Branko Milanovic: The End of Globalization, Why Europe Is Doomed

Well, thank you very much for inviting me. It is, of course, a pleasure. I would love to be in Prague, but we can do it this way, too. Maybe next time.

Well, that's a difficult question. You know, I was — you mentioned before, of course — I was generally raised in Yugoslavia. I went to high school in Belgium. That was a public high school. Marxism — that was in the late 60s, early 70s — Marxism was very present there. And then I studied Marx, actually, you know, Capital. We had more or less in Yugoslavia at the university to read not the entire three volumes, but parts of the three volumes. So it does influence your view of the world very significantly. But then on the other hand, the reality in the 1970s and the 80s was that communist systems were falling behind capitalist systems. So there was a sort of a disconnect. You learn one thing in class, but that thing does not seem to function very well in real life. So I became much more skeptical about the ability of socialism to deliver high income.

And then I was in the World Bank, as you mentioned. The World Bank in those days, in the 1990s, was really sort of essentially a neoliberal institution — not only what it was doing, but what was the ideology. And neoliberalism is a very peculiar ideology that you kind of don't realize that you have been part of that ideology because it presents itself as a common sense. So it's only later, maybe in the early 2000s, that I have started becoming skeptical regarding both of the ideologies that I originally sort of believed in: first Marxism, and secondly neoliberalism. So in some sense, now when I see the end of neoliberal globalization, I can say, well, I'm old enough, but in this life I have seen the decline or actually fall of two important ideologies: Marxism and neoliberalism.

No, it actually — I start, you know, I started working in the research department of the World Bank in the 1990s, and I stayed there actually almost for 20 years. The bank was not working in those days on inequality, but it was working a lot on poverty. Now, methodologically, there is not that much of a difference between the two in the terms, in the sense that you have to have access to microdata and to essentially use a poverty line in order to decide who is poor. And in the case of inequality, obviously there is no poverty line, but it's actually you look in the entire distribution. But I did start work on income distribution even then, and it was in the 1990s, for example, actually even late 1980s, on Poland, because I worked quite a lot on Poland. Poland was a member of the World Bank before the end, the change of regime. There was no lending, but there was quite a lot of economic work, for example. And in those days I worked on inequality in Poland and also on distribution of subsidies in Poland. So the World Bank did have some work on inequality, but not that much. So it was the work which you could do, but they would not exactly advertise it in a big way because inequality somehow was not the topic that was seen those days as desirable.

Yeah. I mean, in a very sort of — in a simple way, let's say that inequality in — actually, let's start with the so-called transition, or the countries that have switched from socialism to capitalism. In all of them, inequality went up, but really in many of them, including Czech Republic, the increase was not very substantial. Particularly, for example, small increases were in Slovakia and Slovenia. I often say that the countries other than the Nordic that really have low inequality are basically the old Austro-Hungarian countries. You have low inequality in Hungary, Slovakia, Slovenia, to some extent Croatia and Austria and Czech Republic. And so that was not a dramatic increase. But then much more significant increases happened in the US, in the UK until recently. Then there is a change of course in Russia. Ukraine is a very special case that actually we originally had data with fairly high inequality similar to Russia. But then most recently, and it has nothing to do with the war — I'm talking about the period before — Ukraine actually started showing low inequality. So I'm not sure really what is the truth there. And then finally, China had really dramatic increase in inequality. India likewise. The only part of the world where actually inequality interestingly went down were Latin American countries with very high inequality. But there, social transfers, especially cash social transfers, became more important, and Brazil and Mexico, for example, register decreases in inequality. That does not mean that they are still not extremely unequal countries, but they are less unequal now than they were 30 years ago.

Yes, actually it's nice that you mentioned Walter. Walter is a friend, you know, but Walter wanted to be a little bitter. And you know, there are some arguments historically — these three or four, you know, horsemen of the apocalypse were the ways, the only historical ways to reduce inequalities essentially. But I don't think that Walter ever meant that we should be using wars and epidemics to do that. But let me go to taxation. I'm glad that you asked that. You know, I'm in favor of some taxation, but let me put a general statement. I think for the advanced rich economies, taxation has reached a little bit of its end, in the sense that with some — with exception of some possible improvements, especially taxation of capital that is now really comparatively low, and taxation of inheritance that oftentimes is zero. I am not arguing in solving every problem with taxes. I think it's actually unfair. Sometimes when we actually see any problem, we just say, 'Okay, let's slap a tax on that and then the problem will go away.' I'm much more in favor of thinking of other ways. For example, making education much more accessible and much cheaper. We have, of course, in Europe, lots of education is free, but increasingly it becomes also education of the private sector for which you have to pay. In the United States, the cost of education is often exorbitant. That, of course, makes it very difficult for people from middle classes and poor people to access such education. Secondly, I would be very much in favor of distributing shares to workers and generally making the middle class have some financial assets. Thirdly, you could also include special grants given at, let's suppose, 21 years of age or so. A certain amount of, let's suppose, 5,000 euros, 3,000, or whatever. Some of that would be wasted, but some of that might be used by young people either for their school or to start a business or to do something. So I think we should think of other ways of actually reducing inequality, not only through taxation.

