The Clash Of Two Gilded Ages


Yuen Yuen Ang is the Alfred Chandler Chair of Political Economy at Johns Hopkins University. She is the author of How China Escaped the Poverty Trap and China’s Gilded Age. In 2021, Apolitical named her among the world’s 100 Most Influential Academics in Government.

Yet for all the advances in material and cultural life, there remained a feeling that things had gone wrong … a screw had come loose and the wheels fallen out of balance. Prosperity was precarious, as the recent [crisis] had revealed. Inequality … was more obvious than ever. The capitalists controlled the government.

In this passage from “American Colossus,” historian H.W. Brands was describing America’s Gilded Age from 1865 to 1900 — but he could just as well have been describing present-day China.

Since opening markets in 1978, China’s economic progress has been nothing short of miraculous. GDP per capita grew 40-fold from 1978 to 2012, making it “the fastest sustained expansion by a major economy in history,” the World Bank has said. But this spectacular progress came with many problems, not least soaring income inequality that by 2012 had come to exceed even that in the United States. That same year, the new General Secretary of the Chinese Communist Party (CCP) Xi Jinping warned that corruption had reached “shocking” levels and would “doom the party and the nation” if left unchecked. Public and corporate debts were piling up to unsustainable levels. In 2021, when Evergrande, then China’s second largest property developer, failed to meet debt payments, it appeared that the long-anticipated bubble had finally popped.

As I argued in my book “China’s Gilded Age,” once the dates and names in 19th-century American history are removed, the parallels between that period and post-1978 China are striking. Both share a dramatic story of renewal after devastation and prosperity amid decadence. (The term “gilded,” not to be confused with “golden,” means that beneath the precious, glittering surface lies a hard, base metal.)

As Thomas Piketty and several others have observed, America is now also experiencing a partial repeat of the 19th-century Gilded Age, except the former titans of capitalism in steel and railroads have been replaced by behemoths in high finance and technology. Globalization did not deliver on its promise of prosperity for all Americans; instead, the outsourcing of production to countries like China profited multinational companies while hollowing out industrial towns. During the 2008 financial crisis, elites on Wall Street received bailouts from the government, while people on Main Street lost their jobs and savings. Exploiting popular discontent, Trump parachuted into the presidential race in 2016 with rallying cries to “bring jobs back home” and “drain the swamp” — and to everyone’s surprise, he won.

Contrary to popular cultural tropes, America and China today are not caught in the “clash of civilizations.” Rather, as I earlier underscored in Foreign Affairs in July 2021, we’re witnessing a curious form of great power competition: the clash of two Gilded Ages. Both the U.S. and China confront sharp inequality, corruption or capture of state power by economic elites, and persistent financial risks to common people who have no way to indemnify themselves. Both are struggling to reconcile the tensions between capitalism and their respective political systems, albeit with greater intensity in China’s nominally communist system. Both U.S. President Biden and Chinese President Xi have staked their legacy on ending the excesses of capitalism, except under different banners. Whereas Biden pledges to “build back better,” Xi dubs his campaign “common prosperity.”

To say that the U.S. and China are similar, however, does not mean that they are identical. America is a democracy with constitutional protections of individual freedoms, whereas China is a top-down political system ruled by one party. Thus, the two countries are pursuing progressive reforms very differently. At the turn of the 20th century, when America was an emerging industrial power, its society fought graft and inequality through political activism, civil service reforms, new regulations and by voting corrupt politicians out of office. Today, facing a deindustrialized economy and outdated infrastructure, Biden’s agenda is focused on passing legislation on large public investment and raising taxes on corporations. Xi, on the other hand, is trying to stamp out capitalist excesses through commands and campaigns to punish graft, eliminate poverty and rein in the “chaotic expansion of capital.” Like Biden, Xi aspires for fairer development — but with the CCP firmly in control.

“The parallels between 19th-century America & post-1978 China are striking. Both share a dramatic story of renewal after devastation & prosperity amid decadence.”

The narratives we choose shape the realities we experience. The “clash of civilizations” implies that the U.S. and China are culturally — or worse, racially — destined to fight each other, and everyone else must choose one side. If you buy this narrative, a new Cold War can be the only outcome. By contrast, the “clash of two Gilded Ages” reminds us that the U.S. and China are rivals who share similar woes at home. Their competition should not be over who trips and outruns the other, but rather who fixes their own problems first. Competition can be a force for self-renewal instead of mutual destruction.

