History is Happening Now

I have noted with some interest the recent dramatic transformation of Thomas Friedman from an arch advocate of free-market capitalism–an almost textbook proponent of neoliberalism–to an arch economic protectionist, a man almost Hamiltonian in his adoration of state planned economies.  His latest column, written from Beijing, illustrates his miraculous shift as dramatically as any.  Friedman writes:

China did not build the magnificent $43 billion infrastructure for these games, or put on the unparalleled opening and closing ceremonies, simply by the dumb luck of discovering oil. No, it was the culmination of seven years of national investment, planning, concentrated state power, national mobilization and hard work.

…

The difference is starting to show. Just compare arriving at La Guardia’s dumpy terminal in New York City and driving through the crumbling infrastructure into Manhattan with arriving at Shanghai’s sleek airport and taking the 220-mile-per-hour magnetic levitation train, which uses electromagnetic propulsion instead of steel wheels and tracks, to get to town in a blink.

Then ask yourself: Who is living in the third world country?

Friedman is of course also famously the advocate of what he called in The Lexus and the Olive Tree “the golden straightjacket,” the idea that privatization is the magical answer to the economic woes of every country–the one and only answer, in fact.  Wise nations will deregulate their capital markets (enabling financial crises like the one that rocked Asia in the late 90s), balance their budgets (by cutting off services, like welfare, if needed), privatize industry (selling off State Owned Enterprises, usually to foreign multinationals, usually at fire sale prices), and eliminate all tariffs (ensuring that their privately owned “infant industries” will die, and eliminating the only mechanism most poor countries have to raise revenue to pay for services and welfare).  Capital will vote with its feet, Friedman 1.0 cheerfully assures us, for the benefit of all.  Those who advocate state protection of industries are economic troglodytes, caught up in outmoded orthodoxies or ignorant xenophobic nationalists.

It would of course be total nonsense to say that China is growing at the rate it is because it has applied a golden straightjacket to itself.  Yes, post-Deng China has privatized many State Owned Enterprises, and has introduced a salubrious degree of freedom and competition into its economy, eliminating many of the bad features of total state planning, and the various insanities of Maoism, but its breakneck industrialization is, as Friedman 2.0 comes right out and says, the product of “national investment, planning, concentrated state power, national mobilization and hard work.”  Unlike many of the Asian Tigers, China did not liberalize its capital markets, which allowed it to weather the Asian financial crisis with little trouble.  And it has spent enormous amounts of money investing in unprofitable infrastructure projects and propping up business with taxpayer yuan.  China is pretty much the opposite of a laissez faire economy, to spectacular effect, as Friedman 2.0 openly admits.

It is remarkable how commentators like Friedman stick to their economic orthodoxies when prescribing solutions for other nations — they must wear their golden straightjackets! — but instantly see the Glorious Light of State Planning when it comes to the economy of their own nations, not only in relation to infrastructure, which he discusses in this column, but also notably in the area of Green Technology, which Friedman 2.0 (rightly, in my view) thinks US taxpayers should subsidize in order to artificially build comparative advantage in this 21st Century industry and in the process create good high-value-added jobs at home.

So much for the miraculous power of the free market!