Against Ha Joon Chang - Part 2

Prefacing Remarks

This post is the second in a brief series of blog posts on Ha Joon Chang's 2001 paper for the UN's "Research Institute for Social Development", entitled "Breaking the Mould: An Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State". This paper was sent to me by a student at Tainan's Cheng Kung University. Part one of my response to this paper may be read here. Civil and concise criticisms are welcome as always. I hope to finish this little series of posts by the weekend so that I am not toiling over it during the Lunar New Year break.


Response To Chang's Analysis Of "Neo-Liberalism" (Section 3.2)

As with the earlier post, I again affix section references and page numbers to my quotations from Chang for ease of reader reference. Chang begins section 3.2, subtitled "Defining Market Failure", thus:

"Market failure refers to a situation when the market does not work like what is expected of the ideal market. But what is the ideal market supposed to do? In the neoliberal framework, the ideal market is equated with the perfectly competitive market of neoclassical economics. However, the neoclassical theory of the market is only one of the many legitimate theories of market, and not a particularly good one at that. There are, to borrow Hirschman's phrase, many rival views of market society (Hirschman, 1982a). And therefore the same market could be seen as failing by some people while others regard it as normally functioning, depending on their respective theories of the market."

Pause for a moment, my reader, and allow your eye to pass over the first sentence of that paragraph just once more: "Market failure refers to a situation when the market does not work like what is expected of the ideal market" - and notice that the predicate ("a situation when the market does not work") is a mere reiteration of the subject "market failure"; just exactly what purpose does the predicate of that sentence serve? Obviously, it is no more than a statement of the obvious - it is empty of explanation - yet to obliviously pass over it would be unfortunate, for it illuminates the absence of any principles Chang might have deductively applied to define market failure. Compare these remarks on that first sentence of his to his third sentence there:

"...the neoclassical theory of the market is only one of the many legitimate theories of market, and not a particularly good one at that."

If I may assume that last descriptive phrase to be an understatement and that actually, Chang believes neoclassical economics to be very mistaken, then you must ask yourself, my reader, how can it be that Chang nevertheless regards it as "one of the many legitimate theories of the market"? Surely, if a theory may be shown to be mistaken or (especially in social science) inadequate to explaining (rather than predicting) particular events, then its' "legitimacy" ought to be rejected if not at least, censured by doubt, no? The comparison between that first and third sentence in the paragraph quoted above, does, to my eye at least, yield the strong impression that Chang does not take seriously the task of solving the problem he poses - of how to define "market failure". Indeed the subjectivism apparent in that last sentence of that paragraph seems to affirm Chang's basic, old-woman-like lack of respect for the problem itself. An attentive reader may also recall that I raised a similar objection to Chang's analysis toward the end of my first blog post on his paper, that he is content to conduct analysis of political economy on arbitrary ethical assumptions rather than clearly derived principles.

Chang goes on to give other people's notions of "market failure" which differ due to different expectations of what a market should do. For the sake of brevity I shall treat just one such example here (1):

"For example, many people think that one of the biggest failures of the market is its tendency to generate an unacceptable level of income inequality (whatever the criteria for acceptability may be)." (3.2 p6)

Chang is surely correct to imply that this view of "market failure" is common, but whomsoever should define the problem of market failure in this way, necessarily presupposes that distributing income equally is a proper function of a market - but this merely belies a defective understanding of what a market is. What we call a "market" is, in this context, essentially an aggregate of exchanges in goods and services. A market is not a social-care institution for the poor (or the rich), although social care services may be obtained through market exchanges. More generally, any attempt to equate particular distributive outcomes with the "proper" functioning of a market just does not follow logically from the definition of a market as an aggregate of exchanges in goods and services, since this definition merely stipulates to the proposition that goods and services are exchanged, but not how they are exchanged or in what quantities by whom to whom and with what consequences for income distribution. For any given distributive outcome to be identified as a proper function of something, a concept other than "market" must be offered (and not some slippery redefinition of "market") - for example, the concept of "rationing", or of State directed rationing. That Chang could even refer to such a thing as income inequality, without yet endorsing it himself, as an example of "market failure" is indicative of the apparent arbitrariness with which he believes differing premises may be "legitimately" adopted for the analysis of political economy. Subsequent to his description of another similarly illegitimate example of "market failure", my objection to Chang's epistemological arbitrariness is reflected in this:

"The point that I have just tried to illustrate with the above examples is that, when we talk about market failures, we need to make it clear what we expect from the ideal market, only against which the failures of the existing markets can be defined. Otherwise, the concept of market failure becomes empty, as in the same market where one person sees a perfection another person can see a miserable failure, and vice versa...Only when we make our own theory of the market clear, can we make our notion of market failure clear." (3.2 p7)

That paragraph marks the analytical basis upon which redefinitions of "market failure" can be offered. Chang would like to proceed from the assumption that all definitions of market failure are epistemically dependent upon an arbitrary ascription of "ideals" to the proper functioning of a market, rather than the simple deductive inference that true "market failures" occur only when the common pursuit of individual and conflicting values necessarily results in the common negation or destruction of those individual values.


Response To Chang's Analysis Of "Neo-Liberalism" (Section 3.3)

Chang begins section 3.3 thus:

"One fundamental assumption about the nature of the market and the state in neoliberal economics...is what I call the market primacy assumption or the assumption that in the beginning, there were the markets. In this view, the state, as well as other non-market institutions, is seen as a man-made substitute which emerged only after market failures became unbearable..." (3.3 p8)

No: what Chang has done here is to decontextualize, and thus rob this so-called "primacy assumption" of its essential meaning. What he is referring to is actually a collected series of arguments which may be found, for example, in chapter two of Von Mises' treatise on economics, Human Action. The context for this so-called "primacy assumption" is not historical, but epistemological, i.e. concerning the basic methods of analysing and understanding economic behaviour. It was never offered as an empirical "in the beginning there were markets" biblical axiom, and for Chang to present it as if it is reveals, once again, the corruption of his academic virtues with casual polemicism.

Nevertheless, I agree with Chang that this so-called "primacy assumption" is basic to the liberal view, although I must qualify this by insisting upon three significant changes; first, by asking you, my reader, to recall my statement that a market is essentially the aggregate of exchanges of goods and services, and that the "primacy" Chang speaks of applies only to the existence of exchange behaviours rather than a sophisticated, large scale market complete with accompanying legal institutions. The second qualification to Chang's statement above is to question his presumption that non-state "institutions" (it would perhaps be better to speak of "actors") such as acts of gift-giving or charity could only have arisen after market failures; I see no reason why such things could not have arisen prior to instances of "market failure" (but this is surely a question for historical anthropology). The third qualification, though it is really more of a stricture, concerns Chang's use of the word "emerged" in the last sentence of that quotation, for with it, he seems to presume that State-like institutions are naturally consequent to peaceful cooperation instead of, what I believe was very probably almost always the case, their extremely violent and coercive imposition upon people.

Although in a further paragraph, Chang fairly concedes that the rejection of the primacy assumption is unnecessary to the advancement of arguments in favour of State intervention, he nevertheless proceeds to capitalize on his decontextualization of this assumption with the claim that it is invalidated by the history of State interventions in both the United Kingdom and the United States during the early period of "capitalism":

"Once we accept that even the United Kingdom and the United States, the two supposed models of market-based development, did not develop through spontaneous emergence of markets, it is much easier to see that virtually no country achieved the status of an industrialized country without at least some periods of heavy state involvement." (3.3p10)

But since the primacy assumption has been ripped out of its original context by Chang, this argument is fallacious; Chang either has not understood the assumption or he has deliberately misrepresented it. In short, Chang's argument that the primacy assumption is invalidated by simple historical facts is itself invalid, since (and I strongly suspect Chang himself knows this) the assumption does not depend on the myth of seventeenth to nineteenth century "laissez faire capitalism", and never did. I do not know of a single major figure in either the Austrian or Chicago schools of economics who ever presented the primacy assumption as an answer to the historical question of the 17th century genesis of "capitalism"; for Chang to argue as if this were the case is testament once again to the loose and casual nature of his academic virtues.