America’s Gilded Age

For a personification of the American Gilded Age, there is no better candidate than Mr. Leland Stanford, the railroad robber baron who would eventually endow the university that bears his name. Stanford entered into business serendipitously. After his Wisconsin law firm burned down in a fire, he moved to California and co-founded one of the largest railroad companies in the U.S., the Central Pacific Railroad. Connecting the east and west coasts of the United States by a transcontinental railroad was a revolutionary business that, along with his directorships of Wells Fargo Bank and the Pacific Mutual Life Insurance Company of California, eventually made Stanford one of the richest men of his time.

Constructing railroads was both expensive and risky. Thus, government support was indispensable. In 1861, just months after he founded the Central Pacific, Stanford was elected governor of California. Upon taking office, he badgered the state legislature into investing millions in public funds into railroad construction. Offering bribes and shares of the Central Pacific in bulging suitcases, Stanford’s associates convinced politicians to pass laws that would maximize their company’s profit while transferring the risk of failure to taxpayers. This culminated in the 1862 Railroad Act that granted railroad companies their wish list. To cut costs, Central Pacific imported “coolies” from China, contract laborers who worked for dirt-cheap wages and had no rights. When these workers waged a strike demanding a raise and safer conditions, management starved them into submission.

Many Americans assume that capitalism and democracy are natural, happy companions. American leaders see themselves as champions of both free markets and political liberty. Yet as Brands reminds us, capitalism and democracy have always coexisted in tension in the United States:

Democracy depends on equality, capitalism on inequality. Citizens in a democracy come to the public square with one vote each; participants in a capitalist economy arrive at the marketplace with unequal talents and resources and leave the marketplace with unequal rewards.

Moreover, capitalism cannot operate without inequality, Brands adds. It is the promise of unequal rewards that drives individuals to invest their smarts and efforts into producing results; the more inequality, the stronger the drive. Collectively, this fosters innovation and national competitiveness.

Yet this same drive can also lead to greed and corruption. Rising to the top doesn’t necessarily require better products and services; instead, favorable laws, government handouts, tax breaks and regulatory exemptions can do just as well. The theme behind the stories of the Gilded Age is the triumph of capitalism over democracy. Capitalists were able to buy government. Sometimes, the capitalists were the government. Laden with political advantages, they exploited labor, monopolized markets and took excessive risks. Over the course of the 19th century, America suffered not one — but five — financial panics, all linked to speculative investment, overvalued stocks and reckless debt.

Eventually, the simmering troubles of the Gilded Age could no longer be ignored. Discontented groups from various parts of society, some radical and some moderate, launched social movements across the country. The emerging working class waged strikes demanding labor rights, which were violently suppressed by their capitalist employers. To improve governance, middle-class progressives, on the other hand, pushed for civil service professionalization, anti-monopoly regulations, health and safety regulations, restrictions on corporate contributions to political campaigns, tax reforms and more. Muckraking journalists and transparency initiatives exposed corruption. This set of wide-ranging economic and political reforms came to be known as the Progressive Era, which lasted roughly from the 1890s to the 1920s.

“America is now experiencing a partial repeat of the 19th-century Gilded Age, except the former titans of capitalism in steel and railroads have been replaced by behemoths in high finance and technology.”

Progressives, wrote Brands, were “the democratic skeptics of capitalism.” On the one hand, capitalism raised standards of living for millions of Americans and turned America into the most attractive emerging economy for European investors at the time (the 19th century equivalent of contemporary China). On the other hand, the unchecked forces of capitalism threatened to splinter society and destabilize the economy. It became time for democracy to reassert its authority. “The captains of industry who have driven the railway systems across this content, who have built up our commerce, who have developed our manufactures, have on the whole done great good to our people,” said President Theodore Roosevelt, who launched a new age of progressive reforms. But, he continued, “Great corporations exist only because they are created and safeguarded by our institutions; and it is therefore our right and our duty to see that they work in harmony with these institutions.”

More than a century later and across the Pacific, the leader of another capitalist juggernaut would utter similar words — this time, under the rule of a Communist Party.  

China’s Gilded Age

If Stanford’s dominance in politics and business captures the American Gilded Age, then his equivalent in China would be a duo who represent the asymmetrical marriage of power and money.

