What I am reading right now, and why: Ha-Joon Chang’s Edible Economics

EdibleEconomicsHa-Joon Chang has a new book out: Edible Economics – A Hungry Economist Explains the World. Those who are familiar with any of his ‘popular’ works, such as Bad Samaritans, 23 Things They Don’t Tell You About Capitalism and Economics: The User’s Guide, will know that he is on a mission to educate non-specialists in the population in the ways of pluralist economics in the hope that more informed citizens will enhance the functioning of their own societies, politically, socially and economically.

Chang is progressive and an unapologetic interventionist when it comes to economic policy, but he is not a socialist. He has long argued for the promotion of a more humane capitalism, in the hope that this is possible with the right institutions and policies.

He was born and grew up in South Korea, before moving to the UK to pursue graduate studies at Cambridge University. His PhD was on the political economy of industrial policy, with evidence of its potential efficacy provided by the case study of his country of birth, which is now classed as advanced or rich, with successful global brands ranging from Samsung to Hyundai, and increasingly influential cultural exports such as K-pop. Chang has argued that the Korean government employed a range of interventions in the economy, from trade protectionism of ‘infant industries’ to the allocation of credit to favoured firms and sectors. This helped to accelerate economic growth and development over many years following the Korean war of the 1950s and enabled South Korea to catch up with the West from a position of relative poverty. Perhaps the contrasting developmental case study of communist North Korea has warded Chang off rejecting capitalism and embracing socialism, despite his commitment to a more progressive economy. Continue reading

Different questions, different answers: seeking an alternative economics

“I was working in the desert myself alongside workers from all over the Middle East and India and Pakistan in searing brutal heat and they were paid minimally. And as an engineer you think: well, things could be done much better. So I thought that economics would have an answer as to why there was inequality and poverty and all that, answers to them. It seemed to me that that’s what I should study. When I got to graduate school I realised that economics doesn’t even have the question let alone the answer. That was a big shock.”

This quote from an interview with New School Professor Anwar Shaikh about his decision to study economics and his early experiences brings to the fore some of the concerns of today’s heterodox economists. I can certainly sympathise. My own experiences in studying economics at school and of beginning to read around the subject in books and newspaper commentary generated enthusiasm for a particular approach to the subject, which gives a primacy to the importance of economic policymaking designed to improve the workings of the economy and society and the well-being of its members. I was attracted by left-Keynesian ideas, what I now recognise as post-Keynesianism, which argued for a government commitment to full employment, secured by judicious macroeconomic management, with any resulting tendency towards rising inflation to be mitigated by incomes policies involving negotiated consensus between the state, employers and workers. Of course, such policies reflected the post-war consensus in many advanced economies, which by what was then the mid-1990s had long been abandoned by the Thatcher governments in favour of a focus on controlling inflation as the main target of macroeconomic policy, while the liberal economy in the form of deregulation and privatisation became the focus of microeconomic policy, ostensibly to improve economic performance and raise living standards. Continue reading

The productiveness of the welfare state

While the modern welfare state is generally supported by the political left, it is sometimes merely tolerated by the right. Simplistic critiques which decry “workshy” benefit recipients funded by the tax revenues drawn from “hard-working families” can be typical. A variety of schools of economic thought have historically deployed arguments that social spending is unproductive, a drain on the public purse, and a burden on the private, market-based sectors of the economy. But there are alternatives to this line of thinking, which argue that a well designed welfare state can not only reduce poverty, but also enhance the productivity of the economy and society as a whole. There is thus a potential win-win for progressive social policy and public spending more broadly. I consider these ideas below. Continue reading

Ha-Joon Chang: learn the language of power

A nice short video featuring professor of economics Ha-Joon Chang on the importance of what he calls ‘mass economic literacy’. He argues that to improve the functioning of our societies, our political systems and our economies in the ultimate service of human welfare, we need to demystify economics for the majority. Economics has become the language of power, and is seen by many as too difficult and technical to understand. This educational hang-up needs to be overcome.

Thanks to Steven Boxall, who blogs at Regeneration X, for tweeting this video and bringing it to my attention.

