The new war has started

The issue of Charter change will hopefully come to the fore now that the election circus has left town. It promises to be as heated and vituperative an argument as we saw through the 14 years of discussions on the RH Law. Cha-cha (as it is called) has been raised before, as those who recognize the need raise it only to see it knocked down because of concerns that the need to amend economic provisions may be hijacked by politicos intent on extending their terms. A legitimate fear in the past but, with this President, much less so, I would venture.

Maybe this time they will again, too. But maybe this time we can stop them, particularly as we have a President who wants no extension to his term (or, presumably by extension, to anyone else’s) and has the popular power to stop such talk. All we need to do is convince him of the need, as he’s not yet so convinced. That’s our task for the next few weeks, or months.

But already, opposition is being raised to Cha-cha, and with some questionable statements that belie the reality we see around us in the world.

Let me start with just one. It has been claimed that foreign direct investment (FDI) played only a minor role in the growth of most high-performing Asian economies, a statement that overlooks the most glaring contradiction of that: China. China took off because the government changed its stance and encouraged FDI, which primarily drove its phenomenal growth to being the second largest economy in the world. A report of the Asian Development Bank (“How Foreign Direct Investment Promotes Development: The Case of the People’s Republic of China’s Inward and Outward FDI,” February 2013) expounds on this. In addition, FDI was instrumental in the growth of other Asian countries like Singapore and South Korea (see “Some Lessons from the East Asian Miracle” by Joseph Stiglitz).

And to accuse the foreign chambers of campaigning for Cha-cha so they can make a profit is nonsense. Of course they do; profit is what business is all about. The ability to make a profit is what convinces business people with money to invest. That profit is kept to a reasonable level by one simple thing: competition. And the more open a market, the more competition there’s likely to be. Investments create jobs and wealth for a country. If you make a profit, you pay taxes. The fact that they, and almost all other local business chambers, too (as we’ll show in more detail later), want Cha-cha shows that they believe opening up the economy will have a major impact on attracting FDI.

There is a great deal of evidence to suggest that FDI benefits developing countries.  As a well-researched paper says: “The overall benefits of FDI for developing countries’ economies are well documented. Given the appropriate host-country policies and a basic level of development, a preponderance of studies shows that FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment and enhances enterprise development. All of these contribute to higher economic growth, which is the most potent tool for alleviating poverty in developing countries. Moreover, beyond the strictly economic benefits, FDI may help improve environmental and social conditions in the host country by, for example, transferring ‘cleaner’ technologies and leading to more socially responsible corporate policies.” (“Foreign Direct Investment for Development, Maximising Benefits, Minimising Costs,” OECD, 2002)

In another portion citing the United Nations Conference on Trade and Development’s Midrand Declaration in 1996, the paper says: “[T]he Philippines expressly supported the proposition that FDI is a driver of growth. Paragraph 36 of that Declaration states, ‘Foreign direct investment can play a key role in the economic growth and development process. The importance of FDI for development has dramatically increased in recent years. FDI is now considered to be an instrument through which economies are being integrated at the level of production into the globalizing world economy by bringing a package of assets, including capital, technology, managerial capacities and skills, and access to foreign markets. It also stimulates technological capacity-building for production, innovation and entrepreneurship within the larger domestic economy through catalyzing backward and forward linkages.”

But you don’t need these studies. Simple logic tells you that if you open up, more investors will come in, and more jobs will be created. If that doesn’t happen, then why oppose opening up? The only reason I can think of is to protect inefficient domestic industries because if they’re efficient, competition won’t hurt them.

The paper says further: “Arguing that restrictions on foreign ownership are not a factor in affecting FDI is illogical. If a foreign firm faces a negative list where investment cannot take place or is very restricted, then of course there can be no or only limited investment in those areas, immediately limiting the range of prospects. Additionally, it defies logic to say that lifting restrictions will not open new doors as those doors are already open.” If that were the case, why are the foreign chambers and others pushing for the opening up if it will have no effect?

To argue that it will distract Congress from doing its job of passing needed new legislation ignores the reality of Congress. Look at its history. If just half of the “inquiries in aid of legislation” where no legislation ever follows were dropped, there’d be plenty of time.

Why is the Philippines attracting so little FDI? Many reasons, but the restriction on where and how you can invest is certainly one of them.