How to castrate a Constitution
This is either a freudian slip in his choice of the word castration, or probably a subliminal inclination which he cannot stop his id from manifesting, but it does make you think how can a constitution be castrated when it does not have balls to begin with?
At any rate, let’s leave MLQ3 to deal with his gender confusion demons and focus on the subject to the amendments to the Public Service Act of 1936.
This law is eighty-six years old. It has not been amended since it was first passed and is an extension of the ownership provision in the 1935 Constitution, which was basically the Commonwealth Constitution as it was passed during the American period.
Due to the persistent pestering of Manuel Quezon, MLQ3’s paternal grandfather, the Americans decided that the Philippines was better off operating as a Commonwealth instead of an outright colony giving it a semblance of “independent democracy.” Never mind that like the British colonial system, there was a resident American High Commissioner, who replaced the Governor-General, to keep watch over the natives and protect American interests. Prior to the grant of independence, the Americans made sure that they would still hold the ace in the hole with the amendment of the Constitution to allow parity rights for Americans which gave them the same rights as Filipino citizens in the conduct of business in the country.
This was necessary as most public utilities in the country or colony, were American owned or controlled. The absence of parity rights would require that the Americans sell to Filipinos in order to comply with the provisions of the Public Service Act and the Americans were not willing to do the same. Hence, the law was amended for their convenience. Manuel Roxas, the first President of the Republic, did the American’s bidding as he was MacArthur’s fair-haired boy.
Filipinos are not aware that this is one of the root causes why we have not been as progressive as our neighbors in the region. The parity rights effectively gave the Americans priority in “foreign direct investment.” The other problem was, the infrastructure destroyed during the war was not rebuilt. Independence was America’s way of avoiding the necessity of rebuilding what was destroyed. But even in the matter of war reparations from Japan, it was also America which decided how much was paid by Japan to the Philippines. The total claim was $8B. The Japanese were only made to pay $800M under the Treaty of San Francisco of 1957 which effectively ended the Pacific War.
Long story short, we got screwed by America big-time. It was because of the Philippines being an American colony that we became a target for Japan and the Americans dumped us at the most inopportune time by retaining control over the politics and economy of the newly “independent” country through their oligarch proxies. They also got to keep their bases in the country which they need to fight the latest geopolitical threat of that time which was communism.
The truth of the matter is it will take generations to dismantle the oligarchy. Only a revolution would facilitate the process but as we have seen with the “Edsa Revolution,” it was a revolving door; Marcos put a stop to the Old Society of oligarchs and put in a New Society with his own oligarchs with them being accountable to him.
The performance of the Marcos cronies were mixed. Danding Cojuangco excelled because he was both a businessman and a politician and understood how to use the levers of power. But what generally caused the economy to fail during the Marcos regime was the global economic climate which had the US experiencing an extended period of stagflation from the early 70s to the late 80s. In fact, the US economy only recovered during the Reagan years and boomed during the Clinton Presidency with the advent of the internet economy.
The post-Marcos administrations followed US neoliberal dictates beginning with the Ramos administration which coincided with the Democratic Presidency of Bill Clinton. But there was no question that the Marcos cronies who managed to survive the purge of the Cory administration were back in business along with the new cronies produced by the transition from Marcos to Cory. Businessmen who went out on a limb in their support of Cory were paid back handsomely and thus began the dismantling of both the good and the bad programs Marcos put in place. Privatization was the operative word from the Cory to the GMA administrations.
This is how we ended up with the second highest power rates in the region and why despite the water distribution being privatized through concession agreements, not all of the National Capital Region has access to potable water supply, particularly those under the Maynilad controlled West zone. This is also why we now have toll roads instead of the more practical mass transit system. Most of the toll road contracts were awarded under the PPP of the Aquino administration. The Duterte administration focused on rebuilding the rail network which was left to deteriorate by the post-Marcos administrations when the Philippine National Railways had been operating both the north and south Luzon lines from Baguio to Legazpi augmented by a bus service for the final leg.
