PhDPA 303 Economic Foundation of Public Administration

COMPARATIVE ECONOMIC SYSTEMS

AND THE ECONOMIC PROVISIONS OF
THE 1987 CONSTITUTION

Eda Salvacion J. Paje

Doctor of Philosophy in public Administration

Chapter 1
Introduction

An economic

system is

a system of production and exchange of goods

and

services as

well

as allocation of resources in a society. It includes the combination of the

various institutions, agencies, entities (or even sectors as described by
some authors) and consumers that comprise the economic structure of a
given community. A related concept is the mode of production.
The study of economic systems includes how these various
agencies and institutions are linked to one another, how information flows
between

them,

and

the

social

relations

within

the

system

(including property rights and the structure of management).

Among existing economic systems, distinctive methods of analysis
have developed, such as socialist economics and Islamic economic
jurisprudence. Today the dominant form of economic organization at the
global level is based on market-oriented mixed economies.
Economic systems are the category in the Journal of Economic
Literature classification codes that includes the study of such systems.
One field that cuts across them is comparative economic systems.
Subcategories of different systems there include:

planning, coordination, and reform

productive

enterprises;

factor

and

product

markets;

prices;

population

public economics; financial economics

2

national income, product, and expenditure; money; inflation

international trade, finance, investment, and aid

consumer economics; welfare and poverty

performance and prospects

natural resources; energy; environment; regional studies

political economy; legal institutions; property rights.

Components
There are multiple components to economic systems. Decision-making
structures of an economy determine the use of economic inputs
(the factors of production), distribution of output, the level of centralization
in decision-making, and who makes these decisions. Decisions might be
carried out by industrial councils, by a government agency, or by private
owners.
In one view, every economic system represents an attempt to solve three
fundamental and interdependent problems:

What goods and services shall be produced, and in what quantities?

How shall goods and services be produced? That is, by whom and
with what resources and technologies?

For whom shall goods and services be produced? That is, who is to
enjoy the benefits of the goods and services and how is the total
product to be distributed among individuals and groups in the society?
3

Thus every economy is a system that allocates resources for

exchange, production, distribution and consumption. The system is
stabilized through a combination of threat and trust, which are the outcome
of institutional arrangements. An economic system possesses the following
institutions:

Methods of control over the factors or means of production: this may

include ownership of, or property rights to, the means of production and
therefore may give rise to claims to the proceeds from production. The
means of production may be owned privately, by the state, by those
who use them or be held in common.

A decision-making system: this determines who is eligible to make

decisions over economic activities. Economic agents with decisionmaking powers can enter into binding contracts with one another.

A coordination mechanism: this determines how information is

obtained and used in decision-making. The two dominant forms of
coordination are planning and markets; planning can be either decentralized or centralized, and the two coordination mechanisms are
not mutually exclusive and often co-exist.

An incentive system: this induces and motivates economic agents to

engage in productive activities. It can be based on either material
reward (compensation or self-interest) or moral suasion (for instance,
social prestige or through a democratic decision-making process that
binds

those

involved).

The

incentive

system

may

encourage

specialization and the division of labour.

Organizational form: there are two basic forms of organization:

actors and regulators. Economic factors include households, work
gangs and production teams, firms, joint-ventures and cartels.
Economically regulative organizations are represented by the state and
market authorities; the latter may be private or public entities.

A distribution system: this allocates the proceeds from productive

activity, which is distributed as income among the economic
organizations, individuals and groups within society, such as property
owners, workers and non-workers, or the state (from taxes).

A public choice mechanism for law-making, establishing rules,

norms and standards and levying taxes. Usually this is the
responsibility of the state but other means of collective decision-making
are possible, such as chambers of commerce or workers councils.

Types
Marxist-Leninist Communist states (red) and former Communist states (orange) of the world.

There
several

are
basic

questions that must

be answered in order
for an economy to run
satisfactorily.
The scarcity problem,
for example, requires
answers to basic questions, such as: what to produce, how to produce it,
and who gets what is produced. An economic system is a way of
answering these basic questions, and different economic systems answer
5

them differently. Many different objectives may be seen as desirable for an

economy, like efficiency, growth, liberty, and equality.
In a capitalist economic system (capitalism) production is carried out
for private profit, decisions regarding investment and the use of the means
of production are determined by individuals, corporations and business
owners in the marketplace. The means of production are owned primarily
by private enterprises and decisions regarding production and investment
determined by private owners in capital markets. Capitalist systems range
from laissez-faire, with minimal government regulation and state
enterprise, to regulated and social market systems, with the stated aim of
ensuring

"social

justice"

and

more

equitable

distribution

of wealth (see welfare state) or ameliorating market failures (see economic

intervention).
In socialist economic system (socialism), production is carried out to
fulfil planned-economy objectives; decisions regarding the use of the
means of production are adjusted to satisfy state-conceived economic
demand, investment is carried out through state-guided mechanisms. The
means of production are either publicly owned, or are owned by the
workers cooperatively. A socialist economic system that is based on the
process of capital accumulation, but seeks to control or direct that process
through state ownership or cooperative control to ensure stability, equality
or expand decision-making power, are market socialist systems.

