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LSE: Public lectures and events
Great global transformation: national market liberalism in a multipolar world
01:05:46
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A
Welcome to the LSE Events podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.
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B
Good evening everyone. Welcome to the LSE for this hybrid event. My name is Kirsten Saimbruch and I am a Distinguished Policy Fellow at the International Inequalities Institute here at the lse. I'm very pleased to welcome Professor Branko Milanovic back both to the Inequalities Institute and also to the lse. Branko is a Research professor at the Graduate center at the City University of New York, cuny. He's also a Senior Scholar at the Stone Centre on Socioeconomic Inequality at CUNY and a visiting professor here at the International Inequalities Institute at the lse. Franco's main area of work is income inequality, both in individual countries but also globally, including pre industrial societies. This event marks the launch of his new book, Great Global National Market Liberalism in a Multipolar World. And this was released today, so we're very privileged to have him here today. It's a fantastic book. It's well written, I've read it. It's very entertaining in terms of the detail that it includes for an economics book and it's also very timely in its publication because President Donald Trump was elected exactly one year ago and much of the book is about the consequences of some of the policies he puts forward. This event is being recorded and we will hopefully be able to make it available as a podcast, subject to no technical difficulties afterwards. And as always, there will be a chance for both the in person and online audience to ask questions. For the online audience, you can submit questions via our Q and A feature at the bottom of your screen and please include your name and affiliation when you do so. For those in the theatre, I'll open up the discussion when Branko is finished with his presentation, but for now I'm delighted to pass the baton on to him and welcome you back to the lse.
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A
Thank you very much. Thank you, Christine, for this introduction. I'm, as always, so happy to be at lse. It's always challenging for the presenter and if you're on the other side, I make it also challenging for those that I'm listening to. So I'm sure that will be an interesting evening. I will not speak for longer than 45 minutes, so I really hope Christine is going to tell me exactly when I'm half an hour through my talk because I really would like then to wrap it up and that would leave us much more time for Q and A. As you know, the title of the book is the Great Global Transformation. It is obviously sort of taking on the title that was very famous and it is very famous from Polani. I don't think it's a legitimate pilfering of intellectual property because I do think that we are living through the time of great global transformation, global meaning that involves many countries in the world. And of course, the emphasis on the book is on the relationship between China and the United States. So that was the, I think, somewhat sort of acceptable use of the title. It is true that also we. Polanyi did play quite a role in my own thinking and also in thinking in the book. And so he's quite a quoted author in the book. I have also to say in the beginning that it is a book that I believe it's more than the sum of its parts. Consequently, my today's presentation is less good than the book. So don't be discouraged by the presentation not to buy the book, but the book is more than the summation of the chapters. Since I really didn't know how to present it alone, I decided to go in a very pedestrian way, chapter by chapter. So that's what I will do tonight. But as I said with a proviso that actually the book as a whole is better than each individual chapter or the sum of the chapters. There is a certain theme which is in the book, and actually I wanted to bring this out openly in the beginning, is when you can say, can think of the reverse Mandeville. In other words, as you know, Mandeville, when he wrote the Fable of the Beast, said that individual vices produce public virtue, meaning that vices of self interest, self love, of profit principle, and so on, produce through what became indivisible hand produce abundance, more goods and greater welfare. But I was wondering in this particular case, and you will see maybe some reasons for that, can it be that the reduction of mean income differences between countries has led to the hegemonic conflict? To make it simplified, just simply it means that. Could it be that the fact that actually overall inequality measured by mean country incomes leads to conflict because some countries like China, for example, or India become then gradually much more important economically and then politically and finally in terms of technology and military. So a good outcome might lead to a conflict. Secondly, can reduction in global inequality between individuals lead to domestic political instability? Again, that's the similar issue you can hand we do have actually reduction in global inequality between individuals, but it could be argued that it was bought, quote unquote, at the cost of political instability in the rich countries. So in that sense you can see there is a little bit of a sort of a theme that something which is like a favorable, good and desirable development might lead to either political turbulence or to conflict. So that was a little bit of an idea. And it is something that when I asked people, when I gave this presentation, similar presentation, for example, to a very large audience in Amsterdam last year, I asked people to raise their hand if they agree that actually reduction in global income distribution, global inequality is good. And of course everybody says it is good. But if I say, okay, reduction of global inequality with deteriorating position of some groups of people, well then of course the answer is much more ambivalent than the original answer to the broad question. Now, the first chapter deals with the rise of Asia. I would go quickly through these numbers because they are quite well known. Again, they are at two levels. One level is the level of countries. Another level is at the level of individuals at the level of countries. I think it is a nice illustration. It is a GDP per capita, total GDP per capita of a country in purchasing power parity. Now the first slide here on your left shows the shares of US and China in the global output, global GDP. What is generally known is that by 2015 China has overtaken the US and now is producing about 23% of the global GDP in PPP terms and US is producing 15 or 16%. But what is interesting is to look at the other cases. I took intentionally, the former colonizers and the colonized countries. I took for example, India and the UK and in mid-1980s, India and the UK as a whole each produced about 3% of the global GDP. Today, India produces 9% and the UK produces 2%. So if you don't think that this is a big change in the distribution of economic activity, then it's really difficult to see what would be a bigger change. It's actually a very huge significant redistribution of economic activity in the world. And here is another example. Indonesia and the Netherlands, very similar story