Welcome to World Views, an interview series on international affairs with guests from around the globe. I'm your host, Peter Slesken. In this show, guests from across the political spectrum and from all over the world share their views in their own voice. While the Simpson Center seeks to provide access to a wide variety of perspectives, it does not endorse any particular position. We leave it to the listeners to judge the validity and value of the views expressed by the guests. I hope you enjoy the podcast.
My guest today is Branko Milanovic, research professor at the CUNY Graduate Center and former lead economist at the World Bank. He is perhaps the world's greatest expert on the subject of global income inequality. In the conversation that follows, we discuss his latest book, The Great Global Transformation. I hope you enjoy the episode. Branko, thanks so much for coming on the podcast.
Well, Peter, thanks a lot. Actually, it's a pleasure.
So you're an academic, a former lead economist at the World Bank, an erstwhile Washington think tanker, but more important for our purposes, you are a major public intellectual who has spent the past decade publishing a series of important books on global inequality and great transformations. In your latest book, The Great Global Transformation, you examine the double impact of neoliberal globalization: a reduction of global inequality on one hand, due to the rise of Asia and China in particular, and a simultaneous increase in domestic inequality, particularly within wealthy nations. And you argue that both developments have provoked a reaction: geopolitical rivalry in a newly competitive multipolar environment on one hand, and a political backlash against newly entrenched neoliberal elites on the other. So how is that for a simple summary? And perhaps you can begin by building on it, and then we could dig into some of the arguments' finer points and broader implications later.
I mean, this is a great summary. So basically there are two things that I think are new. The first one is that it explains that the end of global neoliberalism, or neoliberal globalization if you prefer it that way, is an endogenous process, and that's why I also took the title from Polanyi, because in Polanyi too you have increased commercialization of many activities which have not been commercialized before. These are so-called fictional commodities in Polanyi. And then you have the double movement, and it's actually an endogenous reaction to that which leads to a rejection of certain forms of commercialization and society's attempt to embed this relationship in the social framework. Similarly, I think that actually neoliberal globalization provokes...
Some of them might be think tankers, as you once were, international relations experts who know little about Polanyi. So Polanyi is describing the great transformation that your title alludes to, and he is focused on the 19th century industrial revolution, the creation of a new economy, the disruptions, dislocations that that produces, and then the reaction, the creation of new social contracts, right? And so you're drawing a parallel to that.
Yeah, I'm drawing a parallel to that because what, as you were saying, was explaining was in some sense an onslaught of commercialization and commercialization of new activities in England during the industrial revolution, and then the reaction was societal rejection against that, and then you establish some new equilibrium, if you can call it like that. The idea was in my case that neoliberal globalization provoked endogenously two processes that you alluded to. The first process was the rise of China, which became at one level a geopolitical issue of competition with the United States that was not originally planned within globalization or neoliberal globalization in the 1980s. Neither Thatcher nor Reagan nor Deng Xiaoping would have expected China to be in 40 years a remarkable geopolitical opponent to the United States, to the extent actually, this is just in passing, but now when we have all these issues with artificial intelligence, we are having a very similar situation, and I think you would recognize it, to what we had between the United States and USSR when it came to nuclear proliferation and control, which means that China is now really very clearly, even in some sense militarily, like number two. But the same process of neoliberal globalization provoked dissatisfaction internally within rich countries because the middle classes of those countries really have not benefited with globalization as much as they expected. The top 1% or top 5% did much better, and that provoked, and again endogenously, dissatisfaction domestically. So these are the two levels at which the book works: at the level of geopolitics and the level of discontent and internal political turmoil.
So you have made the parallel with Polanyi. So what he was describing in England and in Western industrial economies is now happening to some extent on a global scale. To what extent are you also drawing on James Burnham, your countryman Djilas? Are you describing the emergence of a new class and a new kind of convergence? I mean, convergence theory was very powerful once, went out the door entirely when it seemed like one system prevailed totally over the other. Now perhaps we should take it seriously once more. So did they get the kind of class right? You describe a different one, I think, but sort of the general principle of convergence you think needs to be taken seriously again.
