Central Economic Planning

Summary

This Forum of Free Enterprise booklet reproduces an excerpt from Milton and Rose Friedman’s ‘Free to Choose’ (1979) under the title ‘Central Economic Planning’. Drawing on the Friedmans’ travels in underdeveloped countries, the text opens by contrasting the convictions of intellectuals — for whom central planning is ‘the wave of the future’ — with the empirical record. Wherever the state controls economic activity in detail, the authors argue, ordinary citizens remain in political fetters and material poverty, even as the state and its privileged classes prosper.

The argument is built around a sequence of comparative case studies. East Germany versus West Germany shows what the free market and Ludwig Erhard’s 1948 currency-and-price liberalisation produced relative to a walled, grey command economy. Russia, Yugoslavia, Israel, Egypt, and the Far Asian economies (Malaysia, Singapore, Korea, Taiwan, Hong Kong, Japan) are arrayed along a spectrum where reliance on markets correlates with prosperity and political freedom. The centrepiece is an extended comparison of post-Meiji Japan (1867 onward) with post-independence India (1947 onward): in nearly every initial condition India was the more favoured country, yet Japan dismantled feudalism and embraced voluntary cooperation while India embarked on Russian-type five-year plans, foreign-exchange controls, licensing of investment, and ubiquitous tariffs and quotas.

The Friedmans dismiss cultural explanations for India’s stagnation — fatalism, caste, sloth — by pointing to the entrepreneurial success of Indians in Africa, Malaysia, Hong Kong, Fiji, Panama, and Britain, and to the immigrant Chinese in Hong Kong. The decisive variable, they conclude, is not the attributes of the masses but the economic system: ‘sloth and lack of enterprise flourish when hard work and the taking of risks are not rewarded.’ A handloom-textile comparison drives the point home — Britain’s nineteenth-century royal commission rejected exactly the protective subsidy India later adopted.

The final section, ‘Controls and Freedom’, pivots to the United States, warning that even without formal central planning, fifty years of expanding government have cost both economic progress and human freedom. The authors invoke Abraham Lincoln’s ‘House Divided’ speech to argue that a divided economy will fall to the collectivist side, and lay out a defence of economic freedom — to dispose of one’s income, to enter occupations, to raise capital — that the rendered pages cut off mid-argument.

Key points

• Reproduces a chapter from Milton and Rose Friedman’s ‘Free to Choose’ (1979) under FFE’s imprint, framed by a publisher’s introduction and an A. D. Shroff epigraph on free enterprise.

• Contrasts the intellectual consensus favouring central planning with the empirical pattern: market-reliant economies show rising living standards and political freedom, whereas centrally planned economies (East Germany, Russia, Maoist China, India) show stagnation and repression.

• Treats post-Meiji Japan (1867+) and independent India (1947+) as a near-controlled experiment: India had superior initial conditions yet adopted Russian-style five-year plans, while Japan relied on voluntary cooperation and free markets — with diametrically opposite outcomes.

• Rejects cultural-fatalism explanations of Indian poverty by citing the entrepreneurial success of Indian diaspora communities in Africa, Hong Kong, Malaysia, Fiji, Panama, and Britain.

• Uses the handloom-textile case to show that nineteenth-century Britain rejected the protectionist subsidy India later embraced — protection ‘has meant expansion’ of an industry that taxes the equally poor.

• Argues that India’s licensing, foreign-exchange controls, price controls, ubiquitous taxation, and self-sufficiency ideal produce smuggling, black markets, and a corrosion of respect for law, even as those evasions perform ‘a valuable social service’ by relieving central planning’s rigidity.

• Pivots to the United States in ‘Controls and Freedom’, warning that government’s expansion has cost economic progress and human freedom, and invoking Lincoln’s ‘House Divided’ speech to argue the mixed economy is unstable.

• Sketches an account of economic freedom — choice over after-tax income, occupational entry, and capital formation — and contrasts ballot-box conformity with marketplace unanimity-without-conformity.