Philippine Constitution Versus Economic Freedom

What is economic freedom and what makes it so important to the economic and social life of a nation? First of all, economic freedom does not mean anarchy, since most of its opponents equate it to the Libertarian anarchists’ political and economic agenda or ideal. In my own opinion, economic freedom simply means the freedom to survive. Every human being must survive to live, not the other way around, and economics is all about the study of human survival.

One of the loudest calls of free market advocates is “free the economy!” I’m glad that most Tea Party protesters, who call for limited government and the return to America’s founding principles, are picking it up. But why is there a need to unshackle the economy? Is it not supposed to be controlled and regulated since most, if not all, of the main players, namely, the businessmen, the investors, etc., are motivated by greed, as what the Occupy Wall Street hippies claim? At a time of excessive government intervention, protectionism and regulations, there’s a need to free the economy. But the main reason to deregulate and to decontrol is NOT purely economic; there’s a need to free the economy simply because survival requires freedom.

We have seen the result of Big Government or too much government regulation and intervention. The 2008 global economic crisis. The leftists and statists continue to claim that the economic downturn was caused by the free market system or too much freedom. Well, they can continue to evade reality, but they cannot escape the consequences of evading reality. Reality tells us that too much government intervention causes social and economic evils, such as higher unemployment, graft and corruption, violation or disregard of individual rights, social parasitism, culture of dependency, poverty, among others.

We’ve also seen the utter mediocrity of the enemies of freedom and capitalism. There are the leftists and/or statists who have been deeply trapped in their own delusion that the free market system caused and is causing economic crisis the world over, while there are some intellectually dishonest academics and pseudo-economists who claim that “there’s no such thing as a free market”.

But what’s this economic freedom?

Business Dictionary defines economic freedom as “The freedom to prosper within a country without intervention from a government or economic authority.”

Financial Advisory offers the following definition: “The freedom to produce, trade in, and consume any goods or services you choose.”

Eric Daniels wrote in Capitalism.Org the following definition:

Economic freedom is an application of political freedom. The most basic distinction at the heart of the concept of freedom is the distinction between voluntary action and compulsion or coercion. Where individuals can choose their thoughts and actions, where they are free from physical coercion, they are free. We operate from a negative definition of freedom–it means the absence of physical restraints that halt or forcibly redirect one’s thoughts or actions. In the economic realm, this means that economic freedom is the freedom to produce and trade goods and services according to one’s own judgment, unrestrained by the physical coercion or compulsion of others, including the government. One must be free to acquire, use, and dispose of private property. Individuals must be free to enter into voluntary contractual relationships. The root identification here is that no man has a moral right to stake a claim on the productive activity of another against his will.

Observe that most of the academic and periodical definitions of economic freedom usually pertain to economic matters and concerns like production, consumption, trade, business dealings, etc. Most of the available definitions focus more on economic matters. But what about about political freedom? Are economic freedom and political freedom at odds with each other? Or: are they mutually dependent?

Austrian economist Ludwig von Mises argued that political and economic freedom are mutually dependent. He wrote: “The idea that political freedom can be preserved in the absence of economic freedom, and vice versa, is an illusion. Political freedom is the corollary of economic freedom. It is no accident that the age of capitalism became also the age of government by the people.”

But there are certainly governments like Singapore that preserve a certain degree of economic freedom yet limit political freedom. Lee Kuan Yew is being regarded as Singapore’s economic reformer, but he’s notorious for limiting his people’s political freedom. The Singaporean government suppressed and continues to suppress free press, freedom of expression, and the right to criticize the government.

In the Philippines, while Filipinos still have the freedom to criticize anyone, including their own government, the country’s economy is being excessively regulated by laws and political/economic edicts. Foreign investors/businessmen are barred from owning/running economic ventures, lands and businesses without Filipino participation whereas Filipinos are allowed to own land and businesses in America and other countries.

Just imagine if America and the rest of the first world countries adopted the same protectionist policies in our Constitution. Just imagine if Filipino professionals were not allowed to practice their professions abroad.  I believe we’d end up sending more maids, gardeners, and manual laborers to rich countries.

Certainly, those geniuses who drafted the 1987 Constitution lacked the necessary imaginative skills, as we’re now one of the poorest countries on earth.

Ideas have consequences.

What we are today is the direct, logical consequence of the mediocrity and intellectual bankruptcy of those who engineered our society more than two decades ago.