You know, I use empirical work that I've done myself and with colleagues on the American and the Chinese elite. Let me just say very briefly that actually we have fairly good data about the Chinese elite. People might not know that, but China publishes annually fairly detailed household surveys and data, and actually if you have connections, because you do need to have connections, then you actually get the data more easily. So leaving China aside, I also did work on the American top 10% elite again, and what was interesting there, and this is this new phenomenon that now actually I think more people have begun to work on, but I originally discovered it, if I can call it like that, and named it homoplutia. I'll explain in a minute what it means. It is simply what you observe: that an increasing percentage of the people who are in the top 10% of the US income distribution are simultaneously, and that's really key, the same people are at the same time among the rich capitalists, because they are among the people who get, I mean, they are among the top 10% in terms of income from property, and they are in the top 10% in terms of income from labor.
Now mind you, this is something that Marx would never have imagined. Most people for the 19th century, even early 20th century and mid 20th century, would not have imagined, because societies were generally class-based societies where people who were on top were overwhelmingly people with income from capital, which now still is the case if you look at Brazil, Peru, Chile, that's what you find at the very top. And actually the work that is now going on, it's not in my book, but it's actually the sequel of other people who are now working on, is how did it happen? And actually obviously as you can see there are two possibilities. So one possibility is you sort of inherit quite a lot of money, you go to a very good school and get an excellent job and you're in the top 10% by wage income as well. Another possibility is that you are really doing very well but you're not among the rich people, rich capitalists, but you actually get a very good job. You go through whatever, 30 years of work, you accumulate a lot, and then of course at a certain age, you know there is a difference in age. In the first case, you may be homoplutic, which means you reach both in capital and labor already by 35. In the other case, probably it's going to wait until you're 55 or 60. And that's an interesting part that people are actually studying now. So, you see, these are the two pathways to that. And when you enter that class already at a more advanced age, it's because you've had a very high professional salary that you then invest in property in the stock market that then makes you a capitalist with a share in that system.
Yes, that's exactly like that. Exactly. And where Burnham comes in...
I was independently interested in Burnham. So when I read him, one thing about the managerial revolution that he had in mind, and of course people from the 1960s like Raymond Aron and John Kenneth Galbraith had in mind, was there was a convergence, they believed, and then the people who are really in the top class are really technocrats, managers, and it's very clear in Burnham when he talks about managers managing a company. Take another example of a famous manager who was actually also the head of the World Bank, and that's an important point: McNamara. He was managing Ford before, a private company, that then went and managed the Pentagon and then managed the World Bank. So the idea that Burnham had was that really you are a managerial class, you don't care if it's private, public, whatever you are managing, because you are about efficiency, technology, and so on. The implication of Burnham, and actually he mentions it himself, is that private property is no longer sacrosanct. Managers don't very much care if it's private property or state property. But in homoplutia, where you are a very top guy in terms of labor income and a top guy in terms of capital income, you do actually have pro-capitalist ideology because your income depends on that. So you're a manager, but you're at the same time a big-time capitalist. And I think what was the difference with Burnham and what now exists is that while he believed that the ideology of private property would generally kind of diminish in importance, we have had, on the contrary, a revival, of course, from the 1980s, and I think that revival is explained by the fact that people who are the managerial class are at the same time people who are big-time capitalists.
So you describe a different new class than Burnham did and Djilas in that they're not only managers and technocrats, they're managers and technocrats who also have a great stake in capital. But do you believe that the basic insight holds that despite geopolitical ideological differences, the great global processes of capitalism and so forth create the same sorts of elites everywhere? I mean, Burnham was making a parallel between the Nazi-fascist corporate state, what was emerging under FDR in the US, and what was happening in the Soviet Union. Do you think that generally speaking there is a convergence of elites from China to Russia to Europe to the US?
