Here is another real success story, this time in Czechoslovakia. Martin was a rock musician. Today he makes documentary films. Some years ago, he did a concert tour of the United States and brought back secondhand recording equipment. The communist government let him bring it back, after paying a hefty import tax, because he said he wanted to record folk music __ something the government was not doing and did not plan to do.

In the past year, since things have opened up, his business has exploded. Along with music and films, he now duplicates video cassettes. He also makes audio cassettes for other Czech producers and has devised his own English language course on tape. He is on his way and many more will follow if the government just gets out of their way. You just can’t keep good people like that down.

The guests at this party aren’t much interested in self-driving entrepreneurs like Martin. High powered business executives from North America and West Europe __ they are interested in bigger game. They are here to do business and make good profits for their firms. They’ll do it by arranging joint ventures between their western companies and government enterprises. To succeed, they have to get on the right side of the politicians and the bureaucrats who are in charge. It is large scale lobbying, very much in the western manner. The danger is that in the process, local government bureaucrats and big foreign business will end up freezing out local entrepreneurs.

Friedman: The assets of Hungary belong to the people of Hungary. I do not believe they should be sold. You are a citizen of Hungary, who owns the state enterprises?

Unknown: Okay, the society as a whole.

Friedman: Not the society, the people.

Unknown: Well, give it to the people.

Friedman: In finance ministries all over Eastern Europe, the talk is all about privatization, but rhetoric is one thing __ action sometimes very different.

One example is in Prague where Vacla Klouse, the finance minister, is desperately trying to free the Czech economy.

Vacla Klouse: The people who were the reformers at that time were done after the Russian invasion, they were fired from their jobs and they return to politics with their own extremely obsolete ideas, and now they are trying . . .

Friedman: But he is up against political planners that aren’t ready to give up control. They are all anticommunists, all in favor of markets, but many are still beguiled by the idea of market socialism. A third way between capitalism and socialism, Klouse and I believe that is a mirage __ that a third way will take Czechoslovakia straight to the third world. It must either move directly to a pure free market, or it will get stuck just as Yugoslavia has.

Klouse: . . . I think intellectuals tend to underestimate the intelligence of the ordinary people . . .

Friedman: Poland and Hungary have exactly the same problem. Some, like Klouse, want to move to free markets right away. Others still hanker after socialist control of the markets.

Klouse: . . . use the word naive citizens. They are the interventionist economies and the other, so this is my speech in the parliament . . . . . .

Friedman: Political power is limited, but economic power is not limited and you can have, if you have one millionaire, you can have another millionaire, another millionaire, without anybody else being worse off. In fact, everybody else will be better off. It seems to me again, the people understand that. I can’t believe that your ordinary people here don’t. They know overnight you can make a change if you could only get the government off the back of the people.

Where are we headed __ we are heading all the way up here __ we’ll get there. Let’s not get any more gas than we need to. What is it? It is about $1.00 a liter which makes it about $4.00 a gallon of gas.

In these countries, the hardest problem is to transform their heavy industries. This is Novahoota, a vast collection of steel mills in Poland and a disaster in every sense. It is inefficient, costly, and above all, a major polluter. The best thing to do with places like this would be to bulldoze them, but that is almost impossible. They are too well shielded by special interests: the unions, the bureaucrats, and all the other political interests on the fringes.

The communists socialize the means of production. They tried to run everything from the center. It didn’t work. It was a mess and a failure. We in the United States, on the other hand, have been socializing the fruits of production. That is, the government has been taking money from some people, the people who produce the goods and services, and giving it to other people who do not produce goods and services. The end result is likely to be the same loss of incentive and organization if we carry it too far. That is one lesson we should learn from these countries.

A year ago, the cornucopia of fruits and vegetables and other things in this street market were simply not obtainable. It is one of the first signs of the flowering of enterprise under the new regime. This market is in Krakow, Poland. Goods are readily available now, only because the government eliminated price controls allowing the market to set the prices. Like a miracle, overnight the stalls had goods for sale. This gentleman sells bulbs and seeds. He is happy in the market, but many traders would like to set up in stores and develop on a larger scale. At the moment, they can’t. The stores are all owned by the state. The traders are stymied unless and until the stores become private property. When they do, the market will get another boost.

