Milton Friedman and World Freedom, a personal note.
By José Piñera
("The Legacy of Milton Friedman", Manhattan Institute and Wall Street Journal Conference, January 29th 2007, University Club, New York).
As a young student in Santiago, I read a book called "Capitalism and Freedom" by Milton Friedman. That book changed my life. It also helped to change my country and the world.
I recall discussing this with Milton as we rode together down Highway 101, which connects San Francisco with Silicon Valley. It was the beginning of the hi-tech boom in the middle of the 1990s. One of the young leaders of this boom, Scott Cook, founder and CEO of Intuit, heard me talk about the full privatization of the Chilean social security system at the World Economic Forum in Davos, and became convinced of the need for a similar reform in the United States. He invited me to Palo Alto to tell the story of this reform, and he gathered about a hundred friends and colleagues together to hear it.
At the request of Cato’s Presidente Ed Crane, Milton Friedman agreed to come down from his home in San Francisco to the event and introduce me. During the hour drive with Rose and Ed, we talked about what was going on in the world then, and he asked with great interest about the state of affairs in Chile. It was impossible not to be struck by the generosity and complete lack of any pretense of this great man, other than a relentless curiosity and commitment to truth.
A GLOBAL FREEDOM FIGHTER
Initially, I thought of leading you today on a tour of the many countries in the world where Friedman visited or was influential. It would have been a long tour. Because his influence was global even before globalization became a fact of life.
Even though it may sound as heresy in this event, let me quote the famous dictum of Keynes since I believe it is absolutely true: "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else".
The global free-market revolution influenced by Milton Friedman began in Chile in 1975. Then it was Thatcher in 1979 and Reagan in 1981.Then it spread further in Latin America, with valuable advances in countries such as Mexico, Colombia, andPeru. With the fall of the Berlin Wall in 1989, the collapse of the Soviet Union, and the transformation of China, free market ideas began to sweep the globe.
Leaders of the opening up of Central Europe, men like Vaclav Klaus in the Czech Republic, Yegor Gaidar in Russia, and Mart Laar in Estonia, have all acknowledged having been influenced by Friedman's ideas.
But you surely know all this. It is vividly recounted, of course, in Milton and Rose´s memoir Two Lucky People, and reaffirmed often in the editorial pages of the Wall Street Journal.
So, I prefer to focus my comments on Milton Friedman in Chileand China, two emblematic countries where he helped to advance human freedom.
As Friedman recounts in his memoirs, for decades he was subject to an orchestrated campaign at demonizing him as an alleged supporter of authoritarian rule. That campaign began when he visited Chile in 1975. There were others who, although privately, objected to his frequent visits to communist China.
Let's examine the facts and whether these actions promoted or retarded freedom, the ultimate test to evaluate them.
CHILE'S ROAD TO ECONOMIC AND POLITICAL FREEDOM
The seeds of the revolution were planted in Chile in 1956 through the so called "Chile Project", a joint educational program between the University of Chicago and the Catholic University of Chile. We young Chileans learned about the ideas of Friedman and his colleagues, not realizing at the time that it would prepare us to help our country in a time of great need.
Twenty years later, in April 1975, as Chile faced the most severe crisis in its history, a team of classical liberal economists made a "friendly takeover" of the economic policy of the military government that in 1973 had saved Chile from becoming a communist dictatorship. They called us the Chicago Boys, because we had studied at the Chicago-influenced CatholicUniversity.
At the invitation of the Chicago Boys, Friedman himself visited the country at exactly that inflection point. Among many others activities, he was asked to explain his economic views to President Pinochet and of course he did it in the principled way that was his trademark.
As a result of a program of coherent free market policies led by Chilean classical liberal economists, an economic "miracle"occurred. A historical per capita GDP growth from 1810 to 1983 of 0.9 percent annually was boosted to an impressive 4.3% per capita annual rate of growth, sustained for the last twenty years. As economist Alvaro Donoso has calculated, this means that "our grandchildren will be eight times wealthier than we are today".
Following those two "miracles" - the friendly takeover and then the boom in prosperity - came a third "miracle": the peaceful adoption of lasting democratic institutions.
There were four crucial steps in making our transition to political freedom:
1. The economic model. The most potent force behind Chile's return to democracy was the free-market economic model. This opened the country to the global economy, expanded the realm of individual liberty, and decentralized economic and social power like never before. It created a property-owning middle class that proved to be a crucial ally in the transition to a rule of law and free political elections. But as Friedman wrote, "History suggests only that capitalism is a necessary condition for political freedom. Clearly it is not a sufficient condition". So, the next three steps were crucial and motivated by the desire to have political freedom as well as economic.
