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Ha-Joon Chang: US does Not have the highest living standard

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay. We’re continuing our series on the book 23 Things They Don’t Tell You About Capitalism, and we’re up to Thing 10. Thing 10 is: The US does not have the highest living standard in the world. Most people think it does. So what’s the story here?

HA-JOON CHANG, UNIV. OF CAMBRIDGE: Well, you know, this idea that the US is–

JAY: Number one.

CHANG: –yeah, number one, I mean, has persuaded a lot of people of the world, if we want to be like them, we need to adopt American-style free-market capitalism. But actually when you look at the numbers closely, actually, the story’s a lot more complicated. Now, just look at the published dollar income. Actually, the US isn’t the richest country anymore. I mean, Norway has far higher per capita income than the US, and six or seven other European countries. But economists, to reflect the local differences in labor cost and so on have introduced this idea of purchasing power parity, which basically tells you how much you can buy in different countries with the same dollar of your money. And when you use that purchasing power parity income, it turns out that the United States, except for Luxembourg with 400,000 people, the United States has the highest purchasing power parity income per capita. So a lot of people on that basis say, well, this is still the best country. But one thing that we all have to remember is that the Americans work much longer than people in other comparably rich countries. Depending on which country you compare it with, Americans work 10 to 30 percent longer than the people in France, Sweden, and so on.

JAY: So this is longer hours in a day, less vacation time.

CHANG: Yeah. Exactly. Yeah. So the annual total working hours, say.

JAY: So if you take a more holistic view of standard of living, what do you get?

CHANG: Yeah. If you use that measure, even in purchasing power parity terms, the United States is only about seventh or eighth richest country in the world. So per hour’s work, actually, countries like France and so on have much higher income. I mean, they have more leisure time, which adds to their quality of living. So you may even argue that the difference is actually even bigger than what is indicated by simply comparing purchasing power parity income. And, of course, let’s not forget that the United States is far more unequal than other comparably rich countries.

JAY: Yeah, because if you’re talking standard of living in the United States, there’s the world of people with health care, the world of people without health care.

CHANG: Exactly, yeah. Exactly, yeah. So the average number–of course, the average number nowhere gives you the whole picture, but the average number in the US is even more distorted than [crosstalk]

JAY: Give us a couple of outstanding examples.

CHANG: Yes. I mean, having unequal coverage of social security, including health care, I mean, the Americans are spending, actually, far more money on health care, but they have apparently no better health indicators. I mean, America spends 13, 14 percent of GDP on health care. Countries like Sweden spend less than 10 percent. The Swiss have a higher health standard, I mean, judged in terms of life expectancy and so on. The US is a very unequal society. It has a much higher crime rate. On per capita basis, the United States have 12 times more people in prison than in Japan, eight times more people in prison than European countries. So this is a consequence of, you know, unequal society.

JAY: Well, in that respect, the US is number one.

CHANG: Yes. Well, you have to be number one in something.

JAY: Something, yeah. Okay. Then we’re going to move on. Alright. Number 11: Africa is not destined for underdevelopment.

CHANG: Yes. A lot of people have recently argued that, look, Africa has this, I mean, what they call growth tragedy. In the last 30 years, it basically has not grown at all on per capita basis. So the living standard has been stagnant for the last 30 years. And they tried to explain this by the fact that Africa has a poor climate, which creates, say, tropical diseases, bad geography in the sense that a lot of them are landlocked and therefore make–it makes–it is difficult for them to trade with the outside world. I mean, they talk about–the African countries having too much ethnic diversity, which leads to a lot of conflict. And so they try to explain this as the sort of structural outcome. You know, Africa is destined not to develop, because they have bad geography, bad [crosstalk]

JAY: Okay. So what’s wrong with that?

CHANG: Well, the problem is that, you know, a lot of these things are actually the, if you like, consequences rather than the causes of underdevelopment. You know, I mean, just think about it, that the same Richter scale 7.0 earthquake hits Haiti, you have 200,000 people dead. The same kind of earthquake hits Mexico, probably you have 20,000 dead people. That same earthquake hits Japan, two people die. So, actually, the suffering from natural conditions is the consequence rather than the causes of underdevelopment. You know, I mean, it’s not as if the rich countries do not have, actually, those structural constraints.

JAY: It’s like health care. Tuberculosis if you’re poor, you die. Tuberculosis if you’re rich, you live.

CHANG: That’s right. Yeah. And, you know, I mean, just think about it. I mean, even being landlocked, you know, I mean, two of the richest countries in the world, Switzerland and Austria, are landlocked. Of course, when I say that, people point out that there are good river navigation system that link them to the outside world. A lot of African countries have very good river systems. It’s only that they don’t have the money to develop [crosstalk]

JAY: Well, that’s the real thing. The amount of capital investment in Africa is miniscule compared to the population. On the other hand, the natural resources of Africa perhaps surpass the rest of the globe.

CHANG: Yeah. Well, I mean, I don’t know about the latter point. I mean, I’m not actually sure that they have better natural resources [incompr.]

JAY: No, in terms of unexploited natural resources, I think–.

CHANG: Right. Unexploited, yes, yes, that’s true. But–yes, I mean, that’s exactly my point. I mean, all those so-called structural constraints look like structural constraints only because you haven’t got the ability to overcome those things.

JAY: But how does that change, though?