Quote of the week: Ha-Joon Chang on liberalism, ‘the most confusing term in the world’

Chang EconomicsUsersGuide

“Few words have generated more confusion than the word ‘liberal’. Although the term was not explicitly used until the nineteenth century, the ideas behind liberalism can be traced back to at least the seventeenth century, starting with thinkers like Thomas Hobbes and John Locke. The classical meaning of the term describes a position that gives priority to freedom of the individual. In economic terms, this means protecting the right of the individual to use his property as he pleases, especially to make money. In this view, the ideal government is the one that provides only the minimum conditions that are conducive to the exercise of such a right, such as law and order. Such a government (state) is known as the minimal state. The famous slogan among the liberals of the time was ‘laissez faire’ (let things be), so liberalism is also known as the laissez-faire doctrine.

Today, liberalism is usually equated with the advocacy of democracy, given its emphasis on individual political rights, including the freedom of speech. However, until the mid-twentieth century, most liberals were not democrats. They did reject the conservative view that tradition and social hierarchy should have priority over individual rights. But they also believed that not everyone was worthy of such rights. They thought women lacked full mental faculties and thus did not deserve the right to vote. They also insisted that poor people should not be given the right to vote, since they believed the poor would vote in politicians who would confiscate private properties. Adam Smith openly admitted that the government ‘is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all’.

What makes it even more confusing is that, in the US, the term ‘liberal’ is used to describe a view that is the left-of-centre. American ‘liberals’, such as Ted Kennedy or Paul Krugman, would be called social democrats in Europe. In Europe, the term is reserved for people like the supporters of the German Free Democratic Party (FDP), who would be called libertarians in the US.

Then there is neo-liberalism, which has been the dominant economic view since the 1980s. It is very close to, but not quite the same as, classical liberalism. Economically, it advocates the classical minimal state but with some modifications – most importantly, it accepts the central bank with note issue monopoly, while the classical liberals thought that there should be competition in the production of money too. In political terms, neo-liberals do not openly oppose democracy, as the classical liberals did. But many of them are willing to sacrifice democracy for the sake of private property and the free market.

Neo-liberalism is also known, especially in developing countries, as the Washington Consensus view, referring to the fact that it is strongly advocated by the three most powerful economic organizations in the world, all based in Washington, DC, namely, the US Treasury, the International Monetary Fund (IMF) and the World Bank.”

Ha-Joon Chang (2014), Economics: The User’s Guide, Pelican Books, p.69-70.

Quote of the week: Ha-Joon Chang’s nine one-sentence summaries of various schools of economic thought

ha-joon-changHa-Joon Chang is both a professor of economics and a writer of popular books on the subject. His main area of research is development economics, specifically the role of the state in economic change. But he is also keen to educate the public on economics and economic issues. His Economics: The User’s Guide is one such attempt, as is 23 Things They Don’t Tell You About Capitalism. From a chapter in the former book which sets out the case for pluralism in economics, here are nine schools of thought, each summarised in one sentence. I found these to be pithy and in a way entertaining, and a good form of appetite-wetting education for non-economists, or even those economists who have not explored the history of economic thought.

The Classical School: The market keeps all producers alert through competition, so leave it alone.”

The Neoclassical School: Individuals know what they are doing, so leave them alone – except when markets malfunction.”

The Marxist School: Capitalism is a powerful vehicle for economic progress, but it will collapse, as private property ownership becomes an obstacle to further progress.”

The Developmentalist Tradition: Backward economies can’t develop if they leave things entirely to the market.”

The Austrian School: No one knows enough, so leave everyone alone.”

The (Neo-)Schumpeterian School: Capitalism is a powerful vehicle of economic progress, but it will atrophy, as firms become larger and more bureaucratic.”

The Keynesian School: What is good for individuals may not be good for the whole economy.”

The Institutionalist School: Individuals are products of their society, even though they may change its rules.”

The Behaviouralist School: We are not smart enough, so we need to deliberately constrain our own freedom of choice through rules.”

Ha-Joon Chang (2014), Economics: The User’s Guide, Pelican Books, p.115-156.