2. Labor democracy. The first effective step toward democracy was taken in 1979 when a law designed by the Chicago Boys allowed workers to associate freely with the unions of their choice and to elect their leaders. At the time, a minister for former Christian Democrat President Eduardo Frei called this process "a dress rehearsal for the return to democracy and a great act of courage. It has created full labor democracy in a country which is still in a state of political emergency." (William Thayer, Qué Pasa magazine, July 24, 1980).
3. A new Constitution. The free-market economists were key members of the civilian team that achieved the approval ofChile's Constitution of 1980, and three of us signed that founding document. The document introduced a bill of rights that, to large extent, has been responsible for the continuing stability of the country. It also contained a detailed timeline for returning to democracy--a timeline that was followed strictly and culminated in free elections in 1990.
4. The institutions of liberty. Fareed Zakaria, in his book The Future of Freedom argues that nations should create certain "institutions of liberty" before calling for free elections. Without them, the result is an "illiberal democracy," such as those that have stained the history of Latin America. During Chile's transition period (1981-1990), the free-market economists achieved, among many other related advances: the establishment of private universities, the inauguration of an independent central bank, the private ownership of television stations, and the constitutional Mining Act.
As a result of all these advances, Chile is the highest ranking non-developed country in the economic and freedom indexes of the world, including ranking No 11 in the Heritage/WSJ one (see chart "Economic Freedom in Chile 1975 and 2006").
All this process was influenced by Friedman's ideas in favor of human freedom and so he should be praised for his role inChile's remarkable transition to full freedom.
CHINA'S ROAD TO ECONOMIC FREEDOM
Friedman visited China three times - in 1980, 1988, and 1993. His 1988 visit included an extended meeting with Zhao Ziyang, a key reformer and then General Secretary of the Communist Party.
During his first visit in 1980, Friedman traveled widely and gave many lectures. His main point was simple yet powerful: to develop fully, China needs to establish real, not pseudo, markets. What China needs, said Friedman, are "free private markets," and that means enforceable private property rights.
Milton repeated that message in 1988 when he participated in a joint conference arranged by the Cato Institute with FudanUniversity in Shanghai. During his visit he received an honorary doctorate from Fudan University. At the conference, Friedman captivated the audience, which included many young liberals. Indeed, Ed Crane recalls how the students and media mobbed Friedman like a rock star, peppering him endlessly with questions.
In his Shanghai lecture "Using the Market for Social Development," later published in the Cato Journal, Friedman said: "Peace and widely shared prosperity are the ultimate prizes of the worldwide use of voluntary cooperation as the major means of organizing economic activity."
He emphasized the same idea in Beijing in his discussions with Zhao on September 19, 1988, following the Cato/Fudan conference. Little did Friedman know that in less than a year, Zhao would be ousted because of his sympathy for the students in Tiananmen Square, and placed under house arrest for the remainder of his life. That Zhou was willing to meet with the world's leading free-market liberal to show his support for reform is a testimony to his courage.
Regrettably, China continues to be classified as a "non free country" by Freedom House and, in fact, one of the biggest challenges ahead is the transition to the rule of law and democracy in the most populous country in the world. Milton Friedman saw it clearly and stated last year in a recently published interview that "China has maintained political and human collectivism while gradually freeing the economic market. This has so far been very successful but is heading for a clash, since economic freedom and political collectivism are not compatible" (Wall Street Journal, January 22, 2007).
A POLITICAL PHILOSOPHER
From the above facts, we can reach a clear conclusion: principled engagement with an imperfect world is an act of moral courage and one of the most effective way of creating a better world.
Those who advocate that economists should only share their knowledge in Swiss cantons or similar quasi perfect platforms may cherish their ivory towers, but they have cut themselves off from any possibility of making a difference in the lives of the poor and unfree.
In thinking about Milton Friedman's contributions, I am reminded of Hayek's observation, made in The Constitution of Liberty, about the role of the political philosopher: "If politics is the art of the possible, political philosophy is the art of making politically possible the seemingly impossible......Unless the political philosopher is prepared to defend values which seem right to him, he will never achieve that comprehensive outline which must then be judged as a whole."
Milton Friedman was far more than a great economist. He was also a political philosopher who played a central leading role in laying out "that comprehensive outline" which is the roadmap for human liberty. This defines our task today, and our task always, as men and women striving for a better world.