Friday, January 06, 2006

The national patrimony and foreigners: the fear factor

The Philippines is undergoing a process of Charter change. A Constitutional Commission was convened and their proposed revisions have been submitted to the President. Many changes are suggested, including federalization, and a shift to a unicameral parliament. Here I will limit myself with the repeal of current Constitutional limits on foreign ownership of natural resources

Objectors claim that evil foreign corporations will exhaust the mineral and other resurces of the country for profit, and leave the country poorer than ever.

Let's think about this: Suppose a local company does the extraction for profit. Would it be any better? Profiteering is profiteering - you need government to make sure that the private company does not abuse its privilege, foreign or local.

But I suppose what the naysayers really object to is any private company exploiting our natural resources. Foreign companies are just better at it, ratcheting up the fear factor. So they would rather have government get all the minerals and stuff out. Better, isn't it, cause then that's all revenues for the public welfare?

Really, some people need to go down from their left-leaving ivory tower, and get dirty in the real world. Plenty of investments up front are needed to get to all that precious stuff. One can easily make a mistake and dig up a dud. All that investment - using taxpayers money, if the government were to do it. Experience has shown that government is very very good at spending taxpayer's money, but very very bad at getting good returns from it.

So you're back to the private company. Now remember - the private company does not have the initial right to the resource - the State does. So the State strikes a deal with the company - give me your exploitation expertise, and here's a share for you as a payment for your investment and risk-taking. The exact terms and conditions will depend on a particular negotiation. So whether it's a foreign or local company the government is bargaining with, if it ends up with a bad deal, it only has itself to blame.

Nice thing about allowing foreigners is that the locals will have plenty of competition. Locals who would only offer a 70-30 sharing may have to soften up if an efficient foreign company comes around and offers 60-40.

The repeal makes perfect sense, whatever our gut reaction to foreigners "owning" the "national patrimony." As with the show, overcoming our gut reaction is necessary to win the prize.

(Download the Concom Report from this site).


Amadeo said...

Was up recently in Lutupan, Cebu, to visit the now defunct Atlas Copper Mining, then a leading world exporter of copper. The wife wanted to revisit the place her late American grandfather worked for many years.

It had ceased operations in the 90s.

A staff of about 200 handles the usual housekeeping chores, essentially to secure and maintain the huge complex.

When asked about the wanton state of disrepair of the structures and the surrounding areas, This was the typical comment (translated from the dialect):

"When the Americans left, things got handled very differently. Many things got neglected until the company had to close."

Would the continued presence of the "foreigners" have assured the continued operations of the mine?

Lutupan, the town "built" by the mine, has found over time many of its laid-off mine personnel leave for greener pastures. And the others, those with property, stayed on and continue to wait for the re-opening.

Last I heard, negotiations are underway with
prospective "foreign" partners.

If the naysayers are loud enough maybe negotiations such as these could be adversely impacted.

Naybe some basic lessons in Economics may do them some good.

Or what the heck, they already have their mental blinders on and their minds already cast in stone.

National patrimony or bust!

Econblogger said...

That complex is an interesting story. Why did the Americans leave? And who took over?

We'll never know what the foreigners would have done for that operation. What is certain is the national restriction severely constrained the set of possible investors. What a pity.

As the nationalists would say: BUST!

jhay said...

there is nothing wrong with the current constitutional provisions on the economy and national patrimony, protectionist they may be, but they are protecting no one else but the Filipino people, even the US has drawn flack in the WTO due to their protectionist policies and huge agricultural subisidies.

the logic behind the scrapping of these nationalist provision in the economy is because it goes against globalization currently pursued by the foreigners and the past administrations from Ramos to GMA.

cvj said...

i place myself on the left in a lot of matters, but i believe that
when it comes to foreign ownership, it does not make sense to maintain the current restrictions.

in lifting the masses out of poverty, we have to choose the right battles. keeping foreign investors or multinationals out limits the field to local businessmen (a lot of them government cronies) which in turn constrains the employment choices of the labor pool. for example, in the retail sector, it is better for a prospective saleslady to have a choice between walmart and sm.

Econblogger said...


Thanks for leaving a comment. I do not understand how those ownership restrictions "protect" the economy at large. As I understand it, what they do protect is a coterie of wealthy local capitalists. They may be Filipino, but the rest of us get short shrift.

Amadeo said...

A good empirical case study would be what the government is trying to do in Diwalwal, Davao. If anybody has info access better than what Philippine media have bothered to delve into.

There is where the government, and by extension, the entire Filipino people, not only has a veritable but actual "gold mine" to service its development programs.

Seen the price of gold lately?