This is an Author's Original Manuscript of an article published by Taylor & Francis Group in “The International Review of Retail, Distribution and Consumer Research” on 2014, available online: http://www.tandfonline.com/dx.doi.org/10.1080/09593969.2014.970211
Bing Baltazar C. Brillo[1]
Abstract
In the prevailing globalized world order, shifting
economic regimes is principally understood via the overriding-external-impetus
lens where international demand holds sway over domestic policy making. Considering
the complexity of the process and the possibility of varying outcomes, the
perspective evidently limits the function of domestic politics in changing
regimes. In elucidating how the dynamics of domestic politics respond to
external impetuses and play out in relation to regime shifts, this paper looks
into the two cases of regime shifts in retail in the Philippines: Republic Act
(RA) 1180, a protectionist regime enacted in 1954 and RA 8762, a liberalized
regime legislated in 2000. The study examines the interface and convergence of
three salient factors— external-internal impetus, presidential intervention and
the changing dynamics in the retail sector— that were pivotal in both regime
shifts. Specifically, the external-internal impetus helped set off the move for
regime shift; the sitting President played a crucial role in the success of the
legislation in Congress; and the retail sector exemplified varying dynamics (e.g.
consolidation in RA 1180 and fragmentation in RA 8762) which facilitated the
enactment of the laws. The study also underscores two key points: (1) while the
initiative to adopt or change economic regimes for a government will continue to
have external impetus, the success of regime shift as well as the substance of
its specific policy will be essentially determined by the workings of domestic
politics; and (2) the legislative experience characterizes the contemporary link
between global influence and domestic dynamics in policy making. The paper closes
with a note on the case study’s implications on retail globalization in
Southeast Asia.
Keywords:
retail, regime shift, domestic politics, Republic Act 1180 and Republic Act
8762
Introduction
In the contemporary globalized era, two things have
characterized economic regime shifts in governments: one, it is a difficult and
contentious process (see Howlett and Ramesh 1995, Reich 2002, Stein et al.2005,
Bardach 2006 and Stewart 2008), and two, it is a top-down and externally driven
process (see O’Brien 1992, Ohmae 1996, Greider 1997, Gray 1998 and Hay 2006). In
terms of the first aspect, shifting regime is problematic, since it is inherently
easier to continue an existing policy than to radically reform it or totally replace
it. Since changing regime entails altering the status quo, naturally, those
benefiting from the current setup would fight tooth and nail to defend and
preserve their advantage. This impediment is exacerbated by the risks involved
in changing regime, as there is no guarantee that shifting regime will not have
detrimental effects or unintended consequences, and there is always the
potential that vested interests will seize the occasion. Moreover, shifting
regime may also suffer from collective action dilemma— when the costs of
regulatory change are immediately felt by, and concentrated on, a specific
group, while the perceived benefits are long-term and spread over a much larger
group (Olsen 1965), or when the affected group is highly organized, affluent
and well-connected, while the benefiting group is poorly organized, financially
weak and less influential (Reich 2002)— which create strong incentives against
regime shifts.
With respect to second aspect, regime shifts, under
the neoliberal orthodoxy, are considered to be processes instigated mainly by
external impetus. Specifically, the initiative to pursue policy change,
particularly in trade and finance, is deemed to be “dictated” from the outside
by global institutions (e.g. the World Trade Organization [WTO], Asia-Pacific
Economic Cooperation [APEC], the International Monetary Fund [IMF] and the
World Bank [WB]). This external intervention is rationalized, in theory, as the
norm in the globalized capitalist system (see Reich 1991, Ohmae 1996, Greider
1997 and Gray 1998), and usually enforced, in practice, through prescribed
policy reforms and loan conditionalities (see Reed, 1992, Simon 1995, Wood 1997
and Bracking 1999). Under this setup, the international demand for shifting
economic regimes is understood as undermining governments by holding sway over
domestic policy making. This arrangement implies that the link between the
external impetus and domestic politics is directionally skewed in favor of the
former.
