Ray Dalio just published a two part manifesto on how capitalism needs to be reformed.
Dalio’s main point is that “capitalists don’t know how to divide the pie well and socialists don’t know how to growth the pie well.”
This is a problem for capitalist countries because rising inequality has both negative affects on individuals and countries: high inequality reduces economic mobility and weakens political governance.
I am not an expert in inequality, economic mobility, or governance, so it’s hard for me evaluate his specific claims.
But my instinct is too put a little less emphasis on capitalism.
Rising inequality seems to be the trend of almost all political systems.
Walter Schiedel’s book The Great Leveler does a good job of showing how inequality tends to rise in most societies (any system can be gamed) and that it’s often only war, revolutions, state collapse, and plagues that bring inequality back down.
Dalio thinks there’s something specifically inherent about capitalism that leads to inequality. I think there’s something generally inherent about governments and power.
Once humans left hunter gatherer societies, rising inequality has been the norm in most societies.
Capitalism is just the latest manifestation of the trend.
Stability vs. Growth
Another argument which is somewhat implicit in Dalio’s argument but I wish would have been more explicit: given the incredible compounding of even small GDP increases, we should care much more about societal stability than maximizing growth.
Over the long-run, humans will be very rich by today’s standards so long as we can survive a couple more centuries.
In most cases, growth and stability go hand-in-hand, but when they don’t (perhaps in the case of inequality), we should err on the side of stability.
Can We Do Anything About It?
Schiedel’s book presents a bleak picture about a society’s ability to reduce inequality.
But humans haven’t been around for that long. We’ve never been this wealthy. And never before have so many humans lived in democratic societies.
It took us from the Industrial Revolution to the end of World War II to find a governmental system that fit our last major round technological and economic advancement.
Most advanced countries are now some form of capitalist democracies with large welfare states (at least by historical standards).
I hope our next governance search requires less bloodshed.
If it’s simply a matter of adjusting our current system, this might be possible.
If it’s a matter of finding whole new systems of governance, then that likely means wars and revolutions, which we should all fear given the weapons at our disposal.