The basic and general economic systems are:

Market

economy ("hands

off"

systems,

such

as laissez-

faire capitalism)

Mixed economy (a hybrid that blends some aspects of both market

and planned economies)

Planned

economy ("hands

on"

systems,

such

as state

socialism or communism, also known as "command economy")

Traditional economy (a generic term for older economic systems)

Participatory economics (a system where the production and

distribution of goods is guided by public participation)

Gift economy (where an exchange is made without any explicit

agreement for immediate or future rewards)

Barter economy (where goods and services are directly exchanged

for other goods or services)

Various strains of anarchism advocate different economy systems,

all of which have very small or no government involvement. These include:
Left wing
Right wing

Anarcho-capitalism

Anarcho-fascism

Anarcho-communism

Anarcho-syndicalism

Anarcho-socialism

Libertarianism also advocates a minimal role for government,

including economic systems like:

Libertarian communism

Libertarian socialism

Syndicalism

Communism
A socioeconomic order structured upon the common ownership of
the means of production and characterized by the absence of social
classes, money, and the state, as well as a social, political, and economic
ideology and movement that aims to establish this social order.
Communism includes a variety of schools of thought, which broadly
include Marxism, anarchism (anarchist

communism)

and

the

political

ideologies grouped around both. All these hold in common the analysis
that

the

current

order

of

society

stems

from

its

economic

system, capitalism, that in this system, there are two major social classes:
the working class who must work to survive, and who make up a majority
of society and the capitalist class a minority who derive profit from
employing the proletariat, through private ownership of the means of
production (the physical and institutional means with which commodities
are

produced

and

distributed),

and

that

political,

social

and

economic conflict between these two classes will trigger a fundamental

change in the economic system, and by extension a wide-ranging
transformation of society. The primary element which will enable this

transformation, according to this analysis, is the social ownership of the

means of production.

Capitalism
Capitalism generally features the private ownership of the means of
production (capital), and a market economy for coordination. Corporate
capitalism refers to a capitalist marketplace characterized by the
dominance of hierarchical, bureaucratic corporations.
Mercantilism was the dominant model in Western Europe from the
16th to 18th century. This encouraged imperialism and colonialism until
economic and political changes resulted in global decolonization. Modern
capitalism has favoured free trade to take advantages of increased
efficiencies due to national comparative advantage and economies of
scale in a larger, more universal market. Some critics have applied the
term neo-colonialism to the power imbalance between multi-national
corporations operating in a free market vs. seemingly impoverished people
in developing countries.

Socialism
Socialist economic systems (all of which feature social ownership of
the means of production) can be subdivided by their coordinating
mechanism (planning and markets) into planned socialist and market
socialist systems. Additionally, socialism can be divided based on their
property structures between those that are based on public ownership,
worker

or

consumer cooperatives and common

ownership (i.e.,

non-

ownership). Communism is a hypothetical stage of Socialist development

articulated by Marx as "second stage Socialism" in Critique of the Gotha

Program, whereby economic output is distributed based on need and not
simply on the basis of labour contribution.
The original conception of socialism involved the substitution of
money as a unit of calculation and monetary prices as a whole
with calculation in kind (or valuation based on natural units), with business
and financial decisions replaced by engineering and technical criteria for
managing the economy. Fundamentally, this meant that socialism would
operate under different economic dynamics than those of capitalism and
the price system. Later models of socialism developed by neoclassical
economists (most notably Oskar Lange and Abba Lerner) were based on
the use of notional prices derived from a trial-and-error approach to
achieve market clearing prices on the part of a planning agency. These
models of socialism were called "market socialism" because they included
a role for markets, money and prices.
The primary emphasis of socialist planned economies is to
coordinate production is to produce economic output to directly satisfy
economic demand as opposed to the indirect mechanism of the profit
system where satisfying needs is subordinate to the pursuit of profit; to
advance the productive forces of the economy in a more efficient manner
while being immune to the perceived systemic inefficiencies (cyclical
processes) and crisis of overproduction so that production would be
subject to the needs of society as opposed to being ordered around capital
accumulation.

