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Free To Choose 1980 - Vol. 02 The Tyranny of Control - Full Video — Transcript

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0:01Hello, I'm Robert McKenzie.
0:02Last week in this series,
0:04Milton Friedman, the distinguished economist
0:05took us to Hong Kong to see a
0:07free market system in which he had a
0:09great deal of confidence and faith.
0:11This week he takes us traveling again
0:13to India, Japan, and to Europe…to see
0:15what happens in his view when
0:17governments decide they can plan and
0:19control the economic activities
0:21of their peoples.
0:22And after the film, we return here to the
0:24Harper Library at the University of Chicago
0:26to discuss and to debate the
0:28ideas of Milton Friedman.
0:32(opening music)
1:02(birds singing, woman cutting rice plants)
1:09It is harvest time and Japanese
1:11farmers gather their crops for
1:12the rice market in Kyoto.
1:16Of course, they will try to get as much
1:18for it as possible and the buyers will
1:20try to buy it as cheaply as possible.
1:22That is how markets are supposed to work.
1:24That is what Adam Smith,
1:26the Scotsman who turned economics into
1:28a modern science, observed 200 years ago.
1:33He observed something else, too.
1:35“In every country it is always and
1:38must be in the interest of the great body
1:40of people to buy whatever they want
1:43of those who sell it cheapest.
1:46The proposition is so very manifest
1:48that it seems ridiculous to take any
1:51pains to prove it.
1:53Nor could it ever have been called
1:54in question had not the interested sophistry
1:57of merchants and manufacturers
2:00confounded the common sense of mankind.
2:03Their interest is, in this respect,
2:06directly opposite to that of
2:07the great body of people.”
2:12Adam Smith's flash of genius was to see
2:15how prices that emerged in the market,
2:17the prices of goods, the wages of labor,
2:19the cost of transport, could coordinate
2:23the activities of millions of independent
2:25people, strangers to one another,
2:26without anybody telling them what to do.
2:34His key idea was that self-interest could
2:37produce an orderly society benefiting
2:39everybody. It was as though there
2:44were an invisible hand at work.
2:46The “invisible hand” is a phrase that was
2:48introduced by Adam Smith in his great book,
2:51The Wealth Of Nations, in which he talked
2:55about the way in which individuals,
2:58who intended only to pursue their own
3:00interests, were led by an invisible hand
3:02to promote the public welfare, which was
3:05no part of their intention.
3:07He was talking about the economic market,
3:10about the market in which people buy and
3:12sell, and he was pointing out that in order
3:15for a butcher, or a baker
3:17or a candlestick maker
3:18to make an income, he had to produce
3:20something that somebody wanted to buy.
3:22Therefore, in the process of promoting
3:24his own interests and looking to
3:25his own profit, he ended up serving
3:28the interests of his customers.
3:33When Adam Smith published
3:34The Wealth Of Nations,
3:36Britain was still a largely rural
3:37and placid place. But the Industrial
3:40Revolution was already getting started,
3:42and standards of life were beginning to rise.
3:50One obstacle was that trade with other
3:52nations was still tightly controlled.
3:54Merchants in the home market had
3:56persuaded the government of the day
3:58to impose heavy duties and taxes on
4:00all foreign imports, in order to insure
4:03themselves a protected market.
4:07(sound of waves)
4:11One of the results was to turn Britain into
4:13a nation of lawbreakers. Smuggling was
4:15a national pastime: brandy, wines, tobacco,
4:19anything with a heavy customs duty on it.
4:21For years, the revenue men fought
4:24a losing battle along the shores
4:26and inlets of the British Isles.
4:30In 1846, after years of argument and
4:33partial success, the followers of Adam Smith
4:36finally persuaded the British Parliament
4:38to remove all duties on goods imported
4:41from abroad. Britain embarked on
4:43complete free trade, giving a further push
4:46to the rising standard of life.
4:49What happened in Britain as a consequence
4:51of releasing the tremendous force of
4:53self-interest had the unintended effect
4:55of benefiting millions of people all
4:57over the world, and by 1851 the evidence
5:01was proudly on show at the great
5:03Crystal Palace Exhibition.
5:07(steam engine sounds)
5:13Free trade enabled Britain to become the
5:15work place of the world.
5:19(city sounds, horses, trains, whistle)
5:31But was it all an accident?
5:33I don't think it was.
5:34Consider what happened in 1868 on
5:37the other side of the world, in Japan.
5:42(gong sound, Oriental music)
5:44For the preceding 300 years, the Japanese
5:47had lived in almost complete isolation.
5:49They had discouraged visitors from other
5:51nations, especially from the West.
5:55The result was that by the standards of the
5:58West, Japan was backward.
6:04It was a feudal society with lords and serfs,
6:07and woe betide anyone who tried to
6:09change the order of things.
6:17Women were third-class citizens.
6:20In 1868, a new generation of rulers decided
6:23that the time had come for Japan to make
6:26contact with the outside world.
6:28And with the arrival of the first
6:30foreign traders from the West,
6:31things began to change.
6:33The Japanese followed the British trading
6:35pattern because Britain was the leading
6:37nation of the world.
6:43So free trade came to Japan.
6:47Japan became a magnet for other people's
6:49ideas and developments.
6:54One of the first traditional industries to
6:56feel the effects was weaving. From Europe,
6:58the Japanese imported the jacquard method,
7:01a way of programming a loom to
7:04control the accuracy of the weave,
7:05and so, to standardize output.
7:09Workers did well in the new atmosphere,
7:11and so did their employers.
7:15(sounds of loom working)
7:25The adoption of mass production techniques
7:27meant that workers were able to move
7:29out of the traditional industries and
7:31into the new industries, which all added
7:34to the trade boom.
7:41None of us can help being affected by the
7:44intellectual atmosphere that we breathe.
7:46In the middle of the 19th century, when
7:48Japan ended her self-imposed isolation and
7:51entered the modern age, it never occurred
7:55to her leaders to follow any other course
7:57than that of free enterprise
7:58and free markets.
8:00That was the intellectual atmosphere of the
8:02time, created by Britain's success in
8:05applying the principles of Adam Smith.
8:08In 1948, when India achieved independence,
8:13her leaders had all been trained in Great
8:15Britain. They had sat at the feet of Harold
8:19Laski and his associates at the London
8:21School of Economics, or of their
8:22counterparts at Oxford and Cambridge.
