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The East: Greenspan On Money, Power And A Free Press For Free Markets

  • Sonia Winter



Washington, 28 October 1997 (RFE/RL) - Who is likely the most powerful person in the world -- the president of the United States? No, say Washington experts, it's a man who would walk unrecognized in most capitals of the world -- Alan Greenspan, chairman of the Board of Governors of the U.S. Federal Reserve System,

Greenspan is scheduled to appear before a U.S. congressional committee Wednesday to make one of his regular reports on the state of the U.S. economy.

As always, his every word, every sigh will be minutely scrutinized for signs of where he thinks interest rates, trade, manufacturing and the value of the dollar are headed.

But the current sharp decline on major stock markets around the world, makes his public pronouncements especially important. After Monday's plunge on the New York stock exchange, the biggest point drop in its history, investors will be hoping for reassurance and a return of stability.

One sentence, one smile from Greenspan could help stop the freefall in New York and slow the negative momentum in other parts of the world.

Conversely, when Greenspan criticized the New York stock market for "irrational exuberance" earlier this year, prices of shares on Wall Street plummetted and other markets followed suit.

And what goes on in New York or Hong Kong is becoming as important for Dushanbe or Kyiv or Moscow as it is for London and Tokyo and Paris.

Thus, an American magazine, "Vanity Fair," recently described Greenspan, aged 71, as "the ultimate man of influence in a world of expanding economies."

When he recently reflected on the demise of central economic planning and what it means for the future, people listened carefully to what he had to say about the problems Russia and others are having in developing market economies.

Many Americans attribute their relatively prosperous economy this decade to Greenspan's control and skill in interpreting economic indicators. He is the economists' economist whom few can match in knowledge of the workings of the market system.

At a business leaders' meeting Friday, Greenspan said the biggest surprise for economists after the collapse of communism is not what they learned about communist economies but what that experiment revealed about the way Western economies function.

In helping centrally planned economies shift to a free market, Greenspan said, "we are being forced to more fully understand the roots of our own system," discovering he said that "much of what we took for granted in our free market system and assumed to be human nature was not nature at all but culture."

Greenspan said a free market could not automatically rise from the ashes of the dismantled central planning system because former communist countries lack what he called an "infrastructure" that has evolved over generations.

It's a culture of laws, conventions, behaviors and a wide variety of business professions and practices, Greenspan said, including the things he has spent his life studying -- credit standards, interest-rate risks, market value changes and all the key financial signals that determine eventually "who produces what and sells to whom in a market economy."

Greenspan said many states of the former Soviet bloc got a shadow of a market system in a rapid growth of black markets. But he said lacking the rule of law, the black markets conferred no rights to own and dispose of property, no laws of contract or bankruptcy or judidical review enforced by the state. "The essential infrastructure of a market economy is missing," Greenspan said.

He noted that in the West "the moral validity of property rights is accepted ...by virtually the whole of the population."

Because of this strong commitment to property rights, Greenspan said only a few contracts have to be enforced through actions in the courts," and that "a surprisingly large number of contracts, especially in financial markets, are initially oral, confirmed only later...by a written document."

He pointed out that attitudes on ownership are passed from generation to generation through family values and school education, and that "altering what a nation teaches its children is a profoundly difficult task and cannot be accomplished overnight."

Greenspan said the absence of a generational foundation favoring private property and profit means that "the full transition from the collective rights of socialist economies to the individual property rights of market economies and legal certainties can be expected to be slow."

He said a fully functioning free press is another essential condition for a free market allowing market participants to make informed judgements about allocation of capital and the production of goods and services most valued by consumers.

Greenspan said "this requires a free press and government data information systems that are perceived to be free of hidden political manipulation."

He emphasized that "government censorship in any form renders information suspect...and virtually useless, requiring individuals to rely on rumor and other dubious sources of information."

Greenspan said bad information undermines the market's effectiveness and its role in directing real resources to thier optimum uses.

He said other human rights that Americans cherish -- protection against violence or intimidation by the state, arbitrary confiscation of property without due process, and absence of discrimination, as well as freedom of speech and of the press -- are the guiding mechanism of a free market economy.

"It is these rights that enable the value judgments of millions of consumers to be converted through a legally protected free market into prices of products and financial services."
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