The most striking thing about neoliberalism is that it gave rise to the very conditions that sped its own decline. Championed by Reagan and Thatcher as a means to enrich Western nations, it had the unexpected effect of creating a new global elite and a newly prosperous Asia, much to the dismay of the Western middle class. That turbulence has since been seized upon by political leaders as different as Xi, Putin, and Trump to legitimize their rule.
To understand how we arrived here, it helps to begin with two defining economic changes of our era. They happen at different levels of analysis, and they are connected. The first is the much greater importance of, and the movement of economic activity towards, Asia and the Pacific. The second is the consequence of that shift, but it is felt at the level of individual incomes: the relative decline of the Western middle class. 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 erosion of the position once held by ordinary workers in rich countries. Both flow from a single system, and that system has now begun to come apart under the weight of its own success.
Asia’s Rise and the Second Great Reshuffling
If you were simply to take a picture of economic activity from about 30 to 40 years ago and superimpose it on the picture of today, you would see that economic activity is now far greater in countries like China, India, Indonesia, and Thailand than it was then—and much greater in terms of the overall global proportions of goods and services produced in Asia. China is the most common example, because it overtook the United States as the largest economy in the world in terms of purchasing power parity. The Chinese economy currently produces 22 percent of global GDP, while the U.S. economy produces 16 percent. India produces 9 percent of global output, and the United Kingdom 2 percent. 30 years ago, each of those three was producing about 3 percent.
The second change is the result of that shift. 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 United states, Germany, or Italy, for the first time in 200 years, fell behind substantial numbers of people from Asia. You may not always realize whether you are ahead of or below somebody in that ranking, but there will be certain internationally priced goods and products that you may no longer be able to afford. That, combined with the fact that the top in countries like the U.S. did far better than the middle and working classes, created additional political turbulence.
We should pay attention to this change first because of its sheer size. When you have a transformation that involves—if you just take India and China—2.8 billion people, which is 40 percent of the global population, you cannot ignore it. But it is dramatic also because of its historical uniqueness. If you go back to the years 1300 or 1500 and ask what the distribution of economic activity on the Eurasian continent looked like, you would find that the income level of people in the more developed parts of Europe, like the Netherlands or the Italian city-states, was really quite similar to the level of development in the more advanced parts of China. They were both poor by today’s standards, but the difference between these two parts of Eurasia was not very significant.
That changed with the Industrial Revolution, which was extraordinarily important not only for raising the GDP of the world but also for making the people who lived in the countries leading 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, for the first time, we have had a serious challenge to that order. Countries in Asia are now not only catching up but in some cases overtaking Western countries technologically, while their populations move up in the global income distribution. To some extent, this is undoing the effects of the Industrial Revolution by placing Asia at the same level as Europe again.
Who, then, gained and who lost from this reshuffling? To summarize briefly: globalization benefited the upper classes in rich countries enormously, and it massively benefited practically everybody in Asia—in states like China, Vietnam, India, and Indonesia. It is difficult to answer who lost, because virtually no one lost in real income. Those in a relative position of decline were the middle and working classes of the advanced countries. They lost in relative terms, both in comparison to their own top 1 or 5 percent compatriots, whose incomes grew far faster, and with respect to the rising Asian middle classes. This is not a loss in the sense that they became poorer. It is a relative loss—they have not grown at the rates of the Asian middle classes or of their own domestic top earners.
The Self-Undermining Virtues: Cosmopolitanism and Competition
If one were to define neoliberal globalization as perceived by Western elites during the 40 year period from the early 1980s to around 2020, one could say that it was driven by two ideas: cosmopolitanism and competition. Both, attractive in themselves, led to the undoing of the system they were meant to sustain.
Cosmopolitanism was the neoliberal idea going back to Walter Lippmann’s 1938 Colloque in Paris and the early Mont Pèlerin Society, as described in Quinn Slobodian’s Globalists: The End of Empire and the Birth of Neoliberalism. Cosmopolitanism meant that, analytically, every individual in the world is equally important and equally capable of economic improvement if they face optimal economic conditions—conditions that implied security of private property, free trade, low taxes, and a “tolerable administration of justice.” Very little else, in the immortal words of Adam Smith, was needed for the desire common to all persons to “better their own condition,” and for the world to attain unheard-of levels of prosperity.