In a pure socialist planned economy that involves different

processes of resource allocation, production and means of quantifying
value, the use of money would be replaced with a different measure of

value and accounting tool that would embody more accurate information
about an object or resource.
In

practice,

the

economic

system

of

the

former Soviet

Union and Eastern bloc operated as a command economy, featuring a

combination of state owned enterprises and central planning using
the material balances method. The extent to which these economic
systems achieved socialism or represented a viable alternative to
capitalism is subject to debate.
In orthodox Marxism, the mode of production is tantamount to the
subject of this article, determining with a superstructure of relations the
entirety of a given culture or stage of human development.

Chapter 2
Comparative Economic System
Difference between Communism and Capitalism

Capitalism and communism are different in their political and

economic ideologies. Capitalism and Communism never go together.
One of the major differences between capitalism and communism is
with regard to the resources or the means of production. In Communism,
the community or society solely owns the resources or the means of
production. On the other hand, in capitalism, the resources or the means of
production lies with a private owner.
While the profit of any enterprise is equally shared by all the people
in communism, the profit in a capitalist structure belong to the private
owner only. While the private party controls the resources in capitalism, it is
the society that controls the whole means of production in communism.
For Communists, the society is above individuals. But for capitalists,
individual freedom is above the state or society. While capitalism is a self
regulated economic system, communism is a government run economy. In
capitalism, the individual has full control over production and decides on
the price structure. Contrary to this, it is the society or the government that
determines the price structure in communism.
Communism stands for equal sharing of work, according to the
benefits and ability. But in capitalism, an individual is responsible for his
works and if he wants to raise the ladder, he has to work hard.
While communism stands for absorbing private property, Capitalism
stands for private property.
Moreover, communism stands for a class less society, which doesnt
see any difference between the rich and the poor. On the other hand,

Capitalism divides the society into rich and poor. Capitalism can be said to
be the exploitation of the individual. While everyone is equal in
communism, there is a great divide in the class in Capitalism.

Difference between Socialism and Communism

Communism and socialism are ideological principles with many
similarities and differences. It is little complicated to differentiate these two
doctrines. Socialism generally refers to an economic system and
communism means to both an economic and a political system.
Socialism manages the economy through planned collective social
control, while communism tend to manage both the society and the
economy by making sure that the properties are owned by the centralized
organization to gain classlessness and statelessness. Both communism
and socialism tend to prevent the effects of capitalism.
Both principles are focused on the centralized organization where
the goods and services are produced, owned and controlled publicly. But
socialism focused more on the distribution that take place on the amount of
individuals production of hard work, whereas communism emphasizes that
the distribution of goods and services among the public should happen
based on the individuals needs.
The Communist assert that both Capitalism and private ownership of
means of production must be done away to make sure a classless society.
However, socialist view capitalism as a possible part of the ideal state and
perceive that socialism can exist in a capitalist society.

Differences also exist on who controls the structure of the economy.

The socialism normally intend to have as many people as possible in order
to influence the economy, while communism concentrate on small amount
of people

Difference between Socialism and Capitalism

Socialism is a form of economy that works for equality among the
members

of

society

by

pooling

the

resources of the people to be collectively

controlled

by

the state or

the

public

through communes or councils. There is

no market in a socialist economy and
therefore, there is no competition. The
quantity

of

products

produced

and

distributed is regulated, including the price that the consumer will pay for
the products.
Capitalism, on the other hand, is an economic and political system
that is based on the principle of individual rights. It believes that it is
inequality that will drive the people to be more innovative and productive.
Resources in a capitalistic society are privately owned by individuals or
groups of individuals. These individuals or groups of individuals freely
trade in a market that has a level playing field. The government stays in the
background and allows the forces of supply and demand to freely operate
with the guidance of laws and regulations. The law of supply and demand
provides that if the supply is greater than the demand for a particular
commodity, the price of that particular commodity will go down. Conversely
the price of a commodity goes up if there is less supply than the demand.

In socialism, the wealth or the goods and services are distributed to

the people based on the work contribution of an individual to produce such
wealth. Socialists believe that if individuals work for the sake of everyone
in society and receive all the goods and services, work ethics will be
heightened.

People on the other hand, are given equal opportunity to work for
their own individual wealth in a capitalist society. Individuals are presumed
to be naturally competitive. It is their competitiveness that will drive them to
improve. Individuals or groups of individuals in a capitalist society decide
on the quantity, quality and price of goods they will produce and sell in a
competitive market in order to g et the amount of wealth they want. No
limits are set to what an individual can earn. This results in people having
different social status based on the wealth they have accumulated. Thus,
there are rich and poor people in one society. Advocates of socialism
believe that this is dangerous because the accumulation of wealth by a
certain few gives rise to dominance that could lead to the exploitation of
people with lesser wealth.

