Freedom and Capitalism: Friedman vs. McNally Compared

Introduction

Economists look at the state of the world economy and invariably come to different conclusions; the nature of a market economy is to be unpredictable. In today's economic environment, the battle is still waging between the various forms of capitalism, and the very definition of what it means to be free is being challenged from two viewpoints. First, there is the view that economic freedom, without government restraint, is the most important aspect of a forever strong and growing economy. This view is promoted by individuals such as Milton Friedman, an economic and social theorist first made famous in the 1960s with the publishing of Capitalism and Freedom (Friedman, 1962). The second view is that of pursuing the social good through government means and the control of corporate interests, in order to bring about a stable and equal society while still pursuing free market principles. The anti-capitalism movement, as it is known, is best represented by David McNally in the 1994 work Another World Is Possible: Globalization and Anti-Capitalism (McNally, 2006). These two views contradict each other while using the same mechanism — capitalism — and the repercussions of their disagreements span the entire world.

This essay is organized around the definitions and principles put forth by Milton Friedman in Capitalism and Freedom, in order to better define the social issue of capitalism. It begins by defining freedom as Friedman conceives of it, then discusses capitalism and its intricacies, before turning to the opposing viewpoint of McNally and the ideas of the anti-capitalism movement.

The detail division of labor is an idea first advanced by the economist Adam Smith in his 1776 work The Wealth of Nations (Dhamee, 2005). It is perhaps best observed in automobile assembly plants in Detroit, where different divisions of laborers create separate parts that are combined into a single finished product. This arrangement allowed different groups of workers to produce higher-quality components and to master processes essential to that quality. In turn, it enabled high profitability for the parent organization — an idea later perfected by Henry Ford. The detail division of labor has since been adopted in nearly every industrial and technology sector, with computers being a prime example. Each component within a computer is manufactured by a different company, often in separate provinces of China, and then shipped for final assembly elsewhere. Software development represents yet another form of detail division of labor, with each program created by different groups of workers.

The problem with the detail division of labor is its marginalization of workers, often confining them to menial tasks for long hours. Because vast quantities of products are sold via this method — from automobiles to computers — many millions of people are subjected to the narrow, repetitive tasks assigned to them within the process. This also means that each stage of production is reduced to its cheapest possible task, so that the least costly type of worker can be employed. This is called deskilling: firms constantly seek ways to cut costs, and simplifying jobs is a central part of that strategy. Deskilling has in turn contributed to outsourcing, which is why manufacturing in China has loomed so large in discussions of Milton Friedman's ideas. Outsourcing has fundamentally transformed manufacturing and globalization, reshaping the world's labor forces away from Europe and North America and toward East Asia. Labor has been the weak point of Friedman's economic freedom principles, because labor is the least-skilled component of the capitalist process. This is healthy overall, Friedman argues, because it means the free market is working at peak efficiency, and new firms will emerge to compensate for the deskilling of labor and the reorganization of the global workforce.

Friedman is a believer in individual freedom above all else — specifically, the freedom of the individual to make their own choices in order to improve or diminish their own well-being. Friedman sees the world as a competitive and unforgiving place, with a weak society that traps its citizens through taxation and restriction. He credits individual freedom with making the United States great and sees its absence as responsible for making other great powers weak. Freedom, in this view, contributed to the downfall of the Soviet Union, which collapsed in 1991 having failed to provide an economically viable environment within its social system. The expense of maintaining the Soviet military against the vastly wealthier United States meant that the USSR could not devote its resources to innovation, and stagnation crept into what had once been a powerful industrial base.

Freedom and Capitalism as They Relate

Milton Friedman also sees economic freedom as encompassing the free movement of labor, which is the fullest expression of the free market. Globalization is a positive development, because it allows firms to grow unimpeded by governments that would otherwise impose restrictive regulations. Friedman does not believe the central bank is an adequate solution to deep recessions; instead, he holds that monetary policy and the careful control of the money supply are far more important than fiscal intervention. Friedman's ideas of freedom greatly influenced the presidency of Ronald Reagan, as well as those of Presidents George H.W. Bush, Bill Clinton, and George W. Bush. In the purest form of capitalism, complete freedom comes to the market, and exceptional individuals are able to do whatever it takes to maximize wealth and success for their firms. Friedman believes that such a society is best for humanity and will generate the greatest level of technological and scientific progress.

