Video: conversation with Branko Milanovic on the current state and the future of capitalism

Watch our interview with Branko Milanovic, where we discuss the key features of contemporary capitalism and what can be done to tackle the rising inequalities that result from it.


You can also read the full transcript below. The transcript has been edited to ensure better readability.

We would like to give a big thank you to Branko Milanovic for his participation.

Isabel Scott: Welcome to this online interview organised by improof, a new blog launched in Luxembourg which focuses on socioeconomic issues.   I am Isabel Scott. I am a journalist based in Luxembourg and today I will be talking to Branko Milanovic about his latest book Capitalism, Alone

Branko Milanovic was lead economist at the research department at the World Bank.  He’s affiliated with City University in New York as well as the Luxembourg Income Study in Belval and he is known throughout the world for his research on global inequality. 

And in his latest book Capitalism, Alone which was published in 2019, he argues that today capitalism is the only global economic system. It has brought about wide scale economic prosperity but over the last 30 years has struggled to tackle rising inequalities. 

So in this interview I’ll be asking Branko about some key features of contemporary capitalism and what can be done to tackle these rising inequalities.  So welcome Branko Milanovic.

Branko Milanovic: Thank you very much Isabel. It is a pleasure to be here, if not in person, at least virtually.  Very nice to be speaking with you.

Isabel Scott: Perfect, so I’d like to start with looking at some of the key concepts that you introduce in your book.  So in Capitalism, Alone you take a global perspective on inequalities and you start by analysing different archetypes of capitalism.  For instance there is classical capitalism so think England in the 19th century; political capitalism as in China; social democratic capitalism where we have welfare states developing post-World War II, and liberal meritocratic capitalism exemplified by the United States today. 

And it’s this form of capitalism that I’d like to look at more closely, the liberal meritocratic model, and so while not as unequal as classical capitalism it does seem that liberal meritocratic capitalism still does a pretty good job at driving up inequalities.  So those with the means can send their kids to expensive elite schools who then marry the sons and daughters of other rich families. 

The assets of the rich earn the highest returns, making them even richer and this sort of contrasts with social democratic capitalism where trade unions, mass public education, taxes and social transfers have historically kept inequality in check.

So my question to you Branko was how did this transition from the social democratic model to a liberal meritocratic capitalism come about? Is this just a natural evolution of capitalism?

Branko Milanovic: Well it’s a good question.  Let me just try to answer how did the evolution happen.  You know this is not something particularly original.  I don’t discuss it very much in the book, perhaps I mention it in a few sentences. There was a clear change in the 1980’s in the western countries with Margaret Thatcher and Ronald Reagan exemplifying the change.

But the change happened elsewhere too.  It happened with Felipe González in Spain, and with François  Mitterrand in France. People might remember  that in the early 1980s Mitterrand attempted to make much more socialistic policies, including nationalizations, and then had to change course very dramatically.

Now all of this happened because of the general dissatisfaction with some performances of the social democratic capitalism: slow growth rates, too much social spending, stagflation, too much power in the hands of the unions. It was believed that with a dose of increased competitiveness, lower government spending etc. the growth rates would accelerate. This actually did not happen.

It was also thought that the government spending as a share of GDP would decline, but even if you look at that, it did not decline in Western countries over the next  30 years. So some of these expectations were unfulfilled but the system did change I think perceptively.

I focused in my book, as you mentioned, on the United States as a prototype of liberal meritocratic capitalism.  The US because of its size and importance, whether it be ideological or economic, is a very useful, I would even say natural, prototype of liberal capitalism that I’m sure we’ll say more about.

Isabel Scott: Okay so liberal meritocratic capitalism would then be an improvement upon classical capitalism but how about if we compare the liberal meritocratic model to social democratic capitalism?

Branko Milanovic: You know, I would avoid the terms like improvement, because they are normative.  Having said that, let me explain a few differences between classical capitalism, social democratic capitalism, and liberal capitalism.

First in the terms of types of income the people receive. If you go back to the 19th century capitalism, as for example described by David Ricardo and Karl Marx, you have very clear distinctions between the three factors of production, the three social classes, and the three types of income they receive.  There are landlords (and gradually these landlords became just land-owning capitalists), there are capitalists, and there are workers.  So essentially you have three and then two classes: workers and capitalists.

