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Constitutional Business
By Michael Alan Hamlin
September 20, 1999

South Korea will begin the next century — or end the current one depending on how you like to count — growing at about an eight percent clip. By the end of next year, South Korea will have recovered the ground lost as a result of Asia’s financial crisis. More importantly, from my perspective at least, South Korea will have demonstrated the profound impact of financial and corporate sector restructuring and economic liberalization on its celebrated and rapid recovery.

Yongwook Jun, a professor at Chung-Ang University in Seoul and an advisor to the Monitor Company — the consulting firm founded by Harvard competitiveness guru Michael E. Porter and a group of his former students — told me last week that South Korea has largely and successfully completed financial sector restructuring and reform, and that moves to split apart the large — and bankrupt — chaebols such as Daewoo and Hyundai is the challenge now.

Prof. Jun emphasized in our brief conversation the importance of foreign investment in recapitalizing the financial and corporate sectors to create conditions for a return to the dramatic growth rates that were a fixture of pre-crisis Asia. South Korea opened its stock market to foreign investment — and there are no A and B shares to separate the foreign devils from local investors — for instance, and now also permits foreign ownership of land. Once among Asia’s most protective and xenophobic nations, this change in perspective and practice is dramatic indeed.

Recent robust economic growth statistics here — such as the 13.2 percent jump in imports in July, which was accompanied by an even more impressive 14 percent jump in exports — have inspired the administration’s economic managers and the International Monetary Fund to revise projected growth estimates upward to around five percent for next year. When we consider that the economy was relatively stable during the crisis — at least compared to South Korea, Thailand, and Indonesia — along with this newfound confidence, we can’t help but wonder if it is necessary to further stimulate international investor interest by revising the constitution, as proposed by President Joseph Estrada. The revisions are intended to open strategic sectors to foreign investment and to permit land ownership.

The easy answer is "no" because the Philippines doesn’t have to dig itself out of the deep hole South Korea is in the process of climbing out of. But is that really the case? In truth, this is a pretty senseless debate, because the Philippine economy and the South Korean economy just don’t compare. For one, at least 80 percent of Filipinos are poor regardless of what official statistics say, while more than 80 percent of South Koreans are relatively well off, despite the crisis. Gross national product (GNP) per capita in the Philippines continues to hover around the US$1,200 level (By way of reasonable comparison, per capita GNP in Thailand is more than double: US$2,740.); in South Korea, it is over US$10,000. Now, which country is in the deepest hole?

I don’t have to tell you that comparison of other economic indicators will likewise clearly suggest that despite the good fortune we now expect for next year, the Philippines — compared to most of its neighbors — still requires resources — dramatic change and bright ideas — to provide the quantum leap into prosperity that will bring the nation perceptibly closer to the levels of prosperity much of the rest of the region already enjoys. It’s pretty certain that five percent growth won’t mean a lot to 80 percent of the population that is increasingly weary of being poor.

So is the price of increased foreign participation in the economy worth the benefits? If the results in South Korea are any indication, it seems so. And it is interesting that the traditional business sectors and nationalists — the same vocal critics of reform we see in the Philippines — provided the principal resistance to reform in South Korea, and in fact are still at it.

But it is not the logic of constitutional reform and increased foreign investor participation in the economy that is the real issue here, it seems. What is at issue is actually two things. First, can the Estrada administration be trusted to undertake responsible, fair reform? Second, those who stand, at least on the surface, to lose most from reform are economically and politically powerful traditional interests who understandably want to protect themselves.

The answer to the first question will be ultimately determined by the numbers, and the numbers are clearly on the side of the President. Yes, the majority of Filipinos probably do trust the President and believe him when he says that constitutional reform is for their benefit. The answer to the second question is slightly more complex, because there are among the traditional sectors businesses that although fearing the dissolution of their defacto nationalist monopolies, are preparing to embrace what seems to be inevitable change anyway. Then there are those that are sitting on their hands and who for whatever reason can’t or won’t adapt. Finally, there are the professionals, who on one side wonder if their jobs are at stake, and on the other relish the notion that increased investment probably means better salaries and greater prosperity.

Whatever the outcome of this national debate, the issues are serious, and of critical importance to the Philippines, its future, and its people. And they deserve serious, responsible debate.

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