Review: 23 Things They Don't Tell You About Capitalism, by Ha-Joon Chang

In this book, Ha-Joon Chang makes a clear case, in easy language, for many of the things (23 of them) that are wrong with the official parables of market economies. There's something to be said about clarity of language, which I think reflects the clarity of his arguments, and Chang gets some partial credit for introducing a few jokes and quips too, which are not badly timed, and elevate the humor maybe all the way up to "wry," making him a laser wit among the legions of employed economists. The arguments as presented are probably worth your while even if you're already a heterodox-minded sort—sometimes it's a good thing to gesture pointedly at the obvious—although I would have personally preferred to read something like this ten years ago, when it could have been a startling challenge to the received wisdom rather than just echo of my own conclusions. I'm serious about the getting there: a lot of this stuff I've either outlined boringly in blog posts (for example, of course there's no such thing as a free market, and clearly the powerful always pick their winners) or else I've painfully tried to use for rhetorical flair (e.g., how can you decry central planning and love Wal Mart?). This is where I tend to fail you as a reviewer, because I'm more attracted to write about the things areas where my mental picture is less complete--or even where I outright disagree--than I am to tout the stuff that validates my own views. So go ahead and read the book for a supply of handily succinct retorts for the next time some troll lobs some free-market mumbo-jumbo at you. It's easy, and not very long. And I'll do my incomplete best to discuss it here.

Chang does what few free-market sorts of economists like to do, which is to pull out a bunch of data—and for that matter, data of a more basic and important kind, and not the stretched inferential reaches toward the trivial that certain pop contrarians (Christ, I reviewed that one way too charitably) prefer—and use it to point out the flamingly obvious counterexamples to free-market thinking, most of it from the past thirty or forty years, and demonstrate the points he's arguing. While judicious data-comparing is an interesting exercise and all, if you're making an economic argument, it's good of him to try and evaluate what actually matters. There's a *reason* that libertarians prefer to present everything as a counterintuitive thought experiment.

He makes these comparisons with as valid a scope as he can. For example, he compares growth during respective nation's own respective development phases, which may be separated by a century or two, and while this is not perfect, it's better than comparing, say, the U.S. in 2010 to Burkina Faso of the same year. When looking at major effects of free market policies, he compares the results before and after implementation (which is what confines his history to the last four decades), and between countries that did or did not implement them. From this, there evolves some general principles and observations: all large economies are (imperfectly) planned; manufacturing is still far more important than finance (and successful economies became that way by protecting and fostering industry); free-market economic policies have resulted in lower growth, higher instability, and greater inequality in the countries where they've been willingly adopted or forced; that separating managers and owners from negative economic impacts has been a disaster.

This isn't to say that Chang has got it all covered perfectly. In some cases, I see the faults as only matters of understated emphasis, a failure to really push his conclusions right through the wall. For example, like most people, Chang imagines a distinction between state and capital. He takes care to reduce the clarity of distinction, saying that governments do in fact guide industries, that capital really has a national character (although labor, he says, not so much), and that corporate planning isn't a special category from government planning, but look, if you're going to take a long historical view of this, especially if you're going to cite examples of what made countries like the U.S., Britain, or the Soviet Union developed in the first place (and how they did so differently than African, Asian, or South American nations in their own twentieth century growth steps), then it's relevant that these economies owe a lot of their wealth to conquest and exploitation as well as development. A great deal of their governmental planning activities went to support the horrible crony industries of the day, such as enslavement, theft of gold, abuse of immigrants, and colonialism. There was a little more involved than tariffs, subsidies, and putting the screws on immigration. When it comes to failures of investment, did the Soviet Union pick badly, and in the sense of its constituents, immorally, to develop its military and space program at the expense of other industries? Yeah, almost certainly it did. But how do we in the U.S. do with choosing our core companies above all else? That is, it ain't just our financial sector that's pushing people around and diverting from more wholesome ends. Now, I don't think any of the above is *inconsistent* with anything Chang writes, and he does go further than most to fuzz up the boundaries between economic and other human activity or motivations, but having raised these points, he could have taken them home.

