Capitalism, Alone by Branko Milanovic

Capitalism, Alone: The Future of the System That Rules the World
by Branko Milanovic
Belknap Press, Harvard University Press, 2019

A frequent complaint among believers in free market capitalism is that the term ‘capitalism’ is used to describe nearly every society on earth, with only some obvious exceptions. Branko Milanovic in his new book, Capitalism, Alone, does exactly this. He writes: 

The fact that the entire globe now operates according to the same economic principles. . .is without historical president. . . even as recently as one hundred years ago, when the first incarnation of globalized capitalism appeared, the world still included all of these modes of production. . .None but capitalism remain today, except in very marginal areas with no influence on global developments. 

Milanovic argues there are two main variants of capitalism competing with each other: liberal meritocratic capitalism, led by the United States, and political capitalism, led by China.

Liberal meritocratic capitalism is defined “in the fashion of Karl Marx and Max Weber” as a system dominated by private ownership of the means of production, the free hiring of labor, and decentralized decision making,”  along with “Joseph Schumpeter’s requirement, [that] most investment decisions are made by private companies or individual entrepreneurs.” The terms “liberal” and “meritocratic” are meant in the Rawlsian sense, and so this variant of capitalism “addresses how goods and service are produced and exchanged (“capitalism”), how they are distributed among individuals (“meritocratic”), and how much social mobility there is (“liberal”).” Political capitalism, on the other hand, is pulled right from Max Weber’s The Protestant Ethic and the Spirit of Capitalism as being “the use of political power to achieve economic gains.” 

Milanovic attempts to identify the key systemic, as opposed to incidental, social and economic features of these variants so we can study their long term effects and “determine their relative attractiveness and stability. And consequently our desire to live under one or the other.” This is done very tediously. Indeed, Milanovic spends two chapters that take up around half of the core of the text to define and adumbrate the features of these two types of capitalism. 

Liberal meritocratic capitalism’s systemic features include: A rising share of capital income in net product (that is, an increase in importance of capital and capitalists relative to labor), a high concentration of capital ownership, the capital-abundant individuals are rich, capital-income rich are also labor-income rich, the rich (or potentially rich) marry each other, and there is a high correlation of income between parents and children ( “intergenerational transmission of inequality”).  These features are taken to characterize the U.S. as the representative agent of rich capitalist countries in the early 21st century. 

Despite, again, the tedious organization, things get convoluted very quickly. For example, after explaining liberal meritocratic capitalism (which isn’t too poorly done) he turns to political capitalism, telling us that the “chapter takes a historical, or rather genealogical approach to the study of political capitalism.” What happens is he spends over 20 pages discussing “the place of communism in global history and the effects of communist revolutions in colonized societies” in order to argue that without communist revolution and the subsequent policies certain countries would not have become capital intensive and eventual systems of political capitalism. All the while taking detours into whether or not the Marxist or “liberal framework” can better explain World War One and the rise of fascism, as well as 1989, among other things. 

Eventually, Milanovic does get around to telling us about the “three systemic characteristics and two systemic contradictions” of political capitalism. 

The three characteristics are: an efficient bureaucracy (this is the least convincing of the three), absence of the rule of law, and autonomy of the state. Contradiction one is between the first two characteristics. That is, “between the need for impersonal management of affairs required for a good bureaucracy and discretionary application of the law.” Contradiction two is “between endemic corruption generated by the absence of the rule of law and the basis on which the system’s legitimacy rests.”

After the reader is put through this, Milanovic discusses “the interaction of Capitalism and Globalization.” Too much is covered here to break it down, however the thrust of the chapter is moral rather than analytical. Specifically, under the general condition of capitalist homogony there is a tendency toward atomization and commodification. Atomization meaning that “families have largely lost their economic advantage as an increasing number of goods and services that used to be produced at home, outside the market and not subject to pecuniary exchange, can now be purchased or rented on the market.” In short, a tendency toward isolation. And on the other side of this, individuals begin to commodify even their free time and become their own producers. This leads toward “fully flexible labor markets with temporary jobs” where “durable business relations would be very rare.” In summary, and one of the most absurd paragraphs of the book, Milanovic writes:

Imagine an economy. . .where all production was conducted at home or within the extended family. . .if we had such an economy today, it would be fully capitalistic because we would be selling all of these goods and services to each other: a neighbor will not keep an eye on your children for free, no one will share food with you without payment, you will make your spouse pay for sex, and so forth. This is the world we ware moving toward.

