Miroslav Prokopijević: Free to Choose

Interview with Serbian liberal economist Dr. Miroslav Prokopijevic about Austrian school of Economics and his 2010 book titled "Sloboda izbora" (engl: Free to Choose).

English subtitles are available!

(see video at the bottom of transcript)

introduction:

It was some thirty plus years ago that an American economist and Nobel laureate Milton Friedman had produced his economics documentary series Free to Choose, in which he described the miraculousness of free market capitalism. Friedman's favorite example of free market at work was Hong Kong, back then the freest economy of the world.

Today, thirty years later, Hong Kong is still the freest economy of the world, and Friedman's creation, Free to Choose, has over the years become a recipe by which many of the world's reformists have taken their countries down the path of prosperity.

However, amongst the nations that still haven't experienced the capitalist renaissance are the countries of western Balkans, which even today twenty years after the breakup of Yugoslavia are still firmly marching to the drum beats of socialism, and are economically stagnating on the bottom ladders of Europe and the World.

In search for explanation to this self destructive phenomenon in our region, we talked with a liberal economist Dr. Miroslav Prokopijević, who is a guest professor of economics at several universities around the world, science advisor at the Institute for European Studies in Belgrade, and author of about a dozen books and many articles and studies.

Amongst the subjects of our conversation was also one of his recent books titled "Sloboda izbora" (in translation: Free to Choose), which like Friedman's book Free to Choose talks about economic problems, but geared towards the economic realities in Serbia and its neighbors.

This interview with professor Prokopijević was conducted in in Belgrade September 2012 by Borislav Ristić, Sloboda i Prosperitet TV editor and co-founder of Internet magazine Katalaksija.

transcript:

Borislav Ristić:

Professor Prokopijević, you are known as one of the most consistent and most persistent advocates of classical liberalism, rule of law, and free market, not only in Serbia but also in the rest of the former Yugoslavia. In fact you are still quite isolated at that, not only in the academic world, but also amongst politicians and ordinary citizens. Liberal capitalism is despised, and socialism is still an idea that is very popular. How do you explain this situation?

Miroslav Prokopijević:

Well, it would be surprising if the opposite is true. Why? Because when looking at the past, for example when looking at 19th century, what it was dominated by, it was dominated by collectivism and nationalism. And these same things are somehow constantly renewed and regenerated in larger or smaller amounts throughout history, not only in Serbia but also in other newly created countries (of former Yugoslavia). So that's one reason, a kind of view that obviously fits this world here. On the other hand, we should have in mind that many people want to get alot of things from government, and that the state is in fact a silver platter on which to compete, or around which interest groups compete. None of these things, neither that which has been the tradition, nor that which we have today, none of it is conducive to liberalism. This is why liberalism has remained a matter of small enclaves in the territories of former Yugoslavia.

Borislav Ristić:

But shouldn't the intellectual elite be the one that will act above and beyond the tradition and these special interest groups?

Miroslav Prokopijević:

No, the intellectual elite is educated in a different manner. They were educated that the state is the mother of all things, they were educated in collectivism of this and that kind. The elite were taught to despise the market and similar liberties and so forth. Thus there are very few people in this elite who have managed to break out of such education and such views.

Borislav Ristić:

Now that we are on that subject, you yourself were educated in a system in which the ruling dogma was Marxism. How did you come into contact with the ideas of classical liberalism, and what attracted you to these ideas?

Miroslav Prokopijević:

Well, Marxism to me seemed quite dull. That is to say that everything I wanted to know, everything I wanted explained, it did not offer me anything. And then I searched on my own for some other theories that could better explain that which I wanted to understand. And on the other hand I was a bit lucky, because at that time when I studied philosophy, it was the time when these famous Praxis Marxists were kicked out and then arrived new generations of people such as Igor Primorac, Sasha Pavkovic, Voja Stojanovic and so on, which were not Marxists but were liberals in a way. And they were in theoretical sense analysts - analytic philosophy. So it was that combination of circumstances that would be a positive environment, and a good background for me to look deeper into things that interested me.

Borislav Ristić:

So Praxis practicioners which were normally seen as the vanguard of a socialist society, they were in fact doing blockade ...

Miroslav Prokopijević:

Yes. In fact, they were a disaster intellectually. Marxism which all failed in its official version, they came with the story that there exists another genuine Marxism. This authentic Marxism was in fact a more radical version of Marxism, meaning even more dangerous in the social sense, even more dull, and so on. But they had such an image because they opposed the then ruling party. As for the economy, the situation there was totally different. So Marxism totally dominated there, some planned economy ... I always say that things that I learned in economics, I had to learn again from scratch.

