Toward an economics of empowerment

By Bernardo M. Villegas

     Bernardo M. Villegas is the Dean of the School of Economics at the University of Asia and the Pacific. Mr.Villegas was a member of the 1986 Constitutional Commission and Chairman of the Committee on the National Economy and Patrimony. He is presently a member of the Council of Economic Advisers of the President of the Republic of the Philippines and a columnist at the Manila Bulletin.

     One of the policy statements made by Former Secretary of Finance Edgardo Fspiritu involved amending Article XII, Section 7 of the Philippine Constitution, which prohibits foreign ownership of land in the Philippines. By saying that he is in favor of allowing foreigners to own land in the country, Espiritu has taken a pro-poor stance that, for me, is admirable, but may get some flak from the "leftists" among President Joseph Estrada's advisers.

     The Estrada Administration may finally expose what used to be seen as "nationalist" provisions of the Constitution and existing laws (such as the Retail Trade Nationalization Law) as favoring the elite and discriminating the millions of unemployed and underemployed Filipinos. There is ample evidence that such policies inhibit investments essential to the generation of much-needed jobs in the country.

     It's about time we cast off the "Filipino First" mentality embedded in many economic policies appropriate only in the Cold War era and generally counterproductive during these times of stiff competition for foreign direct investments (not portfolio funds) among the poorer nations of the world. Some Asian leaders-such as the late Chinese Premier Deng Xiao Peng and his successor, Zhu Rongji-have awakened to this reality, admitting that the more open a country is to foreign trade and investments, the more successful its campaign to eradicate mass poverty. Why is China one of the most open economies in the world today? Because it is moving heaven and earth to be admitted to the World Trade Organization, the leading advocate of open trade and investment regimes in the international community.

The genesis of "Filipino First"

     As a fledgling republic during the first 20 years after the Second World War, the Philippines found itself caught in the midst of a struggle for global domination by the world powers engaged in the Cold War. There were constant threats to our newlygained national sovereignty. Whether from the Soviets, the Americans, or the Chinese, there always lurked the danger of interference in our internal affairs. There was enough reason to fear that foreign powers could use their control of Philippine economic resources as an excuse to meddle in our domestic concerns, thereby making a mockery of our national sovereignty.

     The close connection between political independence and the protectionist, inward-looking strategies of many Third World countries during the first few decades after World War II is aptly summarized in a historic address by former President Carlos P. Garcia. In a speech he delivered during the 6th National Convention of Filipino Businessmen organized by the Chamber of Commerce of the Philippines (3 January 1960, Baguio City) President Garcia articulated the "Filipino First" philosophy that became the hallmark of his administration's economic policy:

     The Filipino First movement which you are spearheading is of tremendous significance to our life as a people. Led as it is by citizens like you who belong to the middle and entrepreneur classes of our society, it is militant, dedicated, and inspired. Our people have embraced it and are already afire with the desire to help push it thru to its logical goal, which is nothing short of economic freedom. By compleate economic freedom, we, of course, mean freedom to chart a course for the development of our economy with reasonable assurance that the fruits of such growth would spread from the top of the business and social pyramid down to its base among the rural population in our countryside. We mean the right to pursue such a course of action and implementation whatever policies would insure the exploitation and development of our God-given resources and manpower, preserve and further enrich our national patrimony which we shall bequeath to our children and our children's children to the end of time.

     This economic independence is the most cherished prerogative of the young, developing nations of the world which, like the Philippines, emerged politically independent after World War II. To achieve this independence at the shortest possible time, it is imperative that we draw inspiration from the nationalistic tradition of our race from whose womb strode forth such great nationalists as LapuLapu, Dagohoy, Rizal, Aguinaldo, and many other stars in the grand constellation of Filipino nationalism. Great causes call for greater leaders and God who has not failed other nations will not fail us. From among you He will anoint the leader who will guide you to the Promised Land of Economic Independence. The upsurge of nationalism throughout Asia and Africa is a movement global in proportion which will irrevocably roll on until its cycle is completed. Only God can measure the cosmic creativeness of this nationalistic saga.

