The Clash of Capitalisms PDF | Foreign Affairs

,, I ' It's increasingly common to hear The Clash of commentators in the West describe the current order as "late capitalism," as if Capitalisms...

,, I ' It's increasingly common to hear The Clash of commentators in the West describe the current order as "late capitalism," as if Capitalisms the economic system were on the verge of disappearing. Others suggest that capitalism is facing a revived threat from The Real Fight for the socialism. But the ineluctable truth is Global Economy's Future that capitalism is here to stay and has no competitor. Societies around the world Branko Milanovic have embraced the competitive and acquisitive spirit hardwired into capital- apitalism rules the world. With ism, without which incomes decline, C only the most minor exceptions, the entire globe now organizes economic production the same way: labor poverty increases, and technological progress slows. Instead, the real battle is within capitalism, between two models is voluntary, capital is mostly in private that jostle against each other. hands, and production is coordinated in a Often in human history, the triumph decentralized way and motivated by profit. of one system or religion is soon fol- There is no historical precedent for lowed by a schism between different this triumph. In the past, capitalism- variants of the same credo. After Christi- whether in Mesopotamia in the sixth anity spread across the Mediterranean century BC, the Roman Empire, Italian and the Middle East, it was riven by city-states in the Middle Ages, or the ferocious ideological disputes, which Low Countries in the early modern eventually produced the first big fissure era-had to coexist with other ways of in the religion, between the Eastern and organizing production. These alternatives Western churches. So, too, with Islam, included hunting and gathering, small- which after its dizzying expansion scale fanning by free peasants, serfdom, swiftly divided into Shiite and Sunni and slavery. Even as recently as 100 years branches. And communism, capitalism's ago, when the first form of globalized twentieth-century rival, did not long capitalism appeared with the advent of remain a monolith, splitting into Soviet large-scale industrial production and and Maoist versions. In this respect, global trade, many of these other modes of capitalism is no different: two models production still existed. Then, following now hold sway, differing in their politi- the Russian Revolution in 1917, capitalism cal, economic, and social aspects. shared the world with communism, In the states of western Europe and which reigned in countries that together North America and a number of other contained about one-third of the human countries, such as India, Indonesia, and population. Now, however, capitalism is Japan, a liberal meritocratic form of the sole remaining mode of production. capitalism dominates: a system that concentrates the vast majority of produc- BRAN KO MILANOVIC is a Senior ·scholar at the Stone Center on Socio-Economic Inequality tion in the private sector, ostensibly at the CUNY Graduate Center and Centennial allows talent to rise, and tries to guaran- Professor at the London School of Economics. tee opportunity for all through measures 10 FORE I GN AFFAIRS  Branko Mila novi c power in a society. Political capitalism such as free schooling and inheritance gives grea ter auto nom y to political elites taxes. Alongside that system stan ds the while promising high growth rates to state-led, political model of capitalism, ordinary people. China's economic success which is exemplified by Chi na but also l surfaces in othe r parts of Asia (Myanmar, Singapore, Vietnam), in Euro pe (Azer- baijan, Russia), and in Africa (Algeria, Ethiopia, Rwanda). This system privi- unde rmin es the West's claim that there is a necessary link betw een capitalism and liberal democracy. Liberal capitalism has man y well- known advantages, the mos t important leges high economic grow th and limits being democracy and the rule of law. individual political and civic rights. The se two features are virtues in them- The se two types of cap itali sm- with selves, and both can be cred ited with the Uni ted States and Chin a, respec- encouraging faster economic develop- tively, as thei r lead ing exam ples -inv ari- men t by prom otin g innovation and social ably com pete with each othe r because mobility. Yet this syst em faces an they are so inte rtwi ned. Asia, wes tern enormous challenge: the eme rgen ce of a Eur ope , and Nor th America, which self- perp etua ting upp er class coupled toge ther are hom e to 70 perc ent of the with grow ing inequality. This now world's pop ulat ion and 80 perc ent of its represents the grav est thre at to liberal economic outp ut, are in constant contact capitalism's long -term viability. thro ugh trade, investment, the movement At the same time , China's government of people, the t:ransfer of technology, those of othe r political capitalist states and the exchange of ideas. Tho se connec- and tions and collisions have bred a competi- need to cons tant ly gene rate economic tion between the Wes t and parts of Asia growth to legitimize thei r rule, a compul- that is mad e mor e inte nse by the differ- sion that mig ht become hard er and harder ence s in thei r respective models of to fulfill. Political capi talis t state s must capitalism. And it is this com peti tion - also try to limi t corr upti on, whi ch is syst em, and its comple- not a contest between capitalism and some inhe rent to the alternative economic system- that will men t, galloping inequality. The test of shap e the future· of the global economy. thei r model will be its abil ity to restrain a ofte n chafes In 1978, almost 100 perc ent of China's growing capitalist class that economic outp ut came from the public against the over wee ning pow er of the acy. sector; that figure has now dropped to less state bureaucr than 20 perc ent. In mod ern Chin a, as As othe r part s of the wor ld ( notably in the more traditionally capitalist coun- Afri can coun tries ) atte mpt to transfor art growth tries of the West, the means of production thei r econ omi es and jum p-st are mos tly in priv ate hands, the state the tens ions betw een the two models rivaL· doesn't impose decisions about production will com e into shar per focus. The and pric ing on companies, and mos t betw een Chi na and the Uni ted States c workers are.wage laborers. Chin a scores as is ofte n pres ente d in sim ply geopoliti positively capitalistic or_i all three counts. term s, but at its core, it is like the Cap itali sm now has no rival, but thes e g~in~ing ?f two tect onic plat es whose two mod els offer significantly diffe rent friction will define how capitalism evolve. ways of stru ctur ing political and economic in this century. 