Crossroads (Toward Philippine economic and social progress)
Philippine Star, 6 December 2017


Over an extended period that already spans decades in the country, there has been a slow acceptance of the need to adopt two constitutional amendments to correct defects in political governance and to improve economic performance.

These changes are likely to happen during the term of President Duterte, for he has publicly espoused the shift to a federal system of government and the removal or liberalization of the restrictive economic provisions on foreign capital.

Despite the early hype about the constitutional amendments, little has yet been accomplished by way of pushing them. They have been relegated to secondary priority in the order of things.

Lifting restrictive economic provisions on foreign capital. I am deeply convinced that liberalizing the economic provisions of the Constitution will positively impact our economic performance.

The sooner the government undertakes this specific amendment and depending on how the amendment helps to simplify in enabling formerly restricted foreign investments, this move would be a big winner for the country.

The liberalization of the provisions would mean a major increase in foreign direct investments into the country, scaling up greatly the growth of output, the quality of the output mix and the productivity in the economy. The impact on economic activity overall and on employment is large.

The economy’s international competitiveness will improve immensely if the right types of enterprises are encouraged and the entry of foreign investments helps to bring down the cost of energy, expand the services of public utilities, and help to ease transport and other capacity bottlenecks.

If there is any ranking in getting which amendment needs to be accelerated, the one with more immediate positive effects should take great precedence.

However, based on the apparent preferences of the legislators, they seem to be more enthusiastic about the amendment favoring the adoption of the federal system of government. This follows from the strong indorsement of President Duterte favoring the federal system.

Questions on the federal system. The adoption of the federal system, according to President Duterte, is integral to the institution of a Bangsamoro autonomous entity, which is the political solution to “correct historical injustices” in Mindanao.

However, he believes that such a solution would be politically possible for the nation only if other regions of the country are constituted within a federal system that includes the Bangsamoro entity.

The adoption of the federal system moves local governments toward almost absolute autonomy from the central (that is, the federal) government. Each state of the system will have defined powers that are likely to be very much more than is now enjoyed by the local governments today.

In the federal system, the national government will have control of the nation’s foreign affairs, national defense, and international commercial policy. Determining the boundaries of each type of political power, including those that deal with social and economic policy, including those on national taxation, will be a major issue of contention between the national government and the states.

There are of course useful models for the Philippine federal system to look for examples. Nevertheless, there are nuances and likely differences in the manner in which the final arrangements will be made.

As a nation of many islands, there are geographic problems that make it naturally difficult to group the state entities for their effective government administration. The proposals we hear for the states of the federal union seem to parody the current administrative regions of the country.

It would be a mistake to do this. Those regional administrative regions were designed for the regional administration of a unitary state. We must find a better principle to group the new states, along viable economic lines.

This subdivision of the country is likely to develop many underdeveloped and unviable states in the country. Too many states along this pattern will lead to the birth of economically dysfunctional entities that would depend on central government subsidies. That will weaken the national government’s capacity to succeed.

I have suggested the rule of contiguity of land mass as a good basis for breaking up the country into states. (See Crossroads, Aug. 16, 2016, Philippine Star.) This, to me, is the best way to divide up the regions of the country into competitive and viable economic entities.

The states would be Luzon, Visayas, and Mindanao, with the fourth being the Bangsamoro state in Mindanao. The last of these will require economic aid from the other independent states in its formative years.

However, because local leaders would want to enhance their political fortunes within the federal framework, they are favoring a system that allows more states to compose the nation. It will not be the more the merrier. It could in fact be the more the sorrier.

Experimental nature of the shift to federal structure. The proposed shift to a federal system is as much an experiment in the search for a system of government that is suitable to our needs as when, as a nation, we embarked upon the unitary presidential system of government at the dawn of independence.

In fact, the change in political structure reflects a profound change in the way the government does things. Suddenly, most of the powers of governing would be devolved almost fully to the locals.

An immediate requirement of this change is that the national government will undergo a dramatic degree of downsizing not only in its powers but possibly also in the taxing powers that it could rely on. The devolution of functions must not however create new barriers among states in the movements of goods and of commerce in services.

Thus, the nature of the downsizing of the functions of the central government would call for a new level of coordination (including the division of the revenue earning powers) between the national government and the new state (that is, local) governments.