LSE Events | Prof. Ha-Joon Chang | 23 Things They Don't Tell You About Capitalism

do you think I am very pleased to welcome ha Joon Chang I am probably Donna Hester did somebody say something I'm a professor in the what used to be called the Development Studies Institute and it's been upgraded to a department my favorite alternative name was overseas development department because the acronym was odd it was decided to call it the Department of International Development and let me briefly introduce Hajin and the book that he's going to be speaking true and ha-joon was educated in Korea at high school and undergraduate economics at Seoul National University and his father and this I think is an interesting point with family background I have a degree in anthropology which is why it took me in to clean but you want to understand where he's coming from in terms of his approach to economics I think this family background is relevant his father with the senior civil servant in the Korean Ministry of Finance during the Park chung-hee regime up to 1979 when Park was assassinated but those were the critical decades of Korea's development and he then became the father that is then became head of the government housing bank and he was then kicked out by the incoming military government and he then became an MP and for a short time he was Minister of Industry so that's the kind of households that Hajin the fool bath in ha Joon came to Cambridge in 1986 to do masters in economics then a PhD in economics he joined the faculty of economics at Cambridge in 1990 where he has remained ever since he is the author of a great many scientific papers and just let me hold up a recent new book in which he has a very good paper it's called towards new developmental ISM and it's a set of essays about new thinking in in development economic stability studies the subtitle is market as means rather than master which is very much the subject that hydron writes about and I have an essay in here too by the way the title just to remind you is towards new developmental ism by Khan and Christensen however in addition to Hodgins many scientific papers and he has written several and what you could call popular and articulate books about development issues cycles like kicking away the ladder and bad Samaritans these were very good books but the book that we're launching tonight is a real tour de force and it has the rare quality of being very entertaining ly and articulately written while covering a vast scope and Magisterial scope including some of the hottest issues of our time going well beyond issues of development and one exception to that I have to note and perhaps we'll come back to this is anything much to do with environmental constraints or climate change and I've lived in fear that we will we will come back to that I'm sure and so the book the book is launched at a time when few people are now and aggressively as they were championing neoliberal economics but there remains a very strong inertial no mention I just come back from the World Bank doing research on new thinking and development economics at least that's what I thought I was going to research on because the chief economist of the bank since 2007 is Justin Lin a Chinese national the first ever non g7 chief economist to the World Bank Justin Lin is sort of pushing or nudging and thinking or trying to nudge thinking in the World Bank in the direction of what you could call Arjun Chang in this kind of direction and away from a kind of hard neoliberal economics but as I discovered he is facing very strong pushback from many economists around the bank including in the research complex of the bank who makes made statements to me like for every career there are hundred failures failures assets of countries that have apparently tried to do career so obviously we the bank cannot endorse anything that the Koreans did that's the kind of what you have to call stupid thinking that continues to prevail at the kind of inertial momentum people are very very anxious about rethinking and settled opinions so and the problem is then the third bar there is not been much of a social democratic but you could call a social democratic alternative developed to neoliberal economics ideas so far but it may be that the time is right right now at this time of quite a lot of uncertainty for minds to be sprung open and certainly my hope is that this book may help to do it so how do niz going to speak for something like four to five minutes and then we for your questions and discussions all right Thank You robot for that kind introduction well as you can see this book has definitely the weirdest cover for an iconic book in history now don't ask me about the cover I mean depending on my mood I blame or praise my publisher for coming up with this unique cover yeah today I'm feeling quite generous as I think this is fantastic some days I think that this is that the worst cover you can think of the book also has uh probably the weirdest are title for an economics book I mean today I use the word probably rather than definitely because that there could be some other book which has even the other title now oh one second why 23 things but some people thought it was because of the sky where is he yes Michael Jordan the legendary American basketball player well actually I don't watch basketball I'm a big fan of baseball but basketball I didn't even know that that Jordans numbers are 23 other thought I was into the so-called 23 enigma in numerology we're all important events are somehow connected to number 23 to ask me how as apparently argued in the eliminators trilogy and the movie the number 23 well actually I've never heard of this 23 enigma before so counted out and some more lonely people have conjectured that I'm a brilliant mathematician and must be referring to the famous 23 mathematical problems of but the German mathematician David Hilbert oops this guy well I actually have no idea what that was so it wasn't that well 23 is essentially a random number you know how it happened was that the working title of the book was 20 things they don't tell you about capitalism but one day I was having coffee with my literary agent Ivan Mulcahey in the coffered port on top of Paddington Station you are talking about the Bukit and at one point that without any prompting we looked at each other and said 20 things that's a bit boring isn't it I said yeah I could easily write another dozen things but that would make the book too long so let's start as a capital number 25 and start there well 25 is a bit obvious I don't like even numbers 21 to close to 20 so that left 23 huh I know I know this is a bit like a sketch in Monty Python er the famous apparel scene and so on but actually that this story you know it sums up the spirit with which the book was written it is a light-hearted book with a serious purpose as my us publisher Bloomsbury USA described and I mean in a way certified weird I meant one book review in the prospect magazine described a book as the general theory we written by Paul has the Argentine writer I mean the reviewer taught it in that I think it was a compliment but being a fan of Perez I take it as a compliment so I mean that is not that Corky playful side to it but I talks about that very serious issues in a very serious way okay so now as a Monty Python used to say it for something completely different well basically the book will tell you that a lot of things that you thought you knew about capitalism are at best partial truth and at worst downright myth so for