Bo Xilai is a modern-day princeling — his father, Bo Yibo, was one of the pioneers of the CCP, rehabilitated by Deng after Mao died to steer China’s market opening as vice premier. While other senior party apparatchiks were colorless and recited speeches in monotone, Bo Xilai stood out for his good looks, charm and flamboyance. The BBC described him as “the nearest thing China has to a Western-style politician.” From 2007, Bo was the provincial party secretary of Chongqing, a Southwestern backwater. There, he rolled out a populist agenda with great fanfare, deploying welfare benefits for the poor, state investment, Maoist songs and crackdowns on crime. At the height of his popularity, Bo was a contender for the top post in the CCP. But after a shocking turn of events in 2012, Bo was ousted for corruption and sent to prison. Xi came to power amid Bo’s scandal.

Public trials of Bo’s corruption revealed the supporting role of his capitalist henchman, Xu Ming. For years, Xu financed the lavish lifestyles of Bo’s family and, in return, received lucrative government contracts and generous loans from state banks. At its peak, the business activities of his conglomerate spanned construction, sports, finance, and real estate. In 2005, Forbes named Xu the eighth richest person in China, with an estimated net worth of more than $1 billion. When Bo fell from power, Xu was arrested with him and died mysteriously in prison shortly before his release.

The great mystery of China’s rise isn’t simply a question of how China became rich. Rather, it is a more vexing question of how China became rich despite rampant corruption, as evident from numerous scandals like Bo’s and Xu’s. If we believe the conventional wisdom that corruption impedes growth and that Western economies like the U.S. prospered by first eradicating corruption and establishing good, accountable institutions, then China appears to be “a gigantic outlier.”

“Both U.S. President Biden and Chinese President Xi have staked their legacy on ending the excesses of capitalism, except under different banners.”

In fact, if China is exceptional, it is only as exceptional as the real American experience — not the partial myths and reified narratives presented in mainstream political economy.

According to renowned economists Daron Acemoglu and Jim Robinson, authors of “Why Nations Fail,” American capitalism flourished because European migrants brought “inclusive” and “non-extractive” institutions from Europe to North American soil. “It should therefore be no surprise,” they concluded, “that it was U.S. society, not Mexico or Peru, that produced Thomas Edison,” because “economic institutions that encouraged private property, uphold contracts [and] create a level playing field” fostered innovation and growth. 

But a recap of the history of America’s Gilded Age reveals a very different reality. Sure, a small section of society — elite white men — enjoyed secure property rights, while Native Americans, slaves in the South, indentured laborers from China, migrants and women were excluded. Even among the privileged, it was no “level playing field.” Robber barons like Stanford publicly championed free-market principles while privately benefiting from state-supplied privileges and protection. And yet, American capitalism boomed for reasons similar to China’s: a particular type of corruption came to dominate the economy. I call it access money, the purchase of privileges by capitalists from those in power. This transactional form of corruption must be distinguished from extractive corruption such as embezzlement, extortion and petty bribery. The latter existed during the early stages of capitalism in both America and China, but they were steadily brought under control through administrative reforms and increased state capacity. Access money, on the other hand, exploded.

Access money functioned like the steroids of capitalism. It didn’t just spur any growth, but specifically risky and imbalanced growth. In China, politicians were handsomely rewarded for serving capitalist interests. Together, they built, borrowed and invested more, all of which contributed to GDP. But in a feverish race for growth, politicians borrowed and built regardless of sustainability and, in the process, accumulated massive debts and a litany of white elephant projects.

Real estate was the hot spot of Chinese corruption. In exchange for kickbacks, local governments helped real estate developers drive away farmers and convert rural land into pricey urban properties. Flushed with easy credit and pre-payments from homebuyers, profit-hungry developers built more projects before completing existing ones. During the go-go days, Evergrande extended its business into selling wealth management products, which it is now unable to repay.

“If the American Progressives at the turn of the 20th century were democratic skeptics of capitalism, then Xi is an authoritarian skeptic of capitalism.”

Xi inherited a Gilded Age from his predecessors. While China is no longer impoverished as a whole, it suffers the ailments of a richer, crony capitalist economy. In thick party speak, the CCP’s historic resolution in 2021 acknowledged: although market liberalization has made “historic strides in raising the living standards of its people from bare subsistence to moderate prosperity … China faces no small number of long unresolved, deep-seated problems as well as newly emerging problems.” In particular, Xi believes it is time to rein in the “chaotic expansion” of private, free markets. “Capital is a critical component of the socialist market economy,” he pronounced in a speech in April 2022. But today, the CCP must “regulate and guide the healthy development of capital” because this concerns “the quality of development and common prosperity as well as national security and social stability.”

