If capitalism has triumphed to become the sole socio-economic system globally, what are the prospects for achieving a fairer world? - reviewed by Roberto Iacono. Capitalism, Alone: The Future of the System That Rules the World. Branko Milanovic. Harvard University Press. 2019

Iacono, Roberto

English

LSE Research Online

Book review: capitalism, alone: the future of the system that rules the worldLSE Research Online URL for this paper: http://eprints.lse.ac.uk/104260/Version: Published VersionOnline resource:Iacono, Roberto (2019) Book review: capitalism, alone: the future of the system that rules the world. LSE Business Review (01 Nov 2019). Blog Entry. lseresearchonline@lse.ac.ukhttps://eprints.lse.ac.uk/ Reuse["licenses_typename_other" not defined]Capitalism,	Alone:	The	Future	of	the	System	ThatRules	the	World	–	Book	ReviewIf	you	are	interested	in	this	book	review,	you	can	listen	to	a	podcast	of	Branko	Milanovic	speaking	at	the	LSE	publicevent,	‘Capitalism,	Alone:	The	Future	of	the	System	That	Rules	the	World’.Capitalism,	Alone:	The	Future	of	the	System	That	Rules	the	World.	Branko	Milanovic.	Harvard	UniversityPress.	2019.Find	this	book:	Capitalism,	Alone	by	Branko	Milanovic	is	a	remarkable	book,	possibly	the	author’s	mostcomprehensive	opus	so	far.	For	economists	working	on	inequality	measurement,	oftenaccused	of	dealing	with	‘measurement	without	theory’,	Capitalism,	Alone	provides	anovel	paradigm	within	which	analysis	of	distributional	issues	in	different	economies	andsocial	systems	can	be	placed.	The	overall	thesis	of	the	book	is	that,	for	the	first	time	inglobal	history	excluding	a	few	country	cases,	capitalism	(referring	to	productionorganised	for	profit	using	wage	labour	and	mostly	privately	owned	capital)	is	currentlythe	‘sole	socio-economic	system	in	the	world’	(2).This	does	not	entail	the	end	of	history	however,	since	a	set	of	typologies	of	capitalismare	sketched	by	Milanovic	in	the	book	–	although	the	author	does	this	in	a	more	stylisedmanner	than	usually	provided	in	the	academic	literature	on	varieties	of	capitalism.	In	myview,	the	main	contribution	of	the	book	lies	precisely	in	the	neat	way	Milanoviccategorises	these	ideal-typical	social	and	economic	systems,	as	I	explain	in	thefollowing.LSE Business Review: Capitalism, Alone: The Future of the System That Rules the World – Book Review Page 1 of 3		Date originally posted: 2019-11-17Permalink: https://blogs.lse.ac.uk/businessreview/2019/11/17/capitalism-alone-the-future-of-the-system-that-rules-the-world-book-review/Blog homepage: https://blogs.lse.ac.uk/businessreview/Liberal	Meritocratic	Capitalism	represents	the	typology	of	capitalism	embraced	by	the	core	economies	of	the	West,with	the	US	being	its	most	paradigmatic	example.	Individuals	in	liberal	meritocratic	capitalist	states	receive	positiveshares	of	both	capital	and	labour	incomes,	whilst	tax	and	transfers	redistribute	a	fraction	of	those	incomes.	Themoderate	degree	of	redistribution	does	not,	however,	erase	‘social	separatism’	(215),	entailing	that	the	richconsume	more	private	education	and	health	services	than	the	middle	class	and	the	poor.	Due	to	this,intergenerational	mobility	under	liberal	meritocratic	capitalism	is	not	necessarily	high.	Last	but	not	least,	democracyis	one	of	the	main	strengths	of	liberal	meritocratic	capitalism,	since	the	feedback	of	voters	ensures,	in	principle,	thatthe	system	does	not	end	up	failing	in	the	provision	of	basic	liberties	(defined	as	a	primary	good	by	John	Rawls,208),	although	at	the	cost	of	lower	growth	rates	of	income	than	liberal	meritocratic	capitalism	could	achieve	byretrenching	these	rights.Up	to	this	point,	not	much	novelty.	However,	Milanovic	reaches	further	than	other	scholars	working	on	capitalism	bydefining	a	novel	phenomenon	that	alone	encompasses	several	challenges	that	liberal	meritocratic	capitalism	hasbeen	facing	in	recent	decades:	homoploutia	(34).	Namely,	the	rising	share	of	the	population	earning	both	highlabour	and	capital	income	(hence	owning	the	same	–	homo,	wealth	–	ploutia).	