First, thank you very much for the invitation. Of course, it is a pleasure to be here. As Mrs. Pino mentioned before, it was not the first time. I've been here before and I always come here with great pleasure. And thank you for the beautiful introduction. Perhaps it's useful.
I can try to speak in Spanish afterwards during the questions. You can ask your questions in Spanish, not only in English. And if I don't understand anything, there are very many friends here who will help with the understanding in English. And I would present for about half an hour this book.
The book, as you see, is called The Great Global Transformation. Of course, many of you would recognize Karl Polanyi's title there, because of course Polanyi wrote the book in 1942, which was called The Great Transformation. I of course took that title. I have to justify stealing the title and just adding 'global'. And I have to justify it by saying that I think actually we are witnessing a big transformation, which I will explain in a minute, at the global scale.
Of course, what Polanyi was writing was a transformation of the development of capitalism in England and Britain more broadly. So it was an enormous transformation, and of course Polanyi had a huge influence. I have to say that it had a huge influence on me, but in an interesting way: the first time when I read his book, which was many years ago, I did not actually understand the book sufficiently well. So it was only the second reading that I think I actually understood it. But this book is much simpler, so you don't need to read it twice. Once is, I think, quite enough.
So there is a little bit, since we started with economic history and with Polanyi, I have to say the book a little bit has, and I mentioned that, it tries to be a reverse Mandeville. Now in what sense is it a reverse Mandeville? As many of you know, Mandeville, Bernard Mandeville, was the creator of this interesting idea which was then partly taken by Adam Smith but also criticized by him, is that private vices, or what is called vice actually in the traditional literature, vice of self-interest, search for profit and so forth, if they are regulated, they become public virtues.
Because they become virtues because people, when the self-interest and search for profit is regulated, of course we do things which eventually increase our own income but also increase income of the others. Now in some sense what we are witnessing now, if I want to put it into that framework, is a little bit of a reverse Mandeville. And let me explain that this is actually the main story of the book. You will see that explained more as we go on.
But when I asked students, and actually I remember asking that in a very large auditorium, a very big lecture in Copenhagen, and then I said, 'Are you guys in favor of countries becoming more similar or equal in terms of their mean income, like GDP per capita? Who is in favor of that?' Everybody says, 'Yes, yes, we are in favor.' Then I say, but if that leads, as I would actually argue here in the book, if it leads to the hegemonic conflict between the new hegemon like China and the old hegemon that doesn't want to give up, the US, then equalization of power between the nation states may be good, but it might lead to a conflict.
So we have really in this case a sort of a private, in some sense, private virtue and really the public vice, because the outcome could be a conflict or a war. Secondly, when you ask people, are you in favor of the reduction of global inequality? Everybody again is in favor of that. It's an abstract idea and you have really to be a very bad person to say that you're against equality.
But then if you say, okay, well, that means that people from the countries that are growing very fast and they are very populous, and in particular of course India, China, Indonesia, Thailand, Vietnam, they would gradually sort of overtake you in the income rankings. So you might not actually like being, you got used to being, particularly the western part of the world has been used to be in the global 20%. But if somebody gets ahead of you, you might not like that. And then this is the second ambivalence.
So between these two ambivalences, I would then basically try to organize my talk. The first part, the first chapter, I will not go through each individual chapter, but I want to say the first chapter is entirely empirical and it works empirically on two levels. It works at the level of nation state and looks at the change which has happened since 1974. My starting point basically is the idea of the New International Economic Order in 1974.
And from that point I just go on with the end of the Cold War, fall of communism, neoliberal renaissance, and the end of neoliberalism. And of course this is a big change. This is a graph where in the red color are actually western countries which are kind of paired with similar countries in blue color from Asia. So the first graph that everybody knows, which is on your upper left corner, is that China in terms of total production of goods and services at purchasing power has overtaken the US as the largest economy in 2015.
The Chinese don't like actually to be mentioned as the largest economy. If you read their official publications, they always say that they are the second largest economy. But of course, it is true in exchange rates, but it's not true in PPPs. Then I have the other comparisons here between the Netherlands and Indonesia, which is a very dramatic change. As you can see, actually the blue line goes way above the red line.
But one which is interesting too is UK versus India. In 1980, I think, UK and India both produce 3% of the global GDP. Well, today India produces nine and the UK produces two. So this is a big change in the distribution of economic activity across the world, and of course the big change is the rise of Asia. And as there is a rise of Asia, we are talking about relativities, then obviously the share of the others has to go down.
A different way to put that is actually using, Lant would of course recognize Maddison's data here, using Maddison's database and Maddison's data, is just simply looking over the whole period from 1750, what was the relationship between GDP per capita of China versus, and actually the other countries in this case Indonesia and India, versus the UK.
And of course what you do see here is that share went down, the ratio went down from 40%. In other words, Chinese GDP per capita was 40% of the UK, it went all the way down to less than 5%. And then in the last 40 years it is now above the point where it was before the industrial revolution. So in some sense we are having a return of the distribution of economic activity in the greater Eurasian space, and I include there North America too.
What the Eurasian space, which is called the world island, is now I think sort of going back to the distribution which existed four centuries ago in terms of the relativity. Obviously income levels today are much higher, but this also has an impact on individual incomes, and that's the point.
So when you speak China, US, Indonesia, France, so on and Vietnam, you speak of countries and you speak of what is the importance of different countries. But that importance of different countries gets translated into incomes. Like the question was an obvious question, like why are the westerners the richest people in the last two centuries? Because their countries actually had a takeoff. The industrial revolution took off. India was actually flat. China went down.
So obviously the top people were people from the countries that were most successful, and consequently when now other countries kind of come up, then the ranking in the global income position changes. What changes is also global distribution. The graph is here, the graph is in income levels. These are individual data. Now this is actually totally different data. This is data from household surveys, in some cases mixed with tax data, but it is actually the data on the distribution of individual incomes.
And what you notice here between 1988 and 2018, that distribution has changed in two very important ways. First, it has moved to the right, which means that actually incomes in the world have increased, and that has moved throughout actually from the left to the right, you see an increase and you see movement. And secondly, you notice that the distribution is now much more symmetrical than it used to be in the past.
Really people from poor countries, this is still people, this is not countries in this case, people were really located at low level of income and they have now moved towards the middle and they have made the middle thicker. So some people speak of the global middle class. I think it's maybe a little bit too much to say it's a middle class because from the western point of view these are relatively, you know, poor people. We are talking here about three or five thousand dollars per year in PPP terms. So this is not the western middle class, but they are in the middle of the distribution.
2023. I just simply want to show that it's very similar to 2018. But unfortunately and ironically, we have less data now than we used to because of a really significant decline in the data on individual incomes from African countries. So the distribution 2023, as you can see, looks more or less like 2018, but it's a little bit slightly different, and I think it's different because of the lack of data from the poor countries.
An important thing, and I will go through this complicated graph very briefly, but this graph shows you the importance of China in the reduction of global inequality. Start with the year 1978, which is in the middle. So you can forget the previous year. Start from 1978 when there's Chinese economic reforms and the beginning of growth in China. Everything that is below the line of zero, which is that red line in the middle, shows you China contributing to the reduction of global income inequality because it's a poor country, it has lots of people, and it's going fast.
What is happening at the end period? China now is a slight contributor to global inequality because as China becomes richer and richer, it becomes far apart from very poor large countries in Africa like Nigeria, Sudan, Egypt, Congo, Tanzania, and you know even Bangladesh. So it actually adds to global inequality.
So we cannot say anymore China, as we used to say, China is an engine of reduction of global inequality. It is no longer, because it has become sufficiently rich that its own growth creates more distance between China and the rest of the world than gain because of China catching up with rich countries like Europe and the United States. So I think it's an interesting point there because the essential action when it comes to reduction of global inequality now moves to India and large African countries.
I mentioned six or seven of them that all have about 100 million people and they're the only part of the world with growing population. Now we have seen, oh wait, did I, I have one more, yes, let me, this is an important graph, so the next one comes after this one. This is an important one because what it shows, and then I really would like you to be careful on this one. Start with China on the left and the blue line says the following.
On the horizontal axis you have 10 deciles of urban China. This is currently 800 million people. It was less before. And then you say, okay, on the horizontal axis I have the first decile, which are the poorest people in urban China. Where were they in 1988? That's the blue line in the global income distribution. Obviously, they were very low. As you can see here, they were at the 15th percentile.
But you also notice that over the next 30 years, everybody in China went up because at every point of the distribution in China, incomes increased faster than the world average and they moved up. So the person who was in the median used to be at around the 50th global percentile. Now this person is at the 75th.
And you say that's excellent because, you know, we are very happy that the Chinese have grown so fast and that actually they are now richer compared to the world and actually richer in real terms than they used to be. But if somebody moves from the 50th percentile to the 75th percentile, well, somebody who was at the 75th percentile has to move down because obviously we are talking about ordinal ranking.
And the most interesting case for me is Italy because as you know Italy has not grown in 30 years and since it has not grown, the parts of its income distribution which are on the right have really deteriorated significantly in global terms. They lost about 10 percentage points. So people in Italy who were at the 75th percentile 30 years ago or 35 years ago are now at the 55th percentile. So it's a big change.
And many people tell me, and we will of course discuss that later, so I will not go into all the details, but many people say, well, who cares, because of course they, you know, they don't know, nobody knows what percentile you're in the world. But I think there would be certain goods, and there are certain goods that become unavailable to you simply because they are too expensive for your income level. These are obviously internationally priced goods and we will discuss that.
But I think what is interesting, this problem of the red line being dropped very significantly, is not only an Italian problem. Every rich country that you look at has exactly the same shape. The Italian shape is more dramatic, but the same shape exists for Germany, for Spain, for the United States, and for an interesting part, for Latin American countries, Brazil.
That shape is a little bit different because who lost in Brazil global income position? People in the middle. People at the bottom in Brazil, they were the bottom of the world before and they remain the bottom now. People at the top in Brazil were at the top of the world in 1988 and they are still the top of the world. But people who lost in Brazil in position were the middle, and the same people actually, similar income, all like this, people who were in Europe at the lower part of the income distribution.
So this graph, I think we will probably discuss it more, but I think it is a summary of basically what happened, and I think what happened also politically in the West, because we have had I think two developments in the western countries. One is the reduction, the lowering of the relative income positions of the lower part of the western country's income distributions. So this is this slide.
Secondly, that slide took place when of course the middle of the distributions and the top of the distribution in Asia went up, and when their own national top percentiles remained at the top and actually grew at the rate which was higher than the rate of growth which they experienced. So that was the kind of the second development that I mentioned before, where actually you have an improvement in global income distribution, but you have a big reshuffling in global income positions, and people who are being reshuffled downward obviously are not particularly happy with that outcome.
Now I will skip some of the slides because this is simply the same story which compares US and China, and I will finish this part. And I think actually I'm close to even taking all my time, but I want to finish with an interesting sort of also perspective on what has actually happened.
If you take simply the max, the year when the GDP per capita of a given country has reached its peak compared to the world, what you find is essentially Asian countries, and as last year is 2022, Asian countries are really all now at a peak, at relative peak. So China now is at the peak income compared, I mean we go back to 1950, not before that, but compared to 1950, actually any year since 1950, China had never been at such a relatively high position.
The same is true as you can see here for Indonesia, Bangladesh, Vietnam and so forth. When you look at the rich countries, you have the anomaly of the United States whose peak was 1952. And this is an anomaly because of course the rest of the world was destroyed. India was still colonized, China was in the civil war and so forth. So the peak of the US was in 1952.
But generally the western countries, European countries had a peak in the 1990s, and as you can see here, Spain 2002, I think Italy was 1995 and so on. So in other words, they are on a relative decline since about 20 to 25 years. So this is the same story that I've actually sort of explained before, but it's simply shown in different language.
I will skip chapter two, which is a more theoretical chapter which deals with one fundamental issue which asks the following question: What did different people, important thinkers, think about the relationship between trade and war or peace? And here we do have a division. We have people like Montesquieu most famously who actually talked about trade leading to peace.
I have to say that when I read Montesquieu I was surprised how little he writes about that. You know, we all speak of that chapter where counting member 21-22, but that chapter mostly talks about ancient history and different ethnic groups and tribes fighting and all of this, but really the leuke part is relatively small and it's actually written with quite a lot of caveats, but I will not go into that. You can read the book and see the caveats.
