23 Things They Don't Tell You About Capitalism

The result of these policies has been the polar opposite of what was promised. Forget for a moment the financial meltdown, which will scar the world for decades to come. Prior to that, and unbeknown to most people, free-market policies had resulted in slower growth, rising inequality and heightened instability in most countries. In many rich countries, these problems were masked by huge credit expansion; thus the fact that US wages had remained stagnant and working hours increased since the 1970s was conveniently fogged over by the heady brew of credit-fuelled consumer boom. The problems were bad enough in the rich countries, but they were even more serious for the developing world. Living standards in Sub-Saharan Africa have stagnated for the last three decades, while Latin America has seen its per capita growth rate fall by two-thirds during the period. There were some developing countries that grew fast (although with rapidly rising inequality) during this period, such as China and India, but these are precisely the countries that, while partially liberalizing, have refused to introduce full-blown free-market policies.

Thus, what we were told by the free-marketeers – or, as they are often called, neo-liberal economists – was at best only partially true and at worst plain wrong. As I will show throughout this book, the ‘truths’ peddled by free-market ideologues are based on lazy assumptions and blinkered visions, if not necessarily self-serving notions. My aim in this book is to tell you some essential truths about capitalism that the free-marketeers won’t.

This book is not an anti-capitalist manifesto. Being critical of free-market ideology is not the same as being against capitalism. Despite its problems and limitations, I believe that capitalism is still the best economic system that humanity has invented. My criticism is of a particular version of capitalism that has dominated the world in the last three decades, that is, free-market capitalism. This is not the only way to run capitalism, and certainly not the best, as the record of the last three decades shows. The book shows that there are ways in which capitalism should, and can, be made better.

Even though the 2008 crisis has made us seriously question the way in which our economies are run, most of us do not pursue such questions because we think that they are ones for the experts. Indeed they are – at one level. The precise answers do require knowledge on many technical issues, many of them so complicated that the experts themselves disagree on them. It is then natural that most of us simply do not have the time or the necessary training to learn all the technical details before we can pronounce our judgements on the effectiveness of TARP (Troubled Asset Relief Program), the necessity of G20, the wisdom of bank nationalization or the appropriate levels of executive salaries. And when it comes to things like poverty in Africa, the workings of the World Trade Organization, or the capital adequacy rules of the Bank for International Settlements, most of us are frankly lost.

However, it is notnecessary for us to understand all the technical details in order to understand what is going on in the world and exercise what I call an ‘active economic citizenship’ to demand the right courses of action from those in decision-making positions. After all, we make judgements about all sorts of other issues despite lacking technical expertise. We don’t need to be expert epidemiologists in order to know that there should be hygiene standards in food factories, butchers and restaurants. Making judgements about economics is no different: once you know the key principles and basic facts, you can make some robust judgements without knowing the technical details. The only prerequisite is that you are willing to remove those rose-tinted glasses that neo-liberal ideologies like you to wear every day. The glasses make the world look simple and pretty. But lift them off and stare at the clear harsh light of reality.

Once you know that there is really no such thing as a free market, you won’t be deceived by people who denounce a regulation on the grounds that it makes the market ‘unfree’ (see Thing 1). When you learn that large and active governments can promote, rather than dampen, economic dynamism, you will see that the widespread distrust of government is unwarranted (see Things 12 and 21). Knowing that we do notlive in a post-industrial knowledge economy will make you question the wisdom of neglecting, or even implicitly welcoming, industrial decline of a country, as some governments have done (see Things 9 and 17). Once you realize that trickle-down economics does not work, you will see the excessive tax cuts for the rich for what they are – a simple upward redistribution of income, rather than a way to make all of us richer, as we were told (see Things 13 and 20).