Review of Ha-Joon Chang, 23 Things They Don't Tell You about Capitalism (New York: Bloomsbury, 2010).
The unemployment rate in the U.S. hovers around 8.5% and can’t seem to go lower at a very quick pace, in part because state and local governments are laying off workers at about the same rate that private companies are hiring them, yet both political parties have made reducing the federal debt a higher priority than creating jobs. The situation is much worse in Greece, where the unemployment rate is more than twice ours, but the most powerful countries in the European Union clamor for ever tighter restrictions on the Greek economy. Back in the U.S., one former presidential candidate says, “Don’t blame the big banks. If you don’t have a job and you’re not rich, blame yourself.” Another suggests that the U.S. would be better off scrapping the social safety net erected during the New Deal and the Great Society and becoming more like China, which “[doesn’t] have the modern welfare state” [sic!]. Meanwhile, the Occupy Wall Street movement heaps the blame for the country’s economic ills on the big banks and other wealthy corporations.
During tough times it’s not surprising that interest in various economic models rises among those hoping desperately to find a way out of the economic morass. One of the most popular models, particularly in the U.S., is “free-market capitalism,” a scenario in which private enterprise is allowed to operate with a minimum of government regulation. The freer the markets, proponents claim, the stronger the economy. Ha-Joon Chang, a professor of economics at the University of Cambridge, begs to differ. Although he is a strong advocate of capitalism, he believes an examination of historical evidence conclusively demonstrates that some government regulation is not only helpful, but necessary to promote a strong economy, and in his book, 23 Things They Don’t Tell You about Capitalism, he makes his case.
We are all taught, he avers, that “if left alone, markets will produce the most efficient and just outcome” (xiii) and that “government intervention in the markets would only reduce their efficiency” (xiv). “These claims are false,” he says, “for the fact of the matter is, The free market doesn’t exist” (1). All markets have some constraints on them, usually imposed by a government. Restrictions on the sale of alcohol, drugs, and firearms; restrictions on child labor; health and safety regulations; immigration restrictions; truth in advertising laws; import and export regulations--all these constrain the “free market” just like minimum wage legislation, overtime laws, and taxes.
Chang next turns to the notion that corporations ought to be run in a way that maximizes stockholder profit. This idea, which is closely tied to the concept of limited liability for corporations (an idea strongly opposed by Adam Smith but supported in part by Karl Marx), tends to focus on maximizing short-term profit, ignoring some of the company’s most important stakeholders, its employees. Furthermore, “the worst thing about shareholder value maximization is that it does not even do the company itself much good” in the long run (19), for short-term thinking too often replaces strategic long-term planning.
Free market advocates like to claim that their brand of capitalism is necessary to improve the economic status of developing nations, but Chang asserts that such policies rarely make poor countries rich. Many, probably most, countries that are now rich or that are developing rapidly have used combinations of protectionism, promotion of state-owned businesses, and government subsidies of private companies in key economic sectors to achieve their wealth. Included in the list are Japan, Finland, Korea, France, Austria, Singapore, Taiwan, and China. Also included is a country whose trade policies were the most protectionist in the world for several decades, where political corruption was rampant, and which discriminated against foreign investment, especially in the banking industry, while defaulting on an alarming number of government loans. This country was the U.S. in the 1880s, a time during which the country grew to become one of the richest in the world.
Chang covers many other topics in his book, including the fallacy of trickle-down economics (how many times does that need to be disproved?), the lack of a strong correlation between a country’s education rate and its wealth, the advantage of less efficient markets, and the proven ability of governments to pick economic winners much of the time. For U.S. readers in particular, he includes these three topics: “The U.S. does not have the highest living standard in the world,” “U.S. managers are overpriced,” and “What is good for General Motors is not necessarily good for the U.S.”
23 Things They Don’t Tell You about Capitalism is an entertaining and well-written book, replete with both contemporary and historical examples to illustrate the author’s points. Far from being a screed against capitalism, Chang’s book is a call for the educated public to discover a flavor of capitalism that is robust, full of potential, and has a track record that far outpaces its poorer cousin, free-market capitalism. He ends his book with a plea: “We need to end our love affair with unrestrained free-market capitalism, which has served humanity so poorly, and install a better-regulated variety.” There is no better time than the present, as we continue to be mired in the Great Recession and a jobless recovery, to listen to what Chang has to say.