for a revolutionary new paradigm and a new economic model. The rent capitalists and their political allies have been delaying this shift to a new order since 1935. They want to delay it further with all sorts of excuses and imagined fears.

But there’s no more time to kick the can down the road. We are in deep economic crisis. Let’s remove those restrictive economic provisions in the Constitution now!

About author

Articles

Calixto "Toti" V. Chikiamco is a columnist on political economy of  Businessworld, a  BPO-entrepreneur, board director of the Institute of Development and Econometric Analysis (IDEA), and co-founder and president of the Foundation for Economic Freedom.  He's the author of the book, ”The Way Forward: The Path to Inclusive Growth,” and is co-author with National Scientist Raul Fabella, Dr. Emmanuel de Dios, Romeo Bernardo, and the late Cayetano Paderanga Jr. of the book, “Momentum: Economic Reforms for Sustaining Growth.”
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