23 Things They Don’t Tell You About Capitalism (2011)

Ha-Joon Chang

Rating: 10/10

This book is an amazing and enlightening work that every world citizen ought to read.  It succinctly breaks down what is wrong with our global economic market in terms that any non-economist can understand.  It throws new (to most of us) and important light on the flaws of conventional “wisdom” about free-market capitalism and how those policies over the past 30 years have created the systems and incentives for ongoing economic crises during that time (including our current one).  But Chang is not content with simply nay-saying the system: he also provides some general principles about how to rebuild the world economy to function better and more humanely.

His methodology is pretty sound (as far as I can tell), and his evidence is convincing.  Indeed, I only found one place where I questioned one of his solutions (though I wasn’t able to give it the most critical analysis on my first read).  Chang begins each chapter by: 1. telling us about the “thing” (remember, there are 23 “things”); 2. telling us the oft-touted myth about that thing; 3. telling us the untold story (and reality) about the thing; and 4. presenting his evidence and solutions for that thing.  (He even presents several ways to read his book and directs you to the “things” that might matter for a particular reading.  And yes, he simply calls them “Thing 1” throughout the book for ease of reference).

I won’t go into detail over all 23 things here (of course), but I will point out some of the tid-bits that I found particularly poignant.

There is no such thing as a free-market.  As Chang points out, all markets have some sort of rules and regulations, some of which we take for granted (e.g. child-labor laws).  In fact, as the economy has come to be dominated by corporations, those economies are also more fully-planned since successful corporations tend to be carefully-planned themselves (otherwise they’d fail).  So the idea that we should not regulate the market is not only fallacious, deregulation over the past 30 years has actually caused more problems and slowed growth, despite the rhetoric.  Related to this, trickle-down economics has not worked out as planned, either.  The wealth has only trickled upwards (as evidenced by the US having the largest wealth disparity of any developed country).

Companies should not be run in the interest of their shareholders.  Since most of those shareholders tend to have little interest in the long-term fortunes of a company (they’re focused on short-term profits), and managers run those companies to maximize such profits (and satisfy shareholders), the companies are inevitably harmed in the managing policies.  Labor forces (i.e. workers) are collateral damage as cost-cutting (i.e. layoffs) occur.  The government has lowered corporate tax rates which have helped wealth inequality skyrocket, and the average citizen’s borrowing has likewise gone up to get in on the “apparent” wealth.  This has led to slower per capita growth as long-term investment has been slashed.  Harming the companies’ long-term viability, focusing on quick, short-term profits, and increased wealth concentration has resulted in a failing economic system.

US managers are overpaid.  In recent months, the ridiculous paychecks that CEOs and managers receive (including their bonuses and severance packages), have come under some scrutiny.  Chang points out that not only do our CEOs make 2 to 20 times what other countries’ managers do, but their earnings have also increased 10 times since the 1960s (while the average workers’ wages have remained virtually stagnant, accounting for inflation).  Of course, American companies are not 10 to 20 times more efficient, productive, or successful either temporally or geographically, so this needs to be rectified as well.  Worse, the CEOs are not held accountable for failing (and are often rewarded with severance packages when they do fail!).  Remember the crisis way back in 2008?  Know any financier or CEO that went to jail or was held to task?  Yeah, neither do I.

Bigger government can help growth and the economy.  Some folks point to Europe and the boogeyman of socialism as an evil that capitalist America must avoid at all costs.  What they don’t tell you is that several of those socialist countries have had equal or better growth that the US, even during our booming 1990s.  As with nearly all of the “things” Chang addresses, it’s not a matter of pure absolutes (i.e. big government is good or bad).  It’s a matter of the right kind of thing and the right kind of policies (e.g. a large welfare state that has good policies [Scandinavia] is better than a welfare state with self-defeating policies [the US]).

Developing countries need our help and it’s about time they received a leg up from us.  Not only is this the right and humane thing to do, it will inevitably help the world economy become more stable (along with other changes Chang recommends to rebuild the global economic system).

There is plenty more to digest including the liquidity (and ratios) of financial assets, limited human rationality, the fallacy of us living in a post-industrial world, and so forth.  I hope this brief summary hasn’t made things more complicated (not my intention), because the book is very digestible.  Rarely do I come across books that are paradigm-shifting and life-changing, but I’d venture to say that Chang’s 23 Things is such a work.