On global inequality, China's rise, the war in Ukraine: My conversation with "Atlantico"

 What is your take on the riots that are going on in France at the moment?  

To be completely honest, I don't have a full understanding of the situation. However, upon superficially examining the available French data, it doesn't appear that income inequality is increasing in France. This observation holds true not only for the past five years but also for the last three decades. Therefore, I don't believe that there is a straightforward explanation, such as a rise in the Gini coefficient, or the top 1%, that is sufficient to account for the occurrence of riots. It seems that the French perspective on this matter emphasizes local issues. It's worth noting that these riots are not an isolated incident but rather a recurring phenomenon that has persisted for a considerable period, spanning several years ago. There were also other recent protests sparked by events such as the pension reform. Consequently, it is plausible that there exist underlying and deeply rooted problems that extend beyond the scope of simple inequality measurements. 

Doesn’t that raise the question the feeling of inequality in a society, and especially when it is mixed with identity issues and anxieties? 

Yes, I believe so. I have a French friend who, for a period, pursued a political career in a suburb near Paris. He described to me a world that is vastly different from the urban environment of Paris that tourists like myself and others tend to experience. Therefore, it is plausible, as you mentioned, that the perception of exclusion plays a significant role. I have come across discussions on Twitter that suggest a certain "Americanization" of the issues, which, to some extent, I believe holds true. Both situations (the American in 2020 and the current French) involve problems related to identity and exclusion. However, I must emphasize that these insights are purely observational, of an outsider. To be honest, I was genuinely taken aback by the abruptness and the considerable level of violence exhibited during the riots. 

You've republished on Twitter some data you have on the Gini coefficient and inequality measurement in former Yugoslav republics. What do you think it can teach us about the past and the present situation ? 

You know, let me take a moment to explain my background. Many years ago, I worked on my dissertation, which focused on inequality in Yugoslavia. However, that was back in 1987. In hindsight, I made a mistake during that research. The household survey data I used dated back to the 1960s and followed two different principles of organization. They provided data at the republican level, with four social groups within each republic: urban population, rural population, mixed, and pensioners. Being a materialistic historian with Marxist leanings, I completely disregarded the republican levels and focused solely on the Yugoslav overall level for my entire dissertation. But the republican level turned out to be politically much more salient, and even then I did observe some issues. If you looked at a wealthy republic like Slovenia, everyone tended to fall into the top five income brackets (out of 10 given). Conversely, in a very poor province, such as Kosovo, the population was predominantly in the bottom five brackets. These observations stuck with me, and I thought that I should have organized my research differently.  

Recently, I stumbled upon a Twitter discussion about the convergence of Soviet republics, which piqued my interest. I decided to examine GDP data and compare it to the numbers I had from the household surveys. I was surprised to discover significant differences within the Soviet Union, approximately 2 to 1 between the top and bottom republics.  

Can it tell us something about the past trajectories of the countries or the future? 

More about the past rather than the future—a reflection of the challenges involved in sustaining countries with large income differences that stem from geographical differences in income: specific regions being richer and also exhibiting limited geographical mobility. Additionally, historical, cultural, and religious factors also contribute to these disparities. In contrast, when examining Spain, I found the differences between the top and bottom provinces to be around 1.5 to 1. Clearly, sustaining as unified country the one with 5-1 difference as in Yugoslavia in the 1980s is much harder than if the maximum gap is 1.5-1 as in Spain. 

However, I don't believe these observations can provide us with a comprehensive understanding of the present because these former republics have now become independent countries. As a result, they are more homogeneous in terms of ethnicity, religion, and income. This is a crucial distinction—the countries have evolved to become more internally cohesive. 

Do you think that at some extent, the war in Ukraine and Russia has something to do with Inequalities and the evolution of inequalities? 

Not quite. I actually had a blog where I explored four different theories regarding the conflict. The theory that I personally find most plausible, though it doesn't provide a direct explanation for the timing of the war, relates to the long-term effects of the socialist system and its single-party structure. Each republic had its own branch within the single party that governed the republic. Over time, in order to secure legitimacy, the leaders of these republican branches embraced and supported nationalist agendas. This would have been more challenging under a multi-party system, as different parties would represent various political ideologies. However, in this case, the leaders within the single party increasingly adopted nationalist stances. Consequently, even during the breakup of the Soviet Union, you had nationalist parties effectively governing each of the different republics, Ukraine included and even Russia that, under Yeltsin, actively pressed  for the break up of the Union. Therefore, I believe that nationalism was inherently embedded in the system, contrary to the expectations of its creators. Putin has later exacerbated this nationalist or perhaps imperialist tendency. While the theory offers insight into the long-term dynamics, it doesn't directly explain the specific outbreak of war on February 24, 2022. 

