Heterodox economics? No, just cheap applause-craving

The term ‘heterodox economist’ has a great ring to it. It seems to announce a daring and original thinker. Here’s somebody who defies conventional wisdom, the term suggests, somebody who is immune to the pressures of groupthink and conformism, confusing his opponents and inspiring those who listen with an open mind.

Unfortunately, what passes for a heterodox economist nowadays could be defined as ‘somebody who aims for cheap applause from economically illiterate Guardian readers’. See this article here from Ha-Joon Chang, who is perhaps the last remaining guru of protectionism and large-scale industrial policy, and therefore a Jägermeister economist. Chang applauds Ed Miliband and the Living Wage campaigners for their plans of forcing up wages, and ‘debunks’ the ‘myth’ that higher wages hurt employment prospects.

Britain cannot regain global competitiveness through lowering wages, Chang explains. A reduction of British wages levels to Chinese standards could only be achieved by turning Britain into a military dictatorship, because it would require forcing wages down through brute force. But even if this were to happen, we would only discover that Vietnamese wages are lower still, so we would have to force wages down again to match Vietnamese levels. Once that has been accomplished, we would discover that we are still not competitive, because Ethiopia is cheaper still, so the wage-cutting game would have to start anew. ‘Countries like Britain can never win that game’, Chang explains. If this was a comedy show, this would be the moment where the audience is given the cue to cheer.

So that, apparently, is heterodox economics: use clever rhetoric to debunk a position that nobody holds, and that is self-evidently absurd. Surely, Chang must have more to offer?

He has. Chang also makes the highly heterodox point, shared only by a tiny minority of approximately 100% of all economists currently alive, that high wages are not a problem as long as productivity levels are commensurately high:

‘Workers in German car factories are paid about 30 times more than their Chinese counterparts, and twice what their American “competitors” get. Despite that, German car companies more than match their Chinese and even US rivals’, because ‘German workers benefit from more productive technologies as a result of the investments that German companies have made in advanced machinery and research and development.’

Well, yes – and the key term here is ‘result’. These companies do not pay high wages because they are forced to do so by the government, or named and shamed into doing so by Living Wage campaigners. The advanced machinery and technology came first, and wages then rose as a consequence. Robinson Crusoe increases his fish consumption because he builds a boat and knots a fishnet – not because social justice campaigners pressure the ocean into providing a ‘Living Catch’. Without realising it, Chang points out exactly what is wrong with the Living Wage idea: it puts the cart before the horse.

Yes, we could indeed do with a few heterodox thoughts on how to get more productivity- and skill-enhancing investment going, especially in those sectors that employ a lot of semi-skilled workers. A shame that the oh-so-heterodox Ha-Joon Chang offers no such thing.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

5 thoughts on “Heterodox economics? No, just cheap applause-craving”

  1. Posted 15/11/2013 at 16:04 | Permalink

    I agree that Ha-Joon Chang’s article is nonsense. However, Kristian Niemietz’s article is equally nonsensical. He takes just one heterodox article (Chang’s), demolishes it, and claims that that shows that all heterodox economists are deluded.

    I suggest Neimeitz spends the next month reading the views of a large range of economists. When he has finished, he’ll learn that heterodox views encompass in a huge range: from the well thought out and well researched to the idiotic.

  2. Posted 15/11/2013 at 16:18 | Permalink

    They come at us in darkness and in the shadows and when they finally pounce they say their intent is to rob the rich in order to enrich the poor.

    Is their intent more likely to deceive us or are they seriously demented?

    Whatever their motive, government simply needs to increase the level at which tax becomes payable in order to increase the income of those it pretends to protect through the living and minimum wage.

    People like Chang are at best tribalist and at worst apologists for stupid government policies that serve to impoverish us all.

  3. Posted 15/11/2013 at 17:38 | Permalink

    The advanced machinery and technology came first, and wages then rose as a consequence.

    Is that right? Why did the wages rise? Why does capital pass the gain to labour? I thought the conventional industrial revolution story was that you have investment in technology where labour is expensive and therefore it makes sense to invest in plant. Is that the causality?

  4. Posted 16/11/2013 at 09:54 | Permalink

    TobinPIgou – fair point. Supply and demand are like the blades of scissors and, yes, expensive labour could have come first. If the expensive labour, though, is economy-wide then one has to ask why that is the cause. If you use supply-demand arguments then you cannot argue that labour could be made expensive by legislation without consequences. Other things (training, hard work, education, application) may be making labour more productive. However, there might be another issue that Chang (and Kris) missed. It is stupid to just focus on one sector. Here finance is a huge valued-added sector. In Germany, advanced engineering is. Total factor productivity is very high in these sector sin both countries. However, that is not true for all people in all industries in either country. Average labour costs in Germany are only 4% greater than those in Britain. So Chang’s article is no more robust than if I wrote an article comparing salaries in banking in London with those in pubs in Germany. He could have written an article suggesting that the low paid all become bankers. The point is that there is more to low pay than people simply not being paid enough – though I am sure you realise that.

    Ralph – I am sure that Kris does admire many heterodox economists (Paul Ormerod and Vernon Smith to name two) but is just making a point in something of a rhetorical way.

  5. Posted 16/11/2013 at 10:48 | Permalink

    @Ralph, I make no such claim anywhere. I’m not suggesting that all heterodox economists are dummies. What I’m saying is that the term has become devalued.

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