Capitalism: Definition, Evidence, Consequences

• Capitalism rules the world, and nearly the entire globe organizes economic production the same way.
• Labor is voluntary, capital is mostly in private hands, and production is coordinated in a decentralized way and motivated by profit.
• There is no historical precedent for capitalism's global triumph.
• Capitalism had to coexist with other ways of organizing production, such as hunting and gathering, small-scale farming, serfdom, and slavery in the past.
• Capitalism shared the world with communism, which reigned in countries containing about one-third of the human population following the Russian Revolution in 1917.
• Now, capitalism is the sole remaining mode of production.
• The real battle is within capitalism, between two models that jostle against each other.
• Two models now hold sway, differing in their political, economic, and social aspects.
• A liberal meritocratic form of capitalism dominates in the states of western Europe and North America and a number of other countries, such as India, Indonesia, and Japan.
• Liberal meritocratic capitalism is a system that concentrates the vast majority of production in the private sector, ostensibly allows talent to rise, and tries to guarantee opportunity for all through measures such as free schooling and inheritance taxes.
• A state-led, political model of capitalism is exemplified by China.
• State-led political capitalism also surfaces in other parts of Asia (Myanmar, Singapore, Vietnam), in Europe (Azerbaijan, Russia), and in Africa (Algeria, Ethiopia, Rwanda).
• Political capitalism privileges high economic growth and limits individual political and civic rights.
• These two types of capitalism compete with each other because they are so intertwined.
• Asia, western Europe, and North America are home to 70% of the world's population and 80% of its economic output.
• The connections and collisions have bred a competition between the West and parts of Asia that is made more intense by the differences in their respective models of capitalism.
• This competition will shape the future of the global economy.
• In 1978, almost 100% of China's economic output came from the public sector; that figure has now dropped to less than 20%.
• In modern China, as in the more traditionally capitalist countries of the West, the means of production are mostly in private hands, the state doesn't impose decisions about production and pricing on companies, and most workers are wage laborers.
• These two models of capitalism offer significantly different ways of structuring political and economic power in a society.
• Political capitalism gives greater autonomy to political elites while promising high growth rates to ordinary people.
• China's economic success undermines the West's claim that there is a necessary link between capitalism and liberal democracy.
• Liberal capitalism has democracy and the rule of law.
• These two features are virtues in themselves, and both can be credited with encouraging faster economic development by promoting innovation and social mobility.
• Liberal capitalism faces the emergence of a self-perpetuating upper class coupled with growing inequality.
• Rising inequality represents the gravest threat to liberal capitalism's long-term viability.
• China's government and those of other political capitalist states need to constantly generate economic growth to legitimize their rule, a compulsion that might become harder and harder to fulfill.
• Political capitalist states must also try to limit corruption, which is inherent to the system, and its complement, galloping inequality.
• The test of the political capitalism model will be its ability to restrain a growing capitalist class that often chafes against the overweening power of the state bureaucracy.
• As other parts of the world (notably African countries) attempt to transform their economies and jump-start growth the tensions between the two models will come into sharper focus.
• The rivalry between China and the United States is often presented in simply geopolitical terms, but at its core, it is like the grinding of two tectonic plates whose friction will define how capitalism evolves in this century.

