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Tuesday, November 20, 2007

Illarionov on Friedman

Writing in the Moscow Times, Andrei Illarionov, former economic adviser to President Vladimir Putin, president of the Institute of Economic Analysis and a senior fellow at the Cato Institute, remembers Milton Friedman.

When Milton Friedman died one year ago on Nov. 16, the world was inundated with remembrances and reflections of the most influential economist of the last century. "There are many Nobel Prize laureates in economics," former U.S. Federal Reserve Chairman Alan Greenspan once said, "but few have achieved the mythical status of Milton Friedman." The world lost a great economist and, as most obituaries emphasized, the world lost a great American economist. Why the emphasis on American?

Of course, a genuine scholar does not belong to one country but to all of mankind. In the world of academics and science, there are no national borders. Nonetheless, the host country of an outstanding academic gains a unique victory. This has less to do with "national pride" than it does with the contribution the extraordinary scholar makes to his home country -- to his colleagues and students, to the general exchange of ideas and to society as a whole.

In theory, Friedman could have become a Russian economist if his parents, who were born in the small Carpathian Ukrainian town of Berehove, did not emigrate to the United States at the beginning of the 20th century, but instead stayed in the former Soviet Union. History, of course, is written in the past tense only. But it is nevertheless interesting to pose the question, "Could Friedman have worked the same wonders in Russia?"

The honest answer to that question is disappointing. In the last century in the Soviet Union and Russia, there was virtually no chance for some of the world's greatest creative minds to survive, develop and prosper. Although the factors that decide who will be a genius are not written in stone, there are certain objective criteria that are necessary for a person to develop his talents: good family, quality education, challenging work, an intellectual circle of friends and colleagues, the ability to travel and to share knowledge with foreign colleagues, the ability to express one's opinion freely, an open exchange of ideas and society's general recognition of the scholar's talent and achievements.

It would be difficult to overstate the principal difference between the study of economics in the United States and in the Soviet Union. Even in the late 1970s and early 1980s, an economics professor who wrote a study on a seemingly harmless subject like price determination, for example, could have easily been fired. Thus, Friedman's study of the nature of money and its significance would have definitely meant, at a minimum, that he would have been banned from his profession -- or much worse. Friedman's passionate preaching of the virtues of free-market economics, liberal democracy, personal freedom, and his opposition to the military draft, would have been classified in the Soviet Union as anti-government or even traitorous behavior.

It is difficult to fathom what colossal intellectual resources were destroyed in the Soviet Union and Russia because of the fundamental lack of freedom in society -- including the inability to think and express one's opinions freely.

There are huge differences between Russian and Soviet economists and their U.S. counterparts. This concerns not only the difference in pay, or access to scholarly literature and professional contact with other economists, which are some of the most important components of what constitutes intellectual freedom. U.S. economists also have higher life expectancy than their counterparts.

It is also not surprising that since 1969, of the 61 laureates of the Nobel Memorial Prize in Economic Sciences, 47 are from the United States, and only one is from the former Soviet Union. Of the 18 laureates of the Nobel Prize in Economics who moved permanently to a new country from their place of birth, 15 of them moved to the United States, and several left countries such as Britain, Germany, France and Italy. Two of these laureates, Russian-born Simon Kuznets and Vasily Leontyev, emigrated to the United States, which probably saved their lives. This, one could say, is a vivid example of leading global scholars "voting with their minds and feet" by moving to a country that offered the type of intellectual freedom necessary to prosper.

There is another side to the issue of freedom: the contribution that scholars make to the development of the country to which they emigrated. Of course, this contribution is made not only by Nobel laureates, economists or other scholars, but also by every new immigrant. Whoever these immigrants are, whatever they do professionally, in the overwhelming majority of cases they make a direct contribution to their new country of residence, making the nation even more free, wealthy and successful.

At the end of the 19th century, when Friedman's parents made their journey from provincial Ukraine to Brooklyn, Russia's population (based on the territory of the modern-day Russian Federation) was 66 million people, which was 3 percent lower than that of the U.S. population of 69 million. In 1912, when Friedman was born in the United States, the difference in population between the two countries had grown to 8 percent. In 2006, when Friedman died, the population gap was more than 52 percent -- 142 million people in Russia versus 298 million people in the United States. The yawning gap is even more pronounced in economic indicators. In 1894, Russia's gross domestic product was 39 percent of the U.S. GDP. In 1912, it had dropped to 26 percent, and in 2006, Russia's GDP had dropped even more to 13 percent of the U.S. GDP.

Of course, free countries are not free of their own problems. They also have crises and catastrophes. Their elected leaders make serious mistakes and commit crimes. But in contrast to autocratic countries, in free countries serious problems are not ignored or swept under the carpet. As a rule, opposition politicians, the mass media and civil society as a whole in free countries investigate problems like the misuse of power or corruption, and they take concrete measures to correct them. Mediocre and incompetent leaders are usually swept out of office in elections. And in those cases when politicians and bureaucrats are found criminally negligent or liable, they most likely will end up in prison. But in authoritarian countries, government officials are rarely held accountable.

Freedom is a wonderful thing, whether it is economic, political or intellectual in nature. Citizens who are able to work in a liberal and free environment -- where the rule of law is an unbiased regulator and guarantor of stability, fairness and open competition -- are able to create tremendous tangible and intellectual wealth. It is sometimes hard to fathom how much wealth is created in free societies. Authoritarian societies, on the other hand, can never produce as much wealth as free societies, regardless of their rich natural resources, the number of nuclear missiles or the amount of hard-currency reserves in their central bank. In authoritarian countries, there is monopoly control of information and power, but this is not sufficient to create wealth through violence, fear or terror. Slavery -- whether it is economic, political or intellectual -- is doomed historically to chronic backwardness.

I once asked Friedman and his wife, Rose, who is also a leading economist in her own right, if they would have had the same views on individual freedom and free-market economics had they lived in Russia.Their answer was a firm no. Every time I think about their answer, my rational side coldly recognizes the fact that Rose and Milton Friedman were correct. Had they tried to live their professional lives in the Soviet Union, their unique talents -- and perhaps their lives -- would have been lost to the huge detriment of the entire world.

When Friedman's parents arrived in the United States, his mother, Sara Landau, started to sell goods at a tiny shop outlet. No one asked her about her previous citizenship as a condition for employment. In Russia, however, authorities have recently placed quotas on employing "non-native" nationalities in retail trade. The most serious problem in modern-day Russia is neither the lack of investment or the "resource curse." Its most fundamental problem is that there are few places for people. This is true not only in universities, which could be producing new Nobel laureates, but it is even true for would-be laureates' parents, who are seeking work in open-air markets.


Berita dari gunung said...

somehow we are allowed to see Russia disintegrating and trying to patch things during our life time.

Some nation may experience the same thing, but history will place it at a different timeline. we may not be able to see it.

The truth is world is trying is trying some sort of equilibrium; a little shake-up then it subside and settle down.

Concerned Citizen said...

If anybody has any idea what 'gangun' is trying to say, and how it is relevant to what Illarionov said very clearly, perhaps they could enlighten us?

La Russophobe said...

We, unfortunately, can be of no assistance in this regard.