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The Best Solution to PH Poverty: Economic Freedom

August 17, 2012
The result of suppression of economic freedom in the Philippines...

The result of suppression of economic freedom in the Philippines…

The term economic freedom is not that well understood in the Philippines. Apparently, economic freedom is not an esoteric concept that can only be understood or tackled by elite economists and intellectuals. I believe that the conceptual meaning of this term must be simple: it’s all about the separation of state and economy. Any other alleged concepts of economic freedom that call for a certain degree of state intervention are bogus, as they cannot truly defend rights and freedom. They actually support the mongrel idea of a mixed economy.

In the Philippines there’s this advocacy group called Foundation for Economic Freedom (FEF) that was “designed specifically to be an advocacy institution, operating on a low overhead budget, and engaging principally in public diplomacy. ” Among the Foundation’s distinguished members include Alex Magno, Gerardo Sicat, Roberto de Ocampo, Raul Fabella, Romeo Bernardo, Raphael Lotilla and Arsenio Balisacan. It is worthy of note that Balisacan is now the head of the country’s central economic planning agency, NEDA. However, I find it very ironic that Mr. Balisacan is actually a strong advocate of wealth redistribution, population control, and government intervention. Such statist policies are, in reality, strong enemies of true economic freedom.

In regard to the issue of oil deregulation, the Foundation is against the “populist view that firms should sell products at historical acquisition cost”. However, it supported the Department of Energy’s interventionist power to:

  • Vigilantly monitor oil price movements both on the international and local markets.
  • Provide greater transparency in the computation of prices of petroleum products using alternative formulas and posting them on the Department of Energy website for easy online access.
  • Require oil firms to explain when their price adjustments are higher than the DoE computation to prevent anticompetitive behavior.
  • Conduct dialogues with consumer and transport groups for a more open discussion of oil price movements and other concerns.
  • Hold public consultations in the course of spot inspections of gasoline stations to monitor prices.

Also, the group sees nothing wrong with the DOE efforts in promoting alternative fuels and energy efficiency to secure ‘energy security and sustainability’.

While the group supports Oil Deregulation Law, which was massively criticized by the country’s advocates of protectionism and government regulation, it nevertheless supports a certain degree of government control to promote the common good. The group’s compromises simply expose its members as the country’s new breed of utilitarians who merely advocate or support economic freedom on utilitarian grounds. That is, the group pays lip-service to economic freedom because of its capability to deliver “the greatest good for the greatest number”.

With respect to the alleged defenders of economic freedom’s utilitarian arguments, I stated in an earlier post:

Adam Smith, who defended capitalism on utilitarian grounds, claimed that so long as markets were free and unregulated, the actions of individuals, fueled by rational self-interest or “enlightened greed”, would work together for the greater good of society. In his critique of Smith’s works, Karl Marx, who actually coined the term “capitalism”, recognized and understood the productiveness of the free market system, saying it “has accomplished wonders far surpassing the Egyptian pyramids, Roman aqueducts, the Gothic cathedrals… [D]uring its rule of scarcely one hundred years, it has created more massive and more colossal productive forces than have all preceding generations together.” However, he rejected capitalism and instead advocated his own brand of collectivist system because it is “immoral.” Yes, Marx sought to destroy capitalism on moral grounds. Relying on the works of Hegel, Immanuel Kant, and other intellectual god-fathers of sacrifice and collectivism, Marx declared that property is theft and capitalism would ultimately result in the “alienation” of the working class.

To defend economic freedom one must be able to understand its proper philosophical base and nature/context.  Economic freedom does not mean anarchy, since most of its opponents equate it to the Libertarian anarchists’ political and economic agenda or ideal. In my own opinion, economic freedom simply means the freedom to survive. Every human being must survive to live, not the other way around, and economics is all about the study of human survival. In other words, economic freedom is the practical application of man’s individual rights (e.g., his right to life, liberty, property and pursuit of happiness) in a social context. Without economic freedom, man cannot be free – or is not free- to pursue necessary actions to sustain his life, to secure his liberty against institutionalized slavery or state control, and to own and enjoy the fruits of his labor.

The economic and political system that can truly guarantee economic freedom is capitalism. Capitalism is a social system that guarantees the freedom and rights of individuals.

The best conceptual definition of Capitalism was provided by American philosopher Ayn Rand:

Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.

The recognition of individual rights entails the banishment of physical force from human relationships: basically, rights can be violated only by means of force. In a capitalist society, no man or group may initiate the use of physical force against others. The only function of the government, in such a society, is the task of protecting man’s rights, i.e., the task of protecting him from physical force; the government acts as the agent of man’s right of self-defense, and may use force only in retaliation and only against those who initiate its use; thus the government is the means of placing the retaliatory use of force under objective control.

In one of his greatest opinion pieces, billionaire Charles Koch defended economic freedom in the following fashion:

Nations with the greatest degree of economic freedom tend to have citizens who are much better off in every way.

No centralized government, no matter how big, how smart or how powerful, can effectively and efficiently control much of society in a beneficial way. On the contrary, big governments are inherently inefficient and harmful.

And yet, the tendency of our own government here in the U.S. has been to grow bigger and bigger, controlling more and more. This is why America keeps dropping in the annual ranking of economic freedom.

Citizens who over-rely on their government to do everything not only become dependent on their government, they end up having to do whatever the government demands. In the meantime, their initiative and self-respect are destroyed.

It was President Franklin Roosevelt who said: “Continued dependence on [government support] induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.”

