Filipino First is not nationalist (Part 2)

Published February 23, 2021, 7:00 AM

by Dr. Bernardo M. Villegas

There is nothing wrong in the desire of those who drafted he Constitution of 1987 to ensure that the “national economy is effectively controlled by Filipinos.”  This is authentic nationalism.  Limiting equity ownership of foreigners in strategic and capital-intensive industries, however, is not the only and rather a weak measure to ensure effective control of Filipinos of the national economy.  The State, the ultimate protector of  the common good of Philippine society, has many means of controlling the behavior of enterprises owned by a majority of foreign interests.  Through the Philippine Competition Commission, any monopolistic or oligopolistic act of a foreign-owned company can be penalized.  The raising of prices to unreasonable levels by these corporations can be prohibited by legislation or by an executive decree during times of crisis.  Any abuse of our human resources by foreign companies can be sanctioned by labor laws.  It has also been demonstrated that there are sectors where enterprises fully owned by foreigners have played second fiddle to  strong and mighty enterprises   owned by Filipinos, such as United Laboratories in the pharmaceutical industry, the SM Group in retailing, San Miguel Corporation in food and beverage,  ICTS in international logistics, and many others.  There is no need to limit foreign equity participation in such sectors as telecoms, airports, educational institutions, media and other public utilities to ensure that the national economy is “effectively controlled by Filipinos.”

Some of those who object to FDIs in public utilities and other strategic sectors are wont to refer to the examples of some tiger economies like Taiwan and South Korea who have attained First World status without relying heavily on foreign direct investments.  The Philippines, by the widest stretch of the imagination, cannot be compared to these two thoroughly Confucian societies.  They, during their take off to long-term economic progress, never had to suffer under the disadvantages of an imperfect and unruly democracy like ours.  Let’s examine especially the case of South Korea that was the poorest among East Asian countries in the 1950s after the nation survived the Korean war.  When Park Chung Hee took over as a military dictator, their per capita income was less than US$100.  The country literally lifted itself by the  bootstraps.   With very low savings rates in the 1950s and the 1960s, the country had no alternative but to make full use of its human resources by adopting an outward-looking, export-oriented industrialization strategy that took advantage of the rich markets of the U.S. and Europe for such consumer goods as textiles, garments, shoes, gift products,  toys, wigs and other labor-intensive products.

This strategy, as contrasted with our own inward-looking, import-substitution approach to industrialization, worked very well for South Korea (coupled with a very wise move to develop its rural areas through the famous Saemaul Undong movement) so that by the time the country was ready for full-blown industrialization and urbanization  at the beginning of the 1980s, their savings to GDP ratio rocketed from the low 20s to 30 to 40 percent of GDP.  Thus, with such high levels of domestic savings, South Korea did not have  to turn to FDIs during the period when it was implementing its own version of the Build, Build, Build program that endowed the country with some of the most modern infrastructures in the whole of Asia (bullet trains, airports, skyways, infrastructures that bored tunnels through numerous  mountains, etc).  Unfortunately for the Philippines today, we cannot claim a surplus of the long-term capital needed for the Build, Build, Build program that we have to sustain for at least the next ten or more years if we are to catch up with the quantity and quality of the infrastructures of our neighbors.  Our Government is already doing its share of significantly increasing its borrowings to address the negative impact of the pandemic (our debt-to-GDP ratio has already increased from the low of 30 to 40 percent to over 50 percent and may reach 70 percent if the pandemic is not put under control soon).  We direly need FDIs to supplement our scarce long-term capital for improving our digital infrastructures (which include media), airports, public utilities and higher educational institutions.

Instead of comparing ourselves to the Taiwanese and South Koreans, we should look at our peers in the ASEAN Economic Community.  The most recent comparative figures showing the percentage of FDIs to GDP are as follows:  Cambodia, 53.33 percent; Indonesia, 20.45 percent; Laos, 32.33 percent; Malaysia, 41.11 percent; Myanmar 16.87 percent; Philippines, 12.26 percent; Singapore 203.78 percent; Thailand, 40.43 percent;  Vietnam, 60.31 percent.  For the whole of Southeast Asia, the average is 46.30 percent. It is notable  that even Myanmar, that is now very much in the news because of the recent military coup, has a higher percentage of FDI to GDP than the Philippines.   As a side comment, Vietnam surpassed the Philippines in GDP per capita in US dollars last year for two major reasons:  their more effective handling of the COVID pandemic and their attracting much more FDIs over the last five or more years than the Philippines, especially  among those foreign firms which left China during the Trump Administration..

Speaking of the Trump Administration, there are those advocating for a so-called nationalist or protectionist policy who are arguing that there are very developed countries like  the United States and the United Kingdom that are now turning inward.  There is no reason that we should follow their example.  These highly developed countries have per capita incomes that are eight to ten times our measly $3,900.  They can afford to sacrifice economic growth.  Furthermore,  they demonstrate precisely the wisdom of not enshrining an economic policy in the basic law of the land.  They show how important it is to give the legislature enough flexibility to “roll with the punches.”  In our case, the circumstances we face today require that we attract large amounts of foreign capital to meet our needs of the present.  Who knows, some time in the future when our per capita income reaches some $15,000 or more, we may need to be more restrictive of foreign direct investments, especially from countries like China that in the future may be throwing its economic weight around the Indo-Pacific region.  If we don’t enshrine any particular economic policy in our Constitution, we will by then be free to also be protectionist.  The moral of the lesson is that for the common good, we should add that innocuous phrase “unless otherwise specified by law” to the restrictive economic provisions in our Constitution. 

For comments, my email address is [email protected]

 
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