There is no such thing as a free market

Ha-Joon Chang's 23 Things They Don't Tell You About Capitalism is an engaging, anecdote-filled book that busts myths commonly associated with capitalism. 

 

Tweet book review (50-word review)

It is an engaging, anecdote-filled book that describes 23 statements that free-market supporters don’t tell us about capitalism. No country follows total capitalism. Rich countries are forcing poor countries to practice free-trade that they didn’t adopt during their nascent stage. Hypocrisy!?

Longer review

When I visit India, one of the first things on my checklist is to get a haircut. It costs $30-40 in the US but less than $1 in India. When I told my dad, he remarked, “If it is so expensive, why don’t people migrate to the US and open a hair salon?”

It makes logical sense. In a capitalist economy, one should expect people to take up jobs that are in short supply and reduce the prices. But why doesn't this happen? In the words of Ha-Joon Chang, author of 23 Things They Don’t Tell You About Capitalism, there is no such thing as a free market.

The book lists 23 statements (the author calls them things) that free-market apostles don’t tell us about capitalism. Each chapter starts with a statement that is considered either a feature or consequence of a capitalist economy. It is followed by disputing the statement using data and evidence.

Let me list nine of my favorite chapters and a short explanation for each:

1. There is no such thing as a free market. All countries have some type of government regulation. It could be due to politics (immigration policies), ethics (child labor might be cheaper but immoral), negative externality to society (vehicular pollution affects society), or public goods (public libraries are free and beneficial to society). If there is any regulation, it is not a free market.
2. Most people in rich countries are paid more than they should be. A bus driver in a high-income country is paid 50 times more than a driver in a low-income country. But one can argue that driving in a low-income country requires far superior skill due to poorer roads. Thus, one’s salary is determined not by the skill but by the scarcity of the job. Immigration control (limiting the migrants to a country) and access to technology/ machines allows people in rich countries to be paid more than their counterparts in poor countries. 
3. Free market policies rarely make poor countries rich. Britain from 1720s to the 1850s; the US from 1830s to the 1940s; Japan, Finland, Korea until the 1980s exhibited one common trade policy during their nascent stage. They were protectionist and provided subsidies to build their ‘infant’ manufacturing sector. Now that they have become internationally competitive, they advise developing countries to open their markets and adopt free-trade practices. 
4. We don’t live in a post-industrial age. The developing countries are advised to become service-driven economies to boost growth. However, the services (thanks to immigration and labor policies) is not as exportable as goods. It would lead to lower earnings and slower growth. Instead, developing countries should focus on manufacturing industries. 
5. Africa is not destined for underdevelopment. Several reasons are given for Africa’s underdevelopment. But one reason is often left out - the role of rich countries, the World Bank, and the IMF. They pushed several African countries to open their economy for free trade in the 1970s-80s in exchange for a loan. Many countries were unable to compete with international competition for finished goods while natural resources were extracted at cheap rates. Since these countries lacked strong institutions, this led to corruption, disruptions, and conflicts in the region.
   
6. People in poor countries are more entrepreneurial than people in rich countries. Due to the lack of opportunities in the formal sector, people in low-income countries are pushed into self-employment. However, there is a hard ceiling on how much they can grow a company. A country needs to provide strong institutions like the financial sector (to provide loans/credits), an educational system to supply engineers, government to invest in R&D, and machinery to add value to their products. For example, a person in a poor country can buy some cows and sell milk to their village but a person in a rich country can work in a company that makes packaged butter and supplies it to the whole country. 
7. **More education in itself is not going to make a country richer. This is perhaps the only chapter that surprised me. In 1960, the Philippines had a 20 percent point higher literacy rate than Taiwan. Yet today, Taiwan has twice the per capita income of the Philippines. As the author states, ‘What matters in the determination of national prosperity is not educational levels of individuals but the national ability to organize individuals into enterprises with high productivity.’ Lant Pritchett, a Harvard economist, in his research paper titled, ‘Where has all the education gone’, compares educational levels across countries from 1960-87. He concludes there is very little evidence that increased education leads to higher economic growth. 
8. Big government makes people more open to change. Big government with a well-designed welfare state (unemployment benefits, medical insurance) like Europe encourages people to take more risks and allows for higher social mobility (poor can become rich) without affecting economic growth. Countries should design welfare programs like bankruptcy code: if a business fails, an entrepreneur is given time to pay off their debt. Similarly, if a person quits/is fired from a job, the government should provide welfare benefits until they find another job. 
9. **Good economic policy doesn’t require good economists. This is my favorite chapter. Although the author is an economist himself, he acknowledges that economists are not a necessary condition to design and implement good economic policies. The East Asian economies of Japan, Taiwan, South Korea, Singapore, China in the 1960s onwards were predominantly led by bureaucrats (lawyers, engineers, scientists, military services) yet achieve high growth rates. Does this mean we should abandon economists? Not necessarily, but take their expertise with a pinch of salt. As the joke goes, ‘An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.’
   

There are some flaws in the arguments made in the book. First, the author uses confirmation bias in many instances to prove his points. For example, the author provides examples from Europe to defend the big government. However, in many instances, a big government also comes with complex regulations, clunky implementation, and lower efficiency especially in countries like India, Turkey. Second, the book could have delved deeper into each topic. I understand it is aimed at readers who are just getting introduced to economics and capitalism. But it could be unsatisfying for others who prefer to read in-depth. Third, the book could have categorized 23 things into several components like financial markets, trade, governments, etc. Currently, the chapters jump from one topic to a completely different one.

Despite some shortcomings, the book is an engaging read filled with interesting anecdotes. Its brutal yet honest take on the role of high-income countries in pushing for economic policies that they didn’t adopt earlier is eye-opening. These are silently whispered in universities and multi-lateral organizations yet no significant progress has been made. Unfortunately, economic policies are a product of politics. And both don’t go hand-in-hand always.

I would recommend this book to anyone who has recently developed an interest in economics and wants to enhance their knowledge on fault lines in capitalism. It is a rare bedtime book on economics that won’t put you to sleep, at least not immediately.