THE death last week of Professor Milton Friedman, the famous arch-conservative and free-market Chicago economist, after that of the arch-liberal Professor John Kenneth Galbraith, has taken away another controversial American academic economist, although his influence on public policy is likely to last much longer.

Friedman was much more of an academic and theoretical economist than a policy analyst. He considered himself primarily a professional economist and viewed his public policy pursuits more as an avocation. He wanted his legacy to be based on the work he has done as an economist and less on being a conservative icon, which is how he is likely to be remembered as.

Friedman whose name has long been associated with the Chicago school, helped reshape the capitalist system in the 20th Century when it faced serious competition from an expanding rival economic system, as well as with the dire predictions of its impending doom.

Professor Friedman¹s unbridled faith in market mechanism, making it the Holy Grail of economics, was in sharp contrast to mainstream 20th Century economists, such as Samuelson, Arrow, Solow, Tobin and Sen, who accepted that the state had a non-trivial, even an activist, role to play in achieving economic progress.

Friedman was among the few economists who challenged with vigour the Keynesian analysis and led the onslaught against state intervention in economic matters. The Great Depression of the 1930s had impelled John Maynard Keynes, the undisputed pioneer of modern macroeconomic analysis, to craft a theoretical framework for saving the capitalist system from its endemic boom and bust cycles by stimulating effective demand through deficit financing of public works programmes.

Keynes¹ remedy was widely embraced both in theoretical and policy circles in most capitalist countries, including the United States. It provided the theoretical underpinning of President Franklin Roosevelt’s New Deal programme, during which major public works programmes such as the Tennessee Valley Authority and the building of highways and electrification programmes were undertaken.

Professor Friedman, despite his pioneering work challenging the basic Keynesian macroeconomic model, nevertheless accepted that these measures were "appropriate responses to the critical situation”.

There is no denying, however, that Professor Friedman made immense contributions to economic theory and policy, especially in monetary theory and practice in which he has had pervasive, if not always wholesome, influence.

Among his theoretical contributions, one of the more celebrated was the permanent income hypothesis, which postulated that a person’s (rather household’s) expenditure does not depend so much on his/her/its currents income, but on the income it expects to earn over a life time, which often is equal to the total life-time expenditure. This to some extent weakened Keynes’ assumption of a marginal propensity to consume being less than one, which was the basis of the multiplier mechanism crucial to the Keynesian theory of income and employment.

His contribution in identifying stagflation as a serious threat to economic stability made him as much of a saviour of capitalism in the 1970s as Keynes was in the 1930s, a contribution that helped him win the coveted Nobel prize in 1976.

Stagflation was the hitherto unknown accompaniment of low growth and high unemployment with high inflation, while Keynesian demand management simply was geared to facing inflation in situations of high growth and falling unemployment, which Keynes thought could be cured by money illusion. Friedman is also credited with the idea of a negative tax for those below the poverty line, which could not be implemented because of various administrative and incentive problems, despite its attraction to many Democratic administrations.

The new discipline of development economics, which Friedman¹s Chicago school, viewed with contempt and disdain, relied heavily on the need for state intervention to overcome the unfavourable `initial conditions’ obtaining in the developing world.

In Friedman¹s view, however, government activity should be limited `primarily to establishing the framework with which individuals are free to pursue their own objectives’. This was a recipe which may arguably have been applicable for many developed countries with a minimum of social and economic inequalities and other institutional rigidities, but was not acceptable to most developing countries which abound in such imperfections.

Even in the United States, the country’s conservative Supreme Court, which intervened six years ago to put one of its own ilk as President in the White House, also recently ruled in favour of affirmative action for minorities in the universities.

Academics recognise Friedman’s role in restoring the balance in

macroeconomics in favour of monetary policy, whose role had been pre-empted by fiscal policy during the days of strident Keynesianism. However, under his influence the pendulum swung too far in favour of monetarism. The damage this did to the developing countries in 1980s through market-fundamentalist and demand compression policies of the IMF and the World Bank, who embraced it unreservedly, was immense and for many, especially in Latin America, it was a `lost decade of development’, with negative growth in some countries.

Friedman¹s association with the government of the Chilean dictator Gen. Pinochet, who overthrew President Allende’s left-wing government and introduced aggressive pro-market policies, along with serious human rights violations, greatly tarnished his image as a champion of freedom and an independent academic, notwithstanding the positive effect of some of the Pinochet reforms on Chile¹s economic performance.

Friedman’s Chilean episode was not an isolated attempt to spread the gospel of free market policies to a developing country. It was part of a CIA-orchestrated campaign to stem the tide of radicalism in the US backyard, which it had become especially apprehensive of since the Cuban revolution.

But Latin America was simmering with discontent since the end of the Second World War as its people were getting pauperised by falling commodity prices. The obvious remedy was to industrial strategy, which seriously hurt the interests of large multinationals, such as the United Fruit, Dole, Delmonte, Phelps Dodge and other primary commodity producers.

Starting in the 1950s, Latin America, particularly the southern cone countries of Argentina, Chile, and Brazil, had become a laboratory for development economics. Social scientists, such as Raúl Prebisch from his position as head of the UN's Economic Commission on Latin America (ECLA), expanded Keynesianism beyond its focus on managing countervailing cycles of inflation and unemployment to question the terms of international trade between industrialized and primary producing countries.

Chronic inflation, according to Prebisch and other Latin American economists, was understood not to be a reflex of any given country's irresponsible monetary system, as Friedman¹s monetarist argued, but a symptom of deep structural inequalities that divided the global economy between the developed and the undeveloped world.

Volatile commodity prices and capital investment reinforced the deterioration of terms trade against the developing countries. Economists and politicians from across the political spectrum embraced the then new paradigm of state planning, regulation, and intervention. Such ideas not only drove the economic policies of developing nations, but echoed throughout the corridors and conference rooms of the UN and the World Bank, as well as in the non-aligned movement's 1973 call for a New International Economic Order.

Friedman and his `Chicago boys’ led the onslaught on the emerging structuralist school of development economics and the paradigm of state planning and intervention which they dismantled in Chile. However, their economic reforms failed to produce the kind of economic growth and structural change that was characteristic of the East Asian miracle.

Chile's most important economic sectors remained in the field of primary production (like minerals) that are far less productive than dominant sector of countries that have gone through the complete process of industrialisation. While it would be unfair to put all the blame for the interruption of the development process in developing countries since the 1970s to Professor Friedman, there is no doubt that historians of development will not look kindly at the influence his economic ideas have had on the progress of developing countries in the last two decades or more.

In South Asia, generally economists and policy makers have been sceptical of Friedmanesque policies of development peddled by the IMF and the World Bank. Since 1990s, most South Asian economies have had to change gears and adopt more market-oriented policies, partly as a result of the end of the Cold War and the emergence of world¹s leading capitalist nation as the sole superpower pressing for globalisation and partly as the success of East Asia and China a nuanced use of the market mechanism, without giving up the control of the levers of the state for directional change.

India has been able to reverse many of the policies initiated during the Second Five-Year Plan and continued until 1990, which had helped it build a solid industrial base and a technical and scientific manpower and is now helping it reap the benefits of globalisation. In Pakistan, where the IMF and World Bank, as carriers of Friedman¹s policy ideas, have had a freer hand in shaping the country¹s economic policies, their influence is more conspicuous, but hardly more effective due to the stranglehold of feudal, bureaucratic and military forces, whose rent-seeking interests continue to stand in the path of its long-run development.