Inequality and Capitalism

Carlos Bravo Regidor: Let me start with a deliberately general question: Why does inequality matter?

Branko Milanović: High inequality matters because it deprives many people of equal access to various activities: school, health services, good jobs, and so on. It wastes human potential and reduces social mobility; it is inefficient and unfair.

I emphasize “high” inequality because not every kind of inequality has the same consequences. Inequality-versus-equality is not a binary proposition, with equality being good and inequality, bad. Inequality is like temperature; it is a gradual thing. Temperature is zero degrees and it is 100 degrees, as well as all the degrees in between. Likewise with inequality. On the one hand, very low inequality is problematic because then people have little incentive to study or work hard, or to take risks. On the other hand, very high inequality has all sorts of negative impacts: social instability, lack of investment, distrust in government, lower economic growth. So, again, the problem is high inequality, not inequality per se.

What is the “ideal” level of inequality? We can’t put an exact number on it, but somewhere between low inequality and high inequality there is inequality that delivers the right incentives without breaking society into two.

Carlos Bravo Regidor: In your most recent book, Visions of Inequality (Harvard University Press, 2023), you write both that “inequality studies exploded in the first decades of the 21st century” and that “the history of economic thought is not very much studied today”. It seems only fitting, then, that you have written a book on the history of economic thought about inequality. But how come a book like this had not been written before? Why has the intellectual trajectory through the last two centuries of a subject that has become so critical during the last two decades been of such scarce interest so far?

Branko Milanović: This is a very provocative question. The history of economic thought has fallen into ignorance and disregard. This is because, in my opinion, the neoclassical view sees economics not as a social science, but more like physics. It does not care about history; it is exclusively forward-looking. Whatever happened in the past might be a nice curiosity to some people, but it doesn’t matter much. I think this is totally inappropriate. Economics, because of the problems it deals with, belongs in the social sciences. Take political science: Plato or Aristotle dealt with the same problems we deal with today. Our societies are organized differently, sure, but the fundamental issues remain, and you cannot just ignore those who have dealt with them before.

Mainstream neoclassical economics did not think it had to study the history of its very discipline. It even got rid of it in many undergraduate and graduate programs. On top of that, until recently the history of economic thought excluded the topic of inequality. It was just forgotten; expunged. The history of economic thought and the study of inequality became, maybe not totally irrelevant, but largely irrelevant in the discipline.

Yet, now that I am thinking out loud, there are other economic topics about which we know little in terms of their origins and evolution. For instance, growth. There is a little bit about the origins of GDP and things like that, but where does the idea of growth come from? How did we come to value economic growth? At any rate, as someone who thinks economics is a social science, I am interested in the history of economic thought, and since I am obviously interested in inequality as well, it came to me naturally to go back and look at what had happened to that.

Carlos Bravo Regidor: You chose François Quesnay, David Ricardo, Adam Smith, Karl Marx, Vilfredo Pareto, and Simon Kuznets as the six most influential economists on income distribution. You devote a chapter to each, placing them in their proper historical context. Yet, your book is not just a compilation of what their individual perspectives are, nor your chronological approach imply a teleological view: You deliberately avoid the so-called “Whig theory of history”, a framing that tends to describe a journey from a simpler, lesser state to a glorious present where an ultimate truth is revealed. Still, the book does tell a story from the 17th century to the 20th century. How would you summarize the plot? How has the idea of inequality changed through time?

Branko Milanović: As you said, I am not offering simply a profile of each thinker, but a reinterpretation. I really want to emphasize that.

For instance, I reinterpret Adam Smith as someone who was much more on the left than previously acknowledged—although I don’t use the term “left” in the book—because of his very strong criticism of the associations of capitalists who try to influence government policies. And I reinterpret Marx, who in my opinion has been largely misrepresented as holding only one view about the evolution of income distribution under capitalism—namely, the immiseration of the labor force and an increased concentration of income in the hands of capitalists. In fact, Marx’s work contemplates four different scenarios about the future of income distribution, and I argue that he really never decided which one he believed was the most likely.

Now, about the plot. When I started the book, I did not have a plot in mind. It emerged as I was writing down what I knew about all these economists and about income distribution in their respective countries in their respective times.

The story starts with the legally defined social classes before the French Revolution; by law, the top class received what Quesnay calls the “surplus”. Then with the Industrial Revolution, come Smith, Ricardo and Marx, and the attention moves to social classes defined in their relationship to the means of production and the typical three-tiered structure of landlords, capitalists, and workers. The thinking evolves again in the late 19th and early 20th centuries, with Pareto. Pareto represents a reaction against Marx, against history as class struggle: For him, the circulation of elites and income distribution levels are constant regardless of the type of society.

