[OPINIÓN] Carlos Barodi: “What is a Social Market Economy?” | Comment

In the following lines I am going to refer to the social market economy. The reason? It is found in the 1979 Constitution (Article 115) and the 1993 Constitution (Article 58) and is therefore, at least in theory and on paper, the Peruvian economic model. There are two questions here: First, what does this mean? Second, is it in Peru?

First, the name was coined in Germany in the 1950s as a system linking the state to the market. That way? It has two components: on the one hand, the market, through the private sector, creates wealth, creates jobs and pays taxes. Here comes the second element, the state. With taxes received, he invests them with a view to equalizing opportunities; That is, it uses them efficiently in healthcare, education, rural roads, etc. The goal is to compensate the state for those who do not directly benefit from the market, but indirectly through the responsible use of taxes collected by the state. Also, the government should prevent business groups from abusing their dominant position in the market. That is why the state is a regulator.

Second, does it apply in Peru? In my view, the economic strategy used in Peru undoubtedly has market elements, but it is not advanced enough to call it a social market economy.

On the one hand, commercialism dominates. Those who are connected with the government of the day enjoy privileges of getting facilities and thus they grow more and more. No equal competition, and in many cases, interactions with officials at any of the three levels of government are a means to an end. They are looking for offers for themselves or for the sector in which they are located. The corruption cases that we have been seeing for a long time are a clear proof of this. Things are accomplished with favors in exchange for money.

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The mercantilism described is that wealth is concentrated in a few, precisely those who access privileges and lend themselves to corruption. It increasingly concentrates wealth in the hands of a few to the detriment of the majority. It is not a social market economy because resources are not allocated based on each individual's capabilities, but rather based on the degree of connection to the authorities in charge of making decisions.

On the other hand, the market has made the economy grow in recent decades. It is undeniable. It is also true that only a fraction of the population has experienced this development. This is because there is almost no redistribution. The thing is like this. Markets make economies grow, but the distribution of income from them leaves many people worse off. And the state has a role to play.

Growth increases tax collection and, therefore, the amount the government has to invest in education and public health, water and sanitation for all. However, if that money goes to corruption or public institutions don't know how to spend it, there will be no redistribution. Here the effects of the deferred reforms appear; Without them there will be only welfare and no real progress in providing quality basic services.

Therefore, for the market to function, the government must do so. Key elements include equal rules for all, an independent judiciary, and social investment in education and healthcare for those in need. If the market works, but the state does not, there is no social market economy. Dear reader, you can christen what is happening in Peru with whatever name you like. Peru needs to find a state that works for the market. Without a state active in its redistributive tasks, they can change laws, but that is of no use.

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