Homoploutia
= " the new aristocracy combining income from both capital and labor".
Description
Branko Milanovic:
"it is based on the empirical observation that in modern capitalist societies an increasing share of the rich are rich in two dimensions: they are among the best paid workers, and among the richest capitalists. I operationalize this idea by looking at the top after-tax income decile, top labor (wage) decile, and top capital (rents, dividends and interests) decile in some two-dozen countries. It turns out that almost one-third among the richest income-decile Americans are “homoploutic”, i.e. they are best-paid workers and richest capitalists. This makes for an elite of about 3% of Americans. That elite, as I discuss in the post, in Capitalism, Alone and in the forthcoming The Great Global Transformation is not similar at all to the vaunted professional middle class, or professional managerial class (PMC). It is ideologically strongly pro-capitalist and pro-private property because within their own persons they accomplish the fusion of capital and labor. Hence the elite strongly defends the rights of capital, low taxes on capital incomes and wealth, and everything else that goes with it. This neo-liberal ideological aspect of the new capitalist elite should not be neglected."
https://branko2f7.substack.com/p/new-capitalism-ii-compositional-vs
Discussion
The 'Managerial Revolution' was overblown, instead <this> happened:
Branko Milanovic:
"That capitalism changed in the twentieth century with the advent of what many called a new “managerial” class. The rise of managers –-people who neither own the means of production not are simple laborers, but manage the means of production for capitalists lazily playing golf in Florida—was announced by James Burnham classic in 1941, and then further developed by Joseph Schumpeter, Raymond Aron, John Kenneth Galbraith and Daniel Bell, among others, in the 1960s and 1970s; continuing in the same vein, there is also a recent book Managerial Capitalism: Ownership, Management and the Coming New Mode of Production, by Gérard Duménil and Dominique Lévy. For its critical discussion see, Nicole Aschoff in Jacobin.
The perception of capitalism as a three-class society, with managers rising to be the new ruling class, drew on the contrast that Marx saw, but never fully resolved, between two functions played by the capitalist: the provider of the means of production and the organizer of their use (or put differently in Walrasian language, capitalist and entrepreneur). Logically, the two functions could be separated, and in fact they did become separate. That separation—it was argued by the authors I mentioned—created a new, third, class: that of managers. A very nice recent paper by Alexandre Chirat discusses the phenomenon from the Marxist point of view.
But the managerial revolution was overblown. It never happened and it is not happening. Managers as such never succeeded in creating a third class. What happened instead, as I argued in my 2019 book and several new papers confirm, is the rise of a homoploutic elite in the United States, in particular, and also in other rich capitalist economies. What is homoploutia? As often when faced with a new phenomenon, we resort to coining a new term by using Greek words: “same wealth”, or wealthy both in terms of the so-called “human capital” and thus labor income, and in terms of productive and financial capital and thus income from ownership. Homoploutic elite is composed of people who are simultaneously among the richest capitalists and richest (best paid) workers. They may be financial sector CEOs, engineers, doctors, software developers (and hence receiving high salaries) and at the same time having large financial wealth that generates sufficiently high capital income to place them at the top of capital income distribution. They might have inherited that money, or they might have saved over their lifetime out of their high salaries enough to transform themselves into the richest capitalists. We do not know the relative importance of the two channels, because the area of research is new, and nobody has yet used longitudinal data that should, in principle, allow us to answer that question."
(https://branko2f7.substack.com/p/new-capitalism-in-america)
Homoploutia, the new aristocracy combining income from both capital and labor
Branko Milanovic:
"The new capitalism has even in the rich countries failed to produce what Margaret Thatcher, and Friedrich Hayek before her, called “property-owning society”. (For good measure, Thatcher added “democracy” too.) Even when we include income from forced savings that becomes pension wealth, between one-half and almost 90 percent of the population in rich countries are capital destitute. That percentage becomes more than 90, or even more than 95, in less developed countries.
The two biggest countries in the world are interesting. Nominally, capitalist India leaves 97 percent of its population with zero capital income; nominally Communist China has become remarkably “capitalized” in the past forty years and about one-half of its population receives some income from capital; relatively more than in the United States and the UK.
To conclude: when it comes to capital ownership, new capitalism has not broken, in any significant way, the barrier erected by the classical capitalism: receiving income from capital is a privilege of the few and that privilege is, even amongst those who have non-zero income from capital, extraordinarily skewed.
The new capitalism is not people’s capitalism, but homoploutic capitalism. What has happened was not that capital income tricked down, but that labor income “trickled up” and combined with the pre-existing or newly-created large fortunes to create, at the very top, a new class whose wealth comes from both labor and capital. Homoploutia, or new aristocracy, my friend!"
(https://branko2f7.substack.com/p/the-new-capitalism-iii-capital)
The effects of AI: two scenarios
Branko Milanović and Nils Gilman:
"if we accept the premise that the technology will work roughly as its promoters claim, two very different futures open for the homoploutic class and thus for us as a society. The difference between these two scenarios turns on a specific and currently unresolved empirical question: whether AI will be a substitute for or a complement to high-premium cognitive labor. We cannot be certain which will prevail.
