‘I am one of the most successful economists, according to what markets tell us, though most of my professional colleagues, who are much keener to accept market outcomes than I am, would dismiss me as a crank or – the worst of all abuses among economists – a “sociologist”.’
Chang conducts his guerrilla war against economic orthodoxy from a cramped office at Cambridge university’s Sidgwick site. For him, economics is a tool for changing the world, not for explaining why the world is as we find it. He is a reader at Cambridge rather than a full professor, a relative sidelining he attributes to his heterodox approach. ‘I don’t do maths,’ he says, blinking softly through his round, silver-rimmed spectacles. ‘A lot of economists think I’m not an economist.’
He is, though, a star with a big following. In the wake of the global financial crisis, organisations such as the International Monetary Fund – which used to regard him as ‘an oddity’ – regularly invite him to speak. Still, he reckons the economics profession overall remains resistant to fresh ideas, clinging to its status as a pseudoscience undergirded by unbreakable mathematical rules. ‘These things do not change overnight. The German physicist Max Planck once said science progresses one funeral at a time.’ . . .
‘The predominant view in the profession is that there’s one particular way of doing economics. It’s basically to set up some mathematical model, the more complicated the better,’ he says, advocating instead what he calls a multidisciplinary approach. ‘In a biology department, you have people doing all sorts of different things. So some do DNA analysis, others do anatomy, some people go and sit with gorillas in the forests of Burundi, and others do experiments with rats. But they are called biologists because biologists recognise that living organisms are complex things and you cannot understand them only at one level. So why can’t economists become like that?
‘Yes, you do need people crunching numbers, but you also need people going to factories and doing surveys, you need people watching political changes to see what’s going on.’ . . .
‘They don’t get huge brownie points for writing for the general public because a lot of economists have a very dim view of what the general public can understand,” he says. “But the Freakonomics guys are accepted as part of the mainstream because they have this very particular view of human behaviour, which is “rational choice”. That is: “We are all selfish, we basically do our best to promote our self-interest and that choice is made in a rational way.”‘
‘I don’t take that view,’ he says. ‘Rational thinking is an important aspect of human nature, but we have imagination, we have ambition, we have irrational fear, we are swayed by other people, we get indoctrinated and we get influenced by advertising,’ he says. ‘Even if we are actually rational, leaving it to the market may produce collectively irrational outcomes. So when a bubble develops it is rational for individuals to keep inflating the bubble, thinking that they can pull out at the last minute and make a lot of money. But collectively speaking . . . ’
I ask how the economics profession has been hijacked by a single methodology. ‘Hijacked, yes. I think that’s right,’ he says, evidently pleased with my choice of word. ‘Unfortunately, a lot of economists wanted to make their subject a science. So the more what you do resembles physics or chemistry the more credible you become. The economics profession is like the Catholic clergy. In the old days, they refused to translate the Bible, so unless you knew Latin you couldn’t read it. Today, unless you are good at maths and statistics, you cannot penetrate the economic literature.’
This, he says, leaves economic decision-making to a high priesthood of technocrats and central bankers. ‘Fat chance that a union official in Bradford will be able to beat the academic spouting rational choice theory,’ he says. This – and here is his punchline – suits those with money and power. ‘If you have a professor from MIT or Oxford saying that things are as they are because they have to be, then as a person benefiting from the status quo you can’t be happier.’
. . .
‘A lot of social democrats bought into that fairy tale [of market perfection],’ he says. ‘That’s why I am writing these popular books, because people have been told a very particular story and they need some antidote to it. I’m not saying I have some kind of monopoly over truth, but at least you need to hear a different side of the story.’
We turn to his childhood, when he witnessed first-hand how economic policies can transform a country’s fortunes. He was born in Seoul in 1963. His father was a finance ministry official and his mother a teacher. Two years before Chang was born, Korea’s gross domestic product per capita was $82 compared with $179 in Ghana. He remembers how red the soil was in Seoul, now one of the world’s most neon-filled cities, because all the trees had been cut down for firewood. ‘I wasn’t deprived,” says Chang, who grew up in a house with two maids and the neighbourhood’s first television set. “But poverty was everywhere.’
Park Chung-hee had recently seized power in a military coup. Korea established a steel industry, a seemingly eccentric choice for a country without iron ore (it had to import it from Australia and Canada) or coking coal. Yet steel became a foundation of Korea’s industrial success. Chang believes that Park, though a dictator, made some smart choices and that the only countries to have prospered are those that ignored the siren call of free markets and comparative advantage – the idea that you stick to growing bananas if you’re a tropical island – and planned their escape from poverty. . . .
His studies consolidated his thinking. Countries, he argued, needed to develop their capabilities, just as a child’s potential is stretched in school. In 1955, for example, when General Motors alone was producing 3.5m cars, Japan had 11 or 12 manufacturers collectively producing 70,000. ‘From the short-term point of view, it was madness for Japan to try to develop an auto industry,’ he says. ‘Except that the Japanese realised, “We will get nowhere if we stick to what we are already good at, like silk.”‘
But can’t the protection of infant industries go terribly wrong? In countries such as Argentina and India, closed economies led to lazy monopolies selling shoddy goods in the name of self-sufficiency. Chang agrees. Only those states that forced their entrepreneurs to compete internationally succeeded, he says. ‘In Bad Samaritans, I have this chapter called “My Six-Year Old Son Should Get a Job”. I’m trying to explain that the reason I don’t send this little guy to the labour market is because I believe that it pays, in the long run, for him to have an education rather than shining shoes and selling chewing gum. Protection is given with a view to eventually pushing your companies into the world market in the same way that you send your kids to school but [you] don’t subsidise them until they’re 45.’ . . .
‘We have been led to believe that the market is some kind of natural phenomenon. But in the end, the market is a political construct.’ The regulations around us – for instance those banning child labour or private money-printing – are invisible, he says. He cites the example of how Park’s government engineered a 30 per cent jump in wages through a massive shrinkage of the labour force. It was achieved, he explains, by making education compulsory up to the age of 12, removing at a stroke millions of children from the labour pool. Policy changed the market reality. . . .
We’ve been talking for nearly two hours but he still has bags of energy and I still have bags of questions. What’s all this about the washing machine and the internet?
‘I was not trying to dismiss the importance of the internet revolution but I think its importance has been exaggerated partly because people who write about these things are usually middle-aged men who have never used a washing machine,’ he replies. ‘It’s human nature to think that the changes you are living through are the most momentous, but you need to put these things into perspective. I brought up the washing machine to highlight the fact that even the humblest thing can have huge consequences. The washing machine, piped gas, running water and all these mundane household technologies enabled women to enter the labour market, which then meant that they had fewer children, had them later, invested more in each of them, especially female children. That changed their bargaining positions within the household and in wider society, giving women votes and endless changes. It has transformed the way we live.’
Finally, I ask whether he thinks economics is a moral pursuit. Chang’s starting point seems to be that economic policies can make the world better. ‘Moral dilemmas are unavoidable,’ he says as I signal for the bill. ‘Don’t forget that, at least in this country, economics used to be a branch of moral philosophy. Adam Smith, Karl Marx, Joseph Schumpeter – they’re not just writing about economics, but about politics and culture and society and morality.’ He drains his cup. ‘How has this wonderful subject we call economics become so narrow-minded? I find that really sad.’
Law of Markets 