It's a fascinating piece of footage - Milton Friedman, the foremost expert on capitalism and free enterprise - spelling out the virtues of Greed (or a least making a convincing argument that nobody is virtuous, capitalist or not). As a graduate of business school and a 20 year veteran of corporate America, I have a natural inclination toward his arguments. I believe, as Friedman articulated in this 1979 video excerpt, that free enterprise and democracy are the dynamic duo most effective in bringing prosperity to the masses.
But this is not 1979, this is 2009 and with the economic crisis dominating news headlines I cannot help but watch this as a retrospective. Given all that has happened in the financial markets, is greed really good? Given China’s growing economic clout, is democracy the only effective political model for prosperity? And, if Friedman could do it all over again, would he subscribe to all his original theories?
Indeed, other respected men of free enterprise have reacted to the challenges of the current economic crisis with befuddlement and shock. Recall Alan Greenspan's assessment when he took the stand at a recent Congressional session on the economy:
REP. HENRY WAXMAN (D. CA): shock. That sounds like to me you're saying that those who trusted the market to regulate itself, yourself included made a serious mistake.
ALAN GREENSPAN: Well I think that's true of some products, but not all.
REP. HENRY WAXMAN: Then where do you think you made a mistake?
ALAN GREENSPAN: I made a mistake in the presuming that the self interest of organizations specifically banks and others was such that they were best capable of protecting their own shareholders...
REP. HENRY WAXMAN: The question I have for you is, you had an ideology, you had a belief that free, competitive -- and this is your statement -- "I do have an ideology. My judgment is that free, competitive markets are by far the unrivaled way to organize economies. We've tried regulation. None meaningfully worked." That was your quote.
You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now our whole economy is paying its price.
Do you feel that your ideology pushed you to make decisions that you wish you had not made?
ALAN GREENSPAN: Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to -- to exist, you need an ideology. The question is whether it is accurate or not.
And what I'm saying to you is, yes, I found a flaw. I don't know how significant or permanent it is, but I've been very distressed by that fact.
REP. HENRY WAXMAN: You found a flaw in the reality...
ALAN GREENSPAN: Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
REP. HENRY WAXMAN: In other words, you found that your view of the world, your ideology, was not right, it was not working?
ALAN GREENSPAN: That is -- precisely. No, that's precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
There was more to the session, and then another session, but suffice it to say, it was not a good day at the office for Alan Greenspan!
And so, one might wonder, if Greenspan, the most respected capitalist in living America, a man who has a well documented history of support for deregulation and free market economies, can admit to finding a “flaw”, what would Friedman, himself, have said?
Short of getting an Ouiji board out or conducting a Nancy Reagan style séance, I cannot bring the man back to tell me, but I will take a B. Comm (that’s Bachelor of Commerce, not Brothers of Communism – just so you know where I stand…) stab at what he might say.
First - China. That one’s simple. I think he’d say that the success of China is not a validation of communism and socialist policies, but rather it is a validation of the free enterprise model. China could only secure economic successful when it started to open opportunities and resources to its people and to the world. And I think he would add, that now China has merged onto the free enterprise highway, it cannot make a sudden u-turn back. Once it has entered the free market economy, to continue to gain scale and maintain or increase marketshare in an expanding marketplace, it must continue to grow. And if it is to continue to grow it must open its doors even wider. Indeed, we can already see China adopting more of these “open door” policies - more free speech, more entrepreneurialism, more innovation. I don’t know if I will live to see a communist-free China but certainly today, this country has proven that more free enterprise does beget more freedom.
On the economy, well, that's a tougher one. I think he'd maintain that an economy that supports individuals pursuing their self interests is still the best approach for mass prosperity. I think Friedman would have said the primary reason for the economic collapse is that corporations have become too big and too powerful. While some critics of the financial crisis have said this collapse is an “indictment on the ideology of capitalism”, I believe he would have proposed that it was an indictment on the ideology of large corporations. Once corporations become too large, they begin to influence government and they begin to control regulation, which enables them to control the marketplace which, in turn, enables them to exert control on the individuals in that marketplace. Friedman would have argued for more fragmentation in financial services, less centralization and amalgamation of corporations to ensure diffusion of influence, control and risk.
On regulation – we all know he was never a supporter of regulation. He believed that once government erected regulation to protect the consumer, the corporation would have a much stronger interest in controlling government than the individual who was diffuse in the situation (because he had many other things to worry about). The result would be the creation of powerful corporate lobby groups, influencing the government to the detriment of the individual (and guess what they would lobby for – deregulation!). But it is 2009, the economy has failed us, and I think he would have had to concede that some (he would never sign up for “complete”) regulation could have helped prevent this disaster, or at least allowed it to be caught much earlier.
To close, I found the end of the video to be an ironic harbinger of things to come – here Friedman is asking Donahue, “who are these angels that will organize society for us?” In 2009 those virtuous angels are the everyday taxpayers coming to the aid of corporations that became too big and too greedy for their own good.
Oh - and for your added enjoyment, a couple of great cartoons by Bob Lang.
