Capitalism – not so alone

Branko Milanovic is the world’s leading expert on global inequality i.e the differences in income and wealth between countries and between individuals in different countries. He was a former chief economist at the World Bank.  After leaving the bank, Milanovic wrote a definitive study on global inequality which was updated in a later paper in 2013 and finally came out as a book in 2015, Global Inequality.  In his earlier papers and in that book, Milanovic presented his now famous ‘Elephant chart’ (shaped like an elephant) of the changes in household incomes since 1988 from the poorest to the richest globally.  Milanovic shows that the middle half of the global income distribution have gained 60-70% in real income since 1988 while those nearer the top group had gained nothing.

Milanovic found that those who have gained income the most in the last 20 years are the ones in the ‘global middle’.  These people are not capitalists.  These are mainly people in India and China, formerly peasants or rural workers have migrated to the cities to work in the sweat shops and factories of globalisation: their real incomes have jumped from a very low base, even if their conditions and rights have not.

The biggest losers are the very poorest (mainly African rural farmers) who have gained nothing in 20 years. The other losers appear to be some of the ‘better off’ globally.  But this is in a global context, remember. These ‘better off’ are in fact mainly working class people in the former ‘Communist’ countries of Eastern Europe whose living standards were slashed with the return of capitalism in the 1990s and the broad working class in the advanced capitalist economies whose real wages have mostly stagnated in the past 20 years.

However the UK think tank, the Resolution Foundation has taken Milanovic’s elephant graph to task.  Faster population growth in highly populated countries like China and India distorts his conclusion that middle income people in the globe made such strides. Controlling for the huge population rise in China and India shows that inequality between the average person in the imperialist economies of the West (North?) has increased, not decreased, compared to the poor economies of the global periphery (South?).  The elephant disappears.

In his 2015 book, Milanovic concludes that there is no longer any social or economic basis for class struggle of a socialist revolution.  So we must look for ways to make capitalism better and fairer. “Global inequality may be reduced by higher growth rates in poor countries and through migration.” Now in his new book, Capitalism Alone, Milanovic returns this theme and his ‘way out’.  Again he starts from the premise that capitalism is now a global system with its tentacles into every corner of the world driving out any other modes of production like slavery or feudalism or Asian despotism to the tiniest of margins.  But also capitalism is not just only mode of production, it is the only future for humanity.

So he says “Capitalism gets much wrong, but also much right—and it is not going anywhere. Our task is to improve it.”  Milanovic argues that capitalism has triumphed because it works. It delivers prosperity and gratifies human desires for autonomy. But it comes with a moral price, pushing us to treat material success as the ultimate goal. And it offers no guarantee of stability. In the West, ‘liberal capitalism’ creaks under the strains of inequality and capitalist excess. That model now fights for hearts and minds with what Milanovic calls “political capitalism”, as exemplified by China, which many claim is more efficient, but which is more vulnerable to corruption and, when growth is slow, social unrest.

Milanovic condemns inequality “I think it is bad for growth. It is bad for social stability, and it is bad for equality of chances, or equality of opportunity.”  And capitalism is bad because it inherently increases inequality.  “The system, the way it functions today, is generating — and, I’ll actually give it two examples — generating, really increasing, inequality. And that increasing inequality leads to the control of the political process by the rich. And, the control of the political process by the rich is really required for the rich to transfer, or transmit, rather, all these advantages. Be it through money — financial advantages – or, education, to their offspring. Which then reinforces the dominance of whatever is called the upper class.”  Yes, that sounds like capitalism.

So Milanovic favours increased spending on public goods and services (including education) and social insurance – and the introduction of taxes on rich’s property and wealth, in order to end inherited dynasties, so that you can only get rich by merit and hard work – as if you ever did!  So his answer to a better capitalism is the same as in his previous book, but this time with a degree of more optimism about achieving it: namely reducing inequality and expanding migration from poor to richer countries.

Although both capitalist ‘alternatives’ are riddled with corruption in their elites and state institutions, it is clear that Milanovic puts more faith in getting a return to the ‘liberal democratic’ model of Western (‘northern’) imperialism than he does for the ‘political capitalism’ of China.  But is Milanovic right to define the new cold war between Chinese and American capitalism as a contest between the liberal and the authoritarian, the meritocratic and the political?

