Ha-Joon Chang’s ’23 Things they don’t tell you about Capitalism’ is my first book of the year 2012 and this is my first book review of the year, too. I took my time to read this book, not because it was a long-drawn-out, cut-and-dried book on Global Economics, but because every chapter in this book was a challenge to my preconceived notions on the subject of Capitalism. I savored the content of the book as it overhauled my entrenched opinions.
Modern world’s obsession with Free-market capitalism apparently started in the early ’80s when Margaret Thatcher in England and Ronald Reagan in the US were elected into power. Both politicians while adverse to the idea of Government intervention were staunch evangelists of the free-market economy. It was Margaret Thatcher’s so-called cure of ‘British Disease’ (mitigation of the powers of Unions, privatization of state-owned enterprises, cuts in welfare spending) that started the free-market wave which was eventually foisted upon many developing countries, oftentimes, against their will.
Ha-Joon Chang, in the preface to the book, makes his frustration with the free-market capitalism – the most pervasive form of capitalism nowadays – abundantly clear. At the same time, Chang, for the lack of better alternatives, professes that capitalism is still the best economic system, his aversion against the free-market form of capitalism notwithstanding. Evidently, the author belongs to the growing faction of experts who are fed up with neo-liberal economists and their reckless policies.
I found myself in a tacit agreement with the author’s argument that there is no scientifically-defined boundary for a free market and the whole charade only serves the vested interests. He markedly underlines the situation of Sub-Saharan Africa which was subject to the free-market experiments by the West in the ’80s and consequently went into a chronic slump. Most Sub-Saharan countries were forced to adopt the Structural Adjustment Programs (SAP) – a free-market package peddled by the World Bank and the IMF in the ’80s. It’s a well-documented but less-hyped fact that Sub-Saharan Africa grew at the rate of 1.6% in ’60s and ’70s and only managed a growth rate of 0.2% between 1980 and 2009 – a poor reflection on the much touted benefits of free-market economy.
Chang’s unequivocal assertion that free-market economists are as politically motivated as those who oppose it sounds well-founded, too. In 2008, the US Government took $700 billion of taxpayers’ money to unclog the choked-up financial system and very astutely garbed the whole exercise as a ‘necessary state intervention’. Many bailed-out institutions were shoved into a financial quagmire by a bunch of greedy, high-flying, toxic-products-selling executives and still, as billions were taken off taxpayers, these mongers were allowed to go scot-free to join other companies.
Chang also berates the manager-shareholder alliance and how it works to the long-run disadvantage of corporations. Shareholders are always a happy lot as long as their dividends show an upward trend even if this happens at the expense of minimizing corporate investment. This idea of Shareholder value maximization enables a host of managers and financial shareholders to happily ride the gravy train as they slowly debilitate the companies. Author cites the example of GM which spent $20.4 billion in share buybacks over the last two decades to keep the shareholders happy and finally, had to seek Government’s intervention in fighting off bankruptcy in 2009. Not surprisingly, free market ideologues brand 2008 crisis and subsequent Government interventions as a small blemish in an otherwise perfect free-market universe. Talk about circumventing your own article of faith!
Many bailed-out institutions were shoved into a financial quagmire by a bunch of greedy, high-flying, toxic-products-selling executives and still, as billions were taken off taxpayers, these mongers were allowed to go scot-free to join other companies.
Credit has to go to Ha-Joon Chang for writing such an engaging book. He, quite expertly, shatters one conventional view about capitalism after another and uncovers one obscure truth after another. For instance, he cites an interesting yet a largely unknown fact about rich countries. Apparently, almost all of today’s rich countries, when they were in the same phase as the developing nations of today, practiced protectionist measures such as licensing, regulation, subsidies, tariffs – something they explicitly preach the developing world of the present not to pursue.
Chang scoffs at the idea of ‘trickle-down economics’; saying it has been a complete failure since pro-rich policies have failed to accelerate growth in last three decades. There is no doubt that policy-makers have failed on the count of cascading wealth redistribution downward, thus, inadvertently catalyzing a flywheel effect (rich becoming richer and the poor, poorer). Chang roots for the idea of Welfare state to pump the wealth in significant quantity from upward echelons to the destitute lot of the lower rungs of the economy. The only problem, however, with the welfare state model is its probability of success in case of developing nations. In a country like India where over 40% of estimated 1.22 billion population lives below the poverty line, a 10-12% social spending of total GDP can be termed anything but substantial.
While I found myself nodding my head in agreement in most parts of the book, there were some parts where I found Chang’s arguments a little overstated. For instance, Chang’s pressing assertion that multinational enterprise is a myth (as most companies keep strategic domains such as R&D at home) appears to throw the baby out with the bathwater. Yes, companies prefer to keep the core research close to home since this way they can exert stronger control over Intellectual Property issues and at the same time, mitigate the potential technology leaks. However, in these shifting times, a way around has been found and companies are following it – the work is nowadays outsourced and assigned to different labs across the world and the final product/technology is then assembled at home where IP enforcement is stronger. GE’s John F. Welch technology center in Bangalore is a case in point. Also, we are increasingly seeing rich nations make a beeline for India and China for reverse innovations (innovations first adopted in developing nations and then scaled for worldwide use).
Although the author strictly warns the readers in the preface that his book is not an anti-capitalist manifesto yet his stand on such issues as immigration control, welfare states, labor markets, shareholder value maximization, etc. ends up patterning it into that mold. Ha-Joon Chang endeavors to present free-market capitalism sans all its bells and whistles. And, he does succeed to a large extent. Yes, there are some parts that are not quite beyond reproach and may temper your enthusiasm towards this book. Still, I’d say that positives in the book quite outweigh the negatives. This book is a great investment for anyone who seeks to understand capitalism in its actual form not the way it’s been portrayed by free-market economists and politicians over the years.