How Chips Rule the Modern World — with Chris Miller

Chris Miller, an Associate Professor of International History at Tufts University, and the author of “Chip War: The Fight for the World’s Most Critical Technology,” joins Scott to discuss how chips became the new oil, who the major players are, and how these tiny materials created the modern world. Plus, we learn more about China and Russia’s unique relationship. Scott opens by discussing Twitter, Q1 2023 results, and why he does not think we should pause AI developments. Algebra of Happiness: just book it. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 0:48Speaker 01

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• 1:18Scott Galloway?

  Episode 244. 244 is the country code belonging to Angola, a country located on the west coast of Southern Africa. In 1944, the infamous D-Day landings took place on June 6, marking a major turning point in World War II. And Pfizer, the maker of Viagra, opened the first commercial plant for large-scale production of penicillin in Brooklyn, New York. True story, I started a support group for men with erectile dysfunction, but no one came.

• 1:44Speaker 02

  Go, go, go!

• 1:54Scott Galloway?

  Welcome to the 244th episode of the Prop G Pod. In today's episode, we speak with Chris Miller, an associate professor of international history at Tufts University and the author of several books, including Chip War: The Fight for the World's Most Critical Technology. We discussed with Chris exactly that, how chips became the new oil, who the major players are, and how these tiny materials created the modern world. Chips, all of a sudden, they are just huge. We're not talking about Eric Estrada. My god, was he dreamy in that uniform. Okay, what's happening? More hoopla around Twitter. Legacy blue check holders were supposed to lose their checks over the weekend if they didn't sign up for the $8 a month subscription service, or $1,000 a month for businesses. Yet, as we record this on Monday, April 3rd, nothing appears to be different on the platform.

• 2:39Scott Galloway?

  Why? Why? It made no fucking sense. It's literally like, how do we figure out a way to destroy the value of something so we can charge for it? The whole point of the blue check was that you were who you said you were, adding value to the rest of the network. And when anyone can buy your blue check, you've totally undermined or diminished the value, making... This makes no fucking sense. It's like charging admission to a pool, and then, once people are inside, paving over the pool. It just... I don't know what the right analogy is here, but this business strategy itself undermines or kills all the value that they're ultimately trying to charge for. By the way, I have no problem with subscription. I would like Twitter to go subscription.

• 3:22Scott Galloway?

  If they would elevate my content, if they would verify my identity, such that they could age gate certain content, such that they could provide the network with certainty that I was, in fact, who I said I was, such that I could have a means of ensuring or reducing the amount of vile comments, or maybe just shutting off, and you can do that right now, but I'd like more people to adopt identification verification, I would pay for it. I think subscription is the way to go. I think the thing that's kind of screwed the internet, and to a certain extent, America... Is the ad-supported ecosystem advertising built the internet as a result, it turned into an attention grabbing monster that will do anything to maintain your attention. And we all figured out that that goes to very dark places. So what happens to a site where

• 4:05Scott Galloway?

  one of the real value propositions is accurate news and then viewpoints when you don't know which of the 44 blue checked New York Times accounts is providing with fact-checked information? So what else is going on at the shit show better known as Twitter? The Doja Coin symbol replaced the Twitter bird on the desktop version of the homepage. And what do you know? The crypto token is up more than 20% during the time of our recording. We're kind of in uncharted territory here. We have the president or former president that's been indicated. And we have an individual who spent $44 billion and has decided, and you can spend $44 billion, this is the ultimate sports team. When I was on the board of the New York Times, every billionaire Democrat in the United States called me and said, I'd

• 4:48Scott Galloway?

  be interested in financing the New York Times, which is Latin for they would wake up every morning, look in the mirror and say, hello, publisher, New York Times. Everybody wanted to own it. There was a wealthy Democrat. Wealthy Republicans like to buy football teams. This is the most expensive football team purchase at 44 billion, but it's worse than that. Imagine you're a 52-year-old overweight guy with a hair transplant. That was uncalled for. That was uncalled for. That was both look-est and age-est. But anyways, I'm going with it. Imagine that guy buys the Tampa Bay Buccaneers and then decides he should be the quarterback. Do you think it's any accident that he has now the largest Twitter following, surpassing Barack Obama? That he's doing shit like putting Doja Coin on? I'd love to know what his Doja Coin holdings are after putting the symbol on the front page of Twitter. This is where we are in uncharted waters right now. We have an economy

• 5:32Scott Galloway?

  and the biggest platforms in this economy reward this type of behavior that just gets attention. It's not about adding value. It's about getting famous. And one way to get famous is to pose for the algorithms and the algorithms of controversy, anger, and anxiety. And these guys have that in spades. Okay, so speaking of news involving Elon Musk, he along with a thousand other tech leaders and researchers are calling for a pause on the development of powerful AI tools, saying that they pose, open quote, profound risk to society and humanity. Oh, my gosh. This is wild. And let me be clear. Some of the people who I respect most in the world have signed this letter. And the general concern is that this technology is getting out in front of us so fast that we might

• 6:16Scott Galloway?