This youngster is 16. He is still in high school, but this is Saturday and he is in the market selling jeans from Thailand, making a little money for himself. He is studying to be a gardener. But when I asked him what he was going to do when he left school, he had no hesitation __ he was going to be a businessman. There is the hope of Poland.

Everybody knows what needs to be done. The property that is now in the hands of the state need to be gotten into the hands of the private people who can use it in accordance with their own interests and values. The problem is how to do it. Now that you have some degree of political freedom, there is an awful fight going on about who is going to get what share of the total pie. Everybody wants a little bigger piece. It is a political mine field, but unless that mine field can be gotten through, the game is up. It will be a failure. If it can be gotten through, then you will have an opportunity for these resources to be used the right way for the right things.

We in the West know only too well how hard it is to get the government out of something once they have been in it. Here in Poland they have been in it for 50 years and in a much bigger way than the United States. So they have a real job on their hands.

It would be silly of us, on the basis of a brief trip, to try to judge how successful these countries will be in doing what no country has yet been able to do __ transform a totalitarian state into a prosperous, free society. If this experiment is successful, it will not only transform Eastern Europe __ it will also offer an invaluable blueprint for the economic development of many poor countries.

You know, nothing is more striking than the wide differences in the standard of life of people who live in different parts of the world. Why? Not because of race or religion or culture or natural resources. After all, the Chinese who live in Hong Kong and in Taiwan are of the same race and background as those who live in Red China, yet their standards of living are vastly different. The same thing is true of East Germany and West Germany; of South Korea and North Korea; of Japan before the major restoration and Japan after the major restoration. The real explanation are the economic institutions that they adopt __free private markets versus central planning.

The countries of Eastern Europe have finally overthrown their communist masters who foisted central control on them. They have the rare opportunity to write on a clean slate; to create the institutions of private property and free markets that are the only ones that have ever achieved widespread prosperity and human freedom. We in the United States, on the basis of our experience of the last 10 years, know how hard it is to cut a government down to size. We hope they succeed better than we did. If they do, we will learn as much from them as they have learned from our example.

_______________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your committment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

Ronald Reagan: In 1980, a friend of mine did something of rare importance that some historians might miss. Dr. Milton Friedman, a scientist, a careful thinker, and a great teacher first presented his TV series Free to Choose. His TV series was about choices, risks, freedom, equality, and making a better future for all of us.

In 1976, the 200th birth of our nation, Milton Friedman won the Nobel Peace Prize in economics. Two hundred years earlier, in the same year as the Declaration of Independence, Adam Smith, the Scotsman, published a book entitled The Wealth Of Nations. The United States was the first country to apply the ideas in Adam Smith’s book. Those ideas have led to our prosperity and given us our freedom.

In Free to Choose, Milton Friedman shows us how those ideas can help us today. In this program, Milton and his wife Rose, take us on a brief tour of Eastern Europe. They wanted to see if the Czechs, Hungarians and Poles were taking the steps needed to achieve prosperity and a lasting freedom. In fact, a member of the Polish Parliament has said that Milton Friedman’s Free to Choose was a major influence on the Polish drive for freedom.

I find it exciting to watch the rebirth of freedom in Eastern Europe. Being free to choose should be every person’s birthright. Everywhere in the world, and especially here in the United States, we need to keep government on the sidelines. Let the people develop their own skills, solve their own problems, better their own lives. I don’t think it is an exaggeration to call Milton Friedman’s Free to Choose, a survival kit for you, for our nation and for freedom.

Friedman: Those are the parliament buildings. This is the river Danube and I am in Budapest, the capitol of Hungary. Over there somewhere is Czechoslovakia, over there Poland, and farther away yet, the Soviet Union. Socialist states that started out with the very best of intentions, intending only to improve the lots of their citizens, they all ended up making the people poor, miserable and into slaves. And every one of them has been learning that lesson that socialism is a failure. They are all trying to move in the direction of a free, private market.

What happened here in Eastern Europe was a major event. The first time in history that the totalitarian countries decided to move toward free markets. Will they succeed? That is a question that brought my wife Rose and me here. As economists, we wanted to witness the most exciting experiment in political and economic organization that is likely to occur in our lifetime.

