November 2 2008
Sunday Reflection: Why America Needs Free Markets
Free markets are not perfect. That is one lesson of today's ongoing economic crisis. But an even more important lesson is that government is not perfect. Politicians have done more than businessmen to drive America's economy into a ditch.
As we move to fix the economy, we must remember that it is private markets, not government programs, which have made America the wealthiest nation on earth. It is markets, not governments, which increasingly spread prosperity throughout the Third World. Markets have been particularly important in enabling workers to care for their families and in providing opportunities for women entering the workforce.
Throughout most of history poverty was the standard human condition. Survival was a daily challenge; children lived no better than did their parents. Life, in Thomas Hobbes' famous phrase, was "poor, nasty, brutish, and short." Chiefs, kings, and emperors did a little better than everyone else, but they, too, were poor, indeed, desperately poor, by today's standards-just not as poor as everyone else.
Life changed little over the centuries. There were occasional technological advances, but few substantially improved the quality of life of average people. And civilization often lurched backward: The Roman Empire gave way to the "Dark Ages," the great Chinese Empire turned inward and stagnated.
Vast swaths of humanity lived and died as had their ancestors and as would their descendents. All that changed with the Industrial Revolution. Life was still hard-look at any picture of a slum in Manchester, England.
But for the first time ever life was getting better. People moved from the farm to the factory because they were better off. And people could finally look forward to their children enjoying a better life than they had.
The reason for this change was capitalism.
Government enslaved people. Capitalism freed them. The process was messy. Some people grew rich while others remained poor. But even those at the bottom of society were better clothed and housed; they ate better and lived longer.
Indeed, those at the bottom were the greatest beneficiaries of capitalism, since people who once had no hope now found steadily expanding opportunities. Over the years markets continued to demonstrate their power to liberate.
The U.S. economy once was dominated by white men. But free markets-characterized by open competition-welcomed people irrespective of race or sex. Thus, even when most African-Americans labored as slaves, free blacks became farmers and entrepreneurs, succeeding in an otherwise hostile world.
After slavery ended, the freedmen were ready to enter the marketplace. It was government, in the form of Jim Crow, and criminal vigilantes, like the Ku Klux Klan, that stood in the way. When markets threatened to break down racial barriers, politicians legislated segregation.
Even so, African-Americans created a vibrant business community. And once the Civil Rights movement succeeded in eliminating government barriers to racial minorities, blacks and other disadvantaged groups were able to take full advantage of America's abundant economic opportunities.
Women, too, labored for decades under legal and social disabilities. Change was accelerated by the exigencies of war, especially the pressure to both man a global military and expand weapons production during World War II.
Women entered the work force in large numbers. Although full economic equality took years more to attain, it came-courtesy of the free marketplace. America offered an enormous number of choices for women who wanted to focus on career or mix family and career. Today women become entrepreneurs and executives, as well as political leaders.
While some people see economic freedom as advancing women's business opportunities at the expense of families, in fact prosperous capitalist systems undergird family life. The bounty generated by free markets not only allows people to better care for their families-parents and siblings, as well as spouses and children-but also allows women (and men) to stay home with their children if they prefer.
At least, people can do so if government doesn't tax away too much of their incomes, pushing both spouses into the workforce.
Ultimately, economic liberty is as much about freedom as about economics. It offers individuals and families choices that they otherwise would not have. Our market system is one of the critical foundations of our free society.
Obviously, free markets are not perfect. But neither are governments. Indeed, governments almost always operate less efficiently because bureaucrats spend other people's money and respond to political pressure by powerful interest groups.
Businessmen-lenders, investors, ratings agencies, and others-obviously bear a big share of the responsibility for the financial market's recent turmoil. But ground zero of the subprime lending crisis and housing market collapse are Fannie Mae and Freddie Mac, government sponsored enterprises used by congressional Democrats as political piggy banks.
Democratic legislators fought off all attempts to restrict Fannie's and Freddie's activities. There's more blame to go around, like to the Federal Reserve's loose monetary policy.
In the coming months we may find that the abundant federal bail-outs have their own unintended consequences, by discouraging banks and firms from taking tough steps to clean up their own balance sheets: no one wants to be a hero when Washington is busy rewarding companies with taxpayer dollars for being irresponsible.
Much more needs to be done to clean up today's economic mess. But making the financial system more transparent should not become an attack on the market system itself. Capitalism is the engine of prosperity that benefits Americans of all incomes and backgrounds.
Michelle D. Bernard, author of "Women's Progress, How Women are Wealthier, Healthier, and More Independent Than Ever Before," is the president and CEO of the Independent Women's Forum and Independent Women's Voice and is an MSNBC political analyst.