before. And then finally France and Vietnam, where Vietnam has not yet overtaken France. But basically that's at the level of nation state or the countries a different way to see the same story. And actually it should be here in the title. China, India and Indonesia's GDP per capita. Now this is per capita as percent of the British GDP per capita over time. So before the Industrial revolution, we take this number 1750 that comes from medicines data. You can disagree, there are many problems with medicine's GDP numbers. But I think broadly the picture is correct. These three countries had about GDP per capita, which is about 40% of the British GDP per capita. Then as Britain became much richer and more powerful, and of course GDP per capita of Britain went up and GDP per capita of India, Indonesia, China was either stagnant or declining. Of course, the ratio went all the way down. And if you can look here, 1950s or 1960s, the ratio of these countries to the British GDP was 1,10. And of course, what happened since, very clear here on the graph. We had of course, what a friend of mine called, using the Spanish football terminology, la remontada of Asia. So la remontada of Asia actually is bringing to some extent a distribution of this economic activity that I talked about to the position predating the Industrial revolution in terms of relative incomes between Europe and Western Europe, more exactly, and parts of Asia. Now, how is this reflected at the level of individual income? So many of you know that actually most of my work deals with individual incomes and with global income distribution. And this is something that I see here which are called the greatest reshuffle of global income positions in the past two centuries. And that greatest reshuffling means that positions of different individual groups between essentially Western countries and Asia have changed. At the same time, it has also changed the income distribution of the world. You see here data from 1988, 2008 and 2018. And I even have data for 2023 which I don't display here, partly because I just got them recently and partly because unfortunately, African representation in the 2023 data is still fairly incomplete. But it does look actually now, as you look at this distribution, it looks what economists call log normal distribution. The world distribution looks now maybe for the first time in 200 years, similar to income distribution that would look in an individual country. It's actually this log normal distribution is very characteristic for individual countries with of course, very long upper right hand tail. But as you can see, 1988 the situation was different. It's actually you had really many more people towards very low incomes. And nowadays you have relatively more people in the middle. Now, mind you, this is not the middle class by the UK or the Western standards. These are people who are much poorer. You see that numbers here between 3,000, 5,000 or $10,000 per year in PPP terms. So it is not the Western middle class, but it is a global median class. And that global median class has become more important now than it used to be. But the reshuffling of the positions I think is quite dramatic in some cases. And I Used here an example which actually maybe is more dramatic than others, it is the position. What you have here on the horizontal axis is the position of 10 deciles from urban China on one slide and on the other slide 10 deciles from Italy. And then on the vertical axis you have their positions in the global income distribution. So let's start with urban China, which is simpler. You can see, obviously China has grown more rapidly than the world. So these sales in China, in urban China have improved their relative position. If you look at the median, the median decile in China in 1988 in the urban areas was around the global median, but currently it is at the 72nd global percentile. So it's not a surprise when you show this to people. Nobody's surprised. Yes, we know that China has grown much faster and people have improved the relative position. What is interesting, that if you have this ordinal ranking, if I improve my relative position, well, somebody has to go down. You know, you have like hundred percentile. So if I take your percentile, you have to go down. What is interesting is that the rich countries, the west, essentially lower parts of their income distributions here, illustrated by Italy, they have gone down in some cases by 10 or more percentage points. So there was this position of decline. It doesn't mean that the guy in Italy who is in the second or third percentile knows that because he might look only at the rest of the Italian income distribution. Although I would argue maybe in the Q and A that it might have an impact that can be felt even if you originally don't see that. Because of course, very few of us know where we are in the global income distribution. But you would also notice that at the top, the middle and the top of the Italian income distribution was not affected very much by that. Actually, some of them even improved their position. But what is common here for what is here for Italy is really very common for other countries as well. I didn't show them here, but they are actually in the book. You can see the same situation with the US but also much less dramatic. However, it's always the lower part of the rich countries income distributions that have been overtaken essentially by China and other Asian countries. And their position has consequently gone down. And that's why we have this reshuffling. You can also say the same thing if you compare the positions of the US median person and the Chinese urban ninth decile or any other. But they took the ninth decile. Because the rapprochement, if you will, is more dramatic when you take a Very high Chinese visa. Obviously, it is less dramatic if you take the median Chinese because they are quite poor than the median American. Now, another way to look at that, and that's actually something that has not been done before, is an interesting exercise which is the following. Take each country's GDP using the World Bank IMF data, which go back to 1950, and say, okay, this is the GDP of country X. And take the global GDP per capita, whatever that number is, and say, okay, what is the ratio between these two numbers? What is the position of the country in a given year? And then find the year where that country compared to the world or the rest of the world was at its peak. Now, what is interesting here, when you look at Asian countries and they're listed here, and it actually ends with 2022, because that's when I had actually, I was writing the book in 2023 and 24, the latest data were from 22. Practically all Asian countries are at the peak now. In other words, Chinese GDP per capita with respect to the world is at the peak now compared to any number from 1950 onwards. If you look at Western Europe, you'll notice that the peak was in the late 1990s or early 2000s. So if you, for example, take, oh, this is France. It's not France. It's actually. So if you take France or the UK, the peak was 2001, 2003. There is an anomaly in the sense that the peak for the United States was 1952. It doesn't mean that the US has not grown nicely since then. But the 1952 where the data starts was a very special situation where, as you know, after World War II, the US was practically alone because the rest of Europe was destroyed, Germany was destroyed, Russia