Considering its complexity, understanding regime
shift plainly via the overriding-external-impetus lens is tantamount to
oversimplification. This explanatory inadequacy is evident in accounting for
the multitude of policy outcomes experienced by countries undergoing regime
change— a universal standard policy imposed by global institutions when
legislated by individual countries results in various forms. In rationalizing
the variation of policies among countries, scholars have attributed it to
factors such as the mixed effect of globalization vis-à-vis government capacity
(see Held et al. 1999, Woods 2000, Garrett 2000, Dicken 2003 and Sorensen
2006), the consequence of existing institutional arrangements (see Cox and
McCubbins 2001, Shugart and Haggard 2001, Tsebelis 2002 and Stein et
al.2005), and the influence of the prevailing practice of politics (see Wade
1990, Tansey 1995, Weiss 1998 and Leftwich 2000). Combined, these factors
points to one key variable— the dynamics of domestic politics. The importance
of domestic politics has been underscored in the burgeoning literature on
retail globalization, particularly in the concept of territorial embeddedness (see
Wrigley et al. 2005, Coe and Lee 2006, Coe and Wrigley 2009; see also Dicken et
al. 2001, Henderson et al. 2002 and Yeung 2005). The embedded concept
explicitly recognizes the influence of socio-economic-political factors, such
as the specificities of domestic dynamics (e.g. national markets) and the
demands of institutional contexts, in transnational retail expansion (see Tokatli
and Eldener 2002, Sang 2003, Wang 2003 and Tilly 2007). Thus, following the
mentioned scholarly works, understanding the intricacies of regime shifts
suggest the need for a proper reading of the workings of domestic politics;
specifically, how it responds to external impetus and the way it plays out in
the policy making process and determines outcomes.
Thus, to elucidate the intricacies of regime shift
and the significance of the workings of domestic politics, this paper examines
two cases of regime shifts in retail that occurred in the Philippines. The
first is Republic Act (RA) 1180, a protectionist regime enacted in 1954 and the
second is RA 8762, a liberalized regime legislated in 2000. Despite the two
laws’ opposing ideological orientations, both regime shifts share similarities,
such as being influenced by international economic trends, took long difficult
paths to legislate, and involved powerful interests. In analyzing the
specificities of domestic politics in the regime shifts, the interface of three
key factors is underscored: external-internal impetus, presidential
involvement, and the retail sector’s dynamics. These factors were emphasized
since the literature suggests their centrality in Philippine legislative
politics (e.g. for external-internal impetus [see Constantino 1970, Lichauco
1973, Bello and Rivera 1977], for presidential intervention [see Gutierrez
1994, Caoili 2006, Velasco 2006], and for the business sector’s influence [see
De Dios 1990, Montes 1992, Hutchroft 1993, Hutchroft 1998, Almonte 2007]). The
paper proceeds as follows: the first part presents a narrative of the policy
making of RA 1180 and RA 8762, and the second part discusses the interface of
the underlying factors in the two regime shifts. The paper concludes with a
discussion of the implications of the Philippine experience by focusing on the
link between external demand and domestic politics in contemporary policy
making.
The Shifting
Economic Regime in Retail: RA 1180
The move to change the regulatory regime in retail
had a long gestation period. During the Spanish and the American colonization
periods and up to the establishment of the Philippine republic in 1946, the
country had a liberalized system in retail. Doing business in retail was open
not only to Filipinos but also to resident foreigners. Since the 1600s, the
retail sector in the country had been overwhelmingly dominated by aliens,
particularly Chinese immigrant retailers. In 1948, the Bureau of the Census and
Statistics reported that 98.5 percent of alien retailers in the country were
Chinese. Also, the Chinese immigrant retailers owned 61 percent of the retail
businesses, compared to Filipinos who only owned 32 percent (Agpalo 1962). This
longtime Chinese dominance of the retail industry had become a sensitive issue
among Filipinos, since they saw this as detrimental to them and to the country
as a whole. Retail was, and indeed still is, considered a critical sector of
the Philippine economy, as it provided massive employment, contributed
significantly to the gross domestic product (GDP)[2]
and linked the other sectors of the economy to the consumers. Hence, the common
thinking among Filipinos was that it should not be left in the hands of aliens.
In time, this perception became a stimulus for the demand to nationalize the
retail sector in the country.
There were sporadic appeals to free the retail
industry from the Chinese immigrants’ control from the early 1900s. The
organized mobilization, however, only began during the closing stages of
American colonization, when the country experienced the resurgence of
nationalism. The nationalist sentiment was mainly associated with the global
clamor for self-determination in nation building; a phenomenon widely accepted
among many newly independent developing countries at the time. In particular,
the external impetus for self-determination was propelled by the rise in the
world stage of dependency theory and its preferred strategy— import
substitution industrialization (ISI). Here, the common theme was that countries
must break free from their dependence on first world countries and pursue
autonomous national development strategies (see Prebisch 1950, Baran 1957,
Nurkse 1961 and Frank 1967). In other words, the political independence gained
must go hand in hand with economic independence. This notion became the popular
slogan among the political leaders of the newly independent Philippine
government (Constantino 1975, Agoncillo 1990). In the domestic economy, this
thinking translated to economic protectionism. It became the norm for the
government to enact policies that were designed to protect or give advantage to
local industries (e.g. market or tax advantage). Protectionist policies were
considered necessary to nurture domestic industries and businesses, especially
against foreign competition. In retail, this protectionist agenda was expressed
through a direct call for the government to emancipate the retail sector from
alien control via nationalization.