example tar yeah these are the guys are from Cat in the Hat probably a forgotten about it because the last time you read read it you are seven well thing one says that is no such thing as a free market now that's weird because of that you know you say well we may or may not like the free market but we know what it is yeah at least when we see one we know what it is don't we huh well actually we told now take an example of this legislation tabled in the British Parliament back in 1819 this was a law to regulate child labor this apropos our regulations incredibly that that we got by modern standards it would pan the employment of only very young children that is those under the age of nine my son's just hon 10 so is that I would have been eligible to work in that regime although I already wrote a chapter titled my six-year-old son should work kado job in my audio book bad Samaritans older children aged between 10 and 16 would allow to work but we they are working I was restricted to what when only 12 hours and the new rules only apply to cotton factories which are recognized to be exceptionally hazardous to workers health so Utah say well what kind of regulation is this this is a joke but even that was met by a very stiff opposition by free marketeers who argued well essentially these children won and detour and these factory owners want to employ them what is your problem you know freedom of contract is foundation of a free market today even the most enthusiastic supporters of free market policies at least in the rich countries would want to bring back child labour to liberalize labor market or at least I haven't met one that met one Tahu says it opening this sorrow said like beauty freedom over market is he is in the eyes of the beholder that is there's no scientific way to define a free market so what is a free market are to some people may be seen as market riddled with regulation the point is that like those that are comfo masters you see in movies I mean these guys actually flying on piano wires but they don't show it so you think are they are really flying yeah like those guys all markets are propped up by humorous regulations on what can be sold and board who can sell and buy them and how the exchange may be conducted and I'm not talking about yeah and about the heavy things like our slaves that child labor you know Todd do you think that that you can take a bag of shares of your company to London Stock Exchange and sell them but outside the exchange building no in order to sell your shares you have to go through very rigorous regulatory process I mean they have to look at your cows over a period and making sure that that you are not involved in fraud you know you do your due diligence and everything so even the stock market which you think is very free is that are bound by a lot of regulations so in this sense we think a market is free only because we saw totally approve of the regulations that are propping up that particular market that we don't see them and that's that a very important point free market economists like to portray all regulations as politically motivated interferences in the free workings about natural system however when there is no way to scientifically define a free market free market positions are as political as any other position so breaking away from the illusion of market objectivity thing one ends by saying is the first step towards understanding capitalism and I meant that this is a very important starting point because the free market economy will tell you look we know how we're the right boundary of the market is anyone who wants to mess around with it is that the populist or backed by unions or left-wing or economically illiterate yeah actually there's no such boundary so that they're I mean they want to pretend that they are scientists and others are politically motivated but their politics is as political as other people's politics an okay thing to says companies should not be run in the interest of their owners and this sounds crazy shareholders one companies so they have the biggest stake in the success of the company and therefore what is good for the shareholders must be good for the company then why do I say something like this huh but the problem is that in modern limited liability companies with dispersed ownership despite being the legal owners both shoulders actually the least committed to the long-term future of the company because they are the freeze to leave so in the last three decades with increasing financial deregulation these are free-floating shareholders have become even more powerful that hired managers have basically decided to run the company for the for the sake of partial the value maximization you must have heard this term so often so what they do is that they maximize short-term profit by not spending in things that improve long term productivity so they don't invest they don't do R&D they do not train workers I mean I'm not saying that they to zero these things but that they do the minimum that that is that they can get away with and in that process they maximize that you're short on profit and keep away on ever-increasing share of that profit to the shareholders through increased dividends and share buybacks so for the way in the United States dividends used to be around 40% of profit until the 1970s now it's over 60% and given that that retain profits is the biggest Rosa but investment finance in that company's in the developed countries this has a big impact on that investment and the result has been long-term decline of the companies which adopted the such strategy General Motors General Electric for you name it so much so that Jack Welch the former CEO of our general electric and the champion of shoulder value maximization recently admitted that shareholder value maximization was and I'm quoting him dumbest idea in the world where it's a bit too late to say that isn't it well as for thing three what do I mean by this most people in rich countries are paid more than they should be but we have been told by free-market economists that people are paid what they are worth so we should not complain about pay differentials and income inequality because if someone's are paid up ninety five million pounds a year he must be worth it otherwise the market wouldn't tolerate now live data entered aside for the moment this has also made us think that well you know all those poor people in poor countries they must be poor because they're not very productive they are not worth very much but as I do in the book I take the case of tool bus drivers I named them ROM an Indian guy from Rajasthan that driving bus in New Delhi and another guy is called spend he is a Swedish guy driving person in Stockholm Spain gets paid about 50 times what RAM does but is it because Spain is a driver who's that who drives our 50 times it better well that I'm not sure whether it is that physically possible that someone drives 50 times better than someone else and unless you are comparing the Lewis Hamilton or Michael Schumacher with me but actually when you think about it if anything Ram will be the better driver and this picture that I'll show you why you know every minute of his driving he has to touch the cow touch the rickshaw dodged our children touched a bicycle stack at three meters high with that crates you know he has to be very good where is the span you know he can duck yeah except for a few drunken drivers on Saturday night I can basically do his job pathways he can drive straight because he drives in a city like this ya