was destroyed, the Soviet Union rather, China was in the Civil War, India was colonized. So the US peak is a little bit of an anomaly. But I just wanted to mention it because that was actually, if you use this particular analysis, the US peak was then in 1952. But it is the fact that Western countries speak really doesn't go past, goes past the turn of the century, which is again the same story that I've mentioned before, just shown in a different way. Now. The second chapter is very different. It's a more intellectual history chapter which asks the following question. The question is the. Does trade and globalization lead to conflict or, or cooperation? And for that you have actually a whole array of writers who actually had different views. And I will not go over them. That's why I think that chapter is Quite interesting to read. I start with Montesquieu, that everybody starts because he was the inventor of Le Duc commerce. And the famous sentence says whatever countries trade with each other and they have trade as a significant portion of their activity. Behavior is do. It's sweet. It's actually gentle and more countries that trade less or become of course, more warlike. Now there are also exceptions in Montesquieu. I knew that formula and I've read it, but I didn't read the entire chapter until I started writing the book. And actually there are quite a few exceptions. He is in favor, for example, of autarky in Poland. I want to mention that because it's a bizarre element. But what is? Why is he in favor of autarky in Poland? And I think he's right. He says currently Poland exports grain to the rest of Europe. And in order to produce this grain export, they have serfdom, where actually you have forced labor by peasants. If there was no export from Poland, then the landowners would have to grow on their lands something else. And that something else would require tenants to actually labor the land. Consequently, they would have an incentive to free these peasants who are actually under Corvette, so that they would work on their plots and they would collect the rent. So he says exports are actually bad for Poland. It's actually they should be autarkic. I'm sort of simplifying. He didn't use the word. But basically that's an argument. And I was surprised because of course, everybody quotes Montesquieu as somebody in favor of free trade and a believer in trades civilizing impact on behavior. Then I have Adam Smith. I will show you the quote in a minute. And then I have for the other, you know, Adam Smith is in between in this views. And then I have Hobson Luxembourg and Lenin. Imperialist competition. Different view is that actually trade leads to war, not to cooperation. And Schumpeter, who I think is super interesting because he has, I think, two theories. He has one theory that he had in 1915 with Sociology of Imperialism. And then he had de facto another theory when he writes capitalism, socialism and democracy. And that other theory is very interesting in my view because it says normal capitalism is monopoly capitalism because it's more efficient than traditional capitalism. And monopoly capitalism uses coercion. And monopoly capitalism is leading to conflict. So surely I think Schumpeter comes very close to the Hll, Hobson, Luxembourg, Lenin approach. And finally Paul Heine, who in the Great Transformation talks about the trade following the flag. So this is what is in that chapter. And As I said, I will not go too much. There is also a critique of law of Rawls law of peoples. And there is something which I called ideational political division of the world. But I will spare you the these details. I would just wanted to mention a quote from Smith that is not well known, which I find extraordinary. Interesting. You can read it and I wish there would be some Scottish guy who would just read this rather than a Serbian guy trying to read this in English. So you can just read it by yourselves. But the main point here is the following is that trade, according to Adam Smith, promotes income convergence. So it is good. But when income convergence happens, it implies also convergence in technology and military power. And the convergence in military power preserves peace. And that's a very important point that actually he is really theoretician in this particular paragraph of balance of power. And when he criticizes what Europeans have done to the rest of the world and is precisely because of lack of balance of power that they were able to commit, as he says, to commit with impunity every sort of injustice in those remote countries. But then the remote countries he says might become richer and then there would be mutual fear and that mutual fear would preserve peace. So I think that in that particular paragraph he basically has several foundational theories. As you can see, it deals with international relations. It deals also with the relationship between trade and income convergence. Polanyi, I will not again read this, but it is basically the statement that I said before is that the basic explanation of World War I, the scramble for raw materials and inter imperial competition leading to war. So then I use these theories to say okay, let's look at the US China relationship. Without going into the details, I think that actually that relationship from the beginning of the current relationship, which goes back to 1970s, 1972, you can actually see how different theories apply to different periods of the relationship. The relationship starts like a little bit like a honeymoon, but you know, like many honeymoons it's good relationship. But there is also the third person, that relationship that the both honeymooners don't like. And that third person is the Soviet Union. So it was the honeymoon with directed against the third person also. And that honeymoon then lasted because of the mutual interest, Chinese interest to get technology and development, American interest to make money and also to create a split between. To emphasize the split between China and the ussr. But then that theory goes, I mean that becomes little bit different relationship. And I've here put together what was the Hobson, Luxembourg, Lenin hypothesis and how it basically plays towards the end of the U.S. chinese development, where essentially you have in the U.S. mal distribution of national income that for many people is derivative or is derived from inequality from unequal effects of globalization. Then you have the surplus of investable funds, foreign investment, outsourcing, further national disarticulation. And I intentionally use the term from the 1970s when people in development thought that there was developing countries get disarticulated because and narrow elite is involved in international division of labor, but the hinterland stays out. That particular theory can be very well applied to the current United States. You had an elite which was very happy to be globalized and to participate in globalization. And you have the hinterland that stayed out. And then the threat to the elite rule which comes from the malcontents and the hinterland, and then the need to change the rules of globalization because things work well for that large group of people. And consequently you have a conflict between the US and China. So I just wanted to say that these three different episodes reflect different theories in some sense of relationship between trade and either conflict or cooperation. How many minutes do I have?