Internally, protectionism in retail was also fueled
by the economic prosperity experienced by the country. The Bureau of the Census
and Statistics reported that the total trade of the Philippines more than
doubled from 720.1 million pesos in 1946 to 1,695.9 million pesos in 1953. This
affluence led to some Filipinos becoming wealthy,[3]
and in turn, set off the thought among them of entering the lucrative retail
sector (Agpalo 1962). Early on, the intent to break the alien stranglehold on
retail was manifested in the launching of the Chamber of Commerce of the
Philippines’ (CCP) First National Convention of Filipino Businessmen in 1929,
and the founding of the National Economic Protectionism Association (NEPA) and
the Association for the Nationalization of Retail Trade in 1934. These
organizations directly called for the government to prohibit aliens from
engaging in retail (Agpalo 1962). Their contention was that the Filipino
retailers were financially and organizationally incapable of competing against
the alien retailers; hence, the government must intervene to free the sector
from alien domination (Congress of the Philippines 1954). With this intent,
naturally, it resulted in resentment between the Filipino business community
and the Chinese immigrant retailers.
The Filipino business community’s effort to
nationalize retail, however, was perennially thwarted in the legislature. The
retail nationalization bill had been regularly introduced in Congress from the
Commonwealth period[4]
to the granting of independence.[5] On
all occasions, the bill did not materialize into law. This outcome was due
principally to the strong lobby of the alien retailers, especially the Chinese
immigrant retailers, in Congress. The alien retailers’ success was attributable
to two factors: first, their inherent advantage, and second, the intrinsic
weakness of the Filipino business organizations. In terms of the first
advantage, the alien retailers had financial leverage and help from their
respective governments. The alien retailers were a significant source of
capital in the domestic economy and enjoyed strong external support, as the
Taiwanese, the Japanese and the American governments exerted pressure on the
Philippine government.
With respect to the second dimension, the Filipino
business organizations were still in a nascent stage of development. The
principal groups pushing the nationalization of retail were newly established
(e.g. the Filipino Retail Merchants’ Association in 1948, the Filipino Economic
Emancipation Organization in 1952, the United Filipino Retailers and
Cooperative Association in 1952, and the Filipino Retail Business Movement in
1953) compared to the alien retailers’ organizations (e.g. the Chinese General
Chamber of Commerce [CGCC][6] /
the Federation of Chinese Chambers of Commerce [FCCC] and the American Chamber
of Commerce [ACC]) which had been formed way before. By implication, the
Filipino business organizations were still in the phase of
building-consolidating relative to the alien retailers’ organizations which
were already entrenched, cohesive and well-funded (Jison 1954, Reyes 1955). In
this context, the emerging Filipino business community lacked the political
weight needed to neutralize the influence of the alien retailers and their
governments.
The influence over the Philippine government,
particularly, in the executive and the legislative branches favored the alien
retailers. The legislature was perennially the haven of wealthy Filipinos
(Gutierrez 1994, Coronel et al. 2004,
Caoili 2006). With this composition, naturally the First Congress and the
Second Congress were sympathetic to the cause of the local business community,
and thus, supported the Bill to nationalize retail. The executive, on the other
hand, was accommodating to the lobby of the alien retailers and their home
governments. The Presidents, one way or another, made crucial efforts to
preclude the enactment of the nationalization bill in the legislature. For
instance, President Manuel Quezon (Commonwealth Republic, 1935-1944) moved for
the postponement of the filing of the Bill, President Sergio Osmen͂a
(1944-1946) vetoed the Bill, President Manuel Roxas (1946-1948) did not support
the move to nationalize retail, and President Elpido Quirino (1948-1953) did
not extend the session of Congress to salvage the Bill (Agpalo 1962). Here, the
rationale used for not supporting the nationalization bill was its repercussion
on the economy. Specifically, it was argued that disenfranchising alien
retailers might create a vacuum in the domestic market (which the Filipino
retailers are incapable of filling in), and expose the country to retaliation
from the governments of alien retailers (Congress of the Philippines 1954). Overall,
this political equation was favorable to the alien retailers, since in the
history of Philippine politics, the President is the crucial actor on key
legislations, as Congress usually only takes cue from the former (Gutierrez
1994, Caoili 2006, Velasco 2006).
