Over the past few decades, as Professor Milanović argues, the rise of Asia constitutes the second largest reshuffling of global income since the Industrial Revolution. Neoliberalism, championed by Reagan and Thatcher as a means to enrich Western nations, had the unexpected effect of creating a new global elite, much to the dismay of the Western middle class. This has triggered significant political turbulence and discontent, which major political leaders such as Xi, Putin, and Trump have used as a vehicle to legitimize their leadership. What is striking about neoliberalism is that it gave rise to the very conditions that sped its own decline.
China Focus sat down with Professor Milanović to discuss his new book, The Great Global Transformation: National Market Liberalism in a Multipolar World.
Branko Milanovic obtained his Ph.D. in economics (1987) from the University of Belgrade with a dissertation on income inequality in Yugoslavia. He served as lead economist in the World Bank’s Research Department for almost 20 years, leaving to write Worlds Apart (2005). He was a senior associate at the Carnegie Endowment for International Peace and has held teaching appointments at the University of Maryland. He is currently a research professor at the Graduate Center City University of New York.
Milanovic’s main area of work is income inequality, both within countries and globally. He has published widely in leading journals. His book The Haves and the Have-Nots (2011) was named Book of the Year by The Globalist, and Global Inequality (2016) received major international prizes. His new book, The Great Global Transformation, was published in 2025 and is a Financial Times Book of the Year.
Alice Liu: Professor Milanović, in your new book, you underscore two defining economic changes of our era. Would you tell us what they are and how they are connected?
Branko Milanović: I think two defining changes happen at different levels of study.
The first defining change is the much greater importance of, and the movement of economic activity towards, Asia and the Pacific. If you were simply to take a picture of economic activity from about 30 to 40 years ago and superimpose it on the picture today, you would see that economic activity is now much greater in countries like China, India, Indonesia, and Thailand than it was 40 years ago. And it’s much greater in terms of the overall global proportions of goods and services produced in Asia.
China is obviously the most common example because it overtook the United States as the largest economy in the world in terms of purchasing power parity calculations. The Chinese economy currently produces 22% of global GDP, while the US economy produces 16%. But another example of that change is also the fact, for example, that India is currently producing 9% of global output, and the UK is producing 2%. The two of them, 30 years ago, were each producing 3%.
The second big change is the result of that shift, but it is happening at the level of individual incomes. As China became richer, the Chinese also became richer. They moved ahead in the global income distribution and started overtaking the lower classes in richer countries. That meant, for example, that people who were in the lower-middle class in the US, Germany, or Italy, for the first time in the last 200 years, fell behind substantial numbers of people from Asia.
Of course, you may not often realize whether you are ahead of or below somebody in that ranking, but there will be certain goods and products that are internationally priced that you may not be able to afford anymore. That, combined with the fact that the top of those countries (such as the US) did much better than the middle and working classes, created additional political turbulence.
Basically, there are two big changes at two different levels. At the level of the nation-state, we have had a movement towards much greater importance of Asia in economics and politics. At the level of personal incomes, we see the decline of the Western middle class.
AL: Perfect. I’m interested in hearing more about how Asia’s rise has shaped the global economy and income distribution. What makes this change historically unique rather than just another phase of global economic change? Why should we pay attention to it?
BM: We should pay attention first because it is a big change. When you have a change that involves—if you just take India and China—2.8 billion people, which is 40% of the global population, you have to pay attention due to its sheer size. You cannot ignore it. But it is dramatic also because of its historical uniqueness.
If you go back to the years 1300, 1500, or the 16th century and ask, “Okay, what is the distribution of economic activity on the Eurasian continent?” you will find that the level of income of people in the more developed parts of Europe, like the Netherlands or Italian city-states, was really similar to the level of development in the more developed parts of China. They were both poor by today’s standards, but the income difference between these two parts of Eurasia was not very significant.
That changed with the Industrial Revolution. The Industrial Revolution was extraordinarily important not only for increasing the GDP of the world but also for making people who lived in the countries that were leading the industrialization—the UK, France, Northern Europe, then the United States, and finally Japan—much richer than people elsewhere. By being richer, they were also more technologically advanced and militarily stronger.