Is there any link to be made between an emerging nationalism or feeling of anger, and the inequality level in a country? 

I must admit that it is a challenging question to answer. The available data alone cannot provide a clear understanding, and while researchers have explored the perception of inequality, it remains difficult for me to make a definitive statement. However, if we consider specific examples, we can observe varying trends. For instance, Russia has experienced a decline in inequality over the past decade. On the other hand, Ukraine presents an intriguing case. Despite the perception of high inequality, the household survey data, although possibly imperfect, indicate relatively low levels of inequality in the country. This outcome wouldn't be entirely surprising if the concentration of inequality was primarily at the very top, beyond the 1% threshold, say within the 0.1% or 0.01%. Such disparities may not be adequately captured by synthetic measures. While this response may not directly address your question, it highlights the complexity involved. In essence, it remains a challenging question to answer definitively, and I don't have a conclusive response. 

Your work shows that global inequalities are tending to fall, and that even within countries, the trend is not necessarily upwards. Yet the subject of inequality has become particularly central in developed countries, almost obsessive. How can we explain this paradox? To what extent has this subject been instrumentalized?

I think one has to realize that there is a significant time lag between first, the changes in inequality, second, the knowledge of these changes among the researchers, and third, the spreading of that information among the general pubic. For example, in most Western countries inequalities increased from the 1980s or 1990s until the first decade of the 21^st century, but the full realization of this happened only with the financial crisis and middle class income difficulties. Now I think we may be undergoing a reverse evolution. In the United States, Germany, Japan and France, the level of income inequality has been stable (with small annual fluctuations) for at least a decade. In the UK, inequality has declined from its early 2000s peaks. But once people's attention has been turned to inequality, it is, I think, difficult to forget about it even when it is stable. In fact, it could be stable but still found by many to be too high. Or, it could be, as I mentioned before, that significant time has to elapse until people's perceptions change.        

To what extent has it also become an issue between different countries or geopolitical blocs? Is inequality a power issue ?

I am not sure that it is a power issue because I do not see that there are marked differences in inequality between the currently politically competing models. China is actually more unequal (in terms of income distribution) than the United States. It is not credible to claim that political capitalism tends to produce more equal outcome. Or if one takes Russia which now, at least officially, claims to defend different values than the West, lower inequality is certainly not among them since the country is exceedingly unequal in terms of power, income ad wealth distrbutions. The war, as reflected in the origin and background of people who have been conscripted to fight it, must have only deepened income and existential inequalties. 

You recently published a piece in Foreign Affairs about the great convergence. What do you mean by this great convergence?  

Okay, well, that's a more straightforward question since it is based on empirical data! In the past few decades, primarily due to China's economic growth but also due to the progress of other countries, global income levels have risen significantly. China, for instance, achieved an annual per capita growth rate of around 8.5% over a span of 40 years. This growth, coupled with the economic progress in Asia and other countries with large populations, had two noteworthy effects. 

Firstly, it resulted in a substantial decline in global inequality, marking a significant departure from the trends of the past two centuries. This outcome is rather evident if we consider a hypothetical example, using a country like France. In such a scenario, if relatively poorer individuals experienced a 10% income growth while relatively wealthier individuals saw a 2% growth, it would naturally lead to a reduction in inequality. The same is true globally. However, it's worth noting that despite this decline, China itself witnessed a rise in internal inequality, which was also observed in countries like the US, India, Russia, and the UK. Hence, the national increases served as a counterbalance, albeit not strong enough to outweigh the overall global inequality decrease due to high growth rates in Asia. 

The second effect of this decline in global inequality was the reshuffling of positions among individuals. In other words, people from countries such as China or India suddenly found themselves becoming part of the top 10% globally, while middle or lower-middle classes from rich countries were pushed lower in the global pecking order. This shift in relative positions can lead to various political and socio-economic implications, particularly for those in the middle class in wealthier countries. Some individuals in Western affluent nations may experience a decline in their relative global standing, even if their real incomes continue to increase by 1% or 2% annually. These are two distinct but interconnected aspects stemming from the same underlying reasons. 

To conclude, it's important to recognize that when people hear about a decline in global inequality, they often express support for such a trend. However, it becomes more challenging when they realize that it also implies a decline in the global rankings of the middle class in the United States, France, or the UK. Even if their actual incomes continue to rise, this aspect can be politically sensitive. Nonetheless, it's crucial to understand that these two facets cannot be separated from each other. 

How do we manage to deal politically with such a paradox ?  

