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
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
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.
Years ago I asked a graduating student at a communist university
what he was going to do when he got his degree. He said, I don't
know, they haven't told me yet. The people around here were told
not only where to work, but also where to live. In these concrete
blocks, thousands of identical, prefabricated housing units, each
one the property of the state.
Maria and her husband live in one of them with their two children.
Some years back they were put here by the Czech Communist authorities
and given jobs nearby, but they have never liked the place. Yet
even now, after the revolution, they can't move. There is no excuse
for any of that. Housing can easily be converted to private property
and one result would be that people could sell their homes and move
to get better jobs or just to go and live where they really want
to. All sorts of new opportunities would open up.
Among the East European countries, Hungary has been moving away
from total state control for more than a decade. However, the government
still owns most of the country's enterprises. Now that it is permitting
private individuals to start up their own businesses, it wants to
control them too. The Hungarians aren't alone in that. Nothing is
harder than to give up power.
Throughout Eastern Europe, industry is strangled by government controls,
especially small, private businesses trying to succeed in international
markets now that trade barriers are supposed to be coming down.
This place makes electronic circuits for cheap consumer goods like
alarm clocks and toasters. Their competitors in Hong Kong and Taiwan
may smile when they see this as their competition. The machines
are all 10 and 20 years old, but this firm can't buy modern equipment
from abroad. It is not allowed to acquire and spend foreign currency.
They can now manage, because the wages they pay are so low, but
they can't count on that forever. Sooner or later the owner of this
business will be trapped. He has to be able to deal with foreign
exchange at any price that is mutually agreeable in a truly free
market. That is what is needed to set him free.
West of Budapest, the road passes through this little village. It's
mainly a farming community, but there is also a small cooperative
that processes wood for house building. It is owned by the workers.
With a construction boom just around the corner, they can see an
expanding market for their goods, but they need more equipment.
That's their problem. Their only recourse with finance is through
the local government bank. It won't help them because it wants to
protect the state factory down the road.
One alternative is a joint venture with a foreign company, but the
workers are jealous of their independence. Permitting competitive
banks or freeing the foreign exchange market would broaden their
options. They would be able to get the new equipment the need to
expand and prosper. As it is, the only way that they can break out
of their quandary is to break the law by buying foreign exchange
on the black market. And that is what is going on here, money hustlers
trading in foreign currencies. Corrupting? Yes, but also serving
a real function by promoting business efficiency. It should be legal,
not illegal, done through private banks, not on the street.
Government can promote the transition to a free market in two very
different ways. One way is simply to get out of the way. Let dozens
of Rubix cubes emerge from the ingenuity, the enterprise, and drive
of the Hungarian people. Another way is to try to plan the transition.
That way one thing is sure, the people who do the planning will
make sure that they end up on the top and the little man is on the
And here in Budapest, like everywhere in Eastern Europe, small enterprises
are only too well aware of that reality. Every building in this
street of shops is state owned, but out of sight, down the back
alleys, there is a new and vibrant world of business growing. This
place has nothing to do with the state. It is truly a free, uncontrolled
market. The women earn three times as much as they could in the
state clothing factories. They make fashion garments for the young.
It's a fickle market that is always changing. Their job is to keep
ahead of it __ to innovate.
The clothes are sold from market stalls and trade is thriving. Two
years ago this place was a derelict building site. Now taken together,
all the stalls have the annual turnover of a good sized department
store, simply because the market has been allowed to develop without
state interference. Imagine the effect if production all over Hungary,
Poland and Czechoslovakia were set free like this.
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
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.
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: Well, there is much to celebrate in Eastern Europe __ not
only the elimination of dictatorial rule. I go back on that a long
time. I was in the Soviet Union in the late 50's (1958 and 1959)
as a musician and I met many Russian musicians and made friends
with a lot of Russian people who found themselves harassed and victimized
by the police. In fact, my own musical group was prevented from
singing a couple of times by the police. That is all on the way
out and I hope it is gone for good. Equally welcome is the end of
this myth of a centrally planned society. That is gone too and I
hope that basically the lesson is learned. But Milton seems to think
that we have to choose between either a centrally planned society
or a society in which we have markets which are basically unregulated.
