Economic Libertarians admit they were wrong

[a_unique_person]

http://afr.com/articles/2004/08/03/1091476488336.html

Institutions and the state need to be present and respected. I was banged around the head for saying that what happened in Russia was wrong, but here Fukuyama appears to be agreeing with me.



From the standpoint of long-term economic growth, it is best to have a state that is restrained in scope, focusing on the provision of necessary public goods, but strong in its ability to enforce a rule of law. Unfortunately, developing countries almost always fall into one of two categories: either they are very ambitious in the scope of what they seek to achieve but weak in execution - Venezuela, Argentina and Turkey come to mind - or else try to do little and fail to do even that, like Liberia, Haiti or Afghanistan.

The Reagan-Thatcher revolution was properly directed against excessive state scope, seeking to reduce the level of regulation and government interference with private economic activity.

But applied to the developing world, it often had a perversely damaging effect because it undermined state capacity across the board, or else made things worse by promoting liberalisation in the absence of strong basic state institutions. Elites in sub-Saharan Africa used International Monetary Fund-mandated structural adjustment programs in the 1980s to cut back on core state functions while increasing the size of the patrimonial state.

...................

Development economists have increasingly come to the conclusion that strong institutions are critical to economic growth, more important, indeed, than simply cutting back on the scope of the state. A recent study by William Easterly and Ross Levine shows that institutions trump other factors like economic policies, geography or resource endowments in explaining growth.

Milton Friedman admitted that his advice to former socialist countries in the early '90s had been to "privatise, privatise, privatise".

"But I was wrong," he continued, "It turns out that the rule of law is probably more basic than privatisation."

[Rouser2]

Originally posted by a_unique_person [/i]

>>Economic Libertarians admit they were wrong
http://afr.com/articles/2004/08/03/1091476488336.html

>>Institutions and the state need to be present and respected. I was banged around the head for saying that what happened in Russia was wrong, but here Fukuyama appears to be agreeing with me.

>>quote:
--------------------------------------------------------------------------------


From the standpoint of long-term economic growth, it is best to have a state that is restrained in scope, focusing on the provision of necessary public goods, but strong in its ability to enforce a rule of law. Unfortunately, developing countries almost always fall into one of two categories: either they are very ambitious in the scope of what they seek to achieve but weak in execution - Venezuela, Argentina and Turkey come to mind - or else try to do little and fail to do even that, like Liberia, Haiti or Afghanistan.

The Reagan-Thatcher revolution was properly directed against excessive state scope, seeking to reduce the level of regulation and government interference with private economic activity.

But applied to the developing world, it often had a perversely damaging effect because it undermined state capacity across the board, or else made things worse by promoting liberalisation in the absence of strong basic state institutions. Elites in sub-Saharan Africa used International Monetary Fund-mandated structural adjustment programs in the 1980s to cut back on core state functions while increasing the size of the patrimonial state.

...................

Development economists have increasingly come to the conclusion that strong institutions are critical to economic growth, more important, indeed, than simply cutting back on the scope of the state. A recent study by William Easterly and Ross Levine shows that institutions trump other factors like economic policies, geography or resource endowments in explaining growth.

Milton Friedman admitted that his advice to former socialist countries in the early '90s had been to "privatise, privatise, privatise".

"But I was wrong," he continued, "It turns out that the rule of law is probably more basic than privatisation." <<

Comment: Milton Friedman is no libertarian. Nor does privatization replace the rule of law in any "libertarian" philosophy. In fact, without the rule of law, there can be no private property rights. Free enterprise is not anarchy.

-- Rouser

[a_unique_person]

Originally posted by Rouser2

Comment: Milton Friedman is no libertarian. Nor does privatization replace the rule of law in any "libertarian" philosophy. In fact, without the rule of law, there can be no private property rights. Free enterprise is not anarchy.

-- Rouser [/B]

Libertarian from where I sit, although he wouldn't be kooky enough to go for a gold standard.

What he has shown is that the fragility of government and rule of law was seriously underestimated. He just went in there 'privatise, privatise', without considering that there may have been more important considerations to be dealt with first. But then, economists think they know how the world works, without recognising there is a lot more to a society than just an economy.

[demon]

Rats jumping ship comes to mind.

[RandFan]

Originally posted by a_unique_person
He just went in there 'privatise, privatise', without considering that there may have been more important considerations to be dealt with first. But then, economists think they know how the world works, without recognising there is a lot more to a society than just an economy. I think your conclusion is not quite correct. I would say that there were equally important considerations to be dealt with in conjunction to the economic ones.

It is nearly impossible to escape the brutal facts of the fatally flawed and broken economic system of the aforementioned countries.

They had a government that had the rule of law. That was not the problem. It was the economy. Once the Soviet Union failed the rule of law needed to be re-established and preserved of course but privatization was absolutely crucial because without it they were no better than before.

It would be a false dichotomy to suggest that they had a choice between privatizing and establishing and preserving the rule of law through government or that they could only focus their attention or resources on either.

Friedman was perhaps wrong but only partly.

[a_unique_person]

I think there was an alternative to the one Friedman advocated, subsidising the state enterprises while a gradual and controlled privatisation was put in process.

As it was, instant millionaires were created over night, based on nothing more than who they knew, or who they controlled. Fortunes were lost by the Russians on dodgy businesses because they had no history of investment.

However, a process of state socialism mixed with capitalism was not considered because it was politically unpalatable. The result is that because such a course offended the sensibilities of those in power in the US, Russia has had to suffer much more than it needed to.

Clearly, those who favour a free market have not understood the other factors that are important to having a healthy economy, and have admitted as much. Considering people like Friedman are viewed as free markey gurus, you do have to wonder how much they have miscalculated how a market works and what it depends on to work properly.

[RandFan]

Originally posted by a_unique_person
I think there was an alternative to the one Friedman advocated, subsidising the state enterprises while a gradual and controlled privatisation was put in process.

As it was, instant millionaires were created over night, based on nothing more than who they knew, or who they controlled. Fortunes were lost by the Russians on dodgy businesses because they had no history of investment.

However, a process of state socialism mixed with capitalism was not considered because it was politically unpalatable. The result is that because such a course offended the sensibilities of those in power in the US, Russia has had to suffer much more than it needed to.

Clearly, those who favour a free market have not understood the other factors that are important to having a healthy economy, and have admitted as much. Considering people like Friedman are viewed as free markey gurus, you do have to wonder how much they have miscalculated how a market works and what it depends on to work properly. I'm willing to accept that socialism could have been mixed with capitalism and produced a better outcome.

I think the slow migration of capitalism in the south of China nothward is a good example of how the two can work together and allow for change at a more reasonable pace (JMO). Of course force labor from prisons doesn't hurt either.