Book review Economics Recommended Read

Book Review | 23 Things They Don’t Tell You About Capitalism

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

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Ha-Joon Chang’s “23 things they don’t tell you about Capitalism” is a book to be savored. Every chapter in this book will challenge your preconceived notions. By the end of it, Chang may just overhaul your entrenched opinions about capitalism.

Ha Joon Chang, author of "23 Things they don't tell you about Capitalism"
Ha-Joon Chang

Modern world’s obsession with Free-market capitalism started in the early ’80s when Margaret Thatcher in England and Ronald Reagan in the US were elected to power. Both politicians while adverse to the idea of government intervention were staunch evangelists of the free-market economy.

It was Margaret Thatcher’s cure of the British disease that started the free-market wave. Several years later, the free-market model was foisted upon developing world, oftentimes, against their will.

Ha-Joon Chang makes his frustration with the free-market capitalism abundantly clear. Evidently, he belongs to the growing faction of experts who are fed up with neo-liberal economists and their reckless policies. However, due to a lack of better alternatives, he also grudgingly professes that the free-market model may be the best option available.

The Charade of the Free-market Economy

I found myself in a tacit agreement with his argument that there is no scientifically-defined boundary for a free market and the whole charade only serves the vested interests.

“The free-market economists are as politically motivated as those who oppose it.”

Ha-Joon Chang

He cites the example of Sub-Saharan Africa which was subject to the free-market experiments by the West in the ’80s. Consequently, the region went into a chronic slump. Most of the countries were forced to adopt the Structural Adjustment Program (SAP) – a free-market package peddled by the World Bank and the IMF in the ’80s.

Another less-hyped fact is the growth of sub-Saharan Africa after capitalism. Chang notes that the region grew at a rate of 1.6% in the ’60s and ’70s. After SAP, between 1980 and 2009, it eked a flaccid rate of 0.2%. A poor reflection on the much-touted benefits of the free-market economy.

The Unhealthy Manager-Shareholder Alliance

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 ride the gravy train. Sometimes, inadvertently, they gnaw into the companies.

Chang cites the example of General Motors which spent nearly $20.4 billion in share buybacks before the 2008 financial meltdown. Things came to a screeching halt, however, in 2009 when GM sought Government’s intervention in fighting off bankruptcy.

Not surprisingly, free-market ideologues brand the 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!

The Ghastly Trickle-down Economics

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. Policy-makers have failed to manage the cascading of wealth redistribution downward, thus, inadvertently catalyzing a flywheel effect (rich becoming richer and the poor, poorer).

He roots for the idea of Welfare state to pump significant wealth from upward echelons to the lower rungs of the economy. The only problem with the welfare state model is its probability of success in the case of developing nations. Chang doesn’t elaborate on this aspect in his book.

Conclusion

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. patterns the book 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.


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