September 1978, Hong Kong
I am in the audience at the biannual meeting of the Mont Pelerin Society, an organization of people who believe in personal liberty. At age 27, I am at these meetings for the first time. The lead speaker that first morning, a world-famous economist, gets up to give the opening speech. People have come from around the world to see and hear him. He is the first strongly pro–free market and antisocialist economist to have won the Nobel Prize, the most prestigious prize that an economist can win. In a series of articles in the late 1930s and early 1940s, he drove the final intellectual nail in the coffin of socialism, pointing out that the information required for a government to plan an economy rationally is far too vast for a small number of even the most brilliant minds to use effectively and that the information required is generated only by a free market. In one of his most famous books, The Road to Serfdom, written at the height of World War II and still a classic, he pointed out the strong totalitarian similarities among socialism, communism, fascism, and Nazism. After World War II, the four-power occupation authorities in Germany, representing the governments of France, Britain, the United States, and the Soviet Union, had, at the behest of the Soviet Union, banned The Road to Serfdom. The author’s name: Friedrich Hayek.
Hayek started the Mont Pelerin Society in 1947, when he was one of only a few intellectuals who opposed socialism and favored economic freedom. People with his views were so scarce that he felt an international group was needed so they could give one another moral support and comfort for one week every two years. At the first meeting, only a handful of people (36) attended. But what a handful! They included Milton Friedman and George Stigler, then relatively unknown economists in their mid-thirties, who themselves went on to win Nobel Prizes; Walter Eucken, a German economist who, along with Ludwig Erhard, had ripped away the Nazi-imposed and Allied-enforced regulations that were stifling the German economy; Ludwig von Mises, an Austrian economist who was the first to lay out analytically why socialist economic planning could not work; Maurice Allais, a French economist who was later to win the Nobel Prize; and Michael Polanyi, Karl Popper, and Lionel Robbins, all from Britain, all of whom were later to be knighted.
The Mont Pelerin Society, named after the place in Switzerland where the group first met, expanded a good bit after 1947. In the 1960s, Hayek had retired to Freiberg, Germany, profoundly depressed about both the state of the world and the apparent lack of acceptance of his free market ideas and his criticisms of socialism. But the recognition that came with his Nobel Prize revived him. In 1978, at the Mont Pelerin Society’s meeting in Hong Kong, Friedrich Hayek was in his glory and brimming with optimism.
Hayek told us that socialism was on the ropes and that we must try to arrange a grand debate, the topic of which should be "resolved: that coercion as a means of organizing the economy has failed." He envisioned having the debate in Paris and inviting the leading socialists and the leading advocates of freedom.
I stood and asked the first question. "I like your idea," I said to Hayek, "but do you really think that socialists are going to consent to wording the debate question that way? Many of them don’t believe that they’re advocating coercion. Why not make it a more neutral question like, ‘Has socialism failed?’" He took it under advisement. Many of the next questioners were skeptical of the whole idea. Not that they thought socialism worked, but they thought the debate would never happen because socialists would simply not admit that it’s debatable.
George Stigler, the president of the Mont Pelerin society that year and the person who invited me to the meetings, came up to me at the break. In his banquet speech the night before, Stigler had said that ideas and debates don’t matter; no one, Stigler had insisted, changes his or her mind on the basis of ideas. Stigler thought, mistakenly, that he had found a kindred spirit in me. "Hayek has always been an actionist," said Stigler dismissively, using his unusual term for proselytizer.
June 12, 1987, Brandenberg Gate, Berlin
On the western side of the Brandenberg Gate stands U.S. president Ronald Reagan. Reagan, the eternal optimist, senses that Mikhail Gorbachev, the general secretary of the Communist Party and leader of the Soviet Union, differs from his predecessors. The Brandenberg Gate is famous or, more exactly, infamous as one of the gates in the Berlin Wall that you pass through leaving East Berlin to go to West Berlin. There’s one little problem: if you’re East German you can’t do so without permission. Since August 1961 East Berliners have been unable to get permission, and most of those who have tried to leave illegally have been shot at. For the last three decades, the leaders of the Soviet Union have made clear to the leaders of East Germany that they want the border closed.
Reagan says, "General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this Wall!" A year later, West German chancellor Helmut Kohl says that the Berlin Wall will not come down in his lifetime.
