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.