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Economics, Term Paper Example

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Part I: The essential starting point for Friedman’s thesis is that political freedom has always been correlated with economic freedom (Friedman 7-10). A key point here, something that is absolutely vital to make clear at the outset, is that in Friedman’s mind political and economic freedoms, though interlinked and heavily overlapping, are not one and the same: they are related and correlated in very fundamental and profound ways, but they are still not one and the same thing (10). Friedman well recognizes, and is very clear on, the point that a society lacking political freedom can still be organized along lines that promote private enterprise and thus, no small measure of economic freedom, cases in point being the fascist regimes of Italy and Spain, “Germany at various times in the last seventy years,” Imperial Japan, tsarist Russia, etc. (10).

Thus, economic freedom is not a sufficient condition for political freedom; nonetheless, Friedman argues, it is a necessary condition (Friedman 10). There are essentially two components to his argument here: firstly, a lack of economic freedom is itself a lack of political freedom (Friedman 8-9; Scott 32). The legal compulsion of American citizens to pay into Social Security, for example, as well as the requirements that citizens obtain licenses for a variety of occupations, and government-set quotas for trade: to Friedman, all of these constitute government coercion of citizens, and thus, are political infringements on economic freedom (Friedman 9, Scott 32). Thus, economic freedom is both “an extremely important part of total freedom”, and a kind of political freedom (9).

From this comes the second main part of Friedman’s thesis: the process by which economic freedoms, particularly the system of capitalism, can lead to an expansion of political freedoms, potentially taking a country from dictatorship to democracy. This process is, by Friedman’s own admission, complex; nonetheless, the argument is that there are two essential modes of organizing the economy for the purposes of production: centralized, government control on the one hand, and private enterprise on the other (Friedman 11-13). Private enterprise, capitalism, is voluntary: individuals cooperate, Friedman avers, out of a sort of practical and enlightened self-interest (13). As long as the exchanges are mutually voluntary and mutually informed, the society has achieved economic coordination without coercion (13).

What capitalism does, then, is allow people to organize themselves towards the ends of meeting their own needs and desires, rather than those of a ruling elite or clique (Friedman 15). If, and only if, this economic freedom is preserved through the power of the marketplace in a way that is not harnessed to political power, then it can effectively counter political power (16). As Salemi and Hansen elucidated, for Friedman the separation of economic power from political power is essential: for capitalism to lead to the expanded political freedoms of a democracy, it must be genuine capitalism, i.e. free, voluntary, and competitive (82). If the government protects these characteristics of economic freedom, then economic power is truly private and thus, decoupled from political power (82). This can in turn lead to a process whereby individuals, emancipated by the power of the marketplace to earn their livings as they see fit, can begin to advocate for further changes to the political structure of society (Friedman 16-17).

Thus, Friedman’s thesis is that economic freedom is a type of political freedom, and can, if properly protected from political power and coercion, lead to further political freedom. Through the economic freedoms of capitalism, individuals can organize their economic activities and earn a living as they see fit. With these economic freedoms protected, individuals can organize on a voluntary basis. This in turn gives them security, since the government is not their employer and does not control the economy in a centralized fashion. From this stage, individuals can inaugurate movements for broader political change, which can lead to democracy.

Part II: McGregor’s fascinating book details the structures of political and economic power in the modern-day People’s Republic of China. Although it has come far in rejecting many aspects of Communism, today’s China remains firmly ruled by the Party in many ways. As McGregor explains, the Party retains considerable control of the economy, setting economic policy and controlling companies. To a considerable degree, in the People’s Republic of China the political elite and the economic elite are inextricable, integrally linked: though they are not all the same, the relation is very profound, deep, and far-reaching (McGregor 7-9).

An important example of this is that of China’s state-run companies (McGregor 8). These state-run companies are controlled by the Party: the CEO of every one of them has a red phone, the so-called “red machine”, which functions as a hotline between the Party government and the CEOs (8-9). Each “red machine” has a four-digit number, and all of them are on a closed-connection within an encrypted system (8). Even the most senior and distinguished CEO of one of these companies is expected to answer the “red machine” with alacrity, since it will most likely be a call from some high-level official (8-9). On the other hand, the possession of the “red machine” is itself a status symbol for the CEOs, since it signifies their presence in “the senior ranks of the Party and the government” (9).

