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The Economics of The Phantom Menace

James Surowiecki
Posted Monday, May 24, 1999, at 6:37 PM ET

It's tough when a movie makes $103 million in five days, averaging better than $20,000 a theater, and still comes up a bit shy of expectations. But such are the economics of The Phantom Menace. The buzz now is that the movie has no real chance of passing Titanic to become the greatest moneymaker of all time. It'll probably have to settle for a paltry $1 billion or $1.5 billion instead of the $2 billion whisper number.

But enough about the real-world economics of The Phantom Menace. I'm more interested in--and more perplexed by--the economics of the world within The Phantom Menace. The opening screen crawl that purports to set up the movie explains, "The taxation of trade routes to outlying star systems is in dispute." But we're not told who's taxing whom, or what the dispute is. The bad guys are members of something called the Trade Federation, which is blockading the small planet Naboo as a result of this dispute. Ignoring the wishes of the Republic, the galaxy's governing body, the Federation actually goes ahead and extends the blockade, so to speak, by invading Naboo.

What remains unclear is why invading a small planet, even one that is defying the Federation, would be economically rational. Presumably running a planet is rather a bigger task than most businesses are equipped to take on, and even if the Federation was going to install a puppet regime, it still seems like something of an overreaction to a taxation dispute. (Though I suppose the Wall Street Journal editorial board would deny that there's such a thing as an overreaction to taxation.)

The problem with my analysis, though, is that it's predicated on the kind of free-trade regime in which we now live (at least for the most part). Within that regime, resources are allocated on the basis of competitive fitness, and the companies that are the most efficient and offer the best prices get the most business.

The economics of The Phantom Menace, on the other hand, look much more like the mercantilism of the 18^th century, with the Trade Federation and Naboo roughly analogous to the Dutch East India Company and, well, the Dutch East Indies. Trade in this economic regime is structured by "sole concessions," and competition is nonexistent. If you don't want to trade with the Trade Federation, then there's nowhere else for you to go, and even if other competitors were to emerge, the Trade Federation's ability to blockade the planet would put a rather serious crimp in your plans.

Of course, important vestiges of mercantilism still exist, and certainly U.S. foreign policy in Latin America for much of this century is difficult to understand without considering the Trade Federation-like role played by companies like United Fruit, IT&T, and Anaconda. But the economics of The Phantom Menace do seem somehow anachronistic. Those economics serve to define the world of the film as one in which order and stability are prized more highly than competition, and in which the disruptive effects of real free trade are rejected in favor of a more controlled environment.

In that sense, it's striking and not at all surprising that the evil leaders of the Trade Federation speak in Asian accents that are so over the top they might have come out of a Charlie Chan film. For the home of modern-day mercantilism--to use a not-that-accurate label--is Asia, most obviously Japan and China. And it seems oddly fitting that in the wake of the breakdown of the Asian miracle we are offered what amounts to a (completely undertheorized) critique of Asian trade practices. For some reason, I doubt that George Lucas thought all this stuff through. But that doesn't mean it's not in the movie.