23 Things They Don’t Tell You About Capitalism

My top 31 points:

1. There is no such thing as free market. A truly free labor market would require free movement of people anywhere in the world. A judicious mix of state intervention and market forces is the best way to run the economy.

2. Companies should not be run in the interest of their owners. Shareholders are often speculators who seek a short-term gain rather than long-term earning of wealth through their shareholdings.

3. Most people in rich countries are paid more than they should be. It means we should remember we succeed in large part because of what society we belong to, not just due to our own efforts.

4. The washing machine has changed the world more than the internet has. Labor-saving devices made feasible the radical change in women’s roles we know as feminism. Similarly, without the humble air conditioner, America would have no Sunbelt.

5. Assume the worst about people and you get the worst. The textbooks talk of rational actors in the market working to maximize their self-interest. This is not always true. Sometimes, people are motivated by the best interest of the enterprise e.g. Japanese industrial workers making suggestions on how things could work better.

6. Greater macroeconomic stability has not made the world economy more stable. Low inflation has not made the world more stable and brutal anti-inflationary policies can easily do more damage than the inflation they combat. Protecting the value of a nation’s money is less important that protecting its economy as a whole. We’ve had more financial crises the more obsessed with hard money we’ve become.

7. Free market policies rarely make poor countries rich. Every developed nation from the UK down to the present day got that way through protectionism and state industrial policy, not pure free markets. Even the US played this game from Independence until after WWII.

8. Capital has a nationality. It’s a myth that capital has been denationalized into free-floating ether. Money always belongs to somebody, and those somebodies have passports and home addresses.

9. We do not live in a post-industrial age. The decline of manufacturing compared to services is a) over-stated (because of mis-classification) and b) primarily a function of manufacturing’s efficiency and dynamism, allowing it to produce more with less.

10. The US does not have the highest living standard in the world. Much bad policy globally has been based on the idea that the American version of capitalism is superior. But the US per-hour average income ranks about 8th in the world on a PPP basis.

11. Africa is not destined for underdevelopment. Africans aren’t poor because of any mysterious or immutable factors. In the 1960s and 1970s, they were making progress. They’re poor for the same reasons other nations were once poor.

12. Government can pick winners. The US Government was responsible for the Erie Canal, the Transcontinental Railroad, the Interstate Highway System, the Internet, the aircraft and semiconductor industries. In East Asia, governments did even more.

13. Making rich people richer doesn’t make the rest of us richer. Trickle-down economics doesn’t work because wealth doesn’t trickle down. It trickles up, which is why the rich are the rich in the first place.

14. US managers are overpriced. America has the highest-paid corporate managers in the world. We don’t have the best-performing industries. Are we getting our money’s worth?

15. People in poor countries are more entrepreneurial than people in rich countries. Yup: they open up fruit stands at the drop of a hat. This doesn’t stop them from being poor, so stop telling them they need to be more “entrepreneurial.” Their problems lie elsewhere.

16. We are not smart enough to leave things to the market. The state should regulate financial markets, to shrink them, reduce their effectiveness, and where necessary outlaw them. We should ban complex financial instruments.

17. More education in itself is not going to make a country richer. You need not just education, but industries for educated people to work in. And paper-pushing education isn’t what we need. Look at Germany and Japan at what vocational training can do.

18. What is good for General Motors is not necessarily good for the United States. There was once a time when the interests of giant corporations were aligned with national interests. That time is long gone.

19. Despite the fall of communism, we are still living in planned economies. The fact that Americans are whining to Washington to solve economic problems reveals how important planning is in the US.

20. Equality of opportunity may not be fair. Equality of opportunity is the starting point but the question is whether people are actually competing under the same conditions. In order to benefit from equal opportunities, people need the capabilities to make use of them. Hard work and ambition alone as the recipe for success is a Hollywood myth.

21. Big government makes people more open to change. Because it makes them more able to take risks. Some economies with big welfare states do very well. It all depends on what kind of big government you have.

22. Financial markets need to become less, not more efficient. Finance is so efficient that its far easier to make money in Finance than in other activities. So scarce funds are diverted for quick money making rather than for long term use e.g. capex, factories and R & D. Also, money can be created and moved around very quickly and that creates instability.

23. Good economic policy does not require good economists. The discipline of economics has provided the justification for the pursuit of shit policies that have led to slower growth, higher inequality, more job insecurity and more frequent financial crises. Economics, as it has been practiced for the last three decades, has been harmful for most people.

24. Solution 1 is capitalism is the worst economic system except for all the others. Chang’s criticism is of free-market capitalism, and not all kinds of capitalism.

25. Solution 2 is we should build our new economic system on the recognition that human rationality is severely limited.

26. Solution 3 is we should build a system that brings out the best, rather than the worst, in people.

27. Solution 4 is we should stop believing that people are always paid what they ‘deserve’.

28. Solution 5 is we need to take ‘making things’ more seriously.

29. Solution 6 is we need to strike a better balance between finance and ‘real’ activities.

30. Solution 7 is government needs to become bigger and more active.

31. Solution 8 is the world economic system needs to ‘unfairly’ favor developing countries.