Bernardo M. Villegas
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Opportunity to Reform Market Economy (Part 1-3))

          The crisis brought about by the COVID-19 pandemic provides a singular opportunity to significantly reform the so-called free market economy that has been embraced by countries of the most different political shades and persuasions, from socialist China to capitalist America.  Although it cannot be denied that the experiment with market-oriented economic policies by China has resulted in the liberation from dehumanising poverty of hundreds of millions of people over the last twenty to thirty years, there continues to be scandalous disparity of income and wealth among those who have benefited from these reforms and those who have been left behind.  The massive unemployment that has been caused by the lockdowns of  economies all over the world has worsened the inequity in the distribution of income even in the most developed countries of Europe and elsewhere.

The human sufferings that we are witnessing during the worst global economic crisis in one hundred fifty years should bring world leaders to finally come to their senses and listen to what Pope Francis has been saying about the limitations of the free market economy in respecting the dignity of each human person and in pursuing the common good of society.

 

         In The Joy of the Gospel, Pope Francis clearly states that “the dignity of each human person and the pursuit of the common good are concerns which ought to shape all economic policies. At times, however, they seem to be a mere addendum imported from without in order to fill out a political discourse lacking in perspectives or plans for true and integral development.”  The Holy Father points out that  growth in social justice “requires more than economic growth, while presupposing such growth.”  it requires decisions, programmes, mechanisms and processes especially geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality.”  In the publication “This Economy Kills”, authors Andrea Tornielli and Giacomo Galeazzi, inspired by the teachings of Pope Francis, enumerate the types of leaders who are needed for authentic human development in both developed and emerging markets.  According to them we need “men and women who look to the future, who are committed to pursue the common good and whose goal is not just the next election campaign.  It requires men and women who not only look at the spread and stock market indices as indicators of the health of a country but inquire whether the younger generations have a job, a future, and hope; whether children have kindergartens and schools that can educate them by introducing them to reality; whether couples have the opportunity to buy a house; whether there are effective welfare programs available for the elderly; and whether those who still bet on the future by putting children into the world are justly taxed, rather than penalised.  It requires men and women who are engaged in politics and work in institutions without corrupting themselves or letting others corrupt them, even managing perhaps to revive a minimum of esteem (which has never been so in decline) for that ‘highest form of charity’—that is, politics—in as much as it is exclusively committed to the common good and to the real lives of people, with special attention   and dedication to those in difficulty, those left behind, those  who are excluded and should be included.”

         We have in the above quote a program that should permeate the so-called new normal post-pandemic.  What I have read so far about prognostications concerning the “new normal” are mostly about means, not ends. There is a lot of talk about the digital transformation that all economic sectors shall have undergone as a response to the changes in consumer lifestyle and business practices brought about by COVID-19. It asserted that digitalization will be a universal practice. Online purchases of practically all types of consumer goods and services; modes of payments; delivery of formal education and all types of skills training; banking practices; religious services; sports events; forms of entertainment; etc.  These transformations, however,  could occur without addressing the fundamental problem of great disparities in the distribution of income and wealth and may even exacerbate the problem of the poor if, for example, their children are further left behind because they lack the resources to participate in online learning.  Although the means are also important, there should be greater emphasis in the transformation of the ends or objectives of the economic system.  Our leaders should ask themselves how to make the structural changes necessary to reduce mass poverty (which has worsened during the many lockdowns made necessary by the pandemic).  In more concrete terms, the economic system should be geared towards providing more nutritious food to the poorest of the poor; better quality education and health care to the bottom 20 percent of the population; free health services to those who cannot afford them;  socialised housing for the homeless; and well paying jobs for the unemployed and underemployed.

           The new normal should give the highest priority to providing the small farmers with what they need to eke out a decent living by providing them with the necessary infrastructures such as farm-to-market roads, irrigation systems, post-harvest facilities, access to credit and other farm support services that have long been denied the Filipino farmers.  I have always maintained that the first cause of dehumanising poverty in the Philippines is the long-term neglect of rural and agricultural development.  It is not a coincidence that 75 percent of those who fall below the poverty line are in the rural areas. Many of them are the beneficiaries of agrarian reform who, after being provided with one or two hectares of land, were completely abandoned to their own resources.  They are the landless farm workers, the “kaingeros” (slush-and-burn farmers), and the subsistence fisherfolk. Hopefully, the shortage of food during  the pandemic has made it crystal clear that food security should be on top of our economic objectives.  Food security now and in the future can be made possible only by a significant increase in the productivity with which we use our agricultural resources.  (To be continued.)

