Word
Gems
What is a
man but the sum of his thoughts?
Economics:
Milton
Friedman's
Free
To Choose
#1: The Power of the Market
Friedman: Once all of this was a swamp, covered with forest. The Canarce Indians
who lived here traded the 22 square miles of soggy Manhattan Island to the Dutch for
$24.00 worth of cloth and trinkets. The newcomers founded a city, New Amsterdam at the
edge of an empty continent. In the years that followed, it proved a magnet for millions of
people from across the Atlantic; people who were driven by fear and poverty; who were
attracted by the promise of freedom and plenty. They fanned out over the continent and
built a new nation with their sweat, their enterprise and their vision of a better future.
For the first time in their lives, many were truly free to pursue their own
objectives. That freedom released the human energies which created the United States. For
the immigrants who were welcomed by this statue, America was truly a land of opportunity.
They poured ashore in their best clothes, eager and expectant, carrying what
little they owned. They were poor, but they all had a great deal of hope. Once they
arrived, they found, as my parents did, not an easy life, but a very hard life. But for
many there were friends and relatives to help them get started __ to help them make a
home, get a job, settle down in the new country. There were many rewards for hard work,
enterprise and ability. Life was hard, but opportunity was real. There were few government
programs to turn to and nobody expected them. But also, there were few rules and
regulations. There were no licenses, no permits, no red tape to restrict them. They found
in fact, a free market, and most of them thrived on it.
Many people still come to the United States driven by the same pressures and
attracted by the same promise. You can find them in places like this. It's China Town in
New York, one of the centers of the garment industry __ a place where hundreds of
thousands of newcomers have had their first taste of life in the new country. The people
who live and work here are like the early settlers. They want to better their lot and they
are prepared to work hard to do so.
Although I haven't often been in factories like this, it's all very familiar to me
because this is exactly the same kind of a factory that my mother worked in when she came
to this country for the first time at the age of 14, almost 90 years ago. And if there had
not been factories like this here then at which she could have started to work and earn a
little money, she wouldn't have been able to come. And if I existed at all, I'd be a
Russian or Hungarian today, instead of an American. Of course she didn't stay here a long
time, she stayed here while she learned the language, while she developed some feeling for
the country, and gradually she was able to make a better life for herself.
Similarly, the people who are here now, they are like my mother. Most of the
immigrants from the distant countries __ they came here because they liked it here better
and had more opportunities. A place like this gives them a chance to get started. They are
not going to stay here very long or forever. On the contrary, they and their children will
make a better life for themselves as they take advantage of the opportunities that a free
market provides to them.
The irony is that this place violates many of the standards that we now regard as
every worker's right. It is poorly ventilated, it is overcrowded, the workers accept less
than union rate __ it breaks every rule in the book. But if it were closed down, who would
benefit? Certainly not the people here. Their life may seem pretty tough compared to our
own, but that is only because our parents or grandparents went through that stage for us.
We have been able to start at a higher point.
Frank Visalli's father was 12 years old when he arrived all alone in the United
States. He had come from Sicily. That was 53 years ago. Frank is a successful dentist with
a wife and family. They live in Lexington, Massachusetts. There is no doubt in Frank's
mind what freedom combined with opportunity meant to his father and then to him, or what
his Italian grandparents would think if they could see how he lives now.
Frank Visalli: They would not believe what they would see __ that a person could
immigrate from a small island and make such success out of their life because to them they
were mostly related to the fields, working in the field as a peasant. My father came over,
he made something for himself and then he tried to build a family structure. Whatever he
did was for his family. It was for a better life for his family. And I can always remember
him telling me that the number one thing in life is that you should get an education to
become a professional person.
Friedman: The Visalli family, like all of us who live in the United States today,
owe much to the climate of freedom we inherited from the founders of our country. The
climate that gave full scope to the poor from other lands who came here and were able to
make better lives for themselves and their children.
But in the past 50 years, we've been squandering that inheritance by allowing
government to control more and more of our lives, instead of relying on ourselves. We need
to rediscover the old truths that the immigrants knew in their bones; what economic
freedom is and the role it plays in preserving personal freedom.
That's why I came here to the South China Sea. It's a place where there is an
almost laboratory experiment in what happens when government is limited to its proper
function and leaves people free to pursue their own objectives. If you want to see how the
free market really works this is the place to come. Hong Kong, a place with hardly any
natural resources. About the only one you can name is a great harbor, yet the absence of
natural resources hasn't prevented rapid economic development. Ships from all nations come
here to trade because there are no duties, no tariffs on imports or exports. The power of
the free market has enabled the industrious people of Hong Kong to transform what was once
barren rock into one of the most thriving and successful places in Asia. Aside from its
harbor, the only other important resource of Hong Kong is people __ over 4_ million of
them.
Like America a century ago, Hong Kong in the past few decades has been a haven for
people who sought the freedom to make the most of their own abilities. Many of them are
refugees from countries that don't allow the economic and political freedom that is taken
for granted in Hong Kong.