In the last 40 years, we have had, for the first time, a serious challenge to that. Countries in Asia are now not only catching up but, in some cases, even overtaking Western countries technologically. As I was saying before, the populations of those countries are also moving up in the global income distribution. That is why it is historically significant. To some extent, it is undoing the effects of the Industrial Revolution by placing Asia at the same level as Europe again.
AL: Thank you so much. Speaking of historical analogies, there’s been so much discourse about this new Cold War between China and the political West. How is this Cold War different from the last?
BM: I think it’s a different Cold War, first because we don’t know how this Cold War will progress. But let me sketch the main features.
The previous US-USSR Cold War was based on ideological competition. I am quoting Raymond Aron, who wrote a very important book published in the 1960s called Peace and War. He talks of the two hegemons, the US and the USSR, but he calls the system a heterogeneous system, meaning that the basis of legitimacy of the two systems, the Soviet system and the American system, was different. Yet at the same time, you had people in these two systems who were supporters of the other system. France and Italy, for example, had very strong communist parties that were ideologically aligned with the Soviet Union. On the other hand, in the Eastern European countries and the Soviet Union, some people were very liberal and ideologically aligned—although not as openly and freely—with the West.
Now, I do not see the competition of that same kind between China and the United States today. The competition is much more economic because China is more powerful economically than the Soviet Union ever was. But ideologically, China has not been able to promote a certain systemic approach to economic and political issues that could be easily replicated elsewhere. And the Soviet Union could do that.
AL: So you’re suggesting that China lacks ideological appeal compared to the Soviet Union?
BM: Basically, yes, China lacks that ideological appeal. One should not forget that the Soviet Union exported its ideology to practically the entire world. If you take not only successful revolutions like Cuba, which became communist eventually, but also countries like India, where planning was adopted, or Angola, Algeria, Egypt, Indonesia before Suharto, and Latin America as well, the appeal of the USSR was very strong. It was not only because people thought that the Soviet economy was strong, but also because it had an ideology of liberation, socialism, and equality.
In comparison, it’s not clear to me what today’s China can export as its ideology abroad. I think it is partly because Chinese success was built through a multitude of decisions under very complex and specific conditions. It is therefore very difficult to create a set of rules that other countries could adopt.
For example, the economic success of China was built on the previous Maoist legacy but also on contingencies, like the creation of special economic zones and township and village enterprises. Whereas the USSR taught countries to nationalize all enterprises, have a central plan, and have central planners decide what should be produced, it is very difficult to distill the Chinese experience and apply it to countries like Zambia or Argentina, since the conditions are highly different.
AL: Let’s move on to the United States and China. On one hand, you suggest that China’s economy is ratcheting up. But then you also noted that China’s GDP per capita remains far lower. Does that make you skeptical about narratives of US decline? Will there be a long period before China can fully catch up?
BM: This is a very complex issue. Let me try to disentangle it. First, Chinese income per capita is still significantly below the American level, even if counted at purchasing power parity, and even more so if counted in exchange rates. Let’s stick to PPP, because that reflects the real living standards by measuring all the goods at the same prices.
We are talking about this economic gap, which is about 3:1 to 3.5:1, in favor of the US. But if China continues with its current growth rates, obviously, that gap would diminish. One should not forget that the gap 40 years ago was 20 to 1, and it’s now 3 to 1. A huge change occurred. If China continues with rates 2% or 3% higher than the US rate, within one generation, and a maximum of two generations, you will have the same number of people in China who are above the US median income as Americans.
Then you could ask more: when would Chinese GDP on a per capita basis be equal to American GDP per capita? It would probably happen in between 50 to 70 years. But by that time, and if the parity is achieved, the fact that the Chinese are four times more numerous than Americans in terms of population would really make China so much more powerful that we are not even really comparing like with like anymore.
If one thinks that the real sign of catching up is when China becomes equally rich on a per capita basis as the United States, it will take a long time. But before that happens, China as a nation would be much more powerful than the United States simply because it is so much bigger.
