This book is essential reading for Socialists. Ha-Joon Chang is a Korean economist at Cambridge University who specialises in “Development Economics” (See his Wikipedia entry). This means that he is mainly concerned about how economics, and in particular how so-called free-market economics tilts the balance very much against poorer nations and people. This gives him a broadly left-wing outlook.
But he is not a socialist. He believes that governments, or “we”, should take measures to somehow better manage capitalism so as to give it a more human face. He favours stronger state-intervention, more regulation of financial markets, a bigger welfare state, better social services and so on. Whilst all these policies are undoubtedly progressive and laudable, he is less clear about how they will be implemented, or who will implement them.
His overall approach in this book is to compare the “Golden Age” of capitalism - broadly the period from 1950 to 1980 - with the free market “neo-liberal” model ushered in principally by Thatcher and Regan since then. It is surprising to realise that during the period prior to 1980, when “bad” (interventionist) economic policies were the norm, living standards grew at a much faster rate than they have done since, during the period of “good” (pro-market) economic policies.
The bulk of his arguments and reasoning is extremely helpful for those wishing to further their understanding of key economic and social issues. These are explained by Chang in an accessible and occasionally amusing way. However, he is ultimately hampered by his political position - that of favouring a more state-controlled and “humanitarian” capitalism - effectively wanting to turn the clock back to an earlier time.
The overall sense I get from the book is that his suggestions would lead less to an improvement in the lives and living standards of the world’s majority, and more to a re-distribution of already existing wealth. This would make much more difficult the task of winning-over better-off workers and middle class people. Opponents to his reforms would argue (not entirely falsely) that many people, especially those in richer nations, will have to endure a reduction in their living standards to support an ill-defined “greater good”.
In his discussion about immigration policy (in his “Thing 3”), for example, he more or less states this openly. He complains that restrictions on immigration into rich countries helps keep wages high in those countries - which on a capitalist basis it does (and is why many employers do not wish to restrict immigration, because they may have to pay higher wages!).
Import controls and restrictions on specific goods have the same effect. They inflate the price of those goods in the home market. His solution, though, is simply to lift all restrictions on immigration so that wage differentials are reduced. This is never going to be a good argument in higher wage countries! - unless, that is, it is linked, with links of steel, to a strong, and enforceable minimum living wage policy - protecting the wage levels of all workers.
Chang’s tentative policy suggestions summarised at the end of his book would fall very short of helping realise the true potential inherent in modern technology, human ingenuity, organisational knowledge, etc - issues which he discusses in his book. To raise living standards without having to suggest reduced living standards for others (apart perhaps from the richest 1%) would require much more than progressive reforms within the framework of big business-dominated capitalism. That would require democratic socialist economic measures to wrest control of the economy’s main levers from the bony hands of big capital.
His belief in the ability of Governments to better manage capitalism is matched by his apparent lack of faith in anything that might be called socialism, which he seems to equate with Soviet-style Stalinism. Ironically, his own policies, should they be adopted to any great extent by any mainstream left party would be denounced immediately, long and loud, as “socialism! and “communism” by the corporate media - in much the same way that President Obama is himself (falsely) accused!
The book is also full of useful information and facts. For example, in discussing issue number 2, Chang explains that had General Motors not spent $20.4 billion on benefits to shareholders (mainly share “buy-backs”) between 1986 and 2002, and put that money in the bank, it would not need to have been bailed out by taxpayers!
His book looks at 23 key arguments made by the pinch-faced priesthood of pro-market orthodoxy. Each issue comprises an excellent summary analysis and rebuttal of many key arguments raised every day in the media and elsewhere.
Here are the 23 issues.
1. There is actually no such a thing as a “free market”. Government intervention is widespread, but almost exclusively in the interests of big business.
2. Companies should NOT be run in the interests of their owners and executives. Doing so leads to short-termism, asset stripping etc.
3. Immigration policy (mainly) keeps many people in rich countries over-paid, whilst keeping workers in developing nations poor and under paid.
4. The washing machine has changed the world more than the internet. This issue concerns the importance of industrial policy - “making things” - rather than relying on services only. (Even Ted Heath said that you cannot build a strong economy on the basis of everyone doing everyone else’s washing!)
5. Assume the worst about people and you will get the worst. “Free market” economics pretends to be based on a particularly sour version of “human nature”.
6. Widespread agreement on “free market” economic policies, and “taming inflation” has NOT made the world more stable or secure - for the vast bulk of the population.
7. Free-market policies rarely make poor countries richer. Contrary to common belief, the economic performance of developing countries was much better during their state-led policy periods compared with what happened after the 1980s neo-liberal “reforms”.
8. Capital is less international than assumed. But that doesn’t stop it from exploiting international market opportunities to the detriment of poorer countries.
9. We do not (and cannot) live in a post-industrial age. Manufacturing is important!
10. The US does not have the highest living standards. Living standards for the bulk of American people have stagnated since the 1980s, unlike those for the super-rich.
