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Superfusion by Zachary Karabell: Interview
Last week, author Zachary Karabell was generous enough to take some time out of his busy schedule to discuss his new book - Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It - with me.
Here is Mr. Karabell's bio from the back jacket of his book:
Mark's China Blog (MCB): Early in Superfusion, you say we have two paths - working with China to refine and develop the system for mutual benefit or falling back to "us and them." You then say that the world of nation-states with national economies is uncertain and that 2050 won't look like 1950. Could you explain what this world you envision looks like and how we could get there?
Zachary Karabell (ZK): Imagine telling a Parisian in 1950 that, in the year 2000, decisions regarding France would be made in Brussels. Nobody back then would've believed that Europe, a collection of nation-states, would be a cohesive unit known as the European Union. My point is that America could very well be tied to China in 2050 in a way that seems unimaginable now.
MCB: About Deng's quote - "Black cat, white cat, what does it matter as long as it catches mice?" - and his ideology in general, you say, "his ability to hold such contradictory beliefs shows he is either a genius or a madman." China, for the most part, has stuck with Deng's system. Towards the end of the book, you question whether the Chinese children of today - who've grown up with a remarkably comfortable and stable life - will demand more political freedom when they are adults. How long do you see Deng's contradiction being sustainable?
ZK: It's a mistake to assume that Jeffersonian liberal democracy is the only system that can meet people's needs and that the Chinese people will demand elections. People need to feel security and in control of their lives. As long as that occurs, the specific form could look like a lot of different things. The Chinese Communist Party needs to be responsible to its citizens and, for the time being, appears to be.
MCB: Your section about data and figures reminded me a lot of one of my all-time favorite books, Moneyball, by Michael Lewis. In that book, Lewis highlights the thinkers in baseball who challenged baseball's conventional wisdom. In Superfusion, you challenge a lot of the numbers - balance of trade, the consumer price index, and productivity - that people use to interpret contemporary national economies. When it comes to understanding the world economy, what numbers do you trust?
ZK: Very few numbers give us a good picture. It's not that I distrust numbers, I don't think they're made up, it's just that I see data as being incapable of telling us a complete story. Official numbers miss capital and idea flow. They miss how businesses are run.
Consumption of raw materials is a number that I look at. Numbers on trade can tell us a lot. One needs to go beneath the newspaper headlines. Look at the numbers used to compile official statistics.
MCB: I found your section on Chinese banks really good. On my blog, I've written a lot about the massive loans given out by Chinese banks this year. You say that a lot of the concerns about such lending is misguided and that loans are simply a means for modernization from the state and that the Chinese believe repayment isn't as important as "getting things done." Is China concerned about the repayment of loans given out this year? And if the US - and the rest of the West - stays in a funk for a year or two longer, can this kind of lending be sustained?
ZK: Comparing Chinese banks to western banks is a mistake. It's not that China doesn't care about repayment. They want the loans to be repaid. But right now, China is building its infrastructure. Internal loans to build up the country are going to be productive no matter what happens.
MCB: In the book, you write, "What China did in the 90s took the states of western Europe more than a century and the US more than five decades." Obviously, the costs of China's industrial revolution are being felt in the form of unfathomable pollution. The thing that concerns me most, having Xi'an as my home base in China, is north China's lack of water. The Himalayas' glaciers are melting. The Yellow River is dying. Northern Chinese cities are being built on falling water tables. How can this dire situation be resolved?
ZK: North China has the double whammy of being the site of the communist industrial revolution under Mao as well as a site of the '90s industrial revolution.
There is a huge draw on the resources there. I can't discount the severity of the situation. Alternative energy isn't an alternative to coal in northern China. But the government seems to have a grasp for where the crisis point is. I sense urgency from the government. They are moving quickly.
One thing about an autocratic government is that when faced with a sense of urgency, they have a much greater ability to address these problems than democratic governments.
MCB: You say, "China's transtition from Maoism to the market has been met with skepticism and mistrust rather than embrace." What does this say about America and the American people?
ZK: Our skepticism and mistrust say that we are having trouble dealing with losing the status of being "on top."