After the 1953 Congressional-Presidential election,
the political equation was significantly altered. The elections resulted in a
government under a single party. The Third Congress (i.e. the Senate and the
House) and the executive branch were controlled by the Nationalista Party,
whose political agenda was supportive of economic protectionism. Since the
previous legislatures (i.e. the First Congress and the Second Congress) already
supported the proposal to nationalize retail, the major change was the election
of President Ramon Magsaysay (Agpalo 1962). President Magsaysay, unlike his
predecessors, was open to the idea of nationalizing retail. This change in the
political equation was complemented by the consolidation of the Filipino
business community. Since the 1930s, the Filipino business organizations had
been building up their efforts in pushing for the nationalization bill. With
the strengthening of the Filipino business organizations, they were ready to
offset the influence of the alien retailers, particularly, Chinese immigrant
retailers, in government. With this development, President Magsaysay
effectively moved in to nationalize retail by strongly endorsing its
legislation in the executive-legislative conference and by certifying its
urgency in Congress.
Under the context discussed, the Third Congress
enacted RA 1180 in May 1954, officially nationalizing the retail sector in the
Philippines. RA 1180 marked a regime shift in retail from an open to a closed
system. The law effectively prohibited aliens from directly or indirectly
engaging in retail in the country. Although regime shift implies radical policy
change, ironically, RA 1180 was conservative in essence. This outcome was
primarily due to the two crucial stipulations that were included in the law which,
in effect, significantly diluted its regulatory nature. In particular:
(1) That
a person who is not a citizen of the Philippines, or an association,
partnership, or corporation not wholly owned by citizens of the Philippines,
which is actually engaged in the said business on May, fifteen, nineteen
hundred and fifty-four, shall be entitled to continue to engage therein, unless
its license is forfeited in accordance herewith, until his death or voluntary
retirement from said business, in the case of a natural person, and for a
period of ten years from the date of the approval of this Act or until the
expiration of the term of the association or partnership or of the corporate
existence of the corporation, whichever event comes first, in the case of
juridical persons.
(2) Nothing
contained in this Act shall in any way impair or abridge whatever rights may be
granted to citizens and juridical entities of the United States of America
under the Executive Agreement signed on July fourth, nineteen hundred and
forty-six, between that country and the Republic of the Philippines (see RA
1180, Section 1, paragraph 1 and 2).
The
first stipulation was a concession made to directly appease the Chinese
immigrant retailers. The stipulation gave the alien retailers the legitimate
prospect of continuing their business upon the implementation of the law, and
the time to apply for Filipino citizenship (Martinez-Santos 2000). The second
stipulation was a concession made to American retailers operating in the
country. The stipulation exempted them from the law, since it assured the
continuity of the Bell Trade Act of 1946, which guaranteed parity rights to
American citizens[7] (Schirmer and Shalom 1987, Agoncillo 1990).
These concessions were a tactical maneuver taken in the legislation of RA 1180;
as they were the only way for President Magsaysay and the Congress to mollify
the protestation of the alien retailers, while coming up with a nationalizing
law that catered to the plea of the Filipino business community. In other
words, the enactment of the law manifested the influence of the Filipino
business community and the conservativeness of the law revealed the enduring
influence of alien retailers.
The Shifting
Economic Regime in Retail: RA 8762
By the 1990s, the soundness of RA 1180 was being
questioned. For one, the protectionist regime had resulted in an oligopoly,
wherein the industry was controlled by few players, particularly
Chinese-Filipino retailers (Philippines Special Report 2002). The top three
local retailers had captured close to 40 percent of the total sales of the
retail sector (Congress of the Philippines 1999). It was also contended that
the regulation had outlived its purpose. The law was originally intended as a
remedy against the Chinese immigrant retailers’ control of the retail industry.
But with the mass naturalization— Chinese immigrants becoming Filipino
citizens— ironically, RA 1180 became a shield for Chinese Filipino retailers
against foreign competition and for preserving their monopoly of the industry.
Furthermore, it was argued that the regulation did not translate into
substantive growth for the retail industry after four decades of operation. The
Philippine retail sector had only grown to 10.9 percent of the GDP compared to
the approximately 18 percent average among Southeast Asian countries at that
time (Patalinghug 1996). Taken as a whole, these interlocking contentions
became a motivation for the domestic demand to repeal RA 1180.
