Rethinking Capitalism at the Festival of Ideas
“The washing machine has changed the world more than the internet has”, “US managers are over-priced”, “we are not smart enough to leave things to the market”… These are a few of the myth-shattering ideas outlined in 23 Things They Don’t Tell You About Capitalism, development economist Ha-Joon Chang’s new book. Adopting a light-hearted and jocular attitude, Dr. Chang touched on a few of the more unorthodox points in his book at a recent talk, included as part of the October 2010 Cambridge Festival of Ideas.
A self-styled pragmatist, Dr. Chang irreverently chips away at mainstream capitalist canon. Thing #1 and Thing #2, fiery-haired Dr. Seuss characters, march across his power-point slide, brazenly pointing the way towards the first of the ’23 things they don’t tell you about capitalism’.
A few highlights from the talk:
Thing #2: ‘Companies should not be run in the interest of their owners’.
In simple and cogent language, Dr. Chang underscores the tension between shareholder short-termism and the long-term success of a company. Over the past three decades of financial deregulation, shareholders have benefitted from an ever-greater freedom to buy and sell shares in line with a company’s rising and falling profits. This pressure from shareholders pushes company managers to cut investment and pair down the labour force in order to secure immediate gains. Increased profits mean an instant boon for shareholders; however, a company’s long-term prospects are less rosy. General Motors, the poster child of American innovation and entrepreneurial spirit, is an apt indicator of where shareholder-driven, economic logic is leading companies.
Thing #3: ‘Most people in rich countries are paid more than they should be’.
You make £60,000 a year as a GP, £35,000 as a teacher, a million in the stock market… that’s fair. You earned it! Or not.
As individuals, we have a sense of personal entitlement where our incomes are concerned. And yet, Dr. Chang stresses the ‘fundamentally collective nature of individual productivity’. You may think you’re worth what you make, but just go try and do the same work in a less economically developed country and see how much you are rewarded for it. Dr. Chang quotes a line uttered by Warren Buffet in the nineties: ‘I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you’ll find out how much this talent is going to produce in the wrong kind of soil. I will be struggling thirty years later. I work in a market system that happens to reward what I do very well—disproportionately well’[1].
This reflection is particularly relevant in light of recent debate concerning bank managers’ bonuses. On the one hand, bankers are rewarded for their ‘incredible talent’; however, it is society that provides the framework for them to capitalize on that talent, making it legitimate for society to interfere in how much bankers are paid.
Thing #23: ‘Good economic policy does not require good economists’.
Ha-Joon Chang concludes his book, and ended his talk, on an encouraging note. The reader or audience member may feel the need to defer to the expert opinion of professional economists. But, Dr. Chang insists, there is no cause for intimidation; ‘Ninety-five percent of economics is common sense made complicated’. Being a citizen in a democratic country is ‘the most difficult job out there’, requiring continuous vigilance to remain up to date on policy issues. Analysis of these issues, however, is not the unique preserve of experts and policy wonks. In Taiwan and China, engineers have been the craftsmen of successful economic policy[2]. Similarly, the critically minded citizen of a democratic country can and should question the conventional wisdom of the free-market economicsdriving political reform. This questioning may make some uncomfortable. Dr. Chang’s advice: ‘It is time to get uncomfortable’. [3]
By Michaela Collord ~ 25 October 2010
[1] Ha-Joon Chang, 23 Things They Don’t Tell You About Capitalism. London: Penguin Books (2010), p 30.
[2] Chang, 2010, p 242.
[3] Chang, 2010, p 263.
