Latest / The Smart Cookies podcast / Global Wealth Inequality: The True Flaws Of Modern Capitalism | Branko Milanović

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Global Wealth Inequality: The True Flaws Of Modern Capitalism | Branko Milanović · The Smart Cookies podcast

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Branko Milanovic is a renowned economist, a leading
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scholar of inequality and a research professor
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at CUNY, City University of New York. He's also
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the author of many often cited and admired books
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titled such as Capitalism Alone, Visions of Inequality,
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and most recently, The Great Global Transformation.
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But most important of all, he's a fellow ex -Yugoslav.
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I believe that's a first in the entirety of the
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75 recorded episodes of this podcast. So, dobrodošli,
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professor. Well, thank you very much, actually.
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I didn't know that that was the connection, but
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now since you tell it... It's a nice surprise.
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I'm from Slovenia, but I was born in Yugoslavia.
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Well, I too obviously was born in Yugoslavia.
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That was a long time ago. First of all, is there
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a more poignant symbol of the absolute tragedy
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of our times than the sight of two Yugos speaking
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English to each other? I think not. Well, that's
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true, actually. Of course, we could also speak...
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what is called now nash yezik, which is, of course,
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a way to avoid calling it either Serbian, Croatian
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or Bosnian. But then probably the audience would
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be much more restrained. I mean, much more limited.
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Exactly. Although I do have a fair share of listeners
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from that region. So maybe another time, though.
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Maybe next time we can do it for them. Yeah,
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no problema. Okay, your time is precious. So
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let us cut to the chase. Is inequality in the
1:27
West? getting worse? Okay, that's seemingly an
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easy question, but really it is a complicated
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question. If you take OECD countries, they are
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like now I think 34 or 35 countries, and if you
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compare inequality level now using the Gini coefficient
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or any other measure or top 1 % or whatever,
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with inequality levels 30 years ago, practically
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in all countries they are higher now. In that
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sense, yes, inequality today in the West is higher
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than it was, you know, in the mid -1980s, even
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early 90s. But when you look at the last 10 years,
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we have not had a substantial increase in inequality
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in those countries. So that's why it is so difficult
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to say, you know, people speak all the time,
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and myself used to speak all the time about rising
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inequality. But, you know, it cannot rise forever.
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there is obviously natural limits to the increase
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in inequality. So more recently, when you look
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at the U .S., it has been generally stable. It's
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like zigzags. You know, you have a couple of
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years with an increase, then a couple of years
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with a decline. COVID played a very special role
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there. So that's the complicated answer. Yes,
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it is higher than 30 years ago, but it just does
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not keep on rising all the time. Oh, so the memes
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are wrong because this is where I mostly get
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my information about how the economy is doing.
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So it's not exactly a peer -reviewed research
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paper. But if I look at the members of my generation
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or younger, it seems that economically we've
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landed ourselves a much rougher deal than the
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generation of our parents. I mean, it's literally
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like a Star Trek episode to expect that nowadays
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you'll be able to buy an apartment with savings
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from your... often meager salary, so much so
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that it's become, like I said, the stuff of memes.
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There's a famous one about how when our parents
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were 30, they were thinking about buying a second
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home or a house or whatever, and yet we at the
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same age are pondering how we will ever financially
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recover from buying an Aldi baguette or something.
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So it just doesn't seem like inequality is getting
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worse, for us at least. It seems it's getting
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completely out of hand. Well, of course, you're
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actually there combining two things which are
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slightly different. It is actually the increase
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in real incomes and actually what happened to
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inequality. Now, when it comes to that, there
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is an interesting feature which I agree with
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you, actually. I know I have my own sons who
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actually have the same issue that you do. The
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price increase has been very significant among
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certain goods that are really kind of considered
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indispensable, and they are indispensable. Housing,
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for example, has gone up in terms of relative
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price. Education has gone up tremendously, and
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health expenditures. So if you then look at the
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rate of inflation, for example, the rate of inflation
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includes these three. goods or services but it
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includes them in a certain percentage and actually
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when for many people who need them and they are
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consumers so that obviously housing is consumed
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by everybody these goods represent really a large
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share of total expenditures and for them to perceive
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inflation and consequently the perceived lack
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of social advancement compared to the to their
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parents, I think is real. And so I do agree with
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that. And I do agree with the fact that macro
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indicators often do not represent the reality
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the way that it is seen by significant groups
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of people. How much do you reckon does inequality
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threaten democracy? Because I got to be honest,
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the other day when I woke up and the first thing
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I read was that Elon Musk is on the verge of
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becoming the world's first trillionaire. Well,
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like you said, a lot of our basic necessities
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keep getting more expensive. My day was kind
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of ruined and I don't think I'm the only one.
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Now, this isn't about me, of course, but I can
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imagine that if all of us are in this increasingly
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agitated state all the time, we're pretty ripe
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to be swayed by some sweaty fascist with an easy
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answer. Well, yeah, it is true, you know, that
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if you have very high... As I was saying before,
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the inequality today is higher certainly than
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30 years ago. It is not rising all the time,
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but it is higher. And if certain goods in particular,
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that was the second question about housing, education,
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and health, are particularly expensive, and if
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people compare themselves to their parents, and
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actually they compared themselves to their parents
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while their parents had really what was used
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to be called the golden age of Western capitalism,
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they actually had really significant increases.
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real income over their lifetime. And on top of
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that, they were able to get very favorable deals
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on many things like pensions, for example. Then,
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indeed, a generational gap appears, and then
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one feels, look, we were supposed somehow to
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keep on increasing in terms of real income forever,
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but we don't. Actually, the rates of growth for
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most of the population in the U .S. and Western
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Europe are below 1 % per year. So this is a relatively
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small rate of growth in terms of real income.
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And that does threaten, as you mentioned, democracy
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in two different ways, I would say. One is the
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dissatisfaction and discontent of which we are
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speaking now. The second is the ability of the
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very rich to buy the political process and power.
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Now, this is obvious, and many liberals would
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say, now look at Trump, which is actually true,
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that basically the rich people pay the policy,
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or they have an incredible amount of influence.