Despite rapid population growth, despite the lack of natural resources, the
standard of living is one of the highest in all of Asia. People work hard, but Hong Kong's
success is not based on the exploitation of workers. Wages in Hong Kong have gone up
fourfold since the War, and that's after allowing for inflation. The workers are free.
Free to work what hours they choose, free to move to other jobs if they wish. The market
gives them that choice. It also determines what they make. You can be sure that somebody
somewhere is willing to pay for these cheap, plastic toys. Otherwise they simply wouldn't
be made.
Competition from places like South Korea and Taiwan has made cheap products less
profitable, so Hong Kong businessmen have been adapting. They have been developing more
sophisticated products and new technology that can match anything in the West or East and
their employees have been developing new skills.
Hong Kong never stops. There's always some business to be done, some opportunity
to be seized. Its long been a tourist center and a shoppers paradise and it's now one of
the business centers of the East. It's the ordinary people of Hong Kong who benefit from
all this effort and enterprise.
This thriving, bustling, dynamic city, has been made possible by the free market
__ indeed the freest market in the world. The free market enables people to go into any
industry that they want; to trade with whomever they want; to buy in the cheapest market
around the world; to sell in the dearest around the world. But most important of all, if
they fail, they bear the cost. If they succeed, they get the benefit and it's that
atmosphere of incentive that has induced them to work, to adjust, to save, to produce a
miracle. This miracle hasn't been achieved by government action __ by someone sitting in
one of those tall buildings and telling people what to do. It's been achieved by allowing
the market to work. Walk down any street in Hong Kong and you will see the impersonal
forces of the market in operation.
Mr. Chung makes metal containers. Nobody has ordered him to. He does it because he
has found that he can do better for himself that way than by making anything else. But if
demand for metal containers went down, or somebody found a way of making them cheaper, Mr.
Chung would soon get that message.
A few doors away, Mr. Yu's firm has been making traditional Cantonese wedding
gowns for 42 years. But the demand for these elaborate garments is falling. The firm has
already gotten that message and is now looking for another product. The market tells
producers not only what to produce, but how best to produce it through another set of
prices __ the cost of materials, the wages of labor, and so on. For example, if these
workers could earn more doing something else, Mr. Ho would soon find a way to mechanize
his picture frame production.
Inside this Chinese medicine shop, a market transaction is going on. The
customer's confidence that this painful looking ordeal will help him doesn't rest on any
official certification of the bone doctor's qualifications __ it comes from experience __
his own or his friends. In his turn, the doctor treats him not because he has been ordered
to, but because he gets paid. The transaction is voluntary so both parties must expect to
benefit or it will not take place.
Believe it or not, this backyard is an entrance to a factory. The workers here are
some of the best paid in Hong Kong. It's hot, sticky, and extremely noisy. The workers are
highly skilled so they can command high wages. They could induce their employer to improve
working conditions by offering to work for less, but they would rather accept the
conditions, take the high wages, and spend them as they wish. That's their choice. The
best known statement of the principles of a free market, the kind of free market that
operates in Hong Kong, was written on the other side of the world. Two hundred years ago
in Scotland, Adam Smith taught at the University of Glasgow. His brilliant book, The
Wealth Of Nations, was based on the lectures he gave here.
The basic principles underlying the free market, as Adam Smith taught them to his
students in this University, are really very simple. Look at this lead pencil, there is
not a single person in the world who could make this pencil. Remarkable statement? Not at
all. The wood from which it's made, for all I know, comes from a tree that was cut down in
the State of Washington. To cut down that tree, it took a saw. To make the saw, it took
steel. To make the steel, it took iron ore. This black center, we call it lead but it's
really compressed graphite, I am not sure where it comes from but I think it comes from
some mines in South America. This red top up here, the eraser, a bit of rubber, probably
comes from Malaya, where the rubber tree isn't even native. It was imported from South
America by some businessman with the help of the British government. This brass feral __ I
haven't the slightest idea where it came from or the yellow paint or the paint that made
the black lines __ or the glue that holds it together. Literally thousands of people
cooperated to make this pencil. People who don't speak the same language; who practice
different religions; who might hate one another if they ever met. When you go down to the
store and buy this pencil, you are, in effect, trading a few minutes of your time for a
few seconds of the time of all of those thousands of people. What brought them together
and induced them to cooperate to make this pencil? There was no Commissar sending out
orders from some central office. It was the magic of the price system __ the impersonal
operation of prices that brought them together and got them to cooperate to make this
pencil so that you could have it for a trifling sum.
That is why the operation of the free market is so essential. Not only to promote
productive efficiency, but even more, to foster harmony and peace among the peoples of the
world.