I believe that politically, this is a complex issue. It's crucial to be cautious with language and emphasize that when we talk about a decline, it's a relative decline. In other words, it means that one's position is decreasing compared to others, even if one's real purchasing power is still improving, But of course at a slower rate than that of others. And eventually they will be overtaken. However, some argue that it doesn't matter because people measure themselves against their immediate surroundings, their friends, and acquaintances. While this may be true, there are certain globally priced goods that middle-class individuals in Western countries may find increasingly challenging to afford and acquire. For example, attending events like the World Cup in Qatar or vacations in Asia, which can be incredibly expensive. These changes can impact the middle class and its ability to access certain experiences. 

I understand your political question, and it is indeed not easy to explain or disregard the concerns of Western middle classes. Striking a balance between, on the one hand, advocating for the reduction of global income inequality and lesser global inequality of opportunity, and on the other, the reshuffling of global income positions that I just explained is indeed politically very challenging.  

Reflecting on your question, Adam Smith's perspective in "The Wealth of Nations" sheds some light on the matter. He compared England and France, noting that France had a larger population than England or Scotland. From a purely humanistic standpoint, one might argue that improving incomes in France is more important because it affects more people. However, Smith observed that an Englishman or Scotsman who prioritizes the well-being of another nation rather than his own would be considered a poor patriot.  This presents a fundamental dilemma, and we don't have a definitive answer to it. We find ourselves caught between a cosmopolitan view that desires prosperity for all and a concern for our own income positions. Resolving this dilemma is far from easy. 

Yet greater equality global equality is not inevitable. Does that mean that  some perhaps may not want that greater global equality? 

That's a valid perspective to take: a national position that prioritize the well-being and position of one's own country and people in the global income distribution. It's important for individuals to clearly express and stand by their beliefs clearly, rather than claiming to be globalist or cosmopolitan while holding a nationalistic stance. It is politically legitimate stance regardless of whether we agree with it or not. 

Regarding the future, we can observe that as China has achieved significant economic growth and development, it no longer serves as the primary engine driving global inequality reduction. In fact, China's growth may contribute to global inequality as it outpaces countries like India, Nigeria, and Sudan. However, this doesn't address the second problem we identified, which is that China will continue to move towards income levels historically associated with European and American populations. 

In terms of global inequality decline, the situation will depend in the future on the trajectory of other regions, particularly Africa. Africa is expected to experience a population increase throughout this century, making it the only continent with a growing population. If Africa does not achieve high growth rates, the decline in global inequality may be hindered. In my extensive article, which is similar to the  Foreign Affairs piece, I highlight the necessity of very high growth rates in Africa. A per capita growth of 5% per year, along with an additional 2-3% due to population growth, would be required to achieve substantial progress. Achieving 8% real growth for several decades is not easy, to say the least, and if we look at the past 50 years of African growth, we cannot be optimistic. 

Do you believe that the fact that China grew that wealthy in such a short amount of years explains at some point its current behaviour and its aggressivity?  

These are indeed complex and challenging questions. Personally, I don't view China as an aggressive power. However, I do recognize that China's growing economic and military strength has given it a sense of increased confidence and influence. Technologically, China has made significant advancements and has a more prominent global presence. It is unrealistic to expect China to retreat to its previous position from the 19th century when it was subjected to colonization by various European powers and Japan. Economic growth tends to enhance a country's self-assurance and may lead to behaviours that others perceive as aggressive or arrogant. This pattern is not unique to China; many countries throughout history, such as the United Kingdom, France, Spain, the United States, and the Soviet Union, have demonstrated different behaviours when they felt strong and influential. However, I must emphasize that my knowledge in this area is limited, and the subject is primarily political in nature. 

Why are you so prudent on how global inequalities could evolve ?  

Indeed, caution and prudence are warranted in assessing the current global situation. Several factors contribute to the uncertainty we face. Firstly, the impact of the COVID-19 pandemic has left a lasting imprint that will take time to fully comprehend. While it may eventually subside, its consequences will linger for a while.  

Additionally, two major crises further complicate the picture. The first is the complex and unpredictable relationship between the United States, the Western world, and China. In the worst-case scenario, this could potentially escalate into a war, while in a less severe scenario, it may lead to a trade war with profound implications for technological development of both sides, China's global relations, and its economic growth. Furthermore, China's investments in Africa could be affected, influencing that region's economic trajectory too. 

The second crisis involves the situation between Russia and Ukraine, which adds another layer of uncertainty. Although the populations of Russia and Ukraine alone may not significantly impact global inequality when considered on a global scale, if the conflict were to spread to Europe and potentially escalate into a nuclear war, the consequences would be catastrophic. In such a scenario, discussions about global inequality becomes irrelevant. 