11. Africa CAN have a prosperous future. But not if it pursues free-market dogma.
12. Governments CAN intervene effectively in the economy. There are some excellent examples given here that challenge the popular belief about state intervention - and, by proxy, democratic socialist intervention.
13. Making rich people richer does NOT make the rest of us better off. Plenty of evidence provided here, and an interesting (if skewed) discussion of Stalinist industrial policy.
14. US corporate managers actually ARE overpaid - even by mainstream capitalist standards!
15. People in poor countries are NOT poor because they are not enterprising - but because they do not have access to the kind of infrastructure - industrial, technical, social and organisational - that is available in richer countries - the large scale apparatus of economic growth and control.
16. We cannot leave things to the market. Look what happens!
17. Better education does not, by itself, lead to better economic productivity. What gives a nation greater potential is its ability to socially organise and integrate a wide range of activities and skills - through organisations. No correlation has yet been found between economic performance and educational attainment. Good discussion about purpose of education more generally.
18. What is good for corporations is not good for the economy.
19. Economic planning already exists on a very large scale - but within global corporations, and therefore in the interests of the owners of those corporations. Something between a third and a half of of all international trade consists of transfers within transnational corporations! If economic planning on this scale is possible for capitalism, it is possible for democratic socialism.
20. “Equality of opportunity” is not enough to help produce a more equitable and equal society - there must also be some equality in outcomes as well.
21. Big government can increase the willingness of people to make job changes. A society that protects people from the worst of unemployment, by providing benefits and support, helps people to approach change and flexibility with greater equanimity.
22. Financial markets have become “too efficient”. Too much focus on short term profits - conflicting with interests of industry and manufacturing which require “patient capital”. Author suggests more regulation rather than democratic nationalisation of key finance sectors - which could then lend at affordable rates (especially relevant for small and medium businesses) with total security for retail depositors.
23. Good policy does not need good economists.
Getting things of me chest!
Wednesday, 17 November 2010
Tuesday, 29 June 2010
Short Book Review, John Lanchester, “Whoops! Why Everyone Owes Everyone and No One Can Pay”. Allen Lane, 2010.
Apparently the world is now moving into its “post credit-crunch” phase. Politicians are keen to put behind us any talk of the causes of the crisis. They direct attention instead towards the “inevitability” of tax rises and public spending cuts.
This is nonsense, of course, so if you read only one book on this topic, read this one by journalist John Lanchester. It explains in accessible terms what happened and why. Whilst “devastatingly funny”, the humour barely hides Lanchester’s justifiable anger about the crisis and its effects on people who had nothing to do with precipitating it.
The author groups events around four themes - a “climate”, a “problem”, a “mistake” and a “failure”.
The “climate” refers to the new world order accelerated by the collapse of the Soviet Union. Whilst he acknowledges the foulness of Stalinism, the “communist” states nonetheless provided some alternative to capitalism. Lanchester says, “the population of the West benefited from [the soviet states’] existence ... For decades there was the equivalent of an ideological beauty contest between the capitalist west and the communist east, both of them vying to look as if they offered their citizens a better, fairer way of life”. With the collapse of Stalinism, capitalism no longer had any need to “behave itself”.
The “problem” for Lanchester was the extent to which big finance came to dominate the “anglo saxon” economies. Take the UK for example; for a hundred years, until the 1970s, the value of the UK banking sector hovered around 50% of GDP. By 2006, this had shot up to no less than 550%! Banking and finance was worth more than 5 times the rest of the economy put together!
New forms of financial “wizardry” were developed; new ways for the major institutions and “high net worth” individuals to speculate and “play the market”. The value of this “trade” according to the author, “exceeds the total of value of all the world’s economic output by ... perhaps tenfold”!
The “mistake” concerned “risk” and the widespread reliance on mathematical models for calculating it. Complex risks were generated by new financial “instruments”, such as the collateralised debt obligations (CDOs) comprising many thousands of “sub-prime” mortgages. It beggars belief that even with the aid of these models no one forecast the (hardly unheard of) possibility that house prices may fall! But they did; and that precipitated the crash and the bank failures. (In reality, the mathematics had provided a fig-leaf behind which greed and profit-taking sought to hide).
According to Andrew Haldane, the Bank of England’s Director of Financial Stability (no irony intended, presumably), the loss of global wealth at the peak of the crisis, the fall in the value of assets, amounted to $25 trillion. This is about 45% of global GDP.
The “failure” for Lanchester related mainly to the absence of government controls and regulation, rather than any wider systemic failure of monopoly capitalism - though much of what he says points directly to this conclusion. Since the days of Thatcher and Reagan, what formal regulation as had existed had been largely abandoned. The regulatory bodies were run by executives drawn from the very industries they were supposed to supervise. Result? “Light touch” regulation and near zero control.
The book describes graphically how the crisis continues to impact the lives of millions of ordinary people. In particular, he describes the impact on US house buyers and how mortgage lenders hawked loans they knew would be difficult to repay. And they were not concerned about repayment because, once contracted, they were immediately bundled together into CDOs and sold!
