THE Wall Street meltdown is so intense—and reflects such gross irresponsibility by leaders in the highest places—that it has set people questioning capitalism’s very reasons for being. The global crisis has brought to a head the debate between America’s “take-no-prisoners” capitalism and the European “social market economy” espoused principally by the Germans.
At its best, entrepreneurial capitalism spurs innovation, productivity and growth. At its worst, it abets greed, generates immense inequalities and ultimately produces market failure.
Balancing growth and stability
By contrast, the social market economy balances the objectives of growth and stability with social equity—accepting some loss of individual initiative and economic efficiency. Permissive capitalism thrives on “creative destruction” and runs in cycles of boom and bust. The social market prefers slow but steady—and non-risky—growth.
The enterprise economy propagates the “every-man-for-himself” ethic. The social-market economy depends on a strong social contract. It needs to prevent the emergence of monopolies and cartels, and to cultivate cooperation among corporations, labor unions and government.
Under the social-market economy, the state’s primary role is to ensure fair competition, keep down both inflation and joblessness, and provide social safety nets for those whom development leaves behind. It also trains German work-people to peaks of skill and efficiency no other national workers could match.
Cost of social market
As we may imagine, the German welfare system is one of the most extensive—and most expensive—in the world. The costs of running the social market economy are reflected in Western Europe’s tax rates. Sweden takes in taxes 57 percent of gross domestic product (GDP)— the total cost of all goods and services produced in a country in a year. Denmark takes 53 percent, France 50 percent, both Germany and Italy 43 percent, and the United States takes just a little over 30 precent. (The Philippines itself takes about 14 percent.)
European thinkers have been laying the foundations of the social-market economy since the 1930s. But they haven’t resolved all its shortcomings. Keeping down unemployment is until now an unrealized objective. In Germany, it has recently been exceeding 10 percent. Concern for stability has also burdened the German economy with obsolescent industries that the state continues to prop up.
New rules for Wall Street
In the aftermath of the Wall Street debacle, the Europeans demand more intrusive global regulation of banks, tax havens and hedge funds— supranational rules the Americans fear could intrude on their sovereignty. France’s Nicolas Sarkozy wants no less than a new capitalism—one “better regulated, with a greater sense of morality and solidarity.”
In partial response, the Obama Administration is mulling stricter regulatory frameworks for Wall Street and ways of restoring fiscal discipline to profligate Washington. It promises to reduce consumerism, encourage more savings and investment and redistribute wealth toward the American middle class.
These reforms would mean a greater state role in the American economy— although Cold War competition with the socialist USSR had made state activism in the economy seem wrong. But American capitalism would still respect the power of the market as an engine of innovation and prosperity. President Barack Obama also warns that the world can no longer regard his country as the export market of last resort.
State capitalism in our future?
Just as the “Great Depression” did in the 1930s, we may expect this crisis to set off epochal changes in the balance of global power and in the way the largest states manage their economies. Already it is speeding up the global shift in relative wealth and economic power from West to East. And it could end up by making East Asia an attractive alternative to the American and European development models.
The American economist Robert Heilbroner suggests that capitalism will fade away because the market mechanism will prove unable to resolve the global problem of pollution. I suspect that, long before that becomes patent, market capitalism will give way to state capitalism as the dominant economic ideology of the foreseeable future.
Disorderly democracies with oligarchic economies continue to languish in Latin America, as well as in our own country. But, in East Asia, authoritarian politics plus state capitalism have raised popular incomes and brought about the greatest emancipation from poverty the world has ever seen.
During the “East Asian economic miracle” of 1965 to 1990, poverty in the region fell from almost 80 percent in 1981 to 18 percent in 2005. In China alone, 628 million people moved from poverty to middle-class status.
This was the work of authoritarian developmental states and entrepreneurs willing to think long-term.
“State capitalism” might well be the characteristic system of economic management for “late industrializers” seeking to learn modern processes and technologies from the countries that had preceded them. Meiji Japan was its pioneer, which Taiwan, South Korea, Singapore, Thailand, Malaysia and Indonesia have followed in their turn.
The stronger the state, the greater its economic role. During South Korea’s crucial decades in the ’60s and ’70, “the state instigated every major shift in industrial diversification.”
The Western theory is that the private realm, which the capitalist economy represents, within an otherwise all-embracing state, is an inestimable aid to freedom. But state capitalism abolishes this private realm and ensures the commanding heights of the economy remain in the hands of the state.
The widespread use of “state capitalism” in the new countries suggest that their politics might continue to be authoritarian even after their individual incomes have approximated western levels. –Juan T. Gatbonton, Editorial Consultant, Manila Times
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