Sunday, September 11, 2016

The Alternative To Socialism - A Solidarity Market Economy

The Alternative To Socialism: A Solidarity Market Economy / 14ymedio,
Mauricio Rojas

Chile uneasy with success

14ymedio, Mauricio Rojas, Santiago de Chile, 9 September 2016 — Since
2011 the Chilean left has launched a search for "another model," an
alternative to the social market economy that has led the country to
remarkable economic and social successes over the last thirty years.
Much ink has been spilled on the "inhumanity" of a model that,
paradoxically, has lifted millions of Chileans out of poverty and
transformed Chile into a middle-class country with the highest per
capita income in Latin America.

However, concrete proposals on the make-up of this "other model" were
conspicuous by their absence. Earlier, its supporters had bluntly
advocated a socialist planned economy as an alternative, but the
historical evidence has been responsible for demolishing that option.
The closest thing to an alternative is that raised by Fernando Atria and
others in the book The Other Model: eliminating private initiative in
the areas of welfare services or the sphere of "social rights"
(healthcare, education, pensions, housing), as they call them.

This would be a social democratic statist model which is not only an
anachronism and has been abandoned by the most modern social democracies
of northern Europe, but it is facing a growing repudiation by the
Chilean people, as shown by the collapse in the polls of President
Michelle Bachelet, whose approval rating is barely 15%, a drop from the
50% at the beginning of her term in March 2014.

This realization doesn't mean that those of us who defend full respect
for the social market economy shouldn't concern ourselves with its
specific forms of operation and its capacity to respond to the always
changing demands of the citizens. This is the key in Chile today, where
as a result of the free economic model and the tremendous progress
already achieved, there are new concerns and demands about the quality,
sustainability and, not least, the equity of the progress achieved.

This "uneasiness with success," that was spectacularly demonstrated in
2011 and was initially channeled by the left, will continue to be
present and will determine the Chilean political horizon for a long
time. The latest massive demonstrations demanding better pensions and
opposed to the system of pensions based on individual capitalization
show it very clearly.

This means that those of us who want Chile to continue on its path of
success cannot turn a deaf ear to these new concerns and demands, We
must make them ours and channel them, but not towards a destructive
questioning of the social market economy model, but toward its deepening
and improvement.

In the current Chilean case this corresponds, in my view, to putting a
clear accent on the social aspect of the social market economy. It
doesn't imply ceasing to question the market, especially considering the
strong questioning that day by day does the same and the situations of
abuse constantly reiterated. In this sense, I believe there are very
interesting viewpoints among British thinkers like Jesse Norman and
Phillip Blond, who speak about the need to "moralize the market" in
order to make it more efficient and ethically defendable. Leaving aside
this issue to concentrate on what, it seems to me, should today be the
focal point of a discussion on the social market economy: the social aspect.

Social in this case refers specifically to the need to undertake policy
interventions of a redistributive character to correct the spontaneous
result of market mechanisms in order to expand the resource base and
opportunities available to a significant part of our society. It is, in
short, about increasing equality of opportunity and I would like to give
three reasons in support of the pressing need for this: the first refers
to efficiency, the second to the ethics and the third to policy.


The market is undoubtedly a highly efficient distributor of existing
productive resources. However, without corrective intervention may tend
to underutilize potential resources, particularly those related to human
capital and the talents of the population. We are facing a situation of
potential "waste" or "internal brain drain" to use the expression that
Sebastian Pinera used in 1976 in one of the essays that formed his
doctoral thesis.

This implies that the lack of adequate conditions for its development
means that a part of the productive and creative potential of society is
never realized and never arrives on "the market" to be efficiently
distributed. Clearly, the market creates incentives for the development
of the human capital of the population, but its corrective capacity for
the "disadvantages of birth" and lack of resources that limit
opportunities for many is far from optimal, particularly in countries
where large segments of the population lack the minimum conditions to
realize their potential and contribute fully to the process of development.

This is obviously the case both in today's Chile and in Latin America in
general, and that is why this point is so important. This is, in short,
a huge social waste and, not least, a tragedy for each affected person.

