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Eastern Europe at the Crossroads

R&L: The people of Eastern Europe have been profoundly shaped by their religious attitudes. What role do you think religion can and should play in the reconstruction of Eastern Europe?

Friedman: I am not an expert on that subject, and I do not know. I suspect, however, that the reconstruction of Eastern Europe will not owe very much to religion in any organized or systematic sense. The growth and development of Britain and the United States and other advanced countries did not owe anything to organized religion. Unquestionably a society’s growth and health depends on the values of the society. It depends on the strength of the family unit, on the character of the people. Those things are important. Insofar as religion helps to inculcate those values, it undoubtedly has a role to play, but that’s about the only role I can see it playing.

For Poland, you have to distinguish sharply between the situation under communism and the possible situation in the future. The organized Catholic church undoubtedly was a bulwark of strength during the period of communism. It provided an alternative power structure which kept alive the possibility of overturning the communist structure, and from that point of view I can well believe that it played a major and important role.

But I am concerned that as of now the organized church is more likely to be an obstacle to the achievement of the right kind of economic institutions than it is to be a source of strength.

R&L: What role do you suppose the election of a Slavic pope had in the collapse of communism?

Friedman: I have no idea. The Acton Institute knows much better than I do the answer to that.

R&L: You’ve said that in the effort to construct Poland’s economy the Polish people should resist the temptation to imitate the U. S. of today and instead imitate the U. S. economy as existed previous to World War II. Why is this such an important distinction for Poles to make and how successful were you in impressing on them the significance of that distinction.

Friedman: I have no idea how successful I was, only time will tell that. However, the distinction is exceedingly important. The U. S. today is at least fifty percent socialist. It doesn't’t appear that way, because the U. S. socialist sector is no more productive than the Polish socialist sector. As a result something like fifty percent of our resources are absorbed by the socialist sector. We don’t get anything like fifty percent of our output or our welfare or our happiness from the socialist sector. That comes almost entirely from the private sector, which is so much more efficient.

We are able to sustain so large a socialist sector because we have been able to build upon a foundation of a century and more of much freer enterprise, of much greater scope for competition and private initiative. Until 1929, for example, government spending in the United States at all levels, federal, state and local, never amounted to more than about ten percent of the national income except during the Civil War and the first World War. And of that ten percent, two-thirds was at the state and local level. The federal government spent about three to four percent of the national income, and about half of that went for the military. There were government regulations and rules, tariffs and so on, that appeared significant to the people at the time, but by comparison to the present situation, they were trivial. In the century and a half that preceded the movement toward a more intrusive and more extensive government, the U. S. built up its fundamental industrial and economic structure and accumulated a great deal of wealth. That is what has enabled us to afford to support such a large socialist sector.

Poland is a far poorer country. It’s in the condition we were in a hundred or a hundred and fifty years ago. If a hundred or a hundred fifty years ago we had tried to maintain anything like our present governmental and socialist structure I assure you the United States would still be in that state. We would never have been able to advance.

That is why it is so important that Poland, to put it in a simple image, not try to run before it can walk, and it will not be able to walk before it can crawl. Poland is, at the moment, a very poor country. It is currently eighty to ninety percent socialist. That may be a little exaggeration because the agriculture is in a considerable measure non-socialist. But the model they should follow is the United States of the nineteenth century or Hong Kong of the twentieth century.

R&L: What other factors, other than economics, would come into play for the resuscitation of Eastern Europe?

Friedman: The crucial thing is a change in economic institutions. The crucial requirement can be stated very simply–private property. You have to have widespread private property in order to have a functioning and prosperous society. Those two words sound innocent, but they carry with them a great deal of substance. You do not have effective private property if somebody tells you what price you have to sell your property at, or if somebody prevents somebody else from buying your property. So effective private property means a large element of freedom in prices, in wages, in interest rates, in foreign exchange rates, and so on. Those are the essential conditions, in my opinion.

The question that you raise is an exceedingly difficult one and one to which there is no simple answer. What other aspects of the society will increase the probability that such a system of private property will be accepted? Since we have absolutely no precedence for a collectivist society that has voluntarily and internally converted itself to a free-market society, I do not know; we have no basis on which to make such a judgment.

