If we look at poverty or literacy figures, the world is “better” today than at the end of the twentieth century, but “in many places inequality is also greater” and this “causes several substantial problems”. This is the warning issued by economist Branko Milanovic in an interview with Agenda Pública.
The senior researcher at the Stone Center on Socioeconomic Inequality at New York University and a visiting professor at the International Inequalities Institute at the London School of Economics cautions that “neoliberalization has monetized many activities that used to be free, such as health and education”. “When we compare current incomes with those of the past without taking into account that essential goods like housing, health, or education have become considerably more expensive, the comparison becomes misleading,” he asserts.
After dedicating much of his career to analyzing inequality, he argues that it creates “a political problem” and endangers democracy itself. As he emphasizes, “when income and wealth are excessively concentrated, political power tends to shift to those who have money and the system becomes hypocritical.” “It is an apparent democracy, but one in which the rich rule,” he says.
Moreover, the former chief economist of the World Bank’s research department maintains that with the first Trump Administration, the “end of neoliberal globalization” began, while inside the country neoliberalism persists. “With Trump we see tax cuts, deregulation and a reduction in the size, or at least the importance, of Government, as well as an expansion of oil and gas production without environmental constraints. This is national market liberalism: neoliberal at the domestic level, but not in international politics.”
Many people ask why we continue to publish content about inequality when, in their view, the world is better now than fifty years ago. Extreme poverty has fallen from 2.3 billion to 800 million people, literacy rates are the highest in history, and global income has risen. If the world has improved, why focus on inequality?
The world is better. Global incomes today are higher than they were 30 years ago, both globally and in many countries. Yet in many places inequality is greater than three decades ago.
“A large gap in income makes it harder for people with fewer resources to access education and be productive”
The question of why we care about inequality arises frequently, and some argue that we should focus solely on income and poverty. But inequality generates several problems. A large income gap makes it difficult for people with fewer resources to access education and become productive. Many things that used to be free have been commercialized. Spain still has a relatively free education system at all levels, but in many other countries access to good education depends largely on private schools, which in turn facilitate access to better universities and better jobs.
Another relevant aspect is that neoliberalization has monetized many activities that used to be free, such as health and education. In many countries, private systems offer better services than public ones. When we compare current incomes with those of the past without taking into account that essential goods like housing, health, or education have become considerably more expensive, the comparison is misleading. Incomes have not increased as much as they seem if we ignore the cost of these services.
The second problem is political. When incomes and wealth are excessively concentrated, political power tends to move toward those who have money, and the system becomes hypocritical: an apparent democracy, but in which the rich govern.
According to his research, will the rise of emerging economies like China or India continue to reduce inequality, or are we reaching a tipping point where internal inequalities will come to dominate the global panorama?
It is a complex question. China has moved from a poor country to sit above the world median income thanks to its rapid growth over the last forty years. In urban China, median income today sits at the 70th percentile worldwide; in rural China, it sits around the world’s median.
“China has moved from being a poor country to sitting above the global median income thanks to its rapid growth over the last forty years”
Rapid further growth brings China closer to rich countries, but at the same time it moves it further away from poorer countries such as Ethiopia, Sudan, Congo, Bangladesh, or Myanmar. China is no longer a driver of global inequality reduction. In fact, it now contributes slightly to its increase. This implies that India and the major African countries would need to become the main engines of reducing global inequality.
For African countries to close the gap, they would need growth rates of 7–8% per year, and so far none have achieved it. We may be reaching a point where global inequality increases not because inequality within countries grows, but because Africa fails to catch up.
Should we then shift the focus from inequality between countries to what happens inside each country?
It’s a different approach. Historically, global inequality rose or fell depending on growth differences between countries. If we look at inequality within countries, the picture is more complex. It is often said that inequality keeps rising everywhere, but that is not entirely true. If we compare current OECD countries with the 1980s, inequality has risen in almost all of them. But if the comparison is with the year 2000, that claim no longer holds. In the United States inequality has remained stable; in Spain as well, and in the United Kingdom, in fact it has decreased over the last decade.
Inequality cannot rise indefinitely. It is limited not only by public policies but also by structural factors: no country can reach a point where one person owns everything. Social transfers, pensions, unemployment benefits, or child allowances impose natural limits.
“Inequality cannot rise indefinitely. It is limited not only by public policies, but also by structural factors: no one person can own it all”
We should adjust our narrative. In rich countries, inequality has stagnated at higher levels than thirty years ago, but it has not continued to rise. In Latin America, inequality has decreased in several countries. Brazil recorded a drop of about ten points in the Gini index over twenty years, which began even before Lula’s first term. Mexico has also seen declines. These countries still have high inequality, but it is no longer increasing. In China, inequality has also remained stable. Therefore, the story of continuously rising inequality is, to some extent, detached from the reality of the last decade.