The idea to amend RA 1180 gradually developed in
government after the People Power Revolution in 1986. The notion was instigated
when the newly-installed administration of President Corazon Aquino officially
adopted liberalization as the government’s economic strategy in dealing with
the stagnant economy. This decision was to keep up with the global trend in
economic thinking among many developing countries in the 1980s. It was also an
action aligning the Philippines with the neoliberal bandwagon that was popular
among the members of the ASEAN community. The external impetus was propelled by
the primacy in the world stage of neoliberal economic theory, which gave high
regard to market and trade oriented policies. Here, the core principles of
deregulation, privatization, foreign investment and open trade became the
guiding tenets of governments in economic development (see Balassa 1981, Lal
1983, Hayek 1990 and Toye 1993). Following this, the C. Aquino government started
its liberalization agenda with the legislation of RA 7042— the Foreign
Investment Act— in 1991, and with the agreement of establishing the ASEAN Free Trade Area (AFTA) in
1992.The former was considered as the precursor law that would pave
the way for the legislation of other liberalization policies, and the latter
was regarded as commitment by the government to open the domestic economy by
2008 through removal of trade restrictions. These governmental actions were ‘in sync’ with the plan to
open key sectors of the domestic economy, which included the liberalization of
retail (i.e. opening the sector to foreigner retailers).
In pushing
for a broad economic liberalization agenda, however, President C. Aquino had
limited success. The mediocre performance was attributable to being a
transitional government. Her administration had succeeded the 20-year Marcos
regime via extra-constitutional means, inherited a bankrupt and debt-ridden
economy, and was hounded by a series of coup attempts (De Dios and Hutchcroft 2003). The political-economic instability
caused the C. Aquino government to embrace a modest push in liberalizing the
economy. It
became prudent for the government not to further shake the status quo by
pursuing highly divisive policies.
Hence, as governmental stability became the priority, contentious
policies, such as the move to amend RA 1180— the retail nationalization
law—were put on the back burner, so to speak, since shifting regime in retail
would pit the C. Aquino administration directly against the economically
entrenched Filipino-Chinese retailers.
When President Fidel Ramos was
elected in 1992, his government did not only follow the economic liberalization
program of his predecessor, but significantly accelerated it. The government
liberalized key sectors of the economy, such as telecommunications, airlines,
shipping, banking and insurance, and joined the World Trade Organization (WTO) in 1995 (De Dios and Hutchcroft
2003, Almonte 2007). In line with this, the government moved for the liberalization of retail in 1995 by
formally pushing for the amendment of RA 1180 in Congress. The move, however,
did not prosper, as the amended bill was repeatedly blocked in the legislature,
specifically, in the Ninth Congress (1992-1995) and the Tenth Congress
(1995-1998). The failure to pass the repealing
law was mainly attributable to the strong opposition of the big retailers,
particularly, the influential Chinese-Filipino retailers and the predilection
of the legislature to favour business interests. In terms of the former, the
big retailers expected to bear the brunt of the regime shift, since allowing
the entry of foreign retailers would mean more competitors in the market, and
hence, risk their dominance of the industry. With regards the latter, as the Philippine
Congress is perennially the home of wealthy individuals and businessmen,
naturally, the institution is more sensitive to business interest (Gutierrez
1994, Coronel et al. 2004, Caoili 2006).
The political equation changed when President
Estrada got elected in 1998. President Estrada sustained the economic
liberalization program of his predecessor, including the repeal of RA 1180. At
the beginning of his term, President Estrada conveyed to Congress that his
government would prioritize the push for the liberalization of retail. This
intent was manifested when the administration’s economic managers were
instructed to supply a working draft of the repealing bill and when President
Estrada certified it as a priority in Congress. The step was significant. For
one, unlike President Ramos, who had to contend with time constraint at the end
of his term, President Estrada commenced his move early on in his term, which
gave him ample time to succeed. Secondly, President Estrada, at this point, was
still very popular and enjoyed widespread backing from the legislators. Under
this context, support among the business community (except for the big
retailers) to repeal RA 1180 gradually snowballed. In particular, the move was strongly supported by the umbrella
associations of the business sector (i.e. the Philippine Chamber of Commerce
and Industry and the Federation of Filipino-Chinese Chamber of Commerce and
Industry) and the foreign business community in the country (i.e. American
Chamber of Commerce, European Chamber of Commerce, and the Australian/New
Zealand Chamber of Commerce). Furthermore, the Consumer Union of the Philippines, which is
the umbrella organization of consumer groups, also joined the bandwagon and
strongly supported the move of the administration. Here, the consumer groups
saw that opening retail to foreign competition would be to their advantage, as
it entailed more
choices of goods for the consumers (Congress of the Philippines 1998).