MCB: When the debate about China joining the WTO was going on in '99, the US was obsessed with Lewinski. You talk about how the world missed the development of Chimerica since "nobody analyzes the global economy as a system and because nobody developed a theoretical framework to predict it." Now, after coming back to America after three and a half years in China, I'm hearing reports about China all the time on NPR (National Public Radio). I haven't fully jumped back into the US media though. Does the US know what's going on in China and with Chimerica?
ZK: Americans aren't clueless that China's become a much bigger deal. People are mostly familiar with the populist rhetoric and not much else though. The implications of Chimerica are pretty beneath the radar. Americans, by and large, don't understand the greater meaning of its relationship with China.
MCB: Your discussion of US businesses being lenient on property infractions in the hopes of cashing in on the Chinese market was very interesting. I've written on my blog several times about "shanzhai culture" and the deep and intricate networks of intellectual property infractions in China. Can this shanzhai culture be overcome?
ZK: Complaining about shanzhai has been en vogue for years now. Innovation is going to be key in overcoming the intellectual property infractions occurring in China. Companies are going to have to make it difficult for people to extract income off of the Chinese copy of the product.
MCB: You say that the big difference between China and Japan's rise is that the Chinese have a culture of consumption. If you spend time at a Chinese night club or mall, this embrace of consumption is abundantly clear. But when I lived in China and told Chinese people about buying a house with a mortgage or having a wallet full of credit cards, they usually cringed. Can Chinese consumers come to embrace the culture of credit cards and debt?
ZK: Chinese people are already embracing credit cards and using debt. In fact, not enough companies are offering Chinese people credit cards. Once the Chinese trust paying online, that will also help encourage their consumptive culture.
MCB: For a long time, China's used "poverty alleviation" as an excuse for human rights abuses. Tibetans and Uighurs are obviously getting fed up though. Are these "harmony" issues critical to China's long-term, big-picture goals?
ZK: China needs to be "harmonious enough." Security of the Chinese people matters. The Chinese government understands that keeping people happy is a balancing act. Simply suppressing those angry with the system is not a viable long-term answer.
MCB: You talk extensively about the "feel" in cities like Shanghai and the general optimism of the country. Is China the new "land of opportunity?" Does that "feel" extend to those in the countryside or to migrant workers who've gone to the big city?
ZK: Well, I don't think anyone in China would use the word "land of opportunity." Those words are uniquely American. But the simple fact that migrants are doing everything they can to get out of the countryside and to the cities shows that the "feel" does extend to the entire country.
MCB: The Chinese stock market was up 90% on the year back in August. Housing prices in many cities are at all-time highs. Is there a bubble going on right now?
ZK: It doesn't matter if there is a bubble being created right now. The government popped a bubble in Shanghai in '04. They'll blow them up and pop them as they see fit. The government isn't afraid to intervene and pop. Popping bubbles isn't going to be a derailing phenomenon.
MCB: Does Obama have a coherent China policy?
ZK: Yes, Obama has a coherent China policy. Neither Obama nor the Chinese government seems ready to confront the existence of Chimerica though. Obama is going to China in November. He should have America's top business leaders with him on that trip. Another major need between the Obama administration and the Chinese government is better interest rate coordination.
MCB: I know you're very busy right now, Mr. Karabell. Thank you for sharing your time with me.
ZK: You're very welcome.
I want to thank Mr. Karabell and his publishing company, Simon and Shuster, for arranging this interview and asking me to review Superfusion.
Here is Mr. Karabell's bio from the back jacket of his book:
Zachary Karabell is president of River Twice Research, where he analyzes economic and political trends, and is a senior adviser for Business for Social Responsibility. He received a Ph.D. from Harvard University and was formerly chief economist and president of a New York-based asset management firm. He is the author of Parting the Desert, The Last Campaign, and Peace Be Upon You. He is a regular commentator on CNBC and a contributor to Newsweek, The Wall St. Journal, The Los Angeles Times, The New York Times, Foreign Affairs, and The Washington Post.Below is a transcript of my discussion with Mr. Karabell:
Mark's China Blog (MCB): Early in Superfusion, you say we have two paths - working with China to refine and develop the system for mutual benefit or falling back to "us and them." You then say that the world of nation-states with national economies is uncertain and that 2050 won't look like 1950. Could you explain what this world you envision looks like and how we could get there?