No, I — you know, first of all, as you know, we are now all sort of wondering what will happen next because globalization is certainly on the retreat. And before I just say that, because it's very good you say, okay, globalization may be on retreat, but let me explain why first. What we have had, not only now with Trump, but even started with Trump one and continued under Biden, we have had several anti-globalization moves. First of all, tariff rates have been risen even before the current one against China under Biden. Secondly, immigration policies have tightened very significantly in Western — in Europe, in the European Union, and also in the US, even before the current expulsions, which are sort of an extreme way of dealing with immigration. Thirdly, the use of economic sanctions has become overwhelming. The US currently, I think, has more than 50 countries on the sanction list. So all plus you have the introduction of the industrial policies. All of these are actually elements that are antithetical to the kind of neoliberal globalization that in principle encouraged free transfer of technology, free transfer, free movement of capital and labor, and obviously free movement of goods and services. So we really have had a decline in globalization for the last probably six to seven years. Let me just add, for example, there that the WTO appellate court does not work anymore practically because Obama has refused to appoint an American judge who was supposed to sit there. So we really have a significant retreat from globalization.

There are two different books. You know, the first one that you mentioned — you rightly said it is a sort of anthology, if you want to call it, a combination of my short essays that were published in different magazines, but mostly the essays that I published, or Substacks that I published on my original blog and then on the Substack. I like very much Substack because essentially I can publish there whatever I want and whenever I want. You know, when you publish even in different websites that are fast in producing, you still have to deal with the editor, and sometimes I'm impatient. I want to publish it really the same day. In any case, so I selected with my editor, who was formerly my editor at the Harvard University Press but he's now at Polity Press, we selected something like 150 short essays. I think they are kind of fun to read because they cover many areas. They cover really degrowth, the theories of degrowth. They cover inequality, global inequality, national inequalities. They cover history of thought. For example, there are quite a few essays on Marx, on Adam Smith, on China, on Russia, on globalization or multipolar world also. And finally, in the last part, there are general observations, and I think actually some readers might like maybe to start from that because these are observations about our life, modern life, and they are in short — you know, they are about 1,200 words, so you can really read them very quickly. I like the style; it's quite wild sometimes and quite vital. It's very nice to read it.

Thank you very much. I think I — to be maybe I'm just sort of biased, obviously, but the style I think is nice because it is not edited and it's essentially written the way that I wanted to feel and the way that I felt at a given moment in time. So the only corrections were English mistakes that I made from time to time, and I actually wanted the text to be exactly the same the way it was published so that the reader does not have a feeling, 'Okay, I've now changed a little bit the text so it shows that I'm smarter than you might think.' You know, maybe in 2017 I predicted the crisis. No, just I kept it the same. Now, the second book, I will be brief on that, is of course a very ambitious book. It is called 'The Great Global Transformation', as you said. The title is essentially taken from Polanyi, and it deals with two major developments that are described as a single development. And these two developments are the rise of Asia, and China in particular, which leads at the level of nation-states to change economic power and then to hegemonic rivalry. So if you want to say, and at some level it leads to a political problem. But there is another level, and there I use the work that I do on inequality and personal incomes, where the rise of China makes the positional situation or the levels of income of people in the rich countries go down. In other words, the Chinese middle class is now overtaking people in the West — some people in the West — in their global income positions. So that leads, in my opinion, to domestic turbulence in the rich countries, rich democratic countries. So these are the two things: China as a geopolitical competitor of the West, and China or Asia in general as a force that for the first time in 200 years is pushing individual incomes of the Western middle class down in the global order.

You know, I got — some people have criticized my use of the term capitalism for China. I'm not using the term capitalist to mean good or bad things. I just want to be value-neutral. And then I use the definition which was used by Marx and used by Max Weber, which says — a very simple definition. You know, you have capitalism if the majority of labor is wage labor, which means they actually do not have a role in production other than to sell their labor power. You have capitalism if the majority of production is done on privately owned capital, and you have capitalism if most of the transactions are decentralized. And then if you look at China in each of these three components, it actually has a majority of wage labor working either in private companies or on their own land, because lots of people are still in agriculture. And you have most — about 70% of the Chinese GDP is produced in the private sector. More than 50% of the fixed investments is made by the private companies, and you have this enterprise coordination. So that makes China economically capitalist. But China is also a regime which has a single party where the state has a very strong role. So it is really a state capitalism, or if you want to call it political capitalism, which is different from liberal capitalism where the state does have a role. We see it now in industrial policies, for example, but that role is much more constrained, much more limited. That role is very strong in redistribution and in regulation in some sense, but certainly does not encompass the areas that the Chinese state does. So that is the major difference between the two systems, and they are both capitalist, but they seem also to compete — not only because China and the US compete, but also in terms of selling, quote-unquote, their own system. Just the last point: you know, very recently actually, Xi Jinping, in a very long speech, for the first time to my knowledge, mentioned — recently mentioned actually and explicitly — China's development as a path of development for many other countries, and actually explained that even further. I can explain that later. But that was the very first time that China has actually sort of started claiming that this system is replicable elsewhere.