The purpose of the primacy assumption was to illustrate a matter concerning the necessary order of principles of human action, to wit: that production of economic values (especially the basic necessities of survival) must logically occur prior to the establishment of any legal system, not simply one which recognized property rights. Thus the history of exchange behaviours is as old as the human race itself and did not start sometime in the 17th century with this thing vulgarly called "capitalism". On understanding this point aright, the attentive reader may look back upon an earlier paragraph of Chang's and spot precisely where he "qualified", shall we say, his own presentation of the assumption:

"Economic historians have repeatedly shown us that, except at the very local level (in supplying basic necessities)... the market was not an important, and even less the dominant, part of human economic life until the rise of capitalism." (3.3p9)

On the contrary, market exchange behaviour can only have been the dominant part of human life since the start of the human race for the reason that production of economic values for the survival of social groups simply cannot take place without such exchange behaviours.

The justification, or motive, for Chang's misrepresentation of the primacy assumption pertains of course, to his "professional field" of developmental economics as evinced by the following quotation:

"But perhaps more importantly, whether or not we accord institutional primacy to the market makes a critical difference to how we design developmental policies for countries that have yet to set up a fully developed market system." (3.3p11)

The primacy assumption poses a significant theoretical obstacle to his ability to argue that governments have a right and a duty to construct and to modify institutions to promote particular social outcomes (as advised, of course, by men like Chang himself). More specifically, the obstacle it puts in his way, and which he does not mention, is that it reveals the secondary and parasitical nature of the State upon the market exchange behaviours of a free people. The State itself, in all of its institutional manifestations, owes its entire existence to its ability to coercively extract value from otherwise freely undertaken market exchanges. The revelation of this point is crucial since it opens up new possibilities for asking whether the putative function of the State in providing critical goods and services (for example the court system, the money and credit system, defense and policing services, utilities, transport and communication infrastructure, education, healthcare and so on...) cannot be accomplished by other institutional means outside the purview of the State. I can only presume that Chang, in somewhat childishly misrepresenting the primacy assumption, seeks to conceal precisely this point of possible departure from the attention of his readers.


Response To Chang's Analysis Of "Neo-Liberalism" (Section 3.4)

Chang begins section 3.4 of his analysis with a brief description of what he takes to be a "neoliberal world":

"As we mentioned earlier, the neoliberal world of politics is populated by self-seeking bureaucrats, and politicians with limited capabilities operating under the influence of interest groups. In this view, politics opens the door for sectional interests to distort the rationality of the market system. The neoliberal solution to this problem is to depoliticize the economy. This is, according to their view, to be achieved by restricting the scope of the state (through deregulation and privatization) and by reducing the room for policy discretion in those few areas where it is allowed to operate, for example, by strengthening the rules on bureaucratic conduct or by setting up politically independent policy agencies bound by rigid rules (e.g., an independent central bank, independent regulatory agencies)." (3.4p11)

This is broadly correct, although I myself, insofar as there is any possibility of me acting meaningfully here, stipulate to the broader premise of rationally deconstructing both the size and the scope of the State.

Chang proceeds to lodge the vulgar psychological objection to the liberal position, that people are not always "selfish":

"...studies argue that, contrary to the neoliberal assumption, self-seeking is not the only human motivation even in the private domain of the market, and that people do not operate with the same degree of selfishness in the public domain as in the private domain." (3.4p11)

I use the term "vulgar" to describe Chang's use of "selfish" here since, understood in the broader sense which is properly applicable to the liberal position, "self-seeking" behaviour encompasses many of those behaviours commonly misconceived as "altruistic", for example, the offer of help to strangers on the basis of a generalized expectation of reciprocity (3). Two further points: first, and more basically, the unfortunately tarnished word "selfish" does at least illuminate the human self as the source of all values, to use the language of a certain woman. That is not to say that individuals do not absorb values from the social and cultural environment in which they live, of course they do, but it is nonetheless each individual who is responsible for any decision he or she may make to pursue any given value. Secondly, the reason for such cheap attacks on this premise of the self as the originator of values, evinced by the centuries long tarnishing of the very word "selfishness", is that it shines too strong a light on the manipulative use of altruistic rhetoric and the "guilt-trip" by which those in political power may seek to arrogate the lives and values of other people to their own purposes. Back to Chang:

"Once this assumption of pure self-seeking is dropped, the anti-statist conclusions of neoliberalism need to be seriously modified, as the moral views and social norms held by individuals may restrain the extent to which they advance their interests by finding ways to distort market outcomes through political means that is, even if all political modifications of existing rights and obligations can be interpreted as market distortion through political means. (I showed why this cannot be the case in section 3.1.)" (3.4p11)

But he did not show that in section 3.1, as readers of my earlier post will recall and which new readers may check for themselves here and consider related points on the arbitrary equivocation of right with might here. Not only does the assumption of self-interest hold (encompassing, as it does, what is sometimes called "enlightened self-interest") quite regardless of Chang's lame psychologism, but it makes a mockery of his syntactically mangled claim that individuals seek to restrain themselves from advancing their own interests by using the State to act against their own interests. I invite my readers to pause and consider the obvious contradictions here, for surely if a person seeks to restrain himself, then surely such restraint may be said to be in his "interest", i.e. a value for which he acts. To add to that contradiction the notion that such a person must then seek assistance from the State in restraining himself, rather than simply restraining himself, himself not only invites the laughter of ridicule, but is tantamount to a radically-determinist rejection of human free will.

His inadvertent quips to the gallery finished, Chang returns to professional seriousness:

"My point here is that the market itself is a political construct, and therefore the neoliberal proposal for its de-politicization is at best self-contradictory and at worst dishonest." (3.4p12)

Whilst I am in agreement with him that we are dealing with a "mixed economy" rather than a "free market economy" (see part 1), his contention that de-politicization is self-contradictory simply re-illuminates, most embarrassingly I should imagine, either his lack of understanding of the underlying premises of individualism and its principles (recall for example, dear readers, his unexamined dependence upon the positive conception of liberty), or else simply his own lack of principles. And for Chang to issue an accusation of dishonesty, in light of the several instances in this paper alone in which I have caught him furtively skipping through the views of his liberal opponents without the proper rigour, is frankly outrageous. Chang then proceeds to draw attention to the historical and political instantiation of rights as a substitute for arguing against their derivation from ethical principles:

"But what does it mean, exactly, to say that markets are political constructs?... Even basic knowledge of the history of the advanced countries over the last two centuries reveals how many of those rights that are now regarded as so fundamental that very few, if any, of their citizens would question them were perfectly contestable and often fiercely contested in the past examples include the right to self-ownership (denied to slaves), the right to vote (and thus to have a say in the political modification of market outcomes), the right to minimum working hours, the right to organize and the right not to be subject to physical abuse in the workplace." (3.4p12)

That a political right may be popularly regarded as "fundamental" in one time and place, but "perfectly contestable" in another is a bombastic triviality which overlooks the more serious, underlying question of which ethical principles and premises any proposed rights were derived from. It is understandable that Chang should wish to avoid this question, since, as I have stated in part one, his ethics, to the extent that any ethics can be accurately attributed to him, are inherently collectivistic. The weakness of his insistence upon the political (i.e. arbitrarily decided by power) "nature" of rights for his attempt to distinguish his own analysis of political economy from a liberal analysis (albeit a radically liberal one such as mine) is revealed here:

"Moreover, even when we accept the existing rights-obligations structure as uncontestable, there are practically no prices in reality which are not subject to political influences, including those that are not perceived as such even by many neoliberals. To begin with, two critical prices that affect almost every sector - wages and interest rates -are politically determined to a very large degree... When we add to these, the numerous regulations in product markets regarding safety, pollution, import contents and so on, there is virtually no price that is free from politics." (3.4p12)

I agree! Wages and interest rates are politically determined to a large degree; this is an incontestable fact. My disagreement with Chang is that, whereas he is satisfied with this state of affairs, I am not - I want to see wages and interest rates (money and credit in general actually, not merely interest rates) de-politicized and set free.