  Get into a situation where we can't control it. I don't understand this, quite frankly. I am someone who believes we should not pause it. And I, but I want to recognize I am open to change here. I'm open to people smarter than me weighing in and saying, no, we should push pause. But the question is, and there's two questions. Could it be bad for the world? Yeah, most technologies offer externalities, but is it? Is the risk of the externalities here so bad that we should press pause? And also, I think the bigger question is, how do we press pause? When you have a nuclear arms treaty, you can verify, you can do side inspections. You can register if someone is testing a nuclear device. There's an earthquake and you know, okay, they're violating the treatment.

• 6:57Scott Galloway?

  Or you can have inspectors from the International Atomic Energy Authority, whatever it's called, show up and make sure that you're not producing uranium enriched materials in that factory that has a big sign that says baby milk. How do you track? How do you monitor artificial intelligence? And to be fair, they're saying they want to stop the training on it. My view is that if we can't figure out a way to have a multilateral pause, which I don't think we can, do we want to give the Iranians, the North Koreans, the Russians and the Chinese the opportunity to catch up to us? So my feeling is we have an arms race here. And just as Einstein registered, there'd be some real downsides to society with splitting the atom. The even more frightening outcome of splitting the atom is what happened if Hitler figures out a way to split the atom first?

• 7:42Scott Galloway?

  So I think there's some real analogies to the past here, specifically Oppenheimer and the Manhattan Project. But my view is, and again, I'm very open to being talked off this position, is that we want to establish regulatory bodies. We want to get very thoughtful people together. We want to monitor it. We want to put in place laws and regulations and supervision such that this thing doesn't get out of control. But it also offers incredible upside around preventive healthcare, around modeling proteins, around treatment of what had once been incurable diseases, treatments of things like obesity, managing people's diets, figuring out a way to extend and disperse preventive healthcare. I think there's a huge opportunity around AI.

• 8:24Scott Galloway?

  And for the downside, shouldn't we be able, shouldn't the artificial intelligence or the large language models be able to figure out defense mechanisms as fast as we can figure out offensive mechanisms? It's probably not an apocalypse. I think the thing they're worried about is things like malware or phishing. scams. You know, you get a taste of where this could go and how it could be very, very ugly and damaging on an incremental level, or whether it's coming up with malware that might infect, that might affect the power generation systems at hospitals. You know, the mind goes a lot of places, both negative and positive. But until, until we can have a multilateral pause, I don't want to disarm unilaterally. I want us to own this. I want us to become really good at it. Should we be more careful with it than we were with social media?

• 9:09Scott Galloway?

  Yes. Should we be thoughtful about multilateral discussions around common cross-border protocols that ensure this thing doesn't get out of hand? Absolutely. But in the meantime, in the meantime, I do not want to press a pause and let other bad actors catch up to us. Let me know what you think. I come at this from a position of humility. I am not an expert on this. This has a lot of nuance to it. And I am willing to evolve and change my position here. Okay, what else is happening? The first quarter of 2023 has officially wrapped and some highlights include the NASDAQ had its best performance in Q2 of 2020 with a 17% gain. Well, champagne and cocaine for the dog. While the S and P 500 was only up 7.5%.

• 9:52Scott Galloway?

  7.5% isn't bad considering it's the index's second consecutive quarter of growth. What's crazy about the S and P, though, is that Apple and Microsoft accounted for about half of the index's gain during the month of March. Think about that. Half the gain of the S and P, two companies. The New York Times reported that the market cap of Apple and Microsoft combined would be the third largest sector of the S and P behind tech and healthcare and larger than the entire energy sector. Anyways, the best performing firm in the S and P 500? You guessed it, Nvidia, which was up 90% for the quarter. Bloomberg reported that this was Nvidia's biggest quarterly gain since 2001. Meta was also a clear winner in Q1 with a 76% jump. Who predicted? Who had Meta as one of their three stock picks for 2023?

• 10:37Scott Galloway?

  One guess, one guess only. Bloomberg noted that this was Meta's biggest quarter since 2013. The bottom line, these things just got oversold. The narrative was that the increase in interest rates took an especially harsh toll on growth companies. Makes sense. Greater interest rates means it costs more to finance your growth and those future cash flows are worth less when you reverse engineer them back. So both the one-two punch of it's more expensive to fund cash flows that are going to be worth less. The punching bag in the middle is the stock price, but it probably got overdone. Also, to be fair, the technology sector has become more agile. They said, I know, let's take a hard look at our operation, our costs, specifically employees, and let's start laying off people. And not to diminish the pain this causes, but it's been the gift that keeps on giving for shareholders.

