Ha-Joon Chang on the Failings of Free Market Capitalism

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.

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.

Empire Files: The Tyranny of Big Oil

This is another excellent video from the Empire Files. In this edition, the presenter, Abby Martin, discusses the power and corruption at the heart of the industry, from the emergence of the first oil monopoly under the Rockefellers, to the effect control of the market, the economy and US and global politics by a few firms, such as Standard Oil, Chevron, Mobil and, of course, BP. These firms have reaped massive profits, and are able to act with impunity to trash the environment, and destroy lives and livelihoods by buying the loyalty of politicians in both the Republican and Democrat parties. Through their influence in the media and in academia, they suppress or distort climate science to allow the continuing massive destruction of Earth’s fragile ecosystem through oil spills, global warming and the effects of fracking.

Martin begins by describing how oil wealth is at the very heart of US imperialism. Saudi Arabia, Azerbaijan and Qatar have all been set up as ‘oil monarchies’ founded on its power. She describes how John D. Rockefeller climbed to his position as the world’s first oil billionaire through strong arm tactics used against the other oil firms. Rockefeller was the owner and founder of Standard Oil. He made a deal with the railway companies, which he used to force the other companies in the nascent oil companies to sell up to him. When this didn’t work, he bought their pipelines, and then used his power there to force them to give in. Eventually, Standard Oil owned 90% of all US refineries, and had a workforce of about 150,000 men. Rockefeller was, unsurprisingly, bitterly anti-union, and so they had no union representation. And since him the power of the oil tycoons subverts democracy in the US and imperils the Earth.

Martin then interviews Antonia Juhasz, the author of the book, The Tyranny of Oil, written during the final years of the Bush administration about the massive political, human rights’ and economic abuses of the oil industry. She states that Obama is not as tied to the oil industry as Bush was, but nevertheless he was not confronting the industry’s power. She then moved on to discuss the rise of deep drilling in oil rigs off the coast of the Gulf of Mexico. The age of easy oil, where all you had to do was stick a pipe into the ground and out it would come is over. Most of the world’s oil is already claimed, and that which isn’t, is difficult to get to. As a result, oil drilling went further out into the ocean and deeper. And the results were blow-outs and spills. Such as the BP blowout in 2012. This resulted in the deaths of a million birds. To disperse the oil, 2 million gallons of a chemical were used which made it 42% more toxic. It also caused the deaths of eleven men. During the investigation it became clear that BP actually had no plans what to do in the eventuality of a spill. They simply counted on learning it ‘on the fly’. And the result was the world’s largest offshore oil spill to date. Juhasz states that she herself saw some of the resulting ecological devastation from a submarine. All the local wildlife that could get out of the area, did. The animals and plants that couldn’t, in her words, ‘were nuked’. There’s nothing down there except a tarry blanket of oil that will be there forever.

Martin also has as another of her speakers the left-wing journalist, Greg Palast. He reveals that BP had a spill 17 months previously in the Caspian Sea. This was covered up by the company itself, the Azerbaijani government – which he terms the Islamic Republic of Azerbaijan, because it’s so completely owned by BP – and also the American government’s State Department under Condoleeza Rice. Why the American government? Because the spill was partly due to BP using an American quick-drying cement. Despite this, the US Defense Department doubled their contracts with BP.

The Gulf Coast blow-out cost BP $17 billion in fines. This is a staggering amount of money, but not nearly as much as the company should have been fined. The Bush administration passed a number of extremely strict environmental laws. If these had been properly applied, then BP would have been hit with a fine of $200 billion. This would have made it difficult for the company to continue operating. As it was, the company said that the fine they eventually got was ‘manageable’.

The programme also discusses the immense political power the oil industry has through the banking lobby, and the power of the big corporations over the Senate. In the early part of last century, pressure from the Progressive Party and mass protests and agitation caused the US government to pass the anti-trust laws and break up Standard Oil, not least because they also wanted to destroy the unions. This was fragmented into 34 separate companies. These, however, are beginning to coagulate and reform back into a single giant trust as they merge and buy each other out. BP was a prime example of this. The company only got into America because it bought a US company, Arco. By the time Standard Oil had been broken up in 1911, Rockefeller was the world’s first billionaire. At that time the world’s oil industry was owned by only three dynasties – the Rockefellers, the Rothschilds and the Dutch royal family.

