23 Things They Don’t Tell You about Capitalism by Ha-Joon Chang

Listed below are the heavily summarized ’23 Things’ mentioned about Capitalism

1) Recognize that there is no such thing as a free market. Governments always have political motives. Harmful activities need to be curtailed and good behaviour encouraged. Examples include immigration control, ban on drugs etc

2) Companies should not be run in the interest of their owners. Shareholder value is dumb because management are often over-paid and are only concern about short-term profits. Share-based compensation is not a good idea. Furthermore, shareholders are often concern about short-term profits as well. Much corporate funds are now channelled into share buybacks instead of reinvestment into the businesses.

3) Most people in rich countries are paid more than they should be. Wage differences are due to immigration control rather than differences in productivity. This is politically determined.

4) The washing machine has changed the world more than the Internet has. It has saved people’s time and let women go to work. It is harder to measure the impact of the Internet in terms of productivity. The telegraph significantly reduced message transmittal time of a larger percentage than the Internet. 

5) Assume the worst about people and you get the worst. Not everyone is pure selfish and only concerned about self-interest. Learn to trust people. Give workers autonomy to improve productivity. Most people have their own moral code and will do the right thing even if there are no-laws.

6) Greater macroeconomic stability has not made the world economy more stable. In periods of low inflate, the economic cycles were more vicious. Moderate inflation does not hamper economic growth. Controlling interest rate may produce unintended side-effects.

7) Free-market policies rarely make poor countries rich. Industries need to be protected and incubated before facing the global competition. That is why there are many state-owned enterprises. Private enterprises are not big enough to take on so many projects

8) Capital has a nationality. The Head Office of MNCs often has the more skilled jobs and hold R&D. It is hard to transfer certain skillsets overseas.

9) We do not live in a post-industrial age. Many modern economies started off with manufacturing, not service. It is easier to raise productivity in manufacturing than in service. Manufacturing can also be outsourced easily, unlike service.

10) The US does not have the highest standard in the world. The US does not have the highest PPP and have greater income inequality and longer working hours.

11) Africa is not destined for underdevelopment. Despite the poor climate, Africa is full of natural resources and is destined to grow if they abandon the free-market policies.

12) Government can pick winners. Despite the lack of information and know-how, most governments can pick and partner with excellent private enterprises to form state owned enterprises. These enterprises can then be groomed for success.

13) Making rich people richer does not make the rest of us richer. ‘You first have to create wealth before you can re-distribute it’. Modern tax policy has benefitted the rich. More policies should be implemented to help the poor.

14) US managers are over-priced. Compensation is too high and their productivity cannot justify it. A lot of them do not behave like owners and seek short term profit. When they leave, they are offered a huge severance package.

15) People in poor countries are more entrepreneurial than people in rich countries. However, they do not have the right infrastructure to grow. Many rely on micro-financing. This has not helped the poor people much. Collective entrepreneurship might be the way to go.

16) We are not smart enough to leave things to the market. People are not completely smart or fully rational. Derivatives need to be regulated. Limiting choice is the purpose of regulation.

17) More education in itself is not going to make a country richer. Education does not enhance productivity. Little evidence between literacy rates and economic growth. Not everything studied can be applied in real life. Education signals employability.

18) What is good for General Motors is not necessarily good for the United States. Some amount of regulation is necessary. GM kept diversifying and not stick to making cars. They suffered and had to be bailed-out. Extra permits will not really deter people.

19) Despite the fall of communism, we are still living in planned economies. Government is always up to their planning and policy making. They can set targets for the private sector and use carrots and sticks to get what they want.

20) Equality of opportunity may not be fair. Equality of outcome is important too. Everyone should have a level playing field, like having sufficient food on their plate.

21) Big government makes people more open to change. A good welfare state can make people more open to change and be more risk-taking. It is like a bankruptcy law, it gives people a second shot to try something else in life.

22) Financial markets need to become less, not more, efficient. Financial markets should be made less efficient. Finance is not really ‘value-adding’ as compared to other economic activities. Financial assets have very short turnover. Derivatives are weapons of mass destruction.

23) Good economic policy does not require good economists. Good policy makes are seldom economists. Free market economics can be indeed dangerous.

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