8:25It never occurred to them to follow any
8:27other course than that of central planning
8:30and government control. That was the
8:32intellectual atmosphere of the time.
8:38And the intellectual seed took root.
8:41As it grew, it needed to be honored,
8:43even worshiped.
8:45Every year on the anniversary of Gandhi's
8:47birth, people all over India do just that:
8:50in homage to the great Mahatma, they sit
8:53and spin using methods handed down
8:55through the centuries.
8:59But it is more than just a
9:00symbol of honoring the past.
9:02It typifies the policy that
9:04they are actually following.
9:09The new government in 1948 decided that
9:12India's traditional weaving industry and its
9:15workers should be protected from 20th
9:17century industrialization.
9:20What were the consequences of that policy?
9:27This is India today, 30 years after winning
9:31independence. These are scenes of a very
9:34typical Indian community, one of thousands.
9:37It is called Anakaputhur, and it is
9:40about a thousand miles south of the
9:42capital, New Delhi.
9:51This is not the kind of life the government
9:53intended to perpetuate,
9:55but it is one result of their policy.
9:58By subsidizing the cotton that the
9:59villagers spin and the cloth that
10:02they weave, they made it difficult for
10:03modern industry to develop.
10:08(village sounds, vendor selling wares)
10:22This is sizing. It's an essential technique
10:24in cloth production where the yarn is
10:27smoothed clean.
10:30(people working, talking)
10:36A modern machine could do the same thing
10:38in a hundredth of the time.
10:42The result of government planning to
10:44modernize industry, is that the number of
10:46handlooms roughly doubled in the first
10:4830 years after India's independence.
10:51Today, in thousands of villages
10:53throughout India, the sound of
10:55handlooms can be heard from early in
10:57the morning until late at night.
10:59In this village alone, there are more
11:02than 3,000 handlooms in operation.
11:08Since 1948, three generations of villagers
11:11have sat at these looms, making cloth with
11:14patterns that never vary, using methods
11:17that never change.
11:22There is nothing wrong with this activity,
11:25provided it survives the test of the market,
11:27provided it is the way in which these
11:29people can use their abilities and
11:31their energies most effectively.
11:33After all, in Japan, where the government
11:35has not specially encouraged the handloom
11:38industry, there remains a very small,
11:40but very productive, handloom segment.
11:44The trouble here is that this industry
11:47exists only because the government
11:49has subsidized it, supported it; because
11:52it has, in effect, imposed taxes, direct
11:55and indirect, on the rest of the people
11:57of India, people who are no better off
11:59than these people are, in order to enable
12:02this activity to continue.
12:05Other industries, both textile industries and
12:08industries of a variety of kinds, have been
12:10restricted, explicitly kept back,
12:12prevented from providing
12:14more productive employment,
12:15in order to make room for this industry.
12:19The effect has been to inhibit the
12:21development, to prevent the growth,
12:23to prevent the dynamic activity that could
12:26otherwise develop out of the energies and
12:28the abilities of the people of India.
12:31(hand looms operating)
12:38This looks like a factory, but it is also
12:40home for the people who work here.
12:43When they are not sitting at their looms,
12:44they eat and sleep in a corner of this hut.
12:56Throughout the world, governments always
12:59profess to be forward-looking. In practice,
13:03they are always backward-looking, either
13:05protecting the industries that exist,
13:09or making sure that whatever ventures
13:11they have decided to undertake are
13:13encouraged and developed.
13:16This occurs at the expense of the kind of
13:19healthy development of new, dynamic,
13:23adaptive industries that would surely occur
13:26if the market were allowed to operate freely;
13:29if it were allowed to separate out the
13:32unsuccessful ventures from the successful
13:34ones, discouraging the unsuccessful
13:37and encouraging the successful.
13:44India has tremendous economic and human
13:46potential, every bit as much as Japan had
13:49a century ago.
13:52The human tragedy is that in India,
13:55that potential has been stifled by
13:57the straightjacket imposed by an all-wise
14:00and paternalistic government.
14:05Central planning, in practice, has condemned
14:08India's masses to poverty and misery.
14:14(people walking, street sounds)
14:23We know what has happened in Japan;
14:25free trade set off a process that
14:27revolutionized Japan and
14:29the lives of its people.
14:31Improvements in material well-being went
14:33hand-in-hand with the elimination of the
14:35rigid social structure of a century ago.
14:38It's no accident. As always, economic
14:41freedom promotes human freedom.
14:45And in the meantime, what has happened
14:47to the Japanese weaving industry?
14:55This is how textiles start life in a Japanese
14:58weaving shed today. A design for cloth is
15:01placed on a drum.
15:03As it revolves, it is scanned by
15:05an electric eye. Each color, each variation in
15:09the pattern and texture, is transmitted
15:11faithfully to a computer.
15:13(mechanical loom operating)
15:18It's all that the modern
15:20loom of Japan requires.
15:29This loom is fitted with electronics that
15:32make it one of the most sophisticated of
15:33its sort in the world. The fabric that it
15:36produces is the best silk of its kind.
15:40Thanks to the speed and efficiency of these
15:42machines, the price of the silk is competitive.
15:47The workers are highly skilled and well-paid.
15:50With the new technology, there is very little
15:52a loom like this cannot produce.
15:56This piece will become the sash
15:58of a traditional bridal gown.
16:08These are machine-made products, but by
16:10any standards, they are beautiful. They can
16:13stand comparison with the very finest work
16:15of the handloom. And it's not merely the
16:18end product itself that is remarkable.
16:22The sophisticated technology which was
16:23developed to make all of this possible,
16:25has been adapted to other processes,
16:27part of the self-generating development
16:29under free enterprise, and it all stems from
16:32an ancient, traditional industry, weaving,
16:35that imported a new method for controlling
16:38its looms when Japan turned to
16:39free trade more than a century ago.
16:45Yet believe it or not, many still maintain
16:48today that markets cannot be left to
16:50operate freely, that they must be controlled
16:53by government. This dockside is in Scotland.
16:56A British government, a socialist
16:58government, decided that its role was to
17:00protect the workers here from competition.
17:06So down there in governed shipyards,
17:07they are building these vessels for the
17:09Polish government. To get the order,
17:14the British government is using the
17:15money of British taxpayers to subsidize
17:17the work. In other words, British people
17:21are making these ships in order to
17:24sell them at a loss to the Poles.