Cosmopolitanism, or internationalism, was the political idea underpinning a neoliberal world in which national governments would be out of sight and would leave individuals free to pursue their self-interest. It was, ideally, a world of small or almost invisible government. In neoliberal language, “imperium”—flags, anthems, languages, and the other paraphernalia of nationhood—would be left to the politicians and, if they really wanted to vote, to the voters; while the real world of “dominium” would be the world free for the movement of goods, capital, technology, and even people.
For cosmopolitanism to create global wealth, the world had to be competitive. Not only would people be allowed to compete with one another regardless of national borders, they would be stimulated to compete by the display of all the goods that could be theirs, and by the societal approval they would command if they won. And competition did produce growth. Between 1980 and 2020/2021, average world GDP per capita more than doubled, rising from about $7,700 in 2005 international PPP dollars at the time of the fall of the Berlin Wall to almost $17,000 at the time of covid—a worldwide average growth rate of 2.1 percent per capita, achieved even as the world population grew from 4.4 billion in 1980 to 8 billion. More than a doubling of per capita income combined with an almost doubling of population meant that the total amount of goods and services produced in the world quadrupled during the era of neoliberal globalization.
But this “anonymous” growth rate—realized principally thanks to high growth in Asian countries, and notably China—did not help the neoliberals’ case domestically, in rich countries. What was politically salient was not the global rate of two and a half percent, but the fact that in the United States and most of the rich Western countries the majority of the population registered real growth of roughly 1 percent per annum, while the incomes of the rich grew two to three times faster. The neoliberal period, dated from Reagan’s presidency onwards, was not only pro-rich, in the sense that the incomes of the rich rose faster than those of the middle class and the poor; it also represented a slowdown in across-the-board growth compared with the earlier period. At every point of the U.S. income distribution but the very top, growth was slower during the neoliberal era than during the preceding decade and a half.
The world, at least for a while, seemed to become one, divided not by borders of nation-states, race, or gender, but by differences in people’s abilities, skills, or effort. It was ideally a borderless world full of intensely competitive individuals whose competitive juices were stimulated by the ability to communicate with any part of the globe, to learn what potential rivals might do, and then to try to outdo them. These two features—cosmopolitanism and competition—however led to the undoing of the whole arrangement. Cosmopolitanism crashed against national political borders. Excessive competition created a world of greed, amorality, and the commercialization of all activities, even those that used to be the most private. It threatened, fundamentally, to make the family superfluous.
The winners of neoliberal globalization in rich countries, inspired precisely by the cosmopolitanism they regarded as a virtue—being thus free of poisonous nationalism—were quick not only to treat their less fortunate compatriots’ welfare as of no greater consequence than the welfare of a foreigner or a stranger, but also to believe that those compatriots’ failure in open competition was indicative of some human or moral flaw. Economic success meant being virtuous, or, as Deng Xiaoping put it—his rise to power coinciding almost perfectly with those of Thatcher and Reagan—“to be rich is glorious.”
The political system, however, is organized within nation-states. The less fortunate felt forgotten and ignored, and were resentful of how they were treated. They saw the readiness, indeed the eagerness, of the rich to invest in faraway places as callousness towards domestic workers. Promises that new jobs would replace those lost to cheaper imports or to online work elsewhere were hard to make good on. The global, or more exactly the Western, financial crisis of 2007 to 2008 made what had been only vaguely felt become obvious and stark: the rich did not care for those left behind, and when the costs of the crisis had to be paid, they made sure the bill was not sent to them.
China, the United States, and the New Competition
It looks paradoxical, but it is true: China both benefited from and helped to end this phase of globalization. China gained enormously—from the opening of the American market, from acquiring technology from Western countries, from being able to export, and from raising the income levels of its population. On the other hand, precisely because it is so big and benefited so much, it came to be seen as a threat to the United States. For geopolitical reasons, the U.S. 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 so much from Globalization that it 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.
There is much talk of a new Cold War, but it is a different one, and not least because we do not yet know how it will progress. The previous U.S.–USSR Cold War was based on ideological competition. Here I am quoting Raymond Aron, who in his 1960s book Peace and War describes a “heterogeneous system”: the basis of legitimacy of the two systems was different, yet each system contained people who supported the other. France and Italy had very strong communist parties ideologically aligned with the Soviet Union, while in Eastern Europe and the USSR some people were liberal and aligned, if not openly, with the West.
I do not see competition of that 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 systemic approach to economic and political questions that could be easily replicated elsewhere—and the Soviet Union could. One should not forget that the USSR exported its ideology to practically the entire world: not only successful revolutions like Cuba, but also countries like India, where planning was adopted, and Angola, Algeria, Egypt, Indonesia before Suharto, and much of Latin America.
