First of two parts
BEFORE the advent of modern economics, the discourse of classical economists was dominated by the agenda of building a strong economy. For these economists, a robust economy would allow their country to fend off threats from their enemies and project it as an imperial power in the world. Thus, their research was obsessed with the goal of finding the sources of growth for the country to achieve a strong economy.
Sixteenth and seventeenth-century mercantilists, particularly Thomas Mun in England and Jean-Baptiste Colbert in France, argued that the accumulation of ingots (gold and silver) through one-way trade largely benefited the imperial powers ( that is to say England and France) would ensure the establishment of a strong and powerful economy. Ironically for them, the defeat of the Spanish armada by the English naval force in 1588 shattered the validity of their hypothesis.
Spain had all the bullion by then thanks to its colonies rich in gold and silver in Latin America, but it was still defeated by the English naval force led by Lord Charles Howard and Sir Francis Drake. England never had a treasure of gold and silver close to what Spain had then.
The puzzle sparked an overhaul of what was the ultimate source of a nation’s growth and power. This was the time when classical economists emerged from the 18th to the 19th century. Among them were Jean-Baptiste Say, Thomas Malthus, John Stuart Mill and the most famous of them were Adam Smith and David Ricardo, both British.
It was Adam Smith who put forward the idea in his book, The Inquiry into the Nature and Causes of the Wealth of Nations, or the Wealth of Nations for short, that work is the source of growth and therefore of the wealth of nations. He showed that if labor is allowed to function freely in a market economy (the invisible hand), unhindered by regulations from the ruling noble class, economic growth will accelerate and economic prosperity will be achieved by the country. The end result is a strong economy.
On the other hand, Ricardo provided a more sophisticated extension of Smith’s theory by noting that while countries are allowed to produce goods for which they have natural inclinations (both labor and natural resources) for the do, it will result in a production of these products. Also, if these countries are then allowed to market their products, the level of well-being of the people in both countries will increase due to the cheaper and good quality products they consume. David’s speech has come to be known as the “Theory of Comparative Advantage,” which is still relevant in our modern economic age.
How relevant are these past economic debates to our current situation?
The Philippines, like other poor and developing countries, does not command much respect in the community of nations because they have a weak economy. Look at the way our Filipino Overseas Workers (OFW) or even Filipinos traveling overseas are treated by immigration officials where our “kababayas” work or visit. See how our voice as a country is barely heard in international forums that address global development issues. And watch how China contemptuously treats our claims to the islets and reefs in our 200-mile economic zone. If we have a strong economy with a strong military and naval force, it is obvious that the Philippines and its citizens will not be treated so poorly.
The curse of having a weak economy and its humiliating consequences for our standing in the global arena are so obvious, but none of our leaders and policymakers, past and present, have attempted to systematically analyze what is afflicting our economy. . No one has done a holistic analysis of our economic problems and then come up with programmatic solutions to solve them so that we can have a clear path towards achieving a strong and powerful economy in a specific time frame. Consequently, our political orientations and with them, our programs and projects, are a medley of activities which at best provide symbolic solutions and at worst contradict each other.
For example, we want to modernize and develop our agricultural sector but continue to implement a land reform program for over 30 years now that has only resulted in the fragmentation of our agricultural land into tiny sizes. How can one hectare of land benefit from economies of scale and benefit from modern agricultural technology?
We want to make our economy competitive and a safe haven for foreign investors, but prohibit them from entering so-called strategic sectors which elsewhere in our neighboring countries have been open to foreigners for business. We want to tax the rich, but we are unable to pass a law that will impose higher taxes on real estate and unused and abandoned land, which is mainly bought by the rich for speculative purposes. We want to make our agricultural products competitive, but we have never systematically provided productivity improvement assistance to our farmers; instead, our politicians choose to extend distributions to our farmers to maintain their popularity and gain votes. We want to decentralize governance but do not provide adequate resources to our Local Government Units (LGUs) and, more importantly, make them accountable for the extra taxpayer money allocated to them.
Consensus and collective vision
Barely a year after the next presidential election, it is imperative that we reach consensus on the root causes of our economic malaise and agree on the strategic goal the country should take in the next 10 years. . This is essential if we are to avoid reverting to our label as “the sick man of Asia”.
The 2019 coronavirus disease (Covid-19) pandemic has set back the economic progress we have made over the past five years. The economic recovery, if it occurs over the next two years, will only bring us back to where we were five years ago. Building a strong economy is a long-term agenda that will require sacrifices on the part of our people. A collective vision and consensus on what it will take to achieve this goal of a strong economy is essential if we are to overcome the sacrifices that we will demand of our people.
Revered Singaporean leader Lee Kuan Yew did this for his people over half a century ago. His clear vision of what Singapore should become in the future and the sacrifices that this involved in realizing that vision made Singapore what it is today: “From a third world country to a first world country. world ”.