Zachary Karabell (ZK): Imagine telling a Parisian in 1950 that, in the year 2000, decisions regarding France would be made in Brussels. Nobody back then would've believed that Europe, a collection of nation-states, would be a cohesive unit known as the European Union. My point is that America could very well be tied to China in 2050 in a way that seems unimaginable now.
MCB: About Deng's quote - "Black cat, white cat, what does it matter as long as it catches mice?" - and his ideology in general, you say, "his ability to hold such contradictory beliefs shows he is either a genius or a madman." China, for the most part, has stuck with Deng's system. Towards the end of the book, you question whether the Chinese children of today - who've grown up with a remarkably comfortable and stable life - will demand more political freedom when they are adults. How long do you see Deng's contradiction being sustainable?
ZK: It's a mistake to assume that Jeffersonian liberal democracy is the only system that can meet people's needs and that the Chinese people will demand elections. People need to feel security and in control of their lives. As long as that occurs, the specific form could look like a lot of different things. The Chinese Communist Party needs to be responsible to its citizens and, for the time being, appears to be.
MCB: Your section about data and figures reminded me a lot of one of my all-time favorite books, Moneyball, by Michael Lewis. In that book, Lewis highlights the thinkers in baseball who challenged baseball's conventional wisdom. In Superfusion, you challenge a lot of the numbers - balance of trade, the consumer price index, and productivity - that people use to interpret contemporary national economies. When it comes to understanding the world economy, what numbers do you trust?
ZK: Very few numbers give us a good picture. It's not that I distrust numbers, I don't think they're made up, it's just that I see data as being incapable of telling us a complete story. Official numbers miss capital and idea flow. They miss how businesses are run.
Consumption of raw materials is a number that I look at. Numbers on trade can tell us a lot. One needs to go beneath the newspaper headlines. Look at the numbers used to compile official statistics.
MCB: I found your section on Chinese banks really good. On my blog, I've written a lot about the massive loans given out by Chinese banks this year. You say that a lot of the concerns about such lending is misguided and that loans are simply a means for modernization from the state and that the Chinese believe repayment isn't as important as "getting things done." Is China concerned about the repayment of loans given out this year? And if the US - and the rest of the West - stays in a funk for a year or two longer, can this kind of lending be sustained?
ZK: Comparing Chinese banks to western banks is a mistake. It's not that China doesn't care about repayment. They want the loans to be repaid. But right now, China is building its infrastructure. Internal loans to build up the country are going to be productive no matter what happens.
MCB: In the book, you write, "What China did in the 90s took the states of western Europe more than a century and the US more than five decades." Obviously, the costs of China's industrial revolution are being felt in the form of unfathomable pollution. The thing that concerns me most, having Xi'an as my home base in China, is north China's lack of water. The Himalayas' glaciers are melting. The Yellow River is dying. Northern Chinese cities are being built on falling water tables. How can this dire situation be resolved?
ZK: North China has the double whammy of being the site of the communist industrial revolution under Mao as well as a site of the '90s industrial revolution.
There is a huge draw on the resources there. I can't discount the severity of the situation. Alternative energy isn't an alternative to coal in northern China. But the government seems to have a grasp for where the crisis point is. I sense urgency from the government. They are moving quickly.
One thing about an autocratic government is that when faced with a sense of urgency, they have a much greater ability to address these problems than democratic governments.
MCB: You say, "China's transtition from Maoism to the market has been met with skepticism and mistrust rather than embrace." What does this say about America and the American people?
ZK: Our skepticism and mistrust say that we are having trouble dealing with losing the status of being "on top."
MCB: When the debate about China joining the WTO was going on in '99, the US was obsessed with Lewinski. You talk about how the world missed the development of Chimerica since "nobody analyzes the global economy as a system and because nobody developed a theoretical framework to predict it." Now, after coming back to America after three and a half years in China, I'm hearing reports about China all the time on NPR (National Public Radio). I haven't fully jumped back into the US media though. Does the US know what's going on in China and with Chimerica?
