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A House Without Borders: The Implications of Neoliberalization To The State Sovereignty of The Philippines
A House Without Borders: The Implications of Neoliberalization To The State Sovereignty of The Philippines
A House Without Borders: The Implications of Neoliberalization To The State Sovereignty of The Philippines
Hilvano
I. INTRODUCTION
In this contemporary global economy, it is hoped that this study will contribute to a deeper
understanding of the relationship between neoliberalization and the political autonomy of the
state. The purpose of this research is to determine and analyze the implications of economic and
political globalization for state sovereignty in the Philippines. The paper argues that
neoliberalization also has an impact on the autonomy of the Philippines, especially on its
territorial integrity, political independence, and economic policies.
The concepts of territorial integrity and political independence make up two key dimensions of
state sovereignty that have historically been entwined with the core idea of limiting the threat or
use of force and are widely acknowledged as international law principles. The concept of
territorial integrity refers to the physical and human resources that make up the state's territory
(land, sea, and airspace), which are defined by the state's borders and boundaries. Political
independence refers to the freedom of political decision-making and the direction of state organs
regarding a state's internal and external affairs (Rozakis, 2014).
Neoliberalization
It should be noted here that I use the term ‘neoliberalization’ in which it is not just an economic
model or philosophy (neoliberalism), but as an act or process in which less government
intervention, system of competition, privatization of state enterprises, and promotion of foreign
direct investment is applied.
State Sovereignty
As mentioned in Ballotpedia (2023), state sovereignty is a term that refers to the “legal authority
and responsibility of an independent state to govern and regulate its political affairs without
foreign interference.” In other words, state sovereignty is the ability of the state to have complete
authority over their domestic policies, may it be economically or politically.
The Peace of Westphalia of 1648, which formally established the central principle of statehood
or the exclusive control of a government over its territory has been contested in theory and
practice, particularly with the advent of what we now refer to as globalization. Transborder flows
of goods, people, and capital, and discourses on ideas, norms, and practices regarding how to
manage their respective state affairs are more pervasive than ever in the realm of public affairs
(Garcia 2012).
II. BODY
A. What is the connection between Neoliberalism and State Sovereignty?
The past decade has seen a dramatic increase in the proliferation of neoliberalism worldwide.
The traditional concept of national boundaries is being challenged by the liberalization of
society. Moreover, governments are being forced to establish foreign economic policies to
address the increasing need for economic openness. It should be noted that neoliberalism
promotes the market as the primary regulator of economic activity and aims to keep government
intervention in the economy to a minimal to zero level. As this capitalistic philosophy pushes for
a liberalized economy, the role of the state is changing. Many have argued that neoliberalism as
applied to our economy is a threat to our sovereignty.
As stated by Walden Bello, ideas when applied do have consequences, and perhaps no
development best exemplifies this than the effort to make the Philippines a NIC (newly
industrializing country) by the year 2000 through globalization: that is, the accelerated
integration of the Philippines into the global market and production circuits through radical trade
and investment liberalization. Neoliberalism initially arrived in the Philippines in the early 1980s
when the World Bank implemented a structural adjustment program in an effort to improve the
economy's ability to pay its enormous foreign debt (Bello, 2009).
According to Walden Bello, the time of President Fidel Ramos is a turning point for
liberalization. Tariff liberalization was the main component of the neoliberal program during this
time, with Executive Order 264 committing the Philippines to lowering tariffs on all products,
except for a few, to 1 to 5 percent by 2004. The capital account was completely liberalized to
attract investors by making the peso fully convertible, allowing immediate utilization of profits,
and allowing the full utilization of foreign currency accounts. In addition to radical tariff
liberalization, the foreign investment regime was also liberalized. The administration also took
steps to further liberalization, making the Philippines a participant to international agreements
requiring it to do away with quotas and maintain low tariffs indefinitely. This was done to make
sure that liberalization would be difficult for succeeding regimes to remove or reduce. As a
result, the Philippines joined the IMF (International Monetary Fund), Asia-Pacific Economic
Cooperation (APEC), ICC (International Criminal Court), Association of Southeast Asian
Nations (ASEAN), Colombo Plan, G-24, G-77, WTO (World Trade Organization), Common
Effective Preferential Tariff (CEPT) and the ASEAN Free Trade Area (AFTA) (Bello, 2009).