Although	the	association	of	highlabour	and	capital	income	at	the	top	of	the	income	distribution	has	been	studied	by	economists	before	(by	TonyAtkinson,	among	others),	it	is	in	Capitalism,	Alone	that	this	concept	is	embedded	for	the	first	time	within	a	thoroughanalysis	of	the	underlying	socio-economic	system.	Why	is	a	rising	degree	of	homoploutia	dangerous	within	liberalmeritocratic	capitalism?	Because	it	allows	economic	elites	to	become	more	autonomous	from	the	rest	of	society,and	to	overlap	to	a	higher	extent	with	political	elites,	introducing	plutocratic	features.	If	this	distortion	expands,	thedanger	is	that	liberal	meritocratic	capitalism	would	assume	the	contours	of	the	other	main	typology	of	capitalismanalysed	in	the	book:	Political	Capitalism.Milanovic	defines	political	capitalism,	through	the	historical	example	of	Deng	Xiaoping’s	China,	as	an	ideal-typicalsocio-economic	system	in	which	the	autocratic	and	technocratic	bureaucracy	in	power	has	the	duty	of	deliveringhigh	economic	growth	(possibly	higher	than	liberal	meritocratic	capitalism),	both	to	justify	its	leading	role	and	theabsence	of	a	binding	(that	is,	selective	application	of)	rule	of	law	(91).	The	main	danger	for	a	country	picking	thisideal-typical	system	is	that	endemic	inequality	due	to	corruption	and	the	discretionary	power	of	the	political	elitemight	not	be	tolerated	by	the	population,	especially	whenever	economic	growth	slows	down.	In	other	words,	highand	widespread	income	growth	is	the	necessary	glue	for	a	system	where	endemic	corruption	and	rising	inequalitymight	lead	to	disruption.	The	selective	application	of	the	rule	of	law	is	also	important,	since	a	rule	of	law	withoutexceptions	would	allow	competition	between	different	economic	elites,	which	could	eventually	overturn	the	power	ofthe	political	elite	in	charge.The	above,	although	it	represents	the	central	thesis,	is	only	a	fraction	of	the	material	that	the	reader	will	find	inCapitalism,	Alone	by	Milanovic	as	an	analyst	of	the	different	types	of	capitalism.	Among	other	topics,	I	would	like	tomention	the	detailed	historical	review	of	economic	and	political	development	in	China,	within	which	Milanovicempirically	demonstrates	how	fast	the	share	of	fixed	investment	and	industrial	output	by	privately-owned	firms	hasrisen	in	the	Chinese	economy.	At	least	as	interesting	is	the	analysis	the	author	delivers	on	the	unsettled	role	ofcommunism	within	global	twentieth-century	history,	claiming	that	‘communism	enabled	backward	and	colonizedsocieties	to	abolish	feudalism	[…],	and	build	endogenous	capitalism’	(75).The	last	part	of	this	review	focuses	instead	on	the	policymaker	Milanovic.	Imagine	the	author	joins	the	hypotheticalcouncil	of	advisors	of	the	political	elite	in	a	country	under	liberal	meritocratic	capitalism.	What	should	be	done	tomove	towards	People’s	Capitalism	–	with	individuals	earning	equal	shares	of	income	sources,	inequality	undercontrol	and	high	intergenerational	mobility	–	while	avoiding	the	potential	divergence	into	political	capitalism?Milanovic	provides	readers	with	a	set	of	economic	and	social	policies,	among	which	I	will	highlight	the	two	mostsubstantial	ones.First,	the	author	proposes	the	introduction	of	tax	advantages	for	the	poor	and	the	middle	class	in	order	to	increasetheir	endowments	of	financial	capital	with	respect	to	the	richer	deciles	of	the	income	distribution.	This	would	reduceconcentration	of	wealth	in	liberal	meritocratic	capitalism,	lowering	the	dangers	that	come	with	homoploutia,	thoughwhether	this	would	be	sufficient	is	not	analysed	in	detail	by	Milanovic.	As	an	interesting	example,	this	would	besimilar	to	the	recent	scheme	of	a	‘Share	Savings	Account’	introduced	in	Norway	in	2017.LSE Business Review: Capitalism, Alone: The Future of the System That Rules the World – Book Review Page 2 of 3		Date originally posted: 2019-11-17Permalink: https://blogs.lse.ac.uk/businessreview/2019/11/17/capitalism-alone-the-future-of-the-system-that-rules-the-world-book-review/Blog homepage: https://blogs.lse.ac.uk/businessreview/Second,	and	possibly	more	controversially,	Milanovic	proposes	the	introduction	of	‘Citizenship	light’,	givingincremental	access	to	welfare	benefits	and	other	social	and	economic	rights	for	immigrants,	ending	the	strictlybinary	division	between	citizens	and	non-citizens	(217).	