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Dr Muriel Newman

Free Market Capitalism

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24 February 2008

Free Market Capitalism

A “rich prick”. That’s what Finance Minister Michael Cullen called the Leader of the National Party two months ago. That vitriolic attack during a Parliamentary debate revealed the Labour Party’s loathing of capitalism (and how rattled they are about their declining popularity).

How hypocritical that “rich prick” comment now seems in the context of their grovelling around billionaire funder Owen Glenn, not only dishing out New Years Honours, but also allegedly promising Cabinet Posts and diplomatic jobs. By Labour Party standards industrialists are to be despised – except when they are feathering the Labour Party’s nest it seems.

Karl Du Fresne, freelance journalist and former editor of The Dominion, explains the disquiet caused by this demonising of wealth creators: “What’s troubling about this is that Dr Cullen, as Minister of Finance, is the politician charged with ensuring New Zealand’s economic wellbeing. Far from disparaging successful capitalists, he should be holding them up as examples to the rest of us, because we depend on successful capitalists to keep the economy ticking over. Either he fails to understand what drives a capitalist economy or he secretly dislikes capitalism and resents the fact that it makes some people rich. Perhaps both. Either way, he hardly seems a suitable choice for Minister of Finance.

“A big part of the problem, of course, is that Dr Cullen and most of his Labour parliamentary colleagues have had very little direct engagement in the private, capitalist economy that provides most of us with our incomes. He is a former university academic, as is the prime minister. They have been on the public payroll all their working lives. Look around the Labour caucus and it’s much the same story. It’s stacked with former academics, teachers, public servants and trade unionists. Some Labour MPs have never known a life outside politics. Only a handful have had meaningful private-sector experience, although it’s the private sector that generates our wealth as a country.” (See “Cullen’s insult cause for disquiet” )

History has shown free market capitalism to be the most successful path to prosperity for any society. It allows people with good ideas to get ahead by creating products and services wanted by others. There is no compulsion – the exchange is voluntary. It allows money to pass from consumers to producers of the goods and the suppliers of the raw materials. There are no losers in this exchange – everyone is better off as voluntary exchange improves the overall well-being of societies. Ironically the relationship is one where the public is the master – the “industrialist” the servant – not the opposite as socialists would wish us to believe.

In his iconic book Free to Choose renowned economist Milton Friedman explains it this way: “In the past century a myth has grown up that free market capitalism – equality of opportunity as we have interpreted that term – increases inequalities, that is a system under which the rich exploit the poor. Nothing could be further from the truth. Whenever the free market has been permitted to operate, wherever anything approaching equality of opportunity has existed, the ordinary man has been able to achieve levels of living never dreamed of before. Nowhere is the gap between rich and poor wider, nowhere are the rich richer and the poor poorer, than in those societies that do not permit the free market to operate”.

He goes on to state: “A free society releases the energies and abilities of people to pursue their own objectives. It prevents some people from arbitrarily suppressing others. It does not prevent some people from achieving positions of privilege, but so long as freedom is maintained, it prevents those positions of privilege from being institutionalized; they are subjected to continued attack by other able, ambitious people. Freedom means diversity but also mobility. It preserves the opportunity for today’s disadvantaged to become tomorrow’s privileged and, in the process, enables almost everyone, from top to bottom, to enjoy a fuller and richer life”.

The political left hates free market capitalism. Why? Because a free and “democratic” marketplace disenfranchises those who believe they know better than others. In a free market, the public hold the power and their collective will prevails. Contrast that with socialist state control which imposes – by force or regulation – the wishes of the ruling elite over a population.

Professor Peter Saunders, the Social Research Director of the Centre for Independent Studies and this week’s NZCPR Guest Commentator, has been involved in the debate on the virtues of capitalism. He is concerned that the demonising of capitalism by the political left, has given it a bad name. In his guest opinion piece The Romance of Capitalism, Peter explains that part of the problem is that capitalism lacks romantic appeal:

Where capitalism delivers but cannot inspire, socialism inspires despite never having delivered. Socialism’s history is littered with failure and human misery on a massive scale, yet it still attracts the affection of people who never had to live under it. Radical environmentalism also has the happy knack of firing the imagination of idealists, for it has much in common with old-style revolutionary socialism. Both are oppositional, defining themselves as alternatives to the existing capitalist system. Both are moralistic, seeking to purify humanity of its selfishness and appealing to our ‘higher instincts.’ Both are apocalyptic, forecasting certain catastrophe if we do not change our ways. And both are Utopian, holding out the promise of redemption through a new social order. All of this is irresistibly appealing to romantics”. To read the full article, click here

As Peter points out, while socialism, fascism and environmentalism sound good, capitalism is the force that has released much of humanity from poverty and drudgery. In 1820, 85 per cent of the world’s population lived in poverty; today it is less than 20 per cent. Nine out of ten of the world’s population can now expect to live beyond 60, more than twice the average of only 100 years ago. And through the technological developments that go hand in hand with capitalism, the workplace has been redefined with one hour of work today delivering more than 25 times the value that it did in 1850.

So are the principles of free choice alive and well in New Zealand? Is ours a country where people are motivated to make tomorrow better than today?

The 450,000 Kiwis living in Australia would say no. They figure that their chances of advancement are better in Australia. Of course they would admit that there are constraints there too, but nothing like the disincentives they faced in New Zealand. Nor do they have a prevailing “rich prick” attitude emanating from government.

Interestingly, a Te Puni Kokiri study has revealed that Australia has also become a magnet for Maori, with one in seven now living across the Tasman. Their report is particularly revealing when discussing why Maori are moving to Australia. It says they are moving not only to make more money, but more importantly, to escape the negative influences of gangs and violence, a whanau environment that discouraged success, and the perceived prejudice towards Maori. According to the study, in Australia race is not an issue, everyone is treated equally. (See Maori in Australia )

That’s what it used to be like in New Zealand – race was not an issue in the days before Labour governments endorsed Treaty of Waitangi activism. The removal of racial privilege surely has to be a primary objective for New Zealand if we as a society are ever to properly move ahead. Free market capitalism works, and it’s time the socialists amongst us accepted that. And those of us who believe that free markets are the foundation of a free and open society should be far more active in advocating their virtues.

Through publications like this NZCPR Weekly newsletter, the New Zealand Centre for Political Research wants to assist readers in taking these ideas into workplaces and homes across the country. This is where debates occur, where hearts and minds are won, and where people gain the confidence and strength to say “sod off” to those who would wish to control their lives.

Finally, I am pleased to announce the publication of the NZCPR’s first EBOOK – The Treaty of Waitangi by the distinguished Maori Leader Hon Sir Apirana Ngata. This seminal interpretation of the Treaty is now exclusively available as a key part of the NZCPR subscription package.

Sir Apirana Ngata’s interpretation of the Treaty was enthusiastically promoted by the Department of Maori Affairs in the days before the Waitangi Tribunal was established. They stated: “Sir Apirana was trained as a lawyer, and had a brilliantly lucid understanding of legal and parliamentary technicalities. His analysis of the Treaty, article by article, is so clearly and simply written that even young people will be able to understand it, in spite of the complexity of the subject-matter”. These days, however, the document is conveniently ignored by the Maori grievance industry. For details of this exclusive offer – please click here .

This week’s poll asks: Do you believe the principles of free choice are alive and well in New Zealand today?Go to Poll

Reader’s comments will be posted on the NZCPR Forum page click to view .