These people are crossing between two very different societies. This is Lo Wool,
the official border crossing point between China and Hong Kong. Nowadays there's a
considerable amount of traffic at this border. People cross a little more freely than they
use to. Many people from Hong Kong trade in China and the market has helped bring the two
countries closer together, but the barriers between them are still very real. On this side
of the border, people are free not only in the marketplace, but in all their lives. They
are free to say what they want, to write what they want, to do pretty much as they please.
Not so over there.
That is why people in China who cannot get permission to leave go to desperate
lengths to escape. They risk their lives in the process. Many lose their lives, but that
doesn't keep others from following. Some are attracted by the higher material standard of
life in Hong Kong, but more by the natural human desire to be free.
The people who get official permission to leave China are fortunate. They are
going to be able to enjoy the benefits of the economic freedom they will find in Hong
Kong. More important, that will give them a much wider freedom.
Human and political freedom has never existed and cannot exist without a large
measure of economic freedom. Those of us who have been so fortunate as to have been born
in a free society tend to take freedom for granted __ to regard it as the natural state of
mankind __ it is not. It is a rare and precious thing. Most people throughout history,
most people today have lived in conditions of tyranny and misery, not of freedom and
prosperity. The clearest demonstration of how much people value freedom is the way they
vote with their feet when they have no other way to vote.
Of course, many of the people who pour into Hong Kong will end up in conditions
that most of us in the West would find appalling. Hong Kong is very far from utopia. It
has its slums, its crime, its desperately poor people. But the people are free. That's
after all, why so many of them have come here, despite having to live in leaky house boats
in one of Hong Kong's many small harbors. Here they have the freedom and the opportunity
to better themselves, to improve their lot, and many succeed. There's appalling poverty in
Hong Kong, it's true, but the conditions of the people have been getting better over time.
They're far better off now than they were when they first came across the border from
China. And that poverty, appalling to us, because we're accustomed to much higher
standards of life, is not poverty as viewed by most of the people in the world. It's the
poverty to which they would aspire. A state of affairs they would like to achieve.
There is an enormous amount of poverty in the world everywhere. There is no system
that's perfect. There is no system that's going to eliminate completely poverty in
whatever sense. The question is, which system has the greatest chance? Which is the best
arrangement for enabling poor people to improve their life? On that, the evidence of
history speaks with a single voice. I do not know any exception to the proposition that if
you compare like with like, the freer the system, the better off the ordinary poor people
have been.
Ask yourself what it is that assures these garment workers in Hong Kong a good
wage; not high by Western standards; but high enough to enable them to live far better
than most people in the world. It is not government or trade union, these workers do well
because there is competition for their labor and skills.
When a businessman faces trouble, a market threatens to disappear, or a new
competitor arises, there are two things he can do. He can turn to the government for a
tariff or quota or some other restriction on competition, or he can adjust and adapt. In
Hong Kong the first option is closed. Hong Kong is too dependent on foreign trade so that
the government has simply had to adopt a policy of complete noninterference. That's tough
on some individuals, but it is extremely healthy for the society as a whole. Only the
businessmen who can adapt, who are flexible and adjustable survive and they create good
employment opportunities for the rest.
The complete absence of tariffs or any other restrictions on trade is one of the
main reasons why Hong Kong has been able to provide such rapidly rising standard of life
for its people. Even Communist China recognizes Hong Kong's success, it set up shop here
and now excepts the universal symbol of capitalism. The Bank of China, the official bank
of Communist China is the largest bank in Hong Kong. There's no doubt that Communist China
recognizes the power of the market.
In all this, the government of Hong Kong has played an important part, not only by
what it has done, but as much by what it has refrained from doing. It has made sure that
laws are enforced and contracts honored. It has provided the conditions in which a free
market can work. Most importantly, it has not tried to direct the economic activities of
the colony.
No government official is telling these people what to do. They are free to buy
from whom they want, to sell to whom they want, to work for whom they want. Sometimes it
looks like chaos and so it is, but underneath it's highly organized by the impersonal
forces of a free marketplace. The impersonal forces of a free marketplace at work back
here in the United States, prices are the key. The prices that people are willing to pay
for products determines what's produced. The prices that have to be paid for raw
materials, for the wages of labor, and so on, determine the cheapest way to produce these
things.
In addition, these self same prices, the wages of labor, the interest on capital,
and so on, determine how much each person has to spend on the market. It's tempting to try
to separate this final function of prices from the other two. To think that some how or
other you can use prices to transmit the information about what should be produced and how
it should be produced, without using those prices to determine how much each person gets.
Indeed, government activity over the past few decades has been devoted to little else. But
that's a very serious mistake. If what people get is not going to be determined on what
they produce, how they produce it, on how successfully they work, what incentive is there
for them to act in accordance with the information that is transmitted. There is only one
alternative: force __ some people telling other people what to do.
