Capitalism vs social democracy

I remember a conversation I had with a business tycoon a few years ago on the merits and demerits of capitalism. My point was that capitalism was responsible for the wide gap between the rich and the poor wherein less than 70 of the world’s richest individuals had more wealth than the bottom 50 percent of the world’s population. I also pointed out that the capitalist answer to a fairer distribution of wealth was based on the “trickle down” theory. This basically meant that as the rich got richer, some of their excess wealth would trickle down to the masses.

However, the reality is that the ultra rich did not spread the wealth but instead focused on purchasing more extravagances like more and more luxurious houses, private planes, ultra-expensive cuisine and wine. Even Pope Francis has said that the trickle down theory never worked.

In a recent issue of the Financial Times, Ruchir Sharma wrote an article, “What went wrong with capitalism?” His thesis is that there are ways that capitalism can still be saved. On the other hand, I believe that capitalists will never try to find ways for a fairer and more equitable distribution of wealth. After all, the accumulation of more wealth is the essence of capitalism.

There is a paragraph in the article that actually strengthens my position. It says: “By the 1980s, fearful that mounting debts could end in another 1930s style depression, central banks started working alongside governments to prop up big corporations, banks, even foreign countries every time financial markets wobbled.”

Even in poor countries like the Philippines, the government’s priority in times of troubled economies is to find out how to save business corporations. The article said, “With good reason, progressives deride this new version of capitalism as socialism for the very rich.” Governments’ instinct during economic difficulties seems to be how to protect businesses against economic downturn. This bias towards capitalism is also why governments seem very reluctant to ensure that every working citizen is paid a living wage. This is the wage level that allows a typical family to have sufficient funds to ensure decent housing, adequate food, the necessary health care, proper education for children and some amount for savings.

The result is that every time there is agitation for a salary increase, government always listens to the business sector that claims that giving decent wages will render business firms noncompetitive.

One very negative result of this attitude is that many Filipino business firms rely on lower wages to remain competitive. However, the reality is that business firms must turn to increasing productivity to remain globally competitive. This reliance on low wages has led to the migration and the search for better wages in foreign countries. The most efficient workers dream of going “abroad” to be able to earn a decent salary. Those that are left behind are the rich people and those workers willing to settle for very low wages and have no motivation to improve productivity.

The rise of populism around the world has been due to the failure of capitalism for a more equitable society. Even in the United States, support for capitalism in the latest PEW polls has fallen among most Americans. Among Democrats under 30, 58 percent now have a positive impression of socialism and only 29 percent say the same thing of capitalism.

When my business tycoon friend asked what was my alternative to capitalism, the first thing I said was, I do not believe in communism because it also does not work. I am a firm believer in democracy. I am an advocate for social democracy or, as it is sometimes called in other countries, democratic socialism. Perhaps one day I will write about these two ideologies in a column. Basically, these ideologies believe in a market economy which is regulated by government. It also believes that the distribution of wealth should not be left to the business sector but should be the responsibility of government.

Surprisingly, major figures in the American political world have started to embrace democratic socialism. These include people like Sen. Bernie Sanders and Congresswoman Alexandria Ocasio-Cortez. In some of his speeches like the one in front of the United Auto Workers’ Union, even President Joe Biden has begun to sound like a social democrat.

In the FT article, it said that three out of every four US industries have ossified into oligopolies dominated by three or four companies. It said: “Worse, these oligopolies are more often the ‘bad kind,’ prospering by lobbying regulators and killing off competitors, not by innovating.”

To a certain extent, this is the situation in the Philippines. In addition, our country has been plagued by crony capitalism which refers to the favored status of companies owned by close friends of whoever is the occupant in Malacañang.

The rise of populists like Trump will lead those who want to save democracy to look for a way to distribute wealth more equitably. Since the capitalists cannot be depended on to accomplish this, the only other ways is to have a government that is sincerely working for the welfare of the general population. The first step is to ensure a living wage for everyone.

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