know so how come a guy who's that actually a much better driver gets paid one fifty two percent of another guy who is essentially doing the same job with less skill how is this possible well this is possible only because apart when they me put it up bluntly that our protectionism that is immigration control and if you actually totally freed immigration eighty maybe even ninety percent of the workforce in the rich countries can be and will be displaced and I'm not just talking about bus drivers and cleaners the there are millions of bankers engineers and medical doctors waiting out in China Nigeria and Brazil that can replace their counterparts in the United States Japan and Britain why not after I replaced a British economist now I'm not advocating a full liberalisation of immigration even as an immigrant I know that that is not possible or desirable but if they are to be consistent free market economies I should actually advocated but very few free market economies even see that I mean Tian's universities are probably the only exception fins cable once said something half like that but I mean other free market economies are not even aware that what they are saying about free trade and that the free movement of people are contradictory once again the fact that are very few free market economies that that actually do this proves my earlier point that markets are fundamentally political construction there's nothing in economics which says that British immigration per year should be 50,000 100,000 now is that not determined by economics now the flip side of this story is that poor countries are poor not because of the poor people but because of the rich people of those countries you know when you meet rich people from poor countries they'll tell you that if you listen to how their countries are dragged down by all those useless people who are lazy ignorant and on enterprise entrie lies is that their countries are poor because of themselves not because of their poor people because most poor people in poor countries can hold their own against the rich country counterparts actually many of them a more skill like our RAM but that the rich in poor countries cannot actually do that so it is that that if I put it that way their failure to pull the rest of the country up rather than their poor pulling the rest of the country down that is making poor countries poor okay so that now leaves the rich in the rich countries can they pat themselves on the back and tell us that well we truly deserve what they what we are well I don't think so because what these people don't often realize is that they're high productivity critically depends on the fact that they were born into or at least are migrated to societies with advanced technologies well organized forms good institutions and high-quality physical infrastructure and most of these are things that have been collectively accumulated over time and not something those individuals have created observing Warren Buffett the famous American in the investor financial investor once put it beautifully in an interview said look I'm rich only because I happen to have been born in the United States and drop individual Bangladesh I'll be a struggling farmer I'm not very good at farming so I'll be rubbish so all of this that back and forth stuff about the poor people in rich country with that poor people in poor countries rich people in poor countries and rich people in rich countries show the fundamentally collective nature of individual productivity without recognizing which we can build a truly fair system compensation so we should be that that are able and willing to challenge this that the bankers I mean they say well market paid me eighty five million dollars so you shut up no you should at that point to him that look I mean the reason why you are getting this money is because we have a certain kind of thought that the economic system certain kind of financial system with that certain kind of regulation and deregulation and that you haven't actually created all the wealth that you think of you have created and I'm entire done with that just to give you an example meant that in the United States are the profit of the financial firms doubled almost our trebled over the last 2025 years huh is it because that they really became that much more productive noise because of deregulation you know when the Hank Paulson that abolished the leverage regulation on financial firms he basically gave them free money he was that now they could have a debt equity ratio but that 5,000 percent was that the previous leaders I think got the cap that something like a twelve hundred or something I don't know anyway the details are not that important at this stage well I mean I obviously cannot go like this I think one two three four and five and six and so on so I give you yeah a flavor of the kind of things I say I mean things that sound very outrageous but I hope but you get to accept by the end of the chapter so despite the fall of communism we are still living in planned economies the washing machine has changed the world more than the Internet has I'm a dad that attracted a lot of attention making rich people richer doesn't make the rest of us richer financial markets need to become less not more efficient equality of opportunity may not be fair we are not smart enough to leave things to the market good economic policy does not require good economists that may be very popular and finally yeah people in poor countries are more entrepreneurial than people in rich countries now I can talk about any of these but I chose two of them given the time constraints mainly because they give me excuse to use some nice pictures so let's look at that thing thirteen making rich people richer doesn't make the rest of us richer you know for the last three decades free market economies have advocated policies that basically redistribute income upward deregulation of business tax cuts for the rich cuts in welfare spending and so on and the justification was that look I mean initially this might make other people dot poorer but when you make rich people richer we will eventually make everyone richer because the rich will now have more money to invest and create more wealth yeah so Wells has to be created before you can be shared out yeah that was at the typical mantra and this is of course a classic free-market logic going back to the days of at least that theory ricado if not Adam Smith yeah I mean that unlike do classical economies of today the classical economists at that sort of society in classes here so Ricardo said that the Azadi capitalist class there is the working class and there is the landlord class and basically you have to keep as much wealth that to the capitalist class because they are the ones who are going to invest the other ones were going to that the developed economy so that the logic is that investable surplus needs to be concentrated in the hands of the investor in this case the capitalist class and that's the way to maximize investment and the overgrowth now the interesting thing is that this is exactly the logic behind the agriculture collectivization implemented by Joseph Stalin well that the logic was that keepin that most of the economic surplus in the Soviet Union in the 1920s was in the agricultural sector which invested very little bit because that the most of these people are so close to subsistence if they produce a bit more surplus they just ate it up or there were some rich farmers who basically used it in the conspicuous consumption so that