What is interesting here is that the entirety of income of each class is received from one source. Capitalists always receive income only from capital or from ownership of assets, workers receive from selling their labour power.  And often you have a very clear ranking of the classes, in the sense that landlords were the richest, then capitalists came at number two, and finally workers number three, and there was very little overlap between the classes in terms of their incomes. Not many workers were richer than landlords!

Now compare this to the situation today. Possibly for the first time in history, or at least in the past two centuries, we have a very significant share of people in the top who have a large share of their income (I’m not saying 100% but a lot nevertheless) coming from labour.  This  was not the case in the past.

So what you have now under liberal capitalism is rich people who are, by their economic definition, workers. Their income comes from the sale of labour. They have to work every day. They can do it, as now from home, or they have to show up in the offices, law companies or hospitals—but whichever way you look at it, they work   Now, obviously they are extremely well paid people: they are CEOs, they are in the world of financial management, heads of asset management companies, they can be also software developers, fintech guys, doctors.  But they are still, as I said, workers.  So this is a big change.

And if you look at the number of such people in the US and in Western Europe, you find that about one-third of the people who are in the top decile by total income are also the people who are in the top decile by labour income and finally by capital income too.  This was not the case in the past.  That’s one big difference between liberal and classical capitalism.

I will discuss in a moment whether  the difference can be actually interpreted as something very good or not. You can interpret it both ways.  But it is nevertheless a very significant difference: reduced importance of what used to be the key marker or the key class discriminator between different people.

Isabel Scott: But shouldn’t we still be aiming to have a sort of return to a social democratic capitalism as this would benefit most people?  At least we wouldn’t have just exclusively the rich as it were?

Branko Milanovic: Yes, Isabel, yes, I see that you want to push me towards discussion of the social democratic capitalism! So let’s do that.  Why do I actually use these two terms, liberal and meritocratic? They are not the terms that I use just because they sound nice, they come from John Rawls.

Now John Rawls, the American political philosopher, in defining equality actually speaks of two types of equality that I then use to define liberal meritocratic capitalism.  Meritocratic equality in his terminology is not what we casually call meritocratic today, not some kind of “deserved” income; meritocratic in his terminology simply means equality before the law.  So there are no legal impediments to economic success and there are no legally defined classes or casts. Thus it simply means that we all have the same legal rights.

So it implies actually very little in terms of redistribution, in terms of social democratic rights and so on.  When he comes to the definition of liberal equality he thinks that it corrects inequality in two ways; first, it corrects inequality by making public schooling dominant and better than private, because free education is a requirement for  the equalization of life chances between people who come from different families.

The second requirement is high taxation of inheritance. That follows the same logic as education because if you reduce the ability of rich descendants to take lots of financial assets then obviously you’re also equalising opportunities.  So he has two big equalisers.  One of them is education, the other one is inheritance. These two requirements, if fulfilled, give you a kernel of the social-democratic capitalism which you can then “augment” with more generous social insurance transfers (public pensions, unemployment benefits etc.).

And what have we seen, compared to the past?  We have seen that these two equalisers have really not performed more recently as well as they had in the past. You have an increase of the importance of private education. As you know, in the United States it’s an extremely expensive education for most middle class families, it’s sort of inaccessible for them and it is becoming increasingly so in Europe.

And on the other hand we have had also reduction of the marginal tax rates on top incomes.  We have further had in some cases elimination, and in other cases, significant reduction of taxation on inheritance.

Isabel Scott: So I’d like to move on to one of the key sort of concepts that you introduce in Capitalism, Alone which is the concept of homoploutia. What is homoploutia?

Branko Milanovic: Yes Isabel, I already alluded to that without using the word.  First of all it’s a new word, I made it up.  It’s like every time that we have a new phenomenon we create a Greek neologism.  “Homo” means equal, the same, and “ploutia” wealth.  The idea came from the observation, as I mentioned before, that you have in the top income groups an increasing percentage of people who are rich, both in terms of what is called human capital, that is, are very highly educated and have high labour incomes, and then on the other hand they also are fairly rich in terms of their property-derived or capital income.

