What they don't tell you about capitalism.

Author:Stafford, James
Position:Ha-Joon Chang - Interview

Ha-Joon Chang is Reader in the Political Economy of Development at the University of Cambridge, and the author of two popular and influential critiques of approaches to development advocated by major international institutions: Kicking Away the Ladder (2002) and Bad Samaritans (2007). Since the global financial crisis, Chang has adopted a still-higher public profile as a critic of the economic orthodoxies that brought about the global financial crisis. His most recent book, 23 Things They Don't Tell You About Capitalism (2010) aimed to debunk some widely accepted arguments put forward by what he terms the 'priesthood' of the economics profession, and redefine the boundaries of the discipline.

Chang's writing is polemical and frequently amusing, but also features a sharp analytical intelligence. Avoiding jeremiads about the state of the world economy, it combines persistent optimism with flashes of anger at the consequences of mistaken policies. His underlying conviction is that there are few 'realities' in economics that cannot be changed by human agency.

Responsible capitalism?

British political parties now seem to be converging around a rhetoric of 'responsible capitalism'. Is this a positive development? Is it likely to cause any real change?

It's positive of course, but really what do they exactly mean by it?

Take the case of high pay. Whether the pay gap is growing and so on of course is an important issue, but I think the bigger issue is what these people are being paid for. In my view the bigger problem is that these people are being paid for running companies in short-term orientated ways, and then in that process very often (if not always) destroying the firm in the long run by not investing in technology, in training. They are making money by increasing market power through take-overs, when mergers and acquisitions don't necessarily result in better performance. They get paid high salaries for paying high dividends and engaging in share buybacks, once again weakening the company in the long run and in the process squeezing workers, suppliers, and other stakeholders.

I think that's the bigger problem. We really need to question those practices. But I think the Tories are not interested and Labour, so far, only marginally so. It's good that people talk about 'responsible capitalism', but when they say the solution is to give more power to shareholders I have a huge problem. The increased power of short-term floating shareholders is at the root of this problem. What other forms of accountability are likely to be more effective?

You would have to weaken the short-term shareholders by making mergers and acquisitions more difficult, by making it--through regulatory measures--compulsory for managers to take care of other stakeholders; we have to reform this very notion that companies are properties of shareholders. They are the property of every stakeholder.

We also need to make sure that managers do not get compensated well for doing things that harm society, harm the long term future of the company, exploiting the weaker stake-holders. I think it's actually quite sad to hear people say that the shareholders can take care of all these problems because it's in their own interest. What is being forgotten is that, unlike the traditional capitalist, the shareholders don't have any long-term commitment to the company.

Do the shareholders themselves lose out in the long term from this 'shareholder value' approach?

Yes, they also suffer; but they have more options. They can go buy a Korean company or invest in Chinese assets. They think that if this particular goose that lays the golden eggs dies, we can get another goose. But if you are the goose, you are in trouble.

You've written that the values of a more responsible capitalism are not necessarily of the left or of the right, and that those political labels are shifting and contingent in political economy. Do you think that conservative parties, not just in Britain but also in Europe and America, have an equal capacity to undertake the reforms you want to happen?

Funnily enough conservative parties have often brought about the biggest changes--Otto Von Bismarck introduced the first welfare state in the world, Disraeli nearly doubled the British electorate with the 1867 Reform Act. Paradoxically, exactly because these people represented the ruling class, the ruling class went along with it, because they think 'if these guys think this is necessary, then maybe it is necessary'. If the people advocating reform are supposed to be on the other side, then the ruling class becomes suspicious and resists it. Depending on the particular issue and the political forces involved, sometimes it can be the supposedly more conservative party that is more effective in bringing about changes.

Unfortunately I don't think this is the case in the current British setting. The Conservatives dominate the Coalition, and the Conservative ideology is still basically Thatcherite. I don't see that these people have an actual vision to reform society in the way that people like Bismarck had.

In making that case for reform, there seem to be two sorts of rhetoric in play. There's the 'moral' or 'fairness' case that advocates reform so that people receive 'just rewards' in the economy, but there are also arguments for increased efficiency and performance. Which one is more important?

The bland answer is that both are equally important. But my real answer is that actually the dichotomy itself is the problem. As I tried to argue in my book and in other writings the very notion that...

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