If there is one word in the dictionary that has been greatly maligned, vilified, and tormented in world history, it would be capitalism. Various political and economic theories, together with their believers and practitioners have continuously despised capitalism, but haven’t construed anything pragmatic without capitalism’s wealth generating ability. Naysayers misconstrue the reality that in the history of human beings, no economic system has single-handedly lifted hundreds of millions of peoples all over the world out from poverty and economic hardship that doesn’t take capitalism in to account. Capitalism, which transformed and eventually became more inclusive through the years, has always proven itself victorious in disproving those pundits. How did then capitalism come to fruition, and why should Filipinos make it work?
One of the earliest forms of capitalism was the commenda system of the Venetians during the early years of the second millennium. As a burgeoning mercantile city-state in the Italian peninsula, venturing out of the Adriatic Sea through trade was both a profitable and a dangerous undertaking. Maritime trade was profitable because imported goods can be sold at exorbitant prices, but dangers lay ahead. The intolerant Saracens were controlling major cities in the Levant, while the suspicious Byzantines had centuries of experience in mastering and controlling the Mediterranean. This commenda system tied a rich investing merchant to another adventurer, where profits would be split between the two parties. According to Tilly’s book Coercion, Capital, and European States, the commenda helped Venice accumulate and concentrate capital, while renowned economists Acemoglu and Robinson in their book Why Nations Fail quickly pointed out this system as an evidence of Venice’s inclusive economic institutions.
Capitalism later evolved in The Netherlands during the 17th century when the Dutch East India Company was formed, creating the blueprint of what a stock market is. Unlike the Venetian commenda system, risk and profit were distributed more or less equally among the stockholders, incentivizing more individuals to take part in the market of buyers and sellers. As what Tilly has mentioned, capital concentrated and accumulated in major Dutch cities like Rotterdam and Utrecht, with Amsterdam serving as its financial hub. However, the Dutch observed coercive practices to subjugate modern-day Indonesia, where they found means to monopolize markets and global trade. Nevertheless, The Netherlands was generating ridiculous amounts of wealth, which eventually led to the adoption of the Dutch guilder as the world’s reserve currency during their golden age.
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Speaking of reserve currencies, the British pound and the American dollar became the currencies of choice in the 19th and 20th centuries, respectively. This was primarily due to their economic strength, where they have adopted capitalistic policies and let the free market run its course. They have embraced individualism, where innovation, technological progress, and creative destruction were financially incentivized by the markets. A protectionist stance in global trade was generally frowned upon, and even up to this day, capitalistic policies have governed modern-day societies. Even Communist China, through Deng Xiaoping, was compelled to reform their economic institutions, which resulted to the exponential economic growth of the People’s Republic.
Inclusive economic institutions begin with wealth generation as one of its basic tenets. Even prominent investor Ray Dalio in his book Principles for Dealing with the Changing World mentioned that as an economic system, capitalism has significantly improved the living standards of ordinary men and women, albeit wealth gaps should also be addressed accordingly. With such realities, how can capitalism work in the Philippines? Luckily, British stateswoman Margaret Thatcher in her book Statecraft mentioned five prerequisites, all of which are of utmost importance, that will make capitalism work in any country. These are rule of law, culture of entrepreneurship, private ownership, competition, and limited government intervention. By observing these, the administration of then-Prime Minister Thatcher was able to pull the United Kingdom out from the economic doldrums of the 1970’s and led the transformation of London into the world’s premier financial hub.
Fortunately for the Philippines, entrepreneurial culture is present in the Philippine society, as ordinary Filipinos find ingenious ways to sell their products in the market. In addition, private ownership is allowed in the country, where everyone is free to acquire and purchase properties. However, there is much more to be desired when it comes to the remaining three prerequisites that the Britain’s Iron Lady has enunciated.
First would be the rule of law, where justice would be delivered promptly, thus incentivizing all individuals to abide by the provisions accorded by these written laws. With the powerful and wealthy elites influencing how justice should be arranged instead of being executed, they can afford to simply ignore these laws without thinking about its accompanying repercussions. Second is about competition, where private companies are compelled to outwit and outlast other companies by not engaging in monopolistic and monopsonic practices. Despite having a competition commission, the Philippines has a long history of cronyism, thus further structural changes are required to avoid such collusions between companies and their political backers. Finally, minimal government intervention should also be observed, where the administration must refrain from spreading its capabilities, powers, and resources thinly. With a number of Filipinos possessing a mindset that the government will come to their rescue by resolving their problems, a paradigm shift is needed from the populace if the Philippines is to have a strong, effective state.
If the Philippines is meant to make capitalism work for Filipinos, it would boil down to enlarging the pie through unprecedented economic growth by generating wealth and employment opportunities. With the country’s present financial limitations, greatly lowering the hurdles of doing business in the country is of significant importance. Making the Philippines an attractive destination for foreign direct investments is the low-hanging fruit to expand the economy. Economic protectionism, which has coddled the landed gentry and the oligarchs for numerous decades didn’t generate the desired outcome, thus it must be scrapped. Allowing these entities to be exposed to international competition will compel them to shape-up, lest lose employees and market share. After all, the market regulates itself through the ebbs and flows of supply and demand. Elimination of the 60-40 business ownership stipulations from the current 1987 constitution would definitely assist the present administration in attracting more investments.
Philippine capitalism will only work if systems are in place that incentivizes all members of the economy to take part in the free enterprise. A capitalist system, which rewards hard work and competition, is a trademark of what inclusive economic institutions are ought to be. Nevertheless, this begins by reforming the highly restrictive economic provisions of the 1987 constitution, which has failed to bring employment opportunities to the marginalized sectors of Philippine society.
A no one who enjoys the fun things of life in private.
A believer of freedom, capitalism, and conservative brand of politics.
A no one who cares less about popular public opinion.
A believer that life can be better, if every one is a tad more responsible.