On "Capitalism, Alone": A conversation

This is the text of the interview given to Sega Newspaper at the occasion of the publication of “Capitalism, Alone” in Bulgarian. The text in Bulgarian is here.

  

1. How do you think the fact that you grew up in Yugoslavia and received your doctorate in the Belgrade University has affected your worldview and your work?

I think it affected me mostly through Yugoslavia non-aligned foreign policy. Among other things that were ideologically motivated and were taught in school was also the emphasis on non-alignment, namely on anti-imperialism and anti-hegemony (which was a shorthand for the Soviet Union). This opened up our minds and interest towards non-European parts of the world. It might not have produced the same effect on everyone, but even in my teenage years I was very political and very “Tiermondiste”. I often regret that the same attitude is not, as far as I know, present now in the schools in Serbia and in the rest of the former Yugoslavia. Eurocentrism, in the form of the European Union, is dominant now and is stifling other interests.

2. You are most famous for your work on income inequality. How does "Capitalism, Alone" – with its broader scope – fit into it?

You are right that “Capitalism, Alone” is much broader and more political. It is a combination of my long-standing interest and work on income inequality with my also longer-term (but less visible) interest in Marxism, the meaning of communism, and global issues (as I partly explained in the previous question). So for me it was nothing new, it was just a natural evolution. “Capitalism, Alone” was very easy to write. But for many who did not know much about my interest in broader political and social issues it came as a novelty.

Let me also say that any important work on inequality has to go together with social and political analysis. Piketty I think illustrates that very well.

3. One of the main points of your book is that the global domination of capitalism has led us to a new "schism" – between the liberal capitalism of the West and the political capitalism, best exemplified by China. What sets them apart?

In very general terms, history set them apart. This is one of the reasons why in my book I do not simply contrast US and China; many other books do just that. I try, in the first part of the chapter on political capitalism and China (which may also be one of the most important parts of the book) to explain the genesis of China’s political capitalism by defining what I think was the global historical role of communism.

Or more abstractly, what I think sets liberal and political capitalisms apart is the fact that human history is too rich and complicated to accommodate only one political system. We may all, as the dominion of capitalism shows, understand the language of profit and financial gain, but I do not think that we would ever have exactly the same attitude towards political power. 

4. Where do you think the Balkans are situated in the global economy and in the light of the division between the liberal and the political capitalism? Is the region doomed to be always chasing behind and always late?

The Balkans were historically a periphery. They were that during  the Roman Empire, Byzantium, the Ottoman Empire, the Industrial Revolution and today. I do not think that this is likely to  change. But there are many peripheries in the world, and often, by looking at the center from a different angle, the periphery can illuminate and see things that the center overlooks. The Balkans are at the intersection of Western Europe, Mediterranean civilization, and the Muslim world. These are significant advantages, if one knows how to use them well. Also, being a periphery does not mean that one cannot become rich. Surely, Australia and New Zealand are historically and today, the periphery too, but they are rich.

There are some Balkan countries that seem today to be rather close to political capitalism. I have in mind Turkey, Montenegro, and Serbia. But note that I do not establish a hierarchy such as believing that political capitalism is inferior to liberal capitalism in all domains.  There are circumstances where it can do better than liberal capitalism.

5. Your book "Capitalism, Alone" came out just as the world was about to learn about the coronavirus. After all that followed, if the book was about to be released tomorrow, would you add or change something  to it?

No, would not except possibly in one area. I was quite critical about the feasibility of Universal Basic Income in rich countries. I still believe the arguments I gave in “Capitalism, Alone”. But I do recognize that in emergency conditions like the ones we experience today, having a stable guaranteed income for the entire population (even if it is rather low) would be helpful and would dispense with  the need to make constant political decisions about new wage-support packages. The automatism of the Universal Basic Income would be an advantage.

6. In your book you assert that the so-called “carrying capacity of the earth” is a fallacy. Do you really think that there is no danger of  the modern capitalism leading us to a massive planetary ecologic crisis?

I am what is called a “techno-optimist”. I believe that with a right combination of incentives and “punishments”, subsidies and taxes, we can curb pollution and CO₂ emissions and change the dominant technology to be much more ecologically friendly. So I do not think that anything other than the usual economic tools is needed. The question is whether there would be sufficient political support to enact such policies.

7. In one of your latest articles you called Trump "the Ultimate Triumph of Neoliberalism". How could you summarize your assessment of his presidency?

