Part of the de-industrialisation myth is due to optical illusions – reflecting, for example, changes in statistical classification rather than changes in real activities. One such illusion is due to the outsourcing of some activities that used to be provided inhouse by manufacturing firms and thus captured as manufacturing output (e.g., catering, cleaning, technical supports). When they are outsourced, recorded service outputs increase without a real increase in service activities. Even though there is no reliable estimate of its magnitude, experts agree that outsourcing has been a significant source of de-industrialisation in the US and Britain, especially during the 1980s.A very thorough review in Dissident Voice starts with an excellent summary of some of the main points Chang makes - all starting with a statement of "what they tell us", followed by a demolition of the conventional wisdom -
In addition to the outsourcing effect, the extent of manufacturing contraction is exaggerated by what is called the reclassification effect. A UK government report estimates that up to 10% of the fall in manufacturing employment between 1998 and 2006 in the UK may be accounted for by some manufacturing firms, seeing their service activities becoming predominant, applying to the government statistical agency to be re-classified as service firms, even when they are still engaged in some manufacturing activities.
A third factor in the myth is the relative price-effect. With the (inflation-adjusted) amount of money you paid to get a PC ten years ago, today you can probably buy three, if not four, computers of equal or even greater computing power (and certainly smaller sizes). As a result, you probably have two, rather than just one, computers. But, even with two computers, the portion of your income that you spend on computers has gone down quite a lot (for the sake of argument, I am assuming that your income, after adjusting for inflation, is the same). In contrast, you are probably getting the same number of haircuts as you did ten years ago (if you haven’t gone thin on the top, that is). The price of haircuts has probably gone up somewhat, so the proportion of your income that goes to your haircut is greater than it was 10 years ago.
The result is that it looks as if you are spending a greater (smaller) portion of your income on haircuts (computers) than before, but the reality is that you are actually consuming more computers than before, while your consumption of haircuts is the same.
* Government must never interfere with “the free market.” (Chang says WRONG: modern economies would collapse without numerous forms of government intervention. Smart capitalists know very well that “there is no such thing as a free market.”)The painting is the only abstract which graces my collection - by Stefan Pelmus, more of whose paintings can be seen here.
* Companies should always be run in the interests of their owners/shareholders (WRONG: shareholders often damage the long-term prospects of companies by over-emphasizing short-term profit.)
* Economic health requires the assumption that people think only about themselves (WRONG: the most successful firms and national economies understand how to harness peoples’ cooperative and altruistic sentiments and instincts.)
* Poor counties need to adopt “free market” (neoliberal) policies (especially “free trade”) to achieve sustained growth. (WRONG: developing countries experienced superior growth in the period of state-led Third World development [1945-1970] than in the period of neoliberal, market-oriented “reform.” This is richly consistent with how the world’s richest nations – the ones who preach neoliberalism to the rest of the world – rose to ascendancy in the past: “through a combination of protectionism, subsidies, and other [state- and not market-led) policies that today they advise developing countries not to adopt” .)
* The relatively free market, capitalist-friendly neoliberal United States enjoys the highest standard of living in the world. (WRONG: thanks to the nation’s remarkably high levels of inequality [itself a symptom of its extreme neoliberalism], millions of Americans do not enjoy the United States’ remarkable average living standard. That extreme inequality and the poverty it generates are the main factors behind comparatively poor health indicators and crime levels in the U.S. Higher immigration and poor working conditions explain are the main reasons that many services are purchased more cheaply in the U.S. At the same time, Americans work considerably longer hours than Europeans so that “per hours worked, their command over goods and service is smaller than that of several European countries .”)
* Making rich people richer makes the rest richer too since it is rich people who seek out marketing opportunities and then invest to create jobs (WRONG: pro-rich policies have failed to produce economic expansion in the last three decades. “Trickle down economics” doesn’t work. It can have no positive outcomes in the absence of polices that (contrary to neoliberal doctrine) that make the rich deliver higher investment and share the benefits with – and put spending power in the hands of – non-affluent people, who spend a higher portion of their income than do the rich).
* Government must give maximum freedom to big corporations for the good of the countries in which those companies reside (WRONG: it is often better for the national economy and even the individual company for government to impose reasonable restraints and obligations on those companies).
* Capital has no nationality in the age of multinational corporations and globalization and therefore it nationalistic government policies towards transnational capital is “at best ineffective and at worst counterproductive” (WRONG: “most transnational companies in fact remain national companies with international operations, rather than genuinely nation-less companies” and it is “very naïve to base economic policies on the myth that capital does not have any national roots anymore”)
* Governments lack the ability (including the required expertise and information) to make intelligent business choices and thereby “pick winners” through state-led industrial policy. (WRONG: governments can and do regularly choose winning firms and industries over and against “market signals” and in ways that can and do “improve national economic performance”).
* The only equality that is economically functional or advisable is equality of opportunity. Policies that seek to generate more equality of outcome are inherently inefficient and unjust (WRONG: the equality of opportunity that is required to broaden the spread of economic benefits does not really exist without at least some measures to enhance equality of outcome. Free public education is woefully insufficient to broaden opportunity when it is not accompanied by policies that put a basic decent minimum standard of material living for households on the bottom end of the scale).
* The big government welfare state damages economies by depriving the rich of the incentive to create wealth and making the poor lazy. It creates resistance to the change that modern economies require. (WRONG: by providing second and third chances and a safety net to the non-affluent, the welfare state encourages workers to be more open to change when comes to choosing their first jobs and letting go of their existing jobs).
* Efficient financial markets – capable of the rapid allocation and re-allocation of capital across time and place – are the source of economic health and expansion Recent financial disturbances aside, smart policy makers should do nothing to slow down and complicate the operation of the world’s high speed financial markets (WRONG: U.S. and western financial markets are actually too efficient. The currently over-developed financial sector is now so proficient and organized in the pursuit of short-term profits that it is a leading source of economic instability and is incapable of giving emergent enterprises and industries and complex national economies the patient nurturance they require to develop over time.)