 I'm Salvatore Bobonis and today's lecture is the new economic geography and the politics of globalization. Let's start with globalization. The globalization era that began in the 1990s seems to have played itself out. Levels of global trade as a percent of global GDP, the green line on this graph, and levels of global foreign direct investment as a percent of global GDP, the red line, seem to have been a declining trend since the end of the global financial crisis. If we mark the era between the fall of the Soviet Union and the global financial crisis of 2008, we'll see an era of rapid growth in both of these trends. Yet since 2008, both have stabilized, leveled off, even started to decline. Now, this does not seem to be a major trend of de-globalization, but it does perhaps represent the full realization of globalization. We live in a globalized world, but at least in economic terms, we no longer live in a globalizing world. We have come to the age of globalization. We're no longer getting there. We've now reached it. That global economy, the globalized economy, has a total GDP of around 75 trillion US dollars, but the promise that globalization would make the world flat, that somehow the whole world would benefit from globalization, of course, never came true. Most of that global GDP is concentrated in three economic regions, North America with 29%, Europe with 24%, and East Asia with 23%. The entire rest of the world has much less than 25% of the total global economy, somewhere between 20 and 25%. And to be clear, that includes all of South America, Africa, South Asia, the Middle East, South East Asia, all of that put together is less than a quarter of the global economy. In particular, I don't think we should be very interested in the Brits countries. They have a very unfortunate name, but once you leave China out of the Brits, Brazil, Russia, India, and South Africa are a relatively small component of global GDP. All of the excitement about the Brits for the last 15 years has really been excitement about China. And in fact, China is very different from the rest of the Brits. The four Brits countries are, as the acronym would suggest, completely separated from the rest of the global economy. They are not integrated into global value chains. Instead, they produce final products that are then exported to the rest of the world. China, on the other hand, is very closely integrated into East Asian value chains. Proctorily, China much more resembles countries like Poland and Mexico than it does countries like Brazil, Russia, India, and South Africa. That Chinese integration is emblematic of a wider phenomenon. These three major economic regions of North America, Western Europe, and East Asia are very closely integrated inside themselves in a way that other regions are not. In North America, 50% of total trade of the three major North American economies is with the other two major North American economies. That's despite the fact that the United States is a single statistical unit, so we don't include trade between New York and New Jersey as international trade, the same way we would include trade between Germany and the Netherlands as international trade. Even so, North America has an internal within-region trade of 50% of total trade, and what's more, the center of that region is fully integrated. 87% of that North American economy is within a single country, the United States. Even though there are state-by-state variations in economic regulation, for the most part, US companies have a continental playing field in which to operate. In Europe, about 69% of trade is intra-European trade. That's much higher than for North America, mainly because Europe is broken into smaller units. But in Europe, there's weak political integration. The European Union is not as economically integrated in terms of its economic regulation and ease of cross-border transactions as the United States. It's much easier to do business between New York and New Jersey than it is to do business between Germany and the Netherlands. Trade and cross-border transactions can be done in the European Union. It's just not as fully integrated. The political infrastructure is not nearly as well-developed as in the US. What's more, that political integration at the center of Europe is soon to decline to 78% of the European economy. On both counts, the European economy is smaller than the North American economy, but it's also much less integrated than the North American economy. The East Asian economy is smaller still. It also, though, has a high level of integration. 52% of total trade in East Asia is with other East Asian countries. And again, that's not accounting for the fact that China is an enormous economic unit and trade between Beijing and Shanghai is not counted as intraragional trade in these figures because it doesn't ever cross the border. There is full political integration of two-thirds of the East Asian zone, that is within one country, the People's Republic of China. But that low percentage integration is also at a very low level, that is China may be very well integrated as a trading unit, as a political unit, but it's very poorly regulated. So if you imagine the difference of enforcing court decisions between New York and New Jersey or enforcing court decisions between Germany and Netherlands, that's much more well-institutionalized than the problem of enforcing court decisions