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Monday, May 12, 2008

More Declinist Nonsense about the US Global Role

                                         Introductory Comments 

Today's buggy article, dashed off in about 10 minutes as a post at another web site --- The Marginal Revolution, a libertarian blog ---  is reprinted intact, except for some headings and several clarifying remarks; nothing more.  No need to dig deeper, especially since the post was inspired by the blog-writer (Tyler Cowan) citing a sentence from a book by Newsweek's chief editor of world news, Fareed Zakaria (a Harvard Ph.D. in political science) who has written one more work in the long, long line of declinist literature on the global position of the United States.  The only difference? Unlike the previous declinists, who were either historians or journalists or radical this or that, Zakaria was a specialist in International Relations and actually knows something substantive about IR theory and the rise and fall of great powers . . . even if, alas, he knows very little about economics, political economy, and economic growth theory and how they relate to diplomatic clout, military power, and something some IR specialists like to daddle in --- soft power (AKA, the alleged moral stature of a country in the eyes of others). 

Anything New?

Zakaria's book, The Post-American World,  isn't a bad book, and it has the advantage of being clearly written and easy to follow.  Otherwise, it is generally wrong about almost all the important points . . . including the alleged rise of new potential giant great powers like India and China. In the 1980s and 1990s, it was to be the turn of Japan and Germany or maybe the EU under German influence.  In the 1970s, amazingly, some European publicists convinced themselves the US had lost its great power status and only the Soviet Union remained as the major super-power . . . this, amazingly, about a decade before the Soviet Union self-destructed and passed into a historical trash-bin. 

Oh, almost forgot.  Click here and you'll be taken to a lengthy Newsweek summary of Zakaria's book.  The video there is worth listening to --- an interview with Zakaria, where (unlike the naive declinists in the past) he recognizes that the US will still remain a great power, only with a need to share power and influence with the rising giants and others.  At least, that's a noticeable improvement over the earlier declinist claptrap.

One Exception Not Emphasized by Zakaria Enough, On the Contrary 

Even so, as you'll see in these buggy remarks, that is nothing new.  The US has been a "dominant hegemonial power", first in the non-Communist world during the cold war, then world-wide since then, only in one clear sense: its huge rich domestic economy, the indifference of its (private) central bank, the Federal Reserve, along with the US Treasury and political policymaking, to running current account deficits --- with virtually every other country in the world eager for export-led growth --- and the widespread role of the dollar as a reserve and exchange currency have combined to make the US the indispensable rule-upholder of the existing institutionalized global economy.  The institutions that comprise that open, liberal global economy and through which rule-based economic exchange is filtered --- flows of goods, services, portfoilio capital, investment capital (multinationals), and technology transfers --- are well known: the World Trade Organization, the IMF, and the World Bank, plus some regional free-trade groupings like the EU and NAFTA (so far, generally in line with the global rules-of-the-game).

The key question that remains then is this: will the dollar continue to be by far the biggest reserve currency in the world?

So far, the euro hasn't replaced it very much around the world, and for a couple of reasons: 1) all the EU countries, for good or bad, try to depend on export-led growth, and since the rest of the world aside from the US does too (to varying degrees), the only way for the euro to move even near to the dollar as a reserve currency is for the various EU governments to shift toward domestic-led growth.  There is no sign of that whatsoever.  2) And the last thing the EU governments and those elsewhere want would be for the US itself --- whose economy is richer than the EU's 25 countries combined and is much more open to manufacturing imports out of India, China, and the rest of Pacific Asia --- to switch toward efforts at export-led growth . . . which means running a curent account surplus.

                                                   DECLINIST LITANIES

A Tired Old Mantra 

Every two decades or so, starting with Sputnik in the late 1950s, there seems to be a surge of declinist thought about the United States global role. In that first decade, it was all about the missile-gap and Johnny-can't-read fretful worries. In the late 1970s, in the Carter era, the US was said to have lost its super-power status: Raymond Aron, France's leading IR theorist and a pro-American, went so far as to say there was only one super-power left, and that was the USSR! At existing exchange rates, the EU-10 were said to have already surpassed US per capita income. Then, in the wake of the cold war's ending in 1989-90, it was argued that Japan and Germany were the winners of the cold war: their economies, state-guided, were supposedly superior to the US's, were growing much faster (actually Germany's catch-up growth with the US fizzled out in the early 1980s, Japan's in the early and mid-1990s), and were boosted by superior educational systems.

