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Why does making rich people richer not make the rest of us richer? Ha Joon Chang opens the chapter by starting that the rich is vital for market

opportunities and by exploiting these opportunities, the poor will be able to enjoy benefits in the long term as opportunities become bigger and widely available. The author disputes this claim and later states that pro-rich policies have failed to accelerate growth in the past three decades. Chang presents two arguments to rebut the issue first, giving a bigger slice of pie to the rich in order to make the pie bigger is not true and second, the greater wealth at the top will eventually trickle down to the poor does not work either. Chang highlights the notion of trickle-down economics by using Preobrezhenskys argument that private property and the market should be abolished in the country side in favor of a government-controlled and invested industrial sector that will yield to long-term benefits to the economy and therefore the people. The problem then manifests as slower economic growth. During the 1980s, a bigger slice of the pi e was given to the rich; however, the rich have reduced the pies growth pace. Little did people realize, growth is dependent on investment. The idea of a trickle-down economics is a double-edged sword. In theory, it may benefit the poor in the long-run as the rich create more opportunities by maximizing the strength of their capital; however, the bigger question is its actual application in the real world. 2. Are US managers over-priced? In order to attract a large number of applicants, US companies have devices a largesum financial strategy. It is common for companies to offer larger compensations for their top managers to make him/her more effective than the competition. There are two striking characteristics that set US managers apart from other managers first, they are paid bigger than their predecessors and second, American companies are over protective of their

managers despite poor performance. Ha Joon Chang argues that the managerial class has become a political, economic and ideological power enough to determine and manipulate its own pay. Why are managers paid more today than their predecessors? Are they better in terms of decision making? A common explanation for the sudden increase is the growth of the company. Logically, the same company is bigger today then forty years before and better decisions make a company prosper. The problem according to Chang is the 1980s spike in salary payouts. Why have sudden increases in the 80s when company growth is constant? If the case is making better decisions for company growth that affects salary increase, why are CEOs from other companies receiving a fraction of what is paid to an American CEO? Chang explains that the differences in CEO remuneration do not include stock options. One can argue that wage levels vary from country to country. This may hold true but US and Japan have almost similar, if not similar, wage levels. By these standards, US managers are overpaid. 3. Are people in poor countries as entrepreneurial as rich countries? Economic dynamism thrives on entrepreneurship. An economy cannot develop if opportunities and new products are not developed or seizes. One may argue that a third-world countrys underdevelopment is due to its lack of entrepreneurial spirit. Unless third-world citizens actively develop an aggressive profit-making attitude, the country cannot develop. Contrary to popular belief, third world citizens have to be very entrepreneurial to keep themselves fed even once a day. It is not the absence of an aggressive entrepreneurial attitude that is lacking but technology and social organizations. Capitalizing on Mr. Bushs point and critique of the French, entrepreneurial people are needed to have a successful economy. I partly agree that poverty in developing countries

is attributed to the lack of entrepreneurship but Mr. Bush fails to see entrepreneurship in the lens of a third-world citizen. One who has lived in a third world or even vacationed in a third-world country would agree that there are entrepreneurs everywhere from the simple candy vendors to the shady fixers of back-door entry to embassies and other government offices. In comparison to rich countries, entrepreneurship in Third World countries is not only an opportunity but an acquired skill to survive. 4. What happens when we leave everything to the markets? It is assumed that people are rational beings and we are perfectly aware of our actions because we know what is best. An attempt by outsiders or even the government to restrict their freedom and their actions will only be counter-productive and will yield inferior results. However, it is also true that people are more than fickle. They do not necessarily know what is best for them. In a complex world that offers a myriad of choices, our ability to deal with a wide range of choices can be problematic, if not counter-productive. It is therefore a necessity to limit our choices in order to reduce problems we may potentially encounter. Market liberals justify that liberal structures bring forth a more prefect order. By leaving rational individuals to make rational choices, everything falls into place. Even irrational decisions have a way of making its way out of the perfect order perpetuated by the free-market. Bad decisions yield lower income and therefore as a rational individual, will not make the same decision again. 5. Will more education in itself make a country richer? The rise of theknowledge-economy has been the source of wealth and education became the key of prosperity. The difference between the East Asian success and the SubSaharan underdevelopment is proof that education is vital for success. A better educated working force is a must for economic development. However, not even the East-Asian and

Sub-Saharan paradigm can prove that there is a direct relationship between education and national prosperity. Most knowledge learned through education cannot be used for a specific job. Generally, what we learn from school makes us more independent but it does not necessarily translate into the skills we need for work. Change critiques that it is misleading to assume that knowledge yields high productivity. With the increasing mechanization of industries, there is even a doubt of whether knowledge drives most jobs in rich countries. The Philippines has one of the highest literacy rates in Asia but why is it still a Third World country? The East Asian miracle is not a product of a knowledge-based economy but there are other determining factors that made the East Asian Miracle possible. Similarly, Argentina had a higher literacy rate than Korea but Korea is far more productive than Argentina. Again, this proves that education is not the driving force behind a nations economic prosperity. While it is true that education plays an indirect role in prosperity, most subjects taught in school have no real impact on worker productivity. Education is valuable but its aim is not to make students productive workers but its aims hinges more in self-development and independence. 6. What do you get when you assume the worst about people? To construct a durable economic system, one must assume the worst from people. Communism failed because it assumed that everyone was selfless and altruistic. Self-interest is an inherent trait in human beings and most of the time, the driving force behind their actions; however, the world continues to work because people are not entirely as self-seeking as they are portrayed. There is a need to design a system where, even with the presence of selfish individuals, only the best will come out from people. Change argues that if we assume the worst from people, we get the worst from them. Self-interest is one of the most important motivations in life. There are other and more altruistic things than can motivate us. The question I have is, is it necessary that we be

