Milton Friedman, economic competition and poverty

The recent death of American Nobel Prize-winning economist Milton Friedman is a reminder of one of the most fundamental and far-reaching economic debates of the 20th century, still continuing. He was in favour of political systems based on free markets uncontrolled by government, believing “individual responsibility … will lead to a higher and more desirable moral climate”.

Opposed to wage and price controls, he consistently argued individuals, groups, companies should be free to compete for whatever wealth they can lay their hands on and government should legislate to enable this to happen. The title of his book There Is No Such Thing As a Free Lunch passed into popular philosophy.

In its announcement of Friedman’s death the New York Times of November 16 reported his advocacy of unfettered markets had the ear of US presidents Richard Nixon, Gerald Ford and Ronald Reagan, while he was also involved in the 1964 political campaign of Barry Goldwater. Current US President George W. Bush approvingly described Friedman’s vision as “men and women are free, free to choose, but where government is not as free to override their decisions. That vision has changed America, and it is changing the world.”

Another Friedman fan was British Prime Minister Margaret Thatcher, an enemy of the welfare state. For many years she included among her friends recently deceased former Chilean dictator Augusto Pinochet, who came to power following the assassination of President Salvador Allende during the 1973 USA-inspired coup d’etat. Pinochet, responsible for the deaths and “disappearances” of about 3,000 citizens during his 17-year rule, called in Friedman’s university department, known as the Chicago School, to advise him on economic policy.

Opposing Friedman’s theories were major 20th century economists John Maynard Keynes in Britain, John Kenneth Galbraith in the USA, and currently America’s Nobel Prize-winning Joseph Stiglitz. All have argued government should intervene in economic affairs to alleviate social catastrophes and prevent citizens sliding into debilitating poverty.

Some results of economic competition in the US were recently summarised in Le Monde diplomatique by Serge Halimi:

Between 1983 and 2006 the share of national income pocketed by the richest 1 per cent in USA almost doubled, from 9 to 16 per cent … Between 1966 and 2001 the median salary in the US increased by only 11 per cent in real terms. But the 10 per cent of workers who are the highest paid registered a 58 per cent increase in income, and the curve climbed ever more steeply to reach a 121 per cent gain for the top 1 per cent, 256 per cent for the 0.1 per cent richest and 617 per cent for the 0.01 per cent most prosperous. Sharing is a thing of the past. The winner now takes all.

The US Current Population Survey shows that in 2005 37 million Americans, one eighth of the population, were below the poverty line, including one quarter of the black population.

Despite his support for Friedman’s open markets, US President Bush is building a bigger and better “Berlin Wall” on the Mexican border to prevent the poor coming from neighbouring countries to compete for jobs.

During World War II it was Conservative British Prime Minister, Winston Churchill, looking for some way to avoid the human calamities of the 1930s economic depression, who invited Lord William Beveridge, former social worker and Master of University College, Oxford, to come up with a post-war plan.

The Beveridge Report (Social Insurance and Allied Services Report 1942) became the basis of the 1945-51 Clement Attlee legislative program which established a comprehensive free health service, a compulsory social insurance scheme to provide benefits and pensions during times of unemployment and sickness, and the national assistance board to look after those who fell between the cracks.

The Government also nationalised major industries like coal and shipping. These programs were far from the Friedman philosophy while also being a long way from the comprehensive state ownership of communist regimes.

Subsequent prime ministers, especially Margaret Thatcher, dismantled much of this mixed economy.

In recent years a number of South American countries, including Bolivia, Brazil and Venezuela have reacted to uncontrolled free markets bringing about large-scale poverty and violent consequences by creating their own protective mechanisms.

In Argentina skilled workers, unemployed when owners closed factories, took the situation into their own hands and re-opened work-places, in one case all workers taking home the same pay whatever their daily responsibility, in another the workers agreeing on a sliding pay scale according to task.

In Globalisation and Its Discontents Joseph Stiglitz refers to “reformers who leaned to the right, the disciples of Milton Friedman and of radical market reforms, who paid too little attention to the social and distributional consequences of policy”.

Stiglitz is not opposed to market forces or globalisation in themselves, but in his 2006 book Making Globalisation Work reports:

The sad truth … is that outside of China, poverty in the developing world has increased over the past two decades. Some 40 per cent of the world’s 6.5 billion people live in poverty (up 36 per cent from 1981), a sixth - 877 million - live in extreme poverty (3 per cent more than in 1981). The worst failure is Africa , where the percentage of the population living in extreme poverty has increased from 41.6 per cent in 1981 to 46.9 per cent in 2001 … this means the number of people living in extreme poverty has almost doubled, from 164 million to 316 million.

He goes on:

Today, most academic economists agree that markets, by themselves, do not lead to efficiency; the question is whether government can improve matters.

In the former Soviet Union:

The transition from communism to the market, which was supposed to bring new prosperity, instead brought a drop in income and living standards by as much as 70 per cent.

When he moved to the World Bank Stiglitz “continued to push for the right balance between the private and public sectors and to advance policies promoting equality and full employment”. He continues “Today, the intellectual defence of market fundamentalism has largely disappeared … Without appropriate government regulation and intervention, markets do not lead to economic efficiency”. For Stiglitz, the trickle-down theory is dead, if it ever lived.

The debate still rages, however. In The Spectator of December 2, 2006 associate editor Allister Heath, in a story titled “It is a wonderful world: richer, healthier, and cleaner than ever” he reviews Indur Goklany’s book The Improving State of the World, which “demonstrates that on every objective measure of the human condition … well-being and quality of life are improving round the world”.

Heath concludes “our victories over famine and extreme poverty during the past two centuries are civilisation’s greatest achievement. It is time we took a well-deserved break from worrying about terrorism, rising crime, social dislocation and all our other problems to celebrate what we have actually got right.”

I suspect Heath is a great fan of George Orwell. Or suffers from head-in-sand-ism.

You wonder if Goklany and Heath are aware HIV-Aids infection rates increased by 2.6 million world-wide between 2004 and 2006, in all regions (according to The Guardian Weekly December 1-7, 2006), always closely linked to poverty. Three-quarters of HIV drugs are still under monopoly production and unaffordable in poor countries. Health workers don’t stay around and economies continue to worsen, giving rise to many other sicknesses.

Competition is not only about money, of course. It also becomes a general social philosophy morphing into violence as expressed by politicians, affecting war and peace, win-at-any-cost sport, violence in pubs, even at private parties.

But that’s another story.