Opinion

Are liberalism and capitalism obsolete?

BREAKTHROUGH - Elfren S. Cruz - The Philippine Star

June 30, 2019 | 12:00am

In a recent interview with the Financial Times, Russian President Vladimir Putin claimed that the nationalist populist movement is growing and that liberalism is finished as an ideological force. “The liberal idea has become obsolete. It has come into conflict with the interests of the overwhelming majority of the population.” This is not a wild statement considering that the heads of government of three of the largest superpowers in the world – United States, China and Russia are now nationalist populists – Donald Trump, Xi Jinping, Vladimir Putin. The United Kingdom may have soon a nationalist populist as prime minister if Boris Johnson is elected.

“Populism” is the term normally applied to politicians and groups who appeal to “the people” who they then compare to the “elite” who are a threat to the interests of the people or the masses. In this way, even if the masses are the majority, populists present the people as the “underdog”.

One major reason for populism is the worsening income inequality in the world even in rich countries like the US, Italy, and the UK. The ideals of liberalism are being blamed for the rise of governance by the elite class and the rise of income inequality.

Liberalism is a political philosophy that generally supports individual rights – civil rights and human rights, democracy, freedom of speech, freedom of the press and freedom of religion. It is also associated with free markets or capitalism. During the Cold War, the battle was between Liberalism and Marxism. In the 1990s, the world turned against Marxism. Even its centers of power – China and Russia – turned away from Marxist-Maoist thoughts. The world thought that this was the “end of history”; and the world would now turn to democracy and capitalism. For a couple of decades this was what happened.

However, as the 21st century began, disenchantment with liberalism started. Capitalism made the world richer; but, the wealth did not trickle down. Instead fewer and fewer people owned a greater percentage of the wealth until today 67 individuals own as much wealth as the bottom 50 percent or nearly four billion people.

Of course the claim is that poverty levels have gone down. But who decides the level of poverty? I read that in the Philippines, the poverty threshold is around P101,000 a year or less than P10,000 a month. The minimum wage is around P13,000 in the NCR region. Does a family of four living on even minimum honestly feel that they are not poor?

As the breadwinner struggles to feed his family, look for a liveable habitat, sacrificing to send his children to overcrowded schools with underpaid teachers and scared that a member of the family will incur health care costs beyond their means, what do we tell him? Do we tell him that he must sacrifice and accept low wages so that this country can remain competitive?

When the “elite” oppose higher wages, free tuition, universal health care and other similar measures, this simply strengthens the argument of populist leaders that they can best protect the interest of the masses against the “elite”.

All over the world, in rich and poor countries, studies have shown that real wages have not increased as fast as the increase in labor productivity. I recently read that between 2009 and 2017, labor productivity in the NCR region grew by 35 percent from P456,059 per worker to P614,297. However, during that same period, the real value of the mandated minimum wage only increased by 11 percent.

This increasing decoupling of wages and productivity is now a worldwide concern including in Europe and North America. In Eastern Europe, wages have been kept low so that these countries remain competitive. This has not worked as countries with the highest wages like Germany and the Scandinavian countries registered the highest economic growth.

The European Trade Union Institute issued a statement which can be applicable to the Philippines: “If wages are persistently lagging behind productivity, workers do not receive their fair share of the produced wealth. This is not only deeply unjust but also economically detrimental, as growth remains behind its potential. Labor income remains the main source of income for households and private consumption makes up the largest part of aggregate demand. Real wages falling behind productivity growth means that wage income do not grow and consequently consumption does not grow. This depresses demand prospects which also determine investment. Depressed wages do not provide incentives for investments in technology and thus can hamper future productivity growth. For “transformation economies” low wage trap can be a barrier for a long term catching up process...Competitiveness should not be based on low wages.”

If liberalism is really obsolete, what new ideology can be the alternative to nationalist populism? For the answer, I have been intently following the political debates in the US. The Republican Party under Trump has embraced nationalist populism. The Democratic Party is in the process of choosing their own candidates who are proposing different ideologies. Joe Biden is espousing the traditional philosophies of liberalism. Two leading candidates – Bernie Sanders and Elizabeth Warren are openly espousing “Democratic Socialism.” Other candidates like Kamala Harris sound like they are proposing “Social Democracy.”

In my next column, I will write about these alternative ideologies to Liberalism and Populism.