In February, when President Obama signed a $787-billion stimulus bill, there was little question where the money would come from. The U.S. Treasury would print up bonds, and the Chinese government would buy a large share of them. After all, if the U.S. economy was to ever really tank, China's $1-trillion investment in U.S. debt would tank too. And who then would be left to buy a third of China's exports?
Such interdependence marks something very new, Zachary Karabell argues in "Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It." Never before have two nations of such size intermingled their economic fortunes to such a degree. "They are the superpowers of the global economic system, and their fusion is therefore a superfusion," writes Karabell, an economist, historian and former president and chief economist of an asset-management firm.
If "superfusion" sounds like some explosive state in theoretical physics, Karabell seems at times to play the part of the mad scientist who's convinced he's glimpsed a radical new truth that most everyone else has missed. The era of the nation-state is over! Those quaint ideas about "our economy" and "their economy"? Pfft! Political borders are so 20th century! And all those economic statistics that treat national economies as unitary closed systems? Useless! As a result, Karabell notes, "[t]here is almost no data proving that China and America have become one economy."
So "Superfusion" instead must rely on narrative. Which is just as well, because Karabell excels at weaving in glitzy tales of the brave new China against the larger backdrop of the Middle Kingdom's forceful but cautious economic liberalization and the often tortuous, frequently saber-rattling politics of U.S.-China relations.
The story begins with the watershed event of the late 1980s. Not the crowds in Tiananmen Square, but the crowds at the 12,000-square-foot, three-story Kentucky Fried Chicken across from Mao's tomb in Beijing opened two years before the mass protests, decorated with photographs of Manhattan and a prophetic poster: "America -- Catch the Spirit." Years later, KFC not only had 2,000 stores in China, it was also really, really hip. "Being there and being seen was a goal unto itself," writes Karabell, "the food was almost an afterthought." For Karabell, the KFC rise exemplifies the marriage of Western companies eager to gain access to one-sixth of the world's potential consumers and brand-conscious Chinese eager to embrace capitalism and all its finger-lickin' status symbols.
But in this marriage, it was usually China wearing the pants. Unlike so many developing countries that prostrated themselves to the gods of market liberalization to attract investment, China's leaders realized that with a market of 1.3 billion people, they could dictate economic engagement. They could gradually pull in Western companies and leverage their business know-how and investments to help China develop at its own pace. Ill-defined property rights? Strict restrictions on capital flows? Foreign companies didn't care. They just wanted in.
In 2001, China joined the World Trade Organization, a move that forced open its banking system and, according to Karabell, marked "the birth of a new paradigm" in which American investment and expertise jump-started a new market. By 2006, Morgan Stanley was making 12% of its profit underwriting Chinese companies. Karabell sees the realm of finance as the most profound nexus of the two increasingly intermixed economies. With barriers to banking gone, capital could finally triumph over geography, rendering political borders increasingly obsolete.
Which may actually be good, Karabell argues, since it adds stability to the global system (what would have happened if China hadn't been around to fund the U.S. recovery?). But good or bad, his point is that it is inevitable, "so embedded that undoing it would be hugely destructive and disruptive." Like a Chinese finger-trap, fighting only makes it worse. So Karabell has a message to those nationalists and populists and even human-rights activists who criticize and blame: Resistance is futile. You can't turn back the tide of history.
A provocative argument, yes. But it's a little frustrating that Karabell offers no advice on how to manage "superfusion," other than to sit back and accept the loss of American sovereignty. How, for example, do we use this new framework to solve problems like climate change, pandemics and human-rights abuses? These are not his concerns here. Karabell has given us a radical new way to see the world -- others can figure out what to do now that America as we knew it no longer exists.
Drutman is co-author of "The People's Business: Controlling Corporations and Restoring Democracy."