When the Berlin Wall came down, and the Soviet Union collapsed, a lot of us thought the war was over and the “good guys” had won. Capitalism was the dominant economic system and the free market was accepted almost everywhere as the path to prosperity and human happiness. Or so we thought.
ADVERTISEMENTThings can change rapidly in politics. And we’ve certainly seen change over the past few years, as voters, especially younger ones, have come to reject some of the central tenets of our political ecosystem – namely free markets, capitalism and the rule of law. I’m a Cold War warrior (half my family fled from Castro’s Cuba) and when the Berlin Wall came down, and the Soviet Union collapsed, a lot of us thought the war was over and the “good guys” had won. Capitalism was the dominant economic system - excluding vestigial outposts like Cuba and North Korea - and the free market was accepted everywhere as the path to prosperity and human happiness. Or so we thought.
Mainstream society could ignore the anarchic fringe and it was, as was written by political scientist Francis Fukuyama, “the end of history.” What Fukuyama meant by that was that events would still happen but the liberal democracy at which we had arrived, underpinned by free-market economics, was the final and most evolved form of societal development which could be attained. The decade after the Wall fell would be a process of evangelism, carrying the gospel of Hayek and Friedman round the world where it would be eagerly grasped by countries that had recently cast off their shackles and wanted to learn what it was to be free.
But the extreme fringe refused to die. Those with long memories will remember the ‘Battle for Seattle,’ as protesters turned their violent attentions against the WTO ministerial meeting at the Washington State Trade and Convention Center. The anti-globalisation movement started a fire and the flames are still burning. Out of the smoke have stepped Yanis Varoufakis, Bernie Sanders, Elizabeth Warren, Andrés Manuel López Obrador, Alexandra Ocasio-Cortez and, at the extreme, the Chavista nightmare which Venezuela is currently undergoing. Never stop fighting until the fight is done, goes the saying – and in my view, we’re not there yet.
The free market is the foundation of wider freedom. It’s no coincidence that with dictatorship comes a command economy, whether it be Soviet Russia or Nazi Germany. The free market is free, and through that freedom, it is successful. We know why. We feel it; the consumer has choice, which leads to competition, and competition drives innovation and excellence.
Competition is also an engine for value for money – if you sell a pair of shoes for €50 but the store next to you sells them for €40, you won’t be in business very long unless you react and fight for the consumer’s custom. So it is the individual who ultimately benefits, getting better and cheaper goods and services, more efficiently made and delivered.
This isn’t just academic theory delivered in the lecture hall by tweedy professors. It’s everywhere in our everyday lives. What happened when American telecommunications company AT&T was deregulated in the 1980s and lost its national monopoly, essentially embracing free market principles? Telephone rates became more competitive, because suddenly there was a shock to the cosiness of the closed shop. Customers – citizens – had a choice, and the ability to exercise that choice forced telephony providers to look again at their prices and their level of service. The same thing happened when the airlines were deregulated in 1979, and when trucking and railway companies were opened up. Choice, competition, innovation, improvement. It’s a virtuous circle.
And if you doubt the benefits of the free market, look at those parts of the world where it doesn’t exist. Cuba, for instance, where food is rationed and about 85% of it is imported, where the retail sector is tiny and there is little foreign investment. Or Venezuela, where 90% of the population live in poverty, inflation has reached approximately 80,000% (yes, you read that right); and food is severely rationed. Or North Korea, where market economics have hardly existed for decades with money having only symbolic value, the energy sector is inefficient and unequal to the task of supplying the country’s power needs, and the famine of the 1990s may have killed as many as 3.5 million people (about half the number of Ukraine’s infamous Holodomor forced famine in the 1930s).
What do these economic basket cases have in common, apart from abject competitive failure and appalling suffering? They are all state-dominated economies and undemocratic dictatorships. Look at the differences between North and South Korea. See how different my mother’s homeland of Cuba is from the other islands of the Caribbean. Compare Venezuela, with all its petroleum wealth, to other South American economies. In each example, a lack of political freedom drives the economy downwards.
By contrast, think of what we cherish most about the USA: the best post-secondary school systems; a culture of technological innovation and protection of property rights. Now think about what’s going wrong: public school systems; public infrastructure; political process. What do these latter have in common? Government. Wherever the government is running something, or making capital allocations, those areas are challenged. Do we really want to have more government controlling our healthcare, school systems and businesses? The answer is wholeheartedly “No!”
So, the case still needs making. We still need to be evangelists for the free market. Because, as I said earlier, freedom is choice and choice is success. This needs to be driven home again and again as we prepare to enter an election year here in the US, as Europe prepares itself for the convulsion of Brexit and as the countries of the Arabian Gulf think about their futures in a post-carbon economy.
The world is changing but we can bring a perspective that we know works. That’s why I will keep pushing for the free market, and trumpeting its successes. We’ve got such a good story to tell: let’s not be afraid to write it large.
- Jean-Pierre Conte is Chairman and managing director of private equity firm, Genstar Capital.
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