In fact, from 1991 on, Japan and Germany were vying to see which country could register the worst growth performance in the industrial world since the Great Depression of the 1930s. By 1998, in contrast, 75% of the Fortune 500 big companies hadn't even existed before 1975 in the US. There was no change in the equivalent ranks of Japan or Germany (save for SAP, a good and globalized German business software company). In contemporary PPP terms, the US has a per capita lead of about 40-45%, and the gap has continued to grow throughout the current decade. These state-dominated economies --- despite their differences --- continue to stagnate, lack entrepreneurial vigor, and are experiencing a continued erosion of their work ethos . . . especially in Germany and almost all the rest of the EU-15 save for Britain, Ireland, and astonishingly a reinvigorated Sweden and Denmark (well done, guys!)

The Reality of the Former Potential Giants?

To make sure you understand how wrong-headed this earlier decliinist thought was, consider that if Germany, Japan, Britain, Italy, or France joined the US federal union, each would rank among the bottom 5 of the poorest US states in per capita income: Mississippi, West Virginia, Oklahoma, Montana, and Alabama . . . all sparsely populated, rural, non-industrialized, and with little by way of advanced information-technology firms operating there.  The EU isn't a unified polity, and it is likely never to be one, quite apart from its very diffuse membership with no widely shared national identity or effective decision-making in foreign and security policies.

As for the great Soviet Union, it has simply disappeared . . . unable, after slaughtering tens of millions of its citizens under Communist rule, to compete with the advanced capitalist countries.

The New Potential Great Powers According to Zakaria

Now it's the turn of big populated countries, China and India, as the new touted potential giant rivals of the US in power and influence.  Never mind that no country has ever become wealthy in per capita income, advanced in industrial and post-industrial prowess, and able to innovate notably at the technological frontier without the following institutional framework:

     *solid democratic politics,

     *extensive freedom of speech

     *a rule of law generally, with independent courts and accountable police and an ability to investigate and remove anyone in political power who is found guilty of crimes . . . including in the US the right of impeachment

     *limited corruption among the political, bureaucratic, and economic elites

     *a considerable amount of transparency and accountability in the political, bureaucratic, and economic realm

     *extensive decentralization in the economic realm, with decision-making diffused among competitive firms

     *vigorous entrepreneurship, with new start-up business firms needed to bring new technologies and products to the market place

     *first-rate universities, institutes, and business firms structured for research and considerable interaction among them

The upshot?  Neither China nor India are remotely near to fulfilling these conditions, and they are unlikely to do so in the next 20 or 30 years . . . roughly as far as anyone can speculate reasonably into the future. 




The New Giants Again 

Zakaria's book has one advantage: he actually knows something about IR theory, and steers clear of a declinist thesis except in "relative terms": the ruse if other possible great-power contenders. So what else is new in international relations history since the agricultural revolution 6000-10,000 years ago and the emergence of territorial states around 5000 years ago?  What is new is that the rise of new great powers, if that will occur in the next few decades, will not likely be marked by major hegemonial wars as was the case until the cold war.  Consider WWI and WWII, total hegemonic wars that led to the destruction of fascist and militarist new powers --- Germany and Japan in WWII, militarized Germany in WWI --- by the liberal maritime powers, the US and Great Britain plus their allies.  Exactly as was the case with Napoleonic France by 1815.  The cold war broke with this pattern.  Why?  Mainly because nuclear war among industrialized and urban societies is way too destructive to make it worth fighting.  If anything, the possession of a nuclear deterrent enabled the Gorbachev and post-Communist rulers of the Soviet Union and later just Russia to accept the loss of its empire (in East Europe and inside the Soviet Union) without worrying about losing its major homeland territory and independence.

Something else too.  To see India and China as wannabee great powers soon to materialize is to exaggerate their technological prowess and to ignore the huge institutional problems, cultural blockages, and pervasive corruption and social conflicts within each.

True, India's government is impressively democratic (and about as efficient as the standard-model, thoroughly corrupt Latin American country: Chile the only exception here), and China's is still dominated by a self-righteous, totally predatory and corrupt Communist Party and top-heavy bureaucracy.


