Posted: July 29, 2013
reedom Manifesto is likely to be read almost exclusively by people who already believe in the power of free markets to deliver prosperity and avert a dangerous concentration of government power. After all, its co-author, Steve Forbes, is editor-in-chief of Forbes Media and ran for president in 1996 calling for a flat tax, not the best way to win friends and influence people among National Public Radio's fans.
That's a pity, because Freedom Manifesto would sharpen many liberals' minds, even if it changed very few. Forbes and co-author Elizabeth Ames, a journalist and corporate communications strategist, provide a brisk, detailed tour of markets' practical advantages over government intervention. Market-driven innovations, for instance, have spurred the development of "fracking" and horizontal drilling, reversing years of decline in the domestic production of oil and natural gas, causing much lower prices for the latter, leading to the substitution of gas for coal in electricity generation, thereby helping U.S. carbon emissions decline to the lowest point since 1995. Under pressure from environmentalists, government's most conspicuous contribution has been to greatly restrict where and how this technology can be used.
Does Big Government work? Ames and Forbes quote its house organ, the Washington Post, to showthat the federal government has
more than 100 programs dealing with surface transportation issues, 82 monitoring teacher quality, 80 for economic development, 47 for job training, 20 offices or programs devoted to homelessness and 17 different grant programs for disaster preparedness. Another 15 agencies or offices handle food safety, and five are working to ensure the federal government uses less gasoline.
They also report that the annual budget of the U.S. Department of Agriculture now exceeds the net incomes of all U.S. farmers. School buses look like they were designed in the 1930s because...they were. Government regulations keep the design frozen, even though more modern buses would, to name just one benefit, give drivers a much better view of the road.
The heart of Freedom Manifesto, however, is the argument that markets are morally superior to government intervention. The authors push back against the Left's master narrative that the unregulated market is a jungle, where the strong do as they will and the weak endure what they must. Government's job, in this telling, is to tame or replace markets, distributing wealth more equitably.
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Even in the business community, market competition has often been considered an essentially destructive force. Such 19th-century business titans as John D. Rockefeller and J.P. Morgan thought cartels and dominant companies, such as Standard Oil and U.S. Steel, were needed to stabilize markets. They wanted the economy to be guided by "gentlemen"—that is, men like themselves, who would use their immense economic power for the good of all.
Lesser businessmen were not necessarily more averse to government guidance and control. As early as 1884, a vice president of the Pennsylvania Railroad, one of the strongest companies in an industry often wracked with "excess competition," wrote:
A large majority of the railroads in the United States would be delighted if a railroad commission or any other power could make rates upon their traffic which would ensure them six percent dividends, and I have no doubt, with such a guarantee, they would be very glad to come under the direct supervision of the National Government.
The result of that thinking, of course, was the Interstate Commerce Commission, which turned American railroads into a cartel, causing a 70-year decline that was reversed only when freight rail was deregulated and price competition reintroduced in the 1970s. Inter-city passenger rail continues to be run by a federal government entity, Amtrak, whose concession service manages to lose money while charging $9.50 for a hamburger, according to one recent report. The freight industry, meanwhile, is thriving.
The New Deal tried to cartelize all American industries under the National Recovery Administration (NRA). Fortunately for both the economy and the Roosevelt Administration, which was beset by the unworkable NRA's problems, the Supreme Court unanimously declared it unconstitutional in 1935.
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Freedom Manifesto challenges the Left's smug sense of moral superiority. In situation after situation, it shows, free-market solutions have had outcomes superior to government ones. The table of contents poses the devastating questions: "FedEx or The Post Office?," "Silicon Valley or Detroit?," "Apple or Solyndra?"
Why are markets superior to government in producing goods, services, and freedom? Connecting the Freedom Manifesto's many dots tells us that the answer lies in human nature. We are risen apes, not fallen angels. Like all living creatures, we seek the resources we need in order to survive and flourish in the ecosystem we inhabit. In modern times, that ecosystem is called "the economy." And, like all living creatures, we gather those resources as efficiently as possible. Lions get their supper by chasing slow zebras, not fast ones. We, whether capitalists or bureaucrats, do the same.
Thus, every enterprise's raison d'être is to maximize the return on invested capital. Businesses, in other words, are wealth-creation machines. But there are only three ways to increase the profits that create wealth: raise prices, reduce costs, or innovate to produce a better product at the same cost.
Raising prices is easy—just cross out $19.95 and write in $21.95. Reducing costs and innovating are hard. But in markets, where raising prices results in losing customers, competition forces every seller to do the hard work of finding cost savings and innovating. It is thus competition, and competition alone, that has been the driving force behind the remarkable explosion of wealth and technological progress in the last two hundred years. Forbes and Ames give many instances of this, such as the break up of AT&T's phone monopoly in the 1980s, which led directly to lower prices and expanded choices as phone companies fought for business.
Government bureaucracies face no such pressure. As a result, like lions chasing slow zebras, bureaucrats do what's easiest for them. Their "customers" are a captive market. The cost—in time, effort, and rage suppression—of renewing a vehicle registration at the DMV is much higher than the cost of renewing a prescription at CVS. If you don't like the way CVS treats you, go to Walgreen's. If you don't like the way DMV treats you...ride the bus.
And because profit is the reason enterprises exist, Ben Franklin was right: every penny saved by any kind of cost-cutting adds as much to the bottom line as a penny from increased revenues. Bureaucracies not only lack incentives to economize, but are rewarded for waste with bigger budgets and larger staffs. Thus, bureaucracies never want to solve problems, but to manage them. Bureaucratic success is, perversely but directly, a function of bureaucratic inefficiency.
Because bureaucracies operate outside markets, citizens have no direct power over them. Politicians do. And politicians, unlike bureaucrats, are subject to being voted out of office by the people.
But politicians are in the election business and that, too, has perverse incentives. If the multiplication of wealth propels economics, the division of wealth propels politics. Using governmentally acquired wealth to buy political support from interest groups, all of whom want something from government, is central to politics. This is cronyism, not capitalism, and is inherently corrupt.
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The media's job is to inform the public about such squalid bargains. Unfortunately, journalists face perverse incentives of their own. While politicians need the favorable publicity friendly reporters provide, reporters need the access friendly politicians provide. So a reporter who gets too tough on a politician is likely to find his access cut off. Moreover, from the journalist's perspective, the more government there is to cover, the better. Although many political reporters don't know the first thing about basic economics and statistics, all of them have a vested interest in a government that only grows and never shrinks.
Is there anything to be done about this? It would take a supreme effort led by a remarkably talented political leader to transform the system. But change is already happening incrementally, with: the revolution in media in recent years that has allowed alternative voices to be heard; reform in state governments, like Wisconsin's; and the growing national debt putting growing pressure on Washington to change its ways.
The Founding Fathers designed government to frustrate tyranny. But they also designed it to respond to the people, the ultimate source of sovereignty in the American system. The sovereign people are clearly unhappy, and Freedom Manifesto gives them ample reasons, both to understand why and to do something about it.