23 Things They Don’t Tell You About Capitalism
I first read 23 Things not long after it came out, years before George Marshall’s Don’t Even Think About It: Why Our Brains Are Wired to Ignore Climate Change. The latter discusses our inherently tribal nature and explains that no matter how reasonable your argument might be – how much evidence you present – if you are perceived as belonging to a different ‘tribe’ by those you are seeking to persuade, you are likely to fail. You would do better to get someone who is seen as belonging to that other tribe, or at least neutral – a ‘trusted communicator’ – to put your message across. I think at some level I already understood this at the time I read Ha-Joon Chang’s book. I saw him as someone I could use as a proxy ‘trusted communicator’ to put across the failings of the virulent neoliberal strain of capitalism, Dr Chang being an award-winning economist who has for years lectured in the subject at the University of Cambridge, which is surely as good a contender for the heart of the establishment as any.
Ever since I read 23 Things, then, I have referred ‘capitalists’ to it, and it is recommended on my blog along with Bruce K. Alexander’s epic The Globalization of Addiction: A Study in Poverty of the Spirit (which explores how what Alexander calls ‘hypercapitalism’ is responsible for ‘psychosocial dislocation’ and thereby harmful substance and behavioural addictions), David Erdal’s Beyond the Corporation: Humanity Working (which shows how organisations can benefit from and reinforce the co-operative aspects of our essentially hunter-gatherer nature) and, needless to say, Wilkinson and Pickett’s The Spirit Level: Why Equality is Better for Everyone (which most readers will be familiar with). These diverse books, written by authors with very different backgrounds, complement each other and constitute a formidable arsenal to deploy against the dogma of neoliberalism and the unevidenced tenets of neoclassical economics (unfortunately ‘common-sense’ – and therefore easy to propagate – notions, relating to man’s supposed ineradicable inherent selfishness) on which it is based, and against the exclusive teaching of which university economics students have been protesting.
Marshall’s book arguably completes the canon (of metaphorical cannons!), explaining the relationship between neoliberalism and conservatism, and the fundamental importance of understanding our tribal nature (suggesting how to deploy the arsenal), but Chang’s is no less important, not only because he is potentially a ‘trusted communicator’, but also because of the convenient way he breaks down the claims made by advocates of neoliberal capitalism and sets out the evidence against them (providing an annotated catalogue of many of the weapons in the arsenal).
So how does Chang explain the 23 Things They Don’t Tell You About Capitalism, and what are they?
To answer the how first… The book is fairly easy reading. It opens with seven potential ways of reading it, each recommending a selection of up to 11 of the ‘23 things’ relevant to readers’ particular knowledge and interests. Way 1 is for those who are not even sure what capitalism is, Way 2 for those who think politics is a waste of time, Way 3 for those who have been wondering why their lives do not seem to be getting better despite ever-rising income and ever-advancing technologies, Way 4 for those who think that some people are richer than others because they are more capable, better educated and more enterprising, Way 5 if you want to know why poor countries are poor and how they can become richer, and Way 6 if you think the world is an unfair place but there is nothing much you can do about it. (Way 7 suggests you could simply read the whole thing in the order it is written.)
The ’23 Things’, which are also the main chapters of the book, are:
1. There is no such thing as a free market
2. Companies should not be run in the interest of their owners
3. Most people in rich countries are paid more than they should be
4. The washing machine has changed the world more than the internet has
5. Assume the worst about people and you get the worst
6. Greater macroeconomic stability has not made the world economy more stable
7. Free-market policies rarely make poor countries rich
8. Capital has a nationality
9. We do not live in a post-industrial age
10. The U.S. does not have the highest living standard in the world
11. Africa is not destined for underdevelopment
12. Government can pick the winners
13. Making rich people richer doesn’t make the rest of us richer
14. US managers are over-priced
15. People in poor countries are more entrepreneurial than people in rich countries
16. We are not smart enough to leave things to the market
17. More education in itself is not going to make a country richer
18. What is good for General Motors is not necessarily good for the United States
19. Despite the fall of communism, we are still living in planned economies
20. Equality of opportunity may not be fair
21. Big government makes people more open to change
22. Financial markets need to become less, not more, efficient
23. Good economic policy does not require good economists
I shall not summarise what Chang has to say about all of these. However, when I picked up my old copy of 23 Things to write this review, I discovered I had marked several passages as being of particular interest. I quote them (and an important passage from Thing 21) to give you a feel for the book:
From Thing 14 (US managers are over-priced):
‘Markets weed out inefficient practices, but only when no one has sufficient power to manipulate them. Moreover, even if they are eventually weeded out, one-sided managerial compensation packages impose huge costs on the rest of the economy while they last. The workers have to be constantly squeezed through downward pressure on wages, casualization of employment and permanent downsizing, so that the managers can generate enough extra profits to distribute to the shareholders and keep them from raising issues with high executive pay (for more on this, see Thing 2). Having to maximize dividends to keep the shareholders quiet, investment is minimized, weakening the company’s long-term productive capabilities. When combined with excessive managerial pay, this puts the American and British firms at a disadvantage in international competition, eventually costing the workers their jobs. Finally, when things go wrong on a large scale, as in the 2008 financial crisis, taxpayers are forced to bail out the failed companies, while the managers who created the failure get off almost scot-free.’
