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Branko Milanovic is an economist and a professor in the Graduate Center at The City University of New York. Formerly a lead economist at the World Bank, he is the author, most recently, of Visions of Inequality: From the French Revolution to the End of the Cold War.
In this week’s conversation, Yascha Mounk and Branko Milanovic discuss Milanovic’s famous “Elephant Curve” graph and why global income growth is not as unequally distributed as he once thought; how we should think about globalization and its effects on the global balance of power; and why Milanovic does not consider himself a philosophical liberal.
The transcript and conversation have been condensed and lightly edited for clarity.
Yascha Mounk: I want to start by talking about some of the obvious topics given your work, which is economics and globalization.
Because of this famous elephant graph that you published, you came to be seen by many as a kind of critic of globalization. But that, I think, is rather too simplistic an interpretation of who you are. So perhaps you can tell us a little bit about sort of what the elephant curve was, how it fits into your work, and why your relationship to globalization is a little bit more complicated than it might seem.
Branko Milanovic: Let me start with the origin of the graph. First of all, the graph is simply numbers. The question is the interpretation.
The origin was, of course, my work on global inequality; I think the first paper was in ‘99, so it was a long time ago. And then gradually, of course, I developed more data, and then I started thinking of putting them all together and showing what was happening over a 20-year period. I did have a little bit of an ideological prior, and I know that because the first time I did that graph, I discovered that particular shape that was later called “elephant,” and I felt immediately that this is exactly what I knew was happening and what everybody else knew. It was a striking moment where the data validates your prior.
I think the reason why the graph sort of took on a life of its own was that it essentially confirmed what many people already knew, which is that the middle classes of the rich world have not done very well. And they have not done well compared to the Chinese, essentially, or Asians, who are poorer than them. And they have not done very well compared to their own co-citizens who are richer. They were in the middle between their own domestic top 1% (it was really much broader than 1%) and, on the other hand, being exposed to potential competition from people from poorer countries.
Mounk: Just to explain to people who may not have seen it or who may not recall it, the idea here is an elephant with its trunk raised up: as you go in from the lowest part of the income distribution, you see the torso is actually rising a little bit (so the lower middle class and the middle class globally have actually had some income growth over the course of the previous decades, when the graph was published), then there was this sort of fall off where you imagine the head of the elephant pointing downwards (so once you get to the 70-80th percentile of global income distribution, there's basically no increase)—and this, of course, might be a steelworker in Michigan, or another member of the global upper middle class (because even the relatively poor members of the United States or Western European countries are in the upper middle, globally). Then as you get towards the trunk, there's a huge increase in wealth among the top 5% and top 1%, globally—that's where the exponential rise of a trunk is. Is that roughly speaking, right?
Milanovic: Absolutely. On the horizontal axis, you go from the poorest people in the world to the richest; the supposed “middle classes” of the Western world are around the 75th, 80th percentile, and on their left, poorer than them, are, broadly speaking, Chinese, Indonesians and others who are actually growing relatively fast; and to the right of them, meaning richer than them, are many people from the Western countries who are not only richer but also growing faster. So it was really this illustration of being squeezed between the two large groups that are growing faster than you that, of course, produced the political interest for the graph.
I think the most powerful stories that we can produce in economics or politics are when the data or information that you provide highlights or validates what you might implicitly already believe. That's the really powerful stuff. If I could show something that nobody believes, maybe it's going to take 20 years for people to start believing it. But if you show something that people feel is true, and that is being validated by the data, that's quite powerful.
Mounk: I have a sort of side observation, which is that something similar is true for political gaffes. People sometimes assume that a political gaffe is damaging to a politician because they come across as saying something they didn't really mean. I think that's rarely the case. I think political gaffes end up being really damaging when they confirm an impression that people already had and crystallizes it: Hillary Clinton talks about the “basket of deplorables.” If I already suspect that Hillary Clinton looks down on ordinary people, that becomes the proof in the pudding.