Kuznets comes after, and he writes in the context of post-war United States, where there was actually an attempt to reduce the impact of social classes—at the same time that the United States was in competition with the Soviet Union, which was claiming to have eliminated social classes altogether. For Kuznets, the cleavages are urban versus rural, agricultural versus industrial manufacturing; actual social classes kind of disappear.

Then comes neoclassical economics, which just eliminates everything. We are all the same, inequality becomes a matter of subscripts: you have capital and I have labor, but the difference doesn’t really matter.

You can call it K and you will have Ki and I will have Kj and so on. This means the total obliteration of any prior inequality in the access to the means of production: in ownership, power, race, gender and so on. All of that is gone. That’s why I call it “the eclipse of inequality”.

Finally, in the early 21st century income inequality becomes an important issue. The 2008 financial crisis that started in the United States revealed to the middle and working classes that their incomes had not increased as much as they thought; it was borrowing that had become easier. When the crisis hit and people had to repay their credits, it became obvious that their ability to borrow had camouflaged the fact that their incomes had pretty much stagnated. Meanwhile, they also saw that the top 1% and the bankers did very well and weren’t having to pay the costs of the crisis. I think that was a turning point. A lot of people realized something was not right with income distribution. This crisis created a very fertile ground to study inequality.

Today, we are back to focusing on the top 1%, which in some sense is the elite-vs-the-rest story again. So, yes, there is a plot beyond the individual economists I look at, and it is about the historical evolution of what we consider to be the main cleavages, or the main drivers, of income inequality.

Carlos Bravo Regidor: I have a couple of questions about Adam Smith, widely considered an intellectual founding father of capitalism, and about certain aspects of your reinterpretation of his work.

The first question is about his introduction of the three-part class structure of industrial societies (workers, capitalists, landowners) and his view that examining the living conditions of the largest class—the workers—is the key to assessing a country’s success. As you explain, this was a radical break from the traditional position, which had prioritized the opulence of the ruling class or of state finances. But it also represented a revolutionary contribution to understanding inequality within a capitalist critical framework, since, in Smith’s words: “what improves the circumstance of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater parts of the members is poor and miserable”. Although this line of thought is commonsensical nowadays, many people might be surprised to find out it was Adam Smith who pioneered it. His name may be very well known, but his actual works are not very well read.

Branko Milanović: Yes, I agree. Smith’s emphasis on the welfare of the largest class represents a very radical departure from the past—from the mercantilists, for whom wealth was about the power of the state, about a positive balance of payments or lots of gold, or about the power of the king, which to some extent embodied the state. The assumption then was that the majority of the population would be living at a subsistence level, and that was the end of that. Smith really brings in this element, which is very modern.

Smith isn’t read that much, so he has been hijacked, essentially. There is an excellent recent book by Glory M. Liu about the different phases of his work’s reception in the United States.¹ It shows how the Chicago School of Economics hijacked Smith during the second half of the 20^th Century through a very selective reading of his thought.

As I say in my lectures, Smith was very critical of all organizations: government, trade unions, organized religion. But he was most critical of the organized capitalists—or “the masters,” as he called them—for two reasons. The first reason is that he believed they had much more power than anybody else. Even though landlords were richer and closer to the government, they were indolent and didn’t study or care much. Capitalists actually cared and had more influence on policy. The second reason is that in an advanced society, Smith believed, rates of interest and rates of profit go down because there is much more “stock” (his word for capital), and so the capitalists’ interests are not aligned with the interests of society at large. Society’s interest is improving overall income; for capitalists, it means lower profit. That’s why Smith is most critical of them.

The Chicago School took actual quotes of his critique of government—against government as an impediment to free trade, against monopolies and monopsonies, against most government interference, with a few exceptions—but they took only that part of his work and disregarded his other criticisms, particularly against organized capitalists. My reinterpretation goes against that prevalent but very biased reading of Smith.

Carlos Bravo Regidor: My second question is about a rather unexpected contrast between Adam Smith as a moralist and Adam Smith as an economist, specifically on matters of income distribution. You show that although Smith is thought to be more empathetic in The Theory of Moral Sentiments, he was in fact harsher because, based on a sort of old-regime or theological morality, he accepts or even applauds a social order shaped by economic hierarchies and large income differences. And in The Wealth of Nations, where he is supposed to be a realist, he is actually more critical of inequalities. Even as he focuses on the rationality of self-interest, he rejects class stratification on ethical grounds and openly questions the rich for making their fortunes through collusion, monopoly, plunder and political influence. How come the moralist is more acquiescent of inequality than the economist?

Branko Milanović: I have given a lot of thought to this, and I regret not having put it in the book. I came up with a nice comparison. I think that The Theory of Moral Sentiments is what today you would call a “job market paper”. Smith wrote it to reinforce his position as he was being appointed professor of moral philosophy: He needed a textbook, and he needed to write it within the accepted ideological framework of the time. That’s why God, the supreme being, divinity, Providence, etc., are mentioned in it almost 200 times. In The Wealth of Nations, which is three times as long, they are mentioned only six times.