     It can be gleaned from the same speech that very early in the Filipinos' struggle for the three categories of human freedom-that is, freedom from tyranny, freedom from material want, and freedom of consciences-our leaders were already determined to achieve all three simultaneously within the framework of a democratic society. President Garcia couldn't be clearer in his espousing, as what former President Ramos has done, that economic development must be attained without the sacrifice of political freedom:

     This common desire finds expression in the various political and social ideologies that are identified in Asian society today. They range from the democratic precepts to socialism and communism. But the goal is the same. It is to shake off the yoke of alien domination in business, trade, commerce, and industry. We are fortunate in the Philippines that the nationalistic movement so forceful today is being pursued within the framework of a democratic society, unlike in other places where the fight of the common people for economic survival is being exploited by the enemies of democracy for their own selfish ends. That is why I have every confidence that friends of democracy will understand the true meanding and direction of the Filipino-First participation of Filipinos in our own national economy within the framework of our democratic tradition. It is directed against no alien group. It is inspired by the great principle of social justice on the international plane. The Filip mo-First movement cannot and must not be equated with any ideology that works against the accepted tenets of democracy. It is, as some sympathetic visitors in our shores have understood, aimed at securing for a greater number of our fellow citizens the blessings of our rich natural resources and of our democratic way of life. It is not exlusivistic; on the contrary, it bears the stamp of Filipino hospitality.

Protecting the common good

     As the Philippine Republic celebrated the Centennial of its independence, we commemorate the many individuals who fought to overthrow the yoke of Spanish rule in the country. These heroes,

     including my own maternal grandfather Miguel Malvar, helped the nation attain the first freedom: freedom from tyranny.

     As was clear in the mind of our foremost national hero, Jose Rizal, there is a distinction between the desired good of national independence and the more coveted good of enjoying human rights. Although a people's aspiration to be constituted as an independent nation is a legitimate objective, it is only secondary to the higher ideal of having one's human dignity respected.

     At a certain point in Rizal's defense of the human rights of Filipinos, he was asking not for independence but for representation in the Spanish Legislature (Cortes). It was only when he realized that there would be no end to the abuses being suffered by the natives in the hands of the Spaniards that Rizal encouraged political independence for the archipelago.

     I would like to belabor the point that a community of individuals can enjoy freedom from tyranny (political freedom), freedom from material want (economic freedom), and freedom of consciences (moral-religious freedom) without being constituted as a separate nation. The majority of Puerto Ricans, for example, have not seen the need to be independent of the United States of America in order to fully enjoy all their inalienable human rights. The same could be said of the inhabitants of Hawaii and Alaska who voted for annexation to the US. Although I am very proud that we Filipinos constitute an independent and free nation, I wouldn't be so bigoted as to accuse of treason any of my countrymen who may want to revive-naively. I may add-the US statehood movement. The ultimate human values are those related to life, liberty, property, and equal protection of the laws, as Sec. 1 of Art. III (Bill of Rights) of the Philippine Constitution states. National independence is only a secondary aim.

     Besides the nationalist heroes who fought for Philippine independence 100 years ago, we also remember those who, as I said at the beginning of this article, safeguarded our political sovereignty during the Cold War period by instituting national policies, including those in the economic realm, that neutralized or at least minimized the threat of foreign interference in our domestic affairs. Among them were Claro Recto, Lorenzo Taņada, and Jose Diokno-statesmen

     Whose patriotism was the appropriate response to the geopolitics of the Cold War.

     Economic nationalism, which usually took the form of protectionism, could be justified by the circumstances of the 1950s, the 1960s, and even part of the 1970s. Such policies as the Retail Trade Nationalization Law were pragmatic measures to temper the economic power of some resident Chinese who could be agents of then Communist China. The attempt to develop capital-intensive industries controlled by Filipinos, even at the cost of jacking up unemployment, was justifiable for strategic and security reasons.

     It was easy to maintain a protectionist, inward-looking, import-substituting approach to industrialization under the banner of economic nationalism, which was called for by the political circumstances of the past couple of decades. Now, we are fully aware of the gargantuan economic costs of having followed that import-substitution path. Studies by both Filipino and international experts have concluded that the Philippines became the "sick man of Asia" in the 1980s primarily because of protectionist, inward-looking economic policies which turned out to be anti-poor as they did not promote a more equitable distribution of income among the population.

     Still, I wouldn't be overly critical of present-day nationalists who may hold the view that the huge costs of economic nationalism were worth incurring in order to strengthen Philippine sovereignty. Everybody is entitled to their own value judgments. Taking the crucial step

     As we are now in the new millennium, it would be wise for Philippine society to rid itself of institutions and attitudes no longer suited to a world that is being linked together by fast changes in technology, trade, transportation, and tourism. This process of globalization started for the Third World countries when China began to open itself to the world under the leadership of Deng Xiao Peng who rose to power in 1978.

     Leaders of many countries have realized that the major challenge is no longer preserving national sovereignty. It is eradicating mass poverty and empowering people to participate in the political process. The inward-looking, protectionist, mercantilist, and interventionist practices of the past have to go. In their place should be greater room for private initiative, more open markets, and fewer restrictions in the cross-border movement of people, goods, and capital.