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But it was true also before, because the rich
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people under Democrats were also not in such
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a blatant way, but they were still able to buy
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policy. So it has not fundamentally changed,
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in my opinion. Okay, this is going to be a total
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digression, but because I have lost all understanding
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of how the economy works these days, I just got
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to ask. I read the headline that you probably
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read as well recently that Netflix acquired Warner
7:43
Brothers for $83 billion, even though the company
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is already $20 billion in debt. A very naive
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comparison, I know, but if I own Netflix or any
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other corporation, for that matter, like 15 bucks,
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they will get their $15 one way or the other,
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or I will eventually land in some serious hot
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water. Believe me, I've tried. So what's going
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on here? What are we doing? No, well, that I
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really cannot tell you. It is a question that
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is not really part of my kind of knowledge, like
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how the companies acquire each other. It's really
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much more of a business. It's not... income distribution
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and political economy but I've just heard the
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news as you have you know I saw it on title but
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that's all that I know actually different type
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of economics you know this is right you know
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like stock exchange acquisitions enterprises
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it's really part of either either financial economics
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or part of business economics. It's really not
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something that people who deal with, you know,
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inequality, incomes of individuals, you know,
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rising polarization, political developments.
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It's not something really that at least I or
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actually we, okay, I can say, do know. Cool,
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cool. I was just wondering if you're like 20
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million in debt, how can you buy a company for
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90 million? Well, they are miraculous. All right.
9:09
The title of your latest book is The Great Global
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Transformation. And in it, you argue that the
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era of sort of neoliberal globalization is over
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and done with. What is replacing it? Yeah, well,
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I argue that actual neoliberal globalization
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is at its end. I don't think it's particularly...
9:27
Difficult proposition to argue because we see
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it like every day. We see significant changes
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in international economic relations. Obviously,
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again, the Trump administration, the U .S. is
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leading in that, you know, with the tariff wards
9:41
against China, with raising tariffs. across the
9:47
world using U .S. policy, economic policy, in
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a very blatant way to extract economic advantage.
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Now, that's obvious, but it is also true that
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that same type of policies, again, much less
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openly, blatantly, have been followed by the
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previous two administrations, including, for
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example, the control of the exports of sensitive
10:10
goods. to China, attempts to slow down Chinese
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investments in the new technologies, inability
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of many Chinese companies to go to public offerings
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in the U .S. stock exchanges and so on. So that
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international part, I think, is largely gone.
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And China is, of course, also using now coercive
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techniques that the U .S. and the European Union
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are using as well. So this is not, I think, controversial.
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What is more difficult to say, what is going
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to happen next? Okay, neoliberal globalization
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is at its end, but what is happening next? My
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argument is that what is happening is that you
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have to put a prefix national before the word
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liberalism. So in other words, what we are seeing
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is that certain features of neoliberalism continue
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domestically, and particularly when it comes
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to markets where we have reduction. Still, reduction.
11:13
in top tax rates, great advantages given to capital
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versus labor income, significant deregulation
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under Trump. But on the other hand, when you
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look at the international side, we have, as I
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was just saying minutes ago, we have returned
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to something which you can call neo -mercantilistic
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policies. The policies where international trade
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is seen as a zero -sum game, the game for you...
11:40
is a loss for me. So essentially, I see the foreign,
11:44
well, the Trump administration and the European
11:47
Union and China see the foreign trade and foreign
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economic relations as a zero -sum game. And this
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is typical for neo -American toys. So to conclude,
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just to stop you here, my argument. Yeah, right.
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Go ahead. Yes. Sorry, just for a second, just
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to clear it up. And before with the neoliberal
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globalization, the kind of like the basic logic
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was we're all getting rich together. Yes. You
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know, the basic logic of neoliberal globalization
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was internationalist. I mean, liberalism as an
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ideology is very similar in that sense to socialism
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in the sense that it is internationalist and
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it is cosmopolitan. And technically speaking,
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liberalism is compatible with all of us getting
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better off. That's the main idea. But it's also
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compatible with somebody. that is far away from
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you and maybe somebody whom you don't like getting
12:39
richer than you because essentially in the liberal
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ideology, every individual is technically treated
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the same, whether he or she is Chinese, Indian,
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Brazilian, or American, they're treated in the
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ideological sense the same. When you introduce
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the prefix national, you're changing entirely
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that view because it's no longer cosmopolitan.
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It's now national, and actually I view my own.
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sort of compatriots or nation as more important,
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much more important than the others. Consequently,
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then you have the international policy that is
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a policy that seeks to maximize economic gains
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for yourself. Well, of course, the same policies
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then followed by others. So they do the same
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thing. And then you have mercantilistic policies
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on the international side. So that's the argument
13:30
of the book, that on the domestic side, we will
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continue with neoliberal policy, as I just said
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before, all these deregulation measures and things
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which are very neoliberal. And then on the international
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side, we'll have mercantilistic policies. That's
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kind of an interesting combination that we are
13:47
now witnessing. So what are some of the political
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consequences that flow out of this new world
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order? I think what political consequences is
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that we are likely to have in the future until
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this kind of ideological... paradigm still survives
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because you don't we should not forget the paradigms
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do not live forever you know they're like the
14:09
paradigm of neoliberal globalization started
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in the 1990s you know seriously with a end of
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communism and spread as elsewhere and we now
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see the end of it so the new paradigm is now
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emerging uh what i think is very concerning in
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this new paradigm is that is a paradigm that
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by its own definition is conflict ridden in other
14:30
words If our international economic relations
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are relations of a permanent, how should I say,
14:39
if not hostility, but at least conflict or attempts
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to maximize our gain to the cost of the other,
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that type of relationship then becomes conflictual.
14:53
economically, and that spills into political
14:55
conflict, you know, because the two things cannot
14:57
be separated. If you have sort of economic interests
15:01
and then there is some political impediment to
15:04
realize that, then you will actually have a political,
15:06
you'll use political tools to get to it. So that,
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I think, is dangerous. I think that that particular
15:13
type of policies is the... There is a very nice
15:17
French economic historian. I quote him quite
15:19
a lot. I mentioned him in a book at the end because
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he just published his book at a time when my
15:24
book was almost finished. And he argues that
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there were periods like that, obviously, in the
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17th, 18th century. And these are the periods
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of many conflicts, including military conflicts,
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but relatively small. So it is in the interest
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of both the U .S. and China and India and Russia
15:42
and Brazil to keep the conflicts manageable.