The Elephant Curve, as you put it, sort of confirmed the hunch you had from knowing the data very well, but also the hunch of the broader public that a lot of people were getting screwed over by globalization. I guess what's interesting is that people in the West weren’t really looking at the rather better news, which is that once you went back to the 50th, 40th, or 30th percentile of the global income distribution, you were seeing significant gains.
Milanovic: It is absolutely true. Let me slightly fast forward to the present time, prior to COVID (because COVID really is a very special period which messed things up quite significantly). Moving from 2008, when the elephant chart ends, to 2018, or ‘19, what was interesting, and maybe even indirectly made the malaise of the Western middle class worse, was what happens when other people (like the proverbial Chinese) catch up with you and overtake you. In the global income ranking, your position declines. Now, that does not mean that people in the US or Italy feel they have gone down (you probably don't even know what percent in the world distribution you are). But you will notice, if you go down in that ranking, that there are certain internationally prized goods that you cannot afford anymore. And moreover, if you go back 200 years, the West had always been alone in that top quintile or top 20% (Japan came later). Well, now, the West is not alone there, because there are people from Asia entering that 20%. And I think when you put it like that, you will immediately see the economic and geopolitical implications of all of that, and you'll see that it is really a rather dramatic change in relative economic power. So these individual incomes displayed are basically representations of much more profound economic change.
Mounk: So there's two very different issues here. One is whether globalization has, in fact, been bad, in absolute terms for the West. And then there's the second question which is more geopolitical and has to do with the relative pecking order of different countries. Let's start on the first point.
One of the interesting things about the influence of the Elephant Curve is that, while it was discussed a lot during the 2000s, the data only went up to 2008. And when you updated the data later on, I think in 2018 [sic], the elephant shape was no longer there. In fact, the income gains were at that point much more evenly distributed—not perfectly evenly distributed, of course. But, suddenly, the 80th percentile of the income distribution was also profiting. And you saw much more strongly that the global poor had, in fact, been lifted up by globalization. So the overall picture, extending simply the data on the same graph, came to look a lot more positive.
I was wondering (I wrote an article about this in The Atlantic) whether this is part of a broader reevaluation of economic pessimism around 2010. There were sort of three data points that went viral around 2010 and added up to a very pessimistic view of the economy: your observation of the Elephant Curve; the observation by Card and others, that incomes had stagnated for American workers; and finally, of course, the claim by Thomas Piketty that returns to capital were higher than the returns to labor, and therefore inequality would continue to increase.
Today, you have updated your Elephant Curve, and been very open about the fact it now tells a less pessimistic story; Card has shown that over the last few years, the lowest income earners have actually had the highest income gains in the United States because of the tight labor market; and Piketty’s work has been sort of subject to a lot of criticism from economists. He hasn't exactly revised his story, though he has a longer-run economic history that sounds a lot more optimistic as well that he's published since. So it feels like this kind of “three apostles” of economic pessimism have slightly revised their story. Is there now more reason to be optimistic about ongoing income growth throughout the income distribution than there seemed to be ten years ago?
Milanovic: Let me break your question into two parts. First, let me say something about simply the definitions there. When we spoke of lack of economic growth, or sufficient economic growth at that part of the elephant where the middle classes were, we of course mean that the growth was low, but we never meant (and actually this was not the case) that the growth was negative. So some of these absolute gains were even higher than the Chinese middle class absolute gains, because the starting point of the Western classes was much higher. So if you have a much higher income, a 1% increase is more than the guy who makes 5.5% growth but, of course, has an income which is 1/5 of yours. In economics, we just tend to favor, for various reasons, percentage increase.
Secondly, yes, the situation has changed. First of all, that trunk has never recovered, after the financial crisis, the rates of growth it had before. We also have to keep in mind that the top 1% globally is one-half composed of Americans, because 11% of Americans are in the global top 1%. And the very top of the US income distribution was affected during the financial crisis. So they went down. Some of the top 1% actually had a negative growth. And then they recovered. But the greater growth was 6 or 7% before; it became 2% after the crisis. That was a really significant change. The Chinese middle class moved really into the parts of the distribution, as I was saying before, that tended to be entirely Western.