     Even the financial crisis in East Asia has not changed the minds of those who see the benefits of open trade and investments. Mexico, one of the countries that suffered most from inward-looking strategies until the 1980s, is now led by President Ernesto Zedillo who cautioned world leaders about overreacting to the East Asian crisis by closing their doors again to trade and investments. During a Plenary Session of the recent World Economic Forum (31 January 1998; Davos, Switzerland) the Mexican head-of-state said:

     The fact that capital can travel instantaneously makes some people think that the international financial system is now inherently unstable, fragile, and prone to crisis, and they jump to the conclusion that such capital mobility must somehow be limited. Admitting that financial integration poses significant challenges, I believe any restrictions on capital flows is by no means the answer.

     I am convinced that global financial markets need to work better, not to work less. We should assume financial globalization as a fact of modern life, and work to reduce the risks that massive financial flows sometimes entail.

     I want to suggest that much can be achieved if we concentrate on strengthening the capacity of the national authorities to regulate and supervise adequately every national financial system.

     Better regulation is essential to promote strong financial institutions and sound lending, as well as to provide investors with better quality, more timely, and more transparent information. Better supervision is in turn needed to reinforce regulations.

     If by virtue of better regulations and supervision national financial systems perform efficiently, then the global system will be sounder and more stable.

     In this new millennium, developing countries will need leaders like President Zedillo who are more creative in formulating appropriate policies for a vastly different global economy and who would not merely rehash the outmoded policies of economic nationalism and protectionism. As he emphasized, what is needed are not more restrictions to the flow of goods, people, and capital but more effective and transparent regulation and supervision. The appropriate regulatory framework which goverment has the strict obligation to install will always be a function of the specific circumstances prevailing in a country at a given period. Such framework should be the object of specific legislation and cannot be enshrined in a more permanent document like the Constitution. The 1987 Constitution is too long and verbose because it includes many provisions which are better left to legislation. I would be happy to see the Charter trimmed down to half of its present length.

Empowerment and economics

     In the light of the above discussion, I suggest that those who will be working on the amendment of the 1987 Constitution seriously consider removing these so-called nationalist provisions which only tend to limit the freedom of both the State and civil society to wage the most important battle of today: the struggle against dehumanizing poverty.

     One of the first items that can be deleted is the extremely confusing provision of Sec. IX, Art. 2: "The State shall establish an independent national economy effectively controlled by Filipinos." This seemingly harmless provision is often used by the industrial elite to monopolize or control sectors or industries which have so far been unable to compete in the world economy. It must be pointed out that, as long as effective competition is fostered by appropriate government policy, an industry composed of many foreign firms can still be "effectively controlled by Filipinos" through the power of 70 million Filipino consumers. A strong labor union movement can still allow Filipino workers to have a say in the direction of a foreign-owned company. There is no reason to interpret "effectively controlled by Filipinos" as unequivocally synonymous to "effectively controlled by Filipino industrialists." After all, consumers and workers compose the majority of Filipinos! Such seemingly innocuous passages in the Constitution are unnecessary; they would only be misinterpreted by an activist Supreme Court that may at times be lacking in economic literacy or sophistication. All the legitimate objectives in the other "nationalist" provisions are better attained through specific legislation, not through constitutional mandate.

     Sec. 9 of Art. XII says: "The State shall protect Filipino enterprises against unfair foreign competition and trade practices." The whole issue of what is unfair foreign competition is subject to such highly complex technical matters as tariff policies, technological advances in transportation and telecommunications, and specific innovations in products and services. It is more practical to include the matter of unfair foreign competition and trade practices in an Omnibus Bill on Competition Policy, in which countries like Mexico and Australia have pioneered.

     Another constitutional provision, Sec. 10 of Art. XII, declares: "In the grant of rights and privileges and concessions covering the national patrimony, the State shall give preference to qualified Filipinos." This is a perfect example of a provision that puts abstract nationalism ahead of more humane goals like eradicating poverty and generating employment. The way the provision is worded allows no consideration for the more productive and just use to which a foreigner could possibly put the national patrimony. A foreigner, for instance, could provide more jobs than "qualified Filipinos" by bringing better technology, wider marketing contacts, and more enlightened management into the Philippines. Again, the overriding concern here should be: Who can best help the Filipino poor? The Filipino poor can be both the workers and the consumers. Clearly, the above provision is biased in favor of the Filipino industrialist.

     The fourth nationalist provision, "The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods and adopt measures that will help them be competitive," (Sec. 12, Art. XII) is at worst an unwarranted intrusion into the free play of supply and demand and at best a concern that can be promoted through specific policies of affirmative action such as (1) the training of Filipino workers under government auspices (e.g., technical or vocational schools funded by national or local government units); (2) the granting of research and development funds to finance the more profitable commercialization of such indigenous materials as bamboo and coconut products; or (3) the temporary protection of an infant industry put up by Filipinos. All these have no room in the Constitution and are best fostered through executive action or legislation.

