Ha-Joon Chang Has Exposed the Fallacies of Neoliberalism

Korean economist Ha-Joon Chang is a brilliant, best-selling critic of neoliberal orthodoxy. But Chang stops far short of taking the necessary next step: questioning the capitalist system itself.

Ha-Joon Chang speaks during the ZEE Jaipur Literature Festival at Diggi Palace in Jaipur, India on January 21, 2017.(Vishal Bhatnagar / NurPhoto via Getty Images)

Ha-Joon Chang is a rarity in the contemporary world: an economics professor who is highly critical of the neoliberal free-market orthodoxy, advocates progressive social change, writes and speaks accessibly, and is very, very popular.

Chang’s books have sold millions of copies, and he is a regular contributor to mainstream media outlets. According to Chang himself, his aim is not simply to challenge free-market orthodoxy, but also to support, through his work, the kind of “active economic citizenship” that will demand “the right courses of action from those in decision-making positions.”

While socialists can learn a lot from Ha-Joon Chang’s work, we also need to read it critically and identify some of the gaps in his thinking. Chang’s self-professed aspiration is to promote an alternative form of capitalism, but our goal should be to develop an alternative to capitalism.

One Size Doesn’t Fit All

Much of the economics that is taught in universities today and espoused by capitalist elites takes a one-size-fits-all approach. As the former US treasury secretary Lawrence Summers once quipped: “Spread the truth — the laws of economics are like the laws of engineering. One set of laws works everywhere.”

According to this perspective, free markets, free trade, and limited political interference are the ingredients necessary to enable markets to work their magic by generating economic growth, jobs, and prosperity all round.

This dominant approach to economics is abstract and deductive. It relies on theoretical presuppositions, such as the notion of free trade and its benefits, to accurately depict and facilitate processes of development in the real world. Such a worldview generates a hefty degree of misplaced arrogance, as evinced by the quote from Summers.

Ha-Joon Chang rebuts this way of thinking as a modern-day exercise in mythology. He roots his own political economy in historical and institutional analysis, with theoretical generalizations derived from historical cases rather than abstract theory. His historical-institutional political economy is a breath of fresh air when compared to abstract free-market theories that are detached from social reality.

In his book Economics: A User’s Guide, Chang rejects, in admirably clear prose, the idea that we can identify a single set of economic laws governing the world. Rather, there is a wide range of economic thought, including Marxism, that we can deploy to understand (and change) the contemporary world.

Varieties of Capitalism

Although he puts forward an effective critique of neoliberal orthodoxy, Chang is not committed to transcending capitalism, nor can he envision a successful noncapitalist society. In his own words, he wants to explain the workings of capitalism so that the system can be “made to work better.”

Chang’s political objectives derive, in part, from his historical-institutionalist political economy. This is to some extent a backward-looking intellectual framework, as it discusses the future from the vantage point of what has worked in the past.

It is also somewhat asocial, as it discounts the centrality of class relations to processes of human development. Marxist political economy, on the other hand, is committed to deciphering how the latent social forces of today — working classes and their potential for collective action — can generate a new society in the future.

Chang’s political objective — to generate a better form of capitalism — and his mode of political economy also generate significant weaknesses in his analysis of really-existing capitalism. At crucial moments, he obscures the reproduction of capitalism through labor exploitation, as we will discuss in greater detail below.

Another problem for Chang is the environmental toll of economic growth. This is a tension that he arguably cannot resolve in view of his commitment to capitalist, growth-based development. A Marxist approach to economics can offer solutions to such pressing problems.

Bucking the Market

In the neoliberal mythology, markets work best when they are free. If governments intervene to regulate businesses, or if trade unions attempt to force up wages, markets will cease to operate optimally. Capitalists will move their investments elsewhere and people will be poorer. As Margaret Thatcher put it: “You can’t buck the market.”

Chang demolishes this way of thinking. In his book 23 Things They Don’t Tell You About Capitalism, he shows how markets have always been regulated by states. While these regulations might have been opposed by capitalists at the time, often using free-market arguments, this class eventually came to accept and even support such regulation. Trade has never been free and never will be free, because states determine what can and cannot be traded, and under what conditions.

Take child labor, for example. In Britain, the birthplace of the industrial revolution, the Cotton Mills and Factories Act of 1819 banned the employment of children under the age of nine and limited the working day of older children — those between ten and seventeen — to twelve hours. Opponents of the act argued that government should not interfere with a contract between labor and capital that both partners entered into freely and found to be mutually beneficial.

Chang makes the simple point that today, even the most hard-core neoliberals would oppose child labor and support some regulation of the market. He reasons further that it is politics and social norms, rather than a pristine “logic of the market,” that determine whether societies have better or worse wages and conditions, rates of investment and innovation, environmental regulation, health care, and so on.

This is a crucially important point to make against those who stress the virtues of the free market. However, there is something missing in Chang’s account. While he is correct to identify the regulation of free wage labor as an eminently social and political issue, he does not ask why markets for labor power exist in the first place. In 23 Things, Chang never examines the question of where or how capitalism emerged from a world of precapitalist societies.