So the choice is really between all or nothing.
I don't think that is the choice. I think what Milton is posing
for us is a model which is as unrealistic as a centrally planned
model. It is outdated, it won't work, it is extreme, and I think
it is undemocratic. I think that we have choices in between, what
Milton called the third way, a way that he said wouldn't work, has
been shown to work around the world. I think that Eastern Europe
would be very ill-advised to take Milton's advise on this. Yet,
the last time anybody took Milton's advise on economic policy was
Ronald Reagan and Ronald Reagan has put the U.S. economy into a
situation where it can't pay its bills and is facing mounting economic
instability and difficulties.
Chavez: Dr. Friedman, what about this midway path?
Friedman: First of all, I utterly reject what Sam says about the
results of Ronald Reagan's changes. We had a decade of extraordinary
growth, increased employment in which inflation was brought down
sharply. Ronald Reagan came into office at a period of very high
inflation, and so on. But this program is not about the Reagan administration.
This program is about Eastern Europe and I want to go to Eastern
I believe Sam is completely wrong in saying that the model I propose
is outdated. I believe that what he calls obsolete is something
very different. You have had the third way __ you have had it in
the United States; you have had it in Sweden; you have had it in
Britain; you've had it elsewhere. In every case it has been built
on the foundation of a long period of what I call the first way.
The United States had 150 years of essentially a free private market
before it launched on this period of the welfare state. The same
thing was true in Britain, the same thing was true in Sweden. I
believe he will find it very difficult to site any example of a
country which started from a very low level and immediately adopted
that combination of policies.
Becker: Let me add something on that. I think the lesson that we
learned from what happened in Eastern Europe goes beyond simply
that central planning doesn't work. I think we all agree that it
doesn't work. But it is more than that __ it is the role of private
property in the system and the incentives provided by private property.
I don't know what socialism means anymore, but I remember when I
was in Poland I asked the head of the ideology department is private
property consistent with socialism? He said, it may be. Then I asked
him, well what is the difference between socialism and capitalism.
His answer was, we are still working on that. I think what we have
seen is a rejection of the ideas associated with traditional socialism
which are suppression of private property, government ownership
of property, and so on.
Now, how far should we move in the other direction? I think that
is question you are asking Sam, and is there a middle way. I think
the middle ways that have been successful have all been largely
reliant on private property, private ownership, private incentives.
The difficult question is one that Milton raised in the documentary.
How far can you redistribute income and make it consistent with
I don't think we know the boundary point, whether 30% of the income
being redistributed is too much, 40%, 50% __ my own feeling is that
we have gone much too far in Sweden and some of the other Scandinavian
countries, and they are beginning to step back from this. They are
lowering maximum tax rates to 50% now __ they were up to 80%. So
I think there is a third way, but that third way is going to be
a lot closer to unregulated market than toward a socialist organization
of resources and a suppression of private property.
Bowles: Let's get back to the particulars though. You talk about
Sweden and you talk about the third way failing, and Milton says
nobody has ever really gotten rich on the third way __ they have
only benefited from that. Let's talk about the United States. The
period you described included a very long period in which the United
States was a highly protectionist country in which our industrial
base was developed from Alexander Hamilton on for some time, and
then during the late 19th and early 20th century. To call that a
free market solution would be against everything you have taught.
Or, if one wants to go back into the 19th century, the huge subsidies
of the railroads were, of course, an intervention in the market.
In the case of England that you talk about, the same is true. The
role of the British Navy and for example the Parliament in actually
establishing the private property which is what you favor. This
was done by a government intervention. We talk about the other cases.
Talk about Sweden or about Korea. These are two countries which
I think are justly admired for their economic performance. Both
countries have income distributions far more equal than the United
In Sweden, over the half the GNP is taxed. Now, people in this country
would say that obviously they have gone too far. But let's look
at the test of the market. Sweden and Korea have been defeating
the United States in world markets. Exports have grown five percent
per year during the Reagan/Bush years in Sweden. In the United States,
they have grown one percent per year. In Korea we know they have
grown much better. If you want to go on to Norway, where much of
the investing is done by the government, they have grown their exports
even faster than Sweden. Meanwhile, we can't compete in world markets.
