America’s wealthiest tycoons have more economic and political power than any time since the Gilded Age of the late 19th century. Buff billionaire Jeff Bezos presides over his Amazon empire, real estate magnate Harlan Crow blows big bucks on Justice Clarence Thomas’ getaways, and rich-guy-reality-tv-star Donald Trump is running to be president again.
Meanwhile, the bottom 50% of U.S. households hold just 2.5% of national wealth, according to the Federal Reserve.
The Indypendent chatted with Serbian-born economist Branko Milanovic about perceptions of inequality and how capitalism relates to climate change. Milanovic is the author of many books, including Visions of Inequality, From the French Revolution to the End of the Cold War, a survey of economic thinkers, including Adam Smith and Karl Marx, and their conceptions of inequality.
This interview has been edited for length and clarity.
Taking economic inequality seriously is not always a given. Why is that?
The form in which the people were expressing inequality before and during the Bolshevik Revolution — inequality between capitalists, workers and peasants — kind of disappeared in Soviet economies. There was political pressure to aÆ rm the notion that inequality didn’t exist, and whatever ways inequality did exist were legitimized by the [communist] background institutions.
The U.S. was historically less of a class-based society than Europe, and the idea that everybody can [attain] the American dream was promoted. So why waste time on discussing classes? Everybody can become rich.
There was also an endogenous development within economics that everybody is an agent, regardless that you might have lots of capital and someone else has very little. You can be very skilled; I can be very skilled, but fundamentally we are the same because we optimize within given constraints, and that makes the study of inequality somewhat unnecessary. In Visions of Inequality, I called that period “the eclipse.”
I called the U.S. version “liberal capitalism” and the Chinese version “political capitalism,” but they’re still capitalists.
What was competition between the Americans and the Soviets like? And how would you compare it to the ideological competition now between the United States and China?
Competition between the Soviet Union and the U.S. did include space, military and so on. But there was another competition in the sense that these two systems were ideologically very di« erent. In the U.S. you had and have private ownership of the means of production. In the Soviet Union, it was mostly publicly-controlled.
When it comes to China and the U.S. today, economically these two systems are not that di« erent. China surely has a much greater role of the state. The state interferes in banking and controls all the key industries giving subsidies — which the U.S. does as well through military procurement and production — but they are not fundamentally di« erent like the Soviet and the American systems. In Capitalism, Alone, I called the U.S. version “liberal capitalism” and the Chinese version “political capitalism,” but they’re still capitalists.
There’s tremendous wealth in the United States. Obviously there are also deep inequalities, and people consistently tell pollsters that they aren’t satisfi ed with the economy. Is inequality causing this?
That’s a super interesting question. Marx says needs are not physiological nor fi xed; needs develop with the development of society.
The United States is a rich country, but being rich means that the needs that people subjectively feel are high. In other words, the needs of a median American are not the needs of, say, the “median Vietnamese.” [American] needs are much greater.
When Americans express dissatisfaction, their implicit assumption about the level of needs is fairly high. When you look at it from the outside, many people come to this country because they want to be rich, but once you’re here your needs reflect what you see and what other people have.
So he dissatisfaction of the median person has to go up as inequality goes up. If the gap between the mean and the median is increasing, then the median person feels subjectively poorer, despite the fact that they might have two cars in the garage. So I think that inequality is to some extent to blame for this.
Climate change is the mega trend facing humanity. Can you envision a scenario with both drastically reduced greenhouse gas emissions and economic growth?
I was what you called a techno-optimist, then I started thinking about how the definition of capitalism in both Marx and Schumpeter is that the system has to expand all the time. And the reason why it has to expand is that if the people who are entrepreneurs do not make profi t, nobody’s going to invest. If we have capitalism we have to have a permanent sort of expansion to new areas of production. We do have a conundrum; how can we keep a system which is based on positive profi t and expansion while reducing emissions?
A lot of that growth could be very intensive in emissions and contribute signifi cantly to climate change. Africa is the only continent with increasing population — is Africa going to grow in a green way?
For a reduction of global inequality to be achieved under capitalism, you have to have very high growth rates, especially in Africa, India, Pakistan and so on.
And that growth itself? A lot of that growth could be very intensive in emissions and contribute signifi cantly to climate change. Africa is the only continent with increasing population — is Africa going to grow in a green way? It does not seem to me from historical experience that it is going to be very likely.
I’ve thought about how major asset managers such as BlackRock, Fidelity, State Street and Vanguard have such power. I would argue they have some kind of responsibility to safeguard assets from climate change. You can’t invest in Miami real estate if it’s underwater.
I tend not to be too optimistic. It may come as a surprise, but I agree with [Milton] Friedman’s view that the job of capitalists or the managers is to make profit. It is their definition of their success. It is their role in society. The U.S. was historically less of a class-based society than Europe, and the idea that everybody can [attain] the American dream was promoted. So why waste time on discussing classes? Everybody can become rich. That’s a super interesting question. Marx says needs are not physiological nor fixed; needs develop with the development of society. I don’t particularly believe in self-control by the business sector when it is not forced by very strong taxation or fines.
Although they often aren’t well-enforced, there are at least local laws mandating the phasing out of fossil fuels in new building construction.
This is basically a carbon tax that makes large polluters pay for their activities.
You should be also able to use money from such taxation to subsidize other activities that would be much better for the environment.
I don’t think it’s technically impossible, it just doesn’t seem to me that we are doing it sufficiently.
The Indypendent is a New York City-based newspaper, website and weekly radio show. All of our work is made possible by readers like you. During this holiday season, please consider making a recurring or one-time donation today or subscribe to our monthly print edition and get every copy sent straight to your home.
