23 Things They Don’t Tell You About Capitalism by Ha-Joon Chang, A review

Ha-Joon Chang’s book attacks much of the “conventional wisdom” of neo-liberal capitalism: less regulation, smaller governments, the belief that we are now living in the knowledge economy. Instead, Chang argues, governments should play bigger roles, and there are instances- particularly in finance- where more regulation is needed. The points are provocative and will find many takers in the Global South. But this is not a book against Capitalism, rather it advocates for a more sustainable and humane version, with a strong welfare state and social nets for the under-privileged.

Capitalism, particularly, a form of it known as neo-liberalism  is the de-facto way of organizing markets today. In this current form, capitalism and its supporters- the big businessmen and neo-liberal economists of the world’s top universities- advocates for less regulation, less government intervention, opening emerging markets to globalization and, among other things, trusting the wisdom of economists.

It is this “conventional wisdom” that Ha-Jo0n Chang, an academic specializing in Developmental Economics at Cambridge University, systematically tries to decimate. And at times he does so spectacularly well.

The first Thing Chang attacks, : “There is no such thing as free markets“. All markets are regulated, he says, and the extend of the regulation is motivated mainly by politics. Diving into history he shows many things that used to be part of the market that are not anymore- humans, drugs, child labor. What we accept as the boundaries of the market Chang argues are just our moral and political values. He reminds us that Britain went to war in the Opium wars to allow the sale of opiates.

Many of Mr Chang’s rebuttals are becoming well known- especially in the aftermath of the 2008 financial crisis. For example the neo-liberal view that humans are rational agents has been assaulted for quite some time. The same can be said of the point that humans always act for their self interest. This is not always the case, and occasionally humans cannot process the vast amount of information they possess in order to make rational decision. Using this premise Chang advocates for the banning of financial derivatives, which he says are so complex that the so called experts in the field often have no idea what’s going on.

The book is clearly aimed at developing economies which, Chang argues, have seen their growth slow down due to following the neo-liberal ideology that is popular in the West. For example Mr Chang makes a strong point that governments have an important role to play in the development of poor countries, citing his own native Korea which successfully influenced the direction of companies such as Pohang Steel- one of the world’s biggest steelmakers- despite advice from the World bank not to do so.

He also makes a case for the developing world to protect their infant industries because, he claims, most of the developed countries did so when their own industries were just starting and weak. To support this he goes back to the founding fathers of America, in particular Alexander Hamilton, famous for his “infant industries” term, and Jefferson who did not like patents. He gives other examples too, in Europe and Asia, where governments deliberately protected their infant industries until they could stand on their own feet.

Chang also has strong rebuke for the West, criticizing their increased obsession with higher education, which he says has lost much of its relevance , at least as far as growing economies is concerned. And he provocatively claims that the internet has not been as revolutionary as other preceding technologies like the telegram whose impact was much bigger. He also cautions against a prevalent belief in Western countries that we are living in a knowledge economy, where services are more important than manufacturing. He shows, with pretty convincing data, that this is not the case. What is actually happening is that manufactured goods are much cheaper, while services are not: Computers are many times cheaper than twenty years ago, but haircuts are not.

On his 23rd Thing Mr Chang shocked me by saying running economies does not really require economists. To support this point he cites countries like China, Taiwan and others that have been led by lawyers and Engineers. While this brought a smile, it seems rather anecdotal.

In conclusion Chang offers 8 ways in which capitalism can be fixed, suggesting that “government needs to become bigger and more active,” “we should build our new economic system on the recoognition that human rationality is severly limited,” and ” we need to take making things more seriously”.

It might seem, then, that 23 Things They Don’t Tell You About Capitalism is a book against Capitalism. But Mr Chang is not advocating for something radical like socialism. Instead at the core of his arguments is the belief that, while capitalism works, it needs to be regulated.

More, not less, regulation is what the world needs to grow sustainably and equitably. And he cautions emerging economies not to fall for the advice of the World Bank which advises third world countries to open up more, reduce government spending and have as little government spending in social services as possible.

It’s a thought provoking book that I mostly agree with, perhaps because of my own background as a citizen of a third world country. But I could not help but wonder if, given our history with corruption and embezzlement by public officials, a bigger government would work in Zimbabwe and other African states.

Share this:
error

Thoughts on Zimbabwe’s electricity crisis and the way forward

Typical Solar Heating System
Typical Solar Heating System

NB: This is quite long

There was outrage recently when the government announced plans to ban electricity geysers and have them replaced with solar heating systems. Basically the government’s argument, through the ministry of energy, is that electric geysers are using a lot of electricity at a time when the country is suffering from serious power shortages.

It’s true, of course, that solar geysers can save the nation some much needed electricity. However the decision to ban electric geysers raises some issues of its own.

Firstly and most importantly, what does this do to increase production of electricity? Nothing. The amount of electricity generated will still be less than half what the country requires.

