The Philippines is Among The Least Easy Places to do Business in ASEAN – The Liberal 1987 Constitution is to Blame

The World Bank has ranked every economy in the world based the ease of doing business. The range of factors considered when making the penultimate assessment can be read in detail here. The news for The Philippines in particular serves as a stark reminder of how the economy is being held back by a lack of foreign direct investment (FDI) which is itself directly related to the infamous 60/40 rule in the 1987 Constitution. The 60/40 rule specifically prohibits foreign investors from having a controlling interest in many of their vital investments in The Philippines. As a result, even in an age of President Duterte’s positive pro-FDI reforms, the Constitution of the country continues to scare off investment compared to the more pro-FDI members of ASEAN.

Bellow are the ten members of ASEAN ranked in descending order from the easiest to do business in, to the most difficult:

1. Singapore (global ranking 2)

2. Malaysia (global ranking 15)

3. Thailand (global ranking 27)

4. Brunei (global ranking 55)

5. Vietnam (global ranking 69)

6. Indonesia (global ranking 73)

7. Philippines (global ranking 124)

8. Cambodia (global ranking 138) 

9. Laos (global ranking 154)

10. Myanmar (global ranking 171)

When one considers that in the 1960s, The Philippines was the leading economy of what would become ASEAN in 1967, the self-evident fall from economic grace ought to sound the alarm among those genuinely concerned with the long term economic welfare of The Philippines.

The fact of the matter is that irrespective of one’s political or ideological beliefs, the current Constitution of The Philippines has clearly let the country down. The statisticians at the World Bank almost certainly don’t have a particular grudge against The Philippines, any more than they have a soft spot for Singapore or Malaysia. In reality, the numbers don’t lie and those in political circles inferring otherwise are simply not telling the truth about the desperate need for The Philippines to remove anti-FDI regulations from its Constitution. The chart below demonstrates that whilst the 1990s and early 2000s saw a boom in FDI throughout ASEAN- something which in turn helped to expand multiple ASEAN economies, FDI in The Philippines remained at critically low levels compared to that of its ASEAN partners. As such, the productivity and economic growth in many of The Philippines’ neighbours overtook what was once the healthiest economy in the region.

One of the major problems with the very nature of the FDI debate in The Philippines is that far too many people use highly deceptive language when outlining the core issue. When discussing whether amendments should be made to the 1987 Constitution of The Philippines in order to eliminate rules which severely retard the amount of foreign direct investment (FDI) coming into the country, many people phrase such debates in terms of “nationalism” versus “globalism”. The fact of the matter is that at an international level, both words have become so diluted so as to lose any specific meaning while more importantly, in the Philippine context, they are blatantly misleading.

The anti-FDI and by extrapolation anti-free trade clauses of the country’s current and grossly outdated constitution are often described as economic “nationalism”. A better word would be pseudo-autarky. Auturky is a state of total economic isolation/self-reliance which means that no inward nor outward trade or investment will take place. In reality, few modern societies have ever truly been autarkic. Even North Korea after the collapse of its Soviet ally continued to trade with China, India, Syria, Egypt and even with some entities in Singapore and at present, the DPRK looks to open its economy in line with the current outward looking peace process.

The only other example of a genuine attempt at auturky that comes to mind in the modern era is communist Albania after 1975. For Albania’s leader Enver Hoxha, neither his former Soviet allies nor his former Maoist Chinese allies were sufficiently communist enough and thus, after 1975, Albania had few diplomatic nor economic relations with any other nation. As a result, Albania became the poorest country in Europe while it remains among the poorest today. Furthermore, when communism collapsed in the 1990s, the country was so ill-prepared for the transition that it rapidly became a mafia controlled narco-state.

While The Philippines has thankfully never been as backward as either communist nor-post communist Albania, the idea of an anti-FDI/anti-trade constitution leading to the development of a black narco-market will of course be familiar to every Filipino reading this. While Albania transitioned from communistic autarky to a free for all black narco-market, The 1987 constitution of The Philippines had for decades left the country with an odd mix of both.

Without providing the equality of misery of a command economy, the 1987 constitution nevertheless concentrated wealth in the hands of a small group of elite oligarchs that even critics of the Marcos era have come to described as ‘many little versions of Marcos’. As such, the people have been deprived of opportunities to court investment from abroad in order to develop Philippine industry on a Singapore, post-1980s Malaysia,  Hong Kong or post-1978 Chinese model. Because of this lack of opportunity, a free market does exist in The Philippines but it is a black market and beyond this, it is a grim one.

As oligarchs control the official highly regulated market, narcos, gangsters, bandits and terrorists have come to fill the void at the opposite end of the spectrum. President Duterte has realised these problems and has therefore correctly been a merciless foe of the narcos, oligarchs and terrorists. At the same time, Duterte has attracted new FDI to the country by stretching the existing rules as far as they can go. The problem is that these rules are highly constrained, even if someone like Duterte is stretching them to their limit.

Both Deng Xiaoping’s and before that Lew Kuan Yew’s economic miracle relied on the combination of local talent learning from and being employed by the expertise and FDI coming in from abroad. There is absolutely no reason that a country filled with young, English speakers could not do the same in The Philippines and there is furthermore no reason why this wouldn’t lead to home grown innovations after less than one generation. As North Korea looks to follow the same model, it would be somewhat ironic if the allegedly “most American” nation in Asia was to somehow fall behind even North Korea in terms of economic openness and modernity.

The answer therefore lies in economic openness and since this openness is ideally openness to partners from throughout the world, it is often called “globalism”. And yet, the term globalism has come to take on a different meaning, mainly because of social movements in both the US and Europe that have more to do with race relations in western societies than they have anything to do with trade or FDI.

In the era of Trump in the US, globalism has come to mean acculturation rather than modern trading protocols. Yet ironically, nationalism has come to mean not only resisting acculturation but also resisting economic modernisation. The fact of the matter is that these definitions are lopsided and illogical and therefore have no place in modern Philippine discourse.

Singapore is a society that preserves law and order, protects its unique multi-racial cultural characteristics on the basis of respect, equality and education for all and does so within the framework of one of the world’s most open, flexible and adaptable economies. Likewise, prior to very recent years which have seen Ethiopia create something of an economic miracle by welcoming FDI, the country was faced with internal factional tensions as well as extreme tensions with its breakaway neighbour Eritrea – all the while the country had a totally inward looking and backward economic system that lead to famine and extreme poverty even by regional standards.

Thus, one can see that preserving one’s cultural characteristics has nothing to do with one’s economic system. China after all is the world’s number one recipient of FDI and the idea of promoting Chinese cultural characteristics is a key element of Xi Jinping Thought.

The Philippines has been blessed by a culture where the international language of business, English has a widespread official status. At the same time, Filipinos have been cursed by picking up American colloquialisms such as “nationalism vs. globalism” that have more to do with the politics of Texas than the politics of Luzon, Visayas or Mindanao.

The argument therefore should be one of an economic oligarchy that breeds a narcotics fuelled black market on the one hand and economic openness on the other. As for cultural characteristics, these like anything else can be best preserved in a prosperous atmosphere rather than one of poverty in which people confuse economic lethargy for a cultural characteristic.

Filipinos are not destined to be poor and they are among the hardest working people in the world. But due to decades of economic mismanagement, Filipinos are working hard for the economies of America, the European Union, South Korea, China, Australia, Canada, New Zealand, Singapore and the wealthy Arab monarchies rather than for the economy at home. This is because while nations like South Korea and China export goods, The Philippines exports people – by any definition this is the antithesis of both economic openness and nationalism.

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