As for China's economic performance, it is in line with standard catch-up convergence growth theory: once a country has a population capable of working with modern technologies and has carried out some institutional reforms along market-lines --- the key term here is "some" -- it will grow much faster initially than those countries on or near the technological frontier (the US). It has far more investment opportunities, it can import foreign technologies by license, piracy, or multinational implants, it can draw on foreign models for corporate and business organization, and it can experience economies of scale in certain industries by concentrating on exports into rich countries. As it approaches the frontier, though --- exactly as Japan and Germany did starting in the late 1970s and 1980s --- its growth starts slowing down noticeably and it now has to innovate and pay the costs for such innovation on its own.

China's economy looks, on the surface, technologically advancing rapidly. In fact, virtually all the advanced technologies are those established in China by foreign multinationals (obliged under CHinese rules to find a Chinese partner and share R&D) --- Taiwan's, Singapore's, Korea's, Japan's, the US's, and the EU countries'. A good 65-70% of the exported goods that fit this description of advanced technologies derive from the foreign multinational operating there. In effect, they use China's hard-working labor force as a cheap export-finishing launching pad to the rest of the world. Meanwhile, Chinese entrepreneurship and innovation are choked off by corruption, lack of clear property rights, lack of intellectual property protection, lack of an effective legal system (a few changes, no more), bureaucratic stifling, and a fragmented domestic market among regions.

And So 

In the end, there is no way for a country dominated by a Communist Party monopoly, with a huge statist control over the economy (despite what some misled observers have argued: there is a shrinking of state-owned firms, not state control), a state-run banking system that is bankrupt, and constant controls over free intellectual discourse to make it into a world of advanced, post-industrial, knowledge-based economic life WITHOUT the CP monopolists --- all getting rich in an orgy of corruption and family and crony connections --- doing what no powerful clique in control of a state has ever done: self-immolation.

                                            SOME CONCLUDING POINTS

Conceptual Clarity Needed 

Zakaria, even if more sophisticated than previous declinists, confuses the differences between three key sides of power:

   1) Control over Others by a Giant Power: The only way any hegemonial great powers have ever exercised such control over others in a large region of the globe --- think of ancient Rome, ancient Persia, the medieval Chinese, the Aztec and Inca empires, the British empire, and the Soviet Union (among others) --- was to conquer other societies, colonize, and rule over them directly or by means of collaborating elites.  The US has never been an imperial colonial country of this sort, and is even less of one today.  It has no territorial demands on any other society and hasn't since the war with Mexico in the 1840s and with Spain at the end of the 19th century.  Even in the Philippines, which it seized from Spain and where it imposed colonial rule over the Filipinos for 45 years or so, the US was committed to independence and self-rule from the start, a commitment that it made good on in 1946.  In West Germany and Japan, which the US conquered and occupied at the end of WWII, the US quickly acted with Britain to democratize and bestow independence on a West Germany state in 1949 and by itself to democratize and bestow independence on Japan in 1949.

   2)  Dominance of Others.  It's hard to find one country in the world since the end of the cold war in 1990 where the US can force a government opposed to its policies to change them, either by diplomatic pressure, economic sanctions, or military force except where the US, as in Iraq and Afghanistan, acted to destroy dictatorships inimical to the interests of itself and its allies.  Even then, the US has limited influence over either the existing Afghan or Iraqi governments and has been unable to pacify their adversaries operating against those governments.  In the Security Council debates on a second resolution to punish Iraq with war back in early 2003, the US couldn't get either of the two Latin American countries on the Council, including Mexico, to support it and the British resolution to use military force against Saddam Hussein's regime.  Nor could it convince any of its NATO allies save the British, Poles, and Czechs to support the invasion militarily, though Australia, not a NATO member, sent troops too.  It hasn't been able to get any of its Arab friends to play an active role in Iraq today, any more than it was able to convince Turkey, ruled by a moderate Islamist party, to allow US forces in Turkey to participate in the Iraqi invasion of 2003.

In Latin America, it cannot oblige the Chavez government in Venezuela to do anything it refuses to do, it cannot stop OPEC from limiting oil production, it cannot get its Arab friends to recognize Israel except when they want (Jordan and Egypt), it cannot even persuade the Burmese government to allow US advisers and administrators to oversee the distribution of humanitarian aid.  As for Iranian efforts to build a nuclear force, the US can't even persuade its NATO European allies to apply economic sanctions.