Borislav Ristić:

You have personally met many people who have contributed to the renaissance of the ideals of classical liberalism in the socialist twentieth century, such as Hayek, Nozick, Friedman, Buchanan, to name a few. Which one of them left the biggest impression on you, and how did they influence the formation of your own viewpoint?

Miroslav Prokopijević:

They are all fascinating in a way. It is hard to compare them because they are all different personalities, and some of their basic interests were different as well. For instance, Hayek was a master ... stylistically speaking, he writes badly. In contrast, Friedman writes brilliantly when it comes to style. But when it comes to speech, then Hayek is much more convincing, because when he starts to develop something you can clearly follow him like on a thread. And he's not moving left or right of it, he walks on that narrow thread until he interprets what he decided to interpret. Nozick was also a master, but a master in helping you to create an intuition. To show you how he sees something, and to explain you in that way. In a way, you get the picture. With Hayek you have an idea that you follow, and here you get the picture.

Now who influenced me? I do not know, my methodology is mostly Austrian, but with the influence of public choice. So, James Buchanan has influenced me a lot, Svetozar (Steve) Pejovic has influenced me a lot, aside from the ones that I've already mentioned, I've learned alot from them. It is difficult to measure it, because all of us are exposed to different influences.

Borislav Ristić:

Your last book, "Sloboda Izbora" (Free to Choose) could be described, as some reviewers have said, as the first Austrian Economics book in these lands. Would you agree with this assessment, and how important is Austrian methodology for analyzing the economic domain, what makes it special?

Miroslav Prokopijević:

Perhaps it is the first in this time period, but I think that there were occasional students back in 1890's through 1910's from this area who were in Austrian circles, but I don't know where they disappeared later, moved on and so on. But in this period of 20th century or after World War II, then it is probably the first book that is colored with that methodology which attempts to say something, not only about the Austrian school as a school, but to say about some of the issues and why the notions that are fostered by that school are in fact fruitful.

Borislav Ristić:

In the preface of the book you say that socialism was not the economy in a very real sense, because others made all the decisions for us, including the economic ones. That there was no real freedom of choice. Please explain us a bit that relationship between free markets and individual freedom, or that is between capitalism and freedom.

Miroslav Prokopijević:

Whenever our Communist leaders would start talking about some of the social and economic problems, they would say, "you just relax, think about which theater performance you will watch, or this or that movie." And they also say: "you know, the tough economic decisions, leave that to us." And now it looked about as convenient that we do not have to worry about these things, right, about what we have to decide in regards to this matter. And in fact, whenever they say these things, they take responsibility and take your freedom. You do not have the option to choose this or that, but rather someone else decides for you. Now, under socialism there was as much personal freedom on the market as there was market itself available. And that means that there was very little, and that was mostly gray market, where we were able to decide exactly what we're going to buy. While that which would be available to buy in the store, that was decided by someone else.

And then, paradoxically was developed a habit in the capitalist countries that no one carries a shopping bag with them throughout the day, while in socialist societies people carry it all the time. Why? Because you don't know what and when they (the rulers) will decide, and in which store some goods might appear. So it reminds me of grandpa Avram, who introduced the Dinar. When I once asked him why he carries around a shopping bag all day, he said that he served 10 years at World Bank in Moscow, and that he acquired that bad habit and cannot get rid of it. So this shows that only when those top allow us, we can have a chance to make a transaction. Otherwise they decide on behalf of us, and practically for a good part of sovereignty, whether we will buy this or that, in this or that store, whether we will work here or there, whether we will travel here or there. So we were practically deprived of all these things.

Borislav Ristić:

Let's move a little to the more recent strategies of socialist politics of the modern world. We see that the socialists have created a different kinds of strategies in a kind of deceptive speech, by which they attract supporters to their side. Where there are essentially flat platitudes, such as the concept of social justice, which was analyzed by Hayek. In the book, you analyze the scope of the term free lunch, that is the concept of free education, free health care, social programs of various kinds. So tell us what it means that there is no free lunch, and if these lunches are often more expensive from those that we are paying in the market?

Miroslav Prokopijević:

To say that there is no free lunch means that everything costs money. And the fact that someone says that he uses transportation for free, study for free and so on, this is not true in the literal sense. He is not studying for free, but someone else is paying the cost of it. And he is studying or riding a transportation without charge at the time. Now, what's the problem with that concept? The problem is that modern states have developed a number of spheres in a huge redistributive scheme to take from one group of people and give to others, often without compensation. And then of course it awfully spoils the economic and democratic game play, because voters essentially vote for whoever promises to give them the most. In order to give them as much as possible, they have to take more from others. And that in a way discourages investment, hard work, and so on.

