Thursday, April 19, 2007

The fiction of American free market model

(This is my share in an ongoing state vs market exchange first started in Inquirer Current but I'm not sure where to post my piece, whether in Current, Placeholder or Newsstand; hence, I've decided to make it an entry here)

Before Adam’s Smith’s postulation of the market theory, providing for the welfare of the governed had traditionally devolved upon enlightened princes, the governors. Their governments vied in the promotion of commerce and industry in their respective kingdoms. To create wealth for the realm, one of the preferred methods employed was to encourage exports and discourage imports through a system of using the powers of the sovereign to amass a surplus of gold and other international monetary assets. Arguing against mercantilism, the system he attacked in the Wealth of Nations, Smith wrote that what mattered was not the possession of gold or silver but the quantity and quality of goods and services at the disposal of individuals and societies alike.

Mercantilism, which also means state involvement in, or control of, the economy was a dominant economic attitude when the European economy was “developing.” What thereafter came into being as laissez-faire proceeded to oversimplify an economic ideology: If men are barred from pursuing their natural disposition driven by self-interest, initiative will be stultified, but liberated, progress is bound to take place as a matter of course.

The spirit of liberalism in Great Britain hit town in the American colonies already resentful of serving as suppliers of raw materials and as captured market for the manufactures of the mother country. The new idea rebelled against coercion and the pervasiveness of governments. But even as the American Revolution triumphed, men of wealth and power in the colonies began to look askance at the supposed spontaneity and wisdom of liberal populism. So that when it was America’s turn to develop its economy, the founding fathers led by Alexander Hamilton, instead of pursuing laissez-faire free trade capitalism reverted to mercantilism, or neo-mercantilism. Although opposed by Jefferson who believed that which governs least governs best, Hamilton succeeded in calling for an active (federal) government in infrastructure development and industrialization fortified by tariff protection against British manufactured goods. Hamiltonian economics later became known as the “National System” of the USA, Inc., the key postulates of which were:

1) Protecting industry (new factories or infant industries) through selective high tariffs and later via government subsidies;

2) Government expenditures in infrastructure development targeting internal improvements such as road building and other public works;

3) Creation of big banking such as national banks along with policies promoting productive enterprises.

Despite the professed reverence to the market’s invisible hand, the United States did not after all develop on the basis of laissez-faire economics. On the contrary, there is historical indication it was in America that modern economic protectionism was born. At best, American free market was an afterthought.

Little wonder the first Miracle of Asia, Japan, Inc., was built by its own founding fathers, the Meiji leaders, according to Hamiltonian economics under the guiding hand of the state. And the roaring “Tiger, Inc.” and now the awakened Dragon, Inc. simply followed suit in adopting the American way.

To build the Philippine, Inc., I have also argued that
even the market construct could become fair if struggling but willing and ready nations are given a decent chance to build and accumulate just as exactly as the leading economic powers of today did during their own growing pains and struggles; and enabled to be on similar footing, then and only then should these latecomers be made to face up to the challenge of competition. On an individual level, they call this “affirmative action” in America. I believe even nations are entitled to equal opportunity. This axiom, possibly more legitimating than “economic liberalism,” requires that adjustments to transformation of this sort relative to the prevailing international economic order should demand more of the stronger states than the weaker ones, not the other way around.


Anonymous Upn said...

Abe: Your writing is getting me confused. Why do you seem to justify your desire for an "affirmative program of sorts" for nations, mentioning America's growth, then the Tigers (of Korea, Singapore) as models when these countries managed their own growth by their own bootstraps (and at times implementing programs that were contra to the suggestions of the "big-brother countries" back then)?

The idea of affirmative action for countries (in my mind) is of the school of colonialism --- a rich country taking a poor country under its protective wings, so to speak --- and I am positive that this is NOT what you intend to put across as your proposal.

April 20, 2007 12:55 PM  
Anonymous upn said...

I also understand that you are against the WTO, yet the 3 "Hamiltonian" items you mentioned as key to USA's growth are still consistent with WTO guidelines. The 3 Hamiltonina items:

1) Protecting industry (new factories or infant industries);

2) Government expenditures in infrastructure development targeting internal improvements such as road building and other public works;

3) Creation of big banking such as national banks along with policies promoting productive enterprises.

What I am leading to is that if there is perceived pressure that hinders the Philippines from following the 3 Hamiltonian items, that pressure is coming from inside the Philippines.

April 20, 2007 10:27 PM  
Blogger Jawaharlal Al-Zawahiri said...

i agree with upn, affirmative action is quite a different animal from the concept of equal oppotunity

April 21, 2007 3:55 AM  
Anonymous Upn said...

In fact, there is affirmative action going on. The IMF and World Bank, even WHO -- will offer development programs to countries, but of course these institutions also specify where the money should be spent on. The World Bank has become both more generous and more strict -- more development money released, but the money from World Bank is sent only to those countries that have strong anti-corruption practices.

April 21, 2007 8:35 AM  
Blogger Abe N. Margallo said...

upn, JAZ,

I hope my new entry (of 4/27/07) will help explain my position here.

April 24, 2007 12:53 AM  

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