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15.
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15. So now we are moving to the chapter three, which is unified, because when I was talking, as you notice now I'm talking from starting from the rise of geopolitical rise of Asia and the effects of personal incomes and then or personal position. Then you say, but who are the beneficiaries? Who are the elites? And then luckily we have empirical work and I was lucky to have worked actually with people including Marco Rinaldi and Jonathan Berman on the US and also with Li Yang on China. You look at the elites empirically. So what is very interesting us, the top of the income distribution has an increasing share of people who are both rich in terms of property income. They are rich capitalists and they are very rich in terms of labor income. That has never happened in history that you have same individuals. So it's not the fact that I'm rich capitalist and have a little bit of labor income. I am rich capitalist in the top 10% of capitalist. And I am a rich worker in terms of top 10% of wage earners. So this is the interesting part is what I called homoplutic elite, because you need a new term in Greek, obviously in Greek. What language are you going to use when you have a new term? So I use homoplutia, like same wealth. In other words, you're wealthy both in labor as a factor of production and capital as a factor of production. And this is the elite, which comes with educational pretentions. And with meritocratic view of the world. And that ends up with actually having 3% of the population. So let me just go very briefly over that I already mentioned. This is the evolution of that homoplutic elite percentage of people who are in top income decided in the US and here you have Spain and Mexico and Sweden as well. And who are actually richest capitalists and richest workers. You notice that a country like Mexico or Brazil are way below, way below. Because rich capitalists really don't double up as rich wagers. Rich capitalists are rich capitalists. So very few people are both rich capitalists and rich workers. And this is, I think actually as I mentioned before, a new phenomenon. And it's not actually a phenomenon that is limited to United States. You see the main, the similar results for other rich countries where the numbers here, what it means is top for the US that 28% of the people who are in the top decile in United States are simultaneously in the top decile, but capital and by labor income. And as you can see for other rich countries, we are talking about 20%. So if you take these people to be the new elite, we are talking about 2 and a half to 3% of the population who represent that elite. I will skip what it implies there. You can read many of these things. What it implies. We don't know really the mechanism how these people have become, but become rich both in capital and labor. But we actually know, and I use here Daniel Markovitz's book quite a lot. The argument is that they are meritocrats in the sense they perceive themselves as deserving that position. And they are hardworking people. Actually, Daniel says the Stachon of today are the top 1 percenters, which is true, because they really work. We know that actually the number of working hours is increasing in hourly pay. So they work very hard. And it has an implication which I would like to point out, an implication for ideology. And this is the following one, is that in the past, and we are going back to the like literature by James Burnham and then later by Raymond Aron, by Galbraith and the others, they actually saw this conflict between a capitalist and a manager. And they thought gradually managers would come to dominate because they're really working and capitalists are just playing golf or doing nothing. So ideologically they believed in the 60s and the 70s, ideologically the managers will not have the ideology of sort of sanctity of private property simply because they were indifferent whether they're managing big company which is state owned or on privately owned I think what homoplutia has shown is that the people who are in the top are really very strongly involved and they're great defenders of capitalist ideology because they themselves are big time capitalists. So you know that managerial revolution failed to happen. And not only did it fail to happen ideologically, it created a class which is on the top, which does have an incentive in protection of private property and their rights because they are the largest capitalists while they're at the same time the largest wagers. So I think this is an important phenomenon that we will need to research more. Going very briefly now on China. China is also super interesting because we have the data on the income distribution and even on social composition of the elite. Now the social composition of the elite here I will just ask you to focus on the blue color. The blue color simply means this is actually who is in the top 5% in urban China. And you have here list from workers, clerical employees, government officials, including Communist party officials, professional managerial class, pmc, individual business owners and large business owners. Now look at the blue color which is individual, which is actually. Well, the blue color is individual business owners employing up to eight workers plus large capitalists. That group didn't exist in 1988. You see this blue color in 1988 which is quasi, you cannot even see it. It's, I don't know, 1 or 2% of the top of the elite, of the top 5%. Well, that blue collar becomes now much more present. We are talking about one third. And if you add to that PMC professional managerial class, 2/3 of which is in the private companies you actually have, you see that now more than a half or 60% of the income from the income received by the top 5% comes from the private sector. So it's a major change in the type of the elite. And I use for example Bob Allen's numbers for the UK over time. And this extensive increase of capitalists that I just showed you has taken 150 years in the UK to happen. So the number of capitalists was like 3% in, let's suppose 1810 and then became by the end of the century or, or beginning of the 20th century, 6 or 7%. In China it was much more dramatic. And that dramatic change is also reflected in another blue color here, which is the share of private sector income in total elite income. And as you can see here, that blue color has increased from 7% to 63%. So we have had a major change in the composition of the top 5% in urban China or the top 5% of the elite. That change has gone together with another element which I will just simply explain as a sort of bottom line. And that other element is that the data allow us, because the data show the membership of the party, of the cpc. The data allows us to look at actually does the membership of the party become an advantage once you are in a given group and what you find is that the membership of the party is not an advantage compared to the other members, I'm sorry, to the other non members, nor to the other members of different professions, except for one group which is large scale capitalists. So in other words, large scale capitalists being in the top 1% of top 5% of urban China combined with CPC membership is a huge advantage. And so you have that group which represents, I think 1% and a half of the urban population, that we find that combination, similarly to the US case, we find a combination of high income with certain other credential, which is also education and CPC membership. So we basically have the two elites which are dissimilar in many ways in how they have come to be and how they behave, but they can be identified and they have certain similarities, not only in high income, but in other credentials which they bring with that high income or which is actually necessary to make their income even higher. And then I come to the chapter four, which is a political chapter. There's so many people like to talk about that, but I will talk as well, but not too much because I have like what, three minutes left?
