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

Naomi Klein: The Shock Doctrine

This is an edited extract from The Shock Doctrine: The Rise of Disaster Capitalism by Naomi Klein, published by Allen Lane at £25. To order a copy for £23.00 with free UK p&p go to guardian.co.uk/bookshop or call 0870 836 0875. This is just part of the edited extract. The rest is available at this site.
The extract gives Klein's account of how she came to view recent capitalist developments as part of a shock doctrine.


The shock doctrine


Her explosive new book exposes the lie that free markets thrive on freedom. In our first exclusive extract, the No Logo author reveals the business of exploiting disaster

Naomi Klein
Saturday September 8, 2007
The Guardian


I met Jamar Perry in September 2005, at the big Red Cross shelter in Baton Rouge, Louisiana. Dinner was being doled out by grinning young Scientologists, and he was standing in line. I had just been busted for talking to evacuees without a media escort and was now doing my best to blend in, a white Canadian in a sea of African- American southerners. I dodged into the food line behind Perry and asked him to talk to me as if we were old friends, which he kindly did.

Article continues

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Born and raised in New Orleans, he'd been out of the flooded city for a week. He and his family had waited forever for the evacuation buses; when they didn't arrive, they had walked out in the baking sun. Finally they ended up here, a sprawling convention centre now jammed with 2,000 cots and a mess of angry, exhausted people being patrolled by edgy National Guard soldiers just back from Iraq.
The news racing around the shelter that day was that the Republican Congressman Richard Baker had told a group of lobbyists, "We finally cleaned up public housing in New Orleans. We couldn't do it, but God did." Joseph Canizaro, one of New Orleans' wealthiest developers, had just expressed a similar sentiment: "I think we have a clean sheet to start again. And with that clean sheet we have some very big opportunities." All that week Baton Rouge had been crawling with corporate lobbyists helping to lock in those big opportunities: lower taxes, fewer regulations, cheaper workers and a "smaller, safer city" - which in practice meant plans to level the public housing projects. Hearing all the talk of "fresh starts" and "clean sheets", you could almost forget the toxic stew of rubble, chemical outflows and human remains just a few miles down the highway.

Over at the shelter, Jamar could think of nothing else. "I really don't see it as cleaning up the city. What I see is that a lot of people got killed uptown. People who shouldn't have died."

He was speaking quietly, but an older man in line in front of us overheard and whipped around. "What is wrong with these people in Baton Rouge? This isn't an opportunity. It's a goddamned tragedy. Are they blind?" A mother with two kids chimed in. "No, they're not blind, they're evil. They see just fine."

One of those who saw opportunity in the floodwaters of New Orleans was the late Milton Friedman, grand guru of unfettered capitalism and credited with writing the rulebook for the contemporary, hyper-mobile global economy. Ninety-three years old and in failing health, "Uncle Miltie", as he was known to his followers, found the strength to write an op-ed for the Wall Street Journal three months after the levees broke. "Most New Orleans schools are in ruins," Friedman observed, "as are the homes of the children who have attended them. The children are now scattered all over the country. This is a tragedy. It is also an opportunity."

Friedman's radical idea was that instead of spending a portion of the billions of dollars in reconstruction money on rebuilding and improving New Orleans' existing public school system, the government should provide families with vouchers, which they could spend at private institutions.

In sharp contrast to the glacial pace with which the levees were repaired and the electricity grid brought back online, the auctioning-off of New Orleans' school system took place with military speed and precision. Within 19 months, with most of the city's poor residents still in exile, New Orleans' public school system had been almost completely replaced by privately run charter schools.

The Friedmanite American Enterprise Institute enthused that "Katrina accomplished in a day ... what Louisiana school reformers couldn't do after years of trying". Public school teachers, meanwhile, were calling Friedman's plan "an educational land grab". I call these orchestrated raids on the public sphere in the wake of catastrophic events, combined with the treatment of disasters as exciting market opportunities, "disaster capitalism".

Privatising the school system of a mid-size American city may seem a modest preoccupation for the man hailed as the most influential economist of the past half century. Yet his determination to exploit the crisis in New Orleans to advance a fundamentalist version of capitalism was also an oddly fitting farewell. For more than three decades, Friedman and his powerful followers had been perfecting this very strategy: waiting for a major crisis, then selling off pieces of the state to private players while citizens were still reeling from the shock.

