MILTON FRIEDMAN WAS a renowned American economist who won a Nobel Memorial Prize in Economic Sciences in 1976. His groundbreaking work in the fields of consumption analysis; monetary history and theory; and his demonstration of the complexity of stabilization policy, earned him the prestigious prize.

His brilliance shaped the way we think about monetary policy. What made him more influential was that he wasn’t just an extraordinary professor of economics; he was also very vocal on social issues –on prohibition of drugs, the rights of the gay, the United States military conscription and so on. He was a champion of free markets – arguably the most influential economist of the second half of the 20th century. Friedman spent his entire career debating with students, journalists, and fellow academic professors; about what he believed was the exact role of government in a free market economy.

This is how he explained the role of government in a free market economy:

“Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government– in pursuit of good intentions tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.”

These are Milton Friedman’s exact words. I concur with him. A small government that believes in a free market economy and individual freedom, focused on its primary functions, boosts economic growth and prosperity.

His view was supported by one of the Senior Fellows at the Hoover Institute, Thomas Sowell; when he said, “The most basic function of government is to provide a framework of law and order, within which the people are free to choose”.

IF FOUND GUILTY OF MONEY-LAUNDERING, HSBC MUST BE PUNISHED

The recent allegations of money-laundering leveled against the British bank, HSBC, require us the advocates of free market economics to convey Milton Friedman’s message to the people, on what exactly the role of government is on the matter. If we do not, people will make wrong conclusions. The haters of a system that has transformed the lives of millions around the world, the free market, will start misleading us; by saying the solution is government control. We will have to push back.

Days ago, Andisa Ndlovu, one of the journalists at e News Channel Africa and my former school mate at Rhodes University, updated her status on Facebook, where she expressed her concern that not much is being said about the allegations leveled against HSBC, for reasons she purposely did not mention.

I am not certain why not much is being said about HSBC. Perhaps it’s because this bank is a private enterprise that will be punished for money-laundering if found guilty. Private businesses must operate within the bounds of the law, whether those laws are fair or not is another question.

I think these allegations would have garnered even more attention if HSBC was a state-owned enterprise that survives on taxpayers’ money. The entire scandal would have turned into a political drama that would have decided the fate of many politicians around the world. That’s not to say there are currently no politicians being implicated, there are; but the magnitude would have been worst if it were a state-owned enterprise.

What’s comforting is that only HSBC will suffer for its breach of law. The shareholders, the owners, of the company will endure the punishment. If it were a state-owned enterprise, taxpayers would be punished for the crimes they did not commit. You see, that’s the sad thing about government-owned businesses – it’s that whatever troubles the company finds itself in, a portion of your income and my income, which we have worked very hard for, will cover the costs.

The authorities must continue with the investigations at HSBC; if found guilty, the world’s second largest bank must pay huge fines. This is how things work in a free-market system. The market must operate freely within the framework of law and order. Those who violate the laws are brought to justice.

In saying so, it’s very important to remember that most of the laws passed by our governments today suppress freedom; they are not intended to enforce voluntary contracts to ensure that a free market prevails. Politicians have rather chosen laws that guarantee them power to control their citizens – which is very disheartening. Unfortunately businesses will still need to operate within the bounds of these harsh, repressive laws. The only second option they have is to find alternative investment destinations where laws are relatively relaxed.

There have been many cases before where private businesses were found guilty of theft, collusion or fraud; they all had to live with the negative consequences of their felony. The allegations of money-laundering at HSBC are very serious, and will need to be addressed by independent courts as the free market system requires.Independent courts to deal with such issues are a desirable part of the free market. The steps taken against the bank must ensure that the free market system remains intact; because the system is critical in advancing liberty. Socialist policies will destroy the banking industry. Milton Friedman was absolutely correct to point out that, in a free market system, those who disobey the rules of the game must be punished. It is only in such cases where government’s intervention is required – where a citizen commits crime against the other. This we all need to understand.

Phumlani M. UMajozi is a Professional Business Analyst, a Policy Analyst at Independent Entrepreneurship Group, and Youth Coordinator at Free Market Foundation South Africa.