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To Understand 2016’s Politics, Look at the Winners and Losers of Globalization

An interview with economist Branko Milanovic.

China Photos / Getty Images

Since the 1980s, the world has been undergoing a particular type of globalization, one that has been very good for some people, and not so good for others. Branko Milanovic’s book Global Inequality, which came out earlier this year, showed who won and lost under this system in the last 30 years. By doing so, he pinpointed, many believe, a source of discontent that has increasingly shaped our political climate, from the UK’s move to leave the EU to the outcome of the United States presidential election.

The biggest gains, he found, have gone to the very richest in the richest countries—the kinds of people that are overwhelmingly found in places like London or US coastal cities—as well as the “emerging global middle class,” people with much less wealth who are predominantly located in China. Both of these groups saw their real incomes skyrocket from their previous levels, though Chinese people on overage are still only one fourth as wealthy as Americans. The world’s poorest people didn’t do nearly as well, but they saw some improvements. 

And the losers have been working people in rich countries. A large portion of the lower middle class in Western Europe and the US saw essentially no income gains since the Reagan administration, while almost everybody else in the world, including elites in their own countries, moved forward. Milanovic presented his data for these findings in the now famous “Elephant chart.” The graph, which looks like the outline of an elephant, shows how much incomes have increased for people at different levels of wealth. The dip between the elephant’s back and its trunk shows the comparatively small gains that working people in rich countries have seen.

This interview has been edited for length and clarity.

Let’s start with the obvious question. Does the elephant graph explain Brexit and Trump? 

Yes, I think that it largely does explain Brexit and Trump. Why? Because it shows in very stark terms that people in the lower parts of rich countries’ income distributions have seen fewer benefits of globalization compared both to the people in Asia against whom they often compete in global supply chains and compared to the people in their own countries’ tops of the distributions. You just cannot undo these two facts.

What is a matter of discussion is whether the primary cause for these facts was globalization or not. The other two “contestants” are technological change (that helped more skilled workers to the detriment of the less skilled) and economic polices like reduction of tax rates.

My opinion is that all three factors played a role, but that both technological change and economic polices responded to globalization. The nature of recent technological progress would have been different if you could not employ labor 10,000 miles away from your home base. Economic polices too would have been different if you had the relatively closed economies of the 1960s and 1970s with capital controls.

I agree with Dani Rodrik when he sees globalization as fundamentally reducing the field of feasible economic policies for each nation-state. This seems to me obvious when you consider how much more similar economic polices across the world are today than, say prior to the 1980s. Today, most countries have abandoned capital controls, almost all currencies are convertible, tariff rates are much lower, the role of foreign capital is much greater, and government subsidies to industries negligible compared to what they used to be. 

Why do you think that is? 

We have created an international economic architecture that takes globalization not only as given but as a desirable objective in itself. And I agree with that. 

You think globalization is a desirable objective?

Yes, I consider desirable any policy that is “inclusive” in the sense that it opens the field of action to greater number of participants. This is not an instrumental view of globalization: It does not say, globalization is better because it raises incomes (which, I think, on balance, it does). It says globalization is better because it reduces obstacles between people in the world.

I think that ideologically you can be against globalization only on two grounds: One is “localism” where one cares only about his or her narrow community and does not want to interact with the rest of the world; another is “nationalism” which more violently opposes “us” to “them.” An example of the former would be religious communities; an example of the latter would be North Korea. 

The problems with globalization arise from the fact that gains from it are not (and can never be) evenly distributed. There would be always those who gain less than some others, or those who lose even in absolute terms. But to whom can they “appeal” for redress? Only to their national governments because this is how the world is politically organized. Thus national governments have to engage in “mop up” operations to fix the negative effects of globalization. And this they have not done well, led as they were by the belief that the trickle-down economics will take care of it. We know it did not. 

Rich world governments, in say the US and Western Europe, failed to “mop up” globalization’s mess. What could they have done differently?

Perhaps it is easy to say it with hindsight, but they could have argued for trade pacts that would pay more attention to workers’ standards rather than to the protection of intellectual property rights and patents.

Rich countries, and especially the US, could have paid more attention to the quality of education and tried to not only equalize access to the best schools but make public schools’ quality similar to the quality of private schools. You may say that it is a generally desirable policy that has little to do with globalization: I agree, but I also think that it would have reduced the number of “losers” because it would have enabled larger swaths of the population to successfully compete globally.

During the US election, a rather strange and heated debate took place between liberals that insisted the rise of Trumpism could be blamed on “economic anxiety” or on racial resentment, as if it had to be one of the two. 

I really do not think that the causality runs one way only: either from economic problems to racism, or from racism to economic problems. I think that the two work together.

But I think that it was always wrong to blame support that Trump has received only on racism or misogyny. By doing this, one commits two mistakes: First, writes off that portion of the population as “irredeemable” since their racism or misogyny makes them impervious to any rational argumentation; and second, entirely plays down economic factors and thus fails to propose any change in economic policy.

The view that nativism alone was responsible for the rise of right-wing populism in the US, or even more bizarrely the view held by some that the “losers” in rich countries should not complain because they are better off than workers in China, were just wrong answers to a very real problem.

This kind of an interpretation has received strong pushback in the United States since Trump’s victory.

I do not understand the pushback. Do they really believe that Trump, Brexit, Le Pen, the rise of many right-wing populist parties in Europe etc. have nothing to do with economics? That suddenly all these weird nationalists and nativists got together thanks to the social media and decided to overthrow the established order? People who believe in this remind me of Saul Bellow’s statement that “a great deal of intelligence can be invested in ignorance when the need for illusion is strong.”

In the book you say that, “Rising inequality indeed sets in motion forces, often of a destructive nature, that ultimately lead to its decrease but in the process destroy much else, including millions of human lives and huge amounts of wealth.”

I think World War I is probably the best example.

But the role of economic interests in provoking conflict is endless, from military conquests in the ancient and medieval worlds that were motivated by the desire to get cheap labor through enslavement to, for example, US sugar manufacturers that, angry at Cuba’s nationalization, provoked the political estrangement of the two countries for more than half a century.

So, the argument that economic interests often stand behind foreign policy moves is not, I believe, hard to make: We can read about it practically daily in the discussions of what Trump and people around him might or might not do in function of their pure economic interests. And then going from these economic interests to showing that often they become more acute under conditions of high inequality, simply because the stakes are greater, seems to me to be but an additional step.

You wrote in your book that a full half of the increase in US personal income inequality can be explained by New York, the San Francisco Bay Area, and Washington State. Historically, are the winners usually aware of their privilege sitting at the top of the pyramid, or is myopia common?

I think that myopia is very common, especially when you believe that what you have is fully deserved and that you are not only richer but morally superior.

It was Hayek of all people who many years ago noticed that one of the possibly fatal weaknesses of capitalism as actually practiced is that it tends to ascribe moral virtue to economic success. Let me quote him: “It bodes ill for the future of the market order that [identifying success with virtue] seems to have become the only defense of it which is understood by the general public.”

If you believe this then you cannot understand anyone who questions the existing order; he must appear to you either as a brute or a villain.