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|Volume 11 |Issue 34| August 31, 2012 ||
The world's economy nosedived into a recession in the autumn of 2008, and it still remains as the second largest economic crisis after the Great Depression. 23 Things They Don't Tell You About Capitalism by Ha-Joon Chang shows how free market economies, and their CEOs, managed to produce the overwhelming economic crisis.
This book is neither an anti-capitalist manifesto nor is Chang an adversary of the former. Rather according to Chang, “Capitalism is the best economic system ever created.” However it is a particular version of capitalism that he is critical of free market capitalism.
There is a paradox in 'free market capitalism' itself, because free market does not actually exist. Since the start of 20th century, it is a crime to use child labour and employers must keep minimum working conditions in order to run a factory. However during the time of Oliver Twist, it was not immoral to use child labourers, neither was it unjust to have poor working conditions. As the author puts it, “'Freedom' of the market is like beauty, in the eyes of the beholder.” Ergo the market looks free because many of the regulations are taken for granted.
Joint stock companies have floating shareholders who are interested to increase their company's short-term profit in order to get higher dividends, jeopardising the long-term prospects of the company. Managers, with high compensation packages, ruthlessly cut jobs and stop reinvesting. All this to make shareholders happy in the form of maximum short-term profits, disregarding the fact these actions affect the economy negatively. In return, managers are given higher and higher compensation packages.
According to the free market economists, self-interest is the most important human motivation to run an economy. However this isn't true. Self-seeking only partly plays a part in running an economy as other qualities also influence people's decisions.
In the free market economy it is believed that business has no boundary. However in contradiction, large companies keep their high grade activities in parent countries. Also it is believed economic growth is achieved when there is a minimal level of inflation. But this isn't true at all. A very low level of inflation might stagnant economic growth.
Although it may seem that US citizens have a better living standard than their European counterparts, this isn't the case. There is a massive unequal income distribution in the US, tinting our glasses with which appears as 'high' per capita income. Furthermore, workers in the US have to work for longer hours with less social welfare benefits.
According to Chang, rich people have to contribute enough into their economies. And this can only be done by progressive taxation and mandatory investment so that all people of all walks of life can enjoy the prosperity of the country. In addition, entrepreneurs can no more be an individual thing, because of its frequent inability to raise enough investment for development in a particular industry. Hence, collective entrepreneurships should be introduced. This might provide the money needed in research and development so that industries can compete at an international level.
According to the free market policy, markets works best when left alone. However, its futile nature wasn't hard to spot during the financial meltdown. Therefore, markets should not be left alone. Government and market, when in harmony, provide the best outcome for an economy. The notion that market works best without the government has to go, because it simply doesn't work.
Countries with big governments have rapid growth because their people are able to take greater risks. Financial systems have to be made less efficient because striding for efficiency makes the system too complicated and the knock-on effect offsets the balance of all the other sectors in an economy. This ultimately results in an economic catastrophe.
Lastly, there are many things to learn from the relative success and failure of large companies, banks, stock markets and governments in the last 30 years. It's time to rip off free market economy, especially from the developing world. As Chang puts it, “It's time to get uncomfortable.”
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