12 F O RE I G N AFF A I RS  The Clash of Capitalisms LIBERAL CAPITALISM wea keni ng of trad e unio ns, the fligh t of The global dominance of capitalism is man ufac turin g jobs, and wage stag nati on. one of two epochal changes that the world Liberal meritocratic capitalism cam e is living through. The othe r is the into bein g in the last 40 years. It can be rebalancing of economic power betw een best unde rsto od in com pari son to two the West and Asia. For the first time othe r variants: classical capitalism, whic h since the Industrial Revolution, incomes was pred omi nant in the nine teen th and in Asia are edging closer to those in early twen tieth centuries, and social western Euro pe and Nor th America. In democratic capitalism, which defi ned the 1970, the Wes t produced 56 perc ent of welfare states in wes tern Euro pe and world economic outp ut and Asia (includ- Nor th America from Wor ld War 11 to ing Japan) produced only 19 percent. the early 1980s. Today, only three generations later, thos e Unlike in the classical capitalis m of proportions have shifted to 37 percent. the nine teen th century, whe n fortu nes and 43 perc ent- than ks in large part to were to be made from owning, not the staggering economic growth of working, rich individuals in the pres ent countries such as Chin a and India. system tend to be both capital rich and Capitalism in the Wes t generated the labor rich -tha t is, they gene rate thei r information and communications income both from investments a~d from technologies that enabled a new wave of work. The y also tend to mar ry and mak e globalization in the late twentieth families with part ners of similar educa- century, the period when Asia began to tional and financial backgrounds, a narrow the gap with the "global North." phen ome non sociologists call "assortative Anchored initially in the wealth of mating." Whereas the peop le at the top Western economies, globalization led to - of the income distr ibut ion und er classical an overhaul of moribund structures and capitalism were often financiers, toda y huge growth in many Asian countries. many of those at the top are highly paid Global income inequality has dropped managers, Web designers, physicians, significantly from what it was in the investment bankers, and othe r elite 1990s, when the global Gini coefficient professionals. The se people wor k in orde r (a measure of income distribution, with to earn thei r large salaries, but whe ther zero representing perfect equality and one thro ugh an inhe ritan ce or thei r own representing perfect inequality) was 0.70; savings, they also draw a grea t deal of today, it is roughly 0.60. It will drop income from thei r financial assets. further as incomes continue to rise in Asia. In liberal meritocratic capitalism, Although inequality between countries societies are more equal than they were has lessened, inequality within coun- tries -esp ecia lly those in the Wes t-ha s duri ng the phase of classical capitalism, grown. The United States' Gini coeffi- women and ethn ic minorities are mor e cient has risen from 0.35 in 1979 to about empowered to ente r the workforce, and 0.45 today. This increase in inequality welfare provisions and social transfers within countries is in large part a product (paid out of taxes) are employed in an of globalization and its effects on the more attem pt to mitigate the worst ravages of developed economies in the West: the acute concentrations of wealth and privilege. Liberal·meritocratic capitalism Janu ary/ Februar y 2020 13  Branko Milanovic inherited those last measures from its gender and race), the setup of liberal direct predecessor, social democratic capitalism has the consequence of at one deepening inequality and screening that e capitalism. That model was structured around inequality behind the veil of merit. More industrial labor and featured the strong plausibly than their predecessors in the presence of unions, which played a huge Gilded Age, the wealthiest today can role in shrinking inequality. Social demo- claim that their standing derives from the cratic capitalism presided over an era that virtue of their work, obscuring the advan- saw measures such as the GI Bill and tages they have gained from a system and the 1950 Treaty of Detroit (a sweeping, from social trends that make economic union-negotiated contract for autowork- mobility harder and harder. The last 40 ers) in the United States and economic years have seen the growth of a semiper- booms in France and Germany, where manent upper class that is increasingly incomes rose. Growth was distribute d isolated from the rest of society. In the fairly evenly; populations benefited from United States, the top ten percent of better access to health care, housing, and wealth holders own more than 90 percent inexpensive education; and more families of the financial assets. The ruling class is could climb up the economic ladder. highly educated, many of its members But the nature of work has changed work, and their income from that labor significantly under globalization and tends to be high. They tend to believe liberal meritocratic capitalism, especially that they deserve their high standing. with the winnowing away of the indus- These elites invest heavily both in their trial working class and the weakening of progeny and in establishing political labor unions. Since the late twentieth control. By investing in their children's century, the share of capital income in education, those at the top enable future total income has been rising-tha t is, an generations of their kind to maintain high increasing portion of GDP belongs to the labor income and the elite status that is profits made by big corporations and the traditionally associated with knowledge already wealthy. This tendency has been ~nd education. By investing in political quite strong in the United States, but it influence -in elections, think tanks, has also been documented in most other universities, and so on-they ensure th:-~ countries, whether developing or devel- they are the ones who determine the n' , oped. A rising share of capital income in of inheritanc e, so that financial capit:· total income implies that capital and i~ easily transferre d to the next gener capitalists are becoming more important tion. ~he two together (acquired than labor and workers, and so they acquire education and transmitte d capital) lea. more economic and political power. It to the reproduction of the ruling class also means an increase in inequality, because those who draw a large share of T~e _formation of a durable upper class is impossible unless that class exe: their income from capital tend to be rich. political control. In the past, this hap- MALAISE IN THE WEST pened naturally; the political class can,, While the current system has produced a moS t ly_ from the rich, and so there wa:, a certain comm on al'ity of views. an d more diverse elite (in terms of both shared interests b etween... politicians an