It is not necessary to Cha-cha

Concord, or Constitutional Correction for Development, was then President Joseph Estrada’s attempt at Cha-cha (Charter change). Estrada assured all and sundry that unlike the attempt of his predecessor (Fidel Ramos) at Cha-cha, his was not going to touch the system of government at all, but would “only” amend the economic provisions of the 1987 Constitution which limited the share of foreign investors in certain sectors (e.g. mining, utilities, transport and communications) and which, it was further asserted, was the reason for the relatively (compared to other countries) small foreign investment inflows into the country. Which resulted, it was then argued, in lost employment and growth opportunities. The conclusion: The restrictions on foreign investments were ANTI-POOR.

No empirical evidence was presented for such an assertion at the time. And in any case, Estrada, faced with more pressing problems, did not pursue the matter.

Now, after a time lapse of more than 12 years, come Senate President Juan Ponce Enrile and House Speaker Feliciano Belmonte, presumably taking up where Estrada left off. Concord II. And, apparently, still with no empirical basis.

Thank heavens that P-Noy is showing a marked lack of enthusiasm for the move. And what reasons does P-Noy give for his reluctance (if the newspaper reports are accurate) to give his blessing to Concord II? One is the very real possibility that, despite its assurances, the legislature will not keep its word about restricting the constitutional changes to the foreign investment provisions (how many times, after all, has it changed its mind?) and open up a Pandora’s box of problems. Another is that the old American folk saying “If it ain’t broke, don’t fix it” applies in this case. And a third is that if the Philippines grew faster than most of its neighbors in the past quarter, that goes to show that we don’t need to change the Constitution (quite a few logical fallacies in there).

I think P-Noy has the right take on it. So I will take out and dust off the (evidence-based) arguments I first brought out during the Concord discussions, and then again during the Arroyo regime’s Cha-cha attempts. These will buttress P-Noy’s arguments.

With regard to the impact of foreign direct investment (FDI) in general:

Item: Macro- or economy-wide data may show an association between FDI and higher levels of income, but do not show causality. Translation: It is not known whether FDI causes the higher levels of income, or whether higher levels of income attract FDI. Similarly, no generalizations can be made about the link between the activities of foreign firms and income distribution.

Item: On a micro- or project-level basis, 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. Translation: Not all FDI will result in inclusive growth or in sustainable development.

Item: Historically, FDI played only a minor role in the growth of most high-performing Asian economies. No need to translate.

Item:  The factors affecting FDI include physical infrastructure, skill levels, quality of the general regulatory framework, clear rules of the game, and fiscal determination. Translation: Absent the above, no FDI will be forthcoming, Cha-cha or no Cha-cha.

With regard to the Philippine experience in particular:

Item: Restrictions on land ownership are not a constraint because firms can lease land for up to 75 years; plus, foreigners can own condominiums, subject to the rule that only 40 percent of a condominium can be owned by foreigners (so no big deal).

Item: Restrictions on foreign control don’t seem to be a constraint either, because (listed) companies controlled with less than 40 percent or even 20 percent of common stock are not unusual; plus, “super-majority” requirements on key decisions protect foreign shareholders; plus, a redefinition of boundaries of an industry also effectively removes constraints—as in the redefinition of a utility, which then opened the door for foreign-owned generating plants.

But what about the recent Supreme Court decision (affecting PLDT) tightening the Securities and Exchange Commission’s liberal interpretation of what constitutes total capital? It should be no problem, given the kind of imagination and innovation that can be applied—as was done in the case of financial instruments.

To summarize: The claim that the economic provisions of the Constitution have closed the door to FDI is not borne out by the facts. Foreign investors are in happy control or in beneficial ownership, either by liberal interpretation, or by redefinition through legislation, or the use of creative financial and other instruments.

Therefore, amending the Constitution is not likely to open any new doors to FDI because for all intents and purposes, the doors are already open. It is not necessary to amend the Constitution.

What’s more, amending the Constitution will not bring in FDI unless the factors affecting FDI are addressed. It is not sufficient to amend the Constitution.

It would be well for the proponents of Concord II to read Unctad’s 2012 World Investment Report before they continue their advocacy. It is not titled “Towards a New Generation of Investment Policies” for nothing. “New” meaning more—recognizing that FDI does not automatically lead to inclusive growth and sustainable development, and choosing only the FDI that will do so.