the logic said that that that we need to take this surplus away from the agricultural sector through collectivization so that the government basically controls the agriculture sector and concentrate this by extracting surplus in the hands of the investor in this case the cost plan the central planning authority now typically it wasn't actually his idea it was an idea devised by this that brilliant economist sir who is now almost forgotten the Afghani represents key represent key was at the leading economist of the left wing of the Soviet Communist Party initially Stalin was on the right wing of the party argued against this idea and draw president's key into exile in 1927 but upon becoming the sole dictator in the following year Stalin took up the idea and went for agriculture collectivization now as you all know Stalin's collectivization led to a persecution of the cola the rich peasants and a famine in which millions perished near three million is the sort of consensus number but he could be even higher so it had tremendous cost but it actually at least but on his central promise higher investment and faster growth the surplus was extracted it was concentrated in God's plan whose plan invested more and then the economic growth faster unfortunately we can now say the same about the free market version of Stalinism that is trickle-down economics you know despite concentrating Wells at an astonishing rate at the top about which Robert has written quite a lot and I highly recommend his writing on that investment and growth have actually fallen in the last three decades of free-market capitalism in other words our rich have become more expensive to keep you know we keep keeping them more and more and they are delivering less and less when I went out a got a lot more than before so why are we having lower investment and lower growth now we have to ask this question you know I mean as far as day to day job I don't mind that these people having all the money but they are not doing their job that's that an important point okay the next thing people in poor countries are more entrepreneurial than people in rich countries you know this guy once are famously said that that the problem with the French is that they don't have the word for entrepreneurship you should have paid a bit more attention in Talisa French class now okay I meant that that you can excuse the tapia for not being very good at French but actually this is a fairly common anglo-american prejudice against the French in France is a on dynamic and laid-back country you know full of striking workers and sheep burning farmers and pompous waiters and what have you now as I'll tell you later actually this conception of month is wrong but the perspective behind this statement is widely accepted even by people who don't like george w bush you need enterprising people you need entrepreneurial people in order to have a successful economy in dispute the poverty of developing countries is attributed to the lack of entrepreneurship in those countries so they equal to developing countries and a straight people from which countries are go to developing countries and visit places like this as they are this is why they don't develop xi coppola that meant eve in the morning smoking the hookahs away you know loca meant that these people that i showed are go go out there and die make money but actually that anyone who is from a developing country or who has live data in one of them for a period will know that that is countries actually teaming with entrepreneurs and that these people here in contrast most cities most are citizens of rich countries have not even come nearer to becoming an entrepreneur you know they mostly work for other people they mostly work for companies which are higher tens of thousands of people doing highly specialized and narrowly specified jobs and in the process realizing someone else's entrepreneurial vision where is our oldest but that people in the markets of Indonesia in Nigeria that I which are what you are seeing there are entrepreneurs in moreover sorry in fact if you compare the numbers you will see that the chance of someone from our developing country being an entrepreneur is anything between 2 and 13 times higher than that for someone from a rich country and on average and actually that those figures are for poor countries that are underestimate the extent because it data is only for the urban sector I mean in the agricultural sector the proportion of our self-employment these are even higher but I mean that leave that aside in poor countries are typically 30 to 50 percent of people work for themselves in the rich countries are the ratio is that less than half that hotter that and actually in some countries even law and actually you see there that the US is one of the least entrepreneurial country in the sense that the proportion of people who are entrepreneurs are much lower than in other developed countries not to speak of countries like Ghana Bangladesh and Benin France does marginally better so you know this was I mean that obvious comment was a classic case of the pot calling the kettle black the difference between France and the United States is actually not as great as he thinks more about the entrepreneurial skills are developing or treant entrepreneurs are tested to the limit because things go wrong all the time you know the delivery doesn't arrive because of but I don't know that because the truck broke down because of pothole in the road yeah I mean the customs wouldn't clear your imports you know the electricity is down again the petty bureaucracy that the inventing new rules to extract garb ribes yeah you know you really have to be quick on your feet are to deal with these situations so how come I mean that all these people yeah trying to realize the entrepreneurial vision with their skills are tested to the limit how come they remain poor and my argument is that this is essentially because entrepreneurship is not an individualistic endeavor anymore if it ever was we need a whole host of our collective institutions to channel entrepreneurship to the right kind of high productivity activities and the scientific infrastructure the corporate institutions the legal system the financial system and so on so that developing country people have a lot of entrepreneur in urging a lot of people are entrepreneurs but they do not have these are supporting institutions and that's why they are poor and this is exactly why as I write in the chapter in the book and elsewhere in one of the papers that you can download that from my websites which I'll show later this is why the microfinance program has delivered so little actually in terms of economic development despite all the expectations and at this point actually nicely links back to thing 3 where I emphasize the collective nature of individual productivity I mean that we become so used to think that it's all down to individuals yes I mean individuals are important I mean after I I mean believe in human agency and I mean in a way I mean that mainstream economic models with assumptions of full rationality actually undermines the very notion of agency because that when we are so rational we know everything these are really new agency the structure is given you are rational you figure out the best way and there's only one right course of action they're gone I don't believe in that kind of world so I truly believe in the human agency but emphasis on human agency shouldn't be confined to individuals a lot of things are like that at the as rate like