{"id":26589,"title":"Not the end of history","link":"https:\/\/bst-europe.eu\/de\/globalization\/not-the-end-of-history\/","date":"24. April 2020","date_unix":1587727371,"date_modified_unix":1687789653,"date_iso":"2020-04-24T11:22:51+00:00","content":"

Capitalism may rule the world – but it needs to become a better version of itself!<\/h3>\n

The\u00a0Covid19 crisis<\/strong>\u00a0has made\u00a0inequality<\/strong>\u00a0scholar Branko Milanovic\u2019s 2019 book more relevant. He describes capitalism\u2019s ubiquity and its implications for society with a sobering economic analysis.<\/p>\n

Observation: capitalism is the only game in town, but it comes in two distinct variations<\/h2>\n

In 1989,\u00a0Francis Fukuyama\u2019s \u201cThe end of history\u201d<\/a>\u00a0claimed that democracy WOULD gradually become the\u00a0dominant POLITICAL system<\/strong>\u00a0in the world. 30 years later, Branko Milanovic observes that capitalism HAS become the\u00a0dominant ECONOMIC system<\/strong>\u00a0in the world \u2013 with no viable alternative in sight.<\/p>\n

He defines a society as capitalist when most means of production are in private hands, most workers are employed as wage-laborers, and most decisions of production are made in a\u00a0decentralized<\/strong>\u00a0manner. While it may be the only current system, he observes that it comes in two distinct types.<\/p>\n

On the one hand, there is liberal\u00a0meritocratic capitalism<\/strong>, as exemplified by the\u00a0United States<\/strong>. On the other hand, there is\u00a0political (authoritarian) capitalism<\/strong>\u00a0as practiced in\u00a0China<\/strong>.<\/p>\n

Variation #1: liberal meritocratic capitalism<\/h2>\n

In this variation, there are no legal constraints to prevent jobs from being open to the most talented (meritocracy<\/strong>.) There is, however, a\u00a0distributional framework<\/strong>\u00a0– including, for instance, free public schooling – that ensures basic social mobility (liberal).Despite these guardrails, Milanovic diagnoses, liberal capitalism has systemic features that increase inequality and threaten social cohesion.<\/p>\n

Capital income, for example, is highly concentrated and received mostly by the rich (cf. Thomas Piketty<\/a>). However, as liberal capitalism goes hand in hand with democracy, mechanisms to correct for trends that are detrimental to public welfare are fortunately built into the system.<\/p>\n

Overall, liberal meritocratic capitalism\u2019s\u00a0advantages<\/strong>\u00a0are natural: For its adherents, it is worth preserving not only for the sake of good social outcomes but because of its normative superiority.<\/p>\n

Variation #2: political capitalism<\/h2>\n

Usually built on the bedrock of a strong state of formerly\u00a0communist<\/strong>\u00a0societies, this variation is characterized by a bureaucracy that focuses on realizing high economic growth, the\u00a0absence<\/strong>\u00a0of a binding rule of law, and\u00a0the state\u2019s ability to control the private sector and steer it in the national interest<\/a>.<\/p>\n

Milanovic highlights the inherent contradictions of these features: a highly-skilled\u00a0technocratic elite<\/strong>\u00a0is supposed to apply the rules \u00a0unequally; the discretionary power of the bureaucracy leads to corruption, which\u00a0exacerbates inequality.<\/strong><\/p>\n

As a result, political capitalism\u2019s advantages are instrumental: It constantly needs to demonstrate good social outcomes. Most recently, its exponents have been very successful in doing so: According to Milanovic\u2019s calculations, their share of world output almost quadrupled in the past thirty years, making the model attractive enough to\u00a0undermine<\/strong>\u00a0the West\u2019s universal appeal.<\/p>\n

Intervention: enter globalization<\/h2>\n

According to Milanovic,\u00a0globalization<\/a>\u00a0\u2013\u00a0defined in Baldwinian terms<\/a>\u00a0as the declining costs of transporting goods, information, and people and the resulting global economic integration arising thereof \u2013 has greatly advanced capitalism\u2019s global success.<\/p>\n

The ability to unbundle the production of goods into ever more complex cross-border value chains offered a new irresistible growth and development paradigm: The South became part of\u00a0the North\u2019s global value chain network<\/a>.<\/p>\n

The upside is plain to see:\u00a0It has allowed both the South and the North to increase their societies\u2019 overall welfare<\/a>\u00a0by exploiting their respective comparative advantages. As the South has registered even higher growth rates than the North, it has also significantly\u00a0decreased<\/strong>\u00a0global inequality \u2013 the overarching theme of Milanovic\u2019s research and his acclaimed 2016 book.<\/p>\n

