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Ha-Joon Chang: There is no such thing as a free market

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PAUL JAY: Welcome to The Real News Network. I’m Paul Jay in Washington. The debate about who’s going to pay for the deficit crisis spreads across the nation as various states are taking it out on their public sector workers. What’s happening with the whole capitalist system is a matter of great debate. It wasn’t too many months ago the front cover of Newsweek magazine said we’re all socialists now. So the debate about whither capitalism was at the core of most of the economic debate, although it seems to have died down now as a lot of stimulus money seems to have made the contradictions a little less intense for a while. But what about the future of the capitalist system? Are we facing another major depression? Are we facing a global meltdown? And is there a more rational way to have a capitalist system? Now joining us to talk about all of this is Ha-Joon Chang. He’s the author of the book 23 Things They Don’t Tell You About Capitalism. Thanks for joining us.


JAY: So you teach economics at Cambridge.

CHANG: That’s right.

JAY: And you’ve been trying to popularize a better understanding of economics. But first of all, when you say 23 Things They Don’t Tell You About Capitalism, who’s They?

CHANG: Right. Well, they are the supporters of free-market economics, ranging from academics in universities through people in the private sector, government, the journalistic world. I mean, these are people who basically try to justify the status quo. I mean, they’re telling people, well, whatever you think about what’s going on is all how it has to be. You know. I mean, you don’t like income inequality? Tough. I mean, that’s the only way to run an efficient economic system. You don’t like environmental destruction? Tough. I mean, that’s how we become rich. You know. So these are people who have been telling us in the last 30 years that we have to liberalize everything, we have to deregulate everything, we have to make rich people even richer, so that everyone else can become rich, and so on, and engineered all [inaudible] massive policy changes like tax cuts for the rich, business deregulation, the deregulation of the labor market and eroding of labor rights, and so on.

JAY: In your book, in the introduction, you say this is not an anticapitalist manifesto, that capitalism is the best system humans have developed so far, and that there’s a more rational way to have capitalism. How do you see that happening when one of the products of this free market and of capitalism is such a concentration of ownership, and as a result such a concentration of power politically, that even if you could imagine a more rational form of capitalism, you can’t get there, because these guys own everything?

CHANG: Yes. I mean, there’s a lot of truth in there. But let’s first of all not forget that actually you don’t have to imagine it. I mean, these alternative capitalist systems exist in Sweden, in Finland, in Germany, in Japan, in France. I’m not saying that these countries are somehow Gardens of Eden, but, you know, I mean, when people hear someone criticize free-market capitalism, the kind of capitalism that the United States and Britain practice in the last 30 years, maybe 25 years, people immediately think, oh, okay, so then that–do you want to become Cuba? Do you want to become North Korea? No, actually. There are lots of different ways of running capitalism, and I don’t think that the free-market capitalism that you have in the United States today is the only way to run capitalism. So it is not like I’m talking about some hypothetical society that might come 200 years later. No. I mean, these alternatives already exist.

JAY: But a lot of the countries you’re talking about in Europe are also–have bought in over the last couple of decades, into this free-market or what they call neoliberal economics, and they’re more and more moving in that direction.

CHANG: Well, yes. I mean, they are, and some of them have bubbled quite significantly. But, I mean, you know, it’s all relative. I mean, yes, the Swiss are cutting welfare state. But in the Swedish GDP, the welfare spending, social spending account for something like, still, 32 percent of GDP when it is, like–I mean, they are barely 15 percent in the United States. You know. So they are starting from a very different end. And, yes, I mean, it is true that even in Europe there are a lot of people–especially rich people–who would definitely benefit from having American-style capitalism, very strongly pushing for it.

JAY: And the other part of it, to what extent does European affluence depend on having this enormous American market where there is such social polarization and a lot of cheap labor, actually, and a big military force to manage the global system? I mean, can Europe do what it’s doing without America doing what it’s doing?

CHANG: Well, in terms of the pure economic demand, Europe doesn’t really need America very much anymore. I mean, maybe it did in the 1950s and ’60s, but today, the European market’s bigger than the American market: 60, 70 percent of European trade is within Europe. So, actually, economically it doesn’t need the United States anymore. Maybe it–in terms of global geopolitics and so on it does, but I’m not enough of an expert to comment on that.

