Capitalism in question

Ha-Joon Chang is a formidable critic of orthodox, free-trade economics and a true exponent of the art of political economy
September 22, 2010

23 Things They Don’t Tell You About Capitalism by Ha-Joon Chang (Allen Lane, £20)

The washing machine changed the world more than the internet. That is one of a number of provocative assertions made by the economist Ha-Joon Chang in 23 Things They Don’t Tell You About Capitalism.

The washing machine and other household appliances have transformed the way that modern people live—not least by -liberating women from assigned roles in performing time-consuming household chores. Nor does the internet look that impressive compared to the telegraph, which reduced the time it took to transmit a message across the Atlantic or North America by a factor of 2,500, from two weeks in the early 1860s to a few minutes. In contrast: “The internet reduced the transmission time of a 300-word message from ten seconds on the fax machine to, say, two seconds, but this is only a reduction by a factor of five.”

This counterintuitive capsule argument is the exception to the rule in the book. Most of the “things” to which the chapters are devoted are better described as “themes” than “things.” “There is no such thing as a free market” (Thing one), “Equality of opportunity may not be fair” (Thing 20). In his latest book, Chang, an expert on economic development who teaches at Cambridge University, continues the polemic against what George Soros calls free-market fundamentalism that he waged in his earlier books Kicking Away the Ladder (2002), winner of the Gunnar Myrdal prize, and Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World (2007). The format chosen by Chang is suited to bite-size morsels of information like the washing machine-internet comparison, but it becomes -awkward when he tries to make complex arguments with references to other sections. Recognising this, he provides the reader with “7 Ways to Read 23 Things They Don’t Tell You About Capitalism” in the preface: “Way 1. If you are not even sure what capitalism is, read: Things 1, 2, 5, 8, 13, 16, 19, 20 and 22.” This inadvertently -introduces an element of surrealism, as if The General Theory of John Maynard Keynes had been rewritten by Borges.

On the other hand, we live in an era of short attention spans, and readers on plane journeys could profit from dipping at random into this book. Chang has made many of the same points in his previous works, but the great recession has made his critique of conventional free-market economics more relevant than ever. He points out that Britain, the first country to industrialise, as well as the US, Germany and Japan, all became leading industrial powers by various forms of protectionism—only to adopt and preach free trade when they were confident that their carefully nurtured industries could prevail over foreign competition. “Most of the rich countries did not use such policies when they were developing countries themselves, while these policies have slowed down growth and increased income inequality in the developing countries in the last three decades. Few countries have become rich through free-trade, free-market policies and few ever will.”

One need not be persuaded by his argument to enjoy Chang’s attack on attempts to explain Africa’s current backwardness in terms of geography or other structural handicaps: “Thing 11. Africa is not destined for underdevelopment.” Another sacred cow that Chang slaughters with relish is the idea that we are living in a truly global economy with truly post-national corporations. In fact, there is a distinct “home-country bias” in multinational capitalism: “Thus, despite the globalization rhetoric, the nationality of a firm is still a key to deciding where its high-grade activities, such as R&D and strategising, are going to be located.” The idea that small entrepreneurs are the source of modern economic growth is another neoliberal myth of the 1990s that Chang rebuts. Poor countries have far more self-employed people than rich ones. “The collective ability to build and manage effective organizations and institutions is now far more important than the drives or even the talents of a nation’s individual members in determining its prosperity.”

Without necessarily sharing Chang’s views on other subjects, the professor of international business Alan Rugman has made a similar argument about the regional basis of multinational corporations, while the professor of entrepreneurial studies Scott Shane has warned against romanticising small business. The continuing disconnect between scholarship like theirs and the rhetoric of politicians and pundits about globalisation and small business makes Chang’s attempt to inject doses of reality into popular -discourse all the more important.

Cicero wondered how two soothsayers could pass each other in the streets without bursting into laughter, and the same thing might be said about neoclassical economists. Like other “heterodox” -economists, Chang hopes to return a field dominated until recently by the narrow schools of New Classicism and New -Keynesianism to its origins in historically informed and context-sensitive “political economy.” But that may be too much to hope for. The great depression of the 1930s was far more severe than the great recession of the present is likely to be, and yet the pre-Keynesian economics that failed both to anticipate and to ameliorate that depression not only survived the 1930s but -triumphed in the universities and policies of the last quarter of the 20th century. While the guild of academic economists may continue to ignore maverick economic thinkers like Chang, the future of the world economy may depend on whether the rest of us pay attention.