The fundamental principal of the free society is voluntary cooperation. The
economic market, buying and selling, is one example. But it's only one example. Voluntary
cooperation is far broader than that. To take an example that at first sight seems about
as far away as you can get __ the language we speak; the words we use; the complex
structure of our grammar; no government bureau designed that. It arose out of the
voluntary interactions of people seeking to communicate with one another. Or consider some
of the great scientific achievements of our time __ the discoveries of an Einstein or
Newton __ the inventions of Thomas Alva Edison or an Alexander Graham Bell or even
consider the great charitable activities of a Florence Nightingale or an Andrew Carnegie.
These weren't done under orders from a government office. They were done by individuals
deeply interested in what they were doing, pursing their own interests, and cooperating
with one another.
This kind of voluntary cooperation is built so deeply into the structure of our
society that we tend to take it for granted. Yet the whole of our Western civilization is
the unintended consequence of that kind of a voluntary cooperation of people cooperating
with one another to pursue their own interests, yet in the process, building a great
society.
DISCUSSION
Participants: Robert McKenzie, Moderator; Michael Harrington, Democratic Socialist
Organizing Committee; Milton Friedman; Russell Peterson, Governor of Delaware, 1969_1973;
Robert Galvin, Chairman, Motorola, Inc.; Congressman Barber B. Conable, Jr., Ways and
Means Committee, U.S. Congress
McKENZIE: It seemed to me he was saying that the golden age for America, when it
was truly a land of opportunity, was the late 19th, early 20th century, no regulations, no
permits, no red tape.
HARRINGTON: I would argue that the government played a decisive role in an
enormous grant to the railroads in creating an America capitalist economy. And secondly,
if you go back to that golden age, you find that the government constantly intervened in a
rather characteristic way, it used troops against strikers. American labor history has
been the most violent, bloody class struggle anywhere in the world, and the government, up
until 1932, the law, the courts, the society, always sided with business, always sided
against working people. Therefore, I would argue that both economically and in terms of
repressing the attempts of people to assert their freedom, our government prior to the
rise of the welfare state in this country was more or less owned by business.
McKENZIE: Milton Friedman.
FRIEDMAN: Michael Harrington is seeing the hole in the barn door and he's not
looking at the barn door itself. The plain fact is during the whole of that period, while
government did intervene from time to time, and mostly to do harm, I agree with him that
government intervention was, in the main, not a good thing; tariffs, for example. On the
other hand, throughout that whole period government spending, Federal Government spending,
central government spending, never was more than 3 percent of the national income. It was
trivial. The land grants to the railroads were a minor factor. I'm not. I don't approve of
them. I'm not saying they were a good thing, but they were a very minor factor. One has to
have a sense of proportion and that goes to the whole discussion, that I am not an
anarchist. I am not in favor of eliminating government. I believe we need a government,
but we need a government that sets a framework and rules within which individuals,
pursuing their own objectives, can work together and cooperate together not only in
economic areas.
McKENZIE: I want to hold you for a moment, though, to that golden age theory, that
we were best when we were regulated least in the late 19th and early 20th century, because
remember the sweatshop analogy comes out of there, when there was no attempt to restrict
hours of work or to regulate working conditions. Now is that a view you accept of that
period?
PETERSON: Well I think it's necessary to contrast what's happened in the interim.
I don't see how we can talk about that without comparing it with the interim period. Now
you talked earlier about the fact that during the last fifty years we had squandered some
of our inheritance of freedom, and I believe during the last fifty years we really have
improved our freedom. I spent over half that time working for one of the world's largest
industrial companies, the Dupont Company, deeply involved with the launching of new
ventures; and got to know the free enterprise system well, and have a very healthy respect
for it. But during that interval, and particularly during the last few years when I have
been more involved with government and with environmental matters, I have become convinced
that our freedom was improved when the people are allowed to add to their freedom in the
marketplace, the freedom to vote with their ballots in the polling place, to put some
restraints on the excesses of the marketplace, particularly when you're concerned with
such things as the long-term impact on our health from the pollution of our environment,
the introduction of carcinogenic materials, or the radiation of our people with nuclear
products.
FRIEDMAN: What about putting some restraints on the excesses of government. Hasn't
that become an ever more serious problem? How is it that a government of the people,
supposedly, does things which a very large fraction of the people would really prefer not
to have done, such as overtax them, over govern them, over regulate them. I think you're
looking, again, at one side and not the other. And, of course, I agree we have to look at
what's happened in the interim. We're better off than we were fifty years ago. Never would
deny that. But we stand on the shoulders of the people that went before us, and we have to
look at how much they achieved from where they started, and that was the period in which
you had the tremendous influx of immigrants from abroad, millions and millions and
millions of them, when you opened up a new continent, when you had achievements.
McKENZIE: Milton, are you saying, though, that there's any sense, in which you'd
rather go back to those circumstances where there are no regulations of factory work, no
hours, limitations of hours worked. Do you want to return to that or do you say that was a
stepping stone to where we are now?