15:45
But you never know if you will be able to keep
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it like that. As we know, the World War I sort
15:51
of exploded where people believe that there are,
15:54
of course, forces that were fighting it, I mean,
15:56
economically in conflict, but they didn't expect
16:00
to have a major war. What is driving this change?
16:03
Is it sort of like thinking or ideologies come
16:07
first and ideologues driving these policies?
16:10
Or is it the other way around, that because of
16:12
a new political situation, somebody has to make
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sense of it? I think that's the argument of the
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great global transformation. The essential driver
16:21
of that is twofold. It is a real driver, it's
16:25
not an ideological driver. The ideology then,
16:28
of course, comes later to... fashion this and
16:31
to explain that and to propose the alternatives.
16:34
Now, what are the two drivers? The first driver
16:37
is the rise of China as a serious competitor
16:40
to the United States and as a would -be hegemon.
16:44
So we have... An old hegemon, the U .S. has been
16:48
hegemonic for probably since 1945. And we have
16:51
the rise of a nation which is like with 1 .4
16:55
billion people, with very high growth rates,
16:57
with extremely developed now top technologies.
16:59
And that nation, China, is clearly representing
17:04
a challenge to the U .S., if not worldwide, it's
17:08
certainly in Asia. So that's one thing which
17:12
leads then to the... preventive measures that
17:15
were under the Biden administration already of
17:18
slowing down China's rise. But the rise of China,
17:23
India, and other Asian countries had always also
17:26
had an effect on relative incomes of something
17:29
that we have actually started our conversation
17:31
with. And that actually is quite interesting.
17:34
And since I work on global inequality, this is
17:36
the type of data that I had. Very few other people
17:39
have. And what is happening there is that for
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the first time in the last 200 years, Western
17:46
middle classes are no longer at the top, in the
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top 20 % of the global income distribution. They
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are being overtaken, I suppose, by Chinese, to
17:55
make it very simple. So what then happens, that
17:59
fuels this content of which we spoke before,
18:02
low growth rate in... the middle classes of the
18:06
Western world, plus being overtaken by the Asians
18:10
who are actually growing at a much higher rate
18:12
of growth. And that leads to, in my opinion,
18:15
to the domestic turbulence, which we witnessed
18:17
not only in the United States, but quite openly
18:20
or quite clearly in Europe as well. So these
18:23
are the two real effects that I believe. The
18:26
first is, to repeat, the first is the rise of
18:28
China as a... great power. And the second is
18:32
the reshuffling of income positions between Westerners
18:36
and Asians. That's very important. And, you know,
18:40
you might not see it immediately, but if you're
18:43
in Italy and you have a beautiful view of a Grand
18:46
Canal, there will be a Chinese guy or Indonesian
18:48
or United Arab Emirates who is going to buy that
18:52
apartment and you will not see the Grand Canal
18:54
anymore. Well, fortunately, I don't have an apartment
18:59
in Italy overlooking a beautiful canal. Who knows?
19:03
You're right. Anyway, from your mouth to God's
19:06
ears. Anyway, I suppose these two trends that
19:11
you mentioned are only going to deepen as time
19:13
goes on, right? China is going to keep rising,
19:16
at least for a while. And the Western middle
19:21
classes are going to get supplanted more and
19:22
more. But if you take these two trends seriously,
19:26
as I do take them in the book, and actually it
19:29
is not that I just made up these trends. The
19:32
book is chock full of data. So obviously the
19:35
rise of China as a global power is very easy
19:38
to document. And not only that, let me give you
19:40
another example that actually very few people
19:42
kind of quote, but it's kind of obvious when
19:45
I tell it. Take the total GDP in purchasing power
19:48
parity of India and the UK. That's a good example
19:53
because obviously the UK was a colonial power
19:55
in India. Purchasing power parity, can you explain
19:59
it for me and for our listeners? Purchasing power
19:59
parity, which means that basically all goods
20:02
where they are produced in India or the UK or
20:05
France or the US or Slovenia are valued at the
20:08
same price. So what happens then? Actually, in
20:12
1980, you had the total GDP in these purchasing
20:17
power parity terms of the UK and India being
20:20
the same. So they were both producing about 3
20:22
% of global output. Well, where is India now?
20:25
India is now producing 9 % of the global output.
20:28
And where is the UK now? It's producing 2 % of
20:31
global output. So what happened is that the relative
20:34
incomes of Asian countries compared to the world,
20:37
especially compared to the Western nations, have
20:40
risen. It's simply that India, Indonesia, Thailand,
20:43
Vietnam, China, with large populations, have
20:47
grown faster than the Western countries. It's
20:50
like a no -brainer. But when it happens, it means
20:54
also that people from those countries actually
20:57
increase their relative income position. So they
21:00
are not still very... prominent among the top
21:02
of the global income distribution, but they are
21:05
overtaking people from the rich countries that
21:08
are in lower parts of their own country's income
21:11
distributions. Does this make sense? Yeah, it
21:15
does. If you're the middle class Italian or lower
21:18
class Italian, because Italy has not grown in
21:22
25 years, you will be overtaken by people coming
21:25
from Asia and your relative income position would
21:28
go down. And you would see that because you may
21:30
not be able to buy the new iPhone, you may not
21:33
go to the World Cup, which is happening next
21:36
year. So you would see that in the inability
21:39
to purchase international goods that you were
21:41
able to purchase before. And obviously an Italian
21:45
politician or prime minister is not going to
21:47
tell you that, right? Well, Italian prime minister
21:50
is not going to tell you, but actually Italian
21:53
newspapers are going to tell you and Italian
21:54
media are going to tell you. And you would actually
21:57
feel it even if they do not tell you. Okay, case
22:01
closed. All right. Like we just discussed and
22:06
like you write in the book, the herald of this
22:08
new order is the rise of Asia, which is also
22:10
a chapter in your book. And by Asia, you predominantly
22:12
mean China. How did this country, which was incredibly
22:16
impoverished only a few decades ago, pull off
22:19
this astonishing feat and is now on the verge
22:21
of surpassing, if it hasn't happened already,
22:24
the largest economy on the planet, the US? You
22:27
know, this is really, it's clearly what is called
22:30
the economic miracle. And this is the economic
22:32
miracle that has never witnessed, had been witnessed
22:34
in history of the world. Never have so many people
22:37
grown so much in terms of their real income over
22:41
such a continuous period of time. So we are talking,
22:44
I mean, the numbers are really, for economists
22:48
who deal with numbers, these numbers are absolutely
22:50
stunning. You have, on average, over the last
22:53
40 years, China had more than 1 billion people.
