Free Markets – Part 6

Equality of opportunity and its positive incentives.

Continuing this essay series on free markets using Milton Friedman’s classic book, Free to Choose, this essay will explore Friedman’s discussion of the concept of equality of opportunity and its positive incentives.

Whereas the concept of equality of opportunity creates positive incentives, the concept of equality of result stifles those incentives and encourages complacency:

Like personal equality, equality of opportunity is not to be interpreted literally. No arbitrary obstacles should prevent people from achieving those positions for which their talents fit them and which their values lead them to seek. Not birth, nationality, color, religion, sex, nor any other irrelevant characteristic should determine the opportunities that are open to a person—only his abilities. Equality of opportunity, like personal equality, is not inconsistent with liberty; on the contrary, it is an essential component of liberty. If some people are denied access to particular positions in life for which they are qualified simply because of their ethnic background, color, or religion, that is an interference with their right to “Life, Liberty, and the pursuit of Happiness.” It denies equality of opportunity and, by the same token, sacrifices the freedom of some for the advantage of others. The priority given to equality of opportunity in the hierarchy of values generally accepted by the public after the Civil War is manifested particularly in economic policy. The catchwords were free enterprise, competition, laissez-faire. Everyone was to be free to go into any business, follow any occupation, buy any property, subject only to the agreement of the other parties to the transaction. Each was to have the opportunity to reap the benefits if he succeeded, to suffer the costs if he failed. There were to be no arbitrary obstacles. Performance, not birth, religion, or nationality, was the touchstone … [But a] different concept, equality of outcome, has been gaining ground in this century. Over the past half-century it has increasingly affected government policy in the United States as well. In some intellectual circles the desirability of equality of outcome has become an article of religious faith: everyone should finish the race at the same time. As the Dodo said in Alice in Wonderland, “Everybody has won, and all must have prizes.”

Friedman points out that the concept of equality of result gives more power to the government, and less incentive to the individual:

For this concept [equality of result], as for the other two, “equal” is not to be interpreted literally as “identical.” No one really maintains that everyone, regardless of age or sex or other physical qualities, should have identical rations of each separate item of food, clothing, and so on. The goal is rather “fairness,” a much vaguer notion—indeed, one that it is difficult, if not impossible, to define precisely. “Fair shares for all” is the modern slogan that has replaced Karl Marx’s, “To each according to his needs, from each according to his ability.” This concept of equality differs radically from the other two. Government measures that promote personal equality or equality of opportunity enhance liberty; government measures to achieve “fair shares for all” reduce liberty. If what people get is to be determined by “fairness,” who is to decide what is “fair”? As a chorus of voices asked the Dodo, “But who is to give the prizes?”“Fairness” is not an objectively determined concept once it departs from identity. “Fairness,” like “needs,” is in the eye of the beholder. If all are to have “fair shares,” someone or some group of people must decide what shares are fair—and they must be able to impose their decisions on others, taking from those who have more than their “fair” share and giving to those who have less. Are those who make and impose such decisions equal to those for whom they decide? Are we not in George Orwell’s Animal Farm, where “all animals are equal, but some animals are more equal than others”?

Friedman asks, if everyone gets a prize, where will the prizes come from:

In addition, if what people get is determined by “fairness” and not by what they produce, where are the “prizes” to come from? What incentive is there to work and produce? How is it to be decided who is to be the doctor, who the lawyer, who the garbage collector, who the street sweeper? What assures that people will accept the roles assigned to them and perform those roles in accordance with their abilities? Clearly, only force or the threat of force will do. The key point is not merely that practice will depart from the ideal. Of course it will, as it does with respect to the other two concepts of equality as well. The point is rather that there is a fundamental conflict between the ideal of “fair shares” or of its precursor, “to each according to his needs,” and the ideal of personal liberty. This conflict has plagued every attempt to make equality of outcome the overriding principle of social organization. The end result has invariably been a state of terror: Russia, China, and, more recently, Cambodia offer clear and convincing evidence. And even terror has not equalized outcomes. In every case, wide inequality persists by any criterion; inequality between the rulers and the ruled, not only in power, but also in material standards of life. The far less extreme measures taken in Western countries in the name of equality of outcome have shared the same fate to a lesser extent. They, too, have restricted individual liberty. They, too, have failed to achieve their objective. It has proved im possible to define “fair shares” in a way that is generally acceptable, or to satisfy the members of the community that they are being treated “fairly.” On the contrary, dissatisfaction has mounted with every additional attempt to implement equality of outcome.