 August 11, 2020

 

Opportunity to Reform Market Economy (Part 2)

 

       A needed structural change that will lead to more inclusive growth is a more determined program of our Government to increase the productivity in the growing of our major crops, i.e. rice, corn, sugar and coconut.  In addition to shifting more of our infrastructure budgets to the countryside (instead of urban areas like Metro Manila and Cebu), there should be more creative solutions to addressing the fragmentation of farms, especially in the coconut regions, so that through cooperatives or “corporatives”, larger units can be consolidated and mechanised so that, in tandem with corporate investors, the coconut farmers can derive more value from their products by diversifying out of copra and coconut oil to such other products as coconut water, coconut milk, nata de coco, coconut coir, and others that enjoy high demand in the Asia Pacific region, especially China, Japan, Taiwan and South Korea.  The same can be said about the sugar industry in which there should be more consolidation of small farms so that mechanisation will enable our sugar producers to compete with countries like Thailand and Australia. 

      Given the focus of the State on helping farmers to achieve higher incomes and productivity in the rural areas, there can also be a structural change in  our financial sector that can finally lend more heavily to agri-agra projects.  In the past, most banks were content with paying huge penalties for not making the required investments in agri-agra projects because they  considered the risks in lending to these projects too high for comfort.  Once these risks are reduced through more appropriate investments by the Government in rural infrastructures and services, there can be a significant increase in capital flowing to the rural areas.  Since agribusiness goes beyond farming and encompasses the whole value chain of food production (which includes post-harvest facilities, cold storage, processing, marketing and retailing), there will also be an increase in lending to the numerous small and medium-scale enterprises that are part of the agribusiness value chain.  Next to helping farmers and others in the agricultural sector, a most effective means of reducing poverty is to stimulate a buoyant SME sector which is predominantly made up of food-related ventures, from small-scale urban gardening of high-value crops, food processing ventures, businesses involved in food delivery, restaurant and even the micro enterprises  “jolly jeeps.”

         In addition to higher government investments in improving agricultural productivity, another obvious structural change that has been made necessary by the pandemic is the need for the State to allocate a greater percentage of both its operating and capital budgets to both health and education, particularly for the welfare of the lower-income groups.  Most medical experts are of the opinion that the COVID-19 virus will continue to be a threat to public health for a long time to come, even if a vaccine is discovered. As Dr. Anthony Fauci, a US top infection disease expert,  recently reminded the public, age-old diseases like chickenpox, herpes, and HIV have lifelong impact on our health and never really leave our bodies.  In his words, “Now with COVID-19, we have a novel virus that spread rapidly and easily.  The full spectrum of symptoms and health effects is only just beginning to be cataloged, much less understood.”  Prudence dictates that the Government should be prepared to spend public funds to protect the health especially of the most vulnerable members of society.  This necessary expenditure on public health will be a way to redistribute the income and wealth of our society, in favor of the  needy.  This is one instance when it is clear that we cannot depend on the so-called trickle down effect of the market economy.  Funds must be directly budgeted to safeguard and promote the health of the lower-income groups.

         The same can be said about a higher percentage of the budget that must be allocated to public education.  Already, we are witnessing a massive shift of enrolment from private schools to public schools at all levels of education, especially at the elementary and secondary levels.  Education cannot be left to free market forces.  It is the responsibility of the State to provide quality basic  education to millions of school children more than even before the pandemic destabilized the educational sector.  The increasing shift to blended  learning  made necessary by the health risks posed by in-person instruction will require higher spending of the government in the retraining of public school teachers in the ability to impart online instruction; in more physical resources—whether digital or other means of achieving blended learning, considering that low-income families do not have access to internet connections—; and increasing the number of teachers in public schools as more families cannot afford to send their children to private institutions.  In addition, the Government has to maintain its commendable achievement of paying public school teachers above-average salaries compared to the majority of private educational institutions.  Once again, this transformation that has been a result of the pandemic will lead to a healthy structural change through which taxes from the top income tiers of society will be used to provide the public with quality education, one of the most effective means of redistributing income.  To be continued.