The first possible future is elite entrenchment. The homoploutic household earns a large salary and holds a diversified portfolio. As capital’s share of national income rises — because the quantity of capital rises with AI deployment while the average profit rate is held up by Schumpeterian destruction of the old capital stock — the portfolio leg of their income simply gets heavier. If they can hold onto their high-paying jobs, they can purchase shareholdings in exactly the sectors growing in the new economy. In this scenario, the homoploutic class thickens, from a third of the top labor-income decile to half or two-thirds. These elites can then continue to transmit their advantages to their offspring through education and inheritance, with even greater reliability, because now they have more of both to transmit. In this scenario, today’s top 3% of Americans becomes the stable, self-reproducing aristocracy of an AI economy. In the limit case, the top 10% of labor-income earners will also be the top 10% of capital-income earners, and they will lock in these same positions for their children, effectively creating a form of hardworking aristocracy. Homoploutia will have simply been a transitional state along the way to a renewed form of hereditary hierarchy.
The second alternate future is class dissolution. Homoplouts typically work jobs that command a wage premium in today’s labor market — as lawyers, financiers, consultants, software engineers, doctors and so on — because they require cognitive work often enabled by fancy educations, diplomas and credentials. Unfortunately for these individuals, this is also precisely the sort of work that large language models perform most convincingly. As the roboticist Hans Moravec famously observed, high-level reasoning turns out to be easier to automate than sensorimotor skills developed over a billion years of evolution.
If AI ends up substituting for rather than complementing knowledge work, then the wage premium commanded by highly educated workers will shrink. For such workers, the salary that complemented the income from their investment portfolio will diminish or disappear; what will remain is their portfolio alone. The homoploutic household in this case reverts to a purely capitalist household that lives entirely off the earnings from its investment portfolio; in other words, it reverts to Mexico’s classical pattern where the rich don’t work.
Under either scenario, the ideological position of the homoploutic class as a legitimate meritocracy will collapse. Under entrenchment, the homoploutic claim to merit becomes untenable because there is no path to entry: Once inheritance is the only way into the top decile of capitalists, such a class can’t credibly describe itself as meritocratic, no matter how hard-working. Under dissolution, if education no longer commands a wage premium, there is no longer any meritorious activity to point at — one is simply an owner of capital, as one’s great-grandfather was. In the first case the asset value of the class survives, but the flow into it stops. In the second, both go.
Around this reduced elite the rest of society’s structure becomes legible. At the summit we find the few thousand people who own the models. Next is the homoploutic remnant — thinned or thickened but closed to the lower ranks. Below them is a service class doing what AI cannot yet do, at low to moderate wages: think gardeners, home nursing aides, bartenders, tradesmen, mechanics and so on. These people will be employed, but not in any meaningful sense middle class. And finally, at the bottom sits a redundant population — the term “unemployed” is misleading, because it suggests a temporary state and a return path. The redundant or surplus population are people whose skills have been rendered obsolete, whose retraining would take years and that no one will fund. In theory, a universal basic income or a permanent unemployment benefit would solve their material problem, and perhaps such people can be kept pacified with religion, sex and TV. “Bread and circuses” is, after all, a venerable political solution; more than a few in Silicon Valley dream of UBI and TikTok memes as its modern update.
What is striking about this pyramid is its pre-industrial (that is, feudal) shape: sharply graded at the top, flat and wide at the bottom, with no substantial middle.
Every society before the Industrial Revolution looked like this, and the 20th-century assumption that development produces a large middle class, which in turn produces political stability and democratic peace, was an inference from a period that may prove to have been exceptional. If AI creates such a rigid class pyramid, then the richest and most technologically advanced societies on Earth may well become politically more turbulent than poorer ones — a tragicomic inversion of modernization theory’s teleological belief in the coming universalization of stably democratic middle-class societies. A large lumpen population with little stable work or social status (and unlimited free time) represents a reserve army of politically combustible malcontents — ready kindling for political operators with a grievance and a budget.
A hierarchy that can be scaled, even improbably, is a hierarchy that at least potentially can be tolerated, even within a democracy. For much of the last century, inequality was justified with the claim that some people were more talented and hardworking than others, a process that educational institutions vouched for through an elaborately formalized ranking and credentialing system. This is the meritocracy, and homoplouts are the No. 1 beneficiaries of this ideology. A closed-off hierarchy, however, is intolerable to a democracy. This helps to explain why so many in Silicon Valley are moving in a markedly and explicitly anti-democratic direction — the subject of Gil Duran’s recently published “The Nerd Reich.”
The Roman analogy is relevant here for reasons that go beyond our tech elites’ decadence. The late Republic didn’t fall because the masses rose spontaneously in revolt against the elites. It fell because the oligarchic clans couldn’t settle their disputes among themselves and each faction found it expedient to mobilize the idle urban population against its rivals. A socioeconomic structure with a handful of enormously wealthy factions at the top and a large supported-but-purposeless population at the bottom doesn’t require a revolutionary movement to become unstable. It requires only that one plutocrat decide his interests are better served by mobilizing the malcontents rather than parleying with his peers."