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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsAntifragile states
Branko Milanovic explains how globalisation has allowed small states to become major players and big cities to outgrow their nation-states.https://www.socialeurope.eu/antifragile-states
In a series of books, and especially in Antifragile, Nassim Taleb has introduced an important conceptthat of being antifragile, referring to things that gain from disorder. Fragile is, of course, the opposite: it connotes something that thrives under stable conditions but, being brittle, loses, and at times loses big, amid volatility. In the middle, robust indicates resilience against uncertainty and turmoil, without the capacity to profit from it. The contrast between antifragile and the two other categories relates to that between centralised, top-down formations (such as unitary states) and decentralised, bottom-up and more flexible, federal structures. As an example of the latter Taleb takes Switzerland, with its decentralised cantonal system and grassroots democracy.
But Switzerland is also antifragile in another sense. It has historically been a country that benefited from turmoil and disorder outside its bordersfrom wars, nationalisations, uncertain property rights and outright plunder. In all these cases, whether Jews were trying to save their property from Aryanisation, Chinese millionaires feared a revolution or African potentates needed a haven in which to park their loot, Switzerland offered the comfort of safety. It was (and is) the ultimate antifragile state: it thrives on disorder.
Dubious legality
While Switzerland became emblematic of such a safe haven, it is hardly unique nowadays in benefiting from it. Globalisation and worldwide turmoil, combined with openness of capital accounts, have allowed many small economies to specialise in functions which run from asset safety and money-laundering to tax avoidance and evasion. In most cases, the legality of such transactions is dubious; many belong to the grey zone where neither full legality nor full illegality can be attributed. In western Europe, Liechtenstein, Luxembourg and Ireland have engaged in stimulating tax evasion, including from neighbouring countries. In his Hidden Wealth of Nations: The Scourge of Tax Havens, Gabriel Zucman documents the large outflows from Switzerland and inflows into Luxembourgs banking system which followed the (forced) decision by the Swiss authorities to impose withholding tax on accounts held by foreigners.
Irelands provision of safe haven from taxes to various large multinational corporations received quite a lot of attention when the European Commission obliged the county to assess these rates, particularly for Apple, at other than zero. In what may well be a singular historical case, the Irish government complained about having to receive billions more taxes! Elsewhere, as in the Caribbean, small nation-states have specialised in providing the legal framework for shell companies. In Capital Without Borders: Wealth Managers and the One Percent, Brooke Harrington describes a single building in the Cayman Islands which houses headquarters for several hundred companies. Shell companies have played an enormous role in the money-laundering which followed privatisations in many east-European countries after 1989, as well as in providing cover for many illegal activitiesfrom drug and arms sales to people-trafficking.
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Branko Milanovic: Why we are all Capitalists now! And how this could reduce inequality
Watch Social Europe Editor-in-Chief Henning Meyer in conversation with Branko Milanovic. They discuss the evolution of capitalism, inequality and technology based on Branko's new book "Capitalism, Alone" published by Harvard University Press.
Branko Milanovic is one of the world's leading experts on inequality. He is a visiting presidential professor at the Graduate Center of the City University of New York and an affiliated senior scholar at the Luxembourg Income Study (LIS). He also teaches at the London School of Economics and the Barcelona Institute for International Studies.
If you like our podcast you might also find our regular articles, blogs and other written publications of interest. Just visit our website https://www.socialeurope.eu to read our latest output. If you want to stay up-to-date with all things Social Europe just sign up to our regular newsletter. You can do so on our website.
Capitalism, Alone: The Future of the System That Rules the World Book Review
If capitalism has triumphed to become the sole socio-economic system globally, what are the prospects for achieving a fairer world? - reviewed by Roberto Iacono
https://blogs.lse.ac.uk/businessreview/2019/11/17/capitalism-alone-the-future-of-the-system-that-rules-the-world-book-review/
Capitalism, Alone by Branko Milanovic is a remarkable book, possibly the authors most comprehensive opus so far. For economists working on inequality measurement, often accused of dealing with measurement without theory, Capitalism, Alone provides a novel paradigm within which analysis of distributional issues in different economies and social systems can be placed. The overall thesis of the book is that, for the first time in global history excluding a few country cases, capitalism (referring to production organised for profit using wage labour and mostly privately owned capital) is currently the sole socio-economic system in the world (2).
This does not entail the end of history however, since a set of typologies of capitalism are sketched by Milanovic in the book although the author does this in a more stylised manner than usually provided in the academic literature on varieties of capitalism. In my view, the main contribution of the book lies precisely in the neat way Milanovic categorises these ideal-typical social and economic systems, as I explain in the following.
Liberal Meritocratic Capitalism represents the typology of capitalism embraced by the core economies of the West, with the US being its most paradigmatic example. Individuals in liberal meritocratic capitalist states receive positive shares of both capital and labour incomes, whilst tax and transfers redistribute a fraction of those incomes. The moderate degree of redistribution does not, however, erase social separatism (215), entailing that the rich consume more private education and health services than the middle class and the poor. Due to this, intergenerational mobility under liberal meritocratic capitalism is not necessarily high. Last but not least, democracy is one of the main strengths of liberal meritocratic capitalism, since the feedback of voters ensures, in principle, that the system does not end up failing in the provision of basic liberties (defined as a primary good by John Rawls, 208), although at the cost of lower growth rates of income than liberal meritocratic capitalism could achieve by retrenching these rights.
Up to this point, not much novelty. However, Milanovic reaches further than other scholars working on capitalism by defining a novel phenomenon that alone encompasses several challenges that liberal meritocratic capitalism has been facing in recent decades: homoploutia (34). Namely, the rising share of the population earning both high labour and capital income (hence owning the same homo, wealth ploutia). Although the association of high labour and capital income at the top of the income distribution has been studied by economists before (by Tony Atkinson, among others), it is in Capitalism, Alone that this concept is embedded for the first time within a thorough analysis of the underlying socio-economic system. Why is a rising degree of homoploutia dangerous within liberal meritocratic capitalism? Because it allows economic elites to become more autonomous from the rest of society, and to overlap to a higher extent with political elites, introducing plutocratic features. If this distortion expands, the danger is that liberal meritocratic capitalism would assume the contours of the other main typology of capitalism analysed in the book: Political Capitalism.
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