• 11:22Scott Galloway?

  Every time they announce a layoff, the stock's up five, seven, nine percent. And the reality is, we have stuffed so many calories down the esophagus of these companies that there was fat everywhere. If you have 40% margins, that means you can either increase top line revenue by two and a half dollars or cut costs by a dollar and you get the same net outcome. And what has tech decided to do? They've decided to cut costs. You're going to see this across the entire growth economy. It's just getting started. Well, maybe that's not true, but probably an inning five or six of a nine inning game. But the market loves it. These companies are coming back stronger. What was another one of my predictions at the end of 2022 for 2023? That Amazon, Meta, Alphabet would all see their revenue increases level off. They would all abate.

• 12:06Scott Galloway?

  But, but despite a revenue slowdown or a revenue growth slowdown, they would have their most profitable quarters in history towards the back half of this year. Why? They're bringing their cost base down. Other quarterly highlights or lowlights? The KBW Bank Index, which accounts for the top 24 banks in the US, was down nearly 18%. Look for that to come back. I think that's been overdone. Different talk show. Bitcoin jumped more than 70% with major gains coming on the heels of the collapse of SVB. The price rose 40% in the two weeks following the banking crisis. I think this is bad. I think there are too many people that have a vested interest in the decline of the US banking system and our agents of chaos and constantly catastrophizing. They're kind of the ultimate short sellers, but they're basically going short the United

• 12:51Scott Galloway?

  States. Bitcoin was up 72% in Q1. Oh my gosh. The banking index was the biggest loser, down 18%. Wheat was off 13%. Brent crude was down 7%. Probably means inflation should start to come. Come down. We are in a deflationary part of the cycle, I believe, and that is deflationary in the sense that I believe that inflation is going to continue to come down. The other big news, Virgin Orbit halted operations after failing to receive funding and cut 85% of its staff. The Financial Times reported that Virgin Orbit was burning through 50 million a quarter. Bottom line, bottom line, space is not impressed with brand. And I realize I'm patting myself a lot on the back. I'm getting blisters on my back. I'm patting

• 13:32Scott Galloway?

  myself so hard. Let's give me a medal. Anyways, I was the original hater of the space industry. I think it makes no fucking sense. With the exception of one company, SpaceX, space hauling does make sense. There's a lot of people want to put satellites into the air and SpaceX is doing it better than anyone. Everything else, Virgin Galactic, Virgin Orbital, this shit makes no sense. But wait, Scott, wasn't Virgin Orbital putting satellites into space? Yes, they were, but they were undercapitalized. Also, of all the billions of planets, there's only one that appears to have brought together all the factors such that it could support life. In the moment you get just a millimeter away on a cosmic level from that wonderful thing called Earth, shit gets real, as in materials start to break down, much less people being able to survive. Do you know how hard it is to keep astronauts alive in

• 14:15Scott Galloway?

  space? Really hard. That's why so many of them die. 11 of the 550 people that have gone into space have not returned. And to think that anyone gives a shit, specifically when I say anyone, space gives a shit about brand or an incredibly charismatic founder? Guess what? Guess what? It doesn't. This company was undercapitalized. And who's next? Virgin Galactic, which makes absolutely no sense. When Bob is immolated on the launchpad, that industry goes to zero, but it's not even going to get that far. This thing makes no sense. This company is undercapitalized. I have never seen a company more demand constrained and supply constrained. What does that mean? Companies are one or the other. Okay, right now I could sell a lot of nuclear power plants. There are buyers for them, but they are supply

• 14:58Scott Galloway?

  constrained. They are difficult to manufacture. They take decades sometimes. A chip plant costs $20 billion to produce. Or most businesses are demand constrained. I could produce a lot of messenger bags. I could produce a lot of Nikes, but you got to find people to buy them. Virgin Galactic is both supply constrained, putting people into space is really hard. Their supply of seats on a suborbital, semi-orbital, whatever you want to call it, transport is very hard, supply constrained. It's also demand constrained. There just aren't that many people who want to spend $400,000 to go for a 20-minute joyride near space and get their astronaut wings. That market is pretty limited. This is a company, I've never seen a company

• 15:42Scott Galloway?

  more supply and demand constrained. Virgin Orbital is going to zero. Virgin Galactic is next.

• 15:50Scott Galloway?

  We'll be right back for our conversation with Chris Miller.

• 15:56Scott Galloway?

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• 18:19Scott Galloway?

  Welcome back. Here's our conversation with Chris Miller, the author of Chip War: The Fight for the World's Most Critical Technology. Chris, where does this podcast find you?

• 18:28Speaker 02

  I am right outside of Boston, Massachusetts.

• 18:31Scott Galloway?

  Good stuff. So you wrote this book, Chip War: The Fight for the World's Most Critical Technology, and you said in the book that we don't think about the chips, and yet they created the modern world. So let's start there. How did chips create the modern world?

