Thing 1 - There is no such thing as a free market.
Pace the glorification of the free market in recent years, this is largely a mythical animal. This is not just because of government interference, it is often because the private sector doesn’t want to be free, regardless of what it says. Even when we could hypothetically free up markets, we frequently wouldn’t be better off it we did.
Thing 2 - Companies should not be run in the interest of their owners.
Not entirely, that is. Even the former king of “shareholder value” himself, ex-GE CEO Jack Welch, has recently conceded this. Long-term success requires taking seriously everyone who contributes to a business: not just equity investors but also employees, suppliers, customers, and plant communities.
Thing 3 - Most people in rich countries are paid more than they should be.
Neither you nor I did anything to deserve to be born in this country—or after the invention of antibiotics, for that matter. This doesn’t mean we should feel guilty; it does mean we should remember we succeed in large part because of what society we belong to, not just due to our own efforts.
Thing 4 - The washing machine has changed the world more than the Internet.
The washing machine and other labor-saving devices made feasible the radical change in women’s roles we know as feminism. Similarly, without the humble air conditioner, America would have no Sunbelt. Twitter doesn’t come close.
Thing 5 - Assume the worst about people and you will get the worst.
Yes, people’s behavior is maybe 70 percent self-interested. But the remaining 30 percent is a big chunk, and you can’t make sense of even a capitalist economy without taking it seriously. Companies (and countries!) that understand this do better than those that try to run on selfishness alone.
Thing 6 - Greater macroeconomic stability has not made the world economy more stable.
Brutal anti-inflationary policies can easily do more damage than the inflation they combat. Protecting the value of a nation’s money is less important that protecting its economy as a whole. We’ve had more financial crises the more obsessed with hard money we’ve become.
Thing 7 - Free-market policies rarely make poor countries rich.
As I discussed in Chapter Six of my own book, every developed nation from England down to the present day got that way through protectionism and state industrial policy, not pure free markets. Even the good ol’ USA played this game from Independence until after WWII.
Thing 8 - Capital has a nationality.
Capital mobility causes plenty of mischief in our overly globalized world, but it’s a myth that capital has been denationalized into free-floating ether. Money always belongs to somebody, and those somebodies have passports and home addresses. It matters who’s in charge, and the answer is never “nobody.”
Thing 9 - We do not live in a post-industrial age.
The myth that we do has just led to the neglect of U.S. manufacturing while Japan and Germany remain quite competitive in hard industries despite paying decent wages. You can’t download a ride to work or the supermarket.
Thing 10 - The U.S. does not have the highest standard of living in the world.
Much bad policy, both here and abroad, has been based on the idea that the American version of capitalism is observably superior. But our per-hour average income ranks about 8th in the world on a purchasing-power parity (read the book to find out what that is) basis.
Thing 11 - Africa is not destined for underdevelopment.
Africans aren’t poor because of any mysterious or immutable factors. In the 1960s and 1970s, they were making progress. They’re poor for the same reasons other nations were once poor—which means that their poverty can be fixed if the apply the same solutions other nations have.
Thing 12 - Governments can pick winners.
Not every time, and don’t get careless, but the free market isn’t always right, and the government isn’t always wrong. In the U.S., government was responsible for (in order) the Erie Canal, the Transcontinental Railroad, the Interstate Highway System, and the Internet. Not to mention the aircraft and semiconductor industries. In East Asia, governments did even more.
Thing 13 - Making rich people richer doesn’t make the rest of us richer.
Trickle down economics doesn’t work because wealth doesn’t trickle down. It trickles up, which is why the rich are the rich in the first place.
Thing 14 - U.S. managers are overpriced.
America has the highest-paid corporate managers in the world. We don’t have the best-performing industries. Are we getting our money’s worth? You do the math.
Thing 15 - People in poor countries are more entrepreneurial than people in rich countries.
Yup: they open up fruit stands at the drop of a hat. This doesn’t stop them from being poor, so stop telling them they need to be more “entrepreneurial.” Their problems lie elsewhere.
Thing 16 - We are not smart enough to leave things to the market.
In the real world, markets don’t take care of themselves. They need to be regulated. How much and in what way is legitimate party politics, but an unregulated economy is a dangerous fantasy.
Thing 17 - More education in itself is not going to make a country richer.
You need not just education, but industries for educated people to work in. And paper-pushing education isn’t necessarily the kind of education you need—something America forgets with its neglect of serious vocational training. Again, ask Germany and Japan.
Thing 18 - What is good for General Motors is not necessarily good for the United States.