Of course, even then he was facing the fact that different classes had vastly different incomes. But, since it was the equivalent of a job market paper and there was a prevalent ideology he essentially justified existing inequality by arguing that such differences don’t really affect happiness: “the beggar who suns himself by the side of the highway possesses that security which kings are fighting for.” So, if at some level we are all about equally happy, then he can say that the Great Master, Providence, takes care even of very poor people, they are not left out. It is a justification of the existing order. At the time, you could not just ignore God.

In The Wealth of Nations, not only was he writing later in his life, but he was also writing as an established tenured professor and one now interested in economics. He had much greater freedom. I think this is a striking fact in Smith: he starts looking at the world in a very realistic, somewhat cynical, way, and this very harsh view permeates the entire book. He criticizes all different classes and organizations, even religion! He has several critiques of organized religion. For instance, he says that many times the government adopts insensitive policies that make no sense whatsoever because of religious associations and popular prejudices. Or he makes this totally ironic comment about the Quakers in Pennsylvania: They say they released their slaves because of their religion? Like, give me a break! They were releasing slaves because they had three of them, if they had three thousand then they would not have released them!

So, to sum up, the two books’ contexts and objectives were very different, and that explains the apparent contradiction you mentioned between Smith the moralist and Smith the economist. I think it is unfortunate that Amartya Sen reached the opposite conclusion,² based on this New Left view that everything that is kind of soft is somehow left and everything that is hard is somehow right. As if The Theory of Moral Sentiments must be more leftwing because it was based on empathy. It is based on empathy, yes, but an empathy that justifies an inequitable social order.

Carlos Bravo Regidor: Your portrayal of Marx runs against the grain of some contemporary progressive sensibilities. You explain that he was rather dismissive of criticisms of capitalism based on moral or normative grounds. That, despite the importance of production, exploitation or class struggle in his thought, the subject of inequality overall was not that important to him. That it is blatantly incorrect to consider him some sort of statist. That he did not think the state had a significant role to play in income distribution. And, last but not least, that he had a brighter view than is usually assumed about the evolution of inequality in advanced capitalism.

I was left with the impression that Milanović’s Marx was trying to do justice to the Marx who once wrote, half-seriously and half-tongue in cheek, that judging by some of his fellow travelers and interpreters, he was certainly not a Marxist!³ Joking aside, you really seem to be redefining the place of Marx in the intellectual history of inequality.

Branko Milanović: Yes, I tried to do that, especially to show that Marx was not, when it comes to the evolution of income distribution, the dogmatic thinker many people believe he was. And I want to be very clear about one thing: I am not saying that interpreting his vision of the future of capitalism as a future of immiseration with the concentration of capital is totally wrong. I am not dismissing that particular reading of Marx. What I am saying is that his work is not so conclusive, that within it are other alternatives. My interpretation rejects the notion of Marx as a Victorian deterministic thinker. I see him as much more flexible, as a much broader thinker, who envisioned not just a single scenario but four scenarios for advanced capitalist societies—one of which, in fact, is compatible with what we have observed since the end of World War II, with increasing social transfers and reduced inequality.

Having said that, I think it is incorrect to see Marx as willing to accept capitalist relations of production if they bring greater redistribution. Redistribution simply was not his main goal. For him and for Engels, the main goal was the abolition of social classes. And that means the end of private property over capital, the end of the capitalist class and of the workers class, the end of class relations. Only then, for Marx and Engels, can we start really talking about inequality: when we have a classless society, classless institutions and so forth.

Take Marx and trade unions—a subject I learned much about reading Schlomo Avineri, who has two great books on him.⁴ Marx participated a lot in trade union activity. He gave speeches, he wrote about unions. But trade union activism was important for workers to get to know one another. He was very impressed with how conviviality, friendliness and actual fraternity were created in unions. But for him, all that was just a means to move toward the ultimate objective, which was to end the system of wage labor. On the way to that, you could reduce the length of the working day, or increase wages, or disallow child labor. But, that was not his objective. I don’t go into that in the book, but this became very clear with Eduard Bernstein and the rise of the Social Democratic Party in Germany in the late 19^th, early 20^th Centuries: Bernstein said that the movement is all that counts, that the end doesn’t matter because basically no one has an end in mind anymore. That contrast is at the origin of the break between the Social Democratic and the Communist parties, and Marx was clearly on the Communist side. He believed that reducing inequality within a capitalist society was not enough. He wanted to do away with capitalist society altogether.