across the entirety of China. All of the other economic regions of the world, Latin America, Africa, South Asia, Middle East, Southeast Asia, all of them have levels of intraragional trade that are well under 50%. In fact, for most of them, it bubbles out around 15% or 20%. The rest of the world is not integrated with itself. The rest of the world provides feedstocks for the economies of these three major economic regions. But the three major economic regions are not created equal. The North American region is larger than the other regions, it's better integrated than the other regions, but it also is better connected to the other regions than the other regions are to each other. So if you take, for example, travel time by sea, container ship time, the container ship takes 10 days to go between North America and Western Europe, 15 days between North America and East Asia. Yet, to go from East Asia to Western Europe on the One Belt, One Road system, it takes 30 days. Container ship leaving Shanghai does not arrive in Rotterdam until 30 days later. In a very real sense, East Asia is not to the east of Europe, as we historically think of it in all of our textbooks, even our language calling it East Asia suggests it's in the east. In fact, East Asia is in the west of North America. And some of you with a more historical bench may remember that the Philippines were once a colony, not of Spain, but of Mexico. It was only after Mexican independence that they became a colony of Spain, because in economic geographical terms, in terms of people trading with people, it's actually much easier to trade between East Asia and North America than to trade between East Asia and Europe. Thus, while many European companies invest in China to do production in China, there's very little economic integration of value chains that connect Europe with China. By contrast, consider something like the electronics value chain that connects North America with China. That's a fully integrated value chain. The electronics industry in China is part of the North American value chain, so there's much better integration. Now, with One Belt, One Road, China's initiative to build the Silk Road Economic Belt in the 21st century maritime Silk Road, that distance, trade travel distance or container distance from China to Europe is cut to 20 days. That's an improvement, but it's at three times the cost. So yet again, even with One Belt, One Road, China is not going to be able to integrate into the European economy. China is going to remain a Pacific country, not a Eurasian country. On top of all this, that North American center is not only larger, better integrated and more central to the global economy, it is also much richer. The GDP per capita of the United States and Canada are about one third higher than Western Europe and much higher than the GDP per capita of East Asia as a whole. To put things in context, the motor of the European economy, the high-tech manufacturing core of Europe, Germany, is roughly on a par with the U.S. state of Alabama in terms of GDP per capita. Japan, the high-tech core of the East Asian economy, is roughly on a par with Mississippi. Now I'm not suggesting that quality of life in Alabama and Mississippi matches quality of life in Germany and Japan, but that's all a matter of how the income is distributed. As far as the actual generation of economic value, GDP per capita, Alabama and Mississippi do just as well as Germany and Japan. And maybe that illustrates why, despite the protestations of people like Donald Trump and Bernie Sanders, the United States cannot be a manufacturing economy. If you think about the economic geography of the United States, the manufacturing that's still done in the United States is done in the poor peripheral states of the United States, places like Alabama and Mississippi and Tennessee and South Carolina. The main economic centers of the United States on the east and west coast are simply too rich to be manufacturing. Nobody would locate a major manufacturing facility in California or New York these days. And the reason is clear, California is incredibly richer than Japan, about 200% the GDP per capita of Japan. As a result, California is now in the business of the post-modern economy. California is not making cars, California is making the software that drives cars. The same is true of the Northeastern U.S., which is 170% the GDP per capita of Germany. And if you don't like the whole of Germany comparison, think of Bavaria, the richest major state in Germany. The Northeastern United States has 150% the GDP per capita of Bavaria. Again, there's just no comparison. The Northeastern U.S. is far too rich. New Jersey will never again become a manufacturing hub of the world. High inequality makes elite incomes in the U.S. even higher than the U.S. GDP per capita difference would suggest. If you were a member of the elite in the Northeastern U.S. or in California, if you were a top engineer, top doctor, top scientist, top lawyer, top academic, top politician or political operative, those elites in the Northeastern U.S. and in California are in the richest zone of the world economy, in the richest area of that zone. And then on top of that, they're at the top of a stratification hierarchy that is much steeper than in Western Europe or in Japan. Now, this wasn't always the case. If you go back to the 1970s, this graph starts in 1971, and