Can we really accept this when we see Trump’s America; the callous and often brutal imperialist hegemony of the United States; and the corrupt money-bags ‘democracy’ that operates there, with its extreme and rising inequality. And can we really describe China, an authoritarian and corrupt state regime, as ‘political capitalism’?

As regular readers of this blog will know, I am not convinced that China is capitalist at all, given the overriding economic power of the state and its plan compared to the capitalist sector.  The lives of Chinese are much more decided by the state and state enterprises than through the vagaries and uncertainties of the market and the law of value.  As Milanovic says, China has grown in real GDP and average living standards in 70 years faster than any other economy in human history.  So is this really a demonstration of a successful capitalist economy (when all other capitalist economies only achieved less than a quarter of China’s growth rate and were subject to regular and recurring slumps in investment and production)?  Could not China’s different narrative be something to do with its 1949 revolution and the expropriation of its national capitalist class and the removal of foreign imperialism?  Perhaps capitalism is not alone after all.

So Milanovic’s dichotomy between ‘liberal democracy’ and ‘political capitalism’ seems false.  And it arises because, of course, Milanovic starts with his premise (unproven) that an alternative mode of production and social system, namely socialism, is ruled out forever.  In Global Inequality, Milanovic concluded that the idea of a united global proletariat making a worldwide revolution is out of the door because now the real inequalities are between Americans and Africans, not between capitalists and workers everywhere.  Trotsky’s international proletarian revolution is out of date: “This was the idea behind Trotsky’s “permanent revolution”. There were no national contradictions, just a worldwide class contradiction. But if the world’s actual situation is such that the greatest disparities are due to the income gaps between nations, then proletarian solidarity doesn’t make much sense.   Proletarian solidarity is then simply dead because there is no longer such a thing as global proletariat. This is why ours is a distinctly non-Marxian world.”

And yet the working class, both industrial workers and those in so-called ‘service’ industries, has never been larger in human history.  Globally, there were 2.2bn people at work and producing value back in 1991.  Now there are 3.2bn.  The global workforce has risen by 1bn in the last 20 years. Globally, the industrial workforce has risen by 46% since 1991 from 490m to 715m in 2012 and will reach well over 800m before the end of the decade.  Indeed, the industrial workforce has grown by 1.8% a year since 1991 and since 2004 by 2.7% a year, which is now a faster rate of growth than the services sector (2.6% a year)!  Globally, the share of industrial workers in the total workforce has risen slightly from 22% to 23%.   Capitalism is not alone; it has a gravedigger, the proletariat.

Milanovic dismisses this. In his new book, “I do believe, to a large extent, [capitalism] is sustainable. Even if all of inequality continue[s] to be the way that [it is], unchecked. It is sustainable, largely, because we don’t have a blueprint for an alternative system. However, something being sustainable, something being efficient, something being good, are two different things.”  Milanovic does not like capitalism, but to use Margaret Thatcher’s phrase in referring to her neoliberal policies for capitalism: he reckons there is no alternative (TINA).  So the aim must be, just as Keynes argued in the 1930s: “to make capitalism more sustainable. And that’s exactly what I think we should do now”.

The trouble is that Milanovic’s policies to reduce the inequality of wealth and income in capitalist economies and/or allow people to leave their countries of poverty for a better world seem to be just as (if not more) ‘utopian’ a future under capitalism than the ‘socialist utopia’ he rules out.

25 thoughts on “Capitalism – not so alone

  1. Just as I published this post reviewing Branco Milanovic’s new book, Milanovic himself
    published a post on his blog rejecting the idea that capitalism was in crisis. “the crisis is not of capitalism per se, but is the crisis brought about by the uneven effects of globalization and by capitalist expansion to the areas that were traditionally not considered apt for commercialization. In other words, capitalism has become too powerful and has in some cases come into collision with strongly held beliefs. It will either continue with its conquest of more, yet non-commercialized, spheres, or it would have to be controlled and its ”field of action” reduced to what it used to be.” Make of that what you will.