In other words, being a CEO of a state-run company means that one is a member of China’s political-economic elite, the oligarchic circle or even cabal that is responsible for controlling and running the country (McGregor 9). As an elite network of tight-knit, well-connected individuals, a key tendency of this cabal is nepotism: CEOs of state-run companies are often asked to find jobs for the relatives and family members of Party officials (9-10). In essence, then, one cannot separate these companies, organs and engines of economic power, from the organs and engines of political power: the Party controls them just as surely as it controls political power (10-12).

And yet, there are economic freedoms in China as well: not all of the economy is run by the state, and citizens have at least some freedoms to buy and sell as they see fit (McGregor 27). Contemporary Chinese citizens have vastly more economic freedoms than in the Mao era: freedom of residence, freedom of employment and education, freedom of wages, and freedoms of mobility and even life choices such as marriage, all of these are freedoms that Chinese citizens have gained since the late 1970s (27). Thus, where the Party used to control much of the sphere of everyday life, civic life, it no longer does so: in effect, there is a considerable sphere for individual choices, including economic choices, that is essentially separate from overarching political control (27-28).

However, the relation between economic and state power in China is nothing if not complex. Although the government allows Chinese citizens many freedoms that would have been unthinkable in the past, including many economic freedoms, ultimately the Party has sought to use the market to reinforce and uphold state power (McGregor 28). The degree to which it has been successful is certainly up for debate, particularly since, as McGregor notes, the parts of the economy that have been subject to the greatest levels of privatization are those that have succeeded the most in creating wealth (28). And the Party continues to intervene in the economy by setting economic policy and by trying to stimulate private enterprise, notably by using both its own elite status and, where this fails, cash incentives (32). Thus, political and economic power remain inextricably tied to each other in contemporary China, although they are not entirely coterminous and may even experience friction in some areas. The political elite, as much as possible, uses economic power towards its own ends.

Part III: Whether or not China will defy Friedman’s hypothesis is a complex inquiry, and not easily answered. In part this is because of the question of whether or not Friedman himself is correct: as Scott observes, Friedman’s assumption that only the government is capable of coercive power is unfounded, since large firms are very capable of coercive power as well, with regards to both the consumers and to other firms (32). Nonetheless, even if one assumes that Friedman’s essential thesis is correct, this still leaves considerable room for argumentation in the case of modern China: is the state-run sector of the Chinese economy proof that economic freedom and true capitalism are not present, or are the economic freedoms of contemporary Chinese citizens, including a private sector of the economy, proof that China has separated at least some economic power from political power?

As it stands, the Chinese Communist Party controls much of the Chinese economy: they set economic policy, they control the operations of state-run companies, and they intervene in the economy, including the competitive private sectors, to promote economic growth. From this, it seems quite likely that in the foreseeable future, following Friedman’s thesis, the Party will remain in control. To a considerable degree, they have taken control of economic power in the country, and continue to play a major role in directing the economy and controlling it. As such, it is best to speak of the Party elite as a political-economic elite, and not ‘simply’ as a political one.

And yet, there are encouraging signs that China may develop sufficient economic freedom to meet the essential criteria of an economically free society as outlined by Friedman. Contemporary Chinese citizens enjoy many freedoms that would have been unthinkable until recent decades, and a substantial sector of the economy is privatized. China has seen massive economic growth, generating much wealth. If these trends continue, China may achieve the status of an economically free society, one in which enterprise is separate from political power.

Works Cited

Friedman, Milton. Capitalism and Freedom. 1962. Chicago, IL: University of Chicago Press, 2002. Print.

McGregor, Richard. The Party: The Secret World of China’s Communist Rulers. New York: HarperCollins, 2010. Print.

Salemi, Michael K., and W. Lee Hansen. Discussing Economics. Northampton, MS: Edward Elgar Publishing, Inc., 2005. Print.

Scott, Bruce R. Capitalism: Its Origins and Evolution as a System of Governance. New York: Springer, 2011. Print.

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