23 Things They Don't Tell You About Capitalism [Paperback]

The financial crisis has sparked renewed debate about the free-market orthodoxy of the last 30 years, particularly in the so called Anglo-Saxon economies (US and UK), but also through international institutions like the WTO and World Bank. The crisis has even brought the debate to popular science magazines, asking if our current economic models should be torn up and re-formulated in exactly the same way as any other scientific theory doesn't agree with the results. Climate change is forcing us to face up to the unintended consequences of industry and consumption, forcing us to consider the 'true costs' of our activities and their effects on the wider environment. Many people are left to wonder if complex financial instruments created by hedge funds and banks, have ended up doing more damage to the real economy they were meant to benefit. Capitalism, in the form encouraged for three decades, appears to have turned on itself.

Ha-Joon Chang's book, brings these issues into lucid focus. This however isn't a socialist pamphlet - Capitalism is argued to be the least worse economic system we have invented (he doesn't trumpet for its superiority or inevitability). Like Nassim Taleb's 'Black Swan', the tendency is to go beyond 'what they tell you' (theory) and wish to explore what's really happening.

The 23 things brilliantly de-mythologize tenants of 'free market' ideology, through wonderfully lucid examples and lively discussion of the issues. The style isn't cold or academic (he's actually quite an amusing writer), so it's a lot of fun to read and lands its punches with strong arguments over slogans or empty rhetoric. He's not saying we shouldn't have a market, but he is saying our ideas about their development and nature are often idealised, lead to the opposite of what we wish to achieve, or don't match the facts.

The puritanical conversation about capitalism we have suffered from up to now is wonderfully dispelled in this book, leading to some startling conclusions and eye opening historical examples. My feeling having read it is of optimism, as it seems we finally have economists that can write books for mere mortals to read, but also have a more sceptical and perhaps practical outlook on our economy (on what works and what demonstrably doesn't, the limit of markets and of governments, with an eye on greater social aims and values).

It's a book that more than makes up for its unpromising front cover. I can't recommend it enough.

Ha-Joon Chang, economist at Cambridge University, is a familiar author to many in the general public by now for his persistent and eloquent efforts (when writing) to combat the economic orthodoxy on several major policy points. In particular, he is known for his defense of protectionism as a means to promote economic growth and for his rejection of the idea that 'free trade' and 'free markets' lead to better outcomes than alternatives such as government dirigisme. In "23 Things They Don't Tell You About Capitalism", he attempts to make the lessons of heterodoxy familiar to as wide a public as possible, addressing 23 orthodox economic clichés that are often accepted by a skeptical general public only because they seem to be supported by all in the economic field. In making the counterarguments accessible and generally known, Chang has done the English-speaking world a great service.

The 23 things he discusses can be roughly clustered into a number of groups: he discusses the orthodoxies of free trade as against protectionism, the orthodoxies of free markets as against government intervention, the orthodoxies of wage policy (particularly the idea that wages are infallibly determined by individual marginal productivity), the orthodoxy that inequality of income and outcome does not matter, and finally the idea that financial managers and economists know best. On all of these points, he has very important lessons to convey to policymakers, civil servants, and the general public to show that these things should either be rejected out of hand or be taken with a large truckload of salt. Using the strengths of economic history, he accessibly shows in each of these cases how the cliché is either refuted by the facts or itself an incoherent idea, or both.

That said, sometimes his critique does not go quite far enough, and this shows the limitations of Chang's own economic theory standpoint. As he makes clear, the book itself is intended to criticize the orthodoxies of 'free market' capitalism, but not capitalism itself. As a result, his critique is not as powerful and does not convey as many important popular lessons as it could. For example, although he is quite right about the relation between protectionism, government intervention, and growth, he does not criticize the concept of growth itself as the only goal in economic policy, nor does he point out the essential fact that growth can in fact be bad for the median living standard if it causes the distribution of wealth to be more unequal. He also, because of his market economy predilections, vastly understates the success of planned economies historically, despite referring at one point of the book to Robert Allen's excellent research on Soviet industrialization policy. He also does not point out that the strong capitalist investor state he favors itself historically has tended to impede the development of more egalitarian outcomes and tends to be repressive of unions and collective action. Finally, he does not critique any of the assumptions of microeconomics, only macroeconomics.

Nonetheless, most of the 23 lessons are well taken and although I have some disagreements with a number of them, they are exceedingly well formulated for public understanding and indeed much closer to a real picture of how capitalist economies work than any of your average macroecon textbooks. It is therefore to be hoped that this book will have a wide audience.

Although I agree wholeheartedly with the author's message, that free-market capitalism needs keeping in check by regulation, I was unimpressed by the way he's chosen to give us this message.
To borrow from the title, here are three things I don't like about this book:

1) Although the author makes some very good points, many of them are really quite obvious, eg: Shareholders are not the best judges of how a company should be run, as they are mostly in it for short-term gain. Or this one: US managers (and many British ones too) are paid too much. Who would disagree with that, apart from US managers?

2) He devalues some of his more interesting points by exaggerating to an absurd level. For example, in saying that most people in the west are paid too much, in relation to workers in poorer countries, he tells us that a Swedish bus driver is paid 50 times as much as an Indian bus driver. Nowhere does he point out that the cost of living is about twenty times higher in Sweden than it is in India.
In other words, he totally ignores purchasing-power parity, which would probably make the Swede's pay about three times higher, not 50.
(Though he makes this very point when it suits his argument, like when he's telling us the US doesn't have the highest living standard in the world, another of his `things' that's hardly controversial).
Another exaggeration is the suggestion that the capitalist system works on the principle that all people are only out for their own gain. It works on the motivation factor, obviously, but it also works on the principle that most people behave decently most of the time, even if the reason for doing so is that decent behavior is ultimately in our own interest.

3) And some of his `things', or points, are rather pointless, such as devoting a chapter to telling us that some earlier inventions, such as telegraph and the washing machine, were more important than the internet. Is anyone arguing the point? And even if they are, so what?
There's a lot of this sort of thing - make a statement that most people would agree with anyway (eg: Making rich people richer doesn't make the rest of us richer, or that industry still matters), then go on to show why this is so, as if he's made an amazing discovery.

And I could add another `thing': the author takes political correctness to an absurd level, such as his habit of referring to everyone as `she', whether it be a garage mechanic, a senior manager, a company director ... Much as it might be good to suggest that such people could easily be female, we all know that they're usually male, so `he' would make a lot more sense, and also be a lot less annoying.
In fact, this is really quite an irritating book, even though there's some good stuff buried away amongst all the waffle and repetition. The problem here I think, as is often the case with these kind of books, is that the point can be made perfectly well in a 5,000-word article, but has to be padded out to 80,000 words to make a book.

The author sums up his main points quite adequately in the final chapter, adding to the repetitive nature of the book - anyone who doesn't have time for the whole thing could read this and still get 90% of the message.
So overall, of the 23 `Things They Don't Tell You About Capitalism', I'd say that a few of them are interesting, most are obvious, and too many are plain pointless.
And who are `they' anyway? Who is it who isn't telling us these things? Everybody, surely. Or should that be nobody?