“We have been taught economics is separate from morality but it is inseparable”. In conversation with Ha-Joon Chang (UK, 2015)
Whilst sifting through an old dusty hard drive yesterday, I discovered this transcript of an interview I did with the brilliant South Korean economist and academic, Ha-Joon Chang, for the UK arts and ideas festival Wilderness back in in the summer of 2015.
Ha-Joon was at the festival to give a talk on progressive economics in the Forum talks tent, and we caught up for an hour or so after he came off stage. I remember how lovely he and the chat was as we sat on the dry brown grass on a sweltering August afternoon in Oxfordshire. Such a warm, insightful and knowledgeable man.
For historical context: things were bleak for the left. David Cameron and George Osbourne were five years into their brutal austerity programme in the UK and had just beaten Ed Milliband’s Labour Party to win their first majority in the General Election; Jeremy Corbyn was weeks away from stunning the establishment to become Labour leader; the Greek economy was in turmoil with it’s socialist Syriza government about to succumb to pressure from creditors and implement a punishing new programme of austerity; the euro was on the verge of collapse
Already bleak and yet the atomic bombs of Brexit and Trump were still yet to drop.
The interview was never used by the festival for website content as planned so rather than let it die on my drive, here it is.
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You have talked about the economic reasons why austerity is not a credible fiscal policy. In light of that, it appears the arguments in favour of it are purely ideological and the moral debate around economics is taking centre stage like never before. How do you begin to disentangle one from the other?
First, let me make it clear that economics started as a moral science. Adam Smith was not a full time economist and together with his most famous work, The Wealth of Nations, he wrote what he saw as a companion book entitled The Theory Of Moral Sentiment all about human sympathy and what makes a good society. So actually economics started as a moral science.
Unfortunately around the late 19th and early 20th Century most economists decided it must be a formal “science” and to be a science you must get rid of things such as morality which have no clear “answer”. So they started developing theories which, in very unsatisfactory ways, tried to separate economic and moral issues. In the end it doesn’t work because the market itself is a moral construct. For example in the 18th Century people thought nothing about buying and selling people and slavery was legal in countries like US and Brazil, and in the 19th Century it was perfectly normal to hire child labour. Now we don’t do that because we have acquired a different kind of morality and come to the conclusion that whatever the efficiency implications it is wrong to buy and sell people. There is no economic debate here. However efficient economically it is to hire children as workers we shouldn’t do that.
We have been taught economics is separate from morality but it is inseparable. So now it means we have to explicitly bring in the moral dimension when we are having economic debate. What is efficient and productive will always be defined in a way that has implicit moral implications. So when you say we shouldn’t “reward people for failure” by giving them money when they are unemployed and can’t feed themselves, why are we not applying the same logic to bankers who have failed on a spectacular scale and the worst thing they do is take your knighthood away. Unfortunately we have been engaging in a debate that refuses to acknowledge that economic arguments are also moral arguments which is why people like Jeremy Corbyn are seen as radicals because they are asking those kind of questions.
So from your point of view, ‘Corbynomics’ seem economically credible to you?
A lot of his ideas [such as state investment to drive growth] are those that used to be mainstream and accepted even by Conservative Party people in the 1960s and 70s. A lot of these ideas are within the boundary of “One Nation” Tory politics. The fact he is described as a radical is a testament to how far this country has drifted to the right in political and economic terms.
Profit motifs are very important — they are powerful in motivating some people to find more efficient way of producing things or servicing people and so on so I’m am all in favour of using profit motives in motivating efficiency and productivity. But as they say “the bird cannot fly on one wing”, it has to be balanced. Focusing on profit inevitably means neglecting ethical values and bulldozing over community and social concerns. You have to create a system where the profit motives are appropriately balanced by social regulations and moral norms so you have a balanced society.
We had a better balance in 1950s, 60s and 1970s when it was believed we need a “mixed economy”. Basically a capitalist system with profit motives and so on but strictly controlled in terms of what is permissible, moral concerns you have to accept as part of your parameters rather than just something you can get rid of to make more money. Im not saying the 50s and 60s were ideal and times have changed but we had a more balanced approach than we have today. We need to reintroduce government regulations and community values to balance out the profit motives.
If unrestrained capitalism is essentially amoral, is it only the State that can put the leash on the profit motive?