I cannot tell you exactly that because the countries are at a different level of development. If you ask me, like, really, if I want to say yes or no, I would say yes. There would be convergence of the elite in the sense that they would be all homoplutic, and I forgot to mention, homoplutic comes from Greek. Homo being same, and then Plutia is wealth. What I meant to say is that actually they are same or equally wealthy in terms of human capital, that's why they have high wages, and in terms of financial capital and physical capital, that's why they have high income from property. So, but what you notice is that more advanced economies like the US and Western European economies have among their top about between two to three percent of the population. So, we're talking about the whole population, two to three percent of the population who are homoplutic, who are both among the top capitalists and top wage earners. When you go to the more traditional capitalist countries that are not as developed as the United States, when you go to Brazil, I mentioned Chile, we have data from Peru, we have data from Argentina, the percentage of people who are homoplutic is much less simply because you have not still created, I think, sufficiently rich laborers, a sufficient number of software engineers, workers, doctors, lawyers and others who have accumulated enough financial assets to be among the richest capitalists. So there is some kind of a maybe delay or lag there. When you come to China, there is also the emergence of homoplutia. But in China, I was more interested by a really remarkable change in the sources of income of the top class, and I will stop there. In 1988, when we have the first data, two-thirds of the income of the top class, defined as the top five percent, comes from the state. It is state-owned enterprises, administration of the government or of the Communist Party. Today, two-thirds of the income of that top class comes from the private sector, including PMC, professional managerial class, small capitalists and large capitalists. So there was a remarkable change in the composition of the top class that used to depend on the state sector predominantly and now depends on the private sector.
How does the emergence of homoplutia in various societies and the redistribution of wealth globally affect domestic politics in the various big countries in the world?
As I was saying before, when you asked me in the very beginning, when I said actually what we see now, and I was very reluctant to talk much about Trump, Putin and Xi Jinping. I do that only at the end, and what I argue there is that all three represent a certain form of the rejection of some essential features of the previous period of neoliberal globalization. Trump has been brought to power, and that I'm not going to talk about that because millions of people have been writing about this, for the malcontent. So people who were not happy with the way that globalization went for many reasons, whether it was because of a lack of jobs or lower wages or expectations or because they were called various names by Hillary Clinton. But in any case, dissatisfaction which was internalized here and of course in many other countries including Germany as we see now, France, United Kingdom with the Reform Party, and it's all well known. But my argument is also that the same logic applies to the other two cases, Russia and China. In the case of Russia, I think Putin was clearly brought to power by the oligarchs originally, by Berezovsky, and he turned against the oligarchs who had been created by Yeltsin, and he actually used popular dissatisfaction also to impose his so-called vertical of power, which was quite popular when he imposed it, and it was again a sort of blowback against the previous period that allowed him to establish his power. And in the case of Xi, my argument is similar. Hu Jintao, who preceded Xi Jinping, the ideology of the Three Represents meant essentially that very rich people would be able to become party members and to actually go pretty high up in the party hierarchy. So what Xi reacted to, I mean, why he was supported, is because the Communist Party establishment and the state establishment essentially wanted to preserve the autonomy of the state. In other words, yes, the rich people like Jack Ma and others can become rich, but they cannot control political decisions. And I think this is the constituency that essentially brought Xi Jinping to power. And that's the constituency to which he plays. And that constituency is basically, we are running the show. We are running the country. You can become rich, but don't come close to telling us what the policy would be. And I think we see that very clearly even when we talk about artificial intelligence today, and you notice that actually in the case of China, the decision there, I've read actually that some people who are working, like top engineers and others, are not very satisfied with the government policy, but the government is the decider. So to conclude, all three of these leaders that are generally considered like progressive and this or that, I think are the product of the previous period of neoliberal globalization, and they are riding the wave of the societal rejection of certain features of that globalization.
Interesting. So in the case of China, I mean, Xi came to power on the back of a promise of anti-corruption. He's been in power for a very long time and the anti-corruption process continues and is perhaps eternally necessary. Trump ran against the Epstein class and is now identified with it by much of his base. And Putin, I guess the irony is that he began the campaign of disciplining or imprisoning oligarchs himself, but the process only concluded through Western action after the start of this war after 2022. The sanctioning of Russian oligarchs is what truly subordinated them to the Russian state and turned Putin from a once upon a time fairly conventional neoliberal into a real statist who's still in power, and his more kind of conventional neoliberal.
