The Financial Express

New wine in old bottle?

Imtiaz A. Hussain | Published: January 09, 2020 21:26:31

New wine in old bottle?

Capitalism is at bay. At least Branko Milanovic, Centennial Professor at the London School of Economics, thinks so. In the first Foreign Affairs issue of 2020, he captures and articulates the ensuing collision between two capitalist variations: 'liberal meritocratic' versus 'political capitalism'. Behind this collision lies another, the tussle between their key proponents, the United States and China, respectively. He sees their contestation boiling down to the world breaking up into two. Although he understands the dynamics behind each version, one might be surprised by other more dominant dynamics: the capitalist versus socialist divide that characterised the Cold War, then the capitalist versus socialist divide in the post-Cold War period. Why not those, in some form; or smuggled into Milanovic's two? If his bifurcation is to haunt the rest of the 21st century, other forces await them, so much so that Milanovic may have to look deeper into his analysis to plug into them.

His thesis is very simple. What he calls the 'liberal meritocratic capitalism' more or less overlaps what we have known as neo-liberalism. It is a shift from ownership that dictated 'classical 19th century capitalism' towards including workers to level the playing field somewhat (though by no means completely). This now confronts globalisation with its own and quite different nature of work, for example, by eliminating national boundaries and thereby opening sources of internal fissures (which could easily be termed populism, the global circulation of which today undermines this 'liberal meritocratic capitalism'). The equalisation begins to evaporate, as inequalities deepen and widen.

Without reining in these inequalities, the system moves towards what might be called political capitalism, epitomised by China. Indeed, China, rather than undergoing a classical (ownership-based) form of capitalism, moved from more egalitarian a playing field quickly into brutal capitalism, made more brutal by state replacing cut-throat market competitiveness. Such was the rapidity of this transformation that inequality widened just as quickly. Thus, instead of having a landed-class of elites, China produced a vast string of bourgeoisie entrepreneurs virtually overnight, while its continued commitment to communist ideology meant not everyone could enter the competition. Strong state intervention characterises China's 'political capitalism', and as China opens more trading networks globally, it has blended better with so many other state-centric countries of Africa, Asia, and Latin America than western liberal meritocratic capitalism could: the latter carries more conditions for membership (popular elections, for example) than the former. Besides, China as the 'state' also carries concerns of all sorts, accountability being one (China being less flexible than multilateral institutions), tight enforcement of bilateral terms being another.

Yet, this political alignment becomes expensive simply because it is not conducted upon capitalist principles: corporations and workers pay allegiance to the state far more in 'political capitalism' than they do in 'liberal meritocratic capitalism', whose advocates remain rather silent on the degree of state intervention. Milanovic upholds that silence: even as early as 1890, the United States had an anti-monopolist legislation against corporate controls, the Sherman Anti-trust Act; but the 1933-35 New Deal exposed more bluntly how corporations worked with the state, so much so that by the time neo-liberalism was riding high from the 1990s, the government's role was portrayed as merely a 'gatekeeper', that is keeping watch over trading partners today through, mostly, free-trade agreements (FTA). There was a FTA explosion the world over, depicting how when the state plays the warden's role in 'liberal meritocratic capitalism', even under globalisation, inequality suddenly widens: too much liberalism gives to the 'fittest' more than a fair democratic shake should.

State intervention is not new, and is better known as corporatism where the key alliance is between domestic corporations and the government, often smuggling in foreign corporations whose local partners constitute those domestic capitalists. This form, prevalent all across Latin America from the 1930s, had East European, Far-east Asian and African counterparts. How these corporate countries were hit by the 'lost decade' in the 1980s opened the door for 'liberal meritocratic capitalism': acting through their  key agents, the World Bank and the International Monetary Fund (IMF), they (really only  the United States) bailed many rich Latin countries out of their debts, which helped open up what John Williamson dubbed neo-liberalism (the Washington Consensus, from 1989, translated into this tripartite arrangement, involving state, foreign corporations, and domestic capitalists); in East Europe the popular surge against the collapsing Soviet Union; and in the Far-east/South-east Asia an economic surge that really was nothing more than a bubble that would soon burst (mid-1990s crisis).

China's 'political capitalism' is only a tighter version of the 'liberal meritocratic capitalism' with the state more firmly on the economic saddle, with domestic corporations largely being public-sector organisations, with whom foreign corporations make deals. This is how China's Belt Road Initiative (BRI) has been built, the principle remaining the same, only the statist role being far firmer. This is how wages have been kept low, so expanding exports bring in the golden eggs for the marginal population to claim a life-betterment alternative. It does not always predict social or political harmony within the countries, but is a far better trade-off than the previous arrangement whereby more independent foreign corporations were, as if, taking away those golden eggs of 'free-trade' agreements.

Lost in this tussle today (and even during the Cold War) is the brave front led by socialists. These were not socialists with affinity to communism, as the Union of Socialist Soviet Republic (USSR) depicted, or as a Communist China does today: it was a socialism that lived with corporations, and by taxing them, elevated the plight of workers, as in a string of European countries, particularly in Scandinavia. There was not any tension with private capitalism other than through the taxation mechanism. In other words, bits and pieces of both 'liberal meritocratic capitalism' and 'political capitalism' can be found in this socialism.

Names may have changed, but dynamics remain the same under neo-liberalism, if that is the term we prefer to use, or 'liberal meritocratic capitalism', as Milanovic would have it. So much so have these playing-fields of social equality and private capitalism tussles been fending off the foes, or forward-passing their interests, that we cannot see them evaporating. The future cannot be but a continuation of the same, with some key differences: western populism may introduce more blockages to its own form of capitalism, as too Chinese intervention might breed second-thoughts across African, Asian, and Latin countries. If populism is already portraying the former, we might already be hearing rumblings within countries in the latter group, undermining China.

New versions will appear, but the key components and players are hardly likely to disappear. We will keep on hearing of 'new' capitalist formations, but the wine remains the same: only the bottle changes. At least from this perspective. The next Scopus issue presents an alternative approach, in which the bottle and its content change.

Dr. Imtiaz A. Hussain is Dean (Acting), School of Liberal Arts and Social Sciences (SLASS) and 

Head, Global Studies & Governance Program Independent University, Bangladesh



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