Need I point out how relevant this is to various recent developments?
From Thing 20 (Equality of opportunity may not be fair):
‘Individuals are not born into a vacuum. The socio-economic environment they operate in puts serious restrictions on what they can do. Or even on what they want to do. Your environment can make you give up certain things without trying. For example, many academically talented British working-class children do not even try to go to universities because universities are “not for them”. […]
‘While it is silly to blame everything on the socio-economic environment, it is equally unacceptable to believe that people can achieve anything if they only “believe in themselves” and try hard enough, as Hollywood movies love to tell you. Equality of opportunity is meaningless for those who do not have the capabilities to take advantage of it.’
This is arguably as relevant to certain followers of the new-age spiritual movement as it is to free-market capitalists!
From Thing 21 (Big government makes people more open to change):
‘…[W]hen people know they will have a second (or third or even fourth) chance, they will be much more open to risk-taking when it comes to choosing their first job […] or letting go of their existing jobs.’
From Thing 23 (Good economic policy does not require good economists):
‘Over the last three decades, economists played an important role in creating the conditions of the 2008 crisis (and dozens of smaller financial crises that came before it since the early 1980s, such as the 1982 Third World debt crisis, the 1995 Mexican peso crisis, the 1997 Asia crisis and the 1998 Russian crisis) by providing theoretical justifications for financial deregulation and the unrestrained pursuit of short-term profits. More broadly, they advanced theories that justified the policies that have led to slower growth, higher inequality, heightened job insecurity and more frequent financial crises that have dogged the world in the last three decades (see Things 2, 6, 13 and 21). On top of that, they pushed for policies that weakened the prospects for long-term development in developing countries (see Things 7 and 11). In the rich countries, these economists encouraged people to overestimate the power of new technologies (see Thing 4), made people’s lives more unstable (see Thing 6), made them ignore the loss of national control over the economy (see Thing 8) and rendered them complacent about de-industrialization (see Thing 9). Moreover, they supplied arguments that insist that all those economic outcomes that many people find objectionable in the world – such as rising inequality (see Thing 13), sky-high executive salaries (see Thing 14) or extreme poverty in poor countries (see Thing 3) – are really inevitable, given (selfish and rational) human nature and the need to reward people according to their productive contributions.
‘In other words, economics has been worse than irrelevant. Economics, as it has been practised in the last three decades, has been positively harmful for most people.
‘If economics is as bad as I say it is, what am I doing working as an economist? If irrelevance is the most benign social consequence of my professional actions and harm the more likely one, should I not change my profession to something or socially beneficial, such as electronic engineering or plumbing?
‘I stick to economics because I believe that it does not have to be useless or harmful. After all, throughout this book I have myself used economics in trying to explain how capitalism really works. It is a particular type of economics – that is, free-market economics as it has been practised in the last few decades – that is dangerous.’
(Chang goes on to name many better economists, and he ascribes the rise of East Asian nations during what he calls the ‘miracle years’ to the fact that they followed these economists, rather than free-market ones.)
‘Free-market economists, of course, have either ignored these other economists or, worse, dismissed them as false prophets. These days, few of the above-mentioned economists, except those belonging to the market-failure school, are even mentioned in leading economics textbooks, let alone properly taught. But the events that have been unfolding for the last three decades have show that we actually have a lot more positive things to learn from these other economists that from free-market economists.’
The last chapter is titled ‘Conclusion: How to rebuild the world economy’, in which Chang discusses eight principles which he believes are fundamental to the ‘total re-envisioning of the way we run our economy and society’. They are:
1) We should not abandon capitalism, per se, only ‘end our love-affair with unrestrained free-market capitalism, and install a better-regulated variety’.
