by Umut Deniz Dinc
Charles E. Wilson, President Eisenhower’s nominee for the Secretary of Defense of the United States, was pressed in a 1953 Senate confirmation hearing about his ownership of General Motors stock, and his position as CEO of the company. Wilson’s response: ‘what is good for our country is good for General Motors and vice versa.’ Wilson was not alone in his conviction – today, executives at many big corporations would even say that what is good for their company is good not just for their country, but indeed for the entire globe. British Petroleum CEO Bob Dudley told a Chatham House audience this year that ‘what is best for the world is also best for the company,’ before proceeding to laud the efforts of the non-ironically named ‘Oil and Gas Climate Initiative’ in ‘saving the planet.’ For Mark Zuckerberg, there is an intimate connection between ‘bringing the world closer together,’ the mission of Facebook, and ‘ending poverty, curing disease, stopping climate change, spreading freedom and tolerance, stopping terrorism.’
These statements may well give us reason to pause: confounding corporate interest with public interest is hardly uncontentious, and recently these statements seem to have less and less bearing on reality. Despite the world economy’s considerable growth in productivity and overall output over the last forty years, median real wages in the developed world have grown very little, if at all, in contrast to the sort of growth which lifted all boats during the three decades after the end of the Second World War. An essential problem for millennials has been that increases in asset prices have not been met by relevant increases in wages, and their decreasing purchasing power have reached the extent that in outer London, for instance, the proportion of homeowners between ages 25 and 34 have gone from 53% in 1984 to a mere 16% in 2017. Quite simply, the rich have been getting richer, while the rest have been left watching.
Some, like Mitt Romney, choose not to be bothered. Romney said, while he was running to be the President of the US in 2012, that talk of inequality was about ‘envy’ and about ‘class warfare’. But the tides may be starting to turn. Bernie Sanders, one of the highest polling candidates for the Democratic nomination, tweeted this summer that ‘if there is going to be class warfare in this country, it’s about time the working class won that war.’ In the UK, the Labour party has proposed a much publicized proposal for shutting down private schools, and perhaps more importantly, they have a strongly cooperativist manifesto. Even the Economist recently published a cover with the title ‘millennial socialism’.
It is for this reason that Gerard Dumenil and Dominique Levy, two self-described Marxist economists who reside in Paris, may not have picked the worst time for publishing a Marxist interpretation of the economy that begins with class. In their Managerial Capitalism: Ownership, Management and the Coming New Mode of Production, they argue that the type of inequality which has emerged in the developed world is inextricably bound up with the emergence of ‘managerialism.’ Against the Dudleys and Zuckerbergs of the world, they insist that there is an inherent tension in the relation between corporate and public interest, in so far as the managers are only interested in furthering their position within the ‘financial hegemony of neoliberalism.’
For Dumenil and Levy, the dominant managerial classes justify their existence by the ideology of meritocracy. Whereas the old fixation with private ownership was concerned with justifying the fortunes of heirs, the ideology of meritocracy tells us that it is not their place in the social order which justifies someone’s being rich, it is their very competence, ambition, intelligence, etc. In short, it is merit. So where does this legitimising ideology come from?
Ideologies do not get invented out of thin air, however. The ascent of a managerial class throughout the 20th century may have contributed to the ideology’s cultivation. Between 1920 and 2000, the proportion of wages going to the one percent of income earners over the sum of wages and capital income went from 40 percent to nearly 80 percent. The rise of wages only for the wealthiest among us may have spurred a need for an explanation. The ideology of meritocracy, then, may play a role in justifying the quick ascent of the new class of highly paid managers.
The idea of the rise of managers as a class is quite simple. If one were to examine a factory in the suburbs of Paris in the 1860s, they would find that the owner of the factory, the capitalist, made most of the decisions regarding how the profits were to be used. Yet at the beginning of the twentieth century, some companies were growing larger and larger at the same time that other small ones were undergoing profitability crises. As the large firms engulfed different parts of the production and distribution process, they became more integrated with finance, with the large banks of the Morgans, Rockefellers etc., and employed a class of salaried people who did not own but ‘managed’ them. In a sense, this was the natural outcome of the process of capitalist competition which demanded increasing use of technology, which in turn, given the functioning of a market economy, led to the need for more concentrated capital.
Today, a select group of multinational financial institutions have even more control over decisions regarding production. The authors devote a chapter to the discussion of ‘The Network of Global Control’, an influential study from the Swiss Federal Institute of Technology, which reveals that a relatively small set of multinational firms, especially financial ones, are strongly connected to one another by shared ownership. These firms realize a disproportionately high ratio of profits. This network of firms is moreover particularly dominated by the US and, to a lesser extent, by the UK.. Financialisation of the economy, it seems, is liberal capitalism’s version of concentrating decision-making powers in a select group of firms. Levy and Dumenil contend that socialist bureaucracies of the twentieth century represented an alternative version known as ‘bureaucratic managerialism’. They quote Trotsky:
‘We did not invent planning. In its principle, it is the method used by Morgan and his staff (better than us) to manage his trust, namely, forecasting, coordination, direction. The difference (and it is large) lies in the fact that we must apply the methodology of planning to our trust of the trust, that is, the entire Russia’.
Apart from the obvious monopolistic tendencies of financialized managerialism, the other reason to take issue with the current managerialist system, the authors tell us, is that it enables those on top to further their gains endlessly, often at the expense of investment. In 2013 Carl Icahn, noted Wall Street Private Equity hero and owner of one billion dollars worth of Apple stocks, started campaigning in 2013 for Apple to repurchase its stock on the basis that the market wasn’t ‘valuing it properly’. Icahn wanted Apple to put in all the cash it had, about 150 billion dollars. The decision-making power was in the hands of the owners of Apple stock themselves, so it’s hardly surprising that Apple complied, and has essentially been putting all of its profits (which are by default held in overseas tax havens) back into its stock since 2013.