To do so satisfactorily, he would have had to engage with the work of Marxist historians on the transition from feudalism to capitalism. They have shown how markets for free wage labor were established in Europe through the dispossession of the peasantry and their subordination to the wage-labor contract, often through extremely violent means. Marx called this the epoch of primitive capitalist accumulation. Chang ignores it.

Common Clever Devices

Two of Chang’s books, Kicking Away the Ladder (2002) and Bad Samaritans (2007), challenge the free-trade, free-market orthodoxy known as the Washington Consensus. The author provides voluminous evidence to show how countries that are now highly developed made use of a whole range of protectionist and interventionist policies to transform their economies.

Chang shows how state planning can generate more rapid economic growth and more effective industrial diversification than free-market policies. For Chang, state industrial and development policies can lead the way toward a better world, not adherence to free-market mythology.

For example, politicians in the United States often proclaim their country to be a bastion of free trade. In fact, as Chang observes, “the USA had one of the highest average tariff rates on manufacturing imports in the world” between 1816 and 1945.

For Chang, the key determinant of whether countries can achieve economic development successfully is their ability to deploy an effective industrial policy. From the seventeenth century all the way to our own time, a series of countries have used state intervention to transform their economies, from Britain, the United States, and Germany to Japan, South Korea, Taiwan, and most recently China.

Such policies have included import tariffs, export subsidies, public investment in research and development, government-backed joint ventures between foreign and domestic capital, and state direction of finance and control of financial markets. According to Chang, we should be encouraging poorer countries to use the same policies today to foster economic development, instead of pressuring them to accept the Washington Consensus.

Why are the rich countries of today now arguing against the approach they took as they developed? Chang argues that rich, powerful states and their corporations use free-market ideology as an imperial strategy to maintain their own dominance in the world system.

The title of Kicking Away the Ladder comes from a work by the nineteenth-century German political economist Friedrich List. Much like Chang today, List subjected the dominant liberal orthodoxy of his own time to a withering critique. His aim was to help Germany to industrialize and compete effectively with Britain, the dominant economic and military power of the Victorian age.

As List wrote in his 1841 The National System of Political Economy:

It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations. Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade.

Much like Chang today, List provided a very effective critique of the free-market nostrums espoused by thinkers like Smith and David Ricardo. List was not interested in promoting a socialist society as an alternative to capitalism: he wanted more effective national forms of capitalism. Mutatis mutandis, the same is true of Chang today. However, this limited political horizon has severe implications for workers.

The Dark Side of Development

Chang is at his best in his critique of the neoliberal orthodoxy. He is much weaker, and quite ideological, when explaining the developmental success stories of countries such as South Korea. It is here that his goal of making capitalism work better and his approach to political economy end up hiding more than they illuminate.

For example, Chang compares the protection of nascent industries by states so that they can become globally competitive to the care of parents for their children. In Bad Samaritans, he poses a rhetorical question: should his own six-year-old son get a job, or should Chang enable his son to accumulate the skills and knowledge necessary for a future career in which he can earn significantly more than if he were to start work at the age of six?

No sane person would disagree with such a proposition. But it is an ideological stretch too far to compare parental care for one’s children to state industrial policy. This analogy conceals the fact that industrial policies require the formation of large, highly exploitable working classes to labor in newly established industries. This has always been the case, from Britain’s pioneering industrial revolution to Chang’s favorite South Korean case study.

Speaking to the Financial Times in 2016, Chang made a rather bizarre comment about the supposed influence of Marxism on economic policy:

Marxist economics has shaped the world economy. The architects of the east Asian economic miracles in Taiwan, South Korea and Japan were all schooled in Marxist economics, which sees industrialisation as a way of generating surplus.

This would surely be news to the planners in any of these states. In South Korea, the military dictatorship was responsible for intense repression and violence against workers’ organizations and political activists. This made it possible to maximize labor exploitation. In the 1970s, South Korean workers endured the world’s longest working week, under extremely tough conditions.

A woman textile worker described her life in 1980s South Korea, after the country had already experienced two decades of high growth rates:

Our life in the factory is really miserable. Ours is a confined, stifling existence on the job — prohibited from talking to the workers next to us, poorly fed, not allowed to even go to toilet when necessary . . . we are endlessly plagued by lung tuberculosis, athlete’s foot, and various stomach diseases. Women workers have yellow, swollen faces from inadequate sunlight. We are also tormented by temperatures of 40 [degrees Centigrade] and by dust . . . We are struggling to free ourselves from these miserable conditions.

Chang is correct to note that states can regulate investment through industrial policies to generate more rapid economic growth and industrial diversification. Yet he overlooks the way that such development often requires extreme exploitation of workers.

Beyond Capitalism

This gap in Chang’s analysis of successful developmental states partly stems from his historical-institutional version of political economy, which downplays the importance of shifting class relations in processes of historical change. It also stems from his political project, which is to create a better version of capitalism rather than an alternative socialist system.

Chang’s critique of today’s economic orthodoxy is very useful. However, his analysis does not take aim at capitalism itself, or imagine a world beyond it. He appears to view Marxism as a blueprint for industrialization rather than as a theory of human emancipation from exploitation.

The challenge for socialists as they draw on Chang’s work is to conceive of ways in which the world’s working classes could use industrial and development policies, not to make capitalism work better, but as part of the struggle to establish a new, socialist society.