A System of the Past
Capitalism, Alone: The Future of the System That Rules the World, Branko Milanovic, 2019.
Thumbnail: Increase the Productivity of Labour, Yuri Pimenov, 1927.
Quite accidentally, all the books I’ve read lately - Mulder, Polanyi, and DeLong - have kept me thinking about ‘The Twentieth Century’, in a grand, Hobsbawmian way. The big questions of periodisation - on demarcating, defining, and narrativising the age - have been incessantly lurking in my mind. On opening Branko Milanovic’s Capitalism, Alone, however, I expected something different; after all, it is subtitled “the future of the system that rules the world”. My mistake.
Of course, Milanovic is genuinely concerned about the future of capitalism, and that of the competing ‘capitalisms’ he believes constitute it. However, explicit theorising on the ‘future of the system’ appears only by the last chapter. Instead, the book takes the form of a historical prognosis, looking back into the twentieth century for insights to take into the twenty-first. This struck me most not in the brilliant dissection of “liberal meritocratic capitalism” and inequality in the West, but in the the chapter on what Milanovic terms “political capitalism” - the system characterising the politically restrictive, high growth, often post/quasi-communist states of East Asia. Specifically, his claim that “communism… enabled backward and colonised societies to abolish feudalism, regain economic and political independence, and build indigenous capitalism… [and] played the same functional role that domestic bourgeoisies did in the West” captured me. While this argument takes up few pages - and is in large part relegated to the appendices - its significance for the book as a whole is outsized. Not only does it relegate a particular Marxism to the periphery, but, by reassessing the historic meaning of really-existing socialism, it brings home Milanovic’s vital point; that “there is no system that is an obvious successor to capitalism”. Of course, I have some reservations. For starters, it is hard to disentangle communism’s developmental impact from other, more universal factors; especially in the old Third World. There is also no doubt that his case could have been fleshed out further. But Milanovic does, in magnificent fashion, undeniably throw a spanner into most, if not all, grand narratives of the twentieth century. That, I could not ignore.
Within Milanovic’s thesis, two claims can be tentatively separated. First, there is the argument that communist rule was more conducive to the emergence of capitalism, in the Third World, than either imperialist or purely nationalist programmes. Second, there is the connected point that this was responsible for superior economic outcomes in poorer countries, after revolution, than in richer ones; because socialism - contra Marx - was better at transitioning societies towards capitalism than away from it. The taking-off point for Milanovic is in the failure of the “western path of development”. After decades of imperial rule, many third world countries remained underdeveloped compared to the West, characterised by more-or-less “feudal” relations of production, and dominated by foreigners; and thus, were aware of their underdevelopment. To achieve the structural transformation needed to change this situation, Milanovic argues, two revolutions would be required: a social revolution - to abolish feudalism - and a political revolution - to win self-determination. Parties that neglected the social question - such as China’s Kuomintang, or India’s Congress party - were doomed; whereas the colonial experiment had shown that the social question could not be tackled without national liberation. Thus communism was the “only” movement that could achieve structural transformation; to dig up - in Mao Zedong’s words - the “two big mountains [that] lie like a dead weight”: feudalism and imperialism.
Given its historic necessity, did Third World communism succeed? Milanovic argues it did. The basis of his argument is derived from the growth statistics: the observation that a negative correlation exists between the income of a country upon becoming communist and its absolute (and relative) growth rate thereafter. This is on top of the fact that poor communist countries performed, on average, better than their capitalist counterparts, whereas rich ones definitely did not. Interestingly, the first observation takes prominence; likely not just because that result is more pronounced, but because Milanovic is more preoccupied with redefining the historic purpose of socialism than with evaluating it as an economic system, comparatively. Regardless, his argument for why Third World communism succeeded - in laying the foundations for capitalism - is inextricable from why really-existing socialism failed in more developed parts of the world. This failure, Milanovic argues, stemmed from an “inability to innovate and… to substitute capital for labor”. Beyond vital infrastructure and industry - power plants, railways, steelworks, etc - communist states struggled to advance the technological frontier outside of specific, state-targeted goals. Compounding this, central planning rendered their capital-labour ratios of production rigid: a significant problem if, for example, population growth ceases. Both of these problems were less important for underdeveloped countries, which could benefit immensely from major infrastructural projects, featured large underemployed populations, and needed to adapt to existing technologies more than they needed to develop new ones. Carlin et al (2012), cited by Milanovic, distill this point down to a fundamental proposition: that the advantages of central planning benefited poor countries more than the absence of market incentives caused them to suffer. Robert Allen’s Farm to Factory also suggests this: his argument that the Soviets were comparatively successful in industrialising an agrarian economy, but failed to capitalise on those gains thereafter, demonstrates both the strengths and weaknesses of the communist experiment.
