Milanovic and the end of neoliberalism

Branko’s FP piece argues that neoliberalism, understood as the form of globalization dominant from the early 1980s to around 2020, was built on the principles of cosmopolitanism and competition. Cosmopolitanism meant treating individuals everywhere as equally entitled to pursue improvement through private property, free trade, low taxes, and limited government. Competition meant allowing and encouraging people and firms to compete across borders.* In his view, these principles generated exceptional global growth, above all because of Asia’s and especially China’s rapid expansion.

He acknowledges that this period greatly increased global output and income. Average world income per person more than doubled between 1980 and 2020–21. To a great extent as a result of the growth of the East Asian Tigers, and then China and India. Total global production therefore expanded enormously. But Branko notes that this aggregate success did not translate into political support for neoliberal globalization in the rich countries, because much of the electorate there experienced weak real-income growth while the rich did much better. His elephant graph explains this.

For him, this uneven distribution was crucial. Neoliberalism was not merely pro-rich. In the United States and much of the West, it also produced slower broad-based growth than the preceding postwar period. The global gains associated with China’s development and international integration were real, but politically abstract for workers in advanced economies who experienced deindustrialization, stagnant wages, insecure employment, and the erosion of local economic opportunities.

His point is that cosmopolitanism and competition eventually undermined one another. Cosmopolitanism treated the welfare of foreigners and compatriots as morally comparable, while national political systems remain organized around citizens who expect some degree of national solidarity. The winners of globalization, he argues, often appeared indifferent to compatriots who lost from import competition, offshoring, or the reorganization of production. Worse, they tended to interpret failure in competitive markets as evidence of personal or moral inadequacy.

The 2007–08 global financial crisis made these tensions unmistakable. It showed, in his account, that the rich and the financial sector could be rescued while those who had lost economic security were expected to absorb much of the cost. The center-left was poorly positioned to capture the resulting discontent because it was either discredited by the history of “real-existing socialism” or associated, through Third Way politics (New Dems, New Labour, etc.), with the very neoliberal globalization that had alienated working and middle-class voters.

This helps explain why the backlash moved predominantly to the right. Right-wing nationalist parties promised national solidarity, limits on the equal economic treatment of citizens and foreigners, the return of industrial employment, and a restoration of dignity and traditional values. In the international sphere, Milanovic sees neoliberal globalization being replaced by neomercantilist policies, protectionism and the increase in tariffs, import restrictions, the use of economic sanctions, including asset seizures, and a much more politically acceptable restriction of migration.

In somewhat Marxian fashion, he says that the internal contradictions of neoliberal globalization produced the conditions for its own demise. Globalization’s success created global growth but generated domestic inequality, social resentment, and political nationalism in the rich countries. Neoliberalism is therefore being replaced by a more protectionist, nationalist, and economically coercive international order.

Branko thinks neoliberalism has genuinely ended and has been replaced by neomercantilism. I’m more skeptical about that. The United States and Europe may now use industrial policy, tariffs, subsidies, and geopolitical controls, but it’s not clear that they ever stopped using them. Meanwhile a good part of limits imposed on the working class in advanced economies and in the periphery, remains subject to the old neoliberal discipline. In other words, the attachment to free-market ideology was always qualified in the center, and the complete reversal of policies should be taken with a grain of salt.

It is clear that neoliberal globalization generated political discontent, weakened labor, intensified inequality, and helped create the conditions for nationalist backlash. It is also true that the old cosmopolitan language of free trade and borderless markets is no longer adequate to describe the behavior of the major powers. But it doesn’t follow that neoliberalism itself has ended. In my account, the system has adapted remarkably well because its core purpose was never simply free trade or small government. It was the reorganization of society in favor of capital, the discipline of labor, and the restriction of democratic policy space.

The main thing that Branko underestimates is that cosmopolitanism was never the whole substance of neoliberalism, and that the underlying logic of competition was never fully abandoned. That is why the underlying project was the protection of capital, the weakening of labor, and the encasement of markets against democratic control could survive. When the ideology ceases to serve those purposes, neoliberalism can survive through protectionism, industrial policy, militarization, fiscal rules, and geopolitical coercion. Let alone that in good parts of the periphery – certainly in many parts of Latin America, like in Argentina – the old neoliberal free-market ideology and policies are alive and kicking.

The essential point is that the free-market ideology has not been completely abandoned by right-wing populists such as Trump. The celebration of entrepreneurship, of techno-billionaires, and crypto bros, the belief that markets are the most effective mechanism for coordinating information, and the idea that there are no workers, only potential entrepreneurs, remain central to the MAGA revolt. The self-made-man myth is still doing much of the ideological work. Tariffs and sanctions are therefore presented less as a rejection of markets than as a means of leveling the playing field against foreign competitors and unfair practices. Financial deregulation, and Musk's failed Department of Government Efficiency (DOGE), celebrated the efficiency of the private sector, and the waste of the state. In other words, the ostensibly post-neoliberal right maintains core neoliberal ideological commitments, they abandoned cosmopolitanism, but not free-market individualism.

