‘Why we need to amend the restrictive economic provisions’

Preface to today’s column: In today’s column, I will publish the full text of the testimony I submitted to the Senate subcommittee on the Joint Resolution of both Houses No.6, which was convened on Feb. 5, 2024 at the Senate Session Hall, Senate of the Philippines. The hearing is on the proposed amendments to the restrictive economic provisions in the Philippine Constitution.

The Senate SubCommittee, chaired by Senator Sonny Angara, invited me to testify as Emeritus Professor at the University of the Philippines School of Economics. I believe that I was invited to give my views on the subject because of my economic policy experience in the government. I was the first (that is, the founding) director general of the National Economic and Development Authority (NEDA) when it was established in 1973 and headed it until 1980. Before that, from 1970 to 1972, I was also the chair of the National Economic Council, then the cabinet post in charge of national economic planning.

The first part of the text of the testimony appears below.

The text of the testimony. At the outset, I would like to say that we must amend the restrictive economic provisions. Those provisions have hampered our progress in inviting foreign capital to help bring economic progress and greater productivity at a faster and sustainable pace. It has been almost eight decades since those provisions entered our political Constitution.

In my testimony before the House committee on constitutional change on Jan. 26, 2023, I pointed out with emphasis that in order for us to succeed in dealing with the question of amending the economic provisions in the Constitution, it is important that we do not bring in political issues to amend that document.

To do that could spoil the amendment effort. Adding political issues to the agenda is a poison pill to the discussion of these amendments.

The need to amend the “restrictive provisions.” For decades they have been the main cause of the country’s relative decline with respect to our neighbors in the Southeast Asian region.

As a country, our leaders have finally begun to realize that we need to bring in foreign capital at a much higher level than we have so far been able to achieve. They have further realized that to do so requires further opening of the restrictive economic provisions that have been part of our Constitutional framework since eight decades ago, in 1935.

The economic reforms to amend these constitutional provisions have been very incremental and slow. These restrictive economic provisions have been at the heart of our economic nationalism as a young nation, even before we became independent.

At this slow process of adoption, we will be become a tail-ender in overall progress. In any case, even if we are now more or less on the way toward a better future, a more rapid adoption of changes will accelerate further our social and economic progress.

Undertaking the amendments will be the biggest boost that we need in opening the country toward more rapid progress.

Allow me now to elaborate on this point.

“Fundamental law” vs. “legislative law.” Let us first distinguish between constitutional or fundamental law as against ordinary laws created by parliaments.

In our political Constitution, change in the “fundamental” or higher law requires three-fourths vote of Congress. To pass a law by Congress, a simple majority of votes by legislators is needed. It is definitely easier to amend a law created by simple legislation.

The “restrictive economic provisions” in our Constitution are part of the country’s fundamental laws. They are that difficult to change, compared to the simple majority needed to pass an ordinary law (what I call legislative law).

The main contents of those restrictive provisions were built originally into the 1935 Constitution that enabled the founding of total self-government under Philippine Commonwealth and, on July 4, 1946, upon the start of complete self-government as an independent Republic.

When we adopted the 1973 Constitution under martial law, these tenets of fundamental nationalistic rules stayed intact. When, in 1987, a People Power revolution took place, the new Constitution embraced the same principles and even broadened them to include other sectors of the economy, as in higher education, in the advertising industry, and in the labor market for international professional practice.

Those restrictive provisions educated generations of Filipinos on a myopic version of economic nationalism. As a result, those restrictive provisions encouraged our legislative bodies of those years to even pass specific nationalistic laws that further built upon the constitutional economic restrictions. Many restrictive laws dealing with foreign capital were passed as ordinary laws to support the restrictive features of the fundamental law.

Many of the very restrictive policy measures of yesteryears that applied to the domestic economic market have contributed to our further drift away from the ideal development policies: a very tight retail nationalization law, high protective tariffs, and 60-40 equity (Filipino to foreign capital) limits for joint ventures for business that served the domestic economic market. In the early days of independence, resort to economic controls favored allocation by citizenship preferences.

We have known this version of nationalism by the deceptively attractive catch phrase, “Filipino First.” This phase of our economic development led to uncompetitive industrial enterprises that were principally built on high protective tariff rates and other forms of investment incentives.

We are unique as a country among ASEAN countries. We have a political Constitution that contains detailed provisions on the use of land, natural resources, and public utilities with regard to the participation of foreign capital. Being constitutional provisions, they have been essentially unchanged as policies in place.

From the very start, these provisions imparted a set of complex decision rules that could not be changed even when circumstances might have warranted changes. This lack of flexibility meant delays if not loss of opportunities.