The swelling of
support for the repeal of RA 1180 was paralleled by the change of the dynamics
in the retail sector. On one hand, the small retailers, particularly the
operators of sari-sari stores (i.e. the small neighborhood convenience stores),
which comprised 90 percent of the retail stores[8]
openly supported the move for liberalizing retail. They rationalized that the
increase in number of retailers (i.e. from the entry of foreign retailers)
would mean more alternatives for them to source their supplies. On the other hand, the big
retailers, faced with the increasing support for liberalizing retail, began to recognize that the repeal of RA 1180 was just
a matter of time. This realization was expressed publicly, when the two main
retail groups in the country— the Philippine Retail Association (PRA) and the
Philippine Franchise Association (PFA)— conceded that regime shift was
inevitable (Congress of the Philippines 1998).
Another crucial development in the retail
sector was the fragmentation of the big retailers. The big retailers, which for
a long time were united in blocking the move to liberalize retail, took
diverging positions. For instance, with the perceived inevitability
of the repeal of RA 1180, the leading big retailers in the country reluctantly
accepted the opening of the sector to foreigners under the condition that the
amending law would give emphasis on the strategic partnership (e.g. joint
venture) between them and the foreign retailers (Congress of the Philippines
1998). Conversely, other big retailers, specifically, affiliates of Kilusan
Tungo sa Pambansang Tangkilikan (KATAPAT) continued to maintain their position
of strongly opposing the entry of foreigners in retail (Congress of the
Philippines 1998). In this scenario, the retail sector had become divided: the
small retailers were all-out for liberalizing retail; the leading big retailers
took an open but qualified stand; and the remaining big retailers continued to
vehemently go against liberalizing retail. This fragmentation, in effect, was
significant since it profoundly weakened their pressure on the government.
Under the conditions discussed, the Eleventh Congress passed RA
8762 in February 2000, officially
amending RA 1180 and liberalizing the retail sector. RA 8762 marked a regime shift in the retail sector from a close to an
open system. The law, in general, allowed foreign retailers
to directly operate and do business in the country. Although regime shift
implies drastic policy change, ironically, RA 8762 was conservative in substance. This outcome was mainly due to
the several key stipulations that were included in the law which, in effect,
considerably watered down the openness of the retail sector. In particular:
(1) Retail trade enterprises with a paid-up
capital of less than $2,500,000.00 are reserved exclusively for Filipino
citizens and corporations.
(2)
Foreign
investors interested in acquiring shares of existing local retailers may
purchase only up to a maximum of 60 percent of the equity within the first two
years from the effectivity of the repealing law.
(3)
Retail
trade enterprises where foreign ownership exceeds 80 percent must offer a
minimum of 30 percent of their equity to Filipinos through any stock exchange
in the Philippines within eight years from their start of operations.
(4)
The DTI
must prequalify all foreign retailers before they are allowed to conduct
business in the Philippines. For instance, to preclude fly-by-night retailers,
the DTI requires foreign retailers to have at least five retailing branches in
operation anywhere around the world as well as a five-year track record in
retailing.
(5)
Only
foreign retailers coming from countries that allow the entry of Filipino
retailers would be permitted to engage in business.
(6)
At least
30 percent of the stock inventory of foreign retailers, after 10 years from the
effectivity of the law, must be Philippine made.
(7)
Qualified
foreign retailers are not allowed to use rolling stores or sales
representatives, or engage in door-to-door selling or the restaurant business,
or run sari-sari stores (see RA 8762, Section 5-10).
The
stipulations were concessions made principally to appease the big retailers. In
essence, the stipulations provided considerable protection to local retailers
and restricted the access of foreigners to the retail sector. These concessions
were a strategic move taken in the legislation of RA 8762. They were the
primary instrument used by President Estrada and the Congress to placate the
opposition of the big retailers in coming up with a liberalizing law consistent
with the government’s economic strategy (Congress of the Philippines 2000).
Here, the fragmented retail sector was not able to preclude the enactment of
the law, but the enduring influence of the big retailers was enough to shape
the substance of the law.
The Underlying
Factors in the Regime Shifts
Although separated by four decades and having
opposite outcomes (a protectionist law [RA 1180] and a liberalizing law [RA
8762]), the two regime shifts in retail, overall, have similar salient factors;
particularly, the external-internal impetus, presidential intervention and the
changing dynamics in the retail sector. Essentially, these factors defined the
policy making process and outcome, and their convergence illustrated the
workings of domestic politics in the Philippines. Specifically, the external-internal
impetus helped instigate the move for regime shift; the sitting President
played a significant role in the success (or not) of the legislation in
Congress; and the retail sector (i.e. the segment in the economy directly
affected by the regime shifts) exemplified varying dynamics which facilitated
the enactment of the laws.
