ALTHOUGH there are many reasons cited on why the Philippine economy has not developed as hoped, there is one that experts have identified as the root cause: economic protectionism.
This restriction is rooted in the country’s historical and socioeconomic context, aiming to protect national interests and promote economic self-reliance.
Historical background
The origin of economic protectionism can be traced back to the American colonial period when the Philippines began enacting laws to limit foreign control over its natural resources and key industries. These were influenced by nationalist sentiments and a desire for economic sovereignty.
It was not until the 1935 Constitution that economic protectionism was formally codified. It is known colloquially as the “60/40” rule, which limits foreign ownership in certain industries and economic activities to a maximum of 40 percent with the remaining 60 percent reserved for Filipino citizens or corporations controlled by Filipinos.
This reflected the nationalist aspirations of the time, aiming to protect Filipino interests from excessive foreign influence, particularly in land ownership and natural resources.
During the administration of then-President Ferdinand Marcos Sr., the 60/40 restriction was retained under the 1973 Constitution, and the application of these provisions were applied to other sectors such as public utilities and natural resources. This was part of the government’s efforts to promote self-reliance and protect strategic industries.
Following the EDSA Revolution, the 1987 Constitution was ratified. This continued and further strengthened the 60/40 rule. Articles XII (National Economy and Patrimony) and XVI (General Provisions) explicitly outline restrictions on foreign ownership in land, natural resources, public utilities, educational institutions, mass media and advertising.
Rationale
The reason why the Philippines has adopted a protectionist economic policy is attributed to nationalism to ensure Filipinos maintain control over critical sectors of the economy. In addition, it aims to prioritize Filipino businesses and entrepreneurs to foster economic growth on the domestic front.
Has it helped?
After decades of being effect, the protectionist economic policy has been pointed out by critics to have not gone as intended.
The policy deters foreign investors from entering the Philippine market, particularly in sectors such as public utilities, and it has hindered the country’s competitiveness in the global economy. This, in turn, has spawned many adverse effects.
One negative effect is insufficient job opportunities. Despite having many local companies — most especially micro small and medium enterprises — there are not enough job openings. With numerous jobseekers, companies have to impose more restrictive qualifications such as educational attainment and/or age limits that leave many unemployed. Although there are some foreign companies that have set up shop in the Philippines, the job opportunities in the country are, arguably, limited. Another reason is that it is not easy to do business with the red tape foreign businesses have to go through that they consider an inconvenience.
These companies are usually located within metropolitan cities such as Metro Manila and Cebu and could spill over to neighboring provinces. Since they are concentrated here in the National Capital Region, those living in other regions and provinces have to relocate to the urban capitals, which add to the congestion and cause traffic.
Challenges are also seen in employee compensation. Wages and salaries are very low. With fewer to no competition, companies can dictate compensation rates. This will also lead to low quality products produced and services offered.
As a result, households are struggling and many are compelled to get an extra job to augment their income or seek employment abroad, giving rise to overseas Filipino workers (OFWs), who find jobs abroad that offer more opportunities and that pay better than what would be found in the Philippines. It also happens that the money remitted back to the Philippines keeps the economy afloat though some experts say this is not enough while other pundits fear the consequences of the country being overly dependent on OFW remittances.
But the OFW phenomenon is not without its adverse consequences. The separation of families has led to their breakdown as the parents are not there to guide their children. Long separation of spouses has led to infidelity or adultery, which lead to the subsequent breakup of families.
Solutions
Despite efforts to bring in more foreign investors, analysts have observed that many are not too willing to set up shop in the Philippines because of the 60/40 rule. Because of the limits imposed, this may potentially increase costs of foreign investors as well as other compliance hurdles.
The administrations of Presidents Rodrigo Duterte and Ferdinand Marcos, Jr. have seen laws passed that seek to bring in more foreign investments such as the Public Services Act, Foreign Investments Act and Retail Trade Liberalization Act as well as subsequent amendments to these laws.
The latter administration has also launched green lanes for strategic investments. These would allow foreign companies to fully own their businesses and the green lanes to make it easier for strategic and priority investments to come in by cutting lengthy red tape and avoiding unnecessary delays in processing regulatory permits and licenses.
Experts assert that addressing the root cause ― eliminating the 60/40 rule in the constitution ― would fix the country’s economic woes.
This aims to encourage competition. While it is true that foreign companies offer better job opportunities and competition, this should pressure local companies to step up and this would mean subscribing to international standards followed by the former. These foreign companies are encouraged to set up their businesses in the various regions of the country instead of confining themselves to Metro Manila and Cebu. By setting up businesses here, locals need not relocate or even encourage those in the cities to move back as the jobs are now there. This would also bring back OFWs who can get the same jobs they had abroad. This would also reduce the brain drain.
Perhaps, this will also lead to the creation of newer businesses or start-ups from those who worked at these foreign companies and who, by now,will have acquired sufficient training and skills to go on their own. They, in turn, can help create more jobs and provide better products and services, as they are likely to adhere to international standards.
In the long run, this will lead to the improvement of the standards of living among Filipinos, and while it will not guarantee they will become tycoons, it will be, hopefully, enough to lift them above the poverty line.