what they are because of this collective efforts collective institutions accumulated over time so if you begin to think purely in terms of that individuals that you actually cannot really understand this process anyway I talk too much I'll probably uh I don't know whether you can see it but while I wind up I'll I'll let you have a look at the the whole list of 23 things you know in explaining these things in the book I have tried my best to dispel the widespread perception that economics is too complicated for non economists and I say that 95% of economics is common sense made deliberately complicated while even the remaining 5% can be explained in essence in plain terms if not being order that can conditi and what I wanted to do with the book is to keep my readers with some fundamental economic reasoning and some basic but often misunderstood facts about capitalism so that they can better exercise what I call in the book active economic citizenship and demand right causes of action from our policymakers and business leaders be in relation to financial reform inflation welfare state or development policy you know this is not easy I mean I often joke that the most difficult job in the world is that being a citizen of a democratic country because you have to know everything you have to have an opinion on everything you know in other jobs that are yours another but the tasks are relatively limited and specializing if you want to be a active citizen you have to have an opinion on well I mean everything from global warming to pension reform to child benefit to kind of our CCTVs here so a lot of people actually give up yeah look I'm and I don't that I even understand my own finance I mean how can I comment on the global financial reform but we have to make an effort them because that our refusal to engage that with these things I will reluctance at least is that the water allows some people to get away with murder and when you think about it are you don't need that sophisticated economics to make judgments on these things you know I mean I don't have a PhD in biology or epidemiology but even I know that there should be some hygiene standard in food factories and restaurants you know you don't need a PhD in finance to know that leverage cannot go up to five thousand percent and release my since you hope that that is a book encourages that the people who normally not read economics and think economics is that someone else's that the thing to you know get interested and develop but understanding and if you want more information you can go to these places and find out a bit more but I'll wind up so that we can have discussion thank you well thank you very much there's lots of the same kind of wry humor in the book together with them much more fleshed out and sustained argument then Hajin was able to deliver now um just before we opened it up let me illustrate just how powerful have been the ideas that and still are the ideas that Hajin is challenging first of all Hayek Friedrich von Hayek published a book in 1944 called road to serfdom in which he argued that the Beveridge welfare state that was then being put in motion represented the beginning of a slippery slope such that the curtailment of economic freedom which the welfare state represented would cause a curtailment of political freedom they would then be a vicious spiral downwards such that as economic freedom was curtailed and political freedom was therefore curtailed we would end up in the modern version of serfdom this was Hayek's argument in 1944 the sales of that book have been surging in the United States since Obama became a presidential candidate and since he became even more since he became president to the point where earlier this year it was number 240 on the Amazon bestsellers list the reason is because Glenn Beck Rush Limbaugh the Tea Party and other such entities have been promoting this book published in 1944 the road to serfdom as a guide to what the Obama socialist administration is is trying to do with healthcare with the bailout of the banks and so on this is the roadmap according to these people and they have been so persuasive as to make sales of the book 240 on the Amazon bestsellers list I've I find that really quite um scary by the way Hayek taught at LSE of course and was one of the people Lionel Robbins fostered to make LSE the bastion of anti Keynesian economics um second point my friend Rafiq Klinsky was having dinner with the permanent secretary of the department of international development some years ago quite some years ago and raphe mentioned to the permanent secretary that if he went across he was then at the Institute of Development Studies University of Sussex a colleague of mine he if he went across the road and joined a firm that he'd been consulting for he could double his salary just like that and the permanent secretary of differed looked at him and said good heavens well you should do it the salary is the best indicator of your social value he said that is another illustration of just how powerful these ideas of virtues of free markets and having become and this is the context in which we are still living despite the kind of challenge to this way of seeing that the global economic crisis has thrown up so with that let me remind you that there is a glaring hole in the book he doesn't talk anything about environment or climate change and maybe somebody would like to press him on that point so let's take three questions at a time and I'll begin right up at the back so here you all right the three questions yeah yeah right up at the back either Stephen Whitehead from the explanation run the New Economics foundation that's right so it's theater arguments that you've made mobile really interesting intellectual space for governments to do more to try and control markets but you haven't really talked at this stage about what they should do in order if you had any and it's always a difficult question any policies prescriptions that got that the UK government can undertake now to try and control financial markets to improve well-being okay there was somebody else in the gallery yes can I run from an investment bank you don't really care which one the question was no it's not Lehman Brothers the question was really related to your one about the career versus the many failures what are the lessons from careers development that can be made if any because it seems to me that the idea of the importance of institutions and governments isn't governance isn't completely novel in in developing development thinking uh-huh okay and last went in the gallery and then we'll come down yes hello yeah hi my name is usman I'm from so as I'm sort of politics and of all the points that you know I saw I found I was really hoping you'd bring this up number four the washing machine has changed the world more than the entire I'm actually fascinated to know exactly how do you come to that conclusion okay every - alright um yeah I I do make a quite a few concrete proposals throughout the book and also to summarize them in the concluding chapter so that you can read those and get the details but yeah basically in the British case I see that the task is not to restore balance is a balance is between state and market balances between the finance and Industry balances between that actually finance and that that the real economy and and balances between finance and services you know let me give you one illustration the ratio between the total value of our financial assets in the world economy and world output of course I