Secondly the claim that geysers use 300 MW – a third of all the power generated in the country- is suspicious¹. It seems that the figure was calculated by simply estimating the number of geysers in the country and multiplying it with the power rating of a single geyser. The likely scenario is that geysers use far less than what the government says. I know for a fact that many people do not use their geysers for various reasons. These reasons are usually economical.

Thirdly many people feel that since the majority of Zimbabwe’s electricity consumers are now using prepaid electricity meters, it means most people pay for their electricity before using it. Therefore ZESA cannot complain of revenue problems. Further since you’ve already paid for your electricity, ZESA not only has a duty to make sure power is available, but also has no right to question how you use it.

Then there’s also the economics of having solar heating systems, such as who pays for this new system, both the components and installation?

Either ZESA does- in which case we all pay- or the people whose geysers are to be replaced do. If the owners have to pay then some will obviously question why they should go through all the bother if they are prepared to pay for the electricity. This will require the government to use some form of compulsion- likely using legal instruments- which will delay the whole process and again there is no guarantee that all people will comply.

The second option is for ZESA or ZETDC or ZERA or whatever body this exercise will fall under to pay for the replacement of electric geysers with solar ones. This means we- me and you – will actually be paying. Some people will, quite justifiably, ask why they should pay for folk who like bathing with hot water.

Supposing the cost of a new solar heating system is a modest $500 per house, replacing the country’s 250 000 geysers will then cost taxpayers $125 million. I leave you to debate whether we can afford this.

Another important issue is how this will be carried out. How will ZESA monitor compliance? Will they visit every house and check?

And because this is Zimbabwe, where corruption is rife, we have to ask too about where the solar heaters will come from. Will they be standardised or will individuals have to make their own choices? For all we know this could be a money making scheme for the elite.

Because of these and other concerns, I think a more reasonable approach is to make it mandatory only for new houses to have solar water heating systems.

The government can then try to incentivise owners of electric geysers to change to solar heaters willingly. This can be done by subsidising the costs of solar heaters perhaps by scraping duty or reducing taxes for solar products or using other economic instruments. Other countries have successfully done this.²

Yet even when all is said and done-  even when all the heating in the country is done using solar- we will still be a very short way from where we are now.

The concern I raised with my very first point will still be unaddressed. The electricity we generate is less than half of the required amount.

How then can we solve this problem?

Perhaps we need more independent players in the power market. ZESA could do with some competition. After all a private company would need to be more efficient and innovative to stay in business.

More realistically we need to increase electricity production and also diversify into other ways of producing electricity besides coal and hydroelectric methods.

The bulk of Zimbabwe’s electricity is produced at Hwange and Kariba and the country relies too much on these two power stations. Having more power stations in different areas can help us avoid the familiar situation of serious powercuts if there’s a problem at Hwange or Kariba.

Technological advances in alternative sources such as wind, biogas, solar and nuclear make them attractive options for supporting the traditional methods, particularly solar.

Solar offers a number of advantages, the biggest being that we have a lot of sun in these parts. Instead of taking the roundabout way of turning solar energy to electricity by way of hydroelectric power stations or coal stations, we could just go the direct route and turn solar energy into electricity using photovoltaic cells?³ This method is more direct, is “cleaner”, more sustainable and also eliminates one of electricity distribution’s biggest problem- transmission losses.

A basic electrical “grid” consists of a power station where the electricity is produced linked to industries and homes where it is used by wires. These wires lose electricity during transmission and distribution. While the global average of transmission losses stands at about 13%, Zimbabwe’s technical losses are as much as 17%.5 It means that we lose a significant portion of the little electricity we generate.

One of the many advantages of solar is that it is usually generated locally. Solar PV systems can be set up per house and this virtually eliminates transmission losses.

Of course the solution is not a single source such as solar, which has high setup costs and several technological limitations such as low efficiency and material limitations in addition to inadequacies in current battery technology.

I am not optimistic however, despite government’s ambitious plan to “export electricity by 2018”. The plan needs a lot of money and additionally the government does not exactly have a history of implementing its many projects.

To fully meet the country’s power needs various sources should be explored and developed. Together these different sources can supplement each other in hybrid systems. For example a solar PV system can be connected together with the normal grid so that during the day no electricity is taken from the grid, while at the same time using thermal solar to provide heating (as is being proposed by the government)6. Such systems are already widely used around the world.

In conclusion I think the decision to move to solar heaters is in principle a good one but it is only a small step towards solving Zimbabwe’s electricity crisis. It is the bigger problems which we must urgently address.

 

Notes:

  1. The Herald reports that there are about 250 000 electric geysers in Zimbabwe, which consume 300 MW
  2. In Belgium the subsidy is as high as 50%
  3. Virtually all energy comes from the sun. The sun makes rain possible- thus hydro-electrical power- and also makes plants grow therefore leading to fossil fuels.
  4. As reported by the Sunday Mail
  5. There is an important distinction between Photovoltaic (PV) Solar Systems and Solar Thermal Heating Systems. PV systems are generally like typical solar cells which convert light to electricity. On the other hand Solar Thermal Heating (which is often used in residential areas) collects solar radiation, uses it to heat a collector fluid which then heats the water.
Share this:
error