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on November 2, 2010
Ha-Joon Chang, Reader in the Political Economy of Development at Cambridge University, has written a fascinating book on capitalism's failings. He also wrote the brilliant Bad Samaritans. Martin Wolf of the Financial Times says he is `probably the world's most effective critic of globalisation'.

Chang takes on the free-marketers' dogmas and proposes ideas like - there is no such thing as a free market; the washing machine has changed the world more than the internet has; we do not live in a post-industrial age; globalisation isn't making the world richer; governments can pick winners; some rules are good for business; US (and British) CEOs are overpaid; more education does not make a country richer; and equality of opportunity, on its own, is unfair.

He notes that the USA does not have the world's highest living standard. Norway, Luxemburg, Switzerland, Denmark, Iceland, Ireland, Sweden and the USA, in that order, had the highest incomes per head. On income per hours worked, the USA comes eighth, after Luxemburg, Norway, France, Ireland, Belgium, Austria and the Netherlands. Japan, Switzerland, Singapore, Finland and Sweden have the highest industrial output per person.

Free-market politicians, economists and media have pushed policies of de-regulation and pursuit of short-term profits, causing less growth, more inequality, more job insecurity and more frequent crises. Britain's growth rate in income per person per year was 2.4 per cent in the 1960s-70s and 1.7 per cent 1990-2009. Rich countries grew by 3 per cent in the 1960s-70s and 1.4 per cent 1980-2009. Developing countries grew by 3 per cent in the 1960s-70s and 2.6 per cent 1980-2009. Latin America grew by 3.1 per cent in the 1960s-70s and 1.1 per cent 1980-2009, and Sub-Saharan Africa by 1.6 per cent in the 1960s-70s and 0.2 per cent 1990-2009. The world economy grew by 3.2 per cent in the 1960s-70s and 1.4 per cent 1990-2009.

So, across the world, countries did far better before Thatcher and Reagan's `free-market revolution'. Making the rich richer made the rest of us poorer, cutting economies' growth rates, and investment as a share of national output, in all the G7 countries.

Chang shows how free trade is not the way to grow and points out that the USA was the world's most protectionist country during its phase of ascendancy, from the 1830s to the 1940s, and that Britain was one of world's the most protectionist countries during its rise, from the 1720s to the 1850s.

He shows how immigration controls keep First World wages up; they determine wages more than any other factor. Weakening those controls, as the EU demands, lowers wages.

He challenges the conventional wisdom that we must cut spending to cut the deficit. Instead, we need controls capital, on mergers and acquisitions, and on financial products. We need the welfare state, industrial policy, and huge investment in industry, infrastructure, worker training and R&D.

As Chang points out, "Even though financial investments can drive growth for a while, such growth cannot be sustained, as those investments have to be ultimately backed up by viable long-term investments in real sector activities, as so vividly shown by the 2008 financial crisis."

This book is a commonsense, evidence-based approach to economic life, which we should urge all our friends and colleagues to read.
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HALL OF FAMEon January 4, 2011
The 2008 'Great Recession' demands re-examination of prevailing economic thought - the dominant paradigm (post 1970's conservative free-market capitalism) not only failed to predict the crisis, but also said it couldn't occur in today's free markets, thanks to Adam Smith's 'invisible hand.' Ha-Joon Chang provides that re-examination in his "23 Things They Don't Tell You About Capitalism." Turns out that the reason Adam Smith's hand was not visible is that it wasn't there. Chang, economics professor at the University of Cambridge, is no enemy of capitalism, though he contends its current conservative version should be made better. Conventional wisdom tells us that left alone, markets produce the most efficient and just outcomes - 'efficient' because businesses and individuals know best how to utilize their resources, and 'just' because they are rewarded according to their productivity. Following this advice, countries have deregulated businesses, reduced taxes and welfare, and adopted free trade. The results, per Chang, has been the opposite of what was promised - slower growth and rising inequality, often masked by rising credit expansion and increased working hours. Alternatively, developing Asian countries that grew fast did so following a different version of capitalism, though to be fair China's version to-date has also produced much greater inequality. The following summarizes some of Chang's points:

1)"There is no such thing as a free market" - we already have hygiene standards in restaurants, ban child labor, pollution, narcotics, bribery, and dangerous workplaces, require licenses for professions such as doctors, lawyers, and brokers, and limit immigration. In 2008, the U.S. used at least $700 billion of taxpayers' money to buy up toxic assets, justified by President Bush on the grounds that it was a necessary state intervention consistent with free-market capitalism. Chang's conclusion - free-marketers contending that a certain regulation should not be introduced because it would restrict market freedom are simply expressing political opinions, not economic facts or laws.