mean these two are kind of different figures so I'm not saying that is they can be directly compared but used to be like a 1.2 in the early 1970s this is a 4.4 which means that that to produce the same unit of output we need the only four times more financial assets than before why you know I have nothing against our finance that that that the mushrooming if it actually makes the economy bigger but we now have yeah I mean the same I don't know that that the poor guy in New Orleans that trying to make his ends meet a wild repaying mortgage now compared to 40 years ago that there are 4 times more claims on his activities yeah why I mean these are things indeed we looked at so I mean don't get me wrong you know I meant that I took paraphrase Winston Churchill that I I think the capitalism is the worst economic system except for all the others huh so I mean I'm not anti-capitalist as some people are and I think that this is that the best what we have a system that we have but my problem is that the particular variety of capitalism that we have practiced is that the finance driven free market capitalism hasn't served the humanity very well now Korea versus our failures yeah actually that this is a point that I have been making probably that for good ten years as since I published my book kicking of the letter in 2002 and one or two things before that you know people like to portray Korea as an exception that proves the rule actually it is not an exception because the strategy that Korea used to develop is economic the selective industrial policy government mobilizing surpluses and controlling capital flows and so on I mean these are policies that fortunately all of today's rich countries have used in order to develop their economy this strategy actually was invented in Britain by Robert Walpole the first Prime Minister and it was a that pop it and and theorized by the Americans and you know the famous infant industry argument was invented by none other than Alexander Hamilton the first-ever Treasury secretary of the United States and then the Germans are wanted from the Americans and copied it and the Japanese are copied it from the Germans and the Koreans copied it from the Japanese and Sonja so yes I mean that when people say all you know for every Korea there are 100 failures I ask that these people then how do you explain all these other 30 countries that have become richer essentially using the same policies I mean same not in exact form but in terms of the spirit that is you need to nurture and protect your young industries when you're back becoming the washing machine actually this has been quite extensively discussed in my interview with The Observer newspaper with my picture with washing machine so you can start with that but yeah very briefly that the point is that you know we tend to get are fascinated by the most recent changes huh yeah and and the internet revolution is happening now it has that changed a lot of things but we knew that thing through it actually it has changed many our leisure life I mean of the work life and actually there's very little evidence that the Internet has increased our productivity and actually it has our made that leasing offices are shirking very easy you know I do that yeah I watch that that that that my yet favorite that the sports are the broadcaster in my office yeah I I read newspapers in contrast are that the washing machine I made isn't just washing machine but the washing machine and associated household technologies like pipe water and pipe gasps yeah I mean electric Hoover and so on they have basically in a enabled women to go out and on independent income and this has changed the whole host of things the power relationship within the household the number of children we have the timing of data that the children that we have and yeah I mean that abolishment of profession like domestic servants huh no I mean that say you go to Egypt but something like ten percent of population is that hired as domestic servant you go to Sweden the ratio is 0.005 percent so put together these that really monumental changes I'm not saying that internet that in the end may here I mean even in the future that that may not change things as much as the washing machine has but at least so far the evidences are pretty limited and even in terms of partial speed you know I mean yeah Internet is that the other revolutionary features like the search capability and ability to send pictures and so on but the in terms of pure speed it isn't actually that revolutionary the real revolution was that I went day later that cable under the Atlantic to send telegrapher before that it took used to take like three well if you are really lucky that three and a half weeks are to send a message across the Atlantic with that the Telegraph the time was reduced to what 20 minutes 30 minutes now this is a reduction in the order of birth to three thousand times the Internet has reduced the speed from what 30 seconds that takes on fax machine to say three seconds is there actually not that revolutionary huh you know Internet gets a lot of press because our people who write about these things have benefited a lot from it yeah yeah I I did yeah I mean I wrote a whole book with my friend Eileen Grable who teaches in Colorado Denver Colorado with just one face-to-face meeting her everything else was that on on the Internet yeah so for someone like me my walk life has been transformed but does it mean that actually it has had big social impact maybe does it mean that it has had a huge economic impact I don't think so so well I mean if you're intrigued cut up please read read the book just to qualification on your argument and that your your critical of a particular type of capital finance - driven capitalism but a distinction has to be made between at least two types of finance capitalism in the ballet park around the turn of the 20th century finance is the big finances were very powerful and they were sitting on the boards of the big oligopolies that were driving the new mass production industry the difference today I mean since the 1980s is that finance has become yes very powerful but also quite detached from real action in a way that the Belle époque financier were not to the point where finance is generating huge profits by fan by financing finance that's the paradoxes ruin finance is financing finance far removed from production and that is part of the reason why it has become so paresthesia know exactly I mean that without the modern financial institutions like that banking and limited liability companies I will still be living in the Adam Smith pin Factory world so that these financial that the institutions have been very important and actually paradoxically that one of the people who first saw it as I discussing that thing too was Karl Marx yeah in his time a lot of our free market economies were against our limited liability companies because they took it Chris in modern times moral hazard which it does but Marx said well I mean never mind that that allows a huge mobilization of huge Domino Kaptur Machado allows the implementation about new technologies and this is capitalist production in his highest forms I mean of course I he supported it that that because that he thought this will eventually lead to socialism because that is will hardly to separation between ownership and management and then when that happens you can just that kick out the owners yeah because that they are not really doing anything and then that managers can be that party officials or whatever