Will Removing the Restrictive 60/40 Constitutional Provisions Do Any Good?
Kwarta o Kahon?
For me, an area of moral clarity is: you’re in front of someone who’s suffering and you have the tools at your disposal to alleviate that suffering or even eradicate it, and you act. – Paul Farmer
After a year of blogging – with due attention to the A-I-D-A model of communication(Awareness-Interest-Desire-Action) and the two step communications diffusion model, early adopters in the mainstream media have taken awareness, shown interest, expressed desire, and are now taking action to make charter change happen. Not that they haven’t tried before. They have tried all modalities in fact – conventional convention, constituent assembly, and initiative.
Charter change is but one component of a multi-pronged approach at addressing the Philippine dysfunction.The other component is the intra-generational cultural evolution. It is more strategic in nature, and works with the fundamental cultural DNA of the Filipino.
Cultural change addresses the long-term, charter change jump starts and provides the priming mechanism that address the structural imbalances which enable such values, attitudes, and lifestyles (VALS).
Barriers to Investment
There are fiscal and non-fiscal barriers to investment.
The protectionist constitutional clauses (non-fiscal barrier) provide the basis for the FINL (fiscal barrier). Address the constitutional clauses that enable the FINL. removing that specific clause – will also imply and if need be outright repeal of the FINL mechanism.
Investors not facing FDI equity restrictions (versus more volatile stock market) will be more inclined to invest in countries without such restrictions such as Singapore and Hongkong.
The numbers are there.
Foreign AND domestic investment are needed to spur the local economy
However, it should be under a level playing field – not where ALL foreign investors are coerced by law to go into A 60/40 joint venture with a Philippine citizen – as a minority equity shareholder – that is so BASIC. What’s the point in making a sales pitch when you can’t even sign him up under your rules?
FDI is not the magic bullet or the silver bullet BUT you don’t want FDI to be severely restricted. The current economic policy regime – is highly skewed in favor of the local oligarchy – and that needs to go. The debate between import substitution and liberalization and protectionism is pretty much well covered – I don’t have to belabor the obvious. When I incorporated in the US – there was no such restriction.
In 2007, the Australian Minister for Trade, Warren Truss, released a report on investment in member economies of the APEC region.
Reducing Behind-the-Border Barriers to Investment has been prepared for the APEC Investment Expert Group by the Canberra-based Centre for International Economics.
“Investment is crucial to economic growth and to help reduce poverty for people across the APEC region,” Mr Truss said.
“This report will inform APEC’s growing work on investment and structural reform. Ministers will discuss these issues at the APEC Ministerial Meeting.
“Because most investment in member economies is sourced domestically, the reduction of these behind-the-border barriers to investment offers considerable potential for economic growth.
“I welcome the report and note that it reinforces the message from APEC Finance Ministers in August that continued structural reform is needed to tackle investment barriers in the region.
“It is the APEC way to encourage change rather than be prescriptive and this report is a store of valuable information that can be adapted to meet local conditions in member economies.”
The report has found that restrictions to investment are greater in lower-income APEC economies than in the more prosperous ones and that domestic savings in the lower-income economies tend to be invested abroad despite ample investment needs and opportunities at home.
It identifies behind-the-border barriers to investment as encompassing domestic policies, rules, procedures and laws which may include excessive regulation, unclear property rights and poor legal systems. They increase costs and risks and limit business competition leading to lower productivity and growth.
The report concludes that if investors in APEC economies faced fewer barriers, investment would be higher and of a better quality, economic growth would rise and the incidence of poverty across APEC would fall.
Reducing Behind-the-Border Barriers to Investment is the second of two APEC complementary reports prepared by the Centre for International Economics for APEC on investment. The previous study – released in 2006 – looked at barriers to cross-border foreign investment.
Here are the slides from the CIE report.
BV: Pinoys are still going overseas.
BV: Investment reduces poverty better than wasteful CCT stimulus and pork barrel.
And the US recession didn’t make it any better.
Whaddya know – Philippines has high barrier to investment.
Ownership is a major barrier – 60/40 – foreigners can’t own more than 40% – how long does that have to be rubbed in your faces till you get it? How many foreign investments have we let slip our hands because we wanted to ensure foreigners went into a joint venture – and had to be the minority – across ALL sectors (Telecom, banking, agriculture, health, education, manufacturing, services, electricity, water)? Protectionism does not work.
More barriers, lesser takers – it’s VERY simple.
More barriers equals greater cost of doing business.
Newspapers tout portfolio investments – that’s “hot money” and can go in and out of the economy quickly.
FDI on the other hand is more “permanent” – is “on the ground”. Buildings are built, offices are built, people are hired, taxes are paid, etc.
All these are barriers – from an LDI perspective, there’s a lot of improvement needed in the business processes. From an FDI perspective there’s a need to address the ownership issue because you can’t drill down to the FINL unless you are legally allowed to do business. If you are a foreign investor – you will not be able to “enjoy” the local inefficiency unless you are willing to: a) go into a joint venture; b) stay stuck in an EPZ; and c) become a Filipino citizen – all of which have their retinue of bureaucratic hubris.
Once the ownership issue has been hurdled and investments are in – then behind-the-border barriers take primacy.
Enforcing contracts in the Philippines can be a headache – and dangerous, too.
The Philippines has no credit scoring system. Access to credit is based on collaterals, connections, and fraud.
These shows that domestics savings in the Philippines is high but there is no motivation to invest – why?
Because the Philippines protectionist economy stifles competition – not a good environment for investments.
Solutions that go beyond your personal space – solutions that are bigger than your personal life – not for the faint of heart and faint of mind.
Sure we can all strive hard and all that – but beyond THAT – you need processes and institutions that work – individual reponsibility can only take you so far. After you step out of the confines of your personal space – you have to start working with other persons – process and institutions will come in handy.
The presence of distinct ethno linguistic groupings in contrast to a more homogenous ethnolinguistic grouping provides a strong rational.
As a matter of disambiguation – the Philippine has more in common with the cultural diversity of the federal EU – and this can be operationalised from the federal structure of the American model.
Parliamentary vs Unitary
The design of the car is still fundamentally an internal combustion engine. But some designs do better than the rest – the KPIs on economic performance of Parliamentary vs Unitary – are quite interesting.
While culture sustains the economics, economics provides the motivation to change the culture. Culture and Economics are intertwined and have synergy. Building a silo of solutions limits the effectiveness of achieving the goal. I’ll keep it simple – Maslow’s heirarchy of needs – it’s tough to talk culture when you have not addressed the basics of food-clothing-shelter-education – and that is in the realm of economics. Culture enriches economics, economics enriches culture.
Changing culture however can be jumpstarted by creating an enabling economic environment. Little boy from farming town goes to ivory school, comes back as Silicon Valley venture capitalist – he’s got a name – Dado Banatao. How do we bring that same enabling environment that allowed Dado Banatao to generate wealth – to the Philippines?
Where does culture come in? Here’s where – those who have the cultural carrying capacity to recognize that the economics needs to be fixed at the structural level to enable economics at the micro-level better start working – or be forever caught in a catch 22 of waiting and writing about what needs to get fixed. Am I my brother’s keeper? If not then – that’s fine. But when you do decide to revisit the question – think about it – do I just wait for the dude to shape up or do I do something that increase his chances not just at the personal level but at the structural layers that are impacted on by the economic policy framework.
People have differing thresholds of engagement – and it boils down to one’s preferences.
There’s a point when the train does leave the station – and you actually… fix it – that’s where the lines will be drawn.