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WHAT COMES AFTER GLOBALIZATION?  
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Branko Milanovic
March 24, 2025
Jacobin [[link removed]]

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_ The world as we know it is a product of globalization — and
this era of globalization might be coming to a close. _

, Illustration by Ben Jones.

 

Donald Trump is back in power, and, to put it mildly, he’s no fan of
globalization. The president has publicly “rejected globalism and
embraced patriotism” and said that “it’s left millions and
millions of our workers with nothing but poverty and heartache.” To
better understand the current era of globalization that he’s trying
to bring to an end and its track record, it’s useful to compare it
with the globalization that took place between 1870 and the outbreak
of World War I.

Both globalizations represent pivotal periods — watershed years that
shaped today’s world. And both saw the largest expansions of global
economic output to date.

However, they were also very different in many respects. The first
globalization was associated with colonialism and hegemonic rule by
Great Britain. It led to large increases in per capita income in what
later became known as the developed world. At the same time, it
produced stagnation everywhere else, and even income declines in China
and Africa. The most recent numbers from the Maddison Project’s
database of historical statistics show that the cumulative increase in
real (inflation-adjusted) GDP per capita for the United Kingdom
between 1870 and 1910 was 35 percent, while GDP per capita doubled in
the United States over the same period. (The average US real per
capita growth was thus 1.7 percent per year, a very high number for
that era.) Chinese GDP per capita, however, declined by 4 percent, and
India’s only slightly increased, by 16 percent. This particular type
of development created what later became known as the Third World and
reinforced the cleavages in average incomes between the West and the
rest.

From the point of view of global inequality, which is largely a
reflection of these facts, Globalization I produced an increase in
inequality as the already rich areas grew faster and the poorer areas
stagnated or even slipped backward.

On top of the rising inequality between nations, inequality also
increased _within_ many of the rich economies, including the United
States, as seen in its upward sloping line in figure 1, with richer
deciles growing more. The UK was somewhat of an exception, as the peak
of inequality was reached just before the beginning of
Globalization I, during the 1860s and ’70s. In the British social
tables, the key source of information regarding income distributions
in the past, the one produced by Robert Dudley Baxter in 1867
(coincidentally the year of publication of Karl Marx’s Capital)
marks the year of the highest inequality in the nineteenth century.
British inequality was afterward reduced thanks to a number of
progressive laws, ranging from limitations on the length of the
workday to the ban on child labor and expanded suffrage rights. Recent
data show an increase of inequality in Germany, too, after its
unification in the late 1860s. François Bourguignon and Christian
Morrisson, on whose numbers figure 1 relies, did not have information
on the changes in inequality in India and China, so both are
represented by a straight line across income deciles (implying that
they have grown at the same rate). The new Indian fiscal data focusing
on the top of the distribution, produced by economists Facundo
Alvaredo, Augustin Bergeron, and Guilhem Cassan, likewise show stable,
albeit very high, inequality. Thus, generally, both components of
global inequality (between nations and, in most cases, within nations)
went up during Globalization I.

How does this differ from the current globalization (Globalization II)
conventionally dated from the fall of the Berlin Wall in 1989 to the
COVID-19 crisis of 2020? Note that the exact end point of
Globalization II may be a matter of dispute; one could mark it at
Trump’s imposition of tariffs on Chinese imports back in 2017 or
even, in a symbolic way, at Trump’s second accession to power in
January 2025. But which date we pick does not make a difference
regarding the essential features of Globalization II.

During this time, the United States, the UK, and the rest of the rich
world experienced growth but at rates that, when compared to Asian
countries, were fairly modest. Between 1990 and 2020, US real GDP per
person increased at an average annual rate of 1.4 percent (thus slower
than under the first globalization) and British GDP per capita grew by
only 1 percent per annum. Populous and relatively poor countries
(poor, at least, at the onset of Globalization II) grew much faster:
Thailand at 3.5 percent per person, India at 4.2 percent, Vietnam
at 5.5 percent, and China at an astonishing rate of 8.5 percent.

The contrast is shown between figures 1 and 2. In figure 1, which
shows the data for the period 1870–1910, every part of the rich
countries’ distributions grew faster than every part of the poor
countries’ distributions. In figure 2, which shows the data for
1988–2018, growth rates of all parts of the Chinese and Indian
income distributions exceed that of all parts of US and UK income
distributions. This has totally transformed the economics and the
geopolitics of the world: the former by moving the economic center of
gravity toward the Pacific and by affecting the relative income
positions of the populations in the West and Asia, and the latter by
making China a credible challenger to US hegemony.

It’s undeniable that, over these last three decades, the global
income positions of large swaths of the Western middle and working
classes have gone down. This was particularly dramatic for Western
countries that failed to grow; for example, Italy’s lowest income
decile dropped from the 73rd to the 55th global percentile between
1988 and 2018. In the United States, the two bottom deciles slipped in
their global positions, although the drops were smaller (7 and
4 percentage points, respectively) when compared to Italy’s.
Additionally, the Western middle classes lost in comparison to their
own compatriots at the top of their countries’ respective
distributions. The middle classes of the West were thus double losers:
to the fast-rising middle classes of Asia and to their much richer
compatriots at home. Metaphorically, one can see them being squeezed
between the two.