But as Gerardo Sicat details in his paper at the UP School of Economics, The Economic Legacy of Marcos, the underpinnings for why the Philippines has never been able to equal the economic progress of our regional neighbors run deep. Marcos could have omitted the restrictive ownership provision in the 1973 Constitution but did not. The same is true with genuine land reform. Sicat gives probable reasons why but it may just be that Marcos himself still wanted to preserve the status quo, up to an extent, instead of following in the footsteps of Singapore, Malaysia and Thailand.
The political crisis of 1983 (Ninoy Aquino’s assassination) transformed a lingering but worsening debt problem into an economic crisis. Industrial collapse would inevitably follow as continued debt servicing would stop. With a drop in export earnings and political fundamentals becoming uncertain, the financing of credit needs would no longer flow. As the economic situation became worse, the government had to adopt defensive economic measures to stave off further economic collapse. Many reforms being undertaken went off track and some were in fact reversed by the drying up of credit. This is a risk in crises times: past achievements could be reversed or damaged. Crisis management took over and survival issues took over the main agenda as development concerns were driven off to the sidelines. When times were normal, the amount of debt that the country had held was within target of the servicing burden of the economy. But that situation was balanced against the maintenance of favorable expectations. For much of the previous decade of strong development, despite the turbulent economic period, those positive expectations continued. The investments would raise productivity and they would make possible the growth of output that would sustain macroeconomic balance. As the succession issue became more problematic because of Marcos’s failure to deal with it properly, those favorable expectations became questionable. Then the political and economic crises brought an end to them since they shattered the international credibility of the Marcos government. Credit lines that would have continued to fuel the economy were cut off. Expectations reversed and economic conditions spiraled downwards. The economy would unravel, leaving major projects unfunded in midstream. These developments further induced an outflow of capital. Marcos’s hold on political power would weaken and eventually lead to his fall. No economy could ever be fully sheltered from major crises such as the one that befell the government at the time. Over the years, the one thing that had weakened the economy’s fundamentals was the inadequacy of capital that would finance the development of industries at home. The development process is fueled by both domestic and foreign capital. Yet, over time, since independence in 1946, with the exception of the strong flows of American capital from war damage and military spending, Philippine development was mainly spurred by capital arising from the domestic economy. The flow of foreign capital to assist Philippine development had been relatively small – especially in comparison with other East Asian countries. After the war despite destruction, foreign capital was in abundance in relative terms. The presence of American investments was quickly enhanced by the war damage payments compensation for destroyed capital that was officially recognized under that law. These included payments to American capital as well. The parity amendments allowed American citizens the option of retaining their investments in the country and did not create the panic of divestment. Because the parity amendment applied only to Americans, other foreign capital felt discriminated against. Substantial American investments also continued, at least to retain their early presence in the Philippine market. Under parity rights, this included even those in the restricted sectors – mining, natural resources exploitation, and public utilities. In fact, new investments in import‐substituting industries continued to come. The restrictive economic provisions in the 1935 Constitution created some lasting impacts on economic policy making. First, they helped to define the basic tenor of economic policy. Although these provisions were limited only to three specific sectors of the economy, they nevertheless provided the main virus that influenced further economic restrictions that were applied to other sectors. Thus, during these early decades of independence, restrictions limiting the participation of foreign capital spilled over to other economic activities: retail trade nationalization; banking and finance; the allocation of foreign exchange and of imports; and in the investment incentives law. Despite the efforts to reform these restrictive laws and regulations, the entrenched nature of the interests benefiting from these policies made it very difficult to reform these laws. This is why the economic provisions of the constitution of 1935 have survived the 1973 revision and even became wider under the 1987 constitution. Second, the constitutional restrictions on foreign capital in special sectors had a pernicious effect on the exercise of presidential political power. Before independence, the power to approve the dispensation of privileges related to the exploitation of natural resources belonged to the American governor general who was under the supervision of the US president (through the US Department of Interior). In turn, these officials were supervised by ultimate oversight that the US president and the US Congress exercised over colonial affairs. Political independence (for good reason) broke that established history of institutional control. The president inherited these powers, even though the Congress had ultimate power. The old traditions of approvals and practices inherited by the relevant bureaus of the government having supervision over these issues from colonial times had since vanished.32 The disruption created by the harsh war years of occupation erased quickly the institutional memory that was still in place.