We observe that we have had successful societies with all manners of institutions. The institutions and values of Japan are vastly different from the institutions and values of Hong Kong, of Taiwan, of the United States, of Britain. If you ask, “In what way are the successful countries the same and in what way are they different?” the one respect in which they are all the same is that they are based fundamentally – not exclusively but fundamentally and primarily –on the recognition of private property and the protection of private property.

In any other respect you can think of they are very different. They have different languages, different religions, different cultural circumstances. So I am certainly not knowledgeable enough about Eastern European countries to express any confident judgment about what other features are essential for them.

R&L: You forcefully argued that one of the major problems that nations face is the tyranny of interest groups, and have warned against the emergence of an “iron triangle”: interest groups working with politicians and government bureaucrats. Has such a triangle begun to emerge in Eastern Europe?

Friedman: It’s hardly a triangle yet. You must realize what the situation is in these countries. They are collectivist. They are centrally controlled. They have one class of people who have an enormous amount of power and control over the lives of the rest of the population. That remains true today; It hasn’t been abolished. You have to distinguish between the simple rejection of something called communism and the rejection of a collectivist, centralized, socialist society. That has not occurred. In all of these countries there is a real battle going on between two groups. One consists of the existing nomenclatura, the people who are currently in power, including some well-meaning intellectuals. They give lip service to a market economy, but they really favor what they call a socialist market economy. They are not ready to give up their power over the allocation of resources. They are dragging their feet on privatizing the governmental enterprises, socialist enterprises. They are the counterparts in those countries of our own so-called liberals in the United States. We in the United States know very well about such people who, with the best of intentions, believe that they know what’s good for the rest of the people better than the people themselves do. The group opposing the proponents of a socialist market economy consists of intellectuals who truly believe in private property, free markets, and a non-socialist state, who are in favor of moving very rapidly toward privatization, toward getting rid of government enterprise. It’s very unclear which way that battle is going to come out.

The situation in this respect is different in the various countries. In Poland, the outcome has not yet been decided. In Czechoslovakia the situation is more promising because the minister of finance is Vaclev Klaus, and he is a very strong proponent of moving as rapidly as possible toward a complete, really free market. He has repeatedly said that there is no third way between socialism and full-blooded capitalism. He has said the third way leads to the third world. That is a very succinct way of putting it. He has a great deal of political backing in the government, and he has initiated an extensive privatization program. So the possibilities in Czechoslovakia are looking up.

R&L: How would you see the question of church property being resolved?

Friedman: Church property?

R&L: Yes, Much of it has been collectivised by the state, taken from the church.

Friedman: There is a serious problem in all of these countries, not about the church alone, but about restitution in general. Church property ought to be treated the same way as all other property is treated. Here is the dilemma: A house has been appropriated. It’s been rebuilt, it’s been torn down, something else has been built on the land. In most of these countries, you’re talking about a gap of about forty years. It’s often hard to identify the original property.

In those particular cases where the property is unchanged, like a piece of land on which nothing has been built, that the right thing to do would be to restore it to its original owner. But in other cases, and this is what’s happening, I understand, in both Czechoslovakia and Germany, restitution should take the form of a financial settlement in lieu of a return of the specific property. Presumably some mixture of those two would be appropriate for the church as well.

R & L: How do you see the social role of religion?

Friedman: I believe churches can play a very useful role provided there are many of them. I am not happy about the case in Poland, where a church has so much of a monopoly in the religious realm.

R&L: Within the Catholic tradition there are numerous strains to the tradition so you have a kind of competition, and kind of decentralization.

Friedman: The real problem is the imperialist tendency of the church. I don’t mean in terms of land, but in terms of idea and control. The church tends to believe that it should exercise control not only over the spiritual realm but also over the material realm, and that’s where all the difficulties arise.

R&L: That is an unnecessary assertion on the part of the church.

Friedman: Unnecessary, but inevitable.

R&L: Do you think it’s inevitable? Lord Acton didn’t think so.

Friedman: Yes, it’s a human characteristic. It’s very hard for a country or a person or an institution to keep from trying to aggrandize its role and extend its influence. It’s true of you and me as individuals. We are kept in check by the existence of many other individuals. It’s true of every enterprise, it’s true of every government. The hardest thing in the world is for a government to contract, and the same thing is true of a church. After all, it believes it has absolute knowledge in one area that tends to make it believe it can acquire such knowledge in others.