Shultz on Globalization, Markets and Ideas
This interview is excerpted from Commanding Heights, a companion Website to the PBS documentary of the same name. Here, Shultz discusses globalization and the ideas that animate real markets. Hyperlinks have been added for additional access to information.

Interviewer: Why do you think a lot of people are resistant to globalization?

George Shultz: I think there has been an unnecessary rise, a protest, to call attention to views about globalization that, in the end, come down to protectionism. And I say unnecessary, because I don't think people have stood up to it. In Seattle, where it started, President Clinton said he recognized the protestors had some real points and they should be included at the table. Well the fact of the matter is they didn't have much constructive to offer. What they had to offer was protectionism, and in the World Bank meetings held in Prague, the head of the World Bank, James Wolfensohn, did the same thing. He acted as though people who were protesting for something had a really important idea.


 

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The fact of the matter is, as the world economy has been opened up, it's not only been a wonderful thing for the higher income countries, the so-called developed countries, like the Europeans and the United States and the Japanese, but it's been a wonderful thing for the less developed countries. Because they have seen that open and market-based economies work better, and in a more globalized setting they have access to all the advanced ideas that there are and they can be part of a trading system, an investment system that can help them. So it isn't as though this is negative, it's positive, and people should be getting up and saying to them, "Look, you're wrong," not "You're right; come on to the table." "You're wrong." (laughs) That's what Ronald Reagan would say. That's what Margaret Thatcher would say. We need them. (laughs)

Interviewer: It seems to me that a lot of the demonstrators, or the more articulate and intellectual demonstrators, are coalescing around ideas I call anti-corporatism. In other words, they're fearful of too much power in big global multinational corporations. I mean, it's going back to the 1960s-type feeling. But do you see a threat to free markets from too much power concentrated in too few corporations?

George Shultz: I think what's happening is that that big corporations are having less power, not more, because what this Internet does is it empowers small groups. I have been a director of some large companies and I know the more thoughtful people in them believe our competition is not so much that big guy over there, our traditional rival, as it is some guy in a garage who has an idea we haven't thought of and who's suddenly gonna burst on the scene and really make an impact on us. That's who we have to worry about.

Interviewer: You've touched on it slightly, but I'd like to ask you a direct question about it. I think Jeffrey Sachs is one of the people who said that 200 years ago everybody was more or less poor. We're now living in an age where in better off countries it can mean individuals can be a hundred times better off, better even than countries where they live on $1 a week. Do you see that gap in poverty as a great moral issue for our time?

George Shultz: Well, you don't like to see big gaps. On the other hand, it's important to recognize that the bottom keeps coming up, and what you really need to focus on is to have a situation where people generally don't have to live in impoverished conditions. Don't have to be hungry. Don't have to be poorly housed. And I think that we see great improvements as a result of globalization in those dimensions.

Interviewer: In general terms, has the move of governments out of the markets sort of affected the kind of reforms that Hayek and Friedman had been arguing for most of the century? Is that an example of the triumph of ideas?

George Shultz: Those ideas were there. They weren't put into practice, but more and more they weighed heavily in people's minds. The ideas were attractive to people who became political leaders, people who could do something about them. And we were fortunate that we had some leaders who had the courage of their convictions and who stuck with the ideas even when there was trouble, as when monetary discipline was exercised in the early '80s and we did have the difficulties of a recession that accompanied bringing that inflation down. President Reagan understood what was going on, and he stuck with it. And so you have the coming into being of some politicians who will use the ideas and will stick with the ideas and then all of a sudden things start changing.

Interviewer: What do people dislike or fear about the modern markets, the 24-hour markets in particular?

George Shultz: Well, markets are bountiful, and they're very rewarding, but markets are also relentless. They operate, and if you are in a firm and your costs get too high and your prices have to stay up, nobody will buy your product and you start losing money. There's no way around it. The markets never let up, so there's a constant pressure and people like to get out from under the pressure. But in the end, organizing things that way produces, as Adam Smith told us a long time ago, a general social good.

Interviewer: We talked about the new world economy. You're kind of optimistic about it, but there are people who are afraid of it. Do you see any danger of the likelihood of the pendulum swinging the other way, a return to government control?

George Shultz: That's always a problem, and it's always easy for people to advocate that the government should do this, that, and the other thing. It's a matter of politics, of somebody advocating the other side and being able to point to the examples and get some assurances. So I think what has happened around the world is that there's so many examples of countries that were operated on a command and control basis, and got in trouble and then changed, and then things got better.

Take China. Take India, let alone a little country like Chile. Look at the malaise in Europe compared with the United States. Look at what's happened in the United States since we got inflation under control and we got marginal rates of taxation down. We have seen an explosion in our growth. All these examples help. But markets are relentless, they never let up.

Interviewer: I suppose, to an extent, the ability to strengthen the world economy depends very much on the stability of the U.S. economy.

George Shultz: Well, the U.S. economy is a huge proportion of the world economy, over 20 percent, and in terms of dynamism and creativity and the things that, contributes a greater percentage than that. So a healthy U.S. economy is essential to the world economy. When you have a healthy U.S. economy, even if things go a little wrong here and there, they have a tendency to come back -- as long as we're an open economy.

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