 I'm Salvatore Bobonis and today's lecture is the regional structure of the global economy, economic hierarchies and growth strategies. Total global GDP is around $74 trillion per year, but of course global production is not equally distributed among the regions of the world. About 29% of total global output is concentrated in the North American region, about 24% in Western Europe and about 23% in East Asia. That leaves much less than a quarter of global production in the rest of the world combined, and I say much less than a quarter because a large proportion of the production in the rest of the world is actually embedded in global production networks that are centered in either North America, Western Europe or East Asia. Each of these three economic regions internally is relatively well integrated, so in the North America about 50% of total exports are exports to other North American countries. And what's more within the North American region, 87% of production occurs within a completely integrated, a fully politically integrated economic zone that is the United States proper. Only 13% of North American production occurs outside the United States, that is in Canada and Mexico. In Western Europe, 69% of total exports go to other Western European countries. Western Europe however is not as well integrated, there's relatively weak political integration, but of 94% of the Western European economic zone. Now of course that 94% figure will soon drop down to 78% with the impending exit of the United Kingdom from the European Union. Thus very soon the Western European zone is going to become a weakly politically integrated zone in which only 78% of production is in the main economic entity of the zone. In East Asia, again more than half of total exports are to other countries within East Asia, but within East Asia there's full political integration of only 67% of the zone. So a much smaller proportion of East Asian production occurs within an integrated political entity and even then that integrated political entity is the poorest area of the zone. The peak area of the zone, Japan, South Korea, Taiwan, is not well integrated into the main body of the zone which is composed of the People's Republic of China. The rest of the world could be characterized as isolates or singletons, as economies that are really very poorly integrated into the production networks of these three zones. Most of the rest of the world exports finished products whether that's coal or oil or even in the case of somewhere like Brazil it could be jetliners, but they're not exporting intermediate goods that then enter into global production networks. They're exporting final goods to the rest of the world. That is the rest of the world maybe rich as in the case of Australia, maybe middle income as in the case of Brazil and India, or maybe poor as in the case of most of sub-Saharan Africa, but it is no matter what its level of income it's not integrated into global production networks. Really what we have are three sets of regional production networks. What's more those regions are hierarchical. The North American region has the TTIP agreement, the Transatlantic Trade and Investment Partnership that prospectively will be connecting it to Europe, and it has the TPP, the Trans-Pacific Partnership that prospectively will be connecting it to East Asia, but there's no equivalent link between the Western European and East Asian economic zones. There is the One Belt One Road Initiative, but the One Belt One Road Initiative is highly subsidized by China, and it really is a very low level integration of very poor economies in Central Asia and South Asia into a Chinese economic orbit. It's not really a strong integration of East Asia with Western Europe. In any case, One Belt One Road, while it does facilitate trade, does not have the same kind of strongly political governance components that the TPP and the TTIP have. The hierarchy becomes even clearer when you consider the GDP levels of various parts of the zone. The GDP per capita of the North American zone is at least one-third higher than that of the Western European zone, and depending how you count the East Asian zone and how you count China within it, it's much higher than GDP per capita in the East Asian zone. To put things in perspective, Germany, the high technology heartland of the Western European economic zone, has a GDP per capita on par with the US state of Alabama. Now, of course, Germany is a much more sophisticated place than Alabama, and someone might choose to live in Germany instead of Alabama, but in terms of straightforward overall economic productivity, GDP per capita, how much is being produced divided by the number of people living in the territory, Germany as a whole is roughly equivalent to a relatively peripheral backward state of the United States. In the same way, Japan is even poorer. It's about roughly equivalent in GDP per capita to the US state of Mississippi. So again, the advanced high technology heartland of the East Asian economic zone is on a par with the most peripheral of regions of the United States. The Northeastern United States, which is a very large economic region of some 40 million people, here I'm talking about the region running from Northern Virginia all the way up to Maine, has by far the highest GDP per capita in the world, approaching $70,000 per person per year. That's in the same league as Luxembourg and Switzerland, except that it's extended over an enormous area and 40 million people. The secondary core of the North American economy on the West Coast in California again has some 30 million people and a GDP per capita in the range of $65,000 per year or on a par with Singapore, on a par with Singapore, but many, many times the size. The increasing dominance of North America and the global economy is being reinforced by human flows. This internet meme of a Chinese PRC graduate at Harvard Business School getting his MBA at Harvard, he's waving in the air the two symbols that presumably matter most to him, the Chinese flag and the all powerful American dollar. People like this are likely, Chinese people like this are likely to become multimillionaires, but the question is, will they become Chinese multimillionaires or will they in reality become American multimillionaires who happen to have assets in China? By 2050, many of today's Chinese fortunes will have become North American fortunes, largely due to emigration, in the same way that Russian fortunes have become British fortunes as Russian oligarchs have sought refuge in the United Kingdom. The first generation may remain Russian or Chinese, but their children are going to be British or American, and the flows of children from China are staggering of 4.2 million Chinese who have gone overseas to pursue higher education since 1979, only 2.2 million have returned to China, roughly half the Chinese who have gone overseas have stayed overseas and their children are going to be lost to the country. Not only that, the top 10 cities for Chinese real estate investment abroad are all in the United States, Canada or Australia. The top two destinations for private schooling are the United States and United Kingdom. In statistic after statistic, we see, first of all, most of all Chinese but also Russian money wanting to move to North America and secondarily United Kingdom and Australia. This is reinforcing a hierarchy that puts North America at the very top of the global economy. What we are seeing develop in the 21st century is not globalization, it's a strongly hierarchical regionalization with the United States and North America at the top, with Western Europe and East Asia in the mid levels of the global economy and the rest of the global economy consisting of singletons outside those zones. That does create some opportunities for countries that are outside the zones. Countries that are outside the zones are a mix of countries like Australia and New Zealand which are relatively rich. Countries like Brazil and South Africa and India which are middle income and countries like much of Sub-Saharan Africa and the Andean region and Central America, Southeast Asia that are relatively poor. In other words, it's possible for countries to pursue autonomous development in ways that make them rich or in ways that make them poor. On the other hand, among those areas that are on the peripheries of the integrated economic zones, Eastern Europe, Mexico and the Southern United States, Western China and Vietnam, the areas that are on the edges of the economic zones seem to have much less opportunity for economic mobility because they are already embedded in production networks in subordinate positions. So we should see the opportunity for countries outside these three economic zones to pursue autonomous development strategies that lead them to higher incomes. But those countries that are already well integrated into these zones will have a much harder time moving up in global hierarchies. Thank you for listening. I'm Salvatur Babonis. You can find out more about me at salvaturbabonis.com where you can also sign up for my monthly newsletter on Global Affairs.