Its appeal was strong, and not only because people thought the Soviet economy was strong, but because it carried an ideology of liberation, socialism, and equality. By contrast, it is not clear what China can export as ideology today. Chinese success was built through a multitude of decisions under very complex and specific conditions—the Maoist legacy, but also contingencies like the creation of special economic zones and township and village enterprises. Whereas the USSR taught countries to nationalize enterprises and let central planners decide what to produce, it is very difficult to distill the Chinese experience and apply it to countries like Zambia or Argentina, where conditions are so different.
Does trade between the United States and China reduce or increase the risk of war? There is no scholarly unanimity, and I devoted a chapter of my book—The Great Global Transformation—to the question. Three theories help frame it. Montesquieu, writing around 1750, was a great supporter of the idea that commerce makes people interdependent: if we want to sell you something you want to buy, and we are interdependent, we behave more nicely toward each other to preserve the relationship. Commerce, in this view, leads not only to peace but to better behavior. At the other extreme are the theories that began in the late nineteenth century with the English economist John Hobson and were taken up by Rosa Luxemburg and Lenin: large capitalist countries have abundant capital but insufficient demand, because people are relatively poor and inequality is high, so their businesses must expand abroad to find resources, buyers, and cheap labor.
As several capitalist countries do this at once, they fight for control of the less developed parts of the world. That is how we end up with imperial wars; World War I is the perfect embodiment of Hobson’s logic. In the middle stands a view of Adam Smith, less often cited. Writing in 1776, he observed that Europe had been so much more powerful technologically and militarily that it could conquer and inflict injustice elsewhere—but if Europe kept trading, those other places would learn from it and catch up. With the two sides roughly equal in power, both would be afraid to start wars, and the balance of power would keep the peace.
I do not think one theory holds regardless of conditions. In fact, all three are at work in U.S.–China relations. During the 1970s and 1980s, trade led to interdependence and cooperation, as Montesquieu would have it: the U.S. wanted China in its camp against the Soviet Union, and U.S. companies wanted the market and the inexpensive labor; for China, the American market and American technology were a sine qua non of progress. In the present, Adam Smith’s theory holds as well, because now that the technological power of China and the U.S. is similar, peace is maintained by what I would call mutual fear—both believe a war would be disastrous. And the Hobson–Luxemburg–Lenin theory is visible in the beginnings of competition in Africa, where China and the U.S. contend for markets and resources. No single theory captures the whole truth; each applies to a different period or facet of the relationship.
This complexity should also temper narratives of both inevitable U.S. decline and quick Chinese ascendancy. Chinese income per capita remains significantly below the American level, even at purchasing power parity, where the gap is about 3 to 1 or 3.5 to 1 in favor of the U.S. But one should not forget that the gap 40 years ago was 20 to 1. If China continues to grow 2 or 3 percentage points faster than the U.S., then within one generation, and at most two, there will be as many people in China above the U.S. median income as there are Americans. Equal GDP per capita would probably take between 50 and 70 years. Yet long before that, China as a nation would be far more powerful than the United States simply because it is so much bigger—four times as populous—so that we would no longer really be comparing like with like.
What has replaced neoliberalism is what I call national market liberalism, or, more briefly, national liberalism. Take liberal or neoliberal principles and divide them in two. One part applies internationally—flexible exchange rates, low tariffs, and the free circulation of capital, technology, goods, and to some extent labor. The other applies domestically—lower tax rates for the rich, lower taxes on capital than on labor, deregulation, privatization, and privatized social security. What is happening today is that the international part of neoliberalism has been rejected, not only by Trump but even by the European Union. Tariffs are imposed, there are strong impediments to the movement of labor, and economic coercion is used almost everywhere; international neoliberalism is being abandoned and replaced by mercantilism.
Domestically, however, neoliberal principles remain very much alive—the Trump administration brought even greater deregulation, lower taxes for the rich, and lower taxes on capital than on labor. We end up with neoliberalism stripped of its international component. This is not merely a transitional phase. It reflects a structural reallocation of economic and political power, alongside an ideological shift away from free trade toward a more zero-sum framework. It does not depend on any single leader, has its own internal logic, and could persist for decades.