If you define” neoliberalism” to be a ideology where commercialization of all activities, including politics, is legitimate, then Trump is a perfect and full embodiment of that view. He regards political office as any other job where the job-holder’s main interest (and duty) is to maximize own income. Indeed, he behaved as the President of the United States as he behaved as the head of the Trump conglomerate. He made money. He treated citizens as his employees. It is in that sense that he is the triumph of neoliberalism.

I think that many people who fail to see that aspect are bound to misunderstand his presidency by using terms that do not apply to it (“fascist”, “populist” etc.)

8. You expressed your mistrust with the so called "return to normalcy" in the USA, popular now that the Trump era is coming to an end. Why?

I think that Biden might wish to return to “normalcy”, understood as a Clinton-Obama type of government. But one has to realize that such presidencies, especially under Clinton, were synonymous with the roll-back of the welfare state, decline of the middle class, and rising economic and political power of the top 1 percent. This in turn would bring back the very conditions that have given rise to Trump. A much cleaner break with the past is, I think,  necessary. But the issue is whether the new administration will be willing to do it and perhaps even more whether the Congress would let it do it. American presidents, looked on from abroad, seem like elected kings because their power in some foreign policy aspects is indeed great. But in domestic policies they are much more constrained. So I am not very optimistic.   

 

Impatience: a deep cause of Western failure in handling the pandemic?

 In  October 2019, Johns Hopkins University and the Economist Intelligence Unit published the  Global Epidemic Preparedness Report (Global Health Security Report). Never was a report on an important global topic better timed. And never was it more wrong.

The report argued that the best prepared countries are the following three: the US (in reality, the covid outcome, as of mid-December 2020, was almost 1000 deaths per million), UK (the same), and the Netherlands (almost 600). Vietnam was ranked No. 50 (while its current covid fatalities per million are 0.4), China was ranked 51^st (covid fatalities are 3 per million), Japan was ranked 21st (20). Indonesia (deaths: 69 per million) and Italy (almost 1100 deaths per million) were ranked the same; Singapore (5 deaths per million) and Ireland (428 deaths per million) were ranked next to each other. People who were presumably most qualified to figure out how to be best prepared for a pandemic have colossally failed.

Their mistake confirms how unexpected and difficult it is to explain the debacle of Western countries (where I include not only the US and Europe, but also Russia and Latin America) in the handling of the pandemic. There was no shortage of possible explanations produced ever since the failure became obvious: incompetent governments (especially Trump), administrative confusion, “civil liberties”, initial underestimation of the danger, dependence on imports of PPE…The debate will continue for years. To use a military analogy: the covid debacle is like the French debacle in 1940. If one looks at any objective criteria (number of soldiers, quality of equipment, mobilization effort), the French defeat should have never happened. Similarly, if one looks at the objective criteria regarding covid, as the October report indeed did, the death rates in the US, Italy or UK are simply impossible to explain: neither by the number of doctors or nurses per capita, by health expenditure, by the education level of the population, by total income, by quality of hospitals…

The failure is most starkly seen when contrasted with East Asian countries which, whether democratic or authoritarian, have had outcomes that are not moderately but several orders of magnitude superior to those of Western countries. How was this possible? People have argued that it might be due to Asian countries’ prior exposure to epidemics like SARS, or Asian collectivism as opposed to Western individualism.

I would like to propose another deeper cause of the debacle. It is a soft cause. It is a speculation. It cannot be proven empirically. It has never been measured and perhaps it is impossible to measure with any degree of exactness. That explanation is impatience.

When one looks at Western countries’ reaction to the pandemic, one is struck by its stop-and-go character. Lockdown measures were imposed, often reluctantly, in the Spring when the epidemic seemed to be at the peak, just to be released as soon as there was an improvement. The improvement was perceived by the public as the end of the epidemic. The governments were happy to participate in that self-deception. Then, in the Fall, the epidemic came back with vengeance, and again the tough measures were imposed half-heartedly, under pressure, and with the (already once-chastened) hope that they could be rescinded for the holidays.  

Why did not governments and the public go from the beginning for strong measures whose objective would not have been merely to “flatten the curve” but to either eradicate the virus or drive it out to such an extent, as it was done in East Asia, so that only sporadic bursts might remain? Those flare ups could be dealt again using drastic measures as in June when Beijing closed its largest open market, supplying several million people, after a few cases of covid were linked to it.