17:27(heavy machinery sounds)
17:30Not only the Poles, but also we in America
17:33benefit from this kind of philanthropy.
17:39The steel industry in the United States makes
17:41a fine product. Other countries do, too.
17:44And their steel is often cheaper, sometimes
17:47because their taxpayers subsidize it.
17:49So why shouldn't the American
17:51consumer buy steel wherever he can
17:53get it cheapest -- at home or abroad?
17:56The American steel industry works
17:58very hard trying to persuade us
18:00that it's not in our self-interest
18:02to buy in the cheapest market.
18:05They urge the government to restrict
18:07what they call unfair competition,
18:09though, of course, they recognize
18:11that there are dangers in this.
18:13The dilemma of asking our government
18:15for assistance in this problem of unfair
18:19competition bothers many of us,
18:22because the sword does cut both ways.
18:25But we believe that what we have attempted
18:28to do is far different than the kinds of
18:32direct government involvement that occur
18:34in many of the foreign nations around
18:36the world, where the governments provide
18:38direct financial assistance in the
18:41form of either ownership or loans or
18:43subsidies in some fashion or another.
18:46What we have attempted to do is
18:48simply to get our government to
18:50enforce the United States laws against
18:53unfair competition that have been
18:55on the United States' books. We draw clear
18:59distinction between that and, for example,
19:02the several hundred-million dollars that the
19:06French government has granted to the
19:07French steel companies, or that the British
19:11Steel Corporation has received $1.3 billion
19:13for capital investment this year.
19:15So that while we are uneasy in any way
19:20interfacing with our government in what
19:22we traditionally believe are the free
19:25enterprise prerogatives, yet what we
19:29are only asking for is that the
19:31government enforce the laws
19:33that our congress has passed.
19:35I'm not sure that's really any different
19:37than asking someone to arrest someone
19:40that commits a crime. I don't think we
19:43would be accused of being reactionary if we
19:48reported somebody who was stealing to the
19:52police if it were in violation of a U.S. law.
19:55We think that we're doing exactly the same
19:57thing when we bring cases against foreign
20:01producers who we believe are
20:03violating U.S. laws.
20:11The fallacy with that argument is that it
20:13begs the real question. Why should there
20:16be laws that in effect prevent you and
20:18me from buying in the cheapest market?
20:23When anyone complains about unfair
20:25competition, consumers beware.
20:28That is really a cry for special privilege
20:32always at the expense of the consumer.
20:35What we needed in this country is free
20:39competition. As consumers buying in an
20:42international market, the more unfair
20:45the competition the better.
20:46That means lower prices and better
20:48quality for us. If foreign governments
20:51want to use their taxpayers’ money to
20:54sell people in the United States goods
20:56below cost, why should we complain?
20:59Their own taxpayers will complain soon
21:00enough, and it will not last for very long.
21:04History provides lots of evidence on what
21:07happens when government-protected
21:10industries compete with industries who have
21:13to operate in an open and free market. It's
21:15almost always the government-protected
21:18industries that come out second best.
21:20Ask Sir Freddy Laker, the Englishman who
21:23introduced low cost air traffic across the
21:26Atlantic. Who were his chief competitors?
21:29They were all government-protected,
21:32government-financed,
21:34government-regulated airlines.
21:37He came out very well, made a mint of
21:40money. And you and I have gotten
21:42cheaper travel across the Atlantic.
21:45Nothing would promote the long run health
21:48of the steel industry, make it into a more
21:50efficient, profitable and productive industry,
21:53than for the U.S. government to keep its
21:56hands off, neither providing special
21:59privileges, nor imposing special restraints.
22:02And what is true for the steel industry is true
22:05for every other industry in the country.
22:13These women work in an industry that
22:15so far hasn't asked for special protection --
22:17the silicon chip industry. Every one of these
22:19small squares on this disk is a highly
22:21complicated and integrated microcircuit.
22:27An American technician examines
22:29them for defects.
22:31It is highly skilled work, and she's had a lot
22:33of training. When she has done her job,
22:36the rejects will be separated from the rest,
22:39and the good circuits will be packed up and
22:42sent halfway around the world to Malaysia.
22:48The product of American technological
22:50skills returns looking like this. Each
22:53microcircuit has been enclosed in ceramic by
22:56a Malaysian worker who is highly
22:57productive at this sort of work.
23:00But the Malaysians are not able to test their
23:01products, so back they come here to
23:04America to be fed into these machines.
23:09American engineers are good at producing
23:11sophisticated machines. In an operation
23:14that lasts a fraction of a second, these
23:17machines can test every circuit, can grade it
23:19for quality, and then can sort it into one of
23:22six different categories of reliability.
23:26The invisible hand in this free market has
23:28done wonders for both the American girls
23:30and their Malaysian counterparts. And that's
23:36not the end yet, because American silicon
23:38chips are exported to many countries where
23:41foreign workers assemble them.
23:43The final product is then returned to our
23:45stores so that you and I, the consumers,
23:48can benefit from $10.00 calculators,
23:50as well as from a lot of other
23:53electronic devices that not
23:55long ago simply did not exist.
24:04When this Hi-Fi equipment first came on the
24:06market, only the rich could afford it.
24:10(classical music playing on stereo)
24:35(man speaking on phone)
24:40But even when the international market
24:42in labor is seen to work to everyone's
24:43advantage, people still put up arguments
24:46against it. The usual argument against
24:50complete free trade is that cheap labor from
24:53abroad will take jobs away from
24:55workers at home.
24:56Well...what is cheap?
24:58A Japanese worker is paid in yen;
25:00an American worker is paid in dollars.
25:02How do we compare the yen with the dollar?
25:04We need some way of transforming the
25:06one into the other. That is where the
25:08exchange rate enters in --
25:10the price of yen in terms of the dollar.
25:13Suppose, at some exchange rate,
25:16Japanese goods are in general cheaper than
25:19American goods. Then we will be buying
25:21much from Japan and selling little to them.
25:24But what will the Japanese do with the
25:26extra dollars they earn?
25:27They don't want to buy American goods.
25:30By assumption, those are all dear.
25:32They want to buy Japanese goods.
25:34But to buy Japanese goods, they need yen.
25:36Calls will come in from all over the world to
25:39places like this, offering to buy
25:42yen for dollars. But there will be
25:44more offers to buy yen than to sell yen.