There is also intensifying climate change whose effects too are complex and difficult to predict. 

Given these intricate and unpredictable circumstances, it is challenging for anyone to accurately forecast the world's state in the next five years. Those who claim to possess such foresight are likely deceiving themselves. The multitude of factors at play and their potential evolution make it impossible to definitively predict the future. 

How do we navigate economically ? 

The challenges faced by individual countries are indeed specific to their economic policies and circumstances. Each country must adapt and adjust to various shocks and disruptions. For instance, the war in Ukraine and the impact of reduction in imports of Russian gas and oil had significant repercussions for Europe. However, Europe managed to navigate through these challenges and make necessary adjustments, as evidenced by the relatively uneventful winter last year. 

Nevertheless, my concern lies in the growing number of shocks that countries are now confronted with. Returning to our earlier discussion, Western Europe, and Europe as a whole, is experiencing multiple shocks simultaneously. These include the consequences of the war, energy-related issues, climate change impact, and the increasing unpredictability of weather patterns. Additionally, social unrest and protests have become more frequent. The cumulative effect of these shocks can place immense strain on a system's ability to effectively manage and address them. 

What did you think of the initiative for a global financing pact?  

If that favors increasing cashflows, I’ll consider it a positive thing. But I have some concerns regarding the increasing role of private individuals, funds, and foundations in shaping agendas and decision-making processes. It is indeed notable that actions that were traditionally undertaken by states and international organizations are now being influenced by wealthy individuals and their foundations.  This situation reflects the plutocratic nature of our world, where a concentration of wealth can lead to significant influence and decision-making power. 

For instance, as someone who has worked at the World Bank, I witnessed firsthand how the Gates Foundation, due to its substantial funding, had a considerable say in determining the research priorities and activities of the institution. While this may be seen as a means to increase the flow of resources, it also raises questions about the concentration of power and the potential impact on impartiality and broader societal interests. 

In summary, while it is desirable to increase the flow of resources for impactful initiatives, we should be cautious about the influence of the wealthy on research agendas and decision-making, and strive for a more balanced and equitable distribution of power and influence in our societies. 

 It would make more sense to me if countries were to tax the rich, take that money and decide how to give it to Africa, rather than letting the rich tell the states how it should be done. I don't dispute their good intentions, but they're certainly not the ones who should have the power to decide whether one should, build stadiums, do vaccination or bring drinkable water. I simply don't think they are the ones who should be making those decisions. 

Link to the Frech version of the interview is here.

Equality based on exclusion

             The ideological history of the idea of equality (“Equality: The History of an Elusive Idea”) is an ambitious, erudite and well-written book by Darrin M. McMahon. In eleven chronological chapters McMahon shows how societies as diverse as hunter-gatherers, Greeks and Romans, early and medieval Western Christians, French revolutionaries etc. and ultimately the partisans of identity politics have thought of equality. (Not inequality, the term that has, as McMahon reminds us, become ubiquitous, but equality.) Not all chapters are equal though. In my opinion, the best are on the American and French revolutions, and the concluding chapter on US civil rights movements and today’s politics of identity. The concluding chapter is indeed about the United States only, and as it stands for today’s world in general, it could be thought as somewhat reductonist. However, the two big themes faced by the American society in the past half-century, the rights of Black population or “people of color” and identity politics, transcend US limits, as the French riots attest for the former and Putin’s vociferous attacks on sexually-based identities on the latter.

            The motif of the book is, I think, best expressed in the phraseology of (not popular, but recently much more quoted) Carl Schmitt: every ideology of equality among the “brothers” or “peers” is predicated on the exclusion of others from that equality. This is a fundamental contradiction in the idea of equality as we know it historically. Athens and Sparta insisted on equality among their citizens, but excluded enslaved people, metecs (resident foreigners) and women. It was an equality that, at most, encompassed a third of the population. Christians, like all monotheistic co-religionaires excluded from the application of their equality members of other religions. The American revolutionaries wrote that all men are created equal, but they really meant men only, and defined that equality in the opposition to the enslaved people. In percentage terms, the reach of the American equality was not greater than the Athenian. The French revolutionaries were more universal in their approach, but gave only a grudging recognition of equality to the colonized. Marxism is keen on equality among proletarians, but excludes “bourgeoisie”, and in its Maoist variant during the Cultural Revolution, created the most radical reversal by openly discriminating people from the “bad” social classes, and promoting (including in the access to education) those from the formally oppressed classes.