22:57
Currently, it has 1 .4 billion, but it started
22:59
with about 900 million. So 1 billion plus people
23:05
have grown at 40 years at an average rate of
23:09
growth of 7 % to 8%. This is really something
23:12
that has not been seen. Japan did something similar
23:16
from 1946 or 1947 until 1990. But of course,
23:21
the Japanese population was much smaller. So
23:24
in that sense, it was not... It was still a dramatic
23:28
revolutionary change, but it was not as dramatic
23:31
when you have 100 million people growing as when
23:34
you have 1 billion. So, obviously, it's 10 times
23:37
more people. Now, how China achieved that is,
23:41
of course, a question that, well, I'm not saying
23:45
nobody knows, but nobody is quite sure. Interesting.
23:50
Because China achieved that through a combination
23:54
of policies. I will not now answer this whole
23:56
question. Maybe I'll talk more about China in
23:58
the rest of the conversation. But through a combination
24:03
of policies that were in some respect quite sort
24:06
of common and orthodox, in the other respect
24:09
were very China -specific, which makes, in my
24:13
opinion, the replication of China's experience
24:15
to other countries. Kind of difficult. Not impossible,
24:19
but rather difficult. And the transmission of
24:22
the lessons learned by China may be, how should
24:26
I say, may be hard to implement elsewhere. Because
24:32
of its political system or something else? Or
24:35
its size? Because of the political system and
24:39
because of a rather, how should I say, pragmatic
24:42
and experimental nature by which China achieved
24:46
this success. As you know, China started with
24:50
reform in 1978, 1982. There were very specific
24:53
conditions in China. First, with the communal
24:55
organization of the agricultural sector that
25:00
was then privatized, which gave really huge push.
25:05
to greater productivity, production of food,
25:08
and then also manufactured goods in the rural
25:12
areas. Anyway, this is a specific Chinese condition.
25:15
But also China, as you know, opened special economic
25:19
zones. It had a still strong role of the state
25:23
while allowing the private sector to become dominant
25:28
in many areas except the crucial areas like the
25:31
finance, production of electricity, steel. And
25:34
nowadays, you know, obviously the banking sector
25:37
and also top technologies. And it had a policy
25:41
of government being able to actually, what we
25:45
see now, pick the winners. And, you know, these
25:48
conditions, we can observe them. We can actually
25:50
tell them. I can tell it now. But applying them,
25:54
let's suppose you want to apply it in Tanzania.
25:57
It's not easy how to do that. You know, what
26:01
are the comparative advantages of Tanzania? What
26:03
is Tanzania going to produce? Who is going to
26:05
choose in Tanzanian government what will be the
26:07
sectors that will be developed? You know, so
26:10
China did it in a very pragmatic, piecemeal way.
26:15
And that's why I think these lessons are difficult
26:18
to distill and to make it in the Washington type
26:21
of a Washington consensus policy, do this, this,
26:23
and that. If we go back to the global, this new
26:27
global constellation. We were picking on Italy
26:29
quite a lot, but what does it mean for Europe
26:33
in general or for the European Union? No, I picked
26:36
on Italy simply because Italy for me is a very
26:38
good example of a country that has not grown
26:41
in 25 years. And what Italy is very interesting
26:45
about is that if you look at the way that, of
26:50
course, people live there, they live extremely
26:52
well. It's a beautiful country with extremely,
26:54
I mean, obviously, rich. history with wealth,
26:59
which has been accumulated there, artistic wealth,
27:01
and actually even other wealth, like, for example,
27:03
painting, jewelry, all of that. So it's an extremely
27:07
wealthy country in terms of possession of wealth.
27:11
But if the country, why I pick on Italy, is if
27:15
you don't grow for 25 years, your relative income
27:18
position is going to... decline if the rest of
27:21
the world goes up. Now, for Europe, the situation
27:25
is not very much different. If you look at the
27:28
peak of these countries in terms of their relative
27:32
position to the world income, so you calculate
27:37
the average income of the world and you say,
27:40
okay, let's take a country like Germany or the
27:42
UK or France. When was their income relative
27:46
to the world income at its peak? And what you
27:49
find out is that actually the European nations
27:51
had a peak between the early 90s and early 2000s.
27:56
So broadly speaking, between 1992 and 2002. Since
28:00
that point, which is like 25 years now, quarter
28:03
of a century, their relative income position
28:06
to the world has declined. So that's kind of
28:10
a... factual and obvious. If you do the same
28:13
sort of calculation for the Asian countries,
28:17
their relative income peak is right now. In other
28:20
words, Vietnam, if you take Vietnam, has never
28:23
been, with regard to the world, has never been
28:26
as well off as now. No, it doesn't mean Vietnam
28:30
is not richer than Italy, but the relative position
28:33
of Vietnam has improved, the relative position
28:35
of Germany has deteriorated. That's essentially
28:38
a point. And since I'm picking up, let me just
28:42
say Italy, because actually I've looked at the
28:44
numbers. They are striking. Italy in 1950s was
28:48
two and a half times in per capita income richer
28:51
than the average person in the world. That went
28:55
up to three and a half times at the end of the
28:58
1990s. So very dramatic. And Italy, of course,
29:01
had a very successful period in the 60s, 70s,
29:04
and even in the 1980s. And then since then. It
29:07
has gone down, I think now, to 2 .7. So you really
29:10
see that evolution, which is also the case for
29:13
Germany or Spain or France. But France is very
29:16
similar to Italy. It goes up, reaches a peak
29:20
in the 1990s, and then since then is going down.