Chapter 3
Economic Provisions of the 1987 Constitution

The current 1987 Constitution unfortunately sets so many

restrictions on economic activities, setting up protectionist provisions that
limit businesses in the Philippines to a minimum of at least 60% ownership
by local Filipinos, and a maximum of 40% by foreign investors. For
advertising companies, it limits ownership to a minimum of 70% by local

Filipinos and at most 30% by foreigners. Media companies must be owned

100% by local Filipinos.

As such, unlike in other countries that do not have

such restrictions on foreign investment thus making those
countries viable and attractive destinations for Foreign
Direct Investment, the Philippines has great difficulty in
bringing in foreign investors who often are capable of
creating lots of jobs and are often able to provide high
quality skills training and provide Filipinos with exposure to
higher standards of operation and business systems.

Job creation is thus much faster and on a larger scale in countries

that allow easy-entry of Foreign Direct Investment. Since there are not that
many local Filipino entrepreneurs creating many jobs coupled with the
dearth of foreign investments due to the protectionist economic provisions
in the Constitution, unemployment is extremely high in the Philippines,
forcing Filipinos to leave their families, loved ones, and children behind
while seeking basic employment in other countries.
By removing all economic restrictions and protectionist provisions in
the 1987 Constitution, it will become much easier for the Philippines to be
able to more readily attract foreign investors and multinational companies
to invest in the Philippines and help create jobs for locally-based Filipinos.
As a result, Filipinos will have less need to pack their bags and leave their
families to work as overseas workers in faraway lands.

What Has Been the Effect of the Economic Nationalism

Provision of the 1987 Philippine Constitution?

The provisions of the 1987 Philippine constitution are supposed to

bear improvement to the economy and welfare of Filipinos. And in terms of
boosting nationalism, the people who drafted the 1987 constitution used
the economy as a tool. Yet while the economic nationalism provision has
its advantages, there are also disadvantages that seem to bring down the
Philippine economy and the welfare of citizens even more. Below are
some of the negative effects of the provision.

Discouraged foreign investment

One of the effects of the 1987 Philippine constitutions economic
nationalism is limited foreign investment. In fact, the country has one of the
lowest levels of foreign direct investments in Southeast and East Asia.

Naturally, this effect is expected considering foreign investors are allowed

to own only a limited percentage of local companies and considering
consumers are urged to support and purchase Philippine products.

Encouraged monopolies leading to higher prices, limited

selection, and lower quality products and services
While patronizing Philippine goods and services is advisable to
promote a love for the country, limiting the room for foreign investment
encourages monopolies and hinders healthy competition. Monopolies exist
when one major company has enough power to dictate the prices, quality,
and selection of products and services. Monopolies become very powerful
because competitions are not big enough to threaten them.
Without foreign investments that are capable of introducing
competition in the Philippine market, monopolies become lax in providing a
wide range and continuously improved products for Filipino consumers. In
addition, because consumers have no other product choices, monopolies
can increase or decrease prices at will. In the end, the people who suffer
big price increases are those who have low-paying jobs or are minimum
wage earners.

Lowered the rate of job growth and depressed wages

A third effect of limited foreign investment brought about by the
economic nationalism provision is a decreased rate of employment.
Similarly, wages are tied to specific levels and are increased only limitedly.

Why these effects occur is because local businesses have minimal funds
to fuel operations and to pay workers.
Foreign Investment in the country can only amount to so much that
business fail to run as efficiently as they should. This subpar performance
leads to insufficient output and funds, so, local companies hire only a few
and often, the best workers. In addition to those who possess few jobessential skills do not have a chance to work and improve their lives.

RESTRICTIVE ECONOMIC PROVISIONS OF

THE CONSTITUTION ONCE AGAIN
by Gerardo P Sicat on Jul 14, 2012
Crossroads (Toward Philippine Economic and Social Development)
Philippine Star, 11 July 2012

The report that Speaker Feliciano Belmonte of the House and

Senate President Juan Ponce Enrile will revive discussions to amend the
restrictive economic provisions of the Constitution brings back to life an
important issue of economic policy. It had been completely eclipsed when
political theatre got dominated by the impeachment of the Chief Justice.
Such an initiative will gain force if embraced further by a popular
president. The amendment of restrictive economic provisions could be a
manageable change agenda so long as it is not complicated by broader
political questions.
Additional arguments in favor of amending the restrictive economic
provisions. This column has devoted space on the subject because of its
importance in tilting the nations potential for economic growth. The reader
can consult the archives of The Philippine Star. (For those using the
internet, go to: GERARDO P. SICAT Articles|philstar.com).
Below are additional arguments that I offer to persuade President
Aquino to include such reforms in his agenda so that he can move camp
and give the marching orders to the legislative leaders:
The right time to undertake reforms is when economic expectations
are low;
The nations mindset should gear toward regional rather than
insular economic outlook;
The advantages offered by the TPP (Trans Pacific Partnership)
within the Asia-Pacific network of economic cooperation in trade could be
lost by default without constitutional amendments; and
The restrictive nationalism indicated by the constitutional provisions
has encouraged extractive economic institutions to dominate the countrys

development effort and do not encourage inclusive economic development

prospects.
The right time for reform. World economic conditions are relatively
difficult at the moment. Expectations are low. The economies of the United
States, Europe, and Japan three important regional engines of world
economic growth are still in a troublesome state.
The right time to undertake reforms is when expectations are
low. When the prospects turn brighter, the proper policies are already in
place and the country can reap the benefits. Thus, we do not miss the
boat.
Moreover, even

as

Philippine

economic

assessments

have

improved, which give the country much notice as a comeback and rising
economy, undertaking the reforms will add more positive factors. This will
create more momentum for economic growth.
The

change

in

mindset

from

domestic

to

regional

and

international. Its time to change the nations mindset and those of the
countrys business leaders. They should now be encouraged to view the
domestic market as something beyond that the Philippine market. It adds
the potential market of the other ASEAN member countries.
The ASEAN Free Trade Area widens the boundaries of our national
market. Thus, our outlook as a nation should embrace a larger economic
market and business plans of our larger enterprises should be encouraged
to widen their outlooks.
So should our domestic policies in encouraging economic growth.
This should make us more into a regional and international competitor

rather than an insular market that is concerned alone with a limited

economic market.
Our high-growth neighbours think regional and their economies are
further outward looking. That makes their enterprises competitive
regionally and internationally.
Foreign direct investments located in our country have long adjusted
their economies on a regional footing. When they make investment plans,
they factor in regional considerations within the ASEAN. A recent example
of this was the Ford closure of its manufacturing plant in the country (which
I discussed recently in this column).
If we change our mindset as a nation, we can adjust more quickly to
our needs to stay highly competitive. We will then be able to rearrange our
investment incentives pattern so that we do not simply direct them toward
developing the domestic market for local businesses.
Incidentally, the old mindset is still behind the investment incentives
laws under the Board of Investments. Yet our export incentives under the
PEZA are geared toward international markets.
There is a link that is missing in these two incentives laws. The
supply networks essential to support the industrial supply base of our
export manufacturers in the PEZA do not exist within our boundaries as a
result. The reason is that the domestic market has been nurtured by
restrictive economic policies.
The opportunities to move to higher trade agreements are beneficial.
The constitutional provisions on restrictions extend to prohibitions on the
practice of the professions by foreigners.

Our human resources professionals and skilled labor have

roamed the world for a living. At home, we practice protectionism that
would have blocked such sources of livelihood for our OFW citizens who
work abroad.
The TPP (Trans Pacific Partnership) agreement is emerging as a
comprehensive free trade arrangement that includes all the major
countries of the Asia-Pacific Region and a few developing countries.
(Remember how South Korea and Taiwan in decades past have reaped
the benefits of their rapid economic growth by tapping onto the US
market?)
The agreement covers freer trade in goods and services, affecting
rules of origin, trade remedies, barriers to trade, intellectual agreement,
and government procurement and competition policy. In all negotiations,
there are gives and takes. However, the benefits for membership of the
few developing countries that are likely to be part of this pact are expected
to be enormous.
TPP began as an agreement among four small Asia-Pacific
countries (Brunei, Chile, New Zealand and Singapore) in 2005. As of June
2012, the following countries are now part of this agreement and they are
negotiating the master agreement among themselves before closure:
Australia, Malaysia, Peru, Japan, United States, Vietnam, Canada, and
Mexico.
It will be a great pity if the Philippines were to miss out during the
formative stage of this new international arrangement. Yet Philippine
protective policies on a number of critical economic issues are precisely
the factors that prevent us from entering this new club.

Thus, our country is not even yet likely to become a member of this
negotiating agreement because of its constitutional situation.
Move from extractive to inclusive nationalism. The final argument is
related to the notion of nationalism which is often used as the argument for
protection. These policies have favored producers at the expense of
consumers who have been forced to buy the produce at higher prices.
Moreover, the limited impact on economic growth has led to small
employment effect that we now know to have happened.
It will take more space to explain why the high objectives of
promoting a wrong brand of nationalism in our laws have only led us astray
in economic accomplishments. This is an indication of national frustration,
that today our economic development has been eclipsed by the
accomplishment of neighbours that used to look up to us as a model
nation.