2)"Companies should not be run in the interest of their owners." Shareholders are the most mobile of corporate stakeholders, often holding ownership for but a fraction of a second (high-frequency trading represents 70% of today's trading). Shareholders prefer corporate strategies that maximize short-term profits and dividends, usually at the cost of long-term investments. (This often also includes added leverage and risk, and reliance on socializing risk via 'too big to fail' status, and relying on 'the Greenspan put.') Chang adds that corporate limited liability, while a boon to capital accumulation and technological progress, when combined with professional managers instead of entrepreneurs owning a large chunk (eg. Ford, Edison, Carnegie) and public shares with smaller voting rights (typically limited to 10%), allows professional managers to maximize their own prestige via sales growth and prestige projects instead of maximizing profits. Another negative long-term outcome driven by shareholders is increased share buybacks (less than 5% of profits until the early 1980s, 90% in 2007, and 280% in 2008) - one economist estimates that had GM not spent $20.4 billion on buybacks between 1986 and 2002 it could have prevented its 2009 bankruptcy. Short-term stockholder perspectives have also brought large-scale layoffs from off-shoring. Governments of other countries encourage longer-term thinking by holding large shares in key enterprises (China Mobile, Renault, Volkswagen), providing greater worker representation (Germany's supervisory boards), and cross-shareholding among friendly companies (Japan's Toyota and its suppliers).

7)"Free-market policies rarely make poor countries rich." With a few exceptions, all of today's rich countries, including Britain and the U.S., reached that status through protectionism, subsidies, and other policies that they and their IMF, WTO, and World Bank now advise developing nations not to adopt. Free-market economists usually respond that the U.S. succeeded despite, not because of, protectionism. The problem with that explanation is the number of other nations paralleling the early growth strategy of the U.S. and Britain (Austria, Finland, France, Germany, Japan, Korea, Singapore, Sweden, Taiwan), and the fact that apparent exceptions (Hong Kong, Switzerland, The Netherlands) did so by ignoring foreign patents (a free-market 'no-no'). Chang believes the 'official historians' of capitalism have been very successful re-writing its history, akin to someone trying to 'kick away the ladder' with which they had climbed to the top. He also points out that developing nations that stick to their Ricardian 'comparative advantage,' per the conservatives prescription, condemn themselves to their economic status quo.

9)"We do not live in a post-industrial age." Most of the fall in manufacturing's share of total output is not due to a fall in the quantity of manufactured goods, but due to the fall in their prices relative to those for services, caused by their faster productivity growth. A small part of deindustrialization is due to outsourcing of some 'manufacturing' activities that used to be provided in-house - eg. catering and cleaning. Those advising the newly developing nations to skip manufacturing and go directly to providing services forget that many services mainly serve manufacturing firms (finance, R&D, design), and that since services are harder to export, such an approach will create balance-of-payment problems. (Chang's preceding points directly contradict David Ricardo's law of comparative advantage - a fundamental free market precept. Chang's example of how Korea built Pohang Steel into a strong economic producer, despite lacking experienced managers and natural resources, is another.)

10)"The U.S. does not have the highest living standard in the world." True, the average U.S. citizen has greater command over goods and services than his counterpart in almost any other country, but this is due to higher immigration, poorer employment conditions, and working longer hours for many vs. their foreign counterparts. The U.S. also has poorer health indicators and worse crime statistics. We do have the world's second highest income per capita - Luxemburg's higher, but measured in terms of purchasing power parity (PPP) the U.S. ranks eighth. (The U.S. doesn't have the fastest growing economy either - China is predicted to pass the U.S. in PPP this coming decade.) Chang's point here is that we should stop assuming the U.S. provides the best economic model. (This is already occurring - the World Bank's chief economist, Justin Lin, comes from China.)

12)"Governments can pick winners." Chang cites examples of how the Korean government built world-class producers of steel (POSCO), shipbuilding (Hyundai), and electronics (LG), despite lacking raw materials or experience for those sectors. True, major government failures have occurred - Europe's Concorde, Indonesia's aircraft industry, Korea's promotion of aluminum smelting, and Japan's effort to have Nissan take over Honda; industry, however, has also failed - eg. the AOL-Time Warner merger, and the Daimler-Chrysler merger. Austria, China, Finland, France, Japan, Norway, Singapore (in numerous other areas), and Taiwan have also done quite well with government-picked winners. Another problem is that business and national interests sometimes clash - eg. American firms' massive outsourcing has undermined the national interest of maintaining full employment. (However, greater unbiased U.S. government involvement would be difficult due to the 10,000+ corporate lobbyists and billions in corporate campaign donations - $500 million alone from big oil in 2009-10.) Also interesting to Chang is how conservative free marketing bankers in the U.S. lined up for mammoth low-cost loans from the Federal Reserve at the beginning of the Great Recession. Government planning allows minimizing excess capacity, maximizing learning-curve economies and economies of scale and scope; operational performance is enhanced by also forcing government-owned or supported firms into international competition. Government intervention (loans, tariffs, subsidies, prohibiting exports of needed raw materials, building infrastructure) are necessary for emerging economies to move into more sophisticated sectors.