Now the last part of your question is more political and more perceptive. Have things changed economically sufficiently for the Western middle classes that we can say “Well, forget it”? Well, there have been significant improvements, especially in the US most recently. They are short term because we don't know what will happen next, but there’s been an improvement in the economic situation. But the part with which I'm not very happy is that it actually happened on the back of less globalization. That's the interesting part: we have had a significant backlash against globalization in the West with an improvement in the economic situation. So that's the big question: are we now going to go against globalization because it seems that less globalization may be good for the middle class or the working class in rich Western countries?
Mounk: First of all, is that causal link there? Is it that some of the more skeptical ideas about globalization of the last few years have actually led to policies that have increased the incomes of lower income earners in the United States and Western Europe? Or is that simply a temporal coincidence here?
And secondly, perhaps more importantly, how much have we actually moved away from globalization? Some say that the whole paradigm of globalization has now gone out the window. Others say there's been a little bit of nearshoring, a few adaptations to COVID, and some effects of the sort of deeper confrontation between the United States and China, but, really, cross border trade continues to go up and, according to all kinds of important metrics, we are still firmly in the age of globalization. Help us puzzle through these very different points of view on this issue.
Milanovic: You actually summarized it very well. But I do think that there was an ideological change. If you take the period between the fall of communism and 2008—that was a period of what they call “high globalization,” where ideologically, globalization was seen really as a panacea for many things: the reduction of global poverty, high rates of growth (not only in poorer countries, but rich countries). And even the effects that became later better known, of insufficient growth and wealth among the working class in the US, were sort of shrugged off as part of the cost of globalization. So there was an ideological prior in favor of globalization: more was better than less.
I think that gradually, we should have had a change for all the reasons that we already discussed with the global financial crisis. But now, instead we have an ideological change which is driven by essentially geopolitical reasons—not to claim that globalization is somehow bad, per se, but that globalization's gains were uneven in the geopolitical sense: in other words, China got too much, the US got too little. And that really is the introduction of very strong geopolitics. And when it happens, then many possibilities are open in the future; we do have, obviously, the precedent of World War I, where a similar competition eventually led to war. So we do have memories of things which didn't turn out very well. And that's something that I don't find particularly attractive.
Mounk: Let's speak to the geopolitical stakes here. Basically, since the Industrial Revolution, Western countries have held global power based on the fact that they were economically outcompeting the rest of the world and then, obviously, exploiting resources through the military means that they were able to muster in part because of their economic production base and so on. So to be approaching an era in which the balance of economic might in the world is much more balanced really does feel like a very significant historical change, like basic facts about global political and military power that held for 200 years are now giving way.
How does that illuminate the politics of our moment? And how should we think about that? Clearly, there's certainly something very positive about Asia's rise more broadly, including the much better lives that billions of people are able to lead. As somebody who, I guess, comes from Western countries (I don’t know exactly how you would describe yourself) there is also something concerning about that in particular, when you see that the biggest economic competitor to the West at the moment is ruled by a very authoritarian Communist Party.
How should we think about this new era in geopolitics that is being brought about by globalization?
Milanovic: Contemporaries often have problems visualizing their world: the world is changing, but obviously, to the contemporary, it can always go in different directions. World War I and II were essentially competition within the Western world because of a new competitor (Germany)—it was part of the West, but obviously that led to massive wars; and then there was a second competitor which was the Soviet Union—a significant competitor especially, I would say, from 1945 to probably the mid-‘60s. So there were big competitions within both the Western camp and on the edges of that camp. Now, the situation is different, because there is a very big country, a country that used to be, when I was young, seen as very poor and powerless to some extent. I was recently thinking that if you were to count the number of articles in the Wall Street Journal that were about China in the 1970s, you probably would have one article every month. Nowadays, when I read the Wall Street Journal, I'm actually reading mostly about the Chinese economy. After the US economy, there is no doubt that the only economy that is consistently reported on on a daily basis is the Chinese economy. So for somebody who remembers that, it is an incredible change. And we are living through this change now.