suspicious of everyones motives? I disagree. There are always two sides of a coin. True to any company or to any situation, individuals may be motivated by one of two things self interest that stems from either a selfish background or for the greater good; and the truly altruistic motive. The key is not to keep constant watch and suspicion on subordinates as that of a panopticon. Good management is vital. It is important that the good be brought out and to tone down tha negative. Going back to Ha Joon Changs original point, if we expect the worst from people, we will get the worst from them. I am not denying self-interest; in fact, I agree that self-interest makes an interesting system. 7. Why has the not the macroeconomic stability made the world more stable

economically? Inflation became an enemy of the public during the 1970s and many countries suffered from hyperinflation. During the 1990s, inflation dropped due to the tighter attitude towards government deficits. By taming inflation, it laid basis for a greater. Long-term stability; however, the world economy became shakier. There have been the 2008 financial crisis and the focus on inflation has distracted us from other pertinent issues such as unemployment and economic growth. Free-market economists have convinced the world that economic stability which has very low inflation (the ideal is zero) should be attained. People then feared that inflation, if left alone, can lead to hyperinflation. Hyperinflation goes against the basis of capitalism and turns market prices meaningless. Inflation occurs when the value of money begins to fall but is inflation bad? Many suggest that lower inflation rates is good for the economy and the federal government suggests that they use resources like the central bank to maintain certain levels of inflation for the economy.

Is inflation good then? In part, yes as long as the federal government make the necessary adjustment and keep an eye on it but if left alone, it is disastrous to the economy. 8. Do free-market policies make poor countries rich? After independence from colonial rule, countries tried to develop industries such as steel and automobiles which were still beyond their capabilities. To protect themselves, postcolonial countries opted for the protectionist route and state ownership of banks and industries. The strategy produced stagnation and disaster. Most of the countries decided to adopt free-market policies especially free trade; however, it is not true that all post-colonial countries became rich through free-market reforms. On the contrary, developing countries were richer pre-free-market era. The US has become rich by adopting the very practices of developing countries such as protectionism, subsidies and other policies that they advise not to adopt.. A free-market does not guarantee that a country will become rich. For instance, country A is seeking to adopt the free-market model of country B but adopting the model did not yield the same results for country A. Country A and Country B have different economic factors. Factors may not necessarily be the same for both thus adopting a model exclusively designed for the other is very tricky. Free-market policies have rarely worked for all countries with a few exceptions such as the USA. 9. Does capital have a nationality? Transnational corporations are the link to globalization. Most of their production facilities are found in other countries and if governments are discriminating, TNCs will not invest in the country. Despite the transnationalization of capital, most transnational companies remain national and not nation-less. The bulk of the operations are carried out in the home country. Most of the high-ranking officials are from their home base and when

there is a need to lay off workers, the lay off workers the last and last from the home country for various reasons. Nationality determines the company and it is the ket to deciding where he bulk of its operations are carried out. I will not deny that capital destroys national borders in business but money is money. In a developing country, national firms are more or less underdeveloped and by allowing foreign investments to pour in, national firms may improve technological capabilities faster. Nationality is not the only determinant of capital behavior. Capital capability of also determined by nationality. Developing countries are highly selective and most often protectionist of themselves. Contrary to belief, developing countries are selective of their foreign investors. Nationality can help determine the strength of the potential capital to be invested in the country so it is important that developing countries are highly selective of their choices for long-term and mutual benefits between the investor and the developing country. 10. Do we live in a post-industrial age or not? The decline of the manufacturing industries is the sign that we have entered the postindustrial age where most people work in services and most of the outputs are services. With the rise of knowledge-based services, it may be better for third world countries to skip to a service-based-post-industrial economy. Chang argues that the fall of the manufacturing industry is because of the fall in their prices relative to services. The limited scope for productivity growth makes the third world countries services as poor engine of growth. In this regard I do not completely agree with Ha Joon Chang that a service oriented economy is a poor choice for a Third World Country. A manufacturing industry is very costly not only in terms of production but also in terns if disposal. Chinas manufacturing industry has thrived for as along because of the sheer number of manual labor they have readily

