Sep 24, 2011

Book Review: "23 things they don't teach you about capitalism", by Ha-Joon Chang.

Argentina recently imposed import-license requirements for mobile-phones. Its motive is to replace imports with local production, and hence create jobs. The trade policy, coupled with tax incentives, led Research in Motion, the makers of BlackBerrys, to begin assembling phones in Tierra del Fuego. Similarly, Brazil is trying to replace imports by local manufacturing using tax breaks. As a result, Foxconn is setting up a Brazilian plant to assemble iPads.

Both these examples, taken from this week’s Economist, would make Ha-Joon Chang smile. Not only is he a great believer in the role of manufacturing in prosperity (see here how he crushed Bhagwati in an onlinedebate), he also believes such industrial policy is exactly the right tool to promote development. His latest book, “23 things they don’t tell you about capitalism”, makes the point once again, repeating his favorite stories from previous books (see my previous review here).

The author is quite talented at convincing people that capitalism is often a bad idea. His approach consists in making extremes out of free-market ideas, and giving a few examples to prove they’re not true. Arguing by examples does not usually convince economists, who prefer regressions. But the latter should pay attention rather than dismiss it so easily.

He is most interesting when arguing that education does not matter much for growth. A university education does not make you more productive. What matters more is the capacity of organization of leaders, whether in business or government. He’s also fun when he gives example of how economists don’t do good policy. The rest is mostly summarized as “free-market policies don’t always work, but quite to the contrary”.

All in all, this is another great book by Ha-Joon Chang, but nothing new. As for Brazil and Argentina, let’s see what happens to their industries in the years to come.


Yose said...

On my Blackberry's box, it says the device is made in China. But nobody would say Chinese producers get a big chunk of the profits. How come it's really difficult to understand that what matters is value chain, not where it assembles?

Pierre-Louis said...

Hey Yose! seems like posting about Ha-Joon Chang really attarcts your comments! True that value-added is what matters for GDP, not assembly since a lot of the components are imported. But assembly work means FDI which create jobs and technological spillovers, unlike imports... And Chinese producers might not get a big chunk of the profits of balckberrys, but it still gets the FDI, jobs and grows at 10%... So assembly matters I would say, the question is more whether ou should force it (as in Argentina) or incentivize it (as in East Asia)!