Professor Ha Joon Chang has become something of a hero to those who champion heterodox economic theory and who rail against the supposed intellectual hegemony of ‘neo-liberalism’. In a number of books such as Kicking Away the Ladder Chang sets out to overturn the alleged orthodoxies of mainstream economics by questioning the case for free trade as an appropriate development strategy in poorer countries and more widely making the case for a high regulation/big government agenda. These themes are vividly on display in Chang’s latest best seller 23 Things They Don’t Tell You About Capitalism. Unfortunately, also on display in this book is Chang’s penchant for misrepresenting opponents, the use of straw man analyses and claims to theoretical innovation for what amounts to ‘re-inventing the wheel’. In several posts in the coming weeks I aim to highlight these aspects of Chang’s work in the hope that his readers (should they venture onto this blog) might reconsider his ‘guru’ status.
If there is a core characteristic to emerge from Chang’s work it is a tendency to emulate the writing style of that other hero of heterodox economics – J.K Galbraith. In common with Galbraith Chang depicts himself as one of a few lonely voices standing up against the ‘conventional wisdom’. The particular wisdom he targets in ‘23 Things..’ is that of ‘free market economics’. As with Galbraith, however, one will scour Chang’s texts in vein to find serious and detailed reference to the work of authors alleged to subscribe to the positions he attacks. Thus, in a 285 page book which purports to offer a critique of ‘free market ideology’ Chang manages a grand total of just three references to work by said ideologues and makes no attempt to distinguish schools within ‘free market’ thought, such as the Chicago school, the public choice school or the Austrian/Hayekian tradition (surprisingly, or perhaps not, Larry Elliot the economics editor of The Guardian describes 23 Things as ‘superbly researched’). There is good reason for this tactic – detailed consideration of the actual views of ‘free market economists’ – as opposed to what Chang claims they say – would make it much more difficult to construct the caricatures that Chang wants to attack. In book selling terms, better to play to the left wing gallery and construct an ideological edifice – crying out for demolition by a Chang (or a Galbraith). In this post I will focus on just two examples of this tendency. Subsequent posts will discuss further illustrations.
One of the first ‘myth’s’ that Chang sets out to correct is the very idea of a ‘free market’. In classic Karl Polanyi mode he asserts that the ‘free market’ doesn’t exist because all markets are embedded in political/institutional relationships and require rules in order to function effectively (see my recent post Down with Karl Polanyi on this type of thinking). Immigration controls, for example, have an impact on the price of labour and illustrate how apparently ‘free prices’ are in practice determined by political regulation. When free marketeers highlight unjustified or distorting government ‘interventions’, therefore, this is little more than an ideological smokescreen – a pretence that the boundaries of the market are ‘natural’ and can be objectively identified when in reality they represent a nakedly political attempt to promote a very particular set of rules that reflect the prejudices of ‘free market’ advocates.
Anyone who has even cursory familiarity with Nobel winning ‘free market economists’ such as Vernon Smith, Ronald Coase, James Buchanan and F. A. Hayek – none of whom are ever cited or even mentioned by Chang – would know that they have never denied that markets depend on institutions and rules. What they have been concerned to identify is the character of the rules compatible with a social order that increases the scope for voluntary exchange between individuals and associations, rules which facilitate competitive experimentation in production and consumption methods and which encourage positive sum interactions rather than leading people to live at one another’s expense. There has never been any claim by these thinkers that the market economy constitutes the ‘natural’ state of humankind. Indeed in the Fatal Conceit, Hayek in particular offered an account (though not an entirely persuasive one) of the ‘natural instincts’ that lead people to resist ‘free markets’. Overall, the economists mentioned above start from certain propositions about the limited nature of human knowledge and/or the importance of incentives to human action and offer an account, backed with evidence (none of which is discussed by Chang), about the capacity of market institutions to improve the human condition, relative to political alternatives.
Within this context, there is legitimate scope for disagreement on the appropriate extent of ‘the market’ and the precise role of ‘the state’. In The Constitution of Liberty, for example, (a ‘free market’ manifesto, if ever there was one) Hayek sets out a range of government actions, including basic social security measures, educational provisions and environmental controls which he judges compatible with the basic principles of a liberal market economy. As a classical liberal, I think Hayek goes too far in the specific areas where he sees a positive role for government action, but there is no contradiction between the way that Hayek argues for specific policies and his overall defence of the ‘free market’. The interventions that Hayek recommends are informed by his view that social institutions should not thwart experimentation and should encourage the internalisation of costs. Thus, Hayek’s support for environmental controls such as town planning regulation is qualified by the requirement that these controls should be conducted at the local government level in a context of inter-jurisdictional competition. Chang, by contrast, offers no coherent theoretical framework or worldview against which to judge his own pet schemes. These appear to amount to little more than whatever Chang thinks will raise his profile as a heterodox thinker. Notably, in opposition to just about every other economist – neo-classical, Keynesian, monetarist, Chicago or Austrian, he has recently advocated the widespread adoption of tariffs as an appropriate way to deal with the current recession!
To suggest that there is no such thing as a ‘free market’ because there is no strictly objective way to define the boundaries of such a market is equivalent to saying that democracy is meaningless because no ‘pure’ form of democratic organisation has ever existed. Certainly, the existence of immigration controls no more undermines the case for the ideal of an open market economy than their existence undermines the case for democracy. Are we to conclude that the existence of nation states which limit voting rights to citizens to the exclusion of people from other nations somehow undermines the very notion of a democratic ideal?
In a particularly dishonest attempt to highlight the supposed inconsistency of free market economics Chang claims that there is a fundamental contradiction between support for free markets on the one hand and the fact that most free marketeers do not support free immigration (p.27). This claim is made without evidence and without a single citation to any relevant economist. I am a free marketeer and advocate the abolition of border controls. I do not claim to know all of the detailed policy positions of free market economists, but I do know that many, though not all, do in fact support free immigration. If one takes the economics department at George Mason University as one of the major hubs of contemporary free market thinking then most of its economists –Boettke, Coyne, Leeson, Klein, Boudreaux, White, to name but a few, are passionate supporters of the free movement of people. Moreover, those market-oriented economists who do not advocate free immigration (misguidedly in my view) tend not to be opposed to the free movement of people per se, but to be sceptical of its compatibility with contemporary welfare states. Of course, Chang isn’t interested in presenting such subtleties to his readers. Better to proceed on the entirely reasonable expectation that the average reader of The Guardian or The New York Times, won’t bother to check the facts.
This is already a rather long post and I have only begun to scratch the surface of Chang’s failures to present an accurate view of what free market economists actually say. Subsequent posts will turn to Chang’s views on development economics and on planning, complexity and government regulation.
* These are a reference to Adam Smith (p.13), a reference to a paper by Robert Barro (p.55) and a paper by Bruno and Easterly (p.55).