29:24
Does the low birth rate factor into this? Because
29:28
you mentioned Japan and you mentioned Italy,
29:29
and both of these countries are plagued by a
29:32
really low birth rate. Yes and no, because a
29:35
low birth rate does... factor in when I compare
29:39
the total GDP of the UK or Germany to, let's
29:43
suppose, Vietnam or India. But when I compare
29:48
per capita incomes, it doesn't come in because
29:51
the per capita incomes are just for that. I know
29:54
this isn't your expertise, but I would be curious
29:55
to pick your brain. Do you think the development
29:57
of AI, which is already devouring hundreds of
30:00
billions of dollars, impact these drivers you're
30:03
describing in the book in any meaningful way?
30:07
That's a very good question because that's, you
30:10
know, people generally ask me the question, like,
30:14
what do you think would be the impact of AI?
30:15
Okay, so I do have one type of answer to that,
30:18
which is basically it would increase the capital
30:22
share because it's essentially another form of
30:25
capital replacing labor. But the question that
30:28
you asked me, so I will not avoid to answer that
30:30
question, is AI going to have an impact on the
30:34
relative income positions of what I was just
30:37
talking about, China versus the U .S. or the
30:40
Chinese versus the West Europeans and so on?
30:43
And there, when we look at the situation now,
30:46
to the extent that we then can project it in
30:49
the future, you know, the economists are very
30:51
good. They take whatever it is now. They take
30:53
two. two data points today and three years before,
30:56
and then they project that for the next 30 years,
30:58
right? But that's what we can do. It's very difficult
31:01
to do it differently because you might seem like
31:05
a charlatan. But if we believe that China will
31:13
continue to be technologically... or maybe even
31:20
in some areas in advance to the Western countries.
31:23
And when we noticed that 10 years ago, that was
31:26
not the case. And when we project that in the
31:28
future, then we can say that it could be that
31:31
the new technologies, artificial intelligence
31:33
in particular, would actually make China grow
31:38
faster and become an even more formidable challenger
31:42
or opponent of the West. But on the other hand,
31:47
we do have, The U .S., which is certainly in
31:50
many areas very strong or maybe at the top. And
31:55
we do have Europe, which doesn't seem to have
31:58
in the artificial intelligence of new technology,
32:01
doesn't seem to be in the lead. So when you put
32:05
all of this together, it looks like it will be
32:07
back to U .S. and China. And we should not forget
32:11
the role that India might also play in the future.
32:14
So that would be my guess. I would see that as
32:18
the new technologies as reinforcing maybe this
32:22
bilateral, let's call it co -hegemony of the
32:27
United States and China. Yeah, yeah. I was listening
32:30
to Yanis Varoufakis the other day, and he said
32:33
that as a result of AI, there's basically only
32:35
two economies left in the ring now, the US and
32:38
China, like you said. And that's going to become
32:40
only more prominent. That's kind of a nice way
32:43
to put it. Yes, actually, they're like these
32:44
two boxers. They are like... as they say, duking
32:48
it out. Yeah, I think that's true. But as I said,
32:54
if you look at the medium term, I think India
32:58
can be a very significant player because of,
33:01
first, a very large market, the fact that it's
33:05
the only country with increasing population.
33:07
Well, not the only country, but now it's the...
33:10
largest country in the world. And unlike China,
33:12
it has an increasing population and it has lots
33:15
of technological ability and talent and high
33:19
pools of very highly educated people. So I would
33:23
put India as a very significant potential force.
33:28
And Modi's policies are in many respects, I think
33:33
they have similarities with the Chinese policies.
33:37
Now we talked about rising inequality in the
33:39
West at the beginning. Global inequality, however,
33:42
I believe is diminishing, which at face value
33:45
should be a good thing for all of us. One would
33:48
think that if our standards of living are becoming
33:50
sort of similar and the states we're living in
33:53
are equally powerful, we would all hold hands
33:57
and be friends forever. Unfortunately, though,
33:59
you argued that the opposite might be true. Can
34:02
you explain why? Yeah, that's a very good point.
34:06
I realized that some time ago and then sometimes
34:10
in the lectures. I remember one which was a very
34:12
big lecture in Copenhagen. I started by saying,
34:16
okay, who agrees with the fact that the greatest
34:22
similarity in mean incomes between the nations
34:25
is a good thing? And really 99 % of whoever actually
34:29
raised their hand and said yes, yes. Who disagrees?
34:32
Nobody disagrees. Then I asked how many of you
34:35
think that incomes of the people in the world
34:37
getting more similar and global inequality, as
34:40
you were saying, going down is a good thing.
34:42
Everybody says yes, yes. But then when you break
34:46
them down, so these are actually what you can
34:48
call, quote -unquote, virtuous, good developments.
34:51
But when you break it down, what it means, let's
34:53
break down the first statement, greater similarity
34:56
in mean incomes, and translate that greater similarity
34:59
in mean incomes to the example of China versus
35:02
the U .S. Well, then we go back to what we were
35:04
saying in the beginning of this conversation.
35:06
China is threatening the hegemonic role of the
35:09
United States. Well, then that means the U .S.
35:12
doesn't like this sort of more equal mean incomes.
35:16
But then when we break down the second statement
35:18
about individuals, when I say, as I was saying
35:21
before, Italians being overtaken by the Vietnamese,
35:25
well, then the Italians say, well, we don't like
35:27
this either. and particularly we don't like with
35:30
very populous countries in Asia, suddenly when
35:35
they grow faster, it is not that you're being
35:40
overtaken by five or six guys. You're being overtaken
35:43
in terms of your income by 80 million people
35:45
at once. So these two good virtuous developments,
35:49
ironically, have also created, in one case, inter
35:57
-hegemonic competition, and in the other case,
36:00
domestic instability. That's another chapter
36:03
in your book. It deals with elites, more specifically
36:05
the difference between people kind of running
36:07
the show in the US and people running the show
36:10
in China. What are some of the differences between
36:13
the two? This is a very nice chapter. It's chapter
36:16
three, and this is about the elites. empirically
36:20
about the elites that have been created by neoliberal
36:23
globalization. I want to mention empirically
36:26
because Both the U .S. chapter, I mean, the part
36:29
of the chapter dealing with the U .S. elite and
36:32
the chapter dealing with the Chinese elite is
36:34
based on hostile survey data and the work that
36:37
I've done with several co -authors, especially
36:39
several co -authors on the Chinese side. Okay,
36:42
so what are the elites? Very simply, the American,
36:45
what is happening in the United States, but also
36:48
in other developed countries and including China.
