23 Things They Don't Tell You About Capitalism by Ha-Joon Chang | Book review | Books | The Observer http://www.guardian.co.

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23 Things They Don't Tell You About

Capitalism by Ha-Joon Chang
Ha-Joon Chang offers a masterful debunking of some of the
myths of capitalism, writes John Gray

John Gray
The Observer, Sunday 29 August 2010

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A worker on a construction site in Suining, in China's Sichuan province. Western capitalism is likely to decline in the
face of competition from China, India and Russia. Photograph: AFP/Getty Images

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23 Things They Don't Tell You About Capitalism by Ha-Joon Chang | Book review | Books | The Observer http://www.guardian.co.uk/books/2010/aug/29/ha-joon-chang-23-things/print

The world is awash with books that claim to explain the global financial meltdown. Not
many are written by economists. Ignorant of history, including that of economics itself,
most economists not only failed to forecast the crash but, mesmerised by the spurious
harmonies of their mathematical models, were blind to the mounting instability of the
financial system and failed to grasp that an upheaval of the kind that is currently under
way was even possible. After an intellectual failure on this scale, what could economists
have to say today that would be of any interest to anyone?

23 Things They Don't Tell You About Capitalism

by Ha-Joon Chang

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Anxiously defending their turf, many have objected that they never claimed to predict
the future. But as Ha-Joon Chang writes: "Economists are not some innocent
technicians who did a decent job within the narrow confines of their expertise until they
were collectively wrong-footed by a once-in-a-century disaster that no one could have
predicted." Far from being an inward-looking, hermetic discipline, economics has been
a hugely powerful – and profitable – enterprise, shaping the policies of governments
and companies throughout much of the world. The results have been little short of

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disastrous. As Chang puts it: "Economics, as it has been practised in the last three
decades, has been positively harmful for most people."

In his 2008 book, Bad Samaritans: The Myth of Free Trade and the Secret History of
Capitalism, Chang – an economist himself, a specialist in the political economy of
development – mocked one of the central orthodoxies of his profession: the belief that
global free trade raises living standards everywhere. 23 Things They Don't Tell You
About Capitalism assaults economic orthodoxy on a much larger front. Dip into this
witty, iconoclastic and uncommonly commonsensical guide to the follies of economics,
and, among many other things, you will learn that free market policies rarely make poor
countries richer; global companies without national roots belong in the realm of myth;
the US does not have the highest living standards in the world; the washing machine
changed the world more than the internet; more education does not of itself make
countries richer; financial markets need to become less, not more efficient; and –
perhaps most shocking to Chang's colleagues – good economic policy does not require
good economists. Each of Chang's 23 propositions may seem counterintuitive, even
contrarian. But every one of them has a basis in fact and logic, and taken together they
present a new view of capitalism.

Chang may be our best critic of capitalism, but he is far from being any kind of
anti-capitalist. He recognises the failings of centrally planned economies, and rightly
describes capitalism as "the worst economic system except for all the others". At the
same time he is confident that capitalism can be reformed to prevent crises like the one
we have just experienced recurring. Making markets more transparent is not enough.
"If we are really serious about preventing another crisis like the 2008 meltdown,"
Chang writes, "we should simply ban complex financial instruments, unless they can be
unambiguously shown to benefit society in the long run." He is aware that he risks
sounding extreme, but argues that the ban he proposes is no different from those that
have been enforced on other dangerous products. "This is what we do all the time with

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23 Things They Don't Tell You About Capitalism by Ha-Joon Chang | Book review | Books | The Observer http://www.guardian.co.uk/books/2010/aug/29/ha-joon-chang-23-things/print

other products – drugs, cars, electrical products and many others."

It is at this point that Chang's analysis, otherwise refreshingly down to earth, seems to
me to become unrealistic. Banning opaque financial products might be a step towards a
safer world. Unfortunately it is also politically impossible. In the US, Obama's economic
policies are being shaped by the same people – many of them with close links to Wall
Street – who dismantled Roosevelt's curbs on the banking system during the Clinton
era. American politics has been captured by a financial oligarchy, and there is no
prospect of meaningful reform.

Again, Chang urges that we ban financial derivatives, but who are "we"? Reforms of the
kind he envisions require a type of global governance that will not exist in any
foreseeable future. As he himself recognises, capitalism is not one economic system but
many. "There are different ways to organise capitalism. Free-market capitalism is only
one of them – and not a very good one at that. There is no one ideal model." This is
clearly right, but the types of capitalism that exist today are not just different. They are
also competitors, with conflicting needs and goals. Chinese capitalism, Russian
capitalism, Indian capitalism and American capitalism are geopolitical rivals as much as
they are different ways of organising the marketplace, and they threaten one another in
a number of contexts – not least when they are struggling to secure control of scarce
natural resources. Many of the world's conflicts are driven by these geopolitical
rivalries. Afghanistan will enjoy nothing like peace when western forces are finally
compelled to leave. Instead it will become a site of conflict between India, Pakistan,
China, Russia and Iran, each aiming to pre-empt the others in exploiting the
opportunities offered by the country's geography and resources.

Capitalism is not only about creating wealth, it is also about power – and western power
is waning. Economic energy is shifting to the emerging countries, while in the west
economies stagnate and politicians continue to worship at the altar of the free market
(not least in Britain, where the coalition seems bent on pursuing neo-Thatcherite

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policies more extreme than those of the 80s). Rather than reforming itself, free-market
capitalism looks set simply to decline. But if Chang's reforms are unrealistic, his account
of where we find ourselves today is arrestingly accurate. For anyone who wants to
understand capitalism not as economists or politicians have pictured it but as it actually
operates, this book will be invaluable.

John Gray's latest book, Gray's Anatomy: Selected Writings, is published in paperback
by Penguin

guardian.co.uk © Guardian News and Media Limited 2011

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