The debate on the amendment of the restrictive economic provisions of the Constitution will soon occupy the nation’s attention as the Enrile-Belmonte initiative on this issue enters the legislative stage. Despite a growing national consensus on the issue, powerful forces of opposition will put roadblocks to stop the momentum.
Opponents of this reform will use other constitutional amendments and political issues to deflect the effort. It is therefore important to recast the economic benefits to the nation of undertaking the amendments.
Even as the move to amend the restrictive economic provisions of the constitution is contemplated, the Supreme Court, in a recent decision, defined capital in a way that will require strict compliance with the restrictive provisions on foreign capital at the 60-40 equity rule.
The operational implication of this definition is the threat of withdrawal of foreign capital already invested in the country. This imminently dangerous possibility makes the amendment of the restrictive provisions even more urgent.
“Examples of recent economic liberalization and their benefits.” Bringing in more foreign capital can help do away with the bad effects of market monopoly. Two examples of economic liberalizations in recent memory demonstrate expected benefits of amending the said provisions.
Before the 1990s, it was impossible to get a new telephone unit for the home. After the telephone monopoly was dismantled and new telecommunications firms were allowed to compete with PLDT – and aided by the computer and telecommunications revolutions – it is now possible to get a telephone installed easily.
The cell phone has eclipsed the telephone. But the PLDT telephone franchise continues to thrive. The biggest winner in this drama is the common citizen. It is now possible to communicate instantly with anyone within the country and outside of it.
The domestic airline example is another example. Before, the Philippine Airlines was the only air transport company given the support of the government. Fares were high, service was poor, frequencies were few, and airport terminals were bad. The company was saddled with inefficiencies and reported heavy losses.
Today, the domestic traveler is within easy reach of more frequent air services, better service, good competition among the carriers, and in general, relatively competitive fares. The new airlines are aggressive, competitive, lean and mean in cutting costs which translate to relatively cheaper and more frequent air travels! Even PAL had to restructure to get rid of its high costs and operational inefficiencies as a consequence.
“Bigger benefits for the nation as more foreign investments flow into the country.” The hard evidence from other countries shows that massive inflows of productive capital brings in faster economic progress. The economic growth rates of East Asian successful neighbors surged and were sustained over time. Per capita incomes rose. Employment expanded. Productivity increased. Their conquest of poverty accelerated.
The East Asian countries – small as well as large countries – became economic dynamos. Risk taking by domestic businessmen increased. Their economies became more competitive. Local business men who before had feared the inflow of foreign investments later found the opposite outcome. They discovered that they were up to the challenge.
When good things happen, the mindset of their businessmen and of their leaders changed from predictions of gloom to expectations of boom and pragmatic solutions to problems. Even in our country, we have examples of the capacity of the domestic business to thrive well in competition. Just look at how Jollibee initially copied Macdonald’s and later, how the former trounced all foreign fast food retailers led by the latter.
Philippine business leaders – the Ayalas, the Henry Sys, the Gokongweis, the Yuchengcos, the Aboitizes and the Razons, the Lucio Tans, the Ramon Angs, the Pangilinans and many others – would all rather have monopoly for themselves if they can control the market. But they will adjust to competition or to partnerships with foreign capital as they have done before in which foreign capital contributes more capital and expertise. Domestic businessmen in their own countries understand the niches of potential growth better than foreigners. They will use that advantage in designing their business moves.
“Transmission of benefits to the domestic economy: (a) Domestic talent pool of resource owners.” Domestic owners of economic resources (of businesses and of productive factors like land, capital, and skilled labor) will have more business opportunities. With a larger pool of new investments coming in, domestic savers will have a wider choice of earning opportunities. Land owners will have more brisk business involving land sales, land rentals, and property up-grading. Land in agriculture will become more productive.
In many cases of manufacturing firms in Taiwan and in Korea and I am sure in other countries as well, talented former employees became the suppliers of products spun off by foreign investors in order to reduce their costs. Many investors simply sub-contracted to their former employees who understood their needs and their processes and who became their manufacturing suppliers. In short, the talent pool of domestic entrepreneurs even multiplied with ready markets and new business opportunities opened up under an abbreviated learning process on the part of the domestic businesses.
In like manner, local managerial talents hired into the foreign owned companies will find new economic opportunities as their employment enable them to acquire new skills, knowledge and proficiency with new technology. Domestic managerial and skill talent pool in similar fashion can potentially become new sources of supplies for products, raw materials, and other services that foreign investors will require from the local market. In turn, foreign investors will also learn that their exposure to Philippine conditions enable them to discover the country’s possibilities.
“Transmission of benefits: (b) Market impact of a rising level of economy.” A rise in investments translates into new economic capacity. The investment could be in infrastructure, into production in manufacturing, mining, and services. The outcome would still be rising industrial and economic capacity.
This new capacity enlarges the economy’s employment potential. And sustained employment brings about higher incomes for those employed. The major bystanders in the process are the country’s laborers who reap major benefits as a result of rising employment opportunities increase at home.
Filipino workers migrate to work abroad because that is where the presence of high level of capital investments make workers very productive and thus enable them to earn good pay. With foreign direct capital flowing into the country, there is now more capital available at home to create demand for productive jobs. Thus, returning OFWs will be able to return and find work at home. Other Filipino laborers who dream of looking for work abroad will find it less difficult to forego that dream because they can also be very productive at home.
This is the new economic experience: better incomes, more employment for all, improved welfare for the Filipino. In the end, a society at a higher plane of economic prosperity emerges. It is the nation that wins. –Gerardo P. Sicat (The Philippine Star)
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