13)"Making rich people richer doesn't make the rest of us richer." 'Trickle-down' economics is based on the belief that the poor maximize current consumption, while the rich, left to themselves, mostly invest. However, the years 1950-1973 saw the highest-ever growth rates in the U.S., Canada, Australia, and New Zealand, despite increased taxation of the rich. Before the 'Golden Age,' per capita income grew at 1-1.5%/year; during the Golden Age it grew at 2-3% in the U.S. Since then, tax cuts for the rich and financial deregulation have allowed greater paychecks for top managers and financiers, and between 1979 and 2006 the top 0.1% increased their share of national income from 3.5% to 11.6%. The result - investment as a ratio of national output has fallen in all rich economies and the pace at which the total economic pie grew decreased.

14)"U.S. managers are over-priced." First, relative to their predecessors (about 10X those in the 1960s; now 300-400X the average worker), despite the latter having run companies more successfully, in relative terms. Second, compared to counterparts in other rich countries - up to 20X. (Third, compared to counterparts in developing nations - eg. JPMorgan Chase, world's 4th largest bank, paid its CEO $19.6 million in 2008, vs. the CEO of the Industrial and Commercial Bank of China, the world's largest, being paid $234,700.) American CEOs do not get punished for bad management either - instead receiving raises and restated stock options, or at least loan forgiveness and golden parachutes. (Collusion among CEO members of interlocking 'rubber-stamp' boards fed limited information is one reason for excessive U.S. CEO pay; lack of stockholder interest, thanks to being paid high and rising dividends, a short-term strategy, is another.) Chang asks, rhetorically, "If American CEOs are worth so much, how come their companies have been losing out to foreign competitors?" (And why aren't they investing like their foreign counterparts, instead of sitting on some $2 trillion in current assets?)

17)"More education in itself is not going to make a country richer." Increasing deindustrialization and automation have lowered knowledge requirements for most jobs in rich countries. The East Asian miracle economies turned in their impressive early gains despite literacy rates of about 50%, and Korean public schools had class sizes of 90; conversely, countries like the Philippines and Argentina did poorly despite having significantly better-educated populations, while Sub-Saharan Africa per capita income fell 0.3%/year from 1980-2004 despite literacy rates rising from 40% to 61%. Harvard economist Lant Pritchett analyzed data from 1960-87 and found very little evidence supporting the view that increased education leads to higher economic growth. Most education isn't even meant to raise productivity, and math/science courses are not relevant for most. Switzerland is one of the richest and most industrialized countries, but also has the lowest university enrollment in the rich world. (College education in the U.S. has already become a bubble - about half our graduates take jobs not requiring such education.)

Chang's recommendations include ending our "love affair with unrestrained, free-market capitalism and installing a better-regulated variety," having government become more active in economic affairs, and making financial markets less attractive. (U.S. financial assets/GDP exceeded 900% by the early 2000s, averaged 4-12% return since deregulation - higher than most non-financial firms at between 2-5%, and divert attention from manufacturing and its potentially much larger employment. Methods of doing so include taxing market transactions, banning short-selling and derivatives, and limiting bank leverage.)

Bottom-Line: Chang's one shortcoming is ignoring/understating the large negative impact of large trade deficits on the U.S. - this sometimes skews his assessment of the impact of other factors. Overall, however, "23 Things They Don't Tell You About Capitalism" provides a sorely needed approach to economic decision-making - using data rather than ideology. Readers will be left wondering why Chang or other Asians don't win the Nobel prize in economics - it's their economies that have been transforming the world for last 50 years, not the free-market conservative capitalist economies of the U.S. or Europe.
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on November 6, 2010
Ha-Joon Chang, economist at Cambridge University, is a familiar author to many in the general public by now for his persistent and eloquent efforts (when writing) to combat the economic orthodoxy on several major policy points. In particular, he is known for his defense of protectionism as a means to promote economic growth and for his rejection of the idea that 'free trade' and 'free markets' lead to better outcomes than alternatives such as government dirigisme. In "23 Things They Don't Tell You About Capitalism", he attempts to make the lessons of heterodoxy familiar to as wide a public as possible, addressing 23 orthodox economic clichés that are often accepted by a skeptical general public only because they seem to be supported by all in the economic field. In making the counterarguments accessible and generally known, Chang has done the English-speaking world a great service.