But nevertheless, of course, he believed that trade makes the behavior of people, as you can see, sweeter, nicer, and consequently that trade is a force for peace. Adam Smith has a very interesting view which I'll explain in a second. And of course, the negative view that trade is basically imperialism by other means. It goes back to Hobson, Lenin and Rosa Luxemburg, who actually see trade as an engine of war because of the domestic lack of sufficient aggregate demand.
That was the story in Hobson, and that lack of sufficient aggregate demand requires that nations conquer other nations, and since everybody does the same thing, they of course fight about the nations that they would like to control. That whole story I applied at the different periods of US-China relations, and I think this part is interesting. It is nothing specially new, but it's nice when you look at the theoreticians of the relationship between trade and war, and then you look at the US relationship with China since 1949, if you can say.
And I was very happy actually that a number of people who do work on China, I know much more than I, were quite happy with that chapter. And of course that was a big change in the relationship, at least three changes: you know, the original enmity, then conciliation and de facto alliance against the Soviet Union, and then good relationships in the 1990s, 2000s, and now change today.
But I want simply to mention, and I think I have this quote from Adam Smith which may be difficult to read, but I'll tell you the main story there because I think it is a quote which is very seldom mentioned and I find it extraordinarily well written and extremely challenging. What he says is that trade promotes convergence in incomes between the countries.
But economic convergence also means convergence in technological and military power, and equality in military power ensures peace. So what is interesting in Adam Smith, it is not trade per se like in Montesquieu which would bring people to become peaceful because they have mutual interest to kind of respect. It is really balance of power that brings peace.
And so I think it was actually very interesting, particularly since actually as he starts he speaks of the inequities committed by the Europeans when they conquer the rest of the world, and he then looks forward towards the rest of the world becoming more powerful so that the relativities between the West and the rest of the world be reduced and consequently that they fear each other and don't fight. So I think that is one paragraph, but I think it's very pregnant with the number of meanings that one can actually see there.
Chapter three, since China and the US play such a big role, is an empirical chapter also, but it's an empirical chapter that looks at the structure and composition and characteristics of the elites. For the US, I looked also, that was all done with the different co-authors, both the United States and China. We looked at for the US at the top 10% over 40 years.
Now what is interesting there, without going into great details, is that what you observe, and let me just show you the graph on which actually even Spain is there as well, Spain is in red there. What is this? This is the percentage of people who are in the top decile, which is top 10%, but who are at the same time, and this is extremely important and at first sounds counterintuitive, people who are in the top decile but they are the richest capitalists, they are in the top decile by property income, and they are the richest wage earners because they are in the top decile by wage.
Now think of this, think of Spain in 1950. Are you going to have in the top decile, are you going to have not only a doctor or a lawyer? That's not sufficient. You have to have a lawyer and doctor who is also among the top capitalists. It's not going to be very likely.
And actually when you look at Latin American countries, Mexico is here on the bottom, you find relatively few of such people. You can have people with liberal professions or software developers or whatever who are there and who get income, and of course financial sector who get income from labor. But in order to be what I call homoplutia, homoplutic rather, to be equally wealthy, to be wealthy in both labor and capital, you have to have somebody with very high wage now, which places him in the top decile of wage earners. So he's a worker.
And that same person has to be also among top capitalists, which means that he has lots of property. And as you see on this graph in the US, and we use actually three different data sources for the US, we do find an increase in that elite, homoplutic elite, which now represents one-third of the top 10%, which means it's a real elite composed of about 3% of the American population that has at the same time highest income in terms of capital and very high income in terms of labor.
And this is a new, that's what we call the new capitalism, that certainly could not have been forecast by Marx or by Adam Smith because for them the distribution between factors of production, labor and capital, and actually whether you're the owner of capital or labor, determined your position in the income distribution of the country. But here we have actually a very unusual situation, and that situation of course has implications.
This is actually across different countries of advanced capitalist countries, and of course there are the differences, this is like today's data, the differences between more advanced countries where you have about 25% or 30% of people who have this feature in the top, 25 to 30% in the top who have the feature of being richest capitalist and richest workers.
