Monday, October 12, 2009

Superfusion by Zachary Karabell: Review

Recent economic travails have triggered intensive questioning of the financial system that was created by the United States and warped by Wall Street. That has led many to reconsider America's place in the world and wonder whether this is indeed the twilight of American power. Yet what remains largely unchallenged is the assumption that the world remains a collection of nations, markets, and companies. For much of the twentieth century, that made sense. No longer. What is perceived as the rise of China is actually much more than that. The most important story is one that yet to be explicitly told, largely because most don't yet recognize what has taken place. In short, over the past two decades, China and the United States have become one intertwined, integrated hypereconomy: Chimerica.
Superfusion: How China and America Became One and Why the World's Prosperity Depends On It, page 3

Over the next three hundred pages of Superfusion, author Zachary Karabell expounds in great detail and in a lively manner how Chimerica came to be and its implications for the future of our world.

Karabell begins the book (to be released tomorrow, October 13, 2009, by Simon & Shuster) by painting a picture of China in the late 1970s just after Mao Zedong passed away. Deng Xiaoping's personality, his breaking with the planned economy, and his wide array of platitudes ("We mustn't stop eating for the fear of choking," "Black cat, white cat, what does it matter as long as it catches mice?" etc.) are chronicled in great detail.

The book then gives an account of "middling US companies" who in the late-80s and early-90s remade themselves into successes in a liberalized China. I really enjoyed this section of the book. Karabell describes how and why companies like KFC, Avon, and the NBA were able to corner the Chinese market and become runaway successes in the country. Not having an extensive background in business, I appreciated these stories a lot.

In addition to case studies of businesses, the book also delves into the political foundation of Chimerica. China's entry into the WTO, the relationship of China and America after 9/11, and CNOOC's botched purchase of UNOCAL are all discussed.

One of the main themes of Superfusion is that nobody, neither the governments of China or the United States nor the populations of either country, saw the big-picture implications of the two countries growing closer and more intertwined.

Karabell argues that very few numbers paint an accurate picture of Chimerica. Statistics, he says, that economists like to look at - balance of trade, consumer price index, and "productivity" - can't capture the nature of the countries' relationship.
All of these factors explain how it is possible for China and the United States to have converged over the past 20 years without anyone noticing. No one is paid to notice; no one has developed theoretical frameworks that would predict it; and almost everyone still thinks of China and the United States as two distinct countries with two sovereign national economies.
Superfusion, page 151
This section of Superfusion on the use of numbers and statistics reminded me a lot of one of my favorite books - Moneyball, by Michael Lewis. In that book, Lewis describes the historian/philosopher of baseball, Bill James, and his destruction of of baseball's accepted conventional wisdom. James says one shouldn't pay attention to batting average, RBIs, or stolen bases to determine baseball players' performance. Instead, James argues, one should focus on statistics like on base percentage, slugging percentage, and home runs.

Unlike James (and Lewis' description of James' ideas in Moneyball), I'm not sure Karabell ever tells the reader exactly what number should be looked at when it comes to Chimerica. But to be fair, I believe Karabell's point is that truly descriptive statistics don't exist. Instead, he thinks a broader view is required.

This section on economic statistics and how we perceive the numbers might have been my favorite in Superfusion.

Seeing that this book is just coming out now in the fall of 2009, Karabell discusses, in depth, the financial crisis and Chimerica's response to it. Karabell describes China and America's bank lending, their stock markets, and their stimulus packages. I don't want to give too much away in this review, but I will say that Karabell's convincing arguments have shifted my views and understanding on the current state of affairs in each country and the fused Chimerica.

I really enjoyed Superfusion. If you are a regular reader of Marks China Blog, you should pick up a copy. The fusion of China and America - Chimerica - is something the people of the world needs a solid understanding of. Karabell's Superfusion has done an excellent job of making such an understanding a possibility.

Tomorrow, I'll post the transcript of an interview I had with Karabell last week.

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