(Part 2)

How did the “Filipino First” mentality get embedded in the minds of so many of our leaders over the past 75 years since we gained political independence? One of the most detailed answers to this question was given by Dr. Vaughn Montes in his paper “Long Term Economic Transformation,” which was a chapter in the book of former Secretary of Finance and Founder of the University of Asia and the Pacific (UA&P) and Institute for Corporate Governance Dr. Jesus P. Estanislao.

Dr. Montes obtained his Ph.D. in economics at the Wharton School where he encountered the pivot in the mid-1970s from Keynesian macroeconomics towards monetarism, rational expectations, and supply-side economics. He did his doctoral dissertation on an econometric model of Philippine external debt, under the foremost Keynesian economist and Nobel laureate Professor Lawrence Klein, the guru of economic forecasting. He took courses under two other Nobel laureates: Robert Shiller (macroeconomics) and Oliver Williamson (institutional economics). He taught for a few years at the UA&P and then joined Citibank where for 25 years he complemented his academic background with very practical exposure to project finance and as Public Sector Head.

In his well-researched paper, Dr. Montes made it clear that the “Filipino First” mentality had its origins in very well meaning attempts to help the Philippines attain not only political but also economic independence from its former colonizer, the United States of America. Those who tried their best to free the Philippines from dependence on the American economy at the beginning of our political independence were true patriots. They had only the welfare of the Filipino people at heart. It was obvious that in 1946, when we obtained our independence, the scope of “relative economic independence” that was to accompany our political independence was not the end of Philippine dependence on the American economy but only its dependence on the US government.

After 1946, full economic independence from the US government did not happen immediately. During the post-war reconstruction period, US government expenditures (along with Japanese reparation payments) were major sources of funding and international reserves. The Bell Trade Act of 1946 gave preferential access to Philippine primary exports to the US market. It was not until 1955 when the Laurel Langley Act replaced the Bell Trade Act that the Philippines was allowed to change the exchange rate of P2 to $1 without the approval of the US President. This fixing of the exchange rate led to the retardation of the export-oriented manufacturing sector of the Philippines (in contrast with our neighboring “tiger economies”). It also encouraged an inward-looking industrialization strategy that caused much economic damage to the Philippine economy over the long run.

As a reaction to the lingering economic dependence of the Philippines on the US economy, those seeking true economic independence formulated the well-intentioned “Filipino First” policy. As Dr. Montes, however, pointed out, economic independence can be interpreted in many ways, including self-determination, autonomy, self-reliance, self-sufficiency on matters of economic policy, foreign markets, commodities, financing sources, etc. To avoid pursuing the wrong kind of independence, our leaders should have asked: 1.) Economic independence for what?; 2.) Economic independence from whom?: and, 3.) Economic self-sufficiency at all costs? (such as high prices and poor quality of consumer goods or lack of access to foreign technology).

Over the last 75 years, there has been more than enough evidence that the goal of food self-sufficiency (especially as regards rice) has resulted in high food prices and high poverty rates compared to other countries in the East Asian region. It has become clear that the government’s focus should have been on food security, not food self-sufficiency. The strategic objective of “relative economic independence” was motivated by the political circumstance of obtaining political independence. In the following decades, it morphed into a specific variant: the Filipino First policy.

It is paradoxical that the “Filipino First” policy can be traced back to the Commonwealth period under the Americans. It was benevolent in origin. US President William Howard Taft declared early during the American rule that “we hold the Philippines for the benefit of the Filipinos, and we are not entitled to pass a single act or to approve a single measure that has not that as its chief purpose.” For example, the nationalistic provisions for the ownership of land and public utilities in the 1935 Commonwealth Constitution can be arguably construed as having the same benevolent motivation to “reserve” strategic economic sectors for Filipino citizens until the granting of independence to the nation.

It was President Carlos Garcia who, in a State of the Nation Address, identified the Filipino First policy with economic independence when he declared “The Filipino First Policy is designed to regain economic independence. It is a national effort to the end that Filipinos obtain major and dominant participation in their own national economy.” This seed planted by President Garcia bore fruit in more modern times in the 1987 Philippine Constitution which was drafted by a body consisting of individuals the majority of whom were aged 50 years or above and, therefore, belonged to the generation literally brainwashed with the Filipino First mentality. I was among those 50 appointed by then President Corazon Aquino to draft the Constitution that was ratified by some 80% of Filipino voters in 1987. Unfortunately for the few of us who were in favor of a more open economy, even a good number of the younger Commissioners were affected by leftist anti-foreigner ideas. This explains why the Philippine Constitution of 1987 contains ultranationalistic economic provisions based on the following provisions:

Article II, Section 19: “The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.”

Article XII, Section 10: “…In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos.”

Unwittingly, the majority of those who drafted the Philippine Constitution of 1987 were guilty of contradicting themselves. On one hand, they provided that among the goals of the national economy are “…a sustained increases in the amount of goods and services produced by the nation for the benefit of the people; and expanding productivity as the key to raising the quality of life for all, especially the underprivileged.” The Filipino First policy constrains these goals since it restricts investment capital to fuel economic growth to whatever Filipino capitalists can raise, even on a 60-40 basis. This will be especially true during the post-pandemic efforts to recover and to grow at 6-7% or, even better, at 8-10% which China and India were able to more than achieve in the last century when they were at a stage of development similar to where we are now.

As our ASEAN neighbors like Vietnam, Malaysia, and Singapore realized long ago, foreign investors do not bring in only investment capital. They also provide their global network and access to world markets. They provide training and technology transfer which increase domestic productivity. Foreign investments directed at the domestic market benefit consumers in terms of competitive prices, higher quality of goods and services, and wider choices. Foreign investors, by bringing long-term investment capital, create much needed jobs that address our perennial problem of high unemployment and even higher underemployment rates. The Filipino First policy comes at very high economic and social costs to the Philippine population, especially the poor.

(To be continued.)

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

bernardo.villegas@uap.asia