THE RISKS OF A RISING PESO

by Benjamin E Diokno on May 1, 2015
Core Business World, 28 April 2015

Recent data show that the United States economic recovery remains
tentative. These lead to fresh speculation that the peso will start to
appreciate. But a strong peso, say P42 to US$1, does not necessarily
mean that the Philippine economy is weak, but that the US economy is
weak. In fact, a strong peso is not necessarily good for most Filipinos and
the economy.
A weak US economy means the Fed, the monetary policy-making
body, would delay raising interest rates. That would make the US less of a
magnet for portfolio investors. Low US interest rates will drive portfolio
investors to look for lucrative places where they can park their footloose
capital.
Thats why the local stock traders are happy that the Philippine
Stock Exchange (PSE) might continue to soar for just a little bit more. That
assumes, of course, that the PSE will be more attractive than the other
stock markets in the world.
Heres a warning for policy makers: the short-term gains from the
entry of hot money into the country should be weighed against the
adverse, usually painful, consequences as it exits when the economic
sentiment changes. The PSEs gain could be the economys loss.
Other than the state of the US economy, there are other factors that
might affect the peso-dollar exchange rate.
On the supply demand, overseas workers remittances continue to
increase but at a decelerating rate. The peso appreciates as these
remittances rise.
However, while remittances continue to expand, the rate at which
they are growing has slowed in recent years. In 2013 the remittances grew

by 7.2%. In 2014 they inched up by 5.6%, and for the first two months of
the year, remittances further slowed down to 2.4%. Remember that
remittances used to grow at double-digit rates.
The slowing growth of remittances may be attributed to the ongoing
wars in the Middle East and the African continent. It is also due to the still
fragile world economic recovery. Unemployment remains high in Europe.
And because of falling oil prices, joblessness has turned for the worse in
oil-producing economies.
Unless Filipino policy makers understand that a strong peso is not
necessarily good for the Filipino people and the economy, they might
unwittingly contribute to the peso appreciation. The policy of borrowing
from abroad to finance the budget will definitely cause the peso to
appreciate. But it would be unwise to borrow money from abroad at a time
when the local economy is awash with both dollars and pesos.
On the demand side, the peso depreciates when imports are high,
which happens when the domestic economy is expanding rapidly. Faster
construction activity means higher imports, as the sector has high imports
content, in the nature of construction equipment and other inputs.
The peso might depreciate (appreciate) when imports rise (fall) due
to faster (slower) implementation of public infrastructure projects. The poor
completion of government projects is epic. Financing is the least of the
governments problems since it is way below its expenditure program.
On the other hand, the sharp fall in oil prices has dampened the
demand for dollars. In 2014, the forecast was that imports would grow by
14%; it actually grew by only 9%.
In January this year, as a consequence of plunging oil prices,
imports of mineral fuels, lubricants and related projects fell by a whopping

43.4% from $1.279 billion in January 2014 to $723 million in January

2015.
Overall, there is a strong likelihood that the peso-dollar exchange
rate would be between P44 to P45 per US dollar in the near term. This
narrow range is not only likely; it is desirable. It addresses the welfare of
overseas Filipino workers, the demand of a growing economy, and the
desire of monetary authorities to keep their finances healthy.

Chapter 4
A. The Economic System in the Philippines

The Economy of the Philippines is the 39th largest in the world,

according to 2013 World Bank statistics, and is also one of the emerging
markets.[24] The Philippines is considered as a newly industrialized country,
which has been transitioning from being one based on agriculture to one
based more on services and manufacturing. According to the International
Monetary Fund estimates, the 2015 GDP (purchasing power parity) is
$751.770 billion.[25] Goldman Sachs estimates that by the year 2050, the
Philippines will be the 14th largest economy in the world, Goldman
Sachs also

included

the Philippines in

its

list

of

the Next

Eleven economies. In 2014, the Philippines was Asia's second-fastest

growing economy next only to China.[26] According to HSBC, the Philippine
economy will become the 16th largest economy in the world, 5th largest
economy in Asia and the largest economy in the Southeast Asian region by
2050.[27]
Primary exports include semiconductors and electronic products,
transport equipment, garments, copper products, petroleum products,
coconut oil, and fruits. Major trading partners include the United
States, Japan, China, Singapore, South Korea, the

Netherlands, Hong

Kong, Germany, Taiwan, and Thailand. The Philippines has been named
as one of the Tiger Cub Economies together with Indonesia, and Thailand.
It is currently one of Asia's fastest growing economies. However, major
problems remain, mainly having to do with alleviating the wide income and
growth

disparities

between

the

country's

different

regions

and

socioeconomic classes, reducing corruption, and investing in the

infrastructure necessary to ensure future growth.