Do you have examples where public policy has helped reduce inequality?
Brazil is a good example. It introduced unconditional cash transfers that accounted for no more than 1% of GDP but targeted the poorest. It also expanded access to university education. Other Latin American countries introduced conditional transfers with similar effects.
An especially illustrative example comes from the United States during the COVID-19 period. Market income inequality surged because many people lost their jobs and earnings. It rose by 1.5 points in the Gini index, a huge jump. Yet thanks to the government’s massive transfers under the CARES Act, disposable income inequality fell by 1.5 points in the Gini index. That amounts to a three-point swing, a clear demonstration of what governments can achieve if they act. Obviously, maintaining transfers equivalent to 15% of GDP every year is not politically viable, but the episode shows the power of redistribution.
The economist during the interview. Photo: Agenda Pública
The year before you wrote that Donald Trump’s return to the White House could mark the end of globalization as we knew it. What have you observed since then?
The end of neoliberal globalization did not begin with the second Trump Administration, but with the first. It was then that tariffs on China were introduced. The Biden Administration basically continued and even intensified these policies —toward China, Russia, Cuba, Iran, and Venezuela. Industrial policies reemerged, incompatible with classic neoliberal ideas. The World Trade Organization (WTO) stopped functioning properly after the United States refused to name judges to its appellate body. We also witnessed the rise of economic blocs and friend-shoring: outsourcing production solely to allied countries. All of this was already underway before Trump’s return.
In my new book, The Great Global Transformation, I argue that while globalization is ending externally, neoliberalism is not ending domestically. With Trump we see tax cuts, deregulation, and a reduction in the size, or at least the importance, of Government, as well as an expansion of oil and gas production without environmental constraints. This is national market liberalism: neoliberal in the domestic economy, but not in international politics.
Given his origin — born in Serbia and having spent his life in the United States — how do you view Europe’s position today?
European politics is becoming increasingly difficult to understand. Europe faces several problems: demographic decline, the need for migrant labor combined with resistance to immigration, and an ideology of multicultural liberalism coexisting with physical border fences. These contradictions are perplexing.
“I have the sense that parts of the European elite still behave as if we were in the nineties, assuming they can lecture the rest of the world”
Europe also benefited for decades from cheap Russian energy. Now it pays four times as much to import energy from the United States, which harms its competitiveness. At the same time, relations with China are deteriorating. From an economic and political perspective, these decisions seem counterproductive.
Furthermore, I sense that parts of the European elite still behave as if we were in the nineties, taking for granted that they can lecture the rest of the world. Yet countries such as Brazil, South Africa, or Indonesia are now much larger than most European states. Tanzania has the same population as France. India counts 1.4 billion people and accounts for about 9% of global GDP, compared with about 2% for the United Kingdom. The world has changed drastically, and the European elite is not necessarily aware of these changes.
The bottom 50% of Spaniards own only 6% of total net wealth, while the top 5% holds 53%. In the EU, these figures are 9% and 35%, respectively. Inequality is therefore even higher in Spain. Do you have any advice for policymakers?
I’ve lived in Spain and know its political landscape reasonably well. Spain is somewhat different from the rest of Europe. The Sánchez government has taken positions that diverge from the European mainstream, not only regarding Gaza but even toward Russia. Domestic policies also differ. Wealth inequality in Spain is higher than the EU average, and historical reasons play a significant role. However, income inequality — measured by wages, interest, dividends, social transfers, and income from self-employment — has not risen significantly.
“Wealth inequality in Spain is higher than the EU average. However, income inequality has not increased significantly”
Spain also has a greater capacity to absorb migrants than many other European countries. I do not observe in Spain the kind of adverse reaction seen in Italy, France, or the United Kingdom. The Spanish population continues to grow, largely thanks to immigration from Latin America. Cultural similarity can help, but it is not a complete explanation. Religion may play a role, but the central idea is that Spain’s experience differs in several respects. Migration, in particular, can be an advantage in a context of labor shortages across Europe. If countries need workers but close their borders, what do they expect will happen?
One final point concerns retirees. Across Europe, the income of people over sixty has surpassed that of those around forty. In previous decades, pension replacement rates were lower and older people tended to have lower incomes. Many benefits—such as discounts at museums or on transportation—remain in place. However, today retirees tend to have higher incomes and retain those privileges. Perhaps it is time to rethink the system. Maybe younger people should have discounts for museums or train tickets. The problem is that once a benefit is granted, it is very hard to take it away.
Thank you very much.
In collaboration with the “la Caixa” Foundation
