Branko Milanovic on What Comes After Globalization

Branko Milanovic argues that the globalization era is expiring and being replaced by what he calls National Market Liberalism, a system that preserves domestic neoliberal policies such as free pricing and competition while replacing liberal internationalism with mercantilist, zero-sum external trade policies. He sees administrations like Trump's and Macron's as continuing neoliberal domestic arrangements even as they abandon free trade and open capital flows internationally. The 1990s belief that geopolitical contradictions had disappeared and neoliberalism would rule without conflict was, in his view, a fantasy ideology disconnected from the real world.

Western governments including the United States, Europe, Japan, and South Korea have converged on the China threat framing that Trump first articulated clearly in 2016, with Biden continuing the same targeting in a more measured way. Milanovic argues that economists who received Nobel prizes predicted China would never technologically develop, predictions that proved entirely wrong within roughly fifteen years. He challenges the framing of China as bad for the United States on the grounds that a general economist should assess global welfare rather than national interest, and that once analysis shifts to treating other countries as threats it moves out of economics and into mercantilist interstate competition. He predicts China's next major industrial breakthrough will be domestic commercial aviation, which has started but not yet broken through.

China's consumption-to-GDP ratio is approximately 40 to 45 percent, compared to 70 percent for the United States and 50 percent for India. Milanovic attributes this to wage compression and large retained profits in state-owned enterprises, which the Chinese government directs toward railroads, artificial intelligence, space exploration, and domestic airplane production. Wage compression remains politically sustainable because wages still grow at three to five percent per year even if below their historical peak. Despite its economic scale, China has limited soft power because of a deep cultural isolationism rooted in its self-conception as the Middle Kingdom, where others come to pay tribute rather than a country that engages with how other nations understand themselves.

Milanovic identifies a new class he calls homo plautia, defined by individuals who simultaneously rank in the top ten percent by labor income and the top ten percent by capital income, a combination he describes as historically new. The top ten percent of Americans represents approximately thirty million people, and an increasing share hold both high labor and high capital income at once. Nineteenth century capitalists like JPMorgan derived income primarily from capital and entrepreneurship rather than labor, unlike homo plautia, who combine high earnings, elite education, a meritocratic self-belief, and a defense of private property. This class transmits advantages to children while believing those children genuinely deserve them, making it structurally difficult to dislodge. Hours worked in the United States actually increase with the wage rate, meaning higher earners do in fact work more, reinforcing the meritocratic self-image of this group.

Governments facing stagnant middle-class growth during the globalization period had a choice between taxing the rich and redistributing domestically or blaming China, and chose the latter. Western middle classes grew at roughly one percent per capita per annum during the globalization period while top earners grew at three percent or more. An Italian at the bottom of the income distribution was at the 70th percentile of global income thirty years ago but is now at the 55th percentile, a historically novel slide caused by the rise of Asia. Between 1990 and several years ago China was a strong reducer of global inequality because it was a large, relatively poor country growing faster than the rest of the world, but Chinese high growth today is slightly inequality-increasing at the world level because China has moved further from poor countries like Sudan, Ethiopia, and Congo while converging toward the United States.

Milanovic predicts that a ceasefire in Ukraine and a resolution in the Middle East would eliminate the risk of a large war and create space to redesign the international economic system. He argues a new Bretton Woods arrangement should give China and India greater influence while reducing Europe's influence from its 1945 colonial-era level. On Xi Jinping, Milanovic notes that Xi explicitly told wealthy elites they would not enter Communist Party decision-making bodies and purged them from influence while allowing them to remain rich, with the cancellation of Jack Ma's IPO communicated deliberately through a mid-level Ministry of Finance official as a signal about Ma's diminished status. Practically the only way to reduce global income inequality is high growth rates in poor countries, and whether global inequality falls or rises in the 21st century will be defined by whether Africa catches up, with Nigeria at approximately 220 million people and several other large countries at around 100 million each totaling roughly one billion people across five or six large states.