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B
Yeah, but if you're going to talk about politics, I might give you a few minutes more.
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No, no, I would not, I would skip that. No names would be mentioned here. But the point is the following is that neoliberal globalization is clearly at its end, whether you want to put the date 2016, 2008 or whatever. And what I actually look at the fourth chapter, I look at what I call the counter revolutionaries. I am not using that term in a pejorative meaning or any other normative. I just see the neoliberalism as being, in that case revolutionary, having changed things in the world. And I see the current sort of not revolt but rejection of certain aspects. You will see which aspects of neoliberalism as the result of the excesses of neoliberal globalization. And I see people who are against that reacting against the power of the elites that were empowered or made rich through neoliberal globalization and against their ideological sort of importance. And the three of them are of course, in the case of the us, they of course work with the different constituencies. In the case of US, the rejection is led or motivated by populism, by disenchantment of the lower classes or middle classes that didn't receive as much privilege or income from globalization as they believe, by the malcontents in some sense, not in a negative sense, and by the anti elite, anti migrant and sometimes racist position. And it was actually the support is of course, from those who have lost for globalization and the super rich. We'll talk about that maybe during the Q and A in China. I see the resistance essentially as decision not to let capitalists continue infiltrating the top bodies of the Communist Party. So what is actually the rejection of excesses is now led by a different group, by a group that wants to present or prevent or to preserve rather the monopoly of the decision making at the state and the party level. And in Russia it was led by the rejection of Yeltsin oligarchs and the requirement that oligarchs really serve one interest, which is defined essentially by the intelligence services that have taken over the government. So in all three cases you have a rejection of neoliberal globalization led by very different groups of dissatisfied people, by the middle class in one case, by the party bureaucracy in the other case, and by the intelligence services in the third case. But. And then what I say for the Western countries, that I believe that the new. We have to put a name on this new phenomenon, and I sort of suggest that we call it national market liberalism, because out of the four elements that you can see here displayed that classical liberalism and neoliberalism had, I think the only part which is being preserved in the new system is the national level. At market liberalism, that means free market, low regulation, profit principles, strong property rights, low tax. But the international level, we are going back to mercantilist policies. And when people say to me, why do you put this national with liberalism? I say, yes, liberalism was and is an internationalist ideology, and so was socialism. But what happens when you put prefix national before socialism? The things change, and then national socialism or socialism in one country becomes similar to what we see here, becomes focused on national parameters and oftentimes economic parameters and social. So I think we have the same situation here that essentially liberalism gets shorn of its internationalist aspect. It's also shorn of this national level social aspect that you can say would include racial and gender equality and sort of aspirational part, and really gets focused on the economic part. So this is the end of the. Sorry, let me just put the last slide. This is the end of the presentation. I will skip China for a moment and I will just tell you there is a fifth chapter which has four pages and they it defies summary and it needs to be read. So I will not discuss chapter five and I will stop here. Thank you so much.
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B
Hi. I'm interrupting this event to tell you about another awesome LSE podcast that we think you'd enjoy. Lseiq asks social scientists and other experts to answer one intelligent question like why do people believe in conspiracy theories? Or can we afford the super rich? Come check us out. Just search for lseiq wherever you get your podcasts. Now back to the event. Thank you so much, Branko. Before we go to questions, I would however, like to take you back a little bit to the politics and the discussion in the book, which you didn't talk about so much in the presentation. You discuss in the book quite a lot the politics of the current US Government with regard to tariffs, with trade, opposition to China, and the surge of populism in Europe. Of course, we've had a surge of populism as well, perhaps not quite as authoritarian yet, but we don't seem to have had this debate about tariffs, anti China trade and so on. Could you sort of give us your thoughts on those two processes or the differences between the US And Europe, why they're responding differently?
