As we mourn the death of one of the great champions of freedom, Milton Friedman, (a great article by Thomas Sowell here
, a summary of many of his ideas on freedom here
) we should recognize that champions of strategy must also be champions of freedom. I thought of Friedman while I read about a new process for inexpensively processing oil shale
. This process could lower the price of a barrel of oil to as little as $17. How would such a breakthrough benefit the economies of the world? How would it undermine state tyrannies based on the control of oil? More importantly, what role does freedom play in these innovations and how does regulation prevent them?
Controlled environments offer little opportunity for strategy except in moving up the established hierarchy. Most activity within a controlled environment is determined by planning, usually by consensus and committee. This approach offers little progress because it offers too few opportunities for the unexpected advances made possible by human creativity. These breakthroughs never go according to plan.
In dynamic, chaotic, competitive environments, planning never works so people must master strategy. The freer and less controlled the environment, the more important strategy becomes. Innovation becomes a way of life in these environments. This means that creativity is constantly rewarded resulting in dramatic improvements in the human condition.
Economic freedom creates an unpredictable environment where people are best rewarded for adding value in unpredictable new ways. Innovation takes two forms. The most common is the gradual learning where methods are continuously improved to create more value with less cost. This process continually decreases the impact of progress on resources. The more important form of innovation consists of breakthroughs which completely revolutionize the way value is produce. The invention of the microcomputer is a good example.
We can to some degree predict the benefits of the gradual improvement form of innovation, but this does not make progress itself predictable because the impossible-to-foresee breakthroughs shuffle the deck and change the rules.
As Milton Friedman constantly pointed out, less freedom always results in more poverty. Every â€œcontrolâ€ added to protect people from the unpredictable nature of progress slows progress and impoverishes us all. Government regulations, from minimum wage to environmental protection, reward very few at the expense of society as a whole. Most of damage caused by regulation â€œtrickles downâ€ to the most economically disadvantaged. Minimum wages makes it harder to find low-level jobs, harder to get trained, and encourages automation rather than employing people. Environmental regulations raise the cost of housing, food, energy and all of the other basic of life.
The biggest damage in regulation is that it limits the types of innovations that can take place. Centuries after the industrial revolution, most housing is still built by hand basically as it was hundreds of years ago. Why? A myriad of local, state, and national building codes and regulations effectively prohibit innovation. In â€œprotectingâ€ people from poor housing, we have in fact, trapped everyone into nineteenth century methods, raising the cost of housing for everyone.
Revolutionary innovation simply cannot be factored into any plans or predictions. Regulations make it more difficult to solve intractable problems because they add a layer of artificial restrictions to the unknown natural rules of progress. We simply do not know what nature makes possible and what it does not allow. Will energy some day come from fusion? We simply donâ€™t know if it is possible. We do know however that regulation can cut off the progress that nature does make possible.
For example, all progress in nuclear energy, making it safer and most cost effective over the last several decades has taken place in Europe. Why there instead of here? The United States regulated progress nuclear energy out of existence on the basis of a motion picture, The China Syndrome
. Though not as tragic as the tens millions of deaths caused by the banning of DDT on the basis of a book, The Silent Spring
, who knows what progress could have been made in nuclear power given the more free, creative general economic environment of the US? What if we had had a robust nuclear energy industry during the introduction of microcomputer technology?
Fear is the great ally of those who hate freedom, progress, and the unpredictable nature of innovation. The big lie is that the results of regulation are predictable while the results of freedom are uncertain. The truth is that regulation is rife with unintended consequences, virtually always destructive. While the path of freedom is uncertain, that path is always constructive because it relies upon rewards and penalties based upon the creation of value.
Regulation leads inevitably to more destructive regulation. How much of the current global warming scare is based on carbon burning made necessary by the nuclear meltdown scare? Once you take innovation out of the equation and replace it with regulation, you spend your limited resources meeting artificial, short-sighted restrictions. This leaves fewer resources available for innovation and the real progress made possible by nature. Large corporations prosper in this environment because they are better able to deal with regulation than smaller, innovative organizations.
For real progress to take place, it must occur outside of the domains of regulation. Microcomputers became possible because no one regulated computer technology. The Internet became possible because no one regulated computer communication.
The more basic the needâ€”food, housing, energy, transportation, medical careâ€”the more likely it is to be regulated. This regulation makes progress in these areas more difficult, raising the costs of the basic necessities of life. This, of course, impacts the elites, who are the champions of regulation, less than it does the poor of the world. These high prices on basic necessities are used to justify more government control to create a â€œsocial safety net.â€
The only question is: given the heavily regulated nature of the energy industry, is such as a breakthrough in shale oil processing even possible? Or do the fear-mongers have to much to lose by allowing such revolutionary innovation upset their carefully laid plans.