Ha-Joon Chang’s “23 Things They Don’t Tell You about Capitalism”

Remixing the Mixed Economy

A review of Ha-Joon Chang’s 23 Things They Don’t Tell You about Capitalism

by Gwydion M. Williams

South Korea got rich because it ignored Free-Market orthodoxy and went its own way. As a man of South Korean origin – though currently an academic at the University of Cambridge – Ha-Joon Chang has said some sensible things about what’s wrong with the Thatcher-Reagan orthodoxy. Documented the actual economic history of Western Europe and the USA in Kicking Away the Ladder–Development Strategy in Historical Perspective back in 2002. Here, he is much more concerned about the present, the trends that led up to the crash of 2008.

There are some things I’d disagree with in his outlook. In what’s now called the Keynesian Era, the dominant system was usually described as Mixed Economy, a mix of socialist and capitalist elements. Ha-Joon Chang rejects this, instead saying:

“This book is not an anti-capitalist manifesto. Being critical of free-market ideology is not the same as being against capitalism. Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented. My criticism is of a particular version of capitalism that had dominated the world in the last three decades, that is, free-market capitalism.” [A]

Having said that he is for capitalism but also against capitalism and against the free market, he then devotes the first chapter to explaining that ‘There is no such thing as a free market’. He does however put the argument quite well, saying “A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them.” [B] This is well documented, and followed by an explanation that running companies for the benefit of shareholders hasn’t produced the general economic benefits that Thatcher and Reagan promised:

“The growth rate of per capita income in the US fell from around 2.6 per cent per year in the 1960s and 70s to 1.6.per cent during 1990-2009, the heyday of shareholder capitalism. In Britain, where similar changes in corporate behaviour were happening, per capita income growth fell from 2.4 per cent in the 1960-70s when the country was allegedly suffering from the ‘British Disease’, to 1.7 per cent during 1990-2009.” [C] But the overall decline in growth has gone along with gains for a rich minority.

“The free-market policy package, often known as the neo-liberal policy package, emphasises lower inflation, greater capital mobility and greater job insecurity (euphemistically called greater labour market flexibility), essentially because it is mainly geared towards the interests of the holders of financial assets.” [D]

The book also exposes some of what’s wrong with the USA:

“There is a large inflow of low-wage immigrants from poor countries, many of them illegal, which makes them even cheaper. Moreover, even the native workers have much weaker fallback positions in the US than in European countries of comparable income level. Because they have much less job security and weaker welfare supports, US workers, especially the non-unionized ones in the service industries, work for lower wages and under inferior conditions than do their European counterparts. That is why things like taxi rides and meals at restaurants are so much cheaper in the US than in other rich countries. That is great when you are a customer, but not if you are the taxi driver or waitress.” [E]

“The Americans also work considerably longer than their counterparts in competitor nations. Per hour worked, US income is lower than that of several European countries, even in purchasing power terms. It is debatable that this can be described as having a higher living standard.” [F]

But the real victim has been Africa, where Neo-Liberalism has had a fairly free hand, imposing its will on weak and unstable governments that are small and poor by global standards:

“During the 1960s and 70s, per capita income in Sub-Saharan Africa grew at a respectable rate. At around 1.6 per cent, it was nowhere near the ‘miracle’ growth rate of East Asia (5-6 per cent) or even that of Latin America (around 3 per cent) during the period. However, this is not a growth rate to be sniffed at. It compares favourably with the rates of 1-1.5 per cent achieved by today’s rich countries during their Industrial ‘Revolution’ (roughly 1820-1913)…

“African growth suddenly collapsed since the 1980s….

“Since the late 1970s (starting with Senegal in 1979), Sub-Saharan African countries were forced to adopt free-market, free-trade policies through the conditions imposed by … the World Bank and IMF (and the rich countries that ultimately control them)…

“During the 1980s and 90s, per capita income in Sub-Saharan Africa fell at the rate of 0.7 per cent per year. The region finally started to grow in the 2000s… after nearly thirty years of using ‘better’ (that is, free-market) policies, its per capita income is basically at the same level as it was in 1980.” [G]

“When the dreaded over-taxation of the rich started in earnest, it did not destroy capitalism. In fact, it made it even stronger. Following the Second World War, there was a rapid growth in progressive taxation and social welfare spending… the period between 1950 and 1973 saw the highest-ever growth rates in these countries – known as the ‘Golden Age of Capitalism. Before the Golden Age, per capita income in the rich capitalist economies used to grow at 1-1.5 per cent per year. During the Golden Age, it grew at 2-3 per cent in the US and Britain, 4-5 per cent in Western Europe, and 8 per cent in Japan. Since then, these countries have never managed to grow faster than that.” [H]

As I said earlier, the system was called Mixed Economy at the time and this remains the best name for it. But the figures are clear enough, and it is amazing that the left don’t make more of it. Of course most of the left have a background in either Trotskyism or pro-Moscow Communism. This gives them a bias towards sneering at the major achievements of Moderate Socialists in the ‘Golden Age’.