• 18:46Speaker 02

  Well, chips provide all of the computing power that we rely on in our smartphones and our PCs and data centers. And if you think of the modern economy today or the way we live our lives, we can't function without chips. They're in all the devices that we rely on, but they're buried deep inside, so we never actually see them and hardly ever think about them.

• 19:08Scott Galloway?

  So I've read a bunch of places that if you want to understand geopolitics and power over the last 100 years, you just need to track the flows of energy. And now it seems like the likely replacement for oil is chips. If chips, in fact, become the new oil, well, first off, do you agree with that? And two, if that's in fact true, who leaks power and influence and who accretes it?

• 19:30Speaker 02

  Well, I think that analogy is largely correct. Chips are as important today as oil was in the 20th century. But what's interesting is that their production is even more concentrated than oil. So we think of Saudi Arabia as a big producer of oil, but it produces 10% or 15% of the world's petroleum, whereas semiconductors are even more concentrated. So today, Taiwan produces 90% of the most advanced processor chips, the types of chips that are in phones, PCs, data centers. And there's just one company that has that extraordinary market share. So there's actually more concentration, therefore more influence that accrues to the producers of the most advanced chips.

• 20:10Scott Galloway?

  So 90% in Taiwan? I didn't realize it was that concentrated.

• 20:15Speaker 02

  For the most advanced processors, that's right. So you, it's hard to buy a smartphone without a chip from Taiwan inside, for example.

• 20:23Scott Galloway?

  I mean, just hearing that, so I immediately go to geopolitical concern. And that is if 90% of the world's oil output came from one region and abutted up against an increasingly powerful and hostile actor, doesn't that likely increase the likelihood of an invasion of Taiwan? Because it's worth the risk to get that 90%?

• 20:41Speaker 02

  Well, the challenge is that you can't just take it over very easily. The chip making facilities are full of the most precise machinery humans have ever invented, all sorts of explosive chemicals. And more important than the machines are the minds of the engineers that actually operate them. So it's not something you could simply invade and take over.

• 20:59Scott Galloway?

  So you're not just capturing an oil field?

• 21:02Speaker 02

  That's right. It's a lot more complex than that. And the chips are made in Taiwan, but they're made using machines and chemicals and software that's sourced from the US and Europe and Japan as well. And so you really need to control the entire supply chain in order to get access to the chips you want. And the problem China faces today is that all of the key nodes in the production of chips, from the design to the manufacturing, to the chemicals, they're largely produced in rivals of China, in Taiwan, in the US, in Japan.

• 21:33Scott Galloway?

  Do you think it was a good idea? My understanding is the Biden administration has taken pretty aggressive moves to inhibit the flow of some of the key components from making these advanced chips into China. Do you think that's a good idea? Or are we kind of backing them into a corner?

• 21:48Speaker 02

  Well, I think there's a risk that we're backing them into the corner, but the alternative doesn't look very attractive either. Before last year, last October, when they put these controls in place, China could access the most advanced chips, the type of chips used to train AI systems in data centers with relative ease. In theory, it was illegal to transfer these chips to military users in China, but in practice, it was impossible to police how they were used once they entered China. And so the Biden administration judged that it was better off to take the risk that China would retaliate in order to cut them off from accessing these chips, without which it's practically impossible to train large numbers of AI systems efficiently.

• 22:28Scott Galloway?

  How did Taiwan get to this level of concentration? Was it a big national investment? Is it their education system? Is it just a brilliant move by them to double down on this one industry? How did we get to a point where they're controlling 90% of the sweet, like crude, if you will, the best oil, so to speak?

• 22:48Speaker 02

  Well, it's partly due to the Taiwanese government. They invested very heavily in semiconductors over the past several decades, and they actually put up a lot of the capital behind the firm TSMC, the Taiwan semiconductor manufacturing company that produces these ultra-advanced chips. But it's also due to the fact that this company, when it was founded, had a really unique business model. Before this company was founded, almost all chips were designed and manufactured in-house by the same company. But TSMC doesn't design any chips. It only manufactures them. And so it's been able to attract lots of customers, scale to a really unforeseeable degree. And in that process of scaling, reap great efficiencies

• 23:31Speaker 02

  and also learn to hone its manufacturing processes over the larger number of chips it produces. So the business model was really unique when it was founded, and it's proven a real competitive advantage.

• 23:43Scott Galloway?

  So one of the things I keep hearing about in terms of the Ukrainians' surprising and inspiring ability to repel this much larger invading force is that they just have a greater mastery of technology. Is this the war that's sort of where chips take over?