In 1991, just one year prior to General Fidel V. Ramos assuming the presidency of the
Philippines, the world witnessed another momentous event: the end of the Cold War. This
signified the "victory" of capitalist neoliberalism in the West and the demise of centrally planned
economic socialism in Eastern Europe. The wildfire-like propagation of neoliberalism resulted in
a worldwide temporal acceptance that was both dramatic and diverse. In a short period of time, it
emerged as the defining pillar of the late 20th century. During the administration of Ramos, a
total of 273 reform measures were passed into law (Araral, 2006). Despite the long history of
economic liberalism since the Payne-Aldrich Act of 1909, when the mandatory practice of
importing limitless goods from the United States was institutionalized, neoliberalism was only
fully realized during the Ramos administration with his "Philippines 2000" blueprint. Ramos
devised three-step economic strategies that have a neoliberal vision. To attract foreign
investments and foster international competitiveness in the face of global economic liberalism,
an unwavering commitment to liberalization was implemented first. In addition, privatization
was facilitated. And third, the deregulation of power, shipping, domestic air transportation,
banking, oil industries, and telecommunications through the abolishment of cartels and
monopolies was implemented. The Ramos administration's neoliberal policy reform program
also included the privatization of several major corporations. The Ramos administration inherited
remnants of a thousand government-owned companies from the Aquino and Marcos
administrations combined. During the Marcos administration, there were approximately 300
publicly owned companies, while during the Aquino administration, there were an additional
500. The privatization of Petron (an oil-refining corporation), Philippine Airlines, and
Metropolitan Water and Sewerage System (MWSS) – the largest privatization project in the
world – were among the most notable of these privatization schemes. (Garcia, 2012).
In 2009, neoliberalism's credibility has been severely damaged by the recent collapse of the
global economy, which was caused by the absence of financial market regulation. However,
neoliberalism still has a significant impact on our economists and state actors.
Last year, the House of Representatives began formal discussions on the proposed charter
amendment and have approved on second reading Resolution of Both Houses No. 2, which
proposes to "liberalize the restrictive economic provisions in the Constitution" to open the
country to foreign investors and assist the economy in recovering from the negative effects of the
pandemic. They proposed an amendment to our restrictive economic policies, particularly in
Articles XII, XIV & XVI. Central to this proposed amendment is the phrase “Unless provided
by law.” According to Mangahas Mahar of Inquirer, “Once the phrase “unless otherwise
provided by law” is put into the said constitutional sections, the actual lifting of the restrictions—
the forging of vital details such as which restrictions to lift, in what way, when and in what
sequence, through how many legislative bills, and more, would go into the hands of Congress.”
This will mean that any provision with this phrase will be subject to ordinary laws enacted by
Congress, laws that they think are fitting for the situations connected with the topic of these
provisions. In elaborating these provisions, one should note that the ownership of natural
resources, investments and plans for the economy, educational institution ownership, and media
management will be open to foreign ownership.
If we could see this in the light of the proposed amendment’s benefits for our country,
undoubtedly, opening our economy to foreign investment creates more jobs and allows the
consumers to have high-quality products and services at lower rates. However, it cannot be
denied that it also gradually makes us inferior (foreign companies only allowing Filipinos to be
their employee), lessen our initiative to make local, high-quality products/services, and Filipino
buyers being more susceptive in supporting products from other countries. It can be observed
that Resolution of Both House No. 2 intends to make the economic provision in the constitution
a bit flexible. One can agree on a certain point that this will be beneficial in the sense that it will
help our economy cater to its needs for modern and relevant problems that the 36-year-old
constitution had difficulty doing. Moreover, the phrase ‘unless provided by law’ would mean
that we will bestow more authority to Congress, as they will be determining the extent of fitting
solutions to conditions related to these specific provisions.
D. The Implications
The following are the laws amended to open our economy for foreign investments:
The Retail Trade Liberalization Act (RTLA), also known as Republic Act No. 11595, was
finalized and given presidential approval on December 10, 2021. The measure lowers the
investment requirements for each store held by a foreign firm, eliminates the requirement for a
certificate of pre-qualification to the Philippine Board of Investments, and decreases the
minimum paid-up capital requirements for foreign retail enterprises (Medina, 2022).