The 23 things he discusses can be roughly clustered into a number of groups: he discusses the orthodoxies of free trade as against protectionism, the orthodoxies of free markets as against government intervention, the orthodoxies of wage policy (particularly the idea that wages are infallibly determined by individual marginal productivity), the orthodoxy that inequality of income and outcome does not matter, and finally the idea that financial managers and economists know best. On all of these points, he has very important lessons to convey to policymakers, civil servants, and the general public to show that these things should either be rejected out of hand or be taken with a large truckload of salt. Using the strengths of economic history, he accessibly shows in each of these cases how the cliché is either refuted by the facts or itself an incoherent idea, or both.

That said, sometimes his critique does not go quite far enough, and this shows the limitations of Chang's own economic theory standpoint. As he makes clear, the book itself is intended to criticize the orthodoxies of 'free market' capitalism, but not capitalism itself. As a result, his critique is not as powerful and does not convey as many important popular lessons as it could. For example, although he is quite right about the relation between protectionism, government intervention, and growth, he does not criticize the concept of growth itself as the only goal in economic policy, nor does he point out the essential fact that growth can in fact be bad for the median living standard if it causes the distribution of wealth to be more unequal. He also, because of his market economy predilections, vastly understates the success of planned economies historically, despite referring at one point of the book to Robert Allen's excellent research on Soviet industrialization policy. He also does not point out that the strong capitalist investor state he favors itself historically has tended to impede the development of more egalitarian outcomes and tends to be repressive of unions and collective action. Finally, he does not critique any of the assumptions of microeconomics, only macroeconomics.

Nonetheless, most of the 23 lessons are well taken and although I have some disagreements with a number of them, they are exceedingly well formulated for public understanding and indeed much closer to a real picture of how capitalist economies work than any of your average macroecon textbooks. It is therefore to be hoped that this book will have a wide audience.
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on March 29, 2011
In Ha-Joon Chang's 23 Things They Don't Tell You About Capitalism, the "They" in the title are free-market ideologues, so this book could have been entitled "23 Things Free-Market Ideologues Don't Tell You about Capitalism." But, really, the book is organized as though the title is "23 Things Free-Market Ideologues Do Tell You about Their Particular Brand of Capitalism and Why Those 23 Things Are Wrong." I mention this just in case you were wondering how I lost my job drafting titles for books.

In each chapter, Professor Chang provides first what a free-market ideologue would say in a very short snippet, followed by his more lengthy response replete with historical and contemporary examples. Having spoken to quite a few free-market ideologues in my time -- as a lawyer I move money from one place to another using guile, dirty tricks, and brute force so that the free-market ideologues for whom I work can count it before rolling around in it nude -- I can attest to the fact that free-market ideologues do, in fact, say almost all of the things that Professor Chang says they say, except they usually say them far more belligerently and not nearly as concisely.

Now, I know that Professor Chang is a globetrotting economist who is also a professor at a cosmopolitan European university, so he probably knows many more free-market ideologues than I do and has probably heard at least some of them say all of these 23 Things. Nonetheless, I feel that I should mention that there are a few Things in Professor Chang's book that I have never heard any free-market ideologue say. For instance, I have never heard a free-market ideologue say, "A well educated workforce is absolutely necessary for economic development" (Thing 17). I have instead heard them say Things like, "People can educate themselves as much as they want as long as they don't do it with my money" and "You can get a Ph.D. in 'Making The Impossible Happen' and still be as dumb as a handful of nickels." I have also never heard a free-market ideologue say, as but one more example, we should strive for equality of opportunity rather than equality of outcomes (Thing 20). I have, instead, heard free-market ideologues say such things as, "People can have as much equality as they want as long as they don't do it with my money" and "Shut up."

It's also worth noting that, though you might surmise it from Professor Chang's credentials even if I did not, this book is international in scope and some of its Things primarily address issues relevant only (at least at the time of this review) to countries other than the United States except insofar as foreign policy and aid are concerned. While this presented no problem for me, the only time I have heard free-market ideologues I know here in the United States discuss foreign matters, their universal arguments were limited to "Who Cares?" and "We should abolish all foreign aid except in the form of heavily outsourced invasions, preferably of oil-producing nations." So, again, at least here in the United States, there are Things in this book you may not hear a free-market ideologue say at all.

