By FERNANDO NOGUEIRA DA COSTA*
Commentary on Branko Milanović's book
capitalism without rivals discusses the advantages and disadvantages of political capitalism compared to liberal capitalism. It analyzes them as two distinct competing models in the globalized economic scenario.
Political capitalism promises more efficient management of the economy and higher economic growth rates: the main goal. The centralized system, according to Branko Milanović, overcomes legal and technical obstacles that create difficulties for growth in more democratic countries.
This system has autonomy in legal dealings, allowing decisions to be made without the constraints imposed by a rigid legal system. This feature can speed up decision-making and policy implementation. It achieves faster economic growth by avoiding lengthy parliamentary deliberations on public policies, including sabotage of public spending.
Political capitalism tends to prioritize the development of infrastructure, such as roads and railways with bullet trains, in addition to urban infrastructure with the construction of cities and housing. They improve the population's quality of life.
Political capitalism is attractive to political elites in other countries because it offers greater autonomy and fewer restrictions on access to China's vast domestic market. It is also attractive to many ordinary people because of the high growth rates of professional opportunities and income.
According to Branko Milanović, the Chinese model, in particular, follows a development path similar to that considered “natural” by Adam Smith. In it, the State maintains autonomy in public investment and indicative planning without restricting private initiative.
Among the disadvantages of political capitalism, one of the main disadvantages is the lack of democratic mechanisms of control. The absence of a system of periodic electoral consultation with the population leads to the continuation of decisions that could be detrimental to the well-being of citizens.
The centralized system is more likely to generate poor public policies and negative social outcomes. It does not have a democratic mechanism to reverse wrong decisions.
Systemic corruption is endemic in political capitalism due to the discretionary power of the bureaucracy and the absence of a rule of law. The use of political power for financial gain, including personal gain, is a central feature of this model. Corruption, if left unchecked, undermines the system’s capacity for growth and legitimacy.
The law is applied selectively, à la Machiavelli: “favors to friends, the law to enemies.” The bureaucracy, expected to be technocratic and efficient, acts arbitrarily in applying the rules.
The centralized system can lead to increased inequality and corruption. The discretionary power of the bureaucracy can be used for personal gain.
It needs to constantly demonstrate its superiority through high growth rates. If growth is not constant, the legitimacy of the system risks being questioned.
The lack of democratic controls makes it difficult to change direction if the wrong choices are made. The political capitalism model is fragile; if it relies on presenting itself as “socialism with Chinese characteristics,” it is difficult to transplant to other countries.
One of the difficulties of the system is to separate politics from economics, due to the central role of the State in the economy. It is difficult to maintain a non-corrupt centralized bureaucracy in order to make decisions in favor of national interests.
In turn, the main advantage of liberal capitalism is presented by its presupposed democratic political system, considered a “primary good”. Electoral democracy would allow for the correction of economic and social trends that could harm the well-being of citizens. Periodic consultation of the population regarding new representatives would reverse decisions, if they are leading to negative results, over time.
In liberal capitalism, it is assumed that there are fewer problems with corruption compared to political capitalism. There is greater respect for the rule of law.
Democracy and the rule of law promote innovation and social mobility. In principle, the system would promote equal opportunities for success for all.
However, modern liberal capitalism, especially in its meritocratic form, generates inequality due to the concentration of income and wealth, the political influence of the rich and the intergenerational transmission of advantages. Social separatism is imposed: the rich opt for private health and education systems and this reduces the impact of income redistribution.
The political influence of the wealthy through electoral financing and media control leads to the creation of policies that benefit them exclusively, to the detriment of the rest of the population. The need for periodic electoral consultations with the population reduces the efficiency of economic decision-making.
In a direct comparison, carried out by Branko Milanović, liberal capitalism has the advantage of being a democratic system. In theory, it allows for greater correction of economic and social problems, while political capitalism stands out for its efficiency and rapid growth.
While liberal capitalism has the advantage of the prevalence of the rule of law and equal opportunities, political capitalism stands out for its bureaucratic autonomy or arbitrariness in legal dealings. The latter has a greater tendency towards corruption and difficulty in changing course, while the former tends to generate inequality and political influence for the rich.
There is no popular choice between political and liberal capitalism, that is, there cannot be a trade-offs between efficiency and democracy, equality and growth, the stability of the system and the ability to adapt to the needs of citizens. Political capitalism must constantly prove its economic superiority over the democratic advantages of liberal capitalism that are more intrinsic to the system.
However, globalization leads to exchanges between the two variants of capitalism. It has a profound impact on the mobility of capital and labor and changes economic and social dynamics on a global scale.
Globalization has enabled the creation of global value chains, where different stages of production are carried out in different countries. This is possible thanks to advances in technology, communication and coordination, and the global protection of property rights.
Global value chains have made it possible to separate physical production from management and control. They have enabled companies from developed countries to control production in other countries, where production costs are lower. Institutional investors act indirectly, through shareholdings in transnational companies, in regulating globalization through the stock market, including on stock exchanges far from the place of direct investment.
Globalization drives the movement of capital across national borders, with companies investing in other countries to take advantage of profit opportunities. This movement of capital seeks higher returns while also accelerating economic development in poorer countries.
Global protection of property rights is crucial for capital mobility, ensuring that foreign investments are safe from abuse or nationalization. Institutions such as the IMF and bilateral investment agreements help ensure this protection.
With globalization, the income needed to support the benefits of citizenship may be offshored. Part of a country's income is generated outside its borders and returns through profits on capital invested abroad.
Capital and labor mobility are seen as movements capable of balancing each other in the long term. The flow of capital to poor countries would help reduce income differences and, consequently, the motivation to emigrate. The movement of capital to poor countries, through global value chains, would end up eroding, in the long term, the “citizenship premiums” that motivate migration.
*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/4dvKtBb]
Reference
Branko Milanovic. Capitalism without rivals: the future of the system that dominates the world. Translation: Bernardo Ajzenberg. New York, New York, 2020, 376 pages. [https://amzn.to/4gAhsoU]
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