The Constitutional provisions provided the protective wall against foreign capital. With independence and the abrupt historical break provided by the war years prior to independence, the president inherited the huge powers related to the disposition of public lands and natural resources for the country’s exploitation. Public lands covered those for grazing and for agricultural purposes while natural resources covered those for forestry, for fishing rights, and for the exploration and exploitation of mineral wealth. If the constitution had allowed foreigners to participate more fully in these activities, the chance that national legislation would have focused on defining restrictions on the exercise of these rights by foreigners would have become a matter of early public duty. Because of the specific restrictions in the constitution on foreign capital participation, it became customary that the exercise of these rights were granted only to Filipino citizens (and to some extent, to American citizens under the parity rights – but only for a limited time). For those Filipino recipients of these rights, the problem of moral hazard existed. Because of the privileges conferred by the constitution, it was easier to skirt the obligations implied by the grant of exploitation rights only to citizens. For how could one explain, for example, the rapid denudation of the country’s forest cover in areas where forestry concessions had been granted to concessionaires during the early decades of independence? These were given mainly to Filipino individuals and corporations that had access to presidential favors. Each president of the young republic learned the power of the presidency through the exercise of the award process involved in these rights. The presidential prerogative to approve contracts for the state gave that office enormous clout to raise funds for political and other purposes. Because the awards were mainly to Filipino citizens, the power of the presidency to make major awards to cronies, to business contacts, to special relations, and to political allies was a monopoly of power that only the president could exercise. These types of accommodations were not fully accounted for because presidential approvals were not listed in public gazettes that gave full details of who got what and in what specifics in the various important bureaus of the government – the Bureau of Lands, the Bureau of Mines, and the Bureau of Forestry, for instance. The granting of small forestry concessions began to make a mark in the economic statistics of the country in terms of the growth of log exports, for instance, and these began from the early 1950s. The growth of the domestic economy also led to the dispensing of large tracts of open lands for farming, grazing and the like and shore lines for fisheries rights. Thus, crony capitalism and other dispensations of power related to the public wealth was not a practice that could be mainly associated with Marcos. It was a syndrome that could be traced to all the presidents. It might have become more patently obvious in the case of Marcos because of his long rule and the absolute power that he exercised under martial rule. And it would be a grand story when these practices were all fully accounted for. The records of public offices however are not well organized because record keeping has not been a well‐developed art in the new republic. A third development arising from these confluence of forces was the unintended alliance in the economic front of those opposed to economic reforms because of their vested interests and those others for purely ideological reasons. The oligarchic and monopolistic interests that benefited from the protective system of industrialization and those benefiting from various awards arising from the use of resources in the sectors in which foreign capital was restricted opposed these reforms for obvious reasons. The ideological critics are a mixed assortment of reformists of different persuasions. Some have been allies of convenience for as long as it has been useful. These include the ideologues of various movements – “nationalists,” “progressives,” communists, etc. In the past, some of these critics were in the underground while others remained in the open. Today, most of them are in the mainstream and belong to various political opposition forces. This alliance of convenience provides a heavy force of resistance to reforms. The rich and powerful oligarchs and businesses have control of the public media and other public forums, including various outlets for opinion. They also have the resources to lobby Congress. Moreover, many members of the Congress come from these sectors. They have control and influence over the press in many ways – through ownership, advertising money, and direct lobby activities. They have the means to create noise against reform. Finally, the impact of these provisions on the financial structure of the many companies that derived the benefits from the industrial protection system has to be emphasized. These are companies that became highly indebted because they essentially lacked the capital to finance their operations. Initially, credit access to government financing was used to counterpart whatever equity they could contribute to build their enterprises. They also mainly depended on the profits that the protection system enabled them to amass to pay off their debts. The demand for domestic capital finance to back these industries often turned toward the resources made possible by the government financial institutions. The requirements of capital investments which often meant foreign exchange resources for the purchase of imported machinery and raw material inputs led to a demand for foreign borrowing. The government financial institutions – principally the Development Bank of the Philippines and the Philippine National Bank – borrowed from the world’s capital market to finance these requirements of domestic private enterprises for their requirements of capital and raw materials inputs. Even if the protective system often enabled these enterprises to generate initial profits partly to finance these investments, a major component was dependence on borrowed capital from external sources – from supplier credits, from external financial institutions, and from other foreign private investors providing minimal equity capital. The same provisions of the constitution made it difficult to promote industries that were more competitive in the international market by reason of being natural resource‐based. These included plantation crops for commercial exports, tree plantations, agricultural export crops, nickel, copper, and steel making. These were major projects that the government could abundantly promote in which foreign capital would be involved. But 40 percent maximum equity participation made it difficult to find the right foreign partners although there were many Filipino businessmen – depending on their access to favor from the presidency, access to domestic finance, and other kinds of incentives – who were willing appointees for the privilege. Many projects that the government got involved in were therefore highly dependent on debt capital, poorly backed up by equity capital, and had no direct technological anchor on which to build their industries. As a result, many of the attempts in these fields became difficult to pursue toward success. The large industrial projects – the so‐called ten large industrial projects – were themselves inhibited from seeking large participation of foreign equity capital by virtue of these restrictions.