A little history

Economic history abounds with examples that illustrate the key
importance of basic equality of opportunities for dynamic and
sustainable economic growth over time. The specific content of equal
opportunities has varied from era to era and was traditionally strongly
related to access to land. Owning land gives the workers the ability to
retain for their own benefit an important part of the benefit of its
production, which could then be invested in direct productive
improvements such as enhancing the education of their children,
providing them with increased human capital.

The case of the United States is, in this respect, paradigmatic. The
great northern nation achieved world hegemony thanks in large part to
the widespread access of immigrants to land, a fact that was decisively
reinforced by laws passed during the Civil War known as the Homestead
Act, signed by Abraham Lincoln in 1862. This created not only a very
stable society of landowners and a large domestic market, but also
comparatively optimal conditions for the development of their potential
talents. It was the society with the greatest equality of opportunities
for its time and therefore also the most prosperous and democratic.

Such examples could easily be multiplied and we would see, almost
without exception, that where land was more equally distributed, as in
the Scandinavian countries, further progress was generated, and where
were the large estates there was, and sometimes still is, poverty.
Suffice it to compare, among other cases, the north and south of Italy
or Catalonia and the Basque Country with Andalusia and Extremadura in
the case of Spain.

This brief reference also tells us something very important about the
historical failure of Latin America to achieve development. Large
inequalities inherited from the colonial era excluded a large majority
of its population from full social participation, thereby burdening the
chances to reach, despite the extraordinary export boom of the late
nineteenth century, lasting progress.

This is equally important in understanding the history of Chile. By the
late nineteenth century the country experienced a spectacular economic
boom resulting from the incorporation of the nitrate provinces of Norte
Grande. In fact, between 1870 and 1910 there were very few countries
whose economic growth exceeded Chile's. In 1910 it even managed to match
or exceed the per capita income of France and Sweden, not to mention
Italy or Spain, but this did not lead to Chile to development, but to a
frustrating and contentious twentieth century.

The reason is simple: Chile was a rich country with too much poverty and
inequality and it paid dearly for the consequences of this. The manna

from the north, the saltpeter, fell on a deeply unequal society, with
its great masses of "pawns," "farmhands," "day laborers," "bums," or
"broken," who remained prey to poverty, lack of educational
possibilities, subordination, exclusion and social and racial contempt.

In the early twentieth century, almost two-thirds of the adult
population was illiterate and unable to make a productive contribution
that went beyond the basics. Their talent potential was never realized,
tying so many Chileans to inherited poverty and condemning the country
to underdevelopment. This is the hard lesson for us in our history and
it would be very sad were we to stumble again over the same stone.


I start from the point of view that efficiency is important, but even
more so are the ethical considerations about the need for corrective
policy intervention in market mechanisms. From the point of view of the
ideas of freedom and equal dignity of human beings, freedom cannot be
the privilege of a few, but must be a real right of all. This is the
fundamental ethical budget of a free society and will remain so even if
a society of free men was not the most efficient alternative in economic

However, the actual exercise of freedom requires conditions that have
directly to do with our access to resources and basic security, without
which freedom is reduced to a mere empty promise. The freedom to read
books is more a mockery than a possibility for those who never had the
opportunity to learn to read, freedom of information is reduced to very
little when you do not have the minimum training required to process it,
and the freedom of movement is nothing more than a travesty when crime
takes over our streets or lack of adequate transport facilities make it,
in fact, impossible or extremely costly.

In addition, the use of freedom requires, as pointed out by the Nobel
laureate Amartya Sen, simultaneous access to certain rights,
capabilities and resources. Therefore the ethics of freedom coincides
with the perspective that emphasizes the importance of basic equality of

The capacity and resources necessary to exercise freedom will increase
with the advance of progress. It is therefore important not to remain
tied to an absolute concept of poverty, but also to consider it from a
relative point of view, that is, as that threshold defining the
exclusion of social development. This relative poverty that impedes or
curtails social participation was rightly emphasized by Adam Smith in
The Wealth of Nations and is the same as that which limits the
realization of our abilities or talents. In this sense, real freedom and
basic equal opportunities are two absolutely complementary terms that
define the ethical view that, in my judgment, should inspire our
political efforts.


