Branko Milanovic: An Ideologist of Inequality

In elucidating the rivalry between the US and China, Branko Milanovic shows he understands the mechanics of capitalism but refuses to acknowledge its ideological underpinnings.
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Branko Milanovic is a serious, highly-respected economist specialized in the analysis of income inequality. He is also an innovator. His book, “Global Inequality,”  has played a significant role in pushing the science of economics toward what its author calls “a new heterogeneity and inequality based paradigm.” He compares this to “going from a two-dimensional to a three-dimensional world.” Economics is not just about statistical averages and that abstract being — homo economicus — even if politicians continue to treat it that way. The reality of people’s experience may contradict the positive indicators of rising stock markets, full employment and growth in GDP.

This makes it all the more surprising that Milanovic should reveal himself as a prisoner of some of the stalest and easily contradicted economic myths. It’s true that such myths, especially when they are uncritically disseminated by the media, tend to be remarkably durable, even when the economic principles they serve to justify have visibly degenerated into chaos.

The world, after all, had a taste of chaos in 2008. But the cosmetic surgery applied in its wake has hidden from view much of the damage that was done and continues to be done to this day. Quantitative easing, for example, leading to the innovation of negative interest rates, has been a major factor in increasing wealth inequality. This should signal to any thinking economist an admission of failure, not only of the policy but possibly of the entire system. And yet the facade and all its myths are still in place.

As soon as we look beyond day-to-day economic statistics, including income levels, the chaos that has been boiling under the surface for over a decade is nevertheless becoming visible. Amnesty International conducted a survey of Generation Z’s concerns. It reports that “the message from young people is clear. We are living inside a failed system. The climate crisis, pollution, corruption and poor living standards are all windows on an alarming truth about how the powerful have exploited their power for selfish and often short- term gain.” This emerging zeitgeist, reflected in suicide rates, falling life expectancy and a host of other disturbing social trends, for the moment has had little impact on economic statistics.

Though Milanovic has pushed the boundaries of statistical analysis beyond the orthodox models, he sometimes steps outside of his area of competence by attempting to theorize the historical evolution of capitalism. What he fails to do, however, is question the prevailing ideology.

In an article for Foreign Affairs, Milanovic attempts to explain the political implications of global capitalism. Rather than grapple with the myths that belong to what Walter Benjamin and others long ago identified as the “religion of capitalism,” Milanovic makes clear his adherence to the orthodox credo: “Liberal capitalism has many well-known advantages, the most important being democracy and the rule of law. These two features are virtues in themselves, and both can be credited with encouraging faster economic development by promoting innovation and social mobility.”

Here is today’s 3D definition:

Virtues:

In human beings, moral qualities reflected in socially constructive behavior; in economic systems, imaginary qualities attributed by official propaganda to systems whose behavior is more often governed by human vice than human virtue

Contextual Note

The article focuses on the challenge facing Western capitalism by the emergence of China’s brand of capitalism. Milanovic makes this surprising claim: “Liberal meritocratic capitalism came into being in the last 40 years.” In reality, the working principles of meritocracy have been in place since the dawn of the Industrial Revolution. What happened over the last four decades has been the triumph, at least in the West, of an explicit ideology. Thanks especially to the media, that ideology has successfully conquered the minds of supposedly responsible political thinkers, politicians and even economists who, for whatever reason, maintain their loyalty to the system. (Could it be Milanovic’s years spent at the World Bank?)

When Milanovic confines his thought to the world of statistics and describes traceable trends, he offers some solid analysis: “A rising share of capital income in total income implies that capital and capitalists are becoming more important than labor and workers, and so they acquire more economic and political power.” This is a simple truth. Having noticed this, logic would require him to back away from the idea that capitalism contains within it the “virtues” of democracy and the rule of law. What he has just described is the process behind the rise of oligarchy.

He even seems to acknowledge this when he remarks that “the setup of liberal capitalism has the consequence of at once deepening inequality and screening that inequality behind the veil of merit.” Veils are designed to hide what one would be ashamed of if it were seen. But the veil of meritocracy does even more. It invents and promotes a fiction that people end up believing: the idea that wealth is a reflection of merit. This very idea contributed to the election of Donald Trump in 2016.