The public, and thus I think, the governments were unwilling to take the East Asian approach to the pandemic because of a culture of impatience, of desire to quickly solve all problems, to bear only very limited costs. That delusion however did not work with covid.

I think that impatience can be related to ideologies and corresponding policies that have erected economic success, ideally achieved as fast as possible (“make a quick buck”), as the most worthy objective in one’s life. It is reflected in the role that financialization had in the UK and the United States at first, but then spread elsewhere. Unlike a slow and patient effort to build things, financialization often relies on “tricks”, as shown before and during the 2007-08 financial meltdown. Its main driving force is cleverness and speed, not endurance and constancy. We crave quick success and what is quicker than becoming rich through a financial manipulation?

Impatience is also seen in huge household indebtedness, especially in the United States. A median-income household in Thailand and China saves almost a third of its income. A much richer median-income household in the United States often has negative savings. This is entirely unexpected from an economic point of view: richer households are supposed to save more (as percentage of their income and of course in absolute amounts).

Dissaving is just another way of saying that today’s consumption is vastly preferred  to tomorrow’s. This in turn shows what economists call “pure time preference”—a preference for now as such, even when one can fully account for the uncertainty about the future. Between two equally certain consumptions, one today, another tomorrow, people seem to much prefer today’s. Pure time preference is nothing else but impatience.

Kafka in his Diaries writes that there are two cardinal vices from which all others vices derive: impatience and laziness. But since laziness springs from impatience, he writes, there is really only one: impatience. Perhaps it is time to look at it.

Portrait of the philosopher as a young man: the first volume of Michael Heinrich’s biography of Marx

 

 Michael Heinrich’s projected biography of Marx that is supposed to consist of four volumes is an extraordinary ambitious undertaking. Only the first volume “Karl Marx and the Birth of Modern Society” has been published so far. It covers the years before Marx’s birth (because it deals with his parents) and goes up to his doctoral dissertation done in 1841, when he was 23.

The biography is extraordinary ambitious for three reasons.

First, Heinrich’s work is so detailed that it seems that almost nothing that Marx or his correspondents have written had escaped his attention. He is, of course, helped in this by the enormous collections of MEGA and MEW that were publishing for years everything from Marx’s youthful poems to his enormous reading notes. (As Heinrich writes, Marx’s surviving reading notes, that he started making when he was around 17, comprise 40 volumes!).

Second, Heinrich seems to have read closely all the previous biographies of Marx and is often very severe in his judgment, especially of the two recent ones by Gareth Steedman Jones (“Greatness and Illusion”) and Jonathan Sterber (“A Nineteenth Century Life”). As Heinrich points out, the problem is that many biographers rely on what earlier biographers have written (Franz Mehring’s Marx biography written in 1918 was especially influential)  and they simply copy things without checking. For Heinrich, this would not do—so in a number of cases he takes earlier biographers to task for being compilers of the copy-and-paste type rather than researchers.

Finally, and most impressively, Heinrich’s objective is to explain Marx’s lifelong intellectual journey This means that for a person with such vast interests and voracious intellectual appetite like Marx, Heinrich needs to provide intellectual history of “everything” from German Romantic poetry to Prussian state ideology to philosophy of religion to post-Aristotelian Greek philosophy (and this in book 1 only). One shudders to think of the enormity of the task in the next three volumes. Thus, the book begins increasingly to look more like the intellectual and political history of the 19^th century Western Europe and Prussia than a biography of Marx.

But this is needed to understand the evolution of Marx’s thinking. While these intellectual movements are in most biographies dismissed in a couple of paragraphs, or at best in a page or two, in Heinrich they are of essays-like lengths. For example, parts of Hegel’s philosophy, the split into the “Young Hegelians” and “Old Hegelians’ (the traditional split of whose accuracy Heinrich is not fully convinced), the philosophy of religion derived from Hegel and the various  theological battles within Prussian Protestantism and between Protestantism and Catholicism are discussed at some 40-50 pages. Add to that the political implications of these seemingly abstruse and turgid metaphysical arguments, and we are in the thicket of the intellectual-political history of Prussia after the 1830 French Revolution and the dynastic succession in Prussia herself. Karl Marx hardly makes an appearance in these pages—but the objective is clear: we cannot understand Marx’s writings without understanding the discussions he was engaged in at the time.