We don’t really know how they have become rich both in human capital and in terms of property because we don’t have longitudinal data, but imagine that somebody goes to a very good school, has a very good job, has a high salary for 10 or 15 years, is able to save quite a lot of money, marries somebody who is very similar, invests that money, and then you find him maybe at 45 years of age or so, with both a very high salary and with very high property income. And thus high wealth.

And we observe empirically the increased percentage of such people in top income groups. As I said before, they are both rich capitalists and rich workers. And to give you an idea of the numbers, in the US about one-third of the people in the top decile belong both to the group of richest capitalists, which means that they are in the top decile by capital income, and to the richest workers, meaning that they are in the top decile by labour income.

Now go to countries like Mexico and Brazil that are much more classical-capitalist, and you find that that percentage is 6%.  And why is that the case?  Because either you have people who have high labour income but they don’t have capital, or people with large capital do not   generally work for wage. So in the classical capitalism the percentage of homoploutia is small, but in the liberal capitalism that percentage is quite high and probably increasing. This is the definition and the background to homoploutia that I discuss in the book.

Isabel Scott: In your book you also describe homoploutia as a dangerous phenomenon that has the potential to erode democratic processes, how come?

Branko Milanovic: Homoploutia as I was kind of describing it is in the opposition to the classical capitalism. You could say ‘Well this is actually a very good development’, you don’t have that very sharp distinction, a cleavage between capital owners and labourers.  You actually have labourers who are capital owners and the distinction between capital and labour, at least in their own personae, has been transcended.

Okay, so you say, well that’s good.  On the other hand if you have the situation that I describe you do have a very real possibility of creation of an impregnable elite. That elite is very resistant and invulnerable to shocks. Let me give you the reason.  If you have a shock on the capital side they have high labour income to fall back to; if you have a shock on the labour side, let’s suppose high unemployment suddenly among software developers, then they have a recourse too, and they can fall back upon the high capital that they have.

They are very resilient to change.  Furthermore, with low taxation, they are able to transfer many of these advantage to their descendants.  And thus you really create an elite that inherits social and economic advantages over time.  On top of that, as we mentioned in passing, there is a greater presence of (to use another Greek word) homogamy, marriage between people with similar incomes. This exacerbates the tendency toward the formation of the elite.

So the danger is, to summarise it, the creation of a new elite which would be able to transmit its advantages across generations.

Isabel Scott: So I hope my question is not obvious, but would homoploutia reduce social mobility?

Branko Milanovic: Well that’s the idea actually.  I cannot say that we currently can link homoploutia to the reduction of social mobility because the two types of studies developed independently.  But we do actually observe a reduction in social mobility in a number of countries.  And we find the reduction of social mobility to coincide in terms of timing with the increase of inequality.  Now whether the two things, or all three things or to say it more exactly, the three phenomena, go together I really cannot tell yet.

But there are three things which clearly are somehow related: increased inequality, increased homoploutia that I just talked about, and reduced social mobility.  And to then link it up to the question that you asked, if this is indeed true that a new elite is being created. Moreover an elite that, as argued by Daniel Markovits in his book about meritocracy The Meritocracy Trap, is an elite that believes that its multifold advantages are well deserved.  That elite would also gradually (and perhaps that they are already doing it now) control the political process.

So you really then have a problem; you have a problem of an inherited elite that gradually takes over political power.  And that was the point that you alluded to before regarding, I would not say the danger to democracy, but a sort of too much influence on the democratic process coming from a relatively limited number of rich people.

Isabel Scott: So you do say that the fact that people who receive income from capital also work for their money, and that would make it harder to hike up income tax rates since todays wealthy then are seen as having earned their money as we said, through work, and then the perception is no longer that they simply inherited their money, or live off investments. 

So my question would be like what role could income taxes play in tackling inequality?

