The Legacy of Milton Friedman

by José Piñera
January 29, 2007

As a young student in the 1960s in Santiago, I read Capitalism and Freedom by Milton Friedman. That book changed my life, and that book changed my country, and I do believe that that book changed the world.

I met Milton many times later on, but I remember vividly one time when we traveled together from San Francisco to Palo Alto. Some months earlier, I had been speaking in Davos about privatizing social security—especially in Europe, where they have a huge crisis. A high-tech entrepreneur named Scott Cook, founder and CEO of Intuit, was extremely interested in this idea. He said, “This idea will be very much supported in Silicon Valley. Why don’t you come to Palo Alto and speak to all my friends and colleagues?”

Well, it happened that Milton Friedman learned about this speaking engagement, and he decided to ride with me for one hour from San Francisco to Palo Alto, just to introduce me and the subject. You can’t imagine the incredible generosity of this man, a Nobel laureate, to have taken that long ride on Highway 101. I still remember how, in the one hour going there and then coming back again at night, we were discussing the state of the free-market revolution—specifically that of my country, Chile.

This revolution began in Chile in 1975 and caught on four years later, of course, with Margaret Thatcher. It continued in 1981 with Ronald Reagan, and then with the fall of the Berlin Wall, with the collapse of the Soviet Union, and with the transformation of China. I believe that Friedman’s ideas swept the globe.

I don’t have time to go into Friedman’s influence in each country, but I have met leaders of the reforms in all of those countries—such as Yegor Gaidar in Russia, or Vaclav Klaus in the Czech Republic, and Mart Laar in Estonia—and all of them have told me that Milton Friedman’s ideas were enormously influential.

Just an anecdote: Last May I was in Montenegro, only a week before they had an independence referendum. And they invited me to give speeches explaining how even a very tiny country could prosper if it has free trade. And so I went there the week before the referendum, and everywhere I mentioned, of course, Capitalism and Freedom, free trade, and Milton Friedman’s ideas, and everyone knew Milton Friedman. In Podgorica, Montenegro, a city previously called Titograd, Milton Friedman is a hero. And on May 21, 2006, Montenegro became the first independent country to be created in the twenty-first century.

Now, you probably know all of this: it’s all told in Friedman’s extraordinary memoir titled Two Lucky People. So let me focus instead on Milton’s influence in two emblematic countries: Chile and China.

My country of Chile was, in 1975, one of the most socialist countries in the world. 71st out of 72 countries in the Economic Freedom Index. But something very important had happened two decades before. In 1956, a visionary dean of the Chicago School of Economics, Theodore Schulz, decided to implement an agreement for the transfer of ideas with one university in Latin America. He understood that the ultimate cause of Latin American problems was not the U.S., the multi-nationals, the climate, or the Catholic Church; the cause was bad ideas.

He chose the Catholic University of Chile, and Chicago signed an agreement with the Catholic University for the exchange of students, professors, and ideas. That agreement lasted for nine years and created a critical mass of free-market economists in Chile. Though we didn’t know at that time that we would have the historic opportunity to make an enormous impact in our country, we all learned about Milton’s and his colleagues’ ideas.

That was 1956. Two decades later, we were almost becoming a second Cuba. The Chilean armed forces liberated Chile from becoming a Communist dictatorship. Regrettably, that produced a very dramatic quasi-civil war in 1973. But then in 1975, after that process, with the economy experiencing hyperinflation of 500 percent, rationing, and crisis, the group of economists who had graduated from the Catholic University and who were called the Chicago Boys—not because they necessarily went to Chicago but because they studied at a Chicago-influenced university—led a friendly takeover of the government in order to produce first economic freedom and then political freedom. And this was almost a miracle.

Milton said, “How were you able to persuade all those people to liberate prices, to privatize everything, to go to free trade, and even to privatize social security?” Well, we did it, and the result was a second miracle. For 200 years, our income growth per capita had been one percent per year. With that amount you cannot solve poverty and underdevelopment. Since the Chicago Boys’ policy, the per capita income growth has risen to 4.3 percent each year for the past 20 years, which means that our grandchildren will be eight times richer than we were. That is the real revolution that completely changed the lives of the people.