Depending on one’s intellectual taste, some of these ideological currents may be of more or less interest: is one more interested in German poetic romanticism, folk tales, brothers Grimm, Heine, or in Hegel’s Phenomenology of Spirit, “natural theology”, and the various interpretations of the Old and New Testament?  Other than giving to the reader the idea of the breadth of Heinrich’s coverage I will not discuss any of these intellectual movements simply because my knowledge of them is inadequate.

So I would focus on two things which have to do with Marx’s life and intellectual evolution.

Marx’s father (Heinrich) plays an important and admirable role. His treatment of precocious and somewhat egotistic (as the father mentions twice) Karl as an equal, with whom at an early age he is engaged in many intellectual discussions, is exemplary. There are very few as supportive and generous fathers. Equally impressive are father’s leniency and patience (despite a couple of small conflicts) toward Karl during his studies in Bonn and Berlin, when Karl at times wrote home infrequently, took only the classes that he was interested in (“If you have leisure…I shall be glad if you could draw up for me a concise plan of positive legal studies that you will have gone through the year”; p. 201), and kept on spending significant amounts of money. At one point, Karl’s expenses amounted to ½ of Heinrich Marx’s not inconsiderable lawyerly income (p. 216). (Heinrich Marx was one of Trier’s top lawyers).  

The situation for Heinrich Marx became even more fraught because Karl was engaged, at first secretly and then openly, to the daughter (Jenny von Westphalen) of a close family friend.  She was four years older (big age difference in those days), her commitment to Karl was serious (she broke off the previous engagement), and she placed her full trust into a 21-year old who went to study in a big city, while she stayed at her parental home (women were not admitted to universities).

Not surprisingly somewhat fearful Heinrich Marx writes to his son: “She is devoted to you body and soul and you must never forget it; at her age she is making a sacrifice that ordinary girls would certainly not be capable of” (p. 198). Obviously had Karl changed his mind, the likelihood of Jenny, despite her good family connection, of finding another suitable husband –whom in principle she also needed to love—at the age of 27 would have been severely diminished.

There is only one point where I thought one could have a slightly different interpretation that Heinrich. In explaining Marx’s evolution from his Abitur (17 years old) to poetry-writing to his “conversion” to philosophy, Heinrich, unlike other authors, draws a straight line. While other biographers think that Marx abandoned poetry simply because he realized that he was not a good poet, Heinrich has an alternative explanation.

In his Abitur essay Marx sees the ideal future occupation for a young man (like himself) as contributing to the happiness of others: “Man’s nature is so constituted that he can attain his perfection only by working for the perfection, for the good, of his fellow-men. If he works only for himself he may perhaps become a famous man of learning, a great sage, an excellent poet, but he can never be a perfect, truly great man” (p. 107). Heinrich thinks that Marx original interest in poetry was propelled by the same desire: making the world better through artistic creation. But as he realized that this falls short of transforming people’s lives, he gradually transited towards the more serious field of philosophy.

I wonder however if Heinrich, despite Marx’s undoubtful brilliance, overestimates consistency of thinking in a 17- or 18-year old. It could be that Karl picked up poetry for the same reason that many young people at that age have an urge to express themselves in romantic terms, especially if they fall in love and feel the need to send tokens of their admiration  to their beloved (as Marx did by  repeatedly sending his poems to Jenny). It may not have had much to do with betterment of humankind.

Around the same time, in his first two years of Berlin studies, Marx was influenced  by a famous legal scholar Eduard Gans who as a liberal was the main opponent of the ultra-conservative legalist Friedrich Carl von Savigny. A couple of sentences from Gans, contrasting historical roles of the haves and the have-nots, read like excerpts from “The Communist Manifesto”. Heinrich accepts Gans role in Marx’s evolution, but dismisses its “lasting influence” (p. 172). However, it is noticeable, although Heinrich does not mention it, that among the list of classes taken by Marx in Berlin, apparently the only professor whose classes he took twice (Criminal Law and Prussian Law) is Gans. In addition, these were the only classes where his grade  was “exceptionally diligent” (pp. 170; 211).

One is looking forward to the other three volumes. If they are like the first, it will be an incredible “tour de force” since Heinrich will have to cover everything  from philosophy to political science to political economy to agricultural techniques to military strategy to anarchism—and indeed the political history of the 19^th century Europe and the world. A gigantic undertaking that only very few people in the world can bring to fruition.

Marx was one of them. But he failed to write his autobiography.

