Introduction to Social Market Economy: Laissez faire and socialism, the antecedents

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LITO MONICO C. LORENZANA

LITO MONICO C. LORENZANA

Last of two parts

In the capitalist system, where the practice of unimpeded free market is undisturbed by the state, the better capitalized actors will tend to dominate, distorting the market mechanisms. Cartels, oligopolies and monopolies arise and eventually exploit the weaker players. “Survival of the fittest” is not only axiomatic but it becomes the guiding principle. The market is by nature not equipped with a conscience to correct the inequities done to the less fortunate.

Both systems therefore run counter to the Christian concept of the value of dignity of the individual. Admittedly, there are fine distinctions in both prototypes and the marriage of these nuances: the social amelioration and safety nets of the left; and the tempered free market of the laissez-faire induced the Germans – after their near total devastation, post war – to create a new economic order. Social Market Economy in a few years brought about the German economic miracle with a stable democracy, social peace and stability – making the country the most powerful economy in Europe.

The three pillars of social market economy


1. Free Market is a system that is designed to allow everyone who owns

privately the means of production to produce goods and services and allow also the acquisition of the same goods and services at an agreed price. This interaction between supply and demand is the basic characteristic of a “free market” economy. Market therefore should be the only arbiter of prices of the goods, commodities and services.

2. Strong State. The role of a strong state in the Social Market Economy is primarily to establish, maintain and protect the competitive environment and regulate the market mechanisms to prevent distortions to the market through the emergence of cartels, oligopolies and monopolies.

3. Active and vibrant participation of the citizenry in the political life of the community which involves a healthy respect for common rules and regulations promoting freedom and enhancing the dignity of each human being. This entails the uplifting of the less privileged in society.

Free markets are by nature blind to the iniquities of humans and do not give cognizance to the weak and physically disabled members of society; the sick and the elderly. Neither can it feel for the downtrodden, children and the helpless.

Our vision of the Philippine version of SME does not veer away from the German model and in fact uses it as a starting point. It will require amendments to the Philippine constitution and legislations correcting decades of malpractices. The following overarching principles however should be infused in all aspects of Philippine economic life.

It is not centralized planning and control of the state taking away the freedom and incentives for good work from the individual. It is not inhuman capitalism, rule of money without respect for weak human beings.

Present economic situation
Our current economic order was handed down by the Americans, technically our landlords from the turn of the century until the end of World War II. We are therefore more familiar with “free market” economy. This is a key value that also exists in the German model. The other important factor is that which was handed down to us by our Spanish colonizers; our Christian Faith, which values also the inherent dignity of man. This crucial concept is the driving force behind the political and economic order of post-war Germany. There is therefore no fundamental contradiction between German and the Philippine economic order and the transition could work.

Our economy has been characterized by a few major players who are also the major actors in the political stage. The same political dynasties likewise hold the levers of economic power. These are fundamental iniquities that result into other distortions in the market. The modern oligarchs of our time have been the ruling families ever since, that includes the Aquinos and the Cojuangcos, who did not only rule over our political lives but also penetrated the economic system. Almost 80% of the country’s wealth is controlled by the few ruling families. (Inquirer.net)

The economic boom appears to have only benefited a tiny minority of elite families; meanwhile, a huge segment of citizens remains vulnerable to poverty, malnutrition, and other grim development indicators that belie the country’s apparent growth. Despite the stated goal of former President Aquino’s Philippine Development Plan to oversee a period of “inclusive growth,” income inequality in the Philippines continues to stand out.

The strength of a state is not measured by the muscle of its armed forces or the police or the behavior of a dictator who controls the levers of power. This strength is gauged by the state’s ability to enforce the rule of law equally to all its citizens. This strength is then mirrored by the citizens responding positively to the actuations of a strong state by a similar conduct by respecting the rules and laws imposed by the state legally, legitimately and fairly.

Conclusion
In essence, social market economy is the consequence of the clash of two grand ideologies, capitalism and socialism, that have dominated world economy long past the middle age and after the informal demise of feudalism. The impetus for this conflict is the search for and definition of the common good seen from a different historical perspective.

The model is continuing to evolve and inevitably will be a predominant force simply due to the injection of the universal concept of human dignity, its core value.

The ability of social market economy to reconcile opposing forces with its promise of freedom, justice and solidarity no doubt will induce our government to place the welfare of our people paramount.

About the author:
Lito Monico C. Lorenzana served under four Philippine Presidents in various capacities as a member of the Cabinet and several Commissions. A Harvard educated political technocrat, he is one of the prime movers of the Citizens Movement for Federal Philippines (CMFP); one of the founders of the Centrist Democratic Party of the Philippines (CDP); Ang Partido ng Tunay na Demokrasya; and the Centrist Democracy Political Institute (CDPI).

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