The	objective	would	be	to	make	immigration	more	palatablepolitically.	Milanovic	defines	citizenship	as	‘a	joint	monopoly	exercised	by	a	group	of	people	[…]	that	gives	rise	tothe	citizenship	rent’	(133),	leading	to	higher	income	streams	than	those	of	non-citizens.	In	sum,	native	citizens	aremore	likely	to	accept	migrants,	the	less	migrants	are	granted	the	benefits	annexed	to	citizenship.	The	authorqualifies	this	proposal	as	a	realistic	solution	in	order	to	allow	migration	to	happen,	migration	being	one	of	the	keyvariables	to	reduce	global	income	inequality	(see	Milanovic,	2016).	In	my	view,	the	statement	that	access	to	welfarebenefits	in	rich	countries	is	based	mainly	on	citizenship	is	only	true	to	some	extent	(156).	Social	insurance	systemsin	many	welfare	state	countries	are	mainly	based	on	residence	(for	example,	Norwegian	National	InsuranceScheme,	2019),	in	combination	with	employment	and	with	the	amount	of	years	one	has	contributed	to	the	systemwith	tax	payments.	In	other	words,	if	citizenship	does	not	play	the	role	assigned	to	it	by	Milanovic	in	countries	withgenerous	welfare	states,	the	worst-case	scenario	depicted	by	the	author	–	that	the	welfare	state	in	the	era	ofglobalisation	has	to	be	dismantled	in	order	to	allow	migration	without	backlashes	(156-57)	–	becomes	a	moreremote	possibility.Let	us	switch	to	the	specific	topic	of	the	challenges	faced	by	welfare	states	in	a	globalised	world,	touched	upon	inthe	book	in	Sections	2.3b	(50)	and	4.3	(155).	Milanovic	claims	that	‘it	has	become	a	truism	that	the	welfare	state	isunder	stress	from	the	effects	of	globalization’	(50).	In	my	view,	this	claim	is	not	robust	depending	on	how	onedefines	the	costs	and	benefits	(or	added	value)	of	a	welfare	state	economy.	If	globalisation	increases	incomevolatility	and	entails	unemployment	shocks,	then	the	visible	costs	of	welfare	benefits	in	terms	of	national	incomeincrease.	These	costs	are	publicly	discussed,	as	they	entail	higher	taxes	to	be	covered.	However,	the	hidden	gainsof	these	measures	provide	economic	value	that	does	not	show	up	in	the	national	accounts,	as	they	avoid	evenhigher	income	reduction.	The	costs	in	terms	of	lost	productivity	and	income	when	large	shares	of	the	population	arenot	protected	by	social	insurance	might	in	the	long	run	be	even	higher	than	the	short-run	costs	of	paying	forservices	and	transfers	in	times	of	recession	(Kalle	Moene,	2018).Ultimately,	I	highly	recommend	Capitalism,	Alone	to	all	readers	and	scholars	interested	in	challenging	theirunderstanding	of	the	(supposed)	sole	socio-economic	system	we	live	in,	including	how	Milanovic	advocates	tochange	it	for	the	better	and	move	towards	the	ideal-type	People’s	Capitalism	outlined	in	the	book.♣♣♣Notes:This	blog	post	appeared	first	on	LSE	Review	of	Books.The	post	gives	the	views	of	its	author(s),	not	the	position	of	LSE	Business	Review	or	the	London	School	ofEconomics.Featured	image:	Michael	Roper	CC	BY	SA	2.0When	you	comment,	you’re	agreeing	to	our	Comment	PolicyRoberto	Iacono	is	an	associate	professor	in	economics	and	social	policy	at	the	Norwegian	University	of	Scienceand	Technology	(NTNU).	His	latest	research	is	at	the	intersection	between	public	economics,	labour	economics	andpolitical	economy,	with	a	focus	on	(i)	economic	inequality	and	(ii)	policy-relevant	questions	related	to	the	‘Nordicmodel’	of	economic	development	and	welfare.	He	is	also	managing	editor	of	the	Journal	of	Income	Distribution(JID).	LSE Business Review: Capitalism, Alone: The Future of the System That Rules the World – Book Review Page 3 of 3		Date originally posted: 2019-11-17Permalink: https://blogs.lse.ac.uk/businessreview/2019/11/17/capitalism-alone-the-future-of-the-system-that-rules-the-world-book-review/Blog homepage: https://blogs.lse.ac.uk/businessreview/

Book review: capitalism, alone: the future of the system that rules the world

http://eprints.lse.ac.uk/104260/1/businessreview_2019_11_17_capitalism_alone_the_future_of_the_system.pdf

Book review: capitalism, alone: the future of the system that rules the world

Abstract

Similar works

Full text

Available Versions

LSE Research Online