In one of his most influential essays, Friedman articulated contemporary capitalism's core tactical nostrum, what I have come to understand as "the shock doctrine". He observed that "only a crisis - actual or perceived - produces real change". When that crisis occurs, the actions taken depend on the ideas that are lying around. Some people stockpile canned goods and water in preparation for major disasters; Friedmanites stockpile free-market ideas. And once a crisis has struck, the University of Chicago professor was convinced that it was crucial to act swiftly, to impose rapid and irreversible change before the crisis-racked society slipped back into the "tyranny of the status quo". A variation on Machiavelli's advice that "injuries" should be inflicted "all at once", this is one of Friedman's most lasting legacies.

Friedman first learned how to exploit a shock or crisis in the mid-70s, when he advised the dictator General Augusto Pinochet. Not only were Chileans in a state of shock after Pinochet's violent coup, but the country was also traumatised by hyperinflation. Friedman advised Pinochet to impose a rapid-fire transformation of the economy - tax cuts, free trade, privatised services, cuts to social spending and deregulation.

It was the most extreme capitalist makeover ever attempted anywhere, and it became known as a "Chicago School" revolution, as so many of Pinochet's economists had studied under Friedman there. Friedman coined a phrase for this painful tactic: economic "shock treatment". In the decades since, whenever governments have imposed sweeping free-market programs, the all-at-once shock treatment, or "shock therapy", has been the method of choice.

I started researching the free market's dependence on the power of shock four years ago, during the early days of the occupation of Iraq. I reported from Baghdad on Washington's failed attempts to follow "shock and awe" with shock therapy - mass privatisation, complete free trade, a 15% flat tax, a dramatically downsized government. Afterwards I travelled to Sri Lanka, several months after the devastating 2004 tsunami, and witnessed another version of the same manoeuvre: foreign investors and international lenders had teamed up to use the atmosphere of panic to hand the entire beautiful coastline over to entrepreneurs who quickly built large resorts, blocking hundreds of thousands of fishing people from rebuilding their villages. By the time Hurricane Katrina hit New Orleans, it was clear that this was now the preferred method of advancing corporate goals: using moments of collective trauma to engage in radical social and economic engineering.

Most people who survive a disaster want the opposite of a clean slate: they want to salvage whatever they can and begin repairing what was not destroyed. "When I rebuild the city I feel like I'm rebuilding myself," said Cassandra Andrews, a resident of New Orleans' heavily damaged Lower Ninth Ward, as she cleared away debris after the storm. But disaster capitalists have no interest in repairing what once was. In Iraq, Sri Lanka and New Orleans, the process deceptively called "reconstruction" began with finishing the job of the original disaster by erasing what was left of the public sphere.

When I began this research into the intersection between super-profits and mega-disasters, I thought I was witnessing a fundamental change in the way the drive to "liberate" markets was advancing around the world. Having been part of the movement against ballooning corporate power that made its global debut in Seattle in 1999, I was accustomed to seeing business-friendly policies imposed through arm-twisting at WTO summits, or as the conditions attached to loans from the IMF.

As I dug deeper into the history of how this market model had swept the globe, I discovered that the idea of exploiting crisis and disaster has been the modus operandi of Friedman's movement from the very beginning - this fundamentalist form of capitalism has always needed disasters to advance. What was happening in Iraq and New Orleans was not a post-September 11 invention. Rather, these bold experiments in crisis exploitation were the culmination of three decades of strict adherence to the shock doctrine.

Seen through the lens of this doctrine, the past 35 years look very different. Some of the most infamous human rights violations of this era, which have tended to be viewed as sadistic acts carried out by anti-democratic regimes, were in fact either committed with the intent of terrorising the public or actively harnessed to prepare the ground for radical free-market "reforms". In China in 1989, it was the shock of the Tiananmen Square massacre and the arrests of tens of thousands that freed the Communist party to convert much of the country into a sprawling export zone, staffed with workers too terrified to demand their rights. The Falklands war in 1982 served a similar purpose for Margaret Thatcher: the disorder resulting from the war allowed her to crush the striking miners and to launch the first privatisation frenzy in a western democracy.

The bottom line is that, for economic shock therapy to be applied without restraint, some sort of additional collective trauma has always been required. Friedman's economic model is capable of being partially imposed under democracy - the US under Reagan being the best example - but for the vision to be implemented in its complete form, authoritarian or quasi-authoritarian conditions are required.

Until recently, these conditions did not exist in the US. What happened on September 11 2001 is that an ideology hatched in American universities and fortified in Washington institutions finally had its chance to come home. The Bush administration, packed with Friedman's disciples, including his close friend Donald Rumsfeld, seized upon the fear generated to launch the "war on terror" and to ensure that it is an almost completely for-profit venture, a booming new industry that has breathed new life into the faltering US economy. Best understood as a "disaster capitalism complex", it is a global war fought on every level by private companies whose involvement is paid for with public money, with the unending mandate of protecting the US homeland in perpetuity while eliminating all "evil" abroad.