My second criticism is that Chang ignores arguments of scale, and some of the basic challenges to measuring things by growth. [Why, it's another of my hobby horses he's somehow refusing to recognize! The nerve!] Using growth as an important variable of success tempts fallacies of large and small numbers, and can ignore some important external factors. If, say, Congo grew more rapidly in the 60s, or western Europe in the early 50s, then you might want to consider the starting points. (On the other hand, industrially awakened America and Asia are probably excellent comparison points.) Likewise, we can make the same point for contemporary America's condition, which sane people might expect to saturate and decline at some point thanks to fundamental issues with resource-intense growth models, or even just running out of markets to expand to, even without considering the drain of the financial bubbles. I mean, I agree with Chang about the negative effects of the financialization of the west and the IMFification of the third world, and again, his counterexamples are well-chosen, a few of the modern ones that didn't rely as much on a massive army to make them work (Chang is Korean, and in a good position to question what the fuck the bank nations are always talking about), but growth models also have inherent problems of their own.

Finally, the only other thing I wish that Chang had done differently was to modify the way he introduced his chapters. I'm fine with the division and structure of the book, but each "what they tell you" section, meant to evoke a common free market argument, is a way to invite problems. I think that most of them are presented in good faith, but they're still straw men. And they don't need to be: it would not have been difficult to precede these paragraphs with a real quote to pin the view on an actual right-wing or neoliberal luminary. Two hours picking through transcripts of Larry Kudlow, Alan Greenspan, Larry Summers, etc. could have given him more than enough material.

And if they didn't fit into a general review, here are a few points that captured my interest enough to write down:

He makes a point that the nature of the work we do affects the character of society. Farmers see things differently than do industrial workers than do researchers than do cube monkeys. He's making a point that it was more natural for people on the floor or living in the company towns to want to organize into unions, but there's a lot that could be made of this. And obviously, it feeds back on itself—we have the national priorities that validate "knowledge-workers" because we are those, but we are those because there are too few industrial jobs. Maybe here's an area where education does make an impact, defining more how we see ourselves.

I was surprised to see him ascribe only about 1/5 of American de-industrialization to outsourcing and trade balance. (A large fraction is also re-classification, he argues. As support roles are spun off from the industrial sector in the name of cutting staff—think your shop cafeteria, company nurse, or the cleaning crew—they become re-classified as service employees.) One thing is that we still manufacture a lot of stuff, but we're consuming more that costs less.

De-industrialization, he points out, leads to a decline in engineering and science (and the need for the same), and you have to wonder about all this math and science push in that fading light. Confirms a point I was making recently.

Chang observes that one measure of inequality is the cost of services. When there's a ready supply of cheap human labor, then your house cleaning and restaurant meals (and food in general) are a lot more affordable. Don't get angry that your meal in France is so expensive, maybe thing of why that we have chosen to keep it so cheap here. In comparing currencies, this doesn't factor in, because people are not internationally traded goods (any more).

I had no idea that microfinance had been such a fucking disaster. It was one of those things that seemed like a great idea, and I was as impressed with the success stories as much as anyone. Turns out that the low rates of loans had hidden subsidies, and quickly turned usurious when the west stopped paying attention. More than that, argues Chang, without any real industry going on, these local enterprises quickly saturate, and can't possibly grow into high-level industries, especially when foreign interests are running those interests.

He cites college as a sorting function, not as an absolute forward-pushing economic force (as evidenced by lots of educated but poor countries), or as real training for most fields. As such, it's basically an economic drain, because you have to go there to even have a chance. It doesn't make it a non-worthwhile experience, but the economics of it are increasingly crazy. Yeah, I guess it's another validation of recent points for me. Maybe I like that at least a little.

In regards to equality opportunity vs. equality of outcome, he finds a way to argue they're the same. Especially if you can cross generations. After all, if your parents had experienced massively different economic outcomes, then your opportunity is very much not the same. More generally, he points out (using data) that a welfare state tends to strengthen social mobility.

Calling out the separation of capital and management from other stakeholders (namely, employees and the masses of human beings occupying the commons), he found a clever way to unite the disasters of soviet Communism and limited liability Capitalism. The problem? In neither case did the workers or citizens reap much reward for their efforts, and the oligarchs have not been on the hook when the shit went down.