Game-changing reform

Philippine Daily Inquirer 1:37 AM | Tuesday, May 26th, 2015

ONE OF my most interesting experiences as a former policymaker in government involved a prominent industrialist who stormed into my office in my early days as socioeconomic planning secretary under President Fidel V. Ramos. The Ramos development strategy (dubbed “Philippines 2000”) hinged on the twin themes of international competitiveness and people empowerment; and the pursuit of the former entailed simplification and progressive reduction of our import tariffs. This industrialist, pointing a stern finger to my face, menacingly accused me of trying to kill his firm and many others with the economic liberalization the Ramos administration was pursuing.

I would have forgotten that incident as just another one of the occupational hazards of a policy reformer, if not for another incident a few years later. In a forum with President Ramos toward the end of his term, that same industrialist proudly informed the president that he was already exporting his products to as far as Latin America, whereas he had traditionally only been selling his products domestically. I almost couldn’t believe that this same man who had earlier accused me of trying to kill his company with the government’s liberalization policies was now actually thanking President Ramos for it!

Fast forward to May 2015. The Philippine Fair Competition Act (House Bill No. 5286) passed the House of Representatives on third and final reading last week, taking well over two decades to get this far—dating back to President Cory Aquino and the Eighth Congress, in fact. The Senate had already passed its own competition bill (Senate Bill No. 2282) last December, and all that’s left to turn the measure into law is to reconcile the House and Senate versions in a bicameral conference committee, hopefully to begin work this week.

Not surprisingly, traditional opponents of the measure, not necessarily with the greatest good for the greatest number at heart, will still try to stop the law even at this eleventh hour, or failing that, find ways to water it down and render it ineffective. I had debunked feeble arguments being raised against the measure some months back (“Competition law: what it’s not,” Opinion, 10/7/14), but it seems these arguments just won’t go away. Foremost perhaps is the emotionally appealing scare tactic that says the law will break up large Filipino enterprises and pave the way for foreign firms to lord it over our economy. Along with it is the argument that we need to let large Filipino firms get even larger and become internationally competitive (yes), and it may take stifling competition in order for that to happen (emphatic no!). And then there’s the one that says our own domestic market is too small to support more than one or a few firms that need economies of scale to be able to operate at lower costs and offer lower prices.

The last is easiest to dispense with. With 100 million consumers, we are the 12th most populous country in the world, with an average income that classifies us as a middle-income country—by no means a small market by global standards. And for at least three decades now, we have shown that there is ample room for competition even in sectors usually considered natural monopolies, such as telecommunications and electric power services. Indeed, the Ramos-era reforms demonstrated this.

The Quezon sentiment “I would rather have our country ruled like hell by Filipinos than one ruled like heaven by foreigners” may hold some appeal for xenophobic nationalists. But that is not even applicable here, as the proposed law makes no distinction between domestic- and foreign-owned businesses, much less favor the latter. Under the competition law, whether in the one pending in our Congress or as prevailing in many countries abroad, the same rules on fairness apply to all firms, foreign or domestic alike. In fact, it’s the competition law that would precisely stop a foreign firm from taking control of the domestic market. And nowhere in the proposed competition law is there any intent to break up existing large, dominant businesses. It in fact recognizes that being large or even dominant is not bad in itself; rather, it is the abuse of dominance to “unreasonably and substantially prevent or restrict competition” that the law will stop.

I would certainly applaud a firm that has grown and achieved dominance in a fair arena through legitimate business acumen and skillful management. I frown, however, on those that attained dominance through predatory tactics to kill smaller competitors, or other unethical rent-seeking behavior. But even for such firms, the proposed law can no longer change that.

It is indeed desirable to have our own large Filipino companies join the ranks of large, globally known businesses doing business across borders. We have a good number of those, in fact: San Miguel, Jollibee, Oishi, ICTSI and SGV, to name a few. But the story of that reformed industrialist who initially resisted, and later embraced, the Ramos liberalization reforms tells us that the way to strengthen Filipino transnationals is not to shield them from competition but to expose them to it. It took the game-changing reforms of the Cory Aquino and Ramos eras to build the foundations of the resilient economy we now have. The competition law is one that vested interests have managed to hold back for too long, at the expense of a more inclusive economy.

One can tell that a policy reform will be truly significant and game-changing when resistance to it can be so stiff and so persistent. But the 16th Congress is now poised to prove that it is capable of enacting game-changing reforms for the inclusive growth that has long eluded us.

Source: http://opinion.inquirer.net/85214/game-changing-reform