I lived in Great Britain between 1986 and 1994, where I studied Economics and then Communication Policy. I was there during the height and then the decline of the [tag]Thatcher[/tag] era. I would think that it would be impossible to be studying Economics, understanding sociology and living in Thatcher’s Britain and not be influenced by [tag]Milton Friedman[/tag]

Friedman turned the attention of policy makers from complex calculations involving various macro economic indicators – to the most simple point of control in the economy – the consumer. He advocated putting choice back in the hands of you and me and reccommended that all barriers to our decicion making be dismantled – this included taxation, government regulations, and social restrictions – leaving us free to make our choice out of our own free will.

His conviction that:

Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property.

is an idea that transformed economies. I have personally seen it in action both in Britain and in India. The freeing up of credit, the lowering and rationalising of taxation, privatisation, the decrease in regulation, the rise of entreprenuership, the increase in choice & consumption and the growth in home ownership are probably the most visible aspects of the broad application of the monetarist policy.

Have I benefited through the broad application of Friedman’s thoughts to economic policies? The answer is a resounding yes. Has society as a whole benefited – the jury is still out on that. My personal view is that monetarist policies gave a great impetus to talent across the board. But, the gradual dismantling of safety nets in both the petri dishes of monetarism – Thatcherite UK and Reagan’s USA – have let too many in society slip through the cracks. My problem with the various applications of the monetarist tradition is not so much the disdain of the state (which I share), but a disregard for society. I remember Thatcher famously debunked society by claiming :

“There’s no such thing as society. There are individual men and women and there are families.”.

And much of the policies followed suit. The same was the issue with the US. And, today 20 years later, much of the problems that face both economies derive from the kind of policies adopted by the governments. While, Friedman was not an apologist for big business, primarily because he saw a lot of businesses act and influence policy in a manner that was against their long term self interest, those who adapted his theory into policy failed to see that.Consecutive administrations – in different parts of the world – that have paid tribute to his influence have essentially ended up dismantling inefficient government monopolies and replacing it with inefficient private monopoly. The freedom of choice that Friedman demanded for the consumer – remained a mirage in many cases.

Also both with Thatcher and Reagan, and the inheritors of their legacy – the disengagement within society was accompanied by an involvement in other societies – war and escalation of tensions. And, somehow war has a nasty habit of distorting economic results. It’s such a huge external factor in terms of Government spend, and brings money to various parts of the economy and tends to stimulate the economy as a whole. And both nations that adopted strongly monetarist policies to deal with their internal economy, ended up using a healthy bout of Keynesian Government spend in war involvements. So how much of the prosperity and growth in the UK and the US was due to unclogging bureaucracy and restrictions, and how much of it can be attributed to the good old war economy is something that both sides would fight till the cows come home.

The other genuine problem that I had with the tradition was how it saw economic freedom to be a pre requisite for political freedom – and seemingly condoned repressive dictatorships so long as they practised free market policies. And that is primarily because I believe that a stable and growing economy requires a stable society. Political repression leads to social instability, which in turn will cause economic uncertainty. Economic freedom, political freedom a sensible approach to social welfare/responsibility need to go hand in hand for creation of overall conditions that are conducive to citizens, business and consumers in the long run.

Despite this, Friedman’s vision of a free and unfettered economy formed the basis of many of the things that we take for granted today. The ability of consumers to take various providers to task, the n number of cell phone providers, the cost of calls dropping at an accelerating rates, variety in airlines, a choice of financial instruments, the ability to start a business, the facility to buy a home, the right to choose between many. But above all the legacy that he leaves for an ordinary person –is the ability to dream of achievement – and achieve it –without being strangulated by regulations.

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6 thoughts on “Milton Friedman – RIP

  1. Thanks for a superb summation of MF, and above all for Maggie’s quote. I wonder if the fact that his ideas were used by the exponents of monopoly capitalism and economic/ political dictators or it was the logical culmination of his theories.

    I am inclined to think it was the latter.

  2. thank you
    i think a bit of both.
    for me one of the greatest contradictions of those who supported the theory is the speed at which they spoke out for economic freedom, and made apologies for lack of political freedom. The case in point being apartheid – it was so huge when i was a student. And i remember thatcherite monetarists going on and on about how sanctions were wrong, and that the free market will get rid of apartheid. till today i haven’t figured that one out 🙂

  3. ‘So how much of the prosperity and growth in the UK and the US was due to unclogging bureaucracy and restrictions, and how much of it can be attributed to the good old war economy is something that both sides would fight till the cows come home.’

    as far as i remember there were no large wars during the reaganite years..in which the u.s. had participated. thatcher worked up a lot of hysteria on the falklands but that was hardly a war..
    military spending in the u.s had actually taken a steep dive from 7% (of gdp) in the 80s to around 3.5 in the 90s and around 4.5 % now..so what war spending are we talking about? a new theory is currently gaining ground that large military spending is no longer necessary to fuel growth… perhaps you’re being a little harsh on friedman acolytes? and unjust to the genuine achievements of the economies you refer to? an excellent overview.. best i’ve read in the indian blogworld..

    bhupinder,
    what other economic/political dictators can one think of apart from chile and pinochet?

  4. Reagan and Thatcher both believed in Deterrence as opposed to detante. And deterence cost money. whether it was accounted for under a NATO head or a space research head (SDI) or a social development head (latin america),or even a reconstruction head (as in modern day Iraq), i really wouldn’t know. But monies were spent. And this did not involve the active involvement in Afghanistan, Lebanon, and half of the middle east. It does not even involve iraq 1 – which i think was subsidised by Saudi Arabia and Kuwait.

    I am really surprised to read that % spent on defence has declined in the US – the absolutes are huge. maybe they are accounting for it more creatively or that the GDP of the country has gone up so much that the defence spend seems low. but, in absolute terms its still quite high. The only blips were in the ‘balance the books’ clinton era.

    Also,the fact remains that all spending impacts growth – be it yours and mine or the defence industry.

    i am probably being harsh on both Thatcher and Reagan – i honestly believe that history will treat them harsher than contemporary politics has.

    Thank you for you kind words.

  5. first time on ur blog thru charu’s blog….vow…luved reading ur articles

    I am not a economist, a chartered accountant but like to read on economy generally

    A question which has been my mind for a long time is that why government organisation even those who are in business tends to be inefficient compared to private organisation

  6. Kuffir, I think I missed the question addressed to me here.

    Other countries: I can’t think of any other major country offhand. China, perhaps, in some ways comes closest.

    The US, too, with all its pretensions of being a democracy is a very restrictive country, whose political spectrum consists of just 2 political parties (the others don’t really have a major say)- one is at best a center- right party and the other is conservative, right wing.

    As William Greider points out in The Nation, the market being able to self- regulate is a flawed idea.

    Free markets are not really free, as the Indian development economist Sukhomay Chakravarty pointed out.

    What seems to have been borne out from the experience of the second half of the 20th century is that power of the state has been necessary to establish “free- markets”. This may not necessarily be a dictatorship. I think Chile is an extreme case- perhaps the logic of Friedman’s ideas reaching a logical culmination.

    The worse thing was that Friedman was happy to support a regime that implemented his ideas, overlooking the brutality of Pinochet’s regime.

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