Despite the fall of communism, we are still living in planned economies (Ha-Joon Chang’s Thing 19)

23-things-they-don-t-tell-you-about-capitalismAnother excerpt from Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism. While this one may seem obvious, it provides an important counter to at least one aspect of market fundamentalism.

“Capitalist economies are in large part planned. Governments in capitalist economies practise planning too, albeit on a more limited basis than under communist central planning. All of them finance a significant share of investment in R&D and infrastructure. Most of them plan a significant chunk of the economy through the activities of state-owned enterprises. Many capitalist governments plan the future shape of individual industrial sectors through sectoral industrial policy or even that of the national economy through indicative planning. More importantly, modern capitalist economies are made up of large, hierarchical corporations that plan their activities in great detail, even across national borders. Therefore, the question is not whether you plan or not. It is about planning the right things at the right levels (p.199-200)…

The prejudice against planning, while understandable given the failures of communist central planning, makes us misunderstand the true nature of the modern economy in which government policy, corporate planning and market relationships are all vital and interact in a complex way. Without markets we will end up with the inefficiencies of the Soviet system. However, thinking that we can live by the market alone is like believing that we can live by eating only salt, because salt is vital for our survival (p.209).”

Equality of opportunity may not be fair (Ha-Joon Chang’s Thing 20)

23-things-they-don-t-tell-you-about-capitalism“Equality of opportunity is the starting point for a fair society. But it’s not enough. Of course, individuals should be rewarded for better performance, but the question is whether they are actually competing under the same conditions as their competitors. If a child does not perform well in school because he is hungry and cannot concentrate in class, it cannot be said that the child does not do well because he is inherently less capable. Fair competition can be achieved only when the child is given enough food – at home through family income support and at school through a free school meals programme. Unless there is some equality of outcome (ie., the incomes of all the parents are above a certain minimum threshold, allowing their children not to go hungry), equal opportunities (ie., free schooling) are not truly meaningful.

…We cannot, and should not, explain someone’s performance only by the environment in which he has grown up. Individuals do have responsibilities for what they have made out of their lives.

However, while correct, this argument is only part of the story. Individuals are not born into a vacuum. The socio-economic environment they operate in put serious restrictions on what they can do. Or even on what they want to do. Your environment can make you give up certain things even without trying. For example, many academically talented British working-class children do not even try to go to universities because universities are ‘not for them’.  This attitude is slowly changing, but I still remember seeing a BBC documentary in the late 1980s in which an old miner and his wife were criticizing one of their sons, who had gone to a university and become a teacher, as a ‘class traitor’.

While it is silly to blame everything on the socio-economic environment, it is equally unacceptable to believe that people can achieve anything if they only ‘believe in themselves’ and try hard enough, as Hollywood movies love to tell you. Equality of opportunity is meaningless for those who do not have the capabilities to take advantage of it.”

Ha-Joon Chang (2010), 23 Things They Don’t Tell You About Capitalism, p.210-211, 217.

We are not smart enough to leave things to the market (Ha-Joon Chang’s Thing 16)

This post is one of an occasional series inspired by Ha-Joon Chang’s iconoclastic and very readable book 23 Things They Don’t Tell You About Capitalism. The quote below is from ‘Thing 16’.

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“People do not necessarily know what they are doing, because our ability to comprehend even matters that concern us directly is limited – or, in the jargon, we have ‘bounded rationality’. The world is very complex and our ability to deal with it is severely limited. Therefore, we need to, and usually do, deliberately restrict our freedom of choice in order to reduce the complexity of problems we have to face. Often, government regulation works, especially in complex areas like the modern financial market, not because the government has superior knowledge but because it restricts choices and thus the complexity of the problems at hand, thereby reducing the possibility that things may go wrong.”

Ha-Joon Chang (2012), 23 Things They Don’t Tell You About Capitalism, p.168

The argument that humans have ‘bounded rationality’ and experience uncertainty (as opposed to calculable risk), in which they simply do not know what is going to happen in the future, illustrates the importance of a range of institutions in modern society. These both constrain and enable human activity. The market is an institution, but one of many, even in what is often called a market economy. Continue reading

Ha-Joon Chang on inequality and capabilities

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“We can accept the outcome of a competitive process as fair only when the participants have equality in basic capabilities; the fact that no one is allowed to have a head start does not make the race fair if some contestants only have one leg.”

Ha-Joon Chang (2010)

Ha-Joon Chang: beyond the self-interested individual

A short talk with Cambridge economist Ha-Joon Chang, who explains how mainstream economics tends to assume that individuals are entirely (and rationally) self-interested and why this is wrong and damaging to society. He illustrates how our broader motivations in the workplace and elsewhere are beneficial and should not be ignored in economic theory.

I think that modern behavioural economics has begun to address this, but it still begins with the idea of the individual, to the neglect of larger social structures and institutions, from class to society as a whole.

Free trade does not make poor countries richer

A short interview with Cambridge economist Ha-Joon Chang on how free trade has not helped poor countries develop. He contrasts ‘free trade’ with ‘international trade’, illustrating how countries which have become rich nurtured infant industries and engaged strategically with the rest of the world, rather than simply liberalizing markets. Contrary to popular belief, this includes the US and the UK at certain stages in their history.

Ha-Joon Chang on austerity and corporate vs social welfare

ha-joon-changHere is a useful five minute interview on the Guardian website with Cambridge economist Ha-Joon Chang, bestselling author of 23 Things They Don’t Tell You About Capitalism, which is very readable and full of interesting and iconoclastic ideas. I have discussed some of Chang’s ideas on this blog in the past. Here he punctures a few myths about the recent direction of economic policy in the UK.