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JOHAN NORBERG: My name is Johan Norberg, a writer and an analyst, and I was born and
raised here in Sweden. I was three years old, when the Nobel Prize in Economics was awarded
to Milton Friedman here in Stockholm. This is Stockholm City Hall, the traditional place
for the Nobel banquet. This is where Milton Friedman celebrated his prize.
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Milton Friedmandid a lot more than win the Nobel Prize here in Stockholm. He had a thought-provoking
message that won him thousands of advocates and opponents all over the world.
In 2002, I had the pleasure of meeting Professor Friedman, and the thing that struck me was
his intellectual curiosity. His research led him to believe in the power of free markets
and economic freedom, while many people today place a greater emphasis on government safety
nets and greater financial equality.
On this thirtieth anniversary of Milton Friedman’s PBS television series, I’ll revisit his
ideas on the struggle between freedom and equality.
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JOHAN NORBERG: No matter where you come from, whenever there is a problem, it’s tempting
to look to the government for solutions. Since the recession of 2008, we’ve seen unprecedented
government intervention in the financial sector, and in the automotive industry. We’ve seen
new spending programs, more tariffs and new regulations. And we’ve seen the largest
buildup of government debt in American history; a debt that might haunt us for generations.
Some people blame the financial crisis on Milton Friedman and his theories of free markets,
but Friedman would say that economic freedom is not just to reap the rewards when times
are good; it’s also to bear the consequences of your actions when times are bad. We don’t
have free markets as long as speculators can keep the profits when they win, but send the
losses to the taxpayers when they lose.
I was born and raised in Sweden. And my country
has made an effort to make people’s lives, “more equal.” To reduce differences of
outcome, we tax heavily and redistribute wealth among our citizens…and many people in the
United States advocate a system like ours. If, on the other hand, the government gives
everybody the same freedom to work and reap the rewards, some will do better than others.
The result will be equality of opportunity, but not equality of outcome. Here in the United
States, you’ve accepted more inequality of outcome. And over the past thirty years,
a debate has been raging between these two competing alternatives. Can we live with economic
freedom…even though it doesn’t guarantee a specific result, even though it’s built
on the ongoing destruction of old ideas and businesses that are no longer competitive?
Can we accept freedom, even though freedom to choose also means that we will not all
be equally successful?
To answer these questions, Milton Friedman traveled the world to examine various economic
systems. He concluded that for most people, an emphasis on economic freedom would lead
to both individual and political freedom.
Many commentators say that Milton Friedman
did more for freedom than anybody else in recent decades. He convinced many nations
to embrace economic freedom. In the U.S., he led the effort to abolish the military
draft, which he considered nothing less than slavery.
When Milton Friedman died in 2006, The Economist magazine’s obituary had the headline, “How
Milton Freed Man.” On the other hand…writers like the Canadian anti-capitalist, Naomi Klein,
claim that he helped authoritarians by advising them to adopt free market economic policies.
Most controversially, in 1975, Friedman traveled to Chile to lecture about economic liberalization
and he also met with the dictator, Augusto Pinochet, and in 1988 he went to China to
talk to the communist leaders about economic reform.
So who’s right? Friedman would advise us to test his ideas by examining the evidence
of recent history. Have his ideas changed our world? For better or for worse? Whose
assessment of his legacy is right?
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After the Second World War, and the Communist Revolution in China, this rock in the middle
of nowhere became a refugee camp with millions of extremely poor people.
To Milton Friedman the scientist, this was a perfect natural experiment to test his theory
about free markets. Hong Kong had no prospects, no natural resources, and little land that
could be cultivated. But almost by accident, it was given economic freedom. The British
government couldn’t be bothered with local Hong Kong affairs. And the governor here happened
to favor free markets. So Hong Kong never introduced all those policies that other governments
did: no tariffs, no regulations or government intervention in the economy. So the economy
could evolve in a natural way. As a result, Hong Kong became an economic powerhouse.
FRIEDMAN: 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 could name
is a great harbor. Yet the absence of natural resources hasn’t prevented rapid economic development.
NORBERG: When Friedman came to Hong Kong in
1980, it could boast statistics on life expectancy and infant mortality that equaled western
countries. Incredibly, it was on its way to become richer than its colonial ruler, Britain.
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FRIEDMAN: 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 they
want; to trade with whomever they want; to buy in the cheapest market around the world;
to sell in the dearest market 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.
NORBERG: And what a miracle it’s been. Friedman was standing next to the tallest building
on the skyline, and just look at that skyline now; there are more skyscrapers here than
in all of New York City. Between 1950 and 2000, Hong Kong’s GDP per
capita increased more than ten times. Friedman concluded that this success was due to the
free market.
FRIEDMAN: This hasn't been achieved by government action, by someone sitting in one of those
tall buildings telling people what to do. It's been achieved by allowing the market to work.
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 a rapidly rising standard
of life for its people.
