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.