            As this review shows, equality went together with exclusion. Often, the more equality among one group was emphasized, the stronger was the implied chasm with the excluded. Before I move to discuss two, in my opinion, most interesting issues raised by McMahon, let me mention that McMahon’s several comments on Marxism’s lack of concern with equality (as opposed to its interest in abolition of classes) is not a controversial point. McMahon at times seems to believe so, but his interpretation is accurate, non-controversial, and shared by most who have read Marx and Engels. Similarly, I think that few people who know Fascist ideology would be surprised by its emphasis on national equality. It was supposed to solve the class conflict, to unify national labor and national capital, to divide one nation from another, and thus its within-national calls to equality are not surprising.

            The two most interesting aspects, in my opinion, are identity politics and (what is missing in McMahon’s book almost entirely) the contrast between national and global equality. But are present-day issues.

            Identify politics in McMahon telling comes at the heels of the civil rights movement in the United States. That movement too, in its extreme version propagated by Stokely Carmichael, Malcolm X and “Black Power”, as they outflanked Martin Luther King, could be seen within the same motif as the rest of the ideologies discussed in the book: the Whites were now excluded from the application of the equality principle, thus creating a reverse racism or (in Sartre’s words) “anti-racial racism”. But the civil rights movement also opened the gap with Black women who saw some of the movement’s leaders as imbued with machismo and “male chauvinism”. White women themselves have had a historically fraught relationship with Blacks’ emancipation; as McMahon mentions, Susan B. Anthony thought it was much more important that (White) women be enfranchised than that the rights be extended to Blacks. But men/women, Blacks/Whites are not homogeneous among themselves once sexual differences are brought into the play. Thus, somewhat paradoxically, the movement for equality not only led to the fragmentation of society into many groups, working at times at cross-purposes, but to the emphasis on differences. “To insist at difference as the very meaning of equality [is] in the long-run of egalitarian reflection a novel claim”, as McMahon discreetly observes. The struggle for equality that does not underscore some fundamental equality, or even sameness, among people but rather their differences is not common, to say the least. One can paper over this by arguing that all current movements just ask for recognition of specificity and equal treatment. But at what point does the insistence on differences, and even incommunicability of experiences, becomes exactly what we have seen before: insistence on equality within by creating an ever-greater divide from the rest?

            My second comment has to do with what is, with a few exceptions, absent in McMahon’s book. It is the change in perspective when one moves from claims for national to claims for global equality. McMahon mentions how the two were linked in the US civil rights movement, and how the New International Economic Order tried (and failed) to equalize the power of rich and poor nations. But it might have been worth discussing a bit more the change in perspective brought about by globalization. Consider equality of opportunity. There is probably no ideology today that would be against equality of opportunity within a nation-state. But extend that call for equality of opportunity to the global level and the problems immediately arise. If the “same” persons in Sweden and Zimbabwe face entirely different life prospects (in terms of income, wealth accumulation, housing, life expectancy etc.), and if the main reason for this lack of equality is the difference in mean incomes between the nations, there are two obvious ways to remedy this state of affairs: transfer more money from rich to poor countries (a global welfarist approach as envisaged by Gunnar Myrdal) or open borders to migration. Neither enjoys a majoritarian support in rich countries. It then becomes interesting to ask on what grounds people who often strongly support equality of opportunity, exclude from its application people who do not reside in their country? We see there the same mechanism as many times in history: the greater the desire for equality amongst the peers, the greater the need to exclude others. It then becomes fully understandable why  countries with the most developed welfare states (Sweden, Denmark Norway, the Netherlands) are the most notable examples of the ideological U-turn on international migration.

            I have taken the last topic to show how McMahon motif plays well in contemporary situations even in cases where ideologically the issue has not been fully developed. McMahon’s (or Carl Schmitt’s) approach thus shows its obvious advantages, but it also leads us to a less upbeat conclusion: unlike the oft-quoted “long arc of  history" that allegedly bends toward “justice” (meaning equality), the outcome may be greater equalities in some areas and the creation of greater chasms between people in other areas. This is what history seems to teach us.

The new colonialism, or how some countries have lost self-respect

 There is a news items today that, in simply reaffirming in an extreme form what was happening in the past thirty years, struck me. The Prime Ministers of the Netherlands and Luxembourg, presumably on behalf of the European Union, visited Serbia (before going to Kosovo) for less than 24 hours. They were received with the highest state-level honors, which by themselves were over-the-top because neither of them is the head of state. In addition, during their super short  visit to Belgrade, they found enough time to have separate meetings with the representatives of the Serbian opposition (sitting in the Parliament in Belgrade) who are currently demonstrating in the streets, asking, in my opinion, quite legitimately for government’s much more serious crackdown on violence and crime.

