Late Capitalism Sucks!
That's a not very accurate summary of Branko Milanovic's short, dense book Capitalism Alone: The Future of the System That Rules the World.
To begin, Mr. Milanovic will disagree with the adjective. There's nothing "late" about capitalism, for it is nowhere near extinction. Indeed, arguably it is just coming into its own. All its competitors have been vanquished. Socialism--whatever its theoretical and occasional popular appeal--simply cannot provide a quality standard of living for most people. The end of capitalism, should it ever come about, will not auger a brighter future, but instead the end of civilization. Think Venezuela.
Mr. Milanovic puts great stock on Gini coefficients--numbers that measure the degree of inequality in a society--with zero representing perfect equality of income and/or wealth, and one hundred (perfect inequality) implying that a single person has all the income/wealth, while everybody else has nothing. South Africa has the world's highest Gini value (63.0). The USA comes in at 41.5. The Nordic countries are at the low end, ranging from 26 to 29 (data from Wikipedia).
Mr. Milanovic includes a chart of global Gini coefficients from 1820 to the present. With slight fluctuations inequality has increased from 55 in 1820 to about 75 just after World War II. Mr. Milanovic attributes this to rapid industrialization in the West, coupled with stagnation in the East. Since the war, however, the global Gini has declined, and quite significantly since 2000, mostly because of dramatically higher incomes in China. As of 2018 it stands at about 65.
The first half of the book fairly bristles with Gini coefficients. I never thought them very important--to me the value of capitalism is rising absolute incomes, and not significantly diminished by income inequality. There is no doubt that absolute incomes for most of the world's people have increased dramatically over the past few decades, so enough said. Who cares if Warren Buffett is rich.
But Mr. Milanovic partially changes my mind. No doubt it is true that absolute incomes go up--and that's the true value of capitalism--that's why we want to keep it. But the risk to capitalism stems from a lingering sense of unfairness. The suckiness derives not from the wealth that it obviously generates, but instead from its unequal distribution.
So the question then becomes how to lower Gini coefficients. The book offers no good suggestions, and puts paid to commonly proposed solutions. For example, social democracy only works when there is sufficient solidarity such that all members of society are willing to contribute to a common pool. That breaks down if the rich, young, or healthy refuse to pay for public insurance, or if one ethnic group resents payments to another. Globalization weakens social democracy because labor and capital are separated--capital comes from country A, labor is performed in country B, while the consumer lives in country C.
Mr. Milanovic cites the philosopher Nikolai Berdyaev who distinguished two models for history: Athens vs. Jerusalem. In the Athenian model, history is just repeated variations, or perhaps only random chance. There is no larger progression. The Jerusalem model, on the other hand, sees progress in history--perhaps even a teleological purpose.
Within the Jerusalem framework, Mr. Milanovic describes two possible models of progress. One is the Whiggish view that capitalism will simply get better and better, and we'll all get richer and richer. Francis Fukuyama's excellent little book, The End of History and the Last Man, is among the best examples of this genre. Modern journalists often reflect the view with statements like "no two countries which both have a McDonald's franchise will ever go to war," or, perhaps, the ubiquitous, pre-Trump assumption that China would eventually take its place in the law-abiding, international community.
The Trump phenomenon puts paid to any simplistic Whig view. More importantly, Whiggery was ruined by 1914. That cataclysmic collapse of the capitalist world order should never have happened.
Opposing the Whigs are the Marxists, for whom capitalism is merely a steppingstone on the way to socialism or communism. For them, capitalism is beset with irresolvable crises and contradictions that will eventually lead to its downfall. Marxists have no difficulty explaining 1914.
The problem for them, however, comes in 1989, when the workers' states in Russia and Eastern Europe moved backwards--from some form of socialism to capitalism. The transition was most dramatic in China where Deng Xiao Ping led a dramatic counter-revolution. Marxism can't explain that, and it is a problem that my Trotskyist friends struggle with to this very day.
I'm not sure if Mr. Milanovic gives a satisfying account for 1914, but he's got 1989 down pat. He agrees that various communist parties led successful revolutions in Russia, China, Vietnam, etc. These accomplished two important things: they abolished feudalism, and they threw out the colonial powers. But after that the Communists were like the dog that caught the car: they had no idea what to do with their success. But they'd cleared the way for the development of true capitalism in their countries--and that is what happened in every case.
So Mr. Milanovic puts the Bolshevik revolutions not as a step toward a post-capitalist world, but rather as laying the groundwork for a thriving, capitalist economy. The most successful revolution--which tore up feudalism root and branch--was in China, and is today the most successful capitalist country in the developing world. Compare, e.g., to India, where feudalism was only partially removed, and where capitalism remains stunted.
Mr. Milanovic offers another dichotomy--that between liberal, democratic capitalism and political capitalism. In the former, while the state remains a servant of the bourgeoisie, it retains an independent existence. The state serves as the guarantor of fairness, and hence ensures the survival of the capitalism itself. Liberal democratic societies have a rule of law, a free press, an independent judiciary, and democratic institutions--along with a fixation on Gini coefficients. Governance is messy, inefficient, and occasionally completely dysfunctional, but the theory goes that long-term, liberal democratic capitalism is the best possible outcome.
In political capitalism, on the other hand, capitalism survives only at the sufferance of the state or the Party. The social contract is that the Party will ensure an ever improving standard of living as long as all political power remains with the Party. China is the archetype for this system, but other examples are Russia, Vietnam, and Singapore. Political capitalism sounds to me a whole lot like fascism.
Political capitalism is vastly more efficient than its liberal neighbors, but it is much more brittle. It's not clear if China can survive a serious recession. Because the very goal is to serve the Party, there is no rule of law, corruption is endemic, and human rights are honored only in the breach. (Singapore looks to be an exception.)
Indeed, corruption is feature rather than a bug--it's how the Party bureaucrats cash in on the wealth created by the bourgeoisie. But they can't engage in too much conspicuous consumption at home--that's why much of their wealth has to be stashed abroad. Hence the houses in Vancouver and New York, the yachts in Miami and Brisbane, and the children attending Harvard and Stanford. Seen in this light, Hong Kong is more important to the Chinese Communist Party than they let on--it is the window by which they can launder their money and get it out of the country. The US threat to withdraw Hong Kong's special financial status is a direct threat to the Party.
There are a lot of ideas in this book--I've barely scratched the surface. I've read parts of it twice and yet am still missing bits. I need to read the whole thing again. As said, it's a very dense book, but it definitely rewards the effort.
Further Reading:
NOTE: Because of some health issues, blogging is likely going to be on the light side for the next few months.
