Capitalism, Alone

1. The rise of global capitalism and its two dominant forms

Capitalism as the only socioeconomic system in the world is without historical precedent.

Unprecedented dominance. For the first time in history, capitalism has become the sole global economic system. This dominance emerged after the fall of communism and has led to two main variants: liberal meritocratic capitalism (exemplified by the United States) and political capitalism (exemplified by China).

Historical context. The triumph of capitalism followed the collapse of communist regimes in Eastern Europe and the Soviet Union, as well as market-oriented reforms in China. This shift has profound implications for global economic organization, income distribution, and political power dynamics.

Key features. Global capitalism is characterized by:

• Production organized for profit using wage labor
• Privately owned capital
• Decentralized economic coordination
• Increasing global interconnectedness

2. Liberal meritocratic capitalism: Increasing inequality and homoploutia

Capital-abundant individuals are not only rich but also relatively well off in terms of labor income.

Rising inequality. Liberal meritocratic capitalism, as seen in the United States and other Western countries, has led to increasing income and wealth inequality. This is driven by several factors:

• Growing share of capital income in total national income
• High concentration of capital ownership
• Association of high capital and high labor incomes in the same individuals (homoploutia)

Intergenerational transmission. The system tends to perpetuate advantages across generations through:

• Unequal access to quality education
• Inheritance of wealth and social capital
• Assortative mating (people marrying others of similar socioeconomic status)

Political implications. The concentration of economic power translates into political influence, potentially creating a self-perpetuating upper class that can shape policies to maintain its advantages.

3. Political capitalism: China's model of state-led economic growth

Political capitalism has manifest advantages for those who are in power: they are insulated from the immediate pressure of public opinion, they have the opportunity to parlay their political power into economic benefits, and they do not face institutionalized time limits to their rule.

Defining features. Political capitalism, exemplified by China, is characterized by:

• Strong state involvement in economic planning and development
• Single-party political control
• Emphasis on rapid economic growth as a source of legitimacy
• Selective application of market principles

Economic success. China's rapid economic growth under this model has lifted millions out of poverty and positioned the country as a global economic powerhouse. This success has made political capitalism an attractive alternative for some developing countries.

Systemic challenges. However, political capitalism faces inherent contradictions:

• Tension between the need for efficient bureaucracy and the absence of rule of law
• Endemic corruption due to the fusion of political and economic power
• Difficulty in transitioning to a more open political system without undermining economic stability

4. The impact of globalization on labor mobility and citizenship premiums

Citizenship rent exists, at the first approximation, because of the control of access to a given geographic portion of the world by the current residents.

Citizenship as economic asset. In a globalized world, the country of one's citizenship can significantly impact lifetime earnings and opportunities. This creates a "citizenship premium" for those born in wealthy nations and a "citizenship penalty" for those in poorer countries.

Migration pressures. The vast differences in income potential between countries drive increased migration pressures. This leads to tension between:

• Economic incentives for labor mobility
• Political resistance to large-scale immigration in wealthy countries

Policy challenges. Balancing these competing pressures requires innovative approaches:

• Considering forms of "citizenship light" or temporary migration schemes
• Addressing the impact of migration on welfare states in receiving countries
• Promoting economic development in migrant-sending countries to reduce income disparities

5. Global value chains: Redefining economic development in the digital age

Global value chains have redefined economic development.

Technological revolution. The rise of global value chains has been enabled by advances in information and communication technologies. This allows for:

• Unbundling of production processes across countries
• Increased participation of developing countries in global manufacturing
• Rapid transfer of technology and know-how

Development implications. Global value chains offer new pathways for economic development:

• Countries can industrialize by joining existing supply chains rather than building entire industries from scratch
• This allows for faster catch-up growth in developing economies
• However, it also creates new forms of economic dependency and vulnerability

Future trends. The evolution of global value chains will be shaped by:

• Further technological advances, including artificial intelligence and automation
• Geopolitical tensions and potential re-shoring of production
• Environmental concerns and the need for more sustainable production models

6. The welfare state under pressure from globalization and migration

The welfare system as it exists in rich countries has been created around the idea of social insurance.

Challenges to the welfare state. Globalization and increased migration put pressure on traditional welfare state models:

• Capital mobility makes it harder to tax wealth and high incomes
• Labor mobility challenges the national basis of social insurance systems
• Cultural diversity from migration can reduce social cohesion and support for redistribution

Adapting welfare systems. To remain viable, welfare states must evolve:

• Develop new funding mechanisms less reliant on taxing mobile factors of production
• Create more flexible social insurance systems that can accommodate mobile populations
• Find ways to maintain social solidarity in increasingly diverse societies

Policy trade-offs. Policymakers face difficult choices between:

• Maintaining generous welfare provisions
• Allowing free movement of labor
• Preserving national autonomy in social policy

7. Corruption as an inherent feature of hypercommercialized capitalism

Corruption is linked to globalization no less than is the free movement of capital and labor.

Systemic nature of corruption. In hypercommercialized capitalism, corruption becomes increasingly normalized:

• The pursuit of profit at any cost erodes ethical boundaries
• Global financial networks facilitate the movement and hiding of illicit funds
• The intertwining of political and economic power creates opportunities for rent-seeking

Globalization's role. Several aspects of globalization contribute to increased corruption:

• The ideology of unrestrained money-making
• Ease of moving capital across borders
• Growing income disparities between countries, creating incentives for corrupt behavior

Challenges in combating corruption. Addressing corruption in a globalized world is difficult due to:

• The need for international cooperation to close loopholes
• Powerful vested interests that benefit from the status quo
• The normalization of certain corrupt practices as "business as usual"

8. The future of capitalism: Convergence, conflict, or transformation?

If Africa fails to catch up with the rich world (in per capita terms, it must be emphasized) and if its population continues to grow in absolute numbers and at a higher rate than in the rest of the world, it is not impossible to envisage a scenario under which the trend toward a decline in global income inequality first stalls and then reverses.

Potential scenarios. The future of global capitalism could unfold in several ways:

• Convergence: Continued economic growth in developing countries leads to a reduction in global inequality
• Conflict: Rising tensions between different capitalist models or between winners and losers of globalization
• Transformation: Technological changes or environmental pressures force fundamental changes to capitalist systems

Key factors to watch. The evolution of capitalism will depend on:

• The economic performance of China and other emerging economies
• The ability of liberal democracies to address rising inequality
• The impact of technological change on employment and economic organization
• The response to climate change and other global challenges

Policy implications. Shaping a more equitable and sustainable form of capitalism will require:

• Rethinking models of economic growth and development
• Developing new forms of global governance to manage shared challenges
• Addressing the concentration of wealth and power within countries
• Balancing the benefits of global integration with the need for local economic resilience

Last updated: August 12, 2024