At every step, the industries became dependent on government support for financing and protection from competition. If the constitution had instead allowed Congress to legislate the restrictive policies, adjustments in those provisions would have happened sooner as mistakes of policy were discovered. The participation of foreign capital would have been liberalized a long time ago, allowing the Philippine economy to proceed along a path of less economic distress and more efficiency. It would have created a more prosperous climate with its attendant benefits in terms of expanded output, employment, and trade potentials. As it turned out, many of these ventures suffered and helped to bring down the nation’s macroeconomic fundamentals. This is one reason why, in assessing today’s economic problems, the removal of the restrictive provisions on foreign capital in the country’s political constitution requires the serious attention of economic reformers in the country. The larger presence of foreign capital today in the domestic economy has made it more resilient because enterprises are better capitalized. In the past, a lot of investments in the industrial field – for instance those that dealt with electricity generation – were categorized as belonging to public utilities. When by specific recognition, the government made it clear in trying to solve the electricity power shortage through law that electricity generation was not a public utility per se, the country was able to bring in enormous foreign capital in that sector.
As you will note, Sicat, despite his being a member of the Marcos Cabinet, delivers an objective assessment on the issue of foreign direct investment, in relation to the restrictive provisions of the 1935, 1973 and 1987 Constitutions. Even Marcos, who ruled with decree-making powers, did not dismantle these provisions during his time when it could have proven to be beneficial by not relying on borrowings alone.
What MLQ3 does not tell the public is how the ownership restrictions have already been circumvented in the well-documented case of the telecommunications companies, in particular, PLDT and Globe Telecom, with the ownership stakes of the Salim Group and Singapore Telecoms, exceeding those allowed by the Constitution through corporate sleight of hand. This has been exposed by former Ambassador Rigoberto Tiglao, in several of his columns.
With regard to state-owned investment companies such as Temasek of Singapore, it is well-known that the latter owns and controls Singapore Telecoms, as is the case with most vital industries in Singapore, including the port and airport authority’s.
For all intents and purposes, the malfeasance which MLQ3 claims, has largely been existent even before the amendments to the Public Service Act. But as this is the campaign season and there is a Marcos gunning for the Presidency, it is simply convenient to bring this up again in order to scare the voters into submission and hope that they vote for Leni Robredo instead. The opposition has long used the Marcos’ as their punching bag but as the Sicat paper proves, cronyism as a practice did not begin with the Marcos’ and as recent history tells us, did not end with Cory Aquino.
We face serious challenges with economic recovery in light of the disruption caused by the pandemic. The government cannot afford to borrow and subsidize capital formation. It has to come from foreign investors. But even with the amendments to the Public Service Act and the improvements in infrastructure under BBB, foreigners will still be wary because of the red tape and the corruption in the bureaucracy and the top echelons of government.
The truth is all of these have been going on before Marcos won the Presidency in 1965 and after Marcos was ousted in 1986. It is not exclusive to Marcos as the opposition would like the public to think. The truth is without structural reforms, we will never be able to achieve the level of economic progress that our ASEAN neighbors have reached. We are not as competitive as they are in attracting investors due to the incestuous nature of politics and business in the country. There are those who would be willing to take the risk but do not expect foreign investors to be lining up at the SEC. The destinations of choice are still Vietnam, Indonesia, Malaysia and Thailand.
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