JAY: So in the book–and here’s the book again, 23 Things They Don’t Tell You About Capitalism, you go through 23 things. So let’s do one or two of those things, and then in–this is the beginning of a series of interviews we’re going to be doing. We’ll run one every other day till we do 23 things. And we’ll do a couple now, and then we’ll move on. So Thing 1: There’s no such thing as a free market. So explain that, ’cause we’re all being told that not only are we in a free market, they should be freer [inaudible]

CHANG: Exactly. Yeah. No. I mean, a lot of people find that statement quite mysterious, because some people don’t like the free market. But we know what is a free market when we see one, at least. I mean, it may be tricky to define in theoretical terms, but in the same way we know what an elephant is without being able to define it when we see one [inaudible]

JAY: And your argument is there’s no such thing. So why do you say that?

CHANG: No, actually not. Yeah. The point is that all markets have a lot of regulations. I mean, this is without exception. But people think there’s a free market only because they accept those existing regulations so much that they fail to see them. You know, for example, do you think that America is a free labor market? Yes, I mean, it has some regulations, but you’d think it’s relatively free compared to European market. But how about the ban on child labor? You know, I mean, this is shutting out 30 percent of potential labor force from the labor market. Don’t forget that in this country and in the European countries and in the past and in many developing countries today, children as young as four or five, you know, millions of children, hundreds of millions of those children work.

JAY: And it wasn’t free market that gave rise to a ban on child labor. It took government and a law and people saying in the interests of the society you can’t have child labor.

CHANG: Exactly. So initially when people tried to, through government legislation, regulate this child labor, a lot of the supporters of the free market are outraged. They say this is the most ridiculous intervention that undermines the very basis of a free economy, i.e., freedom of contract. You know, these children want to work; these people want to employ them; what is your problem?

JAY: It also seems rather contradictory that on the one hand, some of these forces defend the free market; on the other hand, it’s okay to ban collective bargaining rights. Like, it’s not okay for workers to say, I’m not going to sell you my labor unless you meet certain conditions. There’s no free market for that.

CHANG: Yeah. No. I mean, [inaudible] total double standard. You know. And basically the very reason why I wrote that thing, Thing 1, is to show that, you know, free-marketeers have been telling us that while we have this scientifically defined entity called the market, the free market, and any attempt to meddle with this its workings is unscientific, politically motivated, and so on, but actually what I’m saying is that no, actually, the so-called free-market position is as political as any other position.

JAY: I mean, one of the reasons this whole issue of free market came up has had a lot to do with the–during the ’50s and ’60s, and before World War II, a lot of countries around the world had a certain kind of nationalist approach to their economies. Especially in Latin America and other places where they had public enterprises, there were tariffs. Even in Canada, for example, there were high tariffs for a long time. So free-market had a lot to do with opening up markets for foreign and US investment.

CHANG: Yeah, absolutely. Yeah. No. But, you know, the interesting thing is that in Thing 7 I explain how the very idea of protectionism was invented in the United States, you know, that Alexander Hamilton, this country’s first ever Treasury secretary, the guy you see on the $10 bill, I mean, he came up with this idea of infant industry protection, arguing that the United States as a young country needs to protect and nurture its young producers, the infants, against that competition from these big, grown-up companies from Britain and other European countries. As a result, actually, the United States had the highest tariff rate in the world for over a century, up to the Second World War.

JAY: Which gives them time to build up [inaudible] economy.

CHANG: Exactly, yeah. But, unfortunately, the history [inaudible] once they’ve reached a point, they say, well, everyone else should do free trade. So actually the Americans were in the 19th century criticizing the British for preaching free trade, pointing out that actually Britain also grew on the basis of, you know, protection and subsidies in the 18th century. Now that they are on the top of the world, they tell us Americans not to do it. But we will do it. You know. I mean, actually, there is the–in the book I cites Ulysses Grant, one of your presidents, saying that, you know, the English tell us to do free trade; yes, we will do free trade, but only after 200 years of protectionism, when we are as rich as they are.

JAY: Yeah, I guess. And then once you become an imperial power yourself, you start having imperial ideas about what’s good and what’s bad. Yeah.

CHANG: Yeah. You are seeing the same with the later developers. For instance, Japan notoriously controlled foreign investment. Today you go to the WTO, the World Trade Organization, the Japanese government routinely kind of submits these documents which say regulating foreign investment is bad for economic development.

JAY: In the same story in Canada, which was they had high tariffs for a long time,–

CHANG: That’s right, yeah.

JAY: –but once you started to have some very big pools of capital in Canada that wanted to start going abroad, all of a sudden, okay, you can drop our tariffs now, and now all of you drop your tariffs.

CHANG: Exactly.

JAY: Yeah. Okay. In the next segment of our interview, we’re going to go to Thing 2: Companies should not be run in the interest of their owners. That’s a provocative one. And please join us for the next segment of our interview with Ha-Joon Chang on The Real News Network.

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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.