Circumventing the Constitution for FDIs

House Bill No. 78, authored by Rep. Joey Salceda and already approved on second reading by the Lower House, will, if passed, create more competition, increase foreign direct investments, improve job opportunities, further hasten economic growth, and will help the poor. This according to its proponents. Assertions.

How? The title of the bill is “Providing for the definition of public utility, further amending for the purpose of Commonwealth Act No. 146…..” Imagine that. By providing for the definition of public utility, all of the above will happen.

What about the dictionary definition of public utility? Or the Supreme Court’s definition? Won’t that do? Why does HB 78 have to provide one?

Well, Reader, it’s like this. “Public utility,” which covers businesses such as transportation, communication, electricity, water, and sewerage, happens to be mentioned in the past three Constitutions, and is one of the sectors in which foreign ownership is limited to at most 40 percent. But “public utility” and “public service” are used interchangeably. CA 146 is the Public Service Act of the Philippines.

So by amending this act, and making a distinction between public service and public utility—defining public utility very narrowly as electricity transmission and distribution, water pipeline distribution, and sewerage pipeline systems—HB 78 in one fell swoop removes transportation and communication from public utilities and in effect gets around the constitutional restriction on their ownership. Clever, huh? No need to go through a constitutional convention, or a constituent assembly, or a people’s initiative to amend the Constitution.

That is why Rep. Edcel Lagman, et al., are against the bill. He and Joey are both from Albay, representing the first and second districts, respectively. Edcel was the one, in fact, who encouraged Joey to get into politics. But they are on opposite sides on this issue (see my “Bawal ang Pasaway” show on Tuesday).

Edcel accepts that the Lower House will pass HB 78, with its supermajority of self-serving idiots (my language, not his), but he thinks it will have a more difficult time passing the Senate. And he is prepared to go to the Supreme Court (!) to stop the bill. Good luck to him.

My highest regards and respect go to both Lagman and Salceda. But in this issue, I stand squarely with Lagman.

I take issue with the redefinition of public utility. But I take even greater issue

with the obviously inaccurate portrayal of HB 78, obviously to gain adherents, as akin to manna from heaven that will solve all our problems.

The defenders of the bill assume that passing this bill will open the spout to foreign direct investment (FDI), which will then lead to greater competition, higher growth, more jobs, etc. etc. No evidence. Just assertions. And the defenders of the bill also assume that it is the Constitution that is a “binding constraint” to FDI—else why are they trying to get around it?

What does the literature tell us? Here are two:

1. Macro-level data may show an association between foreign investment and higher levels of income, but do not establish causality. Similarly, no generalization can be made about link between the activities of foreign firms and income distribution.

2. On micro- or project level, a majority of projects yielded positive effects on national income, but a sizeable minority—one-third in two studies, anywhere from 25 percent to 45 percent in a third—had deleterious effects.

Theodore H. Moran, one of the world’s leading experts on FDI, says:

“FDI comes in four forms: FDI in Extractive Industries; FDI in Infrastructure; FDI in Manufacturing and Assembly; FDI in Services. Each brings such distinctive benefits; threatens such distinctive harms; poses such distinctive policy challenges, that each must be analyzed on its own. Using data streams on all four FDI flows to try to find one relationship between FDI and host welfare, or TFP (total factor productivity), or Growth Rate, makes no logical sense.”

And what really influences the amount of FDI that comes in? The World Investment Report enumerates some: adequate infrastructure, skill levels (human capital), quality of the general regulatory framework, clear rules of the game, no uncertainty, and fiscal determination. Does the Philippines have these?

In sum: We don’t need just any FDI, we need the right kind or quality. And if we want it, we don’t need to change the Constitution.

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