The Age of Milton Friedman

Andrei Schiefer (who is the world's most cited economist) reviews two books on evidence on the success of market mechanism. A version of the paper from his site is below

http://www.economics.harvard.edu/faculty/shleifer/files/friedman3.3.pdf


Ireland features in a paragraph in the essay including quotes from ESRI researchers in a recent edited volume by Balcerowicz and Fisher. Below are two illustrative quotes from Schleifer himself.

"As much as any other country in the world, Ireland embraced the prescriptions of Milton Friedman: trade openness, low taxes, low regulations, and balanced budgets."

"Starting as one of Western Europe’s laggards, became the richest country of the region in the span of one generation."

Does Ireland really illustrate the success of market mechanisms? We certainly lowered taxes, got down the budget deficits and got rid of many anti-business regulations but in general Ireland is still very centrally guided in many core areas.

When you think of how big a role the Irish state places in direct provision of services (we still publish very large documents that are the equivalent of central medium term plans for infrastructure, education, research, health services etc.,) , as well as coordinating research investment, promoting exports etc., its hard to claim that Ireland is a model of the benefits of decentralised decision making. Also, the role of EU structural funds, flows of money from access to EU financial markets, access to US technology (facilitated strongly by direct Irish state coordination) have also been put forward as reasons for rapid growth. This is not to say that we might even do better if we follow Friedman and Schliefer and get the government out of even more things but the last 15 years is definitely not a clean experiment in the use of market mechanisms to stimulate growth. Based on the current evidence from Ireland, it would be hard to disprove that centralised agreements stimulate growth. The model of the state as a predator certainly seems to capture some features of the Irish economy during the darker days but is harder to reconcile with the creation of bodies like IDA, Enterprise Ireland etc.,

Much of Ireland's current strategy is predicated on the idea that we stimulate foreign direct investment through massive state financed research and development initiatives. The Strategy for Science Technology and Innovation is below and while it certainly offers a number of measures to stimulate private sector innovation, it is clearly also heavily driven by ideas of centralised mechanisms to plan sectoral growth and even direct government provision of large scale research infrastructure and knowledge. While the overall emphasis on being competitive is certainly in keeping with Friedman this document and other core Irish policy documents are far more optimistic about the role of the state as being a fundamental mechanism for directly coordinating activity toward improving competitiveness. The outcome of this latest incarnation of Irish economic policy will be of huge interest to economists.

http://www.sciencecouncil.ie/reports/acsti060618/060618_asc_ssti_report_webopt.pdf