• 24:00Speaker 02

  You know, I think there's some truth to that. Certainly, the Ukrainians have been much more agile in their ability to take technology and deploy it in new ways, where the Russians have been very slow to adapt. But I think what's striking is that the Ukrainians are doing so often using off-the-shelf technologies. So if you look at the drones that they're deploying, for example, they're not ultra-advanced drones, they're simple drones that they're able to use in large numbers because they're simple and low cost. And so in some ways, it's a high-tech conflict, but in other ways, it's a conflict using accessible consumer technologies that are being deployed in new ways.

• 24:36Scott Galloway?

  But to your point, it's about the humans, right? These are, I mean, I had invested in several companies that had large programming centers in Ukraine. And I imagine, I heard this one story. So I'm an investor in a company, and they had a small group of about 13 programmers over there. And Ukraine had a lot of, has a lot of tech talent. And then on the Monday after the invasion, 11 of the 13 were gone because they'd joined the Ukrainian army. And I imagine, okay, you have all these, this strong tech hub, this strong technologically sophisticated, adept, agile workforce flow into the armed forces. Isn't that just, it

• 25:19Scott Galloway?

  strikes me that this is a, this might be the swing, the swing skill, if you will, in the war. Is that, back to your notion around the reason that Taiwan makes these chips is not only they have the factories, but they have the human capital. Is this, again, a war won by, you know, technical domain expertise?

• 25:39Speaker 02

  I think you could make that argument. I think if you compare it to the Russian army, where the bulk of the soldiers now have been conscripted in via forced mobilization. It's just a totally different army that Ukraine's fighting with, with lots of people who voluntarily signed up, people who are much more enthusiastic about being there and as a result are willing to take the initiative to a much greater degree. That I think is the key difference. It's the ability of low and mid-level soldiers and officers in the Ukrainian military to innovate, to try new things and to see what works. And you see almost none of that on the Russian side.

• 26:15Scott Galloway?

  Speaking of wars or conflicts, you wrote regarding the Persian Gulf War that it was a pivotal moment for the role of microchips in warfare. Say more.

• 26:24Speaker 02

  Well, the Gulf War in 1991 was the first war we saw in a really large-scale way the use of chips to guide munitions to hit a target with precision. Before that point, bombing from the air or long-range rockets was an exercise in massive quantity because you had no idea what was going to hit its target. And since the Gulf War, we've become used to the fact that bombs can hit their targets in most cases pretty accurately, using at first laser guidance, now GPS guidance. And so the entire character of war has changed because you no longer need 1,000 bombs to hit a single target. You can often do it with just one. And that's possible because of semiconductors, because of computing power, both in the weapons themselves, but also distributed across a battlefield.

• 27:08Speaker 02

  The satellites gathering signals intelligence, for example, the data centers processing what that means, the communications sending that to an individual weapon system. There's semiconductors in almost every defense system today, sensing, communicating, and computing in a way that was impossible just a couple decades ago.

• 27:26Scott Galloway?

  So talk to us. Break down, give the kind of the Cliff Notes on the CHIPS Act and what you think is, what you like or don't like about the legislation.

• 27:36Speaker 02

  Because of the concentration in where chips are manufactured, the US decided via an act of Congress to try to bolster manufacturing in the US. And the key recognition was that chip making in the US is more expensive, more expensive because of tax policy, because of labor costs, because of environmental regulations. So the goal has been to equalize the cost gap between producing in Asia and producing in the US and therefore trying to attract more investment in the US. And I think it's an admirable goal, given the just extraordinary risks that we face, given the concentration of chip making in the Taiwan Straits. If China were to attack or try to blockade the island. But it's going to be hard to pull off in a major way

• 28:21Speaker 02

  because the enormous capacity that's been built up in East Asia is going to be hard to move, hard to change. And so we're already seeing some increases in investment in chip making in the US. But the reality is that it's going to be a slow process, even though I think the CHIPS Act is working. It's working on the margin because the chip industry will take a decade to begin to see real shifts. And I'll just give you one example as to why that's true. The CHIPS Act spends $39 billion for incentives for chip making. And that sounds like a lot of money, but a single new chip making facility costs $20 billion.

• 28:58Scott Galloway?

  And what is so hard about producing chips? Is it the intellectual property, the number of PhDs you need, the quality control of these factories? What drive, where does that 20 billion go?

• 29:13Speaker 02

  So most of the 20 billion for a new chip making facility goes to buying the tools that are capable of manufacturing chips. So if you go to the Apple Store, buy a new iPhone, the primary chip on the iPhone will have 15 billion tiny transistors carved into it, each one of which is smaller than the size of a virus. And so managing the manufacturing of these by the billions for each and every iPhone with close to perfect accuracy, it's the hardest manufacturing humans have ever done. And there's just a couple of companies in California, in the Netherlands, in Japan, that can produce. Use the tools capable of manufacturing transistors at this scale. And the machines involved themselves cost often a hundred million dollars apiece.