AL: Let’s talk about trade. Does trade between the United States and China reduce or increase the risks of war and conflict?
BM: I spent the second chapter of the book discussing how different people have taken that point. There’s no scholarly unanimity on the issue.
Montesquieu, the French philosopher from approximately 1750, was a big supporter of the idea that commerce and trade make people interdependent. He suggested that if we want to sell something to you that you want to buy, and if we are both interdependent, we also behave more nicely towards each other because we want to maintain the seller-customer relationship. Essentially, he held that not only does commerce lead to peace but also to better behavior. So that’s one extreme.
The other extreme was the theories that started in the late 19th century with an English economist, John Hobson, and then were taken up later by Rosa Luxemburg and Lenin, who were communist revolutionaries. They said that big capitalist countries have lots of capital, but there is a lack of demand because people are relatively poor and inequality is large. So countries and their businesses need to expand internationally and find resources in poorer countries. They must find buyers and very cheap labor forces in those foreign countries. As several capitalist countries do that at the same time, they start fighting for control of the less developed parts of the world. That’s how we end up with imperial wars. In this case, trade leads to conflict. World War I is the perfect embodiment of Hobson’s logic.
The middle ground was a view of Adam Smith, which I found very interesting and not often cited. Adam Smith wrote in 1776. He said that, until now, Europe was so much more powerful technologically and militarily that it was able to conquer and do lots of injustice in other places in the world. But if Europe continues trading with other places in the world, those places would also learn from Europe and catch up technologically and militarily. Because the two sides would be approximately equal in power, both sides would be afraid to start wars. The balance of power will keep the peace.
Here we have three theories, which are then applied to the case of the US and China. The optimistic one theorizes that trade would lead to peace. Adam Smith, in the middle, believes that commerce leads to a balance of power, which would maintain peace. The Hobson-Luxemburg-Lenin theory holds that the big powers would fight for control of the rest of the world, and that would lead them to war. I try to apply all three theories to the evolution of the relations between the US and China since the 1970s.
AL: And where do you stand on these three theories? Which one do you think is the most applicable to the US-Sino relationship?
BM: I don’t think we can say that they are applicable regardless of conditions. In fact, all three of them are taking place in US-China relations.
During the 1970s and the 1980s, trade and US relations with China were good for two reasons from the US perspective. First, it was important for the US to have China in its own camp in opposition to the Soviet Union, and the opening of China was seen politically in that light. Secondly, US companies wanted to invest, have a huge market, and use the relatively inexpensive labor force in China. For China, it was sine qua non. Without the US market and without US technology, they really could not achieve economic progress. Trade in the 70s and 80s was really leading to interdependence and cooperation, as Montesquieu said.
But looking towards the present, Adam Smith’s theory also holds true. Because now, when the technological power of China and the US is very similar, peace is being maintained because of what I would call mutual fear, as both believe that a war would be disastrous for them.
And the Hobson-Luxemburg-Lenin theory is evident in the beginnings of international competition in Africa, where China and the US compete for markets and resources. No single theory captures all the truth; each of them applies to different time periods or facets of Sino-US relations.
AL: We’ve just briefly described what you called a massive “reshuffling” of global income. Let’s dive deeper into it. Who gained and who lost from this change, and why?
BM: To briefly summarize, globalization benefited the upper classes in rich countries a lot and hugely benefited practically everybody in Asia, in states like China, Vietnam, India, and Indonesia.
It’s difficult to answer who lost, because virtually no one lost in real income. But those in a relative position of decline were the middle classes and the working classes of developed, advanced countries. They lost in relative terms, in comparison to their top 1% or top 5% compatriots, because their growth rates lagged far behind the rate of growth of incomes at the top. They also lost with respect to the Asian middle classes. So, this is not a loss in the sense that they became poorer but a relative loss, meaning that they have not grown at the rates of the Asian middle classes or domestic top earners.
AL: You wrote that the new global elite class was quick to become targets of political backlash, even within countries where overall wealth increased. Why did these new elites lose legitimacy so quickly? Why are they prone to being attacked?