 

August 18, 2020 

 

Opportunity To Reform Market Economy (Part 3)

          

         Over the short run the Government is well advised to allow the opening of public schools to in-person instruction  as early as possible.  We need not wait until a vaccine is discovered.  As pointed out by The Economist in an article entitled “The risks of keeping schools closed far outweigh the benefits,” (July 18, 2020), COVID-19 poses a low risk to children.  Those under 10, according to British figures, are a thousand times less likely to die than someone aged between 70 and 79.  Children are not especially likely to infect others.  As a host of studies in developing countries have shown, education is the surest path out of poverty.  Depriving children of it will doom them to poorer, shorter, less fulfilling lives.  The World Bank estimates that five months of school closures would cut lifetime earnings for the children who are affected by $10 trillion in today’s money, equivalent to 7 percent of current GDP.  President Duterte should listen to officials of the Department of Education and Culture who recommend that at least in the regions with low risks of infection, schools should be allowed to open for in-person instruction as early as possible.

         To attain inclusive and integral human development, it is clear that the State will have to be a more pro-active agent in economic development.  This may not be to the liking of the pro-free market conservatives.  There is no way, however, that society can address the challenges of a continuing threat from the corona virus without strong state intervention, not only in terms of strict regulations of human behaviour but also in propping up a weak economy that results from these restrictions.  This new arrangement that transfers a greater burden to the State in achieving more inclusive development could be an opportunity for the private sector to finally de-emphasize profit maximisation as the ultimate end of business but to give greater importance to helping address certain societal goals while making a reasonable rate of return on capital invested.  While there will always be some business people who will be motivated by greed (as in the case of the top executives of the infamous German company Wirecard), it is hoped that the pandemic has shocked societies to such an extent that there  will be an increase of people going to business as human beings who are motivated by the desire to build a more just and humane society.

    I am sincerely hoping that the tragedies that have fallen on the lives of hundreds of millions of people all over the world who have lost their jobs and their means of livelihood will increase the number of those who start businesses with the main intention of having a positive impact on society.  I hope there will be more entrepreneurs, especially among the millennials and centennials, who will want to establish what are known as social enterprises (businesses that are for-profit but are started primarily to address a social need like generating employment, cleaning the environment, improving the quality of education, or improving the state of public health).  I also hope that even those companies whose main reason for existence is still to make a profit will follow the example of the leading Philippine corporations that showed outstanding philanthropy during the pandemic by generously spending hundreds of millions of pesos in constructing medical facilities for COVID-patients, donating Personal Protective Equipment, and performing varied forms of corporal works of mercy.  May their tribe increase in the new normal.

         Especially worthy of note is the logistics hub being put up by San Miguel Corporation in tandem with a social enterprise called Rural Rising PH, as reported by Karl Ocampo in  The Philippine Daily Inquirer (July 20, 2020).    Called the “Better World” sustainability project, it  is meant to cut the additional costs often slapped by middlemen and traders on food commodities by bringing the products directly to consumers and resellers at farm-gate prices.  It will be located on a  property owned by SMC in UP Village, Diliman, Quezon City.  It will initially function as a central marketplace for fruits and vegetables from all over Luzon. Eventually, the two organisations said that they would develop programs to teach farming skills and cottage industries to interested farmers and consumers.  Killing two birds with one stone, the property will also be used as a food distribution centre where excess produce may be distributed to urban poor communities in the Metro Manila area that do now have access to nutritious and affordable food.  This is a perfect example of a partnership between the State (providing the needed rural infrastructures) and the private sector coming up with the last mile logistics facilities to help both rural and urban poor. 

         As author Fr. Alfonso-Lasheras wrote in his reflections on Pope Francis’ “The Joy of the Gospel”, “The economy and economic sciences are invited to not lose sight of their ability to initiate processes that can include  more and more people in the economy; an economy that must increasingly and more efficiently provide the necessary means for a decent life to as many people as possible.  The economy and the economic scenes are invited to see the profound unity of economic processes that must prevail over conflict and competition.  The market is not only the place where producers, sellers, and consumers enter into competition.  The market is also an  expression of a community that enables and supports the economic performance; the community is a moral-ecological niche that sustains the life of a legal and economic institution like that of the market.  The economy and economic sciences are invited to build a discourse in which economic ideas are always in dialogue with reality, instead of concealing it…”  This pandemic is indeed an opportunity to reform the market economy along the lines of the social teachings of the Catholic Church.  For comments, my email address is bernardo.villegas@uap.asia