By Lee Chang-sup
The G20 Seoul Summit is a golden opportunity to review ways of retooling capitalism for global economic prosperity. In assessing two-hundred-year-old capitalism, the Cambridge professor Chang Ha-joon gave a timely reference point. He is an unorthodox economist specializing in development economics. He is not an anti-capitalist.
In his latest book, his skepticism over unbridled free capitalism is worth reviewing. He questions why the global economy has slowed down, and become more unstable now than decades ago? He says jobs became insecure and financial crashes have occurred frequently. He also sees slowing of the trickle-down effect of the economy.
Chang wrote 23 things people don’t tell you about capitalism. Although all of his theories are not always convincing, his suggestions merit attention.
He proposes (1) ending love affair with unbounded free-market capitalism (2) ending blind faith in the human rationality and the role of the invisible hand in designing the new global economic system.
He backs (3) an active role of government in creating a prosperous, equitable and stable society. This will facilitate the trickle-down effect of the economy, meaning when the rich earns money, the other income class will also benefit. He said (4) ``making things, ’’ namely manufacturing, should be the backbone of the economy. Chang advocates the (5) curbing of the unrestrained cross-border capital movement or hot money and (6) a balanced growth between the real economy and finance. He suggests (7)the establishment of the world economic system to favor developing countries.
Coincidently or not, the Seoul meeting will address part of the questions Chang raises when they meet in Seoul Nov.11-12.
First, an IMF reform agreement will make the Washington-based organization more attentive to the views of the developing and emerging economies. The European-dominated IMF has worked as a stereotype doctor who prescribes the same medicine, without exception, to all countries in different development stages. IMF has already agreed to cede two of the 24 executive seats and the 6-percentage point voting quota to the emerging economies.
Second, a new accord on Basel II will discourage greedy and excessive risk-takers, regulate the too-big-too-fail mega banks and curb unrestrained cross-border capital movement. The Basel II agreement will also curb excessive executive pay, including stock options. This accord will be an attempt to strike a balance between the real economy and finance and check greedy investment banks exploiting free capitalism.
Third, an accord to harmonize trade imbalances between surplus and deficit countries will discourage countries from keeping currencies artificially low.
Fourth, the Seoul meeting, will be an occasion to identify the development models suited for each country. It is the first time that the G20 meeting touches on the development issue.
All of the accords to be made in Seoul signal the review of the uninhibited free-market capitalism. The Seoul agreements are to strengthen capitalism for global economic prosperity. It means G20’s subtle move toward good capitalism away from bad capitalism.
Under good capitalism, the government will play a proactive role in narrowing income disparity, making jobs more secure, fostering manufacturing and protecting the economy from hot money attacks. Under bad capitalism, the vice versa situations will take place.
Jang argued that the growth slowdown in African and the other poor countries became apparent following the introduction of the unbridled free-market theories, including deregulation, liberalization, privatization and a small government. This argument, however, needs critical counterpunch. Unlike his claim, market-opening has not always impoverished developing countries. The prime example is Korea.
Capitalism has promoted welfare of the people for the past two centuries. There is little sign that the global economy has retrogressed under capitalism despite occasional detours. What Chang wants to emphasize is the interventionist capitalism as well as the fact that every country should have its own development model in accordance with its unique social, political, cultural and geographical situations.
The Korea Times and the Korea Institute of Public Administration also confirmed this in a recent seminar in Seoul. The participants concluded that the Korea Development Model is not the perfect one for all developing countries to adopt. Each country should find a suitable model. Other development models need adaptation for implementation at individual countries.
Some propose the use of the concept of iPhone App services. Under the concept, G20 leaders set out different types of capitalism models, post them on iPhone App so that each country can choose the most suitable development formula for itself. The rich industrialized countries have so far preached to all developing countries to adopt free capitalism through the IMF and the World Bank. This is always not the perfect solution for the troubled global economy.
Out of the 192 UN member countries, leaders of only 20 nations will attend the Seoul Summit next week. The 172 non-G20 countries will feel a sense of alienation when the Seoul meeting does not touch issues of interest to them. The Seoul gathering should be also a party for the Non-G20 countries. Non-G20 should not be belittled. They cover 44 percent of the world’s population; represent 15 percent of the world economy and 20 percent of global trade. It is time for both G20 and Non-G20 leaders to reach a broad consensus on what is good capitalism.
Lee Chang-sup is the chief editorial writer of The Korea Times. He can be reached at editorial@koreatimes.co.kr