The Legacy of Milton and Rose Friedman’s Free to Choose
Economic Liberalism at the Turn of the 21st Century
October 23–24, 2003
A Conference Hosted by the Federal Reserve Bank of Dallas

Session 6 Q&A

Q: Well, let me proceed to the questions. First of all, Raghuram, you mentioned that the ruling elite can be a hindrance to economic growth and freedom. Is this the case for the poor nations in Sub-Saharan Africa or is it a minor factor?

A: [Raghuram Rajan] I think in many parts of Sub-Saharan Africa this is a problem. I think a bigger problem is war and conflict amongst the elite for the little that is out there. But even in the places where there isn’t elite, there is this problem. Think of nations which are just extremely rich in natural resources, such as Nigeria. Those countries deserve to have had far more over the last 30 or 40 years than they have produced, and I think they can produce it again.

Q: I would note that Nigeria is one of the few countries on earth where the rich really are getting significantly richer, and the poor getting significantly poorer over time. Another question. Do either of you know the extent to which a combination of legal and other related institutions to further a market economy are being put into place in Iraq?

A: [James Gwartney] The short answer is no. And obviously I think there is a great deal of uncertainty about what’s going to go into place in Iraq, and there are many efforts under way. I am aware of a property rights organization that is providing guidance to the Iraqi governing council, but it’s just a very uncertain situation as to what’s going to take place there and whether or not it’s going to have rule of law and whether legal structures are going to evolve there.

Q: As suggested by Hernando De Soto, how do we help developing countries, otherwise known as emerging markets, to increase their level of private property ownership, particularly in the real estate area?

A: [Rajan] Well, I made an offhand comment about why I didn’t think he had the correct solution, and here’s why I think the solutions he proposes need more work. One of the things he argues for is legalizing the existing slums in these areas so that people have property. The followup to that of course is that once you start legalizing, what about people who see the legalization process taking place and create a whole lot of new slums. So in other words, don’t you in some sense reduce respect for property by creating this process of legalization. My sense is that it’s very hard to follow the solutions he suggests. I would argue that improving access to finance in other ways is more important. For example, in this country we have access to finance because in some sense you’re putting at risk your future borrowing capacity when you default, and that happens because there’s a widespread information-sharing network such that the default becomes a permanent part of your record. You’re sacrificing your future collateral, in some sense, your access to finance, by defaulting. So working more on information sharing, I think, would be a way of getting more access to the poor, but obviously there are many other dimensions along which one can work.

A2: [Gwartney] I would just add to that, that the titling which Hernando De Soto emphasizes so much is really quite important. They’ve been able to make some progress in Lima, Peru, and other parts of Peru with regard to that. As we’ve had increased titling to what had previously been government-owned land, at least in the case of Peru, it did alter things, ranging all the way from labor force participation rates to school attendance of children. So there are a lot of side effects from giving people more secure property rights. Actually, just a day before I came to this conference, Hernando De Soto’s chief economist came to Tallahassee, and we met and discussed a number of things that they have under way. One of the things that he was talking about in Egypt is a major project. In Egypt, with regard to government housing, people are not allowed to have title to the sand lands and things of that sort, so essentially the only place where they can have private property is on the farm lands. And they’ve used a lot of farm lands in Egypt, which of course is a very small amount of the total land there. But in response to that, they have actually built on top of public housing areas. So in fact, he was telling an amusing story about the director of public housing in Egypt, who was saying, what do you mean about titling to these places; there’s no problem with titling to public housing. But as he was showing the pictures he had, he said, “If you’ll look, Mr. Director, very closely, you’ll note that these public housing projects, many of them are five and six stories high.” But public housing in Egypt is limited to only two stories, so what was happening was they were building up on top of the public housing. But they don’t have any title to it, and so it becomes very difficult to pass it on. So I think in those kinds of situations, governments can play a very important role in figuring out a way to give people a legal title to things that they constructed.

Q: And finally I would like to give the Friedmans opportunity to comment on whether the tide is turning.

A: [Milton Friedman] I don’t have an answer to that. I think the main answer is yes, and I think part of the reason that it is more promising than it would seem from some of the discussion is because so much of this is concentrated on Western countries. If we look at the world as a whole, the dominant feature of the last 20 years has been the breakdown of centralized collectivist government: Russia, India, China. There the tide has certainly turned and it’s still running strong. In the West the tide has not turned nearly as much, it’s not turned as strong and in many areas there’s been a reversal. Rose, do you want to say something?

A2: [Rose Friedman] But in contrast to that, the West does not have as far to go to have the tide turn, and I must say, looking around in this audience, I feel that the tide has turned. There’s much more feeling toward freedom and enterprise, among the people that have come to hear as well as the people who have come to teach, than there was 20 years ago.

A3: [Milton] Well, there’s no doubt about that, but that’s the American side of the story.

A4: [Rose] It has to start somewhere.

That’s a good note to conclude on. Thank you.