Branko Milanovic: This is a very good question. I think that we have to – I hate to use this word “multidisciplinary”, but we really have to look at this whole thing in a very multidisciplinary fashion. I mentioned the book about meritocracy by Daniel Markovits who is a legal scholar. He emphasises that element of perceived self-deserve.  In other words the perception by that group, by the elite, that the advantages that they have are well deserved because they are the advantages of good education and hard work. As we know from statistics people with higher income levels work more hours than people with lower income levels.  That was the opposite in the past.

I was recently reading Marx and Marx mentions, following Adam Smith, that ‘People who work the hardest are the poorest.  People who work the least are the richest.’  Now we don’t have that situation any more.  That makes the elite feel deserving of the advantages they enjoy.  And that also to some extent makes taxation of such high incomes politically more difficult. Because if you have, like in the past, guys who are just clipping coupons to make money, you can say “Well, they are doing nothing really so why not tax them?”

But here you say “These people are working 70 hours a day” – sorry, 70 hours a week, some of them would like this to be 70 hours per day but it’s hard! – and then you have a resistance to that higher taxation, among the elite and even among the rest of the population.  This, I think, makes it more difficult to tax them highly. And, on the other hand, if you don’t do it, you undermine these two original things that we mentioned before, that John Rawls introduced in his 1971 book A Theory of Justice, you undermine the ability of the state to control transmission of wealth across generations and you undermine the ability of the state to provide about the same level of education for everybody regardless of their financial starting points.

Isabel Scott: So if you are saying that for those reasons taxing would be politically unviable, do you regard that for all taxing?  How about taxing capital, dividends etcetera, would that be a possibility?

Branko Milanovic: No, no  I am not saying it’s unviable, I mean we still do have taxes! And some taxes are pretty high too. I am just saying that ideologically increasing taxation on such high incomes becomes harder to justify, and it is in that context that I think we should interpret a general unpopularity of inheritance taxes.  As you know, in a number of countries they have been totally eliminated.   In other countries they actually kick in only at fairly high levels of wealth.

These taxes are not very popular, and I try to argue in the book that we should not think of every problem as being solvable by taxes.  So let’s slap one tax here and slap another tax there.  What we should, I think, try to do is broaden the ownership of capital because when you have capital still being owned by a relatively small percentage of people (and this despite the homoploutia that I talked about that holds only for the top of income distribution), any increase in overall income from capital implies an increase in inequality.

Let me try to make this important point clear. If we have a concentrated ownership of capital, and if the share of total income from capital in GDP increases then that pushes inequality up by definition, automatically as it were. Broadening capital ownership thus becomes crucial in order to control inequality. How to do it? Making advantages for small investors through tax policy, or introducing worker ownership in much more serious ways than we have done so far.  Of course, the regulations exist in many countries  for that but their role is small.  This is what is technically called equality in “pre-distribution”: making the field more equal before you come to the tax and transfer policy.

Isabel Scott: Okay thank you for that.  You know I wanted to address one issue that some book reviews  state regarding your book, saying that espouse the view that there is no alternative to capitalism, how do you respond to that claim? Can I just simply say what it is, is this current economic model is the best that we can ever hope for?

Branko Milanovic: You may remember there was a small section in the last chapter of Capitalism, Alone where I intentionally used TINA (there is no alternative) from Margaret Thatcher.

What I meant is the following; if you look at the current state of the world what you notice is two things regarding the extent of capitalist relations of production.  First, they have spread all around the world.  You didn’t have that until the fall of communism where you had a large part of the world that did not have capitalist relations of production.  Now that has changed.

Even China –and of course that’s a separate topic, the topic of what I call “political capitalism”—is  by all measures about private ownership, about the number of people who are employed in the private sector, about the source of investment funds, overwhelmingly capitalist.  It has a different role of the state but we will not talk about that right now and that’s why it’s called political capitalism. Or you may call it state capitalism if you wish, but it’s nevertheless capitalism.

Second, in many activities which were not commercialised in the past, we have an increased commercialisation, that is, introduction of capitalism.  These are activities like AirB&B, Uber, renting apartments, using your free time to make money (think of “influencers”) and so on.  This is the typical thing that socialists were discussing before World War I: the issue of the spread of capitalist relations of production. Capitalism always needs to expand because otherwise it can make no profit and you cannot have capitalism with zero profit. Would anyone invest or become  an entrepreneur for nothing? It is like asking, will people willingly work for nothing? Of course, not. And that’s where this expansion into new activities, the commodification of many things comes in.

