Free markets are not enough
By Walter Williams
Read the original article.
PROFESSOR G.R. STEELE of England's
Lancaster University, writing in the September
1999 issue of Economic Affairs, says that
laissez-faire is not enough for a robust, growing
economy. That's an important argument to make
because the enemies of liberty, at home and
abroad, point to the economic chaos in most of
the former states of the Soviet Union as
evidence that capitalism and free markets do not
Steele says, "The absence of an adequate
institutional structure explains why
entrepreneurial capitalism did not automatically
follow the collapse of central planning in the
1990s." His analysis is especially instructive for
us because the very institutions needed for
prosperity in the former USSR states are the
ones under increasing attack in our country.
Alan Greenspan, Federal Reserve Board
chairman, points out, "There is a vast amount of
capitalist culture and infrastructure underpinning
market economies that has evolved over
generations: laws, conventions, behaviors, and a
wide variety of business professions and
practices that has no important function in a
centrally planned economy." In our country, a
major part of this infrastructure includes a bill of
rights, whose main purpose is to protect citizens
against arbitrary action by government. Citizens
of the former Soviet Union have no such
Another part of capitalist or laissez-faire culture
and infrastructure is the rule of law and stability
of the law. Rule of law is where everyone obeys
and is judged by the same set of rules. Laws
apply to government officials just as they apply
to citizens. Outcomes are irrelevant.
Baseball rules provide an excellent example of
this process. In 1998, Mark McGuire hit 70
home runs while other players hit 10 or less.
Nobody accuses McGuire of greed and
exploitation. Politicians don't call for a
redistribution of his home runs, or tell McGuire
that he should give something back. We just say
to other players, "You had your chance."
Stability of laws are also part of the
infrastructure for prosperity. When laws
constantly change, people cannot plan well.
After all, if you make investment decisions
based on an existing legal structure, it's possible that you could be wiped
out by unanticipated changes in the law. So what do people do in such an
environment? They shorten their investment time horizon and become
more now oriented. Now-orientation is not the way to prosperity.