- [41:43]
A
You know, I intentionally did not want to go too much into that because honestly, I think the value of the book comes from identifying these broad first trends, as you have seen empirically at the level of nation state and then at the level of individual, and then trying to link that with political developments that we have seen in the last probably seven, eight years in the West. But I think even if one doesn't agree with that interpretation, I think the first part is definitely, how should I say, standards on its own. So I am a little bit reluctant to go too much into politics because then it becomes really everybody sort of jumps at that and everybody has different views. I personally don't think, and you have actually mentioned that I don't think either that the current Trump administration is a sharp break as people want to imagine it compared to the past. I think actually that break could have come originally with the first administration, but that all the policies that Trump started then when it comes to China, when it comes to decoupling to sort of use of tariff, use of coercion as a normal mechanism of trade, have continued under Biden. And then of course, now they are done in a more random fashion. But essentially that's the same Idea. It's the same idea to treat trade as a war. There is a very nice book by a French historian, Orion, which is called, remember in a moment it's called, the subtitle is Le Capitalisme Definitude. And it's capitalism when it's one like zero sum game essentially and even a capitalism zero sum game, it's a war. And I think to some extent Trump being of a business origin stuff, I think he sees the trade as a war. But I don't think that we have to impute everything to him because this is a larger trend which I think comes from the dissatisfaction of the US middle class role during or power whatever during globalization. So that was, I think the backlash, that was the word that was, was going to use backlash before. Now is Europe very briefly different from the US I'm not so sure that you are. Obviously it is not as sort of erratic, but you know, the sort of anti China sentiment rhetoric, even policies are there. And of course the policies with Russia again cannot be taken totally out of the context. Yes, there was a war, Russia is an aggressor. But the use for example of seizure of assets and similar coercive practices, they are practices of war. So they are being used under the trade story. So I don't see any immigration in Europe. Obviously the Europeans don't chase people in the street yet, but it could come. And so it is not that dissimilar from what we see in the US US is actually more extreme case.
- [44:43]
B
Thank you. Given that you didn't want to talk about that topic, that was a fantastic answer. Questions from the floor. Any questions? We've got two microphones going around, so raise your hands until. So there's a gentleman there in a blue shirt, third row from the back and the next gentleman here in the 1, 2, 3, 4th row. Yes, next question.
- [45:10]
A
Thank you for your wonderful talk and apologies. I want to speak about content from a previous book you produced previous work citing the elephant curve to explain populism and some of these trends which you've elaborated on. It was really interesting that on the elephant curve it's measured in I think just real income. There's no purchasing power, parity and also there's no relevant consideration of sort of wider disposable income. Say, it would be interesting to know why you switched here to purchasing parity, income and measures of gdp. And also if you had any commentary on why it was that you chose in the original elephant curve and the links to populism to use that measure.
- [45:56]
B
And can we Gather the two questions together and answer them together. Actually also please do say your names and introduce yourselves.
- [46:05]
A
Hi, I'm Krish and I'm two years from starting university. Thank you so much for your speech. It was really incredibly insightful. My question has got to do with two days ago, I believe it was Zohran Hamdani who was elected to New York City to be the mayor of New York City. And he campaigned a lot on, you know, addressing income and wealth inequality, which you mentioned in your speech, and just general like affordability and cost of living. Do you think his platform of democratic socialism will be ultimately effective in addressing these inequality concerns or do you think that there are aspects of it which might be doomed to fail? Not an easy question. Let me answer the first question. You know, the elephant chart was in PPP terms, in real terms and real income and PPP adjusted. And of course, as you mentioned, actually the chart became so popular because it highlighted the fact of low growth around the 70th 80th percentile globally, which happens to be the part of the rich countries, lower parts of income distributions. And actually I've presented it many times. But if you look at the three largest countries like the U.S. germany and Japan, the three of them, actually half a million people, you take bottom of them, which is like bottom part of the distribution, 250 million people and you look at these growth, really they were very small in US we are talking about less than 1% per year in Japan was even negative and Germany was very, very small, also about between 1 or 2%. So that highlighted the political dilemma which people of still today talk about that because in some extent politics follows economics political dilemma that if you are there, let's suppose you're a politician there you say, okay, I have two possibilities and you will see how it worked out. Obviously one possibility I do maybe to answer your question, like you do redistribution within a nation state, so you reduce the top of your income distribution and you redistribute or give the advantages or whatever to the middle or the other approach to some extent, which exemplified by Trump was something is wrong and I'm going to screw China and then I'm going to drive China down so that my middle goes up. So it's essentially you have three positions and you want to increase. I'm giving the politicians benefit of the doubt that they really want to do something which is not obvious, but they want to increase this. And to increase this they need to decrease either debt, which is international, or to decrease the other side, which is domestic to whatever 5%. And I think that's where the choice was to go to the second question. I think it's way too early to say what will happen. You know, being a mayor of New York is not exactly like being President of the United States. Now, whether it would make a change to the Democratic Party, I don't know. You know, there are people are divided. I've read sort of people from the Democratic Party who say that actually it would be bad for them because they would be with democratic socialist platform, they would be less likely to be elected. But, you know, they have been saying that for 30 years, so it's not something new. And on the other hand, you can actually argue that this might generate quite a lot of enthusiasm, as did Bernie Sanders generate. And this guy is much younger. So there's an advantage. But I don't know. But in some sense, to go back to the elephant chart, I think these two things illustrate two options. Either one option is to go against globalization as it is, and the other option is to go against the top of national income distribution.
- [49:58]
B
Great, thank you. So the gentleman in the burgundy sweater was, I think, third. And then we've got two people here who are next to each other conveniently, so they can share a microphone. And then I'll come back to you afterwards.