So to conclude: there are two things which I see as dramatically…well, significantly, different from the past.  It is the geographical dominance of capitalism and the creation of new activities. And I mention of course the role of family there, and the fact that when activities that formerly were done within the household and were not commercialized become commercialized the importance of family declines. You see that clearly in rich countries.

Take Scandinavia: the average household size, as we know from surveys available in Luxembourg Income Study, is barely above one. Why? Because, as the data say, people prefer to live by themselves if they are rich enough and if the typical family activities are now provided by the market. For comparison, think that in many African countries, the average household size is 8 or 9. Do Africans love to live in large households? Not necessarily, but they are not rich enough to hire people to take care of the elderly instead of doing it themselves, or to employ dog-walkers to entertain their pets.

Isabel Scott: Okay.  Fair enough in terms of these changes that happen but from my understanding there is no fundamental calling into question of the model, and I’m just wondering how sustainable that is considering we are in a climate crisis, rising inequalities and so on?

Branko Milanovic: So, Isabel, let me answer this question first by being clear about what we mean by capitalism because people call capitalism or socialism many things.  I use in the book a very economical, very succinct definition that was used by Marx and by Max Weber, and it has three components.

It says capitalism requires first that most of production is conducted using privately owned means of production.  Okay, that’s number one.

Secondly, most of labour must be hired labour which means that labour is not having the entrepreneurial role. Workers do not manage companies. You go and you say “Okay I would like to work for your company, and I am being told what to do”.  So workers are part of a hierarchical structure where they are selling their labour power, and that’s it.

And the third part of the definition is that the coordination of economic decisions is decentralised.  So companies are not told what to produce, they produce whatever they want. People are not told where they should be working, they go and work wherever they want.

Now when I apply this definition, as I said before, to China, it turns out that China is basically capitalist.  And people ask me, “Okay, can we imagine socialism now, can we transcend capitalism?”.  I say “Let’s look at the three part definition”.  Are you in favour of state ownership of the means of production?  Number one.  Nobody is in favour of that, as a dominant form of ownership. So, skip part one of the definition.

Are you in favour of workers having an entrepreneurial role?  That’s more likely because here you have an important ideological movement that would actually like to see greater democracy in the workplace, and you even have the rules of “co-determination” as in Germany. When workers take an active part in decision-making in companies, yes, one part of the definition of capitalism gets weakened.

The third one: Is anybody against decentralised coordination? Very few people are.  So really where I can see the change happening that could transcend or change capitalism is at the level of greater democratisation of the workplace.  And I will give you an example which I think is interesting. Take start-up companies. Employees are the people who have the idea and who run the enterprise. They borrow capital, but the owners of capital are not the deciders. They are not the decision-makers.  They are simply lenders.  And you see there that the relationship of power changes.

So I do allow for change but we have to be clear what we mean by transcending capitalism.  It’s a cool term, but I like to see it really precisely defined. I also would like to highlight that the definition of capitalism has to be located in the sphere of production, nor in the sphere of redistribution. If you have capitalist relations at the workplace and large redistribution, as you do in social democracies, it is still capitalism. In other words, hierarchical relations in the workplace are at the core of capitalism.

Isabel Scott: Thank you Branko, I’d just like to return to, because there has been a question in the chat regarding the point that we talked about with taxation where you suggest broadening ownership of capital, but could you develop the options on taxation?  So what types of taxes would be viable, acceptable, do you see what we’re getting at?

Branko Milanovic: I see what you are getting at but I have to say that in the book if you look actually when it comes to the recommendations I was very ( again to use the same word), “economical” for two reasons.

First, I don’t know well enough the conditions of individual countries and places.  To have a blanket sort of statement is not particularly useful.  And the second reason is that I have grown somewhat allergic to a permanent call to use of taxation as the solution for any problem.  There is a kind of redundancy of taxation proposals.  I do believe that taxes have to play a very important role, and they do play an important role, but, I think that we should also try to think more broadly about what I called “pre-distribution”, in other words, of equalisation of starting positions by, for example, broadening asset ownership.

