The economic progress of The Philippines has rapidly accelerated under President Rodrigo Duterte, but even that achievement is only half of the story. Most of the economic woes faced by The Philippines in recent decades has been the direct result of an outdated Constitution which contains specific clauses forbidding modern economic openness of the variety that helped Singapore to grow substantially in the 1960s and 1970s and that which helped Malaysia to grow substantially in the 1980s and 1990s. The primary culprit in respect of holding back Philippine progress has been the 60/40 rule which limits most forms of foreign direct investment (FDI) to a 40% stake in any given venture. Some forms of FDI are even limited to a portion below 40%. This is of course totally out of step with most economically successful nations that allow for up to a 100% share of FDI in many enterprises.
In spite of this, Duterte has stretched the limits of the country’s broken 1987 constitution in the way that an expert mechanic is able to get more horsepower than expected out of an old battered car. As such, Duterte has expanded the amount of FDI coming into the country while Duterte’s excellent relations with his Asian partners have seen new investment coming in from China, Korea, Japan as well as new internal-ASEAN investment, while discussions for further projects are underway with businesses from Russia, India and Turkey. All the while, Duterte has managed to avoid Donald Trump’s sanctions and tariff wars due to his uniquely good relationship with the US President in spite of the presence of many anti-Duterte members of the US Congress.
Yet The Philippines has faced many of the same global economic pressures as most Asian, Latin American and African nations over the last two years. This includes inflationary trends that have been exacerbated by both Trump’s global trade war and by the US Federal Reserve cutting the global Dollar supply. Likewise, high oil prices which have only recently gone down put tremendous pressure on economies like that of The Philippines.
But in spite of these well known handicaps whose origin was well beyond the control of any single ASEAN nation, Duterte managed to attain the highest recorded Philippine GDP Per Capita and the highest recorded Philippine GDP in terms of PPP (purchasing power parity) Per Capita in 2017. In many ways, Per Capita PPP is the most accurate statistic one can examine when looking for a number that corresponds most directly to the material improvement in the lives of ordinary people. Here, Duterte attained a record high of $7599.19 with an average growth rate of 7.2%. This compares favourably with the average Per Capita PPP between 1990 and 2017 which was only $6874.4. Likewise, Duterte’s record of overall Per Capita GDP growth stands at $2891.36 compared with the 1990-2017 average of $2615.7.
It must however be repeatedly emphasised that these record economic highs were not achieved in ideal domestic conditions but were instead achieved within a constitutional framework that is the equivalent of President Duterte having to climb a tree with one hand tied behind his back. The fact of the matter is that the statistics alone cannot explain away the fact that there is still poverty in parts of The Philippines that is high by ASEAN standards.
The reasons for lingering poverty are three-fold. First of all, in a unitary political system, there is always an inbuilt bias towards a major capital city, in this case Metro Manila. Even in a unitary country like Japan, a nation far more wealthy than The Philippines, Tokyo is becoming so unimaginably over-populated that the government is considering paying people three million Yen to move outside of Tokyo.
While Duterte has been diligent in geographically spreading out wealth creating programmes as part of the ‘Build, Build, Build’ infrastructural development plan, the lack of political will outside of Manila to spearhead initiatives for economic growth has meant that much of the country’s wealth still trickles up to Metro Manila rather than being spread out equitably between cities and regions throughout the country.
The second thing holding back even further economic growth is the anti-FDI clauses of the 1987 Constitution. Fundamentally, the 1987 Constitution was written by, for and because of a class of Yellow oligarchs who found a clever way to shield themselves from economic realities of the global market place by hiding behind the obscurantist rhetoric of so-called economic nationalism. The fact of the matter is that economic nationalist models make all goods more expensive, create fewer jobs, insure that corrupt business owners are never brought to task (let alone exposed), lead to slower growth and retard technological innovation. So nationalistic is the 1987 Constitution that millions of Filipinos are forced to work outside of their nation because too few jobs can be created according to the diktats of the 1987 Constitution.