If we respect talent, then we should recognize that property in one’s own talent is just another form of property to be respected:

Much of the moral fervor behind the drive for equality of outcome comes from the widespread belief that it is not fair that some children should have a great advantage over others simply because they happen to have wealthy parents. Of course it is not fair. However, unfairness can take many forms. It can take the form of the inheritance of property—bonds and stocks, houses, factories; it can also take the form of the inheritance of talent—musical ability, strength, mathematical genius. The inheritance of property can be interfered with more readily than the inheritance of talent. But from an ethical point of view, is there any difference between the two? Yet many people resent the inheritance of property but not the inheritance of talent. Look at the same issue from the point of view of the parent. If you want to assure your child a higher income in life, you can do so in various ways. You can buy him (or her) an education that will equip him to pursue an occupation yielding a high income; or you can set him up in a business that will yield a higher income than he could earn as a salaried employee; or you can leave him property, the income from which will enable him to live better. Is there any ethical difference among these three ways of using your property? Or again, if the state leaves you any money to spend over and above taxes, should the state permit you to spend it on riotous living but not to leave it to your children? The ethical issues involved are subtle and complex. They are not to be resolved by such simplistic formulas as “fair shares for all.” Indeed, if we took that seriously, youngsters with less musical skill should be given the greatest amount of musical training in order to compensate for their inherited disadvantage, and those with greater musical aptitude should be prevented from having access to good musical training; and similarly with all other categories of inherited personal qualities. That might be “fair” to the youngsters lacking in talent, but would it be “fair” to the talented, let alone to those who had to work to pay for training the youngsters lacking talent, or to the persons deprived of the benefits that might have come from the cultivation of the talents of the gifted? Life is not fair. It is tempting to believe that government can rectify what nature has spawned. But it is also important to recognize how much we benefit from the very unfairness we deplore. There’s nothing fair about Marlene Dietrich’s having been born with beautiful legs that we all want to look at; or about Muhammad Ali’s having been born with the skill that made him a great fighter. But on the other side, millions of people who have enjoyed looking at Marlene Dietrich’s legs or watching one of Muhammad Ali’s fights have benefited from nature’s unfairness in producing a Marlene Dietrich and a Muhammad Ali. What kind of a world would it be if everyone were a duplicate of everyone else? It is certainly not fair that Muhammad Ali should be able to earn millions of dollars in one night. But wouldn’t it have been even more unfair to the people who enjoyed watching him if, in the pursuit of some abstract ideal of equality, Muhammad Ali had not been permitted to earn more for one night’s fight—or for each day spent in preparing for a fight—than the lowest man on the totem pole could get for a day’s unskilled work on the docks? It might have been possible to do that, but the result would have been to deny people the opportunity to watch Muhammad Ali. We doubt very much that he would have been willing to undergo the arduous regimen of training that preceded his fights, or to subject himself to the kind of fights he has had, if he were limited to the pay of an unskilled dockworker.

Enforcing “equality of result” takes the fun out of a game that, if played without government-enforced results, makes everyone better off:

Still another facet of this complex issue of fairness can be illustrated by considering a game of chance, for example, an evening at baccarat. The people who choose to play may start the evening with equal piles of chips, but as the play progresses, those piles will become unequal. By the end of the evening, some will be big winners, others big losers. In the name of the ideal of equality, should the winners be required to repay the losers? That would take all the fun out of the game. Not even the losers would like that. They might like it for the one evening, but would they come back again to play if they knew that whatever happened, they’d end up exactly where they started? This example has a great deal more to do with the real world than one might at first suppose. Every day each of us makes decisions that involve taking a chance. Occasionally it’s a big chance—as when we decide what occupation to pursue, whom to marry, whether to buy a house or make a major investment. More often it’s a small chance, as when we decide what movie to go to, whether to cross the street against the traffic, whether to buy one security rather than another. Each time the question is, who is to decide what chances we take? That in turn depends on who bears the consequences of the decision. If we bear the consequences, we can make the decision. But if someone else bears the consequences, should we or will we be permitted to make the decision? If you play baccarat as an agent for someone else with his money, will he, or should he, permit you unlimited scope for decision making? Is he not almost certain to set some limit to your discretion? Will he not lay down some rules for you to observe? The system under which people make their own choices—and bear most of the consequences of their decisions—is the system that has prevailed for most of our history. It is the system that gave the Henry Fords, the Thomas Alva Edisons, the George Eastmans, the John D. Rockefellers, the James Cash Penneys the incentive to transform our society over the past two centuries. It is the system that gave other people an incentive to furnish venture capital to finance the risky enterprises that these ambitious inventors and captains of industry undertook. Of course, there were many losers along the way—probably more losers than winners. We don’t remember their names. But for the most part they went in with their eyes open. They knew they were taking chances. And win or lose, society as a whole benefited from their willingness to take a chance. The fortunes that this system produced came overwhelmingly from developing new products or services, or new ways of producing products or services, or of distributing them widely. The resulting addition to the wealth of the community as a whole, to the well-being of the masses of the people, amounted to many times the wealth accumulated by the innovators. Henry Ford acquired a great fortune. The country acquired a cheap and reliable means of transportation and the techniques of mass production.