If we accept it, this conclusion matters for how we understand the twentieth century because it means Marx and Lenin were wrong. Socialism, in implementation, was a stepping stone towards a particular breed of capitalism, not communism. If it had found victory elsewhere, such as in the West, “it would have been even less successful than in Eastern Europe”. For Milanovic, this means that since most of the world is, for the first time, within capitalism - thus capitalism is alone - communism “has fulfilled its function… it is not a system of the future, but a system of the past”. Incidentally, it is worth remembering that this last claim is genuine: communism was a system of the past insofar that it was also not simply an ill-advised detour from the slouch towards utopia, but a useful - if now obsolete - developmental strategy. I presume Milanovic has received flak from many different quarters as a result.
But before we get ahead of ourselves, it is worth asking: is there a simpler explanation for the negative correlation between income and growth previously observed? A result which provides an alternative explanation, famously derived from the Solow model, is unconditional convergence: the observation that rich countries always tend grow more slowly than poor ones. Communism, Preobrazhenskyian growth, and central planning may have nothing to do with why poorer socialist states, such as Vietnam, grew faster than richer ones, such as East Germany. Milanovic considers this in the appendices of Capitalism, Alone: concluding that although unconditional convergence does bias poor-rich country comparisons, growth rates now are more important than the those in the hypothetical future. Countries will still seek to emulate the path of China or Vietnam, even if their economic growth slows in line with technological progress, because their growth so far has been sufficiently impressive. This may be true - but I cannot help but feel goalposts have been shifted somewhat. Looking at the never-communist tigers - such as South Korea, or Taiwan - and their rapid growth, unconditional convergence (with the right institutions, of course) is hard to discount. I do not think Milanovic is wrong; however, I am still wary of anointing the capitalist transition “the true role of communism”, from the growth record of really-existing socialist states alone. That said, accepting the role of unconditional convergence need not negate the developmental impact of communism. One could make the argument that the Preobrazhenskyian formula was well-suited to facilitating unconditional convergence; which is, I think, what Milanovic is essentially arguing, even if he does not frame it explicitly in these terms. That it was not the only - or even the best - way to do so is beside the point. I am again reminded of Bob Allen, about whose thesis in Farm to Factory I felt similarly. In the end, I feel, it is all babies and bathwater: for an argument can be compelling even if it’s foundations appear fragile, as long as one keeps in mind the sensitivity to changes in evidence this entails.
To avoid that unsatisfying note becoming my conclusion, I would like to finish with a brief reflection on the contrasting implications of Capitalism, Alone. On the one hand, Milanovic’s story widens the possibilities for the twenty-first century. Pushing against end-of-history-style arguments suggesting an inevitable triumph of liberal capitalism; rejecting the “China must ultimately fail” theorists - Milanovic diagnoses a plurality of capitalisms competing for the helm. There is no clear ‘dominant’ strain; and thus, the future of our irrevocably global economic system is shrouded. This is as liberating as it is terrifying - at the very least, it is far from boring. Despite this, however, there is also a narrowing of vision present; for, in a very real sense, capitalism is perceived to be alone. This is why the historical question I have focussed on above matters; since if you believe Milanovic, the only alternative to capitalism ever seriously pursued (really-existing socialism), was not only a failure, but worse, an antecedent; and is so doomed to be relegated from the future altogether. Taken together, Capitalism, Alone makes it hard to imagine both the future and the end of capitalism. The only certainty? Strap in.