As in a Greek tragedy, the same features which neoliberal globalization extolled and that ensured its success for several decades led to its inevitable demise
Branko Milanović is an economist specialised in development and inequality. His new book, The Visions of inequality, was published October 10, 2023.
Cross-posed from Branko Milanović’s blog Global Inequality and More 3.0
A work of the U.S. federal government, the image is in the public domain
If one were to define neoliberal globalization as perceived by the Western elites during the forty-year period from the early 1980s to around 2020s, in the most succinct form, one could say that it was driven by two ideas: cosmopolitanism and competition.
Cosmopolitanism was the neoliberal idea going back to the Walter Lippmann’s 1930s Colloques in Paris and early Mont Pelerin society as nicely described in Quinn Slobodian’s book “Globalists; The End of Empire and the Birth of Neoliberalism”. Cosmopolitanism meant that, analytically, every individual in the world is equally important and equally capable of economic improvement if they faced optimal economic conditions which implied security of private property, free trade, low taxes and “tolerable administration of justice”. Very little else, in immortal words of Adam Smith, was needed for the desire common to all persons to “better their own condition”, and for the world to attain unheard-of levels of prosperity. Cosmopolitanism or internationalism were the political ideas underpinning a neoliberal world where national governments as such would be out of sight and would leave individuals free to pursue their self-interest. It was thus, ideally, a world of small or almost invisible government. In neoliberal language, “imperium”, that is, flags, anthems, languages and other paraphernalia of nationhood would be left to the politicians (and to the voters, if they really wanted to vote) and the real world of “dominium” would be the world free for the movement of goods, capital and technology, and–even of people.
In order for cosmopolitanism to create global wealth and prosperity, the world had to be competitive. Not only would people be allowed to compete with each other (or against each other) regardless of national borders, but they needed to be stimulated to compete by the display of all the goods that could be theirs, as well as by the societal approval they would command if they won in that competition.
Competition produced global growth: between 1980 and 2020-21, the average world GDP per capita more than doubled passing from $7,700 (in real 2005 international or PPP dollars) at the time of the fall of the Berlin Wall to almost $17,000 at the time of covid. This makes the worldwide yearly average growth rate 2.5% per capita, probably the highest ever recorded over a period of forty years. (And this despite the increase of the world population from 4.4 billion in 1980 to 8 billion.) More than the doubling of per capita income combined with an almost doubling of the world population meant that the total amount of goods of services produced in the world quadrupled during the era of neoliberal globalization.
But this “anonymous” growth rate, realized principally thanks to high growth rates of Asian countries and notably China, did not help neoliberals’ case domestically, in rich countries. What was politically salient was not the two-and-a-half percent global rate, but the fact that in the United States and in most of the rich Western countries, the majority of population registered real (adjusted for inflation) growth rates of approximately 1 percent per annum, while income of the rich grew two to three times faster. Moreover, as illustrated in Figure below, the neoliberal period (dated from Ronald Reagan’s presidency onwards) was not only pro-rich, in the sense that incomes of the rich increased faster than incomes of the middle class and the poor, but it represented also a slowdown in the across-board growth compared to the earlier period. In fact, at every point of US income distribution but the very top, growth was slower during the neoliberal era than during the previous decade-and-a-half.
Note: Own calculations from annual US Current Population Surveys as standardized by Luxembourg Income Study (LIS). The lines show the average real (inflation-adjusted) per capita growth rate of disposable (after-tax) income at different points (percentiles) of US income distribution. The end-year is 2019 in order not to be influenced by the outbreak of covid in 2020.
The world, at least for a while, seemed to become one, divided not by borders of nation-states, race or gender, but by differences in peoples’ abilities, skills or effort. It was ideally (even if that ideal was never reached by neoliberal globalization) a borderless world full of intensively competitive individuals whose competitive juices were stimulated by the ability to communicate with any part of the globe and to learn what potential competitors may do—and then to try to outdo them.
These two features—cosmopolitanism and competition—rather attractive in themselves, however led to the undoing of neoliberal globalization.
Cosmopolitanism crashed against national political borders. Excessive competition created a world of greed, amorality and commercialization of all activities, of even those that used to be the most private. Fundamentally, it threatened to make family superfluous.
The winners of neoliberal globalization in rich countries, inspired precisely by their cosmopolitanism which they regarded as a virtue (thus being free of poisonous nationalism), were quick not only to treat their less fortunate compatriots’ welfare as of no greater consequence than the welfare of a foreigner or a stranger, but also to believe that their compatriots’ failure in such an open competition was indicative of some human or moral flaw. Economic success meant being virtuous, or as Deng Xiaoping, whose rise to power coincided almost perfectly with those of Margaret Thatcher and Ronald Reagan, put it “to be rich is glorious”.
The political system however is organized within nation-states. The less fortunate compatriots felt forgotten and ignored. They were resentful of the way in which they were treated. They saw the readiness, nay eagerness, of the rich to invest in faraway places as callousness towards domestic workers. Promises of new jobs that would replace those lost due to cheaper imports or online work elsewhere were hard to materialize. Their discontent created political turbulence in richest democracies. The global (or more exactly the Western) financial crisis 2007-08 made things that were intuitively, and this only vaguely politically, felt become obvious and stark. The rich did not care for those left behind and when the costs of the crisis had to be paid they made sure that the bill was not sent to them.
The malcontents who in the previous times would equally replenish extreme left-wing and extreme right-wing parties, as they did during the Great Depression in the 1930s, had less choice now. The left-wing parties were either discredited by the failure of the “real-existing socialism” or they were, through their New Labor policies, seen as accomplices of the center-right parties in promoting the type of neoliberal globalization that so disenchanted the working and middle classes of the West. Indeed, the peak of neoliberal globalization was achieved under the notionally left-wing governments of Bill Clinton in the United States and Tony Blair in the UK and François Mitterrand in France. The disappointed masses turned toward the right-wing parties that promoted national solidarity, end to the equal treatment of the domestic population and foreigners, stop to migration, and even in some grand élans of promises, the return of the jobs on the wings of the new industrialization. In the international arena, neoliberal globalization thus became increasingly replaced by neo-mercantilism that used economic coercion, seizure of foreign assets, import bans, and rather extravagantly tariff policies to cut, or at least to control, the free flow of goods and services. Free flow of labor was even easier to stop because its political popularity, even at the peak of neoliberal globalization, was small.
The second part of the neoliberal equation, competition across borders and time zones, created—helped by technical advances—a world where own homes, own cars, and own domestic chores from cooking to the care for the elderly or the infants, or for one’s pets, became “outsourced” precisely to people who lost steady jobs and were part of the class of malcontents. The desire to be “glorious”, that is, to be rich, effaced moral norms that held societies and families together. That perceived amorality helped further the rise of anti-systemic right-wing parties. They grew not only on the promise of restoration of the lost jobs but on the promise of restoration of self-respect among the malcontents and return to the traditional values—that might have been more traditional than real even at the time when they supposedly held.
As in a Greek tragedy, the same features which neoliberal globalization extolled and that ensured its success for several decades led to its inevitable demise, through domestic political turbulence and abandonment of cosmopolitanism in favor of protective barriers for foreign goods and foreign people. In short, to its substitution by mercantilism without and, so far, vain attempts, to return to a more traditional world within.
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