The politician Javier Solana and the economist Branko Milanović discuss inequality and the future of capitalism at ESADE. Branko Milanović believes that “there is a risk that the contradictions of Chinese capitalism put in question the system itself”.

“The capitalist system in China has very particular characteristics which can sometimes mean big contradictions, for example, that the absence of the rule of law causes corruption, and corruption puts at risk an efficient administration. There is a risk that these contradictions could put the legitimacy of the system in question, said Branko Milanović, visiting professor at the Graduate Center of New York University and at IBEI, in a discussion with Javier Solana.

Milanović believes that the Chinese system could be called “political capitalism,” using Max Weber’s term, which is used for those systems that turn political power into economic power. Moreover, “in terms of competition, China is much more capitalist than other Western countries that call themselves as such. Its growth model is based on high competition and the technological revolution.”

A new global power imbalance

During the discussion, Milanović brought up some of the main themes of his upcoming book, “Capitalism, Alone”. The world has changed dramatically in recent years due to globalization and the emergence of new superpowers such as China and India. “Asia is becoming more and richer. Many developing countries have become developed countries and now have a very significant economic weight, “said the Economist, who has assured us that we live in the third epoch since the Industrial Revolution,” the era of convergence and Internal Divisions. ”

Both Solana and Milanović believe that globalization is producing imbalances that we will have to correct in order to reduce or eliminate the resentment of the middle classes of the developed world, the so-called “losers of Globalization”. As Milanović has pointed out, China’s growth correlates with the crisis of developed countries, and this circumstance causes some governments to gamble on radical measures to alleviate the effects on their domestic economies. Milanovic believes that “despite the imbalances, the effects of globalization can be corrected by influencing redistribution policies and other measures such as investing in the welfare state, and already proposing politicians like Alexandria Ocasio-Cortez in the United States “.

As for the technological changes, Solana commented that during his last trip to China he visited the Huawei factories, which are fully robotic. Milanović believes that technological change in China has happened in a very short period of time, implying that the related social and economic changes have been drastic, both within China and the rest of the world. “China has become a decade-leader in several sectors, including technology, something no one expected,” he said. The expert also raised the question of whether China would be willing or pressed to export its model or whether other countries would copy its growth model. It has also referred to the question of whether the emergence of the middle class in China can lead to a change in the long-term political model.

Tools, interlocutors and global organizations

Javier Solana explained that “the tools to solve the social problems and imbalances that are derived from the increase of inequality need to be renewed.” In this regard, Milanović has argued that “capital and labor movements have been internationalized, and so we need to redefine what the tools and social partners should be to talk about inequality and alleviate their effects Negatives in this new scenario”.  Solana and Milanović have also debated the extent to which the Bretton Woods institutions are no longer valid to represent the reality of the countries and the global economy. “Global changes, and the emergence of new superpowers such as India or China, in turn, make big changes in the overall weight of the rest of the global players, but global institutions have not reflected this new reality,” said Milanović.