     I also agree with former Secretary Espiritu that foreigners should be allowed to own land in the Philippines. I suggest that Sec. 7 of Art. XII be amended so that a foreigner can own the land on which he builds his factory or residence. Land banking by foreigners should still be restricted, except for those in the business of real estate development. After all, land is the only asset that one cannot ship out of the country. In today's global economy, the opportunity to own land in one's host country is always an added incentive for foreign direct investors. Since the Philippines' domestic savings are pitifully inadequate, we must attract large amounts of foreign direct investments in order to generate jobs for a huge number of people.

     Sec. 11 of Art. XII-which limits foreign ownership of a public utility to 400k- should also be amended to allow for foreign ownership and control of segments of public utilities that are increasingly subject to competition. For example, the energy sector is rapidly being "unbundled" into separate segments, such as power generation, transmission, distribution, and supply. The first and last segments can be competitive and should allow for foreign-owned enterprises to compete. It doesn't make sense, therefore, to refer to "public utility" in Sec. 11 of Art. XII as a homogeneous sector where only technical monopolies reign.

     Competition is now pervasive in many areas formerly dominated by monopolies. This matter is even more relevant given the convergence of information technology, telecommunications, and broadcast media. Foreign equity should have no limit in these areas due to the irreversible globalization of these sectors that can help propel the Philippine economy into the next millennium. Philippine domestic capital is pathetically insufficient to enable the country to hook up to the converging sectors mentioned.

     In a competitive environment the foreign ownership of a telecommunications company poses no serious security risk. Sec. 11 of Art. XVI (limiting the ownership of mass media to Filipinos) also needs to be amended to allow foreign investors to own enterprises engaged in mass media, a sector that is rapidly merging with computers and telecommunications. Existing restrictions can only stifle the country's plan to leap into the 21st century as a knowledge and medical center, and a hub for transportation, telecommunications, and tourism.

     Josefina Trinidad-Lichauco, former Secretary of Transportation and Communication, made it clear in her transition report entitled "Public-Private Partnership in Transportation and Communication Development: The Legacy of the Ramos Administration" that a new policy environment is required for the country to cope with the phenomenon of convergence:

     The merging of Information Technology (IT), telecommunications, CATV and broadcast offer great potentials for improving the productivity of a country. However, the current policy, regulatory and constitutional environment is applicable only for a segmented operational structure for IT, telecommunications, CATV, and broadcast. Therefore, an integrated policy must be instituted to encourage the IT, telecommunications, CATV, and broadcast sectors to merge in order to introduce multimedia services that are critical to national productivity. It is therefore imperative for the government to initiative steps for convergence to begin to take place, and evolve to [full] development.

The President as patriot

     President Estrada has the unique opportunity to redefine the virtue of patriotism as the Filipino nation faces the challenges of the next century. Because he was voted into office primarily by those who have yet to experience the benefits of economic growth, he can remind all of us that loving one's country today means, first and foremost, exercising the preferential option for the poor. That is what "Erap para sa mahi rap" should mean.

     The Estrada Administration is expected to do much more for the agricultural sector, where the majority of the Filipino poor are eking out their meager living. President Estrada's government will thus focus on public investments in farm-to-market roads, postharvest facilities, rural credit, irrigation for coconut and sugar lands, electrification and telecommunications services in rural areas, and agricultural extension services, among others. The millions of small farmers already tilling their own land will finally receive the support services they need to make their farms truly productive.

     Yet, agricultural growth alone will not solve the problem of widespread poverty. Private investments must be attracted to manufacturing, construction, transport, telecommunications, wholesale and retail trade, tourism, and other services sectors which employ more than 50% of the labor force. Much of these investments will have to come from foreign savings, since Philippine domestic savings as a percentage of gross domestic product is the lowest in all of East Asia.

     President Estrada has often repeated that he cannot afford to antagonize the private business sector because business people will provide the major solution to overcoming poverty in the Philippines. Among these business people are foreign investors crucial to helping our citizens gain access to global markets, foreign equity capital, world-class technology, and experienced scientists and managers.

     There are still vestiges of the old "Filipino First" mindset-appropriate to a previous generation but totally outmoded today-that should give way to a truly global outlook. Deng Xiao Peng said about the transition from socialism to capitalism in China:

     "It does not matter what the color of the cat is as long as it catches the mice." In the same vein we can say that it doesn't matter what the nationality of an investor is as long as he he~p s us overcome the problem of mass poverty.

     There are no tyrants where there are no slaves, said Rizal. Those who are enslaved by dehumanizing poverty will surely be grateful to our leaders if the remaining obstacles to the creation of more jobs can be overcome through the constitutional reforms I have suggested above.

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