Carlos Bravo Regidor: You credit Pareto with being the first to shift from studying social classes to studying interpersonal inequality differences in individual income. With focusing on top incomes—that is, on the elites. And with coming up with a “law” stating that even if regimes and policies change across time and place, there will always be an elite and its share of income will remain constant. You argue that he was wrong but that his contribution is still important—not because of his answers, but because of his questions. Well, there are countries where a lot of things change yet income inequality remains high. Pareto might have been mistaken, biased, or perhaps even dishonest, but there is still something in his intuition about the resilience of elites and persistent inequality.

Branko Milanović: Totally, yes. I have quite a few things to say on Pareto, but let me start with a small anecdote that is not in the book. When you say that lots of things change but income distribution remains, I cannot but think about Latin American countries, where inequality is not only high but very resilient. And this reminds me of my late friend Adolfo Figueroa, a Peruvian economist who authored a number of books on social exclusion and income distribution. We were having dinner at a restaurant on the day of the 2011 presidential elections in Peru. The ballotage was between Ollanta Humala, running for the left, and Keiko Fujimori, running for the right. We were sitting there, still uncertain about the results, and he said to me: “Look, whatever happens tonight, nothing is going to really change here. Tomorrow we will still come as guests, and the waiter will be the waiter”.

There are certain class structures that are very, very difficult to break, and in that sense Pareto, with his emphasis on the elite, was correct. He was aware that the elites can change; that was his critique against socialism, he thought they were going to win power. He saw them as early Christians, dedicated to their cause and willing to sacrifice, but they were not going to change income distribution. There would be one elite, and then with socialism there would be another, but income distribution would remain the same. So, rather than capitalists getting like 15% of GDP, it would be the socialist bureaucrats getting that same 15% of GDP.

Look at the transition from the Soviet Union to Russia. In 30 years, there have been three different elites: the communist elite, Boris Yeltsin’s elite, and now Vladimir Putin’s elite. The basis of each’s power is very different—communist vs. oligarchic vs. nationalist—but their income as a percentage of GDP is pretty similar. I think Pareto would have taken Russia as a great example exactly of what he said.

Pareto is a thinker who makes people uncomfortable because he essentially argues that we should forget about democracy, socialism, redistribution, and all of that. For him, it’s basically about the elites. Anything else is just myths or lies. As Raymond Aron wrote,⁵ Pareto is very difficult to teach because he says that societies need cohesion more than they need truth—that every society, in order to be stable, has to be based on some sort of fiction, and that the upper class creates this fiction in order to maintain itself in power. No elite could rule otherwise. Societies cannot live without fairy tales, even knowing they are false. In the end, Pareto was an antireligious conservative, essentially a nihilist. But there is something in his social philosophy—describing atomistic individuals who believe in falsehoods going on exclusively about their own business, not caring about collective bonds, and assuming elite rule to be inevitable—that seems eerily in accord with an age of globalization like ours.

Carlos Bravo Regidor: You wrote this quite strong statement: “Simon Kuznets was arguably, with the other contender being John Maynard Keynes, the most important economist of the 20th century”. Why?

Branko Milanović: Because his work was foundational regarding two pillars of economics, and I take those to be—after all, I’m statistically minded—the mean value and the standard deviation of any measure of dispersion. With the mean value (which is basically GDP per capita) and with a dispersion (which could be the Gini or another index), you can define an economy in a nutshell and compare it with others.

Kuznets was very important, first, on national accounts. He was not alone; there were others, like James Meade or Richard Stone. But his work was foundational in defining GDP. His views were not always accepted, but they were nonetheless crucial. And he was very important on income distribution. The Kuznets curve, which establishes the relation between income per capita and inequality, redefined economic inequality and gave it a more contemporary framework. The idea, in a nutshell, is this: first, you start with low inequality; then industrialization pushes it up; but then the natural forces of accumulation of capital, and thus lower return on capital, and the ability of governments to redistribute more as the country gets richer, leads to a reduction in inequality.

If you look at some countries, particularly developing countries, or countries that became developed relatively recently, like South Korea, I think this is true. If you look at China, you also see the Kuznets curve: Over the last 15 years, there has been a decline in inequality. Most recently, you can see it in Brazil. I think you can even see it in Mexico, although there are some debates whether Latin America experienced this decline in inequality over the last 20 years. I don’t think the contributions of more famous economists like Milton Friedman or Paul Samuelson were of such fundamental value as those of Kuznets.

Carlos Bravo Regidor: Kuznets published his most important work in the mid 20th century. Then, from the 1960s to the 1990s, inequality studies experienced what you call an “eclipse”. This happened because of the Cold War. On the communist side, there were ideological pressures, data secrecy, lack of methodological frameworks, and the absence of a compelling political narrative. On the capitalist side, there was the welfare state and high levels of growth, the predominance of neoclassical economics, the rise of many subfields in academia, and right-wing political pressures. But you mention another factor: “whenever the class division is supposed either to be fixed or not to matter, interpersonal income distribution studies fall into a desuetude”. So, for different reasons, and with very different results, you contend, this happened on both sides of the Berlin Wall.

