Did you know there is no such thing as a free market? That good economic policy does not require good economists? dwars did not, but we were lucky enough to meet the author of the myth-busting book 23 Things They Don’t Tell You About Capitalism over fish and chicory, during his visit to the University of Antwerp for a UCSIA-teaching chair in December. The South-Korean Cambridge professor Ha-Joon Chang is going out of his way to challenge economic passiveness and to, you know, change the world, he is one of the most successful and critical economists at that. He was in Antwerp for a masterclass and a public lecture and before he took the train to Brussels, he was able to delight us with some food for thought.
economics
You have been called ‘the funniest economist’, in response to which you said that it is not hard to be the funniest, if no one else is competing. How important is it to be accessible or even funny in economics?
Ha-Joon Chang Our lives are fundamentally shaped by what happens in the economy, it is strange that people tend not to be interested that much. People have strong opinions on all sorts of things, but when it comes to economics, people seem to say: “well, I don’t know, it’s too difficult”. This should change. It is vital for a well-functioning democracy that people know economics, because a lot of policies are either straight-forward economic policies or have very strong economic implications. If our political leaders and finance ministry officials can just tell us what to do, then what is the point of having democracy? In that sense I try to communicate what economics is about, I use all kinds of tricks in my writing. There are probably less than ten authors in the English speaking world who write about economics accessibly, I would like more competition.
How can the economic sciences be made more in touch with the real world?
Chang That is not easy, because in the last few decades, economics has tried very hard to become a science. Economists have developed this attitude, that by doing some abstract modelling somehow we are cleverer than a guy who is going around factories doing surveys. That has to change, we have to accept that economic reality is very complex and therefore we need to tackle it at many different levels. Yes, we need people doing abstract mathematical models, but we also need people who look at history, who look at the daily kind of compromises made by politicians to design economic policy, we need people that go around factories doing detailed surveys. Secondly, they need to train economists more in knowledge about the real world. It is very common that someone graduates with a degree in economics without having any idea what the GDP of their own country is, because you are not taught those things. And we keep hearing about how important China has become in the World Economy, but very few economists have a concrete picture of how important China is today. Of course you don’t need to remember these things, but you need to know what to look up.
the non-economists
One of the Things we don’t know about capitalism is that “Good economic policy does not require good economists”. Throughout his book, Chang builds up the argument that non-economists should also make an effort to become “active economic citizens” and that they should not leave it all to economists and so-called experts.
What do you mean by “active economic citizenship” and where do we begin?
Chang Being a citizen in a democratic country carries duties as well as rights. You cannot be informed in detail on everything, but you have to be informed on the main issues and voice your concerns. Of course it is not easy, because we struggle with our daily jobs and personal concerns, but my view is that if you start practising this it becomes easier. People need to learn some basic things about the economy. This book (23 Things) is one attempt at that. I am getting another book out in 2014, which is called Economics: The User’s Guide. Whereas this book is by topic, in the new book I try to give the whole picture.
At the end of 23 Things, about what needs to be done to drastically change our financial system, you conclude that “it is time to get uncomfortable”. Isn’t that too much to ask from relatively comfortable people?
Chang Probably 99 percent of people would benefit from having a different economic system, it is not even benefitting the top 25 or 30 percent. There is that, but also I do not believe that people are totally selfish. People have innate self-interest, yes, but it is not pleasant to live in a very unequally divided country even if you are very rich. Let me give you a good example. Every year, I teach in San Paolo for a few days and when I first started there, they put me in this very high hotel and I could see so many helipads on the top of buildings, that I casually commented to my friends that the traffic must be very bad, had it become so bad that people started flying? I was shocked by the answer: “no, actually, that’s not the main problem, these executives are concerned with kidnapping.”
Kidnapping?
Apparently it is a big business in Brazil to kidnap big businessmen to get ransom. Even if I’m very rich, I don’t want to live in a country like that.
Similar to the idea of gated communities in the United States?
Chang Exactly, I think that most people, including the very rich, would actually benefit from doing things in a different way.
the real world
What about students who face uncertainties about their future prospects on the labour market? Come graduation, many of us cannot get the job they want, are overqualified, or face unemployment. We are quite uncomfortable.
What can we do to change this discomfort into something hopeful?
