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Branko Milanovic, Global Capitalism and the Role of Trade Unions

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The economist Branko Milanovic, perhaps most famous for his ‘elephant curve’, which shows the changing distribution of global wealth over two decades, has tackled the state of the world’s dominant economic system in his new book, ‘Capitalism, Alone’. Milanovic presented this book in a lecture at the London School of Economics this week. I was lucky enough to be there.

There are now two types of capitalism, according to Milanovic: liberal, meritocratic capitalism, as practiced in the West; and political capitalism, the growth of which we have seen in China. Echoing Thomas Piketty before him, Milanovic suggests that the term “meritocratic” is a misnomer; there are a variety of reasons why the rich stay rich and the poor struggle to increase their wealth, relative to the rich, in today’s economies. Inequalities between capital and labour income, the tendency for educated, highly skilled and affluent people to marry each other, and the decline of intergenerational mobility are three such reasons. In his lecture, Milanovic cited Antonio Gramsci’s idea of ‘hegemony’ to explain why challenging this status quo has become so difficult.

From a TUC perspective, I was most interested in the power, or otherwise, of trade unions to bargain for better outcomes for workers, as part of this analysis. Indeed, in ‘Capitalism, Alone’, Milanovic quotes Robert Solow, giving the 1949 Treaty of Detroit between the US auto workers’ union and employers as an example of how powerful labour unions were able to push the distribution of income in favour of their members. Milanovic argues that the changing nature of industry and the move from large factories to smaller workplaces, more than any political attack, have reduced the power of unions to bargain for working people. He adds that other twentieth century solutions – the role of mass education, high taxation and high social transfers - will also have limited impact, either bringing diminishing returns or being seen as politically unacceptable.

This book, like those Milanovic has published before, is a gift to those of us grappling with economic and political inequality, as we seek ways to promote a fairer and more productive, sustainable society. I would question his conclusions about the role of unions, however. More generally, the yearning for a fairer society, especially among young people, gives us reasons to think again.

In their 2001 book, ‘Varieties of Capitalism’, Peter Hall and David Soskice differentiate between liberal market economies, in countries such as the US and the UK, and co-ordinated market economies, in Germany, Japan and Sweden. In the former, workers and employers are less organised, with wage negotiations – when they do take place – being held at the company level. In the latter, stronger unions bargain with well-established employers’ organisations at the industry, sectoral or national level. Co-ordinated market economies also enjoy more patient capital, greater employee voice, more collaborative inter-firm relations and less adversarial industrial relations. The role of unions, in short, is welcomed. This is important; in his book, Milanovic accepts that whilst social democratic capitalism, which existed in the US and Europe after World War Two (i.e. during the age of the New Deal and the Keynesian consensus) did not eliminate systemic inequality, it did not increase such inequality either.

In my view, this gives us a foundation on which to build. Moreover, if unions help to reduce inequality, and this goal is believed to be socially desirable, it follows that a wide variety of stakeholders, from employers, to governments, to international organisations, should be promoting their role. In its most recent jobs strategy, the OECD recognised the value of collective bargaining in delivering fairer outcomes much more than it had done previously. If the current ‘hegemony’, to quote Gramsci once again, protects the status quo, then we are all responsible for changing the hegemony. Empowered unions, employee voice in company decision-making, and sectoral collective bargaining, all of which the TUC has advocated, far from being yesterday’s ideas, should form part of tomorrow’s, if we want fairness, productivity and sustainability in a world of ‘Capitalism, Alone’.