I think these are the facts, we don't know how it will evolve. But I know that I'm not pessimistic. I believe that a more equal distribution of economic output around the world ultimately could lead to a much more peaceful environment. And I will stop there just by giving a beautiful quote from Adam Smith that is really not known, where he mentioned that huge technological superiority that Europe had and, of course, was reflected in the military superiority enabling Europeans to repress the rest of the world. But Smith believed that, through free exchange, free trade, the technological developments of the different parts of the world will become more equal, and that would prevent war through, basically, the mutual fear of two relatively equal powers of going to war with each other. So it's really a balance of power, where trade is actually seen as leading to peace, but not the way that Montesquieu thought of in what he called the “softening” of behavior in mutual interest. Here trade is leading to peace through mutual fear, if you want to say, of war, that would actually make the two sides more respectful of each other.
Mounk: Oh, that's fascinating. So the way that perhaps most thinkers of the time made the argument for the peace-inducing qualities of trade, or at least the way that it's usually interpreted and taught today, is more about a softening of mores. And some of that theory supposedly has worked out in democratic peace theory and the fact that democracies don't tend to go to war with each other (I'm a little bit skeptical of that—we see that a world with many democracies still has many wars in it, and a world with a lot of trade can still have a lot of war in it). This argument is a little bit different, which is that, because you have trade, as I understand it, you end up with more economic equality and economic equality can stop you from having war because you have to be afraid of your enemy. If you believe you can win a war, then that makes you tempted to engage in war; if you don't know who's going to win, then it's perhaps better to refrain from it.
Let me change my line of questioning for a moment. I think a lot of listeners to this podcast will think with concern about a world in which there is genuine equality of power between the West and countries like China, not because they have any particular prejudices against China or not, but because it is ruled by the Communist Party and it is an authoritarian regime. My sense is that you look forward to such a future rather more optimistically, not only because, as the quote you used implies, it might in fact, be a peaceful future, but also because I think you view rather more critically Western dominance of international affairs over the last decades, and perhaps more broadly, the project of liberalism.
As somebody who follows your really interesting, incisive writing on Substack, as well as having read a number of your books, I feel like I have a sense of that. But I never quite feel like I've gotten the argument from you in a nutshell about what the problem is with Western dominance and, more specifically, the problem with liberalism. Would you make the argument for me?
Milanovic: I actually avoid making the argument too explicitly because, sometimes, if you make it too explicit, maybe the form in which one makes it becomes too strong. Since you push me, I will first put it in a strong form and then I will come with caveats.
To put it in a very strong form, I think that a lot of Western political concerns with democracy is just a different form of imperialism. It is basically an attempt to project one’s own view of how the political system should be run onto others, claiming a significant amount of moral superiority, and not allowing others to choose political arrangements that they might see fit. When there are significant similar attempts through think tanks, NGOs, political organizations and others to actually change the Western political system, that immediately gets labeled interference in domestic affairs, interference in elections, spying—there is a very strong, asymmetric relationship.
So that was the strong statement. Now, if I want to unpack this statement, I would actually go historically to the end of the Cold War, where I think that sort of ideology got an incredible boost, because it seemed to really not only fit but to agree with people who have actually abandoned communism, and then it became sort of like an engine that tried to project itself onto the rest of the world, to everybody, and, essentially, to have both ideological and political hegemony. I actually think I would really have to go to the end of the Cold War, where, also, I think that the US in particular did not really accept to play anymore by the international rules (essentially, by the UN rules) but created their own rules. And when we read today the “rules-based international order,” honestly, I have no idea what it means. Because that is not codified, it doesn't exist. These rules keep on changing, depending on the situation, and they are put in opposition to codified rules of the UN. I'm not saying that the codified rules of the UN have been accepted by the members between 1945 and 1990, but at least we knew what they were.
I believe that the world is too complex to have one arrangement. So let's put it like that.
Mounk: Is this fundamentally a kind of a cultural relativist argument, or is it an argument against the importance of democracy or liberal democracy?
Would you say that you have a personal preference for living in a liberal democracy, but you simply recognize that other cultures work differently, and people in other parts of the world may not share that preference?