25:47In order to get customers, those offering to
25:50buy will have to raise the price. The price of
25:53yen in terms of dollars will go up.
25:55As you remember, that is what happened in
25:571977 and 1978. By late 1978, it took 50%
26:02more dollars to buy a given amount of yen
26:04than it had taken a year earlier.
26:06But what happens when the price of
26:10yen in terms of dollars goes up?
26:13Japanese labor is no longer so cheap.
26:15Japanese goods are no longer so attractive
26:17to American consumers. On the other hand,
26:19American labor is no longer so
26:22dear to Japanese.
26:23American goods are more attractive
26:25to the Japanese. We will export more
26:28to them. We will import less from them.
26:31New jobs will be created in export industries
26:34to replace any jobs that might have been
26:36lost in industries competing with imports.
26:39That is how a free market and foreign
26:42exchange balances trade around the world
26:44when it is permitted to operate.
26:52The problem is that more often than not,
26:54a free market is not permitted to operate.
26:57For reasons that seem to make sense if you
26:59don't examine them carefully,
27:00governments insist on interfering.
27:03But when they do, it's not possible to hide
27:05the harmful effects for very long.
27:09The main reason why the Japanese yen went
27:12up so sharply in price in 1977 and 1978,
27:17was because the Japanese government had
27:19been trying to prevent the yen from going
27:22up in price. In the process, what might have
27:25been small disturbances were allowed to
27:27accumulate into a major gap in trade.
27:32As a result, when market forces finally were
27:35permitted to operate, as sooner or later they
27:37must be, it took a major change in the yen
27:41exchange rate to bring things back into line.
27:45Why don't governments learn?
27:47Because governments never learn,
27:49only people learn, and the people who
27:52learn today may not be the people in
27:55charge of economic policy tomorrow.
27:58As you contemplate this, you may come
28:00to agree with me that what we need are
28:04Constitutional restraints on the power of
28:07government to interfere with free markets
28:09in foreign exchange, in foreign trade,
28:12in many other aspects of our lives.
28:17(music)
28:20Now, here in Chicago, the special guests who
28:22have been watching that film have their say.
28:24This film has set me on edge.
28:27There is political, social, ethical
28:31considerations, which do not reflect,
28:33in the economic philosophy put out.
28:37There is a pervading feeling in this that
28:41the individual worker is to be totally
28:43sacrificed for the overall good of society.
28:46I see -- I don't see how possibly you can
28:48sacrifice individuals for overall good of
28:51society because society is nothing but
28:53those millions and millions of individuals,
28:55put together.
28:56And nowhere is there any
28:58consideration given to the
28:59social and the ethical aspects of the
29:01free trade formula that you advocate.
29:04Let's get other views now, around the group.
29:06What's your reaction, Don Rumsfeld,
29:08as a businessman, to the idea that Milton
29:10Friedman's advanced, that America ought to
29:12buy in the cheapest markets, the cheapest
29:14goods, without protecting against them?
29:17I swore I would never even try to defend
29:19Milton Friedman. And I won't. But let me
29:23comment, first, on Dick's comment.
29:26It bothers me to hear social and moral
29:32arguments invoked in an issue like this,
29:35because it seems to me the measure is
29:37what actually happens to human beings.
29:39Each individual ought to be concerned
29:41about humanity. For a single individual
29:43who is unemployed,
29:44that's a hundred percent unemployment.
29:46FRIEDMAN: (Absolutely.)
29:46And we recognize that. I recognize that.
29:48But the real world is, if you, as the film did,
29:52go to India, if you want to see things that
29:55one can describe as inhumane, and poverty,
29:58and problems of human beings, they exist.
30:01And the test ought to be: What works?
30:02What, in fact, will provide a circumstance
30:05that will be more dynamic,
30:07and more productive in the world?
30:09It is true that in the long run
30:10we would all be better off
30:11with free trade. I agree with Milton.
30:13But it's the short run that matters,
30:15and in the short run there are serious
30:17adjustment problems. Now there's no
30:19question that the developing countries need
30:21access to markets such as
30:24American markets.
30:25And America needs them to export so that
30:29they can export more to developing
30:30countries. American exports to developing
30:33countries have moved from something like
30:35twenty percent of total exports to thirty
30:37percent over the last ten years.
30:39But the adjustment is important,
30:42because what is happening at present is that
30:45it's not just a random group of workers that
30:48is affected by this trade, it's the most
30:50disadvantaged and underprivileged workers
30:53in America which are being affected,
30:56and they are, by and large, women, and
30:59members of minorities;
31:01in garments, in electronics. And I think that
31:04the adjustment consists of action on both
31:07the developing and
31:08the developed countrysides.
31:09From the -- let's take the American side.
31:11On the American side, the unions and
31:14industry, I think, have to get off discussion
31:16about moral issues and get their act in order.
31:19I couldn't agree more with Helen.
31:21I think there is a very valid income
31:23distributional problem involved here.
31:26Certainly society gets better off, consumers
31:29get better off as a result of cheaper imports,
31:32and I'm all for that, and there I agree
31:33completely with Milton.
31:34But if the incidence of the adjustment falls
31:38on disadvantaged groups, then you would
31:40want to do something about it, if this really
31:42becomes an ethical issue.
31:44But the other thing, which I think Milton
31:45does bring up, which I disagree sharply with,
31:47is: Suppose the foreign governments do
31:49subsidize and actively promote exports to
31:53you. Should you just sit back and just say,
31:55"Well, we're going to be better off as
31:58a result of this."
31:59I don't think that takes into account
32:01the fact of the whole international system
32:03can break down as a result of what
32:06people perceive in pluralist economies
32:08as unfair competition emerging.
32:11And I think this is really what you're
32:12beginning to see. So we do need some
32:14sanctions. I mean, I may receive
32:15stolen property, and I'm better off.
32:17Of course I'm better off.
32:19But if, as a result of this, I encourage theft,
32:21I think few people would agree that was
32:24something one didn’t want to worry about.
32:26Before I call in Milton Friedman on this,
32:27a reaction to the comments?
32:29Yes. Really to Don and to Helen.
32:31Don, you choose to set aside, or you
32:34appear to choose to set aside the social
32:36and the ethical considerations. And -
32:40Not at all, what I said was:
32:41You have to put the fact on a scale,
32:43that there are social and ethical
32:44considerations with a free market or without
32:47one. And the tendency is for people to
32:50invoke morality only on their side,
32:53and not to recognize that there are problems
32:55of human being in this world that are
32:58going to occur in each case.