BM: What has happened in rich countries is that large parts of the population, like the working class and the middle class, have had relatively mediocre experiences with growth. They grew at 1% per annum for 30 years. This was not what globalization was originally supposed to do. When globalization was sold by Western leaders, including Reagan and Margaret Thatcher, it was on the assumption that the middle classes of rich countries would really do well. They didn’t sell it on the assumption that China would do well.
The middle classes of rich countries (the US, the UK, France, Italy, and Germany) fared poorly. On top of that, they saw that people who were already much richer than they were were being enriched further. That led them to think that these new elites really don’t care about them. The new elites are quite willing to take factories out of the United States and move them to Burma and employ cheap labor there. They don’t care about local communities.
We end up with a general disenchantment: a belief that those who benefit from globalization are indifferent to their compatriots who feel wronged, who are losing jobs, unable to maintain their standard of living, or unable to improve it sufficiently. That is the economic side, but there is also a cultural and moral dimension, which, in my view, was exacerbated by the elites’ belief that they are a meritocratic elite who deserve to be at the top. Many people who are not at the top, however, do not accept that claim. That really led to a huge dissonance between different parts of the Western population.
On top of that, in many European countries, immigration was also an issue. For those at the top, immigration is beneficial, as it generates cheaper labor. But if you’re a French worker and you have to compete with an immigrant African worker, it’s not necessarily pleasant.
AL: You said that China both benefited from and helped to end global neoliberalism. How is it that it was both produced by and disrupting the same system? What did you mean by it?
BM: It looks paradoxical, but I think it’s true. China benefited enormously from globalization: the opening of the American market, getting technology from Western countries, being able to export, and being able to tremendously improve the income levels of its population.
On the other hand, precisely because it is so big and benefitted so much, it came to be seen as a threat to the United States. For geopolitical reasons, the United States and the broader West began to push back against globalization. That is the irony: globalization was highly successful, especially for Asian countries and China in particular, yet that very success created geopolitical conflict between China and the United States. China benefited enormously and, in doing so, made the end of this phase of globalization almost inevitable. It became too large to be absorbed or accommodated within a geopolitical system ruled by the United States.
AL: You introduce the idea of “national market liberalism,” which you argue has replaced neoliberalism. What does it mean in plain language? And how is it different from neoliberalism in practice?
BM: It’s a big term. I sometimes use the term “national liberalism” just to make it shorter. But let me give a very simple idea behind it. If you take liberal or neoliberal principles and divide them into two parts, you have one part that applies domestically and the other part that applies internationally.
You can say that internationally, the rules are flexible exchange rates, low tariffs, and full freedom of the circulation of capital, technology, goods, and, to some extent, labor. The domestic side of neoliberalism means lower tax rates for the rich, lower taxes on capital versus labor, deregulation, privatization, and privatized social security.
What’s happening in the world today is that the international part of neoliberalism has been rejected, not only by Trump but even by the European Union. Tariffs are being imposed, there are strong impediments to any movement of labor, and economic coercion is used practically everywhere. International neoliberalism is being abandoned and replaced with mercantilist policies.
But domestically, in the US, neoliberal principles remain very much alive. The Trump administration saw even greater deregulation than before, lower taxes for the rich, and lower taxes on capital versus labor. We do have neoliberalism, but only at the national level. We end up with a version of neoliberalism stripped of its international component.
AL: Do you see national market liberalism as a system that will stay for long? Or is it just a transitional phase?
BM: I don’t think it will disappear in three or five years. It reflects a structural reallocation of economic and political power globally, alongside an ideological shift away from free trade toward a more zero-sum framework. Those are significant changes.
For that reason, it is misleading to see it as merely transitional, especially since we do not yet know what it is transitioning toward. But it’s also hard to predict what model will step in to supplant it. This system is also not dependent on any single leader. It has its own internal logic and could persist for decades; we simply don’t know how long it will last.
AL: You suggested that Xi, Trump, and Putin are essentially offering different responses to the same structural tensions. What do you mean by that? What is the common logic linking these oppositional leaders together?