American free-market ideologues do say, oh, probably eighteen or nineteen of the Things in this book. For each of these, Professor Chang provides a convincing, well-crafted, and concise response that, unfortunately, no free-market ideologue will ever read, which is why I think Professor Chang felt comfortable referring to them as "They" in his title.

As I note above, each of these chapters provides a thorough but brief initiation to its topics followed by a well-illustrated argument in which possible objections are handily addressed. If you are like me and this is one of the first books you have ever read devoted entirely to economics that was not in graphic form and concerned only with a little rich boy who owned a robot maid, this will be your first introduction to some of these topics. While that is fine, I caution you to dig a little deeper before you let tangential issues in the book sway your personal financial decision-making. As one example, Professor Chang discusses microfinance in Thing 15 and correctly states that microfinance and microcredit have never been demonstrated to lift their beneficiaries out of poverty. Professor Chang further points out in a section hyperbolically entitled "The Grand Illusion" that unsubsidized microcredit can involve interest rates of forty or fifty percent (and much more in some countries). Finally, Professor Chang notes that microfinance is often not used to fuel entrepreneurship, but is instead used to finance consumption. All of that is true. As Professor Chang mentions, "the problems [of microfinance] are too numerous to list here." So, apparently, were the benefits. Plenty of evidence demonstrates that microfinance aids the economic stability of its beneficiaries. Beneficiaries can save in times of abundance and borrow in times of hardship. And, if you have ever, as I have, gotten a cash advance on your 28.9% credit card, paying ATM fees and a cash advance surcharge of two to five percent knowing full well that you would not be able to repay that debt until you graduated from law school, you know that forty to fifty percent interest is not so bad when it's all that stands between you and pizza, beer, condoms, and lottery tickets. None of these points have anything to do with Professor Chang's thesis, which is that microfinance may, in fact, fail at its stated objectives: to lift people out of poverty and to instigate entrepreneurial successes in third-world countries. But don't judge microfinance based solely on the brief treatment in Professor Chang's book. He points out that stability and security -- usually provided by a viable safety net -- are crucial to worker flexibility, mobility, and risk-taking (Thing 21). For some in the third world, microfinance is their only threadbare safety net. Professor Chang does not pretend that this is an exhaustive treatise on tangential topics like microfinance. So, whether you are thinking about getting involved in microfinance (Thing 15), building a supersonic transatlantic jet (Thing 12), or starting a factory in Burundi that produces nothing but bright ideas (Thing 9), don't let this book discourage you. Do some additional research and live your dream.

While this book is largely complete, I do believe that Professor Chang would have done well to address a few other Things that free-market ideologues say, since they probably say some Things far more often than any of these 23 Things. Things such as, "If it weren't for me, you would still be living in a homeless shelter and panhandling on the streets, son," or "Let's step out on the terrace, have a couple of cigars, and talk business, Mr. Vice President," or "You're fired." Perhaps these points needn't be addressed directly, since Professor Chang provides a cogent conclusion to his book entitled "How to rebuild the world economy." There he writes that he won't "spell out all the detailed proposals required for the reconstruction of the world economy," but will instead focus on eight principles. The eight principles are thoughtful and rational, and all eight will make for fine, civil debate the next time I have a free-market economist over for a dinner party. But I am still left with lingering questions. When free-market ideology is so pervasive that anyone suggesting the slightest tweak is labeled a socialist, and when free-market ideologues control virtually all the wealth and power in much of the developed world (and certainly in all of the United States), what are the chances that thoughtfulness and rationality will prevail? How do you convince someone that rational (or even irrational) self-interest and the accumulation of wealth are not the only motivational forces underlying human enterprise (Thing 5) when, in their wildest imaginings, they cannot conceive of any other inspiration?

That is, perhaps, a topic for a different book. This is an excellent book that does what it sets out to do -- patiently refute 23 guiding principles of the most prevalent form of runaway capitalism -- in a mindful yet entertaining way. I highly recommend it, in particular for readers like myself who know just how much they don't know.
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on April 27, 2012
Ha-Joon Chang does a good job, in this book, debunking some of the standard myths about capitalism (23 of them to be exact). The downside to Ha-Joon Chang's book is that he relies mostly on anecdotal evidence and arguments. The book is clearly geared towards as wide an audience as possible, and is meant to be accessible to anyone, even those with no formal training in economics (which is a good thing), but this limits Ha-Joon Chang to fairly informal arguments.

That does not necessarily limit the value of the book for those who, like me, are sympathetic to Ha-Joon Chang's arguments and his positions, but this book is unlikely to convince very many people who are hostile to Ha-Joon Chang's general position. I want to stress that the informality of Ha-Joon Chang's arguments does not mean, as some of the negative reviewers seem to think, that his arguments are wrong. It simply means that they need to be supplemented with models and statistical evidence, something that the motivated reader can pursue on their own. Ha-Joon Chang does cite a number of articles and books for the reader who wants to dive a bit more deeply into Ha-Joon Chang's arguments.

