With his “elephant chart,” Branko Milanovic acutely illustrates the economic effects of globalization. The trunk dips dramatically in the middle, representing the wealth of the Western middle class, hollowed out more than any other income bracket. Of course, the highest peak is the tip of the trunk, representing the super rich, whose gains have never been higher.
Milanovic, the 64-year-old economist, is one of the leading experts on global inequality, and he is looking ahead. While in Rome for the Festival of Sustainable Development, he explains his forecasts for the world to come.
Professor Milanovic, in the post-war period, Europe reduced inequality and guaranteed prosperity to a large part of the population through the invention of the public welfare state that supported social needs. Is this no longer the right recipe today?
It should change. The traditional welfare state is obsolete because it was based on three pillars that are no longer sustainable. The first was education, but now in the richer nations it has reached a very high level and cannot improve more. The second was the trade unions, which are now in decline and cannot represent the weakest workers. The third was based on high income taxation, which can now no longer reach the levels of the 1960s. What we need today is a philosophical change, equality of skills and a greater focus on quality: for example, free public education, high taxation of rental revenue and participation in companies with workers who are shareholders.
You pay great importance to the wealth increase in Asia: the exponential growth of China and India is being transferred to workers’ wages. What consequences will this shift have for us Europeans?
Income growth in Asia is simply a numerical fact that has positive global consequences. One and a half billion people are relatively enriching, which is also why globalization is better seen in Vietnam than in France. The Chinese are moving towards median levels of income and this could have positive effects with respect to the phenomenon of relocation of European companies. Having said that, globalization brings changes even to those who do not move: the Western middle classes are being dragged down, even if their income situation has not changed, and this process cannot remain without political and social consequences.
Your next book will be entitled Capitalism alone and starts from the assumption that we now have only one unique economic model. If capitalism continues to produce such unacceptable inequalities, do you not think that a certain form of communism could be reborn as an inescapable alternative?
The world is too complicated to have a single model. In fact, we already have two versions of capitalism. The first one that we can define ‘political capitalism’ is essentially the Chinese model that I consider full capitalism. The second is an evolution of original capitalism, which through globalization has become increasingly technocratic and authoritarian. These two models are competing and one of the two is destined to dominate, and I think it will be the one that pays more attention to the work component. As for communism, I will give a negative historical opinion of it in my book. That is why I do not think it can come back. However, I believe that long-term inequality is unsustainable and thus other models are possible if not desirable. Also because the ideology of “making money,” of earning at any cost, is also putting at risk the universal value of democracy. It now seems that you cannot win elections without corruption, and democracy does not seem to work without corruption.
Speaking of elections, what do you think about the result in Italy? Lega and the 5 Star Movement have a government contract that combines flat tax and citizenship income. Do you think this is possible? What effect would it have on inequality?
The flat tax is a 19th-century idea that would clearly increase inequality. Putting it together with a universal basic income is very strange and unusual, it has never happened in any country in the world. It is the result of a compromise between two very different electorates. The flat tax is for small entrepreneurs in the north and the citizenship income for the unemployed in the south. However, considering them and keeping them separate seems very difficult. More generally, I think the outcome of the Italian elections has something in common with the United States and France: Trump and Macron have already launched a combination of populist and pro-rich policies.
You also predict that by 2050 class origin will be the main driver of inequality, more than national origin. And these metrics would comprise the same composition as in 1850 at the time of Marx, very different from the present day in which territorial origin is preponderant. However, you maintain that the phenomenon of migration will remain fundamental in the coming years.
Yes, because the territorial element will remain significant and will continue to push millions of people toward Europe and the West. For this reason, you Italians will have to face a long transition period in which economic migrants will continue to arrive. Then, of course, in about 30 years the class origin will be more relevant also because the present suburbs of the world, including a part of Africa, will be richer. At that moment, another model will be needed.