(Second of two parts)

Given these reasons why the investment climate is quite poor, what are the solutions? Among these solutions are:

1. Open up the economy. Opening up the economy means removing restrictions on foreign investment that made the Philippines the third most restrictive country in the world. In particular, the Philippines should remove foreign ownership restrictions from the Constitution. There have been several attempts to change these restrictive economic arrangements in the past, but these have failed due to the efforts of monopolies and duopolies who fear competition.

Even a stopgap solution – the adoption of the Public Service Law to redefine public services so that only natural monopolies, limited to the distribution of electricity and water, sanitation, distribution oil, be considered a public service and subject to the 60/40 rule – faces an uphill battle in the Senate. Under the Civil Service Law, telecommunications and transport will be liberalized. However, the bill faces a difficult reception in the Senate, where powerful vested interests are trying to prevent liberalization.

The country is also expected to apply to become a member of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the regional free trade bloc led by Japan after the departure of the United States during the time of US President Donald Trump, because not only Membership in the CPTPP would mean free trade access to huge markets, but it would also force the country to treat foreign and domestic investors equally. Vietnam and Malaysia are already members. China and Taiwan recently filed an application. Membership in the CPTPP would mean access to the world’s largest market, especially if the United States, the original proponent of the Trans-Pacific Partnership, seeks to join it. Factories would seek to relocate to CPTPP member countries as this would give them access to a large market.

2. Amend the comprehensive land reform law. Our proposed law amendment to reverse the problem of land fragmentation and low agricultural productivity, has the following characteristics:

a. Increase the land retention limit from five hectares to 24 hectares. Twenty-four hectares is the old limit of the Constitutions of 1935 and 1973 for a family farm. The amendment will not pave the way for plantation-type agriculture, but for commercial family farms, which, according to a study by the University of Asia and the Pacific, can only be viable at this size.

The proposal does not contemplate plantation type agriculture, but rather more viable, sustainable and modern family farms with a maximum area of ​​24 hectares.

Exemption from the 24 hectare limit is only allowed on non-irrigated and unproductive land, subject to the approval of the Land Reform Department (DAR). The theory here is that if capital and technology can make these lands productive – as the Israelis have proven in their arid desert – why not let them do it but give the incentive to remove the land retention limit?

b. Convert all CLOAs (Certificate of Land Ownership Awards) to fee simple titles. All restrictions on securities, including to whom they can be sold, should be removed and abolished.

vs. Allow the beneficiaries of the agrarian reform to rent their land even if it is mortgaged. This will help promote land consolidation through rental.

D. Coverage should be good for only one year. Failure by the DAR to acquire the land within one year will result in termination of coverage. Perpetual cover without acquisition puts the ground in uncertainty. Landowners will not invest in their land to improve productivity if they are threatened with cover and dispossession.

3. Pursue win-win labor market reforms. Our proposal to address the labor rigidities that plague the Philippine labor market and hamper the manufacturing renaissance and our industrialization, consists of the following:

a. Establishment of Special Employment Zones – These zones may be established in areas of high unemployment. The main features of these special employment zones will be a suspension of the minimum wage and occupational safety regulations and allow flexible wage rates, although the usual social security legal protections, such as salary payments. social security, can be maintained.

In exchange for flexible wage rates, work organization rights can be strengthened. This could mean that all workers are members of a trade union, that is, of a “closed shop” policy. The idea is that workers can participate in increasing productivity and profits at the company level through collective bargaining. It is better than the compulsory wages at the national level.

b. Pass an apprenticeship law. The current apprenticeship law is flawed for the following reasons: first, it only applies to technical industries, and second, it is only valid for six months, not enough time for an employer to train someone and decides to hire him.

A strong apprenticeship program underpins Germany’s strength in manufacturing. It produces a skilled workforce that employers need.

vs. Amend the provisions on occupational safety in the Labor Code in exchange for the portability of pensions. The provisions of the Labor Code on occupational safety – a company must make newly hired employees ‘permanent’ after only six months is a major obstacle to employment and has given rise to the ENDO phenomenon – the increase in contract workers among whom the contract ends at six months, before they can be made permanent. In the Philippines, making an employee permanent makes it very difficult for employers to fire an employee even if the employee is unproductive. In addition, layoffs are subject to legal recourse up to the Supreme Court, which causes a lot of uncertainty and costs for the employer.

However, in exchange for liberalizing occupational safety regulations, the government can offer portability of pensions through work, which is currently absent from the Labor Code. Currently, when a worker resigns or is made redundant from a company, he cannot bring his seniority to the next employer. He is penalized for his mobility since the worker loses the retirement pension that he accumulates with the employer during his years of service.

Therefore, reform is a win-win solution. This would involve give and take on the part of the employee and the employer. In addition, these reforms will result in increased employment and increased labor productivity.

4. To deal with the problem of bad governance, the country must strengthen competition, dismantle monopolies by opening up the economy and making the economy more outward-looking. Undervaluing the currency – a strategy employed by export-oriented economies like China, Japan and Vietnam – could make the economy more outward-looking and, simultaneously, protect domestic industries.

If the economy is less dominated by monopolies and markets become more contestable without legal barriers for new entrants, foreign or domestic, the environment will shift from an environment where monopolies try to extract rents through political relations and corruption to an environment where fierce competition forces companies to focus on extracting value by satisfying the customer and innovating.

If the political economy turns into an economy dominated by the exporting class, the government will be forced to be more efficient in supporting exporters seeking to compete in the global market.

5. Promote the PPP (Public-Private Partnership) requested for infrastructure and services. The government must return to the requested PPP to provide more public goods and services, especially as the pandemic has strained the country’s public finances. Private capital must be mobilized to increase infrastructure spending and make public service delivery more efficient.

Private capital, unlike government bureaucracy, is motivated to complete infrastructure projects at cost and on time.

However, PPP projects must be solicited, that is, subject to competitive bidding and comply with the government plan. Unsolicited PPPs are highly prone to corruption and have disadvantageous terms for the government.

6. Strengthen property rights and deregulate. In the case of forestry, where a multitude of claims and rights lead to investment uncertainty, the concept of “bubble” can be applied. This means creating special forest economic zones, where the government, as the absolute owner of forest land according to sovereign doctrine, can guarantee the rights of investors. Since the problem of property rights in forestry is so important, accumulated over many years of bad policies and the issuance of many claims and rights, the idea is for the government to carve out special areas where rights can be guaranteed. The greater uncertainty for investors – whether they can reap what they plant – will be lifted.

Property rights can also be strengthened by establishing a forest cadastre, i.e. a centralized public register of all claims and rights to forests. At present, even the Ministry of the Environment and Natural Resources (DENR) does not know who has rights over what in the forests. A public register or cadastre, similar to the land register of transferable agricultural land, can help solve this problem. The rights can then also become bankable because these legal rights are registered, can be confirmed by third parties and are enforceable.

In short, to attract investment and generate jobs, the country must open the economy to foreign investment and face its constraining constraints: land fragmentation, labor rigidities, uncertain property rights and over-regulation, domination of monopolies in strategic industries, poor governance, and lack of public goods.

Only in this way can the economy generate investment, recover from the pandemic and achieve sustainable growth.

Calixto V. Chikiamco is a Business Process Contractor and Internet Entrepreneur, Book Author and Political Economy Writer. He is a property rights consultant for The Asia Foundation and is currently president and co-founder of the Foundation for Economic Freedom. He is a member of the board of directors of the Institute of Development and Econometric Analysis.

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