Milanovic seems at times to be on the verge of being aware of the contradiction he highlights. “The ruling class,” he tells us, “is highly educated, many of its members work, and their income from that labor tends to be high. They tend to believe that they deserve their high standing.” If, as he suggests, it is about belief alone, it’s a denial of reality. He goes on to explain that, thanks to their resources, the ruling class “purchase economic policies that benefit them.” He adds that “when it spends on electoral processes and builds its own civil society institutions, the position of the upper class becomes all but unassailable.” This is a perfect description of a pitiless and unaccountable oligarchy.

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This is also a tacit admission that systemic corruption has become a feature of liberal capitalism. Milanovic assumes, despite his own evidence, that because democracy exists, corruption will always be rooted out. He attributes corruption exclusively to the “political capitalism” that he tells us now defines China’s economy. In this version of capitalism, “the state is run by a technocratic bureaucracy, which owes its legitimacy to economic growth.”

Milanovic sees this as its weakness, because it may not be able to sustain growth. At this point, he might have developed an interesting contrast by noticing that liberal capitalism owes its legitimacy not to the growth it provokes, but to the resources it captures, thanks to private wealth. Liberal capitalism is about possession and control, whereas the Chinese system is about managing the process of growth. Both are undemocratic.

As many will be aware, another prominent economist specializing in inequality has come to the fore in the recent past: the Frenchman Thomas Piketty. His latest book, “Capital and Ideology,” deconstructs the superficial theoretical discourse that turned capitalism into an ideology. He examines in detail a fundamental cultural shift that gained speed in the 18th century and underpins the ideology. He calls it the “sacralisation de la propriété,” the transformation of the notion of property into something sacred and absolute. This new idea undermined the more fluid notion of property that had prevailed throughout the medieval and premodern period.

This defines the difference between Milanovic and Piketty. Milanovic is familiar with a century or more of economic history but seems immune to or simply ignorant of the history of ideas or the evolution of human culture. He has read and reviewed Piketty’s book, but he appears not even to have noticed its principal theme, even though it should be obvious from its title: how the ideology we are living under today was built. 

That explains why, when talking about the “virtues” of capitalism, Milanovic fails to understand that those virtues exist only in theory (ideology) and may be contradicted by reality. He claims, for example, that “democratic decision-making should” correct the errors spawned by capitalism. “Should” itself signifies a moral rather than a causal relationship, a possible ideal outcome. It’s about good intentions, not historical reality. But he refuses to admit what he himself reports: that democracy doesn’t correct the errors because it has spawned an “unassailable” oligarchy.

Historical Note

In the article, Milanovic aims to clarify the emerging standoff between the types of capitalism he associates with the West (liberal capitalism) and China (political capitalism). As he presents it, the rivalry resembles in many ways the Cold War that dominated the second half of the 20th century. He writes: “As other parts of the world (notably African countries) attempt to transform their economies and jump-start growth, the tensions between the two models will come into sharper focus.” 

This appears somewhat naive. It attributes to African countries an agency that, in most cases, simply doesn’t exist. Most African nations, both before and after decolonization, have traditionally been dominated by Western economic interests focused on the extraction of resources — a source of wealth for both Western and African elites. Helping those nations to jump-start growth has been part of the World Bank’s ideology for decades, but it has rarely if ever translated into effective policy. The dominant method of development in Africa has been Western economic leadership — feeding Western industry and markets — and a policy of sharing the spoils.

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Milanovic has an equally naive and idealistic view of the recent history of the West: “Capitalism in the West generated the information and communications technologies that enabled a new wave of globalization in the late twentieth century.” Well, capitalism wasn’t alone. Militarism did most of the enabling. The private wealth of Silicon Valley was seed-funded by American taxpayers largely through military research

Capitalism began enabling globalization only because at its core, in the US, it hosted its own version of capitalism that Milanovic — declining President Dwight Eisenhower’s gambit — dares not name: “military capitalism.” There’s a good reason for that. The virtues Milanovic associates with capitalism are, from a strictly semantic point of view, incompatible with militarism. No institution is less democratic than the military. And the raison d’être of the military is the rule of force, not the rule of law.

The US and the Soviet Union found a justification of the madness of the post-World War II arms race in their mutual commitment to the idea that their economic system represented the ultimate truth for humanity. Like any effective religion, the ideology fostered belief and depended on the sharing of that belief. Milanovic may still believe, in accordance with the prevailing ideology, that the arms race had nothing to do with the triumph of technology or the militarization of democratic politics. His reading of Piketty’s book on capitalism and ideology revealed an admiring appreciation of his analysis of capitalism, accompanied by utter indifference to the real subject of the book: ideology.

The best way to defend any ideology is to act as if ideology doesn’t exist.

*[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news.]

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