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November 22, 1998
ECONOMIC SCENE
Just a Bump in Capitalism's Long Road
By RICHARD W. STEVENSON
TANFORD, Calif. -- This does not seem to be free enterprise's finest hour.
Asian economies that were once vibrant have collapsed, sending millions of people who had pulled
themselves up toward the middle class back into a struggle for survival.
Russia's movement toward democratic capitalism is in shambles. Even the world's biggest and
strongest economies are at risk from the global crisis.
So it seemed fair to ask Milton Friedman, the iconic advocate of free markets, if the free-enterprise
system had not proved inadequate in this era of interconnected financial systems and contagion by
microchip.
His reply was that the problems in most countries were a result of bad policy at home and bad
advice from the International Monetary Fund, not any failure of the markets.
Indeed, Friedman, whose libertarianism left him on the fringes of the mainstream starting in the New
Deal and for decades afterward, was not conceding anything in the growing debate over whether the
turmoil has exposed the limits of markets as a force for prosperity, democracy and stability.
Now 86, and as willing as ever to argue his cause in an interview, he was typically provocative about
the interplay between ideology and the real world.
The fallout from the global crisis, he said, would inevitably create some setbacks in what he sees as a
slow but inexorable movement toward less government involvement in the economy and greater
individual freedom.
Economists are again debating the merits of controls on capital, and some countries, including the
United States, are hinting that they might raise trade barriers to protect domestic industries from the
ravages of a tumultuous global economy.
"There's always a tendency when things go wrong to blame the private market," said Friedman, who
won the Nobel Prize in economics in 1976.
"Given that you've had these difficulties, there's no doubt there will be backsliding," he said in his
office at Stanford University's Hoover Institution.
The talk of global crisis, however, is largely overblown, he said, noting that the United States and
Western Europe remain in sound economic health.
But in a broader sense, Friedman said, we are at a historical turning point, when a gradual
acceptance of free-market principles on a philosophical level is beginning to translate into a
fundamental movement toward market-oriented policies, institutions and politics. The implications for
policy could be profound, he said, ranging from lower taxes to exposing public schools to greater
competition.
"It's my impression that you have long cycles of public opinion on the one hand and public behavior
on the other," Friedman said. He cited the long delay between Adam Smith's "The Wealth of
Nations," published in 1776, and Britain's move to repeal the Corn Laws and go on to free trade.
And, he said, although the Fabian Society was formed in the 1880s, "it was not until just before
World War I that Britain started down the road to the welfare state.
"The case for free markets and market economies, right after World War II, was held by only a very
small minority, who were looked upon as reactionaries of the worst kind," Friedman said. "In the
period since then, the case for free markets has been won rhetorically.
Everybody now believes in competition, believes in freedom, believes that governments should have
a relatively minor role and that markets should be relatively free. That's the rhetoric, and it's reached
a peak since the fall of the Berlin Wall.
"On the other hand, if you look at the practice, in the United States and also most other Western
countries, government is more powerful, more extensive, more intrusive now than it was 50 years
ago. In that sense we have moved backward and been following the prior socialist trend of opinion.
"I think we are sort of at the peak of the collectivist way," he continued, "Over the next 20, 30 or 40
years, the rhetoric, combined with the remarkable effects the Internet, is going to have on our lives,
will produce a decline in the role of government and a widening of human freedom."
Why the Internet?
"Because it makes it harder to collect taxes," Friedman said, referring to the difficulty of defining
where a transaction takes place when it occurs in cyberspace. "Governments can get funds
fundamentally only from resources that find it difficult to move elsewhere. The greater the freedom of
movement of capital and people, the harder it is for governments. That's the kind of external force
that is adding to what's coming from the intellectual tide of opinion."
The question now, though, is whether the crisis set off last year in Asia will turn the tide again. As
Friedman suggests, history can be slow to render its judgment.
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