As Different Kinds of Capitalism Take Over the World

The New York Review of Books comes in the mail every few weeks. I’ve never been tempted to switch to a digital subscription, partly out of habit, but also because the version on paper is good for reading and also good for looking at. For one thing, I’d miss the book advertisements, which don’t appear online. A yearly subscription to the paper edition is kind of expensive, but we still have libraries and you can still buy a single copy (although those are kind of expensive too). What I didn’t know until just now is that in addition to a regular digital subscription, you can get a Kindle subscription for the low, low price of $3.49 a month (which translates to $2.09 per issue). The world’s richest capitalist is a money grubber (even now!) who treats some of his employees very badly, but he’s made life easier at times.

I’d provide a link to an excellent article in the September 24th NYRB but, except for the latest edition, all of their articles are behind a paywall. The article is “Can We Fix Capitalism?” by Robert Kuttner. Here’s a bit of the article, which is worth reading all the way through:

For enthusiasts of capitalism, democracy and the market are said to be handmaidens. Both depend on the rule of law. Both express aspects of liberty, prizing opportunity and mobility. During the era of classical liberalism, which began in the late eighteenth century, free commerce and political freedom advanced in tandem. Monarchies gave way to republican rule; open markets replaced royal monopolies and inherited privileges. For about a century the franchise gradually expanded, and markets became the primary mode of commerce. The brand of democratic capitalism that emerged in the West after World War II included not just those earlier hallmarks but such liberal values as tolerance, compromise, and enlarged civic participation, as well as regulatory and social welfare policies to buffer the less savory tendencies of markets. Modern capitalism reflected a grand social bargain.

When communism collapsed in 1989, the fall of the Berlin Wall was heralded as ushering in a golden age in which liberal capitalism would be triumphant. Needless to say, things haven’t worked out quite as expected. The social compromises of the postwar welfare state have given way to more primitive forms of capitalism that in turn invite angry reactions by the citizenry. Demagogues have channeled this anger. Today, some form of capitalism is ascendant nearly everywhere. But liberal democracy is in big trouble.

Instead of creating a new golden age, corrupted capitalism has produced alliances between autocrats and oligarchs, epitomized by the regimes of Putin and Txxxx, who both reinforce societies that were already becoming less liberal and more unequal. This is the pattern not just in countries with weak or nonexistent democratic traditions, notably Russia and China, but in the very heartland of liberal democracy, the United States of America. Contrary to standard assumptions about liberalism, autocratic capitalism also coexists and interacts with enlarged global trade, making it harder to defend living standards in democratic nations that once protected their workers and citizens by regulating markets.

In a cycle of reactivity, ordinary people turn not to social democracy—now at its weakest point since World War II—but to the vicarious and counterfeit satisfactions of extreme nationalism. That in turn permits autocrats to pose as populist champions of a mystical People, diverting attention from the economy’s concentrated wealth and rigged rules. This unexpected twist in the fraught relationship between democracy and capitalism is the signal event in the political economy of our age.

In Capitalism, Alone, the economist Branko Milanovic tries to make sense of what has occurred and what the future holds. . . . Milanovic chronicles the rise of authoritarian capitalism, both in nations that once epitomized liberal capitalism such as the US and in countries like China, which are partly capitalist but show no signs of turning liberal. Until recently, as the China scholar James Mann has observed, the widespread hope was that as China’s economy became more capitalistic, the country would become “more like us.” The reality is that we are becoming more like China. . . . 

Milanovic’s first section, on liberal capitalism, offers a smart assessment of how it once worked and why it is now under siege. In the heyday of managed, meritocratic capitalism, societies relied on several mechanisms to equalize income and opportunity. For Milanovic, “strong trade unions, mass education, high taxes, and large government transfers” were essential components. All of these have lost traction as capital has gained more power relative to labor, and globalization has spawned competition to cut taxes, slash wages, and reduce regulation. . . . 

Liberal capitalism, Milanovic concludes, is “reneging on some crucial aspects of [its] implicit value system” via “the creation of a self-perpetuating upper class.” That trend in turn threatens liberal capitalism’s own survival, and makes it less appealing as a model for the rest of the world. . . . 

While Chinese political capitalism is an economic triumph, Russia’s is not. Post-Soviet Russia is basically a petro-state. Its economy has largely failed to generate consumer export industries, the mainstay of China’s success. Vladimir Putin has an understanding with the oligarchs; they can pursue corrupt enterprises as long as they throw some graft his way and don’t make trouble for the regime. His net worth is said to be around $200 billion. In a taxonomy of capitalisms, it would have been interesting to have Milanovic’s insights on why the Russian brand of autocratic capitalism fails while China’s succeeds. . . . 

The most provocative part of the book is the section in which Milanovic addresses a dilemma with no intuitively correct answer: Should we look at the issue of economic inequality as a national or a global question? Most economists and concerned citizens assess it nationally. As Americans, we are troubled that our country has become one of economic extremes. Milanovic insists that the proper lens is global. Income inequality has increased within nearly every nation for the past three decades, substantially driven by globalization. Yet the rise of China, which lifted hundreds of millions of people out of poverty, has rendered the world as a whole more equal.

This cheerful formulation, however, sidesteps the issue of how globalization promotes inequality within nations and thus undermines national democracy. The increased entry of low-wage goods renders high-wage manufacturing labor in wealthy countries uncompetitive. Meanwhile, the greater license for capital in a globalized world promotes deregulation, corruption, the hiding of assets, and exorbitant income for capitalists. The result: greater disparities of income and wealth at both the top and the bottom, and unequal power to make the rules—producing yet more inequality. The consequences for political democracy are grave. As Louis Brandeis was said to have remarked, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

Milanovic tends to dismiss the effect of globalization on wealth concentration and democracy within countries in favor of celebrating the rise of China as a gain for global equality. China’s rising GDP, as he points out, has been responsible for about 95 percent of the global reduction in extreme poverty as defined by the World Bank. Milanovic quotes the egalitarian philosopher John Rawls, who argues that if we didn’t know in advance where we would stand in the income hierarchy, we’d favor an income distribution far more equal than the one we have. Why, Milanovic demands, should that principle be applied nationally and not globally? As Rawlsians, don’t we care about the world’s poor and not just the poor in our own land? It’s a good question.

One persuasive rejoinder has been offered by the Harvard economist Dani Rodrik. Nations, he points out, are where policies are made. If we are going to have a socially tolerable income distribution within the polity, that project must be pursued nationally, since there is no global government and no global citizenship. There is an inevitable tension, Rodrik writes, between the policy sovereignty of democratic nations and the logic of globalization. He is emphatic on what should take priority: “Democracies have the right to protect their social arrangements, and when this right clashes with the requirements of the global economy, it is the latter that should give way.”

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How Soccer Explains the World: An Unlikely Theory of Globalization by Franklin Foer

This is a disappointing book with a misleading title. There is too much globalization and not enough soccer. Certainly, none of it amounts to a theory of globalization. Every chapter but the last is a typical magazine article, in which the author visits a new city (Glasgow, Barcelona, Rio de Janeiro, etc.), provides a history lesson and interviews some locals. There are exaggerations and questionable observations.

In the last chapter, Foer expounds on America’s attitudes toward soccer. The book feels dated, despite having been published in 2004. Anyway, soccer doesn’t explain the world. The world — its history, economics and politics, as well as human psychology — explains soccer.  (6/28/11)