• 29:57Speaker 02

  The most expensive of the tools that make chips cost a hundred fifty million dollars, has hundreds of thousands of components, including the flattest mirrors ever invented, an explosion happening inside of it constantly at forty times hotter than the surface of the sun. I mean, this is really wild engineering in terms of what it takes to put these machines together. And that's why it's brutally expensive.

• 30:21Scott Galloway?

  So when I got out of business school, one of the premier jobs you could get was at this amazing firm that was building the future that was the brain inside everything. And I was Intel, right? Did Intel just kind of miss the boat here? Why is, why has Intel not shared in this exciting? If I look at Intel's five-year stock performance, it's almost been cut in half. And it feels as if they should be ground zero for this kind of innovation. They're in what most people think is the most innovative geography in the world. They have the capital, they have the brand. What happened?

• 30:57Speaker 02

  You know, for a long time, Intel was too successful for its own good. It, it produced most of the chips that went in PCs from the invention of the PC all the way up to the present for a long time at a dominant market share in data centers too. And so for much of the past decade, the firm rested on its laurels, took advantage of the extraordinary profitability of its two existing business lines and failed to invest effectively in anything new. And so it famously missed the smartphone wave. Steve Jobs actually went to Intel before the first Apple was produced and asked if they wanted to produce chips for the first iPhones. And Intel said, no, it sounded like a low volume product with low margins. And that was, of course, a horrible error in hindsight.

• 31:39Speaker 02

  And then Intel was also slow to pick up on the, the shifts towards artificial intelligence in data centers and was slow to roll out chips that are necessary for running AI workloads. And so it's, it's fallen behind in a number of key areas. Now, over the past two years, it's got a new CEO who's been trying to turn things around, catch up.

• 32:00Scott Galloway?

  Where do you think, when you look at specific companies or specific regions, geographies, sectors, industries, who do you think the winners and losers are based on how you see the sector shaping up?

• 32:12Speaker 02

  Well, one of the key changes underway right now is that selling chips to data centers is getting more and more important. And there's just a couple of firms that play a critical role in supplying chips to data centers. And so if you look at the data centers that are training large AI systems, you know, they're critically reliant on chips from just one company, Nvidia, which is a US firm that designs chips, manufactures all their chips actually with TSMC in Taiwan. And it's really hard to have AI systems that aren't trained on their chips. And so, you know, when you think of the AI revolution that's underway right now, we see the impact via ChatGPT, but underneath all of the training is our chips produced by just a couple of companies.

• 32:55Scott Galloway?

  Yeah, so it feels like Nvidia sort of basically took, it's like what Lady Gaga did to Madonna, Nvidia did to Intel. What if, and I'm going to go back to China, apologies for hopping around, but would it be worth it for China just to invade Taiwan, even if they lost, even if TSMC went out of business or they couldn't recreate it, but just to stop the flow of these advanced chips to the Western world?

• 33:20Speaker 02

  Well, the problem that China faces is that they're more dependent on Taiwan than anyone else. China spends as much money each year importing chips as it spends importing oil, and most of those ships are imported from Taiwan.

• 33:34Scott Galloway?

  I just want to pause there. That's an amazing stat. China spends as much importing chips as importing oil?

• 33:40Speaker 02

  That's right. And it has for most of the last decade.

• 33:43Scott Galloway?

  It really is the new oil. I mean, it is. That's amazing. And so they're equally chip dependent as energy independent. What is their domestic supply of chips? Is it anything?

• 33:53Speaker 02

  They've got a pretty big domestic industry for very low end chips. But when it comes to anything remotely close to the cutting edge, they're dependent on importing from Taiwan, from Korea, from Japan, from the United States.

• 34:07Scott Galloway?

  We'll be right back.

• 34:13Scott Galloway?

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• 34:58Scott Galloway?

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• 35:20Speaker 03

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• 35:50Scott Galloway?

  I want to switch gears because when I was reading your bio, you're an expert on chips, but you're also an expert on Russia, or at least modern Russia. You've written two books about it. Putinomics: Power and Money in Resurgent Russia, The Struggle to Save the Soviet Union, Mikhail Gorbachev, and the Collapse of the USSR. I would love to just get the Cliff Notes or broad brush, what you think the situation is in Russia. You're forced to try and speculate around, given, obviously, there's a lot going on with Russia right now. What do you think Russia looks like in three or five years? How do you think, what is your prediction around Putin and Russia and its role in the world over the next few years?

• 36:33Speaker 02

  Well, Putin's only 71 years old, so I think the base case is that he's still in power in three years' time or in five years' time. He doesn't have anywhere to retire to. He can't do that safely. He's in good health by all accounts, doesn't smoke, barely drinks, and a typical Russian who makes it to the age of 65 is likely to make it into their 80s, judging by the life expectancy tables. So he's not gonna, he's not likely to die over the next three to five years, though it's possible. And it's hard to remove him, not impossible. There's a long history of palace coups in Russia, but it's difficult to see who could drive him out over the next couple of years. And so I think we have to operate under the assumption that he's still around for the foreseeable future.