so he had a hidden agenda but you know he was able to see how this that institutions were that are doing very powerful positive things unfortunately as robot put it very well I mean now is that finance for his own sake okay let's take three more questions are taken from down here yes good evening my name is Tonya Dimitrova from Queen Mary University my question won't come as a surprise but you did seem to avoid the topic of environmental constraints to economic growth and sustainable development and unless you have a really good reason to avoid it could you please talk a little bit more about it yeah thank you good evening I'm from Elysee um I wanna go over I think yes I want to go back to the washing machine question and kind of say that I come from a country that has managed to overturn the government through Twitter overnight with you know more than 20,000 people coming up this is Moldova yes so I was just wondering because in the book you you just talked about internet as email connection or connectivity and but you don't really touch upon information and you know just you know getting people to motivate motivated to or mobilize and my second thing is you know thing 2 and 3 and 13 are very based on kind of a relative approach global versus local and I was wondering say you you say in the book what actions should be taken but you don't mention by who and I was wondering if you could elaborate on that a little bit no no I'm not sure that I understand the location I mean global versus local on use the mic for example the driver right and that's in terms of mobility and should be it's it's an approach to economics rather than local economics global economics so you know if there is a mobility to be increased or liberalized that is kind of like a global issue and who should you know deal with okay okay I'm at the back yes I know you said early on in your talk you just read it by yourself my name is Liam you said in your in your speech by the book that you wish the rich would do their jobs in that case you wouldn't have so to a problem with them as you no doubt more aware that most financing of entrepreneurial and business activity takes place through banks and central banks and I was wondering what you thought the role of central banks and banks should be in a democratic capitalist society and whether you think that the actual nature and nature and role of money is something that should be maybe number 24 on your list meaning what the role of many words specifically do you have in mind well focusing on the nature of it the idea I think what came through from your talk was that this idea of money is quite a tangible thing and that the rich redistribute it amongst people that are in need of it for entrepreneurial activity as we know modern financial system doesn't work like that and banks are we distributing or handing out financial assets to people that I haven't been deposited with them and I'm wondering whether the very nature of money and financial instruments is something that is misunderstood by people as when they perceive capitalism and whether that's the thing that should be on the end of the list that money itself is misunderstood right um when the occasionally environment I don't have a chapter because I don't think I have anything interesting on you to say and it's not because I don't think it's unimportant you know I mean there are lots of important things that I could have said but didn't because I don't know much about it so is that not a hugely political decision washing-machine yes I mean that Internet has that on those things but I don't know I mean you have to put it into perspective I mean I think there were more revolutions before the internet and there are now those are people that are probably distracted by frivolous things on the Internet ah not I meant that yeah not that I mean saying that though things like what you have said is irrelevant but you know once again I meant a please I read my book I mean I keep just a few examples but no we tend to think things that are happening now things that have happened recently are necessarily more important but you know that's not necessary to case um yeah I think your point about that the global and local after I understood it that is a very good very important you know in whose benefits from whose points of view are we devising these policies yeah all right once I can take the case of immigration yeah if you have a job in a rich country which other people cannot easily take away you will actually benefit from having the freest possible immigration because your restaurant bills will go down and your yeah that you are probably able to hire a chauffeur now and all that yeah but when these immigration that happens that local people who used to do those jobs lose their jobs so it's a very bad for them and I have a chapter discussing whether the u.s. truly has that the highest living standard in the world and their one point I make is that that the reason why purchasing power but the Americans are so much greater than the purchasing power but other countries is mainly because it has cheap services for country or that level of income all right this is great if you are a consumer but if you are a waitress or taxi driver it sucks yeah and I mean further point if you take out the same and say five mile taxi ride in Boston you pay something like fifteen dollars the same taxi ride in Geneva will cost you $35 so the money actually goes up mostly that to the taxi driver so taifa the passenger yes is great that you have all these that unemployed medical doctors from Nigeria driving taxis in New York and driving down the taxi fare but if you had that guy driving the taxi is not great yeah I think Carter these are I mean really difficult questions in whose interests are we devising these policies central bank yes I mean I believe that central banks should be politically controlled and is that the idea of central bank independence I find that very that problematic because you know this is that that presumption that the central bankers are politically neutral technocrats no they are not I mean they yeah I mean the are by nature helipad that are in favor of the financial industry so when you leap at these people independent they'll do policies that are inherently favorable to finance at the cost of jobs and growth so you have to control these people and I thought one brilliant thing that that the neoliberal have pulled off is that to convince the world that every important decision should be taken out of democracy so keep it to independent central bank yet the World Bank has been advocating independent revenue agents a it dependent the industry regulators and why do you then have a democracy here so that central bank part our independence that I should be put in that context now I mean if you keep out that independence to this unelected you know technocrats you are handing them the power that cannot be controlled up by your democratic institutions and that you have reduced the importance of your democracy by so much quantification of nature of money I have nothing intelligent to say so let's I'll leave it there but when I use the expression money I don't necessarily mean money in the economic sense I meant that I mean that you could say that I'm talking about a surplus and income and so and so I mean when I say money I don't necessarily mean money in the strict sense on the subject of central banks and banking let me just mention two excellent films that are just about to come out the first one is called the floor as in