Globalization, as Branko Milanovic, economist and visiting presidential professor at the Graduate Center, CUNY, explains in his analysis published in Jacobin, issue 57, Spring 2025, has undergone two distinct phases: the first spanning from 1870 to World War I and the second from 1989 to the COVID-19 crisis. Each period reshaped global economic power and wealth distribution, yet their effects were markedly different.
Globalization’s dual legacy: Wealth for some, stagnation for others
The first globalization: British dominance and economic divergence
The first globalization, dominated by British colonial rule, drove economic expansion in the West but left much of the Global South stagnant or declining. Between 1870 and 1910, the UK experienced a 35% per capita GDP increase (averaging 0.9% annual growth), while U.S. GDP per capita doubled (1.7% annual growth – a remarkable rate for the era). Meanwhile, China’s GDP per capita declined by 4%, and India’s barely rose by 16%. This economic chasm cemented the emergence of what would later be termed the Third World and reinforced the income cleavages between West and non-West.
The inequality machine: How Globalization I reshaped societies
Crucially, as Milanovic emphasizes, Globalization I exacerbated inequality on two levels:
- Between nations: The already wealthy West grew faster while poorer regions stagnated or declined.
- Within nations: Inequality increased in most rich economies, with the U.S. showing particularly strong divergence between income deciles.
The UK presented a notable exception to this intra-national inequality trend. British inequality had actually peaked just before Globalization I (during the 1860s-70s), as recorded in Robert Dudley Baxter’s 1867 social tables —coincidentally the year Marx published Capital. Progressive reforms like workday limitations, child labor bans, and suffrage expansion subsequently reduced inequality. Germany, however, followed the more common pattern, with inequality rising after its 1860s unification.
For the Global South, data limitations obscure precise inequality trends during this period. Recent studies of Indian fiscal records (by Alvaredo, Bergeron and Cassan) reveal consistently high but stable inequality. China’s distributional patterns remain harder to quantify due to lack of comparable historical data.
This dual inequality dynamic—between and within—became Globalization I’s enduring legacy. The colonial world order didn’t just create wealth disparities; it institutionalized them through systems of extraction and dependency that would shape development trajectories for decades to come. As Milanovic notes, this was “not merely unequal development, but development designed to be unequal”—a stark contrast to Globalization II’s ostensibly market-driven, rules-based integration.
The second globalization: Neoliberalism and the rise of Asia
Conversely, Globalization II saw the rapid ascent of Asian economies. Between 1990 and 2020, China’s per capita GDP surged at an annualized 8.5%, while India’s grew by 4.2%. Western economies expanded at slower rates: the U.S. at 1.4% per annum, the UK at 1%, and Italy stagnating. As Milanovic notes, this transformed the world’s economic center of gravity toward the Pacific, making China a credible challenger to U.S. hegemony. The shift not only altered global economic power but also set the stage for rising populism in the West.
Winners and losers in Globalization II
Rising Asia and the squeezed Western middle class
Globalization II’s hallmark was the decline of global income inequality, driven by Asia’s rise. However, within-country inequality soared. Milanovic’s data shows:
- China’s Gini coefficient almost doubled post-reforms.
- India’s top earners outpaced its poor (Alvaredo-Bergeron-Cassan data).
- Western middle classes became “double losers”:
- Italy’s lowest decile fell from the 73rd to 55th global percentile (1988–2018).
- U.S. bottom deciles slipped 7 and 4 percentage points.
This reshuffling fueled resentment. As Milanovic observes, Western workers lost ground to both Asian middle classes and their own elites—a dynamic overlooked in early globalization debates.
Africa’s continued exclusion
Africa remained largely excluded from Globalization II’s benefits. Milanovic warns this stagnation threatens to reverse recent global inequality declines, potentially ushering in a new divergence era—mirroring Globalization I’s colonial patterns.
The unlikely alliance: Global capital and global South labor
Capital flows and the erosion of Western industry
Milanovic identifies a key paradox: an implicit alliance between Western elites and Global South workers. Globalization enabled:
- Western capital owners to exploit cheaper labor abroad (+deregulation/privatization).
- Asian workers to escape underemployment (e.g., China’s 8.5% growth).
The losers? Western labor. Deindustrialization wasn’t just about automation—it reflected capital’s flight to cheaper markets, turning East Asia into the “new workshop of the world.”
A stark contrast with Globalization I
- Globalization I: Deindustrialized India, impoverished Africa (e.g., landlessness).
- Globalization II: Improved Global South wages/employment—despite harsh conditions like China’s “996” work culture (9 a.m.–9 p.m., 6 days/week). As Milanovic notes, critics wrongly predicted Southern exploitation; the real victims were Northern workers.