The political reasons to put the emphasis on basic equal opportunities
seem obvious today. Stability and social cohesion depend on the
existence of a widespread sense of justice about the established order.
However, the sense of what is right and therefore legitimate has evolved
considerably. There was a time when hereditary inequality and
hierarchies were considered legitimate, as was the power of absolute
monarchs by divine grace or the limitation of freedom or political
rights to a minority of the population.

All this is part of the pre-modern social universe, one that was finally
subverted by the Declaration of Independence of the United States of
1776 which proclaimed, as founding principles of the legitimacy of the
political order, equality as well as the respect for the lives and
freedom of all ("all men are created equal … endowed by their creator
with certain unalienable rights … among these are life, liberty and the
pursuit of happiness.").

The political history of modernity is about how to get along and to
realize these values: equality, not to destroy but to strengthen the
freedom, and freedom, so that does not become indifference and a lack of
solidarity with others. And that is precisely the great challenge in our
Chile at the end of 2014. Only by committing ourselves unambiguously to
an equality that extends and strengthens freedom, that is, the basic
equality of opportunities, we can successfully fight the socialist idea
that seeks to homogenize us, undermine our natural diversity and sow envy.

The political legitimacy of the social order of freedom will only be
solid when the overwhelming majority of Chileans feels that they had a
fair opportunity to realize their potential and achieve their dreams,
and that their children will as well. A just political order cannot rely
on the lottery of birth, but on our common responsibility that no one
lacks the basic conditions for the exercise of freedom.

In addition, only under those conditions can the greater success and
wealth of some be legitimized. That is why in the United States there
has been not only acceptance, but even a culture of success and the
legitimate enrichment. It is a culture based on the history that has
already been discussed, in this equality of opportunities that American
society brings to so many and precisely for that reason, allowed it to
found the "American dream" on the solid rock of "the land of opportunity."

In this perspective, it is understood that the current troubling
orientation of United States politics with the emergence of populist
leaders like Donald Trump and Bernie Sanders is directly linked to the
weakening of the "American dream" and the emergence of a broad pessimism
in various strata of the US population.

In any case, the historical contrast to what happened in Latin America
could not be stronger and more instructive. In our countries, success
and fortune are almost always placed under suspicion and it comes from a
history of lacerating inequality, where opportunities have been denied
to many and where fortune was often built on the basis of violence, with
its exponent paradigm in the conquest of America, the connivance with
political power, privilege, negotiated or abuse. All this hampers us and
urges us to create a more just, and therefore more free, society.

Equal opportunities and State solidarity

Several times I have named the basic concept of equality of opportunity,
but without defining it more specifically in our current context. It
referred to the historical importance of access to land, but it is clear
that today it is no longer about this. In my view, and without detailing
each point, it is about these four aspects: education, healthcare,
public safety and infrastructure.

It is around these four aspects that we must focus our corrective
interventions on the spontaneous effects of the market, committing
ourselves to all Chileans have access to those conditions without which
the exercise of freedom and the realization of their potentialities
become largely illusory.

This does not exclude other interventions, such as those to do with the
situation of the greater population, but it centers the discussion on
the topic of this essay: a more even distribution of opportunities and
the conditions that make them possible.

That should be our great political commitment, but this does not mean at
all that we propose a type of welfare state in the style of the current
Chilean government, that is, where the State assumes not only the
responsibility that no one lacks these resources, but also seeks to
monopolize their financing and management. That is something we strongly

Our conception of the welfare state must remain subsidiary to with
respect to what civil society can undertake, which should be the focus
of our attention. Our interventions must strengthen it, empowering
citizens directly and not the State or the politicians. That is the
option of solidarity with freedom or, as I have called it in another
context, the solidarity State, which is diametrically opposed to
State-patron of socialist ideology.

In conclusion, I propose a change in our vocabulary that serves to
emphasize strongly the importance we give to the social or solidarity
aspect of the market economy. Perhaps we could, instead of the word
"social," which is a little imprecise and overused, use the word
"solidarity." So, instead of a social market economy we could say
solidarity market economy.

Source: The Alternative To Socialism: A Solidarity Market Economy /
14ymedio, Mauricio Rojas – Translating Cuba -
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