Branko Milanović: Yes, it happened on both sides. For the socialist economies, the reasons were objective and political. The objective issue was, “Ok”, they told themselves, “We have eliminated classes; there are no more capitalists. So how do we study what are social classes now, if they are not supposed to exist anymore? What are the cleavages?” What they did in the Soviet Union in the 1920s was to study rural areas vs urban areas. They would compare the real incomes of peasants, collective farmers, state-owned farms and workers. There was no real class structure, but they invented something very similar to it. The political issue was that they started seeing some differences in income distribution—but that was, of course, not desirable for the Stalinists, so the data were not published anymore. In Eastern Europe the situation was different, but income distribution studies were never encouraged. There were numbers and lots of studies regarding differences between the wages of skilled and the wages of unskilled workers. Empirical studies—but what I call über-empiricism, because there was no political context for them.

In the West at the same time, it was also empiricism without politics. Neoclassical economics essentially disregarded class structure. The United States was in competition with the Soviet Union and its class division was less salient than in Europe. So, it essentially assumed, “You in the Soviet Union are saying you have abolished classes, but we don’t have them either. Everybody here can become rich. There are people with capital and there are people with labor. These are just two different means of production, two different assets. You have human capital and I have financial capital. It doesn’t make any difference”. On top of that, economic research received funding from the rich. So, income distribution as a subject of discussion and study got totally obliterated.

Paul Krugman has said to me, “but I did work on trade and how trade affects income distribution”. Yes, and of course, Ricardo had, too. But these were incidental studies. They were not integrated into the mainstream of economics or political economy as a discipline. In order to be integrated, the findings have to be politicized. This is, I would say, one of my main conclusions: If you want to work on income inequality, you cannot separate it from the political forces that have brought that income inequality to the fore, nor from its political consequences.

That is, in short, my explanation for the eclipse of inequality studies. I know that many people don’t agree. Some people say thousands of studies were produced in the West during those decades. And, yes, but there were also lots of studies in East European countries showing that wage differentials were small—showing that manual workers were paid more and supervisory staff, engineers, teachers, doctors, for example, were paid much less. But that doesn’t make them studies of income distribution because the numbers were never put in their actual political context.

Carlos Bravo Regidor: With the 21st century came a new start in inequality studies. The Cold War consensus gave way as the rise of inequality was becoming more and more evident. Then the 2007-2008 crisis broke. And you mention three trends you think will influence how we study and think about inequality in the decades to come: the impact of Thomas Piketty’s contribution; significant developments in the availability of data and new technologies to process it; and the rise of a new research agenda on global inequality, a topic to which you have devoted a lot of work. Correct me if I am wrong, but I notice a certain tension between the optimism you convey about the future of inequality studies (in Visions of Inequality) and your pessimism about the upswing of inequality in many countries (particularly in high-income countries), the squeezing of their middle classes and the disquieting political dangers that creates (in Capitalism, Alone)?

Branko Milanović: You know what the irony is here? And I say this not to avoid answering the question, to the contrary, but very often increased inequality is associated with more work on inequality because the phenomenon becomes more obvious and people start to study it. That is what we have seen in the last 15 years. We have studied inequality much more. Yet the impact of these studies in real life has been very limited. There is a great discrepancy between lots of studies being conducted and too few political decisions reflecting them.

But those three trends are very important. The first one is the bringing back of capital. Great work is being done on that. By Thomas Piketty, of course, whose bestseller Capital in the 21^st Century in a way redefined the way we look at inequality today. But also by Marco Ranaldi, who is studying the inequality of income composition—a new topic—and of labor versus capital across income distribution.⁶ In other words, the work is not only about the inequality of total income; it’s about inequality in different types of income, which is a very novel way of looking at the issue.

I recently drew a conclusion I don’t think I mentioned in the book. In neoclassical economics, if you get $100 dollars from capital and I get $100 from labor, the two are treated as equivalent. But if we were to take neoclassical economics seriously, we would have to discount from my $100 in labor the disutility of labor. So, in net terms, I am only paid $70 or so because I have to deduct the monetary equivalent of disutility of the work I did. Bringing capital back is very important for sociological reasons, but also because it’s a reminder that capital is not equivalent to labor as a type of income.

A second important area are social tables, because they allow us to study the past in the absence of other sources. You see, there is no fiscal data telling us who paid what taxes for the 12th, the 16th or 17th centuries. Regular fiscal sources, data on taxation, really appeared during or after World War I, when income taxation was introduced in the U.S., England, France, and so on. Before that, when there were wars or crises, when governments needed money, they would collect some fiscal data, but nothing regular, nothing continuous. So economic historians are looking for archival sources of all kinds, including family records and receipts, about income received and income spent. With that, they can create social tables of large groups or classes.

