10 Things About 23 Things They Don’t Tell You About Capitalism*

Ha-Joon Chang’s 2010 book,

, came out in paperback this year, eliminating my already paltry excuses for not having read it. Now I have.

1. It’s very well written, a lively read, and I’m not surprised it’s done so well. Hooray for a distinguished academic economist joining the roster of those who want to communicate the subject widely.

2. But I don’t like the format of a list of things headed Thing 1 to Thing 23. Not only does it remind me of Dr Seuss’s

, it also militates against sustained reasoning. Still, maybe this is related to the popular success mentioned in my Thing 1, so I’ll stop complaining.

3. There are tremendous pockets of interesting facts. I enjoyed, for example, the pocket summary of the history and effects of limited liability, discussed in Thing 2. The eminent Bank of England executive Andy Haldane made similar points about the effect of limited liability on management incentives in his outstanding Wincott Lecture (pdf).

4. Ha-Joon Chang is not afraid to discuss ethics, something warmly to be welcomed in an economics prof. He takes on, for example, equality of opportunity versus equality of outcome (Thing 20). As he points out, just talking about Pareto optimality, our usual welfare assessment, will not do.

5. Like Hans Rosling, Ha-Joon Chang thinks the washing machine (and other domestic labour-saving machines) have had a bigger social and economic impact than the internet (Thing 4). This is neatly contrarian, but makes the mistake of portraying the current wave of technologies is all about blogs and Twitter. The current industrial revolution is the immense, unprecedented fall in price in computer processing and the conveying of information, a General Purpose Technology used throughout the economy from hunting for new medicines to logistics in global supply chains, from nanotechnology and molecule design to mobile telephony in Sub-Saharan Africa. I don’t know how you weigh the liberation of women’s time from domestic work against the introduction of communications in a whole continent. Probably best not to try.

6. The author has a fine turn of resounding phrase – but they don’t always bear the weight of scrutiny. On Economics, he says: “Economics is not a science like physics or chemistry, but a political exercise. Free-market economists may want you to believe that the correct boundaries of the market can be scientifically determined but this is incorrect. If the boundaries of what you are studying can not be scientifically determined, what you are doing is not a science.” (Thing 1). Hmmm. Economics applies the scientific method to issues with a political dimension. I can live with that. I think even free market economists would recognize that the public sector is different in scope in Singapore compared to Denmark. And that last sentence just isn’t correct. Physics and chemistry have fuzzy boundaries too.

7. The tendency to over-stating his case is also revealed in Thing 3, which says people would be paid the same in rich and poor countries if there were unlimited scope for immigration. While removing barriers to movement would create a global labour market (a) offshoring means we have gone part-way there without removing barriers to movement; (b) people from different places would still have different productivity levels due to differences in human capital, physical capital and institutional frameworks.

8. I would like to know if Ha-Joon Chang predicted the crisis, back in 2007 or 2008. His earlier work seems to be about trade. He criticises other economists for failing to warn of the impending disaster, (Thing 23), but there is a real issue about how to ensure decision-makers pay attention to the things they need to, as discussed in this recent conference (pdf) at the Toulouse School of Economics – and as we see in the current Euro crisis.

9. By the way, he isn’t opposed to capitalism, just to the Anglo-Saxon variety. South Korea, Japan, the Scandinavians – their versions get the thumbs up.

10. It’s terrific to be having this debate about reforming capitalism. Can we all agree on the basics now, like outlawing ludicrous executive and financial pay packages, and acknowledging that economies work best when both markets and governments are pulling together, and that history and political economy are important?

[amazon_image id=”0141047976″ link=”true” target=”_blank” size=”medium” ]23 Things They Don’t Tell You About Capitalism[/amazon_image]

* It would carve too long out of my working day to do 23 Things, sorry.

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9 thoughts on “10 Things About 23 Things They Don’t Tell You About Capitalism*

  1. “Physics and chemistry have fuzzy boundaries too”

    Indeed they do – that’s the point of Quantum Mechanics. But Quantum Mechanics makes testable predictions too.

  2. Great blog – Ha-Joon Chang is certainly a Cat in the Hat fan – Dr Seuss’s characters make it into his lecture slides sometimes too!

    I especially like point 5 – his argument was shakey here but overall I thought it was a really good book.

  3. Very interesting list but I’m with David Birch on point 6. Physics and Chemistry can isolate simple components of complex processes, make predictions about how the simple components work, and then test those predictions. It is extremely hard to isolate the elements of Economics in that way. Perhaps if the comparison had been with Biology I could have agreed more.

    • Well, economics can make predictions about simple things, like bidding processes in spectrum auctions. People don’t ask of physics and chemistry that they predict the whole aggregate future on such a large and complex scale as we expect of macroeconomics. (Of course, we should stop making the claim that macroeconomics can do that.)

      • The point about the fuzzy boundaries of physics and chemistry is well made. Is neuroscience within the boundary of physics? It relies on physical principles to understand the transmission of electrical signals, after all. How about bridge construction? Is food preparation within the boundary of chemistry? Blood treatment?

        There are very fuzzy boundaries, which mainly depend on how far upwards you want to keep using the principles of the basic science. At some point between atoms and neurons, physics, although it is still true, becomes not very useful and you need different tools. It’s fair to say that applies to economics too.

  4. Regarding the boundary of economics: having watched the movie “Moneyball” and what is going on in Europe now, I suspect that economists are at their best when making predictions outside the boundary of the traditional economics.

  5. Markets and governments pulling together. What is that called? Mussolini did that, so did Hitler. The US keeps arguing for more of that, and the problems keep getting worse.

    Regulations such as the ones you propose have unintended consequences. The unintended consequences of the prior “basic” attempts to regulate have been enrichment of the incumbent providers, and restriction of upstart competitors. Whether that is in the name of consumer safety, banking safety, antitrust, worker protection, the outcomes are all concentration into very large participants, (who pay the Outrageous CEO salaries), who have all the Political connections to shape the next era of Regulations when the current ones inevitably fail, and the outcry becomes “we need more regulations!”.

    If you really want to stick it to the extra large, dominant, players in the markets, get rid of the Government, and all the corporate welfare, and make businesses compete. Markets are regulated best by consumers, by competitors, and by investors (without all the excess leverage and liquidity provided by cartel-set capital ratios).

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