Mercantilism is an economic system designed to increase a nation’s wealth by government regulation of all the country’s commercial interests. It was a system dominant in some parts of Europe from the 16th to the 18th centuries before falling into decline, although some quarters contend that it is still practiced in the economies of industrializing countries in the form of government interventions.
Laissez-faire economics, on the other hand, is a doctrine advocating that an economic system should be free from government intervention and be driven only by market forces. Laissez-faire (French for “let go”) economics originated in 18th century France where economists (at that time called “physiocrats”) became hostile to subsidies and discriminatory economic measures prevalent under mercantilism. This doctrine became popular in the Western world in the 19th century. However, its failings showed in the form of great disparity in wealth distribution, bad treatment of workers and consumers, and the spread of monopolies. Not long after, opposition to laissez-faire economics snowballed, and governments in industrialized countries intervened on behalf of workers and the general population.
The early 20th century saw the breakup of monopolies in the US, and the nationalization of essential industries and services in Europe after World War ll. From the 1970s, however, the pendulum swung back to laissez-faire economics (renamed “free enterprise”) and brought deregulation of business and progressive removal of trade barriers.
In an article—“The Theory of Power”—published by The American Prospect on September 30, 2011, Robert Kuttner offered a robust challenge to laissez-faire economics. He said: “Over the past three decades, laissez-faire economics has had an immense impact on our society, mostly for the worse. The elements have included privatization of public services, an assault on social benefits, and most important, deregulation of finance. Elites find laissez-faire an immensely useful fable, because it serves as an expert brief against government interference. In the academy, dissenting economics has had trouble gaining a foothold. The reigning paradigm is simple and elegant: Free markets maximize individual choices and collective well-being, end of story.”
The discourse on free markets and deregulation can’t come at a better time after President Duterte castigated the two water concessionaires, Manila Water and Maynilad, for treating water like a commodity, not as a natural resource to be shared with all Filipinos. The President’s outburst against the two water firms started when he learned about the rulings of the Permanent Court of Arbitration in Singapore, which ordered the Philippine government to pay P3.4 billion and P7.39 billion to Maynilad and Manila Water, respectively. The Singapore court made the ruling following the losses the two water firms allegedly suffered due to non-implementation of water rate increases. The Chief Executive, however, said the existing contracts with Manila Water and Maynilad that contain “onerous” provisions are null and void from the very start.
Consequently, the President ordered the filing of appropriate criminal, civil, and administrative charges against the owners and legal counsels of Manila Water and Maynilad, as well as the agents and lawyers of the administrations involved in the crafting of the water concession deals. He said: “It was really at that time a conspiracy to defraud government.”
The President has since announced that a new draft of water contracts would be offered to Manila Water Co. Inc. and Maynilad Water Services Inc. to replace the existing onerous agreements. He also threatened the concessionaires to accept the new contracts or the government would terminate their concession deals and nationalize water distribution services.
Are there policy alternatives available if the water firms don’t sign the new contracts? Rene E. Ofreneo wrote in his column, “Securing water for all: Shifting development strategy for the commons”(BusinessMirror, December 26, 2019)that the euphoria over privatization has been on the decline in Europe and in North and South America. He said: “A re-municipalization or de-privatization campaign by citizens and local governments is putting privatized water and power companies in Germany, France and United Kingdom back in the hands or control of government.”