43. The moral price of capitalism – Branko Milanovic

Branko Milanovic is probably the world’s foremost researcher on inequality. His ”elephant graph” became famous some years ago because it highlighted what many intuitively knew: During the two decades up until the financial crisis, incomes in Asia went up a lot, as did the incomes of the richest percent in the West. Squeezed in the middle was the middle class in the West, whose incomes stood still.

”It highlighted the plutocracy and the contradictions of globalization”, says Milanovic.

He points out that the connection between wealth and political power is stronger in the western world than many realize. The US is the most dramatic example.

”Issues that matter to the upper middle class are much more frequently discussed in parliaments than issues important to people who are poor.”

Will the pandemic exacerbate or diminish inequality?

”It’s complicated.”

Some rich countries have had big drops in GDP, China has fared well, while India has fared poorly. Also within countries you see contradictory movements. Affluent people have been able to continue working from home, but on the other hand government transfers to the less affluent have more than compensated for their losses.

”It’s too early to draw any conclusions.”

The rise of Asia means there is a rebalancing of the world happening. The relative wealth of Asia is catching up to where it was before the industrial revolution.

Now it is Africa that is at the center stage of development. Africa needs sustained growth of around 7 percent a year for two generations to achieve any substantial catch-up.

”Without convergence of African incomes we will have two big negative effects: large migration will continue and global inequality will increase.”

Milanovic is personally in favor of migration as a means of diminishing global imbalances, in the same way that capital is allowed to move. But the resistance among people in the receiving countries is real. Therefore he suggests a kind of sub-citizenship for immigrants that would allow for circular migration.

”My fear is that if we accept the reluctance to allow migrants in we will get ’fortress Europe’. The middle way is to make it possible to migrate to Europe and make money but not to have an open way to citizenship and permanent residence. But workers’ rights must be the same for all.”

What about the many protests we see in the streets across the globe? Are they an indication that there is a growing popular resentment against the system?

”The resentment is there. But they are not questioning the way capitalism is organized. They are questioning some of its side effects: inequality, unfairness, environmental damage”, says Branko Milanovic.

He sees two grassroots trends that could constitute some kind of alternative to traditional capitalism:

”One is the movement of stakeholder capitalism. Then the shareholders would not be the sole factor influencing corporate decision making. The other one is the green economy. There I am more skeptical since they talk of degrowth.”

”If our value system were to be changed, so that acquisition of wealth weren’t our priority over priorities, capitalism would change.”

Branko Milanovic is currently a visiting presidential professor at the City University in New York. Here is his CV.