“23 Things They Don’t Tell You About Capitalism” is a book by Ha-Joon Chang, an economist at Cambridge. I haven’t read the book, but I just saw a talk by the author on booktv (cspan2). I think it is important to understand the view of economics that he is advocating. Unfortunately, I don’t currently have time to read his book and comment in detail, but you might want to catch his talk when it is repeated or becomes available online at the booktv.org web site.
He makes some persuasive and valid points, but I also got the impression that his book is a bit of an intellectually disingenuous hatchet or spin job.
His first chapter is about how “free” markets aren’t really free because of things like child labor laws and prohibitions on slavery. But this argument attacks a strawman, because free market advocates in today’s societies are not arguing for zero intervention or regulation, but pointing to the wisdom of working with and appreciating the value of emergent market phenomena, and how many of the faults blamed on market capitalism are really due to ill-advised interventions or perverse incentives.
In another chapter he argues that making the rich richer doesn’t help the poor, but, at least in the talk, his example was the increased share of the economic pie held by the top 1% in the United States since the 1980s. My question for him, especially in light of his comment about barriers to immigration in rich countries, is why on this particular example, he only analyzed wealth creation and investment on a national basis, as if the huge middle classes lifted out of poverty in China and India didn’t matter. Perhaps an unkind way for me to frame this, is, if he is going to argue against the “disproportionate” share allocated to those that produce wealth in a free market society, wealth that he claims is undeserved because it is really built upon a community generationally created social infrastructure, why is he taking a national socialist macro-economic perspective rather than an international socialist one? If he truly cared for the worlds poor, shouldn’t he want to appreciate the contrubtions of the productive rich to their well being, instead of mocking and criticizing them in an intellectually dishonest attempt to influence domestic US politics? Shouldn’t he appreciate the how the US helps more poor people by having porous borders with Mexico than by having a European style welfare state? Shouldn’t he appreciate how the US helps more poor by participating in and advocating globalization than by protectionist policies protecting low skilled local jobs?
In Ha-Joon Chang’s criticism of the idea that corporations should serve the shareholders, he notes that the shareholders have been getting a larger share of the profits in the form of dividends and stock buybacks in recent decades, and that shareholders have become increasingly short term and less committed to a particular company. One result of this is that companies are investing less in research, development and employee training, in order to increase short term shareholder value, at the expense of future growth. However, he didn’t mention in his talk, how much his analysis is dependent upon tax policy. While a higher percentage of “profits” are being returned to shareholders, margins are lower due to competition and efficient markets so the total share of revenue going to profit may be less, and he isn’t considering the share of “profits” that go to bondholders and the share of “profits” that are paid as taxes to government entities, because these are deductible costs, that under tax and accounting rules are not part of “profits”. While blaming reduced investment in future growth on the focus on shareholder value, he neglects the fact that even these supposedly short sighted shareholders, are willing to value companies that are growing and investing at prices that are much higher multiples of their earnings, and they are willing to do so despite tax policies that will double tax the earnings before they see any of the profits. I would argue that because of tax policy, many corporations are investing too much rather than too little and the economy would grow faster if the double taxes were eliminated so that capital could more easily flow to where it would earn the highest returns.
Perhaps the most egregious argument Chang makes is that voters should not let their ignorance of economics, keep them from voting for economic regulation, because they vote out of ignorance for regulation, on other issues, such as drugs and the environment. Besides, as he explains, economics is 95% common sense, just read his book, and I guess, start voting just as ignorantly in the area of economics.