„This
book is not an anti-capitalist manifesto.” – writes Ha-Joon Chang
in the introduction to his book. “Being critical of free-market
ideology is not the same as being against capitalism. […] My
criticism is of a particular version of capitalism that has dominated
the world in the last three decades, that is, free-market
capitalism.”
Even
though it is pretty one-sided in criticizing our today’s economic
system, the book contains some interesting thoughts other than those
that you usually read in the financial press. Here are the “things”
that I found most interesting:
Markets
need (not) to be free.
The
author says that, in reality, a completely free market doesn’t
exist. As a matter of fact, every market has some rules and
boundaries that restrict freedom of choice. For example, any modern
economy needs to accept that slavery or child labor are no more
allowed and firms also need to respect at least some level of
environmental regulation.
As
a consequence, the question is not “Are you for or against free
markets?” but “How free should markets be?”.
Shareholders
own companies. Therefore, companies should (not only) be run in their
interests.
Ha-Joon
writes that shareholders are often short-term investors and, thus,
interested short-term profits. In the interest of the economy as a
whole as well as the firm, long-term profits should be sought
instead.
It
is true that shareholders are not the only stakeholder. Others, such
as customers, the state, or the employees, should also be considered.
However, it still seems logical to me that the people putting their
money at risk (i.e. the shareholders), have a paramount importance.
Taming
inflation has (not) laid the basis for greater long-term prosperity
because it (does not) provides more economic stability which is, in
turn, necessary to enhance long-term investment.
Inflation
may have been tamed, but the world economy has still become
considerably shakier. The author emphasizes that inflation is only
one of the indicators of economic stability. Others, such as the
number of banking crisis and unemployment, remain important.
“Our
obsession with inflation should end.”
We
are (not) in a post-industrial age where most people work in services
and most outputs are services.
Ha-Joon
writes that the industrial sector is still important, even though he
acknowledges that many more people today work in services than in
manufacturing. Three reasons for that:
- Services are not tradable and, therefore, cannot generate growth through exports.
- The service sector depends on the manufacturing sector because it often serves it.
- Manufacturing experiences faster productivity growth than services do. In other words, replacing a factory by a machine is easier than replacing an elderly care nurse.
Government
should (not) give the maximum degree of freedom to business.
First,
the author argues that what is good for the individual firm is not
necessarily good for the industry as a whole. For example, protecting
natural resources and the quality of a labor force may be irrelevant
for the individual firm but are mandatory if the business wants to
succeed long-term.
The
second argument of the author was more surprising for me: Government
regulation works, not because the government has superior knowledge,
but because it restricts choices and thus the complexity of the
problems at hand.
“We
need regulation exactly because we are not smart enough.”
Financial
markets need to become less, not more, efficient.
Today,
high frequency traders (or, rather, their computers) decide in
milliseconds where to invest and divest.
Even
though he wrote the book before the hype around HFT began, Ha-Joon
Chang provides an interesting thought here, writing that the real
economy needs patient capital for long-term investments, not
short-term investors.
A
final quote
“Economics
does not seem very relevant for economic management in the real
world.”
This
statement proves that Ha-Joon Chang’s book is not like usual
main-stream books about our economy. I would recommend reading it,
even though you don’t necessarily need to adhere to its entire
content.
Resource:
Ha-Joon
Chang – 23 Things they don’t tell you about capitalism – 2011
