Income growth or economic equality? Strategic choices for a developing society

Noninclusive growth has characterized most societies in recent years. While many economies the world over have been experiencing phenomenal increases in economic output in the past few decades, the larger share of the increased wealth has accrued mainly to a small minority of the population, while most of the rest of society have remained largely poor, many living in sub-human conditions.

In its most recent report on global income inequality, Oxfam, the international organization devoted to fighting poverty, has shown that the wealthiest 1 percent of the world’s population earned nearly two-thirds of all new wealth created since 2020, worth around $42 trillion, with the remaining one-third going to the other 99 percent.

In our own backyard, Forbes’ list of the richest families in the Philippines showed that the 10 wealthiest Filipinos in 2023 have amassed fortunes totaling $53.25 billion, or a staggering P2.93 trillion at current rates of exchange. This amounts to roughly 12 percent of the total national wealth of the Philippines, estimated at P23.56 trillion by the International Monetary Fund.

Is socialism or communism the answer?

In his massively documented book, “Capital in the Twenty-First Century” (Harvard University Press, 2014), noted French economist Thomas Piketty finds that economic inequality has risen significantly over the past several years in most economies. Just like his American contemporary, Nobel Laureate Joseph Stiglitz, who published his equally controversial book, “People, Power and Profits: Progressive Capitalism for an Age of Discontent” in 2015, Piketty puts the blame squarely on inherent flaws of capitalism as an economic system.

Just recently, Piketty came out with an even more forceful and equally controversial book, “Time for Socialism: Dispatches from a World on Fire 2016-2021,” in which he strongly advocates a drastic overhaul of the capitalistic system.

According to Piketty, “… one cannot just be ‘against’ capitalism or neoliberalism: one must also and above all be ‘for’ something else…” (emphasis mine).

That something else, he concludes, is “… a new form of socialism, … one that is participative and decentralized, federal and democratic, ecological, multiracial and feminist.”

An even more revolutionary change is advocated by a young Japanese scholar, Kohei Saito. In his landmark book, “Marx in the Anthropocene: Towards the Idea of Degrowth” (Cambridge University Press, 2023), Saito advocates a new form of communism, which he calls “degrowth communism,” one that calls for trading off economic growth for saving the ecosystem from further deterioration.

These three noted economists are of three different ideological persuasions and hail from three different parts of the globe but share one thing in common: they all advocate a major shift in economic policy away from a preoccupation with growth, which tends to benefit only a few, toward greater concern for the general well-being of society and the preservation of our fast-deteriorating physical environment.

Can capitalism be saved?

In our view, the most critical challenges faced by society today are: one, the widening gap in the economic fortunes between the very affluent few and those at the bottom of the social pyramid that is mired in abject poverty; and two, the extensive damage sustained by our natural environment.

There is widespread belief that the multilateral institutions, such as the United Nations, the World Bank, the World Trade Organization and national governments, should play a more active role in saving capitalism from its impending demise. However, due to incompetence or indifference, these organizations have become largely ineffective and unreliable in performing their mandates under existing institutional arrangements.

Be that as it may, it cannot be denied that business, by its single-minded pursuit of shareholder wealth maximization, has also been a major contributory factor in the prevailing economic inequalities and inequities in most countries of the world today, and for the continued degradation of the physical ecosystem.

It is therefore heartening to note that progressive business leaders themselves are now beginning to realize this, and have expressed their willingness to take up the reins for change. An increasing number of visionary and progressive business leaders and iconic corporate managers—such as American business magnate and philanthropist Warren Buffet, Microsoft’s erstwhile CEO Bill Gates and our very own Ramon Ang —have come to realize that the long-standing corporate strategic objective of shareholder wealth maximization can be achieved not by the dogged pursuit of immediate profits, but by investing resources in their stakeholders in order to enhance profitability and sustainability over the long haul.

In closing, while we concur with critics of neoliberal capitalism in condemning the system’s shortcomings in addressing today’s most pressing global challenges, such as environmental degradation and extreme poverty, we argue against any drastic shift to authoritarian regimes for fear that this might disrupt existing institutional arrangements and may lead to social chaos and even greater uncertainties.

In our thinking, a more preferred approach is to tweak the existing economic order and nudge it in small incremental steps to make it more effective in dealing with emerging social and economic issues. One strategy is for the state to play a more active role in poverty alleviation and in creating a sustainable ecosystem. These can be achieved by imposing heavier taxes on the wealthiest members of society, increasing material assistance to the less fortunate members of the community, making public education more accessible to the poor and encouraging investment in renewable sources of energy. Another, perhaps an even more effective approach, is for business to take the initiative by abandoning its long-standing practice of maximizing short-term returns on their investments, and aim instead for long-run wealth maximization. INQ

(The article reflects the personal opinion of the author and not the official stand of the Management Association of the Philippines or MAP. The author is a retired professor of economics and management at UP Diliman. Feedback at [email protected] and [email protected].)