Milanovic: I personally have a preference for living in a democratic society. But I acknowledge that other people in different parts of the world, for whatever reasons, and I don't think these reasons are necessarily reasons which will pertain forever, but given the history of certain societies, the current situation, the current leadership, the political objectives, they don't feel that they are unhappy. They are actually satisfied with the type of political regime that they have. And I think imposing and telling them that they should not be happy, I think, is really a way of ideological imperialism.
Now, these societies might evolve. After all, people in pre-revolutionary France were also quite happy about believing in that system. And since we are also talking about my Visions of Inequality, the new book—Quesnay, who was the founder of political economy, was a great proponent of the Chinese despotic politics system. He wrote a whole book about this called Le despotisme de la Chine. So you cannot say, for example, given the conditions of France at the time, that Quesnay was crazy. He believed that that political system was the best suited system for France.
Mounk: Let me inch towards pushing back a little bit. I think where we certainly agree is that it is a bad idea to try to impose democracy at the barrel of a gun and attempts to do so have failed in disastrous ways, in ways that probably should have been knowable in advance.
I think there's a broader question about the ways in which it may or may not be conducive or counterproductive to democratic developments in our countries to fund local activist NGOs and democracy organizations and so on (I think, at the very least, we need to acknowledge that it's dubious whether that has positive effects). Trying to influence those organic local processes from the outside, even with the best of intentions, even with the seemingly pretty neutral goal of economic growth, is just a very hard thing to get right. But there is one argument that does naturally spring to mind in response to what you were saying, which is that “let people make that choice” simplifies the situation a little bit, because it is the nature of democracy that people have some amount of choice (and you may say that the choice is not as real and as full as it appears), but in principle they can vote for political representatives who will amend the Constitution, and even in a system where the veto points are as extreme as they are in the United States, if enough people vote in enough elections to amend the Constitution to enable, say, rule by the Communist Party, there is, in principle, a path to that. That obviously is not true in countries that don't have those democratic institutions. Now, we might look at contemporary China and say the grassroots desire for Western-style democracy seems to be pretty low, and the country today is open enough and has enough of a culture of debate that, from my understanding, that appears to be true today. But that's rather different than saying that the Chinese people have chosen to be ruled by the CCP. That clearly would be overstating the case.
How do we deal with the fact that, outside of democracy, certain elites or power holders may have chosen the regime form, but you can’t really say that the people of those countries have chosen it?
Milanovic: It's good that you push back, because I'm going to push back now as well. I absolutely have no problem with us and other people discussing these issues. I don't even have problems with NGOs or think tanks pushing that point of view. It is, I think, totally legitimate. People have different views they would like the rest of the world to follow. That's a legitimate thing. The illegitimate thing is when governments use that to explicitly attack, label, and disagree, and that's where we find, for example, not only the US government, but the European Union, in respect to China, essentially engaging in political lectures.
I think that relations between the states have to be based on mutual respect, non-interference, and all these other things from the UN Charter. And economic relations have to be based on mutual interests. Now, whether a Luxembourg- or Paris-based NGO wants to have relations with dissidents from China, I think it's legitimate. But it's not okay for the French officials to actually put that as a basic sort of part of their discourse and exchange with China. That is where I draw the difference.
Mounk: But of course, when you look at the way that China tries to project its geopolitical power, it's in different ways. China doesn't go to Germany and lecture Germans about mistreating Syrian immigrants, or to the United States to tell Americans about the history of structural racism (though it's certainly willing to use those things for propagandistic purposes in a kind of tactical way). But contrarily, their red line is that you cannot criticize their country, right? They use very strong forms of economic pressure, for example, to undermine the freedom of speech of people within the United States, to criticize the Chinese government by boycotting their employers, and so on, right?
Is it a matter of the red line lines being different for each of those countries? Because it certainly feels to me that sort of China's attempt to tell Hollywood what kind of movies it can make, or to punish NBA franchises for things that their players or coaches say could be seen as imperialist or as an exercise of brute political power, just as much as Antony Blinken lecturing about human rights.
