Constitutional restrictions on foreign investment in the Philippines must go!

A petition to members of Congress:

We filipinos who come from ordinary backgrounds who reside across our 7100 islands and across the globe and whose everyday struggles to put food on our tables clothes on our backs and roofs over our heads give us clarity of thought and vision hereby petition members of congress to hear our voice we wish to express our desire to see the constitutional provisions

Restricting foreign investment in the philippines amended to allow legislation to facilitate the screening regulating and monitoring of foreign investments in the country to take place we believe that economic nationalism is not equivalent to protecting domestic industries to the detriment of job creation improved productivity wage growth and technology transfer

That would redound to the benefit of the broader community we believe that true nationalism can be consistent with an open free economy that fosters trade and investment with proper regulatory oversight transparency and accountability we believe that in the 21st century our national patrimony consists not only of the soil that we till and the minerals underneath it

But of our people and the creative capacities that reside within them for our people to thrive and flourish in this century to move up from middle income status in the midst of the fourth industrial revolution we will need to upgrade our capabilities to produce higher value crops higher value manufacturing and higher value services this requires the philippines

To be open to foreign investors who not only provide financial capital but more importantly technological organizational and intellectual capital needed to upgrade our productive capacities together with our nation’s rich natural and human capital our innate creativity and ingenuity the philippines can reach its fullest potential philippines is ranked as the

Fourth most restrictive in the world in terms of foreign direct investment according to the oecd rankings for 2019. the only countries that are more restrictive than us in the sample were libya algeria and the palestinian authority our restrictiveness index is more than three standard deviations away from the oecd average this is a significant deviation with

Real world consequences the philippines ranked 10th in the east asia and pacific region in 2018 according to data compiled by the world bank our inward flows of foreign direct investment are about 2 percent of gdp this is roughly the same as the weighted mean of the world based on the world bank’s data bank this inverse relationship between our restrictiveness

To foreign investment and fdi raised from abroad is problematic for a country with a historically low saving ratio like ours to understand why this is so we need to go back in time to the founding of our nation the philippine policy elite from the american commonwealth period leading up to independence and then martial law had been characterized as consisting of

An unholy alliance an american banker who has since become a senior research fellow at harvard’s kennedy school of government once observed that throughout both democratic and dictatorial periods the philippines has followed a different pattern in that pattern an unholy alliance of a traditional landed class an inefficient and protected industrial right and

A pseudo-nationalistic left have combined to protect and subsidize a relatively uncompetitive and monopolistic economy the post eds a constitutional ban on foreign ownership of land and limited participation in the mining and utilities sectors dates all the way back to the early american colonial period with its policy of attraction to appease anti-imperialists

In the u.s led by democrats whose constituents consisted of southern sugar-growing regions and to gain the allegiance of our local filipino gentry american interests were prohibited from setting up in the colony harvard business schools ire and mara put it this way in order to get the philippine organic act of 1902 past these opponents president teddy roosevelt

See also  Can you Recession Proof yourself? (#6 ways to #recession proof your #finance )#business #investing

Had to agree to clauses which restricted american corporations from owning more than 1024 hectares of land prevented the national banking system from extending to the islands and restricted the ability of the insular government to grant mining claims or other franchises these restrictions serve to ensure that the u.s administration was not subject to capture by

Private american economic interests with no large u.s corporate interests allowed in the country large land holdings owned by the catholic monastic orders were acquired and parceled out in keeping with the terms of the treaty of paris between spain and the us in annexing the philippines from spain the u.s was obliged to protect the property rights of the spanish

Specifically including ecclesiastical bodies the taft commission concluded that the best solution would be for the insular government to buy these large haskendas of the friars and sell them out in small holdings to present tenants that did not occur because of the high cost of property rights which included surveying titling parceling settling competing claims

Registering attorneys fees and not to mention the cost of the land itself which the u.s bought at a premium just to convince the spanish clerics to leave the result was that formal property rights could only be acquired by local elites who could afford it according to iyer and marr the redistribution of the friar estates did have an impact we do see greater

Equality at the top end of the farm size distribution in fryer provinces an expansion of the landed elite in those areas but this was offset by increasing inequality among the small holders in the acquisition and parceling out of land the distribution was more equitable at the top of the socio-economic ladder but less so at the bottom 75 percent the productive

Estates of the religious orders fell into the hands of local and national elites this over concentration of assets in the hands of an oligarchy has led to what economists call market power it is true that some concentration of wealth is needed in a capitalist system for new enterprises to be created to take advantage of market opportunities and for economic

Takeoff to occur but too much concentration of wealth leads to monopolistic capitalism where rather than pursuing market opportunities dominant players in an economy maximize profit by restricting competition by controlling and using state apparatus to their advantage to the detriment of economic growth and dynamism this historical account shows the real

Motivation behind the constitutional restrictions on foreign ownership found in the 1935 constitution which was carried over in the 1971 and 1987 constitutions with ever increasing scope from the right we could say it was motivated to preserve concentration of wealth in the hands of a few from the left we could say it was an anti-american and anti-imperialist

Move that wanted the state to nationalize most of our industry which has been proven in the past to be a failed approach the constitution is the fundamental law of the land to enshrine any provision in it means that these things are sacrosanct to its framers who as we have shown represented an unholy alliance other nations in asia have restrictions on foreign

See also  MoneyMondaysJa- How to Invest on the Trinidad and Tobago Stock Exchange