• 37:19Scott Galloway?

  This is just an area, I look at the war and I think this is going so poorly. And now, a lot of the most powerful and wealthiest people in Russia can't park their yachts in St. Bart's or wherever. I mean, is this, is the West, is Western media have a bias where they think things are worse over there for Putin and for Russia than they actually are? Have these economic sanctions begun to take a toll on ordinary life? Have all these boxes with young men and them being shipped back to Mother Russia, is that beginning to take an emotional toll? Like, what is the state of play in Russia right now as it relates to their view of this war and how it's going?

• 37:57Speaker 02

  Well, the key to answering that question is to differentiate who matters and who doesn't in Russian politics. You know, the oligarchs, they're fun to write about in newspapers because they've got big yachts and lots of girlfriends, but in reality, they don't play a big role in politics. They've been very aggressively pushed out of politics by Putin. And now, if you're an oligarch, you've learned over time that if you have political views and you say them out loud, you could end up in jail, or you could fall out the window. And so it's very dangerous to do so. So they're interesting figures, but they're not political actors in a major way. And similarly, the Russian populace doesn't have very many mechanisms as to express its views. And so if you're a typical Russian, protesting is highly dangerous.

• 38:39Speaker 02

  It's not likely to work anyway. And so most people have more or less withdrawn from politics, accepted that they can't change the situation, and are just gonna cope with whatever comes. And so as a result, there's just a small number of people in the political elite that have a real vote or a voice in the process. And right now, they've all concluded that their best strategy for survival is to... Persist with the war, keep their heads down and see what comes next. And I think that's that's been their strategy since the war started. And it's been a a successful survival strategy for all of the Russian elite. Hasn't been good for the country, but it's been effective for them.

• 39:19Scott Galloway?

  It struck me that in the last couple of weeks, as America worries about transgender swimmers or their daughter marrying a Republican, that the thing we should be worried about was that meeting between Xi and Putin. Is there an Axis alliance forming?

• 39:33Speaker 02

  There's certainly a much closer partnership than anyone could have imagined 10 years ago. The fact that Putin and Xi have met each other as much as they've met any other world leader, not just since the war started, but over the past decade, is is really important. They've described each other as their best friends. They celebrated their birthdays together in recent years. But I think since the war, the relationship has shifted somewhat because Putin has no choice but to be friends with Xi. He's got no other friends. He's more reliant than ever on China, whereas China's in a good bargaining position. It knows that Russia's reliant. It's able to get cut-price access to all of Russia's raw materials.

• 40:17Speaker 02

  And so for China, this isn't a bad position to be in because Russia has very little room to bargain.

• 40:24Scott Galloway?

  When you talk about chips and you talk about oil and the kind of US-Senator relations, you know, this really is probably the most important relationship, geopolitical relationship in the world. And people, including Fareed Zakaria and some others, will say that we have become so used to being the kind of unilateral superpower that there's some veracity to the notion that we've been too aggressive and that we have encouraged a lot of nations to try and find an alternative default currency, try and produce their own chips, that the rise of a hostile China, that we bear some blame for that. What are your thoughts?

• 41:05Speaker 02

  You know, I think we certainly bear some blame, but I guess if you look at the the key turning points, I think most of the blame falls on the Chinese side. And if you ask Why is it that China annexed the South China Sea? Or why is it that China regularly starts fights with India over their disputed border in the Himalayas? Or why is it that Xi has horrible relations with all of his neighbors except for Russia? You know, it's not just the US that's in a position of having its worst relations with China in several decades. It's also Korea and Japan and India and Australia. And so if you look at China's foreign relations, we're actually not unique in having a pretty bad relationship. China is actually unique in having awful relations

• 41:50Speaker 02

  with almost all of its key trading partners. And I think that speaks to the fact that actually a lot of the key policy decisions that have led us to where we are were taken in Beijing rather than in Washington.

• 42:00Scott Galloway?

  And so from Russia to chips, what's next?

• 42:05Speaker 02

  Well, I'm still spending a lot of time looking at the impact of the chip war. I think that the question that people haven't really gotten their heads around yet is how this is going to restructure the entire electronics industry. You know, right now, take Apple. They produce almost all their phones, PCs, tablets in China. That is going to change, I think, pretty dramatically over the coming years and decades as every assembler of smartphones, of PCs, of servers is looking to shift where they assemble their goods. And a lot of the globalization that we take for granted is actually electronic supply chains that crisscross the Asia-Pacific region. And that is beginning to be decoupled with really dramatic impacts for the world economy.

• 42:48Scott Galloway?