32:59And the measure, or the test ought to be:
33:01What actually happens out there?
33:03And address that question.
33:05But you must, you must also very much
33:07consider the social aspect of this situation.
33:10Helen's comment, the short-term
33:12displacement. I have a question for Milton
33:14at this point: How long do you put as a
33:19timetable on the displacement of these
33:21people, of these workers?
33:23Five years, ten years, a generation?
33:26How long will it be before overall society,
33:30you know, balances itself out and
33:32the individual is no longer hurt?
33:35Let me take your first -- your last question
33:37first and then go to your basic question.
33:39I have always been in favor of phasing out
33:42tariffs over a five-year period, a twenty
33:44percent reduction a year for five years to
33:46give people time to adjust.
33:48Now to your fundamental issue.
33:49I thought I had heard every objection to my
33:52views imaginable, but you are the first one
33:56who has ever accused me of putting the
33:58interests of society as a whole ahead of the
34:01interests of individuals.
34:02If there is one element in my social
34:04philosophy, in my ethical philosophy
34:06that's predominant, it is that the ultimate
34:08unit is the human being, the individual,
34:11and that society is a means whereby
34:14we jointly achieve our objectives.
34:17I would argue that the social and moral
34:18issues are all on the side of free trade,
34:20that it is you, and people like you,
34:23who introduce protection,
34:27who are the ones who are violating
34:29fundamental social and moral issues.
34:31Tell me, what trade union represents the
34:33workers who are displaced because high
34:36tariffs reduce exports from this country?
34:39Because high tariffs make steel, for example,
34:42or other goods, more expensive.
34:45As a result, those industries which use steel
34:48have fewer -- have to charge higher prices,
34:51they have fewer employees, the export
34:54industries that would grow up to balance the
34:57imports -- tell me, what union represents
34:58them? What moral and ethical view do you
35:02have about their interests?
35:04You still haven't answered my basic question:
35:06How long of a time period, how long of a
35:10frame -- five years, ten years, a generation?
35:12You still haven't answered it.
35:14I said -- I said five years.
35:14Could we be clear, Milton, on this point?
35:16You're saying, though, that tariffs should be
35:18phased out over five years regardless of
35:21the action of other countries. It's not a sort
35:23of negotiation or anything else?
35:25Regardless. Regardless of the actions of
35:26other countries. So far, obviously,
35:28I would prefer to have other
35:29countries reduce their tariffs --
35:30But if they don't move,
35:31America should move?
35:31FRIEDMAN: Absolutely.
35:32Do you go along with that, Don Rumsfeld?
35:34In others words, you're against reciprocal -
35:38FRIEDMAN: I'm not against -
35:39-- you favor getting to truly reciprocal trade,
35:41but you're willing to get there unilaterally?
35:43FRIEDMAN: Yeah.
35:46It seems to me that it's probably worth
35:48moving in that direction.
35:52I don't know where I would stop. I am not --
35:54Well, it's a five-year program.
35:55Will you buy that?
35:57Well, it seems to me that you get action,
35:58reaction. To the extent you're doing
36:00something that makes sense for human
36:01beings, presumably, that would be
36:04persuasive with others. Presumably there
36:07would be a logical sequence where other
36:10countries would begin to sense that that had
36:13a certain degree of validity in the world.
36:16McKENZIE: Will that happen, Helen Hughes?
36:18Providing you do something for the
36:20displaced workers in the country
36:21in which they're displaced.
36:23Because if you don't do
36:25something, if you don't take some action,
36:27and it's generally got to be government
36:28action, you will get such a backlash that
36:31you'll be back in the thirties with the sort of
36:33thing that happened with
36:34high unemployment.
36:36Could we go -- Milton.
36:37There's a direct challenge.
36:38What would you do about displaced workers,
36:40or let the slack be taken up by other -
36:42I believe that you have to separate and
36:44should separate sharply the issue of what
36:46you do about people in distress,
36:47from how you handle the industrial system.
36:50I do not believe you ought to have a
36:51special program for displaced workers.
36:53What you ought to have, and what all
36:55societies do have, is some mechanism,
36:57voluntary or governmental, which will assist
37:00people in distress. We have another program
37:02in this series, which deals with exactly that
37:04issue, in which I come out, as you know,
37:06in favor of a negative income tax as
37:08a way to do it.
37:09But I think it's a great mistake
37:11to try to link it directly with tariffs.
37:15And the reason is:
37:15That many people who are displaced are not
37:18in trouble. Many of those have good
37:20alternatives. Some of them will benefit from
37:22it. There are some who will be in distress,
37:24of course, but there are always people who
37:25are in distress for all sorts of reasons.
37:27In a dynamic society, demands are going up
37:29here, demands are going up there.
37:31There is no more reason in my opinion to
37:34have a special program for those who are
37:36displaced because of the changes in
37:38demand and supply in the international
37:40scene, than because of the changes
37:41on the domestic scene.
37:42A quick reaction to that -
37:43Why would you want to return to a concept
37:45that this country exists, you know,
37:47had in 1900? Why would you want to return
37:49to where a few control the economic destiny
37:53of every working man and woman?
37:55It's exactly the other way, Mr. Deason.
37:56The best way to limit the control of a few is
38:01free trade on a worldwide basis.
38:02There is no measure whatsoever that would
38:04do more to prevent private monopoly
38:07development than complete free trade.
38:09It would do -- be far more effective than
38:11all the antitrust suits in the world.
38:13I totally disagree.
38:14You would wind up with a situation like in
38:16the movie Rollerball, where corporations
38:19carved out their spheres of economic
38:22influence throughout the world,
38:23and controlled everything.
38:25It would be controlled by corporations -
38:27FRIEDMAN: You saw the -
38:28DEASON: -- in its entirety.
38:29FRIEDMAN: Excuse me. You saw the picture
38:30of Hong Kong, didn't you?
38:31DEASON: Yes.
38:32Where are those corporations there?
38:35We might get down that alley and have a
38:37difficulty in finding our way out of it. Could
38:39we move to another big theme in the film:
38:41that is, that the third-world countries have,
38:44broadly speaking, made a very serious
38:46error in moving into planned economies,
38:48from beginning to end, and you use a phrase
38:51in the case of India, "Central planning has
38:53condemned the Indian masses to
38:54poverty and misery."