So the lesson of these countries is if you look at the facts Milton,
a combination of government regulation and the market works. I agree
with Gary. I think private property is extremely important because
the incentives associated with owning the results of your work is
essential. But private property does not mean that we have to let
the market go unregulated and all the evidence says that the countries
that are beating us in the world market today don't do it. They
are not that dumb. Japan doesn't do it; Korea doesn't do it; Sweden
doesn't do it.
Friedman: Let's not throw straw men around. Obviously I am not
in favor of no government. Government has some very important roles
to play. Those are very limited. You take the case of the United
States during the 19th century and of Britain in the 19th century.
At the time of Queen Victoria's jubilee in 1899, total government
spending in Britain was 10% of the national income. Up until 1929
in the United States, except for periods of great war, total government
spending in the United States was about 10% of national income.
Now that is a very far cry from a government which spends over half
of the national income . . . . and a little less than half in the
Bowles: You are opposed to capital controls. You are opposed to
telling people they can't move their money internationally. That
is what Korea does. You are opposed to . . .
Friedman: I think Korea makes a mistake by doing it.
Bowles: Korea has beaten us by exactly the policies you are posing.
Friedman: So has Hong Kong. Hong Kong has beaten us by the policies
I am proposing.
Bowles: . . . if Korea is not a middle way and if Sweden is not
a middle way, then I would like to know what you call it.
Becker: Korea is a lot closer to a market-oriented economy than
any of the economies we have been talking about.
Bowles: The government approves the heads of the banks in Korea.
They have nationalized their steel industry and have one of the
most efficient plants in the world at Palhang. If you call that
a private economy . . .
Becker: What fraction of resources in Korea goes through the government?
Bowles: A tremendous fraction if you take account of the fact that
the banks are centrally run and they control the credit allocations
there and they don't let people take their money out of the . .
Chavez: I would like to bring this discussion back to the United
States for a moment. What about socialism in the United States.
There has been one area where we have tried to redistribute wealth.
We have done that through our welfare policies and social security.
Has that worked?
Friedman: For some people, it benefited, but taken as a whole,
I think it has been a failure.
Becker: I agree with that. I think the big problem in the United
States has been, of course, some of the welfare programs have been
successful. But by trying to do too many things, the government
is no longer doing the things that it should be doing. We all agree
there are many things government should be doing. I agree with Milton
__ he is a strong man to be say this is an issue between no government
and 100% government. The question is what are the tasks that government
should be doing. I believe the tasks are, of course, defense against
outside aggression, internal protection, some infrastructure, protection
of the people can't make it. In every one of these areas, we are
not doing very well. I think we are not doing well mainly because
we are trying to do a lot of things we shouldn't be doing. They
can't do all of them.
Chavez: I couldn't help but think, Dr. Bowles, as I watched that
film that the public housing area that we saw in Eastern Europe
and the problems that we have here in the United States. Aren't
there some lessons to be learned?
Bowles: There is absolutely no reason why housing shouldn't be
privately owned. That does not mean that the government has no role
in housing. It seems to me that housing is precisely something that
ought to be a matter of private property. But we also know, from
the experience of this country, that the market itself doesn't provide
housing that the rest of the public thinks is adequate for the vast
majority of poor people in this country. Now that doesn't mean it
has to be done by government building the houses, but it certainly
does mean that something has to be done or we are going to have
the kind of homeless crisis that we have in this country and they
are getting one in Eastern Europe too.
Becker: The homeless crisis is a tiny fraction of the population
of the United States. Let's not make that a major part of the housing
problem in the United States. I am not at all convinced that there
is any evidence suggesting that the private system cannot provide
adequate housing. I think there is a good case to be made that there
are poor people in this country and the government obviously has
to help them out. We all agree on that. But should they be doing
it by building housing or by giving them income and permitting them
to spend as they see fit. I see no evidence from the U.S. or any
other country who were better off when then government takes a major
role in housing or any of these other particular activities that
Friedman: What role has been played in the difficulty of getting
housing by government interventions? By rent control? By excessive
building code regulations, many of which are designed to protect
the interests of special groups. Government played a very large
Bowles: The homeless people are homeless because they are poor
and they are out of work. They are not homeless because of rent
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
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
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
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.