In the center of Prague, there is a famous cafe, a relic from the days when Czechoslovakia was one of the wealthiest countries in the world. Today, we find only faded elegance, a pale echo of a productive past that was created by market incentives. What happened? Communist central control __ that is what happened. The same culture, the same people, the same resources who wanted different outcomes of vastly lower standard of living, the result of substituting orders from the top for incentives from below. Who says economic institutions don’t matter?

A year ago, right outside that cafe, hundreds of thousands of Czechs massed in Wensisloss Square to demand their freedom. This is where it all happened. In three days they got political freedom. The hopes were high. They thought economic miracles would follow quickly. Yet now it is a year later and almost nothing has happened. Political freedom can be achieved rapidly; economic freedom and prosperity is a very different thing. That’s what is beginning to dawn on these people. In reality they are not yet free. They are still the victims of thousands of controls the communists put in place.

If the newly elected governments are going to keep the support of the people, they must give them real freedom and they’ve got to do it fast. That was the secret of Margaret Thatcher’s success in England. She had a well worked out program and she put it into effect right after coming into office. It was the secret of Ronald Reagan’s program. On the other hand, Manahem Began in Israel came in without any plans whatsoever, and he ended up a failure. If Czechoslovakia is going to achieve the objectives of its revolution, it must move rapidly to put into effect the economic institutions which alone can convert political freedom into economic and human freedom. Those institutions are the institutions of free, private markets.

There are examples all over the place of both the opportunities and the problems. Yuri Malick wants to publish a magazine for people who are trying to set up their own private businesses in Czechoslovakia. He runs it from his living room. It’s a small family enterprise. The magazine is packed with information for would-be businessmen on how to thread their way through the jungle of bureaucratic regulations that still exist. The irony is that some of those very regulations are preventing him from getting his business off the ground. For a start, he needs to obtain 15 separate government licenses before he can distribute the magazine. After nearly a year, he still hasn’t got them. He has had to come here again and again to this government licensing bureau to try to persuade a bureaucrat to allow him to do business.

Yet again, it’s not his lucky day. Yuri Malick doesn’t give in easily, but things are not looking too hopeful. The man he has got to see is not available and no one else is interested in his problem. The Cheque government owns all the newsstands, the book shops, the nationwide distribution system which is controlled from here. There is one way, and only one way, to put an end to all this nonsense, the government must get out of business and stay out. It must transfer these assets into private hands.

These are the kinds of forms you have to fill out in this country in a place like that if you want to start a business or get anything done. But if you think that only happens here, tell me when was the last time you stood in line to get a driver’s license or a registration plate, or do you know anybody in Britain, France, Germany or the United States who has built a house sometime in the last 10 years. Ask him what he went through.

___________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your committment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

Burton Folsom, Jr. is a professor of history at Hillsdale College and author of New Deal or Raw Deal?, to be published by Simon & Schuster this year.

The subject of “equality” is the source of much political debate. Ever since the founding era, free-market thinkers have argued for equality of opportunity in the economic order. Equality, in other words, is a framework, not a result. In modern terms the goal is a level playing field. Government is a referee that enforces property rights, laws, and contracts equally for all individuals.

What the free-market view means in policy terms is no (or few) tariffs for business, no subsidies for farmers, and no racism written into law. Also, successful businessmen will not be subject to special taxes or the seizure of property.

In America this view of equality is enshrined in the Declaration of Independence (“all men are created equal and are endowed by their creator with certain inalienable rights”) and the Constitution (“imposts and excises shall be uniform throughout the United States” and “equal protection of the laws”). Much of America’s first century as a nation was devoted to ending slavery, extending voting rights, and securing property and inheritance rights for women—fulfilling the Founders’ goal of equal opportunity for all citizens.

Progressives and modern critics of equality of opportunity have launched two significant criticisms against the Founders’ view. First, that equality of opportunity is impossible to achieve. Second, to the extent that equality of opportunity has been tried, it has resulted in a gigantic inequality of outcomes. Equality of outcome, in the Progressive view, is desirable and can only be achieved by massive government intervention. Let’s study both of these objections.

