Sunday, 27 May 2012

Chang: 23 Things They Don’t Tell You about Capitalism

Ha-Joon Chang (2010) 23 Things They Don’t Tell You about Capitalism Allen Lane, London; 288 pp.; ISBN 978-1-846-14415-8.

2009 saw the release of Dambisa Moyo’s Dead Aid: Why Aid is Not Working and How There is Another Way for Africa (Allen Lane, London). It was a polemic from a neo-conservative viewpoint, damning aid programmes and advocating the kind of free market policies that define the Washington consensus brand of economics. What distinguished Dead Aid for many reviewers was the fact that Moyo is an African woman, somehow giving her arguments greater authenticity and relevance. But unlike the vast majority of Africa’s women, Moyo was born into privilege in Zambia, educated at Oxford and Harvard, and made a career well away from Africa in banking. She has never felt the urge to return to Africa to tackle poverty, preferring the relative luxury of the United States. Must be a tough gig being a champion of the poor. Moyo’s book was largely based on the fact that from 1981 poverty has dramatically increased in Africa, and she blithely lays the blame for this on foreign aid, taking swipes at celebrity aid proponents like Bono and Bob Geldof in the process.

Okay, you have to admire her for slagging off at brainless pop stars, but her own position is no less shaky. Robert Skidelsky in Keynes, The Return of the Master (Public Affairs, New York, 2010) points out that the rapid growth of poverty in Africa coincides with the imposition of Washington consensus economic policies, the very policies that Moyo advocates. It is not aid that is impoverishing Africa, but the grossly unfair free market and free trade policies imposed on poor countries by the USA and its rich economic allies, often in return for a paltry amount of aid that does little to compensate for the destruction being caused.

The myth of the economic benefits of free markets and free trade is one of many tackled by Ha-Joon Chang in 23 Things They Don’t Tell You about Capitalism. Chang, originally from South Korea, is an economist at Cambridge University in the UK. South Korea doesn’t get a lot of attention in the economic development literature, perhaps because so few researchers are willing to master the language or do fieldwork there, but it is a striking example of how a very poor country transformed itself into a very rich one. In the 1960s, South Korea was as poor as places like Laos and Burma in south-east Asia today. Yet it is now a vibrant and hi-tech economy, with leading global manufacturers and inventive industries, and a powerful cultural influence in Asia in the fields of fashion and popular music.

Chang, not surprisingly perhaps, draws a lot of his examples from the experience of South Korea, and his arguments are often counter-intuitive. He also exposes the hypocrisy of rich countries forcing free market policies onto poor countries, given that all of them followed protectionist paths to wealth and have only ever conceded to free trade when it suited their own piggy banks. He points out that all economies are planned to varying degrees, and that the idea of a totally free market is absurd. None has ever existed and such a market would not survive if it did.

The unfair use of copyright and patent laws, and the role of finance in wealth creation, are given a fresh look. Chang’s ideas are intentionally provocative, but always grounded in clear examples that are written in plain English and easy to grasp. The respective roles of government, education and protection in building industry and wealth are set out in various chapters, and Chang is a strong champion of manufacturing as the fundamental source of wealth. You sense that the USA and UK, by largely abandoning their manufacturing base and replacing it with uncontrolled financial services from the 1980s onwards, sowed the seeds of their current predicaments, as did those countries like Spain that grew giddy on cheap money and property speculation. Countries that have maintained a commitment to research and manufacturing, and whose governments have been willing to support adaptation of their industries, are clearly the ones that have fared well.

While Chang includes a chapter on inequality, this is not a strong theme in the book. It would have been interesting to see him engage more with the ideas put forward in Wilkinson & Pickett’s TheSpirit Level (Penguin, London, 2010). Development aid is also largely absent in the analysis, though he makes it clear that there is plenty a country can do without foreign aid inflows. And while there is a lot about growth and industry, how does this fit with climate change and the need to limit our carbon footprint? The rapid growth of green bonds and new technologies show that wealth can be both sustainable and equitable, but Chang doesn’t engage with the environmental dimension of our economic life at all. To be fair, no one book can cover every topic, and the twenty-three issues that Chang explores in this readable and thought-provoking book will give you plenty to chew on.

In his conclusion, Chang sets out eight principles which he believes would help the global economy recover its strength. It is noteworthy, and perhaps worrying, that none of the G8 leaders, flailing about in the face of economic crisis, is yet adopting any of his very sensible propositions. Now, where was my deckchair?

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