CHANG: Well, I mean, you have to get the economy moving, I mean, have to generate investment, have to develop infrastructure, have to develop production capacities, and all of those things have become, actually, more difficult in the last 30 years in Africa because they have been put under all these programs administered by the IMF and the World Bank, which actually discouraged these countries from doing those things.

JAY: Yeah. I mean, it’s a combination. In the first years after World War II you have the Cold War put in kleptocracies and dictators, ’cause the only issue that the West cared about in Africa, that there wouldn’t be national liberation movements that somehow would be allied with socialism. And now you have the IMF and structural adjustment policies.

CHANG: Yeah. No. But, you know, what is even more sad is the fact that even in those days of the, I mean, US-supported puppet governments and so on in the 1950s and ’60s, Africa actually was able to grow quite decently. I mean, in the ’60s and ’70s, African countries grew at about 1.5, 1.6 percent per year in per capita terms. In the last 30 years, the growth rate has fallen to 0.2 percent. And the reason is because in the ’60s and ’70s Americans were not so insistent on these countries using free trade, free market policies. So I would argue that a lot of the growth problems in Africa should be actually attributed to those things, because if anything, those structural constraints should have been even more severe in the old days.

JAY: Okay. Let’s do one more in this segment. Twenty-three things. We’re up to 12: Governments can pick winners.

CHANG: Yes. I mean, there’s this widespread belief that government cannot pick winners. I mean, they just don’t know what’s going on in the business world. How do you expect these people to, you know, be able to support–I’m sorry, choose particular industries that might be a winner in the long run? First of all, against this argument, I point out in the book that there are many, many examples where the government successfully pick winners.

JAY: For example?

CHANG: Yes. I mean, for example, in the late 1960s, the South Korean government set up this state-owned enterprise in steel, which is known as POSCO. Now it’s a privatized company. But it set up this state-owned steel company against the advice of the World Bank, against the advice of just about everyone, because it believed that a good industrialization program requires a good, efficient steel producer. And it was a huge success. I mean, but, in the beginning everyone thought that this is crazy. In Japan in the 1950s, when the Japanese government was trying to promote the auto industry, I mean, Americans laughed. You know, what are you doing? I mean, you’re a country that basically exporting cheap toys and T-shirts, and you are trying to compete with us building cars? You know, that was a time when America produced something like 7 million cars in a year and Japan produced something like 70,000 cars. I mean, I forget the exact number, but–. You know. But the Japanese government said, unless you have industries like automobile, you are not going to become a rich country. We have to support this through tariff protection, subsidies, and all sorts of other government measures. So there actually have been a lot of success stories of government picking winners.

JAY: And China too, no?

CHANG: Yeah, China is full of those.

JAY: Which is, I find, kind of ironic is that some of the same people that keep talking about we need to learn from what China’s doing and look at what China’s doing, they say, oh, no, no, but government can’t pick winners here.

CHANG: Yeah. You know. I mean, I’ll tell you another beautiful story. I mean, Singapore Airline, which is one of the most kind of highly rated airline companies in the world, is actually a fully state-owned enterprise. In the nearly 40 years of its operation, it has never made one penny of loss. In contrast, all the free enterprise American airline companies live on government subsidies.

JAY: And they spend half their time eating each other for breakfast. They’re far more worried about mergers than flying.

CHANG: That’s right. So these people actually use these things to justify whatever is convenient for them. You know, I mean, I just think this argument that government is always unsuccessful and the private sector always is successful–.

JAY: Well, here’s one of the arguments on that, though, is that because of the influence that certain sectors of capital have over government, especially in the United states, that the government will pick winners that are good for the people who are their financial backers.

CHANG: Yeah, there is that political [crosstalk] issue. But this is a political issue. It’s not inherent in the government policy. You know. I mean–and especially in these days, when half the US financial companies are–I mean, that should have been technically bankrupt without this bailout, someone saying that private sector is better at pick winners, I mean, it’s [crosstalk]

JAY: And aren’t they picking winners with the banks is your point, obviously.

CHANG: Exactly.

JAY: Yeah.

CHANG: But, I mean, of course there is that political issue. You know, the bankers have captured the US government. And, yeah, they are putting pressure on the government to do things that suit them rather than their national interests.

JAY: So join us for the next segment of 23 Things They Don’t Tell You About Capitalism. And we’re going to be talking about the idea that making the rich richer makes everybody else richer. Or does it? Thanks for joining us on The Real News Network.

End of Transcript

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Paul Jay was the founder, CEO and senior editor of The Real News Network, where he oversaw the production of over 7,000 news stories. Previously, he was executive producer of CBC Newsworld's independent flagship debate show CounterSpin for its 10 years on air. He is an award-winning documentary filmmaker with over 20 films under his belt, including Hitman Hart: Wrestling with Shadows; Return to Kandahar; and Never-Endum-Referendum. He was the founding chair of Hot Docs!, the Canadian International Documentary Film Festival and now the largest such festival in North America.

Ha-Joon Chang, a Korean native, has taught at the Faculty of Economics, University of Cambridge, since 1990. He has worked as a consultant for numerous international organizations, including various UN agencies, the World Bank, and the Asian Development Bank. A best selling author, his latest book is Economics: the User's Guide. He has published 11 other books, including Kicking Away the Ladder, winner of the 2003 Myrdal Prize. In 2005, Ha-Joon Chang was awarded the 2005 Leontief Prize for Advancing the Frontiers of Economic Thought.