The king and the upper nobility are at the top. Then come the middle level and lower nobility. Then large landowners, big traders and medium traders, all the way down to beggars and vagrants. And the information provides a size and an estimated mean income for each group. This is what we are using now to get historical data on income distribution.

And the third type of work is on global inequality. Some people are going to reply that I mention it because it’s an area I work in. It’s not because of that. Global inequality allows you to identify certain phenomena you can’t see if you study only national inequality, it changes entirely scope. It forces you to address issues like migration, and economic convergence or divergence on a global scale, and how these justify one’s income. Why should a bus driver in Zambia be paid one-tenth of a what a person gets doing exactly the same job in London?⁷ There is a philosophical question there. There are historical or geographic answers for the differential, but those are exogenous conditions. The driver didn’t create them; they were created for him. So, global inequality provides another way of looking at these things.

In sum, about the three trends. Social tables tell us much more about inequality in the past. Bringing back capital makes a very important distinction today between what the English statisticians used to call earned and unearned income. And global inequality is very forward-looking because the world is only going to get more globalized.

Now, let me address briefly the second half of your question. In Capitalism, Alone, my pessimism was driven by two factors. One was that plutocratic powers have become way too strong: They are able to provide lots of money to political candidates and make them compete for donations, almost to the point where the plutocrats are buying elections. I was pessimistic also because I thought—well, I still think—that more and more goods and services are becoming commodified, that our entire lives are becoming commodified. We are now willing to sell or pay for ordinary things or activities we normally did for free. To those two I would now add a third source of my pessimism coming, on the one hand, from the wars in Gaza and Ukraine; and, on the other hand, from the tensions between China and the U.S. This is a very unsettling situation that makes globalization unlikely to continue as we have known it so far.

Carlos Bravo Regidor: You have argued that one of the virtues of the historical approach is that showing how context-dependent past ideas about inequality were might help us today become more aware of what key features of our own context shape contemporary conceptions of inequality. When I read Visions of Inequality, I thought you meant this as a warning against what Piketty calls “inequality regimes”, or the predominant ideological justifications of existing inequalities that every society comes up with. But when I read Capitalism, Alone, I realized there might be another dimension to your argument: about how past models or policies lack purchase in the face of face current inequality challenges. Is your historical approach also a warning against trying to recreate social democratic or New Deal capitalism of the past—because the context today is very different from that of the mid 20th century, because strong trade unions are not coming back, because redistribution through taxing and spending is not that viable anymore, because it is not working and probably won’t work as it used to?

Branko Milanović: Yes, we cannot use the same models for the 21st century that were used for the 20th century, because the underlying conditions are very different.

For instance, there used to be a very powerful labor movement based on general class identity of circumstances and interests, and even the physical presence of people in the same working place. That doesn’t exist anymore. Those links have been broken by the global supply chains, new divisions of labor into smaller groups, people working from home. There is a lot of segmentation now. Strong unions are just not going to resurface again, at least not as they were. That era of capitalism is gone. Also, in many countries the unions were linked with leftist parties, whether social democrats or communists, and the approach was two-pronged: defend the workers in the workplace but also organize them as a political force. Those kinds of parties are almost nowhere to be found anymore.

Changes in the nature of the workforce have also impacted the struggle for higher wages. The value chains are all over the place, and quite a lot of wage income now depends, essentially, on tips. In many areas and services, wages are fixed at very low levels and customers have to make up for the difference. This is an entirely different world, and it isn’t a world with a strong, homogeneous working class with the power to fight for its fair share.

Another example is education. Education used to be a very powerful tool for social mobility in Europe and elsewhere. An average of five years of education became 14 years of education, and that push had a very big economic impact. But that has a limit: You cannot push now for 20 or 25 years of education, when lots of people are already educated. Not everybody can get a PhD; that doesn’t make any sense.

Even fiscal policy has become more difficult. I am obviously in favor of reasonably progressive taxation. But I’m hesitant about attaching a tax to every problem, and I think there is a tendency among some left-wing people to want to solve everything by creating new taxes or increasing existing ones. The truth is that large sectors of the population have become very skeptical, even cynical, about that. First, because they don’t trust their governments as they used to in the 1960s or so. Governments are seen as inefficient, crooked, wasteful. People don’t want to pay more taxes for building roads that are going to cost three or more times what they should cost, whether that’s because of regulations or corruption or whatnot.

There is a general lack of credibility regarding government action that makes fiscal solutions very hard to implement. Governments in the past weren’t necessarily excellent, but I do think they were less mercenary and that citizens were less skeptical about how the government spends their taxes.

