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The Free-Market Tyrant

The crushing weight of an unregulated economic rule can be just as restricting as the leash of a strong government. While basic logic supports Milton Friedman’s argument in Capitalism and Freedom that “every act of government intervention limits the area of individual freedom,” he fails to recognize that intervention can protect some freedoms and that the unregulated market create more tyrants than any political system (Friedman, 2007, p. 13). Without a government strong enough to force some regulations on the economy, corporate elites will gain power as rulers and manipulate the middle and lower classes with the economy. The correct balance to maximize freedoms while protecting the public is slightly different than Friedman’s proposed system, allowing the government more control. This analysis will cover the position of Friedman in Capitalism and Freedom and the errors in such thought, then introduce a system that is a healthy balance between totalitarianism and free market rule. A well-balanced system of government, one that has an open but regulated market and a government strong enough to properly enforce all of the necessary regulations as well as protect the people from economic abuse, is the best possible option.
Friedman has a valid point when he argues that government rules and regulations restrict the public’s freedom, but that does not mean such restrictions are not generally beneficial, if not necessary. When a government has too much power, it can almost completely remove the public’s freedom. With the force of the military and other methods of controlling the public, the government can regulate almost every aspect of a person’s life. However, the basic duty of government is to protect its citizens, which is only possible to do by limiting their freedoms. These are easily justified limits on freedom, such as “one man’s freedom to murder his neighbor must be sacrificed to preserve the freedom of the other man to live” (Friedman, 2007, p. 26). Friedman agrees there must be some limits and laws, but is an advocate of the free market, which he claims will protect freedom in both economic and political settings. To an extent, rule by the market will give people economic freedoms that are not available in most societies, but there are also drawbacks of this form of rule. Nonetheless, it is impossible to deny that the government operates on restrictions and regulations.
Friedman’s proposition that a free market could replace many sections of government and help create more freedoms still has a certain reliance on a government “to provide a means whereby we can modify the rules, to mediate difference among us on the meaning of the rules, and to enforce compliance with the rules on those few who would otherwise not play the game” (Friedman, 2007, p. 25). He believes the government simply needs to stand by the sidelines and mediate interactions among companies and the public when corruption could take place. Yet, Friedman is unwilling to allow the government to have many tools of power to administrate these groups. This reliance on government requires much more control by the government than Friedman seems willing to admit. Thus, an expansion of government powers over what Friedman proposes is necessary to assure moderate equality and freedom for all citizens.
Large-scale problems would commonly arise if the government was relatively powerless. Unless the entire world was ruled by the market, without governments or with very limited governments, the states under market rule would face the threat of invasion or abuse from nations with strong governments and military. Since a standing army is, economically, a waste of resources when it is not being used entirely for national defense, it is very unlikely that a large, if any, military would exist in a state under economic rule. Though mercenaries could be hired when need arose, it is highly unlikely that they would be hired and respond quickly and efficiently enough to stop a planned invasion, not to mention the question of who would do the hiring. Even if these issues were worked out, nothing would prevent this force from taking over the country when they were not on a job, which they would be compelled to do since they would not have a source of income without war. Of course, additionally, these militant leaders would not be likely to uphold the ways of the previous government and society, and, thus, the system would completely fall apart. It only takes a single issue, such as military defense, to show the fragility of a nation bound more by economic freedom than by political solvency.
Another issue that would have a large impact on a nation is Friedman’s dislike of the minimum wage and how it corresponds to the freedom of the poor; in a free economy, there will still be rich and poor, and, since the poor will have very little influence on the economy, they will have little influence on the state. This will create a powerless poor that will be open to abuse from the rich. Friedman denounces the minimum wage, which is one of the few regulations keeping the corporate elite from gaining a crushing economic hold on the middle and lower class (Friedman, 2007, p. 35). Without a minimum wage, which Friedman lists as one of the intrusive rules of the government that should be eliminated, once a person hits a rough spot in their finances, they can be forced down by companies searching for profits and stuck in a position where they are competing with other low-income people for extremely low paying jobs (Friedman, 2007, p. 35). Even if the United States kept the same economic and political policies but removed the minimum wage, the lower class would fall into turmoil quickly followed by the rest of the general economy. The minimum wage is a necessary requirement to keeping a closer gap between the different economic classes. Therefore, Friedman’s model without the minimum wage would not effectively protect the public from abuse as would a larger government model that had control over economic regulations such as the minimum wage.
Not only would these companies abuse the poor under Friedman’s lack of restrictions, but they would abuse natural resources, too. Friedman does not support national forest among other methods of environmental protection, which are necessary to protect the public as well as the environment. Without such protections, companies would exploit natural resources to keep their profits high. The environment would fall to heavy deforesting and mining, because the short-term profits would be more appealing than long-term environmental protection. Sets of regulations are necessary to protect the environment from being polluted and destroyed by hungry companies. Environmental protection helps keep the air clean for people to breathe, water safe for drinking and renewable resources available for use.
Even with a small government to regulate and make sure all of the companies obey the few rules and regulations, the large companies would be basically untouchable by the government. With the amount of influence they would have and the ability to manipulate the government, they could avoid any restrictions with bribery and corruption. Without the ability to influence the government on the same level as the large companies, the poor and even middle class would be oppressed and be forced to worry more about keeping up with their bills than attempting to engage in politics to help change their situation. Thus, the market rule can degrade into more of a totalitarian rule by the CEOs and other economic elites without even higher governmental restrictions than Friedman views as valid. It is necessary for the government and its members to have enough incentive and control that will be less prone to simply sell-out to the large companies. The government needs to have a strong hand in control of parts of the economy that is resistant to corruption to prevent abuse from crushing the lower classes.
With each power that Friedman wishes to remove from the government, another problematic issue arises that leads to more threats to freedom than the freedom the power’s removal gives the governed. Yet, while an economy-run nation would allow company elites to rule over the majority of the population through economic manipulation, a very strict government would be similar in terms of oppression. Friedman notes “the typical state of mankind is tyranny, servitude, and misery,” which describes a majority of governments before the nineteenth century (Friedman, 2007, p. 24). Thus, an extremely strict government would definitely limit the freedom of its people beyond what is necessary to protect them properly. With a strong government rule restricting freedoms and a free-market rule not protecting freedoms well enough, the only possible answer to a society with as much freedom as possible is a healthy balance between the two. While Friedman notes many activities that “cannot… validly be justified” by his vague terms of the responsibilities of government, he does not clearly state the boundaries between necessary restrictions and unnecessary limits of freedom (Friedman, 2007, p. 35).
Another regulation that benefits and protects the public and their freedoms, and that Friedman seems to leave out of his bounds of government, is health and work regulations. These regulations protect people from being harmed by poor work conditions, exposure to hazardous chemicals, and other issues that might arise when companies care more for profits than the well-being of their workers. It is a citizen’s right to breath air that will not cause their lungs and body damage as much even if another citizen wishes for the right to pollute by driving vehicles and burning coal in factories. However, as Friedman quotes Supreme Court Justice William O. Douglas, “‘My freedom to move my fist must be limited by the proximity of your chin’” (Friedman, 2007, p. 27). Thus, to protect workers from harmful chemicals, the work places must be regulated. Friedman might argue that capitalism would eliminate companies who had poor working conditions, but it is likely people would be unwilling to leave a steady job to escape the work environment if they were even aware that they were being exposed to toxins or unsafe environment and equipment. Therefore, the government must regulate work and environment safety standards to protect its citizens.
Even regulation and taxation of imports and exports when they are fit to protect and aid the economy are beneficial to a nation. While this goes strongly against the idea of free market, it would provide great protection of the economy and would be unlikely reduce trade greatly as the countries that participate in high amounts of trade with the country would likely rather lose a little profit than lose trade abilities with such a significant producer and consumer. China had previously done a very good job protecting its economy through these methods. These tariffs and the previous rules and regulations are just a few examples of how restrictions that Friedman dismisses as unnecessary actually provide economic stability, protect the public and allow for many more freedoms than could exist under an unregulated market rule.
With a free-market rule creating problems and abuse on par with a crushingly strong government, the best option is rule by a government that can properly enforce all of the necessary regulations on the economy and the people, as well as protect the people from possible abuse by strong economic powers. Friedman’s idea of a lightly regulated economic rule seems promising, but, in the end, is flawed in its ability to protect the citizen’s rights from abuse by other powers. Trading one tyrant for another is not a solution, but simply a different problem. While a capitalist economy can be beneficial, it is absolutely necessary for restrictions to be placed upon it to prevent abuse of the public, the environment and other possible victims of the brutality of the corporate battles for profit.

