Monday, November 30, 2020

Florian Lavit: Critical comments about the concept of citizenship rent in "Capitalism, Alone"


A new use of the outsider’s perspective literary trope


In his new book, Capitalism, alone, as in his previous best-seller about global inequalities, Branko Milanovic successfully casts a new light on seemingly self-evident economic phenomena in a quite unsettling way. One could assume that this surprise effect is as much a consequence of his analysis as an intentional goal : they are, in my opinion, an integral part of his method. There is no doubt that this intellectual approach is utterly justified since it is, I think, an essential path to any conceptual discovery. Besides, such a method is reminiscent of the old narrative trick of the foreign man’s perspective which Montesquieu or Camus readers might be familiar with. Capitalism, alone is in many ways evocative of the Persian Letters. One could mention, for instance, the part in which communism is described as a cunning of reason whose real finality was to help those countries which were dominated by the West establish their own endogenous form of capitalism. This also true of the passages about the citizenship rent which I will discuss later. However, this method has its limits, and as must now be clear, I object to Branko Milanovic’s questionable analogies whose logical consistence isn’t fully verified.  


Individual inheritance and collective inheritance: the missing macroeconomic link


The original concept of citizenship rent, already explained in Milanovic’s previous book, is explored more thoroughly in Capitalism, alone. It is no doubt one of the author’s most important theoretical contributions and, in my opinion, a very fascinating and irritating perspective at the same time. Milanovic uses several analogies to make this concept more understandable or, perhaps, more appealing. The parallel I want to address is the one he draws about inheritance. Citizenship rent is viewed as a sort of inheritance: for Milanovic there is no difference between the individual wealth transmitted to another individual and the national prosperity which, according to him, is also transmitted. The idea sounds engaging since, as he reminds us, one does not deserve his parents’ wealth anymore than he does his country’s prosperity.


There is no denying this is an intellectual tour de force, and after first reading it, I did not know how to disprove this comparison even though it felt wrong. Upon second thought, however, the analogy appears invalid: an heir can be replaced by another individual heir without the assets he will inherit being altered, but a whole national population due to “inherit” the country’s wealth could not by fully replaced by a different one without said wealth to be destroyed in the process. The right way to pass from micro to macro level is the following:


 Milanovic’s conceptual mistake is that he puts micro and macro level together so that he obtains the following, fallacious, equation:


 This type of conceptual mistake is a fallacy of composition.


New parallel, same missing link


 Such a fallacy of composition is at work in the analogy between the surplus revenue in certain countries (relative to others) and monopolistic unearned income. The latter depends neither on the beneficiary’s qualifications nor his contribution. An individual with a monopole on raw materials may be replaced by another with no impact on the production level. In order for the analogy to be correct, one would have to replace an entire population benefitting from this alleged “monopole rent” with another one, and see if the production remains unchanged: this is obviously not the case.


The analysis must distinguish between two kinds of assets

To fully grasp this idea, one must understand the difference between two types of assets. On the one hand, some assets do not depend on who owns them, and their value is unchanged when the owner changes. On the other hand, there is another category of assets whose value and permanence strictly depend on their owner. The owner’s identity cannot be changed without the asset being altered or destroyed. The whole range of knowledge and skills that prompt the prosperity of a country are its intangible capital. Its reproduction requires constant learning and application by the nationals, so that an integral replacement of all the « owners » would effectively destroy this capital. If all the inhabitants of country A were to be replaced by country B citizens overnight, there would remain little or nothing of country A and all its so-called monopole, i.e. the productivity and skills of the people living in it, would be gone.


Summary and perspectives


To summarize, if a possible heir dies, the inheritance remains, but if the possible « heirs » of the intangible capital of a country disappear, the collective inheritance goes away. This means that at the macro level, the heirs and the inheritance interact and shape one another, while this is not the case at the micro level. This macro law is just as valid for inheritance taken in a metaphorical sense, as a set of knowledge and skills, as for a literal inheritance. Indeed, in the latter case, the sum of the inheritances can only be brought about by the entire population: A can only keep his inheritance thanks to the skills of B, and vice versa. This is a solid ground for a critic of individual inheritance, which fails to take into account this social dimension. One might even, in a more polemic tone, describe this custom as the continual privatization of a country’s prosperity.


In the end, one could pivot Milanovic’s logic and make a point that some countries are privatizing the world’s prosperity. I believe it would be the best way to avoid the fallacies of composition we previously encountered and to give a solid foundation to his « methodological globalism ». Such a perspective would probably lead to point how parasitical the United States’s position is, whether through their martial use of the dollar or the draining of the intellectual resources of the world. All of this leads to reconsider migration issues. According to Milanovic, the best way to eliminate or at least mitigate the citizenship rent is to allow more migrations, but according to my new approach, it deepens the privatization of the world prosperity by certain countries. However, I don’t believe this objection is decisive. The following objection, on the other hand, is: migrations should be dealt with, above all, from a political standpoint, not an economic one. Ultimately, the last and more important point is a very neglected sort of moral hazard: if an individual is expected to give anything to his community, the community must in return commit to protecting the individual. Exponential migrations break this social contract.




Note: The text was originally written in French and translated by Florian Levit and Elsa Domergue. It was part of an email discussion between Florian and Branko. Florian Levit teaches literature at a Lycée in Le Mans. His interests include economics, in particular authors such as Michal Kalecki, Josef Steindl, Alec Nove, Fred Hirsch.