* This is my article yesterday in
BusinessWorld Weekender.
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Growth, capitalism
and inequality
“Improving the
position of the poorest by giving them what we took from the wealthy, would
temporarily quicken the closing-up of the ranks, it would, before long, slow
down the movement of the whole and in the long-run hold back those in the rear.
All obstacles to the rise of some are, in the long run, obstacles to the rise
of all… To prevent progress at the top would soon prevent it all the way down.”
-- Friedrich Hayek, The
Constitution of Liberty (1960), Chap. 3, “The Common Sense of Progress”
Many people have mixed feelings and attitude towards
economic freedom and inequality. They want to be freed from too many
regulations, prohibitions and taxes that
tend to stifle individual creativity and entrepreneurship, yet they also want
more regulations to control inequality
that result from more individual freedom.
A forum on “Poverty, Inequality and Inclusive Growth” was
held last August 12, 2015 by the Albert Del Rosario (ADR) Institute at the
Tower Club in Makati. It was convened by Dr. Epictetus Patalinghug, a Professor
at the UP College of Business Administration. He also gave a lecture and
discussed five topics, (1) macroeconomic policy and poverty alleviation, (2)
poverty-growth linkage, (3) inequality in the past and present, (4) employment
impact of growth, and (5) how growth can be more inclusive.
The three reactors were Dr. Vic Paqueo of the Philippine
Institute for Development Studies (PIDS), Mr. Ferdie Diaz of the Employers
Confederation of the Philippines (ECOP) Co-Chair on TWG on Labor and Social
Policy Issues, and yours truly as head of Minimal Government Thinkers.
I argued the “politically incorrect” position that
inequality is necessary and overall, is good for human progress. Consider for
instance how previously heavily-repressed people in the ASEAN – Cambodia, Laos,
Myanmar, Vietnam (CLMVV) – have managed to improve their average per capita
income over the past two decades. They experienced a doubling (2x) of per
capita GDP in just one decade, from 2004-2014.
As other people’s income expand very fast, their income
gap with their poorer countrymen also expands.
Is rising inequality a bigger problem than rising income
for people in Asia? From a global survey conducted by PEW Research Center in
the US in April to May 2014, the answer is No.
The PEW survey was based on telephone and face-to-face
interviews conducted under the direction of Princeton Survey Research
Associates International. The average sample size per country was 1,000 adults,
18 years old and above.
One question was, "Are
people better off in a free-market economy given the wide disparities in wealth
that might result?" Agree or Disagree (See Table 2).
Respondents in socialist Vietnam and China have high
support for free market capitalism despite the rise in inequality, than people
who are against it. High support also of people in Malaysia and the
Philippines.
Overall result covering 44 countries, majority of the
people around the world were willing to accept inequality to have a free market
system. About two-third (2/3) of the survey respondents said they are better
off under capitalism despite the inequality.
Another interesting question in the PEW survey was, “What would do more to reduce the gap
between the rich and the poor in our country?”
Majority of respondents in Asia, especially in Vietnam,
Philippines and Thailand, favored low taxes, not high taxes, to reduce
inequality. Meaning they are driven less by envy (“tax the rich more”) but by a
desire to become rich and middle class themselves, and they do not want high
taxes to negate whatever expansion in income that they will attain in the
future. Low taxes on corporations also encourage more investments, more jobs
for the poor, and economic growth.
Perhaps the best indicator that the world, the people in
the planet today are better off compared to their ancestors despite rising
wealth inequality, is the rising life expectancy. Even the super-rich more than
a century would be lucky if they live up to 60 years old as average life
expectancy in the world at the start of the 19th century was only 48
years old. Now, even the poor can expect to live up to 80+, 90+ years.
In the Philippines, the average life expectancy in 2010
was 69 years (67 for males, 71 for females). By now, it should be almost 70
years.
Infant mortality is declining too, even children from
poor families are dying less than before.
To summarize the points in this paper,
1. Equal people are not free and free people are not
equal. Income and wealth inequality per
se is not the problem, high poverty is. To force equality among the people,
massive political repression will happen.
2. The United Nations, the various multilaterals and
foreign aid, various national governments are stirring the politics of envy in
their continuous call to fight inequality and forcing equality. A government
that’s big enough to give everything you want is also big enough to take
everything you have.
3. Inequality due to individual freedom will lead to
innovation and substantial poverty alleviation. In the words of Friedrich Hayek
again in his book, The Constitution of
Liberty,
“The rapid economic advance that we have come to
expect seems in a large measure to be the result of this inequality and to be
impossible without it. Progress at such a fast rate cannot proceed on a uniform
front but must take place in echelon fashion, with some far ahead of the rest….
The over-all speed of advance will be
increased by those who move fastest. Even if many fall behind at first, the
cumulative effect of the preparation of the path will, before long,
sufficiently facilitate their advance that they will be able to keep their
place in the march.”
4. Income taxes,
personal and corporate, should go down drastically. Efficiency and hard work is
not a crime to be penalized by high taxes. And if government should create new
welfare programs, it should abolish or shrink old programs that do not work.
Bienvenido S. Oplas, Jr. heads a free-market think tank,
Minimal Government Thinkers, Inc., and is a fellow of the South East Asia
Network for Development (SEANET).
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