Controlling Globalization
Many people, even economists, believe that the world has become “flat” due to technology and globalization, allowing for innovation and education that would never have been imaginable previously, but also causing a decrease in economic diversity.1 Economic globalization is the integration of the various smaller economies of the world, such as those within a country, into a single world-wide economy. It has allowed for unprecedented economic growth and diversity, but has caused many conflicts over economic policies. There cannot be a large number of restrictions among economies when combining them or else neither side would profit. Thus, government and economy are related by the government’s influence upon economic regulations and its attempts to manage globalization. One economist simply explained this relation as “economics is concerned with expanding the pie while politics is about distributing it” (Alesine, 1994, p. 465).
Many supporters of globalization believe in the need for free trade, the lack of restrictive regulations on the economy. A number of economists believe that increasing globalization through advancing free trade is beneficial to the economies and people around the world. However, a prominent Turkish economist and Harvard professor, Dani Rodrik, disagrees with this view. He instead argues that the same if not more government regulation is needed to help support globalization (Rodriguez 1999). With these conflicting views, there is a large amount of debate over which path is best for the world: free trade or limited globalization. In this paper, I will first cover and analyze the various opinions on free trade, covering why free trade is supported, the ways tariffs are harmful, and how equality can be easily lost with restrictions and regulations on trade. Then I will counter with arguments for protectionism, showing how tariffs promote equality in wages, the economic growth that globalization bring with protectionism, where free trade agreements fail under weak governments, and the safety nets needed to control globalization. I have come to a conclusion on the approach that needs to be taken to best benefit the people of the world. The approach that needs to be taken to protect the economy while supporting globalization is the implementation of both global and national institutions of regulation which do not greatly restrict globalization, but protect the balance of equality and create more economic stability.
Free Trade
A large number of people advocate free trade and claim an open market will improve national and global economies by encouraging balanced trade through a capitalist system. Supporters of free trade are opponents of the practice of protectionism, which advocates the restriction of the market through various barriers, such as subsidies, tariffs and quotas. One free trade supporter and published economist, Jan Tumlir, claims that “all protection is a redistribution of income and wealth within the protecting country” and that providing protection to an economy increases the cost of goods within the economy (Tumlir, 1985). The general view of free trade is that reducing competition within a country’s economy will also reduce efficiency within the protected industries and raise the prices in those industries. Tumlir argues in his book Protectionism: Trade Policy in Democratic Societies that the costs paid by industries and consumers to protect the economy’s long-run growth rate and provide stability are higher than it is worth and will plunge the country into a downward economic spiral (Tumlir, 1985). He admits protectionism “eventually raises the general level of money wages” but counters that “the sectors producing import substitutes and tradeable goods are able to pass the higher costs to consumers” (Tumlir, 1985, p. 6). These higher costs are greater than the increase in wages, so even the workers who benefit from increased wages suffer when it comes to purchasing the products that they produced. Herein lies the argument for avoiding protectionism and encouraging expansion of free trade.
Not only is protectionism as a whole potentially harmful to economies, but tariffs can also deal a powerful blow on their own. In his book, The Choice: A Fable of Free Trade and Protectionism, Russell Roberts explores the state of America and its economy in 2000 if tariffs had been imposed in 1960 to protect American jobs (Roberts, 2001). As the book is written in a story-like first person view, the narrator explains how the president’s bill to increase tariffs lead to a lack of trade:
“His first bill ‘protected’ Americans from foreign televisions. His second bill eliminated all imports and will stay in force permanently. What you see around you in a self-sufficient America. But without imports, America has to devote a lot of resources to make things they hadn’t made before. Those items got so expensive, people could not afford the same cars as they did before.” (Roberts, 2001, p. 33)