And that broadening of asset ownership is the broadening of financial ownership but it’s also broadening of human capital ownership. A very simple example will suffice. If you have essentially private education at the university and graduate level which is inaccessible to the middle class families, then you really have to some extent a monopoly, even over human capital. And thus when I am speak of broadening I am really thinking of broadening both in terms of traditional ownership of physical assets,  but also in terms of accessibility to the high levels of education.

I really would like to shift the discussion more towards that, and not thinking that whenever we have an issue we need to find a new tax.

Isabel Scott: Okay thank you for clearing that up for us. I’d like to move on to this one concept that you sort of introduce as not the third way but that you talk about this different form of capitalism that we could move towards. You call it people’s capitalism.  What are its main features?

Branko Milanovic

People’s capitalism really follows from what I was just saying now. You can theoretically imagine the situation where everybody (I would put it in an extreme form) would have an equal share of capital and labour income, say 30% from capital and 70% from labour. So in other words this would be the homoploutia about which I talked before but not limited to the rich people. The homoploutia would become widespread.

Note that you are not solving the inequality issue because inequality can still exist simply because you can have more of both capital and labour income than I, so you will be richer and there will be inequality.  However, that inequality would be in some ways in practice more limited because of the absence of the heavy concentration of capital incomes that currently exists. In rich countries,  30% of people have zero capital, others have very tiny capital income, and their sole ownership is  housing.  It’s only when you come to the top 5% that you really have a significant share of income from capital.

But if you had “people’s capitalism” where the shares of income from labour and capital will be the same, or more or less the same, across population, you would reduce the intrinsic inequality which comes with a greater concentration of capital, and you would also eliminate the quasi automatic effect pushing inequality up with the increase of capital share in GDP, of which we talked before.

Just to be clear, the homoploutia which is now limited to the top, should be much broader, go to the lower parts of income distribution. That implies that the ownership of capital, as I was saying before, would be widened. This would be people’s capitalism.

Isabel Scott: Okay so I get that the idea is widen the share of the cake as it were, but what changes… I mean we are talking theoretically but what changes would need to happen in order to move towards that form?

Branko Milanovic: I mentioned for example the broadening of capital ownership. This is not original as such. People have been talking about this for a while as you know.  Many people of my age might remember that that was the idea, believe it or not, of Margaret Thatcher. Nothing happened with that except the privatization of council housing.

You could give significant share ownership to workers. We currently have the situation where only the top guys, the managers and very rich CEOs and financial officers, receive shares as payment for their labour services.  You could make shares also be received by workers.  It is true that many of them might sell them, although you can also have legal rules which would incentivize workers to keep shares so that they remain invested in the company. In addition, as I think I already mentioned, one could give special tax advantages to small investors.

There are all things that have been done but in a fairly modest way so far. They could be increased very substantially. There are proposals (I think Isabel Sawhill in the US made one) of tax advantages for the companies that follow such pro-worker shareholding policies. There are ways of doing it, and as I said this is not something totally new, but here, in my book, it is put in a new context.

Isabel Scott: And in what way would that change, or would that be a different…you sort of contrasted this people’s capitalism to the liberal model and could you also do that in comparison to social democratic capitalism?

Branko Milanovic: You know there is one big difference between people’s capitalism and social democratic capitalism.  Social democratic capitalism is essentially based on redistribution after the so-called primary or the market incomes have been received. The entire role of reducing or controlling inequality is given to transfers and taxes.  All of this is linked to the insurance principle because the insurance principle kicks in in the case of unemployment benefit, old-age pensions, and benefits that are linked to other life events like having a child, being sick, having an accident at work and so on. This is the philosophy of social democratic capitalism, very nicely explained and discussed in a recent book The Nobel Factor by Avner Offer and Gabriel Söderberg.

The philosophy of people’s capitalism would be not to change that part but to make the pre-distribution, or the objective of more equitable ownership of financial, physical capital and human capital be at the center stage.

