By Chet Yarbrough
Written by: Ha-Joon Chang
Narrated by: Joe Barrett
Criticism of democracy and capitalism is quite popular around the world. But, as Winston Churchill quotes, in a speech to the House of Commons in 1947, “Democracy is the worst form of government, except for all the others.” Professor Ha-Joon Chang, the author of “23 Things They Don’t Tell You about Capitalism” suggests the same sentiment about capitalism. Capitalism is the worst form of economic development, except for all the others.
However, Ha-Joon is not exactly saying capitalism is better than other economic systems. Ha-Joon believes capitalism is falsely defined or understood. Capitalism is a chimera, “a thing that is hoped or wished for but in fact is illusory…” A standard definition of capitalism is—an economic and political system in which a country’s trade and industry are controlled by private owners for profit. Synonyms are free enterprise, private enterprise, or free market economy.
Ha-Joon argues that capitalism is not free enterprise. It is not exclusively private, or free. Ha-Joon suggests capitalism’s success is based on government partnership, political guidance, and regulation. Ha-Joon is saying there is no “ghost in the machine”, no “invisible hand”.
Capitalist economies in a civilized country are best served by democratic institutions that govern with an understanding of human nature.
Money, power, and prestige motivate all human beings, and often to excesses of greed, hegemony, and hubris. Without democratic institutions, economies are less likely to survive and prosper because of human excesses. Excess is inherent in the nature of human beings.
Ha-Joon removes blinders from economic philosophers like Ayn Rand who tout the economics of self-interest and greed. When self-interest is not regulated, CEO’s become overcompensated, stockholders ignore the importance of re-investment in research and development, and economies fail from want of innovation and idle wealth accumulation.
The incentive to innovate is diminished by the power and prestige that accompanies wealth. Ha-Joon is quick to say that he is not anti-capitalist because he recognizes the value of individual self-interest but argues that the role of government is misrepresented or misunderstood in many capitalist, and wannabe capitalist countries.
Ha-Joon argues that capitalist countries suffer when research and development, education, job creation, and public infrastructure are not invested in by government. Many capitalist-country’ advances are due to public/private partnerships with the principle partner (particularly at the research and development stag), being government. Nation-state industrialization and computer technology are two prominent examples.
Ha Joon infers, without investment by capitalist governments in new technology and infrastructure, the computer age and industrial revolution would not have occurred. If one reads “Turing’s Cathedral”, the importance of government investment in computer technology makes Chang’s argument for public/private partnership clear. Without government help, the computer revolution may not have happened.
Ha-Joon infers disparity between rich and poor increasingly threatens capitalist countries. Ha-Joon argues that failure of government to inject itself into income disparity is fed by a fundamental misunderstanding of capitalism.
Ha-Joon argues, capitalism is most productive when public/private cooperation embraces infrastructure, research and development, and equal opportunity for education, and employment; with a safety net for a “…minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work…” for all (a “safety net” quote from Hayek’s “Road to Serfdom”) .
Ha-Joon suggests a misunderstanding of what makes capitalism work is causing 1) inequality of opportunity, 2) inequality of income, 3) failure to provide a safety net that capitalizes on human potential, 4) lost opportunity for synergistic government and private sector research and development, and 5) a false science of economics that idealistically represents capitalist complexity. Ha-Joon suggests misunderstanding capitalism creates a false vision, like that in the movie “Matrix”, with human presumption of freedom, when there is none. It is not that there is no freedom in capitalism but it is regulated and significantly defined by government policy.
In the end, Ha-Joon is an optimist. He believes the general public will demand change. Ha-Joon reinforces belief in capitalism as the best economic system in the world. With better understanding of how capitalism really works, Ha-Joon infers civilization will continue to improve.