This article is substantially based on an article I originally wrote in November, 2010 entitled “Applying the Right Fix: Charter Change and the Philippine Condition.” While the essential points made in the original article are still valid today, the Philippines is not exactly the same country it was two-and-a-half years ago, for better or worse; the fundamental problem of the country — an overall lack of prosperity, and an inequitable distribution of such prosperity as is actually present — has not changed (and will not change in the foreseeable future), but our understanding of it and the possible solutions to it has evolved. It has to; if any progress is to be made, the effort towards it must begin with a clearly-defined, practicable strategy appropriate to the present social and political context.
The inability of the “leadership” of the constitutional reform advocacy to recognize that concepts do not and cannot exist in a vacuum is its greatest failure. When an idea becomes fixed it loses its validity because it cannot grow and adapt to new knowledge and new arguments. The constitutional reform advocacy, such as it is, is a construct, not a movement. Movement implies engagement, debate, and synthesis; a construct, however, encourages an all-or-nothing perspective — it is either perfect and should be accepted, or wholly imperfect. In short, the argument in favor of it becomes not one of evidence, but of faith: canonical reliance on the original ideas and their sources, and dogmatic responses to dissent. Criticism is not viewed as it ought to be — as a challenge to objectively prove conventional ideas — but rather as blasphemy.
But lest this turn into the same style of top-heavy polemic the constitutional reform advocacy, such as it is, favors as a defensive tactic, let us revisit the flawed assumptions upon which the “grand formula for progress” is built:
Assumption #1: Removing the protectionist provisions of the Constitution will remove the barriers to foreign investment.
Addressing the parts of the Constitution which restrict foreign investment in the Philippines can be done in two ways: the offending parts of the Constitution (specifically, Sections 2, 7, 10, 11, and 14 of Article XII, “National Economy and Patrimony”, Section 14 of Article XIV, and Section 11 of Article XVI) can either be removed, or they can be amended to loosen the current restrictions, which in general proscribe foreign ownership of property, more than 40% of any business, or practice of any profession except those permitted by law.
Simply removing the provisions actually does not remove the restrictions, because most of those are codified in the Foreign Investment Act of 1991 (RA 7042, amended by RA 8179 of 1996), and the two extensive “Exclusion Lists” appended to it. No longer having provisions in the Constitution addressing these issues leaves the matter in the hands of the Legislature, and potentially subject to the same various vested interests and ulterior motives that constitutionalized an autarky in the first place and have stubbornly maintained it ever since. By the same token, amending the provisions to define the limits of patrimony presents the same risks. Without being able to ensure that enough members of the Legislature or Convention are representatives with a foreign investment-friendly point of view and sufficiently resistant to protectionist lobbying pressure, the champions of economic liberalization risk defeat, or at least an incomplete victory.
That would be a disastrous setback for the country because the benefits of foreign investment are quite clear:
The Philippines has one of the most restrictive investment environments among 87 countries assessed by the World Bank, and partly as a consequence of that, a moribund economy in comparison to its regional neighbors, particular Malaysia, Indonesia, and Vietnam. The real benefit to foreign investment is the capital it provides to allow for domestic economic development — the interplay of the three areas that comprise the sovereign environment in the right-hand side of the diagram above. Which leads us to…
Assumption #2: Foreign investment is the critical component necessary for developing the domestic economy.
Foreign investment is a critical component for developing the economy, but by no means the only one, and if the others are overlooked, by itself it will represent, at best, a cashflow stream lost to consumption; if it were otherwise, then the vast amount of OFW remittances flowing into the country at a rate that represents about one-seventh of the Philippines’ GDP would be reflected in a vibrant and growing economy. In a study published in the Southwestern Economic Review in 2009, Economists Dosse Toulaboe, Rory Terry, and Thomas Johansen of Fort Hays State University demonstrated that
“FDI is a strong contributor to economic growth, that this (direct) contribution is about equal in both lower-income and middle-income countries, that FDI does interact with human capital formation to provide enhanced economic growth, and that this interaction term is more pronounced in more advanced countries. Our results lead to the conclusion that absorptive capacity in the host country is important for FDI to fully impact economic growth.” [emphasis added]
It is in the absorptive capacity of the Philippines where the root causes of the country’s economic morass lay. Core cultural dimensions that present obstacles to standard and universally-recognized modes of conducting business, a lack of respect for and enforcement of property rights, an extensive informal economy, an absence of a uniform credit risk assessment paradigm (and along with that, a general shortage of available credit), preference for casual and contract labor (and along with that, pervasive, institutionalized nepotism and discrimination), a poor educational system, poor infrastructure, appalling environmental management, and an inefficient and inherently unstable government structure are all individual factors that reduce the Philippines’ capacity to absorb FDI benefits, and are all native problems for which the absence of FDI cannot be blamed. Removing protectionist ”˜safeguards’ only provides an opportunity to attract more foreign investment; without an investment environment that actually is attractive, there is no reason to assume foreign investors will not continue to go to the country’s formidable regional competitors.