  Let's talk about consumer tech. Amazon, Apple, Facebook, Google, and anyone else that you want to talk about who's best positioned or worst positioned, given the changing dynamic of the chip world?

• 43:00Speaker 02

  Well, I think if you had to pick out someone who is worst positioned, it would certainly be Apple. There's no company that's more exposed to intensifying US-China tensions. Apple both has China as its second largest market, has almost all of its assembly in China, and all of Apple's critical chips are made in Taiwan. So at every level, Apple is exposed to increasing tensions between the US and China.

• 43:26Scott Galloway?

  And finally, when I think about the ultimate front end for all this incredibly sophisticated computing power, it's AI. The thing that people are most excited about is AI. What's your view on AI's impact on the economy and the larger society?

• 43:42Speaker 02

  You know, it's interesting going back to the early days of the modern computing industry in the 40s, 50s, 60s, and looking at the predictions that were made then. And Gordon Moore, who just passed away recently, predicted in 1965 that in the coming decades, we would have personal computers and portable communications devices. And he was absolutely right, but it took decades to play out. And so when I look at how to think about the trajectory of AI, I think some of the more optimistic projections are likely to come true. But even revolutionary technologies take years or even decades to actually proliferate across the economy and across our lives. And so I think we shouldn't expect transformative

• 44:26Speaker 02

  changes next year or the year after, even if it's really impact, it'll be measured over a long time horizon.

• 44:32Scott Galloway?

  Chris Miller is an associate professor of international history at the Fletcher School of Law and Diplomacy at Tufts University and Gene Kirkpatrick Visiting Fellow at the American Enterprise Institute. He's also the author of four books, including his latest, Chip War: The Fight for the World's Most Critical Technology. He joins us from just outside of Boston. Chris, we appreciate your time.

• 44:54Speaker 02

  Thanks for having me.

• 45:06Scott Galloway?

  Algebra of happiness. Just book it. So, three years ago, it feels like two years ago, but it was probably three years ago, my oldest son, Alec, who is now 15, I'm not exaggerating, was this beautiful little innocent boy who used to, he just couldn't get enough of me. I mean, just couldn't get enough of me. And he would let me tickle him. And I mean, just a boy, literally just a boy, just this adorable boy. The last three years, and it may even be the two years. Have flown by for me, starting a business, moving to London.

• 45:49Scott Galloway?

  It's just, it's been a blink, but in that blink, this little boy, this little beautiful boy is now six feet tall. And every response is monosyllabic. How was school today? Fine. Uh, what do you want to do today? Don't know. And uh, he's turning into a lovely young man, but it's just a different person. That kid is gone. And I have a lot of regrets. Do I have a lot of regrets? Some regrets about fathering, but something I did right was whenever there was an opportunity to go somewhere with my kids, an opportunity to take a vacation. And I realize this is a point of privilege, but a lot of it is your decision. A lot of it is in your control. Uh, when I was younger and uh, when they were really little,

• 46:32Scott Galloway?

  I always kind of found reasons to not do stuff with them or not go on vacations because I just wanted to put it off or think it through or make sure do we really want to go to life-size Monopoly? Do we really like, give me a day to decide or a little while, let's bring it up. Let's talk about it next week, whether we want to go to visit their grandparents this weekend for, for lunch. Or do we want to make the effort to go to Universal Studios? Cause I'm a fundamentally lazy person and don't like to commit to, God forbid, doing something I don't enjoy. And what I recognize as I get older is that these kids are ripping by. You do not get these years back. And so what I have done, what I have done six months ago, uh, let's go to Japan. I've never been to Japan.

• 47:16Scott Galloway?

  Okay, let's go, let's book it. Uh, we want to go to uh, Abba, the 3D, there's some Abba thing here in London. Okay, let's book it. You know, just book it. And I realize that some people don't have that economic flexibility, but it doesn't have to involve money, right? I'm thinking about joining a soccer league. Do you want to be an assistant coach? Yes. You gotta be promiscuous, be promiscuous with your heart and your time when it comes to your kid, because you'll wake up, I'm telling you, just wake up and he's six feet tall and quite frankly, he's just not that into you. He loves you and it's good that he's just not that into you because he's into his own thing, as he should be. But

• 47:58Scott Galloway?

  I'm telling you, while you're in that magic zone, and I think, I don't, I think babies are awful, quite frankly, I think kind of three is okay, passable, four starts to get fun. Four to 14 are the magic years. So during that decade, my brothers, any opportunity, it might not seem like fun, it may be expensive, it may be tough on you professionally or from a lifestyle standpoint, but trust me on this, just book it.

• 48:25Scott Galloway?

  This episode was produced by Caroline Shageran, Jennifer Sanchez is our associate producer, and Drew Burrows is our technical director. If you like what you heard, please follow, download and subscribe. Thank you for listening to the Prof G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly market show.

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