There was (maybe) once a time when the interests of giant corporations were reasonably closely aligned with the interests of the national economies they reside in. That time is long gone. Multinationals will treat nations as hotels if we let them.
Thing 19 - Despite the fall of communism, we are still living in planned economies.
Capitalist planned economies, that is—only nobody calls it that when we get the results that happy suburban consumers like ourselves want. The very fact that people are whining to Washington to solve our economic problems reveals how important planning is in this country.
Thing 20 - Equality of opportunity may be not be fair.
A “get what you deserve” society sounds good, and in many ways it is, but there need to be some minimums for what even the losers get.
Thing 21 - Big government makes people more open to change.
Because it makes them more able to take risks. Some economies with big welfare states do very well, thank you. It all depends on what kind of big government you have. If big government is always a loser, why is America borrowing money from Sweden?
Thing 22 - Financial markets need to become less, not more, efficient.
Efficiency in financial markets isn’t the same thing as efficiency in other industries. It can easily just mean “efficiently sinking into debt.” Even we Americans understood this from about 1930 to 1980; time to relearn it.
Thing 23 - Good economic policy does not require good economists.
Most of the really important economic issues, the ones that decide whether nations sink or swim, are within the intellectual reach of intelligent non-economists. Academic Economics with a capital “E” has remarkably little to say about the things that really matter. Concerned citizens need to stop being intimidated by the experts here.
Thing 1 – “They” tell us that: the overall economic system works best when people are free to make choices within the market.
Free market economic theory is based on the notion that a market is scientifically definable but it cannot be. Consider these products & services: child labour, drugs, firearms, slaves, excessive interest, pornography, worthless shares. Also consider these actions: the rights to pollute or commercially mislead, underpay employees, over-work employees, charge interest. The legality of these offerings and actions differs between countries, governments, people, religions and even eras so the boundaries of markets are politically determined. This reality shows that the concept of the value free “scientifically” defined market so revered by free market economists simply does not exist.
Thing 2 – “They” tell us that: Shareholders own companies therefore they should be run in the interests of shareholders.
History has shown that shareholders don’t care about the long term viability of an enterprise or the interests of the country in which they are located. During the early 1980’s the principle of shareholder wealth maximization was generally accepted in Anglo/American countries. Distributions to shareholders grew from around 35% of total profits previously, to 60%. Managements focussed on maximizing short term returns to shareholders and shared in the binge by taking outrageous bonuses and increases in salary packages. Employees, suppliers and the interests of the nation became expendable on the altar of the free market. This abdication of social responsibility did not occur anywhere near the same extent in most other rich countries. One affect was that a larger share of the national wealth finished in the hands of fewer people and culminated in the GFC which destroyed corporations and weakened nations. This affects are still being played out.
Thing 3 – “They” tell us that: Only a free labour market can reward people efficiently and justly.
This is wrong when considered internationally. Large differences in wage rates are only possible because of strict and limiting immigration policies. It is also wrong within a single country. The amount of work and value by individuals within a single country is governed by the available technology and the extent of cooperation between people. In essence no man is an island.
Thing 4 – “They” tell us that: The communications revolution requires individuals, firms and nations to become more flexible.
The affect of communications should be put into perspective. By reducing the time it takes to undertake specific and required tasks, the humble washing machine (and things like it), had a far greater affect on people’s lives then than the internet has had on our lives. Preoccupation with one technology risks undervaluing the common good and can lead in wrong directions.
Thing 5 – “They” tell us that: We have to assume the worst about people if we are to construct a durable economic system.
The free market economic system is constructed on the assumption that behaviour of the players in markets follows that of the “pathological” “Economic man” who is totally self interested, value free and totally rational. Without this assumption the free market economic model would not work. Ample evidence shows that this assumption is clearly false.
Thing 6 – “They” tell us that: Control of inflation has laid the basis for long term prosperity.
Lower inflation is one of the three pillar free market policy package embraced by the World Bank, the OECD and western governments, (the other pillars are greater capital mobility and greater job insecurity sometimes called labour market flexibility). In fact anti inflationary policies combined with the use of inflation as the primary measure of economic stability have done great harm to developing economies and have failed to achieve the supposed aim of maintaining economic stability.
Thing 7 – “They” tell us that: Free market policies make countries rich.
Contrary to what is commonly believed developing countries which followed a policy of state led development have been superior to what they achieved during the subsequent period of market orientated reform. There are examples of state led development failures but there are also examples of free market led development failures. Even free market bastions, including USA and UK, have become rich through policies that are the opposite of free market. They include combinations of protectionism, subsidies and other policies they advise developing countries not to adopt.