you look at the income share in the top 1%, a basic measure of inequality across these three countries. In 1971, the United States was the most equal of these three countries. And in fact, throughout the 1970s and even into the 1980s, the United States had similar levels of inequality to Germany and Japan, to European and East Asian countries. The big difference happened in the globalization era. It was starting in 1991 that U.S. income inequality really exceeded global levels. And throughout the 90s and the 2000s and the 2010s, the United States has really pulled away. As a result, that person who's in the top 1% in the U.S. isn't just 15 or 20% richer than in Europe, as the GDP per capita difference would suggest, isn't just 50% richer than someone in Europe, as the regional difference in GDP per capita would suggest. That person might be five times as rich as the person in Europe because of the high income inequality effect added on top of those national and regional effects. And to put some numbers around this, to make this concrete, consider CEO pay. Average annual CEO pay in the United States is over 12 million U.S. dollars a year. Even Switzerland doesn't come close. In Germany, CEO pay is half the level it is in the U.S. In Japan, it's a fifth of the level that it is in the U.S. American CEOs, along with other American professionals, simply make far more than their peers in other countries. Now, that figure in Germany is approaching or starting to come up to U.S. levels, but that's been a long time in coming. If we go back and think about the 1990s, in 1998, the CEO of Daimler, the German automaker, made 1.5 million U.S. dollars. That's 2016 dollars. I've updated these figures to today. The CEO of Daimler made 1.5 million dollars. That was the year that Daimler bought Chrysler. At the time, U.S. automaker CEOs were making around $10 million a year. And a lot of us think that the reason Daimler bought Chrysler was that the executives of Daimler said, we're making 1.5 million. CEOs at Chrysler are making, well, 10 million in those days terms, 15 million, about 10 times as much in today's terms. Why don't we buy a U.S. automaker and suddenly we can make 10 times as much? And in fact, that's what happened. Daimler bought Chrysler and then sold it, but in the interim raised its CEO salaries not quite up to U.S. levels, but to similar to U.S. levels. So that today, the CEO of Daimler makes $10.8 million a year. In fact, at the time of the merger in 1998, a Daimler spokesman actually stated in a press conference, quote, we've always said we have to make our pay structure here more competitive internationally. And he wasn't talking about the pay structure for German auto workers. He was talking about the pay structure for German executives. Well, that's been accomplished. The demonstration effect of high top end pay in the U.S. has yielded higher top end pay in Europe. Japan, of course, is a much more closed society, has much less connection with U.S. firms. And Japanese CEO salaries are still at the relatively modest level of $2 million a year. All right, these differences have led to enormous pressures for elites and their investment money to move from the BRICS countries, from the global south, from Europe to the United States. And I want to be clear, that's not just from poor countries to the United States, even from rich countries. People move to the United States. Just imagine how many American expats have permanently relocated to Western Europe, to be CEOs, to be top academics, to be top engineers. I'm sure there are a few Americans in those top positions in Europe, but they're very rare. Now think how many Europeans are entrepreneurs, CEOs, top academics in the United States, and you'll see there's a flood of them. And why are so many Europeans coming to the U.S. to make their fortunes? Well, quite simply, because they can make their fortune in the United States. And of course, if you can't get to the United States, second best are the other relatively high inequality Anglo-Saxon countries, United Kingdom, Canada, Australia, New Zealand. But first and foremost, the United States. Now on top of all of this elite immigration and elites sending their money to the United States are, of course, capital flight. China is oozing money toward the United States. Now globalization narratives would suggest that it should be the U.S. investing in China. And in fact, during the globalization era, between 1991 and 2008, it was U.S. money going to China. Since 2008, the flow has reversed. And it's now Chinese money escaping, even though there are very serious capital controls in China. Nonetheless, Chinese money escaping to the tune of estimates just $100 billion a month or a trillion dollars a year in Chinese money escaping most of it going ultimately to the United States. Thus, people like this, this internet meme has traveled the world of the Chinese graduated Harvard Business School holding aloft the two things that presumably matter most to him in the world, his Chinese citizenship, the PRC flag, and the almighty US dollar. Now I won't try to guess which one is more important to him because it really doesn't matter. He doesn't have to move to the US and become a US entrepreneur or a US executive in order to be part of that American system. He can stay right home in China, but wait for the US to come to him. Because as China has integrated into the global