ZK: Americans aren't clueless that China's become a much bigger deal. People are mostly familiar with the populist rhetoric and not much else though. The implications of Chimerica are pretty beneath the radar. Americans, by and large, don't understand the greater meaning of its relationship with China.
MCB: Your discussion of US businesses being lenient on property infractions in the hopes of cashing in on the Chinese market was very interesting. I've written on my blog several times about "shanzhai culture" and the deep and intricate networks of intellectual property infractions in China. Can this shanzhai culture be overcome?
ZK: Complaining about shanzhai has been en vogue for years now. Innovation is going to be key in overcoming the intellectual property infractions occurring in China. Companies are going to have to make it difficult for people to extract income off of the Chinese copy of the product.
MCB: You say that the big difference between China and Japan's rise is that the Chinese have a culture of consumption. If you spend time at a Chinese night club or mall, this embrace of consumption is abundantly clear. But when I lived in China and told Chinese people about buying a house with a mortgage or having a wallet full of credit cards, they usually cringed. Can Chinese consumers come to embrace the culture of credit cards and debt?
ZK: Chinese people are already embracing credit cards and using debt. In fact, not enough companies are offering Chinese people credit cards. Once the Chinese trust paying online, that will also help encourage their consumptive culture.
MCB: For a long time, China's used "poverty alleviation" as an excuse for human rights abuses. Tibetans and Uighurs are obviously getting fed up though. Are these "harmony" issues critical to China's long-term, big-picture goals?
ZK: China needs to be "harmonious enough." Security of the Chinese people matters. The Chinese government understands that keeping people happy is a balancing act. Simply suppressing those angry with the system is not a viable long-term answer.
MCB: You talk extensively about the "feel" in cities like Shanghai and the general optimism of the country. Is China the new "land of opportunity?" Does that "feel" extend to those in the countryside or to migrant workers who've gone to the big city?
ZK: Well, I don't think anyone in China would use the word "land of opportunity." Those words are uniquely American. But the simple fact that migrants are doing everything they can to get out of the countryside and to the cities shows that the "feel" does extend to the entire country.
MCB: The Chinese stock market was up 90% on the year back in August. Housing prices in many cities are at all-time highs. Is there a bubble going on right now?
ZK: It doesn't matter if there is a bubble being created right now. The government popped a bubble in Shanghai in '04. They'll blow them up and pop them as they see fit. The government isn't afraid to intervene and pop. Popping bubbles isn't going to be a derailing phenomenon.
MCB: Does Obama have a coherent China policy?
ZK: Yes, Obama has a coherent China policy. Neither Obama nor the Chinese government seems ready to confront the existence of Chimerica though. Obama is going to China in November. He should have America's top business leaders with him on that trip. Another major need between the Obama administration and the Chinese government is better interest rate coordination.
MCB: I know you're very busy right now, Mr. Karabell. Thank you for sharing your time with me.
ZK: You're very welcome.
I want to thank Mr. Karabell and his publishing company, Simon and Shuster, for arranging this interview and asking me to review Superfusion.
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.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.Superfusion, page 151
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.
Saturday, October 10, 2009
Obama's Prize
The announcement of Obama's award is perplexing everyone in the world, including the Chinese.
From AFP:
Domestically, Obama really doesn't need this right now. It gives his right-wing critics more ammunition for the idea that he is some kind of messiah-like figure (and this is a meme that American's have been pretty open to accepting). But unlike wing-nuts, I don't think Obama deserves any criticism here. It's not like he lobbied to win this thing. The award was given to him unprovoked and it's obvious that it caught Obama by surprise, just like it did everybody else.
I believe there is truth to what the people in the above article are saying. The opportunity cost of Obama winning is great. There are lots of people, especially within China, who are deserving of the award.
Hopefully, this award spurs Obama and America to improve itself. For better or worse, the US President is still the most important person on the planet. If the prize can kick-start a renewed spirit here, Obama could prove to be a great selection.
