23 THINGS THEY DON☂T TELL YOU

ABOUT CAPITALISM

Author: Ha-Joon Chang

PUBLISHING YEAR: 2011

PAGES: 304 (PAPERBACK)

PUBLISHER: PENGUIN

Highly engaging and thought-provoking!

Some books leave such an indelible impression on your mind that they overhaul your
entrenched opinions. I am glad that I have just finished one such book. '23 Things they don't
tell you about Capitalism' is my first book of the year 2012 and this is the first book review,
too. I took my time to read this book, not because it was a long-drawn-out, cut-and-dried
book on Global Economics, but because every chapter in this book was a challenge to my
preconceived notions on the subject of Capitalism. While I savored the content of this book,
I, simultaneously, compared notes and went online to fathom out more about author's
contrarian standpoints. All in all, I am delighted to have read this book.

Free-market economics or Laissez Faire advocates the view that markets should be left alone
to operate as the Governments are devoid of any market logic and hence, any interference
on their part could only throw a proverbial spanner in the works. Modern world's obsession
with Free-market capitalism apparently started in the early '80s when Margaret Thatcher in
England and Ronald Reagan in the US were elected into power. Both politicians while
adverse to the idea of Government intervention were staunch evangelists of the free-market
economy. It was Margaret Thatcher's so-called cure of 'British Disease' (mitigation of the
powers of Unions, privatization of state-owned enterprises, cuts in welfare spending) that
started the free-market wave which eventually came to be foisted upon many developing
countries, sometimes, against their will.

Ha-Joon Chang, in the preface to the book, makes his frustration with the free-market
capitalism - the most pervasive form of capitalism nowadays - abundantly clear. However,
at the same time, Chang, for the lack of better alternatives, professes that capitalism is still
the best economic system, his aversion against the free-market form of capitalism
Book Review: The Upside of Irrationality

notwithstanding. Evidently, Ha-Joon Chang belongs to the growing faction of experts who
are fed up with neo-liberal economists and the reckless policies they have been peddling for
the last three decades. During the course of the book, Chang throws in several examples that
appear to substantiate his allegations against free-market ideology and alert the reader to its
pitfalls. 23 Things are actually 23 different chapters with each one presenting a
counterintuitive perspective on otherwise generally accepted capitalist theories. This book,
in totality, lends a fresh and a blatant anti-free-market viewpoint to the reader and also
stokes the disagreements that have been simmering for years against this form of capitalism.

I found myself in a tacit agreement with the author's argument that there is no scientifically-
defined boundary for a free market and the whole charade only serves the vested interests.
Author markedly underlines the situation of Sub-Saharan Africa which was subject to the
free-market experiments by the West in '80s and consequently, went into a chronic slump.
Most Sub-Saharan countries were forced to adopt the Structural Adjustment Programs (SAP) - a
free-market package peddled by the World Bank and the IMF in the '80s. It's a well-
documented but less-hyped fact that Sub-Saharan Africa grew at the rate of 1.6% in '60s and
'70s and only managed a growth rate of 0.2% between 1980 and 2009 - a poor reflection on
the much touted benefits of free-market economy.

Chang's unequivocal assertion that free-market economists are as politically motivated as

those who oppose it sounds well-founded, too. In 2008, the US Government took $700 billion
of taxpayers' money to unclog the choked-up financial system and very astutely garbed the
whole exercise as a 'necessary state intervention'. Many bailed-out institutions were shoved
into a financial quagmire by a bunch of greedy, high-flying, toxic-products-selling
executives and still, as billions were taken off taxpayers, these mongers were allowed to go
scot-free to join other companies.

Chang also berates the manager-shareholder alliance and how it works to the long-run
disadvantage of corporations. Shareholders are always a happy lot as long as their
dividends show an upward trend even if this happens at the expense of minimizing
corporate investment. This idea of Shareholder value maximization enables a host of managers
and financial shareholders to happily ride the gravy train as they slowly debilitate the
companies. Author cites the example of GM which spent $20.4 billion in share buybacks
over the last two decades to keep the shareholders happy and finally, had to seek
Government's intervention in fighting off bankruptcy in 2009. Not surprisingly, free market
ideologues brand 2008 crisis and subsequent Government interventions as a small blemish

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Book Review: The Upside of Irrationality

in an otherwise perfect free-market universe. Talk about circumventing your own article of
faith!

Coming back to the book - not for once did I find my interest levels wane as I perused
through 23 chapters! Credit has to go to Ha-Joon Chang for writing such an engaging book.
He, quite expertly, shatters one conventional view about capitalism after another and
uncovers one obscure truth after another. For instance, he cites an interesting yet a largely
unknown fact about rich countries. Apparently, almost all of today's rich countries, when
they were in the same phase as the developing nations of today, practiced protectionist
measures such as licensing, regulation, subsidies, tariffs - something they explicitly preach
the developing world of the present not to pursue. Chang also scoffs at the idea of 'trickle-
down economics'; saying it has been a complete failure since pro-rich policies have failed to
accelerate growth in last three decades. There is no doubt that policy-makers have failed on
the count of cascading wealth redistribution downward, thus, inadvertently catalyzing a
flywheel effect (rich becoming richer and the poor, poorer). Chang roots for the idea of
Welfare state to pump the wealth in significant quantity from upward echelons to the
destitute lot of the lower rungs of the economy. The only problem, however, with the
welfare state model is its probability of success in case of developing nations. In a country
like India where over 40% of estimated 1.22 billion population lives below the poverty line, a
10-12% social spending of total GDP can be termed anything but substantial.

While I found myself nodding my head in agreement in most parts of the book, there were
some parts where I found Chang's arguments a little overstated. For instance, Chang's
pressing assertion that multinational enterprise is a myth (as most companies keep strategic
domains such as R&D at home) appears to throw the baby out with the bathwater. Yes,
companies prefer to keep the core research close to home since this way they can exert
stronger control over Intellectual Property issues and at the same time, mitigate the potential
technology leaks. However, in these shifting times, a way around has been found and
companies are following it - the work is nowadays outsourced and assigned to different labs
across the world and the final product/technology is then assembled at home where IP
enforcement is stronger. GE's John F. Welch technology center in Bangalore is a case in point.
Also, we are increasingly seeing rich nations make a beeline for India and China for reverse
innovations (innovations first adopted in developing nations and then scaled for worldwide
use).

Although the author strictly warns the readers in the preface that his book is not an anti-
capitalist manifesto yet his stand on such issues as immigration control, welfare states, labor
markets, shareholder value maximization, etc. ends up patterning it into that mold. Ha-Joon

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Book Review: The Upside of Irrationality

Chang endeavors to present free-market capitalism sans all its bells and whistles. And, he
does succeed to a large extent. Yes, there are some parts that are not quite beyond reproach
and may temper your enthusiasm towards this book. Still, I'd say that positives in the book
quite outweigh the negatives. This book is a great investment for anyone who seeks to
understand capitalism in its actual form not the way it's been portrayed by free-market
economists and politicians over the years.

©2012 BookJelly All rights reserved