Liberal Capitalism

• The global dominance of capitalism is one of two epochal changes that the world is living through.
• The other change is the rebalancing of economic power between the West and Asia.
• Incomes in Asia are edging closer to those in western Europe and North America for the first since the Industrial Revolution.
• In 1970, the West produced 56% of world economic output and Asia (including Japan) produced only 19%.
• Today, those proportions have shifted to 37% and 43%, thanks in large part to the staggering economic growth of countries such as China and India.
• Capitalism in the West generated the information and communications technologies that enabled a new wave of globalization in the late twentieth century, the period when Asia began to narrow the gap with the “global North.”
• Anchored initially in the wealth of Western economies, globalization led to an overhaul of moribund structures and huge growth in many Asian countries.
• Global income inequality has dropped significantly from what it was in the 1990s, when the global Gini coefficient was 0.70, to roughly 0.60 today.
• Global income inequality will drop further as incomes continue to rise in Asia.
• Inequality within countries, has grown, especially in the West.
• The United States' Gini coefficient has risen from 0.35 in 1979 to about 0.45 today.
• This increase in inequality within countries is in large part a product of globalization.
• Globalization's effects on the more developed economies in the West is the weakening of trade unions, the flight of manufacturing jobs, and wage stagnation.
• Three variants - classical capitalism, social democratic capitalism, and liberal meritocratic capitalism - can best be used to understand liberal meritocratic capitalism.
• Liberal meritocratic capitalism came into being in the last 40 years.
• Classical capitalism was predominant in the nineteenth and early twentieth centuries.
• Social democratic capitalism defined the welfare states in western Europe and North America from World War II to the early 1980s.
• The rich individuals in the present system tend to be both capital rich and labor rich and generate their income both from investments and from work.
• The rich also tend to marry and make families with partners of similar educational and financial backgrounds - "assortative mating".
• Top people today are highly paid managers, Web designers, physicians, investment bankers, and other elite professionals unlike in classical capitalism where they were financiers.
• Liberal meritocratic capitalism is more equal than classical capitalism, and it is more empowered to women and ethnic minorities as they enter the workforce.
• Liberal meritocratic capitalism uses welfare provisions and social transfers in an attempt to mitigate the worst ravages of acute concentrations of wealth and privilege.
• Liberal meritocratic capitalism inherited those last measures from its direct predecessor, social democratic capitalism.
• Social democratic capitalism was structured around industrial labor and featured the strong presence of unions, which played a huge role in shrinking inequality.
• Social democratic presided over an era that saw measures such as the GI Bill and the 1950 Treaty of Detroit (a sweeping, union-negotiated contract for autoworkers) in the United States and economic booms in France and Germany, where incomes rose.
• Growth was distributed fairly evenly; populations benefited from better access to health care, housing, and inexpensive education; and more families could climb up the economic ladder.
• The nature of work has changed significantly under globalization and liberal meritocratic capitalism, especially with the winnowing away of the industrial working class and the weakening of labor unions.
• The share of capital income in total income has been rising since the late twentieth century.
• An increasing portion of GDP belongs to the profits made by big corporations and the already wealthy.
• A rising share of capital income in total income implies that capital and capitalists are becoming more important than labor and workers, and so they acquire more economic and political power.
• This leads to an increase in inequality, because those who draw a large share of their income from capital tend to be rich.

Malaise in the West

• The current system has produced a more diverse elite.
• The setup of liberal capitalism has the consequence of at once deepening inequality and screening that inequality behind the veil of merit.
• The wealthiest today can claim that their standing derives from the virtue of their work, obscuring the advantages they have gained from a system and from social trends that make economic mobility harder and harder.
• The last 40 years have seen the growth of a semipermanent upper class that is increasingly isolated from the rest of society.
• The top 10% of wealth holders own more than 90% of the financial assets in the United States.
• The ruling class is highly educated, many of its members work, and their income from that labor tends to be high.
• The elites invest heavily both in their progeny and in establishing political control by investing in their children's education and enabling future generations of their kind to maintain high labor income and the elite status that is traditionally associated with knowledge and education.
• The elites invest in political influence-in elections, think tanks, universities, and so on-they ensure that they are the ones who determine the rules of inheritance, so that financial capital is easily transferred to the next generation.
• The formation of a durable upper class is impossible unless that class exerts political control.
• In a modern democracy, the rich use their political contributions and the funding or direct ownership of think tanks and media outlets to purchase economic policies that benefit them
• These policies benefit them with lower taxes on high incomes, bigger tax deductions, higher capital gains through tax cuts to the corporate sector, fewer regulations, and so on which ,increase the likelihood that the rich will stay on top.
• As the elites in liberal meritocratic capitalist systems become more cordoned off, the rest of society grows resentful.
• Malaise in the West about globalization is largely caused by the gap between the small number of elites and the masses, who have seen little benefit from globalization and, accurately or not, regard global trade and immigration as the cause of their ills.
• This situation eerily resembles what used to be called the "disarticulation" of Third World societies in the 1970s.