The Foreign Investment Act (FIA), formerly known as Republic Act No. 7042, was amended by
President Rodrigo Duterte's signing of Republic Act No. 11647 (Act 11647) on March 2, 2022.
The amendments aim to encourage and draw foreign investment by allowing foreign investors to
establish and fully own domestic businesses, including micro and small businesses, in the
Philippines. With this, the Inter-Agency Investment Promotion Coordination Committee (IIPCC)
was created, entrusted with coordinating the promotion efforts to entice foreign investment.
Since many government agencies may have different tactics when it comes to foreign investment
promotion and facilitation, this inter-agency group would give a standard approach to foreign
investment promotion (Standen and Medina, 2022).
In a ceremony held at Malacañang Palace's Rizal Hall, President Duterte signed Republic Act
No. 11659, also known as "An Act Amending Commonwealth Act No. 146 Otherwise Known as
the Public Service Act”. The trains, expressways, airports, and shipping sectors are regarded as
public services under the updated PSA, allowing up to 100 percent foreign ownership in these
areas (Parrocha, 2022). According to the 2020 Organization for Economic Cooperation and
Development report, the Philippines, which is ranked as the third most restrictive economy in the
world, would profit from the eventual passage of the law as it will draw more investments, create
more employment opportunities, introduce innovation, lower prices, and improve the quality of
goods and services (DTI, 2022).
The Economist defined crony sectors as "a host of industries that are vulnerable to rent-seeking
because of their proximity to the state, such as banking, casinos, defense, extractive industries
and construction.” In 2021, according to the most recent crony-capitalism index published by
The Economist, the wealth of billionaires in the Philippines exceeded 10 percent of gross
domestic product (GDP). As a percentage of GDP in 2020, a tenth was generated in crony-
friendly industries. In March 2022, the Economist reported that in the Philippines, "crony sectors
still account for four-fifths of total billionaire wealth." In terms of crony capitalism, the
Philippines ranked fourth in the world, just behind No. 1 Russia, Malaysia, and Singapore. The
Economist measured crony wealth using data from the International Monetary Fund (IMF) and
Forbes magazine's annual list of billionaires (de Vera, 2022).
2. Clientelism
While national elites in the Philippines gain power through capital accumulation, local political
machines face structural changes that diminish their influence. More specialized patron-client
structures reduce the ability of local elites to deliver votes to national patrons and to increase
electoral participation. The central contention of the patron–client factional framework ‘pcf’ is
that "Philippine politics revolves around interpersonal relationships – particularly familial and
patron–client ones – and factions composed of personal alliances." Nevertheless, clientelism has
proven resilient and highly adaptable to a variety of political, economic, and cultural contexts.
Clientelism plays a crucial role in the process of continuity and change associated with the
growth and decline of political institutions, particularly but not exclusively in developing states.
A century of party politics, four party systems, a plethora of parties; and yet, Filipino political
parties are still largely composed of vast networks of well-entrenched political clans and
dynasties that constantly switch their affiliation from one administration party to another to gain
access to state resources and patronage. Filipino parties have become patronage-based,
influence-seeking organizations built around dominant local political clans and warlords and
based on clientelist, parochial, and personal inducements rather than issues, ideologies, and party
platforms (Teehankee, 2012).
3. Regulatory capture
The Economists define regulatory capture as the situation in which regulatory agencies are
dominated by the private interests they are meant to regulate. In 2020, Rep. Joey Salceda of
Albay stated that he would examine proposals that would promote "regulatory recovery," which
is the process of reclaiming regulatory agencies that have been corrupted by special interests or
have become too closely aligned with the industries they were intended to regulate (Cervantes,
2020). According to Boo Chanco, we can attribute the duopoly situation in our
telecommunications industry to regulatory capture. When FVR broke the PLDT monopoly,
seven major telecommunications companies emerged. In the end, however, only two remained
after a series of mergers. This is typical of our country's business elite. They use political
influence to obtain a government franchise with the intention of selling it to a competitor or
newcomer with deep pockets. And government regulators permit it. What occurred in the
telecommunications industry is typical in the mining and logging industries. Political
connections are used to obtain concessions. Then, utilizing the same political influence, they
disregard rules that we now recognize as causing severe environmental damage. The regulator,
DENR, is frequently in their pockets. In the energy industry, regulatory capture is also an
accepted fact of life. In fact, the entire membership of the Energy Regulatory Commission (ERC)
was suspended due to allegations of partiality in a decision that was deemed detrimental to the
public interest. The LTFRB is the most blatant example of regulatory capture today. It is also an
organization whose mentality must be updated due to rapid technological change. Since decades,
the LTFRB's reputation for corruption has been among the most notorious. This is simple
because tens of thousands of buses, jeepney, and taxi operators seek franchises from them
(Chanco, 2018). When regulatory capture occurs, a special interest takes precedence over the
public interest, resulting in a net loss for society.
