Finally, Chang concludes his book by listing 8 principles he believes we should keep in mind in redesigning our economic system. First principle: Quoting Winston Churchill that capitalism is the worst economic system except for all the others, Chang said his criticism is of free market capitalism, not all kinds of capitalism. Chang said profit is the most powerful and effective fuel to power an economy, but it needs to have restraints, otherwise it doesnt work as well. Markets are exceptional too, Chang acknowledges. But they are like machines and they need careful regulation and steering. There is no one ideal model and in Changs view the free-market model is one of the worst. American capitalism is different than Scandinavian capitalism, which differs from German or French models. Second principle. We should build our new economic system on the recognition that human rationality is severely limited. Free-market fundamentalists believe the human ability to deal with complexity is essentially unlimited. Uh, thats a big No. The new world should be formed with a clear recognition that we have only limited powers of objective reasoning. Third principle. We should build a system that brings out the best, rather than the worst, in people. Free-market ideology is built on the belief that people wont do anything good unless they are paid for it or punished for not doing it. This belief is then applied asymmetrically and reconceived as the view that rich people need to be motivated to work by further riches, while poor people must fear poverty for their motivation. Fourth principle. We should stop believing that people are always paid what they deserve. Unless there is some equalizing outcome, especially (although not exclusively) so that all children can have more than minimum nutrition and parental attention the equality of opportunity provided by the market mechanism will not guarantee truly fair competition. It will be like a race where no one has a head start, but some people run with weights on their legs. On the other end of the spectrum, there needs to be a re-set on the compensation of those who run or supervise corporations. Paying CEOs 300 to 400 times average worker salaries is unwarranted. Fifth principle. We need to take making things more seriously. The post-industrial knowledge economy is a myth. The manufacturing sector remains vital. Sixth principle. We need to strike a better balance between finance and real activities. Finance makes modern economies possible. However, in the last three decades, finance has become the proverbial tail that wags the dog. Financial liberalization has made it easier for money to move around, even across national borders, allowing financial investors to become more impatient for instant results. Finance needs to be slowed down. Seventh principle. Government needs to become bigger and more active. Governments have successes and failures. So too does the private sector. The role of the government needs to be thoroughly reassessed. Despite its limitations and despite numerous attempts to weaken it, democratic government is, at least so far, the best vehicle we have for reconciling conflicting demands in our society and, more importantly, improving our collective well being..... Free-market economists have also told us that active (or intrusive, as they put it) governments are bad for economic growth. However, contrary to common perception, virtually all of todays rich countries used government intervention to get rich..... ....This means building a better welfare state, a better regulatory system (especially for finance) and better industrial policy. Eighth principle. The world economic system needs to unfairly favor developing countries. Because of the constraints imposed by democracies, the free market advocates in most rich countries have actually found it difficult to implement full-blown free-market reform. Unfortunately this meant free market enthusiasts worked on developing countries. The result has been a much more thorough implementation of free-market policies and much worse performance in terms of growth, stability and inequality than in developed countries. Finally this from Chang. The eight principles all directly go against the received economic wisdom of the last three decades. This will have made some readers uncomfortable. But unless we now abandon the principles that have failed us and that are continuing to hold us back, we will meet similar disasters down the road. And we will have done nothing to alleviate the conditions of billions suffering poverty and insecurity, especially, but not exclusively, in the developing world. It is time to get uncomfortable.
Posted on: Tue, 29 Jul 2014 13:50:16 +0000
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