dealing with friedman (1)

What do libertarians (or liberals in a Friedman kind of sense) have to say about social objections related to capitalism, such as racial discrimination or poverty? Milton Friedman deeply believes that a true free market would be able to cope with those objections – for they have their roots in state interference.

Seeing human beings as economic units without characteristics such as color of skin or religion, Friedman argues for the rules of the market to let inequalities disappear. State intervention in form of “pro-integration” or “right-to-work” programs implemented by orders from above do actually harm to minorities – and not just to them but to the whole population. The undermining of the main concern of the free market – the “freedom of individuals to enter into voluntary contracts with one another” (Friedman) – is in large parts not acceptable for Friedman. His normative approach is comprehensible, maybe even essential for his purposes. Friedman plots a perfect capitalist system created by people who understand and appreciate this system. He assumes vital participation, everyone seeing himself as an “economic rational choice actor”. So it is understandable that he assumes that the poor lower class family in a bad neighbourhood has access to (or is willing to access) the information needed in order to understand why privatized schools are better than nationalized ones and how they have to act to share in the advantages. Once people would share Friedman´s views, the “invisible hand” could take care of social and cultural issues as well.

Adam Przeworski cites Stiglitz saying: “Adam Smith´s invisible hand may be more like the Emperor´s new clothes: invisible because it is not there.”

And Przeworski also points out that the neo-liberal promotion of the free market is nothing but “a mixture of evidence, argument from first principles, self-interest, and wishful thinking”. Partly because a “complete set of markets is unfeasible” and “information is inevitably imperfect.” Again, Friedman´s perception reflects a normative rather then a descriptive point of view of the free market. Friedman would not disagree that the present system is far from being “perfect” but he calls for the state to beat a hasty retreat.

For Przeworski it is by no means clear that the reduction of state influence automatically leads to a situation that is more desirable. Even though he admits that there are problems of institutional design he would rather rearrange them than to shut them down. Adapted to the role of government in education it would mean that governmental institutions should not be released from coordinating funds just because the liberal point of view does not guarantee improvement. So if Friedman says that the liberalization of the education sector would elevate school standards because more competition leads to more choices and furthermore to a more just allocation of opportunities, Przeworski could jump in and say: Wait, there is evidence that the drawback of the state leads to unemployment, to a decline in the real income and to more people living below the poverty line. Besides that we know that “complete information” is not available so it is more likely to get a system where people, who today depend on governmental subsidy to be able to attend university, would be in no position to join any university. Furthermore it would not do any good to the reduction of social problems such as discrimination.

It is a struggle between two big schools of thought and both have their virtues. And even though neo-liberalism has its roots, among others, in Friedman, there is still a lot of potential when it comes to the implementation of his ideas.

Milton Friedman: "Capitalism and Freedom". The University of Chicago Press. 2002. (first published 1962).

Adam Przeworski: "The Neoliberal Fallacy" in Diamond and Plattner's "Capitalism, Socialism and Democracy Revisited". The John Hopkins University Press. 1993.