  2. “Could not China’s different narrative be something to do with its 1949 revolution and the expropriation of its national capitalist class and the removal of foreign imperialism?”

    Could it also not be something to do with the foreign investment which has poured into China since the seventies from the imperialist countries following the collapse of Bretton Woods, dismantling of capital controls and liberalisation of trade? How much growth was there in China in the fifties and sixties, when state control over the “commanding heights” was at its strongest (and this even taking into account the fact that most centrally planned economies enjoy an initial boost as previously unemployed factors of production are brought into production)? Could China’s growth since the late seventies have happened without the paradigm shifts in the heartlands of imperialism in that period? What might be interesting is to compare China with Vietnam (another one party state which has enjoyed some economic success) and the Asian NICs.

  3. All I know for sure…. is that China wouldn’t be sending bronze statue of Karl Marx to Germany as a gift, if they were Capitalist at all.

  4. ’As Milanovic says, China has grown in real GDP and average living standards in 70 years faster than any other economy in human history. So is this really a demonstration of a successful capitalist economy (when all other capitalist economies only achieved less than a quarter of China’s growth rate and were subject to regular and recurring slumps in investment and production)? Could not China’s different narrative be something to do with its 1949 revolution and the expropriation of its national capitalist class and the removal of foreign imperialism? Perhaps capitalism is not alone after all. ’
    True, China’s growth until recently was not a capitalist growth, but a socialist growth. I do not know the macro data of China, but considering the data provided by MR on public investment and the size of the annual production (GDP) generated by the large Chinese state corporations, the conclusion is that this was a purely socialist growth . If 70/80% of GDP is generated by state-socialist companies, the model is socialist. Who doubts that? Other ‘socialist’ growths that prove it: in the period of the Golden Age or Les Trente Glorieuses (1945-1975) the socialist countries grew at an annual average of 5, 5% and the OECD countries with massive injections of public GDP (up to 60/70%) also grew at the same or similar rate.
    ‘’ (When all other capitalist economies only achieved less than a quarter of China’s growth rate and were subject to regular and recurring slumps in investment and production) ’’
    4 times less, the capitalist countries grew, since the 80s, with respect to China and 4 TIMES LESS THAN the nineteenth-century capitalist countries (Agnus Madisson). Coincidences? I do not believe in them.
    What’s coming The slowdown, the ‘global manufacturing recession’ (and services) announced by Michael Roberts and confirmed by Kristalina Georgieva Dtra of the IMF by saying, a few days ago, that ” the slowdown will affect 90% of the countries and will harm all A generation ” only confirms it: we enter into pure and pure capitalist growth. In other words, on average 1, 5% per year, with countries and prolonged periods of recessions. And maximum inequality, inequality. in ‘19th century mode’.
    Another issue, for another debate, is that China (and Cuba, Korea, etc …) also (for years that has happened to it) is already retreating in its socialist impulse (Ragnar Frisch, Rosa Luxemburg) and is walking at full speed in the way of capitalist production.

    1. I don’t think you are doing a service to socialism. If China is a socialist country despite the authoritarianism and lack of democracy in most spheres, including the economic sphere, then you are doing a service to the capitalist Wstern propaganda and bourgeois ideology in discrediting socialism. And that is an approach that is not fundamentally different from those who defended te Soviet Union as being socialist or those who dedend Cuba today.
      I agree with Robert that there is a leasing role of the state in China, but what saying that China is “not capitalist at all” is no convincing and a categorical statement that reflects dogmatism rather than meticulous analysis of the social and economic formation of the Chinese society.
      I agree that there is a global proletariat, but that too as to be qualified. The class structure in the advanced capitalist countries should be distinguished from the one in India amd Brazil, for example. That distinction has implications on the struggle and the alternative(s) to capitalism.