available. In terms of prices, China has relatively lower prices than any other product manufactured in the world. One may argue that the quality of Chinese products is not top of the line; however there are also very well manufactured products from China. China also has the means to acquire the technology for the manufacturing process of its products which is difficult for Third World countries to have. Having a service-oriented industry is fairly easy for a Third World country. The most important capital is people. Job creations from a service-oriented industry provide low-skilled workers opportunities for work. Africa has an increase in economic growth because of the integration of service-oriented industries along with their manufacturing industries. The Philippines also had an increase in economic growth because of call center jobs offered different companies. Growth in the service economy facilitates slow but steady growth in the country. It is not suggested to completely shift into a service-oriented industry but to find a way to integrate this with manufacturing industries in the country. 11. Does the US have the highest standard of living in the world? The US enjoys the highest standard of living in the world. Even if there are other countries with a higher per capita income than the USA, one must consider that the US dollar can buy more goods and services in the US than in other rich countries. The average US citizen has greater command over the goods and services than anyone in the world except Luxemburg. This is a less accurate representation given the high inequality in the country as evidenced by poor health indicators and worse crime statistics of the USA. The US dollar buys more services and goods in the US because it has considerably cheaper services because of poor employment and the influx of immigrants. Americans also work longer than Europeans. The first paragraph does not suggest that the US has the highest living standard in the world.

The notion that the USA is the land of the free and where dreams come true dates back to the late 1800s to the early 1900s. Because of the vast amount of unoccupied land, immigrants flocked to the US hoping for a better life; however, it was not as they thought. The per capita income of the US was only half of the average income of Europe but many Europeans wanted to fly to the US. For what reason? While Europe still had the upper hand in the per capita income battle, the US had labor shortages and was in need of manpower. The pay was three to four times more than what the immigrants would have received from Europe. Not only did the prospective immigrants consider the American dream but businessmen and politicians also tried to emulate the free-market model of the US. The US market allows competition for all without the scrutinizing eye of the government. The free labor market is also very agile as it allows employees to come and go. Having a higher income does not make US citizens richer than their foreign counterparts. The unequal distribution of income shows that the US per capita income is misleading and overstates the actual living standards of its citizens. Second, because of the inequality, it is safe to assume that the higher standard of living is built on the poverty of many people. The US has cheap service workers. Most of them are illegal immigrants which makes it even cheaper. The higher purchasing power of the citizens is because of the poor conditions of those who offer service to them. It is good to be a customer in the US but it is not good to be a waitress or a taxi driver. Another reason why per capita income is higher in the US is the amount of hours that a person works. It is common especially in low-paying jobs that citizens often work longer and work two or three jobs at the same time. The US may have one of the highest standards of living in the world but it is not the highest and its standard of living seems structurally weaker than we have ever imagined. 12. Why is Africa the way it is?

Africa is an underdeveloped country and will always be. Aside from its poor climate and geography, it offers limited export opportunities and its internal conflicts seem to affect its neighboring countries. African nations are still ethnically divided and are somewhat backward in terms of progress. Natural resources are abundant and because of this abundance, most of its people are lazy and corrupt. All in all, because the culture is bad, and because of structural handicaps, the continent has failed to grow since the market liberalization in the 1980s. Chang disputes this claim about Africa. During the 1960s and 1970s, Africa showed a decent growth performance. The structural handicaps such as bad governance, conflicts, division are present in rich countries. The real cause of African stagnation is free-market policies that the continent is compelled to implement for the past three decades. Unlike its geography, policies can be changed and Africa can still develop as a continent. First we must distinguish Africa. There is no denying that most countries in Africa is poor but to make the discussion clearer, the interest in this matter is confined to Sub-Saharan Africa or what we know as black Africa. Africa seems to be suffering from a chronic failure of economic growth. The structural handicaps of Africa make it difficult for the region to progress. Being too close to the equator, tropical diseases are most likely to inflict potential worker output. This takes a stab at worker productivity and healthcare costs. Being landlocked, it is difficult for most African countries to integrate themselves in the global economy. The diversity of the Africans has led into conflicts with one another. The conflicts with neighboring countries limit trade opportunities with foreign countries. The abundance in natural resources also poses a hindrance to success as this cause laziness to its citizens. The abundance of resources also leads into conflicts with other tribes.

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Even with all of the structural handicaps stated above, Sub-Saharan Africas per capita income grew at a respectable rate during the 60s and the 70s. This suggests that the structural handicaps are not the main factor of its underdevelopment but the change in policy direction during that time. Since the late 1970s, Sub-Saharan Africa was forced to adopt freemarket, free-trade policies through the Structural Adjustment Program of the World Bank, International Monetary Fund and the rich countries behind them. By exposing inexperienced producers to an international competition, it led to the collapse of the very few industrial sectors it thrived on during the 1960s and 1970s. The unalterable structural problems to economic developments in Africa can be overcome by new technology, superior organizational skills and improved political institutions. Most of todays rich countries had to alter their own structural impediments and this is proof that Africa can overcome its own impediments. The fact that Africa had a steady growth rate during the 1960s and 1970s is testament that its own structures are not the cause of its underdevelopment but the policies that was compelled for it to adopt. By changing these policies, Africa can once again enjoy a steady growth rate just as it enjoyed the 1960s and 1970s.

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Source: 1. Chang, Ha-Joon. 23 Things They Dont Tell You About Capitalism. New York: Bloomsbury Press, 2011.

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