* I’m not sure that people, or more precisely, workers were, at any point in the more recent neoliberal era, allowed to move freely. There was an asymmetry between the mobility of labor and capital for sure. Free labor, in the neoliberal context, often meant free from unions, which are seen as an impediment on the individual bargaining position.

Capitalism Alone Against Itself: Liberal Democratic versus Political Capitalism

I finished Branko Milanovic's thought provoking Capitalism Alone this summer. But I haven't had much time to write on the blog, as you might have noticed. This is certainly not a review, and I would definitely suggest that you go and buy the book as soon as you can and read it. It is a serious discussion of the future of capitalism, that word that, as Heilbroner often reminded us, was at the center of the discipline, but seldom discussed openly by economists. He cited, if memory doesn't fail me that it didn't appear in Mankiw's Principles textbook, at least back then in the 1990s, when it was published. I always note that Allan Meltzer wrote a little book titled Why Capitalism? were he makes no explicit effort in defining it, even though a definition can be gleaned from it.*

The definition most economists use leans more on Max Weber than Karl Marx, or the materialist tradition of the surplus approach upon which he built on. Branko is a pluralistic economist, well read and influenced by several authors, not all of them conventional. The discussion of the definition of capitalism is complex, and he separates, in its modern version two archetypes of capitalism, that are in a mortal battle for global hegemonic power, namely: Liberal Meritocratic Capitalism, represented by the West, and particularly by the United States (perhaps more credibly now after the election), and Political Capitalism, represented by the rise of the rest, with China at the head.

When assessing whether China is capitalistic Branko does use the conventional Weberian definition (p. 87), but that seems to be a pragmatic approach to provide the basis for his argument that China (and Vietnam, Malaysia and Singapore too, p. 91) does conform to the Weberian notion of political capitalism, a term used by Weber to discuss ancient forms of capitalism. But there is a concern with how elites maintain control by non coercive forces in Liberal Capitalism, and about the need to create an indigenous capitalist class in Political Capitalism. Both point out to alternative issue of class conflict, of course, and how surplus is extracted from workers, and points to an alternative view of capitalism. There is, in somewhat Marxist tradition a preoccupation with the role of the bourgeoisie, and an nod to Wallerstein that suggested that there are no capitalists without state support, something I would like to have seen more in the book (p. 116).

In fact, the secondary role of the state, to some extent, the absence of a more thorough discussion of the developmental state in the case of the Chinese experience, is one of the problems with the book. Another would be an emphasis with issues of corruption, which seem to me to be of secondary importance, even if the problem might have increased with financial deregulation, and the rise of tax havens. The emphasis of the book is on the changes associated to the increasing mobility of labor and capital and the problems it poses for both systems. Branko thinks that the welfare state is vulnerable with free labor mobility (p.156), undermining the democratic process in liberal capitalism, and that capital mobility, which he sees more through the lens of Global Value Chains, rather than portfolio flows, and that would lead to higher growth in poorer countries, reducing the need for labor mobility. The book also debunks a few myths, like the notion that robots are coming for your job, or the idea that a Universal Basic Income (UBI) would be a panacea for the economic problems caused by globalization and technological change.

* Invariably it is based on notions of the profit motive (some form of rationalization) as required by markets, and private property, or Weber (plus North, if you prefer). For an alternative discussion see this old post on a view based on the surplus approach, including a critique of the Weberian naturalization of capitalism as something that existed in the past and that explains the golden ages of antiquity.

On the blogs

For Whom the Wall Fell? -- Branko Milanovic's analysis of the effects in Eastern Europe of the transition to capitalism. Not good, by the way. Few success stories, and mostly associated to commodity booms. Worth reading also his response to Andrei Shleifer's view that the transition was a success.

Trapped in a Recession -- C.P. Chandrasekhar discusses why we are back in a "situation where finance capital is back to profitability and is thriving but the real economy and the rest of the system is mired in recession." In one word, austerity.

Obituary: Frederic S. Lee (1949-2014) -- Tae-Hee Jo has published a nice obituary with more biographical detail than previous ones.

IMF Response to the Financial and Economic Crisis -- Independent Evaluation Office (IEO) report on the IMF's role during the Great Recession. They suggest that: "The IMF’s record in surveillance was mixed. Its calls for global fiscal stimulus in 2008–09 were timely and influential, but its endorsement in 2010–11 of a shift to consolidation in some of the largest advanced economies was premature." I am more critical, as you know, but it is good that their evaluator noticed that the IMF has pushed for austerity too soon.

PS: And yes the last one is not really a blog post. But it's related to a previous blog post of mine. ;)

Branko Milanovic on The Economics of Inequality

Branko Milanovic is one of the authorities on inequality, worked at the World Bank is now at CUNY's Graduate Center. His most recent book is The Haves and the Have-Nots.