Milanovic: It is true that economic coercion is used by China. But, of course, as you know, it is used on a certainly bigger scale by Western countries. If you just read the list of sanctions that has now become very common news, you will have sanctions applied practically every day on somebody. So economic coercion is done by many. But again, just simply to reiterate what I said, I think it's direct governmental lecturing or direct governmental implication that the other side is not legitimate that is problematic, and it leads, eventually, to significant misunderstanding and potential conflict.
But I think the main idea there, which I think is a crucial idea, is that we need, at a political level, to accept different ways of coming to power as giving legitimacy to the interlocutor. Now, there could be some extreme ways to get into power, more extreme ways of repression, that you really can say, okay, that really is something which is too much, and there is no legitimacy in that. But I think that is a really extreme case. There are many cases, again—the Jordans or the Moroccos of this world, China and other countries—where we have to accept the legitimacy of the interlocutor. And that's, for me, a key point, because when we accept the legitimacy of the interlocutor, we can also accept that the interlocutor is defended by the rules of the United Nations which we have to observe. So that will be my sort of desiderata, that we find such ability to accept the legitimacy of differently selected leaders of the world (and when I say leader, I mean political systems, not necessarily individuals).
Mounk: Do you consider yourself a liberal? If so, why, and if not, why not?
Milanovic: That’s a tricky one. Not really, actually. For a long time, having lived in the United States, I was not particularly aware of all the political differences, and I was always considering myself as essentially a social democrat. And I believed that the Democratic Party and what is called “liberals” in the US were essentially some form of social democrats. I was disabused of that notion. I would say that, in my view, currently, what people consider to be liberal, I would actually put very much in the center-right, not center-left. I would not consider myself as liberal. I would rather define myself as a kind of old-fashioned social democrat, like historically significant figures from that moment in Europe—Olof Palme, Willy Brandt. Particularly Brandt, actually, I like quite a lot.
Mounk: That's interesting because Willy Brandt is somebody I admire a lot, which has to do as well with growing up as a Jew in Germany and some of his role in those discussions, but also some of his economic policies and so on. But I guess, in the philosophical sense, I might argue that Brandt was also a liberal. Am I splitting hairs? Do you disagree with that interpretation?
Milanovic: I don't know Willy Brandt’s total political philosophy. But of course, politically, what I really admired, first of all, obviously, was his opposition to the Nazis, and the fact that he was opposed then had also some drawbacks for his political career, because, simply, he didn't share that experience that Germans had to share, even including the bombing.
Mounk: And a significant share of Germans saw him as a traitor for having fought against their country.
Certainly not every listener of this podcast, but I think many listeners of this podcast who might think of themselves, in the philosophical sense, as liberals—what advice would you give for how to avoid the pitfalls of liberalism?
Milanovic: I'm really discussing liberal here in a more political sense. I'm a big admirer of Tocqueville, who really definitely fits into the liberal view of the world. But what I actually admire about Tocqueville is that he is also able to see the other side; when you read Tocqueville, there is always the other side. He is not oblivious of the other side. He can understand their way of thinking. For example, he says in 1848 that we see attacks on private property as a concept, and there is a strong support for ending something which seems to us to be a component of the liberal view, which was the private ownership of property. He sees a possibility of that—he doesn't say that people who are thinking that are criminals who belong in jail. So I like that ability in Tocqueville. I also have to say that I like Raymond Aron. You would see him as really a direct, to some extent, continuator of Tocqueville. But Aron in his lecture on the industrial society, when he discusses the Soviet Union, it’s a very good discussion, because he's saying basically that it's another form of industrial society, it is a form of industrial society which is very similar to ours in the fundamental sense, but it is a society where you can actually criticize things, but there are certain topics (like, for example, the role of the Communist Party) that are beyond acceptable critique.
I find his discussion of the Soviet Union way superior to, for example, Hannah Arendt, with totalitarianism and all of that. I actually don't think that even the term “totalitarianism” applies to the Brezhnevite Soviet Union. I think it applies to the Stalinist Soviet Union but not later. And in that sense, I find Raymond Aron a typical liberal, very germane to my own thinking. You see there are liberals that I'm in favor of, but actually, as I said, these are ideological liberals. Maybe they were also political. But these are the ones that I actually admire quite a lot.
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Branko Milanovic on Globalization