Friedman then states a truth that few proponents of “equality of result” actually live by:

However you decide these issues, you can, if you are an egalitarian, estimate what money income would correspond to your concept of equality. If your actual income is higher than that, you can keep that amount and distribute the rest to people who are below that level … Of course, an egalitarian may protest that he is but a drop in the ocean, that he would be willing to redistribute the excess of his income over his concept of an equal income if everyone else were compelled to do the same. On one level this contention that compulsion would change matters is wrong—even if everyone else did the same, his specific contribution to the income of others would still be a drop in the ocean. His individual contribution would be just as large if he were the only contributor as if he were one of many. Indeed, it would be more valuable because he could target his contribution to go to the very worst off among those he regards as appropriate recipients.

Indeed, disparities between the least and most well-off shrink, not grow, in free market societies:

Everywhere in the world there are gross inequities of income and wealth. They offend most of us. Few can fail to be moved by the contrast between the luxury enjoyed by some and the grinding poverty suffered by others. In the past century a myth has grown up that free market capitalism—equality of opportunity as we have interpreted that term—increases such inequalities, that it is a system under which the rich exploit the poor. Nothing could be further from the truth. Wherever the free market has been permitted to operate, wherever anything approaching equality of opportunity has existed, the ordinary man has been able to attain 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. That is true of feudal societies like medieval Europe, India before independence, and much of modern South America, where inherited status determines position. It is equally true of centrally planned societies, like Russia or China or India since independence, where access to government determines position. It is true even where central planning was introduced, as in all three of these countries, in the name of equality. China, too, is a nation with wide differences in income—between the politically powerful and the rest; between city and countryside; between some workers in the cities and other workers. Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant relatively little to the wealthy. The rich in Ancient Greece would have benefited hardly at all from modern plumbing: running servants replaced running water. Television and radio—the patricians of Rome could enjoy the leading musicians and actors in their home, could have the leading artists as domestic retainers. Ready-to-wear clothing, supermarkets—all these and many other modern developments would have added little to their life. They would have welcomed the improvements in transportation and in medicine, but for the rest, the great achievements of Western capitalism have redounded primarily to the benefit of the ordinary person. These achievements have made available to the masses conveniences and amenities that were previously the exclusive prerogative of the rich and powerful. You can travel from one end of the industrialized world to the other and almost the only people you will find engaging in backbreaking toil are people who are doing it for sport. To find people whose day’s toil has not been lightened by mechanical invention, you must go to the non-capitalist world: to Russia, China, India or Bangladesh, parts of Yugoslavia; or to the more backward capitalist countries—in Africa, the Mideast, South America; and until recently, Spain or Italy.

As I’ve mentioned in a previous essay, Ron Chernow’s great biography of John D. Rockefeller, Titan, mentions how Rockefeller, at the time the richest man in the world, enjoyed great luxuries, including running water and bathrooms, and he even paid someone to read books to him while he was doing other things, like taking a shower. At the time, I wasn’t reading a hard copy of Chernow’s biography of Rockefeller, but instead listening to it as an audiobook while taking a shower myself. And the book was being read to me by a professional narrator at the reading speed of my choosing, broadcast from an Amazon Echo device I bought for less than $15 on eBay. I was living the life of Rockefeller on pennies a day in 2021.

Friedman writes:

A society that puts equality—in the sense of equality of outcome—ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests. On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality. Though a by-product of freedom, greater equality is not an accident. A free society releases the energies and abilities of people to pursue their own objectives.

In the next essay in this series, we’ll examine Friedman’s comments on the performance of government in the areas of education and the environment.