At the onset, the mobilization for regime shift was
set off by the external-internal stimulus. In RA 1180, the move for
nationalizing the retail sector was traceable to the post-World War 2 global
trend. There was a world-wide inclination for newly independent countries to
adopt protectionist policies as their main development strategy. In RA 8762,
the move for liberalizing the retail sector was induced by the global popularity
of the neoliberal economic school in the 1980s. There was a widespread
preference for countries (including ASEAN countries) to adopt open market and
trade oriented policies as the engine for economic development. These external
impetuses coincided with developments on the domestic front. In RA 1180, the
longtime hold of the Chinese immigrant retailers on the industry and the
emergence of the Filipino business class (i.e. interested in gaining entry into
the lucrative retail sector) provided the motivation for the call to
nationalize the retail sector. In RA 8762, the stagnation of the economy and
the oligopoly in the retail sector supplied the rationale for embracing the
liberal economic strategy. On the whole, the external impetus and the domestic
dynamics intertwined and worked together in instigating a strong demand for
regime shift.
Since both regime shifts directly
involved the interplay and collision of powerful interests, presidential
intervention became a crucial element in diluting the resistance in the
legislation. In RA 1180, the primary opposition to the move to nationalize the
retail sector came from the alien retailers, especially, the Chinese immigrant
retailers. The alien retailers were established actors in the domestic economy
since they had the financial leverage and were strongly supported by their
respective governments. In RA 8762, the main opposition to the move to
liberalize the retail sector was the local big retailers. The big retailers
were entrenched actors in the domestic arena since they controlled the retail
sector, a critical segment of the economy. Here, the action of the alien
retailers and the big retailers in opposing the move for regime shift were
consistent with the intentions of preserving their dominance in the industry.
Since the regime shift was designed to alter the
status quo, the alien retailers and the big retailers saw the move as directly
detrimental to them. On this ground, both mobilized and took strong actions
against the legislative initiative. Moreover, the resistance of the alien
retailers and the big retailers was further aggravated by the presence of
collective action dilemma in the policy making equation. In RA 1180,
particularly in the early part of the move to nationalize retail, the alien
retailers’ organizations were already well-established compared to the Filipino
retailers’ organizations which were still emerging. In RA 8762, the
consequences of opening retail to foreign competition were perceived as direct
and immediate for the big retailers, while the benefits were deemed as highly
dispersed and long term for the consumers. These conditions considerably
enhanced the mobilization against regime shift, and hence, made the move highly
contentious. With these circumstances, the legislation entailed the
intervention of the President in offsetting the influence of the oppositions as
well as the collective action dilemma. Here, the President’s resolve (i.e.
President Magsaysay in RA 1180 and President Estrada in RA 8762) became
instrumental in leading Congress to enact the laws.
Lastly, the varying dynamics in the
retail sector became the final component in the attainment of the two regime
shifts. In RA 1180, there was consolidation of the retail sector. Since the
emerging Filipino business class wanted to move into the lucrative retail
industry, they bound together against the alien retailers who controlled the
sector. The consolidation of the Filipino business class was critical in the
legislation since they were able to counteract the influence of the
foreign-government-supported alien retailers, especially, the financially
entrenched Chinese immigrant retailers. In turn, this change in the retail
sector’s dynamics provided a compelling inducement for the legislators to enact
the law. In RA 8762, there was fragmentation in the retail sector. The small
retailers, the leading big retailers and the other big retailers took diverging
stands on the policy issue. This fragmentation in the retail sector was crucial
in the legislation since it considerably weakened the sector’s influence. In
turn, the “breaking up” among the key actors of the retail sector afforded the
lawmakers the autonomy-leeway to legislate the law. Furthermore, the two regime
shifts also exemplified the enduring influence of the retailers (i.e. the
Chinese immigrant retailers in RA 1180 and the big retailers in RA 8762).
Despite the successful enactment of RA 1180 and RA 8762 (which presupposes
drastic change in policy), the two laws were conservative. The final forms of
both policies included moderating provisions that were demanded principally by
the alien retailers and the big retailers. These necessary concessions were the
final straw in completing the legislative process of the regime shifts.
Conclusion and
Implications
In the contemporary globalized era
where economic policies, particularly, in trade and finance, are enacted in an
international context, the Philippine case of regime shifts for retail
exemplifies two key points: first, although the initiative to adopt or change
economic regimes for a country will continue to have external impetus, the
success of regime shift as well as the substance of its specific policy will be
significantly dependent on the workings of domestic politics; and second, the
legislative experience characterizes the present-day relationship between
global influence and domestic dynamics in policy making.