If you are simply looking for a book that critiques some of the central dogmas of free-market capitalism, and are not necessarily interested in delving deeply into economic theory, then I think Ha-Joon Chang's book is excellent. In the rest of my review I will summarize a few of the the "Things" that I found most interesting, for anyone who wants a taste of what they will get from Ha-Joon Chang's book.

Thing 1: There is no such thing as a free market

Ha-Joon Chang makes a number of interesting points in this "Thing". First, he notes that, "Every market has some rules and boundaries that restrict freedom of choice" (1). Examples, are restrictions on what kinds of things can be traded (we cannot trade in votes or internal organs, etc.), as well as who can participate in markets (child labor laws, licensing for doctors, etc.). Markets are, as Ha-Joon Chang argues, "propped up" by such rules. There is no such thing as a totally free-market that would be nothing but the free interactions between individuals (except, perhaps, the black market). Every market requires restrictions, institutions, rules, etc. in order to function at all. Most of these regulations are invisible because we accept the regulations, and endorse the moral values they imply, without even thinking about it.

Regulations become conspicuous when we do not endorse the moral values they imply (for example, when the government attempts to redistribute wealth by raising taxes on higher income brackets, or when they attempt to place restrictions on banking activities, etc.). The important point here is that these arguments (about what restrictions are justified) are moral arguments. They involve questions of values and cannot, therefore, be determined scientifically. Whether we consider banking regulations legitimate depends on moral arguments (the value we place on the freedom to engage in trade, versus the value we place on people's rights to be protected from negative externalities, etc.).

Ha-Joon Chang also rightly points out the relativity of rights. For example, in Korea, apparently, the customer is not allowed to return merchandise simply because they decided they did not like it. This is seen as a protection of the rights of the seller. In Britain, the customer is allowed to return merchandise for whatever reason they want, and this is seen as a protection of the rights of the buyer. Rights always imply a duty. If someone has a right not to be murdered, this implies a duty, on the part of other people, not to murder them. So whenever one protects someone's "right" to something, one is also enforcing a "duty" on someone else, and it is always possible to adopt the other perspective and claim that rights are being infringed by the imposition of such duties.

To use another analogy, speeding laws restrict people's freedom to drive whatever speed they want, and one could argue, that such laws are infringements on the rights of drivers. But drivers also have a right to be protected from the negative consequences of the actions of others (what in economics are known as externalities). When people speed they are more likely to get into car accidents. One could argue, therefore, that the speeding laws are a way of protecting rights, rather than infringing on them, and whether you view such a policy as a protection, or an infringement, of rights will always depend on the perspective you adopt. The same argument could be made in regard to banking regulations, or, virtually any attempt at government regulation of the market, including the health care mandate, that is currently raising such a fuss. The government is capable of infringing on individual rights through regulations, but it is also capable of protecting individual rights through regulations, and those who turn the government into the perennial "bad guy" are viewing the world in a very simplistic way, or, from a very limited perspective.

Thing 2: Companies should not be run in the interest of their owners

Thing 2 can be summarized more briefly. Basically, the notion that companies should be run in the interests of their shareholders is a mistake. Shareholders, due to their mobility (they can sell their shares at any time) have the least stake in the long-term future of the company. As Ha-Joon Chang points out, "shareholders...prefer corporate strategies that maximize short-term profits, usually at the cost of long-term investments, and maximize the dividends from those profits, which even further weakens the long-term prospects of the company by reducing the amount of retained profit that can be used for re-investment" (12).

The problem of the disconnect between ownership and management has been a problem for awhile. This problem was supposedly solved in the 1980s with the principle of shareholder value maximization. Managers would be rewarded "according to the amount they can give to shareholders" (17). But as Ha-Joon Chang argues, this "solution", was financed "by squeezing the other stakeholders in the company...Jobs were ruthlessly cut, many workers were fired and re-hired as non-unionized labour with lower wages and fewer benefits...The suppliers, and their workers, were also squeezed by continued cuts in procurement prices, while the government was pressured into lowering corporate income tax rates and/or providing more subsidies" (18). This all wound up redistributing income from wages towards profits. Standard theory argues that such a redistribution should lead to increased investment but, in reality, investment as a share of national output actually fell. That means that running the company in the interests of the shareholders does not benefit the company itself, nor does it benefit the economy as a whole.