All that, however, is a matter of management; improve the management structure, and the Philippines will be better able to absorb the benefits of foreign investment and develop its own economy.
All of that is just as valid now as it was when I wrote it; even President BS Aquino, in that ironic way he has of sometimes being inadvertently right about something, in some of his recent comments recognized the basic reality that unrestricted foreign investment is not a universal feature of successful economies. Other more recent studies (Klaus Meyer, et al., in the Strategic Management Journal in 2009; James Walsh and Jiangyan Yu for the International Monetary Fund in July, 2010; Bruce Blonigen and Jeremy Piger of the National Bureau of Economic Research in January, 2011) besides the one mentioned above also back the assertion that it is the country’s absorptive capacity — which in turn is a function of its domestic potential for capital creation — that is the most important determinant of FDI attractive power; notably, “investment restrictions” are considered only a minor factor, if they are considered at all.
So does that mean that eliminating or easing investment restrictions is a bad idea? Certainly not. But what it does mean is that the goal is not nearly as critical for the country’s development as we might suppose, and this is where the issue of practicality (and where the advocacy’s stubborn insistence on full liberalization demonstrates a complete lack of it) comes into play. Like it or not, the hands which firmly hold the levers of power in this country now are clearly against the idea, and to make the challenge even more difficult, actually have some scholarly evidence on their side. The investment environment certainly must be improved, but only those who have the flexibility that not surrendering to a dogmatic position provides will be able to find the avenues available to accomplish that.
But, or so we could imagine the constitutional reform advocacy to argue, a large proportion of the dysfunction in the Philippines’ economic environment can be attributed to the poor performance of its systems of governance and administration; correcting these inefficient and too-easily compromised frameworks would provide a better institutional environment for equitable economic growth. That is an entirely valid point of view, but where it falls apart is in the prescription of specific replacements for those systems:
Assumption #3: A Federal system would be a more effective administrative framework for the Philippines than its present Unitary system.
This assumption — which, in the interest of full disclosure, is one which I would like to make myself — is dangerous because it is subjective. There is simply no way of knowing with any degree of certainty whether or not federalizing the Philippines would actually work better than keeping the unitary system. Comparisons with other countries are invidious, and of no guidance in any case; there are as many successful unitary systems as unsuccessful ones. The same can be said of federal systems; some work well (Australia, Brazil, Canada, the United States), and some do not (Mexico, Pakistan, Nepal, Russia).
Empirical research is likewise contradictory. One very sound study presented at a meeting of the American Political Science Association in 2004 by John Gerring, S.C. Thacker, and Carola Moreno of Boston University concluded
“Unitarism is associated (at the ninety-five percent level of confidence or better) with better telecommunications infrastructure, lower import duties, greater trade openness, higher regulatory quality, and higher levels of per capita GDP, across both full and reduced-form models. It is significant at the ninety percent confidence level in the reduced form model for investment rating.
“Results for our three measures of human development are also encouraging. Unitarism is significantly associated with lower infant mortality and illiteracy rates. Results for life expectancy are strongly significant in the reduced form but not in the full model.
“It appears that unitary systems hold distinct advantages over federal ones across a wide range of indicators of political, economic and human development. In only one case — the full-form model for political stability — do federal structures appear to offer an advantage in good governance. Results for Unitarism are especially strong for economic and human development.”
By contrast, a study done in the same year by Christos Kotsogiannis of the University of Exeter and Robert Schwager of the Georg-August-Universität Göttingen found that policy innovation is actually encouraged under a federal system — with the interesting caveat that this occurs when the state- or local-level leader has ambitions for Federal office, and must “signal his ability to the electorate”:
“The simple framework analyzed is rich in implications. It is shown that, strikingly, the possibility that a federal system is more conducive to policy experimentation than a unitary system, once the political process for federal office is accounted for, is a real one. This reverses the conclusion of Rose-Ackerman (1980) and Strumpf (2002) and validates the conventional wisdom that has been vividly expressed in the quotation by Justice Brandeis: ”˜It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory and try novel social and economic experiments without risk to the rest of the country.’”
That the Philippines is not getting the most of its present unitary system is a gross understatement, but whether or not a federal system is the best solution to that comprehensive problem is still a matter for legitimate debate. Anecdotally, at least, federalism seems suitable for the Philippines, a non-contiguous land comprising several distinct cultural groups. But if we dismiss the empirical evidence of Gerring, et al., and accept that of Kotsogiannis and Schwager that adds a question to our final assumption:
Assumption #4: A Parliamentary form of government is necessary for the formation of strong political parties, and issue-oriented politicians and voters.
