Chang's "23 Things They Don't Tell You About Capitalism"
The national discussion on budgetary matters and proper expenditures of the federal government is enormously distorted. The right repeats 'free market' mantras as though they are the answer to all problems, but doesn't acknowledge the very failures of that free market system that landed us in the Great Recession and kept us there out of the right's insistence on tax cuts as a major part of the pitiful economic stimulus package put together in the early days of the Obama administration and refusal to allow tax increases that are required to fund important programs that every American cares about.
We are being bamboozled to believe that we "have to" cut Social Security and Medicare and other aid packages, that we 'have to' cut public employees' benefit packages, and on and on. Brute capitalism is taking over, as corporations are treated as though they were living people with speech rights (tomfoolery that results, under the right-wing activism of Scalia, Roberts, Alito and Thomas, from the foolish original Supreme Court decision equating spending money to support political speech as equivalent to engaging in speech).
None of this is true. So it is worth reading a book by Ha-Joon Chang, "23 Things They Don't Tell You About Capitalism" (Bloomsbury Press 2010). Chang's introduction is a good riff on the problems with Friedmania (free market economic theory) and worth excerpting here.
The global economy lies in tatters. While fiscal and monetary stimulus of unprecedented scale has prevented the financial meltdown of 2008 from turning into a total collapse..., the 2008 global crash still remains the second-largest economic crisis in history, after the Great Depression... [A] sustained recovery is by no means certain. In the absence of financial reofrms, loose monetary and fiscal policies have led to new financial bubbles, while the real economy is starved of money....Some of those who lost their jobs and houses during the crisis may never join the economic mainstream again.
This catastrophe has ultimately been created by the free-market ideology that has ruled the world since the 1980s. We have been told that, if left alone, markets will produce the most efficient and just outcome. Efficient, because individuals know best how to utilize the resources they command, and just, because the competitive market process ensures that individuals are rewarded according to their productivity. We have been told that business should be given maximum freedom. ...If we let them do what they want, wealth creation will be maximized, benefiting the rest of society as well. We were told that government intervention in the markets would only reduce their efficiency.....[G]overnment cannot improve on market outcomes, as they have neither the necessary information nor the incentives.... In sume, we were told to put all our trust in the market and get out of its way.
Following this advice, most countries have introduced free-market policies....privatization, ...deregulation...,, liberalization of international trade and investment, and reduction in income taxes and welfare payments. ...
The result of these policies has been the polar opposite of what was promised. ... Prior to [the financial meltdown], and unbeknown to most people, free-market policies had resulted in slower growth, rising inequality and heightened instability in most countries. IN rich countires, these problems were masked by huge credit expansion; thus the fact that US wages had remained stagnant and working hours increased since the 1970s was conveniently fogged over by the heady brew of credit-fueeled consumer boom. The problems ... were even more serious for the developing world. Living standards in Sub-Saharan Africa have stagnated for the last three decades, while Latin America has seen its per capital growth rate fall by two-thirds during the period. ...
Thus, what we were told by the free-marketeers--or, as they are often called, neo-liberal economists--was at best only partially true and at worst plain wrong. ...[T]he 'truths' peddled by free-market ideologues are based on lazy assumtions and blinkered visions, if not necessarily self-serving notions. ...
This book is not an anti-capitalist manifesto. Being critical of free-market ideology is not the same as being against capitalism. .... There are ways in which capitalism should, and can, be made better. ...
[This book does not] go into many of the technical details that even a basic introductory book on economics would be compelled to explain. However, the neglect of technical details is not because I believe them to be beyond my readers. 95 percent of economics is common sense made complicated....
[This book does question'] many received economic theories and empirical facts that those [advanced economics] books take for granted. ...[T]his is a lot easier than it sounds, once you stop assuming that what most experts believe must be right.
Here is the start of the list of the "23 Things". I'll expand in later postings.) Readers will doubtless see some similarity to my own thoughts in various efforts to de-bunk reaganomics and the free market storyline.
1. There is no such thing as a free market.
The gist here, as Chang notes, is that all markets have rules that restrict, in one way or another, freedom of choice and those rules are politically defined. Government is always involved in establishing market boundaries.