And of course in less developed capitalist countries, when I say less developed it's not by GDP per capita alone, it's by social relations, you have that percentage that is much lower, it's under 10%. That has many implications which I will skip, is that I look there at the idea of the managerial class because there are some similarities between that and the idea of the managerial class that existed from the 1940s to the 1970s.
But what is interesting here is that these people are not managers in the sense that the managerial class literature of James Burnham, Raymond Aron, John Kenneth Galbraith thought that they would be indifferent to private ownership. Since they are the largest capitalists, they are interested in security of private ownership. So it is a very interesting development ideologically as well, and as I said I discuss it, and that can be something which can be discussed quite a lot.
Now what is happening in China, we look there at the top 5% of the urban income distribution. Chinese data, in a sense because they're really sort of Marxist-oriented data, are quite rich because they sort of assort people and give them labels whether they are small capitalists, large capitalists, professional managerial class, bureaucrats in the government, bureaucrats in the Communist Party.
And so what is interesting here, focus on the blue color. The blue color in 1988 is quasi non-existent in the sense that this is the percentage of people in the elite who are small or large capitalists. This blue color is really almost non-existent. This is elite of the top 5% in the urban distribution and most of that elite depends for their income on the state sector.
They could be working in state-owned enterprises as engineers, directors and so on, or they can be working in the government administration, or they could be working in CPC administration. And then if you go further, and we have the data which are not in the book but we have them now for 2023, what you notice, the blue color goes up, and that blue color are small-scale and large-scale capitalists.
They are defined in Chinese terminology: if you are owner of a company which employs less than eight workers, you are kind of self-employed and small owner. If you have more than eight workers, you're a big owner and you're a big capitalist. And that blue capitalist part of the bar, as you can see, really dramatically goes up between 2018 and 2023.
No, that stays the same actually, which of course then has something to do with the current government in China. And you also notice that the green part, the light green part, which is professional managerial class, becomes much more important. So if you now add professional managerial class and the capitalist class in the top 5% of the urban population in China, you have them at more than 50%, actually they are reaching almost 60% of the people in the top.
And I will finish with an extremely interesting detail. I don't know if I have it here, yes I have it here. Interesting detail that because the data also provide information about CPC membership. What is interesting is that overall obviously CPC membership gives you a certain percentage advantage over the others when you put it in the equation, when you look at all the other components like education, number of years of experience, position and so forth.
But who has the largest advantage of everybody that we had in the database? Large capitalists. So the large capitalists in China with CPC membership gained something like I think 30% over an equivalent capitalist without CPC membership, which is at first sight only strange because you mix two words which somehow should not be together. You mix Communist Party and you mix big capitalist.
But when you think of the structure of the Chinese system, it does make total sense that it really pays for you if you have large companies and you're very much involved in entrepreneurship and so forth, and you eventually depend also on the government, that you would like to have a say in how government decisions are made, and it really helps you to be a party member.
So that of course we, I mean, they discuss in the book actually how that can be interpreted and how that can be made similar to similar advantages that of course the top of the income distribution in the United States uses, whether it is so-called meritocratic education advantage or the others. So that was the end of the third chapter.
And I will not speak of the fourth chapter, it is the title subtitle of the book, but I think we will discuss it today. This basically discusses the likely future in some sense, maybe the most interesting chapter, but I think you need to come to that chapter one by one, not to kind of just go to that chapter, because it deals with Trump, with Xi Jinping and Putin, and sees them as what I call them, but without a pejorative meaning there, counterrevolutionaries.
In the sense that all three of them have used the forces within their own country which were unhappy with neoliberal globalization and the excesses of power that was brought up by neoliberalism. So the social forces in China, US and Russia are different, but the reaction is somewhat similar.
And so when I put them together, I don't put them together for like just reasons that many people just put them because they don't like them. I see that there were social forces, social waves that brought them to power, which of course also means that it would be more difficult to imagine the world when it is, I think wrong to imagine the world where one or three of them all go at the same time disappear and we go back to the 1990s.
We are not going to go back to the 1990s. That's, I think, a world that will not come back. And so that was the last chapter, although this is not the last last, because there is a chapter composed of four or five pages which is titled somewhat enigmatically Nationalism, Property and Greed. Greed is an important element, and as I say here, it needs to be read because it really defies summarization.
So I will stop there. Thank you very much.
