What Comes After Globalization?
The world as we know it is a product of globalization — and this era of globalization might be coming to a close.
Illustration by Ben Jones.
Donald Trump is back in power, and, to put it mildly, he’s no fan of globalization. The president has publicly “rejected globalism and embraced patriotism” and said that “it’s left millions and millions of our workers with nothing but poverty and heartache.” To better understand the current era of globalization that he’s trying to bring to an end and its track record, it’s useful to compare it with the globalization that took place between 1870 and the outbreak of World War I.
Both globalizations represent pivotal periods — watershed years that shaped today’s world. And both saw the largest expansions of global economic output to date.
However, they were also very different in many respects. The first globalization was associated with colonialism and hegemonic rule by Great Britain. It led to large increases in per capita income in what later became known as the developed world. At the same time, it produced stagnation everywhere else, and even income declines in China and Africa. The most recent numbers from the Maddison Project’s database of historical statistics show that the cumulative increase in real (inflation-adjusted) GDP per capita for the United Kingdom between 1870 and 1910 was 35 percent, while GDP per capita doubled in the United States over the same period. (The average US real per capita growth was thus 1.7 percent per year, a very high number for that era.) Chinese GDP per capita, however, declined by 4 percent, and India’s only slightly increased, by 16 percent. This particular type of development created what later became known as the Third World and reinforced the cleavages in average incomes between the West and the rest.
From the point of view of global inequality, which is largely a reflection of these facts, Globalization I produced an increase in inequality as the already rich areas grew faster and the poorer areas stagnated or even slipped backward.
On top of the rising inequality between nations, inequality also increased within many of the rich economies, including the United States, as seen in its upward sloping line in figure 1, with richer deciles growing more. The UK was somewhat of an exception, as the peak of inequality was reached just before the beginning of Globalization I, during the 1860s and ’70s. In the British social tables, the key source of information regarding income distributions in the past, the one produced by Robert Dudley Baxter in 1867 (coincidentally the year of publication of Karl Marx’s Capital) marks the year of the highest inequality in the nineteenth century. British inequality was afterward reduced thanks to a number of progressive laws, ranging from limitations on the length of the workday to the ban on child labor and expanded suffrage rights. Recent data show an increase of inequality in Germany, too, after its unification in the late 1860s. François Bourguignon and Christian Morrisson, on whose numbers figure 1 relies, did not have information on the changes in inequality in India and China, so both are represented by a straight line across income deciles (implying that they have grown at the same rate). The new Indian fiscal data focusing on the top of the distribution, produced by economists Facundo Alvaredo, Augustin Bergeron, and Guilhem Cassan, likewise show stable, albeit very high, inequality. Thus, generally, both components of global inequality (between nations and, in most cases, within nations) went up during Globalization I.
How does this differ from the current globalization (Globalization II) conventionally dated from the fall of the Berlin Wall in 1989 to the COVID-19 crisis of 2020? Note that the exact end point of Globalization II may be a matter of dispute; one could mark it at Trump’s imposition of tariffs on Chinese imports back in 2017 or even, in a symbolic way, at Trump’s second accession to power in January 2025. But which date we pick does not make a difference regarding the essential features of Globalization II.
During this time, the United States, the UK, and the rest of the rich world experienced growth but at rates that, when compared to Asian countries, were fairly modest. Between 1990 and 2020, US real GDP per person increased at an average annual rate of 1.4 percent (thus slower than under the first globalization) and British GDP per capita grew by only 1 percent per annum. Populous and relatively poor countries (poor, at least, at the onset of Globalization II) grew much faster: Thailand at 3.5 percent per person, India at 4.2 percent, Vietnam at 5.5 percent, and China at an astonishing rate of 8.5 percent.
The contrast is shown between figures 1 and 2. In figure 1, which shows the data for the period 1870–1910, every part of the rich countries’ distributions grew faster than every part of the poor countries’ distributions. In figure 2, which shows the data for 1988–2018, growth rates of all parts of the Chinese and Indian income distributions exceed that of all parts of US and UK income distributions. This has totally transformed the economics and the geopolitics of the world: the former by moving the economic center of gravity toward the Pacific and by affecting the relative income positions of the populations in the West and Asia, and the latter by making China a credible challenger to US hegemony.
It’s undeniable that, over these last three decades, the global income positions of large swaths of the Western middle and working classes have gone down. This was particularly dramatic for Western countries that failed to grow; for example, Italy’s lowest income decile dropped from the 73rd to the 55th global percentile between 1988 and 2018. In the United States, the two bottom deciles slipped in their global positions, although the drops were smaller (7 and 4 percentage points, respectively) when compared to Italy’s. Additionally, the Western middle classes lost in comparison to their own compatriots at the top of their countries’ respective distributions. The middle classes of the West were thus double losers: to the fast-rising middle classes of Asia and to their much richer compatriots at home. Metaphorically, one can see them being squeezed between the two.