By contrast, Singapore in particular was an early pioneer in courting copious amounts of foreign investment which helped the country’s founder Lee Kuan Yew to transform a backward swampland into one of the leading economies and most safe and peaceful societies in the modern world. China’s opening up of its economy which began in 1978 under the reforms of Deng Xiaoping is currently being celebrated throughout China as 2018 marks the 40th anniversary of a reformist drive that helped China to reduce poverty rates from a staggering 88% in the early 1980s to just under 2% today while the country looks to eliminate poverty completely in under two years.
As China looks to open up its markets further to both direct capital investment and trade from both developing and developing economies, Beijing’s leaders have proved that confidence in one’s domestic strengths and optimism in a more inter-connected future go hand in hand as an increasingly open China is set to shortly become the world’s overall leading economy – overtaking the neo-protectionist United States.
While Duterte’s reforms have encouraged both individual investment from throughout the world while attracting further investment from China, South Korea and Japan, if The Philippines is to truly become economically self-sufficient, it must unleash the creative genius of both local entrepreneurs and foreign investors and utilise this to maximum effect just as Lee Kuan Yew did in Singapore and as the current Malaysian Premier Mahathir Mohammad began doing in the 1980s during his first history making period in power. Ironically, the importance of trashing the 60-40 rule was even once picked up by the stridently anti-Duterte publication Rappler which in 2012, prior to the arrival of ‘Duterte Derangement Syndrome‘ actually ran a piece sympathetic to reforming the 60-40 clause of the 1987 Constitution that Liberal publications today rally around as if it were The Bible. In reality the only thing the 60-40 rule has done is to make the domestic economy overly reliant on a small and corrupt class of business oligarchs who would be instantly swept away is serious foreign investors were allowed to do in The Philippines what they were able to do in Singapore.
Logic dictates that a foreign investor looking to inject significant amounts of cash into a growing economy is not going to want anything less than a 50% stake in his or her investment. In reality, the more serious the investor, the more likely such a person is to want a share that vastly exceeds 50%. And yet by prohibiting those looking to inject FDI into the Philippine economy from having control over their own investment, the 1987 Constitution is automatically frightening away fresh investments into the economy and thus prohibiting a 1970s style Singaporean economic revolution or a 1980s style Malaysian economic revolution from occurring in The Philippines.
When the economic conditions are suitable, investors will come to nations in the midst of civil conflict, nations run by actual dictators and nations with severe sectarian problems. If any Filipino actually believes that the democratically elected, reform minded and highly popular Duterte is frightening any foreign investors except those interested in the black market rather than clean money, they are clearly deluding themselves.
The 60-40 FDI rule is the main factor prohibiting The Philippines from transforming itself into a place where meaningful foreign investment is able to change the economic reality of the nation and in so doing transform the material condition of the people. There is a clear reason why Singapore, China, Malaysia and Vietnam continue to move forward as The Philippine economy while growing, nevertheless remains in need of a fresh start. This fresh start that people today and future generations require can only come from casting out the obsolete 1987 Constitution and creating a new reality that says plainly and clearly that The Philippines is open to virtually unlimited amounts of FDI.
Finally, in the parliamentary system, a would-be Prime Minister Duterte would be able to pass his reforms much more quickly while debates about the reform would demonstrate to the nation just which side of the argument is economically sound and which side is economically ignorant. The real time government vs. opposition format of traditional parliamentary systems insures the kind of accountability that forces opposition factions to do something more than just obstruct (as the Yellows do today) while such obstructionist measures are very difficult in a unicameral body where a simple majority is all that is required to change an old law or introduce a new initiative.
Thus, while Duterte’s achievements are something to be celebrated, one should pause to imagine how much more Duterte’s same initiatives could achieve in a country with an economic sound Constitution, a fairer federal system and a more efficient and transparent parliamentary legislature. That is the real light at the end of the The Philippines’ long economic tunnel.