economy, it has adopted US-style ideologies of executive pay, US-style ideologies of social provisioning of taxation, even if he makes his entire career in Beijing, he will be living in a US-style system, certainly not in a communist system. And if you compare China today to China under Maoist communism, if you compare China today to China in 1976 and ask, which one does China resemble more? Maoist China or contemporary America? I think it's very clear that today's China tends much more to contemporary America. And whichever one you think is closest, let me ask you, which one is it moving towards? Is it moving towards Maoist communism or is it moving towards American-style capitalism? Then we don't even have to debate the answer. It's people like that, the aspiring Harvard Business School graduate, the CEOs of Germany who are changing the world. And this is a different kind of global world than the one that may have come into existence in 1900 to 1910. That old globalization was a globalization of trade flows. Final products moved from country to country. But Chinese people didn't attend Harvard Business School and then start transnational businesses that spanned the Pacific Ocean. Today's globalization is a globalization of an entire economic and political class, represented perhaps nowhere better than in the World Economic Forum in Davos every January. The World Economic Forum, of course, is committed to improving the state of the world. But it's a set of people who are members of a global elite who are committed to improving the state of the world, billionaires, top journalists, top politicians who get together every year to talk about policies for the world. That's today's globalization, which is very different from the globalization of 100 or 500 years ago. What's more, today's globalization is not a generic flattening of the world. Today's globalization is a steeply hierarchical globalization with North America at the top and with North American ways of thinking at the top. And I can't stress that enough. The European CEOs and the Chinese MBA are both thinking in American. If we look to political backlash from that, we see a whole variety of political movements, whether it's Le Pen in France or Putin in Russia, people who promised to protect their countries from globalization, by which they implicitly mean protect their countries from Americanization. They are both Le Pen and Putin play on corporatist themes, nationalist themes. We have to protect ourselves from those evil global elites who will rape our country. Now, they have a point. Those evil global elites have raped their countries. Now, whether the solution is far right wing, semi-authoritarian or super authoritarian rule, well, that I question and I seriously doubt it. I don't embrace the solutions offered by people like Le Pen and Putin. But I do understand where their political support comes from. And not just them. Of course, looming over this whole debate is one Donald J. Trump, the Donald otherwise known as president of the United States. His constituency is the constituency left behind by globalization and not left behind by the globalization of trade patterns. That's trivial. They've been left behind by the globalization of a way of thinking. An elite American Harvard Business School Davos way of thinking that doesn't give them a place in the economy, but also does not respect their more corporatist, more nationalist, more paternalistic, to be frank, social views. Those are the people, the excluded by the ideology of globalization who vote for Trump. And let's not forget, Trump's first act as president, his most effective decision, the one that actually changed the world as it was going to be, was to veto the Trans-Pacific Partnership. Now, the entire liberal elite of the world, not the entire liberal elite, but much of it, condemned his vetoing of the TPP. If not that specifically, they condemned his anti-globalization, anti-trade rhetoric. Yet, I seem to remember that we've been here before. Back in 1999, in the early years of globalization, it was many of us in the intellectual elite who were celebrating anti-globalization protests and who wanted the WTO to be disbanded. Now, if you're anti-WTO, you've got to be anti-TPP. Yet, none of us in the progressive academic world are padding Trump on the back for being anti-trade, anti-globalization, anti-TPP. I think we should remember where we were 20 years ago. Many of us, if not actively marching in these sorts of marches, were very supportive of these protests against globalization. Today, we vilify Donald Trump and his ilk for being anti-globalization. Yet, 20 years ago at the beginning of globalization, I think we should remember that we, many of us, were ourselves anti-globalization as well. In other words, we saw these problems coming, but we didn't do anything or we didn't do enough to stop them. Thank you for listening. You can find out more about these sorts of ideas I'm presenting today in my new book, American Tiansha, Chinese Money, American Power, and the End of History, out in July 2017 from Policy Press and University of Chicago Press. You can also sign up for my monthly Global Asia newsletter. Just go to my website at salvatorebonus.com and enter your email address in the newsletter link or click on the Global Asia newsletter button. And I do emphasize it is free, so please do sign up. Thank you and thanks for listening.