But unlike during Globalization I, global inequality went down during the second iteration, driven by high rates of growth in large Asian countries. Within nations, however, inequality generally increased. This was most obvious in China, where the Gini coefficient, a common measure of inequality, almost doubled following liberal reforms. The same was true for India. Figure 2 shows the income growth of rich Indians and Chinese outpacing that of their countries’ poor. But inequality increased also in the developed countries, first under Margaret Thatcher’s and Ronald Reagan’s reforms, whose effects continued even into the administrations of Tony Blair and Bill Clinton, only to finally plateau in the second decade of this century.
In summary, the first globalization saw the rise of the West, the second the rise of Asia; the first led to an increase of between-country inequalities, the second to their decline. Both globalizations tended to increase inequalities within nations. The unevenness of countries’ growth rates during Globalization I installed most of the Western populations at the top of the global income pyramid. It is rarely recognized just how highly placed even the poor deciles of the rich countries were in the global income distribution. Economist Paul Collier, in his Future of Capitalism, writes wistfully of the time when English workers were on top of the world. But for them to feel high, somebody else had to feel low.
The second globalization drove some of the Western middle classes from these perches and produced a great reshuffling of incomes as they were overtaken by a rising Asia. This relatively imperceptible decline occurred together with the Western middle classes’ far more perceptible one with respect to their own national elites. It caused political dissatisfaction that found its reflection in the rise of populist leaders and parties.
Finally, we should note that the convergence of worldwide incomes did not extend to Africa, which continued on its path of relative decline. If that is not changed — and the likelihood of such change seems low — the relative decline of Africa will, in the decades to come, overturn the forces currently pushing global inequality downward and usher in a new era of rising global inequality.
An Unlikely Coalition of Interests
What was perhaps not noticed at the beginning of Globalization II — only to become increasingly apparent with its unfolding — was the alliance of interests between the richest corners of the Western world and the poor masses of the Global South. At first glance, this bond seems bizarre, as there is almost nothing that the two groups have in common, including education, background, and income. But it was a tacit alliance, not fully realized by either side until it became glaringly obvious. Globalization empowered the rich in the developed countries through changes in their internal economic structure: reduced taxation, deregulation, and privatization, but also the ability to transfer local production to places where wages were much lower. Replacing domestic labor with cheap foreign labor made the owners of capital and the entrepreneurs of the Global North much richer. It also made it possible for the workers of the Global South to get higher-paying jobs and escape chronic underemployment. The losers in all this were the workers in the middle who were replaced by the much cheaper workforce from the Global South. It is therefore not a surprise that the Global North became deindustrialized, not solely as the result of automation and the increasing importance in services in national output overall, but also due to the fact that lots of industrial activity went to places where it could be done more cheaply. It’s no wonder that East Asia became the new workshop of the world.
This particular coalition of interests was overlooked in the original thinking regarding globalization. In fact, it was believed that globalization would be bad for the large laboring masses of the Global South — that they would be exploited even more than before. Many people perhaps made this mistake based on the developments of Globalization I, which indeed led to the deindustrialization of India and the impoverishment of the populations of China and Africa. During this era, China was all but ruled by foreign merchants, and in Africa farmers lost control over land — toiled in common since time immemorial. Landlessness made them even poorer. So the first globalization indeed had a very negative effect on most of the Global South. But that was not the case in Globalization II, when wages and employment for large parts of the Global South improved.
Of course, it is also true that the length of the workday and the working conditions in the Global South were often very difficult and continued to be much worse than for workers in the North. Worker complaints regarding the 996 schedule (work from 9 a.m. to 9 p.m., six days a week) are not uniquely Chinese — it’s a fact of life across much of the developing world. But these poor conditions represented an improvement over what came before and were accepted as such.
Even if contemporary critics of Globalization II were wrong that it would deteriorate the economic position of large masses of the Global South — instead, as we’ve seen, it hurt the middle classes of the Global North — they were right about who would benefit from these changes the most: the global rich.
Domestic Neoliberalism vs. International Neoliberalism
When discussing neoliberalism, we have to make an important analytic distinction between, on the one hand, domestic policies of neoliberalism and, on the other hand, international neoliberal policies. The first type includes the usual package of reduced tax rates, deregulation, privatization, and a general rolling back of the state. The second type consists of the reduction of both tariffs and quantitative restrictions, and thus the promotion of free trade in general as well as flexible exchange rates and unimpeded circulation of capital, technology, goods, and services. Labor was always treated differently — that is, its movement was never as free as that of capital, although its global mobility was one of neoliberalism’s aspirations.