If the American Progressives at the turn of the 20th century were democratic skeptics of capitalism, then Xi is an authoritarian skeptic of capitalism. He sees his historic mission as summoning China out of the Gilded Age and into a Red Progressive Era, using the tools of Leninism: commands and campaigns. For him, the end goal is not only to correct social inequality, but also to preserve the CCP’s grip on power, even as China becomes more affluent and globalized. Upon taking office in 2012, Xi has in effect launched a platform of Red Progressivism, even though he did not call it that. This began with his anti-corruption drive, the largest in the party’s history, and his poverty eradication campaign. In 2021, baffled observers thought the CCP’s crackdown on big private companies and rich celebrities came out of nowhere; in fact, it was a logical extension of Xi’s Red Progressivism.  

Future historians should mark this peculiar moment in history: it is the first time a communist party has tried to order away the problems of capitalism after encouraging it to thrive. When the CCP’s regulatory storm in 2021 alarmed investors and wiped out billions in share value, Xi learned about the limits of commands. In a speech later that year, he told an audience of Chinese bureaucrats: “On fixing poverty, we have plenty of experience. But on managing capitalism, we still have much to learn.”

The Neoliberal Backlash

If the Chinese economy seems precarious, the situation in America is no better. Thomas Piketty and Emmanuel Saez reported a troubling pattern of rising income and wealth concentration in the U.S. since progressive taxation was cut back in the 1980s. In 1970, the top 0.01% earned 50 times more than average income; in 1998, that number jumped to 250 times. As inequality rises, social mobility falls. The share of 30-year-olds who made more money than their parents did at that age dropped from 92% in 1970 to 50% in 2010. According to a survey by Pew Research in 2021, 68% of U.S. respondents believe that today’s children will be worse off as adults than their parents.

Rising inequality and sluggish growth since the 2008 financial crisis constitute “a double whammy on Americans’ economic prospects,” say political scientists Brink Lindsey and Steven Teles. “The growth slowdown means that expected progress in living standards has evaporated; high inequality means that just looking at GDP growth understates the magnitude of popular economic discontent, as the gains of growth have shifted away from ordinary Americans to benefit a relatively narrow elite.” These are the conditions, they argue, that precipitated the rise of Donald Trump and could again encourage future demagogues like him.

Today, many experts blame the host of problems in the U.S. on “neoliberalism” — the doctrine that markets should be free and governments should not intervene. In fact, the real problem is not too little government, but too much of it. America is “the captured economy,” Lindsey and Teles argue. From housing and finance to intellectual property, “insider-protecting deals” have made the U.S. economy less dynamic and innovative.

Altogether, it is fair to say that the U.S. has entered a Gilded Age 2.0, with some parallels to the past but also notable differences. Unlike in the 19th century, America today is an advanced, post-industrialized economy, not an emerging one. It no longer enjoys the freedom of rebuilding from a blank slate; instead, it is hobbled by a heavy baggage of accumulated regulations, political deals and vested interests. Gridlocked and captured by narrow interest groups, the U.S. government struggles to deliver essential public goods that serve national interests — most notably, infrastructure. The once enterprising nation that built a transcontinental railroad is now barely able to repair decrepit Amtrak trains.

“Whichever nation ‘wins’ is the one who avoids self-inflicted wounds and makes capitalism work for the common good rather than for a small sliver of super-elites.”

For the Biden administration, convincing American citizens and lawmakers to abandon neoliberal doctrine and take big government action is an imperative. Writing in The New York Times, Ezra Klein applies the term “supply-side progressivism.” Instead of meeting the needs of citizens only through welfare and individual aid, the U.S. government, he argues, should increase the supply of necessary goods and services — not only the ones needed today, but also those that would prepare American society for the future.

But Klein does not mention a controversial companion of supply-side progressivism: industrial policies, that is, policies and subsidies designed to boost selected sectors of the economy. Market fundamentalism dictates that governments should not “pick winners,” lest it lead to corruption and distortions. To justify industrial policies, the Biden administration and other U.S. politicians invoke the threat of China. “The Chinese Communist Party laid out a plan called ‘Made in China 2025,’” warned Senator Marco Rubio, “and we have been complacent and distracted.”