Yeah, it is. I think actually in the case of Russian oligarchs, this is of course one of the big ironies of history. Essentially they escaped Russia after taking lots of assets out, and nobody could expect, certainly they didn't expect, because they would not have kept all that money abroad in a visible form, that eventually the money would be seized by the other side, not by the Russian side, by the Western side. It is really an irony of history what happened. And moreover, the original rationale, which is also a bizarre rationale to start with, was that there would be a threat of seizure of assets because oligarchs are so powerful, they're going to tell Putin, wait, don't go to war because we are going to lose our money, and Putin would say, yes, yes, you're such powerful guys, so I will not do the war. Of course what happened, he went to war regardless of that. That shows essentially that they were non-powerful. So the rationale to seize their assets, what was based on their political power, was proven wrong. So there was no actually argument to seize the assets. So it is such a bizarre situation, and when I was arguing that, people say, oh, you had sympathy for them, but I don't actually. I think that most of them are really thieves, but the point is that you don't threaten on one ground, when the ground doesn't turn out to be right, then you say, well, then the assets we'll just take.
Do you think that misapprehension is a product of projection or of a misunderstanding of state-elite relationships generally? So in a fantastical hypothetical, if Russia or China could inflict serious pain on American oligarchs, would that then influence the state? And so the American government just believed that Russian elites had the same sort of influence that their own did? Or do their own elites not have this influence after all, and they just had sort of a neoliberal picture in their head that doesn't actually map onto the powers of states and the rules of geopolitics?
I think the latter one. I think they had an image of the sort of neoliberalism, and they had an image where the moneyed elite really had disproportionate influence on government policies. I think in the case of Russia, they believe still the oligarchs, clearly they believe that the oligarchs are so powerful. In reality, the KGB was in power. And I think in the case of China likewise, it would be a mistake to believe that the oligarchs are powerful. And we have seen this. I'm not saying that they're without any importance, but I'm just saying they are not really the deciders when it comes to important government decisions. And we have seen that in the example, that's one that I like to quote, but there are several others, but Jack Ma was the most dramatic one because as you remember he was about to have the largest IPO in history of the world, and that was actually cancelled, I think he did 24 or 48 hours before it happened, on explicit orders by Xi Jinping. But what was interesting, that's at least what people say, but what was interesting, it's not in dispute, was who gave him the phone call. The phone call came from a middle-level Ministry of Finance official. And things don't happen exactly by accident in China. That was a very clear message to Jack Ma. You are not at the level of minister, forget other levels. You may be a billionaire, but your level is a mid-level official in the Ministry of Finance. So he conveyed the message, and I think that has been the case since. And as you mentioned, the corruption campaign has been going on, and part of that campaign was essentially directed towards disciplining of the party members who were very rich. And for that actually I have the papers that I did with Chinese authors. We used actually official Chinese data from the Central Committee Disciplinary Commission, which actually deals with only party members, and you have there really the amounts of money they have been accused of stealing and everything else, which is on average about 12 to 15 times their salaries.
Is there any logic you can see in the data as to who bears the brunt of the anti-corruption campaign? Does it correlate with how much they are in fact stealing, or is it just a matter of party loyalty, that if they seem to lack loyalty or are part of too powerful a clan, then they get the axe regardless of how much they're stealing, assuming that everybody is.
