Crossroads (Toward Philippine economic and social progress)
Philippine Star, 9 July 2014



Reader reaction to my piece last week (July 2, 2014) on Balamban, Cebu chronicling the town’s economic success as host to foreign direct investment (FDI) has been viral and approving. It reflects the nation’s thirst for good examples of development.

It is sad that poor towns in the Bicol provinces and in some Visayan islands as well as in Mindanao may not be as lucky as Balamban. In my travels to these places, I have seen the magnitude of poverty and the lack of employment opportunities.

Unless reforms are introduced, the policy obstacles will bar the opportunities, as described below.

A ‘feel-good’ story. Balamban’s experience practically tells of Filipino workers contributing to world class production spurred and sustained by the required amount of investment capital.

It also proclaims what happens to a town when workers have steady wage incomes: and employment is secure and expanding. The community transforms itself. New, subsidiary activities sprout out of the consumption demands of these employed workers so that enterprises within the community multiply.

A ‘feel-angry’ piece now. Unfortunately, I am now constrained to write a “feel-angry” piece to demonstrate why we are not producing many thousand points of successes such as Balamban.

Feel-good and exciting stories about the beneficial impact of FDIs in the country are not as plenty as in other lands. We are saddled by obstacles that bar them FDIs from entry – legal, regulatory, attitudinal. In fact, some of those we used to have were driven to other lands to find lower costs or production.

From the Balamban example, we can say that each FDI experience adds up to more economic activity. They can help to strengthen further the country’s balance of payments. The FDIs export to foreign markets or they lead to efficient import substitutions, thus they reduce the cost of home produced goods.

Though the subject is controversial and is spiced with nuances and qualifications, large volumes of FDIs helped to make countries expand economic capacity and energize their access to new markets – both domestic and international.

This is the experience of “economic miracle” economies like those of South Korea, Taiwan, Hong Kong, Singapore, Thailand, Malaysia, Indonesia and Vietnam. China is also a prime example in our region.

Restrictive provisions: the constitutional problem to FDI inflows. The major deterrent to this lack of FDIs is tied up with the misguided nationalistic framework of past economic policies. Such policies still cast a long shadow over decision-making among present leaders. Witness the difficulties of amending the restrictive economic provisions of the Constitution.

The “restrictive provisions” have been with us since the 1930s and they continue to impede the country’s economic progress. In 1987, these provisions were further enhanced so that the obstacles have risen.

Unfortunately, we are a nation of many lawyers and not of many businessmen. As a result, legal details and processes swamp the way toward solving economic problems. The legal framework of the Constitution covering foreign investment attraction has served as a big hindrance toward streamlining economic policies.

In the age of globalization, many policy makers continue to be imprisoned by parochial views of nationalistic exclusion of foreigners in the domestic economy. By holding back on the required reforms, the country effectively places the economy’s future in the hands of a few monopolies representing old guard wealth and businesses who retain their hold on economic and political power. The result is that we get left behind by our neighbors.

Many people do not realize that the high price of energy (both electric power and, to some extent, transport fuels) is linked with these constitutional provisions. Such provisions reduce rather than enhance competition.

Limited domestic industrialization. Another effect of these provisions is the manner in which we pursued domestic industrialization. It led us to exclude foreigners or to allow them mainly on a limited “60-40” equity arrangement in favor of Filipino capital in involving investment incentives under the BOI law – the main vehicle for domestic industrialization.

The result of early efforts was to promote many import substituting industries that produced at high costs, penalizing all domestic users with high cost consumer or industrial goods and of low quality.

When these promoted firms were wiped out by the first wave of economic liberalization, the country also lost the savings and resources invested to financed these uncompetitive industries.

Labor market reforms are also needed. Labor costs in the country have gone too high to enable the economy to absorb the large number of unemployed and underemployed – around one quarter of the labor force – into gainful, quality jobs. This has caused social problems in the major cities due to the migration of poorly employed workers from the rural areas in hopes of finding better jobs.

Part of the nation’s economic problems is to generate good jobs in the rural areas, especially in provinces where there is adequate transport, airport and other infrastructure that could support industry and agriculture.

The effective vehicle for these opportunities could be to establish “labor employment zones” patterned after PEZAs that are private sector-owned. Such zones (see reference below) must allow flexibility from the rigid rules of minimum wage to attract FDIs and other investments in labor-intensive industries.

Labor needs employment that is sustained over a long time to stabilize income and productive work. Such opportunities will absorb people in productive work and enable them to become dependent on their own, be able to support family, compared to becoming state wards of charities and living wasted lives.

Our successful neighbors have proven over time that they can become progressive and achieve both high wages and productivity as they solve their own early state of helplessness.

Recently in a shopping mall, I purposely looked out for the places where a lot of imported goods for shoes, garments, and other products associated with personal use. They were produced in China, Indonesia, Vietnam, Thailand, etc. all of them neighbors.