Businesses can become dependents, too. If your struggling car company wants a government bailout, you’ll probably have to build the government’s car – even if it’s a car very few people want to buy.

Repeatedly asking for government help undermines the foundations of society by destroying initiative and responsibility. It is also a fatal blow to efficiency and corrupts the political process.

When everyone gets something for nothing, soon no one will have anything, because no one will be producing anything.

Under the Soviet system, special traffic lanes were set aside for the sole use of officials in their limousines. This worsened driving conditions for everyone else, but those receiving favored treatment didn’t care.

Today, many governments give special treatment to a favored few businesses that eagerly accept those favors. This is the essence of cronyism.

Many businesses with unpopular products or inefficient production find it much easier to curry the favor of a few influential politicians or a government agency than to compete in the open market.

After all, the government can literally guarantee customers and profitability by mandating the use of certain products, subsidizing production or providing protection from more efficient competitors.

Cronyism enables favored companies to reap huge financial rewards, leaving the rest of us – customers and competitors alike – worse off.

Charles Koch is the major founder of the Cato Institute — which has just hired first-rate Objectivist businessman John Allison as its CEO. Really, it is great to see that at least a few super-wealthy businessmen have *some* grasp about the nature of freedom, capitalism and the proper function of government in society.

To combat poverty in the Philippines, the only practical policy or solution is more economic freedom. And to adopt and institutionalize economic freedom, the government has to implement the following reforms:

  • Eliminate certain taxes or lower tax rates. Taxes that can be eliminated are income tax, estate tax, capital gains tax, property tax, community tax, and corporate income tax. The government may focus on consumption tax as its source of revenue. However, the elimination of taxes should be done in a gradual, cautious manner.
  •  Lower government spending
  • Privatization. It is time to privatize all government-owned and controlled corporations.
  • Legalize gambling and lottery. Allow both foreign and local entrepreneurs to run gambling and lottery businesses. Let them compete with each other.
  • Allow 100% foreign ownership of land and business.
  • Allow foreign professionals to practice their professions here.
  • Allow foreigners to put up schools, media, public utilities, etc.
  • Allow foreign investors to put up power companies and compete with Filipino-owned power utilities.
  • Decontrol or deregulate by repealing economic regulations and restrictions.
  • Allow private insurers and social security companies to compete with SSS and GSIS.
  • Abolish certain government departments and agencies like DepEd, CHED, DSWD, DOH, national housing authority, NFA, DPWH, DoE etc. But this should be done gradually.
  • Abolish certain welfare programs like PhilHealth, government loan programs, subsidies, etc.
  • More focus on our judiciary or court system, police, and military.

Like I stated in an earlier post:

The main purpose of these concrete actions is to make the people independent. Welfare programs and services only make the people dependent on the government. With strong and healthy economy, the people will have more employment and business opportunities and they no longer need to rely on government freebies and services. The only proper role of government is to protect individual rights.

The Philippine government may then focus on vital issues, such as the country’s legal system, the police force, and the military or national defense. With stable economy and independent citizenry, the government could then pay more attention to its primary functions: 1) court system to settle legal disputes, 2) police force to deal with criminals, and 3) and military to handle internal and external threats like civil war or invasion.

13 Comments leave one →
  1. August 17, 2012 3:38

    I agree 99%. Good information too. I did not know that one of the distinguished members of FEF is NEDA chief Balisacan. I am sure he is in the minority in that organization, however, because so far I like what’s coming out of it. I particularly like their highly visible push for constitutional reform.

    • August 18, 2012 3:38

      I got that info from an Inquirer article. Yes, it’s good to know they’re also for consti reform.😉

  2. humanaso permalink
    August 19, 2012 3:38

    I might add to your suggested tax reforms the BOC.

    Import duties are major impediment to business expansion and growth.Importing capital equipment is necessary for local business to improve quality, increase efficiency, compete with imported finished goods and create employment.

    Recently, we imported a second hand unit for use in our business. We purchased it on ebay and shipped it here legitimately using the services of a customs broker.
    The Purchase price was $6000 and the tax, fees, and misc customs charges amounted to $4300 which represents an additional 72%.

    Not only that, but the customs warehouse damaged the item and has not made good on it. The examiner needed P30,000 under the table to release the item, which I remind you was imported properly (no monkey business).

    Hence we will never bring in equipment again but instead will not expand, improve production, product quality or be able to create more jobs that would have resulted.

    • August 19, 2012 3:38

      Thanks for those info.

      The free market system demands that government agencies like the BoC be abolished. This is consistent with the views of Mises, Hazlitt, Rand and even Friedman. Philippine politics tells us that the BoC is an agency of extortion and graft and corruption. When government imposes so many impediments and unnecessary charges (for the financing of our unsustainable welfare state), some people will find a way to get around the bureaucracy. That will also invite more corruption. The BoC and other agencies should be replaced with a single agency tasked with registration, filing, and listing of trades, import and export transactions, or any other similar activities. Of course that agency may require the payment of minimal fee. The purpose of registration is to protect contracts and the registrant’s property rights. This ‘free market system’ would lower the prices of imported goods and raw materials to be used for manufacturing and production purposes, curb corruption and cases of bribery, cut red tape, and abolish unnecessary government-imposed impediments. And yes, in a free market society the government still plays a very important role: to protect rights, and not to redistribute wealth.

  3. monk permalink
    November 16, 2012 3:38

    The best solution to poverty is to minimize government corruption. Economic freedom is helpful only after protectionist measures are able to strengthen local industries. This explains the success of various SE Asian and E Asian economies.

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