Charter change: Why Beijing Would Love It

The push to amend the Constitution is underway.  The focus is on watering down and eventually nullifying the so-called nationalist provisions of the charter, which, proponents claim, constitute the central obstacle to sustained growth.  The pro-charter change lobby in Congress derives its inspiration from economists such as Gerry Sicat, who, as head of the National Economic Development Authority (NEDA) during the Marcos dictatorship, presided over one of the most disastrous periods in Philippine economic history, and Bernie Villegas, the free market ideologue who is the toast of the foreign business community.

Dynamic Economies Ban Foreign Ownership

A central contention in the sponsorship speeches of proponents of charter change is that the most dynamic countries in Asia do not have restrictive provisions in their constitutions.  The countries they mention prominently are China, Vietnam, and Indonesia.

The proponents are right that China has been one of the world’s most dynamic economies over the last few decades, growing by some 10 per cent a year.  Foreign investment has come to over 3 per cent of GDP, compared to 1.25 per cent for the Philippines.  They are dead wrong, however, when they claim that China does not have a constitutional ban on foreign ownership of land and resources. Article 10 of the Constitution of the People’s Republic of China explicitly bans not only foreign ownership but also private property:  “Land in the cities is owned by the state. Land in the rural and suburban areas is owned by collectives except for those portions which belong to the state in accordance with the law; house sites and private plots of cropland and hilly land are also owned by collectives. The state may in the public interest take over land for its use in accordance with the law. No organization or individual may appropriate, buy, sell or lease land, or unlawfully transfer land in other ways. All organizations and individuals who use land must make rational use of the land.”

Vietnam has been one of Southeast Asia’s most dynamic economies over the last 15 years, with the economy growing by over 7 per cent a year.  Foreign investment has played a significant part, coming to over 2 per cent of GDP.  Yet land cannot be owned either by individuals or by entities, whether they are Vietnamese or foreign.  Articles 17 and 18 of the Constitution of the Socialist Republic of Vietnam explicitly prohibit private or foreign ownership of property.  These articles explicitly state that land is owned by the people of Vietnam as a whole and that the State administers the land for the people. In its exercise of the people’s ownership rights by these constitutional provisions, the State allocatesor leases a piece of land to individuals, households or enterprises to use in accordance with the Land Law and its implementing regulations.

Indonesia has also been seen as one of the most dynamic economies of Southeast Asia. In recent years, the GDP has grown by over 6 per cent.  Foreign investment has played a crucial part, coming to over 2 per cent of GDP.  Article 33, section 3, of the Indonesian constitution states: “The land, waters and natural wealth contained within them are controlled by the State and shall be utilized to increase the prosperity of the People.”

The implementing law of Article 33, section 3 is Law Number 5 of 1960, also referred to as UUPA (Basic Agrarian Law Act).  As a prominent adviser to foreign corporations warns its clients, “the UUPA is viewed by Indonesian legal scholars as an expression and execution of the aspirations articulated in Article 33/3 of the Indonesian constitution. As such, it is therefore impossible under the UUPA for foreign individuals or foreign legal entities to legally own or use land in Indonesia.”

The point of this laborious exegesis is to underline that constitutional provisions banning or restricting foreign ownership have not been a hindrance to the massive flow of foreign investment into Asia’s most dynamic economies.  This means that if foreign investment has not come into the Philippines in similar volumes, the problem must lie somewhere else, not in the nationalist provisions of our Constitution.  Watering down the constitution’s nationalist provisions is barking up the wrong tree.

Agricultural Land as the Big Prize

What the constitutional change proponents want most of all to do is to do away with the ban on foreign ownership of land.  They say that this need not be cause for concern since what foreign investors are mainly interested in is commercial and industrial real estate, which is a small fraction of the country’s total land area.

The problem with this argument is twofold.  First, if it is factory or commercial space investors are interested in, there is really little difference between owning and leasing, and leasing, in fact, is preferable for many enterprises who want to have the flexibility to transfer their operations to other sites or leave the country if business conditions are no longer profitable.

But the bigger problem with their argument is that it is simply not true that foreign investors are not interested in agricultural land. According to a 2010 World Bank report, the Philippines was the second top destination country in the Asia-Pacific for large-scale land acquisition, with investors eyeing some 3.1 million hectares of lands. The previous administration of Gloria Macapagal Arroyo, in fact, signed a total of 18 agri-business agreements land to Chinese corporations, with a total of 1.24-million hectares committed for export crop production for China alone.  These controversial deals have been frozen by the Aquino administration owing to their being unconstitutional, but they would certainly be revived if the nationality restriction on land is lifted.  You can be sure that Beijing is closely monitoring our congressional proceedings since the lifting of our constitutional restrictions would benefit its state-owned and controlled agro-corporations.

