Let free marketeers of all countries unite

Those whose faith in commerce is shaken by terrorism should remember that expansion of trade is the route to stability, says Amity Shlaes.

Is terror the flip side of globalisation? Is Latin America heading for trouble because liberal economics failed there? Does September 11 prove the sunny economic focus of the 1990s naive?

No, no and no, free marketeers would argue. But even they concede that making the case for the all-healing powers of commerce has become harder lately.

Beleaguered free marketeers may find useful ammunition in a new television documentary. On Wednesday evening in the US, PBS will air the first segment of a mini-series that lays out the free market world view on a scale not seen since Milton Friedman hosted Free to Choose 22 years ago. UK networks will show the series soon.

The Commanding Heights* is largely historical, tracing the battle between free marketeers and central planners from the collectivisation of Soviet agriculture to the fires of September 11. (The title comes from that great wordsmith, Vladimir Lenin.)

The series also offers a bit of wisdom for the now queasy, war-driven west: never forget economics. The overwhelming demands of a war - be it the cold war or the war on terror - must not obscure a simple truth: without the expansion of trade, there can be no long-term stability.

This is not as self-evident as it sounds. Governments tend to have two modes: the peacetime mode and the military one. And once the military mode switches on, economics tend to be subordinated. Free market steps are dismissed as a peacetime luxury.

Consider, first, the role of war culture and the challenge to markets in the past. Britain's sacrifices in the second world war created the mood of national solidarity that laid the ground for its postwar determination to build a better society. Under Clement Attlee and later Labour leaders this meant the nationalisation of industry and healthcare. Whatever the motivation behind them, these ideals were eventually a factor in bringing Britain to its economic knees. It was the fading of the culture of wartime unity that permitted the rise of that champion of markets, Margaret Thatcher, and Britain's 1990s successes.

In post-colonial India, the nation's awkward cold-war position between two superpowers led it to focus on self-sufficient modernisation, implemented from the top down.

"To develop meant to harness science and technology" - not to free them - as the producers of The Commanding Heights summarise. The British Raj was replaced by a "permit raj", a protectionist bureaucracy. Only after the cold war had receded did India liberalise and achieve the growth its over- engineered modernisation had failed to generate.

Latin America, too, had cold-war challenges to overcome. Soviet and Cuban influence helped bring to power Socialist leaders who wrecked their economies. Where it took place, the switch to freer markets was extremely painful for all involved. It is worth recalling that to reform Chile, economist Milton Friedman had to associate with the Augusto Pinochet regime and therefore subject himself to a worldwide hate campaign (some of the best footage in The Commanding Heights shows Mr Friedman's jaw tightening as protesters disrupted his receipt of the Nobel Prize). But the results Mr Friedman generated were more humane than socialism: a violent dictator's free market plan yielded, eventually, the end of dictatorship and a chance of prosperity.

In the case of the Soviet Union, the headquarters of the control culture, we also learn a few things. The producers of The Commanding Heights interview Oleg Gordievsky, a Soviet official who spied for Britain. His handlers were interested only in his military information: "The west neglected the foundation of the argument, the economy" - the Soviet Union's vulnerable under- belly. Western intelligence reports generally vastly overestimated the strength of Communist bloc economies. (As recently as the late 1980s, our most esteemed analysts were convinced East Germany's economy was as big as Britain's.) Cold-war myopia deprived western leaders of vital knowledge.

Last, there were the outliers, the Middle East and Africa - cold-war casualties of another sort. Some of their territories were cold-war battlegrounds - such as Angola and Afghanistan. Others suffered indirectly from the cold-war policy of containment, which tolerated dictatorship in exchange for the promise of secure oil flows (Saudi Arabia, Iraq). The result was that citizens of both groups were shut out of globalisation, helping to foster a climate in which terrorism could breed more easily.

And now? In Latin America, liberalisation is again challenged. The Commanding Heights tells us liberalisers should not be deterred. If, as the programme argues they should be, property rights are honoured and individual enterprise is rewarded, prosperity is not impossible.

In the Middle East, the message is that war alone cannot make the rest of the world safe. Today the spotlights are trained on the chemical stores of Saddam Hussein, as they once were on Moscow's missile arsenal. But without economic and political liberalisation, stability will not come.

These points may seem obvious but they are worth rehearsing at this moment of peculiar uncertainty. However horrible the threat of terrorism, however disastrous the economic troubles of certain regions, the challenges today are less than those that were presented by communism.

The concerned guardians of markets should take heart. The lesson here is that hesitation alone can lose them the spot they have secured on the commanding heights.

* The Commanding Heights (PBS), produced by William Cran, based on the book of the same title by Daniel Yergin and Joseph Stanislaw (Touchstone)

© Copyright 2002 Financial Times

Available for order:

To book Amity Shlaes for a speaking engagement, contact Jamie Brickhouse at the Red Brick Agency, 646.281.9041.
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