Basic difference between wage inequality and income inequality studies

 I recently wrote in the anticipation of the arguments I will make in my forthcoming book that the period 1970-2000 was extraordinary barren in Western economic studies of inequality. It was similarly empty as regards inequality studies in communist economies. Only in Latin America was the situation different.

Some people objected to this by pointing to a significant number of wage inequalities papers produced in the US and elsewhere. There are indeed many them.  There is also a very successful book by Claudia Goldin and Lawrence Katz  “The race between education and technology” that takes its cue from Tinbergen’s 1970s writing on the education premium and his expectation that the premium to college education would go down to zero due to a high supply of university-educated people. It is not my topic here to discuss why this did not happen, or rather why the opposite, the increase in returns to education, occurred in the United States and elsewhere. What I want to show is that studies of wage inequality cannot be taken as equivalent to what we ideally expect from the work on income inequality. There are two reasons for this: technical and ideological.

Let me start with the technical. When we observe, for example, an increase in wage inequality and calculate all relevant statistics, whether it is driven by increased wage inequality among women or men, Blacks or Whites, more educated or less educated, we still know nothing about household formation. It could be that high-wage workers marry low-wage workers or the reverse. Or that they marry capital-owners or the unemployed or people outside the labor force. Or that many wage-earners do not partner at all. Each of these possibilities has significant and very different implications; yet they are, by the very nature of the topic, entirely unaddressed. The units in wage inequalities studies are different from units in income inequality studies: individual workers vs. households (I will explain below why this is of crucial importance).

Additionally, wage studies leave out large chunks of what makes inequality: they leave out “income without work” which comes from property (dividends, interest, rents), capital gains and losses, and the entire system of redistribution through direct taxation and government cash and in-kind transfers (e.g. Social Security benefits and SNAP, formerly known as food stamps, in the United States). They also leave out self-employment income, home consumption (i.e. own produced and consumed goods and services), and imputed income from housing, all items of crucial importance in middle-income countries. Wage inequality studies are even of lesser relevance for poor countries where formal wages often represent 1/3  of total income.  

In other words, wage inequality studies deal with the distribution of income from one factor of production (labor) among wage-earners—which is indeed important—but ignores everything else: (1) the other factors of production, capital and land, which because of their concentration among the rich are often the most important determinant of inequality, (2) the entire system of government redistribution, (3) self-employment income and home consumption, and (4)  family formation.

But the principal problem is that they miss why we care about inequality in the first place. Inequality is created and reproduced at the level of household not at the level of individual wage-earner. It is total household income, adjusted for the number of individuals, that makes families rich, poor, or middle class and imparts them corresponding values. The socialization is done within households not within (whatever it may mean) individual wage-earners. It is the processes of mating, household formation, as well as contribution of other sources of income that create rich or poor households, social classes, and most importantly, by differentiating opportunities at birth, allow for the reproduction of social inequities.

We study inequality because we care about social classes and their ability to transmit advantages across generations and create self-sustaining “aristocracies”. The concern with returns to schooling is surely one of the issues, but far from the most important. (The importance of wage studies is greatest in matters such as union premium or determination of CEO pay.)  People who care about inequality are equally concerned about social factors that make access to education uneven as about the fact that the returns to schooling may go up.  

Wage inequality studies belong to the area of labor economics. It is an important, but subsidiarity, field to inequality studies. Their position is similar to that of wage studies as affected by trade. The latter belong to trade economics, not to inequality studies.

Conflating studies of wages, whether from labor or trade economics, with studies of inequality is not only inaccurate. It displays a profound incomprehension of why we care about inequality and what is the real objective of such work: figuring out the fundamental determinants of class structure and its effects on politics, behavior and values, and transmission of such characteristics across generations.

Tony Atkinson in his 1975 “The Economics of Inequality” did not survey Tinbergen's wage inequality work. In his 1997 review article, he wrote: “It is indeed striking how much the recent discussion has focused exclusively on wage differentials and not asked whether such differences are associated with [income] inequality” (Economic Journal, 1997, p. 311).  Rawls likewise thought that while inequality has to be limited both in terms of capital and labor incomes, the key concern ought to be with inequality of overall income and household-driven reproduction of such inequality.

It is important that the logic and the objectives of inequality studies be correctly understood. Such studies are at the intersection of economics, politics and sociology, and perhaps anthropology.  Not understanding it correctly is likely to lead to many mistakes.