We don't know what leads the Central Committee Disciplinary Commission to actually choose one person and maybe not choose another one. But they do publish the data, which we had actually 1,000 cases of people who have been found guilty. And by the way, whatever has been accused has been found guilty. So it's a 100% result. And they give very detailed data about first the amount of money, including the value of the jewelry or art collection, all of that that was considered unjustifiably acquired. I cannot use stolen, but there was some other euphemism. And then the age of the person, number of years that he was a Communist Party member, what was the position at which he was then found guilty, how long the process lasted, what is his age, and what was his skill level of education and so on. So this is very interesting because that information we have, and using household survey data we can place these guys and say what would be these guys' legal income with level of skill and position. For example, they give you a position whether you were in the county level or the provincial level or you're a national level guy, and that's where we find that actually, with expected wage for example for that guy with such skills is 100, the amount of money embezzled, money on a monthly basis is 1,200 to 1,500. So we're really talking about massive amounts, and these are big guys. These are so-called tigers. They have the flies, these are the small guys like policemen in the street. And then they have the tigers. And these were the tigers. But of course from such data we cannot tell if these tigers were accused and found guilty because they lacked loyalty to the party or just they were corrupt.
What about in the US case? Obviously, Musk hasn't been disciplined the way Ma was, but in his power struggle briefly with Trump, it seems like he lost. That Silicon Valley has learned that it is not truly a global stateless entity, but that it is subject to the power of the American state specifically, and they've all become nationalists to one extent or another. So, how do you see the power dynamic here?
This is very interesting. You mentioned how originally actually I think many people believed, and I including myself actually, that Musk is going to stay for a while, but he came like a summer storm, you know, he was there but it didn't last too long, and I think that he lost. Actually the power of the state was greater than the power of the oligarchs. So the interesting part would be to see how things develop now with artificial intelligence, because this is I think a very interesting case where the incentives are very bizarrely aligned. On the one hand, all these large AI companies have an incentive to continue and to speed up the development because they're fighting against each other. The US military-industrial complex has also an incentive to do that in order to tell the Chinese that the US is more powerful. But then within themselves they also realize that the ultimate result of all that would put the monopoly on one or two companies, that what of money that has been invested, we're talking about billions, as you know, billions and billions, might actually produce a bubble. And there is on top of that a real danger with that. That's why actually I like the analogy with nuclear weapons. There is a real danger where you have to control it. And I would really see, if you see AI as the equivalent of nuclear weapons, you have to ask yourself a question. Would it have been reasonable if the US and USSR have outsourced production of nuclear weapons to a private company and let them do whatever they wanted? So a private company produces nuclear weapons in California and they're saying, okay, we just want to sell it tomorrow to somebody else and we will do with that whatever we want. So you had to find some solution. First, that it was in those cases very clearly in state hands, and secondly, that there was a mutual restraint, which was then of course implemented through four agreements about nuclear weapons, and I think we will have to do something similar with artificial intelligence.
I think the analogy between AI and nuclear weapons is instructive but misses some fundamental differences. For one, it turned out that it didn't matter at all who won the nuclear race. I mean, obviously it mattered to the Japanese, but it didn't matter in the struggle between the US and the USSR. The USSR got there second, that had no effect on the balance of power. Two, and we don't know if that's going to be true with AI. Maybe if you get there first, you determine the entire system. Nuclear weapons are not supposed to be used and their power is implicit. Whereas AI is already used pervasively and ubiquitously and will be ever more so. So it's much more active than passive. And nuclear weapons are always directed outwards at the apparent adversary. Whereas the transformative effects of AI are going to probably be first felt on the domestic society, the national economy. And of course it has international national security implications, but that's not its exclusive area of operation and probably not its primary one. So I see the dynamic as very different and therefore the discussions would have to follow a very different logic.
Well, I'm not saying that there is 100% the sort of parallel, and you're right in many of these points that you made, but what I think is similar is that AI, like nuclear weapons, can be used militarily or can be used to attack the other side to get information, stop, for example, water companies from functioning, airplanes from flying, electricity from being delivered. That can be done through artificial intelligence. Let alone that artificial intelligence can also develop biological and chemical weapons. So it does have this impact. And when you said nuclear weapons did not eventually have a role, but they didn't have a role because of mutual acceptance of constraint on their deployment in reality, and I think something similar is needed here because if it's left just to its own, there are of course some beneficial effects that would exist, like there were beneficial effects of nuclear energy. I mean, after all, production of nuclear reactors was very good and it's good. France depends two-thirds of energy on nuclear, but nuclear weapons were bad. Likewise, I would see artificial intelligence there, of course, very positive elements with it, but there is also a dangerous part, and I don't think we should minimize it because we are now a little bit, I believe, like where we were with nuclear weapons. Let's suppose, I don't know, '49, '50 or so on, and now with hindsight you say, well, it really didn't matter, but it didn't matter because we controlled it. But if you're now in '49 when the Soviet Union got its nuclear weapon, or let's suppose we are now '51, then you don't know if it will matter or not.