36:50
But let's focus on the U .S. alone because the
36:52
data are plentiful there. So what you observe
36:55
is that you take the top 10 % of the people by
36:59
their real income and say, okay, who are these
37:02
guys? Like, where do they draw that income? And
37:05
what you discover is that among this... 10%,
37:09
about a third of them, and that is an increasing
37:13
proportion compared to the past, are people who
37:16
are also among the richest capitalists. In other
37:19
words, people who have highest income from property.
37:24
And they are also among the most highly paid
37:28
workers. So in other words, you have the situation,
37:32
for example, of, I don't know, a self -designer
37:34
or a CEO of a financial company, a Wall Street
37:37
guy. who is actually drawing a very large salary,
37:41
who works maybe 70 hours a week, and who actually
37:45
has either inherited or saved enough capital
37:49
to become among the richest capitalists in the
37:51
US. Now, for anybody who... knows economic history
37:57
or anybody who has read Marx, this is a very
38:00
unusual development. You know, in the past, if
38:02
you look at the top of the English income distribution
38:05
in the 19th century, who was at the top? There
38:08
were people who had land and people who had capital.
38:11
But they were not at the same time rich workers.
38:15
You might have among rich people who were only
38:17
mostly having salaries or, you know, doctors
38:20
had high income of lawyers. They were not. rich
38:24
capitalists so what we have now is really a new
38:27
phenomenon i called it by putting two greek words
38:31
together i called it homo plutia so that's a
38:34
new term for your listeners to sort of remember
38:37
homo meaning the same and plutia wealth meaning
38:40
that they are wealthy both in terms of human
38:43
capital because they had this very highly paid
38:45
jobs we can see that and they are wealthy in
38:48
terms of financial capital because they are really
38:51
rich capitalists. So this is a very peculiar
38:54
combination that an elite has been formed, which
38:58
is both capitalist and labor. And in China? China
39:05
is also showing the increasing importance, although
39:10
less than in the US, but increasing importance
39:12
of that particular type of homopolitic elite.
39:15
But what was super interesting in China is to
39:18
look the evolution between 1988 and 2018, and
39:24
actually now we have 2023 data, and to look who
39:29
was in the urban elite. So I take 5%, the richest
39:33
5 % in the urban areas, according to the House
39:36
of Service in China. And what you find is that
39:40
in 1988, people who were in the top 5 % were
39:44
two -thirds of them. had income coming from state
39:48
-owned enterprises, government apparatus, communist
39:52
party apparatus. So basically, two -thirds of
39:56
them were people whose income depending on the
39:59
state and the government, including the party.
40:03
When you do the same thing now, which is now
40:06
30 years later, or actually even more, almost
40:09
40 years later, what you find out is that the
40:12
two -thirds of people are either people who are
40:15
self -employed or hire less than eight workers,
40:18
which is a special category in China, people
40:21
who are large capitalists, which means they are
40:23
hiring more than eight workers and they have
40:25
large companies, and professional managerial
40:28
class that is mostly employed in the private
40:30
sector. So you have had a very big change in
40:34
the underlying elite, from an elite that was
40:37
drawing most of their income from the state to
40:40
an elite that is drawing most of their income
40:42
from the private sector. So that was the change
40:45
in China. And I suppose that the state is looking
40:50
closely at these people who are drawing a lot
40:53
of like some sort of billionaire class, much
40:56
more that that happens in the West, right? I
40:58
think so. And I think when I, in the last chapter.
41:01
when I explained the change of policies under
41:05
Xi Jinping, compared to the policies by Deng
41:10
and then by Jiang Zemin and so forth, when the
41:14
Xi's policy from the time when he became the
41:17
president of the country and president of CPC
41:19
in 2012 was clearly a policy that was aware of
41:25
this dramatic change and that tried to... decelerate
41:30
the change, or at least to make it much more
41:34
difficult for that elite, which is a private
41:37
sector elite, to come to the governing positions
41:42
in the state apparatus, especially in the party.
41:47
So that was, I think, the difference. You might
41:50
remember that there was this sort of idea under...
41:55
Jiang Zemin, Hu Jintao, that there would be something
41:59
which was called the three represents theory,
42:01
which essentially meant that also the rich capitalists
42:05
could rejoin the party and have an important
42:07
role within the party. I think that there is
42:10
a reaction from inside the party against that
42:14
quote unquote invasion by the rich capitalists.
42:17
And we have really a sort of, you can call it
42:21
counter -revolutionary in that sense, a reaction.
42:25
from the current sort of leadership that wants
42:28
to keep the autonomy of state decision -making
42:31
intact. And I think that was also the result
42:34
of neoliberal globalization that has made these
42:38
people in China very rich. But the party has
42:41
reacted by essentially saying, you can be rich,
42:43
but you're not going to govern the country. Right,
42:47
so you can be as rich as you want, go make your
42:50
money, but the levers of power are contained.
42:54
or reserved for the state. Absolutely. That's
42:57
what I think is the essential sort of outline
43:01
of the policy is that the levers of power are
43:05
ours, meaning CPC. You get rich, but we will
43:10
sort of keep an eye on that. So if there are
43:13
certain things that we don't like, we would actually
43:16
have the means to essentially tell you to change
43:21
or, you know, we would... react against you as
43:25
they did react against excuse me against jack
43:28
ma as you might remember jack ma's initial public
43:31
offering that was the largest public offering
43:33
i think in history of the world was canceled
43:37
like 24 hours before the the public offering
43:41
was supposed to take place in Shanghai. And what
43:44
was also interesting when you read how it happened,
43:46
there was somewhat of a conflict already like
43:49
a couple of days before that. But then eventually
43:51
the decision that it was suspended or canceled
43:54
was conveyed to him by a sort of mid -level official.
44:00
So that was, I think, not an accidental decision.
44:03
It was not the Minister of Finance who is going
44:06
to call Jack Ma to tell him. So that was the
44:09
message. Your level, who conveys that decision
44:14
to you, is the middle level. That's all. Stay
44:18
in your lane. I mean, that at least is something
44:21
that, if not the whole model, we could replicate
44:24
in the West, right? Containing the power of billionaires.
