“The Failure of Socialism” episode of Free to Choose in 1990 by Milton Friedman (Part 5)

Milton Friedman: Free To Choose – The Failure Of Socialism With Ronald Reagan (Full)

Published on Mar 19, 2012 by

Milton Friedman’s writings affected me greatly when I first discovered them and I wanted to share with you.

Ronald Reagan introduces this program, and traces a line from Adam Smith’s “The Wealth of Nations” to Milton Friedman’s work, describing Free to Choose as “a survival kit for you, for our nation and for freedom.” Dr. Friedman travels to Hungary and Czechoslovakia to learn how Eastern Europeans are rebuilding their collapsed economies. His conclusion: they must accept the verdict of history that governments create no wealth. Economic freedom is the only source of prosperity. That means free, private markets. Attempts to find a “third way” between socialism and free markets are doomed from the start. If the people of Eastern Europe are given the chance to make their own choices they will achieve a high level of prosperity. Friedman tells us individual stories about how small businesses struggle to survive against the remains of extensive government control. Friedman says, “Everybody knows what needs to be done. The property that is now in the hands of the state, needs to be gotten into the hands of private people who can use it in accordance with their own interests and values.” Eastern Europe has observed the history of free markets in the United States and wants to copy our success. After the documentary, Dr. Friedman talks further about government and the economy with Gary Becker of the University of Chicago and Samuel Bowles of the University of Massachusetts. In a wide-ranging discussion, they disagree about the results of economic controls in countries around the world, with Friedman defending his thesis that the best government role is the smallest one.
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Below is a portion of the transcript of the program and above you will find the complete video of the program:
 

DISCUSSION

Hello, I am Linda Chavez and welcome to Free to Choose. Joining Dr. Friedman for a discussion of the failure of socialism are Gary Becker from the University of Chicago and Samuel Bowles of the University of Massachusetts. Dr. Bowles, I think we can all agree that socialism has failed Eastern Europe. Dr. Friedman believes that the path out of that is the free market and I think he thinks there are lessons for the United States. What do you think?

Bowles: The homeless people are homeless because they are poor and they are out of work. They are not homeless because of rent control.

Friedman: I beg your pardon. All of them aren’t. Of course there are some like that, but the existence of rent control has certainly increased the number of homeless.

Becker: Many people are homeless because they are mentally ill. But the homeless is a tiny fraction. Housing policy in the United States should not be oriented around the homeless because that is a tiny part of the problem in any major city, and certainly outside of major cities. If you look at the bulk of housing in the United States, I see no evidence that it cannot be adequately provided by the private sector.

Bowles: Let’s talk about incentives because I know both of you like to talk about incentives a lot. I think incentives are terribly important. Milton says in the show, and I agree with him, that we have to choose between taking orders from the top down, or incentives at the bottom. Now Milton’s idea of how do you get the incentives down at the bottom is essentially a view of an economy in which individuals, through their ownership of property, can own the results of their hard work and their innovation. It is a great idea. It doesn’t exist anywhere and it can’t exist. When I read your stuff Milton and when I watch you on TV, I think, you know, Milton has this idea of, Charlie Brown and Linus are going to have a lemonade stand and Lucy is going to have another lemonade stand and that is your idea of capitalism. But that is a myth. That is not what capitalism is. We don’t have thousands and millions of little firms competing on a level playing field. We have giant industrial corporations that use their power to their own advantage and to the disadvantage of others. That is what you have to be able to deal with you if you want to be relevant to the modern world. That is what the countries that I talked about, Sweden, Korea, Norway, Japan, are very good at doing __ dealing with the problem of economic power so that the power of those institutions can be used by and large for public good. If you ignore them with this lemonade stand capitalism myth, you are simply giving those powerful spenders of wealth and affluence free rein.

Friedman: Gary, it is a strange thing that not a single one of the countries that you have described has a standard of living as high as that of the United States with respect to the bulk of its population.

Bowles: Yes and the United States got its standard of living through precisely the policies that you have opposed such as protecting our industrial base from . . . . . .

Becker: I would be very happy to go back to the 19th century U.S. policy. It was a tiny part. The government, sure they did some things, but as a tiny part of the economy and let’s go back to a resource that went through the government at that time what was it? Ten percent of the maximum. The largest employer of the government was the postal system. That is the main thing the government was doing. Some tariff policies probably hurt us and a few other activities. Let me come back to the other issue raised then. There are millions and millions of companies in the United States. It is true that in some sectors these are very large companies like in manufacturing. But what I think has happened, particularly in the modern world, is these large companies are now having to compete with large countries from elsewhere. It is not capitalism. It is the political sector that is limiting that competition, partly at the behest of these companies, but also at the behest of the employees of these companies to limit the competition from abroad, but most industries, it would be hard put for you to argue now that even the large companies aren’t facing significant competition in the United States markets, not only from domestic companies, but from large companies based abroad.

Bowles: Oh, I agree with that completely. But what I am concerned about is this. If you work at General Motors or IBM and you are a secretary or you are a production worker, what you are getting there is you are getting orders from the top down. You don’t own your work. You don’t own the results of your work. When you talk about incentives from the bottom, if you want to get incentives from the bottom, you have to get the people who work at the bottom to own the results of their work and to have a say in how their work is going to be used. You can do that if you . . . like employee ownership and employee control. That is what made Wierton Steel from almost bankruptcy to one of the most successful steel companies in the United States __ employee ownership and control. The same with Columbia Aluminum, one of the most efficient aluminum companies in the United States. It went from shutdown to being a very successful company through employee ownership and employee control over their production processes. That is what I call putting incentives at the bottom where they belong, but you never advocate that.

Becker: I am not against employee ownership, but you have to permit employee ownership to compete on a level playing field against other forms. We permitted that in the United States, up until 1975, when you had trivial employee ownership in the United States. That to me suggests that workers didn’t want it.

Chavez: Dr. Friedman, who owns companies now? Are these in the hands of a small number of people or is it stockholders?

Friedman: No, it is the stockholders who own it and a very large fraction of that is owned in pension plans which are for the benefit of the employees. But of course, Gary is right, what produced the spate of employee ownership was government subsidy through ESOP’s since 1975.

Friedman: I think that is disgraceful.

Becker: That is the only reason you have gotten the growth of employee ownership in the United States. We have 5,000 or 6,000 employee owned companies now in the United States, and you take away these subsidies and they think that would go down to 1,000 or so, and let them be there, that is fine. Let the market determine which form is most desired and which form is most efficient.

Chavez: Gentlemen, obviously we have not exhausted this subject, but we are out of time. Thank you for watching Free to Choose. Next week we will be discussing the failure of our schools. We send our kids to school hoping that they will receive something that will benefit them in the future for when they go out here and compete in the job market. Unfortunately, none of that is taking place out of Hyde Park.

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