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Capitalism Is Thriving the World Over. Liberal Democracies? Not So Much

A new book called Capitalism, Alone: The Future of the System That Rules the World shows how capitalism has become “not only the dominant, but the sole socioeconomic system in the world.”

For the first time in history, “the entire globe now operates according to the same economic principles – production organized for profit using legally free wage labor and mostly privately-owned capital,” writes Branko Milanovic, visiting presidential professor at The Graduate Center, CUNY, and senior scholar at the Stone Center for Socio-Economic Inequality.

But he notes that two very different types of capitalism exist: “liberal meritocratic capitalism” in Western democracies, and “state-led political or authoritarian capitalism” in China, Vietnam, Russia, Ethiopia, Rwanda, and elsewhere. The economic boom in countries like China “undermines the West’s claim that there is a necessary link between capitalism and liberal democracy. Indeed, this claim is being undermined in the West itself by populist and plutocratic challenges to liberal democracy,” and by the increased concentration of wealth among a small group of individuals and corporations.

Today, for example, Milanovic writes, “almost all financial wealth in the United States is held by the wealthiest 10%.” If current economic trends continue, “a self-sustaining elite will control the economy. Democracy will slowly evolve into plutocracy. We see signs of that quite strongly in the U.S. already.” Wealthy individuals and corporations use their money to elect politicians who create tax policies that allow them to preserve their wealth and accumulate more.

While wealth inequality in the U.S. and other places is rising, there’s been a decline in inequality between world citizens and also between countries, thanks in part to the capitalism-fueled, global economic boom of emerging market economies. In 1970, the West produced 56% of world output, while Asia (including Japan) produced only 19%. Today the West produces 37% and Asia produces 43%.

The rise of Asia “returns the distribution of economic activity in Eurasia to roughly the position that existed before the Industrial Revolution,” Milanovic writes. “This geographical rebalancing is putting an end to the military, political, and economic superiority of the West, which has been taken for granted during the past two centuries.”

Capitalism’s dominance also coincides with the generally “uncontested ideological view that money-making not only is respectable but is the most important objective in people’s lives, an incentive understood by people from all parts of the world and all classes.” Milanovic says this “alignment of individual and systemic objectives is a major success achieved by capitalism.”

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Branko Milanovic (Visiting Presidential Professor, Stone Center Senior Scholar, Economics) | Profile 1

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The Graduate Center