The latest ranking of the 2011 Index of Economic Freedom is an indictment of what we have become since 1987. We’ve been ranked 115, behind Mali and Brazil, with the freedom score of 56.2, which means “mostly unfree”. The top ten freest economies of the world are Hong Kong, Singapore, Australia, New Zealand, Canada, Ireland, Denmark, United States, and Bahrain. Observe that these nations are the most successful in terms of economic gains and per capita income.

Here’s how 2011 Index of Economic Freedom measured the Philppines:

Business Freedom 43.4 -4.7

Potential entrepreneurs face severe challenges. The overall regulatory framework is burdensome, and the legal framework is ineffective, holding back more dynamic and broad-based expansion of the private sector.

Trade Freedom 77.8 no change

The Philippines’ weighted average tariff rate was 3.6 percent in 2007. Some high tariffs, import and export restrictions, quotas and tariff rate quotas, services market access barriers, import licensing requirements, restrictive and non-transparent standards, labeling and other regulations, domestic bias in government procurement, inconsistent and non-transparent customs valuation and administration, export subsidies, widespread corruption, and weak protection of intellectual property rights add to the cost of trade. Fifteen points were deducted from the Philippines’ trade freedom score to account for non-tariff barriers.

Fiscal Freedom 78.8 no change

The Philippines has relatively high tax rates. The top income tax rate is 32 percent. The top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a real property tax, and an inheritance tax. In the most recent year, overall tax revenue as a percentage of GDP was 14.1 percent.

Government Spending 91.0 -0.2

In the most recent year, total government expenditures, including consumption and transfer payments, held steady at 17.3 percent of GDP. Fiscal stimulus and restructuring of public enterprises have widened the fiscal deficit, which had almost reached balance in 2007.

Monetary Freedom 76.3 +3.6

Inflation has been moderate, averaging 4.7 percent between 2007 and 2009, and was holding steady in 2010. The government influences prices through state-owned enterprises and utilities and controls the prices of electricity distribution, water, telecommunications, and most transportation services. Price ceilings are usually imposed on basic commodities only in emergencies, and presidential authority to impose controls to check inflation or ease social tension is rarely exercised. Ten points were deducted from the Philippines’ monetary freedom score to account for measures that distort domestic prices.

Investment Freedom 40.0 no change

Foreign investment is restricted in several sectors of the economy. In many industries where foreign investment is allowed, the level of foreign ownership is capped. All foreign investments are screened and must be registered with the government. Regulatory inconsistency and lack of transparency, corruption, and inadequate infrastructure hinder investment. Dispute resolution can be cumbersome and complex, and enforcement of contracts is weak. Residents and non-residents may hold foreign exchange accounts. Payments, capital transactions, and transfers are subject to some restrictions, controls, quantitative limits, and authorizations. Foreign investors may lease but not own land.

Financial Freedom 50.0 no change

The Philippines’ small financial sector is dominated by banking. In general, the financial system welcomes foreign competition, and capital standards and oversight have improved. Consolidation has progressed, and non-performing loans have gradually declined. The banking sector is dominated by five large commercial banks. Two large state-owned banks account for about 15 percent of total assets. Credit is generally available at market terms, but banks are required to lend specified portions of their funds to preferred sectors. The non-bank financial sector remains small. Capital markets are centered on the Philippine Stock Exchange. The impact of the global financial crisis on banking has been relatively small because of the sector’s very limited exposure to distressed international financial institutions.

Property Rights 30.0 no change

Although the Philippines has procedures and systems for registering claims on property, including intellectual property and chattel/mortgages, delays and uncertainty associated with a cumbersome court system continue to concern investors. Questions regarding the general sanctity of contracts and the property rights they support have also clouded the investment climate. The judicial system is weak. Judges are nominally independent, but some are corrupt or have been appointed strictly for political reasons. Organized crime is a serious problem. Despite some progress, enforcement of intellectual property rights remains problematic.

Freedom From Corruption 24.0 +1.0

Corruption is perceived as pervasive. The Philippines ranks 139th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. A culture of corruption is long-standing. The government has worked to reinvigorate its anti-corruption drive, but these efforts have been inconsistent. Reforms have not improved public perception and are overshadowed by high-profile cases frequently reported in the Philippine media.

Labor Freedom 50.7 -1.2

The labor market remains structurally rigid, although existing labor regulations are not particularly burdensome. Many of the country’s skilled workers have migrated to other advanced economies.