The argument the narrator makes with the story is that tariffs choked the competition from foreign markets so much that they stopped trading with the United States completely, since other markets with lower or no tariffs were more profitable to sell to (Roberts, 2001). While this situation is a bit of an extreme, it does express a potential drawback of tariffs: restriction of globalization. If one country enforces tariffs higher than other countries’ tariffs, it will encourage their trading partners to look for other possible markets without the same taxations. This could be harmful to both the country imposing the tariff and those that are involved in trade with that country. The country itself will likely lose export markets due to rebuttal tariffs implemented in response to the original tariffs as well as the diversity of its own market place and the general benefits of globalization (Shutt 1985). Being self-sufficient, the country would be forced to produce goods that it imported from other countries previously. Rice, for example, that might have been previously imported from another country would now have to be grown within the state, taking up land and resources that were not previously used. In the case of small countries or ones with more limited resources, this would be a path to destruction, as they could not be self-sufficient and would be forced to remove the tariffs that were preventing trade to prevent a complete collapse of their own economy from impossible to meet consumer demands. Therefore, Roberts’ world of a self-sufficient United States, lacking market diversity and forced to use precious resources on goods that were previously inexpensive in the globalized market, could be a realistic danger of implementing tariffs.
Tariffs and other tools of protectionism are also extremely difficult to implement equally and fairly. As recently as 2007 there have been complaints from the public about the few tariffs that affect the United States. Men’s and women’s clothing imports are taxed differently in the United States, men face higher import taxes on items such as woolen shirts, while women’s sport items are taxed higher, allowing for what some claim to be sexual discrimination to develop through by taxation encouraging women to wear different clothes than men.2 Even with the World Trade Organization, the North American Free Trade Agreement and other such agreements and entities giving the United States the façade of a free trade supporter, these tariffs display the situation in a different light. A recent article in the New York Times illuminated yet another discrepancy with the so-called free trade policies of the United States; a habit of picking and choosing the outcomes of globalization, protesting and disallowing the sales and purchases of companies from some countries.3 Another article notes that the previous trend of economic liberalization had stagnated and countries are starting to erect the barriers they previously tore down to expand globalization.4 Thus, many supporters of free trade and globalization are weary of how governments are currently handling the economy and support freeing it further from the grasp of politicians.
The Other Side: Protection
Free trade supporters are convinced that each move that reduces interaction with the global economy is a positive step, and many people balk at the mention of tariffs due to fear of Roberts’ scenario of economic and industrial stagnation created by import taxes. However, Branko Milanovic and Lyn Squire have done studies that encourage a different perspective. They studied “a large dataset of average tariff rates all covering the period between 1980 and 2000,” a period of great economic globalization (Milanovic and Squire, 2005, p. 2). They found that reducing tariffs creates inequality in wages in similar occupations and industries in countries below the world median income, while the opposite occurred in richer countries (Milanovic and Squire, 2005). This inequality arises in the form of unequal wage income and the distribution of such income. Another issue is the effects on a country which did not change any of its trade policies, at least with respect to tariffs and other forms of taxation. Milanovic and Squire’s model shows that even if a country does not change its trade policies, “global expansion of trade reduces the export volumes or prices” of the country (Milanovic, 2005, p. 4). Not only would the country’s exports suffer, but it would not reap the benefits of globalization and fall behind countries which it had previously ranked higher than economically. Thus, when a major country reduces tariffs, many of the other countries in the same economy are forced to take similar action, and if the economy is global, then all must react the same way to protect themselves. Tariffs are necessary to uphold global equality in the workplace, and the removal of even one tariff could affect the entire global economy.
An investigation in 2001 by the World Bank entitled Globalization, Growth, and Poverty: Building an Inclusive World Economy showed China, India and Vietnam had great gross domestic product (GDP) growth in the mid to late twentieth century, much higher than the growth of the United State’s economy’s booming growth in the early twentieth century (Maddison 2001). Even more surprising is that “by standard measures, such as the height of import tariffs and prevalence of non-tariff barriers, India, China and Vietnam were among the most heavily protected countries in the early 1990s” (Rodrik, 2007, p. 5). In fact, their average tariffs were between 31.2 and 50.5 during that time and China and Vietnam were not even members of the World Trade Organization, so they were not compelled to follow regulations forced upon other countries, yet their growth rates were still between 3.3 and 7.1%, which is extremely impressive in terms of growth (World Bank 2005). On the other hand, Latin America suffered and produced a dismal economic performance when they attempted to liberalize their economy by removing all possible barriers. Rodrik expands upon this situation:
Here the paradox is not just that Latin America did worse than Asia, it is also that Latin America did worse than its pre-1980s performance. Let’s recall that the pre-1980s were the era of import substitution, protectionism, and macroeconomic populism. That the region did better with these discredited policies than it has under open-market policies is a fact that is quite hard to digest within the conventional paradigm. (Rodrik, 2007, p. 6)

