Unproductive

The Senate is well underway considering the Resolution of Both Houses initiated by the House of Representatives. The Resolution could bring together the two chambers in an effort to amend the economic provisions of the 1987 Constitution.

Those economic provisions reflect 19th-century economic thinking. The Constitution’s default position is always protectionism. This attitude helps explain why the Philippines received the most meager share of investment inflows over the past three decades.

Poor investment inflows are aggravated by capital outflows from some of our major conglomerates. San Miguel Corporation stands out as a conglomerate committed to reinvesting its earnings in the domestic economy.

Whatever amendments do happen, it is probably most important to signal to the international investment community that the country is moving away from its self-destructive embrace of autarky.

The restrictiveness of the 1987 Constitution favored the domestic rent-seeking elites. These businessmen wanted the local market to themselves and were not willing to compete with their peers in the global marketplace. The result, over the past three decades, has been an inward-looking economy with very little export capacity beyond raw materials and unprocessed food.

Protectionism created an oligarchic economy that penalized all Filipino consumers. It encouraged a rent-seeking economic elite that, in turn, maintained a stranglehold on political power.

Even where we reluctantly liberalized, as in the case of rice trading, heavy tariffs are imposed on inbound commodities. Tariffs are a tax on our consumers. They only serve to conserve inefficiency in the local economy.

We have been sending investment missions abroad and the President himself has been traveling to attract investor interest in our economy – all to little avail. Reforming the restrictive economic provisions embedded in the Constitution will send a clear signal that the country is, indeed, now open for business.

However, constitutional reform will not open the gates to investments. We need to do a thousand things domestically to bring the investments we need to prosper.

We should, as Xi Jinping did in China, signal to the investment community that we are finally combatting corruption in politics, the bureaucracy and the local governments. There are so many stories about investors, having expressed interest in coming into our economy, headed quickly to exits at their first encounter with corruption. There are so many projects stalled because local governments looked at businessmen as people they could fleece.

While the Senate is finally looking into amending the restrictive economic provisions, some senators have been loudly pushing for legislated wage increases. Legislating wages is an archaic idea. The practice exposed wage-setting to politicking. That creates uncertainty in the business community. It is as discouraging to potential investors as, say, a former president calling for secession.

A legislated wage increase will only accrue to a tiny fraction of our workers. The great number of workers are employed in small and micro enterprises or in the informal economy. Only the small union aristocracy benefits from legislated wages that, in turn, encourage such tactics as general strikes to influence wages.

We do not have the most competent labor force, to begin with. After decades of deterioration, our educational system now produces workers that are barely literate, numerate and technically skilled. In survey after survey, the weakness of our educational system is highlighted. The quality of our workforce pales in comparison with what is available in Vietnam or China.

In addition, our workers have nearly a month off work because of the sheer number of non-working holidays we observe. We have holidays for Catholic feasts and, for good measure, added the Lunar New Year and Islamic holidays to the list. In addition, there are ad hoc holiday declarations and special holidays for localities celebrating their founding dates.

We already have one of the highest minimum wage rates in the region. Discount the number of non-working holidays and the cost of labor here spikes even higher. We likely are one of the countries in the world with the most numerous publicly declared holidays. From the point of view of employers, the holidays represent days of unproductive but paid labor.

Unless we, as a matter of policy, reduce the number of non-working holidays, we cannot possibly attract employment-intensive investments. That only compounds the high cost of power, the politicized policy-making, the slow bureaucracy and the poor logistics as barriers to investment.

We are investing a lot of money on infrastructure projects to clear the bottlenecks and relieve the congestion. But we are moving at an exceedingly slow pace.

For instance, the rehabilitation of the Manila International Airport has been in the works since the mid-90s. Nothing happened. Now, with San Miguel turning in a vastly superior bid to manage the airport, things might finally move.

We have to understand that improving the investment-attractiveness of our economy requires a comprehensive national effort – with a certain sense of urgency. We need to modernize our laws and policies, build a responsive bureaucratic culture, contain the corruption of local governments and upgrade our infra.

It is easy to be lulled by growth forecasts showing us to be leading the region. That is largely the outcome of so many years of lagging behind our neighbors. Unless we rapidly upgrade our workforce, introduce forward-looking economic policies and bravely reform our subsistence-level agriculture, we cannot sustain our growth.

The challenge, as former president Fidel Ramos loved to put it, is to be “world-class” in all aspects – from our educational system to our planning capacity.