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Friday, May 24, 2024

Global crisis even less reason for charter change

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in the 1987 Constitution are outdated, and that removing them will increase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 Proponents are recycling the same outdated arguments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.

Growing protectionism

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. ###

Photo from www.ispionline.it

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