38:56Now, what's your reaction to that, sir?
38:58I partly agree with Milton as well as I largely
39:01disagree with him. I think it is true that the
39:04invisible hand ought to be seen more in the
39:06poor countries, (Laughter) than it is, and
39:09I would like to see the iron fist disappear.
39:11Unfortunately, it's the other way around.
39:14On the other hand, I think it cannot be
39:16maintained that laissez-faire is the answer,
39:21either that it's a necessary or a sufficient
39:23condition for development.
39:24Let me go to Milton's examples and,
39:27you know, refer to Japan.
39:29Japan is a prime example, actually, of where
39:31the visible hand is invisible to everybody
39:34who is outside of Japan. But it's writ large
39:37on the wall for the Japanese.
39:39The Japanese government, right from the
39:41Meiji Restoration, has taken a very active
39:43interest in the development of the country.
39:46It has regulated technology and imports.
39:48Even to this date the government and
39:50business have a sort of strong symbiotic
39:53relationship. I think it's just --
39:55MCKENZIE: Highly paternalistic.
39:56-- and business is highly paternalistic.
39:58I don't think it's a valid example at all
40:01of what I believe was the implication
40:05of Milton's program.
40:06Let's bring in Helen Hughes.
40:07On this theme, has the third-world made
40:08a disastrous mistake in almost
40:11unanimously moving into planned
40:12economies, rather than the free market?
40:14Well, first of all, it hasn't almost
40:16unanimously moved into planned economies.
40:18McKENZIE: Overwhelmingly so.
40:19Not even overwhelmingly.
40:20I mean, India is a large country, but the
40:23majority of developing countries are not
40:26centrally planned; they have some sort
40:28of planning. Secondly, some of the countries
40:32which have been most successful have had
40:34the highest government intervention.
40:35The best examples are Taiwan, Korea,
40:38Brazil, Singapore. And even in Hong Kong,
40:42which is often held up as an example
40:44of no government intervention,
40:46I mean this is just not true.
40:48The Hong Kong government has provided the
40:51infrastructure. It has provided the roads and
40:53the ports and schools. And it's been very
40:55important. But when you move to a country
40:58like Malawi or Papua, New Guinea, you can't
41:02do without government intervention.
41:03There is nothing there.
41:05There are no entrepreneurs in place,
41:06and the American entrepreneurs are not
41:08interested in small places like that.
41:12I'm not in favor of no government
41:13intervention. I never have been.
41:14I point out in the film that what
41:17the government did in Hong Kong
41:19was very important.
41:20The question is: What kind of intervention?
41:21And in the states you've described, in the
41:23places you have described where you've had
41:25success, governmental intervention has
41:28been of a rather special kind.
41:30It has provided infrastructure.
41:31It has not tried to determine the outline of
41:35industrial production, the areas in which
41:38industry should go, exactly what the
41:40allocation of -- it has not gone in
41:41for central planning.
41:42HUGHES: Well that's just not true in Korea.
41:44I mean, you are factually wrong because in
41:46Korea the government has actually -
41:49FRIEDMAN: Oh, it is true in Taiwan.
41:50It's fairly true in Taiwan, but not in Korea,
41:53which has grown faster than any other
41:55country. Where Korean exports have been
41:58determined to a very large extent, by direct
42:01government intervention. I think your point
42:03is: what sort of government intervention,
42:06what for, and what are the trade-offs
42:09between government intervention and the
42:11free market? These are the relevant issues.
42:14What is the role of government in relation to
42:16the market economy? How do you see it
42:18performing, Don Rumsfeld, do you want to
42:21see government, as it were, enforcing
42:23competition by chasing down monopoly,
42:26restrictive practices, and all the rest
42:28of it in the society?
42:29The record's clear that they don't do it well.
42:31They can't manage the --
42:32But does that mean they shouldn't
42:33do it at all, or do it better?
42:34Take the wage-price controls in the
42:35United States of America.
42:36I happen to have been involved,
42:37and I don't say it with any great pride.
42:39The real world is -- I don't care
42:42about good intentions,
42:42I don't care about brains,
42:44I don't care about integrity,
42:46the fact of the matter is they're not smart
42:48enough to manage the wages and prices
42:49of every American, 215 million strong.
42:53They can't do it well. They do it poorly.
42:56And the weight of that is harmful.
43:00It's graphically shown in every document
43:03issued by the Council of Economic Advisors
43:05in the United States.
43:06But what about the additional question,
43:07though, does the government properly,
43:09in this country or elsewhere,
43:11insure competition by other devices?
43:13I'm not talking now about price control,
43:15wage control, but insuring competition
43:17rather than permitting price-fixing
43:20or agreements and monopoly.
43:22What do you feel about it?
43:23I feel the government properly
43:24acts in that area. It must --
43:25the government must be there
43:27to insure competition.
43:28The government's not smart enough --
43:30look at the Antitrust Law.
43:32You talk about a patch --
43:33the implementation of antitrust regulations
43:36in the United States,
43:36between the Department of Justice and
43:39the FTC. It's a -- it's a patchwork mess.
43:42There isn't any logic to it.
43:44People don't know what to do.
43:45They don't -- they can't get answers.
43:48They're inhibited from mergers
43:51and consolidations that would make a lot of
43:52sense from the standpoint of the consumer.
43:56And would make even more sense from
43:57the point of multi-national corporations.
43:59I think that one of the points you're making
44:01is that it's very hard for the government
44:03to intervene in a very large country,
44:05like India or the United States.
44:08But compare government intervention
44:10in some of the small, homogenous countries
44:13of Europe or Singapore,
44:15and I think that's very important.
44:17Switzerland
44:17has a great deal of government intervention.
44:19Sweden, Denmark, Norway --
44:22I've just quoted you
44:23the four highest-income countries
44:25in the world. They do have intervention
44:27to try and protect the functioning of
44:30of the market system,
44:32and to make it more efficient.
44:33Milton is absolutely right
44:34that if you're talking about central planning,
44:36that has been disastrous.
44:38Absolutely, in terms of having targeted
44:41industrial allocations and so on;
44:43I mean there's absolutely no doubt
44:44in anybody's mind who has studied
44:46the problem over the last twenty years.
44:47McKENZIE: Disastrous in India, too.
44:48In India as well, very definitely.
44:49McKENZIE: You advised on that, didn't you?
