*23 Things They Don’t Tell You About Capitalism*

This book by Ha-Joon Chang challenges the commonly accepted neoliberal orthodoxy. It is quite good, I agree with 95% of what he says. He makes very good points about immigration,(it harms the wages of native workers) and the value of personal virtue(“Assume the worst about people and you will get the worst”). About the so-called “knowledge economy” he says:

To begin with, with the continuous rise in manufacturing productivity, a greater proportion of the workforce in rich countries now works in low-skilled service jobs that do not require much education – stacking shelves in supermarkets, frying burgers in fast food restaurants and cleaning offices (see Things 3 and 9). Insofar as the proportion of people in such professions increases, we may actually do with an increasingly less, not more, educated labour force, if we are only interested in the productivity effects of education.

Moreover, with economic development, a higher proportion of knowledge becomes embodied in machines. This means that the economy-wide productivity increases despite individual workers having less understanding of what they do than their counterparts in the past. For the most striking example, these days most shop assistants in rich countries do not even need to know how to add – a skill that their counterparts in earlier times definitely needed – as bar-code machines do that for them. For another example, blacksmiths in poor countries probably know more about the nature of metals in relation to tool-making than do most employees of Bosch or Black & Decker. For yet another example, those who work at the small electronics shops littering the streets of poor countries can fix many more things than can individual workers at Samsung or Sony.

The last sentence is rather dubious, but otherwise the point is quite good. This provides a justification for relative optimism when the average IQ in Western countries declines: the workers needn’t have the ability to learn that they used to need because they will be augmented by machines.

Chang also makes a good point about the value of education:

Self-evident though the importance of education in raising an economy’s productivity may seem, there is actually a lot of evidence that questions this piece of conventional wisdom.

Let’s first take the case of the East Asian miracle economies, in whose development education is supposed to have played a critical role. In 1960, Taiwan had a literacy rate of only 54 per cent, while the Philippines’ was 72 per cent. Despite its lower education level, Taiwan has since then notched up one of the best economic growth performances in human history, while the Philippines has done rather poorly. In 1960, the Philippines had almost double the per capita income of Taiwan ($200 vs. $122), but today Taiwan’s per capita income is around ten times that of the Philippines ($18,000 vs. $1,800). In the same year, Korea had a 71 per cent literacy rate – comparable to that of the Philippines but still well below Argentina’s 91 per cent. Despite the significantly lower literacy rate, Korea has since grown much faster than Argentina. Korea’s per capita income was just over one-fifth that of Argentina’s in 1960 ($82 vs. $378). Today it is three times higher (around $21,000 vs. around $7,000).

There is an HBD explanation for this, but Chang doesn’t consider HBD explanations. For instance he blames “inequality” for America’s higher crime rates and poorer health indicators when compared to Europe. He points out that stereotypes can change, Germans were once seen by the British as individualistic, stupid, and emotional while the Japanese were seen as lazy. He is confident Africa can develop if they have the right policies. He makes a very interesting point about African economies: that they grew at a respectable rate during the 1960s and 1970s but then began a significant decline during the 1980s. I found World Bank data on GNI per capita.(you have to download the data to get the full range) It shows a large decline in Africa’s economy during the 1980s. Counting only the developing countries in Africa it’s per capita GNI rose to 107% of it’s 1980 level in 1981 and then declined, reaching 74% of it’s 1980 level from 1985 to 1986 before rebounding. Only some countries have data that go back to 1962, so I’m not sure how they got the value for Africa itself in that year. The countries where the data goes back to 1962 are the (relatively) stable and pro-Western ones. Most show the pattern of a post-1980 economic decline, some very strikingly:

africa economy

Africa economy 2

This would seem to support Chang’s contention that the free trade, free market policies enacted by African economies in 1980s hurt their development. He claims that these policies “led to the collapse of what little industrial sectors these countries had managed to build up during the 1960s and 70s.” It certainty makes sense, I wonder if there is any comprehensive data showing a decline in industrial production. There are other potential causes of the economic decline around 1980, including it being a reflection of different ways of measuring GNI, a Malthusian ceiling being reached, a delayed effect of decolonization,(roads don’t turn to dust in a day) and, as Chang mentions in 23 Things, declining prices for commodities.

References

Ha-Joon Chang, 23 Things They Don’t Tell You About Capitalism, Penguin Books, 2010

GNI per capita, Atlas method (current US$), World Bank http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

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One Response to *23 Things They Don’t Tell You About Capitalism*

  1. With the thoughts you'd be thinkin says:

    What about a change in the nature of the cold war, after detente ended? It could have meant the african elites were free to be more corrupt, more rebels, more spending on guns and less on butter.

    Like

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