Ha-Joon Chang's latest offering sets out a broad ranging critique of neo-liberal economics distilled down to twenty three points . For readers, who have read "Kicking Away the Ladder" and "Bad Samaritans", many of the arguments made will be familiar and cover points that the author has previously made. This book is a succinct summary of those arguments - with more. Although without the more detailed material in his earlier writings, the author makes a number of hard hitting arguments that represent a full frontal assault on neo-liberal economics.
Each of the 23 sections is titled with a statement represting the particular proposition that the author argues and is self explanatory. The main themes however are as follows.
First of all, the author advocates a judicious mix of state intervention and market forces as the best way to run the economy. He points out that countries that have followed neo-liberal formulas have done worse than how they performed when they went with a more regulated and state driven model. He provides data from Latin America and Sub-Saharan Africa to back up the argument. He notes that the two major economies that continue to produce high growth China and India have both refused to follow full blooded neo-liberalism and stuck with the older dispensation of mixing market forces with a high level of state regulation and state enterprise. Chang's support of State action includes advocacy of affirmative action the welfare state. The welfare state he argues gives workers a safety net so that they are prepared to take chances and work in risky and new industries some of which will be winners. He argues that where there is no safety net, workers will gravitate towards safer options (and fewer) since holding down a job is the only guarantee of making ends meet. The result he says is less growth than in countries where workers are able to be more adventurous. For example, the US has does less well than Finland and Sweden which by providing safety nets, allows workers to take risks and experiment in new areas of economic activity. Chang makes a specific point that for developing countries, the need for "planning space" for the State is particularly important referring to the historical examples of the United States' path from underdevelopment to development and that of his own native South Korea relying on high degrees of state activism and protection of infant industries until they could compete without assistance.
The author secondly debunks the so-called knowledge economy and asserts the importance of manufacturing without which no real economy can exist. He also observes that the introduction of labour saving devices such as the washing machine last century were far more important that the internet in bringing change and advancing economies and societies - despite the hype that surrounds the "knowledge economy". He expresses alarm that manufacturing companies like GM and GE now earn greater profits from their finance operations than from their core manufacturing activities.
Chang attacks the concept of shareholder value which gives priority to maximizing returns to the shareholder at the expense of the longer term interests of the company and its employees - and its long term strategic value to society. He points out the shareholders are often short term investors and speculators who seek a short term gain rather than long term earning of wealth through their shareholdings. He says that running "companies in the interests of floating shareholders is not only inequitable but also inefficient, not just for the national economy but also for the company itself. As Jack Welch recently confessed, shareholder value is probably the `dumbest idea in the world'.
The chapter "Assume the worst about people and you get the worst" covers how people behave as actors in the economy. The textbooks talk of rational actors in the market working to maximize their self interest. This in the author's view is not always consistent with the reality of the workplace. Decisions are not always made to fit this prescription - by employers or employees. I run part of a (modest)enterprise and the authors observations ring true. Most employers understand that merely paying people well is not enough. Other things come into play such as pride in good work and recognition of effort by the enterprise through non-monetary rewards. Sometimes, one sees behaviors that do not always maximize the personal gain of the actor in the manner required by theory but are motivated by the best interest of the enterprise as a whole. The author cites examples of these kinds of behaviors eg of Japanese industrial workers making suggestions on how things could work better - and being taken seriously by management. This may still be a kind of enlightened self interest but is at odds with the usual behaviors that the theory appears to assume.
The most convincing arguments on economic matters are usually those that are based not on abstract theory and making assumptions about human behavior but on those based on real life historical experience. Few economic theorists predicted the financial crisis of 2007 - with some exceptions such as George Soros. However, economic historians gave plenty of warnings eg the writings of Andre Frank and Giovanni Arrighi. One of the great strengths of the author is his frequent recourse to economic history rather than theory to make his points. For example, his survey of how rich countries got rich examines the role of state regulation and protection of infant industries until that protection can be taken away and mature industries can compete in a free market. He explores the evolution of the US economy following this route from its beginnings as a highly protected economy to a free market economy when US companies were able to compete after a long period of protection. Chang in his reliance on hard historical experience rather than abstract theorizing helps fortify the conclusion that economic history rather than economic theory might hold a safer guide to understanding things.
A couple of years ago I remember discussing the financial crisis with a bright young economist and financial planner and was horrified to learn that his modeling which produced "blue skies" predictions for his clients (before the crisis) was based on just seven years of data - not even counting the recession of the early 90s. Had he had training in economic history, perhaps there is a small possibility that his predications may have been different and saved his clients some of the money they lost.
I have some minor quibbles. In covering such a large ground against the broad sweep of history, Chang can at times make some statements that are susceptible to challenge. For example, he asserts that the USSR could not have won the Second World War without US armaments. Historians of the Second World War could question this. Chang also makes the statement that Indian planning "failed". There is however a very credible alternative view that planning (supported by Indian business in the 50s and 60s) worked to protect Indian business by supplying it with subsided goods from the planned State sector during the early stages of India's modernization and that liberalization came later only when Indian business were strong enough to compete withput State subsidies. This analysis accords with Chang's own arguments in favour of protecting infant industry. However, these (and other) minor quibbles do not derogate from the overall cogency of Chang's arguments.
The authors assault of neo-liberal "orthodoxy" though powerful and convincing may be as one review puts it amount to "bayoneting" a dead man. Much of what was "orthodoxy" may no longer be so in light of the recourse by governments throughout the world including in the US and UK to older Keynesian formulas. The author therefore may be reflecting what is fast becoming a more mainstream view than advocating a truly contrarian position. Surprisingly (or maybe not surprisingly) there appears to be little accessible counterargument by neo-liberal economists. It would have to be a brave neo-liberal though who would poke their head over the parapet just at the present time. The limited criticisms leveled at the author by the neo-liberal William Easterly addressed some of the points made by Chang but his counter-attack is weak and not convincing. Not a surprise. The stronger criticism comes from the left. Not disagreeing with Chang's specific points, he is however taken to task for not following through the implications of his conclusions. Is capitalism itself viable they ask?
Chang's answer is "Yes". Capitalism though not perfect, is the best available alternative - if managed properly. This seems to mean a free market combined with a high degree of State involvement and regulation. Is Chang right? As the aftermath of the financial crisis unfolds, Keynes makes a sudden return and China and India push on to produce high growth using their own models for a "mixed economy". The answer does indeed appear to be a tentative "yes". However, the answer must be tentative - as the debate is never closed and needs to be constantly revisited in the light of real life experience as it unfolds.
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Top reviews from other countries
Sarth shukla
Exposing the myths promoted by neo-liberals
Reviewed in India on June 21, 2023User
Ecellent book arguing against neo-liberal economics
Reviewed in Germany on April 29, 2021