A policy of poverty

An economic policy is like a medical prescription. If the prescription is wrong, the patient may die. If a nation’s economic policy is wrong, the nation may not die, but its people will certainly be anemic as indicated by their poverty and social malaise.

Two different kinds of economic prescriptions were discussed in the Opinion pages of the Inquirer recently. One was by columnist Cielito F. Habito, a Harvard-trained economist and socioeconomic secretary under President Fidel Ramos (“Outdated restrictions,” 9/23/14), and the other by Mario Guariña III, a former associate justice of the Court of Appeals (“Economic nationalism: voices from the past,” 9/24/14).

Expressing the common thinking among local economists, echoing that of their Western counterparts, Habito says that substantial foreign investments are absolutely necessary for our country to prosper. He therefore advocates the removal of local “restrictions” on foreign investments, including those provided by our Constitution in the exploitation, exploration and use of natural resources.

On the other hand, Guariña cites the contention of nationalist statesmen Claro M. Recto and Lorenzo Tañada, both former senators, that capital for economic development can be raised through local savings. These savings in turn can be used by the government to develop our natural and human resources for the benefit of our people. They warned that foreign economic dominance would only worsen and prolong our poverty.

Because of the continued repetition in the media of the ex cathedra pronouncements of our economists in the government, academe and foreign corporate sector, many of our people have come to accept the foreign-investment paradigm as gospel truth. But it is just a convenient excuse for the failure of their proposed policies.

Now a new book has been published, based on research covering three centuries since the Industrial Revolution, which asserts that the Asian countries that have emerged from poverty since World War II did so without substantial investment from wealthy countries. “Capital in the Twenty-first Century” by Thomas Piketty, an economics professor at the Paris School of Economics, has been a bestseller since its publication.

Piketty points out: “None of the Asian countries that have moved closer to developed countries in the West in recent years has benefited from large foreign investments, whether it be Japan, South Korea, or Taiwan and more recently China. In essence, all of these countries themselves financed the necessary investments in physical capital and, even more, in human capital [knowledge and skills], which the latest research holds to be the key to long-term economic growth.”

“Conversely,” he adds, “countries owned by other countries, whether in the colonial period or in Africa today, have been less successful. … China, for example, still imposes controls on capital; foreigners cannot just invest in the country freely, but that has not hindered capital accumulation, for which domestic savings largely suffice. Japan, South Korea and Taiwan all financed investments out of savings. … To sum up, historical experience suggests that the principal for convergence [of wealthy and poor countries] is the diffusion of knowledge….”

Piketty’s study backs the position of Recto and Tañada, who pointed out that foreign investments drain domestic capital through the remittance of profits to home countries (a common experience of the colonies), and that emerging countries can benefit if there is transfer of technology and foreign remittances are regulated.

Piketty’s book shows that other economists,especially those who have done extensive research, do not all accept the idea that foreign investments are absolutely necessary to promote economic growth. In fact, as he points out, foreign investments, particularly those in ownership of lands and other assets, create instability because poverty in the host country raises demands for resource nationalization.

“Capital in the Twenty-First Century” has been acclaimed by other economists, notably Paul Krugman, Nobel Laureate for economics, who wrote in his column in the New York Times: “It seems safe to say that … the magnum opus of French economist Thomas Piketty will be the most important book of the year—and maybe of the decade.”

While the book discusses mainly how income inequality develops in and among nations, Piketty demonstrates that economic research is much more rewarding and solid when it is based on adequate historical record rather than on mere theory. “The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms,” he says.

My own reading of history suggests that this is true. Japan rose to the ranks of the rich countries after its government under the Meiji decided to modernize Japan in order not to fall in thrall to colonialism. It sent its scholars to Britain, Germany and the United States to gain knowledge of technology and skills and adopted these in their country.

It is also notable that the recent rise of Asian countries has been led by nationalistic leaders like Malaysia’s medical doctor Mohamad Mahathir, Singapore’s labor lawyer Lee Kuan Yew, South Korea’s general Park Chung Hee, China’s former waiter Deng Xiaoping, Brazil’s union leader Luiz Inacio Lula da Silva, and Taiwan’s Kuomintang officials. None of them was a professional economist. What they had in common was pragmatism and nationalism, as well as an obsession to liberate their people from poverty.

To their breed belonged Recto and Tañada, the likes of whom we no longer see in our political arena—not only patriots and nationalists but also antidictatorship, fighting to their last breath for human and democratic rights. But because of their nationalism, the presidency was denied them.

Manuel F. Almario (mfalmario @yahoo.com) is a semiretired veteran journalist and spokesman of the Movement for Truth in History, Rizal’s Moth.