This is accomplished by amending or, in the worst-case scenario, outlawing laws that restrict or
limit imports, such as tariffs and quotas. When an economy is liberalized, products from
developed countries can enter developing and underdeveloped countries. Our economy depends
heavily on agriculture and natural resources. To develop our economy, the country desperately
needed funds. As a solution, the government borrows enormous sums of money from
international financial institutions such as the World Bank and the International Monetary Fund.
These institutions existed primarily for this purpose—to control and intervene over the
borrowing States. The Philippines is a young, impoverished nation that faces numerous
challenges, one of which is rampant corruption. For this issue, the State must gamble with
borrowed funds from these international financial institutions. Since the problem is systemic, the
cycle of borrowing money and putting it into the pockets of corruption continues. Until such time
as the Philippines' debt continue to rise.
China has territorial disputes with the majority of its bordering nations. It is also engaged in
disputes with nations outside of its maritime exclusive economic zone over other matters. China
is the Philippines' largest trading partner, and bilateral investment cooperation is booming, with
major projects being smoothly implemented. Over the past five years, bilateral trade between the
Philippines and China has grown by an average of 17 percent per year, reaching close to $82.05
billion in 2021. The Philippines have been a consistent recipient of Chinese investment for quite
some time and has made a hub for numerous large-scale Chinese investors. The Philippines is
playing a more active role in the region than in the past as a result of this and the development of
numerous free trade zones, as well as extensive infrastructure connectivity plans aimed at
unifying the country. China and Hong Kong firms invested US$1.7 billion in the Philippines
between 2016 and 2022, second only to Japan at US$2.8 billion but ahead of the United States
(US$1.3 billion) (ASEAN Briefing, 2022). The former President Duterte's policy of kowtowing
to Beijing costs the nation's fishing industry an estimated P7.2 million per month that Chinese
ships refuse to leave the West Philippine Sea. The Chinese reclamation and dredging are also
destroying coral reef ecosystems that serve as spawning grounds for marine life in the South
China Sea (Pamintuan, 2021). Thus, when former President Duterte invoked ‘utang na loob’ to
justify his relations with China regarding the West Philippine Sea (WPS) issue, he revived a
misguided diplomatic practice (Cruz, 2021). Now, despite territorial disputes between the
Philippines and China, Vice President Sara Duterte is optimistic that "closer" bilateral ties based
on "mutual trust and mutual respect" will develop between the two nations (Antonio, 2023). The
previous Philippine administration welcomes China with open arms. However, the Chinese never
respected our sovereignty, including our authority over the West Philippine Sea. Within our legal
parameters, the Chinese would harass our fishermen and plunder our resources. Moreover, only
17.7% of workers at the Philippines Offshore Gaming Operations (POGO) are Filipino, while
82.2% are foreigners. As a result of the increase in POGO operations, issues such as the Chinese
workers' notorious drinking and smoking habits drives the demand for an exclusive POGO hub,
and the entry of wanted criminals who end up working here have arisen.
Back in 2017, Acting Department of Foreign Affairs Secretary Enrique Manalo claimed that the
Philippines has campaigned for international trade agreements and is dedicated to "defeating"
protectionism (ABS-CBN, 2017). Recently according to reports, President Marcos desires to
forge closer ties with China, but he is expected to maintain a delicate balance. China is the
Philippines' largest trading partner, and the former President Duterte had called for increased
Chinese investment in the country's large infrastructure projects, although many of these had
been delayed due to the pandemic. However, the United States is the Philippines' most important
security partner. In addition, any hard pivot towards China will be challenging for Marcos Jr.
domestically, as public opinion against China is generally negative and the security
establishment is traditionally pro-American. Due in part to US-Philippine military exercises,
Beijing is reluctant to invest heavily in the Philippines compared to other ASEAN nations
(ASEAN Briefing, 2022).
