Is There No Economy?

Zachary Karabell, one of the most interesting thinkers out there on the changing shape of the global economy and global culture, has an op-ed in the Wall Street Journal on why the notion of the single, coherent nation-state economy is outmoded and best discarded.

The world is composed of hundreds of economies that interact with one another in unpredictable and unexpected ways. We cling to the notion of one economy because it creates an illusion of shared experiences. As comforting as that illusion is, it will not restore a simplicity that no longer exists, and clinging to it will not lead to viable solutions for pressing problems.

So let’s welcome this new world and discard familiar guideposts, inadequate data and outmoded frameworks. That may be unsettling, but it is a better foundation for wise analysis and sound solutions than clinging to a myth.

This is all very abstract, but Karabell is working on a new book on how the economies of China and America have merged to form a single, interlocking system. My guess is that it will blow your mind. I briefly want to mention two things:

First, Karabell’s analysis reminds me of the Citigroup notion of Plutonomies, ably summarized by Robert Frank.

In a series of research notes over the past year, Kapur and his team explained that Plutonomies have three basic characteristics.

1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”

2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.

3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.

Karabell’s essay also reminds me of the old argument between Robert Reich and Laura D’Andrea Tyson when they debated the central premise of Reich’s The Work of Nations — that the nationality of firms was scarcely relevant, and that the skills of opportunities of individuals were what mattered most. Nations would thrive by dominating key agglomerations. To be sure, Reich still believed in the nation-state framework. But there is a faint family resemblance here. Tyson replied, roughly, that the nationality of firms was very relevant, as key decisions made by corporate elites were path-dependent and structured by home-country regulatory environments. My sense is that regulatory harmonization, plummeting manufacturing costs, the rise of process networks, etc., has moved the world in a somewhat Reichian direction over the intervening years. I’ll also note that there is a family resemblance between Reich’s now-ancient concept and Philip Bobbitt’s “market-state.”

I am not quite as anti-nation-state-econonomics as a methodological premise. But I hope Karabell pursues this idea further. My sense is that his idea lends itself to more unconventional political frameworks — e.g., rather than pay close attention to the health of the U.S. economy, keep careful tabs on Chimerica or NAFTAland, or the global Plutonomy. And I frankly haven’t thought enough about this, though I have advocated for Pooristan.