The free trade policies of Latin America in the 1990s have done little to nothing to advance their economies and much to harm and destabilize them. Latin America is a perfect example of how following the policies supported by free trade can be economically tragic. Thus, the support for tariffs and other economic barriers that some may see as constraints on globalization have actually been quite beneficial for a number of countries that have still reaped the benefits of globalization while protecting their own markets.
Tariffs cannot just be thrown about by governments without proper research and analysis, however. In fact, there are many aspects of an economy that must be analyzed and delicately regulated to prevent globalization from dragging everyone down the same drain of economic failure. Dani Rodrik argues for a new orthodoxy that “emphasizes that reaping the benefits of trade and financial globalization requires better domestic institutions, essentially improved safety nets in rich countries, and improved governance in poor countries (Rodrik, 2007, p. 3). This has been supported by research done by Aaron Tornell, Frank Westermann and Lorenza Martinez in their study of North American Free Trade Agreement (NAFTA). They observed why Mexico failed to attain great gross domestic product (GDP) growth in the 1990s, and why its GDP and exports have stagnated since 2001 (Martinez et al. 2004). They claim in their paper that it was not the trade expansion that NAFTA encouraged that brought about the crisis in Mexico, but “the lack of further judicial and structural reform after 1995” (Martinez et al., 2004, p.2). Globalization can produce extraordinary growth of exports and foreign domestic investment, but only when there is proper governance.
The argument that the safety nets and government regulations encouraged by Rodrik and the study of Mexico and NAFTA would reduce the benefits of globalization is based on the presumption that “insufficiently open markets continue to impose constraint on the world economy” (Rodrik, 2007, p. 3). Rodrik argues that this presumption is no longer valid, because lacking trade is no longer a constraint on the global economy and continues the argument that it is “lack of policy space-˗ and not lack of market access-˗ which is (or likely to become soon) the real binding constraint on a prosperous global economy” (Rodrik, 2007, p. 4). Globalization is highly unstable and, as explained previously, contributes to inequality without proper regulation.
A range of institutional complements are required to support globalization’s benefits and prevent the inequality and instability shown in Milanovic and Squire’s study and by Latin America that arises from the blending of the world’s economies. An example of such institutions could be a work environment regulatory agency, which many countries have in place but tend to be poorly enforced (Krueger 1996). The conditions of factories in some of these countries, though, are not even close to what they claim as their national standards. This allows for abuse of the workers to benefit companies in these nations and, thus, reduces the quality of the workplace and the lowers the cost of production. One example of this issue is in China, where lacking restrictions on industries has left dozens of ponds in the Fujian Provence toxic and dangerous, causing great problems for the fishermen and thousands of people who consume the fish at risk for numerous health problems.5 If there were more strictly implemented laws both nationally and internationally, the factories in China would not be able to dump toxic waste into the environment without serious punishment. This would protect both the people of China and everyone around the world who now might consume these toxic fish thanks to globalization spreading the product across the globe. The safe production of products in a country is no longer just that country’s concern, because globalization spreads such products to other nations, so globalization itself encourages restriction on free trade to prevent such incidents. Having moderators to ensure equality, safety and protection for both workers and consumers would be beneficial to the entire world.
In the End
The arguments for restricted globalization and more free trade are both very compelling. After reviewing these different articles and studies, I agree that globalization is beneficial to all economies of the world. There are no problems with expanding consumer and producer bases, globalization can provide an economic boost for all parties involved. However, I have found that institutions and regulations are required to keep the global economy from becoming imbalanced. As intimidating as some people may find them, reasonable tariffs, ones that do not create unreasonable restrictions on foreign imports while helping to protect the economy from the full force of negative outside influences, are beneficial to the economies of their respective countries and provide stability and protection for them. Other institutions also seem quite necessary to protect workers and consumers as well as encourage fair play on the parts of the nations. Without such restrictions, it seems quite likely that smaller countries and the poor could be abused or crushed under the weight of the global economy. We need to step back from the free trade mindset and recognize restrictions are necessary to protect ourselves from the unstableness of globalization. As Dani Rodrik wrote, “the only way to save globalization is to not to push it too hard” (Rodrik, 2007, pp. 31).