The countryside today is in a state of high tension, as land reform progresses.  In addition to the central problem of landlord resistance to land redistribution, there is that of conflicting land claims owing to the fact that an updated cadastral survey still has to completed to replace the 1913 survey, as President Aquino pointed out in his State of the Nation address last month. Foreign corporations descending on the country to snap up land would add another destabilizing element to this volatile mix and possibly make it spin out of control.  Now, even if one were to favor amending the constitution to allow foreigners to own land, would it not be the dictate of prudence be to postpone debate on this proposal till a future date, when things are more settled and the cadastral survey is completed?

Foreign Control of Public Utilities

Aside from the land ownership issue, the proponents of reform would want to eliminate the 60-40 per cent rule, that is that Filipinos must own at least 60 per cent of the stocks in mining, energy, utility, and media companies.  The current rule has kept control of many of these sectors in Filipino hands.   In many cases, however, foreign investors have been able to translate minority control into effective control. This is the case, for instance, with Meralco, where Manny Pangilinan serves as a front man for the Indonesian Salim Group.  This is also the case with electricity transmission, where the state-owned State Grid of China Corporation obtained a minority 40% stake in the National Grid Corporation of the Philippines (NGCP) that it bought in 2009 after the government decided to break apart the National Transmission Corporation.

The dangers of foreign investors abusing their position was illustrated in recent months by Meralco’s well publicized colluding with some of its power suppliers to jack up the price of electricity and pass it on to consumers.  As for the State Grid Corporation of China, Interior and Local Government Secretary Mar Roxas underlined the national security implications of a foreign state-owned firm controlling electricity transmission:  “Will there be a black out or not? Will there be a rolling [black out] or will there be insufficient supply? Who will have brownouts? Who will be sacrificed? It will be more comfortable if Filipinos will handle those decisions.”

Can one imagine how much more quickly and easily Indonesian and Chinese interests can grab control of our strategic industries if we allow 100 per cent foreign ownership?

Marginalizing Small and Medium Enterprises

The sector that will be most disadvantaged will be our small and medium enterprises, which comprise 99.6 percent of registered businesses in the country, employ around 3.9 million, but account only for 35.7 percent of the country’s total value-added. Already barely surviving, this sector will be further marginalized if large foreign capital is freed from constitutional restrictions.

Proponents of charter change say small businesses will benefit as suppliers of transnational corporations coming into the country and, in the first interpellation earlier this week, they cited the Thai car industry as an example.  In fact, Thailand proves our point about the detrimental effects of unrestricted foreign investment, since the big Japanese car assemblers that went into Thailand brought their component suppliers with them from Japan to Thailand or to nearby Southeast Asian countries from which they imported components into Thailand at radically reduce tariff rates!  The foreign-dominated Thai automobile sector has not spawned locally owned suppliers worth noting.

Instead of seeking charter change, members of Congress should be crafting a Competition Law that would regulate, prohibit, and curb the abusive behavior of monopolies, oligopolies, and conglomerates to safeguard and promote the welfare of small and medium industries.  Indeed, even if one were to be in favor of scrapping the nationalist provisions, would it not be prudent to first enact and subject a Competition Law to a reality test and postpone the debate on charter change to a later date?

The Real Barriers to Economic Advance

In a 2013 survey of the priorities of 11 big business associations, only the Joint Foreign Chambers of Commerce listed charter change as a priority–and even they added the caveat that allowing foreigners to own land might promote rampant speculation.  The other associations placed, ahead of amending the economic provisions of the Constitution, such concerns as the following: building infrastructure, bringing down the costs of electricity, eliminating red tape, and reducing corruption.

Indeed, one perusing the foreign business press would find few prioritizing elimination of the nationalist provisions.  Like local business groups, the top problems have to do with infrastructure, high power costs, red tape and corruption.

Likewise, the country’s economic managers, who should know the real score about the economy, do not prioritize charter change.  NEDA chief Arsenio Balisacan, Jr.  recently said of the push for amending the economic provisions: “We need not be distracted.

For me, I would rather push for these things that I believe, and are based on the experiences of other countries and our country of the past three decades.”

Balisacan is right.  Charter change is a panacea.  Infrastructural backwardness and the other problems he and most business groups cite are among the real barriers to sustained development.  But both proponents and opponents of amending the constitution miss the central problem, and that is massive and poverty.  Without effective demand from such large part of the population, economic growth cannot be sustained.  Without a prosperous domestic market that will buy their goods, foreign investors will not be attracted to the country.  Which is why rather than distracting the country with the illusion of a magic bullet for development, the proponents of charter change should be pushing measures to radically reduce inequality and poverty like agrarian reform, security of tenure for labor, and ending tax evasion by the rich and powerful.

*Inquirer.net columnist Walden Bello is a representative of Akbayan in the House of Representatives.  He can be contacted at waldenbello@yahoo.com.