2) ‘We should build our new economic system on the recognition that human rationality is severely limited.’
3) ‘We should build a system that brings out the best, rather than the worst, in people.’
On this topic Chang writes (amongst other things):
‘Free-market ideology is built on the belief that people won’t do anything “good” unless they are paid for it or punished for not doing it. This belief is then applied asymmetrically and reconceived as the view that rich people need to be motivated to work by further riches, while poor people must fear poverty for their motivation.’
4) ‘We should stop believing that people are always paid what they “deserve”.’ (See, by the way, what the New Economics Foundation has to say on this topic: ‘The least well paid jobs are often those that are among the most socially valuable – jobs that keep our communities and families together.’)
5) ‘We need to take “making things” more seriously.’ (Chang argues that ‘the post-industrial knowledge economy is a myth’ and that ‘the manufacturing sector remains vital’.)
6) ‘We need to strike a better balance between finance and “real” activities.’ (Chang writes: ‘…in the last three decades finance has become the proverbial tail that wags the dog…’ and ‘both corporations and governments have been forced to implement policies that produce quick profits, regardless of their long-term implications’.)
7) ‘Government needs to become bigger and more active.’
8) ‘The world economic system needs to “unfairly” favour developing countries.’
Amongst the page and a half Chang writes on this topic are these words:
‘Many poorer countries, especially in Africa and Latin America, have been forced to adopt free-market policies in order to borrow money from free-market-loving international financial organizations (such as the IMF and the World Bank) and rich-country (that also ultimately control the IMF and the World Bank). The weakness of their democracies meant that free-market policies could be implemented more ruthlessly in developing countries, even when they hurt a lot of people. This is the ultimate irony of all – people needing most help were worst hit. This tendency was reinforced by the strengthening of global rules on what countries could do to protect and develop their economies (more necessary in the poor countries) through the establishment and/or strengthening of organizations such as the WTO, the BIS and various bilateral and regional free-trade and investment agreements. The result has been a much more thorough implementation of free-market policies and much worse performances in terms of growth, stability and inequalit than in developed countries.’
The chapter concludes thus:
‘The eight principles all go directly against the received economic wisdom of the last three decades. This will have made some readers uncomfortable. But unless we now abandon the principles that have failed us and that are continuing to hold us back, we will meet similar disasters down the road. And we will have done nothing to alleviate the conditions of billons suffering poverty and insecurity, especially, but not exclusively, in the developing world. It is time to get uncomfortable.’
The book ends with a Notes section (annotated references, handy for doubters who wish to check the facts) and an Index.
Do I have any criticisms? Yes, I believe there is a significant omission: a discussion of the role of the way that money is created in causing economic problems. (See http://positivemoney.org/ for more on this.)
Setting the point about money aside, if Chang’s principles 2 to 8 were implemented, while it is obvious that we would not have ‘free-market capitalism’, I wonder if we could describe what emerged as ‘capitalism’ at all? It would seem to me to be more akin to what most people understand to be ‘socialism’, what with a strong welfare state and big government. Perhaps this is just semantics, and from a tactical perspective I am inclined to let Chang get away with retaining his first principle, i.e. maintaining that what he is proposing is indeed still ‘capitalism’, because this surely makes the whole package more acceptable to members of those tribes who would instantly reject anything explicitly ‘anti-capitalist’. As things are, I can recommend this book with a clear conscience, using the words, ‘Here’s an Oxbridge capitalist economist’s views. See what you think.’
Finally, I cannot ignore the topic of Brexit, an event presumably unforeseen by Chang at the time he wrote the book.
The EU has its problems, but the prospect of an unconstrained UK led by gung-ho free-market ideologues is horrific. Far from being out of date, then, 23 Things They Don’t Tell You About Capitalism is perhaps more relevant than ever. If you haven’t already read it, please do so, and recommend it to a capitalist of your acquaintance, while being careful not to hint at what might be described as the ‘Trojan Horse’ nature of this collection of well-referenced essays. With the biosphere now threatened by free-market capitalism’s depredations, we must act tactically in what is now a battle for the survival of many species as well as for the lives and wellbeing of billions of human beings. By all means, aux armes, citoyens, but let these be cleverly deployed metaphorical ones. We can no longer afford the luxury of indulging in the warm feeling which comes from simply reinforcing our tribal identities.