FRIEDMAN: It depends on what you mean by circumstances. I don't want to have to go
back to using a horse and buggy instead of an automobile, but I would prefer to go back to
the kinds of governmental regulations, or absence of regulations, the greater degree of
freedom which was given to individuals to pursue one activity or another, which prevailed
then, than which prevails now.
PETERSON: I think that, really, our industrial leaders have been dragged into the
future screaming. They resisted the Child Labor Laws, they resisted Social Security, labor
unions, and now the environmental movement. Once the government forced them to pay
attention to those, by the voting of the people in the ballot box and in the polling
place, then the industrial leaders, business leaders, paid attention to those rules and
have done a good job in most cases of abiding by them.
FRIEDMAN: Excuse me.
McKENZIE: Now Bob Galvin is an industrialist, now come on, is that a fair
statement?
GALVIN: Maybe the industrialists have a clearer view of history and its prospects.
The most precious asset we possess is freedom. The easiest way to lose one's freedom is to
go into receivership; and I mean economic receivership. Because a receiver is a dictator.
And to the degree that we employ the costs and the burdens of government that lead us in
the direction of further debt, ultimate receivership, and then the political consequence
of the imposition of the political dictator over the economic and the job and the living
rights of the individual, maybe the industrialists can see farther down the pike as to the
consequence of all this.
McKENZIE: Michael Harrington.
HARRINGTON: I just think that __ two things. One, to view freedom positively. I
think people over 65 years of age in the United States today are freer now because of
Medicare. I do not think that the freedom to die from the lack of medicine was a very good
thing. Secondly, related to industrialists, I think that one of the startling things about
American history is that when Franklin Roosevelt was saving the system from itself, the
main beneficiaries were screaming bloody murder at him for being a traitor to his class.
When he was in fact the salvation of that class. And I think if you, therefore, if you
look at our history, I do think you find a tremendous myopia on the part of
industrialists, and you find that the positive increments to our freedom, interestingly
enough, have not come from the college graduates, but often from people with __ not from
the best people, it's come from working people. It's come from poor people, it's come from
blacks and Hispanics and the like.
McKENZIE: Milton, would you reply, but then tell us why you took us to Hong Kong
to prove something.
FRIEDMAN: Sure. Unaccustomed as I am to agreeing with Michael Harrington, I will
agree in part with what he's just said. I do not believe it's proper to put the situation
in terms of industrialist versus government. On the contrary, one of the reasons why I am
in favor of less government is because when you have more government industrialists take
it over, and the two together form a coalition against the ordinary worker and the
ordinary consumer. I think business is a wonderful institution provided it has to face
competition in the marketplace and it can't get away with something except by producing a
better product at a lower cost; and that's why I don't want government to step in and help
the business community. Now I want to go to your question about Medicare. There are many
people who have benefited from Medicare, but you're not looking at the cost side. What has
happened to the people who are paying for it? It isn't __ we don't have a free good, it
isn't coming from nowhere. And are they benefiting from it in a cost effective way. Those
are the questions. It's demagoguery, if you'll pardon me, Michael Harrington, to say the
people who have Medicare are freer. Of course, in one dimension. But they themselves have
been paying all their lives, and have they gotten a good bargain? At the moment they have.
The young men, the young working people who are going into Social Security now, they're
going to get a very raw deal indeed.
CONABLE: Milton, interestingly on that point, people over 65 are paying more of
their spendable income for medical care now, then they were before Medicare was enacted.
It's been not a very successful program. Government doesn't do things well.
FRIEDMAN: It doesn't do things well. If it hasn't done things well in Britain, in
Canada, in the United States.
McKENZIE: Now, Milton, then you took us to Hong Kong on exactly that point. That
here you said was a true model of market operating. Now is that really a fair description
of Hong Kong?
FRIEDMAN: At the moment, yes. It's not __ again, there aren't any such things as a
hundred percent one way and a hundred percent the other. Everything is mixed, of course.
Hong Kong has a government, and it happens to be a government __ in this case there's no
democracy in Hong Kong. It's run from Britain; it's a Crown Colony of Britain, and the
British Governor General and so on, and Financial Secretary run it. But the situation in
Hong Kong is that there is very little government regulation of industry. There's complete
free trade. There are no tariffs; there are no export subsidies; there are no restrictions
on the purchase and sale of monies, so that it is, comes about as close to a complete free
market as you can find in the world today, and there is no doubt that the main
beneficiaries have been the low-income people, the poor people who have poured into Hong
Kong by the hundreds of thousands and millions, out of Red China and who keep on trying to
get in there. This goes to Michael Harrington's question, if an industrial system, if a
free enterprise system is a system in which the poor are ground beneath the heels of the
rapacious industrialists he's worried about, how would he explain the success in Hong
Kong, the extent to which people continue to vote with their feet to go there.