At the same time that corporate America has been following this route of paying itself more and more, many economists have been worrying about low levels of actual investment in the economy. In the UK the economy is still feeling the effects of the 2008 recession, while banking profits, on the other hand, have had a very sound recovery, not least because the concern of central banks all over the world has been pumping money into the financial system in the order of trillions.
As the world economy is increasingly driven by large corporations, there is the added worry that many of these corporations have run afoul of their own national interests. If one follows the rhetoric of figures such as Trump, there is a concern that corporate America has been aiding the world at the behest of Americans. In Capitalism, Alone, Branko Milanovic, an economist who spent about twenty years at the World Bank, suggests that there is a degree of truth to this concern. He argues that American-based companies have undermined both the bargaining power of national labour and the taxing potential of the state by their global operations. Despite this, Milanovic contends that the benefits of global capitalism far outweigh its defects. Capitalism is the system with the most productive capacity, and, thanks to the revolution in information technologies, it is spurring global income convergence. Wilson’s General Motors, which only innovated and produced in the US, stands as the product of a bygone era, whereas the ‘global value chains’ of recent decades’ production has been paving the way for lifting many more millions out of poverty.
For Milanovic, globalisation can be made to produce better results for everyone only by embracing the very financialisation which Dumenil and Levy see under a critical light. He insists that the welfare state was a product of homogeneous societies with low levels of income inequality, and that it does not fit today’s world, despite the fact that on account of his own evidence Germany has, to a large extent, been able to mitigate, through taxing and social spending, much of market-driven wage inequality up to now. The equality-promoting measure which he thinks should be preferred to the taxation-centered welfare state is rather simple: give everyone ownership of capital through shares in the stock market. The dynamics around this proposal, however, are not discussed. The reader is only told that capital always increases at a faster pace than output. This law, theorised by Thomas Piketty in his Capitalism in the Twenty First Century has been put into question by a considerable number of economists, though Milanovic chooses to ignore this. His simple proposition that giving out shares should mitigate inequality therefore cannot be convincing.
The way in which Milanovic frames the relationship between the state and global capitalism is also rather problematic. He argues that there are two distinct versions of capitalism today, what he terms ‘liberal meritocratic capitalism’ in the West and ‘political capitalism’ in China, though there are some other countries which he considers to be in this category, most notably Vietnam and Ethiopia.
Political capitalism is capitalism with autocracy and without the rule of law, and ‘must also have been “born” after a successful struggle for national independence.’ The rise of political capitalism happens through the following logic. There should be a feudal or semi-feudal state of affairs, where local elites benefit from the extractive practices of Western powers (mostly raw commodity exporting). This, in turn, leads to a Maoist type of socialist revolution in the developing world. Milanovic quotes Mao: ‘Two big mountains lie like a dead weight on the Chinese people. One is imperialism, the other is feudalism.’ For the developing world, a socialist revolution is the functional equivalent of the French Revolution which destroyed the feudal state of affairs of the ancien régime. But socialism is simply a bad system for producing economic gains. This Milanovic argues through his presentation of the economic performance of socialist Eastern Europe after the Second World War, where the benefits of socialism fell mostly upon poor rather than rich regions (Bulgaria vs Czechoslovakia). When socialist countries like China progressively move towards capitalism without breaking the party apparatus they become political capitalisms, whereby they support but also limit the independence of the capitalist class.
Given this account, Milanovic’s enthusiasm for global value chains is puzzling. Though he suggests that the companies in the developed world face incentives to make sure the best technology is used in the offshore location, this may very well not lead to the emergence of local firms that can innovate at the level of their Western peers. What set China apart during the last thirty years has not just been its integration into global value chains, but it's doing so on its own terms.
To have been convincing, Milanovic would have needed to engage with the situation in Latin America and perhaps also Africa. In Latin America, many countries have opened their arms to Western capital, but the sort of outcome Milanovic attributes to global value chains has not followed. Recent IMF reports highlight that Chile, trumpeted as an economic ‘Jaguar’ because of its ‘exemplary’ economic development in the 1990s, still depends on mineral exports for economic growth, and given its weak manufacturing sector has scarce innovative capacity. In 2016, it was ranked seventh in the world by the Economic Freedom Index. Many in Chile are not happy with this type of freedom, however. The massive wave of recent protests shows the extent to which people are dissatisfied with the government’s role as a promoter of business interests in a country where many social goods are privatised and where the level of inequality is highest in the OECD. While a widespread slogan for the protesters has been that the problem ‘is not about thirty pesos, it is about thirty years,’ referring to all the years through which Chile became a supposed Jaguar, President Pinera, a billionaire in his own right, declared, in words reminiscent of Pinochet, that ‘we are at war with a powerful, relentless enemy,’ an enemy of millions of protesters in a country of just sixteen million people.
Milanovic is perhaps unduly optimistic about the world, choosing to turn a blind eye to the political developments which accompany structural economic change. While one may not agree with many of the claims of Dumenil and Levy, their critical stance provides readers with more nuanced insights about the situation of the world economy at a time in which many feel a great sense of uncertainty. Without fundamental adjustments, there is no reason to think that people in various countries will be convinced of the benefits of today’s most successful firms and the practices that they engage in. Unlike Milanovic, it is useful for us not to fall into a type of thinking which Lord Kelvin fell into at the turn of the twentieth century, where he declared that ‘there is nothing new to be discovered in physics now, all that remains is more and more precise measurement.’
UMUT DENIZ DINC studies history and politics at Corpus. For about a year now he has been under the spell of Marxism, after taking an essay question too seriously.
Art by Immie Barrett