Moreover, Europe nowadays is experiencing something somewhat similar to what has happened in the United States since the 1960s. European countries now have large groups of people who were not born originally in them, or whose parents are not from that country. And in, say, Sweden, Switzerland, France or elsewhere, those groups of people are seen as benefitting too much from social transfers and benefits, whether or not that actually is the case. But it is what some people believe and they act upon that belief: “why am I being taxed for them to get the social or the unemployment benefits?” This phenomenon happened in the United States, particularly after the Civil Rights movement, when previously pro-welfare whites started resenting the idea that their taxes were becoming benefits for African Americans or, later, immigrants. Peter Lindert has called it “lack of affinity”:⁸ if the taxpayers do not identify with a particular group of people that is going to benefit from their taxes, they become less likely to be in favor of welfare policies, even if they are still benefitting from them.

So, we need to come up with new or alternative solutions.

Carlos Bravo Regidor: Such as?

Branko Milanović: I listed a couple of them in Capitalism, Alone. They aren’t particularly original because they go back, one way or another, to taxation: either of wealth or of inheritances. A third possibility, which I kind of prefer and for which I have argued a bit, is to give middle the classes much greater access to financial capital. This isn’t easy, certainly, but I think it might be worth exploring.

Middle-class savings normally don’t go into the stock market or into dividend- or interest-producing assets, partly because the returns on small investments are, well, small. Besides, people who have one million dollars or more get much better financial advice than people who have one thousand dollars. Middle-class people are rightly afraid that if they have one thousand dollars and they put it all in the stock market, when the market goes down, they will be liquidated. The rich guys can sustain a big loss because they can play the long term and expect eventual gains. Middle-class people can’t.

So, the idea would be to provide them with some sort of government protection. Make it easier for them to access the financial markets by lowering their risk, by guaranteeing their investment, say, up to a maximum loss of 30% or so. It wouldn’t be particularly expensive for a country to provide such protection to investments below, say, three thousand or five thousand dollars.

In developed economies, half of the population does not have access to capital; in developing economies, 90% of households have zero income from capital. I do not agree with many of Hernando de Soto’s ideas, but I admit that this one is a bit like what he used to argue for broadening the base of capital ownership.⁹ If we cannot get socialism to work, at least we can all try to become capitalists.

Earning income from capital is somewhat problematic, because it feels like an unfair advantage. You get it without working for it, without effort. Many people on the left, including myself, are not huge fans. The first time I ever bought a stock, I was really uncomfortable; I accepted interest but was uncomfortable with profit. I understand the left-wing reluctance toward financial markets, but I think we have to overcome it and make them more inclusive so that more people can benefit from them.

Carlos Bravo Regidor: In Capitalism, Alone you claim that nowadays there are no viable alternatives to capitalism, only different alternatives within capitalism. The idea you just mentioned is part of what you’ve called “egalitarian” or “popular” capitalism. Yet, the world does not seem to be moving in that direction. Rather, because of the rise of China and the geopolitical shift toward Asia, it seems to be moving toward what you’ve described as “political capitalism”. What are the main features and contradictions of “political capitalism”? What role does inequality play in it? And what are its prospects?

Branko Milanović: Political capitalism has three contemporary features. First, it implies the rule of an efficient technocratic bureaucracy that implements policies designed to increase economic growth, which is the main source of its legitimacy. Second, it is based on authoritarian politics, usually under a single-party political system. Third, the state is autonomous of a very dynamic but politically constrained private sector. Political capitalism’s two main contradictions derive from those features. One is the conflict between bureaucratic efficiency and very discretional decision-making with no actual rule of law. The other is between endemic corruption and the state’s need to legitimize itself through economic growth. China has this kind of capitalism; other Asian and some African countries do as well.

Now, high inequality in political capitalism undercuts the system’s economic performance-based legitimacy. So political capitalism needs to produce high growth but also to control inequality. In democracies, legitimacy depends on process, that is, elections. High inequality or widespread poverty may be acceptable as long as there is hope that another government can come and make things better. With political capitalism, it is all about outcomes. This makes these regimes very sensitive to some issues. Very high inequality creates the perception that the problem is largely due to illegal incomes, corruption and bribery. I wrote a paper with two Chinese coauthors about this, and the results are staggering.¹⁰

So I see President Xi Jinping’s anti-corruption campaign as a way to limit the political damage that comes from high inequality, to protect the regime from losing credibility and legitimacy. He needs to signal that his government is reining in corruption, or else people will believe—and rightly so—that he is not in control or that he is allowing officials to steal and take bribes. The campaign makes total sense, particularly if it is directed at the top, at the so-called “Tigers”, the leadership of the Communist Party. He is sending a message: We know what the problem is; we will take care of it. Obviously, he is not going to eradicate corruption, but the policy is pretty popular. The question is whether he has enough power to deliver because, very often, such systems—hegemonic-party authoritarianism with no rule of law—actually depend on corrupt politics and politicians.