China’s Political Capitalism

• In Asia, globalization has same reputation: according to polls, 91% of people in Vietnam, for instance, think globalization is a force for good.
• Communism in countries such as China and Vietnam laid the groundwork for their eventual capitalist transformation.
• The Chinese Communist Party came to power in 1949 by prosecuting both a national revolution (against foreign domination) and a social revolution (against feudalism), which allowed it to sweep away all ideologies and customs that were slowing economic development and creating artificial class divisions.
• In China, the transformation from quasi feudalism to capitalism took place swiftly, under the control of an extremely powerful state.
• The system of political capitalism has three defining features.
• First, the state is run by a technocratic bureaucracy, which owes its legitimacy to economic growth.
• Second, the state has laws but they are applied arbitrarily, much to the benefit of elites, who can decline to apply the law when it is inconvenient or apply it with full force to punish opponents.
• The arbitrariness of the rule of law in these societies feeds into political capitalism's third defining feature: the necessary autonomy of the state.
• The tension between technocratic bureaucracy and the loose application of the law produces corruption in the the political capitalist system.
• China's growth rate averaged about eight percent and Vietnam's averaged around six percent, compared with just two percent in the United States over 27yr period.
• The flip side of China's astronomic growth has been its massive increase in inequality.
• Notably, there has also been an increase in China in the share of income from privately owned capital, which seems to be as concentrated there as in the advanced market economies of the West.
• A new capitalist elite has formed in China.
• A remarkable feature of the new capitalist class in China is that almost 4/5 of members report having had fathers who were either farmers or manual laborers.
• the intergenerational transmission of wealth and power should begin to mirror what is observed in the West in China in the future.
• Compared with its Western counterparts, this new capitalist class in China may be more of a class by itself.
• China's many byzantine forms of ownership at the local and national levels blur the lines between public and private allowing the political elite to restrain the power of the new capitalist, economic elite.
• China has been home to strong, fairly centralized states that have always prevented the merchant class from becoming an independent center of power for millennia.
• According to the French scholar Jacques Gernet, wealthy merchants under the Song dynasty in the thirteenth century never succeeded in creating a self-conscious class with shared interests because the state was always there ready to check their power.
• This pattern of capitalists enriching themselves without exercising political power will likely continue in China and in other political capitalist countries, as well.

A Clash of Systems

• As China expands its role on the international stage, its form of capitalism is invariably coming into conflict with the liberal meritocratic capitalism of the West.
• Political capitalism might supplant the Western model in many countries around the world.
• The advantage of liberal capitalism resides in its political system of democracy which provides a powerful corrective to economic and social trends that may be detrimental to the common good.
• Political capitalism, for its part, promises much more efficient management of the economy and higher growth rates.
• China has been by far the most economically successful country in the past half century and it's placed to legitimately try to export its economic and political institutions.
• China is doing that most prominently through the Belt and Road Initiative by improving Chinese-financed infrastructure and represents an ideological challenge to the way the West has been handling economic development around the world.
• While the West focuses on building institutions, China is pouring money into building physical things and will link partnered countries into a Chinese sphere of influence.
• Political capitalism has a greater tendency to generate bad policies and bad social outcomes that are difficult to reverse and can easily engender popular dissatisfaction because of its systemic corruption in the absence of a clear rule of law relative to liberal capitalism. Politics is the way to win economic benefits; in plutocratic-formerly liberal meritocratic-capitalism, economic power will conquer politics.
• The endpoint of the two systems will be the same: the closing ranks of a privileged few and the reproduction of that elite indefinitely into the future.

Explore the core elements defining capitalism and the author's arguments for its endurance. Examine potential consequences of resisting its competitive nature and the 'real battle' it entails. Understand historical contexts and global shifts influencing capitalism's status.