A book about capitalism that misses the point on capitalism. Chang is trying too hard to find the slightest counter-argument to support his thesis with extreme examples. It's fair to say, however, that most people, including liberal economists, acknowledge some degree of interventionism...

Some interesting facts and statistics are mentioned, such as the Founding Fathers supporting protectionism in the early years of the United States (to support his thesis against free trade). Now that the U.S. seems to be retreating back into protectionism, what would Chang think about it?

My Notes

Most of the content below are direct or indirect quotations from the book.

• Ha-Joon Chang's criticism is of a particular version of capitalism that has dominated the world in the last three decades: free-market capitalism.
• 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.
• Until the beginning of the twentieth century, the average work week in the US was around 60 hours. At the time, it was a country in which the Supreme Court declared unconstitutional a New York state law limiting the working days of bakers to ten hours, on the grounds that it ‘deprived the baker of the liberty of working as long as he wished.’
• In July 2008, with the country’s financial system in meltdown, the US government poured $200 billion into Fannie Mae and Freddie Mac, the mortgage lenders, and nationalized them.

When free-market economists say that a certain regulation should not be introduced because it would restrict the ‘freedom’ of a certain market, they are merely expressing a political opinion that they reject the rights that are to be defended by the proposed law.

• Investment as a share of US national output has actually fallen, rather than risen, from 20.5%.
• Distributed profits as a share of total US corporate profit stood at 35–45% between the 1950s and the 1970s, but it has been on an upward trend since the late '70s and now stands at around 60%.
• Migration restriction is, according to Chang, the most significant reason behind wage differences.
• The wage gaps between rich and poor countries exist not mainly because of differences in individual productivity but mainly because of immigration control.
• What an individual is paid is not fully a reflection of her worth. Most people, in poor and rich countries, get paid what they do only because there is immigration control.
• German inflation got completely out of control after the occupation of the Ruhr, with prices rising by another 10 billion times.
• Hyperinflation undermines the very basis of capitalism, by turning market prices into meaningless noises.
• At the height of the Hungarian inflation in 1946, prices doubled every fifteen hours, while prices doubled every four days in the worst days of the German hyperinflation of 1923.
• Moreover, hyperinflation is often the result or the cause of political disasters, such as Adolf Hitler or Robert Mugabe. It is totally understandable why people desperately want to avoid hyperinflation.
• During the 1960s and '70s, Brazil had an average inflation rate of 42% but was one of the fastest-growing economies in the world, with its per capita income growing at 4.5% a year.
• The experiences of individual countries also suggest that fairly high inflation is compatible with rapid economic growth.
• During the same period, per capita income in South Korea was growing at 7% per year, despite having an annual average rate of inflation of nearly 20%.

The fact is that the world has become more stable only if we regard low inflation as the sole indicator of economic stability, but it has not become more stable in the way most of us experience it.

• Price stability is only one of the indicators of economic stability.
• Rogoff and Reinhart point out that the share of countries in banking crises is very closely related to the degree of international capital mobility.
• Inflation control is emphasized because many financial assets have nominally fixed rates of return, so inflation reduces their real returns.
• Our obsession with inflation should end. Inflation has become the bogeyman that has been used to justify policies that have mainly benefited the holders of financial assets, at the cost of long-term stability, economic growth, and human happiness.
• Contrary to what is commonly believed, the performance of developing countries in the period of state-led development was superior to what they have achieved during the subsequent period of market-oriented reform.

The truth is more or less the opposite. With only a few exceptions, all of today’s rich countries, including Britain and the US – the supposed homes of free trade and free market – have become rich through the combinations of protectionism, subsidies, and other policies that today they advise the developing countries not to adopt. Free-market policies have made few countries rich so far and will make few rich in the future.

• Unbeknown to most Americans today, Hamilton is the architect of the modern American economic system. He argued that ‘industries in their infancy,’ like the American ones, need to be protected and nurtured by government before they can stand on their own feet.
• On the $5 bill, we have Abraham Lincoln, a well-known protectionist, who during the Civil War raised tariffs to their highest level ever.
• On the $50 bill, we have Ulysses Grant, the Civil War hero-turned-president. In defiance of the British pressure on the USA to adopt free trade, he once remarked that ‘within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.’

The dead presidents don’t talk. But if they could, they would tell Americans and the rest of the world how the policies that their successors promote today are the exact opposite of what they used in order to transform a second-rate agrarian economy dependent on slave labor into the world’s greatest industrial power.

• In the same way in which the US was the most protectionist country in the world during most of its phase of ascendancy (from the 1830s to the 1940s), Britain was one of the world’s most protectionist countries during much of its own economic rise (from the 1720s to the 1850s).
• Singapore, which is famous for its free-trade policies and welcoming attitudes towards foreign investors, produces over 20% of its output through state-owned enterprises, when the international average is around 10%.
• A lot of foreign investment is what is known as ‘brownfield investment’: acquisition of existing firms by a foreign firm, rather than ‘greenfield investment,’ which involves a foreign firm setting up new production facilities.
• Since the 1990s, brownfield investment has accounted for over half of total world foreign direct investment (FDI), even reaching 80% in 2001, at the height of the international mergers and acquisitions (M&A) boom.
• This means that the majority of FDI involves taking control of existing firms, rather than the creation of new output and jobs.
• Recently, the distinction between industrial capital and finance capital has come to be blurred, with industrial companies such as GM and GE making more profits in finance than in industry.
• The problem with financial markets today is that they are too efficient.

"Education, education, education"—this was how former British Prime Minister Tony Blair summed up his top three policy priorities during the 1997 election campaign that brought his "New" Labour party to power.

• Despite the importance of the corporate sector, allowing firms the maximum degree of freedom may not even be good for the firms themselves, let alone the national economy. Not all regulations are bad for business.
• Governments can pick winners, sometimes spectacularly well.
• In the 1970s, the Korean government put enormous pressure on Mr. Chung Ju-Yung, the legendary founder of the Hyundai Group, famous for his risk appetite, to start a shipbuilding company.
• The best-known example of government picking a loser because of the wrong goals and incentives is the Concorde project, jointly financed by the British and the French governments in the 1960s.
• The average CEO compensation (salaries, bonuses, pensions, and stock options) in the US is 300–400 times the average worker compensation (wages and benefits).
• Swiss and German CEOs were paid, respectively, 64% and 55% of what their American counterparts received.
• Even exceptional individuals like Edison and Gates have only become what they are because they were supported by a whole host of collective institutions.
• Schumpeter predicted that the displacement of heroic entrepreneurs with what he called ‘executive types’ would sap the dynamism from capitalism and eventually lead to its demise.
• Herbert Simon argued that our rationality is ‘bounded.’ The internet age has not necessarily improved decision quality, as evidenced by ongoing economic crises.
• Many capitalist countries have successfully used ‘indicative planning’ to shape key industries through sectoral industrial policy.
• Scandinavian countries have higher social mobility than the UK, which in turn has higher mobility than the US.
• The two fastest-growing economies in the OECD post-1990 were Finland (2.6%) and Norway (2.5%).

Capitalism develops through long-term investments and technological innovations that transform the productive structure, rather than simply expanding existing structures like inflating a balloon.