44:29
Well, I totally agree. I mean, you know, there
44:31
are certain developments which are quite... scandalous
44:35
in themselves, but we have become so much used
44:37
to scandals that we don't even see them anymore.
44:41
Take, for example, the Davos meetings and similar
44:43
meetings. And you read, you just go to the wealth
44:46
of nations, and what does Adam Smith say about
44:49
them? He says that the rich people, the employers,
44:54
should never really determine the government
44:56
policy. And while the government cannot stop
44:58
them from getting together, government should
45:00
never participate in that, nor facilitate those
45:04
meetings. And what do we see at Davos? We see
45:06
actually not only the rich people and entrepreneurs
45:09
getting together. We see the government that
45:12
is actually sort of precipitate themselves. Actually,
45:15
they fight to get at the same table with these
45:18
people. But that's not the autonomy of the state.
45:22
That's actually these people are telling you
45:24
what you should do as the state. The state should
45:26
not be in Davos. It's the same with these COP
45:31
meetings, you know, full of, instead of full
45:34
of like state representatives and ministers of
45:37
the environment or whatever, most of the participants
45:39
are fossil fuel lobbyists. It is true. You know,
45:44
I was, as you know, I was working for 20 years
45:48
actually in the World Bank. And one thing, for
45:51
example, which we had. In the beginning, that
45:53
was not the case, and afterwards it became the
45:55
case to face in the research department, is that
45:58
more and more of the sort of work was funded
46:05
by external sources. In other words, let's suppose,
46:07
I'll give you a concrete example of Melinda and
46:12
Bill Gates Foundation. That was, of course, it
46:15
was a... You know, they had a nice program of
46:18
eradication of various diseases. But they would
46:23
then use that money and they would sort of get
46:28
a researcher or a couple of researchers from
46:30
the World Bank to study that topic. But they
46:34
decide on the topic, right? And what then happens
46:38
is that the researchers depend for external money,
46:41
so they have to please. the rich people who control
46:45
the money, and then gradually these researchers
46:47
actually become managers. They are no longer
46:50
researchers. The point is that they get private
46:53
monies. They use these private monies then to
46:55
hire other people, and the other people do the
46:59
job, and they are managing the money. So we have
47:02
actually a kind of a hierarchy which goes as
47:04
follows. You have these foundations. Foundations
47:08
have their own managers. Then they find researchers
47:10
who will do what the foundation wants. wants
47:13
them to do the work on that topic that the foundation
47:15
has decided. These guys get the money, but they
47:18
don't have any more time to do the research because
47:20
they have to hire other people to do the research.
47:23
So that's what actually then also happens is
47:25
that the institutional knowledge, which normally
47:29
exists in an institution like the World Bank,
47:31
gets really hollowed out because the researchers
47:35
become managers. And that's the result of...
47:40
rich people's foundation having a say at what
47:44
you are going to study. Fantastic. All right,
47:47
back to Western inequality one last time. Could
47:51
a turn to socialism or democratic socialism,
47:54
exemplified by the rise of someone like Zoran
47:56
Mandani in the US, be a bit of a solution for
48:00
our woes? You know, it could, I mean, obviously
48:03
New York is a very special place because I was
48:06
saying to my friends, you know, that's the epitome
48:12
of the capitalist order, the city, which has
48:15
the most progressive mayor in the world. among
48:20
the large cities. So it is really interesting
48:23
that this is a very epicenter of the capitalist
48:26
development or modern capitalist development
48:28
that we have really a democratic socialist who
48:33
is now the mayor. And I think it's very good
48:35
news and I'm a supporter of Mamdani. However,
48:39
I find the term, how should I say it, everybody
48:43
is using the term socialist and I think people
48:45
mean very different things. So I'm not quite
48:48
sure what... Socialism means, you know, I'm old
48:52
enough, and actually I'm from former Yugoslavia
48:53
as you are, the socialism, actually Yugoslav
48:56
socialism meant something different from the
48:58
Soviet, but it was still relatively clear. It
49:00
meant, as you know, it meant social ownership
49:04
of capital, which means non -private ownership
49:07
of capital. It meant decision -making within
49:12
companies by the employees. Well, I don't see...
49:17
that was called co -participation also in Germany.
49:19
But I don't see anybody arguing for nationalization
49:24
of property. I don't see anybody really seriously
49:27
arguing for co -participation in management of
49:30
the companies by workers. So, you know, when
49:33
people say I'm in favor of socialism, not myself,
49:37
but they for themselves, one group of them thinks
49:40
actually... i am in favor of greater equality
49:43
and greater welfare state within the capitalist
49:46
system I mean, that's the meaning that I give
49:50
to this. But as I said, I'm not sure. Maybe some
49:53
are more radical. Maybe they would like to have
49:55
more radical measures like very significant taxation
49:59
of the top incomes, banning even incomes, not
50:03
incomes, but wealth above a certain limit and
50:05
so on. So I would really like to know more precisely
50:09
what is meant by socialism. Yeah, you're right,
50:13
because like Bernie Sanders is supposedly democratic
50:16
socialist, but he advocates for things that in
50:19
Europe, at least in most of Europe, that's like
50:21
liberal democracy or like very centrist in a
50:27
way, not exactly radical politics in Europe as
50:30
opposed to in America. I agree. And I think actually,
50:32
you know, maybe that new term, which is democratic
50:35
socialist, it really means. Social democracy.
50:40
And anyway, maybe I'm old -fashioned, but social
50:43
democracy to me was very clear as an ideology.
50:46
It was an ideology not to repeat everything,
50:49
but with a large welfare state, with compensation
50:52
whenever you had. Avner Offer has a beautiful
50:55
book on that. It essentially means that you compensate
50:58
people and guarantee their incomes when all the...
51:02
ages and conditions where they cannot produce
51:05
income. When you're very young, you don't have
51:07
an income. Consequently, education would be free
51:09
and there would be support on child allowances.
51:12
When you become unemployed, there is an employment
51:15
compensation. When you become too old and you
51:17
cannot work anymore, there would be pension to
51:20
replace your income. So that was very clear.