On the other hand, it creates the illusion that something is really free. But when you look at a more precise calculation, meaning that everything in this world is either private or public - meaning it is owned by the state, and when you look at what is the interest if you want to have as much personal freedom, the more you progress, the more prosperity there is, the more transactions are made in the private sector and not the public. Why? Because the private business is more efficient. And when we look at an analysis of the states that are relatively efficient, not the third world countries or socialist ones, those countries that are as effective as America, in such countries one dollar in the public sector brings back eighty cents. But in private sector it returns one dollar and twenty cents. In other words, what is free it is actually more expensive because of wastefulness, unnecessary and unproductive spending of resources. Thus the illusion of free lunch is terrible, but it still is a bait that catches many voters, and is the favorite fishing method for politicians, of course.

Borislav Ristić:

But in addition to calling into question the effectiveness of that system, your analysis also calls into question the moral dimension of this idea as well, the redistribution. Is the idea of redistribution or social justice in essence fair?

Miroslav Prokopijević:

No. First, it is not known what the idea of social justice is, because different people have very different ideas about what is social justice. That two plus two equals four is common knowlege. There are no differing views on it. Who states that it is five or three, he simply does not understand the thing he is talking about. With social justice things are not that way. All people have different ideas, but there is always an instrument called a state through which some interest group imposes its own understanding of social justice on the rest of the society. Of course, when such a thing is imposed in this way, it is profoundly immoral because it leads to the fact that some people must be deprived of the fruits of their labor, so that someone else could benefit in a parasitic way. That's not something that is good, and it's something that in some way destroys the very moral foundations of society, because life without work is impossible, as people would say.

So it is much better to have a system in which work effort gives results, and where people are strictly obliged to contribute some minimal amount for a possible redistribution, because if people lived in a society with clearly private transactions, I doubt that very rich people, when they go to a restaurant, would like to watch someone die of hunger. So, the capitalism has long ago developed a donor dimension. Private, as opposed to state, as it is handled today. I suppose that it is the church, wealthy individuals, and so on would collect some funds for these purposes, like they always did until the state intervened.

Borislav Ristić:

The concept of private property is one of the concepts that is still facing a moral condemnation of society. You simply believe that private property is essential to freedom, and thus for moral action as well, because only a free man can make moral choices. What then is private property and what is its crucial importance for building of a free society?

Miroslav Prokopijević:

Take a walk through Belgrade and Zagreb and see the most neglected homes. They were abandoned because of the ownership problem, which have several heirs who can not agree on what to do with it. Either someone renovates a third of the house, and two-thirds remains unrenovated. Or everything is just falling apart. So property rights are hugely important for any society. It is essential that property rights are resolved. Property rights originate from the individual, our persona. And then the things that we produce by our activity, it is an extension of our persona. And through the extension of our persona we are establishing the right of ownership. Ownership right is not a thing. So let's say there is this phone: it is a thing. But the fact that is owned by me, or that you own it, that is the relation. Property right is in fact used for the purpose of saying who is authorized to make decisions on something, and that all others are excluded from decision-making about it.

Now, if we relativize property rights, as is the case in many societies today, then there are certainly consequences to personal freedom on the one hand. But there are also consequences to the economic development of these societies and eventual prosperity. Because when property rights are not as crystal clear, by which they cannot be applied in the court if there is a violation of those rights, and the same cannot be restored, then people lose the incentive to work, to strive, to invest, and so on. And that has consequences for the material well-being and of course for the freedom of the individual.

Borislav Ristić:

In 1922, Ludwig von Mises made a prediction that the entire of socialism as a system will collapse, because it is impossible to make rational calculation in socialism, because there is no free market and pricing. Planned economy in this region is the past, but the socialist policies are still very present through various government programs and market regulation. Like Mises's optimism in regards to socialism, you too are also optimist in respect to the fate of market regulation. However, both the central planning and increasing regulation seems to be experiencing a renaissance in both the European Union and in the United States. How do you interpret this trend and what is its fate?