From AFP:
I was shocked to hear that Obama won the Nobel Prize yesterday. My first reaction to the news was like many others, "What for?" From the sounds of it, such was Obama's reaction too.WASHINGTON — China's dissidents are voicing unease about President Barack Obama's Nobel Peace Prize, saying that the award could have been effective in promoting human rights in their country.
...Huang Ciping, an engineer turned activist who is executive director of Wei's Washington-based foundation, said that China "has come to such a turning point that the prize might have helped."
"The Nobel Peace Prize committee has the full right to decide to give coal to those who suffer and struggle or to present flowers to the powerful," she said.
But she said of the decision: "It is both a pity for the Chinese people and a danger to world peace."
Rebiya Kadeer, the exiled leader of China's Uighur minority, congratulated Obama but called on him to use the added prestige to put pressure on "dictatorships like China."
"I am very happy that he got it. Now he has to do something with the award. It raises expectations on him to stand up for oppressed nations," she told AFP.
Domestically, Obama really doesn't need this right now. It gives his right-wing critics more ammunition for the idea that he is some kind of messiah-like figure (and this is a meme that American's have been pretty open to accepting). But unlike wing-nuts, I don't think Obama deserves any criticism here. It's not like he lobbied to win this thing. The award was given to him unprovoked and it's obvious that it caught Obama by surprise, just like it did everybody else.
I believe there is truth to what the people in the above article are saying. The opportunity cost of Obama winning is great. There are lots of people, especially within China, who are deserving of the award.
Hopefully, this award spurs Obama and America to improve itself. For better or worse, the US President is still the most important person on the planet. If the prize can kick-start a renewed spirit here, Obama could prove to be a great selection.
Friday, October 9, 2009
Opening Up the Digital Great Wall
Rupert Murdoch spoke in China today.
From The Wall St. Journal:
Saying that, I like what he said to Chinese leaders' faces. I agree with him that the opportunity for them to be taken seriously is theirs. Murdoch, no doubt, has his eyes on China and getting into its market. He's just had serious trouble getting anywhere with his efforts.
Interestingly, Murdoch, at this conference in Beijing, also took serious shots at places like Mark's China Blog:
From The Wall St. Journal:
I'm not a fan of Rupert Murdoch. His pioneering work in the corporatizing of the Western news media has been a bad thing. And his work with Roger Ailes at Fox News is an absolute disgrace.
BEIJING—News Corp. Chief Executive Rupert Murdoch urged China's government to allow its media companies to take advantage of the opportunities in new media by addressing copyright piracy and a lack of competition in the domestic market that he said could impede their expansion.
"The digital renaissance offers China an opportunity to exercise leadership," Mr. Murdoch told the World Media Summit in Beijing, hosted by the state-run Xinhua news agency. Alluding to China's "open door" policy that ushered in economic reforms in the late 1970s, Mr. Murdoch said that the government now has a chance to open China's "digital door."
Addressing the same forum, Chinese President Hu Jintao pledged to "continue to make government affairs public, enhance information distribution, safeguard the legitimate rights and interests of foreign news organizations and reporters, and facilitate foreign media coverage of China in accordance with China's laws and regulations."
The three-day World Media Summit, attended by senior officials from several major international media organizations, is part of a broader push by China's state-run media to exert a greater global influence.
Read On
Saying that, I like what he said to Chinese leaders' faces. I agree with him that the opportunity for them to be taken seriously is theirs. Murdoch, no doubt, has his eyes on China and getting into its market. He's just had serious trouble getting anywhere with his efforts.
Interestingly, Murdoch, at this conference in Beijing, also took serious shots at places like Mark's China Blog:
He (Murdoch) blasted media companies that have refused to charge money for their content, and those that have taken advantage of free content on the Internet. "The Philistine phase of the digital age is almost over. The aggregators and the plagiarists will soon have to pay a price for the co-opting of our content," Mr. Murdoch said. "But if we do not take advantage of the current movement toward paid-for content, it will be the content creators, the people in this hall, who will pay the ultimate price and the content kleptomaniacs will triumph."I'm amused that Murdoch thinks I'm an anti-intellectual.
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