Markets Need a Hidden Fist

It Just Ain't Sol W hen I want to jump-start my Sunday by kicking up my blood pressure a few points, I head down the driveway for the Sun day New York Times. Some weeks it is the front page that does the trick, other weeks the op-ed page. Few Sundays have given me a more eye-popping, artery-clearing boost, however, than March 28, 1999. To mark the publication of The Lexus and the Olive Tree, his new book on globalization, Times foreign affairs columnist Thomas L. Friedman wrote an extraordinary cover story for that week's New YorkTimes Magazine. The magazine was graced with a large photograph of a fist painted with an American flag and emblazoned with the headline: "What the World Needs Now." The fist symbolizes Friedman's message that what the world needs is for the United States not to "be afraid to act like the almighty superpower that it is." Military strikes against Afghanistan, Iraq, Sudan, and Yugoslavia dur ing the last 12 months suggest one might rea sonably at least quibble with the notion that any significant level of fear prevents America from acting like an almighty superpower.

Friedman is in no mood to quibble, however. "From supercharged financial markets to Osama bin Laden, the emerging global order demands an enforcer. That's America's new burden." The world according to Thomas Friedman divides along two dimensions. One stretches between the Separatists and the Integra tionists, those who want to wall America away from the world and those who want to plunge in. The other dimension stretches between the Social-Safety-Netters, who "believe global6 ization will be sustainable only if it is democ ratized, in both the economic and the political sense," and the Let-Them-Eat-Cakers, who want to let the poor fend for themselves. Bill Clinton, along with Friedman, is a Social-. Safety-Netter/Integrationist while Ross Perot is a Let-Them-Eat-Caker/Separatist. You get the picture. For all his experience in exotic foreign lands and hobnobbing with his big-shot friends, Friedman's problem is that he doesn't really grasp what a market is. Friedman understands that markets "generate the incomes and absorb the technologies needed to keep standards of living rising." What he doesn't seem to have a clue about is how mar kets do that. Friedman misses two key points.

First, markets are a means to solve what F. A. Hayek called the knowledge problem. Almost anywhere I go, I find an incredible array of goods from virtually every comer of the world. To take just one example, on my daughter's last Girl Scout camp-out we did a global product hunt and found goods from every continent except Antarctica among the (relatively) small amount of stuff we took with us. That all those things get here without our being aware of the alternative uses for those goods elsewhere in the world would be miraculous if it weren't so commonplace. The result is prosperity. Second, markets create a sphere for human freedom that would justify their existence even if they didn't create prosperity. For many reasons societies that rely on markets are freer than societies that don't. Markets offer the potential for anonymous transactions that free us from accounting to the government for our purchases. Markets also offer us a wider vari ety of means to pursue our own ends than any alternative form of social organization.

No Force or Fraud To do those things, markets require remark ably little. In the absence of force and fraud, markets facilitate voluntary transactions that create wealth. If I sell you one of my widgets, as long as I don't misrepresent what the wid get does or hold a gun to your head, we're both better off. I've got your money, you've got my widget. Thus all a market really needs to function is protection against force and fraud. Many institutions can be used to stop force and fraud, and government is one (but only one) of the potential solutions. Governments create problems as well as solve them (something Friedman never men tions), and we might hesitate to employ gov ernment solutions when we think the prob lems outweigh the benefits. Reasonable peo ple can differ about just where the balance tips, but Friedman wants nothing to do with a comparative analysis of institutional strengths and weaknesses.

According to him, markets need supple menting for two reasons. First, we need to "democratize" globalization by compensating the losers from increased trade, because if we don't "the have-nots, know-nots, and turtles . . . will eventually produce a backlash that will choke off your country from the world." In other words, we need to bribe those who have benefited from stifling tariffs and other special-interest rules to relax their grips on our throats. As a matter of practical politics this may carry some weight; as a matter of principle it is repulsive. Second, Friedman thinks we need to worry about those pesky foreigners who don't understand the benefits of globalization quite as well as he does. His basic idea boils down to this: "The hidden hand of the market will never work without a hidden fist-McDon ald's cannot flourish without McDonnell 7 Douglas, the builder of the F-15. And the hidden fist that keeps the world safe for Silicon Valley's technologies is called the United States Army, Air Force, Navy and Marine Corps." In other words, if it weren't for America the Global Policeman, we wouldn't have all those foreign markets for our goods.

Our armed forces certainly playa major role in the world today-although an impor tant part of their role is subsidizing other nations by freeing them from the burden of providing for their own defense. It may even be that McDonald's gains new markets by our stationing of troops around the world. From Indonesia to Zaire/Congo and other countries where American support has propped up klep tocracies for decades, the hidden fist is a not so-hidden dead-weight loss that impoverishes both the people of those countries and Amer ican taxpayers. The fundamental premise of Friedman's argument is wrong: McDonald's and Intel, Microsoft and Ford-all are successful or not overseas for the same reasons they succeed or fail at home: because people around the world either want their products or do not. To the extent American companies' success depends on the flexing of our fist to coerce others into buying their products, it is the United States that is engaged in undermining markets, not other countries. If Americans heed the call of people like Thomas Friedman to start swing ing our red, white, and blue fists, we are like ly to find that among the first casualties are our freedom and our prosperity.

-ANDREW ~ MORRISS (apm5@po.cwru.edu) Case Western Reserve University Train Wreck by Gregory Bresiger "The power to tax involves the power to destroy," Supreme Court Chief Justice John Marshall said. So does the power to reg ulate. In the decades after World War II, many American railroads fought a losing battle for survival.! Railroad executives had been lulled by strong performances during the war into thinking that good times were back. However, the regulatory and legislative measures were in place in the 1940s and '50s that would destroy dozens of private lines and result in the bankruptcy of the biggest survivor, Penn Central. Critical elements in the decline of railroads were regulators' saddling them with money losing operations as well as preventing them from pursuing new profitable ventures. 2 Another important factor was the tax financ ing of competitors. Those politically adept rivals that persuaded lawmakers to fund them included the aircraft, truck, and auto indus tries. Labor unions, backed by the govern ment, also insisted on continuing uneconomic practices, such as overstaffed train crews and outdated pay scales. Unions also stopped modernization) They exerted political power and had a say in whether some railroad con solidations took place, such as the Pennsylva nia and the New York Central merger.