CONABLE: You're not asking us to make of the United States one gigantic Hong Kong,
or sweatshop, or whatever you want to call it. You would acknowledge that there is a
historical development of an economy, and what may be right for one stage in the
development of an economy may not be right for another stage. Isn't the issue, where do we
go from here? What pragmatic decisions do we make about the direction of the American
economy. Should it be toward more and more government, or should it be trying to preserve
an adequate balance between freedom of choice and government intervention?
FRIEDMAN: Again, the problem is to distinguish two things. This comes back to an
earlier comment. The circumstances in terms of the physical arrangements, and the
circumstances in terms of the rules that guide the society. Now in the case of Hong Kong,
of course, I'm not asking that we crowd our people to a density of population such as Hong
Kong has. Hong Kong is a marvelous example just because its circumstances are so terrible,
it's physical circumstances. And the people in Hong Kong would love to get elsewhere, into
less crowded circumstances, if other people would let them in. This is the problem of
immigration, which is a very important restriction on human freedom. In the period before
1913 we had complete, a hundred percent freedom of immigration into the United States. We
don't now, but go back to your question.
CONABLE: Do you think Hong Kong __ do you think Hong Kong would exist if it
weren't in close juxtaposition to Communist China?
FRIEDMAN: Hong Kong would exist. It is very dubious that it would have policies it
has now if it weren't in close juxtaposition to Communist China. Well, now, but to answer
your question directly, yes. I am in favor of the United States having not the
circumstances, not the physical circumstances, but the policies that Hong Kong has had of
zero tariffs, complete free trade, of no restrictions on exports, no restrictions on
monetary transactions, of a far greater degree of __ far lesser degree of governmental
regulation. I agree with what Russell Peterson said before, that there are third party
effects. There are things like pollution. The question is whether we're handling them in
the right way, and I think we're not.
McKENZIE: I want to bring Bob Galvin in here. Bob, the beginning of Milton's
agenda there, no tariffs, for example, no restrictions, no quotas. Now, will business, big
business, wear that kind of policy?
GALVIN: I think big business and all business could wear that kind of policy if we
could find the appropriate balancing factor that in the rest of world trade, where we
trade outside our border, and as others come in, we are required to trade against
socialized institutions. That's a very different kind of an institution than the private
institution. The private institution can clearly operate more efficiently if it is not
imposed upon by an artificial price from the socialized institution across the seas. So I
think there has to be, not protectionism, but there has to be an international rule of the
road that prevents the socialized institution from subsidizing and taking advantage of the
private institution.
McKENZIE: Do you include the nine countries to the Common Market, though, as
socialist countries, or are you prepared to have competition from all the nine countries
in the Common Market?
GALVIN: The nine countries of the European Common Market engage in the most
dramatic of the socialized institutions.
FRIEDMAN: I don't agree with him at all. We are hurting ourselves by restricting
trade from abroad. Other countries are hurting themselves and us by the measures you
describe, but we're only hurting ourselves even more if we imitate them.
CONABLE: I don't think, Dr. Friedman that your mother would get a job sewing today
in America, if we had no tariffs at all. What would happen is, there wouldn't be any
sewing jobs in America, we'd be making nothing but computers. (several talking at once.)
FRIEDMAN: But then there would be some other kinds of jobs. Then she would get a
job at a very low level in making computers.
McKENZIE: Yeah. Although you face the problem, That you've had both a leading
businessman and a leading conservative Congressman, not accepting your prescription of
sweeping away
FRIEDMAN: But, of course, the two greatest enemies __ I would say the greatest
enemies of free enterprise and of freedom in the world have been on the one hand the
industrialists, and on the other hand most of my academic colleagues, who end up in
government. For opposite reasons. (laughter)
FRIEDMAN: For opposite reasons.
McKENZIE: Michael Harrington, I guess, would agree with this.
FRIEDMAN: People like Michael Harrington, and my academic colleagues, want freedom
for themselves. They want free speech, they want freedom to write, they want freedom to
publish, to do research, but they don't want freedom for any of those awful businessmen.
Now the businessmen are very different. Every businessman wants freedom for somebody else,
but he wants special privilege for himself. He wants a tariff from Congress, and the
Congress __ well the way in which Congressmen get elected is by performing favors to
constituents. And if indeed you were to wipe out completely all tariffs, if you were to
reduce government controls in this country to what they are now, I do not think that would
be in the self-interest of __
McKENZIE: Well, then __
FRIEDMAN: __ even Barber, Conable, for whom I have the very greatest respect, or
Bob Galvin, for whom I have the respect. I think it would be in the self-interest of
Michael Harrington.
McKENZIE: Now let's ask what the American people want and will wear, because
you're saying, in effect, that to get elected the Congressman is giving the people what
they want. Now, aren't you saying in the end, then, the people don't want this or don't
understand the advantage of it?
FRIEDMAN: I'm saying that my whole function and purpose is to try to persuade the
people to make a different thing politically profitable. I'm trying to persuade the people
to make it clear that Congressmen who pursue these policies are gonna lose their jobs, and
if we do that, Congressmen aren't pursuing their self-interests. They're in a market,
there's a political market. They've got a product to sell, and they've got to appeal to
their customers. And I am just engaging in the kind of advertising Mr. Galvin and other
companies use.