- [50:13]
A
Yeah, perfect.
- [50:16]
B
Sorry. Please try and be short because we are running out of time.
- [50:20]
A
Okay, so my question is on homoplutia. I'm wondering whether cut off at top decile is actually good methodologically, given that capital income is even more lopsided than the income is. Or to put it simply, being in just around cutoff means that you're probably still receiving very meager capital income. And then also on comparison between different countries, could it be that that's just tax incentive. There's tax incentives between how people actually, you know, pay themselves from the companies that own. Because I saw that Hungary is relatively on the left of this distribution, and at the same time, they have very low corporate income tax. So could it be that people are just transforming differently in different parts of the world?
- [51:18]
B
You perhaps pass the microphone two rows forward to the. Yeah. Thank you.
- [51:23]
A
Hello, Professor Milanovic. Thank you for being here with us tonight. My name's Justin Kopeck. I'm a master's student in economics here at the lse. And one thing that I found very interesting in your work here was the showing the way in which the global income distribution has changed to become more and more like a log normal distribution over the years. The impression that I get is that the majority of that has been from China. How much of that has been convergence from other countries in the global south, in the periphery and semi periphery. And do you think the changes that are happening now both in the global economy in the United States and China are going to be more amenable to further convergence in the rest of the global south or may in fact reverse those changes?
- [52:06]
B
Thank you. And the next question.
- [52:08]
A
Hi, Branker, my name is Angus. I was wondering. Yeah, so you've got these great trends, the income changes and so forth. And they've all got this sort of natural countervailing. Not so natural, but there's these countervailing tendencies, right? You're talking of course framing about changing global income distribution. You know, there are forces that sort of want to act against that and national ones. And so this is also sort of a homoplushi a question which is, I guess what I find interesting is that that trend you're looking at doesn't seem, obviously doesn't seem to have some sort of constituency against it. You use it to expand, explain, you know, development. But you, you're not sort of, it's not something that seems in any way like it's moving anything other than inexorably forwards. And I guess that's my question. Do you think homoplusia is just like a continuing trend or do you think that there are some sort of countervailing forces that might cause to try or successfully push that backwards? But let me just ask because of clarifying question. Which trend do you have in mind exactly? Just the rising convergence of capital and labor income. Okay, similar question to the previous one. Okay, should I answer now? Okay, let me go for the first one. It is a complicated question, but just wanted to highlight the following thing. It could be the top 10% is an arbitrary stuff. You could be I've done it with 5% or 1% or whatever. The issue to realize here is that we are not talking about individuals having some capital income. We are talking about individuals being in the top of the capital income distribution. So there are two things here. It's not that I'm actually a very well paid guy working and then I have some capital income and then depends like which way I cut the line, which probably has some role, but. But it does not have a role in the sense that I have to be homoplutic. It's not that I have to have some capital income. I have to be among the top 10 richest capitalists. I can do the same thing with 5% richest and I have done it or 1% richest laborers and richest capitalists. What I think is appealing in the 10 is that you have a significant number of people. So again, I'm saying it is not the issue of course is how capital income is well represented in the survey data and it's underrepresented. But that particular phenomenon, the combination of the top incomes from two sources that historically have been antagonistic sources, I think is quite an incontrovertible fact. And we have seen it, we see it only in the recent past. Now, on the convergence, of course, I've actually framed the discussion today in the terms of convergence. If you take China out, of course China is the biggest part of the story. It's not the only part because India, Indonesia, Vietnam are there. But if you take China out and you say very old fashioned way, like system theory, we'll have the core countries and we have everybody but China, the gap is pretty large and we have the situation that Africa has not converged. And implicitly, what you actually not implicitly, explicitly you asked that part of the question, what will happen in the future? The fact today is, and that's an important fact that I actually hope everybody remembers, China is no longer the force for global income reduction or global income inequality reduction or for global convergence. Simply it has become too rich. And I was given this talk in China a couple of times and people always surprised because they assume, oh, our growth is good for us and the world. Well, your growth is very good for you and maybe it's good for the world in general. But that growth is no longer equalizing because China is now creating big distance between herself and countries. Large countries in Africa like, you know, Congo, Sudan, Nigeria, Ethiopia, Egypt and even Bangladesh or even, well, not India, but Bangladesh or Burma. So that is over. Now the forces of convergence should be, but it's not obvious that they will be Africa and the subcontinent. But if they are not, and actually believe it or not, 2023 data, which I didn't show you shows a small increase in the global genie. I am still doubtful about that because Africa is missing large. I mean, I've got about only half of the half of the population of Africa. But it's not impossible that we have had like this decline and then we have an increase in global inequality because of lack of convergence. So that was maybe the answer to your question in the sense that I, when I look backwards, I very differently see this coming from probably 1980, late 1980s, 1990s. And then it goes back and there is no doubt even when you look with GDP per capita obstructing internal distributions, you see even sharper trend but then you see the arrest of that trend around 2020. So it could be that we go to the world of higher inequality.
- [57:23]
B
Great. So we have two questions online it seems and the gentleman here. So we need the microphones at this end and I'm afraid we're going to have, have to.
