Cha-Cha and the economy:false projections, spurious arguments

Speech of former Senator Wigberto Tañada at a conference on “Implications of Liberalizing the Economic Provisions of the Constitution”, organized by the Philippine Chamber of Commerce and Industry (PCCI) last July 14.

Tañada is a lead convenor of the Fair Trade Alliance (FTA), a broad multisectoral coalition of formal and informal labor, industry, agricultural, non-governmental organizations, and youth pushing for trade and economic reforms.

Let me directly share with you three major points on the issue at hand.

One, amending the Constitution to make it responsive to the development requirements of a country is the sovereign right of the people. However, the present charter-change initiative has become controversial not only because the process being used is infirm but also because it is not clear if such initiative is truly in response to the development needs of the people or if it is merely a grand design to promote the narrow self-serving agenda of some politicians.

In fact, some politicians and economists even, are making overblown claims on how the further liberalization – via the cha-cha process — of an already liberalized economy can rev it up and make it roar like those of China and our other neighboring countries. They argue that the shift in the political system, from the presidential to the parliamentary, and the deletion of the nationalist provisions of the existing Constitution will infuse dynamism in the economy, entice foreign investment to come in and make the Philippines the next Asian miracle. They even contend that the economic provisions found in the 1935, 1973 and the current 1987 constitutions were the main reasons for the deterioration of Philippine economy and its unattractiveness to foreign capital.

These politicians and economists are mixing up facts and fantasies.

Philippine economic records of the last six decades reveal a totally different picture. It was during the protectionist and nationalist decades of the l950s-l960s that the nation experienced accelerated industrial growth, making her the second fastest-growing economy in Asia, next only to Japan. In contrast, it was in the decades of the l980s-l990s, when our economic technocrats opened up the economy in a wholesale fashion, that the Philippines experienced industrial stagnation, agricultural decline and high rates of unemployment and underemployment. Of course, a major contributor to the crisis was the debt crisis, which can be traced to the reckless policy of depending mainly on foreign borrowings to ‘finance’ national development, a policy initiated by the economic managers of the l970s.

Two, it is a puzzle and a big disappointment as well how some of these economic managers say at this late stage that the country is poor and underdeveloped because it has not opened up the few remaining restricted sectors of the economy to full foreign control, specifically the ownership of land, the exploitation of natural resources, the exercise of the professions, and the operations of public utilities and media establishments. They are still spouting the same old mantra – liberalize and you will grow! But have we not liberalized the entire industrial sector and opened it up to full foreign ownership? Have we not liberalized the entire financial sector, making it one of the most open in Asia? Have we not liberalized the trade sector, exposing our domestic industry and domestic agriculture to the full brunt of foreign competition, most of which is subsidized foreign competition (e.g., subsidized American agricultural exports and Chinese industrial exports cheapened by an undervalued renminbi)? Have we not liberalized the agricultural sector, drastically reducing in the name of agricultural deregulation the support the government used to extend to small farmer development? Ang tanong ngayon, sa kabila ng pagbukas ng ating ekonomiya, nasaan na ang inaasam-asam nating foreign investment?

As a matter of fact, for the last decade, foreign investments have been flowing heavily not in liberalized Philippines (and for that matter, in liberalized Indonesia, Sri Lanka and Bangladesh) but in the protectionist China, Vietnam and India! This is so because foreign investments will go where the economy is on the uptick, fuelled by investments made not only by foreigners but also, and more importantly, by the locals.

And before China, Vietnam and India, you have the case of Japan, South Korea, Taiwan and even Singapore, where no less than the World Bank, in its 1993 Report on the ‘East Asian Miracle’, was forced to admit that these countries did not pursue the classic neo-liberal economics of choosing narrow export orientation and abandoning import substitution. The truth is that these successful countries have all been protecting and promoting both their domestic and export industries, and fostering value-adding linkages between and among these industries, with the overall view of building up domestic capacities, skills, know-how and agro-industrial base. These countries combined, creatively, both import substitution and export orientation in the overall context of building up domestic agro-industrial capacity and economic dynamism. It is not a question of either this or that. And they did it in a calibrated and deliberate manner.

Lastly, let us get real. Let us see what is going on in the rest of the world and see what their Constitutions say. For example, in the case of China, its economy remains highly regulated and even protected. Its Constitution states bluntly: “All land is owned by the people.” Which means even Chinese citizens can not buy land outright in China. It is export-oriented, yes, and it welcomes foreign investment, yes. But at the same time, it protects its domestic producers with tariff rates at least 3-5 times higher than those of the Philippines and with customs administration and procedures which make it difficult for foreign imports to come in (just like in Europe, America, Australia and Japan). It maintains a two-tiered currency system, which makes exports cheap but imports expensive (thus, Chinese goods are cheaper in Binondo than in Hong Kong or Beijing). It keeps acquiring technology, diversifying its economy and upgrading the skills of its work force, thus its upward and sustained growth and development. And no, it does not tinker with its Constitution just to accommodate the ambitions of some political cliques or the mad ideas of some liberalization economists.

Japan and Korea maintain very strict rules on land ownership. In Malaysia, foreigners can own a residential house and lot but not commercial, industrial and agricultural lands.

In Thailand, its Alien Business Law regulates foreign investment in natural resource exploitation and in areas reserved for the Thais such as agriculture, transportation and construction.

India and Vietnam also have restrictive policies on land and imports, and yet, these countries are growing much more rapidly than the liberalized Philippines and attracting more foreign investment.

Yes, there are Asian countries which have liberalized land ownership, natural resource exploitation and foreign entry into any area of the economy like Bangladesh, Indonesia, Nepal, Pakistan and Sri Lanka. But like the Philippines, these countries are at the bottom rungs of both the competition and investment ladders. Most of these countries also happen to have a parliamentary system, which our ‘bright boys’ in the executive and legislative branches claim is the ultimate solution to all our economic woes.

From the foregoing, it is abundantly clear that our some of our politicians and economic managers are making false projections of economic growth and development based on spurious arguments. They are trying to delete economic nationalism in the Constitution in order to complete the de-nationalization of an economy. Ang tanong ulit sa puntong ito: Para kanino at para saan ang Charter Change ngayon?

What we need is the political will to redress the imbalances and setbacks created by the unbridled and one-sided liberalization in the last two decades, which has eroded the country’s agro-industrial base. What we need is the political will and the national vision to develop a progressive, sustainable and modern economy effectively controlled by Filipinos, as mandated by the present Constitution.