      1. ’I don’t think you are doing a service to socialism’ ’.
        Well, this opinion is a clear misunderstanding of my real and deep view of the Chinese model. It is a common misunderstanding in the brief comments of any blog. Brief comments that then have to be developed. This is a (briefly) development of my position on China:
        a) On the evidence and actual events of today. China (and the other remaining socialist countries such as Cuba) has been traveling towards capitalism for years with its privatizations of public companies and the rise of private companies.
        That is to say in 2019 China is already being little, little socialist. This is incontestable by the available evidence and, theoretically, it is a prediction of the thesis of the revolutionary cycle (the thesis of economic-political impulses).
        a) On the socialist past, ‘real socialism’ of the 20th century – 1st I hate and am against, without much study, Stalinism. And I hate the bureaucratic dictatorship of the Chinese Communist Party, and any other dictatorship. 2º That said, in real socialism, with its notable deficiencies, only what could happen happened. Only what objective and material conditions allowed allowed. More specifically, the working classes only achieved socialism that their relationship of forces with respect to party and state elites allowed. Nothing else could be done. A proof of this, a proof of these limiting objective conditions (the relation of forces) is that the socialism of the rest of the planet did not take any more steps than the one given in the USSR. It can be said, as more support of the relations of force in each historical moment, that the workers achieved very little power in the French Revolution, etc …
        c) On the socialist future. I aspire, and fight for it, to a democratic socialism, with workers democracy. Socialism in which its workers and all citizens have the command, control and real control of the means of production. And I am convinced that socialism will take that step in not much time. In 2/3/4 decades. Perhaps that step (that new socialist impulse) will be taken at the end of the long recession that is coming and that will affect a majority of countries. Government recession already predicted by almost all capitalist organizations (IMF, World B., OECD) and recession that M. R. has studied and explained so much.
        You may have cleared up your misunderstanding.

  5. What seems to be left out in the discussion of capitalism is the role of markets together with capitalism. If you removed markets but left capitalist production (Boss-worker) then the units of production would be producing to government (municipal) contract. The opposite, markets open but no boss-worker then you have a sort of cooperative or government/municipal model. The combination of open market and boss.worker seems the poisonous one, especially where big capital can steer politics. So the question is shall we consider keeping capitalism and ditch the market or ditch capitalism and keep the market. Of course, I guess we are all agreed we should ditch the ability of those with money to affect politics and public opinion!!!

    1. «So the question is shall we consider keeping capitalism and ditch the market or ditch capitalism and keep the market.»

      I like this comment because instead of the usual tired use of ambiguous and generic words like “capitalism” and “socialism” it tries to make a difference between aspects of the economy defined fairly clearly.

      But there is a third concept beyond owner-worker and markets, and it is the critical one that our blogger, and B Milankovic, seem to me rather confused about: the industrial mode of production based on cheap, dense fossil fuels, and that’s what has been really left out.

      What has mainly improved living standards is the switch to the industrial mode of production based on coal and oil, not capitalism, not socialism, not markets. The ownership mode (personal, group or state capitalism) or the mode of allocation (market or planning) seem to have had secondary effects.

      1. «What has mainly improved living standards is the switch to the industrial mode of production»

        One reading of Karl’s work is that he thought that the combination of owner-worker and markets was essential to at least the inception of the industrial mode of production, but I think that were he alive today, with another hundred years of “experimentation” he would be somewhat less deterministic.

        Also I think that the critical enabler of the industrial mode of production is not owner-worker or markets etc., but the availability of bankruptcy, but that itself may depend on political conditions that require certain modes of ownership and of allocation.
        For example in state capitalist systems (e.g. USSR, China, the finance sector in the USA) bankruptcy was/is not available, and this made their use of the industrial mode rather less efficient.

      2. Indeed Blissex, industrial production (with free markets here in the West and mixed communist planned ones in the East) has increased living standards. A monetary pool was used to buy machinery which could turn out stuff cheaper and faster than what self-sufficient peasants earlier could do. Another way to see it is the pool of money was used to create built capital. The downside of the this, and the one we have to face immediately, is that this industrial production actually drew down the other real capitals – natural, social and human. Indeed the USA is experiencing decline in life expectancy and rise in maternal mortality, you can see declining figures in all “real capital categories” Even Marx pointed this out… if I can believe the quote engines.

