The Answer is Somewhere in Between

After the fall of socialist regimes in the early 1990’s, Francis Fukuyama boldly declared that it signaled the end of history and the triumph of capitalism. Decades after, the global capitalist system is confronted with a global financial meltdown forcing governments to abandon a fundamental principle in market capitalism, that of, no or minimal state intervention in the economy. George Soros succinctly puts the debate to wit, “financial markets are inherently unstable and there are social needs that cannot be met by giving market forces free rein. Unfortunately these defects are not recognized. Instead there is a widespread belief that markets are self-correcting and a global economy can flourish without any need for a global society. It is claimed that the common interest is best served by allowing everyone to look out for his or her own interests and that attempts to protect the common interest by collective decision making distort the market mechanism”.

The perennial question of whether there should be less or more state intervention in the market is tackled by Walden Bello in the book, “The anti-development state: the political economy of permanent crisis in the Philippines,” where he argued that neo-liberal policies and reforms have not produced the economic growth neo-liberalism claims it would bring. The effort of the country’s economic managers to link the economy with the global economic system without the required safety nets, governmental reforms, and economic reforms has resulted to almost a quarter of a century of economic stagnation. To Bello, the oligarchy that have controlled and have continued to control both the economic and political opportunities in the country had become more and more entrenched as the country globalizes. Economic policies that the country is cajoled or forced to embrace to become a player in the globalizing economy failed to take into consideration that whatever benefits these would bring would only benefit the oligarchy. It is like catch 22 for the country. The oligarchy is maintained by the neo-liberal economic policies which have relegated the country into an economy that has failed to industrialize because the base of the power of the oligarchy is not an industrialized Philippines but a country that provides raw materials, agricultural products, semi-processed product, and cheap labor. Because of this condition, Bello calls for more state intervention that will enable the country to set its own development agenda. Without an effective and efficient state intervention, the economy will be monopolized by the oligarchic interests that exploit the benefits of neo-liberal economy for their own selfish interests.

However, Jose T. Almonte in his book, “To put our house in order: we must level the playing field,” argued for less state intervention in the economy. The protectionist stance of the country in the past had only emboldened the oligarchies who have continued to monopolize both political and economic power in the country, thus, stunting the country’s attempts at modernization. Almonte was obsessed with the oligarchy and was convinced that the root of the country's problems lay in "the predatory rent-seeking elite "that dominated "not through its possession of capital or skill at entrepreneurship, its industry or its superior intelligence but through its monopoly of political power. "Almonte's solution was to use market forces to "level the playing field." To Almonte, there should be less state intervention because electoral politics created a national oligarchy and made the administrative service increasingly a prize of the patronage system. The central authority remains weak and captured by oligarchic interests which prevent the national government from effecting development oriented reforms that will dismantle monopoly of oligarchic interests.

The history of protectionism in the Philippines has not yielded the result that is claimed it would. Protectionist trade regimes in poor countries with weak states such as the Philippines, typically work less toward development and more toward lining the pockets of the oligarchs and monopolists who command the power and the influence. For instance, when the world economy opened up again after World War II, we found we could not switch as easily to an export strategy as our neighbors were able to do—because oligarchic interests had clustered around the protectionist strategy. According to Almonte, “we must cut the networks of collusion that have allowed persons of influence to extract wealth without effort from the economy. And we must smooth the economic distortions that perpetuate jobless growth and uneven development. As far as possible, every one should have a fair and equal chance to pursue the possibilities of their lives. And because political power is so dispersed, we should encourage the consolidation of our small-scale autocracies, so that they can mitigate their pursuit of self-interest with some sense of the nation. We must also raise the electoral process beyond the reach of partisan politics; otherwise no government can work effectively—whether under the current presidential system or under the parliamentary form, as envisaged by the proponents of charter change. State intervention in the economy should be a question not of principle but of feasibility. For a weak state such as ours, leaving the market a lot of room is not a default of state responsibility, but a practical recourse—a recognition of necessity. And the bottom-line definition of effective government is one able to resist partisan political demands that would undermine overall economic growth.”

The answer to the question whether the state should intervene in the market or not lies somewhere in between. The fall of the socialist regimes has taught us that we cannot totally do away with the market. The current global economic crisis has taught us we cannot totally do away with the state in regulating the market. In the Philippines, what seems to be the central issue is not more or less state intervention but the quality of the state itself. So long as the Philippine state remains captured by oligarchic interests, both the market and the state will remain pawns by oligarchic class. The challenge then is how to broaden and deepen citizen participation in public policy making and implementation. The reforms that are needed should not only be articulated by the few intelligentsia. The need for these reforms must be “lobbied” by a critical mass. The key then is education.