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Genre = Economics
Intriguing Connections = Capitalism, Socialism, their Alternatives and Critiques
There may be different types of capitalisms, but capitalism alone survives as the mode of production. Nothing natural or self-evident about it. It is a system that required socialization into it. Different societies constructed different versions of the same idea regarding the system. This book showcases two types of capitalism, that of liberal meritocratic capitalism and political capitalism. Milanovic explains that liberal meritocratic capitalism is based on privately owned means of production, legally free labor, and decentralized coordination. To be meritocratic requires that individuals can achieve a position in society without legal obstacles. Political capitalism is explained via communism which is characterized by state ownership of assets, central planning, and political repression.
The U.S. is set as the example for liberal meritocratic capitalism. There is a trend in classical and liberal meritocratic capitalisms for capital income to rise as a share. A rising share leads to capitalist becoming more important than workers. This trend is concentrating who hold access to the income thereby increasing the income inequality between individuals. Richer countries generally have tended to be more unequal so practices to reign in inequality need to be correspondingly greater. Countries can facilitate equality by creating policies which equalize the returns from wealth such as preventing those who already have a lot of money from getting per dollar lower entry fees, reduced management costs of assets, and paying less tax from wealth.
Previously tried methods of strong trade unions, mass education, high taxes, and large government transfers to reduce inequality are no longer viable approaches. As work changed from manufacturing to services, employees became dispersed in smaller work units with different work interests has made organizing the employees very difficult. Mass education helped many people but now people already obtain the amount of education they wanted and cannot progress them more. With mobility of capital on a global scale, setting higher taxes leads to capital leaving the jurisdiction for those with lower taxes which diminishes tax revenue for the initiating country. Transfers can neutralize inequalities but if the inequality has a tendency to keep rising, the transfer will be harder to facilitate the following times they are needed.
The rich are becoming a permanent class via increasing influencing the social structure. With donations and other means the rich provide for politicians who then tailor policies which the rich endorse. High cost of education makes it difficult to compete with top wealth-holders. Rich people tend to be around others who are comparatively wealthy thereby marrying people who are already wealthy. One possible solution to prevent interpersonal inequality is to reduce concentration of capital ownership. Milanovic makes that case that equity ownership should be favorable to small and medium shareholders while making equity ownership less favorable to large shareholders.
China is set as the example for political capitalism. Milanovic explains that technically, a socialist society is one that in in transition from capitalism to communism with communism being the highest stage of development. Communism has been a failure in developed countries but a boon for underdeveloped countries. Underdeveloped countries used communism as a system of transition from feudalism to capitalism thereby gaining economic and political independence.
Corruption is endemic to political capitalism as it requires many discretionary decisions. Society may tolerate some corruption but not a lot of corruption as it is detrimental to the integrity of bureaucracy which reduces governing capabilities. Overall corruption was made worse by global capitalism as it became easier to move money between jurisdictions. Within this system, a politico-capitalist class emerges due to murky property rights and law which are a defining feature.
Capitalism’s impact in not limited to any particular country, but has global ramifications. Within the global political system there is a citizenship premium. Residents who are in an area with lots of capital, advanced technology, and good institution can partake in that share of production which gives them higher overall income. This implies that equally skilled individuals will have different incomes due to their location. Milanovic questions the easy migration that capital has relative to labor if both can be just as beneficial and dangerous to a society. Initial wave of globalization had difficulties with nationalizing foreign property so imperialism was developed as a crude solution to secure property rights.
This book has unexpected twist. The author uses research ideas which are usually Marxist but capitalism is still praised. Or rather, the benefits of capitalism are provided, but most of the book is about the difficulties and problems that capitalism has and possible ways to rectify them. The writing style can be technically seen as a very long research paper. As such, some parts are written with finesse, while other parts are very tedious to read.
Commercial success depends on pleasing others which enables everyone to be kinder. The problem is that actions are not readily observable anymore which corrodes moral practices. Trust is lost in a flexible market economy as people are interacting with different individuals rather than repeated interaction with the same individuals. Expectations shift without continuous interactions. Social interactions are hampered by ques that imply inequality. Capitalism needs to realign its advantages with expectations that facilitate sustainable practices.
Pages to read: 219
1st Edition: 2019
Ratings out of 5: