Inequality and the future of Capitalism: in Conversation with Branko Milanovic

November 14, 2019

     By Duncan Green     

I recently sat down with inequality guru Branko Milanovic to discuss his path-breaking work on inequality, and his new book, Capitalism Alone (review follows tomorrow). Here are a few highlights of the 25m conversation (but if you can, listen to the full thing).

Inequality: I was not a guru [in the early 2000s], just someone toiling away in the bowels of the World Bank, which had very good databases. I would not have been able to do what I’ve done without the Bank, but it was an institution that really didn’t care about inequality.

So why did the Bank let me work on it? It’s not a hierarchical institution like the IMF. In the research department, you have a wide degree of freedom. And it becomes even wider if you are willing to submerge your own vanity, don’t participate too much in the flagship projects, forego the visibility. Then, you can just do your own thing.

To be frank, it paid off more for me than for them. They’ve never made the most of my work. Other people working on inequality left the Bank. and the Bank even got left behind by the Fund’s research department. It could have capitalised more.

I have really enjoyed how the subject boomed. For the foreseeable future, I think inequality will remain an issue. Not only is it politically salient, but big data has had a huge impact on the social side of economics. The finance side always had the data, but not the social side. I see a number of people working on heterogeneity – it’s no longer just about the average, the GDP per capita; instead, you want to see how different groups of people are affected by inflation, housing prices, whatever. That’s inequality and it is all being enabled by big data.

The Elephant Graph
The Elephant Graph

How do you feel about the elephant graph: I love it! I remember the first time I did it, in 2012. As soon as I saw it, I knew what it meant – it is so clear. Income growth in the middle of the distribution, mainly in Asia, and at the top of the distribution. the mainly northern rich. But no growth in between, in the northern middle class.

However, the graph won’t look like this in the future – things changed after the financial crisis. China in the middle is moving up – the back of the elephant is moving to the right. And the top 1%, which is overwhelmingly Western, has not done very well after the crisis. We will need a different animal!

With Capitalism Alone: Are you spreading your wings into political science, political philosophy? That’s the intention, but it’s not a new thing – I was always interested in social science in general, Marxism in particular, and in history.

That’s why I liked Piketty’s work from the beginning – the way he linked it to politics. When you describe the data, what happened in France, the UK or the US, but don’t write about why tax rates went up, or wealth concentration goes down; when you don’t talk about trade unions, socialist parties, strikes, it’s a bit empty. What drives inequaltiy is really political and technological change.

What do you mean by ‘The Global Victory of Capitalism’? It’s a victory in 3 different senses. 

1. A victory over alternative modes of production – feudalism; communism/socialism.

2. Geographical: the spread of capitalism to the four corners of the world, including China, Eastern Europe and Russia.

3. The ability of capitalism to create new markets, that we had never thought of. We are being commodified in our daily activities – I find it extraordinary.

Could you explain the distinction between Liberal and Political Capitalism?: Liberal Capitalism was born in the West through bourgeois revolutions. Chinese capitalism is different – it was born out of communism, which abolished the feudal institutions. Gradually, China and Vietnam have developed indigenous forms of capitalism.

In Liberal Capitalism, economic power dominates and leads to political influence – the problem of plutocracy. In Political Capitalism, it’s the other way around – you leverage political power in order to get wealth.

I wanted to distinguish myself from those people who think we will end up with one world with Liberal Capitalism, with a middle class – Acemoglu and Robinson; Fukuyama. It’s a very special reading of history, that sees the terminus of history as having arrived on 9th November 1989, with the fall of the Berlin Wall. It was wrong then, and it’s wrong now. You can have various possibilities, e.g. both could converge on plutocracies, as the Western and Chinese systems are currently doing. [DG: Echoes of a nice joke, via Ha-Joon Chang: ‘under Capitalism, man exploits man; under Communism, it’s the other way around’]

Why is there such an environmental blind spot? My answer is that this is really a topic I know much less about. This is a book written quickly, based on years and years of reading and writing. It’s a download. But I didn’t have knowledge or original thoughts on planetary boundaries and so on. That’s the real reason. The second reason is that I am a technological optimist – I believe that with incentives and technological change, we can avoid the apocalyptic visions that people have.

[here’s Branko’s debate with Kate Raworth]

Are you a technological optimism but a political pessimist? That is absolutely a fair description. I am pessimistic about political developments and our own ability to withstand the social pressure and the value system that underlies capitalism – the system of money acquisition at all costs. I am very pessimistic that we as individuals can buck that trend.

I’ve lived in the US more than 30 years, and see people make decisions essentially on self-interest and money, even if they don’t want to acknowledge it. Then I see the same people in scholarly debates denying it – there is such a contrast between what they are saying and doing! In some ways it is more hidden in Old Rich societies, where they have learned to camouflage themselves. When you go to New Rich societies like China or Eastern Europe or India, there is no camouflage – people put their wealth in your face, run you over with a Rolls Royce and feel good about it!

November 14, 2019
Duncan Green