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Defending the Free Market in Davos

February 03, 2016

For me, the best thing about [the 2015] World Economic Forum in Davos was an exposure to worldviews very different from my own. Professionally, I hang around mainly with technologists, entrepreneurs, businesspeople, and economists at American universities.

People within these groups certainly don’t agree with each other all of the time, or with me, but most of us do share some baseline assumptions on important topics. These include:

  • Creative destruction is good news. Better products take market share from inferior ones, more nimble and innovative companies displace slow and sleepy older ones, and entire industries — like those for cameras, film, and standalone GPS devices — can be swept away by something as simple as a smartphone. This process should be encouraged, even though it’s not pleasant for all parties involved, and even though it leads to job loss and worker dislocation.
  • Markets allocate better than bureaucrats do. Economist Alan Blinder put it beautifully: “I believe every mainstream economist sees the invisible hand as one of the great thoughts of the human mind… Throughout recorded history, there has never been a serious practical alternative to free competitive markets as a mechanism for delivering the right goods and services to the right people at the lowest possible costs.”
  • There is such a thing as too much regulation. Almost all of my colleagues would agree that regulation and licensing are necessary for protecting public health and safety (as Eduardo Porter pointed out: “I’m reassured that if I ever need brain surgery, the doctor performing it will have been recognized by the profession to be up to the task.”). But it can go to far. Studies have found, for example, that requiring licenses for too many jobs can hurt employment. And I have absolutely no idea why courts in some countries second-guess the names parents give their children (plus, I kind of like “Fraise”).
  • Business is not the enemy. It’s certainly not the case that companies always and everywhere do only good, or that in looking after their interests they inevitably advance our own. But they are the source of the great majority of the goods and services we enjoy, and they provide most of the jobs and wages. As they compete with each other to satisfy our needs and whims, they make our lives better.
  • The state can’t provide jobs to everybody. The totalitarian promise of centralized full employment couldn’t stand in the real world. The government’s proper role is instead to set up an economic environment that’s conducive to private sector job and wage growth. The vast majority of people I interact with would also agree that the government should provide a safety net for those who fall too far behind, and to take care of orphans, the mentally ill, and other vulnerable groups.
  • We’re right about these things. Virtually all my colleagues believe that the statements above are no longer open for debate among serious people. Theory, experiment, and especially experience have shown that they’re correct.

Davos was a revelation for me because I came across serious, smart, and influential people who didn’t appear to accept these statements nearly as wholeheartedly as I do. And these people were not from strange or faraway lands (if there were delegations from North Korea or Cuba at the meeting, I didn’t come across them). Instead, they were from Europeans, my first cousins in the global family.

In Switzerland, I moderated an open forum session titled “Employment: Mind the Gap?” I was the only American on stage, and there was only one representative from the private sector on the panel. Two European trade unionists, a French economist, and the prime minister of Sweden (himself a former trade unionist) made up the rest of the speakers.

I found the discussion fascinating because once we got past the initial uncontroversial remarks (yes, education is important; yes, we must all work together…) we got into a conversation about the right way to mind the gap. As it unfolded,

I came to the conclusion that the majority of people on stage did not share my economic worldview as expressed in the statements above. Instead, they seemed to believe much more strongly in government planning, programs, and protections as the best way to ensure good jobs and wages. And they seemed willing to sacrifice some flexibility, decentralization, and innovation — perhaps a lot — in the pursuit of stability and prosperity for workers.

I pointed out that economic data from the European continent in recent years was not encouraging for this economic worldview, and my onstage popularity as a moderator dipped sharply. Panelists responded, correctly, that this was in part because of differing responses to the Great Recession. They seemed less willing to engage with the idea that it might also be because several European countries were trying to fight the uncomfortable dynamism of today by making sure those who had jobs yesterday would not lose them.

In case I wasn’t clear enough in Davos, let me be clear here: I don’t think this will work. To paraphrase Churchill, countries today have a choice between turbulence and anaemia. If they choose anaemia, they will still have turbulence.

This blog first appeared on Jan. 29, 2015 here.