Now, this happened in April 1975. At the same time, we, the Chicago Boys, invited Milton Friedman to Chile. This was at a very delicate time: he could have said, “No, I won’t go to a country that’s been in a civil war. I’d prefer to stay in Chicago or to go to Davos.” But he had the moral courage to go to Chile during a difficult situation in order to push economic and political freedom. He was there not supporting the government but supporting us, his disciples. He was an inspiration to us.

Then came another Chilean miracle: after this enormous economic transformation, our country decided to go to full political freedom. The economic system was a great help because it created a middle class that wanted democracy. We introduced democracy into the labor sector in 1979. Only four years after that, we had total freedom to choose labor leaders. William Thayer, a former minister and a Christian Democrat president, said that it was a dress rehearsal for future democracy in Chile.

In 1980, we drew up a constitution and introduced many of the ideas of James Madison. I’m a great admirer of Madison, the Federalist, and Jefferson. We introduced a Bill of Rights, and we introduced the freedom to join a union. We introduced very strong protections on property rights. And we introduced a timeline for the return to free elections.

You may have read Fareed Zakaria’s book The Future of Freedom. Zakaria says that it’s not enough to vote: you need the rule of law and many other things for a democracy to work. In eight years, we, the Chicago Boys, promoted free television, which we didn’t have before; only the state and the Catholic Church could have a TV channel. We established free universities. We established an independent central bank. We created “institutions of liberty,” as Zakaria calls them.

And then in 1990, we had a constitutional, peaceful, gradual transition to full democracy. Today, Chile is ranked number 11 of 157 countries in the Wall Street Journal/Heritage Foundation’s Economic Freedom Index, and enjoys full political freedom.

Another important country where Milton had enormous influence is China. Milton went to China in 1980, and in 1988 with the Cato Institute, and again in 1993. In 1988, he even met Zhao Ziyang, the secretary general of the Communist Party. For hours, Milton expressed his views, without compromising them. He explained that economic freedom is essential and is a requisite for political freedom. Only two weeks ago, the Wall Street Journal published a very interesting interview with Milton in which he worried that China has moved to greater economic freedom but not yet to political freedom. The Chilean experience may eventually prove very relevant for China.

Milton was criticized for going to Chile, and also for going to China, even though his courage helped enormously to advance human freedom. And here I want to be clear: I’ve traveled the world, and what is important is not to focus on the initial state of a country but to push the trend toward human freedom. If you want to help only those countries that are perfect, well, you can only help Swiss cantons. Maybe not even the U.S., after all. But as long as through your values you are able to advance the trend toward economic and political freedom, then you will be able to change the world. So I believe that Milton was unfairly criticized. He should be enormously praised for his willingness to go to China, to Chile, and to many other countries.

I always carry with me the thought of Friedrich Hayek, another hero of liberty, with whom Milton Friedman created the Mont Pelerin Society, also an enormous help for freedom. I’m always reminded of this Hayek observation when I think of freedom. Hayek said, “Political philosophy is the art of making politically possible the seemingly impossible. Unless the political philosopher is prepared to defend values which seem right to him, he will never achieve that comprehensive outline which must then be judged as a whole.”

Milton Friedman was far more than a great economist. In my view, he was a great political philosopher who played a central role in laying out that comprehensive outline, which is the road map for human liberty. So let’s honor Milton Friedman by daring to take, again and again, the bull by the horns, to engage in a principled way an imperfect world, and to defend the values which seem right to us, whatever the consequences.

The above are remarks by José Piñera regarding the International Legacy of Milton Friedman, made while a panel member at a Manhattan Institute for Policy Research event on January 29, 2007.  A full transcript of the panel and video of the event is available at http://www.manhattan-institute.org/html/friedman_event_01-29-07.htm.