David McNally rejects Friedman's conception of freedom and instead believes in a socialist society as the utopian ideal humanity should pursue. McNally attempts to separate the political system of communism from socialist principles, applying the latter to capitalism as a corrective framework. In practice, this means McNally advocates for higher taxes, a more balanced income-distribution system, and robust government programs to support society. This type of society is most clearly approximated in Sweden, a social-capitalist hybrid that functions in part because of the relative homogeneity of its population. McNally goes further than the Swedish model, however, envisioning a complete de-commodification of the market, the elimination of large firms, and greater use of internationalism as a framework for political and social exchange. McNally also advocates for diversity — not only among peoples, but also economic diversity, which means allowing markets to flourish in regions where they are most suited. This approach still promotes competition but aims to remove the extreme exploitation that competition can generate, working toward a more cohesive global system. This economic model, McNally contends, would produce a healthier and happier society, even at the cost of perpetual economic growth.

Friedman's version of capitalism has never been fully realized, since no country has entirely relinquished its role in managing the economy. There is, however, one literary example that illuminates what an anarchic capitalist society might look like: Ursula Le Guin's The Dispossessed. In this novel, Anarres — the planet at the center of the anarchistic experiment — represents the ideal form of capitalism as Friedman envisions it (Le Guin, 2011). On Urras, the author-protagonist is constrained in his scientific research because that work conflicts with the values of Urras's society. In that world, freedom does not truly exist, since the individual is not free to act against the collective will. He therefore travels to Anarres to pursue his research. Anarres is a world without a true government; competing ideas circulate about property ownership, and about the structure of a society free of hierarchy. Although the novel is science fiction, it carefully analyzes political ideologies that cannot be directly tested on Earth.

In an ideal situation, the principles of an anarchic system are perfectly suited to the flourishing of capitalism, provided law and order are maintained. Friedman sees nothing wrong with using labor as a means of generating wealth, and a structureless society therefore allows complete flexibility in organizing production without governmental prejudice. Because no government can suppress scientific research, an unlimited level of advancement becomes possible, and society is gradually lifted as new methods emerge to challenge the status quo.

What Friedman Means by Capitalism: The Dispossessed

David McNally sees capitalism at its core as a mechanism for controlling labor in order to extract wealth (McNally, 2006). This means that capitalism is inherently an exploitative process — one that may in theory benefit both parties, but that almost always in practice benefits one more than the other. Capitalism is nonetheless still a useful tool for advancing society and meeting the needs of a people, and so it remains a practical system. What is needed, in McNally's view, is an intermediary designed to protect people from the exploitative tendencies of corporations, and this is where government must intervene.

In McNally's ideal world, there is no need for marketing or the protection of private corporate shares, because services are provided on the basis of need rather than greed. This society rejects the notion that individuals are more important than the common good; instead, it protects individual rights while pursuing the economic benefit of the greatest number of people rather than the wealthiest and most powerful. In a socialist system, labor is compensated equally to management, since workers are the ones actually performing the work that produces available goods. Labor is seen as the most important interest in a corporate firm, rather than shareholders. Shares are controlled by the government to prevent fraud and the exploitation of worker interests. In such a world, unions are unnecessary, because the principle of unionization is inherent in the position of laborer itself.

To summarize Milton Friedman's philosophy of what capitalism is at its core, one must look to the Friedman doctrine. He states: "The possibility of co-ordination through voluntary co-operation rests on the elementary — yet frequently denied — proposition that both parties to an economic transaction benefit from it, provided the transaction is bi-laterally voluntary and informed. Exchange can therefore bring about co-ordination without coercion. A working model of a society organized through voluntary exchange is a free private enterprise exchange economy — what we have been calling competitive capitalism." (Friedman, 1962) This idea has been the core focus of the Chicago School of Economics since the 1960s, and stands in opposition to fiscal policy, central banking, and the Keynesian economics of the 1930s.