Yeah. No, I certainly didn't mean to say that nuclear weapons played no role. I just mean that AI is already actively present everywhere whereas nukes are buried in silos or on submarines under the ocean and are always poised to fire but hopefully never do and never did after the first couple uses. And so that's a big distinction. And we're not preventing use. We're trying to direct use and preclude some kinds of uses. And that the effect with nukes obviously was domestic to the extent that nuclear energy became important. But the idea in the '50s that maybe nuclear technology was going to totally revolutionize medicine and everything else proved empty. Whereas for AI, it seems like the first effect is going to be domestic, although it will also have extraordinarily important international security implications. But let's turn to your concept of national market liberalism. So now that the great global transformation has taken place, this has transformed sort of the nature of national economies of states. So what is national market liberalism and how will that impact international relations?
Well, I will not speak about AI in this context because the subtitle of the book is actually National Market Liberalism in a Multipolar World. What do I mean by national market? Let me explain that relatively easily and quickly. We all do agree, from Mark Carney to Trump or to Ursula von der Leyen or whoever, that the period of neoliberal globalization that we can date to the early 1980s, certainly the peak was around 2000, that period has come to an end, and that's I think quite obvious, and people have written it's not only Trump's tariffs, his use of coercion in international economic relations, inability to in very many cases control capital transfers, inability of countries like China to raise money from US stock exchange, and many other things have happened, including of course really an attempt to limit severely movement of labor, which theoretically with the neoliberal world was actually always to be treated like just another factor of production. So people move wherever they want to make more money, like capitalists invest wherever they can make more money. So that's been at an end. So the question then becomes, what do we think this new regime that we are already beginning to live in, what are the features to that? And my argument is the following, that neoliberalism was consistent in the sense that the rules which applied externally and domestically were more or less the same. These are the rules of domestically it was low taxation, profit principle, reducing the importance of the welfare state, and internationally which was free trade, flexible exchange rates and so forth, no tariffs, low tariffs. The point is that with the new system we remain domestically more or less neoliberal, and I will give you some argument as to why we are remaining there, but internationally major countries, and then the whole world because the whole world imitates what major countries do, becomes mercantilistic. So now we have domestically neoliberal policies called deregulation and low taxation, they continue, but externally US or China or Russia or India or the European Union behave like mercantilistic powers. In other words, they treat trade, international relations as a zero-sum game. Whatever is gained from you is a loss for me. So we play a game where we threaten either tariffs or closing of immigration channels or inability of your companies to sell in my place, like Huawei cannot sell in the United States or electric cars cannot come here. You use really internationally, you use political power and you play an American-style game. It is liberalism, it is market liberalism because it is limited to the market relations, and it is national, and I think it's very important to realize that the prefix national has to be there. And when you think that a cosmopolitan ideology like liberalism would not allow nationalism because it is somehow contradictory, well, of course I say yes, socialism was also an internationalist ideology, but put a prefix in front of that, national, you get a very different animal. So we now I think have essentially national liberalism, which means liberalism applied only inside or within. Without, it's a different matter.
That's funny. I should have known that the punchline would have been national socialism. I somehow assumed you were going to say socialism in one state. So it's...
Well, that's the same idea. It's the same idea. Basically we are socialist here and then elsewhere will be different.
So the question I suppose that follows is, do we need to employ the term national? Obviously we need some alternative to the cosmopolitan global category. But is the new repository of market liberalism necessarily the nation? Presumably most nations are far too weak to practice this form of mercantilist politics in the big scary world. And you mentioned the European Union is one of the players in this game, which is obviously a supranational construction of a particular kind that is facing all sorts of tensions at the moment.