This dependence on oil and the power of the oil industry has shaped the structure of American cities. The oil industry has done everything it can to destroy public transport systems. In 1949 the system of streetcars in one US city was destroyed through illegal action taken jointly by General Motors and the oil industry. The legislation passed to protect the environment contains massive exemptions for the oil industry. The corruption goes deep into government. Three of every four lobbyist for dirty energy used to work for the US government. 430 + congressmen have ties to the oil industry. And the industry has already given $35 million to political candidates for 2016. Dick Cheney was part of the industry, duly drafting legislation in its favour. Condoleeza Rice sat on the board of Chevron. And under Obama America has become the world’s top producer of oil and gas.

The programme then moves on to fracking, and the disastrous effects this has had on North Dakota. This state has been overnight transformed into an oil-producing environment. It contrasts with the other areas, where the industry has been around longer and so people have had time to get used to it and organise resistance. The state’s beautiful countryside of rolling hillsides and buttes, including a Native American reservation, are now disrupted by flaring, in which natural gas is burnt off. In neighbouring Oklahoma there have been 600 earthquakes in a single year due to the dumping of the waste water produced by fracking.

As for politics and the oil industry, the programme states that the oil industry now is the American political process. It’s not as bad under Obama as it was under Bush. Then big oil was the American government. The power of the oil industry is still there, but it’s now more subtle. Palast describes how every Republican candidate in the US elections is frantically in favour of the Excel pipeline, to the point where one of them even said that ‘you have to love it.’ This is directly due to the Koch brothers. The Koch brother bought a big refinery on the coast. However, there are laws that prevent them from using Texan oil. So they have to import ‘heavy’ oil from elsewhere. This is either Venezuela, where they’ll have to try to remove opposite by ousting Chavez or Madura, or to import it from Canada. This is the Excel pipeline, from which the Koch brothers will each get an extra $1 billion a year. Just as the Republicans are connected to the oil companies, so the Democrats have their links to BP. Obama has approved drilling in the Arctic. Palast describes how he was at one of the communities that may be affect, Qoqtovik, where he was told by one of the local Inuit that if drilling started, ‘it was over for them as a people there’. And if there is a spill in the arctic, it’ll go under the ice cap all the way to Norway.

Martin and her guests also discuss why it is Americans are so ignorant about climate change. The problem is that the oil industry buys up America’s academics. Palast states that almost every biologist in America is on BP’s payroll through grants from the Lawrence Livermore laboratory, which were donated by BP. And what happened to biology has also happened to climate science. The oil industry will also exaggerate the importance and status of dissenting scientists through the press. One flagrant example of this was when NPR, which Palast calls National Petroleum Radio, stated that the oil spill in the Gulf would be eaten by ‘oil-eating’ bacteria. This piece of disinformation came courtesy of a $1/2 billion grant to Lawrence Livermore by BP. The press, however, never informed its readers that the release and the science was paid for by that company. America no longer has an investigative press. They simply state that some people say this, while other have an opposite opinion.

Another example of corporate control over academia was in the case of Von Heerden, a meteorologist at Louisiana’s Hurricane Center. One month before Hurricane Katrina hit, Von Heerden warned that New Orleans could be under water due to the oil industry’s destruction of the neighbouring mangrove swamps for 100 miles. And 30 days later, New Orleans was under water. Instead of celebrating this man for his warning and efforts to save the city, the state closed down the Hurricane Centre and replace it with a Wetlands Centre. This was due to the state receiving a massive cheque from the oil companies, who specified that they would also choose the staff to be employed in the new Centre.

And globally the environmental damage from the oil industry is devastating, to the point where the future of the planet is in grave danger. The UN in 2015 stated for the very worst effects of climate change to be avoided, three-quarters of the world’s fossil fuels need to stay in the ground. Yet in the US alone there have been 20,000 oil spills a year. In the Niger Delta they have had to put up with the consequences of the devastation equivalent to an Exxon-Mobil spill every year for the past fifty years, due to untouchable oil corporations. In 2013, 1.15 million gallons of oil was spilled due to derailed trains. The preferred mode of transport for the oil industry nevertheless remains road. From 2008 to 2012 550 workers in the oil industry were killed in industrial accidents. This is a deathrate eight times higher than the other industries. And yet the world’s use of oil is completely unnecessary. Stanford University developed a plan to transfer America entirely to renewable energy, state by state, by 2050. The cost of the Iraq War alone could have financed the world’s transition to renewables. However, the power of the oil industry will only be destroyed when the power of the American Empire is also destroyed.