McKENZIE: We've got another very experienced politician, Governor Peterson.
PETERSON: Well, let me ask you how you would cope with this problem, Dr. Friedman.
The people decided that they wanted cool air, and there was tremendous need, and so we
built a huge industry, the air conditioning industry, hundreds of thousands of jobs,
tremendous earnings opportunities and nearly all of us now have air conditioned homes and
cars and offices. Then the people decided they wanted clean air, and they couldn't buy it
in the marketplace, so they voted at the polling place. They got elected representatives
to go to the Congress and say, we are going to have clean air. Now, overnight there was a
new market, and the free enterprise system responded to that, and now there's a big
environmental industry making earnings, providing jobs, but also serving this public need
to have the freedom to breathe clean air.
FRIEDMAN: You grossly underestimate the extent to which the private market is able
to do it. It's not an accident that the air, before you had any of this legislation, air
and water were cleaner in the United States today than they were in the United States a
hundred years ago. You know the automobile added one kind of pollution, but it eliminated
a far worse kind of pollution. If you consider what the streets of New York would look
like today if you were still transporting people by horse-drawn vehicles, you would have
pollution on a scale that would stagger you. In the same way, it's not an accident that
the air is cleaner and the water purer in those countries today that are the most
advanced, than they are in the backwards country. It's not been in Afghanistan that you
find clean air and water. It's in the advanced countries. So the market is a very much
more subtle mechanism than people give it credit for being.
HARRINGTON: I would like to get this back to the real world, because in the real
world there is no possibility that American business, which is a welfare dependent
business system, is going to adopt these ideas. What these ideas function as in the real
world is a rationalization for the myth of free enterprise which disguises the fact of
state capitalism as an argument against social intervention, in a society that does
intervene on behalf of the steel industry very quickly. Finally in terms of the American
political process, I don't believe that the political process is so simple as having the
people elect the government. The fact is that when a Jimmy Carter is elected President on
a relatively liberal platform, he then has to win business confidence, because of the
control of the investment process by corporate power. And I think that fact, corporate
power, rationalized by free enterprise myths, is the central problem of freedom in our
time, and that's what has to be attacked.
McKENZIE: Before we come to Milton again __
FRIEDMAN: No, no. I've got to comment on this, because I think we mustn't let
words get in the way of what really is the case. I take it you think we don't have
socialism. I would say to you that 46 percent of every corporation in this country is
owned by the U.S. Government. That's the corporate income tax, that means out of every
dollar of profit the corporation makes, 46 cents goes to the U.S. Government. The actual
tax is far higher than that because you tax that doubly when it comes to the individual.
The extent to which corporations control their investment decisions has been increasingly
reduced. The government is dictating what they spend their investment funds on in the name
of pollution control, in the name of other things. It's a myth to suppose that there is
some kind of a big corporate power over here. There was a time when corporations were more
influential than they are now, but at the moment I think they're a beleaguered minority
rather than a dominant majority.
McKENZIE: I'd like to take the others into this for a moment. What is the process,
for those of you who want to roll back the state, or to push back governmental influence,
on the operation of the economy? Before we let Milton in on that, what would you do as an
active politician, as another politician, and a businessman?
CONABLE: Well, I personally think we ought to restrain the growth of government in
the future.
McKENZIE: How?
CONABLE: By putting some sort of limit on government expenditures. I would like to
see a Constitutional Amendment doing that, otherwise we're going to continue to have the
government growing faster than the economy, and thus pushing more and more of the gross
national product through the tin horn of government. I think that would be a mistake. It's
a difficult thing to do. I hope we can find some way to do it without making ourselves
less free in some way.
McKENZIE: Governor Peterson, can it be done?
PETERSON: Yes, I think we can make substantial headway by furthering our
pluralistic society, by encouraging educating more people to think comprehensively. I
think one of the big problems in our world is that leaders in government and in industry
are shortsighted. They don't look at the long-term impacts of their decisions. And in a
democracy such as ours, the power is with the people, just like the textbooks say, and if
they get this more comprehensive understanding and knowledge, they're gonna see to it that
the special interests of the elected officials will be in tune, again reelected, and they
will look at the long-term views just like the citizenry is. So I am all in favor of an
all out push to get this freedom to vote in the polling place, added to the freedom of the
marketplace, because that's a potent combination.
FRIEDMAN: But voting in the polling place is a very different kind of freedom than
voting in the marketplace. When you vote in the polling place, it is important, but it's
very different. When you vote, you vote for a package. And, if you are in the minority,
you lose. You don't get what you want. When you vote in the marketplace, everybody gets
what he votes for. If you vote for a __ I vote for a green tie, I get a green tie. You
vote for a blue tie, you get a blue tie. If we do that in the polling booth, if 60 percent
of us vote for a green tie, you have to wear a green tie.