November 9, 1989, East Berlin
Gunter Schabowski, the head of the Communist Party of Berlin, is about to go on television for a live press conference. Egon Krenz, party secretary and leader of East Berlin, hands him a draft of a new regulation from the Interior Ministry. The draft describes new procedures for obtaining visas to visit the West. Minutes later, in reply to an Italian journalist, he seems to say that East Germans can go to the West with no restrictions, starting right now. Immediately, thousands of East Germans head to the wall, some of them dressed in their pajamas. For three hours the crowd swells in front of the hated Wall. They refuse to move, chanting, "Open the gate! Open the gate!" The guards, unsure what to do, decide to open the gates. Hundreds of thousands of East Berliners swarm through into the welcoming arms of their West German brothers and sisters. The invincible Wall has fallen—without a shot being fired.
A few days later, I was lying on the floor, looking at the latest Newsweek with my four-year-old daughter, Karen. I showed her the famous picture from about 25 years earlier of the armed East German guard who successfully escaped from East Germany. Karen asked me why I was so excited about the Berlin Wall falling. I reached for words that a four-year-old could understand.
I said, "These men were told to kill anyone who tried to get from East Berlin to West Berlin. And some other men had suddenly decided that they were no longer going to shoot people; they were going to let them leave. This meant that these people who before were trapped where they lived now were not trapped. They could get out and go places they’d always wanted to go."
"Like Disneyland?" said Karen.
"That’s right," I answered. "Not only can they go where they want, but also they can buy things they have always wanted to buy."
And my daughter, grinning, said, "Like candy?"
"Yes," I said, "like candy." I later learned that that weekend, the candy stores in West Berlin actually were sold out.
My daughter had understood the essence of totalitarian socialism.
The Ongoing Battle for Freedom
In just 12 years, the gleam in Friedrich Hayek’s eye had become a reality. And although the debate he wished for had never happened, socialist economist Robert Heilbroner wrote, in September 1990, that, after having dismissed von Mises’s arguments against socialism in the 1930s, "it turns out, of course, that von Mises was right."
Since then, there have been major gains in economic freedom around the world. In 1922, Vladimir Ilyich Lenin, the leader of the Communists in Russia, had said that the government should control the "commanding heights" (the most important sectors) of the economy. A few years later, the Soviets, under Lenin’s successor, Joseph Stalin, proceeded to take over the commanding heights by murdering millions of Ukrainian farmers, called kulaks, and taking over their land. From the late 1920s until the 1980s, virtually all productive assets in the Soviet Union were owned and operated by the government. All factories, all power plants, all trucks, trains, and airplanes, all stores, and all apartments were government owned. The only privately owned means of production were small farm plots, which was fortunate because these plots were highly productive, producing, on only 3 percent of the sown acreage, more than 25 percent of the Soviet Union’s meat and about 50 percent of its potatoes. Yet by 1996, most assets in Russia (which had lost its colonies) were privately owned. Seventy percent of Russia’s gross domestic product is now privately produced.
In China in 1978, peasants facing a severe drought needed to break through the parched land of the farms they were working. There was one main problem: The farms were collectivized and the peasants were simply unwilling to exert the effort to improve what wasn’t theirs. Thus they pleaded for the return of the household responsibility system, which allowed a family to keep some of the benefits of its labor. In desperation, communist dictator Deng Xiaoping granted their wish. Henceforth, peasants had to deliver a certain quota to the government; anything above that quota was theirs to keep and sell. In essence, the government implemented a system of de facto property rights. Moreover, the output above the quota was tax free, which created an even more powerful incentive for the farmers to produce beyond the quota. The result was that, between 1978 and 1990, the share of agricultural output sold in open markets rose from 8 percent to 80 percent, and in the six years after 1978, real income in farm households rose by 60 percent. Deng also allowed more freedom to companies located in "special economic zones" along China’s coast, which have since grown much faster than the rest of China. "I have two choices," said Deng. "I can distribute poverty or I can distribute wealth."
There has also been a shift away from government power and toward economic freedom in formerly communist European countries such as Poland, Hungary, and the two parts of what was Czechoslovakia, in India, in the rest of Asia, in Latin America, and in Britain. In short, economic freedom has increased dramatically in parts of the world that, in total, contain more than half the world’s population.
