Feature Article: The free market is the only way

Policy makers would do well to heed the late economist Milton Friedman’s caution that “The society that puts equality before freedom will end up with neither.  The society that puts freedom before equality will end up with a high degree of both.”

Driving the point home in no uncertain terms, the late Nelson Rolihlahla Mandela stated in 2003 that “It is not a question any longer about whether the world embraces a free market economy.  The globalised world in which we live has made it imperative that we open our markets both internally and internationally and to the outside world.  The free market is not merely an American export; it is the acknowledged route for economies all over the world.  Closed and command economies are self-evidently inappropriate for our times……People need to taste in their daily lives the fruits of democracy and good governance.  Hence the importance of economic development and growth.  The free market should produce results that lead to a tangibly better life for all.”

It is a most amazing paradox that it took a communist, Deng Xiaoping, to unleash global market forces on a historically unprecedented scale.  He eschewed egalitarian ideals in favour of individual, personal responsibility. The market-oriented policy changes which were ushered in on Deng Xiaoping’s watch as leader of the Chinese Communist Party were known as the Period of Reform and Opening.  These new market-friendly policies were extremely successful.  As a direct consequence of their implementation, the annual growth rate of China’s GDP consistently exceeded 10%.  This phenomenal rate of economic growth lifted 600 million Chinese out of an abyss of poverty. Deng consistently exhorted his comrades to be pragmatic and adopt empirically proven policies. “It doesn’t matter whether a cat is white or black,” he famously said, “as long as it catches the mice.” 

China achieved this socio-economic feat, underscored by its rise to the status of the world’s second biggest economy, by establishing areas designated as special economic zones (SEZs).  Among Chinese SEZ’s and also on the global landscape, Shenzhen looms large.  After the economic devastation precipitated by the Cultural Revolution (1966 -76) Shenzhen achieved a per capita GDP of US $14,615 in 2010.  According to the Chinese Daily the 2011 per capita GDP in Shenzhen had soared to US $20, 000 compared to US $5,414 for the whole country.

The general features of the SEZs of China are distinguished by their common aim of enabling individual entrepreneurship.  In developed economies many unnecessary policies and regulations which hamstring individual entrepreneurs remain in place and in some cases are ever tightening, whereas Deng ensured that in the Chinese SEZs any obstacles which impeded the spirit of enterprise were removed.  Central planning gave way to market forces.  The determination of wages and prices by market forces was an essential feature of the SEZs and the denationalisation and de-collectivisation of the agricultural sector was implemented overnight.  The role of individuals was recognised and the private sector was acknowledged as the engine of wealth and job creation, instead of the state.

The socio-economic experiences of China and those of other countries which have adopted market-friendly policies provide a verification of the evidence presented regularly in studies such as the Global Competitiveness Report (World Economic Forum), Doing Business (The World Bank and the International Finance Corporation) and theInternational Property Rights Index (Property Rights Alliance).  Of particular importance are the detailed empirical studies – Economic Freedom of the World (Fraser Institute) and the Index of Economic Freedom (Heritage Foundation).  The evidence overall is that greater economic freedom correlates with higher per capita incomes, more rapid economic growth rates, high levels of employment, longer life spans and better education: in short, progressively better socio-economic conditions for the general populace.  The corollary is that the higher the degree of economic freedom, the greater these benefits. All the evidence shows that for improving

But alas, despite all this evidence, some policy makers are hell-bent on compromising economic freedom on the altar of redistributive policies.  If the superficially altruistic veneer of such policies is removed, it can easily be seen that they are mostly driven by punitive and retributive motives, directed at “capitalists”, “the super-rich”, or some other targeted sector of society.

The reason why the free market reigns supreme as a means whereby individuals can realise their socio-economic aspirations is that, for all times and across cultures, freedom has always been the most precious and defining attribute of the human condition.  Yet, in many countries, policies which have gradually undermined the freedoms of individuals have surreptitiously been implemented under the guise of the rectification of past wrongs and other similar motivations.  But the fact is that, within the free market paradigm, the very objectives of such erroneous policies can be met without compromising the freedoms of others.

State enterprises that have been bleeding hard-pressed taxpayers can be removed from the clutches of government.  Indigent individuals can be given shares in these enterprises on a non-discriminatory, non-racial and strictly means-tested basis.  Such a policy was implemented successfully in the Czech Republic.  In South Africa, state enterprises such as Eskom and SAA would be ripe for such policies, in place of the present unashamedly racial policies, such as affirmative action, euphemistically and dishonestly referred to as ‘broad based black economic empowerment’.

Furthermore, indigent families could be allocated legal title to land on a site and service basis.  The implementation of just these basic measures would ensure that the Marxist dream of putting the means of production in the hands of the workers and have-nots would be realised.  This is something which socialist and communist countries never achieved.  There are many such policies that could expedite real economic self-empowerment, but, alas, governments generally do not like such policies.  This is because politicians like captive constituencies.  They like people to be perpetually dependent on the state, instead of being part of the wealth creation process that is independent of government.  They like vast numbers of people to be recipients of social grants.  That way such people will not be weaned from the state and the politicians in charge can always use them as voting fodder.

Given the accumulating evidence, there can be no doubt that of all the policies that have ever been tried to find the one best way to increase economic growth, individual liberty, and a better life for all, the free market is the only way.

Source: This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.


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