But unlike during Globalization I, _global_ inequality went down
during the second iteration, driven by high rates of growth in large
Asian countries. Within nations, however, inequality generally
increased. This was most obvious in China, where the Gini coefficient,
a common measure of inequality, almost doubled following liberal
reforms. The same was true for India. Figure 2 shows the income growth
of rich Indians and Chinese outpacing that of their countries’ poor.
But inequality increased also in the developed countries, first under
Margaret Thatcher’s and Ronald Reagan’s reforms, whose effects
continued even into the administrations of Tony Blair and Bill
Clinton, only to finally plateau in the second decade of this century.

In summary, the first globalization saw the rise of the West, the
second the rise of Asia; the first led to an increase of
between-country inequalities, the second to their decline. Both
globalizations tended to increase inequalities within nations. The
unevenness of countries’ growth rates during Globalization I
installed most of the Western populations at the top of the global
income pyramid. It is rarely recognized just how highly placed even
the poor deciles of the rich countries were in the global income
distribution. Economist Paul Collier, in his Future of Capitalism,
writes wistfully of the time when English workers were on top of the
world. But for them to feel high, somebody else had to feel low.

The second globalization drove some of the Western middle classes from
these perches and produced a great reshuffling of incomes as they were
overtaken by a rising Asia. This relatively imperceptible decline
occurred together with the Western middle classes’ far more
perceptible one with respect to their own national elites. It caused
political dissatisfaction that found its reflection in the rise of
populist leaders and parties.

Finally, we should note that the convergence of worldwide incomes did
not extend to Africa, which continued on its path of relative decline.
If that is not changed — and the likelihood of such change seems
low — the relative decline of Africa will, in the decades to come,
overturn the forces currently pushing global inequality downward and
usher in a new era of rising global inequality.

An Unlikely Coalition of Interests

What was perhaps not noticed at the beginning of
Globalization II — only to become increasingly apparent with its
unfolding — was the alliance of interests between the richest
corners of the Western world and the poor masses of the Global South.
At first glance, this bond seems bizarre, as there is almost nothing
that the two groups have in common, including education, background,
and income. But it was a tacit alliance, not fully realized by either
side until it became glaringly obvious. Globalization empowered the
rich in the developed countries through changes in their internal
economic structure: reduced taxation, deregulation, and privatization,
but also the ability to transfer local production to places where
wages were much lower. Replacing domestic labor with cheap foreign
labor made the owners of capital and the entrepreneurs of the Global
North much richer. It also made it possible for the workers of the
Global South to get higher-paying jobs and escape chronic
underemployment. The losers in all this were the workers in the middle
who were replaced by the much cheaper workforce from the Global South.
It is therefore not a surprise that the Global North became
deindustrialized, not solely as the result of automation and the
increasing importance in services in national output overall, but also
due to the fact that lots of industrial activity went to places where
it could be done more cheaply. It’s no wonder that East Asia became
the new workshop of the world.

This particular coalition of interests was overlooked in the original
thinking regarding globalization. In fact, it was believed that
globalization would be bad for the large laboring masses of the Global
South — that they would be exploited even more than before. Many
people perhaps made this mistake based on the developments of
Globalization I, which indeed led to the deindustrialization of India
and the impoverishment of the populations of China and Africa. During
this era, China was all but ruled by foreign merchants, and in Africa
farmers lost control over land — toiled in common since time
immemorial. Landlessness made them even poorer. So the first
globalization indeed had a very negative effect on most of the Global
South. But that was not the case in Globalization II, when wages and
employment for large parts of the Global South improved.

Of course, it is also true that the length of the workday and the
working conditions in the Global South were often very difficult and
continued to be much worse than for workers in the North. Worker
complaints regarding the 996 schedule (work from 9 a.m. to 9 p.m.,
six days a week) are not uniquely Chinese — it’s a fact of life
across much of the developing world. But these poor conditions
represented an improvement over what came before and were accepted as
such.

Even if contemporary critics of Globalization II were wrong that it
would deteriorate the economic position of large masses of the Global
South — instead, as we’ve seen, it hurt the middle classes of
the Global North — they were right about who would benefit from
these changes the most: the global rich.

Domestic Neoliberalism vs. International Neoliberalism

When discussing neoliberalism, we have to make an important analytic
distinction between, on the one hand, domestic policies of
neoliberalism and, on the other hand, international neoliberal
policies. The first type includes the usual package of reduced tax
rates, deregulation, privatization, and a general rolling back of the
state. The second type consists of the reduction of both tariffs and
quantitative restrictions, and thus the promotion of free trade in
general as well as flexible exchange rates and unimpeded circulation
of capital, technology, goods, and services. Labor was always treated
differently — that is, its movement was never as free as that of
capital, although its global mobility was one of neoliberalism’s
aspirations.

