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| The book |
I have brought this book some time ago, I guess about 6 years ago, it has been lying in my library collecting dust for a long time. I had brought it when working actively in the financial sector after somebody referred to it as part of our discussion. With more time on my hands and after going through Trump and his free market principles, I decided to listen to the real experts. I subsequently brought the audio version as this allowed me to read it while travelling or just standing still.
Over the years it has become obvious to almost all, except for the hardened free-marketeers (or neo-liberal economists) that "trickle down economics" does not work. Reaganomics ("widespread tax cuts especial for the rich, decreased social spending usually on welfare, increased military spending and the deregulation of domestic markets") just does not cut it, and forcing it on the rest of the world will be disastrous. Markets do need government involvement and leaving them to their own devices it like leaving kids to play with petrol and matches - unsupervised. Although an old book it gives a concise and elaborate answer to a lot of questions and some wisdom that people take for granted. Especially in the age of Trump and his notion that governments should not interfere with the markets and any government involvement is counterproductive and dangerous. But if you really want to understand the current problems of most Western democracies "slower growth, rising inequality and heightened instability". And why Sub-Saharan Africa has been relatively stagnant and China with India have been growing fast, this is the book to read. It places things in a proper perspective.
The author is a South Korean institutional economist, specializing in development economics. Currently a reader in the Political Economy of Development at the University of Cambridge, There is another of his books that I have in my library, I have not got to reading it "Kicking Away the Ladder: Development Strategy in Historical Perspective (2002)". I hope to review that at a later date. I also brought his user guide "Economics: The User's Guide". Ha-Joon Chang also wrote "Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World (2007)"
He explicitly states that the term "free market" is an oxymoron and is an illusion or "like beauty, in the eyes of the beholder". The reason why we assume that it is "free" is that we "unconditionally accept its underlying restrictions that we fail to see them". It all smoke and mirrors, with some wires and a trap door. Hence, we don't trade in narcotic drugs, human organs, electoral votes, jobs, human beings, legal decisions are not for sale, at least openly in modern economies but they were in the past.
The things are
1. There is no such thing as a free market
2. Companies should not be run in the interest of their owners
3. Most people in rich countries are paid more than they should be
4. The washing machine has changed the world more than the internet has
5. Assume the worst about people and you get the worst
6. Greater macroeconomic stability has not made the world economy more stable
7. Free-market policies rarely make poor countries rich
8. Capital has a nationality
9. We do not live in a post-industrial age
10. The US does not have the highest living standard in the world
11. Africa is not destined for underdevelopment
12. Governments can pick winners
13. Making rich people richer doesn’t make the rest of us richer
14. US managers are over-priced
15. People in poor countries are more entrepreneurial than people in rich countries
16. We are not smart enough to leave things to the market
17. More education in itself is not going to make a country richer
18. What is good for General Motors is not necessarily good for the United States
19. Despite the fall of communism, we are still living in planned economies
20. Equality of opportunity may not be fair
21. Big government makes people more open to change
22. Financial markets need to become less, not more, efficient
23. Good economic policy does not require good economists
Why companies being solely run for the benefit and interest of the shareholders is totally a wrong idea, especially if their shareholders hold small amounts of the company. If they are temporarily or drifting shareholders, they don't have any stake in the long term profitability and sustainability of the company. They can be seen as mercenaries, who are just there to make a quick buck. As they focus solely on their dividends increases which a form of Share Value Maximization. As with other business practices like limited liability, etc has a great side and a terrible side. This led to companies making short term gains businesses partake in illegal or unethical activities, such as falsifying financial information, in order to boost shareholder value. Severe cut costing exercises and share buybacks, hence artificially increasing the price of the share. Then especially in large companies retrenching staff in cut cost exercise and outsourcing production to lower cost dominants.
Also that Capital has a nationality and some skills are not easy transferable like certain organisational competencies, these are usually embodied in people, organisations (internal rules, organisation rules and institutional memory). It like it is in the DNA of the company and these skills cannot be easily transferred.
There are other things which are quite obvious and can easily be proved Thing 3 regarding pay and 14. There are issues as regards education and richness of a country. There is little or no evidence that education or higher is directly related to a country's economic growth. But what is related is the country's ability to organise people into enterprises of high productivity.
Poor countries are poor not because of the poor, but because of their rich. There are limited infrastructures and procedures and processes. The poor in poor countries are much more productive than their Western counterparts. An example of the taxi driver was given, but those in Western countries drive on wide smooth roads with no gutter or potholes, and clear signs and other people that obey traffic laws, no corrupt policemen, has a satellite navigation system to guide them, etc but is earning more than fifty times his equivalent in the developing world. But the rich like a doctor, professor or computer engineer in the West is much more productive than his equivalent. But the rich in the Western world should get all smug, as "They achieve this because they live in economies that have better technologies, better-organized firms, better institutions and better physical infrastructure – all things that are in large part products of collective actions taken over generations (see Things 15 and 17). Warren Buffet, the famous financier, put this point beautifully when he said in a television interview in 1995: ‘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."
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| It like the West developed and they are preventing the rest... |
Capitalism is the worst economic system except for all the others. Capitalism is still our best system, but free market capitalism is destructive as it gives a false illusion that unstable markets will control and regulate themselves. This is very dangerous and should not be forced upon developing economics. He said that it is extremely unlikely that a developing country will always become rich by following these rules. The most of the rich countries became rich offering non-free market principles of protectionism, subsidies, tariffs, great government support, etc till their industries have reached maturity. The US does not have the best standard of living in the world but it is able to project that image because of Hollywood and the very rich which live there. But by looking at the health indicators, crime rates, prison population, etc it will paint a different picture. Africa is being pushed into its present condition because it adopted free market principles in the 1970s which were not fair to Africa and sent us up for underdevelopment. Japanese were known as being very lazy and ignorant before their emergence in the late 18th Century. While the Germans before Chancellor Bismarck unification of the German states in 1871, "were too stupid, too individualistic and too emotional to develop their economies". Countries with big governments and planned economies do much better than free markets.
At the end he gave points on how to rebuild the world economy among them is big governments that should be more involved in running economies. We should do more manufacturing, stop believing that people are paid what they are worth. Build an economy that is fair to develop countries to stop forcing them to develop free market principles.
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