Thing 6: Greater macroeconomic stability has not made the world economy more stable

What Ha-Joon Chang means by "greater macroeconomic stability" is price stability (i.e. low inflation). Since the 1970s policies have been adopted to keep inflation in check, and they have been largely successful, but, contrary to the claims made by the advocates of such policies, this has not produced greater economic stability (or performance) overall. Quite the opposite, and for fairly logical reasons.

Financial instability (in the form of more frequent and deeper financial crises) has increased partly due to the fact that higher interest rates (which are meant to control inflation) shift investment from non-financial investments (which have lower risk, but also lower return) to higher risk, higher return financial investments. This imbalance increases financial instability. Job insecurity has also increased, which, Ha-Joon Chang argues, "was the result of stringent anti-inflationary macroeconomic policies" (60).

Ha-Joon Chang points out that there is little to no evidence that low levels of inflation are bad for an economy. Ha-Joon Chang cites two studies, carried out by economists at the University of Chicago, and the IMF (institutions that are associated with free-market economics), which suggest that levels of inflation between 10-20 percent have low negative effects on growth, and below 8 percent inflation actually has a positive effect on growth (267 fn. 2).

Thing 13: Making rich people richer doesn't make the rest of us richer

In this Thing Ha-Joon Chang attempts to debunk the trickle down view of economics. Ha-Joon Chang argues that there has been a growth in pro-rich (neoliberal) policies since the 1980s. These policies have been effective at redistributing wealth up the ladder but they have not, as their advocates claimed they would, led to higher investment or higher growth, "despite rising inequality since the 1980s, investment as a ratio of national output has fallen in all G7 economies...and in most developing countries" (145).

The political debate in the United States has often been premised on the assumption that we have to choose between efficiency and equality. We can adopt policies that reduce income inequality but these will inevitably reduce efficiency (i.e. the lower income brackets will get a bigger share of the pie but the pie will be smaller). As Ha-Joon Chang points out, this is a false dilemma. We do not need to choose between equality and efficiency since, "there are many reasons to believe that downward income redistribution can help growth, if done in the right way at the right time" (146).

Thing 16: We are not smart enough to leave things to the market

There is a common argument that you hear among free-market economists that goes something like this: sure, markets are prone to failure, but, government failures are worse, therefore, it is better to leave markets alone, and allow them to solve their own problems.

It has long been admitted, for example, that contrary to Adam Smith's invisible hand, individually rational actions often lead to collectively irrational results. A bank run is an example that is easy to understand. If you think the bank that is holding your money might fail it is rational for you to withdraw your money. If, however, everyone acts "rationally" in such a situation it produces a collectively irrational result (i.e. it causes the bank failure). The example of bank runs is a clear example of an instance in which government regulation was able to reduce collectively irrational results (by insuring banks through the FDIC).

It is often argued that in order to effectively regulate these collectively irrational results the government must have more information than individuals. But, Ha-Joon Chang, points out, this is not necessarily the case. Government regulations often work by restricting choices and, thereby, reducing the complexity of problems. Since human beings have "bounded rationality" (we have a limited grasp of our situation) this restriction actually improves our ability to act rationally.

Ha-Joon Chang writes, "many regulations work not because the government necessarily knows better than the regulated...but because they limit the complexity of the activities, which enables the regulated to make better decisions" (176). Ha-Joon Chang proposes that the government place restrictions on the use of new financial instruments, until their safety can be tested, similar to the restrictions placed on new drugs. The government does not limit the use of new drugs because it believes it knows more about them than the chemists who invented them. It is in recognition of the fact that humans are limited in their ability to grasp complex situations, and unintended consequences, that the government places regulations on the use of new drugs. The same applies to new financial instruments.

Thing 22: Financial markets need to become less, not more efficient

The basic argument here is that "given the liquidity of their assets, the holders of financial assets are too quick to respond to change, which makes it difficult for real-sector companies to secure the 'patient capital' that they need for long-term development. The speed gap between the financial sector and the real sector needs to be reduced, which means that the financial market needs to be deliberately made less efficient" (232).

The ability of finance to derive new assets from existing assets (like mortgages) led to "an increasingly tall structure of financial assets teetering on the same foundation of real assets" (239). This is, as we learned recently, a very unstable situation to be in, since this whole structure depends on the original assets retaining their value. The financial system obviously performs necessary functions, but the asymmetry between the real and financial sectors has led to a very unstable economy. Reducing the efficiency of the financial sector, to some degree, will reduce this asymmetry.

