JOHAN NORBERG: Invisible hands are all around us. Friedman borrowed an example from economist
Leonard Reed to show that something that we take for granted, and use every day, is the
result of a complex interaction between thousands of people.
MILTON FRIEDMAN: Look at this lead pencil; there’s 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…
NORBERG: But obviously, the pencil is no longer one of our most important tools of communication.
This is. And the production of a smart phone is not less complex, to say the least.
This display is made in Japan… and the camera in Vietnam. The microphones come from Austria
and the chip set from France. The memory is produced in Korea, and the battery in China.
And the software and design centers are all over the world, in countries like India, Finland,
Britain and the U.S. Thousands of people, on several continents, cooperated to make
these phones so that we could have them. People from different countries, different cultures;
people who had never even met.
FRIEDMAN: 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.
NORBERG: We have a choice of smart phones, tomatoes, even trucks because of competition.
Sometimes the price is too high, sometimes the product doesn’t work, and sometimes
the service is lousy. But in that case, someone else can enter the market and take all the
customers. So every company has to offer us something better to stay in business. Some
succeed, but some fail, and it’s that risk of failure that really scares us.
FRIEDMAN: 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 a 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 non-interference. That's
tough on some individuals, but it’s 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.
NORBERG: So, this the kind of boxes that you were producing here, when Milton Friedman
came by to visit?
FRIEDMAN: Mr. Cheung makes metal containers. Nobody’s ordered him to. He does it because
he’s found that he can do better for himself that way, than by making anything else. But
if demand for metal containers went down, Mr. Cheung would soon get that message.
NORBERG: And Mr. Cheung is still here, and nowadays he produces more things for the tourist trade.
But, when only the flexible and adaptable survive…thank you, Mr. Cheung, it means
that other businesses fail. Economists call this constant renewal of the economy, “creative
destruction.” If we want to increase our wealth and opportunities; we have to stop
doing old things in old ways, and start doing innovative things in better ways. In other
words, we have to be, “creative.”
But when consumers move on to new goods, it can be difficult and painful, because old
factories and old shops close, and people lose their jobs. That is the, “destructive”
part. And yet, most economists think that creative destruction
is necessary for economic development.