Ha-Joon Chang on the Failings of Free Market Capitalism

Chang Capitalism Book pic

Ha-Joon Chang is a Korean-born Cambridge economist, who has popped up here and there because of his criticisms of Neo-Liberal free market economics. Mike over at Vox Political, for example, has reblogged a meme quoting him on how trickle down economics don’t work, and are merely there to transfer wealth upwards to the rich in the form of tax cuts. He’s also the author of a popular book on economics and the failings of the free market, 23 Things They Don’t Tell You About Capitalism (London: Penguin 2010).

Chang makes it clear that his book is not an attack on capitalism per se. He states in the Introduction

This book is not an anti-capitalist manifesto. Being critical of free-market ideology is not the same as being against capitalism. Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented. My criticism is of a particular version of capitalism that has dominated the world in the last three decades, that is, free-market capitalism. This is not the only way to run capitalism, and certainly not the best, as the record of the last three decades shows. The book shows that there are ways in which capitalism should, and can, be made better.

He is, however, very clear on the devastation that has been wrought across the globe by the doctrine of the unrestrained free market.

The result of these policies has been the polar opposite of what was promised. Forget for a moment the financial meltdown, which will scar the world for decades to come. Prior to that, and unbeknown to most people, free-market ideologies had resulted in slower growth, rising inequality and heightened instability in most countries. In many rich countries, these problems were masked by huge credit expansion; thus the fact that US wages had remained stagnant and working hours increased since the 1970s was conveniently fogged over by the head brew of credit-fuelled consumer boom. the problems were bad enough in the rich countries, but they were even more serious for the developing world. Living standards in Sub-Saharan Africa have stagnated for the last three decades, while Latin America has seen its per capita growth rate fall by two-thirds during the period. There were some developing countries that grew fast (although with rapidly rising inequality) during this period, such as China and India, but these are precisely the countries that, while partially liberalizing, have refused to introduce full-blown free-market policies.

Thus, what we were told by the free-marketeers – or, as they are often called, neo-liberal economists, are at best only partially true and at worst plain wrong. As I will show throughout this book, the ‘truths’ peddled by free-market ideologues are based on lazy assumptions and blinkered visions, if not necessarily self-serving notions. My aim in this book is to tell you some essential truths about capitalism that the free-marketeers won’t.

Which is more than enough to give the late Mrs Thatcher a fit of the vapours.

Ha-Joon Chang Pic

Chang states that his goal is to empower people to make decisions and have opinions on these issues, whereas they might otherwise leave them to the experts on the grounds that they don’t have enough technical expertise, and so become active citizens demanding the right course of action from decision-makers.

The book itself has a rather eccentric organisation. Instead of chapters, there are ‘Things’, meaning different topics, so the contents include the following

Thing 1 There is no such thing as the free market.

Thing 2 Companies should not be run in the interest of their owners.

Thing 3 Most people in rich countries are paid more than they should be.

Thing 4 The washing machine has changed the world more than the internet has.

Thing 5 Assume the worst about people and you will get the worst.

Thing 6 Greater macroeconomic stability has not made the world any more stable.

Thing 7 Free-market policies rarely make poor countries rich.

Thing 8 Capital has a nationality.

Thing 9 We do not live in a post-industrial age.

Thing 10. the US does not have the highest living standard in the world.

Thing 11 Africa is not destined for underdevelopment.

Thing 12. Governments can pick winners.

Thing 13 Making rich people richer doesn’t make the rest of us richer.

Thing 14 Us managers are over-priced.

Thing 15 People in poor countries are more entrepreneurial than people in rich countries.

Thing 16 We are not smart enough to leave things to the market.

Thing 17 More education in itself is not going to make a country richer

Thing 18 What is good for General Motors is not necessarily good for the United States.

Thing 19 Despite the fall of Communism, we are still living in planned economies.

Thing 20 Equality of opportunity may not be fair.

Thing 21 Big government makes people more open to change.

Thing 22 Financial markets need to become less, not more, efficient.

Thing 23 Good economic policy does not require good economists.