Ownership of land utilities and other sectors but we are the only country to have enshrined them in our constitution this sends a terrible message to the world that the philippines is not open for business one set of objectives to constitutional revision argue that foreign direct investment isn’t a necessary prerequisite for economic development citing the case

Of northeast asia japan korea and taiwan fueled investment through a high savings rate by effectively concentrating foreign exchange earned abroad in the hands of the economic bureaucrats in japan the foreign exchange and capital law of 1949 required all foreign currency to be sold to a foreign exchange bank within 10 days of its acquisition preventing their use

For any unintended purpose this allowed japan to reinvest foreign reserves into industrial diversification aimed at catering to foreign markets to earn more foreign reserves and allow the cycle to repeat this was emulated in korea and taiwan japan’s former colonies once they grew rich and developed their economies east asia then ventured out by investing abroad

And earning overseas profits in that manner but without a capable and cohesive economic bureaucracy it was not possible to replicate their success in using the mercantilist hamiltonian recipe for industrialization east asia china and japan in particular had hundreds of years of meritocracy in the civil service with qualified mandarins who served their emperors

The philippines lacked a competent economic bureaucracy able to withstand pressure from the business community the roots of this stem from the fact that the americans gave the oligarchs control of congress by introducing a representative government before responsible government this then allowed them to influence the appointments in the civil service as carl h

Land states in his review of professor paul hutchcroft’s work the philippine oligarchy became dominant over the state under both spanish and american rule wealthy land-owning families emerged in the provinces alongside a weak and understaffed colonial administration when elections were introduced early in the century these families won control of the legislature

But there emerged no countervailing bureaucratic elite capable of defending the state’s resources against plunder by these families from the beginning such self-interested oligarchs have pressured public officials to do their bidding under import substitution industrialization from the 1950s to the 1970s the use of import licenses to encourage the purchase of

Machinery and equipment from abroad to manufacture finished goods to replace imported consumer products was undermined licenses were bartered lucratively by their holders to those who held foreign reserves and then used to import finished goods we missed japan’s outward foreign direct investment push in the 1980s following edsa due to a combination of factors

Such as a massive brain drain political instability and institutional weaknesses this was a perfect deindustrialization storm as de jos and williamson put it the asian financial crisis in the late 1990s saw foreign capital leaving the region after exceeding to the wto in 2001 china took the bulk of inward fdi away from the asean region but 20 years later factories

In china are relocating to cheaper places like vietnam bangladesh and sri lanka middle-income countries like the philippines are faced with a different problem the rules-based world trading system of which the philippines is a part has made it nearly impossible to replicate east asia’s path to prosperity the nature of the game has changed evans whose contribution

To the developmental state literature is well established speaks about the new requirements for growth when he says 21st century development will depend on generating intangible assets rather than on stimulating investment in machinery and physical assets oriented to the production of tangible goods this makes investment in human capabilities more economically

See also  Google: The Turning Point... | GOOGL Stock | Invested

Critical development is no longer about protecting domestic industries that cater to foreign markets by depressing the cost of labor manipulating exchange rates aimed at accumulating financial capital today with a fourth industrial revolution nations will compete by generating intangible assets through research and development by universities in collaboration

With foreign universities multinational companies tech entrepreneurs venture capitalists and the like our true national patrimony is no longer about our soil or the minerals found underneath it but the imagination and creativity of our people to tap this wealth of our nation requires the tools of collaboration and communication technology world-class institutions

Of higher and vocational learning that generate cutting-edge research and development this is why constitutional restrictions on foreign ownership look arcane and antiquated old and outdated on the other hand some say that revising our constitution to do away with restrictions to foreign ownership is no longer needed even if we think that it is desirable because

Complex financial instruments known as derivatives can skirt around the direct ownership restrictions the case of pldt is often cited in which foreigners or foreign money has been allowed a backdoor entry to invest in the company through such exotic instruments the celebrated case of rappler is one in which the media firm is arguing that the issuance of derivative

Instruments to a foreign investor does not surrender control of the firm to this we must ask wouldn’t it be simpler to just lift these restrictions so that these opaque and some would say shady dealings were out in the open to remove any ambiguity or doubt as to the legality of these arrangements why not just lift constitutional restrictions if these foreign

Holdings are being accused of manipulating the news as in the case of rappler shouldn’t these investment dealings be made more transparent we the public can then make an informed judgment as to whether we want it to continue or not we can regulate and perform oversight over them through public institutions to those who fear that lifting constitutional restrictions

Would mean that anything goes that is clearly not what is on offer here ownership can still be regulated oversight can still be performed there just won’t be an absolute ban or limits to foreign ownership hard-coded into our constitution making us unable to adapt more readily to the changing times things will be out in the open compared to the situation now

Where exotic financial instruments are being traded to disguise foreign ownership where properties are placed under the names of filipina spouses or fictitious dummies rather than their foreign partners and where residency permits are being sold to chinese nationals who work in pogos by dodgy immigration officials it would benefit the public coffers and reduce

Opportunities for corruption and could certainly improve the productive use of our land and other natural assets the signal this would send to the world if we remove these constitutional restrictions is that the philippines is open for business in the philippines when local businesses say that all they want is a level playing field and a reduction in regulatory

Red tape what they often mean in fact is for regulation to be written to favor them in a way that protects their interests so let us lift these constitutional restrictions now

Transcribed from video
Constitutional restrictions on foreign investment in the Philippines must go! By Doy Santos