51:22
For that, you need a large state with redistribution.
51:27
I think that idea was clear. Maybe we should
51:30
not just call it social democracy. All right.
51:34
You mentioned Yugoslavia again a couple of minutes
51:37
ago, and I'm very happy because this is my very
51:38
last question. And it's a peculiar one, but I
51:40
hope you'll humor me because this is a uniquely
51:43
rare opportunity for me as a Yugoslavic. I keep
51:47
having these debates or arguments with my parents
51:50
who are shedding no tears for our glorious old
51:53
socialist homeland. And one of their main arguments,
51:57
which is a common one, one will hear, is that
51:59
the Yugoslavian economy was standing on its feet
52:01
mainly because of the sort of expansive and cheap
52:05
loans that Tito, our former lifetime president,
52:08
was able to procure in the West. And once that
52:11
was gone... It all came down like a house of
52:13
cards. Is there any validity to this assessment?
52:16
And I hope you'll say no, because backed by someone
52:19
of your stature, I think I can vanquish my beloved
52:22
parents once and for all in these debates. OK,
52:25
so I'll get involved into the family dynamic,
52:29
the family dispute. I'm going to take a medium
52:36
position on that. First of all, it is true that,
52:39
particularly in the 1970s, foreign loans, after
52:43
the oil crisis, as you know, the dollars became
52:46
plentiful. These countries really had lots of
52:48
money. They placed them in the Western banks.
52:50
Western banks wanted to lend. At that time, rate
52:53
of interest was low. That ended in 1979, 1980,
52:58
with the Volcker effect. Volcker was, of course,
53:01
brought into the United States. He actually wanted
53:03
to stop the inflation. He really increased the
53:06
interest rates in the U .S. tremendously. These
53:09
interest rates, of course, then trickled down
53:11
to foreign loans, and many East European countries,
53:15
including Yugoslavia, were really unable to repay
53:18
these loans because the investments which they
53:20
made were not sufficiently competitive. And that's
53:23
not the only problem of Yugoslavia. As you know,
53:25
the problem was very grave and very significant
53:27
in Poland. That's why eventually Poland ended
53:30
up with solidarity and the martial law. In Romania,
53:33
that had these crazy austerity measures under
53:36
Ceaușescu. Hungary was also in a big time trouble
53:39
of repaying the laws. So all of that had that.
53:42
However, I would not say that was the... only
53:45
reason because Yugoslavia had fairly good economic
53:49
performance between 1952 when actually self -management
53:53
system started being introduced and the market
53:55
economy was introduced to the economic reforms
53:58
in 65, which actually originally sought to deepen
54:05
that market orientation. In my opinion, the problem
54:09
started in the 60s, when these market reforms
54:14
were also connected with political liberalization,
54:19
which led immediately to nationalism. It led
54:23
to nationalism in Croatia, it led to something
54:25
that Tito then called technocratic solutions
54:27
in Slovenia, and what he called liberalism in
54:31
Serbia. And he actually, as you know, you're
54:33
too young to remember, but I remember it, he
54:35
liquidated the top. leaderships of the three
54:38
top republics. And then return to a much more
54:42
conservative, how should I say, confederal arrangement
54:47
that really depended on the agreements, and that's
54:51
my last point, on the agreements of the republican
54:53
oligarchies. So we had from the 1970s Republican
54:58
oligarchies that agreed among themselves not
55:01
to raise too many problems. The economy became
55:04
less efficient, and it was compensated through
55:07
the borrowing from the West. And in the 1980s,
55:11
Tito died, which was sort of lucky for him that
55:14
he died exactly when the economic problems became
55:17
significant. And these economic problems then,
55:20
you have two things. oligarchies at the republican
55:24
level plus economic problems and of course that
55:27
led to to the rise of milosevic in serbia to
55:30
nationalism and eventually to the breakup of
55:33
the country so that's my explanation so the bottom
55:36
line i would not fully agree with your parents
55:40
that it was all thanks to the american loans
55:43
and the the western banks loans but i would also
55:47
not agree that it was all kind of rosy. I think
55:53
that the system that is based on a sort of mutual
56:00
agreement between oligarchies that eventually
56:04
defend Republican interests is very fragile.
56:09
Very last question. What do you mean by oligarchies
56:11
of the republics? What I meant that actually,
56:14
if you look at Yugoslavia since the constitution
56:17
of 1974, I think, it really did not work anymore
56:22
as a country, as a centralized or a federal country.
56:26
It really worked as a confederal country where
56:29
each republic was one party system. So they were
56:35
vaguely together. at the League of Communists
56:38
of Yugoslavia, but the League of Communists of
56:40
Yugoslavia was a confederal arrangement. In other
56:43
words, Slovenian Communist Party did in Slovenia
56:46
more or less what they wanted to do in Slovenia.
56:49
Serbian Communist Party did more or less in Serbia
56:51
and didn't want other parties to interfere in
56:55
what they are doing there. So in that sense,
56:57
I meant these are the Republican oligarchies
57:00
that were formed. And of course, it's not surprising
57:03
that actually then these oligarchs afterwards
57:05
survived because they kept all the levels of
57:09
power. And then later they went for privatization.
57:12
So the same people who were the oligarchs, I
57:15
don't mean in the Russian sense, I mean oligarchs
57:17
as the rulers, then the same people became then
57:20
the rulers under the democratic system. And so
57:25
it was not very similar. That's very familiar.
57:28
It's very similar from the Soviet experience,
57:30
except in Yugoslavia it's more clearer because
57:34
it started in the 1970s. And in the Soviet Union,
57:38
it essentially started with Gorbachev. Professor,
57:41
thank you very much. Everybody go buy the book,
57:44
The Great Global Transformation, available in
57:47
all fine bookstores everywhere. Thanks again.
57:51
Thank you so much. Again, we made it to one hour.
57:53
It really passed very quickly for me, but I'm
57:55
not sure if the listeners, I hope this will pass
57:57
very quickly for them too, especially if you
57:59
do clips. I'm 100 % sure it will. Don't worry
58:04
about that. Well, thank you very much again for
58:06
having this idea. It was really a pleasure. And
58:09
Sven, all the best. Thank you very much for listening.
58:13
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58:18
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59:27
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