The danger of a constitutional change

I think President Aquino may have his reasons why he is not inclined to support amending the current constitution of the country. The writer of this article gives the strongest reason yet why he should. But I would like to think it may be just the President’s preference to follow his mother in not entertaining this option not to give any ideas he is doing this to extend his term in office and other similar political opportunities. If we can only be sure the constitution will be changed for economic reasons it should be a straight forward proposition to do. Somehow, it does not look that way here.

From Business World Philippines
September 09, 2012

Let’s ChaCha

IN JUSTIFYING his reluctance to amend the economic provisions of the Constitution, President Aquino reportedly asked, “we grew 6.4% in the first quarter, why is there a need to change the Constitution?”

The reason, Mr. President, is staring at you in the face over Scarborough Shoal: China. I was hoping that the warships of China would do for the Philippine government what Commodore Perry’s American steel gunboats, the “black ships,” did to Japan in 1853. The realization that they were behind the West prompted Japan’s modernizing elite to overthrow their feudal system during the Meiji restoration and modernize the country’s economy and institutions. Not to mention, the presence of an external threat also prompted South Korea and Taiwan to curb the abuses and rent-seeking of their respective elites in order to force-march their industrialization.

China has been growing at double digit rates (and not just 6.4% in one quarter) for nearly 30 years on the back of huge foreign investments. It has grown mighty sinews and has caused the sense of triumphalism and regional hegemonism today that threaten the Philippines and neighboring countries.

And the 6.4% one quarter growth that Present Aquino is bragging about? For one thing, there’s a base effect because last year’s first quarter was anemic from the slowdown in government spending. For another, but the more important thing, it’s almost all consumption-driven growth, as it has been the past several years. Therefore, the government had nothing to do with that growth, no matter how much politicians would want to take credit for it.

Our consumption-driven growth is being fueled by the remittances of our army of overseas Filipino workers, who had to find jobs abroad because there are not enough jobs here. It’s, therefore, a sign of economic weakness, and not strength. Certainly, it’s not a reason to be complacent and adopt a business as usual attitude.

We need an investment-driven growth because only an investment-driven growth will enable us to grow productive capacity, improve competitiveness, and reach a level of growth high enough to grow jobs, reduce poverty, and build sinews into the economy. Our investment to GDP ratio is about 15% today. According to the Philippine Institute of Development Studies, “the investment-to-GDP ratio should surpass 25% for an extended period of time for it to achieve sustained economic growth.”

The first thing we have to do is to let foreign investors know that they are welcome. However, our Constitution says they aren’t. We are the only country in Asia where our basic law expressly states that foreign investors aren’t welcome in mass media and advertising, public utilities, educational institutions, land ownership, and exploitation of natural resources.

Well, there are those who say that there are ways around these Constitutional prohibitions, such as a 75-year lease on lands, the use of dummies, and multiple layering of holding companies. That’s true but it results in adverse selection, attracting the wrong kind of foreign investors who are willing to make a mockery of our laws. Moreover, even if there are foreign companies who are able to do business here, there are high transaction costs, and they may depart for emerging countries like Myanmar, Vietnam, and Sri Lanka.

Technology and globalization have also rendered those Constitutional prohibitions meaningless. In the age of the Internet, satellite television, and social media, Filipinos are consuming their media content from sources all over. We can listen to a radio, watch movies, and read newspapers without even going through a “Filipino-controlled” media outfit. Moreover, people can even attend lectures and get a degree from a foreign university online. Therefore, these Constitutional prohibitions are such anachronisms and must be removed.

True, there are other reasons, such as poor infrastructure, corruption, restrictive labor laws, red tape, and unstable policies why investors aren’t coming here, but that’s no excuse not to lift these Constitutional restrictions.

In fact, according to former Socioeconomic Planning Secretary Dr. Gerry Sicat, “The advantages offered by the TPP (Trans Pacific Partnership) within the Asia-Pacific network of economic cooperation in trade could be lost by default without constitutional amendments.” Countries like Vietnam, which is a member of the TPP, will have an advantage over us in trade with the US and Canada unless we amend our Constitution and remove the discrimination against foreign investors.

Lifting the economic restrictions on foreign investment in public utilities and mass media will also improve competition and consumer welfare in those areas. According to Alexander Bocchi, a World Bank economist, and the Philippine Institute of Development Studies, a key reason for low investment (and not just foreign investment) in general is the presence of monopolies in key industries. Having an anti-trust law is not enough; we have to encourage the entry of new players, especially foreign players with access to large amounts of capital, to come in and provide competition in strategic areas.

If there are reasons to restrict foreign ownership because of national security or other considerations, then such restrictions should be legislated, rather than embedded in stone in the country’s fundamental law. We have an anachronistic Constitution that’s so hard to change because of the lack of trust in our political culture, and it’s weighing us down in a fast changing world.

President Aquino should junk the outmoded thinking of protecting the rent-seeking Filipino elite, which has the perverse effect of forcing our compatriots to go abroad to find jobs in foreign companies. If he wants the Philippines to be able to stand up to China, he should strengthen the state, modernize our political and economic institutions, and transform our consumption-driven growth to an investment-driven one. He should support the amendment to the Constitution now.

Calixto V. Chikiamco is a board member of the Institute for Development and Econometric Analysis.

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