How did it all happen? There were two main causes. First, people, including government planners, noticed how badly government ran things. "Between the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union in 1991," recalled a high-level government planner in India, "I felt as though I were awakening from a 35-year dream. Everything I had believed about economic systems and tried to implement was wrong." The head of the Chinese Communist Party’s propaganda department was shocked when he visited Japan and noticed that half of Japan’s households owned cars and more than 95 percent owned TVs, refrigerators, and washing machines. In the report of his trip to Japan, this official wrote, "One Sunday we went out to a busy street. Of all the women we saw, no two wore the same style of clothes." He added, "The female workers accompanying us also changed clothes every day."
Second, ideas really did matter. The fact that the von Miseses, the Hayeks, and the Friedmans of the world had been slugging it out for decades had made a difference. One of the leading reformers who helped Russia get rid of socialism was economist Yegor Gaidar. As a young boy, Gaidar had lived in Cuba during Castro’s revolution, and his family often had Che Guevara, the famous Cuban communist revolutionary, as a guest. He began to doubt communism when the Soviet Union’s military invaded Czechoslovakia in 1968. Then he started reading more in the 1970s and 1980s about free markets. Asked who were the main influences on his economic thinking, Gaidar responded, "Of course, Hayek."
The world seems to be going the right way. Countries around the world are becoming freer, and that freedom is generating wealth for masses of people such as the world has never seen.
Yet despite the proven economic success of freedom, much of the world, including the United States, is hanging on to freedom’s opposite, government control. The government does not allow us complete freedom to save for our own retirement but instead takes a substantial bite of our income in payroll taxes through our working years and gives us a lousy rate of return on those taxes during our retirement years. If you are an employer who wants to provide insurance coverage for your employees, various state and federal laws force you to include various benefits, whether or not your employees want them, and these requirements may cause you not to provide the coverage. If you are trying to get on the lower rung of the economic ladder by selling goods out of a street cart or turning your car into a taxi, you must first get government permission, and often the government won’t give you permission. If you persist despite the government, you could go to jail. If you are unhappy with the education your child is getting in a tax-financed school and you decide to take your child out of that school, you don’t get a refund of the taxes you pay toward government schools. Moreover, if you put your child in a private school, that school may be regulated by the government. Those who sell items whose use carries certain risks—ranging from cigarettes and firearms to ladders and airplanes—are often sued when the users are harmed by their product. Users of those products pay more for them because the risk of a lawsuit drives up a product’s price.
The list of government rules and regulations goes on and on. The Federal Register, which contains just the new and proposed regulations of the federal government, has grown from 53,376 pages in 1988, before the Wall fell, to 68,571 pages in 1998. Governments at all levels in the United States take about 30 percent of the average person’s income and regulate in various degrees how she or he can spend much of the other 70 percent. The nastiest government leaders of the twentieth century—Stalin, Mao, and Hitler—murdered tens of millions of people and oppressed hundreds of millions of others. Fortunately, the United States and governments of other industrialized countries are much tamer. Yet the small and medium intrusions committed by these tamer governments add up. Governments in the United States and other industrialized countries chip away at our freedom in literally thousands of ways.
As recently as 25 years ago, when you got into an argument with someone about some choice that person had made, a common, debate-ending and debate-winning comeback from the person making the allegedly unwise choice was, "It’s a free country." You don’t hear that expression much any more. Instead, government is thought of more and more as the parent or as Big Brother, the term George Orwell made famous in 1984, his grim novel depicting a totalitarian state. A recent vice president of the United States, Albert Gore, apparently aware of the unease that many Americans still have about being regulated, stated that the federal government "should never be the baby-sitter, the parents." That sounded good. Gore, however, was not rejecting the idea of government power over people’s lives. Instead, he was making fine distinctions about what role in the "family" the government properly plays. The government, he said, should be "more like grandparents in the sense that grandparents perform a nurturing role and are aware of what parenting was like but no longer exercise that kind of authority." But the government is not our parent, our big brother, our baby-sitter, or our grandparent. Government, as George Washington said, is force. So if you want to stick with Gore’s model, think of the government as grandparents with guns who have never met you and don’t care much about you.
The fall of the Berlin Wall and the utter collapse of the vicious antihuman communist regimes around the world were great victories. But the victory is incomplete. People should be much freer than any government in the world is letting them be.