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What these early-20th-century scholars got right about 21st-century politics

(Source: www.vox.com)

There is, I think, little disagreement that the historical era most similar to ours — meaning the time after the global financial crisis of the past decade — is the period preceding World War I.

Both eras are characterized by the spread of globalization and significant advances in technology (especially communications), but also in high income inequality and wealth inequality. These disruptions have led in turn to the questioning of political forms of organization — although in the earlier period, the questioning came mostly from the left rather than from the right.

We therefore have much to gain from reading the most important political and economic authors of the pre-WWI era.

In fact, those century-old writings are in many ways as useful for understanding the current situation, and in some cases more useful, than the work of today’s intellectuals.

Granted, any comparison of the intellectual output of the two periods will be highly subjective. There were thousands of authors then, and there are millions today. The world population in 1900 was about 1.7 billion people, less than a quarter of today’s, literacy in the world was vastly inferior, and the number of media outlets was immensely lower. Statistically, we are comparing one rather small sample with one enormous sample.

What’s more, much mediocre work from the past has slipped into oblivion, creating a kind of hindsight bias.

The older generation of social scientists considered social structure more broadly

These caveats aside, what advantages do the writers of the turn of the 20th century offer? The main difference and prime advantage, I think, lies in their holistic approach to economic and political analysis. It was holistic in the sense that they discussed the structural features of capitalism: social relations between capital owners and wage workers, distribution of national income between capital and labor, formation of the social elite. In contrast, today’s discussion was until recently dominated by attempts to apply small fixes and to keep questions about the systemic structure off the table.

The recent narrower approach is, at least in economics, a product of two developments. The first, dating to the 1950s or so, involves a systematic disregard for the differences in people’s positions in the process of production: their agency, power, and material inequality. Gradually, the discussion of classes, so salient in early economics, disappeared, and all individuals were considered simply as “economic agents” maximizing their utility under the conditions of given endowments.

The second trend, exacerbating the first, was the triumphalism that spread after the end of communism. Social scientists came to believe that the fundamental problem of how a human society should be organized was solved: liberal democracy politically and capitalism economically. Scholars embraced the idea that the structural edifice of society was immutable, and that only small homeopathic fixes were needed to solve the outstanding problems.

Many people — though still too few — are awakening to the fact that the problems of rich Western democracies, and to a lesser extent of emerging market economies, are fundamental. This is why it is useful to go back to the old masters, who had no doubts that the problems they faced were profound, even if many of them proposed solutions that made some of these problems worse. Fortunately, we can now sift through the proposed solutions and discard the mistakes.

Here are some authors and works I’ve been revisiting that discuss issues that manifestly remain as relevant today as a century ago. Let’s focus on three issues in particular: globalization and the class cleavages it creates within rich countries, threats to democracy, and migration.

Inequality

In several works, but most famously in his 1902 book Imperialism, the English economist John Hobson made the following prescient point: High domestic inequality in rich countries made domestic aggregate demand weak but generated large investible resources in the hands of what we would today call “the top 1 percent.” These funds were invested abroad, lowering demand for domestic labor.

We face a similar problem today: High inequality has generated huge stashes of capital looking for profitable investment opportunities. The owners of capital make profits either by lending to people who may not be able to repay the loans (one cause of the global financial crisis) or by outsourcing and investing abroad (and, as in Hobson’s time, keeping demand for domestic labor low).

Hobson correctly highlighted the conflict of interest between the rich elites and workers that persists to this day.

The solutions are either a reduction in inequality or protectionism including capital controls. Yet countries today remain frozen by indecision on this front. Protectionism clashes with the long-held tenets of globalization, and no OECD country is contemplating measures to reduce income and wealth inequality. Most economists and politicians appear to be hoping that the problem will disappear by itself, or that trickle-down economics, many times tried and failed, will this time do the trick.

Surveying the same early-20th-century economic landscape, Rudolf Hilferding, a leading figure in the Social Democratic Party during the Weimar Republic, described in his Financial Capital, published in 1919, a symbiosis at the top between large industrial complexes and banks. (The work grew out of his prewar thinking.) He was concerned about rising monopolization and cartelization of the economy — trends noted as well by Marxist authors including Vladimir Lenin, Rosa Luxemburg, and Nikolai Bukharin. Concentration of economic power and “personal union” among the elite ensured a political stranglehold by the rich: The state was increasingly becoming a political tool used by the rich to maintain and increase economic power.

We see clear similarities to today — a time when the new information technology giants control the lion’s share of their markets, avoid paying taxes, and aggressively move to buy ownership of the media companies and to fund politicians.