Surprisingly, Ha-Joon Chang also recognises the necessity for Stalin’s high-speed industrialisation in the 1930s. “Without Stalin adopting Preobrazhensky’s strategy, the Soviet Union would not have been able to build the industrial base at such a speed that it was able to repel the Nazi invasion on the Eastern Front in the Second World War. Without the Nazi defeat on the Eastern Front, Western Europe would not have been able to beat the Nazis.” [J]

This hypes Preobrazhensky, but is otherwise a good description of what happened, and why it happened. Stalin was well aware of the rise of fascism and the threat it posed. Poland had defeated the Soviet Union in 1920. Nazi Germany overran Poland in just over a month in 1939. But thanks to Stalin, Nazi Germany was stopped and then defeated in the Soviet Union. A more moderate path of development would not have produced sufficient industrial strength in time.

Sadly – though not unexpectedly – the book ignores Mao’s achievement in tripling the Chinese economy. Tripling an economy in a quarter-century hasn’t often been done, and it was amazing to have done it in a society which had been stagnant for centuries. Under the Blue Republic (1911-1949), there was a little growth in the coastal cities, but this did not make up for the decay of the rural economy. This gets overlooked, perhaps because Mao’s success cannot conceivably be presented as yet another variety of capitalism. But he does at least make it clear that the post-Mao economy has remained heavily regulated. [K]

What about entrepreneurship? He makes some very good points here, noting that busy self-employed workers are everywhere in poor countries. “People are far more entrepreneurial in the developing countries than in the developed countries. According to an OECD study, in most developing countries 30-50 per cent of the non-agricultural workforce is self-employed (the ratio tends to be even higher in agriculture)… In contrast, only 12.8 per cent of the non-agricultural workforce in developed countries is self-employed. In some countries the ratio does not even reach one in ten: 6.7 per cent in Norway, 7.5 per cent in the US and 8.6 per cent in France.” [L]

“What really makes the rich countries rich is their ability to channel the individual entrepreneurial energy into collective entrepreneurship.

“Very much influenced by capitalist folklore, which characters such as Thomas Edison and Bill Gates… our view of entrepreneurship is too much tinged by the individualistic perspective – entrepreneurship is what those heroic individuals with exceptional vision and determination do. By extension, we believe that if any individual, if they try hard enough, can become successful in business. However, if it ever were true, this individualistic view of entrepreneurship is becoming increasingly obsolete. In the course of capitalist development, entrepreneurship has become an increasingly collective endeavour… even exceptional individuals like Edison and Gates have become what they have only because they were supported by a whole host of collective individuals… the educational system that supplied highly trained scientists, engineers, managers and worker that manned those companies.” [M]

He might have added that the workings of a developed economy guarantees that most would-be entrepreneurs will fail. Bill Gates succeeded by creating a string of successful operating systems that pushed out the various alternatives on what were originally known as ‘IBM-Compatible PCs’. Dozens of others tried and failed in the same market. Likewise Henry Ford’s success was at the expense of most of the rival automobile companies that flourished in the early days. If more people try to be entrepreneurs, more of them will fail. That’s the name of the game.

If one studies early industrialism, one finds something similar. James Watt was just one of many men who tried to develop steam power. The first useful engines had been developed decades earlier by Thomas Newcomen. Watt had a splendid idea for improving Newcomen’s Engine with a separate condenser for the hot steam, but his ideas pushed the limits of 18th century engineering and he might have failed without his partnership with Boulton. Both Newcomen and Watt used low-pressure steam: metalwork had to get a lot better before high-pressure steam could be used. But Watt was at least original: Sir Richard Arkwright was splendidly successful but the balance of evidence is that he stole the inventions of others. He lost a patent case in an English court, but managed to carry on regardless and remained rich whereas many genuine pioneers died in poverty. (John Kay the inventor of the Flying Shuttle, for instance.)

Bill Gates, incidentally, seems never to have had a single original idea in his entire career. His talent – real and valuable enough – has been to move into an existing area of fast development and create software that everyone finds it convenient to use. He gets disproportional rewards for his skills, but at least others benefit. This is not true of people who play financial games. 23 Things They Don’t Tell You about Capitalism details how two economists claimed a superior method to determine the value ‘derivates’, complex financial instruments that can be used as insurance by people running real businesses, but have mostly been adapted for gambling on a global scale. They were given the so-called ‘Nobel Prize for Economics’ in 1997, then contributed to the bankruptcy of ‘Long Term Capital Management’ in 1998. One of them set up another hedge fund in 1999, found backers and suffered disaster again during the 2008 crash.

Missing from the book’s vision is an awareness of news media. These are largely funded by advertising, and owned by the people who are doing well out of the ‘Privatised Corporatism’ that grew up in the 1980s. It also benefited from the breakdown, at least in Britain, of the older very visible marks of class difference. So it has been possible for the media to focus people’s attention on the wrong things. Which doesn’t change the fact that the West took a wrong turn in the 1980s and has yet to correct it.


[A] Ha-Joon Chang, 23 Things They Don’t Tell You about Capitalism, Allen Lane 2010, page xv.

[B] Ibid., page 1.

[C] Ibid., page 19

[D] Ibid., page 60

[E] Ibid., page 108-9

[F] Ibid., page 111

[G] Ibid., page 117-119

[H] Ibid., page 142

[J] Ibid., page 140

[K] Ibid., page 196

[L] Ibid., page 159

[M] Ibid., page 165-6

[N] Ibid., page 170-1


First published in Labour & Trade Union Review, 2011

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