Bernardo M. Villegas
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What Is Wrong With Neo-Liberalism?

         There is a healthy difference of opinions among members of the Duterte Cabinet about what ideology should prevail in crafting the economic agenda of the present Administration. We often hear of the so-called leftists who are openly critical of what they consider neo-liberal tendencies of the economic team led by Finance Secretary Carlos Dominguez and Economic Planning Secretary Ernesto Pernia.  To determine the validity of such criticisms, we have to fully understand first what is meant by neo-liberalism when uttered by those who are suspicious of such policies as liberalization, deregulation and privatization which peaked during the Administration of former President Fidel Ramos.

         It is important to remind ourselves that the word “liberal” when applied to government policies has diametrically opposed meanings when used in Western Europe (especially the U.K.) on one hand and the U.S. on the other hand.  Those who are “liberal” in the U.K. can trace their ideology to the father of laissez faire economics, Adam Smith, who maintained that the free market should be left alone as much as possible by the State, whose main functions should be limited to administering justice, building public works and maintaining peace and order.  In the U.S., the term “liberal” applies to the party ideology of the Democrats who advocate as much government intervention as possible in promoting growth, employment, and economic welfare in general.  The Republicans are the conservatives who spouse free market economics.

         Those who refer to neo-liberalism in a derogatory manner are using the British meaning.  They are criticizing the over-reliance on markets to attain the national goals of growth, full employment and equity in the distribution of income and wealth.  Neo-liberal economics can indeed be naive in its presumption that free markets when left alone can be self-regulating and can promote the common good with the least intervention from the Government.  There is enough evidence in both developed and emerging markets that high rates of economic growth resulting from market forces can concentrate income and wealth among an economic elite and can co-exist with high poverty incidences, such as we have experienced in the Philippines over the last decade or so.  This is the reason why Pope Francis condemns the “absolute autonomy of markets.”  The State has an indispensable role in promoting the welfare of the poor who are too undernourished, unhealthy, uneducated and unskilled to benefit even from the freest markets.  The State also has to make sure that competition, which is one of the strengths of the market in promoting consumer welfare, is not thwarted by monopolistic or oligopolistic forces.

         Neo-liberalism, which received the strongest impetus during the times of Margaret Thatcher in the U.K. and of President Ronald Reagan in the U.S., can also be faulted for its blind faith in unlimited privatization, deregulation and liberalization.  There are some public utilities, whether in energy, transport or health services, that are better left under the ownership and/or control of the Government to guarantee inclusive growth.  Not all types of liberalization will promote the common good, as realized by some emerging markets during the East Asian financial crisis in the late 1990s when the liberalization of capital flows wreaked havoc on such countries as Thailand, Indonesia, Russia and Brazil.  In many instances, privatization and deregulation should be inversely proportional.  The more public assets are privatized, the more creative and strict should regulatory measures be, as in the cases of telecom and transport.

         Neo-liberalism also stands for greater openness of the national economy to trade and foreign investment.  It supports the theory of comparative advantage.  The leftists or nationalists strongly disagree with this.  They claim that openness to trade and foreign investment tends to prejudice local producers, especially the small and medium-scale enterprises.  I cannot agree with this view of the left.  The last three decades have seen the tremendous benefits to the poor of open trade and investment in such giant economies as China and India.  The liberalization measures in China that started in 1978 under Deng Xiao Ping and in India in 1991 under Manmohan Singh freed hundreds of millions from dehumanizing poverty.  In contrast, the Philippines has been relatively closed to foreign direct investments for almost half a century.  The “Filipino First” policy has actually been enshrined in the Philippine Constitution of 1987.  The result has been the institutionalization of a feudal economy since the domestic market has been offered on a silver platter to the local monopolists.  It is ironical that the leftists have actually contributed to preserving the feudal system in the Philippines by joining the “Filipino First” nationalist mantra.  As I have often written, “Filipino First” actually has resulted in “Rich Filipinos First” and damned the rest.

         From what I can glean from the ten-point agenda of the Duterte Administration, there is no trace of the negative aspects of neo-liberalism.  On the contrary, there are measures that will counteract the ill effects of pure market forces.  To attain a more equitable sharing of burdens between the rich and the poor, the tax system will be made more progressive.

         Monopolies or oligopolies in public utilities will be more strictly regulated.  There will be a significant increase of government spending on  infrastructures that can account for anywhere from 5 to 7 percent of the GDP, with special focus on rural infrastructures to benefit the small farmers.  The Government will be committing more resources to public education and public health whose delivery will not depend on market forces.  There will be no reliance on trickle-down economics.  On the contrary, social protection programs will be intensified and the Conditional Cash Transfer Program started during the Administration of former President Gloria Macapagal Arroyo will be continued and enhanced.    All these are clear signs that economic leadership in the Duterte Administration is not in the hands of “neo-liberals.”

         On the other hand, though, starting with pronouncements of President Duterte himself, the positive side of neo-liberalism, i.e. openness to foreign trade and investment, will be pursued.  There will be greater political will to amend the Philippine Constitution to remove the unreasonable restrictions to Foreign Direct Investments which have made the Philippines literally a pariah in the foreign investment community compared to our peers like Vietnam and Indonesia that have FDI levels two to five times ours.  The “rebalancing” announced by the President vis-a-vis our traditional partners like the U.S. will lead to closer trade and investment relations with our ASEAN neighbours and with such Northeast Asian economies as Japan, China, Taiwan and South Korea which have much to contribute to the  improvement of our inefficient infrastructures like airports, seaports, tollways and railways.  The Duterte Administration in its economic policies is neither neo-liberal or socialist.  It is pragmatist, learning from the lessons of our neighboring countries that have blazed trails in both industrialization and agricultural development over the last thirty years.  For comments, my email address is bernardo.villegas@uap.asia.