Economic Indicators and International Rankings

Change
from
previous

Organization

Title

As
of

Ranking

Central Intelligence
Agency

Literacy Rate

2014

Fraser Institute

Economic Freedom of
the World

2013

5)

56 out of
144[87]

Heritage
Foundation/The Wall
Street Journal

Index of Economic
Freedom

2014

8)

89 out of
178[93]

International Monetary
Fund

Gross Domestic
Product (PPP)

2013

( )

30th[73]

International Monetary
Fund

Gross Domestic
Product (nominal)

2013

( )

39th[74]

International Monetary
Fund

GDP per Capita (PPP)

2013

International Monetary
Fund

GDP per Capita

(nominal)

2013

International Monetary
Fund

Foreign Reserves

2014

Population Commission

Population Density

2014

Reporters Without
Borders

Press Freedom Index

2013

7)

147 out of
178[95]

The Economist
Intelligence Unit

Global Peace Index

2013

4)

129 out of
158[94]

The World Factbook

External Debt

2013

Transparency
International

Corruption
Perceptions Index

2013

United Nations

Population

2013

( )

12th[78]

United Nations

Area

2013

( )

73rd[79]

108th out of
194nd[82]

6)

( )

1)

120th[75]

124th[76]

26th[77]

40th out of
242th[80]

54th[83]
(

11)

94 out of
177[92]

United Nations

Human Development
Index

2014

1)

117 out of
187[85]

World Bank

Ease of Doing
Business

2013

30)

108 out of
183[91]

World Economic Forum

Global
Competitiveness

2014

6)

52 out of
148[86]

World Economic Forum

Global Gender Gap

Report

2013

3)

5 out of 136[88]

World Economic Forum

Travel and Tourism

Competitiveness

2013

12)

82 out of
140[89]

World Economic Forum

Global Enabling Trade

Report

2014

8)

64 out of
138[90]

World Economic Forum

Financial
Development Index

2012

5)

49 out of 60[96]

World Health
Organization

Life Expectancy

2014

World Tourism
Organization

Tourist Arrival

2010

112th out of
193st[81]
(

1)

52 out of
198[84]

Based on the data above it is evident that the Philippines has a

Capitalist System of Economy. To shed more light on how the Philippine
Economy works. The following definition, characteristics, advantages and
disadvantages are hereby offered.

Definitions of Capitalism
G.D.H. Cole has defined capitalism as a system of production for
profit under which instruments and materials of production are
privately owned and the work is done mainly by hired labour, the
product belonging to the capitalist owner or owners

In the words of Loucks, Capitalism is a system of economic

organization featured by the private ownership and use for private
profit for man-made and nature-made capital
Without critically going into the merits of these definitions, we may
say that capitalism is an economic system in which land and other
productive resources are mostly owned by the private individuals and are
operated to earn profit, in which in spite of a degree of State intervention,
economic activities are mostly unplanned and uncoordinated.

Private Property and its Functions

1.

Gross has observed, Private enrichment has a social function, it is

the incentive for productive activity. To discourage it unduly is to undermine
the economic order.

2.

The second function that private property performs in a capitalist

economy is to promote saving and capital formation.

3.

The third function of the right to property is to ensure liberty.

4.

Gross has observed, Private enrichment has a social function, it is

the incentive for productive activity. To discourage it unduly is to undermine
the economic order.

5.

The second function that private property performs in a capitalist

economy is to promote saving and capital formation.

6.

The third function of the right to property is to ensure liberty.

Disadvantages of Private Property

First, the unit of ownership may be too small.

Secondly, the private owner holds the future at a discount.

Thirdly, Grossman remarks, It creates powerful vested interests that

are at times hard to control and regulate by democratic processes even if
the general welfare would seem to require.

Fourthly, private production has a bias in favour of the production of

private goods rather than public services. This does not promote the
general social welfare.
If you remember the issues about Maynilad in Metro Manila,
Meralco, Aleco, (now APEC) and other government owned service
providers that were sold to the Private Institutions. You will realize that the
concept of Capitalism has been reversed in the Philippines.
Ideally, it should be the government that should take over when a
private institution that provides basic services fails to do so. Ironically this
is happening the other way around in the Philippines. It is those Private
Institutions that buy out and takes over any Government Institutions that
provides these basic services like water, electricity, health and livelihood.

The Right of Inheritance

Loucks, however, is of the view that the institution of inheritance is
separate from the institution of private property. Social restriction of the one
does not necessarily imply the restriction of the one does not necessarily
imply the restriction of the other.

Competition
Competition is one of the vital pillars of capitalism. In a capitalist
system competition means economic rivalry.

