Capitalism, Alone (Branco Milanovic)

I recently became aware of the economist Branko Milanovic when I stumbled across his review of Kate Raworth's Doughnut Economics, and the subsequent friendly public back-and-forth between the two. In my own review, I said anyone interested in the topics it covers should read Doughnut Economics but ensure it is not the only book they read on the matter. Conversely, if you do only read one book on the current state of capitalism, make it Capitalism, Alone.

Capitalism, Alone begins by arguing that virtually all countries are now capitalist, and proceeds to outline the author's own categorisation of two current types: Liberal, Meritocratic (exemplified by the United States), and Political (exemplified by China). Milanovic, an expert on inequality, has a refreshing writing style, assertive of his points without needing to present one-sided arguments or simplifying on ideological grounds. In discussing the consequences of modern western capitalism for example, he outlines the commodification of all forms of life - outsourcing ethics to law (tax avoidance, trading complex derivatives), family meals to delivery services (Deliveroo) and homes to hotels (Air BnB). There is a balanced and thoughtful discussion of how this reduces the importance of family, but that it also gives a form of freedom and empowerment to individuals who otherwise would have to work only in 8 hour blocks in specified locations for long periods of time.

Liberal, Meritocratic Capitalism is, according to the author the third type of capitalism experienced by the west - after Classical (pre 1914) and Social-Democratic (post 1945). Western economies today have certain features which tend towards increased inequality, and low mobility between economic groups (arguably more important). In classical capitalism workers earned from labour, and capitalists earned from capital. Now those who earn from capital are also the highest wage earners (what Milanovic calls Homoploutia), and the wealthiest proportion of society tends to only marry the wealthiest. This concentration of wealth gives significant political power to the richest groups in society, and allows them to lock in their position - for example by lobbying to lower inheritance tax or keeping elite education expensive and exclusive. Again, there is balance in the analysis. Whilst the author advocates curbing political influence through contributions and investment in public education, one can not readily mandate marriage selection on economic grounds; nor can the highest earners necessarily be penalised for investing in capital or continuing to work longer hours even after they have amassed wealth.

Political Capitalism, seen in Botswana, Singapore, Ethiopia, Vietnam and China is characterised by free markets, private property but an absence of political openness. Corruption is inherent in the system, as is a lack of the rule of law. This is not to say that there are not laws in China, but by definition the ruling class needs to be able to apply the law more or less stringently to it's political opponents or supporters in order to retain power. Milanovic argues that corruption is a natural consequence of such a system, but also a contradiction within it, since an efficient bureaucracy is necessary also. This is because strong economic growth is needed to give countries like China its political legitimacy, and essentially persuade the public to forgo the right to change leaders. It is in this context one can view the anti-corruption campaign in China not as a cleaning-up of politics, but as a containment job - the lesser evil than that of increasing political openness.

Amongst the policy ideas put forth, those on immigration will be most controversial. While countries have differing levels of wealth and earning opportunities, there will always be a demand from people in poor countries to move to rich countries - and this contends the author, is how we reduce global inequality. Since citizens in richer countries will wish to retain the born-into advantages of their home nation, they will resist, and elect anti-immigration leaders - this is clearly the case. The solution proposed is to reduce the rights and benefits of immigrants to a level that is acceptable to the domestic population, but still at a level where people would want to move. Whilst it is acknowledged that there are strong ethical and practical arguments against such a policy, Milanovic contends that it is better than a cessation of immigration.

In another part of the book, he hints at a better possible solution to global inequality. China's extraordinary economic performance of the past 50 years has been solely responsible for reducing global inequality, not in small part due to global value chains. Because of global value chains, it is in the interests of multinational corporations to bring modern technology to where labour is cheapest; therefore Apple may be acting in its interests but against those of the U.S. by investing in the technological advancement of Asian countries such as China. Indeed, the unlikely alliance of the rich in rich countries and the poor in poor countries has had a net positive effect on global poverty, whilst simultaneously harming the economic prospects of working class citizens of developed nations. This explains the left's newfound anti-globalisation slant, from what is traditionally an internationalist movement.

As Asia and South America catch up with the West in the next 20 years, the slow growth and increasing population in Africa raises the possibility of global inequality widening again. One cure for this may be China's increased wealth and anti-immigration policies leading to massive outsourcing of labour to Africa, mirroring the process by which China itself escaped absolute poverty. This begs the question of whether China will also seek to export it's ideology (the author thinks not).

There are a multitude of further points of discussion in this short but wide-ranging book, which I shall not tackle here. One I would disagree with is the assertion that strong economic growth performance is a permanent feature of Political Capitalism. Milanovic argues that communism, rather than the final stage of capitalism as Marx claimed, was a stage needed for poor colonised nations to transition from feudalism to capitalism, skipping several stages of development. This (non-communist) 'skipping of steps' in development in general is a better explanation for China's rapid growth in my opinion. Growth is largely new technology and ideas and their dissemination through an economy, and so starting from such a low level of development has allowed China to catch up. Even today China's GDP per capita is 10% lower than that of Bulgaria, the EU's poorest nation. Soviet Russia experienced rapid growth as it industrialised, simply because transitioning from agriculture to manufacturing is far more productive. Whilst China is not impeded by central planning; and regional autonomy and competition for ideas is a driving force of innovation, there is no reason why China would be able to outgrow developed nations by such magnitudes as income levels converge. At the point of slowdown, political capitalism must withstand scrutiny from its citizens currently only visible in newly-acquired Hong Kong.

Capitalism, Alone is the work of a maestro in his prime, and a book to read more than once. It offers no easy solutions and contains no ideological tirades dressed up with data. Instead there is a model of the world, and like all good models, it gifts the reader a system of thought and an insight previously absent.