"...what the neoliberals really do when they talk of de-politicization of the market is to assume that the particular boundary between market and the state they wish to draw is the correct one, and that any attempt to contest that boundary is a politically minded one. However, as we argued in section 3.1, there is no one correct way to draw such a boundary." (3.4p13)

As I have already mentioned, Chang's arguments in section 3.1 do not withstand criticism; the question of where to draw a "boundary" between the market and the State, assuming the State is not to be abolished at all, turns on a point of ethical principle - the non aggression principle (2), i.e. that State compulsion should only be initiated against those who have themselves aggressed against others.

In an email reply to the student at Cheng Kung University here in Tainan, I said the following:

"...the insistence that "free trade" is nothing but a philosophical or rhetorical veil behind which class-based interests can be advanced is itself a bit of rhetoric..."

I should have said "transparently manipulative rhetoric", for here Chang gives a good example of just such rhetoric which lends itself well to vulgar and often anti-semitic conspiracy theories:

"So, if some people feel that central banks should be politically independent, it is only because they contest the right of the people to influence monetary policy through their elected representatives, and not because there is some rational reason that monetary policy should not be politically influenced."

It is transparently manipulative because of that false claim that there is no rational reason why monetary policy should not be politicized - now Chang may disagree with these reasons, but there are rational reasons why monetary policy in particular ought to be de-politicized as any honest, and open-minded reader may discover for himself in reading Hayek's pamphlet for the denationalization of money for example.

"However, unlike the old liberals, the neoliberals cannot openly oppose democracy, so they try to do it by discrediting politics in general and making proposals that ostensibly seek to reduce the influence of untrustworthy politicians and bureaucrats but ultimately diminish democratic control itself."

Oh contraire! The praise for and respect in which democracy is held around the world rests solely with the function of its associated institutional mechanisms (free press, free elections etc) of providing rational restraints upon the exercise of political power. To agitate for the further reduction or deconstruction of political power itself is not "anti-democratic" for it is in accord with the very moral purpose of democratic institutions, a purpose which is not understood by those on the Left like Chang suffering from their dependence on unexamined premises. That purpose is the safeguarding of people from their attempts to coerce and compel and subject one another into living lives of hegemonic subordination; that purpose is the safeguarding of freedom.

I am sometimes accused, and I guess frequently thought of, as some sort of "extremist", as a dangerous, anti-democratic, "hyper-libertarian". When this accusation is not openly announced, it is more usually communicated by subtle implication. My attention was drawn to a perfect example of this in that email from the student at Cheng Kung University wherein the student encouraged me to read Chang's book, which he himself is apparently reading, "The Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism", and which according to Chang's website, was...

"...endorsed by a number of commentators across the political spectrum – from Noam Chomsky on the left to Martin Wolf on the right."

I noted here the cynical use of the "Left-Right spectrum" to insinuate that the views expressed in his book occupy a presumed middle-ground of mature reasonableness, free from what would have to be described as the "extreme" views of those, such as myself, who would vociferously disagree but who do not occupy the respectability of a position within the bespectacled academic hierarchy and so are merely presumed to be unhinged "extremists". Against that, I have no hesitation in citing Martin Luther King's response to being regarded as an "extremist" by his fellow clergymen in his "Letter From Birmingham Jail":

"But though I was initially disappointed at being categorized as an extremist, as I continued to think about the matter I gradually gained a measure of satisfaction from the label.... Was not Jesus an extremist for love... Was not Amos an extremist for justice.. And Abraham Lincoln: "This nation cannot survive half slave and half free." And Thomas Jefferson: "We hold these truths to be self-evident, that all men are created equal ..." So the question is not whether we will be extremists, but what kind of extremists we will be."

(1) Though I may take requests - in exchange for things I may value of course!
(2) New readers may find my remarks on the religious basis of Martin Luther King's conception of justice interesting in this connexion.
(3) For a counter-argument to this view, I invite readers to consider this post by Adriana Cronin, with further discussion in these old posts by Brian Micklethwait and Antoine Clarke.