Notice how Prime Ministers of Western countries checking things out with the domestic opposition seems like a normal news item. But then, let’s unroll it. There is an official state-to-state visit, and the representatives of the visiting state believe it was necessary to consult also the domestic opposition. The first problem is whether it is appropriate to mix up state-to-state visit with the rest of politics. When countries’ dignitaries visit each other, they do not necessarily imply thereby that they agree with everything their hosts believe, nor that they support the government which receives them. They are there to talk about mutual economic and political interests with whatever government is in control of that particular piece of land. When the new and different government comes, they would be equally happy to speak with it. This is a simple and normal rule of international politics.

Let’s go further. If it is okay for the Dutch and Luxembourgeois Prime Ministers to talk to the Serbian opposition (while being there for twelve hours), would it be acceptable if, in a return visit, the Serbian President met with the Dutch and Luxembourgois oppositions? If you believe that there is no reason for that because the Dutch and Luxembourgois opposition is not currently protesting in the streets, could we then wonder if, on his next trip to France, the President of Serbia could ask to meet with the “discontents” who are currently, very obviously, protesting in the cities of France? Or with the opponents of the pension reform? Or were he ever to visit the UK, could he alternatively meet with the parliamentary and extra-parliamentary supporters of the Brexiters and of the Remainers?

The idea of the Serbian president asking officially to meet with the French or even Luxembourgeois opposition strikes one as so fanciful that it laughable. It is a joke. It would indeed be treated as such, were it ever raised as a possibility. But like every joke, it tells us something about the real world. It is that the relations between the states have become utterly unequal. Unlike in the period 1960-1990 when the Third World and non-aligned countries were strong and there was at least formally a recognition of equality of states, and in the diplomatic sphere, acceptance of that formal equality, we have moved to the medieval style of inter-state relations where power only matters--even in its ceremonial aspects. No hiding of inequality, but rather its display: prostrate yourself or kiss the edges of my purple robe!

Inequality of power between the states is openly flaunted, and many people, having become used to it during the past thirty years. take is as normal. Because they have lost self-respect.

 

Athenian dialogues on global income inequality

 Glaucon (G). Good day, Adeimantus. I have a good news for you. Perhaps you have already heard that global inequality measured by the differences in real incomes between people has decreased significantly during the past 30 years and this is the first such big decline since the Industrial Revolution.

Adeimantus (A). Good day to you too, Glaucon. I am extremely happy that this is happening. This simply proves that capitalism works and that the critiques of neoliberal policies were and are wrong.

G. But you know, Adeimantus, that most of the decline in global inequality is due to China and that China did not exactly follow neoliberal policies over that period. Moreover you have criticized China's policies of state capitalism many times.

A. Yes, I am against Chinese policies and I think they are wrong policies.

G. How can they be wrong, Adeimantus, when you just cheered the decrease in global inequality which was achieved mostly thanks to China?

A. Difficult question, but let us go back to the discussion of global inequality.

G. Wait a minute, Adeimantus. If China’s policies are so successful should not other countries copy them?

A. No, Glaucon my friend, because I know China: China is going to exploit other countries through unfavorable loans. They would not be able to repay them and will get into the vicious circle of underdevelopment.

G. But, Adeimantus, was not the same argument made many times before by the left wing critics of Western loans and which you also many times, here in the markets of Athens, vehemently rejected?

A. Let me say that I think that the situation is different today. I will give you a precise answer later. But let’s go back to the convergence. I am glad that the world is converging but it seems to me that you, Glaucon, are not at all concerned that the lower parts of income distributions of the rich countries have been going down in the global rankings.

G. Sure, Adeimantus. Them going down in the global pecking order is part and parcel of convergence. If you do have convergence that means that some people who used to have income lower than yours will now have income higher than yours, and will thus get ahead of you. So, my dear Adeimantus, you cannot be in favor of global convergence and also in favor of keeping the same people on the top. It is mathematically impossible. If convergence is good then this global reshuffling in incomes is also good.

A. But politically how am I going to explain that the entire distribution of my country is no longer number one, that we are not among the top decile or even top quintile? That creates lots of problems for us domestically because the middle classes feel much poorer, relative to the rest of the world, even if their real incomes may still go up. One of the famous writers produced by the island of Britannia, Paul Collier, pines in his book “The future of capitalism” for the time when the British worker could stride the world, standing tall and proud because he was richer than many other people.

G. If he was richer than many other people that means that many other people were poorer than him and these people probably did not like that situation. So now they like the idea of catching up and actually perhaps even being a bit richer than Paul’s Britanian worker. Moreover why should the Britanian or any other worker remain in that top position forever?