The problem with the system is that it “places the acquisition of money on a pedestal. The ability to trade one’s own personal space and time for profit is thus seen as a form of empowerment and as a step toward the ultimate objective of acquiring wealth. It therefore represents the triumph of capitalism.”

Milanovic ends discussing the future of global capitalism, but we must restrain ourselves at this point. Suffice it to say, early in the book Milanovic argues that “we should aim for an egalitarian capitalism based on approximately equal endowments of both capital and skills across the population.” At the end of the book, however, it is clear Milanovic believes global capitalism is here to stay because we have accepted, even endorsed, its underlying values.

A line by line critique of what is here, as well as what has been left out, is tempting. We will have to limit ourselves to pointing out the flaw in the premise of the book. 

In the first place, we, perhaps depressingly, run into an issue with the first word of the title: capitalism. The term was coined by its most vituperative critique, Marx, so it isn’t surprising there is a lack of nuance to it. The term is really more descriptive than prescriptive. That is, when Milanovic tells us that the world is dominated by capitalism there is a sense in which he is correct because most countries have large amounts of physical and financial capital at their disposal. He then places this within the context of a decreasing share of industrial output produced by state-owned enterprises and decreased fixed investment from the state sector in China. But this argument goes the other way as well. In fact it was made by Milton Friedman: 

What does ownership of the means of production mean? It means you’re entitled to the proceeds of the income that they generate.

Take a look at federal, state, and local spending. It amounts to 40 percent of the national income. Then add in all the mandates that government imposes on private spending…that might as well be on the budget. If you add those costs, plus all the regulations and restrictions on enterprises, that accounts for about another 10 percent. So about 50 percent of the output of the country is controlled by the government, which is equivalent to saying that the government owns 50 percent of the means of production.

So from the end of the Cold War to now it may well be more accurate to say that the United States, on the margin, as moved toward socialism, and China, on the margin, has moved away from it. 

To argue that capitalism is the one dominant system is to obfuscate this nuance. And, in a way, the majority of Milanovic’s book is an attempt to work nuance back into an abrupt title. This is captured by the endless distinctions made between and within variants of capitalism: he argues we have two types of capitalism now, both with a few systemic, and a great many incidental features. One of these variants, liberal meritocratic capitalism, is juxtaposed to classical capitalism (the UK before 1914) and social-democratic capitalism (the US and Europe after World War Two). But the situation is worse than this because there is not actually such a clear difference between liberal meritocratic capitalism and political capitalism. Milanovic provides eight features of liberal meritocratic capitalism, a couple are fairly redundant and a couple are about attitudes. However two of them are explicitly about investment in political control, and one of them on using “money to control the political process,” including to change laws, and allowing for a “flexible interpretation of the rules.” That is, by the broadest and most generous possible measurement, about one third of his systemic features of liberal meritocratic capitalism fit just as well into the provided Weberian definition of political capitalism. That is, “the use of political power to achieve economic gains.”

If we are to continue using the term capitalism we must not specify between liberal meritocratic capitalism and political capitalism. Rather, between free market capitalism and state (or political) capitalism. 

This brings us to the central flaw of so much scholarship on this topic, including this book:  First, there are only two ways that property can be owned. Privately and publicly. There is no third way (one could point to the commons, but this is an absence of ownership). Second, as Franz Oppenheimer pointed out, there is only the economic means and the political means of acquiring wealth. In other words, private property is a necessary but insufficient condition for free market capitalism because it can be manipulated and coerced by the state. Private property coupled with an array of voluntary exchanges ought to be our measure. Both variants of capitalism discussed in this book fail this test, just to different degrees and in different ways. 

There is enough originality in this book, such as a left critique of universal basic income and the fear about technology displacing jobs to read the book once, and perhaps return to sections. Ultimately a fallacious premise and confused categories are the book's doom.

—David Murphy holds a Masters of Finance from the University of Minnesota.