Conclusion: How to rebuild the world economy.

He also makes seven suggestions how you can read the book, to answer certain queries, reading selected chapters to answer such questions as what capitalism is, or if you think politics is a waste of time or if you think the world is an unfair place, but there isn’t much you can do about it.

And while the book isn’t an attack on capitalism itself, some of the solutions to its problems do involve an element of Socialism or worker participation. For example, in the ‘Thing’ about why companies should not be run in the interests of the people who own them, Chang points out that the ownership of a country by shareholders means in practice that these have less interest than traditional owner managers in it being profitable or viable, as they can always take their shares out and put them somewhere else. As a result, the countries which have some of the most stable, and hence, most profitable companies, are those which have encouraged long-term investment or encouraged their workers to have a stake in them. Such as France, where several companies are part-owned by the state, or Germany and Austria, which have a degree of worker’s control through works’ councils.

It’s a fascinating and very necessary critique of the free-market capitalism beloved by the Blairites in Labour, and the Tories. Economics is notoriously the ‘dismal science’, but this is well and engagingly written for the ordinary reader, and I hope it encourages more people to criticise and bring down this deeply flawed and iniquitous system.

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5 Responses to “Ha-Joon Chang on the Failings of Free Market Capitalism”

  1. Michelle Says:

    I read some of Chang’s writing back in 2010 and really appreciated it, however, watching the hardships of the manipulated recession here’s a blog post I wrote at the time (October 2010):

    Staring into the past we can see the many gods different cultures have made, or rather created according to the desires of the powerful, deities fashioned to maintain social control, perhaps tweaked by the latest philosophical thoughts to make sure the intellectual elite could be comfortably included.

    Lacking religious formulas to direct society we have found another, the mesmerising invisible hand of the free market, charting the course of humanity on the trade winds of the stock market floor. Surreal – play some Gregorian chant as background music and here we go…

    Our free market which art in the cloud computer, hallowed be thy game.
    Thy kingdom has come,
    in London, New York, Paris and Tokyo to name but a few.
    Give us this day our daily trades and let us forget our trespasses
    as have the insider dealers.
    And lead us not into a mutually cooperative society,
    thereby delivering us from equality.
    For thine is the gated community,
    the power and glitzy glory, plus a bit of billionaire bling,
    for as long as they can be fooled.

    I hoped we could then try some rap!!

    • beastrabban Says:

      Lol. The cloud in the computer line reminds me of the Adam Curtis documentary series, ‘All Watched Over By Machines of Loving Grace’, where he examined the connections between mechanistic models of humanity, where humans were compared to computers, and neo-liberal economics.

      • Michelle Says:

        I will put that series on my to do list, gracias 🙂 Economic desire shapes so many policies and ideas, and is leavened in the market so ‘All watched over by machines…” doesn’t sound so far fetched.

        Corporate economics and national economies lie in the hands of those who leverage with insider knowledge, maths and algorithms to gamble – ‘machines of loving grace’ what a world to hand to our children!

        Apologies if I have posted this link before but John K. White, (Adjunct lecturer in the School of Physics University College Dublin) put it very succinctly: “So what if more people live in poverty than at any time in history, while more than 40% of all corporate profits go to the financial industry? What’s another trillion to a smart guy?….

        The favourite parlour game today is the foreign exchange market, once a simple mechanism to protect a company’s international exposure against unforeseen events. Now, it’s a five-trillion-dollar-a-day crap shoot, using the latest fancy algorithms, aided and abetted by the Fed and ECB if you’re smart enough.”

        REF: http://www.counterpunch.org/2015/05/15/selfie-economics/

  2. Ctesias62 Says:

    Try also.
    1) RWER Blog. Real world economics review.
    2) Lars P Syll Blog. Can be hard reading/wonkish. Swedish Professor
    3) Economics culture and society Blog. Professor D Ruccio an american marxian/ist.
    3) Mike Norman Economics Blog. Mmt’er. Anti Neoliberal.
    4) Lord Keynes Blog. A v strange /rude person but refutes “austrian” nonsense v-well.

    John de V London.

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