23 things they don’t tell you about Ha-Joon Chang

OK, a lot fewer than 23 things, and they probably have told you — but it made a good headline. Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism is one of those iconoclastic books that only comes along every few years. I love it when an author reveals conventional wisdom as groupthink. (I’ve always thought that conventional wisdom was an oxymoron anyway). Too much of what passes for economics is just rehashed triviality; piecemeal tinkering in a world in need of radical answers.

Chang’s first point is that there’s no such thing as a free market. The idea that markets are political constructions not independent, everlasting entities, originates in Karl Polanyi. Like a puppet on wires, so-called free markets are secretly conditioned by a million rules and regulations. In the early 1900s employers argued against rules limiting child labour, saying that it would interfere with labour supply. Now we think of those sort of arguments as barbaric. Stock markets, the supposed essence of free-marketism, are highly regulated. Wages are mostly determined by immigration policy rather than markets. British people can only pay themselves a minimum of £6.31 an hour because they exclude the many Indians who would do the job for a tenth as much.

Not only are markets political, but free-market policies rarely make poor countries rich, says Chang. Again it’s been said before (most notably by Chang in Kicking Away the Ladder), but rich countries all protected their own markets in the early days, contrary to the advice they now give to poor countries. Developing countries on average grew faster in the 1960s and 1970s when they pursued statist policies than in the 1980s and 1990s when the free-market Washington Consensus took hold. Chang points out that the United States founding fathers promoted protectionism and that Alexander Hamilton more or less invented the idea of infant-industry protection.

Chang skewers the transparency mantra that pervades development policy with a snapshot of the United States in the 1880s: “Corruption is rampant, with political parties selling government jobs to their financial backers. The country has never recruited a single civil servant through an open, competitive process.”

Another angle to Chang’s argument that markets are built rather than autonomous is his point that capital has a nationality. Theorists of globalisation like to suggest that big companies have no homeland, that they shift their operations across borders to take advantage of new opportunities and costs. But in reality most transnational companies produce the majority of their output at home, especially high-end activities like research and development. Managers feel a moral and legal obligation to their country of origin, it’s hard to move senior employees, and companies may feel more comfortable in their domestic institutional environment.

Some more skewering: Africa isn’t forever burdened by a poor climate, the ‘wrong’ sort of people or ethnic strife. African per capita income in fact grew at about 1.6%  a year in the 1960s and 1970s, about the same as Britain’s did when it was first industrialising. During the 1980s and 1990s African per capita income fell by 0.7% per year. If Africans were all lazy and the climate too poor for economic growth, then the continent’s economies would always have been stagnant.  Some other explanation must have been responsible. Chang says the policies of free trade and free markets known as structural adjustment primarily explain the catastrophic downturn seen in that era. Better technologies, organisation and institutions can overcome the obstacles of most African countries.

Chang continues with a similarly iconoclastic list of things they don’t tell you. His conclusions are  mostly spot-on, particularly that we should stop assuming humans are all rational; that we should put the priorities of poor countries above those of rich ones; and that we should shrink the financial sector.

I’ve always thought of Chang as brilliant but blinkered by the success of his native South Korea. It’s as if he imagines that if every poor country (and a few rich ones) followed similar policies to that of Seoul from the 1970s onwards — high tariffs, picking winners, state-directed investment — everything would be hunky-dory. Paul Mason rightly says that Chang is naive to suggest that making the state bigger will automatically solve all our problems. Troubling questions hang over any return to the statist seventies.

It’s this South Korean triumphalism that presumably underlies Chang’s scepticism about the post-industrial society. South Korea was, after all, nothing if not industrial. One of Chang’s favourite stories is about how the country had never built a ship by the mid-1970s but by the end of the decade was a world leader in the industry. The Chaebol oversaw some of the most remarkable examples of industrial growth in history.

But to suggest that we can’t move beyond the industrial era is to succumb to a terrible pessimism. People who argue that we should keep building more and more things, and, as a corollary consuming those things, don’t seem to recognise that the cycle of manufacturing and consumption has to end somewhere. Poor countries can’t all move into heavy industry like Korea did — otherwise the planet is screwed. Fortunately, greener alternatives exist. Services growth and trade will be vital.

Whilst reading 23 Things you do begin to wonder whether Chang has actually spent time in seriously deprived countries or whether his frame of experience is limited to East Asia and Western Europe. Dozens of countries will never industrialise. They’re too small, too far away from big markets and global trade in physical products has become so liberal that these least developed countries stand no chance of getting on the ladder, never mind it being kicked away. I’m thinking of the many newly-independent or war-stricken African countries, like South Sudan, the Central African Republic and Somalia.

Most of the 60 or so small island or landlocked developing states will have to pursue different development strategies to those of East Asia. Why would you manufacture microchips in the middle of the South Pacific or routers in Bishkek? Services like tourism are the only option for many of these countries — and in contrast to Chang’s pessimism, the Internet presents big opportunities for overcoming physical isolation.

I think political economy should be about two things: how we provide for each other and how we come to recognise that human beings are part of nature rather than imagining themselves to be outside it and hence destroying it.  Chang addresses the first but totally ignores the second. This blindness to the importance of sustainability is presumably in part again due to Chang’s South Korean background but it’s also probably got a lot to do with his reformist, Keynesian economics. “Capitalism is the worst economic system except for all the others,” he writes in the conclusion.

Neither of these strands of thought — Keynesianism or East Asian developmentalism — is likely to help us understand the relationship between the current system of economic production and the natural environment, which is surely one of the most important things they should tell you about capitalism. Chang has smashed some banalities and told a compelling story, but his economics could be more forward-looking.