    This view is in fact wrong: capitalism, whatever it got right, has suddenly gotten planetary survival wrong: it is proving fatal to the whole planetary system. Improve it? How so, short of revolution? In fact, our DMNC, ‘democratic market neo-communism’ shows just what is possible here: we can improve capitalism if we create a market inside a Commons via the expropriation we can ‘improve’ capitalism in the context of a system that is a hybrid of liberalism and socialism.
    One of the liabilities of marxist-style analysis, despite what it got right, is the collision of opposites, and only as abstractions at that.
    In fact, capitalists have misdefined capitalism and communists have misdefined communism. We can move to a resolution fairly easily if we can free ourselves from false ideas of our own making.

  7. Milanovic’s opinion is the classic neoclassic one: capitalism is a natural state of the human species (i.e. a system in equilibrium) that is susceptible to imbalances due to human imperfection, but, on the whole, eternal as is all the laws of physics.

    He puts a twist in this narrative (that capitalism is a culmination of human self-discovery hence it wasn’t born from the start of History), but the structure of the story is the same.


    I’ve posted here some times before about this “world revolution” before.

    When Trotsky wrote his “permanent revolution” doctrine, he did it so in a context of a world war. In that context, a single event world revolution was theoretically feasible.

    The capitalist class managed to block this world revolution, but the concept of permanent revolution is still valid as a historical construct: capitalism is multi-layered system, with many institutions (“trenches”). It is the opposite of the Soviet system, where the central government was everything. Capitalism will not collapse in a single event in a revolutionary context (of course, if a meteor falls into the Earth, if a major volcanic eruption happens etc. etc. it’s another matter entirely) as Soviet socialism did because its structure is different.

    If you want to picture a collapse of capitalism scenario, you want to look to a situation more similar to Rome’s crisis of the Third Century: much violence, civil war, and dilapidation of the infrastructure (both institutional and economic) over a course of decades. Given capitalism’s scale, it can take even centuries. In a revolutionary context, many local revolutions can happen and, if the resultant is a socialist world, then historians of the time may label this long process a “world revolution” or a “permanent revolution”, i.e. a continuous series of national revolutions that killed capitalism by a thousand cuts. We have the empirical evidence for this, since the first socialist revolutions were national (the very first — the October Revolution — being 100% national in character).

    Not only that, but, today, the second most powerful nation-State is socialist (China).


    China is definitely socialist: it calls itself that way at an official and social level and there’s enough evidence to show its sociometabolical system functions in a substantially different way than any other capitalist nation-State — be it Third World, First World or the USA.

    We could play the cynic an call China self-definition as a socialist State as a pure propaganda construct. However, this hypothesis doesn’t stand the “cui bono” test. It had many windows of opportunity to declare itself capitalist: Mao’s death (1976), Deng’s “reform and opening up” (1978-9); Deng’s second stage of “reform and opening up” (1984); the fall of the “Iron Curtain” (1989); the fall of the USSR (1991) and its entrance at the WTO (2001). In none of these opportunities did the Chinese government abandon its definition as “socialist”. It’s exact definition, by the way, is very scientific and very hard to propagandise: “market socialism with Chinese characteristics”.

    In fact, just a couple days ago, the official Government newspaper — People’s Daily — published an article reinstating the socialist character of the People’s Republic of China:

    “Why China hasn’t suffered an economic crisis in several decades?”
    -Oct. 10th, 2019.

      1. Yes, I do:

        ‘No room for the alien, no use for the wastrel’ — This edited interview of Adolf Hitler by George Sylvester Viereck took place in 1923. It was republished in Liberty magazine in July 1932

        “Why,” I asked Hitler, “do you call yourself a National Socialist, since your party programme is the very antithesis of that commonly accredited to socialism?”

        “Socialism,” he retorted, putting down his cup of tea, pugnaciously, “is the science of dealing with the common weal. Communism is not Socialism. Marxism is not Socialism. The Marxians have stolen the term and confused its meaning. I shall take Socialism away from the Socialists.

        “Socialism is an ancient Aryan, Germanic institution. Our German ancestors held certain lands in common. They cultivated the idea of the common weal. Marxism has no right to disguise itself as socialism. Socialism, unlike Marxism, does not repudiate private property. Unlike Marxism, it involves no negation of personality, and unlike Marxism, it is patriotic.