III.ANALYSIS
We can observe that during Ramos's presidency, he aligned his development policy goals with
the ongoing neoliberal reconstructions occurring in the international political and economic
sphere. Since then, the national government's authority has been swiftly and gradually reduced to
a platform by the liberalization and homogenization of the free market economy, making the
state more of a passive consumer with no further obligation to authorize the production. A
nation's right to sovereignty enables it to be run independently, and we should play a major role
in assuming control. We have no leverage over large nations like the United States and China
because they are stronger than us militarily and economically. Undoubtedly, it is difficult for us
to stand up as a free nation and adopt national policies without foreign interference. This has
prompted questions regarding our assertion of sovereignty. Who makes decisions for our
country's economy? The Filipinos or the foreigners? Since then, Philippines is committed to
lower our protectionist policy in hopes that it will benefit our economy. These significant
changes have implications for our state sovereignty as they make our country more dependent
and loose on foreign investment and influence. In light of the recent events of President Marcos
Jr. visiting the United States and China on separate occasions to have closer ties with these
countries and further investment promises, we could assume that we are not closing our economy
to these economic giants in the coming years.
The global forces' shifting balance, the strategy selected by various states and organizations, and
various geopolitical factors and combinations will all have an impact on the directions, forms,
and outcomes of the Philippine economy and sovereignty, as we are dependent on their
economic policy-making processes. One may conclude that the principle of protecting our
country’s territory is threatened. If we are to observe the current Philippine state, we are too
indebted to foreign countries for supporting our pandemic response. Developing to a certain
point where safeguarding public health and safety and protecting our territories are at stake
IV. RECOMMENDATION
For further knowledge about the topic, the researcher recommends that readers study the
relationship between neoliberalism and nation-states and how it changes the role of the state in
policy-making processes. To give context and further understanding of this research, the
researcher recommends that the readers view and read the references. The Philippines, as a
developing nation and a potential investment destination, must have an effective and transparent
political environment where the government can support the country's domestic concerns and
establish favorable economic linkages like trade agreements that do not make the Philippines
inferior to foreign influence. The implementation of economic reforms that will improve
conditions for local businesses should also be facilitated. It is also imperative to protect our
national interest through better enforcement of laws and regulations, improved tax reforms for
foreign firms as well as for local firms, and improved infrastructure. The researcher also
recommends better education and training for the workforce, as they are essential to the growth
of the economy and making Filipinos better citizens.
V. CONCLUSION AND WAY AHEAD
The research has focused on the implications of neoliberalism for our state sovereignty. It
discusses the emergence of neoliberalism in the Philippines in connection with the decisions of
our past presidential administrations. The resurgence of neoliberal economics in the Philippines
has been accompanied by neoliberalism's project for capitalist modernization, which is
frequently disguised by the transnational agencies as good governance. As time goes on, the
creation of neoliberal policies seeks to establish a genuinely competitive capitalism, thereby
eradicating all pre-capitalist and opposing ideologies or practices.
Highlighted in this research is the history of economic policies that liberalized our economy,
particularly amendments to the Retail Trade Liberalization Act, the Foreign Investments Act, and
the Public Service Act. All things considered, it is evident from this research that the state
sovereignty of the Philippines has been affected by the proliferation of neoliberalism for the last
few decades. Neoliberalization is substantially reconstituting the nature of state power and
sovereignty, and it is the responsibility of political scientists and policy analysts to investigate
the implications of these changes for the future vitality and responsiveness of our country.
As a solution to the growing threat of neoliberal policies to our sovereignty, the Philippines must
always put its national interests first, as we are clearly on the losing side when something
unfavorable happens in trade agreements or as a consequence of opening the economy to foreign
ownership. Moreover, government officials and policymakers are advised to tread carefully
when amending laws to preserve national security. On the issue of national debt, we must pursue
additional tax reforms and increase tax revenue to reduce the public debt caused by excessive
borrowing. Regarding our problem of being economically dependent on foreign investment, we
should further the development and effectiveness of our own local industries, fully owned by
Filipinos. We should also prioritize our nation-building by having bottom-up process strategy,
not top-down process, where we start the development through our children and workers. We
have so much growth potential that we can unleash through good and effective governance.