BM: What I meant is that all three leaders came to power with support from groups that were disillusioned with the effects, or excesses, of neoliberal globalization. Trump drew on discontent among many parts of the middle and working classes who felt left behind after decades of globalization, especially after the 2007–2008 crisis. That’s why 77 million people voted for him.
Moving to China, Xi Jinping’s support came largely from within the Communist Party, particularly from those who saw their political authority threatened by the rise of wealthy elites. Facing the new billionaires and millionaires in China, Xi expressed the idea that politics should be separated from money. He held that politics ought to remain the preserve of people who are in the party. Note how Xi came to power by pushing policies around anti-corruption.
In the case of Russia, Putin can be easily seen as a reaction to the chaos of the 1990s. Privatization introduced by Yeltsin gave birth to an oligarchic system that basically brought the country to the edge of civil war. Putin’s rule tolerated economic elites so long as they didn’t challenge political authority.
All three leaders proffered a reaction to the excesses of neoliberal globalization, which gave legitimacy to their political identity.
AL: Very interesting. Which builds into my next question: who are the political and economic elites in China today? Are they somewhat different than their US counterparts?
BM: When reviewing household survey data, I examined the top 5% of the urban population in China from 1988 to 2023. In 1988, this top group consisted predominantly of individuals working in state-owned enterprises—engineers, directors, and also government officials and Communist Party officials. The professional-managerial class played only a very minor role, and both small and large capitalists were almost non-existent among the richest, the top 5%.
In 2023, the situation is entirely different. About two-thirds of this group derive their income from the private sector. Some are large capitalists, others are smaller capitalists, and some are self-employed or privately employed individuals. In addition, a significant share belongs to the professional-managerial class (PMC), typically employed in large private-sector establishments such as factories and investment banks. The remaining one-third still depends on the state, including employment in state-owned enterprises, government institutions, and the Party.
There has been a major transformation in both the economy and the social structure of the elite. My interpretation is that, looking at this newly transformed elite from the perspective of a political leader, you could see a potential risk. The top 5%, now largely driven by the private sector, could demand a stronger voice in selecting political leaders and shaping policy.
But if you do not want the rich to dictate policy in the way they do in the United States, then the response is to separate economic power from political power. This is essentially what Xi has done. The idea is that you, the rich, may continue to accumulate and exercise economic power, but you will not exert political influence. Political decisions, even economic ones, are made according to another set of criteria beneficial for China as a whole, not necessarily useful for economic elites.
AL: What does the political West misunderstand about the consequences of Asia’s rise and China’s rise?
BM: The political West initially supported China’s opening up first for geopolitical reasons, especially to counter the Soviet Union and to make the split between China and the Soviet Union irreversible. They also had economic concerns and wanted to access China’s vast market.
In retrospect, in view of the current disenchantment with what happened in China, the political West claimed that it engaged with globalization in the hope that China would democratize. In my mind, this really makes no sense. To say that they are disappointed with globalization simply because China did not become a democracy is an ex-post invention. And I find it disingenuous.
The real misunderstanding was structural. Western policymakers essentially failed to understand that the success of globalization would significantly alter global economic power. In other words, they couldn’t foresee that the very system they promoted would translate into the decline of their relative dominance.
AL: To my last question, looking ahead, what kind of new world order do you envision? Are we moving towards more fragmentation, cooperation, or something else altogether?
BM: We clearly have a global disorder. Like in many historical episodes, it is a transitory political disorder that will eventually lead, I hope not after a major war, to a rearrangement that better reflects the relative power of various nations.
I believe we are moving toward a multipolar system. By this, I do not mean simply several roughly equal poles, but an international system—perhaps a reformed United Nations or a new organization—that better reflects today’s realities than the system built after World War II. There are many illogical parts in the current system. Small European countries have greater voting rights in the IMF than countries like India or Indonesia, which makes little sense given that Indonesia is larger in both population and economic output. The new system should reflect present-day power.
In that sense, we may first move toward a multipolar world in which countries like China, India, Brazil, South Africa, and Russia act as poles alongside Europe and the United States. Eventually, I hope we can build a more equitable international system where major powers have a greater stake than they do now.