With regards the first dimension, the initiative for
economic regime shift, to a large extent, will continue to have strong
exogenous impetuses. This reality has to do with the persistent dominance of
the neoliberal orthodoxy in the contemporary globalized era. In the neoliberal
world order, economic regimes are typically enforced on a country from the
outside via a ‘top-down’ approach. In particular, the global trade and finance
institutions set and impose such regimes on governments which, in turn, are
compelled to adopt and legislate their prescribed policies. Although this is
the “global arrangement,” the realization of economic regime shifts, as well as
the actual shape of the policy, is still dependent on the praxis of domestic
politics. In other words, the success (or failure) of the initiative and the
specific form of its law (e.g. conservative or radical) are largely derivative
of the interplay and convergence of the factors peculiar to the country. For
instance, the realization and the substance of RA 1180 and RA 8762 were
determined by the interface of actors and stakeholders with diverse interests
(e.g. the President and the legislators or the fragmentation/consolidation of
the business community), the institutional power arrangement (e.g. dominance of
the executive over the legislature) and the prevailing condition/timing (e.g.
post-World War 2/post-EDSA economic strategy or the need to appease the
business interests). The interaction among these variables was critical since
it directly played out in the policy making process and ultimately determined
the outcome. Thus, understanding why regime shift occurs and how a policy takes
its shape is contingent largely in comprehending the complexity/specificities
of domestic politics.
The second aspect exemplifies the convergence of
globalization and national politics in policy making. Overall, the Philippines’
two cases of regime shifts in retail suggest considering international demand
more as a constant and the dynamics of domestic politics more as a variable.
External demand is the starting point but once passed through the institutional
legislative mill, the policy initiative can take many forms depending on how
the domestic politics plays out. This proposition has a huge bearing on
conceptualising externally driven top-down policies (which are prevalent
today). An initiative that is uniformly imposed from the outside by the global
trade and finance institutions, when received, would vary from country to
country, depending on the nitty-gritty of the politics on the ground. In other
words, it emphasizes the danger of assuming that an internationally prescribed
“good” regime or policy would just be identically adopted by different
countries. Instead, once an initiative is taken by the government, it is bound
to reflect the distinct character of politics practiced on each country. This
variation in dynamics leads to engagements and tradeoffs among the domestic
variables which ultimately steer the process to different pathways and varieties
of results. The discussion puts a caveat on the conventional thinking that
economic regimes are firmly embedded in external global impetus, as the
consequences of domestic politics continue to exemplify considerable say in
determining the policy making process and outcome.
In closing, the finding in this study has considerable
implications on retail globalization in Southeast Asia, given the constancy of
external impetuses and the variability of domestic politics among countries (i.e. Malaysia, Thailand, Vietnam and
Indonesia)
in the region. On one hand, the
countries are similarly exposed to the same international influences,
particularly coming from multilateral institutions active in the region, such
as the WTO, the IMF, the WB, APEC and the Association of Southeast Asian
Nations (ASEAN). This condition presupposes a parallel trajectory, overall,
among the Southeast Asian countries in terms retail trade policies. On the
other hand, the countries, relative to each other, are highly diversified in
their social-economic-political contexts. These variations in domestic dynamics
are likely to play out in determining the specific retail policies and
regulations (i.e. the process of deriving them and defining their substantive
form), as these factors would naturally intervene in political processes and
would have distinct consequences in each country. With this prospect, this
study ends with a call for more research on the politics behind retail policies
and regulations among individual countries in Southeast Asia, as this is the only
way to ascertain the particular workings of polity on the ground and the extent
of their shaping effect.
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[1]Dr. Brillo is Associate Professor at the Institute for Governance
and Rural Development, University of the Philippines Los Ban͂os. This article benefited from the previous works of the author on
the policy making dynamics in the Philippines.
[2] As of 2012, the Philippine Retailers Association reported that the
retail sector accounted for 15 percent of GDP and employed 5 million Filipinos
or 18 percent of the workforce.
[3] Some families who became prosperous during that time were the
Aranetas, the Puyats, the Roxases, the Aguinaldos, and the Halilis
(Agpalo 1962).
[4]
The First National Assembly (1935-1938) and the Second National Assembly (1938-1941).
[5]
The First Congress (1946-1949) and the Second Congress (1949-1953).
[6]
The CGCC was founded in 1904, and the FCCC had 227-member chambers of commerce
throughout the country (Agpalo 1962).
[7] The Bell Trade Act of 1946 was subsequently replaced by
Laurel-Langley Agreement in 1955.
[8] Sari-sari
stores capture only 30% of retail sales but account for 90% of the universe of
stores (AC Nielsen 2005, Gutierrez 2010).