There is no doubt that our economy is dependent on countries like the United States and China,
which emasculates the state and constantly finds itself yielding to the demands of these foreign
countries. We should move to a knowledge-based, strong market economy without our citizens
being a slave to external entities.
VI. REFERENCES
Issues Brief - Globalization: A Brief Overview. (2023). Retrieved 8 January 2023, from
https://www.imf.org/external/np/exr/ib/2008/053008.htm
ASEAN Briefing. Philippines Amends Retail Trade Liberalization Act to Attract Foreign
Investment. (2023). Retrieved 11 January 2023, from
https://www.aseanbriefing.com/news/philippines-amends-retail-trade-liberalization-act-to-
attract-foreign-investment/
ASEAN Briefing. The Philippines Amends its Foreign Investment Act. (2023). Retrieved 11
January 2023, from https://www.aseanbriefing.com/news/the-philippines-amends-its-foreign-
investment-act/
By Azer Parrocha. Duterte signs law amending Public Service Act. (2023). Retrieved 11 January
2023, from https://www.pna.gov.ph/articles/1170293
PIA - Amended Public Service Act, a significant reform to fuel economic rebound -- Trade
Secretary. (2023). Retrieved 11 January 2023, from
https://pia.gov.ph/press-releases/2022/02/08/amended-public-service-act-a-significant-reform-to-
fuel-economic-rebound-trade-secretary
Philippines pledges to ‘defeat’ trade protectionism. (2023). Retrieved 11 January 2023, from
https://news.abs-cbn.com/business/04/04/17/philippines-pledges-to-defeat-trade-protectionism
Executive Order No. 264, s. 1995 | Official Gazette of the Republic of the Philippines. (2023).
Retrieved 13 January 2023, from https://www.officialgazette.gov.ph/1995/07/22/executive-
order-no-264-s-1995/
The Political Economy of Policy Reform in the Philippines: 1992-1998. (2023). Retrieved 15
January 2023, from
https://www.researchgate.net/publication/24085231_The_Political_Economy_of_Policy_Reform
_in_the_Philippines_1992-1998
PH ranked fourth globally in ‘crony capitalism.’ (2023). Retrieved 16 January 2023, from
https://business.inquirer.net/344745/ph-ranked-fourth-globally-in-crony-capitalism
“Clientelism and Party Politics in the Philippines.” (2023). Retrieved 17 January 2023, from
https://www.academia.edu/7265827/_Clientelism_and_Party_Politics_in_the_Philippines_
By Filane Mikee Cervantes. House leader seeks to correct regulatory capture. (2023). Retrieved
17 January 2023, from https://www.pna.gov.ph/articles/1092040
by Raymund Antonio. VP Duterte seeks closer PH-China ties based on ‘mutual respect’ –
Manila Bulletin. (2023). Retrieved 17 January 2023, from https://mb.com.ph/2023/01/17/vp-
duterte-seeks-closer-ph-china-ties-based-on-mutual-respect/
Ayman Falak. 2023 Foreign Investment Opportunities in The Philippines. (2023). Retrieved 17
January 2023, from https://www.aseanbriefing.com/news/2023-foreign-investment-
opportunities-in-the-philippines/
ASEAN Briefing. What a Ferdinand Marcos Jr Presidency Will Mean for Foreign Investors in
Philippines. (2023). Retrieved 17 January 2023, from
https://www.aseanbriefing.com/news/what-a-ferdinand-marcos-jr-presidency-will-mean-for-
foreign-investors-in-philippines/
To Sir Stranger,
It was a very nice journey with you, Sir. Thank you for empowering our lives with your
knowledge and guidance. I am glad to have met you as our professor and I am hoping to meet
you again when we all have our careers. In our minds, you have made a lasting impression and
we sincerely appreciate your dedication to teaching us even with your tight schedule. Instead of
spoon-feeding us, you simply showed us the way to be better learners and encouraged us to learn
more. I am grateful for your understanding and your patience. I hope that you will continue to
improve as a professional and continue to inspire students like me who are aiming to serve our
country. Thank you for being with us this semester. I wish you to have 8 hours of sleep every
night and good health. May you always have what is best for you. Take care and God bless you
and your family.