The supposed decline of America has been a subject dear to the hearts of its enemies for a very long time. Unfortunately for them, the US has resolutely refused to decline, despite dire and frequent predictions.
This time too, in the midst of what everyone says is the worst economic crisis since the Great Depression, there’s much talk of “the end of Anglo-Saxon capitalism”.
John Gray, professor of European thought at the London School of Economics, said in an article in The Observer newspaper that the global financial crisis will see the US falter in the same way the Soviet Union did when the Berlin Wall came down.
In fact, talk of the decline of the US had started much earlier, when this century was dubbed the Pacific century. China’s economic miracle led to speculation about it supplanting the US as the economic engine of the world. Some talked of the centre of gravity of the global economy shifting to East Asia, others rooted for the Brics—Brazil, Russia, India and China.
As we survey the wreckage of the US financial system, there is solid ground for pessimism. Many observers have pointed out that the financing of America’s multiple deficits relies on the kindness of foreigners.
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If the Chinese, Japanese and Saudis do not buy US treasurys, interest rates in the US will rise, undoing all the US Federal Reserve’s attempts to stimulate the economy.
The US economy is in shambles and although the crisis has spread to the entire world, at least the economies of India and China continue to expand. How long will it be, then, before money managers discontented with the near-zero yields on US treasurys decide to search for better returns in the economies still left standing? How long will it be before the massive monetary and fiscal deficits in the US lead to countries diversifying their reserves away from the dollar?
These questions are increasingly being asked by the US’ friends as well.
In a recent article in The Wall Street Journal, historian Paul Kennedy pointed to all these negative factors, but included another one he’s been talking about for a long while—imperial overstretch. Where, he asks, will the money to finance America’s wars abroad come from?
Of course, this won’t be the first time that global leadership passes from one country to another. Britain, the unquestioned leading power in the 19th century, had to cede its position to the US. It had, in turn, taken over the leadership of the business and commercial world from the Dutch. And that’s not counting the ebb and flow of earlier empires—Greek, Roman, Chinese, Mughal and Arab, to name a few.
Some scholars have pointed to the curious fact that the Dutch and the British, as well as the Genoese before them, transformed themselves from commercial to financial powers before their decline set in.
Giovanni Arrighi, sociologist at Johns Hopkins University, has identified “four such cycles, each encompassing a ‘long’ century: a Genoese-Iberian cycle, stretching from the 15th through the early 17th centuries; a Dutch cycle, stretching from the late 16th through the late 18th centuries; a British cycle, stretching from the mid-18th through the early 20th centuries; and a US cycle, stretching from the late 19th through the current phase of financial expansion”.
Who will step in to take America’s place? In his recent book, Adam Smith in Beijing, Arrighi anoints China as the new world leader.
That may be premature. One of the conundrums of the crisis is that the US dollar has become stronger rather than weaker. And so far, China’s appetite for US treasuries has remained insatiable.
Not only has US money flowed back to the mother country, but it has become the recipient of the world’s capital flows, seeking a safe haven in US treasuries.
That’s because there are at the moment no competitors for global leadership. Europe is in even greater trouble than the US, and there is talk of a possible break-up of the EU. Japan is mired in a decades-old recession.
The Chinese economy is joined at the hip to the US, and besides, it has a non-convertible currency. Most importantly, China has yet to earn the world’s trust.
In short, despite all the trials and tribulations affecting the US, there is no alternative to its leadership. That’s because the US represents the interests not only of its citizens but also of global capital.
Leo Panitch, professor of political science at York University, Toronto, says that despite all that has happened, global capital still looks to the US to bail it out of the crisis.
“The American state is absolutely central. It is no accident that the G-20 (Group of Twenty) meeting took place in Washington. Everyone sees that whatever resolution there is to this crisis will have to be undertaken under the aegis of the American state, and everyone is hoping that Obama will be able to provide the kind of leadership—for capitalists—that will accomplish that,” he says.
It will, of course, be far from easy. As Panitch puts it: “It will certainly be an enormous challenge for the Americans to hold it all together. But it is only the Americans that can hold it all together; and all the world’s capital, more than ever, is looking to the Americans to hold it all together.”
Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at firstname.lastname@example.org