Implication #1: capitalism pervades everything<\/h2>\n

Capitalism<\/strong>, Milanovic explains, has not only gone global. In essence, it has become\u00a0ubiquitous<\/strong>:<\/p>\n

\u201cThe ultimate success of capitalism is to have transformed human nature such that everyone has become an excellent calculator of pain and pleasure, gain and loss (\u2026); eventually we shall become companies ourselves.\u201d<\/p><\/blockquote>\n

In the constant pursuit of monetary optimization, people\u00a0commodify<\/strong>\u00a0their free-time and their personal assets (e.g., by offering an Uber ride or renting their apartment via Airbnb).<\/p>\n

Commodification goes hand in hand with a fully flexible job market (rise in the number of temporary jobs) and\u00a0atomization<\/strong>\u00a0(rise in the number of single households). In Milanovic\u2019s unemotional terms: Families have by-and-large outlived their economic advantages as the services they used to perform exclusively, such as household work, have become cheap tradeable products.<\/p>\n

Implication #2: liberal meritocratic capitalism comes under stress<\/h2>\n

Milanovic points out that as people can hardly afford to spend time on things that do not produce monetary gain, ubiquitous capitalism stands in the way of the ideal of the informed citizen that a\u00a0vital democracy<\/strong>\u00a0\u2013 and thus liberal capitalism – presupposes. Global capitalism also produces increased domestic social inequality because the rich and skilled\u00a0disproportionally<\/strong>\u00a0profit from it.<\/p>\n

It undermines social cohesion as it leads the well-off to conclude that it is better for them to have their own private insurance systems than transferring their income via a mass system to the poor. Milanovic is rather\u00a0skeptical<\/strong>\u00a0that a\u00a0universal basic<\/strong>\u00a0income could be a solution. In any case, he finds it to be a paradigmatic deviation of the welfare state as we know it: Instead of insuring against risks, it simply\u00a0ignores<\/strong>\u00a0them.<\/p>\n

Implication #3: liberal meritocratic capitalism grows more protectionist<\/h2>\n

There is not just a domestic form of adverse selection \u2013 rich people\u00a0opting out<\/strong>\u00a0of the welfare system at the expense of the poor. There is an international one: Western states grow wary of\u00a0outflowing<\/strong>\u00a0capital, which decreases their own comparative advantage (knowledge and investment) and inflowing labor, which increases the stress on their welfare states (low-skill migrants).<\/p>\n

Applying economic logic to migration and corruption in developing states, Milanovic finds them both to be means to convert a citizenship penalty into a premium. What a migrant tries to gain in additional income and wealth by moving to a more prosperous country, a corrupt official tries to gain by\u00a0exploiting<\/strong>\u00a0his badly paid position \u2013 with globalization increasing both the inclination to and the opportunities for engaging in such behavior.<\/p>\n

Conclusion: the light and the dark side of capitalism<\/h2>\n

Milanovic concludes with capitalism\u2019s\u00a0central dilemma<\/a>:<\/p>\n

\u201cThis may be, perhaps, one of the key features of the human condition: that we cannot improve our material way of life without giving full play to some of the most unpleasant traits of our nature.\u201d<\/p><\/blockquote>\n

On the one hand, commercialization makes for more awareness of other people\u2019s preferences and interests, thus increasing not only wealth but also understanding.<\/p>\n

On the other hand, it stimulates the most selfish and greedy behavior, thus not only straining domestic but also international relations. Reminiscent of\u00a0Christopher Clark<\/a>, Milanovic points out the worst-case scenario: Globalization may once again unintentionally lead into the abyss it helped produce in 1914 when it reached its previous peak of spread and power.<\/p>\n

Recommendation: Strive for \u201cpeople\u2019s capitalism.\u201d<\/h2>\n

To improve global capitalism and prevent liberal meritocratic capitalism from becoming more plutocratic and unequal, Milanovic argues that capitalism will have to move to a more advanced stage. This is both visionary and timely advice given the profound impact of the current\u00a0Covid 19 crisis.<\/strong><\/p>\n

His \u201cpeople\u2019s capitalism<\/strong>\u201d features a lower concentration of capital incomes and ownership of wealth, lower income inequality, and more intergenerational income mobility. In line with\u00a0Dani Rodrik<\/a>, he proposes to focus on the\u00a0national level<\/strong>\u00a0to come closer to this vision.<\/p>\n

His recommendations:<\/p>\n