This is merely a taste of some of the "myths" that Ha-Joon Chang addresses in this book, to whet the appetite of the prospective reader. If you find these things interesting I recommend picking up a copy of Ha-Joon Chang's book.
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on July 19, 2012
I'll preface by saying that the author is NOT a free market economist. I am not an economist but I hold socially liberal and fiscally conservative views (yes, this means that both Democrats and Republicans hate me). I bought this book because I find it interesting to read stuff I disagree with and I found plenty here, which is fine.

What was not fine were the very cheap shots. Example: "Can you honestly tell the difference between 2% inflation and 4% inflation?" Well - after 10 years of this stuff, 2% inflation means that your savings eroded about 22%. 4% annual inflation means that your savings eroded 48%. Can you tell the difference?

The author is right in his opening premise that there is no such thing as a completely free market - all modern markets are regulated. Where he completely fails is in addressing the complex issues of degrees of regulation and the differences between "good" regulation (e.g., the kind that promotes transparency and broad participation) vs. "bad" regulation (e.g., the kind that protects entrenched participants from new competition).

The right is plenty guilty of demagoguery. The answer to that is not demagoguery from the left but rather, an intelligent discussion from both sides. Unfortunately, this is not something this books provides.
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on August 24, 2011
I have an MBA and run my own firm - and I describe myself as a capitalist. So this isn't the kind of book I'd typically pick up - it just happened to be sitting by the library checkout.


Amazingly informative, extremely thought-provoking, and (surprisingly to me) very clearly written. The words don't get in the way of the ideas, which are many, and well supported by data, reasoning and anecdote.

As the living standards of the US middle class plummet (we don't need a Korean-UK professor to tell us that), I hope this book will be much more widely read in this country. Something needs to change.
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on March 27, 2011
As with most books made to elucidate the inner workings of "free markets," Conservatives and free market fundamentalists won't read this, and may react defensively to the title. Progressives like me on the other hand, find these titles alluring and the information confirming. Nonetheless, if you are looking to add to your arsenal to defend free market zealots, this is another arrow for your quiver.
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on April 22, 2015
This book has many interesting views of economic systems. Some examples mentioned in this book are the following: Thomas Jefferson had strong views against patents. Thomas Jefferson believed that ideas are like air and therefore should not be owned by anyone as a sole monopoly. The author of the book believed that running the company for the stockholders often reduces its Long-Term growth. He said that despite being owners, stockholders can often exit the company very easily. Stockholders are sometimes only interested in short-term profits for themselves. In contrast, he said that is often more difficult for workers and suppliers who have more of a Long-Term interest to exit the company. The 2008 economic crisis destroyed the lives of many people through personal debts, bankruptcy, and unemployment. Employment has been made more unstable. Jobs which were predominantly secure such as managerial, clerical, and professional jobs have remained insecure since the 1990s. The author of the book said that from the late 1990's, Iceland became the 5th richest country in the world by 2007. Then the economy went bad in Iceland. In October 2009, McDonald's decided to withdraw from Iceland which is a small island with over 300,000 people. I highly recommend for people to read this interesting and challenging book.
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on August 2, 2014
Ha-Joon Chang's iconoclastic book on the follies of untrammelled free-market economics was published shortly after the financial meltdown of 2008, but its messages remain relevant today: we still live in a world that teeters on the brink of monetary collapse. The damage wrought by the global crash was second only to the Great Depression, and its legacy - in terms of poverty, social stability and the impact on economic growth - may last for decades.

The author's premise is that thirty years of free-market ideology was at the root of the catastrophe and that, worryingly, the world has not learned from the experience. The next disaster may be just around the corner.

In spite of what the title suggests, "23 Things" is not a rabid attack on capitalism itself. There is much here to anger those from both the Political Left and the Political Right. It is more a thoughtful analysis of some of the underlying assumptions relating to the American 'brand' of capitalism, how they have spread across the globe and how such underpinning philosophies can be short-sighted and dangerous.

Ha-Joon Chang (who teaches at the Faculty of Economics at Cambridge, if you're interested) slices and dices economic statistics from the 1960s to the present day to show us that many of our deeply-held beliefs about education, the world's poor and the so-called 'post-industrial age' contain fatal flaws. Tellingly, he points out that the very free-market policies being forced on the developing nations are precisely NOT the policies pursued by the developed countries of the world while they were building their wealth.

The author is an economist who knows the limitations of economics as a means of building a world fit for people to live in. He echoes Winston Churchill's view on democracy by asserting, "Capitalism is the worst economic system except for all the others", but unlike many merchants of doom he offers eight concrete suggestions on how to rebuild the world economy.

All in all, "23 Things" is a thought-provoking book and one which is written in a style that makes it accessible to the general reader not just to the disciples of the 'dismal science' of economics.
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