        “We might have called ourselves the Liberal Party. We chose to call ourselves the National Socialists. We are not internationalists. Our socialism is national. We demand the fulfilment of the just claims of the productive classes by the state on the basis of race solidarity. To us state and race are one.”

        That’s why we do History, folks. As Lenin once said: the concrete analysis of the concrete object always has priority. Each case is a case.

      2. ””Communism is not Socialism……..and unlike Marxism, it is patriotic.” Ach so! Er ist Socialism with Chinese Characteristics!

    1. “When Trotsky wrote his “permanent revolution” doctrine, he did it so in a context of a world war. In that context, a single event world revolution was theoretically feasible.”

      This kind of makes sense except that Trotsky wrote the doctrine, under the influence of Parvus, in 1905. I am not sure there is any evidence that Trotsky considered the “combined” (if uneven) unity of the world economy to be exclusively conditional upon a world war. It could be argued, I suppose, that the post World War 2 bi-polarity of the Cold War militated against such a “combined” unity and brought out the “unevenness” of global development more starkly. But this is a complicated argument which needs to be articulated, I think, by synthesising Trotsky’s theory with a development of Lenin’s theory of imperialism.

  8. China, it is said, has “the overriding economic power of the state and its plan compared to the capitalist sector.” Since the early years of this century, there has been no plan, only “guidelines.” Investment is allocated by contention for profit among various private capitalists and cliques of state officials. Economically, “the state” is not a single-minded actor. Many state firms have issued stock; the private shareowners naturally demand the firm pursue maximum profit. And we see such things as what happened in natural gas in the winter a couple of years ago: eleven suppliers, mostly state firms, formed a cartel and jacked up the price.

    1. ”And we see such things as what happened in natural gas in the winter a couple of years ago: eleven suppliers, mostly state firms, formed a cartel and jacked up the price.” Contrast this with Osaka Gas in the !980’s that lowered its prices after criticism of excessive profit making.Osaka Gas was not a state company or a municipal one or a private one, in the sense that it did not issue shares. It enjoyed a monopoly in the Kansai region. So Japanese capitalism or the Chinese socialism so beloved of vk? And to adapt Engels’ sarcastic remarks in “Socialism: Utopian and Scientific” why not nationalise the brothels in China as a step towards ‘socialism’?

  9. Wouldn’t Tony Cliff’s definition of the USSR as a state-capitalist country fit perfectly well for China?
    State capitalism, a planned capitalist economy that forms out of a need to survive against the global hegemony of the western market-based economies?
    Would be great to hear your response.

    1. Nick – what’s in a word? You can call China state capitalist if you want. But the main thing is whether to you think that investment, production, employment and the development of the Chinese economy is driven predominantly by the profit motive for private capital ie by the law of value, or whether it is predominantly driven by the planning objectives of the state elite generally subordinating the profit needs of the capitalist sector to that.

      Tony Cliff argued it was the former, so China was capitalist. But if it is the latter, then China is not capitalist as in the G7 economies. Of course, it is not socialist either – with no democracy, vicious repression of ethnic minorities, significant inequality and corruption. It is a weird beast. Its dialectical character (ie “socialism with Chinese characteristics”) cannot last. It’s the great 21st century question.

      1. Cheers for the quick reply. Yes i see what you mean. Will be interesting to see what happens.
        By the way I recently finished your book “Marx 200” and i loved it. Such a clear explanations of the 3 laws plus a whole heap of other stuff. Thanks for taking the time to write it!

  10. For one I agree that China is neither state capitalist nor socialist, it is a transitional kind of affair building towards a socialist society. China has proven for decades that it is not falling prey to foreign capital but keeping control over key industries. It sort of has been adapting Lenin‘s NEP with a mixed economy by trying to keep a balance between planned economy and a certain share of free markets.
    For another, I think Milanovic is totally wrong in his ‚neoclassical‘ take of considering Capitalism to form the best possible system if certain adjustments were put in place. This sounds like a modern day Bernstein again trying to promote the idea that capitalism is reformable. Social Democrats, because of their ‚conformist attitude’ will always be falling short in their attempts to lasting improvements of society. Buying into the capitalist system will not work to that end.

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