Let me put it like this – to give you a real world example. If you look at two countries Taiwan and Canada, they end up with about the same Gini coefficient of disposable (after-tax) income. Canada, which has a social democratic system, transfers about 35% of GDP through  taxes and transfers in order to reduce inequality of market incomes.

Taiwan which has a very equal distribution of capital ownership and doesn’t have high wage inequality, transfers less than 10% of GDP to achieve the same result. What I want to say is that if you had more equality at the primary stage you would actually need much less of redistribution at the secondary stage.

Does this make sense?

Isabel Scott: Yes, that does, thank you. It really helps situate it.  Thank you very much for that.  I would like to come back to the homoploutia concept because you describe how there is this economic elite that increasingly controls politics or influences politics for its own benefit so if the rich dominate politics to that extent how could, say a wealth tax be implemented?  Doesn’t that make it then impossible to move towards a people’s capitalism?

Branko Milanovic: I think it makes it very difficult to move because you really have to ask people who are benefitting from the system and who are controlling the system that they should tax themselves.  And that they should limit their own political influence. I think it’s quite difficult, and I think we have not paid sufficient attention to that.

You know that there is a general perception that populism is the threat.  Now I am not going into the discussion of what is populism and how to define populism but I think there is a much greater and real threat and that is a threat of plutocratic capitalism. We sort of forget about that. Perhaps we forget about it because we have gotten used to it, we have normalized it. I do not know.

There is a nice work done for example by Julia Cagé in France on the control of the media by very rich people. The same is true in the United States and elsewhere. Take for example Elon Musk who has bought Twitter. But before that Jeff Bezos bought the Washington Post; The Atlantic Magazine is owned by the wealthy widow of Steve Jobs. We have  essentially accepted that rich people can own the media without any limit, and by owning the media you are of course creating the sort of intellectual milieu, the atmospherics, whereby you influence thinking about what is considered acceptable policy or not. Perhaps this is why we have “normalized” plutocratic capitalism.

And this comes in addition to their direct influence on policy, particularly in the US, through contributions to electoral campaigns.  I discuss in Capitalism, Alone not only the so-called “dark money” but also an interesting fact that of all types of spending, contributions to electoral campaigns in the US is the most concentrated form of spending. More than spending on private jets or yachts. And you have also the influence of the rich through their contributions to the university system. I am a beneficiary of that too because the Stone Centre was founded by a rich person. He is a very nice and “correctly thinking” person but the broader question must be raised: Should the educational system depend on the rich people?

The control of the media and the dissemination of knowledge, the  concentrated electoral contributions, influence over the university system and thus over the creation of knowledge…if you put all of this together, you create an atmosphere where an alternative policy, not supported by the rich, is very difficult to envisage. To see how you can push it through is very difficult to see.  And that’s why the current system does not allow for approximately equal political power across individuals.  I don’t want to use the big word like democracy, I just want to say that ideally we should have a system with an approximately equal political power for all.  And clearly we don’t have that.

Isabel Scott: You gave these examples of US media being bought up by these big rich billionaires etc., and just to sort of shift that focus, your book focuses a lot on the US, on China, and I was wondering in what way does your analysis translate to Western Europe, or even Luxembourg?

Branko Milanovic: I do think that it does translate. Let me give you several examples.  I already mentioned the work of Julia Cagé regarding the media ownership in France. The point here is not the concentration of the media ownership, the point is that the rich people own most media.  They may be, and are, different rich people with different political views, but that doesn’t change the fact that if you are not sufficiently rich your influence over the idea dissemination is limited or even nil. The social media like Twitter and Facebook can help that: they give the voice to the voiceless.

Similarly when it comes to the educational systems we can see that even Continental Europe has moved towards the American model.  It is not there yet but private education which is still relatively accessible judging by American standards is becoming less so. And if you extrapolate what has happened over the past thirty years to the next thirty years, the European educational system will become more like American.

The United States, as I said before, is not only excellent prototype of liberal capitalism because it’s such an important country, but because certain of the phenomena are much clearly seen there. They are simply more obvious. And in the book too I actually don’t think that Europe is a very different “sort of animal”, politically and economically, from the United States.  And even if you look at policy changes which happened with covid, or with the Global Financial Crisis in the US and Europe, you do see strong similarities.  And you see  these similarities because the economies are very similar, and consequently they react in the same way. So, yes, I acknowledge that Europe is somewhat different, but I don’t see it as an entirely different model.