- [57:31]
A
Okay, I'll be short, please be very short and succinct. So we have the first question from Juan Costa Font who asks is national liberalism a serious strategy when global supply chains are so integrated? And the next question is from Haya Satani. He asks Japan, a peaceful country, has now started arming itself with quite high end military. Military weapons of lit. Countries such as China and Russia are looking for opportunities to become stronger than the usa. How strongly will this impact countries that are allied to these countries? And more importantly, how will these steps impact the countries? No, it was not clear but it dealt with military affairs. So I would actually have somebody else answer. Do you want to answer this?
- [58:20]
B
The microphone here please.
- [58:22]
A
But the first one was. Hello, I'm Tim, I'm a LSE alumni. My question is to do about the double movement that you had up on the slides and also it doesn't seem like a natural coalition. Do you see the potential for say if the tariffs, if Donald Trump's tariffs policy don't work and going after China doesn't work, then there'll obviously be the potential to go after the rich and the individual western countries. Do you see much potential in that happening at all? Do I see much potential in the losers of globalization going after the rich in their own countries as instead of going after places like China then final question.
- [59:02]
B
Yes, young man in the blacktop.
- [59:04]
A
Thank you, Professor. Yeah, I was just reading your work before coming so I'm very happy to see you in person after that. Thank you. Professor Hajin Chang came not too long ago and he was actually quite optimistic about the course that the world is going to take and he termed it the new new economic order. And the reason he gave was because there would be greater autonomy amongst the global south in the long term over their resources and more cooperation in the development front. I'm quite curious if you share that optimism. If yes, why? If not, why not? And a related question is I know you're. You see migration as having an equalizing effect on global inequality. And how do you see migration changing in this market economy, market liberalism and what its new effect is going to be?
- [59:57]
B
Thank you. Optimism is always very welcome.
- [60:01]
A
I Forgot what was the first question online? The second one was military. So you. But the first one was. It was, is national liberalism a serious strategy when global supply chains are so integrated? Okay, you know, that's true. Actually, of course, there is much greater integration now than of course like 50 years ago and so on. So I'm not saying that globalization has come to an end in the sense that we actually even look at trade to GDP ratio in the world is actually sort of plateauing, but it's not really. We're not talking about 1930s in that sense. But I think that ideologically and in sort of thinking about globalization has really changed quite a lot. It is really the assumption nowadays is much more than it was maybe 20 years ago is what is good for my nation. And I'm going to get engaged in a global sort of trade or investment movement of capital and so on, to the extent that I judge it from the national perspective to be something desirable. And I think that that was not the case because it was assumed that what is good for you must be also good for the world as a whole and for the other partner as well. So I think there was a much more optimistic view about globalization. And that's why I think that this prefix national actually is quite important. And I'm not. I tweeted only a couple of days ago and I'm not actually even sure whether I was influenced indirectly or somehow by Polanyi, because Polanyi has a sentence where he says liberal nationalism gradually became national liberalism. That's a very interesting sentence in Polanyi and when he describes 1930. So I see this, as I said, as a political movement, as I see an ideological movement. We don't see it as much luckily yet in the numbers, but it might happen on the other two questions about, like, first, political domestically and internationally. You know, these are of course different topics. I don't engage with that. Like, for example, how would it interact international economic order? Look, clearly, with Asia becoming much more preponderant and China being important player, very important player, the rules will necessarily have to be changed. Now, how they would be changed. We see China introducing new organizations, but they are still relatively at the embryonic stage. You know, it's interesting also when you really think of Mark Mazover's book Governing the World, it's a very interesting book because it goes through all the international organizations from the postal union, originally 19th century, even earlier. It is interesting that all international organizations so far from the Industrial Revolution onwards have been created by Western countries. It's Actually, UK and the US that basically did it. There is one organization that was not created by them and was cominter. That was an international organization created by the Soviet Union. But when you read any other, from vaccination to the postal Union to any other organization, it was created by basically US and the uk and when I was. I have to put this in. I was at the 80th anniversary of Bretton woods, and one thing that struck me, I started reading, well, of course, we all know there were 44 countries. And you say, wait, wait, who are these 44 countries? And you start reading them, you have European countries and you say, wait, half of Europe was not there because they were ally. I mean, Axis allies. So Germany, Italy, Spain, de facto was not invited for that reason. Finland was officially allied. Slovakia, Hungary, Bulgaria, Romania, Croatia. Nobody was there. And then you look at the others who are there. But who are they? These are guys who came from hotels in London and sat in Bretton woods because they didn't control any land. They were governments in exile. So when you go, parse them down. And then there are, of course, countries that British sort of drag there, like, you know, Egypt, India, Liberia and so on. And then you actually end up with only three countries. It's us, UK and ussr. USSR got out of it. So there are two left. Why I'm going with this whole preamble, because I think it's not easy to start creating international organizations, and China, I think, is trying to learn that. So I'm not sure that they would be in a medium run that there will be some major change because it's very difficult to undo and to create new things. So that was my answer about a very imperfect answer. But as I said, I'm skeptical of the ability, despite the change in the relative powers, to translate that into an international framework that would kind of create new roles.
- [65:08]
B
Okay, thank you. I'm afraid we have to stop here, so thank you, Branko, again for the wonderful presentation and you're answering the questions.
- [65:22]
A
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