This analytic distinction is particularly important for understanding China and for figuring out what will be coming next under Trump’s second administration. It immediately makes clear that China did not follow the precepts of neoliberalism in its domestic policies, while it mostly followed them in its international economic relations. That distinguishes China from many other developed and developing countries that took both the domestic and international parts of globalization quite seriously. From the 1980s onward, the United States kicked off the neoliberal turn, and it was not limited to domestic policies; it encompassed a reduction in tariffs, the creation of NAFTA, and increased inbound and outbound foreign investments. The same was the case with the European Union. It was also true for Russia and formerly communist countries.
The only major holdout was China. It alone maintained an important role for the state, which remained the preponderant actor in the financial sector and in key industries like steel, electricity, automobile manufacturing, and infrastructure generally. Even more important, the state remained powerful in policy formulation and maintained what Vladimir Lenin called the commanding heights of the economy. These Chinese policies, especially under Xi Jinping, can be understood best as something akin to Lenin’s New Economic Policy. Under the rules of these regimes, the state lets the capitalist sector expand in the less important sectors. But it maintains control over the most important parts of the economy and makes key decisions that have to do with technological development. The Chinese state has been heavily involved in the development of today’s most cutting-edge technologies, including green tech, electric cars, space exploration, and, most recently, artificial intelligence and avionics.
That involvement has ranged from simple inducements in the form of lower taxes to more direct pressure, where private companies are told what to do if they want to stay on good terms with the government. An obvious example of the difference in power between the state and the private sector was on display when, in 2020, the government canceled what would have been the largest IPO in history, by Jack Ma’s Ant Group, an affiliate of Alibaba, that would have allowed it to expand into the largely unregulated fintech industry.
So when we talk about the success of globalization in reducing poverty and increasing growth in many Asian countries, especially in China, the distinction between domestic policies and international ones should be kept firmly in mind. It could be argued that China’s success was precisely due to its ability to combine these two parts in this unique way that left the power of the government largely intact domestically while it allowed the full display of the advantages of trade to play to its strong points. That particular strategy could possibly work well for other large countries like India or Indonesia too. But it has clear limitations with small countries, since they lack economies of scale and, perhaps more important, do not have the kind of bargaining power with respect to foreign capital that allowed China to benefit from substantial technological transfers from the more developed countries.
Trump as the Death Knell of Globalization II
The international wave of globalization that began over thirty years ago is at its close. Recent years have seen increased tariffs from the United States and the European Union; the creation of trade blocs; strong limits on the transfer of technology to China, Russia, Iran, and other “unfriendly” countries; the use of economic coercion, including import bans and financial sanctions; severe restrictions on immigration; and, finally, industrial policies with the implied subsidization of domestic producers. If such departures from the orthodox neoliberal trade regime are made by the key players — namely, the United States and the European Union — transnational organizations like the International Monetary Fund and the World Bank will not be able to continue preaching the usual Washington policy precepts to the rest of the world. We are therefore entering a new world of nation- and region-specific trade and foreign economic policies, moving away from universalism and internationalism and into neo-mercantilism.
Trump fits that mold almost perfectly. He loves mercantilism and sees foreign economic policy as a tool to extract all kinds of concessions, sometimes not having anything to do with economics proper, such as his threat to levy tariffs on Denmark if it refuses to give up Greenland. Perhaps it’s all just bluster. Yet it does show Trump’s view that economic threats and coercion should be used as political tools. Such policies will further parcel the global economic space. Washington’s objective is to slow the rise of China and to reduce the ability of the Chinese state to develop new technologies that may be used for not only economic but military purposes.
However, on the other hand, the domestic part of the standard neoliberal package will, if anything, only be reinforced under Trump. This is already apparent in his hopes to reduce personal income taxes, deregulate practically everything, allow much greater exploitation of natural resources, and push privatization of government functions further, essentially doubling down on all the domestic precepts of neoliberalism. We would thus have something contradictory only in appearance: increased mercantilism internationally with increased neoliberalism at home — in other words, the very opposite combination of China’s policies.
Some economists, citing historic examples, believe that mercantilist policies must necessarily be accompanied by policies of greater domestic state control and regulation. But that is certainly not the case with the current administration. The new combination that Trump is promoting — tightly controlled immigration paired with extreme domestic neoliberalism and mercantilism abroad — would likely appeal to many in France, Italy, and Germany as well.
The world is thus entering a new era in which the rich countries will follow an unusual two-pronged policy. Having jettisoned neoliberal globalization, they’ll now press ahead even more firmly with a project of domestic neoliberalism.