IBON Foundation, February 12, 2020
There is a strong desire for change in the country. There are very good reasons why. Things have been very bad, for very many, for very long already. But as the last few years have clearly shown, not all change is for the better.
Our comments today focus on the proposed amendments to the economic provisions. We have also been in contact on this matter with among the widest networks of people’s organizations and non-government organizations (NGOs) in the country. We can only formally speak for IBON but we would like the committee to know that our position closely reflects their sentiments as well.
The proposed amendments cover varied sectors and areas of economic activity. For now, we would like to register our general position which cuts across all of these even as the specific implications differ with the particularities of each sector.
We invite the committee to temper undue enthusiasm for foreign investment. In particular, the amount of foreign investment in the country is often misread as there being development in the country – as if development is just about getting more foreign investment than others. This is an extremely simple-minded notion.
Foreign investment is more appropriately seen as a means to development rather than an end of development, which it is too often confused with. They are not by any means development ends in themselves and the single-minded obsession with the amount of foreign investment as a metric of progress is widespread but wrong.
Sound economic development policy should compel the Committee to be much more circumspect about changing the economic provisions including by the disingenuous insertion of “unless otherwise provided by law”. The momentum of some four decades of economic policy in the country is of reckless liberalization – the real objective is not mere legislative flexibility but rather completion of so-called globalization, notwithstanding how obsolete this has become.
IBON’s position is categorically to retain the economic provisions as they stand. We would like to make five major points. Together they seek to break the prevalent dogmatism and put foreign investment in their proper historical and development context.
First, foreign equity restrictions can be an important tool for development. They are effective measures for exercising control over foreign capital, learning production advantages, and capturing economic surpluses. Already having them is an advantage that we can use to the country’s benefit where Constitutional compulsion is a powerful point of policy leverage.
They are not binding constraints. Indeed, after decades of liberalization, they are among the last remaining regulatory tools to build national industrialization policy on. It would have been better to have a bigger basket of policy measures at hand but we are forced to make do with the policy measures what we have left.
Second, vastly growing foreign investment into the Philippines has not meaningfully contributed to national economic development as expected. Domestic agriculture and industry are in long-term decline.
Agriculture is its lowest share in the economy in history. The so-called manufacturing resurgence has proven short-lived and domestic manufacturing is a smaller part of the economy than in the 1970s and is down to its level in the 1950s. The largest share of foreign investment has historically gone to manufacturing.
Will more foreign investment necessarily make things better? Absent more rational development policy, not likely.
Thirdly, the industrialized countries developed through responsible regulation of foreign investment for development. That they developed because they liberalized is a myth – they liberalized because they first developed.
The potential benefits from foreign investment are well-known and real. They are however neither intrinsic nor spontaneous and will only materialize in the right policy context.
This is the clear historical lesson from a non-free market blinded view of the experience of the likes of the United States (US) and Europe in the 19th and early 20th century, of Japan until at least the 1950s, and of South Korea and Taiwan from the 1950s-1980s. And, of course, of Russia and China from their periods of Socialist revolution in 1917 and 1949 stretching until today.
Fourthly, the current global context of growing protectionism, a turnaround from investment liberalization, and eroding multilateralism make relaxing foreign equity restrictions even more inappropriate.
The most powerful capitalist economies in the world have been at the forefront of thousands of protectionist measures since the onset of the protracted global crisis in 2008. The trade war between the US and China grabs headlines, but protectionism is also on the rise across Europe, Russia, India and elsewhere.
The United Nations Conference on Trade and Development (UNCTAD) just last year reported the declining trend in investment liberalization and, on the other hand, growing investment restrictions. More and more countries are terminating international investment agreements seen as disadvantaging national development – including countries as near as Indonesia, further such as India, Ecuador, Venezuela and Bolivia, to as far away as South Africa.
Finally, the policy question is not only or even mainly how to attract foreign investment – nor even the opposite of that of how to stop it. Unfortunately, the fixation with the amount of foreign investment as a metric for development success has meant thinking that everything should be done to attract this even at the expense of using regulation to realize the potential benefits from it.
Taking all these into consideration, and to reiterate, IBON’s position is categorically to retain the economic provisions as they stand.