A. Because it is very difficult for us to explain it to the population.

G. I understand that, my dear Adeimantus. But this is your political problem. This is not a problem that somebody who cares about global equality and global social mobility is concerned with. From the global point of view, we must treat everybody the same. But let me ask you this: you are, I know that, in favor of social mobility in your own country. You want everybody to have the same chance to succeed. Why should not be there social mobility at the level of the world?  What is different there for you to feel bad about social mobility and reshuffling of income positions in the world? If so, should you then be arguing that similar reshuffling must not take place at the national level either? Should you not argue that all people who used to be rich remain rich? If rich countries have to stay at the same positions in the world, why should not rich families stay at the same position within countries?

A. The ships are coming at noon. I have to bid you farewell now. Let’s continue this discussion tomorrow.

Here comes Thrasymachus (T).

T. Hello, Glaucon. I am a bit upset wit you. You have made a big deal of that fact that global inequality measured in relative terms (my income as a fraction of yours) has gone down. But I do not care about that. If we look at the absolute differences in income between people they have gone up.

G. Yes, Thrasymachus, there is no doubt that you are right but this is the case whenever overall real income and real income of individual people increase. Differences in absolute terms go up even if relative differences stay the same or go down. This is like when you take a balloon and draw by pencil different points on the balloon, and then blow the balloon up: what happens? While the relative distances remain the same (or in the case of convergence even go down) the absolute distances between the points on a bigger balloon become greater. But this is okay because the balloon (the world GDP) is greater.

T. But maybe I am a stubborn guy and I just care about the absolute distances and not about relative distances.

G. OK, Thrasymachus, but then you have to be consistent: absolute distances for example in the US in 1860 were severalfold less than absolute distances today. The reason is simply that US GDP per capita was less than one-tenth of its level today and when you look at the distance between any given percentile in the income distribution versus another then and compare those distances to what they are today, they were then very small. (And I am using here incomes that are all corrected for the difference in the price levels and are expressed in current dollars.) But you would not be saying, Thrasymachus, would you, that inequality in a much poorer America with 13% of its population in slavery was much, much lower than inequality today? Would you defend that?

T: Probably not, but let’s go to the global level. Your convergence is mostly driven by China. So other countries have not really converged on Western incomes and Africa certainly did not.

G. Yes, this is a good point. China is really driving the convergence and Africa is remaining equally poor or even the distance between Africa and the rich world is increasing.

T. So I am right to claim that the neoliberal order has actually increased inequality between the countries and people and you get reduced inequality only if China is included. Thus the gap between the core and the periphery is just getting worse.  

G. This is not exactly true Thrasymachus because even if China is excluded the global inequality does go down although by significantly less. But then if you expel China from the “developing world” or the periphery because it has become rich, are you not permanently changing your definition of the periphery? Whoever is successful get “expelled” from the periphery, and by that logic there could almost never be a convergence because there would be always some poor countries that would not converge. If India converges tomorrow, you would exclude it too; if Indonesia and Vietnam, and then Bangladesh, come next you would drop them too. So you can never have convergence by definition since every country that converges will be kicked out of your comparison.

T. Glaucon, you make many arguments full of bad sophistry, but although I cannot rebut you know, I will think a bit and come with a decisive proof that what you say cannot be right.

State capitalism one hundred years ago and today

 A few days ago I re-read the book of Lenin's final years’ speeches and letters. The book covers the years 1922 and 1923 (Lenin died in January 1924). I grabbed the book simply because I saw it on my shelf and having read it probably twenty years ago I could not remember exactly what was there, and thought, as I was proof-reading the section on inequality in socialism in my forthcoming “Visions of inequality”, that there could be something in the Lenin book that might be relevant for my chapter. In reality, there was nothing.

But there were several topics that have not lost their relevance even 100 years later. There are at least two that are very relevant today: Lenin's views on the New Economic Policy (NEP) and state capitalism, and his views on the nationality problem during the process of the creation of the Union of Soviet Socialist Republics. (Even the name was still debated: Lenin writes of the Union of Soviet Republics of Europe and Asia.) I will discuss the first topic only.

In a very long speech (which takes 50 closely printed pages) to the 11th Congress of Russian Communist Party in 1922 Lenin summarizes the results of the first 18 months of the New Economic Policy. (I also use his speeches to the Comintern Congress in 1922 and to the Moscow Soviet the same year.)  He presents NEP as a necessary retreat from the construction of socialism. Why was the retreat needed? First, In order to restore the links with the small-holding peasantry who during the War Communism curtailed their output as there was nothing to exchange it for (as the industrial production plummeted), and second, to learn how to manage the economy. “Learn from capitalists” could have been the key slogan of the NEP.