For the past year, Biden’s “Build Back Better” plan seemed dead. In August, however, the president is suddenly on a winning streak: he signed the CHIPS and Science Act into law, designed to promote semiconductor manufacturing in the U.S., and the Senate passed the Inflation Reduction Act to tackle climate change, health care and taxes. Alan Blinder, a former advisor in the Clinton administration, told Bloomberg, “This could be read as the best supply-side economics program since Eisenhower built the interstate highway system.”

For the past decades, textbook theories have asserted that free markets and private property rights are the primary causes of American capitalist success—as if that’s all it takes. In effect, this neoliberal narrative props up the myth that privilege-holders want everyone to believe: they succeeded on their own. While private initiative should be celebrated and promoted, we must not ignore the historical fact that the state has always played an active and critical role in American development, from infrastructure and housing to technological innovation. Today, that role is being revived in the context of a new Gilded Age, with politicians harnessing great power competition with China to justify big state actions.

The Clash Of Two Gilded Ages

Writing in Foreign Affairs in 1993, political scientist Samuel Huntington claimed:

The great divisions among humankind and the dominating source of conflict will be cultural. … Civilizations are differentiated from each other by history, language, culture, tradition and, most important, religion. … In conflicts between civilizations, the question is ‘What are you?’ That is a given that cannot be changed.

After Trump took office in 2016, his administration revived this set of ideas to frame U.S.-China competition. Kiron Skinner, then director of policy planning at the State Department, said, “This is a fight with a really different civilization and a different ideology and the United States hasn’t had that before. … It’s the first time that we will have a great power competitor that is not Caucasian.”

The appeal of the “clash of civilizations” is understandable — but dangerous. It is a fact that American and Chinese society have different languages, traditions and political systems. Huntington’s notion of “civilizations,” however, posits an identity that people inherit from birth, and that, in his words, “cannot be changed.” This provides a fancy camouflage for claiming that people of different races — Caucasians vs. non-Caucasians — as Skinner’s words imply, are destined to be divided and eventually clash.

In fact, the answer to “what are you?” can be changed, and nowhere is this truer than in the United States, a democratic multiethnic nation. The statue of liberty symbolizes not only freedom and justice, but also the welcoming of immigrants who seek hope and opportunity. Believing that “what are you?” cannot be changed means rejecting the American dream and values. Even in the so-called “civilization-state” of China, “what are you?” has evolved over thousands of years. The geographic boundaries of “China” changed from dynasty to dynasty; regional identities solidified and melted away.

Though they may seem esoteric, the narratives that politicians adopt to frame bilateral relations have real effects on the ground. A U.S. officer who read my first book told me that my description of China’s “directed improvisation” reminded him of the U.S. military, which is also a bureaucratic and hierarchical organization. Commanders articulate strategies from above but leave their technical implementation to ground-level agents like him. He concluded, “I would have been looked down upon by my peers and commanders if I admitted [these similarities].” When people in one society feel ashamed of sharing universal human problems with another society, it is troubling. War begins at the psychological level when individuals cease to perceive a common humanity between us and them.

Thus, understanding U.S.-China relations as the clash of two Gilded Ages has important implications. The two great rivals can and do share similarities — though they are never identical. Their different political systems lead to starkly different responses to the problems of a Gilded Age. As the leader of a democracy, Biden must win bipartisan and public support to pass his progressive policies. American civil society is freely and fiercely debating alternatives to the current political-economic model. In China, by contrast, Xi has imposed a series of Red Progressive campaigns from the top. What China’s future should be is decided by him and CCP leaders; the rest of China must obey and follow.

Ultimately, the contest between the U.S. and China is not about who will sabotage and outrun the other. The greatest crises facing each country are self-inflicted. No foreign competitor can desecrate the U.S. Capitol and undermine democratic principles the way Trump’s fanatical mob did on Jan. 6, 2021. No foreign rival can make China impose arbitrary regulations that diminished its most successful private companies and scared away investors. Their shared challenge is reshaping and managing capitalism. If there is a race, whichever nation “wins” is the one who avoids self-inflicted wounds and makes capitalism work for the common good rather than for a small sliver of super-elites.