Capitalism kills liberal democracy

The emergence of capitalism in the ex-communist countries of Eastern Europe, the Soviet Union, and China presented an unforeseen new world to those of us with an alternate future in mind. Economist Branko Milanovic surveys this new world in his book Capitalism, Alone. Milanovic is originally from Serbia in the former Yugoslavia, which gives him a unique setting and perspective to observe the transformation of Eastern Europe and the USSR.

The stock-in-trade of Milanovic, a former chief economist at the World Bank, was international income data inequality, as shown in his previous book, Global Inequality: A New Approach in the Age of Globalization. In Capitalism, Alone, he goes far beyond this area to discuss the institutions and market arrangements of the contemporary global economy.

The fundamental dichotomy in Milanovic’s new world of capitalism is between what he describes as “liberal and meritocratic capitalism” (“LMC”) and “political capitalism” (“PC”). Its two archetypes are the United States and the People’s Republic of China (PRC).

The term “liberal” in this context refers both to the old connotation of the 19th century, meaning less government constraints on markets and international trade, as well as to the more modern liberal idea of ​​a commitment to reduce. inequalities. “Meritocratic” means that there is more space for individual economic mobility, more equal opportunities. The main contrast here is with 19th century capitalism, which involved less mobility and few public policies aimed at reducing inequalities.

Political capitalism in Malinovic’s classification presents greater autonomy for the state and its bureaucracy in orienting the economy and less possibilities for democratic decision-making or the contribution of civil society. Besides the PRC, in this category the author includes Singapore, Vietnam, Burma, Russia, Ethiopia, Algeria and Rwanda.

In both categories, it is still capitalism that reigns. Business ownership in the PRC is diverse, including cooperatives and varying degrees of ownership by provincial and local governments, as well as the national government. But there is no doubt that capitalism has triumphed in China and other “PC” countries. Production is market oriented. The capital is owned by individuals, especially a new class of multimillionaires. Workers serve in a wage labor system.


Milanovic’s method is eclectic and empirical, informed by Marxist concepts but not limited to them. A fundamental idea underlying his analysis is the idea that production relations are a key determinant of social relations and institutions. Unlike Marx, the book does not offer a class treatment. An in-depth discussion is devoted to income strata and the shares of labor and capital in national income. But there is no consideration for the formation and domination of classes in the Marxian sense. This is not a criticism, but simply a description of Milanovic’s approach.

The main development that is driving the economy to its current state is the emergence of global supply chains, facilitated by advances in communications and transport. Improved communications eliminate the need for physical co-location of managers and upper-level workers. It also expands and deepens the reach of finance. Reduced transport costs allow a geographical dispersion of the production stages. The latter, not incidentally, reduces the bargaining power of labor and explains Milanovic’s famous “elephant curve”.

Globalization thus gives rise to a different relationship between the global North (developed countries) and the South (underdeveloped countries). According to some old theories of imperialism, the model is that of colonial powers deploying armed forces to seize underdeveloped countries with the aim of stripping them of their natural resources. The more recent reality is the geographic dispersion of high value-added manufacturing and its integration into the production of finished products. Think about auto parts shipped from the United States and assembled in Mexico maquiladores, or the design in Oregon of Nike shoes that are made in Vietnam and resold in the United States.

Formerly underdeveloped countries are eager hosts for this type of outsourcing and do not need foreign military guards to protect foreign assets from expropriation. Admittedly, a proliferation of American military bases remains, but they undoubtedly figure more in the American geopolitical machinations than in the protection of the colonial exploitation of natural resources. At the time, some radicals sought to explain the Vietnam War as being based on controlling the production of rubber or tin. The Balkan intervention was sometimes explained by a reference to mining in Kosovo. There were discussions about the desire for a pipeline through Afghanistan. This type of mechanistic analysis has disappeared, although American interventionist efforts remain.

Financial constraints imposed by the International Monetary Fund and other lending institutions, and trade governance by the World Trade Organization, all dominated by the United States and European powers, replace the direct physical threats posed by the United States. foreign military occupants. The irony of this state of affairs is that it was made possible by the success of the communist revolution, especially in the People’s Republic of China, which liquidated the feudal institutions and then conscientiously liquidated its socialist principles to open up the way for foreign direct investment, including the crucial transfer of technology.

The historical stages of economic development, from feudalism to communism to capitalism, run counter to the older Marxist view which expected communism to launch where it did not – the advanced capitalist countries – and believed that it would not or should not appear in underdeveloped nations. A common Western vision of development has also failed on the same historical eventualities. In political capitalism, feudalism did not give way to bourgeois revolutions, and the germination of small capitalist enterprises did not evolve into huge monopolies.

The overall consequence of the economic change has been a great rebalancing of wealth and political power between the United States and Europe on the one hand, and Asia on the other. Africa remains in the cold. This is reflected in Milanovic’s specialty in measuring inequalities. It has huge political implications, but it doesn’t fit the author’s LMC and PC categories very well. India, Japan, Taiwan, and South Korea are not on its list of PC economies, but their economic growth surely plays a huge role in rebalancing Asia vis-à-vis the United States. Japan and South Korea have also had more state economic coordination than the United States.

For the Western reader, what may be of most interest here is the analysis of political capitalism, rather than the more familiar models of the United States and the European Union (which still includes the United Kingdom at the moment. write these lines). In Milanovic’s scheme of political capitalism, the bureaucracy needs discretion to function effectively. This means that he is only loosely bound by the law. It also means that there will be more corruption, the price of more discretionary power. The trick to a society is to ensure that the costs of corruption are outweighed by the gains in economic prosperity.

Meanwhile, the dilemma of liberal and meritocratic capitalism is the tension between the abundant provision of the welfare state and the political pressure generated by immigration and international integration. One aspect is the growing difficulty of taxing mobile and, in many cases, secret financial capital. Another is the impact on public spending that can be attributed to migrants. My take is that both of these tend to be overstated, especially by various racist demagogues and think tanks dispensing bogus research, but they cannot be completely ignored. This does not necessarily contradict the moral arguments for a more liberal immigration regime, nor its political wisdom for the left. This makes a demand for “open borders” more difficult to defend.

A off-putting note in Milanovic’s basic dichotomy is the “meritocratic” dimension. Whether mobility is greater in “liberal and meritocratic capitalism” than in “political capitalism” is not obvious. Of course, some of the wealthiest in America were of humble origins. But China is full of new superriches that could only have come from such origins. At the same time, the constraints on mobility in the United States are evident. To what extent do family ties in the PRC affect life chances? The argument for greater meritocracy in the United States is not presented in this book. There are also doubts attached to the “liberal” angle, as regards redistribution. The postwar social democratic era may have ended in the 1980s, but the constraints on dynastic wealth formation in LMC countries have always been questionable and are even more so today.

But the biggest threat to the “L” in LMC is the erosion of democratic institutions in the United States and other notable cases, such as Brazil, the Philippines, Turkey, Israel, Hungary, and India. The drift towards neofascism in LMC countries is alarming, and the associated costs of corruption, military belligerence, and weakened human rights and civil society may portend a new era of slower economic growth. , less prosperous capitalism. Meanwhile, growing opposition to capitalism or whatever you call it in the United States opens up the prospect of a revival of the postwar social democratic model.

Capitalism may be alone, but it will not be left alone.


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