McKENZIE: Oh, but the 40 percent don't just shut up. They can try to influence
decision making to their own.
FRIEDMAN: They can try to influence __
McKENZIE: Yeah.
FRIEDMAN: __ but it's a very different and less efficient mechanism__
McKENZIE: Yeah.
FRIEDMAN: __ for matching performance, matching results, to individual taste and
preference.
VOICE OFF SCREEN: Whatever kind of car I buy, I still get dirty air.
GALVIN: There are good people running this society, and most of the people that
we're talking about work someplace, and they know that their company is doing something
pretty good, or trying to do something pretty good. I think the people are going to start
telling the leaders where they've gone wrong and start to redress it by the direction of
the ballot box.
HARRINGTON: The people in general are more conservative and in particular are more
liberal. That is to say, if you ask the people in general, what do you think of
government, "Get it off my back, less taxes." If you ask in particular what
about health, national health; what about full employment, government is the employer of
last resort. What about pollution, do something about it. Everett Ladd had an article in
Fortune about a year ago, which is hardly a radical left wing journal, showing this
contradiction. And I think that there is in the United States today a rapid movement to
the left, right and center, which I, obviously, hope will be resolved not by an across the
boards cut aimed primarily at poor and working people, but by an increasing
democratization on economic power, and an increasing democratization of the government. I
think that in this complicated society of huge institutions and bureaucracies, if we talk
about freedom, one thing that I would like to see would be a law providing funds for any
significant minority to buy the research to counter the majority. If you don't have the
expertise, the knowledge technology today, you're out of the debate. And I think that we
have to democratize information and government as well as the economy and society.
FRIEDMAN: I am sorry to say Michael Harrington's solution is not a solution to it.
He wants minority rule, I don't. I want individual rule. I want human beings separately
and individually to have control of their lives. I don't believe that a minority that
differs with me should have the right to take money out of my pocket to do research for
them. They should go out and try to persuade people to contribute to them. I should be
free to get people to contribute to me to present my ideas. But the idea of having some
kind of an official government agency that is going to finance dissidents. In the first
place, anybody who has any sense of realism about the way government operates at all will
know that will end up in the hands of the majority and not the minority.
HARRINGTON: But can government in this extremely interdependent, complex world
economy which is developing, can you have a mystical belief in the invisible hand of Adam
Smith? I happen to think that Adam Smith was one of the greatest intellectual figures in
the history of the world, and that capitalism was one of the greatest advances that
humankind has ever made. But precisely because I put this in historical context;
capitalism, as a friend of mine by the name of Karl Marx predicted some time ago, has
developed tremendous tendencies towards monopoly, concentration, multinational
corporations, money supplies that are not controlled by the Federal Reserve Bank or even
the President of the United States anymore, and to think that you can respond to this
radically new environment by an 18th century solution, I think really comes down to an
intellectual exercise whose practical, political effect is to rationalize conservative
power in America.
FRIEDMAN: This is a myth, a complete myth, that the development of an
inner-developed country in a more complicated world necessitates greater government
intervention. Government intervention has not grown in those areas which arise out of the
complexity and interdependence of the world. It's grown where? In taking money from some
people and giving it to others. (Several talking at once.)
CONABLE: All I have to say is that government, Dr. Friedman, has to live in the
20th century __
FRIEDMAN: Of course.
CONABLE: __ much less the 19th or the 18th.
FRIEDMAN: Of course, but again __
CONABLE: And we have to take society as it exists today __
FRIEDMAN: Of course we do.
CONABLE: __ and build on that.
HARRINGTON: To me, the decisive thing at issue here is an essentially mythic,
nonhistorical presentation of an abstract solution, taken out of time, which does not look
to the tremendous evolution of capitalist society, the tremendous interdependence of the
world, the fact that we now have not only national economic planning, but at the Tokyo
summit we have institutionalized international economic planning of the major industrial
capitalist powers. And under those circumstances, granted the enormous achievement of Adam
Smith, granted the enormous achievement of the capitalist society, under this radically
changed historical situation to propose those classical solutions, I think is to propose
something nonserious which, however, does function seriously to rationalize conservative
corporate economic and political power.
FRIEDMAN: The great achievements of the 19th century came from __ by departing
from the kind of system you now want to reimpose. You want to take us back to the 18th and
17th century when we had a corporate society. When we had government controlling things.
The whole issue is not what somebody is proposing in the 20th, or the 19th and the 18th,
the whole issue is what is the right thing to do? What is the best way in which we can
widen our opportunities, preserve our freedom, maintain our prosperity, and it seems to me
the kind of solutions you would propose involve more of the same, more of the measures
that have failed over and over again to achieve the objectives.
McKENZIE: Well, we leave the debate there this week and we hope you'll join us
again for the next edition of Free To Choose.
|