      3) Influence   The US has influence over some countries, but in limited ways when their governments pursue policies the US doesn't like.  It doesn't matter whether those countries are US allies (Israel, NATO countries, friendly Arab countries), neutrals, or potential adversaries.  It also has had only limited influence in shaping the rules for economic exchange across borders that are institutionalized in, say, the World Trade Organization.  Once the US joined and helped create or shape those rules in the past, it is bound by them to adhere to them. 

The only sure influence the US has is its enormous military power to punish others by retaliation should they attack the US or key allies.  Even then, as 9/11's massacres showed, the US cannot even convince a dependent Pakistani government to pursue vigorous military policies against Al Qaeda's main bases in the north of the country.

What About Other Forms of Alleged Dominance 

At no point has the US ever DOMINATED the world culturally, politically, diplomatically, or economically. Whoever uses that as a benchmark is a weak-headed, self-deceived observer. What the US has enjoyed for decades, and especially since the end of the cold war, is a clear lead in technological innovation, entrepreneurial start-ups, university and non-university research, military technology and prowess --- which does not guarantee at all the ability to transform any country into an image of a stable democracy (especially in the Arab or wider Muslim world) --- and mass-media communications. The latter is very intrusive. Its popularity in the world among the masses, and hatred among right-wing and left-wing radicals and others, is not the same as dominance. It never has been. The French are free to require 40-50% of all music to be French in their media; the Spanish, 60% of all films (the percentage may be lower now). The French government can fight "franglais" and punish those who use too many English words or phrases, but it is the average Frenchman who will decide this, not the French bureaucrats and politicos.

Alleged Financial Decline

One final point: the dollar. Why people, including many economists, think that the nominal exchange rate is a sign when the dollar is high of some pre-eminent hegemonial status and, oppositely, when it's down a sign of decline, strikes me --- a political scientist with a Ph.D. in both economics and political science --- as outright simplemindedness.

I won't say anything theoretical about this. Only . . . well, by 1981, the dollar had lost over 50% of its value in terms of the DM and would soon lose about the same vis-a-vis the Japanese Yen. Then the dollar soared until 1985 it had regained most of the lost value, only to have the Japanese, German, and US central banks intervene in exchange rate markets to reduce the dollar's value again. It fell about 60% against those two currencies by 1991. It then soared throughout the 1990s until roughly 2002, since which time it has fallen again. And we are told each time it falls --- reflecting market forces (exports and imports of goods, services, and investment capital0 --- that the US economy is in danger, its status in the world being torpedoed, and Americans humiliated.


Back Though to the One Exception: the Crucial US Role as an Ersatz Banker of Last Resort and Importer of First and Last Resort

This brings us back to the key point made in the introductory buggy comments.  The US's major influence as a great power shows up less in military might --- which is, as Iraq and Afghanistan shows, limited in what it can do to transform dictatorial governments into stable democracies, though it is potent in limiting or preventing state-led military attacks on itself and key allies --- and much more in its role as the chief mainstay of the existing liberal global economic system. 

If the dollar loses most of its role as a key reserve currency, and for whatever reason, US economic policymakers will have to stop being indifferent to its value in currency markets, begin to show concern for boosting exports and limiting imports in a variety of ways (above and beyond limited protection that exists for certain agricultural goods and transfers of key military technologies), and in effect shift away from outright domestic economic growth to a combination of it and export-led growth.  The  upshot if that happens?  All the other major industrial countries in the world will be unhappy with the outcome, to say the least.  The same will be for certain developing countries that depend on agricultural exports that compete with US domestic agriculture.  And it's not clear that the oil-exporters --- all of which are dictatorships or gangster-led states of one sort or another  (Russia, the Persian Gulf and North African Arab countries, Venezuela, Nigeria, and Indonesia) --- will then likely have no choice to start adjusting their investment portfolios away from the US economy to other economies at a very fast rate.  Far faster anyway than they have done so to the present.  With the euro-based countries hurt by the need to pay, say, for oil imports in euros rather than (as at present) cheaper dollars. 

Will all this happen?

Who knows? 

What can be said for certain is that the US economy would, on balance, likely benefit from switching to export-led growth --- or at least a roughly balanced current account --- as a major source of economic growth and dynamism.  We already have witnessed the last year or so how a cheaper dollar --- while not generating any noticeable increase in the rate of inflation here, let alone leading to higher short- or long-term interest rates --- has generated a massive surge of exports to the rest of the world . . . in the upshot, helping considerably to stave off a recession.  It will be the rest of the world's countries that will have to absorb the dislocating effects of such a switch.