Advantages of Competition
Competition under capitalism has certain special functions and
advantages as well as disadvantages.
Completion tends to promote economic efficiency and economic
progress. Competition tends to assure that goods and services will be
produced at the lowest possible cost of production. As Seligman pointed
out long ago, if completion in biology leads only indirectly progress,
competition in economics is the very secret of progress. Competition is
said to be the indispensable displinarian of the market economy. Under
competitive conditions only efficient firms will remain in the line, others
would be automatically eliminated. Competition compels the firms to use
the least cost combination of factors. They must use the most efficient
productive technology. Competition promotes scientific research and
inventions.

Advantages of Competition
Salvadori has quoted certain other advantages of competition.
1.

Competition tends to assure that profits will be held to the minimum,

because prices have to be kept down:

2.

Tends to assure that the energy and raw materials and productive
capacity of the nations will be used for providing those goods and services
which public wants and in proportion to the relative demands of the public
as reflected in the market place;

3.

Tends to assure that each factor of production will be paid through

wages, rent, interest or profits in harmony with the public estimate of the
contribution it makes;

4.

Assure that a constant effort will be made to widen the choice of

goods and services offered for sale.

5.

Assure that a constant effort will be made to improve the

attractiveness of goods offered for sale.

5.

Assure freedom of opportunity, by making it possible for any one at

any time, to enter any line of business he desires, for which he has the
necessary capital, and

6.

Assure free and continuous progress and a gradually improving

scale of living, through the production of more and more kinds of goods, of
better and better quality, at prices which a larger proportion of the public
can afford to pay.
To summarize the benefits of competition to the capitalistic society,
Salvadori again observes, In a word, from the point of the public welfare,
completion serves as a regulator and reducer of prices, an incentive to
improved production efficiency, as a guarantor that we shall get what we
want, and protector of the freedom of opportunity.

Disadvantages of Competition

1.

Extreme competition makes the sellers depreciate the quality of the

products. It is done in such a subtle and clever way that the consumers
cannot easily recognize it. By reducing the quality of the product the
producers may reduce the cost of production of the product and sell it at a
competitive price no doubt. But the consumers get an inferior article
without realizing it.

2.

Competition may lead to overcrowding in an industry than what can

be profitably supported by the existing demand conditions. This led Prof.
Ely to remark, Competition is wasteful. This ultimately paves the way for
the growth of monopoly.

3.

Sometimes fierce competition leads to deliberate obsolescence of

commodities. For example, in the U.S. an endless stream of revolutionary
improvement is advertised in an effort to persuade the customer discard
his current motor car. To present a more prosperous appearance to the
world the consumers opt for the latest model. Although these so called
changes may be meaningless or at best superficial, such changes involve
staggering expenses and constitute an waste from the social point of view.

4.

Competition also leads to maintenance of secrecy in matter relating

to production process etc. this leads to duplication of energy in research
and waste of resource.

5.

Sometime due to cut-throat competition the firm may offer the

wholesalers and the middlemen higher margins of profit, so that they would
be interested to push the sale of that particular brand over the others. This
will have a tendency to push up the prices.

6.

Competition sometimes compels the competing firms to resort to

competitive advertisement. This is a social waste.

7.

Due to severe competition some inefficient firms will have to close

down. This will lead to unemployment of the workers who were working
therein. This will lead to distress and misery on the port of the unemployed
workers at least temporarily.

8.

A large number of small firms are not suitable to promote research

and technological development. Modern research is highly expensive. A
large firm with adequate resources is in a position to finance research
expenditure. This progressiveness of pure competition has been a matter
of long debate

9.

Normally by competition we understand fair competition. But if the

businessmen are corrupt, dishonest and unscrupulous, this spirit of fair
competition may be absent. Hence vicious, unethical methods may be
adopted to curse ones rival in a ruthless manner. Here competition
becomes undignified and unethical.

10.

So far we have discussed completion in the traditional sense. But

with the technological growth I the U.S.A. another type of competition

arose. This was within a few. The big firms very often overbuilt.
Competition not only became severe buts also proved expensive. There
was competition among the giants in each field. But such cut-throat
competition although for some time was favorable to the consumers, yet,
as Heilbroner say, it led to bankruptcy on a multimillion dollar scale.
11.

Besides, as pointed out be Bye and Hewitt, free competition is not

necessarily equal completion. Under capitalism a person with wealth,
proper education and right connections is definitely in a better position than
his unfortunate counterpart. Obviously, he has greater chances to come
out victorious in the race of competition. Competition bestows its prices
upon the strong and luck at the expense of the weak and unlucky. Under

pure capitalism competition is the touchstone, the regulator, the

mechanism by means of which maximization of national income and public
welfare is brought. From the point of view of public welfare, competition
serves as a regulator of prices, as an incentive to improved productive
efficiency.