This analytic distinction is particularly important for understanding
China and for figuring out what will be coming next under Trump’s
second administration. It immediately makes clear that China did not
follow the precepts of neoliberalism in its domestic policies, while
it mostly followed them in its international economic relations. That
distinguishes China from many other developed and developing countries
that took both the domestic and international parts of globalization
quite seriously. From the 1980s onward, the United States kicked off
the neoliberal turn, and it was not limited to domestic policies; it
encompassed a reduction in tariffs, the creation of NAFTA, and
increased inbound and outbound foreign investments. The same was the
case with the European Union. It was also true for Russia and formerly
communist countries.

The only major holdout was China. It alone maintained an important
role for the state, which remained the preponderant actor in the
financial sector and in key industries like steel, electricity,
automobile manufacturing, and infrastructure generally. Even more
important, the state remained powerful in policy formulation and
maintained what Vladimir Lenin called the commanding heights of the
economy. These Chinese policies, especially under Xi Jinping, can be
understood best as something akin to Lenin’s New Economic Policy.
Under the rules of these regimes, the state lets the capitalist sector
expand in the less important sectors. But it maintains control over
the most important parts of the economy and makes key decisions that
have to do with technological development. The Chinese state has been
heavily involved in the development of today’s most cutting-edge
technologies, including green tech, electric cars, space exploration,
and, most recently, artificial intelligence and avionics.

That involvement has ranged from simple inducements in the form of
lower taxes to more direct pressure, where private companies are told
what to do if they want to stay on good terms with the government. An
obvious example of the difference in power between the state and the
private sector was on display when, in 2020, the government canceled
what would have been the largest IPO in history, by Jack Ma’s Ant
Group, an affiliate of Alibaba, that would have allowed it to expand
into the largely unregulated fintech industry.

So when we talk about the success of globalization in reducing poverty
and increasing growth in many Asian countries, especially in China,
the distinction between domestic policies and international ones
should be kept firmly in mind. It could be argued that China’s
success was precisely due to its ability to combine these two parts in
this unique way that left the power of the government largely intact
domestically while it allowed the full display of the advantages of
trade to play to its strong points. That particular strategy could
possibly work well for other large countries like India or Indonesia
too. But it has clear limitations with small countries, since they
lack economies of scale and, perhaps more important, do not have the
kind of bargaining power with respect to foreign capital that allowed
China to benefit from substantial technological transfers from the
more developed countries.

Trump as the Death Knell of Globalization II

The international wave of globalization that began over thirty years
ago is at its close. Recent years have seen increased tariffs from the
United States and the European Union; the creation of trade blocs;
strong limits on the transfer of technology to China, Russia, Iran,
and other “unfriendly” countries; the use of economic coercion,
including import bans and financial sanctions; severe restrictions on
immigration; and, finally, industrial policies with the implied
subsidization of domestic producers. If such departures from the
orthodox neoliberal trade regime are made by the key
players — namely, the United States and the European
Union — transnational organizations like the International
Monetary Fund and the World Bank will not be able to continue
preaching the usual Washington policy precepts to the rest of the
world. We are therefore entering a new world of nation- and
region-specific trade and foreign economic policies, moving away from
universalism and internationalism and into neo-mercantilism.

Trump fits that mold almost perfectly. He loves mercantilism and sees
foreign economic policy as a tool to extract all kinds of concessions,
sometimes not having anything to do with economics proper, such as his
threat to levy tariffs on Denmark if it refuses to give up Greenland.
Perhaps it’s all just bluster. Yet it does show Trump’s view that
economic threats and coercion should be used as political tools. Such
policies will further parcel the global economic space. Washington’s
objective is to slow the rise of China and to reduce the ability of
the Chinese state to develop new technologies that may be used for not
only economic but military purposes.

However, on the other hand, the _domestic_ part of the standard
neoliberal package will, if anything, only be reinforced under Trump.
This is already apparent in his hopes to reduce personal income taxes,
deregulate practically everything, allow much greater exploitation of
natural resources, and push privatization of government functions
further, essentially doubling down on all the domestic precepts of
neoliberalism. We would thus have something contradictory only in
appearance: increased mercantilism internationally with increased
neoliberalism at home — in other words, the very opposite
combination of China’s policies.

Some economists, citing historic examples, believe that mercantilist
policies must necessarily be accompanied by policies of greater
domestic state control and regulation. But that is certainly not the
case with the current administration. The new combination that Trump
is promoting — tightly controlled immigration paired with extreme
domestic neoliberalism and mercantilism abroad — would likely
appeal to many in France, Italy, and Germany as well.

The world is thus entering a new era in which the rich countries will
follow an unusual two-pronged policy. Having jettisoned neoliberal
globalization, they’ll now press ahead even more firmly with a
project of domestic neoliberalism.

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Branko Milanovic is an economist and a visiting presidential professor
at the Graduate Center, CUNY.

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* Globalism; Neoliberalism; US; World;
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