Thing 8 – “They” tell us that: Transnational companies have no nationality.
Most so called international companies usually are usually national companies that trade internationally where high end research and strategies are undertaken at home and major decisions are made by decision makers who are home country nationals.
Thing 9 – “They” tell us that: We live in a post industrial age and should be focussing on post industrial economic activities.
Manufacturing (a so called pre industrial activity) creates employment, generates research and is an engine for growth in a way that services (a post industrial activity) are not
Thing 10 – “They” tell us that: Despite its problems the US still enjoys the highest standard of living (SOL) and is a good role model.
The country has a high mal-distribution of wealth, high crime rates but it has cheap services thanks to high immigration and low labour pay rates and employment conditions. Americans work considerably longer than the average European. The USA’s SOL is not unambiguously better than many countries in Europe.
Thing 11 – “They” tell us that: Cultural, ethnic and structural problems will cause Africa to be propped up by foreign aid.
The requirement to implement free market policies as a condition of foreign aid has been a major reason why nations on the continent have languished.
Thing 12 – “They” tell us that: Governments can not pick winners.
Governments have been eminently successful in picking winners. This free market ideology is self serving. The worst, most destructive and most obvious failures resulted from decisions made by the private sector, witness the GFC.
Thing 13 – “They” tell us that: Making rich people richer benefits everyone.
“Trickle down economics” stumbles at the first hurdle. Pro rich policies have failed to accelerate growth during the last three decades. They have also increased the mal-distribution of wealth within countries and between them
Thing 14 – “They” tell us that: In the US, payments of obscene amounts to top executives is not obscene.
Top US executives are overpriced by any reasonable measure. They receive more than 20 times the remuneration received by top equivalents in other countries. Their rate of remuneration growth has outstripped growth in average wages by a staggering amount. They are not punished for poor performance and have been able to gain such economic, political and ideological power in the US that it can manipulate the forces that determine their pay levels.
Thing 15 – “They” tell us that: One of the reasons for the lack of economic dynamism in France and those in the developing world is the lack of entrepreneurship.
If entrepreneurship was ever a purely individual thing it has stopped being so for the last 100 years. The assertion also ignores all of the bars that confront developing countries including shortage of technology and internationally imposed destructive free market economic policies.
Thing 16 – “They” tell us that: We should leave the markets alone.
This is a self interest ideology of those who benefits from free markets. In fact the markets get things wrong as frequently as it gets it right. Read climate change, the GFC and the outcomes of free market development ideology previously highlighted.
Thing 17 “They” tell us that: A well educated workforce is necessary for economic development.
There is remarkably little evidence to support this assertion. What really matters in determining national prosperity is the nation’s ability to organize individuals into enterprises with high productivity
Thing 18 – “They” tell us that: The Government needs to give the maximum degree of freedom to business.
The concept of “What is good for General Motors is not necessarily good for the USA” is the reality. Business is driven by the profit motive and this can conflict with national and international interests and the laws. Read tobacco, petroleum, coal, GFC, finance, and so on. The concept of “maximum degree” is ambiguous.
Thing 19 – “They” tell us that: The less Government planning there is the better.
Governments in Capitalist economies plan albeit to a lesser degree than in controlled economies but still plan. The private sector in modern economies is dominated by large hierarchical corporations all of whom plan their activities in great detail just like any large organization needs to.
Thing 20 – “They” tell us that: People should be given equal opportunity but affirmative action is unfair and inefficient.
Individuals should be rewarded for better performance but the question is whether they are competing under the same conditions. Unless there is some equality of outcomes the concept of “equality of opportunity” is not truly meaningful.
Thing 21 – “They” tell us that: Big Government is bad for the economy.
A well designed welfare state can actually encourage people to take chances with their jobs and create. Take Europe where the demand for protection is less than in the USA
Thing 22 – “They” tell us that: The rapid development of financial markets to allocate and reallocate resources swiftly is necessary.
Today’s financial markets are too efficient. They have produced so many financial instruments that the sector has generated excess profits for itself and has become a destructive force in the world. Think the GFC.
Thing 23 – “They” tell us that: Free market policies are doubly good because they are the best (most effective) policies and minimize the room for bureaucrats to make errors.
Good judgement, not good economists is required to make good economic policy. Take the miracle years of Korea and Japan which were run by Lawyers and the China and Taiwan which were run be Engineers. Take note of what Economists achieved in the USA, namely the GFC.
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