About the prospects of political capitalism: I think they are difficult because they hinge on China being willing and able to “sell” its system. And there isn’t much of that. This could be because China is an “exclusivist” country, interested in its own society but not in promoting its model abroad. The West, especially the United States, is an “inclusivist” society that believes it is a very good model everybody should follow. China may try to export its model on principle, not only because it is under attack from the West ideologically, but also because it might have to show it has something worth emulating. However, I don’t see it succeeding so far, or even trying very hard. I was in China in December, and I was a bit surprised to realize that nobody has come up with basic rules to adopt when “selling” the Chinese model. The Washington Consensus was very powerful because it was simple, it was clear, it made sense. At the end of the day, there is no such thing as a “Beijing Consensus”.

Carlos Bravo Regidor: My last question is about the rise of the so-called “global middle class”, a process that has been characterized both by the historic number of people who have come out of poverty during the last decades and as a potentially destabilizing if the expectations of this emerging force outpace its expansion.¹¹ What is your take on the political implications of this phenomenon?

Branko Milanović: I don’t have a fixed or conclusive opinion. What is the political meaning of the “global middle class”? In a nation-state, a class is a group not only with similar income levels, but also connected through shared experiences, values, and interests. The middle class—going back to Aristotle—opposes those on top because it does not want them to have all the political power, and it opposes those on the bottom because it is afraid of losing its property. There is a logic in its position. The middle classes are believed to produce political stability: Because of their social place, they want to have a reliable national government that can protect their property and that they can have some influence on.

But at the global level, there is no single government, nor the connections of common experiences, values, and interests. So, the global middle class becomes sort of an arithmetical class. It’s like what Marx said about the peasantry in France: It is formed by a simple “addition of homologous magnitudes, much as potatoes in a sack form a sack of potatoes”.¹² There is a middle class in China, another in India, another in Bulgaria, and so forth, but in what sense do they meet as a global middle class? I think their politics are shaped with respect to their own countries. They might they have similar consumption patterns, but what makes them an actual social class still comes from their national contexts.

Could this change in the future? Maybe, although with the current two wars that seems unlikely. Perhaps if there are more international movements or more meaningful political organization at the transnational level? I’m sorry I don’t have a better answer. But at the moment I just don’t see what the meaning of the global middle class is and how exactly it can become less of a sack of potatoes and more politically relevant.

This interview has been edited for length and clarity. The full interview will be published in the forthcoming book by Carlos Bravo Regidor, Mar de Dudas: Conversaciones para navegar el desconcierto (México: Gatopardo/Grano de Sal, 2024).

1. Glory M. Liu, Adam Smith’s America. How a Scottish Philosopher Became an Icon of American Capitalism, Princeton University Press, 2022. ↩︎
2. Amartya Sen, “Adam Smith and the Contemporary World,” Erasmus Journal of Philosophy and Economic, Vol. 3, No. 1, 2010. Available online: https://ejpe.org/journal/article/view/39. ↩︎
3. As reported by Engels; see Michael Heinrich, “Je ne suis pas marxiste”, https://libcom.org/article/je-ne-suis-pas-marxiste-michael-heinrich. ↩︎
4. Schlomo Avineri, The Social and Political Thought of Karl Marx, Cambridge University Press, 1970, and Karl Marx: Philosophy and Revolution, Yale University Press, 2019. ↩︎
5. Raymond Aron, Main Currents in Sociological Thought, Pelican, 1970. ↩︎
6. Marco Ranaldi and Branko Milanović, “Capitalist systems and income inequality”, Journal of Comparative Economics, Vol. 50, No. 1, March 2022. ↩︎
7. Michael Clemens, Claudio E. Montenegro, and Lant Pritchett “The Place Premium: Wage Differences for Identical Workers across the US Border”, Center for Global Development Working Paper No. 148, July 2008. ↩︎
8. Peter Lindert, The Distribution and Redistribution of Income, Manchester University Press, 2002. ↩︎
9. Hernando de Soto, The Other Path, Basic Books, 2002. ↩︎
10. Li Yang, Branko Milanović and Yaoqi Lin, “Anti-Corruption Campaign in China: An Empirical Investigation”, ZEW – Center for European Economic Research Discussion Paper No. 23-052, 2023. Available online at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4654464. ↩︎
11. See, for instance, Jeremy Cliff, “Why the global middle class is in revolt”, The New Statesman, January 2022. Available online at: https://www.newstatesman.com/international-politics/economy-international-politics/2022/01/why-the-global-middle-class-is-in-revolt. ↩︎
12. The quote comes from Chapter VII of The Eighteenth Brumaire of Louis Bonaparte (1852). Available online at: https://www.marxists.org/archive/marx/works/1852/18th-brumaire/ch07.htm. ↩︎