One example is child labor. Not too long ago, free marketers argued that "labor ought to be free' to be exploited--children need to work, and factory owners want to hire them, so there is no problem. Today, we know that the right of children not to have to work is more important than the right of factory owners to hire whoever they find to be the most profitable.
A corollary is that the free market view that prices automatically take in information and reflect what things are worth is a farce--all prices are ultimately politically determined, whether they be wages for labor, prices for commodities, and all other prices. People aren't paid 'what they are worth': CEOs don't get paid 400 times their average workers because they are 400 times as important to the productivity of the company.
Bush's intervention with the $700 billion TARP program was not, as Bush claimed, just a workaday market process but rather a clear demonstration that what is necessary state intervention consistent with capitalism is a matter of opinion--there are no scientific boundaries and thus an attempt to change the way the market currently functions (what parts are free and what parts are subject to more state control) is as legitimate as an attempt to defend it. Ending slavery, for example, was state intervention to set boundaries for the market process that didn't exist before, just as finding the Illinois governor guilty of trying to sell Obama's Senate seat sets boundaries for things that we consider beyond the market process.
2. Companies should not be run in the interest of their owners.
In fact, Chang notes that this makes for "an unholy alliance between the professional managers and the shareholders" that in our recent history, illustrated in the case of GE, "was all financed by squeezing the other stakeholders in the company" with jobs ruthlessly cut, workers fired and re-hired as non-unionized labor with lower wages and fewer bvenefits, and wage increases suppressed (by relocating our outsourcing or the threat to do so). Shareholders nowadays are short-term profittakers who buy and sell shares with no stake in the long-term viability of the industry, but only about getting more money out of it. Other stakeholders (community, workers, suppliers) are excluded from the calculation. The ultimate result of this approach is "immediate income redistribution through profits." That is, income inequality soars; corporations enjoy a boom (until they bust); while the vast majority of workers "share in the (apparent) prosperity only through borrowing at unprecedented rates."
Accompanying this boom for corporations and bust for workers is a decline in the economy--"investment as a share of US national output" fell from 20.5% in the 1980s to 18.7% during the Bush years. The growth rate of per capital income fell from 2.6% in the 1960s to 1.6% during the Bush years. This is all because "the easiest way for a company to maximize profit is to reduce expenditure, as increasing revenues is more difficult--by cutting the wage bill through job cuts and by reducing capital expenditures by minimizing investment."
3. Most people in rich countries are paid more than they should be.
The wage gaps between rich and poor countries aren't due to rich country individual excellence. "Productivity is in great part due to the system, rather than the individuals themselves."
4. The washing machine has changed the world more than the internet has.
The problematic fascination with the IT revoluation "has made some rich countries--especially the US and Britain--wrongly conclude that making things is so 'yesterday' that they should try to live on ideas. ...[This belief in a 'post-industrial society' has led those countries to unduly neglect their manufacturing sector, with adverse consequences for their economies." Worse still, the belief in the post-industrial era has cause many countries to deregulate, especially regarding cross-border flows of capital, labor and goods, to their detriment. It is politics, not technology, that determines the degree of globalization--and failure to recognize this can lead to making bad policies.
5. Assume the worst about people and you get the worst.
A nice little gem here is the discussion of "working to rule"--when employees cannot strike but slow productivity by doing only what they are required to do. Working to rule tends to reduce output by 30-50%. So that means that "productive processes rely heavily on the workers' goodwill to do extra things that are not required by their contracts or exercise initiatives and take shortcuts in order to expedite things. ... The bottom line is that companies, and thus our economy, would grind to a half it people acted in a totally selfish way, as they are assumed to do in free-market economics."
6. Greater macroeconomic stability has not made the world economy more stable.
"The free-market policy package, often known as the neo-liberal policy package, emphasizes lower inflation, greater capital mobility and greater job insecurity (euphemistically called greater labor market flexibility), essentially because it is mainly geared towards the interest of the holders of financial assets."
"Inflation has become the bogeyman that has been used to justify policies that have mainly benefited the holders of financial assets, at the cost of long-term stability, economic growth, and human happiness."