THE ongoing global crisis should not be an excuse for critics of market forces to throw the baby with the bathwater. Strictly speaking, the free market is still very much a baby in the Philippine economy. For more than forty years after the Second World War, what we had in the Philippines was not a market economy but a curious mongrel of mercantilism, state interventionism, monopoly capitalism and our own version of crony capitalism. Hardly did we allow market forces to really operate because of all the protectionism, state enterprises, bureaucratic controls, and populist economics. Like China till 1978 when the reforms of Deng Xiaopeng began and India till 1991 when then Finance Minister Manmohan Singh opened up the Indian economy, the Philippines was a market economy only in name till the deregulation, privatization and liberalization movements began in the 1990s during the Presidency of Fidel Ramos.

To understand better the role of the market in attaining both economic growth and a more equitable distribution of income, we have to reflect why the workings of a market economy have proven to be the most effective route to attaining high per capita incomes and the reduction of poverty in the highly developed countries of Europe and in the United States in the second half of the last century. The market economy succeeded because it was the most effective in recognizing the human right to individual economic initiative and the principle of subsidiarity, the two philosophical principles which explain the success of any society in attaining authentic human development for everyone of its citizens. By his very nature as an intelligent and free agent, each human person must be given the freedom to exercise the human right of individual economic initiative. No higher authority can take away this right. A market economy is the most efficient in recognizing this right of individual enterprise. The principle of subsidiarity also proceeds from the dignity of the human being. It states that what can be achieved competently and efficiently by an individual or a small group of individuals should not be taken over by a higher body, least of all by an all powerful State. The State should only play a subsidiary role if it is to respect the dignity of the human person. Socialism or totalitarianism is an affront to this dignity.

Given these philosophical principles, it is no surprise that the countries that first industrialized and attained high living standards in the last century were those that paid the maximum respect for the human right to individual economic initiative and the principle of subsidiarity by allowing market forces to operate as freely as possible. It is also not a surprise that the countries that spawned hundreds of millions of extremely poor people were countries like India and China that repudiated market forces through socialistic, totalitarian or mercantilistic systems. Only when these latter countries started to liberalize, privatize and deregulate their respective economies did they begin to grow at high rates and enabled tens of millions of their populations to rise above grinding poverty.

Therefore, it is worth pondering on the words of President George Bush in his speech last November 8, 2008 at the Manhattan Institute in New York. He reminded his audience that capitalism is not perfect. "But it is by far the most efficient and just way of structuring an economy. Capitalism offers people the freedom to choose where they work and what they do, the opportunity to buy or sell products they want, and the dignity that comes with profiting from their talent and hard work. The free market provides the incentives to work, to innovate, to save, to invest wisely, and to create jobs for others. And as millions of people pursue these incentives together, whole societies benefit."

Speaking more specifically of the American experience, President Bush told his audience that: "Free-market capitalism is what makes it possible for a husband and wife to start their own business, or a new immigrant to open a restaurant, or a single mom to go back to college and to build a better career. It is what allowed entrepreneurs in Silicon Valley to change the way the world sells products and searches for information. It’s what transformed America from a rugged frontier to a nation that gave the world the steamboat and the airplane, the computer and the CAT scan, the Internet and the iPod."

No honest mistake or malice of investment bankers or irresponsible behaviour of consumers can erase the benefits conferred by the economy on the world over at least the last 100 years. It would be foolhardy now to return to socialism, totalitarianism, government interventionism or state capitalism as the cure to the present malaise. It would literally be throwing the baby with the water. Especially at the international level, the present woes should not in any way lead to a retreating of each country to protectionist measures, starting with the United States. As UP economist Arsenio Balicasan said in the Seventh Jaime V. Ongpin Annual Memorial Lecture, "Contrary to fears expressed in various circles, globalization, defined broadly to mean interconnectedness of markets and communities across national borders, has been beneficial to the poor. Evidence indicates that in cases where globalization (in the more limited sense of openness to international trade) has hurt the poor, the culprit has often been not globalization per se but the failure of domestic governance to secure policy and institutional reforms needed to enhance the efficiency of domestic markets and ensure a more inclusive access to technology, infrastructure, and human development."

The ongoing crisis should motivate us to continue improving the way the market system works to grant the greatest leeway to the freedom of economic initiative to each Filipino. It should also motivate us to actively perform the tasks which the market cannot assume, which have to do with delivering direct social services to the poorest of the poor. If we act promptly to address these issues, the market will help the Philippine economy to recover rather quickly in the next year or so. For comments, my e-mail address is bvillegas@uap.edu.ph.