No Idon’t think so, it can be done at many levels. A lot of economists including me talk about government and state policy because it’s the single most powerful entity with not just a lot of money and manpower but the ability to set rules. Often it’s the most effective way of regulating things, even though Government has its own problems when power is concentrated as you create this elite which begins to live in a bubble and forget about society and try to only see it as only variables and equations to be manipulated. So we need strong civil society, cooperatives, neighbourhood and community groups to exercise their voices to try and control. You need a 3 legged approach. The market to drive things for the sake of efficiency and productivity, you need Government to set the framework, but also the active civil society to check the powers of government markets and corporations to have a system more designed for the general good rather than the corporate profit motives and powerful government elites.
Imagine you are a science fiction writer. What does economic Utopia look like?
Hahaha wow… well, I feel that for most rich countries today they have the technological and organisation power to create utopian society. Not in that no one gets sick or dies but in a realistic sense, they have the means to provide a decent standard of living for everyone so the problem is political power and power relationships within corporations. So we need to change these. In poor countries, technologies are the main challenge. If you travel from a poor country of 100–200$ per capita income per year to Europe, North America or Japan is like travelling in a time machine. It took those countries to move from earlier stage to the other took centuries so in one sense we are already living in a world of Science Fiction. Technology is important, without a certain level of it you cannot provide a decent standard of living. But in rich countries of today, they have achieved the level of technological development to provide a decent standard of living for everyone. Thats what makes you more upset because if you are looking at Rwanda or Ethiopa, however you slash and juggle things you cannot provide that decent standard for everyone. But a country like Britain which has that ability, you still have 1million people using food banks. There is something wrong with that system.
If wealth was redistributed globally, is there enough money to the entire planet to achieve a “good standard of living” for all?
It depends on what you mean by a good standard of living. If you mean the middle class European standard then perhaps not. There are only about 1 billion people in the rich world, the remaining 6 billion live ranging from desperately to quite poor. On the other hand, the gap in living standards between these rich and poor countries is so large that with a relatively small resource transfer from one to the other is going to make a huge difference. People worry about corruption of the elite and aid money leaking but its a justification for not acting. Two wrongs don’t make a right. Between the poorest countries in the world like Burundi and Ethiopia which have less than 200$ per capita income and Europe with range of 50–60k$, this is 300x difference which means a relatively small transfer makes a big difference. Unfortunately with growing inequality within the rich countries there is the opinion we cannot even take care of our own poor people so why should we take are of people in Cambodia or Ethopia, but thats another issue because the reason you have 1,000,000 people using food banks in Britain is because you haven’t used the right policy and redistributed the income in the right way.
Thoughts on the situation in Greece and finance minister Yanis Varoufakis leaving the government? He has been an economics rock star of sorts, but has failed to defend Greece from more crushing austerity.
I think his abrasive style might have been an problem but in terms of substance I don’t see anything wrong with his proposals. even the IMF, not known for its radical views explicitly now says that without cancelling or restructuring the Greek debt, they will never get out of the whole. That was the sticking point for Varoufakis and in that sense he was 100% right. He was not making a proposal that is off the chart, the IMF agreed the failure is that the euro got the priority wrong. If you want single currency you need solidarity between countries or you have country that gets into trouble but monetary policy cannot be afforded to it but the only solution is a transfer of income. Thats what the US does — if you go to Mississippi you are in the 19th Century and some parts of California the 22nd Century but it works as a single economic union because of labour mobility but there is also a lot of federal transfer. Economists have shown that if income in one of the 50 states fall by one dollar, about 50c comes back as a transfer from federal government. In Europe, that transfer is more like 5c. You cannot run a single currency without fiscal union so they should have built the political consensus of one nation and then the necessary fiscal institutions and then implement the single currency. Unfortunately they thought they could do it in the other direction. First create a single currency and then somehow countries will have to fall in line with fiscal policy and then maybe they will develop a sense of unity. I think it was a mistaken project.
We still suffer from the north south divide since the days of industrial decline under Margaret Thatcher — but no one in this country says “these people in Warrington are not really British and we don’t like them so when these areas decline, we aren’t going to help them’ but that is what is happening in Europe. People are saying “ we may share a currency but the Greeks are not our people. they can go to hell”. Thats the tragedy. The Union has been expanding too fast and too deeply mainly because of the political consideration in a way to draw Eastern countries into the core of Europe so they won’t be pulled back into a Russian sphere of influence. So they really hurried the process since the fall of the Wall and before they knew it they had expanded membership from 11 to 24 or 27 countries with single currency and this is an unfortunate historical event driven by international politics without enough attention to the economic considerations to make it viable.
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Many thanks to Ha-Joon Chang