Chang It is a real failure of the older generation. We are demanding from our youngsters that they have intensive experience even before they apply for a job and still we don’t give them stable contracts. Why are they doing this? They benefitted so much from the welfare system and now they want to cut welfare. I think that students really need to stand up and demand different policies. Don’t forget that in the 1960s and 1970s, the unemployment rate in most European countries was below 1 percent. The legend has it that at this time, Geneva, a city of 250.000 people had less than 10 unemployed. So why can’t we have that? We can have full employment. We can have a career system that does not force you to go to university to get a decent job. The point is that unless you ask for it, you are not going to get it.
You came to the UK in the 1980s, when there was also a high unemployment rate, but the contrast to today seems that there were large protests and people stood up for themselves. Why do you think few of us do now?
Chang There are a few reasons: one is that with the decline of manufacturing industries the trade unions have become weaker and trade unions have always been the centre of these kinds of protests. Secondly, unfortunately, our politicians have basically given up defending the common people. They have been so meek and slow in reforming the financial system for example. If any other system caused this kind of trouble, there would be a root-and-branch reform of this system, but when it comes to the financial system, it is: “okay, maybe we’ll slightly tighten regulation and wage agencies here, and maybe put a little cap on bonuses there...”. It is a reflexion of how far the political class has basically subjugated themselves to the interests of the financial industry.
Does this also have something to do with an attitude towards ‘individual responsibility’?
Chang It is always difficult to strike a balance, you don’t want to go along with some of the old social-democratic views that everything is the fault of the system, individuals matter. On the other hand, we don’t want to believe in the ‘Walt Disney’-view of the world: if you believe in yourself, you can become anything. That is not possible. You cannot entirely blame it on the system, because you have elected these people. Yet it is somewhat like a shopping experience in East-German supermarkets where there is one kind of bread. Can you really say that you have chosen it, so you are responsible for this bread being bad?
Usually unintended, we have been basically brainwashed by the establishment, from Disney to the financial press, into thinking that everything is down to the individual. We need to change that discourse. Don't think for a minute that we exist as unbound individuals. If that is the case, why should the anti-immigrant parties in Flanders, Finland or Sweden even exist? There is still that sense of culture, community and identity. We have been told that we are individuals, but we still feel uncomfortable with that view. But unless someone changes the discourse, people will just accept what is given to them by the financial press.
Countries like Greece, as a condition for the needed international financial support, are pressured into more privatisation and free market, will these measures and conditions make Greece better?
Chang We have had 3 years of experiment and it is still not working. By any reasonable standard it has already been proven that it is not working.
The unfortunate thing is that if you want a monetary union, you need economies with similar levels of development. You need a fair amount of labour mobility and a lot of fiscal transport of different bits organized through the Central State. This is how the US works: it is actually a very diverse economy. If something goes wrong in one of the 50 states, people can always migrate, they speak the same language and live in the same culture. The Federal Government also transfers a lot of the money. According to the calculation of the American economist Barry Eichengreen, if the income of one of the 50 states falls by 1 dollar, the federal government returns 50 cents of it through various measures. In the European Union that is only around 5 cents, there is virtually no physical transfer. So in a way, monetary union beyond the core 5 or 6 countries is a bad idea. But having done it, it might be even more costly to get out of it.
In short, Greece, Spain, Portugal and Ireland are in a terrible situation. They cannot devalue, because they don’t have their own currency. The only thing they can do is to keep suppressing their wages, which is creating a huge problem, people are not spending. The Greek economy has shrunken by something like 60 percent in the last three years. If you are Irish, you might be all right, because you speak English. But unemployed in Greece, where are they going to go? Paradoxically, the European Union should have been ready to transfer more income from one part of the union to another than the United States, but obviously there is no political willingness to do that. This crisis is not going to be resolved easily.
The effects of the 2008 Financial Crisis are mostly dealt with by governments and felt by tax-payers, but what can be done against the misbehaving financiers?
Chang They need to be punished more severely. For some cases of outright fraud, people have gone to jail. But we have to rethink this medieval sense of crime: crime is what you physically do. These days a lot of crime is from a long distance. This is more difficult to prove than someone actually breaking into a house, but there are cases which are very obviously a crime.
Is the problem sometimes not within the boundaries of the law, for example, large companies avoiding taxes in tax havens?
Chang That is one thing that can obviously be done and have a lot of impact. Why do these tax havens exist? Only because rich countries let them exist. If all the major economies declare that any financial transaction with these tax havens will be considered illegal tomorrow, they will disappear.
I am not anti-finance, it is because we have developed a good financial system, that we have come this far. However, we have gone too far. Now the financial system has become the tail that whipped the dog. We have to do something about that.