44:51No, not on centralized planning, no.
44:53(Laughing)
44:54RUMSFELD: That wasn't a clear question
44:55RUMSFELD: anyway. (Laughter)
44:56FRIEDMAN: That's all right. I was over there
44:58FRIEDMAN: as an advisor, too.
44:59BHAGWATI: I'm on the side of
45:00the angels on that. For a number of years --
45:04I'm supposed to be a friend of Milton's there,
45:05which is disastrous.
45:06(Laughing)
45:07To give advice is one thing.
45:09To have it taken is a different one.
45:14I agree very much with
45:15what Helen Hughes has said,
45:17that the more homogenous the country,
45:18the less harm the government
45:20will do by intervening.
45:21I don't believe it does positive good.
45:22I just simply believe it does less harm.
45:24But, as to antitrust --
45:26McKENZIE: Yeah.
45:27I am in favor of the laws which make
45:31agreements in restraint of trade illegal.
45:35Most of the rest of the antitrust apparatus
45:38has promoted monopoly
45:39instead of hindered monopoly.
45:40If you look at where there are
45:42monopolistic elements in the world
45:45and in the United States, including
45:47the multi-nationals you want to refer to,
45:50in almost every case that monopoly derived
45:53from a special grant by government.
45:55And therefore, the problem is not,
45:57how does government enforce competition?
45:59How do you keep government
46:01from setting up monopolies?
46:02That's the real problem, if you look
46:03at the real world, and not at the preamble,
46:07the language, of antitrust measures
46:10and similar laws.
46:11How close are you to what Deason
46:12was saying a moment ago in this area?
46:14He would seem to be arguing with you
46:15that there was a responsibility
46:17to make competition work.
46:19The responsibility is to set up a framework
46:21of laws and of arrangements, under which
46:24competition will flourish. And the most --
46:27McKENZIE: Inevitably flourish? I mean, or -
46:30Well, so far as I know, I don't know of any
46:32case in history in which monopolies have
46:35able to maintain themselves for very long
46:38without having government assistance
46:40directly come in on their side.
46:41The trade union monopolies that Mr. Deason
46:44represents would never have the kind of
46:46power they do now if it weren't for the
46:48special privileges which government has
46:49granted to them.
46:50I can perfectly well understand his being in
46:53favor of such action, of antitrust action by
46:55the government, because it really is
46:58is pro-monopoly action, in the main.
47:00Why were those exemptions to monopoly
47:03laws given to unions?
47:04Because of the political power of unions,
47:06of course. I'm not questioning that.
47:08and because -- and because of the
47:09tremendous imbalance of power of
47:11companies at the time that unions were
47:12getting their start.
47:14There's one concluding idea toward the
47:16end of your script that I'd like to look at,
47:19because it seemed to me to be most
47:21provocative.
47:21You talked about the need for Constitutional
47:23restraints on governments to prevent
47:27them interfering in foreign exchange free
47:29markets, and in foreign trade.
47:31Now what have you in mind, Milton,
47:33when you say "Constitutional restraints"?
47:35I -- no doubt what I have in mind
47:36if I, if I could persuade the public,
47:39I would like it to adopt a constitutional
47:41amendment strictly parallel to the
47:44constitutional prohibition in the text
47:47of the Constitution, against the central
47:49government -- I'm sorry, against state
47:52governments imposing tariffs on imports.
47:54I would like to have a constitutional
47:55amendment, which would read,
47:56"The Congress shall not impose
47:59any taxes on imports, or give any subsidies
48:05to exports, except such as may be
48:09necessary."
48:10I think the wording of the Constitution is that
48:11the states are permitted to do it if it's
48:13necessary for inspection.
48:14That's the excuse under which California
48:17inspects you every time you drive past to see
48:19whether you're carrying any plants or fruits
48:21or vegetables.
48:22DEASON: Milton, let me ask you a question.
48:24How long do you think that the United States
48:25would survive if the United States enacted
48:30what you would like to have?
48:31I think the United States would prosper
48:32in a way that is hardly imaginable today.
48:35It would be an example and a beacon
48:37to the rest of the world.
48:38What kind of sense does it make, here
48:40we are supposedly the leaders of the world.
48:42We are the ones who promote freedom,
48:44and free enterprise, and individual initiative.
48:47And what do we do? We force puny little
48:49Hong Kong to impose limits, restrictions
48:52on its exports at tariffs, in order
48:54to protect our textile workers.
48:56We go to Japan, and we say to Japan,
48:59"For God sakes, you got to limit the number
49:00of television sets you come out."
49:01Instead of doing that, we ought to be setting
49:03an example to the world, and if we set the
49:05kind of an example to the world that
49:07Great Britain set to the world in the 19th
49:09century, it would be a tremendous --
49:12it would have a tremendous impact, it would
49:14strengthen our moral position in the world,
49:16it would strengthen our ethical position
49:18in the world. Instead of giving money to
49:20underdeveloped countries to produce
49:22products which we then refuse to buy
49:23and don't let them export to us,
49:25we would be saying to the rest of the world,
49:28"If you produce anything, if you can produce
49:29anything and have a market here, come,
49:31we're delighted to buy it, and we'll produce
49:34things for you to buy."
49:35That's the kind of a pattern I would like
49:37to see the United States establish.
49:39McKENZIE: Would your members buy that?
49:40DEASON: Never. That's a -
49:42FRIEDMAN: Never is a long word, sir.
49:43Yes, you're right.
49:44-- and you must distinguish between -
49:46DEASON: And one should never say never.
49:47our union officials would not buy it.
49:49But I am not sure your members wouldn't.
49:51My members would not. No. My members
49:52would never buy it either.
49:54I cannot conceive of the United States
49:56setting itself up to become a target
49:58for the rest of the world.
49:59FRIEDMAN: It's not a target.
50:01There would be absolutely nothing that
50:02would require or compel any other country
50:05to enact any reciprocal
50:06agreements relative to tariffs-
50:08FRIEDMAN: That's right.
50:08and until such time as they have
50:11succeeded in dumping in the
50:12United States -- and I used dumping
50:13in the broadest sense of the word
50:15-- any and every product, either
50:16government subsidized by a foreign
50:18government, either put there because
50:20of multi-national corporations
50:21manufacturing facilities in a foreign country,
50:24until they have succeeded in absolutely
50:27draining us dry -
50:29FRIEDMAN: Draining us dry of what?