Miroslav Prokopijević:

Let's split your question in two dimensions: one that Mises's fascinating analysis that says if there is no private property, then there is no price. Why? Because if this is my property I cannot say how much it costs. And if the state owns everything it cannot go on buying, so there is no commercial market and there is no price system. It is ridiculous for me to buy my own cell phone from me, or to buy my own shoes. So if there is no price, there is no calculation, if there is no calculation, ... that was Mises's argument from the famous book "Die Gemeinwirschaft" from 1922. If no calculation it is not known what is good and what is bad investment, if you do not know what's good and what's bad investment, then the Lord said goodnight to such an economy. It of course took a long time for socialism, using a variety of resources: low wages, coercion, and so on, to exhaust all that, to fall apart, and disappear. Socialism, when you look at it for example during the years when it was disappearing or in its last decades of existence, it was practically the least market friendly phenomenon on earth. And markets had brought down that system, simply because ... let's put on side the fact that it could not create a framework with the rights of individuals, it was a system of oppression or repression or both of them, but could not create any reproductive material requirements in order to come to life. As was socialism 20 to 30 years ago the least market friendly phenomenon in this world, so is now the welfare state that has nestled up in the European Union. But not only there, it is also present in America and Canada and some other countries of the world. Now it remains as the least market friendly occurrence. And as you can see, now comes the onset of the market and especially financial markets, to the welfare state. And I think that Europe will have to give up that by which it has boasted itself for a long time now, because there has always been a story that Americans have a brutal capitalism, although in the meantime with Obama and Republicans who have become big spending party - meaning the party that has the big government spending, and which governs in that way.

So it is not only the Europeans that are like that. Europeans were saying we have the welfare state, it is different from the cruel American ideals. However, in order for this nation to survive, and for the people of the European Union to survive as well, they will have to abandon that project. Because people in China or in India, or people in Eastern Europe in general are not interested in such stories. They are interested to sell their products. To sell it before the Germans, the French, the Italians do. And now it is a very simple racing where more politicians do not make decisions in these countries, but consumers decide the course and do the financial markets. This is simply a system that is too wasteful, too unproductive, too expensive, to say the simplest. In my view, it simply has to disappear if nations of Europe wanted to survive and have economic as well as political future.

Borislav Ristić:

The more regulation there is, the less freedom of choice there is, and the market experiences distortion and loses efficiency. Unlike your analysis, the conventional wisdom says that it was the lack of regulation and unbridled capitalism that are the factors responsible for the crisis. What do you say to that?

Miroslav Prokopijević:

First, capitalism without crisis does not exist. As there is no man who does not have the sniffles, colds, flu, and many other things. Capitalism, unlike socialism which had only one crisis and which it did not survive, has survived all of its crises. Simply put, markets are the best mechanism for allocating resources. But they are not perfect. People who are in the market make mistakes. Groups of investors make mistakes. Thinking that something will be profitable, they invest. If they cannot pay back loans, there is a crisis. Some overestimate the course of investment on the stock market, they overestimate how much it is worth to pay for some action. That is also reason for the crisis. So capitalism has constantly been giving birth to crises and it has always been correcting them throughout the course of history.

Now what has appeared in the last eighty or so years, is an attempt by government, through various state regulations, legislation, laws, and so on, prevent, and forestall the emergence of the crisis. That is absolutely impossible. Because first, if it is possible then a question arises why were there crises in capitalism even after this idea of introducing the idea of regulation. Because if regulators can not predict what should happen, what needs to be regulated, they would regulate it and there would be no crisis. So on the contrary they are practically only deepening crises, because the regulation still forces you to work in a particular dimension, to go in some particular direction. When regulators prescribe you something, then everyone make mistakes. And when you let them to make their own choices, such as for example in America now in a time of financial crisis, banks were able to choose, then some banks very much invested in these papers that turned out very risky, as Collateral Debt Obligations, such as Lehman Brothers, and many others. Some have invested moderately, like Goldman Sachs, some did not invest in it at all, like Wells Fargo and some other U.S. banks. And you should have just let those who made mistakes, as so often in history, pay the price, and their market share and the majority of employees would be absorbed by their competitors, who have not done such a mistake. But when you compel someone to work in the same way then everyone will make mistake. And that's one of the deadliest mistakes of regulation. Thus it will be seen, I hope, that the regulation does not lead anywhere.

Although we live in a world of regulation: when you wake up in the morning and open the refrigerator, its production is regulated. Take the milk, it is regulated. In the European Union there are only three kinds of milk by fat content. There are many variations of milk, and not just skimmed, low fat and whole milk. So it's really stupid. When you turn on the radio, it is regulated. Turning on the television, that too. Take to the streets, everything is regulated. Get in the car, absolute control. I think people will get tired of this kind of world, and that the regulation itself will show itself to be what Americans say "self defeating," as something that breaks or refutes itself, or collapses and shows poor results.