Isabel Scott: Yes, it’s really interesting that you sort of touch upon how the US being so clear cut in its ways, it’s such a good example, whereas looking at Western Europe it is less obvious and that’s sort of my question that I’d like to ask because is social democracy, is that model still the dominant form in Western Europe or are we…we’re not exactly where the US are at, are we a hybrid?  What would you say?

Branko Milanovic: From my point of view, and I’ll explain in a minute where my point of view comes from, but from my point of view this is the same model with two different versions. With just slight differences.

Let me backtrack a bit. Some time ago I criticised political scientists and got into a fight with them. For the last half a century political scientists have worked on the varieties of capitalism, and perhaps that until 1989 it made sense for them to focus only on Western Europe and the US and Australia, and New Zealand.  However, the world has changed since, and we have not only capitalism elsewhere, as I was saying before including China, but even if you disagree with me on China, we have capitalism in Indonesia, in Nigeria, in Brazil, in Argentina, in Poland, in Ivory Coast, in a bunch of countries.  And somehow they are not in this varieties of capitalism literature.

Why is this important? Because if you have this worldview where you look at the West only, then the differences between  the European Union and the US, appear big. They are big because you do not take into account anybody else. But from the global perspective, Europe and the US look very similar: from that perspective you see similarities much more than the differences.  If  your objective is just to study whether Luxembourg is different from Sweden and Sweden is different from Germany, of course you are going to see difference in policies towards unemployment, towards maternity leave, towards the number of days of sick leave, but I believe, and that’s what I was trying to explain, that if you take a global stance, these differences are much less important than the similarities between the Continental European model and the United States.

Isabel Scott: You’ve given us your – I’m not sure, ideal version of where we could be headed with people’s capitalism but let’s say realistically, what is your suggestion or rather your view of where we are headed, moving forwards.

Branko Milanovic: If you want me to summarise it in a sort of strong form, you can say there are two different ways to go. One way to go is to continue with the increased importance of the rich in the political sphere through all the channels that I mentioned including the transmission of different advantages across generations, and thus to create de facto a new elite. That would be an elite which would be co-opting new members, which would be a hard-working elite, but it would be nevertheless an elite. We may not be aware of that for another one or two generations and only then would we notice that the same people, the same families rather, always stay on the top.  So that’s one possibility.

And the second development is to make the changes that we talked about, in taxation policies, but more importantly in these two things that Rawls has identified: the transmission of inherited advantages, in the educational space and in the financial space. If one were to achieve this, the transition to an elite-based system would be very difficult.

This is, I think, the basic choice.  And if I can link it to my new book which looks at inequality over the last two centuries (it starts with François Quesnay and goes all the way to the 1990’s) what you notice is that the writers like Quesnay, Smith, Ricardo, Marx, always talk of classes and we also started our discussion today with classes.

With Pareto, we begin to talk about the elites. The class cleavage is less important today, as we were saying in the early part of our conversation, but the elite cleavage has not disappeared and perhaps that it is stronger today than it was twenty years ago.  The real present danger is the creation of the new elite. We should not imagine that if we have “solved” to some extent the class problem, that we have entered the world where everybody is equal, where the elites do not exist. Our thinking, both in economics and sociology, has really to go much more in the direction of studying the maintenance of power, economic and political, by the elites.

Isabel Scott: Well thank you very much Branko Milanovic for your time, and I think that said, I’ve done my questions so we’re done for the round but I know that there are probably more.

Branko Milanovic: Thank you very much Isabel, I really appreciate it. I think we have covered practically everything possible with the exception of assortative mating, which I forgot to mention is one way in which these elite advantages are further consolidated. It is also an ambiguous development. It is positive, or good, because it gives greater power compared to the past, and especially so to women, to marry whom they want.  But on the other hand it consolidates the elite.

Thank you very much for your questions and I again want to say that I am really very happy that we had a chance to have this conversation.

Thank you.

Isabel Scott: Thank you very much.