50:30Of every -- of every asset.
50:32FRIEDMAN: How?
50:32Of every -
50:33What would they do
50:34with the dollars they got?
50:35They'd probably buy up,
50:36as they are now, as they -
50:37If they bought up -
50:39OFF CAMERA: The choice farmland.
50:39Yes. Yes.
50:42McKENZIE: Let's broaden this. On this
50:42very argument, now and a
50:43constitutional amendment argument.
50:45We've learned from our union friend
50:47he would -- can't sell it and
50:49won't sell it. Would business buy it?
50:52Oh, no! They -- speaking -
50:56(Several people talking at once.)
50:58I'm not saying whether I'd buy it,
50:59I’m saying whether business would
51:00buy it, which is the question.
51:01No, when I -- I speak not as
51:03a businessman, but as an
51:04ex-government employee,
51:07whenever proposals like that came up,
51:10one of the first things people
51:11see happen is government -business
51:13and labor come in in lock-step, saying,
51:16"Horrors, horrors, the sky is falling!"
51:20There's a commonality of interests
51:22there and people get used to what is,
51:25they get terribly conservative, and
51:26they know how to work the system
51:28the way it exists, and particularly the
51:30the big unions and the big business,
51:31and they get very satisfied with it,
51:34they can manage it pretty well,
51:36and any time you try to unravel
51:37any kind of regulation or restriction
51:40or government intrusion,
51:42they're philosophically for it,
51:44but in the practical world,
51:45they don't want you to change the drill,
51:47they just figured out how to work this.
51:49Why should you then change it and
51:51make it all that more complicated?
51:53No, I think you'd get a good deal of reaction,
51:55just like you did out of the
51:56steel company in your television show.
51:58McKENZIE: And what would the international
52:00reaction be, do you think, as an
52:00international economist?
52:01Supposing Milton got his amendment,
52:03constitutional amendment, which had that
52:05effect, how would other countries react to it?
52:08Well, I think Milton's fundamental example
52:11of why not be like Britain
52:12in the 19th century is wrong.
52:14Britain in the 19th century was the
52:16industrialized country; it was
52:19well ahead of everybody else.
52:20McKENZIE: Many decades ahead.
52:21Many decades ahead of everybody else,
52:23and it was making larger profits,
52:25larger economic rents on its production,
52:28and it was doing it at very great cost
52:31to the workers in Britain.
52:33The workers in Britain were greatly exploited
52:36under those circumstances, and we
52:38don't want to go back to that.
52:40The international situation is much
52:43more complex, and countries -- there are
52:46countries at different levels of development,
52:48countries with different social systems, and
52:51countries with different social objectives,
52:53so I think that the solution,
52:56you know, is wrongly founded, and
52:58it's millenarian, it's utopian.
53:00I think that we have to
53:02think of a much more
53:04realistic process of discussion,
53:08negotiation, such as has taken place
53:11through GATT, to get to where
53:13we're going, without hurting the people
53:15who pay for the adjustment,
53:17and that is basically the workers,
53:19not the economists.
53:20Could I just comment briefly?
53:21McKENZIE: Yeah.
53:22I worry about the argument that
53:24because of the complexities
53:26of international relations, that
53:28therefore they must be planned and
53:29managed. By definition, we're not capable
53:32of managing the world economy.
53:34Each instance when we try to do it
53:37it doesn't work out
53:38quite the way we intended.
53:40I don't apologize for a moment for setting
53:42for being millenarian; because I think
53:44unless we know where we want to go,
53:48the timid steps that we take
53:49in that direction will go
53:52in the wrong direction.
53:53And if we're gonna go in the right
53:54direction, we ought to have a view.
53:56But I want to be sure to
53:57get down on the record a very
53:59strong objection to the statement of fact
54:01by Helen Hughes about 19th century Britain.
54:03I believe it is simply wrong.
54:05The workers were not exploited.
54:07The studies that have been done recently
54:09have shown over and over again that
54:10the 19th century was a period
54:12in which the ordinary English worker
54:14experienced a very rapid and
54:16very substantial rise in his standard of life.
54:18England did not stand alone.
54:20Japan had complete free trade for 30 years
54:22after the Meiji Restoration.
54:24Japan in more recent years has not.
54:26Japan in more recent years
54:27is not an example I would cite.
54:29But in its early years
54:30it had complete free trade.
54:31So I don't believe England stands alone.
54:34Now on the more --
54:35McKENZIE: Politics of it.
54:36On the politics of it, of course
54:38it's not politically feasible, why?
54:40Because it's only in the general interest
54:42and in nobody's special interest.
54:44Each of us is fundamentally --
54:47has more concern with our role as
54:50a producer of one product than
54:52we have as a consumer of a
54:53thousand and one products.
54:55The benefits of a tariff are visible.
54:58Mr. Deason can see that his workers
55:01are quote, "Protected."
55:03The harm which a tariff does is invisible.
55:06It's spread widely. There are people who
55:07don't have jobs because of the tariff,
55:09but they don't know they don't have jobs.
55:11There's nobody who can organize them.
55:13Consumers all over are paying a little
55:14more for this, that and the other thing.
55:16They don't recognize that the reason
55:17they're paying for it
55:19is because of the tariff.
55:21The businessmen? I have never been in
55:24I'm not pro business,
55:26I'm pro free enterprise...
55:28which is a very different thing,
55:30and the reason I'm pro free enterprise
55:31RUMSFELD:Don't point at me
55:32when you say that!(Laughter)
55:33No, no. I don't mean to point to you, Don.
55:36I point to the business community,
55:38because you are an exception.
55:39McKenzie:Because actually there was a
55:41tacit alliance because that way...
55:43Oh there's -
55:44to prevent you from achieving your purpose.
55:45Oh, there's no doubt that there's such
55:46an alliance. In my opinion,
55:48the strongest argument for free enterprise
55:51is that it prevents anybody
55:53from having too much power.
55:55Whether that person is a government official,
55:58a trade union official,
55:59or a business executive.
56:01It forces them to put up or shut up.
56:04They either have to deliver the goods,
56:05produce something that people are
56:06willing to pay for, willing to buy,
56:08or else they have to go
56:09into a different business.
56:10Well, there we must leave the argument
56:12for this week, and I hope you'll
56:13join us again for the next episode of
56:15Free To Choose.
56:17(closing music)

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