FL aww rather than FL double o are the floor which takes its title from alan greenspan's testimony to Congress in which he admitted he had discovered a flaw in his ideology his ideology being that shareholders would always make sure that their company did not take unnecessary risks to its survival and then he discovered that they would this film is by David Sinkin and it's about how this great crisis came upon us and with a particular emphasis on the role of income distribution and wealth distribution in generating financial fragility the second film is called inside job by Charles Ferguson and it contains some truly astonishing interviews with bankers I'll leave it there but look out for these two films and we have time for I think just another quick round yes one yes one yes thank you my name is Nita and I'm from Mauritius I'm a member of parliament of the Labour Party there my one question you're a member of parliament yes of Mauritius and member with Labour Party my question would be again with the environment but with a specific question of given that three-quarters of the world population live in sun-drenched areas why do you think photovoltaic so the technology is still so prohibitive in order to respond to renewable energy and the question that I can't help myself asking is about saying 20 why do you think equality of opportunities is not fair yes there was a question of it Alima really Micawber Johnny and Department of International pickup Department of International Development and Government Department um if Ed Miliband to take you out for lunch which I understand that famous look John doing speaker sorry if Ed Miliband were to take you out for lunch as I understand he might be doing if he hasn't done so already what would you tell them about the austerity measures that the coalition government is introducing is it striking the balance that you think the UK needs or is it not okay I think this would be the last one yes and before your book came out the big selling economics books in this country in recent times it will be seems to me to do with behavioral economics what is your view of that sort of approach to economics we transfer behaviorally odd behavior yeah a view of behavioral economics okay just right okay arm yes I meant that the problem is that the lack of photovoltaic technologies that people who have the capabilities to develop those technologies to Montana basically that the problem is that the which countries have the capabilities to develop these technologies but I said not in the interest to do it I mean they would rather and invade Iraq and target more oil I mean a lot easier you know so that is that fundamental mismatch between these and capabilities huh and that's what that is proposition the equality of opportunity may not be fair I'm and I wasn't saying that it thought that should be rejected I mean what I was trying to say in that chapter is that it is only the starting point you know would you call or raise fair simply because no one is allowed to have a head start if you know half the contestants have only one leg and I meant that that this is a serious point I meant that rich countries say all developing countries I should play by the same rules yeah I mean people with yeah and about money and good education say that that is poor kids I should that competence does equal Tom's yeah no I mean that's not enough so that I was trying to argue that you need some degree of equality of outcome in order to ensure that equality of opportunity as a true meaning right are nearly Monsieur that when it talked about a lunch with Ed Miliband dodges are referring to this editorial article in The Guardian which are recommended that at minimum takes me out to lunch so if it happens it'll be the first time example pas de the arranged luncheon as in orange marriage um well without assuming anything about the lunch at yes I mean I think this austerity plan of the Conservative government is wrong in so many ways I mean first of all the origins the hours that are listening to Ian Duncan Smith sat on radio yesterday he was talking as if ad that that this deficit was created by the Labour Party throwing money Center left and right not this was mainly created by the banking crisis so today first of all Katya diagnosed is wrong and secondly at a kippah talking about that at devising a fair fairer system but you know that people have caused this accident that that should bear the brunt of Tassili the bulk of data burden where is that that I mean the dated I mean in coming up with this bank levy that a surprise the bankers II by coming up with a figure that was that are considered too low even by the bankers and and in macroeconomic terms yeah if you cut your deficit too far too quickly you are going to pusher you come into recession again this is why when Spain a few months ago announced this austerity plan Buddhism ediot Li downgraded its credit rating because they knew that if you cut that deficit in that kind of way you are going to die push the economy back into recession but you know one thing I don't understand in this debate is I mean why are people so obsessed with dates yeah days do not have any meaning in your clinics you know why do you need to cut it in half by 2014 or cut it by 70 percent by 2050 you know I mean that if you have economic reasoning you should say things like yeah we will cut this much but may stop if the economy takes a downturn if the manufacturing production index falls below this I mean you have to use indicators that have economic meaning 2013-2014 doesn't have any meaning that it is a test by number SOTA and then on top of that a tea coalition has this agenda to rollback the welfare state which I do not agree with because I argue in thing 21 that that the welfare state is the bankruptcy law to workers and we need that actually to encourage that workers that to take that initiative and risk so yes where do I stop yeah okay I'll stop there behavioral economics yes I meant that I actually talked about Homer Simon the father of behavioral economics a lot in my book so I'm and favorably inclined to that school but and I meant that there are many different types of behavior economics and now if you are talking about and those things that we saw in more popular and about economics books recently I'm not entirely sure that I like it but that is a great book are written by University of Michigan psychology professor called the free-market madness and he actually has a lot of very interesting behavior research that packing up his argument analyzing how market behaviors can be very rational and so and what's his name uh is that in the book guy in my book I forgot uh well other reason to buy the book and was it what is the title then free-market madness yeah ok so I'll stop there thank you

Channel: LSE

Views: 143,520

Rating: 4.6666665 out of 5

Keywords: LSE, London, School, of, Economics, London_School_of_Economics, University, College, Public, Lecture, Event, Seminar, Talk, Speech, socialscience, Professor, Ha-Joon, Chang, Ha-Joon_Chang, Ha_Joon_Chang, economy, 23, Things, They, Don't, Tell, You, About, Capitalism, dislike, facts, book, free, market, free-market, truth, ideaology, right, wrong, better, trade, assumption, argument, works, story

Id: 56RndDFRnH4

Length: 84min 59sec (5099 seconds)

Published: Fri Jan 14 2011

Reddit Comments

[u/[deleted]]

thanks for posting, i like this guys straight forward style. Somehow he found a way to still sneak in some jokes and jabs. I think i might scoop this guys book after watching this.