To some extent, of course, the Progressives have a valid point—equality of opportunity is, at an individual level (as opposed to an institutional level) hard to achieve. We are all born with different family advantages (or disadvantages), with different abilities, and in different neighborhoods with varying levels of opportunity. As socialist playwright George Bernard Shaw said on the subject, “Give your son a fountain pen and a ream of paper and tell him that he now has an equal opportunity with me of writing plays and see what he says to you.”

What the Progressives miss is that their cure is worse than the illness. Any attempt to correct imbalances in family, ability, and neighborhood will produce other inequalities that may be worse than the original ones. Thomas Sowell writes, “[A]ttempts to equalize economic results lead to greater—and more dangerous—inequality in political power.” Or, as Milton Friedman concluded, “A society that puts equality—in the sense of equality of outcome—ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests.”

Failure During the New Deal

Sowell’s and Friedman’s point is illuminated by the failed efforts of the federal government to reduce inequalities during the New Deal. In the early 1930s the United States had massive unemployment (sometimes over 20 percent). In 1932 President Herbert Hoover supported the nation’s first relief program: $300 million was distributed to states. This was not a transfer from richer states to poorer states but a political grab by most state governors to secure all they could. Illinois played this game well and secured over $55 million, more than New York, California, and Texas combined.

Massachusetts, with almost as many people as Illinois, received zero federal money. Massachusetts had much poverty and distress, but Governor Joseph Ely believed states should try to supply their own needs and not rush to Washington to gain funds at someone else’s expense. Ely therefore promoted a variety of fundraising events throughout his state to help those in need. “Whatever the justification for [federal] relief,” Ely noted, “the fact remains that the way in which it has been used makes it the greatest political asset on the practical side of party politics ever held by any administration.”

In 1935 President Franklin Roosevelt confirmed Ely’s beliefs by turning the Works Progress Administration (WPA), which he had established, into a gigantic political machine to transfer money to key states and congressional districts to secure votes. Roosevelt and his cohorts used the rhetoric of removing inequalities as a political cover to gain power. Reporter Thomas Stokes won a Pulitzer Prize for his investigative research that exposed the WPA for using federal funds to buy votes.

The use of tax dollars, then, to mitigate inequality failed because—whatever the good intentions—the funds quickly became politicized.

Presidential (and congressional) authority to tax and to transfer funds from one group to another also proved to be a dangerous centralization of power. Taxation increased both in size and complexity. The IRS thus became a weapon a president could use against those who resisted him. “My father,” Elliott Roosevelt observed of his famous parent, “may have been the originator of the concept of employing the IRS as a weapon of political retribution.”

Sowell and Friedman indeed recognized that efforts to remove inequalities would create new inequalities, perhaps just as severe, and would also dangerously concentrate power in the hands of politicians and bureaucrats. But Sowell and Friedman have readily conceded that when markets are left free, the inequality of outcomes is not necessarily morally justified. In other words, some people—through luck or inheritance—become incredibly rich and others, who may have worked harder and more diligently, end up barely earning a living. Rewards, as F. A. Hayek, among others, has noted, are “based only partly on achievements and partly on mere chance.” Societies are more prosperous under free markets, but individual success and failure can occur independently of ability and hard work.

Progressive Claims in Light of History

What the historical record does seem to demonstrate is that the richest men in American history have been creative entrepreneurs who have improved the lives of millions of Americans and have achieved remarkable upward mobility doing so. For example, the first American to be worth $10 million was John Jacob Astor, a German immigrant and a son of a butcher. Astor founded the largest fur company in the United States, transforming tastes and lowering costs in clothing for people all over the world.

John D. Rockefeller, the first American to be worth $1 billion, was the son of an itinerant peddler. Yet Rockefeller, with little education or training, went into the business of refining oil and did it better than anyone in the world. As a result, he sold the affordable kerosene that lit up most homes in the world. (He had a 60 percent world market share in the late 1800s.)

Henry Ford, the son of a struggling farmer, was the second American billionaire. He used the cheap oil sold by Rockefeller and cheap steel that was introduced by immigrant Andrew Carnegie to make cars affordable for most American families. The most recent wealthiest men in the United States—Sam Walton and Bill Gates—both came from middle-class households and both added much value for most American consumers.

Free markets may yield odd results and certainly unequal outcomes, but the greater opportunities and prosperity have made the tradeoff worthwhile for American society.