Atanu Dey On India's Development

Missing Friedman, Missing Markets

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Stephen Moore of the Wall Street Journal has an article today, “Missing Milton: Who Will Speak for Free Markets“, which makes me despair for India. Milton Friedman was arguably one of the greatest proponents of freedom, and naturally therefore, an advocate of free markets. Trading is a uniquely human activity and humans engage in trade spontaneously and therefore human freedom must necessarily imply the freedom to trade. Human freedom without free markets is a fairly vacuous and meaningless idea. Prohibiting free markets is a necessary and often sufficient for guaranteeing poverty. That’s what all oppressors do — whether they are colonial powers or homegrown communists or socialists.

I think Milton Friedman is rightly called (by some) as the proud father of global prosperity. Here’s a bit from Moore’s article.

I’ve been thinking a lot lately of one of my last conversations with Milton, who warned that “even though socialism is a discredited economic model and capitalism is raising living standards to new heights, the left intellectuals continue to push for bigger government everywhere I look.” He predicted that people would be seduced by collectivist ideas again.

He was right. In the midst of this global depression, rotten ideas like trillion-dollar stimulus plans, nationalization of banks and confiscatory taxes on America’s wealth producers are all the rage. Meanwhile, it is Milton Friedman and his principles of free trade, low tax rates and deregulation that are standing trial as the murderers of global prosperity.
. . .
The myth that the stock-market collapse was due to a failure of Friedman’s principles could hardly be more easily refuted. No one was more critical of the Bush spending and debt binge than Friedman. The massive run up in money and easy credit that facilitated the housing and credit bubbles was precisely the foolishness that Friedman spent a lifetime warning against.

A few scholars are now properly celebrating the Friedman legacy. Andrei Shleifer, a Harvard economics professor, has just published a tribute to Friedman in the Journal of Economic Literature. He describes the period 1980-2005 as “The Age of Milton Friedman,” an era that “witnessed remarkable progress of mankind. As the world embraced free market policies, living standards rose sharply while life expectancy, educational attainment, and democracy improved and absolute poverty declined.”
. . .
At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

But in the energy industry today we are trading in shovels for spoons. . . to power our society by spending three or four times more money to generate electricity using solar and wind power than it would cost to use coal or natural gas. The president says that this initiative will create “green jobs.”

Milton knew how to create real wealth-producing jobs. Once, when he visited India in the early 1960s, John Kenneth Galbraith, the U.S. ambassador, welcomed him by only half-joking, “I can think of no place where your free-market ideas can do less harm than in India.” Talk about irony. India has adopted much of the Friedman free-market model and has moved nearly 200 million people out of destitution and despair.

Truth eventually prevails, as the motto for the Indian state says. Humanity will eventually become free. However they may have to work for it.

  • plodder

    If you have 5 hours to spare and are interested in world economic history, may I suggest Milton Freedman’s fabulous ‘Free to Choose’ series on the 20th century world economy. This link (http://www.youtube.com/watch?v=d6vjrzUplWU) is the first volume of that series. Then there is that other opus from PBS called ‘Commanding Heights’ – another 6 hours on the same topic. Type ‘CH-1’ in the search box of http://www.video.google.com and you will be directed to the first episode of this series. ‘CH-2’ and ‘CH-3’ should give you the remaining episodes.

  • plodder

    Milton Friedman appears in Galbraith’s memoir ‘A Life in our Times’ in the Indian context. Apparently, PC Mahalonobis who was a member of the Planning Commission in the 1950’s requested the US government help for technocrats and economists to advise on the 2nd Five year plan. The US government (then the Eisenhower administration) suggested the name of Milton Friedman. On hearing this, Galbraith noted that ‘to ask Friedman to advise on economic planning was like asking the Holy Father to counsel on the operations of a birth control clinic’.

    At the risk of diverting the topic from Friedman to Galbraith, the latter had some interesting comments to make on the Indian public sector as he saw it during the 1950’s. Again quoting from his memoirs on the question of government owned enterprises – Galbraith, though not a free marketer on the scale of Friedman still believed that public sector management ‘must also be subject firmly to the test of earnings. This is because there was no other test – none that so comprehensively measures effectiveness in getting the most return at the least cost. Leadership should be undisturbed so long as it succeeds. When earnings fail, it should be changed and the new one left on its own to do better.’

    On the Indian public sector, Galbraith said ‘In India these rules were not followed. The public enterprises were being seen as an extension of its government departments. Accordingly, the corporations sought decisions from the relevant civil servant or minister on a wide range of matters They were not subject to the harsh test of earnings; it was not clear how performance was measured’. This led him to coin the term ‘post office socialism’ to describe its Indian version.