Many Middle Ways – the essence and importance of the mixed economy

img_0372All economies are mixed economies, whether they are capitalist, and even if they are socialist. This understanding makes for a relatively nuanced analysis in political economy. Marx was something of a purist in his own analysis of economic systems. He argued that each system would inevitably evolve to the next, from feudalism to capitalism to socialism to communism, that it would do so from within and that it contained the seeds of each subsequent stage of development. So for example, capitalism might contain some state owned companies, which would show the way towards state socialism, with markets and private property largely abolished. For Marx this evolutionary process, whether it was carried out through reform or revolution, was inevitable. But things have not quite turned out the way he hoped and predicted. Communist states have been transformed into capitalist ones, however imperfectly, and Marxists have continued, ad infinitum, to describe our situation as ‘late capitalism’, implying that it will soon be overturned, perhaps in hope more than anything else. Continue reading

Many middle ways – introduction to a new series

keynesI have long been attracted to analyses in economics and politics which focus on the potential of a ‘middle way’ between free markets and state central planning in order to marry prosperity, social justice and liberty. John Maynard Keynes was a champion of such an approach to economic management. Although I have explored Marxism and find Marxist analyses of capitalism interesting and insightful, I have never been drawn to full-blooded socialism or communism, at least in the form that they have taken in societies across the world to date. At the same time, a fully free market system, if such a thing were possible, even under capitalism (and I am not convinced that it is) seems to me to be just as objectionable and if it were to exist, it would in my view do a poor job of attaining and sustaining the above three outcomes. In between the two, there is space for many varieties of socioeconomic system, probably capitalist, at least until it evolves into something better, which certainly need not be socialism. Continue reading

Money and Power: the keys to development – great men vs political economy

MoneyandPowerThis is the second in a series inspired by Vince Cable’s new book Money and Power. It follows last week’s discussion of history as a great deal more than the story of “great men”. Since the book takes great men (and women) and their making of economic history as its focus, I will once again take this as my point of departure, but this time I will explore some of the deeper and more complex reasons for developmental success, or otherwise.

As already pointed out, (economic) history is much more than the story of great men and their actions when in power. One of Cable’s central themes in the book is the economic ideas which his politicians drew on to inform their policies: they were all, he argues in the spirit of John Maynard Keynes, “slaves of defunct economists”. Ideas are undoubtedly important, but the focus on a few powerful individuals remains a somewhat popular analysis. It is perhaps apposite in an age of celebrity and social media influencers, but I would point out that more can be gleaned from a broader social science, and in particular from political economy. Continue reading

Ha-Joon Chang: facts, even numbers, are in the end not objective

Chang EconomicsUsersGuideThis is the last in the recent series of excerpts taken from Ha-Joon Chang’s Economics: The User’s Guide. Chang is an economist at Cambridge University (his personal non-academic website can be found here) and specialises in development economics. He has also written a number of popular books, some of which aim to debunk many of the myths of mainstream economic discourse.

The User’s Guide is one such, aimed at the lay reader rather than academics, and engages in a pluralist introductory approach to economics. I have therefore chosen a number of quotes over the past few months which stood out for me and which I felt were worth sharing. Here is Chang on p.453-5:

“Johann Wolfgang von Goethe, the German writer (Faust) and scientist (Theory of Colours), once said that ‘everything factual is already a theory’. This is something to bear in mind when looking at economic ‘facts’.

Many would assume that numbers are straightforward and objective, but each of them is constructed on the basis of a theory. I might not go as far as Benjamin Disraeli, the former British Prime Minister, who quipped that ‘there are lies, damned lies, and statistics’, but numbers in economics are invariably the results of attempts to measure concepts whose definitions are often extremely contentious or at least debatable.

This is not just an academic quibble. The way we construct economic indicators has huge consequences for how we organize our economy, what kind of policies we implement and ultimately how we live our lives.

This applies to even the most basic figures that we take for granted, like GDP or the rate of unemployment. The exclusion of household work and unpaid care work from GDP has inevitably led to the undervaluation of those types of work. GDP’s inability to take into account positional goods has directed consumption in the wrong direction and made it an unreliable measure of living standards for rich countries, where those goods are more important. The standard definition of unemployment underestimates the true extent of it by excluding discouraged workers in the rich countries and the under-employed in the developing countries. Naturally, these types of joblessness have been rather neglected by policymakers.

All of this is not to say that numbers in economics are all useless or even necessarily misleading. We need numbers to be able to get the sense of the magnitude of our economic world and monitor how it changes; we just shouldn’t accept them unthinkingly.”