The post-Great Recession expansion, the longest bull market in U.S. history, has met the matador.
For the second time in the past 20 years, the federal government is single-handedly keeping the economy afloat.
As the coronavirus pandemic burns through the population, it has brought economic activity to a standstill. The social distancing and isolation necessary to beat back the virus come with a ghastly economic cost — 26 million people have filed for unemployment benefits, and food banks are struggling to keep up with demand. That staggering number is an undercount of the unemployed, as undocumented immigrants are ineligible for benefits, and freelancers, gig-economy workers, and the self-employed are still navigating an unclear process.
While the exogenous shock to the economy has destroyed trillions of dollars in wealth — stocks have plummeted and rents are not being paid — the COVID-19 illness will send more working and middle-class Americans into bankruptcy than into the grave.
Economist Branko Milanovic argues in his new book, Capitalism, Alone: The Future of the System That Rules the World, that capitalism has achieved unrivaled global dominance and there are now two prime variations of it: what he calls meritocratic capitalism, in the United States, and political capitalism, in China.
“Meritocratic” signifies liberal democracy, the rule of law, the absence of formal legal barriers to capitalist participation and a veneration of wealth accumulation. While the wealthy and corporations have inordinate power to influence government, Milanovic sees “an instrumental advantage of democracy.”
“By requiring constant consultation of the population,” he writes, “democracy does also provide a very powerful corrective to economic and social trends that may be detrimental to the populace’s welfare.”
Nevertheless, inequality is a key feature of American capitalism and Milanovic tracks how income and wealth inequality have been growing for decades. The wealthiest 10 percent of U.S. households control 70 percent of the country’s wealth, while the bottom half owns just 1.2 percent of it. This inequality brings a myriad of unequal outcomes and power imbalances.
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, has said that coronavirus death rates and intensive-care intubations have been higher among African Americans because they have a greater prevalence of “underlying medical conditions.” Unless Medicare for All is suddenly enacted, laid-off working people who lose their health insurance are likely to face massive hospital bills if they get sick.
Milanovic does not use the phrase “regulatory capture” but makes the point that in American capitalism there is little to no difference between government and corporations. The Supreme Court’s 2010 Citizens United decision gave monied interests near-unrestrained access to election “markets,” where they can funnel “dark money” to campaigns without disclosing its origin.
The COVID-19 epidemic has exposed the failure of the right-wing ideology of limited government involvement in markets and unfettered individualism over the broader social good.
For the second time in the past 20 years, the federal government is single-handedly keeping the economy afloat with massive stimulus spending. President Trump’s most fervent and heavily armed supporters have descended upon multiple state capitals to defy the social-distancing and business-closing regimens mandated in an attempt to stop the spread of the coronavirus. They demand reopening the economy now, and damn scientists’ warnings that loosening those restrictions prematurely would cause mass deaths.
As part of the stimulus package, many Americans will receive a $1,200 check — a possible nod to Andrew Yang, who sought the Democratic presidential nomination on a platform of advocating universal basic income. The idea has attracted some supporters on the left, who believe that it could ease inequality; the attraction for the right is that it could ease demands for expanding public-assistance programs such as Medicaid. Milanovic is skeptical. He believes that universal basic income would necessarily trigger cuts in other social spending and erode belief in social democracy’s philosophy of social insurance and interconnectedness. “UBI does not insure against risks; it completely ignores them,” he writes.
While economic inequality is increasing within Western democracies, the gap between the West and other countries is narrowing, due to the rise of China and other Asian nations. China’s spectacular economic transformation from Maoist communism to Deng Xiaoping’s opening to global markets has brought decades of growth in its gross domestic product, largely uninterrupted until COVID-19 arrived.
Milanovic sees China and Vietnam’s social and national revolutions of the mid-20th century as paving the way for what he calls “political capitalism.” He quotes Mao, “Two big mountains lie like a dead weight on the Chinese people. One is imperialism, the other is feudalism.” Mao Zedong wanted to reform land ownership and destroy the concentrated wealth that kept the vast majority of the country stuck in generational poverty; Milanovic quotes scholarship that portrays Mao as both a modernizer and a critic of Western-style modernization.
Capitalism, Alone defines Chinese political capitalism’s three systemic characteristics as: an efficient bureaucracy to manage capitalism; no independent rule of law, as the state decides where, when and to whom to apply the law; and the autonomy of the state, as the government is distinct from the capitalist class.
Political capitalism’s key advantage is the government’s ability to take swift and decisive economic and political action, as was seen in the quick lockdown of Wuhan Province. Through this model, the Chinese Communist Party delivered high growth rates, incomes and wealth to the capitalist class. Ironically, being a Communist Party member is often the most expeditious entry to China’s capitalist class.
That nexus is also the weakness of political capitalism. A test is coming, as China recently reported that its GDP shrank by 6.8 percent in the first quarter of this year, its first contraction in decades. If the Chinese model can no longer deliver economic growth, will its citizens demand something else?
Milanovic, while not discounting Western corruption, believes that not having the rule of law inevitably creates corruption. Protests in China are far more frequent than is known outside the country. There are tens of thousands of what observers call “mass incidents” or large protest gatherings each year, mostly against political corruption, land seizures and other governmental actions.
President Trump encourages xenophobia, calling the coronavirus the “Chinese virus” and blaming Beijing for its spread, even though scientists believe the vast majority of infections in New York originated from European travel. But the pandemic calls for both collective social-democratic and massive governmental responses.
Once the epidemic has run its course, tens of millions of people will still be unemployed. An emergency Green New Deal is the type of infrastructure stimulus that would create jobs for both blue- and white-collar workers and deliver generational benefits. Medicare for All is the more immediate need, with hospitals overwhelmed and the unemployed becoming the uninsured. They need health care now and, in the months ahead, a job.
Capitalism, Alone: The Future of the System That Rules the World
By Branko Milanovic
The Belknap Press, 2019