The Duterte government argues that the protections for the economy in the 1987 Constitution are outdated, and that removing them will increase foreign direct investment (FDI) and improve competitiveness. This is however oblivious to the reality of growing protectionism worldwide amid slowing growth, trade and investment. Adverse global economic conditions undermine the arguments for economic charter change even more.
The House of Representatives (HOR) Committee on Constitutional Amendments has started hearings on changes to the 1987 Constitution. Among others, these include proposals to relax so-called restrictive economic provisions covering foreign ownership of land and foreign investments in natural resources, public utilities, education, mass media and advertising, and strategic enterprises. Proponents are recycling the same outdated arguments that they have been using for decades.
Protracted global crisis
Yet the argument against liberalization is only becoming stronger today amid deteriorating global economic conditions. The International Monetary Fund (IMF) sees global growth continuing to slow from 3.8% in 2017 and 3.6% in 2018 to just 3.2% in 2019. The United Nations Department of Social and Economic Affairs (UNDESA) meanwhile sees world trade likewise slowing from 5.3% growth in 2017, to 3.6% in 2018, and a projected 3.3% in 2019. Projections have been adjusted downward as the year progressed and more downward revisions are likely even for the years to come.
Foreign investment is slowing drastically, according to the United Nations Conference on Trade and Development (UNCTAD). Global annual foreign investment inflows have been falling for three straight years from US$2.03 trillion in 2015 to just US$1.3 trillion in 2018. Measured as a share of global gross domestic product (GDP), foreign investment inflows are already at their lowest in 15 years.
Slowing global growth, trade and investment means that the supposed opportunities from liberalization have become even more constrained than ever. Other countries have realized this and are focusing more and more on strengthening domestic economies than persisting with globalization. This includes the advanced capitalist countries whose growth, according to UNDESA, is steadily weakening from 2.3% in 2017 and 2.2% in 2018 to just 1.8% in 2019 and the same in 2020. The Philippines is in an even weaker position for not having decent agricultural and industrial capacity to begin with.
The main trend in global economic policies is towards protectionism rather than liberalization. UNCTAD notes that 187 liberalizing international investment agreements were effectively terminated in the period 2010-2018 compared to just 96 in 2000-2009 and only 25 in the decade before that. UNCTAD also notes that the share of restrictive investment measures in all changes to national investment policies is rising steeply – from just being 3% in 2000 to 34% in 2018. This clearly indicates lessening investment liberalization and growing restrictions.
Monitoring both trade and investment measures, Global Trade Alert (GTA) observes even more widespread protectionism. GTA has monitored 14,911 protectionist measures implemented worldwide since 2009 versus just 5,192 liberalizing measures. This includes over 8,000 measures by the G20 group of advanced capitalist countries especially in the European Union (EU), United States (US), India, Russia, and China.
Particularly visible is the US’s ‘America First’ approach and resulting trade and technology war with China. This involves not just higher tariffs but also restrictions on investment. China remains one of the most State-managed economies in the world and is responding in kind. There is also the United Kingdom (UK) in the middle of its Brexit process and withdrawal from the EU.
Prioritizing national development
The usual arguments by critics of the 1987 Constitution’s economic provisions have always been weak. Economic history clearly shows that every developed economy was protectionist and strictly regulated foreign investment in their respective periods of economic take-off. This includes countries as varied as long-standing capitalist powers US, UK, Germany, and Japan, erstwhile Socialist countries China and Russia, and newly industrialized countries South Korea and Taiwan. There is on the other hand no evidence of any country achieving economic take-off without protectionism.
The policy question is not how to attract foreign investment at all costs. Rather, it is asking what needs to be done for foreign capital to genuinely contribute to the country’s long-term economic development. The gains from foreign investors are grossly exaggerated. Amid worsening global economic conditions and without a clear policy framework to regulate FDI, further investment liberalization will be detrimental to the national economy.
Pro-liberalization advocates are misguided or wrong if they’re still looking to foreign investors and economies to boost the local economy. This was unlikely before and is impossible now. Our economic managers should instead focus on raising wages and rural incomes, protecting and supporting domestic agriculture, and building Filipino industry. ###
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