Borislav Ristić:

But we are witnessing a strange phenomenon from the present political elite, their anti-market policies and regulations are introduced and implemented under the guise of market protection, such as for example anti monopolistic policy...

Miroslav Prokopijević:

That is you first create the problem, meaning you are creating monopolies through regulations. For instance, in America the phone market functioned very well while it was completely private. But the state stepped in and gave one company a monopoly so that its interconnection is in fact what is applicable. And what did the US do: it created a monopolist. And when it created a monopolist then after a couple decades it said: well, now they are exploiting consumers exploiting rivals, and so on. Now again we as a government have to get involved. So once we got involved and created the problem, now it is again necessary to intervene to bring antitrust regulations. And that was the Sherman Act and bunch of other laws other thereafter. So the rascal who made the issue, the state, now again appears as the doctor. It will not conclude with a good solution.

Borislav Ristić:

How to deal with this kind of sophisticated Orwellianism?

Miroslav Prokopijević:

You deal with it by showing that those are expensive results, because now when you see that the U.S. market of telecommunications services is again privatized, and privatized in such a way that there are more operators, and now the situation is so to speak a lot better than it was in the 60's or 30's.

Borislav Ristić:

In your book you have not specifically dealt with personal freedoms, but are you in that respect for freedom of choice as well? For our friends in the region please tell us what you would specifically legalize and deregulate, and what you would not?

Miroslav Prokopijević:

When looking at the conceptual level, I am a not a supporter of the story that was spearheaded by Rothbard. Which says that we all have our rights and that we now just the practice those rights. That would be really best if it were possible to function. But it seems to me that such an order in which there is no protection agency, creates an incentive for many people to live at someone else's expense. How is that so? Because they will loot those who work hard. And they will then join forces in looting others, and then the other side will try to defend themselves, and those that are members of associations will make even bigger predatory associations. This in my opinion would have two negative consequences. First: it would be very expensive. And second: it would be very discouraging to economic activity in a particular field, because what it is worth for you to invest in something that should take 6 months or 6 years to bring you return on investment, if you are not even sure that it will simply even survive, and that you will still be its owner.

That's why I am a supporter of what Nozick called the ultra minimal state. So it would be one very small state, not to be the only one which possesses force, the force may possess many, but the state must be the only legitimate body to decide what is a valid use of force in a society, and nothing more.

Unfortunately, that first Rothbard's concept suffers from too large costs associated with plundering activity among individuals in society. And the other concept that I'm closer to, it suffers from the fact that when you create such ultra-minimal state it quickly goes into extension. It spreads rapidly and very quickly becomes a leviathan. So that is approximately a geography of it all, and now we are left with either suppressing the leviathan or trying experimentally with this other thing. So it is very difficult to make up one's mind in the conceptual sense. But without personal freedom in a large measure. So personal freedom in a political and moral sense, as well as in the economic sense. Because, what good is human life if you cannot make decisions about the key issues in your life. If it should be decided by a communist or socialist functionaries, that's nonsense.

Borislav Ristić:

And for the end, Friedman's book "Free to Choose" is accompanied by an extraordinary video material of the same name, which was equally successful. Are there any appetites for doing a similar thing with your book "Sloboda izbora" in the near future?

Miroslav Prokopijević:

Well, there's a one big difference between those two books. Friedman's book had already sold nearly a million copies when it was done, and it had a circulation of several million copies after that. And it was a really fascinatingly good series, very nicely done, brilliantly illustrated, and so on. My book was printed in 2000 copies in the first year and a half and it sold 800 copies. So that's a completely different category.

But as you know there were a couple of films that were made. One of them that was produced few years ago was aired on RTS, since none of the other private television companies didn't want to broadcast it, and a number of smaller televisions. And it was a really well made film. Andreja Vražalić was the producer. And the film was pretty well received. There was no that kind of horror, where people would be saying "oh these guys are talking about capitalism," and so on. After that there were a couple of more films, I don't know exactly where they were shown and what was the response. I was one of the participants in those movies. In the first one of the main participants, in the other one I was one of many. But there has to exist a favorable social climate for these things. There must arrive a situation which one particular viewpoint is viewed as the solution to problems by a sizable number of people in the elite. And then it is worthwhile to do projects like such a film. But if you are able to sell only 800 of 2000 copies in a year and a half, obviously the climate has not yet matured.

Borislav Ristić:

We hope that that climate will change. Professor Prokopijević, thank you for this interview.

Miroslav Prokopijević:

It was my pleasure.