Works Cited:

Alesina, Alberto, and Dani Rodrik. 1994. Distributive Politics and Economic Growth. Quarterly Journal of Economics 109: 465-90.

Dahl, Robert. 1989. Democracy and Its Critics. New Haven, Connecticut: Yale University Press.
Friedman, Milton. 2007. Capitalism and Freedom. New York, New York : Anthem Press.
Krueger, Alan B. 1996. Observations on International Labor Standards and Trade. Working Paper W5632. Princeton, New Jersey: Princeton University.

Maddison, Angus. 2001. The World Economy: A Millennial Perspective, OECD.

Martinez, Lorenza, Aaron Tornell, and Frank Westermann. 2004. NAFTA and Mexico’s Economic Performance. Working Paper 1155. Los Angeles, Cali.: University of California.

Milanovic, Branko, and Lyn Squire. 2005. Does Tariff Liberalization Increase Wage Inequality? Some Empirical Evidence. Working Paper W11046. Washington, D.C.: World Bank.

Rodriguez, Francisco, and Dani Rodrik. 1999. Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-national Evidence. Maryland: Department of Economics, University of Maryland.
Rodrik, Dani. 2007. How to Save Globalization from its Cheerleaders. The Journal of International Trade and Diplomacy 1 (2): 1-33.

Shutt, Harry. 1985. The Myth of Free Trade: Patterns of Protectionism Since 1945. London, England: Economist Books.

Tumlir, Jan. 1985. Protectionism: Trade Policy in Democratic Societies. Washington, D.C.: American Enterprise Institute.

World Bank. 2005. “Economic Growth in the 1990s: Learning from a Decade of Reform,” Washington, DC: World Bank.