Democracy

Max Weber, circa 1917.

Max Weber, circa 1917.

Which brings us to the fragility of democracy. Consider so-called crony capitalism — long a feature of emerging market economies and the subject of renewed interest in the United States. In The Protestant Ethic and the Spirit of Capitalism, published in 1904, the sociologist Max Weber accurately diagnosed this as “politically determined capitalism.” He developed the idea in his posthumous Economy and Society: “[P]olitical capitalism exists,” he writes, “ … wherever there [is] tax farming, the profitable provision of state’s political needs, war, piracy, large-scale usury, and colonization.”

For “tax farming” today, look no further than Luxembourg luring Amazon’s business with a low tax rate. For satisfaction of political needs through extravagantly overbilled public works, look at Arkady Rotenberg, a judo partner of Vladimir Putin, whose company (which had never built a single bridge!) was contracted to make a very complicated bridge between Russia and Crimea. America’s wars in Iraq and elsewhere have bolstered many companies that depend on government contracts.

These old-school writers were also very astute about the political science of demagoguery, which Weber defined as manipulation of the electorate through proffering of unrealistic promises. He thought the rise of demagogues was specific to Western political culture; it was a potentially dangerous side effect of democracy. Demagoguery appeared, according to Weber, first in the Mediterranean city-states and then spread to Western parliamentary systems through the role of party leaders.

There is little doubt that Brexit would not have happened without demagoguery. Demagoguery is also the way Viktor Orbán (Hungary’s prime minister), Jaroslaw Kaczyński (leader of Poland’s right-wing Law and Justice Party), Recep Tayyip Erdoğan (Turkey’s president), and Vladimir Putin are able to rule using their overwhelming parliamentary majorities. All but Orbán are in effect controlling the majorities informally, able to dominate both the executive and the legislative branches despite not serving as prime minister.

The source of their power — given their high popularity ratings and successful identification with themes of national grandeur and the undoing of actual or supposed victimizations — is much better understood as demagoguery than autocracy.

Migration

Finally, let’s look at migration, another feature that we share with the world of a century ago. Not only was capital moving then as now, but people were moving, too — probably even more than today in relative terms (that is, taking the global population into account). Such movements provoked strong negative reactions in the receiving countries, notably among trade unions. As a result, those countries, including the US, Australia, and Canada, outright banned some kinds of migrants or imposed heavy “landing fees,” very similar to today’s fees paid to buy citizenship.

The resistance to migration was not limited to those who might have been in wage competition with migrants. Moral and cultural arguments against migration were also common, not only among the partisans of eugenics (like Schumpeter) and racial purity (like Cecil Rhodes) but even among top economists. Here is England’s Alfred Marshall, the most influential economist of the time, opining on the role of migrants in 1898, in a book that was then the equivalent of Samuelson’s Economics or Greg Mankiw’s Principles of Economics (Marshall wrote a book with the same title):

For immigrants coming from a country in which the standard of living is low, to one in which it is high, may injure [the second country] materially as well as morally even though they carry in their own persons a good deal of invested capital, and produce in the country of their adoption, more than they consume.

Today’s economic analysis of migration is much more nuanced and less racist than its forebears, but it is also significantly out of step with public opinion, especially in Europe. By focusing solely on the economic calculus of benefits and costs of migration, which is overwhelmingly favorable, do not economists overlook other factors that enter into people’s preferences and guide their opinions, even if these factors may often be nationalistic or borderline racist? And don’t they reduce their own influence by doing so?

Older writers cannot provide us with ready-made answers to the questions that are specific to today. And things are indeed changing for the better in the intellectual sphere — thanks to the works of authors such as Thomas Piketty, Ed Wolff, Joe Stiglitz, Dani Rodrik, and Martin Gilens, who are willing to ask bigger questions (and answer them with much better data than previously existed).

But the older writers can help us realize that the problems we face are not all new or unique. They supply us also with forgotten points of view that better illuminate the trade-offs we face in politics and economics. Most importantly, they might show us what we should not do, in order that this era of globalization does not end up like the previous one — in the carnage of war.

Branko Milanovic is a visiting presidential professor and senior scholar in the Stone Center on Socio-Economic Inequality, at the Graduate Center of the City University of New York. He is the author of Global Inequality: A New Approach for the Age of Globalization. Find him on Twitter @BrankoMilan.

The Big Idea is Vox’s home for smart discussion of the most important issues and ideas in politics, science, and culture — typically by outside contributors. If you have an idea for a piece, pitch us at thebigidea@vox.com.

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