It is quite obvious the current system does not work; what the drive to implement the “grand formula” has not demonstrated is that the current system cannot work, or that it absolutely requires sweeping changes in order for it to work. Under current conditions, almost all of the negative effects of “personality politics” on government at the national level can be attributed to the simple absence of some provision for ensuring a majority President (either through some form of electoral system or a provision for run-off elections), and the prohibition on the President’s serving more than one term.
While still requiring charter change, correcting those two flaws would be far less disruptive than a wholesale change in system — a system that, even at its most structured, does not oblige the political class of this country to move away from the election mechanisms of personality and transactionalism that have served them well in making their appeal to the vast D- and E-segments of the population whose choices determine the national leadership. Even that most parliamentary of concepts — bloc voting — offers no real solution to the problem, because it is a concept with which the Philippine electorate is already quite familiar: every barangay in the country, the lowest level of government, within just the past couple weeks featured an election contest between “Team Juan” and “Team Jose” — collections of personalities. If issues are a part of the contest at all, they are retroactive — “Vote for me because this is what I did,” not “Vote for me because this is what I plan to do.”
This pattern exists at every level of the government, right up to the top office in the land. If the average Philippine voter was actually interested in a candidate’s “signaling his ability” and capable of judging it, the two arguably least-qualified candidates in 2010’s crowded presidential election field would not have finished first and second. That is a flaw in the country’s social character, not in its political character; a parliamentary system, while not a bad stand-alone concept by any means, nevertheless addresses effects rather than causes — it is likely a valuable part of the solution, but by itself solves very little. When considered in the context of Kotsogiannis and Schwager’s demonstration that federalism alone can inspire policy innovation; the necessity of prioritizing parliamentarianism appears to wane significantly.
The perspective towards these two assumptions still basically holds true, but must also be considered in the revealing context of the recently-concluded elections. Most of the anger of the online chattering class continues to be directed towards the presumed illegitimacy of the election process, and the implication is, “If the elections were not fraudulent and/or hopelessly technically flawed, candidates who should not have won would not have been declared the winners.”
Which begs the question, “Should not have won, according to whom?” How do we, the thin 10 or 12 percent of the Philippine population, know that the outcome did not perfectly represent the majority view of the 88 to 90 percent of the population in the D and E classes? Can we actually presume that the antics of the candidates — vote-buying, fiesta campaigning, and personal positioning — and for that matter, the dynastic nature of the entire political class (which, we should remind ourselves, includes even “respectable” candidates like Dick Gordon), are not exactly what the democratic majority expects, and is perfectly comfortable with using as a basis for its choices? Consider the alternative of a perfectly honest, technically flawless, efficient election — given the choices presented to the electorate would the result, in other words, the victory of every candidate who “should have” won, really have been substantially better, or even different?
That in a nutshell is an illustration of the same sort of unjustifiable elitism — unjustifiable, because this remains a democracy, for better or worse — that characterizes the prescription for specific alternative forms of government: The idea that the small minority “knows better.” The present state of the country is indeed strong evidence that, at the very least, the far greater majority is probably getting it all very wrong, but tyranny of the masses is an unavoidable aspect of democracy. And there are only two ways to deal with that: Either do away with democracy, or change the aspirations and beliefs of the tyrannical masses.
The reform advocacy would say that the latter is precisely what they are trying to achieve, and we can perhaps give them the benefit of the doubt as to their intentions. The results of any effort, however, are another matter. Two elections have resulted in archetypes of traditional Philippine politics, the latest worse than the first because the only possible outcome — election irregularities or not — was a further entrenchment of the “trapos”. Assuming (a big assumption with regard to the key people involved, but one we’ll make for the sake of a substantive assessment) the utmost effort to “gain the support of the masses” is being made, the reason for its failure is obvious. Much like the trapos the masses willingly send to office, the reform advocacy is asking the masses to take the outcomes of their choices on faith: “Do this, and things will be better.” Given the choice between the familiar — the singing, dancing politician who speaks to ethnic pride, and is always ready with a strategically-given bag of rice or financial help from the government till for a sick family member — and an unfamiliar concept that not only has no obvious tangible relevance to most peoples’ personal, short-term outlooks, but suggests to them they will be required to put forth intellectual effort in ways they have never done before, the familiar choice will always win.
In the past few months, the characterization of the Philippines by the rest of the world’s media has shifted from being a promising emerging economy to a country whose flashy new castle is built on a foundation of sand; for all the positive indications of a healthy stock market, growing GDP, and improving credit ratings, poverty, unemployment, and the income gap not only persist, but are increasing. Just this week, we learned that perhaps as many as four million families — 20 million people, according to the official definition of “average family” — regularly go hungry. These are immediate problems, for which there are more immediate solutions than the abstractions of casual political theory. The work that needs to be done now requires pragmatism, compromise, and a short-term focus. But if that work is done, and done correctly, the necessity — and more importantly, the national ambition — for remolding Philippine society in true first-world fashion will arise.
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