Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Markets Still Promote Common Good

           Before critics of free markets exaggerate the condemnation of some forms of capitalism by Time Man of the Year Pope Francis, let us set the record straight by quoting from the Apostolic Exhortation "The Gospel of Joy."  In paragraph 56 of this well publicized document, we read:  "While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few.  This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation.  Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control.  A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules..."

          What is clearly being condemned is the thinking that the market has absolute autonomy and should not be subjected to state regulation.  I may also add that the reference of financial speculation is a criticism of the doctrine that was espoused by Alan Greenspan, who was at the helm of the US Federal Reserve System during the heyday of the toxic derivatives, that financial markets are self-regulating.  The Pope is very well aware that markets, when subjected to reasonable regulation, have the tremendous potentials to generate hundreds of millions of job opportunities in both developed and developing economies.  In the case of the free exchange of goods and services among countries, there is also incontrovertible evidence that hundreds of millions of Chinese and Indians, among others, were liberated from dehumanizing poverty over the last twenty years, thanks to the opening of the markets of the formerly closed economies of these Asian giants.

          In the case of the Philippines, thanks to the operations of both domestic and international markets, some 75 percent of the population are able to live with minimum decency and comfort.  The remaining 25 percent cannot be helped by the market unless they are first directly assisted by the State and civil society to get sufficient nutrition, quality basic education, primary health services, socialized housing and the necessary skills to land a job.  In general, these people who fall below the poverty line of 70 pesos per person a day have no way of accessing the market.  These are the human beings that Pope Francis wants a responsible State to directly assist by building rural infrastructures, delivering quality free primary and secondary education to their children, multiplying barangay health clinics, subsidizing socialized housing and teaming up with the private sector to make accessible skills training programs under the auspices of TESDA.  Here there is a wide room for the participation of NGOs and social enterprises.  Free markets can do very little for them.

            It is interesting, however, that the recent destruction in Eastern and Central Visayas caused by Typhoon Haiyan, created a situation that highlighted the wisdom of depending on market forces in some cases involving the rehabilitation of victims of natural disasters.  In an article by Shawn Donnan in the Financial Times (December 27, 2013) entitled "Disaster zone victims given cash in aid policy rethink," the free working of the market was cited as a more efficient way of distributing foreign aid.  Frustrated by government bureaucracy and the checks and balances that burden the system of distributing relief goods, the Red Cross decided to just distribute cash to 50,000 families so that they could buy basic goods and start rebuilding their lives.  This is a perfect illustration of how the market principle of supply and demand can also, in some circumstances, be a more efficient guide to helping the poor in extreme need.  This novel approach has some scientific support from the research of Chris Blattman, a political scientist at Columbia University.  Mr. Blattman concluded from his own experiments in development aid that "By being paternalistic we think we can make better choices on behalf of the poor than they can make themselves.  And that is probably wrong...People think of giving cash as giving a man a fish (rather than teaching him to fish).  But maybe he doesn't need to fish.  Maybe he'll realize that fishing isn't a very good thing to do and start a fish farm."  Moral of the lesson:  don't be quick to dismiss the market as a means of helping the poor.  Only when it is proved beyond the shadow of a doubt that government action is needed to supplement the deficiencies of the market should there be State action.  I am sure that Pope Francis has not changed that social doctrine that goes all the way back to the first social encyclicals.  It is called the principle of subsidiarity.  For comments, my email address is bernardo.villegas@uap.asia.