Friedman , Free Market and Freedom

This is a Berkeley Economist's critique of Friedman on the relationship between the free market and freedom. It shows that empirically evidence does not always support Friedman's position.

Friedman, Free Market & Freedom

The free market is the only mechanism that has ever been discovered for
achieving participatory democracy. So spake Milton Friedman. But
political
freedoms may not flow naturally from economic freedoms...

PRANAB BARDHAN
BERKELEY

The lives of two recently deceased nonagenarians, one a brutal military
dictator, Augusto Pinochet, and the other a brilliant and influential
economist, Milton Friedman, came into brief contact three decades back
–
and it landed the economist in political controversy.

Friedman met Pinochet in 1975 during a lecture tour to Chile, and
critics
of Friedman, unfairly charged him, a champion of freedom, with
endorsing
the military regime. What did soften him somewhat toward that regime
was
its eagerness to listen to the economic advice of the "Chicago boys" on
the value of free markets. Beyond the ephemeral oddities of personal
behavior, there is a substantive issue worth pondering, particularly on
the occasion of "Milton Friedman Day," celebrated on January 29, 2007.

Friedman openly gave primacy to economic freedom over political
freedom.
In his 1994 introduction to the 50th anniversary edition of Hayek’s
Road
to Serfdom, he categorically stated: "The free market is the only
mechanism that has ever been discovered for achieving participatory
democracy."

In this, he seems to have gone beyond his line of thought expressed in
the
classic 1962 book, Capitalism and Freedom, where he stated: "History
suggests only that capitalism is a necessary condition for political
freedom. Clearly it is not a sufficient condition."

His 1994 statement implies that economic freedom is a necessary and
sufficient condition for political freedom. This important systemic
issue
in the transition paths of many developing countries today has not been
adequately discussed.

Take the two largest countries in the world, China and India. The last
quarter century of history in China suggests that while there has been
dramatic progress in economic freedom in the sense of expansion of
market
reform, it has not been sufficient to bring about a substantial
expansion
of political freedom. The first four decades of India after
independence
in 1947 show that a considerable amount of political freedom was quite
compatible with what Friedman would consider large restrictions on
economic freedom in the form of heavy bureaucratic regulations and
control
over the economy. (Many years back in a conference when Friedman
attributed the widely-acclaimed postwar advance of the Japanese
economy,
in contrast to the relative stagnation of the Indian economy, to the
regulations and controls in the latter, I pointed out to him that the
Japanese state was not particularly a paragon of non-interference. His
answer, unfalsifiable as it happened to be, was that the Japanese
economy
would have done even better without the state interference!)

It is possible that a quarter century is not long enough for the
effects
of economic freedom in China to work out in political liberalization,
and
people point to other East Asian countries – South Korea, Taiwan –
where
capitalism, which thrived under initial decades of authoritarianism,
may
have paved the way for the eventual ushering in of democracy. But the
police state in China shows no signs of loosening its grip soon,
despite
the dramatic progress in the opening of the economy. While there has
been
some relaxation in individual expressions of thought, the state never
fails to clamp down on political activities that have even a remote
chance
of challenging the monopoly of power of the central authority. Some
observers have even claimed that the large numbers of reported local
disturbances in recent years in different parts of China – mainly
around
economic issues like land acquisitions, toxic pollution or mass
lay-offs
from state-owned enterprises – have allowed the central government to
scapegoat and punish local officials, localize and diffuse unrest,
identify discontented groups before they can coordinate across regions,
and retain its tight control over the citizenry as a whole.Elsewhere in
Asia, leaders in Singapore, poster boys of economic freedom in the eyes
of
many, have continued for decades to repress political freedom. Lee Kuan
Yew’s famed "Asian values" were market-friendly, but not very
hospitable
to political dissent.

In the Heritage Foundation ranking of countries in terms of their
Economic
Freedom Index for 2006, India’s rank, even after a decade and half of
market reform, is much below that of Hong Kong, Singapore, Saudi
Arabia,
Kuwait, Cambodia, Kenya, Uganda and most of Latin America. Yet over
several decades India has proved itself a vibrant, though unwieldy,
democracy. Friedman sometimes made a distinction between political
freedom
and "human freedom." In terms of both, whether you take the well-known
scores for political rights and civil liberties assigned by Freedom
House,
or the overall democracy scores given out by the Economist Intelligence
Unit, India performs much better than those countries ranked far
superior
in economic freedom. Economic freedom does not seem to be a necessary
condition for political freedom.

A look at the history of Western Europe does not clearly show that
economic freedom, or "Manchester liberalism," brought about the
victories
of democracy. Theorists of democracy have often pointed to many other
political or structural factors. For example, some ascribe the
extensions
of franchise and other democratic rights for the working class in the
19th
century in Britain to the rivalry and conflicts between traditional
aristocracy and the rising industrial bourgeoisie. Others suggest that
democracy in Europe came as part of the political elite’s strategy to
prevent widespread social unrest. In mid-19th century France, Louis
Napoleon shrewdly used the restoration of universal male suffrage to
play
the landed classes against the urban; he even reportedly advised the
Prussian government in 1861 to extend universal suffrage, because "in
this
system the conservative rural population can vote down the liberals in
cities."

In India it is arguable that the survival of political and human
freedom,
against all odds and at a time when government control over the economy
was pervasive, had something to do with the fact that the elite was
heterogeneous and fractured. No individual group could overpower
others,
and competitive politics provided a procedural device to keep the
contending partners at the bargaining table within some moderate
bounds.
Democracy served as a resilient mechanism for conflict management in a
highly divisive society.

Friedman in recent years had been quick to point out that intensive
economic liberalization in Pinochet’s Chile eventually evolved into
political liberalization. But anyone familiar with the transition in
Chile
knows that the path was by no means smooth, and Pinochet tried his best
to
obstruct it. In any case other countries have been far less successful
in
this evolution.

One mechanism for this evolution is supposed to work through the rise
of
the middle class. While economic liberalization may strengthen the
middle
classes, these classes have not always been pro-democratic: Latin
American
or South European history has been replete with many instances of
middle
classes hailing a supreme caudillo. It is often the case that market
reform tends to sharpen inequality. The resultant structures of
political
power, buttressed by corporate plutocrats and all-powerful lobbies, may
hijack or corrupt the democratic political process, sometimes
undermining
the expansion of mass democratic rights, including the freedom of
association of organized workers, and raise barriers to entry into the
political arena for common people. Thus economic freedom may be
important
by itself, but neither necessary nor sufficient for political freedom.

Pranab Bardhan is professor of economics at the University of
California,
Berkeley, and co-chair of the Network on the Effects of Inequality on
Economic Performance, funded by the MacArthur Foundation. He was the
editor of the Journal of Development Economics for many years. Rights:
©
2007 Yale Center for the Study of Globalization. YaleGlobal Online