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NORBERG: My country has made an effort to
make people’s lives more equal. We have relatively free markets in business. It’s
fairly easy to start a company and compete without being stopped by licenses, regulations,
and tariffs. But when people are allowed to compete freely, some win, and make a lot of
money, some lose, and they lag behind. That’s when the Swedish government steps
in; to reduce differences of outcome we tax heavily, and redistribute wealth among our
citizens. To many, this is the best of both worlds…since we don’t really have equal
chances in life. Some people have parents who give them an interest in learning, ambition
and opportunities, some don’t, some are lucky in the genetic lottery, and some aren’t,
some have good health, and some don’t. To reduce the gaps that such differences might
lead to, our government steps in. Sweden chose to make equality a priority in the 1970s,
when we were already one of the richest countries in the world. Taxes were raised and benefit
systems were made more generous.
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In many suburbs like this, outside of Stockholm, the unemployment rate is higher than fifty
percent. Even in the midst of the economic boom, almost a quarter of the working-age
population in Sweden did not go to work in the morning, but got their checks from the
government. It does seem to support the view that economic incentives matter.
With a sickness benefit of up to eighty percent of your income, perhaps it wasn’t surprising
that Swedes were off sick more than any other people, even though we objectively were healthier
than almost any other population. In 2004, sickness benefits absorbed sixteen percent
of the government’s budget. These statistics have improved since…but interestingly, only
after a determined effort by the government to reduce the equality of income, by lowering taxes,
and making benefit systems less generous. So it seems that these changes increased incentives to work.
Friedman emphasized something counter-intuitive. There is a positive benefit to inequality
of outcome for everybody. Some people become millionaires, and some become billionaires,
but that is because they were the ones who made their customers happy.
FRIEDMAN: That’s the economic system that has transformed our society in the past century
and more. That’s what gave the Henry Fords, the Thomas Alva Edisons, the incentives to
produce the miracles that have benefited us all. They went in with their eyes open, they
knew what they were doing; and win or lose, we, society, benefited from their willingness
to take a chance.
NORBERG: If we did not allow a Lars Magnus Ericsson, a Thomas Edison, or a Bill Gates
to become incredibly rich, we would be more equal. But Friedman would ask: would we be
better off? If entrepreneurs did not think that a possible reward for all the sacrifices
they make, all their hard work, all the risks they take, is a lot of wealth, then they might
do something else instead. And in that case, we would not have the goods, and the services,
and technologies that make our lives better.
We like the products of the free market: the wealth, the choices, the goods and the services,
that previous generations could not have dreamt of. But we’re not as willing to accept the
workings of the free market: the seemingly chaotic ups and downs, the fact that it produces
both winners and losers, so we give the government power to deal with these problems. Listen
to these words from 1980…don’t they still ring true today?
FRIEDMAN: Every time I come to Washington, I'm impressed all over again with how much
power is concentrated in this city. But we must understand the character of that power.
It is not monolithic power in a few hands, the way it is in countries like the Soviet
Union or Red China. It is fragmented into lots of little bits and pieces, with every
special group around the country trying to get its hand on whatever bits and pieces it can.
NORBERG: It’s not that people in government
aren’t well-intentioned. These are not evil people, purposely trying to wrest away our
freedoms. It’s just the nature of the job.
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FRIEDMAN: The deals made here affect all of us, and sometimes in ways we don’t like.
But don’t blame the people making the deals. They’re just pursuing their own self-interest,
which may be as narrow as making a buck, or as broad as trying to reform the world.
NORBERG: Friedman worried that people would stop doing what they…and others they deal
with…thought was best. And instead, they would be doing what the government encouraged
or required through regulation, taxes, and tax loopholes…and that creates new problems.
Taxation to help the poor might result in less growth, and so less poverty reduction,
and bans on abortion may mean that abortion takes place anyway, but becomes less safe.
Tighter border controls might force immigrants to stay in the U.S. once they manage to get
in, rather than risk going back when the economy retracts, and there are fewer employment opportunities.
Every government intervention results in unintended consequences. These consequences have to be
dealt with as well, and that leads to new unintended consequences. The result is a constant
growth of government. In 1980, Friedman designed a very graphic way to highlight this problem.
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FRIEDMAN: The federal regulations that govern our lives are available in many places.
One set is here, in the Library of Congress in Washington, D.C. In 1936, the federal government
established the Federal Register to record all of the regulations, hearings, and other
matters connected with the agencies in Washington. This is Volume 1, Number 1.
In 1936, it took three volumes like this to record all these matters. In 1937, it took
four, and then it grew, and grew, and grew. At first rather slowly and gradually, but
even so, year-by-year it took a bigger and bigger pile to hold all the regulations and
hearings for that year. Then around 1970, came a veritable explosion…so that one pile
is no longer enough to hold the regulations for that year. It takes two, and then three
piles, until, on one day in 1977, September 28th, the Federal Register had no fewer than
1,754 pages… and these aren’t exactly what you would call small pages, either.
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FRIEDMAN: Freedom is not the natural state of mankind. It is a rare and wonderful achievement.
It will take an understanding of what freedom is, of where the dangers to freedom come from.
It will take the courage to act on that understanding, if we are not only to preserve the freedoms
that we have, but to realize the full potential of a truly free society.
NORBERG: Equality sounds good, and some value equality of outcome more than anything else.
The risk is that the outcome is that we’re all equally poor. Market-based systems have
made all of us richer, but some much richer than others. In the end, we have to decide
whether this wealth is the problem, or whether poverty is the problem. As Milton Friedman
put it in 1980, “The society that puts equality before freedom will end up with neither.
The society that puts freedom before equality will end up with a great measure of both.”
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