Whilst not a socialist analysis, the book is a clear and sometimes humorous explanation of this latest capitalist crisis. As to what might be done, Lanchester says, “the Anglo-Saxon model of capitalism has failed.” He appears to suggest that a return to a form of “social democratic” capitalism is needed - capitalism with a “smiley face”. However, this is the model that collapsed with the Soviet Union and the rise of big money triumphalism!
The bulk of working and middle-class people are now facing a future of austerity and uncertainty as Governments around the world seek to offload onto them the cost of the capitalist bail-out.
For the major shareholders of banks and financial institutions, though, life return to comfortable normality! Goldman Sachs went from near disaster to record profits in July last year. The bank, says Lanchester, “which had to borrow $10 billion from the taxpayer, was less than a year later, setting aside $16.8 billion in pay, bonuses and benefits... That is obscene... The big club of potential nationalisation needs to be taken out and warningly brandished.”
Let's not merely "brandish" the threat of nationalisation. Let's build a party committed to the democratic nationalisation of the economy’s commanding heights. Compensation based on need.
Apparently the world is now moving into its “post credit-crunch” phase. Politicians are keen to put behind us any talk of the causes of the crisis. They direct attention instead towards the “inevitability” of tax rises and public spending cuts.
This is nonsense, of course, so if you read only one book on this topic, read this one by journalist John Lanchester. It explains in accessible terms what happened and why. Whilst “devastatingly funny”, the humour barely hides Lanchester’s justifiable anger about the crisis and its effects on people who had nothing to do with precipitating it.
The author groups events around four themes - a “climate”, a “problem”, a “mistake” and a “failure”.
The “climate” refers to the new world order accelerated by the collapse of the Soviet Union. Whilst he acknowledges the foulness of Stalinism, the “communist” states nonetheless provided some alternative to capitalism. Lanchester says, “the population of the West benefited from [the soviet states’] existence ... For decades there was the equivalent of an ideological beauty contest between the capitalist west and the communist east, both of them vying to look as if they offered their citizens a better, fairer way of life”. With the collapse of Stalinism, capitalism no longer had any need to “behave itself”.
The “problem” for Lanchester was the extent to which big finance came to dominate the “anglo saxon” economies. Take the UK for example; for a hundred years, until the 1970s, the value of the UK banking sector hovered around 50% of GDP. By 2006, this had shot up to no less than 550%! Banking and finance was worth more than 5 times the rest of the economy put together!
New forms of financial “wizardry” were developed; new ways for the major institutions and “high net worth” individuals to speculate and “play the market”. The value of this “trade” according to the author, “exceeds the total of value of all the world’s economic output by ... perhaps tenfold”!
The “mistake” concerned “risk” and the widespread reliance on mathematical models for calculating it. Complex risks were generated by new financial “instruments”, such as the collateralised debt obligations (CDOs) comprising many thousands of “sub-prime” mortgages. It beggars belief that even with the aid of these models no one forecast the (hardly unheard of) possibility that house prices may fall! But they did; and that precipitated the crash and the bank failures. (In reality, the mathematics had provided a fig-leaf behind which greed and profit-taking sought to hide).
According to Andrew Haldane, the Bank of England’s Director of Financial Stability (no irony intended, presumably), the loss of global wealth at the peak of the crisis, the fall in the value of assets, amounted to $25 trillion. This is about 45% of global GDP.
The “failure” for Lanchester related mainly to the absence of government controls and regulation, rather than any wider systemic failure of monopoly capitalism - though much of what he says points directly to this conclusion. Since the days of Thatcher and Reagan, what formal regulation as had existed had been largely abandoned. The regulatory bodies were run by executives drawn from the very industries they were supposed to supervise. Result? “Light touch” regulation and near zero control.
The book describes graphically how the crisis continues to impact the lives of millions of ordinary people. In particular, he describes the impact on US house buyers and how mortgage lenders hawked loans they knew would be difficult to repay. And they were not concerned about repayment because, once contracted, they were immediately bundled together into CDOs and sold!
Whilst not a socialist analysis, the book is a clear and sometimes humorous explanation of this latest capitalist crisis. As to what might be done, Lanchester says, “the Anglo-Saxon model of capitalism has failed.” He appears to suggest that a return to a form of “social democratic” capitalism is needed - capitalism with a “smiley face”. However, this is the model that collapsed with the Soviet Union and the rise of big money triumphalism!
The bulk of working and middle-class people are now facing a future of austerity and uncertainty as Governments around the world seek to offload onto them the cost of the capitalist bail-out.
For the major shareholders of banks and financial institutions, though, life return to comfortable normality! Goldman Sachs went from near disaster to record profits in July last year. The bank, says Lanchester, “which had to borrow $10 billion from the taxpayer, was less than a year later, setting aside $16.8 billion in pay, bonuses and benefits... That is obscene... The big club of potential nationalisation needs to be taken out and warningly brandished.”
Let's not merely "brandish" the threat of nationalisation. Let's build a party committed to the democratic nationalisation of the economy’s commanding heights. Compensation based on need.
Subscribe to:
Posts (Atom)