Branko Milanovic (Belgrade, 1953) is an expert on inequality and development who uses economics, politics and history equally, although not always in this order. He was for decades chief economist at the World Bank. Today an academic in New York, he accumulates followers, recipes, controversies. The new world “of blocks” – he explains – threatens with higher prices and more inequality.
There is a war in Ukraine and the US-China fight; uncertainties everywhere. How long can the economy function in this context?
The level of uncertainty is now higher than ever in the last half century due to the war, Europe’s tragic relations with Russia and its energy, the increase in food prices in the world, without being able to forget the possibility of a nuclear war . Also, the US-China relationship is probably at its worst since Nixon went to Beijing in 1972. It is very unstable. Even the territorial waters are not clear so the number of possibilities of a military conflict is high and the economic conflict is already underway with all the restrictions that the US imposes on China in high technology and more. And then you can add to the covid, which has not ended. All this makes people like me very pessimistic about our economic and civic future.
State interventionism is back, in Europe and abroad. Is the world deglobalizing?
The world is deglobalizing. In the first place because of the new iron curtain that has been raised against Russia. But also with respect to China with the reduction of commercial links and attempts to circumvent it and go to India, Burma, Vietnam… Also because of the real attempt by the US to increase the purchase of US products. In addition, we now have the ideological superstructure of making a friendly relocation by doing it alone –or investing only– in the so-called friendly countries, which is another way of creating trade blocs. It means that the world is not united and that globalization has essentially come to an end.
Do we therefore have to expect more nationalism, and more conflicts between states and within states, as in the past?
We are living in very bad times but if you look at the ordinary life of the people, excluding Ukraine, life goes on as if not much is happening. It is a dangerous situation. We are getting used to new and negative things happening almost daily, or weekly. We get used to war, to the delivery of ammunition, to the delivery of tanks, to fighting for villages of 500 people, to balloons being shot down… It is potentially dangerous to believe that the world can explode but that in your own world not much will change. It is an illusion.
Perhaps that is why the success of Make America great again and its similes in other countries that are more reminiscent of the past than of the future?
You have to accept the fact that Spain is within the European Union and that the number of things you can do alone is very limited. When you try to do something more radical, there will be problems not only with the European Union but also with foreign capital. So, in my opinion, it doesn’t mean that governments can’t do anything, but it does mean that they are quite limited. The Italian Prime Minister talked about it when she was in opposition and, of course, once she comes to power she changes. Even if Le Pen ever came to power, it would change too. The only ones who did not accept it were the English, with Brexit, but many of them now regret it.
Inflation in Europe is very high and wages do not grow at the same rate as prices. What consequences can be expected?
Inflation has not been a problem for about 40 years and there are many reasons for this, including the predictive policy of the US Federal Reserve or being able to buy cheap products thanks to globalization. China has really played a key role here. I remember, for example, that buying a television for ordinary people cost up to a third of the salary. The refrigerator, the vacuum cleaner, the air conditioning, everything, even cars, have been kept at a relatively low price by globalization but now it is withdrawn and we see the return of inflation partly due also to the price of energy and food , because Ukraine, here, matters. And inequality increases because the poor buy energy and food in greater proportion and keep more cash, which does not generate any return.
Autocracies are on the rise in the world, because of Chinese economic success? Why hasn’t democracy always improved the lives of the poor?
The appeal of China is its economic efficiency, and if China does much better in terms of growth rates in the next 20 to 30 years, the appeal of its system will certainly be greater. Money is king and it is obvious that certain methods that are successful there will be imitated elsewhere. But even so, politically, I don’t see that China has much appeal, only for some countries that believe that if they had a more direct democracy, with fewer parties or perhaps just one, it would be better. But it is limited.
You have written a lot about how inequality grows within countries but decreases globally. Is it still like that?
The latest data I have is from 2018, before the covid, and at that time global inequality was still falling, basically because Asian countries, which are middle-income or poor, had higher growth rates than Western ones. Then covid came and for two years he made a lot of unusual changes. For example, if India loses 9% of GDP, while the West was actually around 0%, the gap between the West and India increases and so does the global one. Furthermore, China, although it is growing faster than the West, is no longer contributing to the decline in inequality: it has become rich enough so that the gap with Africa is greater. So, without going into too much detail, it can be said that since the covid the decline in global inequality has ended.
If it has ended, is the current political polarization a reflection of it?
If the world is more equal and income is distributed more evenly, it is certainly a better world. Poverty is less. Migrations, if understood as a problem, are less. And it’s probably a more politically stable world. The change is bad news and highlights the role of Africa in this century and the next, because it has not converged and the question is whether it will be able to. Here I am talking about large countries like Nigeria, South Africa, Tanzania, Ethiopia, Egypt, which need to grow at least 5 or 6% per year. Otherwise there will be an increase in inequality in the world. Its role is crucial especially for Europe due to migrations.
Spain knows it very well.
You know this very well because the gap between real incomes on the northern and southern shores of the Mediterranean has never been so high in history. It is a historical anomaly. The gap in proportion has increased. In terms of total income, obviously, everyone has gotten richer.
In the past, he stressed that 60% of our wealth is due to where we are born and another 20% to that of our parents. Now that migrations are so restricted, has this changed?
I have not done the numbers again but they are worked on by a colleague with much better data and I think that the general figure is not affected much. If global inequality were to continue to fall, then the share of wealth that is due to where you were born would be much less relevant. Our effort matters about 20% of our economic luck and I don’t think it will change significantly. For now. What matters will continue to be the place where you are born and the origin of your parents.
If you talk about the economy of the future, you have to talk a lot about artificial intelligence, digitization… Is artificial intelligence a solution or a problem for inequality?
They could be a big game changer, but I don’t see them as any different from the game changers of the 19th century machines. They are a way of doing certain tasks without us doing them. They can cause an increase in unemployment but also be of great help for greater productivity by making everything much faster and more efficient. Its difference is that it is going to replace relatively qualified labor. And hence the fears.