China’s state-controlled neoliberalism: A hybrid model of economic control
One of Branko Milanovic’s central insights is the distinction between domestic and international neoliberalism. Western economies fully embraced both—reducing taxes, deregulating markets, privatizing industries, and promoting free trade. China, however, selectively applied neoliberal principles. While it adhered to international neoliberal policies by promoting free trade and reducing tariffs, it maintained strong state control over key domestic industries, setting it apart from the neoliberal orthodoxy followed by the United States, the European Union, and even post-Soviet economies.
Unlike Western economies, China retained control over strategic sectors such as steel, energy, and banking. Milanovic draws a parallel between this approach and Vladimir Lenin’s New Economic Policy, where the state allows capitalist expansion in less critical sectors while maintaining dominance over key industries. This has been evident in China’s extensive state-led investment in emerging technologies, including artificial intelligence, green energy, space exploration, and avionics. The Chinese government has not only provided incentives, such as tax breaks, but has also exerted direct influence over private firms to align their operations with national strategic goals.
A key example of this dynamic was the 2020 cancellation of Ant Group’s IPO. This event demonstrated that no matter how large a private corporation might become; it remains subordinate to the state’s overarching authority. Milanovic highlights this as a fundamental characteristic of China’s economic model—where private enterprises can flourish but only within the boundaries set by the government.
The challenge for smaller economies
China’s hybrid model—market liberalization without relinquishing state control—contrasts sharply with the neoliberal path taken by most Western economies. Milanovic acknowledges that while this strategy has been successful for China, it is difficult for smaller economies to replicate. Countries lacking China’s scale or bargaining power often struggle to exert influence over foreign capital, making it harder for them to control technological transfers and direct foreign investments toward national development priorities.
He suggests that while similarly large economies, such as India or Indonesia, might be able to implement elements of this model, smaller nations are more constrained by external pressures. They often lack the leverage to demand favorable conditions from multinational corporations or to enforce state-led directives without discouraging foreign investment. As a result, these economies are more vulnerable to the full effects of neoliberal globalization, including capital flight and dependency on volatile foreign markets.
In summary, Milanovic’s analysis underscores that China’s success lies in its ability to merge selective neoliberalism with strong state intervention. This unique combination has allowed it to reap the benefits of globalization while maintaining domestic economic sovereignty. However, this model remains challenging to replicate for countries without China’s economic scale and geopolitical influence.
Trump and the collapse of Globalization II
The end of the Washington Consensus: A fractured world embraces neo-mercantilism
The international wave of globalization that began over 30 years ago is reaching its end. In recent years, we have seen rising tariffs from the United States and the European Union, the formation of trade blocs, strict technology transfer restrictions targeting China, Russia, Iran, and other “adversarial” states, the weaponization of economic policy through import bans and financial sanctions, harsher immigration controls, and industrial policies that tacitly subsidize domestic production.
When such departures from orthodox neoliberal trade norms are embraced by the system’s core players—the U.S. and the EU—international institutions like the IMF and World Bank can no longer credibly enforce the Washington Consensus on the rest of the world. We are entering a new era where trade and foreign economic policies will be tailored to individual nations and regions, moving away from the universalist, internationalist spirit of globalization and toward neo-mercantilism.
Trump’s paradox: Mercantilist abroad, neoliberal at home
Trump embodies this model almost perfectly. He champions trade mercantilism, treating foreign economic policy as a tool to extract concessions—sometimes entirely unrelated to economics, such as his threat to impose tariffs on Denmark unless it cedes Greenland. These may just be bluffs, but they reveal Trump’s view that economic threats and pressure should serve as political instruments. Such policies will further fragment the global economic order. Washington’s goal is to slow China’s rise and curb its ability to develop technologies with dual civilian-military applications.
Yet, domestically, Trump’s agenda doubles down on neoliberalism. His plans to slash income taxes, deregulate aggressively, expand natural resource extraction, and privatize government functions all reinforce the core tenets of domestic free-market fundamentalism. The result is a seemingly contradictory mix: heightened mercantilism abroad paired with intensified neoliberalism at home—the exact inverse of China’s state-driven model.
Some economists, citing historical precedents, argue that mercantilism necessitates greater state control and regulation domestically. But this is not the case for the current U.S. administration. Trump’s new formula—strict immigration controls combined with radical domestic neoliberalism and external mercantilism—is likely to attract admirers in France, Italy, and Germany.
A fragmented global future
The world is thus entering a new phase where rich countries will pursue an unusual dual policy: having rejected neoliberal globalization, they will push ahead with even greater zeal in their domestic neoliberal projects. This shift will not mean a return to pre-globalization isolation but rather the emergence of regional economic blocs shaped by political imperatives rather than market efficiency. The next era of globalization will be defined not by economic integration but by geopolitical rivalry and strategic competition.