The Political Reaction and the World to Come
The new global elite became a target of backlash with remarkable speed, even within countries where overall wealth increased. The reason is that large parts of the population in rich countries—the working and middle classes—had relatively mediocre experiences of growth, around 1 percent per year for 30 years. This was not what globalization was supposed to do. When it was sold by Reagan and Thatcher, it was sold on the assumption that the middle classes of rich countries would do well, not that China would. They fared poorly, and on top of that they watched people who were already far richer than them grow richer still. The conclusion was that the new elites simply did not care—willing to take factories out of the United States, move them abroad, and employ cheap labor, indifferent to local communities. There was also a cultural and moral dimension, exacerbated by the elites’ belief that they were a meritocratic elite who deserved to be at the top, a claim that many who were not at the top refused to accept. In many European countries, immigration sharpened the resentment further. For those at the top, immigration is beneficial because it generates cheaper labor; but if you are a French worker who must compete with an immigrant African worker, it is not necessarily pleasant.
In earlier times, such malcontents would have replenished both the extreme left and the extreme right, as they did during the Great Depression of the 1930s. Now they had less choice. The left-wing parties were either discredited by the failure of “real-existing socialism” or, through their New Labour-style policies, seen as accomplices of the center-right in promoting the very globalization that had disenchanted the working and middle classes. Indeed, the peak of neoliberal globalization was reached under the notionally left-wing governments of Bill Clinton in the United States, Tony Blair in the UK, and François Mitterrand in France. Hence, the disappointed turned to right-wing parties that promised national solidarity, an end to the equal treatment of citizens and foreigners, a stop to migration, and—in some grand promises—the return of jobs on the wings of new industrialization. These Right-wing parties grew not only on the promise of restoring lost jobs but on the promise of restoring self-respect among the malcontents and a return to traditional values that may have been more traditional than real even when they supposedly held.
Seen this way, Xi, Trump, and Putin are offering different responses to the same structural tensions. All three came to power with support from groups disillusioned by the effects, or the excesses, of neoliberal globalization. Trump drew on discontent among the middle and working classes who felt left behind after decades of globalization, especially after the 2007 to 2008 crisis; that is why 77 million people voted for him. 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 China’s new billionaires and millionaires, Xi advanced the idea that politics should be separated from money and ought to remain the preserve of the party—coming to power, notably, on anti-corruption policies. Putin can be read as a reaction to the chaos of the 1990s, when Yeltsin’s privatization produced an oligarchic system that brought the country to the edge of civil war; his rule tolerated economic elites so long as they did not challenge political authority. In each case, the reaction to the excesses of neoliberal globalization gave legitimacy to the leader’s political identity.
China itself illustrates the logic. Household survey data for the top 5 percent of the urban population show a complete transformation between 1988 and 2023. In 1988 this group consisted predominantly of people in state-owned enterprises—engineers, directors, and party and government officials. By 2023 about two-thirds derive their income from the private sector, as large or small capitalists or members of the professional-managerial class, with only a third still dependent on the state. From the perspective of a political leader, such an elite poses a risk: a private-sector top 5 percent could demand a stronger voice in choosing leaders and shaping policy. If you do not want the rich to dictate policy in the way they do in the United States, the response is to separate economic power from political power. The rich may continue to accumulate, but they will not wield political influence; decisions, even economic ones, are made according to criteria meant to benefit China as a whole rather than its economic elites.
What does the political West misunderstand about all this? It initially supported China’s opening for geopolitical reasons—to counter the Soviet Union and make the Sino-Soviet split irreversible—and for economic ones, wanting access to China’s vast market. In retrospect, amid the current disenchantment, the West claims it engaged with globalization in the hope that China would democratize. To my mind, this makes no sense; to be disappointed simply because China did not become a democracy is an ex-post invention, and a disingenuous one. The real misunderstanding was structural. Western policymakers failed to grasp that the success of globalization would significantly alter the global balance of economic power—that the very system they promoted would translate into the decline of their own relative dominance.
We clearly have a global disorder now. As 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 which I do not mean simply several roughly equal poles, but an international order—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 elements in the present arrangement. 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. We may first move toward a world in which China, India, Brazil, South Africa, and Russia act as poles alongside Europe and the United States, and eventually, I hope, toward a more equitable international system in which the major powers have a greater stake than they do now.
As in a Greek tragedy, the very features that neoliberal globalization extolled, and that ensured its success for several decades, led to its inevitable demise—through domestic political turbulence and the abandonment of cosmopolitanism in favor of protective barriers for foreign goods and foreign people. In short, its substitution by mercantilism abroad, and, so far, by vain attempts to return to a more traditional world at home.