Lenin argues that Communists, having studied ideology and the technique of political struggle, simply do not know how to manage the economy: “Communists do not know how to run the economy… they are inferior to the ordinary capitalist salesmen who have received their training in… big firms” (p. 35); “we must organize things in such a way as to make possible the customary operation of capitalist economy...because this is essential for the people”  (p. 41). It was not part of Communists’ tool-kit. They have gained political power but they do not know how to use it to make the economy work. They are utterly bureaucratic and thus they mismanage the economy. (Lenin has a ten-page “excursus” on how complicated it was to buy canned food when hunger reigned in Moscow because different Soviet bureaucratic bodies could not agree among themselves. Finally the issue came to the Politburo and it was decided there. Lenin exclaims: “But Kamenev [the Politburo member} cannot be dragged into every transaction, dragged into the business of buying canned food from a French citizen”, p. 57).  

But he fails to recognize, and perhaps it was difficult to recognize at that time, that the problem was not just learning how to manage large enterprises but that there was a problem of incentives. It was not that the Communists were necessarily worse in management skills than capitalists. The problem was that the incentive structure is very different for a bureaucrat or a manager who runs a large state-owned company from the incentive structure faced by an individual capitalist.

For Lenin, however, the problem lied in lack of knowledge of management: he would have loved MBAs and mentions as a very positive development, the creation of a similar institute in Moscow and the role of the journal Ekonomicheskaya Zhizh as somewhat of a Soviet Forbes (in today’s terms, obviously). The problem, Lenin believed, could be remedied by working alongside capitalists in the so-called mixed enterprises created by the state, and Russian and foreign capitalists (14 of them existed at the time of Lenin’s 1922 speech) and by imitating capitalists’ skills.

NEP is a learning experience; once Communist cadres have learned how to do business, and run the economy, NEP can be shut down (“state capitalism is capitalism that we shall be able to restrain, and the limits of which we shall be able to fix”, p. 40). The justification of the NEP is thus that while it is a retreat from the ideals of socialism it is a temporary retreat and after its objectives have been achieved, future advances will be much more powerful because better organized and sustainable. And the country would be richer.

In that context, Lenin discusses state capitalism. He makes a  distinction between (a) state capitalism under capitalist conditions, and (b) state capitalism under socialist conditions. He rejects the view that the two of them are the same, and he criticizes Bukharin who wrote that the term “state capitalism” under socialism is a logical absurdity. In Lenin’s view (a) is when the state, ruled by the capitalist class, takes over some of the private-sector functions while the substantial part of the economy remains capitalist. And there is (b), state capitalism where the state is controlled by the Party and the proletariat, and allows capitalists to function in order to boost productivity and to learn management skills from them. So state capitalism under socialism, according to Lenin, is entirely different, in the political sense, from state capitalism under capitalism. The political power is not vested in the hands of the capitalist elite and this enables Communist rulers whenever they decide to do so to curtail capitalists’ involvement in the economy. The power remains solidly with the party.

This last point is very relevant for the understanding of the Chinese approach to state capitalism today. As I have argued before, we can see the current Chinese state capitalism as a protracted NEP that began in 1978 and continues until today. But Lenin seems to overlook the possibility that with a very long NEP the economic and political power will  gradually seep from under the Party and the very nature of the state would change. Those who have money will dictate things as in capitalist countries. The state may not be able to control them and the commanding heights of the economy may change ownership. This happened under Jiang Zemin and Hu Jintao: the development of state capitalism under socialist conditions led to the increasing influence of rich people and capitalists, including their inclusion in most of the party organs, and through the idea of “The Three Represents”, it gave a pretense of ideological acceptability to such evolution. The change in the elite composition, evident in a study done by Li Yang, Filip Novokmet and myself, is another product of such policies. The social structure of the Chinese elite had enormously evolved between the late 1980s and 2013 (when our study ends).  While the private sector was marginal among the elite (the top 5 percent) in 1988, twenty-five year later almost one-third of the people in the elite were private businessmen (owners of small enterprises and large scale capitalists). If one includes professionals who are employed in the private sector, a bit over one-half of the elite is private-sector dependent.  

It is in this context that one can look at Xi Jinping’s policies: as an attempt at the reassertion of the power of the state vs. the capitalist sector and the rich. Or to use Lenin’s distinction between the two, as an attempt to move from state capitalism to state capitalism. It is an adjustment in the political power between the two sectors: the state, ruled by a bureaucratic stratum, and the rich.  It represents the analog of the populist reaction in the Western democracies: the feeling that the business elite has become too powerful,  has no discernible interest in the problems of ordinary people, and has to be reined in. We can thus see Xi Jinping as both a heir to Lenin’s New Economic Policy and in much more contemporary terms as a populist response to the excesses of the new rich.