Ha-Joon Chang’s 2010 book, [amazon_link id=”0141047976″ target=”_blank” ]23 Things They Don’t Tell You About Capitalism[/amazon_link], 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 [amazon_link id=”0007158440″ target=”_blank” ]The Cat in the Hat[/amazon_link], 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.

One of the striking aspects of the Occupy movement is its claiming of some open spaces in major cities, striking because it puts a line in the ground (literally) against the steady erosion of urban public space during the past quarter century. Many people have written about this, prominent among them the more-or-less-mystical geographer of London, Iain Sinclair. The relentless building of mega-towers on all possible sites in financial hub cities like London and New York,  the enclosure of open space in private malls, the design of street furniture to make sitting down (never mind sleeping) a challenge, the bearing down on demonstrations and gatherings and even photography on the grounds of law and order or security, have all contributed to discouraging public gatherings. A large part of the tizz among the top brass at St Paul’s Cathedral has been due to their internal debate about whether or not to turn to the law to evict the Occupy tents from a small area of land at the side of and in front of the Cathedral.

As a serious walker, one who would rather hoof it for half an hour than take a taxi between meetings, I’ve long regretted the increasingly antiseptic character of a number of western cities, London among them. A book I finished yesterday, [amazon_link id=”1844675580″ target=”_blank” ]Wanderlust: A history of walking[/amazon_link] by Rebecca Solnit, drove home the political aspect of the enclosure of formerly open and public urban spaces. Writing about her native San Francisco’s parades and protests, she writes:

“This is the highest ideal of democracy – that everyone can participate in making their own life and the life of the community – and the street is democracy’s greatest arena, the place where ordinary people can speak, unsegregated by walls, unmediated by those with more power. It’s not a coincidence that media and mediate have the same root; direct political action in real public space may be the only way to engage in unmediated communication with strangers, as well as a way to reach media audiences by literally making news. ….. Parades, demonstrations, protests, uprisings and urban revolutions are all about members of the public moving through public space for expressive and political rather than merely practical reasons.” (p216)

[amazon_image id=”1844675580″ link=”true” target=”_blank” size=”medium” ]Wanderlust: A History of Walking[/amazon_image]

Thanks to Occupy, she can add encampments to that list of manifestations. The same impulse for everyone to be “a producer rather than a consumer of meaning” lies behind radicalism in the arts, whether Joseph Beuys’ call for “Everyone an artist” or punk’s insistence on DIY roughness. Such movements emerge in times of economic crisis, like the late 1970s as well as now. But the serious political impact of the Occupy movement on the establishment, in all its branches including the ecclesiastical, is due to that literal occupation of public space.

Tents outside St Pauls

It would take an economist with the credentials of Erik Brynjolfsson, and his co-author Andrew McAfee, to get me to read another e-book (on the Kindle App for my iPad, a little better than having to read on an actual Kindle). I’m glad I did grit my teeth and download their new book [amazon_link id=”B005WTR4ZI” target=”_blank” ]Race Against the Machine[/amazon_link], which is a stimulating read.

Each recession, and the early stage of the subsequent recovery, seems to bring an understandable wave of concern about jobs. In 1992 the ‘jobless recovery’ led many to talk of ‘[amazon_link id=”0812928504″ target=”_blank” ]The Downsizing of America[/amazon_link]’. However, this new book is more than a predictable cyclical lament. Its concern is the effect of information and communication technologies, a General Purpose Technology in the jargon, on the long-term trend in employment and income distribution, and hence ultimately on political stability and economic growth.

Their hypothesis is the opposite of Tyler Cowen’s in his e-book [amazon_link id=”0525952713″ target=”_blank” ]The Great Stagnation[/amazon_link]. Cowen argued that the days of rapid productivity growth driven by technology are over. Brynjolfsson and McAfee believe it is accelerating. We are in the steep upward part of the exponential curve of Moore’s law, they say, so the speed with which computers can do new tasks is jaw-dropping. One example is the driverless car, only a few years ago (in 2004) consigned to the distant future but last year already successfully piloted (forgive the pun) by Google.

“We don’t believe in the coming obsolescence of all human workers. In fact some human skills are more valuable than ever, even in an age of incredibly powerful and capable digital technologies. But other skills have become worthless, and people who hold the wrong ones now find that they have little to offer employers. They’re losing the race against the machine.” (Location 157)

One section explains why we should remain upbeat about productivity. Much digital output – such as Facebook or YouTube – is invisible to official productivity statistics because it is free. Quality and variety, customer service and timeliness, are hard-to-measure aspects of output and so understated. Nevertheless, US productivity growth in the decade to 2009 was the highest of any decade since the 1960s.

However, there has been no uplift – notoriously – in median incomes. Those with higher skills who can work with computers, those in ‘superstar’ or winner-take-all industries, and the owners of capital seeing a return on all that investment in computers, have done very well, however. The book sets out the depressing detail of how badly middle America has fared (the statistics in the book are all for the US).

All is not gloom, though. The authors point out though that many “low skill” jobs such as plumbing and nursing are so difficult that computers are not in sight of fulfilling them. Climbing stairs, empathy, jokes – there are plenty of things computers still can’t do. Yet the jobs market is being hollowed out along the (cognitive) skill scale, with those at either end doing far better than those in the middle whose skills have turned out to be easier to routinize for computers to take over.

The authors argue that the best, highest productivity, outcomes will depend on people and machines working in harmony – they cite an interesting example of a freestyle chess tournament where the teams who did best combined computers, good processes or rules, and humans – better than a computer alone, and better than a strong human player with a weaker machine process (Location 794). The book ends with a list of practical policy suggestions, including investing in education, patent reform, and a number of others that seem perfectly sensible albeit not obviously related to the technology arguments.

Missing for me was some further reflection on how the US and other western economies can undertake the redistribution of benefits that occurs when some sectors of the economy become rapidly much more productive than others. When this occurred in agriculture and then basic manufacturing, the majority benefited from greatly reduced prices for food and goods such as washing machines and cars. Education equipped many more workers for higher skill jobs. Institutions such as unions and labour laws, progressive taxation and public spending programmes ensured that most people saw rising living standards even if they were working in the relatively less productive service sectors.

The absence of such institutions now accounts for the rise in inequality. Brynjolfsson and McAfee highlight the need for institutions to catch up to the speed of technological innovation but I wish they had said more about this, especially given the richness of their other work on the organizational changes brought about by the introduction of ICTs. Still, it’s always good to end a book wishing for more rather than less, and I commend this short, pithy contribution to the debate about jobs and fairness.

[amazon_image id=”B005WTR4ZI” link=”true” target=”_blank” size=”medium” ]Race Against The Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy[/amazon_image]

A nice essay by Roger Backhouse and Bradley Bateman in today’s New York Times (Wanted: Worldly Philosophers) has prompted a last thought on Lionel Robbins, having now finished his[amazon_link id=”0814773893″ target=”_blank” ] Essay on the Nature and Significance of Economic Science[/amazon_link]. Backhouse and Bateman (who have a new book out, [amazon_link id=”0674057759″ target=”_blank” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_link]) criticise economists for failing to think enough about the economic system as a whole. This is why economists are unable to engage with the ‘Occupy’ protestors, they suggest – unfairly, as there are lots of economists engaging in that debate, online and outside St Paul’s Cathedral & elsewhere. But we’ll allow the exaggeration for the sake of polemic.

In the days of communism (the good old days?), they argue, understanding comparative economic systems was taught in universities. But now the subject has become disastrously unhistorical, its new graduates unschooled in thinking about the big picture. It is obviously true that economic history has dropped out of the university curriculum, and that this has been an adverse development. One element of the curriculum reform needed now is to restore it. However, this point should not be confused with the separate argument that economics needs to become more ‘heterodox’. For some years now, even before the crisis, there has been a heterodox movement (it used to be called ‘post-autistic’) railing against economic orthodoxy. I always thought these critics underestimated the willingness of mainstream economists to change their methodology – it was one of the reasons I wrote [amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link]. The orthodox mainstream certainly settles on a mental model – that’s why it’s a mainstream – but that changes with events. Mainstream economists have been hugely interested in behavioural psychology, as noted in this recent post.

So it was cheering in a way to find Robbins making the same point in his 1935 essay:

“The procedure of ‘orthodoxy’ has always been essentially catholic. The attacks, the attempts to exclude, have always come from the other side.” (Chapter 5 Section 4)

Economic analysis, he goes on to say, is intrinsically dependent on empirical evidence which changes all the time as the course of history rolls on. Economic generalisations are bound to be contingent. No doubt the critics will say it’s about time, but the mainstream always has changed and is changing now.

[amazon_image id=”0674057759″ link=”true” target=”_blank” size=”medium” ]Capitalist Revolutionary: John Maynard Keynes[/amazon_image]

The books that made it to the FT Business Book of the Year Shortlist were all worthy candidates, and the winner, [amazon_link id=”1586487981″ target=”_blank” ]Poor Economics[/amazon_link] by Abhijit Banerjee and Esther Duflo, is a superb read. I reviewed it here when it first came out.

There have been loads of terrific books on development recently. Also worthwhile are [amazon_link id=”052595189X” target=”_blank” ]More Than Good Intentions[/amazon_link], [amazon_link id=”0465020151″ target=”_blank” ]Getting Better[/amazon_link], [amazon_link id=”0199603332″ target=”_blank” ]The Globalization Paradox[/amazon_link], and that’s just the most recent. A healthy combination of scientific progress in the subject and the engagement of the best economists in this field with public policy.

[amazon_image id=”1586487981″ link=”true” target=”_blank” size=”medium” ]Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty[/amazon_image]